-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, PUDL0ExzUCNZVghn181Bs/Rwinh83A8YQzP//JMWt32xkH6yPX6GQATr+4ZSoRzy 7xGKc4wDAPTlSR2/T1r9pw== 0000950152-95-000899.txt : 19950511 0000950152-95-000899.hdr.sgml : 19950511 ACCESSION NUMBER: 0000950152-95-000899 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950509 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIGGIE INTERNATIONAL INC /DE/ CENTRAL INDEX KEY: 0000720032 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL INDUSTRIAL MACHINERY & EQUIPMENT [3560] IRS NUMBER: 521297376 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 001-08591 FILM NUMBER: 95535487 BUSINESS ADDRESS: STREET 1: 4420 SHERWIN RD CITY: WILLOUGHBY STATE: OH ZIP: 44094 BUSINESS PHONE: 2169532700 MAIL ADDRESS: STREET 1: 4420 SHERWIN RD CITY: WILLOUGHBY STATE: OH ZIP: 44094 FORMER COMPANY: FORMER CONFORMED NAME: FIGGIE INTERNATIONAL HOLDINGS INC DATE OF NAME CHANGE: 19870112 10-K405/A 1 FIGGIE INTERNATIONAL 10-K405/A 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A AMENDMENT NO. 2 (Mark One) [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended DECEMBER 31, 1994 ------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ COMMISSION FILE NUMBER: 1-8591 -------- FIGGIE INTERNATIONAL INC. ---------------------------------------------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Delaware 52-1297376 - --------------------------------- ----------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 4420 Sherwin Road Willoughby, Ohio 44904 - --------------------------------- ----------------------------------- (Address of principal (Zip Code) executive offices) Registrant's telephone number, including area code: (216) 953-2700 --------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: Title of each class Name of each exchange on which registered 10-3/8% Subordinated Debentures Pacific Stock Exchange Inc. - ------------------------------- ----------------------------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Class A Common Stock, par value $.10 per share ----------------------------------------------------------- Title of class Class B Common Stock, par value $.10 per share ----------------------------------------------------------- Title of class Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] State the aggregate market value of the voting stock held by nonaffiliates of the registrant. The aggregate market value shall be computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within 60 days prior to the date of filing. (See the definition of affiliate in Rule 405.) At 4/10/95 $150,108,773 - ------------------------------------------------------------------------------- Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. - ------------------------------------------------------------------------------- Class A Common Stock, Par Value $0.10 Per share (13,670,916 shares outstanding as of 4/10/95) - ------------------------------------------------------------------------------- Class B Common Stock, Par Value $0.10 Per share (4,724,869 shares outstanding as of 4/10/95) - ------------------------------------------------------------------------------- 2 FIGGIE INTERNATIONAL INC. Figgie International Inc, the registrant, hereby amends the following items, exhibit index and exhibit of its Annual Report on Form 10-K for 1994 as set forth in the pages attached hereto: Items 8, 14 Exhibit Index Exhibit 23 3 Item 8. Financial Statements and Supplementary Data - ------- ------------------------------------------- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - ---------------------------------------- To the Board of Directors and Stockholders Figgie International Inc. We have audited the accompanying consolidated balance sheets of Figgie International Inc. (a Delaware corporation) and Subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1994. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated 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 consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Figgie International Inc. and Subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles. As explained in Note 1 to the consolidated financial statements, effective January 1, 1993 the Company adopted the provisions of Statement of Financial Accounting Standards No. 109 "Accounting For Income Taxes". In addition, as explained in Note 18 to the consolidated financial statements, the Company changed its method of accounting for certain costs associated with its factory automation project in the fourth quarter of 1993. ARTHUR ANDERSEN LLP Cleveland, Ohio, April 12, 1995. 4 FIGGIE INTERNATIONAL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31 (in thousands, except per share data)
1994 1993 1992 --------- --------- -------- CONTINUING OPERATIONS: Net Sales $ 319,420 $ 287,153 $284,990 Costs of Sales 247,254 224,255 216,911 --------- --------- -------- Gross Profit on Sales 72,166 62,898 68,079 --------- --------- -------- Operating Expenses: Selling, General and Administrative 68,484 69,732 54,680 Research and Development 18,500 18,023 7,319 --------- --------- -------- Total Operating Expenses 86,984 87,755 61,999 --------- --------- -------- Operating (Loss) Income (14,818) (24,857) 6,080 --------- --------- -------- Other Expense (Income): Restructuring and Refinancing Costs 55,204 17,604 3,024 Change in Accounting Estimate - 33,948 - Interest Expense 42,062 31,942 31,501 Interest Income (3,301) (874) (169) Other, Net (550) (5,652) (9,869) ------- --------- -------- Loss before Income Tax Benefit (108,233) (101,825) (18,407) Income Tax Benefit 22,986 19,480 9,207 --------- --------- -------- Loss before Discontinued Operations and Change in Accounting Principle (85,247) (82,345) (9,200) Discontinued Operations, net of tax: (Loss) Income from Discontinued Operations (42,905) (103,269) 37,499 Loss on Disposal of Discontinued Operations (38,578) - - --------- -------- -------- (81,483) (103,269) 37,499 (Loss) Income before Cumulative Effect of Change in Accounting Principle (166,730) (185,614) 28,299 Cumulative Effect of Change in Accounting for Income Taxes - 5,839 - --------- --------- -------- Net (Loss) Income $(166,730) $(179,775) $ 28,299 ========= ========= ======== Weighted Average Shares 17,723 17,775 17,539 Earnings Per Share - ------------------ Loss before Discontinued Operations and $ (4.81) $ (4.63) $ (0.52) Change in Accounting Principle (Loss) Income from Discontinued Operations (4.60) (5.81) 2.13 Cumulative Effect of Change in Accounting for Income Taxes - 0.33 - --------- --------- -------- Net (Loss) Income $ (9.41) $ (10.11) $ 1.61 ========= ========= ======== See Notes to Consolidated Financial Statements.
4 5 FIGGIE INTERNATIONAL INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1994 AND 1993 (in thousands)
1994 1993 ----------- ----------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 28,611 $ 26,954 Restricted cash 18,716 - Trade accounts receivable, less allowance for uncollectible accounts of $259 in 1994 and $184 in 1993 44,994 37,401 Inventories 38,845 52,181 Prepaid expenses 3,225 5,958 Recoverable income taxes 8,108 36,283 Net assets related to discontinued operations 317,601 552,164 --------- --------- Total Current Assets 460,100 710,941 --------- --------- PROPERTY, PLANT AND EQUIPMENT Land and land improvements 29,699 47,085 Buildings and leasehold improvements 46,024 54,589 Machinery and equipment 70,587 71,534 --------- --------- 146,310 173,208 Accumulated depreciation (42,385) (50,721) --------- --------- 103,925 122,487 Property under capital leases, less accumulated depreciation of $4,709 in 1994 and $9,818 in 1993 2,158 6,061 --------- --------- Net Property, Plant and Equipment 106,083 128,548 --------- --------- OTHER ASSETS Prepaid pension costs 9,964 10,591 Prepaid rent on leased equipment 17,075 - Intangible assets 20,244 21,043 Cash surrender value of insurance policies 10,576 19,246 Non-current receivables 5,920 8,607 Prepaid finance costs 8,291 4,307 Other 6,211 19,185 --------- --------- Total Other Assets 78,281 82,979 --------- --------- Total Assets $ 644,464 $ 922,468 ========= =========
5 6 FIGGIE INTERNATIONAL INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1994 AND 1993 (in thousands, except par value)
1994 1993 ----------- ----------- LIABILITIES CURRENT LIABILITIES Debt due within one year $ 171,641 $ 90,891 Accounts payable 55,398 54,162 Accrued insurance reserves 16,889 5,189 Accrued liabilities and expenses 64,706 50,018 Current maturities of long-term debt 7,179 110,576 ---------- ---------- Total Current Liabilities 315,813 310,836 ---------- ---------- Long-term debt 234,491 338,270 Deferred federal income taxes - 20,604 Other non-current liabilities 28,938 30,865 ---------- ---------- Total Liabilities 579,242 700,575 ---------- ---------- STOCKHOLDERS' EQUITY Preferred Stock, $1.00 par value; Authorized, 3,217 shares; Issued and Outstanding, none - - Class A common stock, $.10 par value; 1,370 1,375 Authorized, 18,000 shares; Issued and Outstanding 1994 - 13,695; 1993 - 13,751 Class B common stock, $.10 par value; 471 499 Authorized, 18,000 shares; Issued and Outstanding 1994 - 4,715; 1993 - 4,989 Capital surplus 110,518 127,488 Retained (deficit) earnings (43,198) 124,020 Unearned compensation (3,829) (31,003) Cumulative translation adjustment (110) (486) --------- ---------- Total Stockholders' Equity 65,222 221,893 --------- ---------- Total Liabilities and Stockholders' Equity $ 644,464 $ 922,468 ========= ========== See Notes to Consolidated Financial Statements.
6 7 FIGGIE INTERNATIONAL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (in thousands)
Common Stock Capital Surplus Retained -------------- ----------------- Earnings Unearned Class A Class B Class A Class B (Deficit) Compensation ------- ------- ------- ------- --------- ------------ BALANCE, DECEMBER 31, 1991 $1,361 $502 $108,187 $ 16,762 $298,981 $(42,250) Net Income 28,299 Dividends Declared: Common Stock A, $.50 per share (6,781) Common Stock B, $.50 per share (2,473) Restricted Stock Purchase Plan, Net (2) (1,283) (302) 4,848 Other Common Stock Transactions, Net (3) (6) (89) 1,511 (2,829) Amortization of Unearned ESOP Compensation (1,116) (520) 501 7,447 Translation Adjustments ------ ---- -------- -------- -------- -------- BALANCE, DECEMBER 31, 1992 1,356 496 105,699 17,451 315,698 (29,955) Net Loss (179,775) Dividends Declared: Common Stock A, $.435 per share (5,850) Common Stock B, $.435 per share (2,141) Restricted Stock Purchase Plan, Net 39 20 6,694 3,400 (8,493) Other Common Stock Transactions, Net (20) (17) (1,708) (605) (4,392) Amortization of Unearned ESOP Compensation (2,636) (807) 480 7,445 Translation Adjustments ------ ---- -------- -------- -------- -------- BALANCE, DECEMBER 31, 1993 1,375 499 108,049 19,439 124,020 (31,003) Net Loss (166,730) Minimum Pension Liability (488) Restricted Stock Purchase Plan, Net (5) (15) (1,931) (2,596) 4,790 Other Common Stock Transactions, Net (13) (1,371) Amortization of Unearned ESOP Compensation (3,776) (7,296) 22,384 Translation Adjustments ------ ---- -------- -------- --------- -------- BALANCE, DECEMBER 31, 1994 $1,370 $471 $102,342 $ 8,176 $ (43,198) $ (3,829) ====== ==== ======== ======== ========= ======== Cumulative Translation Adjustment Total ----------- --------- BALANCE, DECEMBER 31, 1991 $1,120 $ 384,663 Net Income 28,299 Dividends Declared: Common Stock A, $.50 per share (6,781) Common Stock B, $.50 per share (2,473) Restricted Stock Purchase Plan, Net 3,261 Other Common Stock Transactions, Net (1,416) Amortization of Unearned ESOP Compensation 6,312 Translation Adjustments (1,702) (1,702) ------ --------- BALANCE, DECEMBER 31, 1992 (582) 410,163 Net Loss (179,775) Dividends Declared: Common Stock A, $.435 per share (5,850) Common Stock B, $.435 per share (2,141) Restricted Stock Purchase Plan, Net 1,660 Other Common Stock Transactions, Net (6,742) Amortization of Unearned ESOP Compensation 4,482 Translation Adjustments 96 96 ------ --------- BALANCE, DECEMBER 31, 1993 (486) 221,893 Net Loss (166,730) Minimum Pension Liability (488) Restricted Stock Purchase Plan, Net 243 Other Common Stock Transactions, Net (1,384) Amortization of Unearned ESOP Compensation 11,312 Translation Adjustments 376 376 ------ --------- BALANCE, DECEMBER 31, 1994 $ (110) $ 65,222 ====== ========= See Notes to Consolidated Financial Statements.
7 8 FIGGIE INTERNATIONAL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 and 1992 (in thousands)
1994 1993 1992 ---------- ---------- ---------- Operating Activities: (Loss) from Continuing Operations $ (85,247) $ (82,345) $ (9,200) (Loss) Income from Discontinued Operations (81,483) (103,269) 37,499 Cumulative Effect of Accounting Change - 5,839 - Adjustments to Reconcile Net (Loss) Income to Net Cash (Used) Provided by Operating Activities Change in Accounting Estimate - 77,344 - Depreciation and Amortization 41,633 40,833 36,434 Amortization of Unearned Compensation 5,791 5,557 11,247 Other, Net 9,917 41,773 (5,681) Changes in Operating Assets and Liabilities Trade Accounts Receivable 11,341 (19,088) 56,954 Allowance for Uncollectible Accounts 616 1,531 (682) Finance Receivables 4,780 (13,602) (11,220) Inventories 15,733 9,083 6,314 Prepaid Items (7,523) (5,718) (3,172) Other Assets 37,116 (9,346) (37,400) Accounts Payable (14,293) 38,882 6,959 Accrued Liabilities and Expenses 30,509 39,330 (9,642) Deferred and Accrued Taxes 13,533 (62,131) 8,837 Other Liabilities 2,198 2,887 (2,031) -------- -------- -------- Net Cash (Used) provided by Operating Activities (15,379) (32,440) 85,216 -------- -------- -------- Investing Activities: Capital Expenditures (60,304) (109,557) (100,354) Sale of Investments 7,862 - - Businesses and Investments Acquired - (5,661) (9,792) Proceeds from Sale of Property, Plant and Equipment 42,468 73,952 74,756 Proceeds from Business Divestitures 198,130 - - (Purchases) Sales of Securities by Insurance Subs. (12,739) 1,202 (20,905) -------- -------- -------- Net Cash Provided (Used) in Investing Activities 175,417 (40,064) (56,295) -------- -------- -------- Financing Activities: Proceeds from Debt 4,420 12,104 34,782 Principal Payments on Long-Term Debt (94,945) (38,147) (69,830) (Repayments) Borrowing Under Notes Payable, Net (32,348) 102,842 4,893 Dividends Paid - (7,991) (9,254) Common Stock Transactions, Net (2,681) (6,157) (3,091) -------- -------- -------- Net Cash (Used) Provided by Financing Activities (125,554) 62,651 (42,500) -------- -------- -------- Net Increase (Decrease) in Cash and Cash Equivalents 34,484 (9,853) (13,579) Cash and Cash Equivalents at Beginning of Year 33,816 43,669 57,248 -------- -------- -------- Cash and Cash Equivalents at End of Year $ 68,300 $ 33,816 $ 43,669 ======== ======== ======== - - Continuing Operations - Unrestricted $ 28,611 $ 26,954 $ 38,444 - - Continuing Operations - Restricted $ 18,716 $ - $ - - - Discontinued Operations $ 20,973 $ 6,862 $ 5,225 Supplemental Disclosures of Cash Flow Information: Cash Paid (Received) during the Year for - Interest (Net of Amount Capitalized) $ 41,771 $ 36,781 $38,550 Domestic Federal Income Taxes $(35,856) $(24,232) $ 626 See Notes to Consolidated Financial Statements.
8 9 FIGGIE INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Summary of Significant Accounting Policies: ------------------------------------------- PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the accounts of Figgie International Inc. (referred to, with all its consolidated subsidiaries and divisions and their predecessor entities, unless the context otherwise requires, as the "Company".) All intercompany account transactions have been eliminated in consolidation. CASH. For purposes of the statements of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash equivalents are stated at cost which approximates their fair market value. The effect of foreign currency translation on cash held by foreign divisions is immaterial. Restricted cash in the amount of $18.7 million represents collateral on letters of credit and divestiture proceeds that have been escrowed for payment of expenses and taxes. CONCENTRATION OF CREDIT RISK. The Company does not have any concentrations of credit risk by major customer, geographic region or activity. The Company generally does not require collateral. INVENTORIES. Manufacturing inventories are stated at the lower of first-in-first-out (FIFO) cost or market. Costs accumulated under government contracts are stated at actual cost, (LIFO method as applicable) net of progress payments, not in excess of realizable value. LONG-TERM CONTRACTS. Government segment sales are principally under long-term contracts and include cost-reimbursement and fixed-price contracts. Sales under cost-reimbursement contracts are recognized as costs are incurred and include a proportion of the fees expected to be realized equal to the ratio of costs incurred to date to total estimated costs. Sales under fixed price contracts are recognized as the actual cost of work performed relates to the estimate at completion. Cost or performance incentives, which are incorporated in certain contracts, are recognized when realization is assured and amounts can be reasonably estimated. Estimated amounts for contract changes and claims are included in contract sales only when realization is probable. Assumptions used for recording sales and earnings are adjusted in the period of change to reflect revisions in contract value and estimated costs. In the period in which it is determined that a loss will be incurred on a contract, the entire amount of the estimated loss is charged to income. PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are stated at cost and depreciated over the estimated useful lives of the assets, generally by the straight-line method. The principal rates of depreciation are: Buildings, 2-1/2%; Machinery and Equipment, 8-1/3%; Leasehold Improvements, life of lease. 9 10 CAPITALIZATION OF INTEREST. The Company capitalizes interest costs during the development period of certain properties. Total interest capitalized was approximately $.8 million in 1994, $.6 million in 1993, and $2.5 million in 1992. INTANGIBLES. Goodwill of $23.1 million at December 31, 1994 and 1993 represents costs in excess of net assets of purchased businesses, and is generally amortized over a 40-year period. At December 31, 1994 and 1993, accumulated goodwill amortization was $5.5 million and $4.9 million, respectively. Management has evaluated goodwill by considering historical and projected operating results, and believes that the asset is realizable and the amortization period is appropriate. Patents of $3.9 million at December 31, 1994 and 1993 are amortized over their statutory or estimated useful lives. As of December 31, 1994 and 1993, accumulated patent amortization was $1.3 million and $1.1 million, respectively. FACTORY AUTOMATION COSTS. The Company incurred certain costs directly related to its factory automation project encompassing owned and leased machinery, software, and outside consultant fees. The owned machinery component of these project costs is depreciated in accordance with the useful lives discussed above. All other project costs are expensed as incurred. Prior to December 31, 1993, all other project costs were deferred and amortized over a period not exceeding five years. See Note 18 "Change in Accounting Estimate". INCOME TAXES. In February 1992, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard No. 109, "Accounting for Income Taxes" ("Statement 109"). Under the asset and liability method of Statement 109, deferred tax assets and liabilities are recognized for 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 enacted tax rates expected to be recovered or settled. Under Statement 109, the effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The Company adopted Statement of Financial Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes", effective January 1, 1993. The cumulative effect of such adoption was to increase earnings by $5.8 million, or $.33 per share, for the year ended December 31, 1993. As permitted under the Statement, this accounting standard was adopted prospectively in 1993 and prior periods were not restated. EARNINGS PER SHARE. Earnings per common share are based upon the weighted average number of shares outstanding during each year. The unallocated shares of the non-leveraged Employee Stock Ownership Plan are not considered outstanding for earnings per share purposes. The unallocated shares of the leveraged Employee Stock Ownership Plan are not considered outstanding for earnings per share purposes; for 1993, pursuant to the adoption of Statement of Position 93-6 "Employers' Accounting for Employee Stock Ownership Plans". These shares were, however, considered outstanding for 1992 earnings per share. SELF-INSURANCE PROGRAMS. The Company is self-insured for certain levels of general liability and workers' compensation coverage. Estimated costs of these self-insurance programs are accrued based on projected settlement dates for known and anticipated claims. Adjustments to recorded reserves are reflected in current operating results. 10 11 RECLASSIFICATION OF AMOUNTS. Certain amounts for 1993 and 1992 have been reclassified to reflect comparability with account classifications for 1994. These reclassifications principally relate to the presentation of the operations between continuing and discontinued, and reclassification of long-term debt as of December 31, 1993. (2) Restructuring and Refinancing Costs: ------------------------------------ The 1994 Restructuring and Refinancing Costs are comprised of: (1) restructuring costs related to revaluation and write-down of properties held for sale to current realizable market value; (2) refinancing costs for professional and lender fees related to the liquidity crisis of late 1993 and the first half of 1994 and the resultant Override Agreement which restructured $487 million of debt and leases on August 1, 1994; and (3) other various nonrecurring expenses not associated with the ongoing operations of the business. The revaluation of properties results from the strategic business plan to focus on manufacturing operations and to thereby limit the Company's active real estate development activities. The Company will develop two key properties and will market for orderly sale its other real estate holdings including development land, headquarter complexes and former plants. These sales will benefit the Company by reducing current carrying costs such as real estate taxes, insurance and mortgage interest.
(in thousands) Asset Revaluation $23,516 Refinancing Fees to Professionals and Lenders 22,295 Other 9,393 ------- $55,204 =======
In 1993 and 1992, restructuring charges associated with continuing operations amounted to $17.6 million and $3.0 million. The costs were associated with the relocation and consolidation of facilities and operations, provisions for anticipated losses on sales of real estate, consulting fees to assist with the development of strategic business plans, and retooling costs. (3) Divestitures: ------------ In January of 1994, the Company commenced a divestiture program as part of its immediate debt refinancing efforts. Certain business units were to be sold through unrelated sales transactions to generate liquidity for working capital and, ultimately, to pay lender debt. The following companies were sold during 1994: Advance Security, CASI-RUSCO, Waite Hill Insurance group (Cardinal Casualty Co., Colony Insurance Co., Hamilton Insurance Co.), Rawlings Sporting Goods, Safety Supply America, Sherwood Drolet Corp Ltd. and Huber-Essick/Mayco Pump. The Company used the gross proceeds of $198.1 million from the sales to repay $124.7 million of debt under the Override Agreement, operating leases, bank fees, interest expense and for working capital. 11 12 (4) Discontinued Operations: ----------------------- On February 15, 1995, the Company announced that Board of Directors approved a strategic business plan designed, effective December 31, 1994, to restore the Company to profitability. Under the Plan, the Company will operate four technology-driven manufacturing companies, aggressively cut corporate overhead, and sell its fourteen other businesses in 1995 using sale proceeds to reduce debt and operating lease obligations. The majority of these other businesses were unprofitable and had revenue of $442.8 million in 1994. The entities to be sold are reported as discontinued operations at December 31, 1994, and the consolidated financial statements have been reclassified to report separately their net assets and operating results. The Company's prior year financial statements have been restated to reflect the continuing operations, summarized as follows:
(in Thousands) -------------- As Previously Discontinued 1993: Reported Operations As Restated ---------- ---------- ----------- Net Sales $ 768,642 $(481,489) $287,153 ========= ========= ======== Loss from Continuing Operations (179,334) 96,989 (82,345) Loss from Discontinued Operations (6,280) (96,989) (103,269) Cumulative Effect of Change in Accounting for Income Taxes 5,839 - 5,839 --------- --------- --------- Net Loss $(179,775) $ - $(179,775) ========= ========= ========= 1992: Net Sales $ 792,409 $(507,419) $ 284,990 ========= ========= ========= Income (Loss) from Continuing Operations 18,878 (28,078) (9,200) Income (Loss) from Discontinued Operations 9,421 28,078 37,499 --------- --------- --------- Net Income (Loss) $ 28,299 $ - $ 28,299 ========= ========= =========
The $38.6 million estimated loss on disposal consists of an estimated loss on the disposal of businesses of $4.0 million, a provision of $8.9 million for anticipated operating losses until disposal, and income taxes of $25.7 million. Net Assets Related to Discontinued Operations at December 31, 1994 and 1993 consist primarily of accounts receivable, finance receivables, contracts in process, oil and gas interests, inventory, property, plant and equipment, and significant, specialized machinery, net of current liabilities of these businesses. Realization of these discontinued assets is based on management's best estimate and is subject to market conditions, timing and negotiations. 12 13 (5) Income Taxes: ------------ Income tax provision (benefit) consists of the following components:
(in thousands) Continuing Operations: 1994 1993 1992 -------- -------- -------- Current Federal $ (8,108) $(35,856) $(19,507) Deferred Federal (15,480) 22,518 10,656 State 602 (6,142) (356) -------- -------- -------- Total from Continuing Operations $(22,986) $(19,480) $ (9,207) Discontinued Operations: Operations (20,174) (55,606) 22,129 Disposal 25,654 - - Cumulative Effect of Change in Accounting - (5,839) - -------- -------- -------- Total Tax Provision (Benefit) $(17,506) $(80,925) $ 12,922 ======== ======== ========
A reconciliation of the actual tax provision (benefit) to the U.S. federal income tax rate effective for each year for continuing operations is as follows:
1994 1993 1992 -------- -------- -------- Statutory Federal Tax Rate (35.0)% (35.0)% (34.0)% Benefit and Insurance Plans - 0.2 (8.3) Foreign Sales Corporation (0.4) (0.8) (3.5) International Rate Differential (0.4) - 1.5 Goodwill .3 0.6 3.4 Other (net) (0.7) 7.8 (7.6) State Income Taxes (Net of Federal Tax) .3 (3.9) 5.5 Current Effect of Change in Federal Rate - 2.0 - Valuation Allowance (Net of Tax Credits) 14.7 10.0 ( 7.1) ----- ----- ----- Effective Tax Rate (Benefit) (21.2)% (19.1)% (50.1)% ===== ===== =====
The components of the net deferred tax liability as of December 31, 1994 and 1993 are as follows:
(in thousands) 1994 1993 ---------- -------- Deferred Tax Assets: Allowance for Doubtful Accounts $ 4,054 $ 4,664 Deferred Compensation Plans 5,234 5,307 Insurance and Other Reserves 7,586 7,586 Contingency Reserves 15,698 7,771 Factory Automation 6,873 6,873 Inventory Reserves 5,815 4,026 Operating Losses and Tax Credit Carryforwards (Net) 31,363 19,365 Other (Net) 10,685 10,807 Foreign (Net) 3,031 3,031 -------- -------- Total Deferred Tax Assets $ 90,339 $ 69,430 -------- -------- Deferred Tax Liabilities: Property, Plant and Equipment $(44,192) $(41,291) Benefit Plans (11,076) (11,243) Intangible Drilling Costs (5,069) (5,029) Other (Net) $(30,002) $(32,471) -------- -------- Total Deferred Tax Liabilities (90,339) (90,034) -------- -------- Net Deferred Tax Liabilities $ - $(20,604) ======== ========
13 14 As of December 31, 1994, the Company, for tax reporting purposes, has tax credit carryforwards of $21.9 million which will begin to expire in 1995, and operating loss deduction carryforwards of $104.6 million which will begin to expire in 2006. To the extent these tax carryforward attributes of approximately $58.5 million have exceeded the Company's Deferred Tax Liabilities of $31.4 million, they have been fully reserved. Realization of tax carryforwards is dependent on future taxable income and amounts realized are subject to tax regulations and limitations by year and nature. The 1993 benefit for federal income taxes includes a charge of $1.9 million which represents the effect of the U.S. federal income tax rate increase from 34% to 35% on net deferred tax liabilities. Accumulated unremitted foreign earnings as of January 1, 1994, are not material; accordingly the Company has elected to prospectively provide deferred U.S. income taxes on foreign earnings which may be taxed at a rate below that of the U.S. statutory rate of 35%. Management believes that any liability related to the remittance of foreign earnings from continuing operations would not be material to the financial statements. 14 15 (6) Inventories: ----------- Inventories are summarized as follows:
(in thousands) 1994 1993 --------- ------- Manufacturing Inventories: Raw materials $21,509 $28,055 Work in process 6,138 8,703 Finished goods 11,219 15,121 Inventory reserves (1,532) (1,925) -------- ------- Total manufacturing inventories 37,334 49,954 Inventories applicable to government contracts 207,632 196,959 Less: Progress payments (206,121) (194,732) -------- -------- Net contracts in process 1,511 2,227 -------- ------- Total Inventories $ 38,845 $ 52,181 ======== ========
(7) Debt Refinancing: ---------------- On August 1, 1994, the Company executed an agreement ("Override Agreement") with its significant unsecured institutional lenders to refinance approximately $315 million in indebtedness, letters of credit and related facilities ("Override Debt") of which $278 million was outstanding. At the same time, the Company refinanced approximately $172 million in outstanding operating leases. The Override Debt bears interest at a base rate plus 2% (the 2% portion originally payable on June 30, 1995) and a restructuring fee of 3 1/2% (2 1/4% payable on June 30, 1995). Mortgages, the 9-7/8% Notes, the Subordinated Debentures and certain other debt and leases were not part of the refinanced debt. The Override Agreement precludes the Company from paying dividends and secures Override Debt with security interests in shares of certain subsidiaries of the Company and substantially all of the Company's accounts receivable, inventory, intellectual property and related assets. Prior to the refinancing, the Company had divested certain businesses and accumulated sale proceeds to effect the refinancing. On August 1, 1994, the Company distributed $124.7 million in cash as follows: $61.8 million to pay down Override Debt; $36.5 million to pay down operating leases (of which $17.1 million represented prepayments and are recorded as non-current assets); $7.0 million to pay bank fees, interest and expenses of the transaction; and $19.4 million to establish escrow accounts for income taxes and expenses associated with the divesture program. Between August 1 and December 31, 1994, the Company made additional payments against the Override Debt, including releases from escrow accounts, to its lenders of $48.1 million. In December 1994, the Override Agreement was amended to permit the Company to obtain additional letter of credit facilities. 15 16 On March 31, 1995, debt outstanding under the Override Agreement amounted to $135.4 million ($167.4 million outstanding at December 31, 1994 less $32.0 million payments through March 31, 1995). On March 31, 1995, the Override Agreement was amended (the "Second Amendment"), to extend the expiration date to January 1, 1996, set principal amortization payments throughout 1995, reset the net worth, cash flow and capital expenditure financial covenants with amounts applicable to the Company's continuing operations and to permit the Company to incur additional indebtedness, as defined, for performance bonds and for additional letters of credit of up to $5 million, each of which may be secured by a pledge of up to $2 million of cash, respectively. Also effective March 31, 1995, the 2% interest payment deferral was terminated and the amount due was paid. Fees due under the original agreement and extension fees will require a refinancing cost of $10.0 million in 1995. Pursuant to the Second Amendment, the Company has agreed to repay in 1995 a substantial portion of all of the remaining amounts outstanding under the Override Agreement, with any remaining amounts due January 1, 1996. The Company expects to fund these payments through the proceeds of the divesture of those businesses whose net assets are presented in the Company's balance sheet as Net Assets Related to Discontinued Operations; however, all Company sources, including cash reserves, working capital generated, and short-term facilities can be accessed for this purpose. At December 31, 1994, all required restrictions and financial covenants have been satisfied. (8) Debt Due Within One Year: At December 31, 1994 and 1993, debt due within the following year was as follows:
(in thousands) 1994 1993 -------------------------- --------------------------- Balance Average Balance Average Outstanding Rate Outstanding Rate ----------- ------- ----------- ------- Override Debt $ 167,364 10.50% $ 88,101 7.15% Other Debt 4,277 9.85% 2,790 9.48% ----------- ------- ----------- ------- Total $ 171,641 $ 90,891 =========== ===========
Additional terms of the Override Debt are discussed in Footnote 7. The fair value of the Override Debt at December 31, 1994 is estimated at 92.125% based on a sale of the debt between two lenders near year-end. At December 31, 1994, the interest rate on the Override Debt was 10.5% The Other Debt above represents amounts outstanding under short-term notes and foreign lines at variable rates. Based on the short-term nature of the debt and the variable rates it bears, its carrying value is estimated to approximate its market value. The Company has a receivable-based credit facility which permits borrowings of up to $20.0 million based on the balances of certain divisions' receivables. At December 31, 1994, $16.3 million was available under this facility. No amounts were outstanding at December 31, 1994. 16 17 (9) Long-Term Debt: -------------- Total long-term debt at December 31, 1994 and 1993 consisted of the following:
(in thousands) ------------------------------------------------------------- 1994 1993 ------------------------- -------------------------- Carrying Fair Carrying Fair Value Value Value Value -------- -------- --------- -------- 9.875% Senior Notes due 1999 $174,000 $143,550 $174,000 $176,610 10.375% Debentures due 1998 9,500 8,313 11,000 11,028 Override Debt - - 185,000 185,000 Mortgage notes 53,076 53,076 66,824 66,824 Obligations under capital lease 4,889 4,889 11,049 11,049 Other debt and notes 205 205 973 973 -------- -------- -------- -------- Total 241,670 $210,033 448,846 $451,484 ======== ======== Less - current maturities (7,179) (110,576) -------- -------- Long-term debt $234,491 $338,270 ======== ========
The fair value estimates were made as follows: the Senior Notes were based on the market price at which the debt traded near year-end; the Debentures were based on management's estimates; the mortgages were based on carrying value given their collateralized nature. The 9.875% Senior Notes are due October 1, 1999. Interest is payable semi-annually on April 1 and October 1. The 10.375% subordinated Debentures are callable at a premium prior to maturity. Redemption prices (expressed as percentages of the principal amount) during the 12-month period beginning April 1, 1995 are 101.093%, which decrease to 100.547% on April 1, 1996. The Company is required to make annual payments of $1.5 million into a sinking fund through 1997, with a $5.0 million payment in 1998. All required payments have been made. Mortgage notes are secured by real property, are due at various dates through 2009 and bear interest at rates ranging from 7.0% to 12.25%. The scheduled principal payments and sinking fund requirements for all long-term debt, excluding the obligations under capital leases, are approximately as follows: 1995 - $4.4 million; 1996 - $4.7 million; 1997 - $6.1 million; 1998 - $8.6 million; 1999 - $177.8 million; and $35.2 million thereafter. 17 18 (10) Leases: ------ The Company leases a substantial amount of manufacturing equipment under operating lease arrangements. The Company (through its now discontinued leasing and scaffolding subsidiaries) also leases the vehicle fleet and scaffolding equipment ("Vehicle and Scaffolding Leases") held for lease or rental. All monthly rent and other payments due under all leases have been made, and are current through December 31, 1994. On August 1, 1994, and concurrently with entering into the Override Agreement, the Company executed agreements with certain lessors to restructure leases with balances of approximately $172 million. On March 31, 1995, the Company and those lessors, except the lessors to the Vehicle and Scaffolding Leases, amended or have agreed to amend the leases to conform certain financial covenants of the leases to the financial covenants contained in the Second Amendment to the Override Agreement, and to accelerate certain fees and to amend other terms consistent with the Override Agreement. The Company is in discussion with the lessors to the Vehicle and Scaffolding Leases to similarly amend those leases.
A progression of rental commitments under operating leases as of December 31, 1993 to those as of December 31, 1994 is as follows (in millions): Rental commitments under operating leases at December 31, 1993 including $11.4 related to discontinued operations $177.7 Commitments added as of August 1, 1994 through the negotiated restructuring of the former non- amortizing leases for specific amortization payments 60.0 Commitments added in December 1994 to finance machinery and equipment 13.7 Payments to lessors, including prepaid rent (72.0) Elimination of rental commitments through sale of underlying assets or assignment of leases to purchasers (23.7) ------- Rental Commitments under operating leases at December 31, 1994, including $120.6 million related to discontinued operations $ 155.7 =======
18 19 Rental commitments under non-cancelable operating leases as of December 31, 1994 were as follows (in thousands):
Discontinued Continuing Operations Operations Total ---------- ---------- -------- Year Ending December 31, 1995 $ 34,874 $ 9,111 $ 43,985 1996 37,185 8,226 45,411 1997 25,862 7,703 33,565 1998 13,999 7,014 21,013 1999 & Beyond 8,651 3,039 11,690 -------- ------- -------- Total minimum payments required $120,571 $35,093 $155,664 ======== ======= ========
Funds to pay the $120.6 million of lease obligations related to discontinued operations are expected to be provided primarily through divestiture proceeds of those businesses. As to machinery and equipment that is not purchased or is presently not utilized or underutilized, the Company expects to satisfy the rental payments through its internal funds until such equipment is sold, subleased or assigned. Operating lease expense for continuing operations was approximately $15 million, $16.5 million, and $7.9 million in 1994, 1993, and 1992 respectively. In 1994, 1993 and 1992, the Company completed sale/leasebacks of certain machinery and equipment for $13.7 million, $6.0 million and $49.0 million respectively. Proceeds from the 1994 sale/leaseback were used to pay purchase commitments entered into in 1993. The 1993 and 1992 proceeds were used to repay debt. In 1993, the Company completed, through its Vehicle and Scaffolding businesses, sale/leasebacks for scaffolding and vehicle fleet for $35.0 million and $25.0 million respectively. Proceeds were used to repay debt. In connection with those leases, in 1993, the Company entered into two interest rate swap agreements with a bank. The swap agreements allow the Company to convert the interest rates on $35 million and $25 million from LIBOR-based floating rates to fixed rates. Effective March 29, 1995, those agreements were terminated and the Company received $0.5 million. The Company operates equipment under lease arrangements that are classified as capital leases. The following is a summary of assets under capital leases:
(in thousands) December 31 ------------------------- 1994 1993 -------- -------- Machinery and equipment $ 6,867 $ 15,879 Less accumulated amortization 4,709 9,818 -------- -------- Net $ 2,158 $ 6,061 ======== ========
19 20 Future minimum lease payments under capital leases and the present value of the net minimum lease payments as of December 31, 1994 are as follows:
(in thousands) Year Ending December 31, 1995 $ 2,752 1996 1,296 1997 962 1998 211 ------- Total minimum lease payments 5,221 Less amount representing interest 332 ------- Present value of net minimum lease payments $ 4,889 =======
(11) Contingent Liabilities: ----------------------- The Company has been working with the Federal Trade Commission toward the completion of a redress program. The Commission sought consumer redress in connection with the sale of heat detectors manufactured by the Company's Interstate Engineering division. The Court held that the Company could be required to pay refunds to those buyers who, after notification, can make a valid claim for redress. The Court required the Company to provide a bank letter of credit initially in the amount of $7.6 million and reduced currently to $4.0 million. The Company had established an accrual and, based on the current amount of claims received by the Redress Administrator, no additional material charge to earnings is anticipated. In a class action suit filed on April 18, 1994, in the U.S. District Court for the Northern District of Ohio against the Company and two former officers and directors, the plaintiff stockholder alleged that the defendants disseminated false and misleading information to the investing public concerning the Company's business, management, financial condition, and future prospects in violation of Section 10(b) and 20(a) of the Securities Exchange Act of 1934. A separate class action suit was filed by another stockholder on May 11, 1994, in the same court against the Company and certain former and present officers and directors setting forth similar allegations. Both suits seek monetary damages and costs and have been consolidated into one case. In two separate suits reported in the Company's 1993 Form 10-K Annual Report, three stockholders of the Company filed derivative complaints on October 13 and December 2, 1993 in the Common Pleas Court of Lake County, Ohio, seeking recovery on behalf of the Company for alleged self-dealing, waste of corporate assets, financial statement over-statements, gross mismanagement and participation or acquiescence in such practices by Directors of the Company, all of whom were named as defendants. The Court consolidated the two suits and subsequently dismissed them with respect to all defendants. The plaintiffs have appealed the Court's decision. On October 11, 1994 Deloitte & Touche LLP filed suit against the Company in the Cuyahoga County Common Pleas Court of Ohio alleging that the Company was in breach of contract for failure to pay for consulting services rendered by Deloitte & Touche in the approximate amount of $30 million plus interest. On the same date, the Company filed in the same court its complaint against Deloitte & Touche (and later against Deloitte & Touche LLP) alleging that in connection with consulting services rendered to the Company, Deloitte & Touche was liable for breach of contract, negligent misrepresentation, breach of fiduciary duty, professional negligence and fraudulent inducement. The Company seeks $250 million in compensatory damages as well as punitive damages, declaratory relief and an accounting. The Company also filed a counterclaim containing similar allegations, as well as claims of breach of warranty and the unlicensed and unauthorized practice of engineering, in response to the suit filed by Deloitte & Touche LLP. Deloitte & Touche LLP has counterclaimed in the Company's action and the Court has now consolidated the two cases. 20 21 On December 19, 1994 the Company, its subsidiary Figgie Properties Inc. and the Richard E. Jacobs Group filed an action against the City of Cleveland seeking specific performance of a 1989 Master Development Agreement pertaining to a proposed real estate project referred known as Chagrin Highlands. The Company's complaint also seeks a declaratory judgment that the Master Development Agreement is in full force and effect and asks for an injunction preventing the City from interfering with the rights of the plaintiffs under that Agreement as well as compensatory damages in the amount of $100 million. The City of Cleveland has filed a motion to dismiss the Company's complaint. Additionally, the Company and its subsidiaries are defendants in various lawsuits arising in the ordinary course of business. The Company has provided a reserve for the estimated liability related to all known cases. In the opinion of management, any additional liability with respect to these matters will not have a material effect on the Company's financial statements. Costs incurred by the Company in the performance of U.S. Government contracts are subject to audit. In the opinion of management, the final settlement of these costs will not result in significant adjustments to recorded amounts. (12) Pension and Retirement Benefits Plans: ------------------------------------- The Company has pension plans covering the majority of its employees. The plan benefits for salaried employees are based on employees' earnings during their years of participation in the plan. Hourly employees' plan benefits are based on various dollar units multiplied by the number of years of eligible service as defined in each plan. The Company's policy has been to fund amounts as necessary on an actuarial basis to comply with the Employee Retirement Income Security Act of 1974. In addition, the Company has adopted a nonqualified supplemental retirement plan covering certain officers and senior executives. The components of net periodic pension expense and the assumptions used in accounting for the benefit plans for the years ended December 31 are as follows:
(in thousands) 1994 1993 1992 - --------------------------------------------------------------------------------------------------------- Service cost $ 4,220 $ 3,399 $ 3,663 Interest cost on projected benefit obligation 5,803 5,145 4,673 Actual loss (gain) on plan assets 2,680 (6,788) (3,405) Net amortization and deferral of actuarial (losses) gains (8,501) 1,251 (1,605) -------- -------- -------- $ 4,202 $ 3,007 $ 3,326 ======== ======== ======== Assumptions: Weighted average discount rates 8.25% 7.50% 8.75% Rate of increase in compensation levels 5.00% 5.00% 5.00% Expected long-term rate of return on assets 10.00% 10.00% 10.00%
21 22 The funded status of the Company's domestic and international plans, along with the reconciliation to amounts reported in the consolidated balance sheets, were as follows:
December 31, 1994 December 31, 1993 -------------------------- --------------------------- Assets Accum. Assets Accum. Exceed Benefits Exceed Benefits Accum. Exceed Accum. Exceed (in thousands) Benefits Assets Benefits Assets - ---------------------------------------------------------------------------------------------------------------- Accumulated benefit obligations $ 54,682 $ 12,548 $ 55,637 $ 12,594 ======== ======== ======== ======== Vested benefit obligations $ 50,462 $ 12,501 $ 51,479 $ 11,805 ======== ======== ======== ======== Plan assets at fair value 60,720 119 64,417 269 Projected benefit obligations (59,187) (12,856) (59,645) (14,374) -------- -------- -------- -------- Assets over (under) projected benefit obligation 1,533 (12,737) 4,772 (14,105) Unrecognized net (assets) liabilities (5,173) 959 (5,715) 1,118 Unrecognized net (gain) loss 12,843 1,089 10,757 3,252 Unrecognized prior service cost 761 0 777 3,940 Adjustment required to recognize minimum liability 0 (5,172) 0 (6,530) -------- -------- -------- -------- Prepaid pension cost (liability) $ 9,964 $(15,861) $ 10,591 $(12,325) ======== ======== ======== ========
The plans' assets consist primarily of listed common stocks, corporate and government bonds, real estate investments, and cash and cash equivalents. The plans' assets included 29,175 and 28,883 shares of the Company's Class A Common Stock and 59,334 and 52,115 shares of the Company's Class B Common Stock as of December 31, 1994 and 1993, respectively. In addition to providing pension benefits, the Company provides certain health care and life insurance benefits for certain retired employees. A small percent of the Company's employees become eligible for these benefits paid by the Company if they reach retirement age while working for the Company. For 1994, 1993, and 1992, premiums approximated $20,000 annually. Most of the Company's salaried employees are eligible for medical benefits at retirement by paying the full cost of the benefits. The Company adopted FASB Statement No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" in 1993. Adoption had no effect on the financial statements. 22 23 (13) Employee Stock Ownership Plans: ------------------------------- The Company maintains two employee stock ownership plans: a leveraged ESOP and a non-leveraged ESOP. Under the strategic business plan announced on February 15, 1995, divisions representing a majority of ESOP participants have been discontinued. As such, the Company elected to allocate all remaining shares as of December 31, 1994 for the leveraged ESOP. The Company's financial statements reflect the compensation expense related to all shares. The leveraged ESOP holds a $20 million note that is guaranteed by the Company and bears interest at the rate provided for in the amended Override Agreement. The balance outstanding as of December 31, 1994 is $6.2 million and is expected to be fully paid in 1995 through the amortization required in the Override Agreement. The leveraged ESOP used the proceeds from the note to purchase 756,195 Class B shares. Contributions to fund the interest requirements of the loan are reflected as interest expense in the accompanying consolidated statements of income, approximately $545,000 in 1994, $365,000 in 1993 and 290,000 in 1992 (net of dividends of approximately $328,000 in 1993 and $374,000 in 1992). During 1993, the Company elected to prospectively account for the leveraged ESOP under the provisions of Statement of Position 93-6, "Employers Accounting for Employee Stock Ownership Plans." This election allows the Company to measure compensation expense based on the market value of the shares on the date of allocation. The non-leveraged ESOP was established in 1989 by the transfer of surplus assets from a terminated benefit plan. The transferred funds were used to purchase 1,124,682 Class A and 440,796 Class B shares. Compensation expense is based on the fair market value of the shares on the date of allocation. To the extent the amount available for income tax benefits exceeds the amount recognized as compensation expense, the additional tax benefits are credited to additional paid-in-capital. During 1994, $6.0 million was credited to additional paid-in-capital. Dividends on unallocated shares are charged to expense. Compensation expense associated with the allocation of plan shares is as follows:
(in thousands) 1994 1993 1992 ---------------------------------------------------------------- Leveraged ESOP $1,739 $1,288 $2,500 Non-leveraged ESOP 3,614 2,708 3,311 Dividends - 486 501 ------ ------ ------ $5,353 $4,482 $6,312 ====== ====== ======
The Company also maintains the Figgie International Inc. Stock Bonus Trust and Plan (the Stock Plan). Under this Plan, shares of the Company's Class B Common Stock are allocated to eligible employee accounts each December 31 based on salary. The Company did not make contributions to this plan in 1994, 1993, or 1992. The Stock Plan held 291,729 and 378,402 shares of the Company's Class B Common Stock as of December 31, 1994 and 1993, respectively. 23 24 (14) Capital Stock: ------------- Each share of Class A Common Stock is entitled to one-twentieth of one vote per share, while each share of the Class B Common Stock is entitled to one vote per share, except, in each case, with respect to shares beneficially owned by a Substantial Stockholder (as defined in the Company's Restated Certificate of Incorporation, as amended), in which case the voting rights of such stock will be governed by the appropriate provisions of the Company's Restated Certificate of Incorporation. (15) Restricted Stock Purchase Plan: ------------------------------ Under the 1993 Restricted Stock Purchase Plan for Employees (the "1993 Employee Plan"), up to 800,000 shares each of either Class A or Class B Common Stock were authorized for possible issuance and executive officers and other key employees have been granted the right to purchase shares of Common Stock at prices substantially below market value. The purchase of Class A and Class B Common Stock under this plan entitles the employee to full voting and dividend rights, but the shares cannot be sold, transferred, or pledged, and the certificates representing the shares are retained in the custody of the Company. At the earliest of retirement, death, or total disability of the employee, or termination of the plan, these restrictions on transferring, pledging, or selling the shares expire, and the employee or heirs take unrestricted custody of the stock. In the event the employee leaves the Company prior to any of these occurrences, the Company can repurchase the shares (or, in the case of retirement, a portion of the shares) at the lower of the original purchase price paid by the employee or the then prevailing market price. At December 31, 1994, 346,385 shares of Class A Common Stock and 16,753 shares of Class B Common Stock, respectively, subject to the above restrictions, were outstanding under the 1993 Employee Plan. Under the 1993 Restricted Stock Purchase Plan for Directors (the "1993 Director Plan"), up to 75,000 shares of Class B Common Stock were authorized for possible issuance and certain Directors of the Company have been granted the right to purchase shares of Class B Common Stock at prices substantially below market value. The 1993 Director Plan contains restrictions and other provisions similar to those of the 1993 Employee Plan. At December 31, 1994, 30,000 shares of Class B Common Stock, subject to the above restrictions, were outstanding under the 1993 Director Plan. The Company's 1988 Restricted Stock Purchase Plan for Employees and 1988 Restricted Stock Purchase Plan for Directors, which was similar in its terms and conditions to the 1993 Employee Plan and 1993 Director Plan, were terminated on December 31, 1992 and June 30, 1993, respectively. 24 25 The excess of market price over purchase price at date of grant for the 1993 Directors Plan and the 1993 Employees Plan, $.6 million and $8.9 million respectively, is deferred as Unearned Compensation and is being amortized as compensation expense. Unamortized amounts (unearned compensation) are shown as a reduction of stockholders' equity. The following amounts were amortized to expense:
(in thousands) 1994 1993 1992 ------ ------ ------ 1993 Employee Plan $ 245 $ 885 $ - 1993 Director Plan 193 64 - 1988 Employee Plan - - 4,690 1988 Director Plan - 126 245 ------ ------ ------ Total $ 438 $1,075 $4,935 ====== ====== ======
(16) Stock Options: ------------- In 1994, the shareholders approved a stock option plan (the "Plan") under which the options and/or stock appreciation rights may be granted to key employees to purchase common stock at prices not less than the fair market value at the time of grant options vest over a three-year period from the date of grant. The Plan calls for up to an aggregate of 1,500,000 shares of Class A common stock to be available for issuance upon the exercise of options and stock appreciation rights, which may be granted over a ten-year period ending October 19, 2004. No options or rights had been granted as of December 31, 1994. Subsequent to December 31, 1994, 706,500 options were granted pursuant to the Plan. (17) Industry Segment Data: --------------------- The Company's operations are conducted through three reportable business segments. These segments are described in Part I, Item 1 on pages 2 and 3 of this Form 10-K. Page 8 contains a summary of certain financial data for each business segment for 1994, 1993 and 1992. Information concerning the content of this financial data is as follows: Intersegment and foreign sales are immaterial. Operating profit is total revenue less operating expenses (cost of sales, SG&A expense and R&D expense). Operating profit does not include restructuring and refinancing costs, change in accounting estimate expense, interest expense, interest income, or federal and state income taxes. Identifiable assets are those assets used in the Company's operation for each segment. Corporate assets are principally cash, property and other assets. 25 26 (18) Change in Accounting Estimate: ------------------------------ In connection with its factory automation project, the Company incurred significant costs, including machinery and equipment, software, and outside consulting fees. These project costs historically were deferred and amortized over future periods commencing at the time the equipment was placed into service. A number of factors arose in 1993 which changed management's estimate of the period of future benefit. These factors included deteriorating operating results, cash flow and financing difficulties. As a result, the Company adopted a change in accounting by expensing all project costs, other than machinery and equipment, as incurred. As required by generally accepted accounting principles, the accounting change, amounting to an after tax charge approximating $50 million ($77 million pre-tax) or $2.80 per share, was recorded as a change in estimate and recorded in the results of operations for the fourth quarter of 1993. The charge of $33.9 million was associated with the continuing operations and $43.4 million was associated with businesses discontinued in 1994 and included in the $103.3 million loss on discontinued businesses. 26 27 QUARTERLY FINANCIAL DATA (UNAUDITED) ------------------------------------ This information is required by the Securities and Exchange Commission and is unaudited.
First Second Third Fourth Quarter Quarter Quarter Quarter -------- -------- -------- --------- (in thousands except for per share data) - ----------------------------------------------------------------------------------------------------------------------------------- 1994 Restated (See NOTE A): - -------------------------- Net sales $ 73,111 $ 80,030 $ 79,792 $ 86,487 NOTE Gross profit 16,725 18,871 18,324 18,246 C Net income (loss): Continuing Operations (16,253) (10,068) (10,848) (48,078) Discontinued operations (4,084) (7,803) (4,995) (64,601) -------- -------- -------- --------- Net (loss) $(20,337) $(17,871) $(15,843) $(112,679) ======== ======== ======== ========= Earnings (loss) per share: Continuing operations $ (0.91) $ (0.56) $ (0.61) $ (2.74) Discontinued operations (0.23) (0.44) (0.28) (3.68) -------- -------- -------- --------- Net income (loss) $ (1.14) $ (1.00) $ (0.89) $ (6.42) ======== ======== ======== ========= - ----------------------------------------------------------------------------------------------------------------------------------- 1993 Restated (See NOTE A): - -------------------------- Net sales $ 66,374 $ 79,394 $ 67,292 $ 74,093 NOTE Gross profit 17,610 23,443 5,533 16,312 B Net income (loss): Continuing operations (3,558) (1,667) (11,076) (66,044) Discontinued operations 7,372 2,172 (7,773) (105,040) Cumulative effect of change in accounting for income taxes 5,839 - - - -------- -------- -------- --------- Net income (loss) $ 9,653 $ 505 $(18,849) $(171,084) ======== ======== ======== ========= Earnings (loss) per share: Continuing operations $ (0.20) $ (0.09) $ (0.62) $ (3.67) Discontinued operations 0.42 0.12 (0.43) (5.85) Cumulative effect of change in accounting for income taxes 0.33 - - - -------- -------- --------- --------- Net income (loss) $ 0.55 $ 0.03 $ (1.05) $ (9.52) ======== ======== ======== ========= NOTE A: The previously reported quarters have been restated to reflect certain businesses as discontinued operations. - ------ NOTE B: Fourth quarter 1993 results from continuing operations include certain significant charges related to (1) a change - ------ in accounting estimate to reflect the expensing of certain deferred costs associated with the Company's factory automation program of approximately $22 million or $1.22 per share, (2) a restructuring charge of approximately $11 million or $0.61 per share associated with closing and consolidating facilities and provisions for losses on sales of surplus real estate, (3) approximately $9 million or $.50 per share related to the writeoff of product development costs, and (4) approximately $8 million or $.48 per share related to litigation reserves. NOTE C: Fourth quarter 1994 results from continuing operations included a $15.3 million or $0.87 per share charge for the - ------ revaluation of certain assets.
27 28 PART IV ------- Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ---------------------------------------------------------------- (a) Financial Statements, Schedules, and Exhibits: --------------------------------------------- Page No. ------ 1. Financial Statements -------------------- Included in Part II of this report: Report of Independent Public Accountants 23 Consolidated Statements of Income for the Years Ended December 31, 1994, 1993, and 1992 24 Consolidated Balance Sheets at December 31, 1994 and 1993 26 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1994, 1993, and 1992 28 Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1993, and 1992 29 Notes to Consolidated Financial Statements 30 Quarterly Financial Data (Unaudited) 48 2. Financial Statement Schedule ---------------------------- Included in Part IV Schedule II - Valuation and Qualifying Accounts 54 All schedules, other than those outlined above, are omitted as the information is not required or is otherwise furnished. 3. (a) The Restated Certificate of Incorporation of the Company, as amended, as Exhibit 19 to the Company's Quarterly Report on Form 10-Q for the quarter ending June 30, 1987, File No. 1-8591, is hereby incorporated herein by reference. (b) The Bylaws of the Company, as amended and restated effective December 13, 1994. 28 29 4. Instruments defining rights of security holders, including indentures, for the following classes of securities: (a) Class A Common Stock, par value $.10 per share, are contained in the Restated Certificate of Incorporation, as amended, incorporated by reference in Exhibit (3) above and are incorporated herein by reference. (b) Class B Common Stock, par value $.10 per share, are contained in the Restated Certificate of Incorporation, as amended, and incorporated by reference in Exhibit (3) above and are incorporated herein by reference. (c) Indenture, dated as of October 1, 1989, between Figgie International Inc. and Continental Bank, National Association, as Trustee, with respect to the 9.875% Senior Notes due October 1, 1999, included as Exhibit (4) (c) to the Company's Annual Report on Form 10-K for the year ending December 31, 1989, is hereby incorporated herein by reference. State Street Trust succeeded Continental Bank as Trustee pursuant to an agreement dated as of February 7, 1994, which was included as Exhibit (4)(c) to the Company's Annual Report on Form 10-K for the year ending December 31, 1993, and is hereby incorporated herein by reference. (d) Second Supplemental Indenture, dated as of December 31, 1986, among Figgie International Inc. and Marine Midland Bank, N.A., as Trustee, with respect to the 10.375% Subordinated Debentures due April 1, 1998, included as Exhibit (4)(c) to the Company's Annual Report on Form 10-K for the year ending December 31, 1986, File No. 1-8591, and the First Supplemental Indenture, dated as of July 18, 1983, among Figgie International Inc., Figgie International Holdings Inc., and Marine Midland Bank, N.A., as Trustee with respect to the 10-3/8% Subordinated Debentures due 1998, along with the Original Indenture dated as of April 1, 1978, included as Exhibit (3)(4)(f) to the Company's Form 8-B filed October 19, 1983, (File No. 1-8591) with the Commission are hereby incorporated herein by reference. 10. (a)* The Company's Compensation Plan for Executives, included as Exhibit (3)(10)(b) to the Company's Form 8-B filed October 19, 1983, with the Commission is hereby incorporated herein by reference. (b)* The description of the Company's Performance Incentive Bonus Program, included in the Company's definitive Proxy Statement filed May 12, 1988, with the Commission, is hereby incorporated herein by reference. 29 30 (c)* The Company's Senior Executive Benefits Program, as amended, included as Exhibit (19) to the Company's Quarterly Report on Form 10-Q for the quarter ending September 30, 1988, is hereby incorporated herein by reference. (d)* The Company's 1983 Deferred Compensation Agreement, included as Exhibit (3)(10)(f) to the Company's Form 8-B filed October 19, 1983, with the Commission, is hereby incorporated herein by reference. (e)* The Company's 1982 Deferred Compensation Agreement, included as Exhibit 10(g) to the Company's Annual Report on Form 10-K for the year ending December 31, 1984, File No. 1-8591, is hereby incorporated herein by reference. (f)* The Company's Split Dollar Life Insurance Plan, included as Exhibit 10(h) to the Company's Annual Report on Form 10-K for the year ending December 31, 1985, File No. 1-8591, is hereby incorporated herein by reference. (g)* The Company's 1993 Restricted Stock Purchase Plan for Employees, included as Exhibit A to the Company's definitive Proxy Statement dated May 25, 1993 is hereby incorporated herein by reference. (h)* The Company's 1993 Restricted Stock Purchase Plan for Directors, included as Exhibit B to the Company's definitive Proxy Statement dated May 25, 1993, is hereby incorporated herein by reference. (i)* Employment Agreement, dated as of November 18, 1988, by and between the Company and Harry E. Figgie, Jr., included as Exhibit 10 (k) to the Company's Annual Report on Form 10-K for the year ending December 31, 1988, is hereby incorporated herein by reference. (j)* Form of Agreement, dated as of May 1, 1989, among the Company and corporate officers and department heads who report to the Company's Chief Executive Officer, included as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ending March 31, 1989, is hereby incorporated herein by reference. (k)* Employment agreement dated July 1, 1994, by and between the Company and Steven L. Siemborski, included as Exhibit 10(b) to the Company's Quarterly Report on Form 10Q for the quarter ending September 30, 1994, is hereby incorporated by reference. (l)* Override Agreement between the Company and various lenders, dated as of June 30, 1994 included as Exhibit 10(a) to the Company's Quarterly Report on Form 10Q for the quarter ending September 30, 1994, is hereby incorporated by reference. 30 31 (m) First Amendment dated as of December 5, 1994 to the Override Agreement dated as of June 30, 1994 between the Company and various lenders. (n) Second Amendment dated as of March 31, 1995 to the Override Agreement dated as of June 30, 1994 between the Company and various lenders. (o)* Employment Agreement, dated as of October 28, 1994, by and between Walter M. Vannoy and the Company. (p)* Employment Agreement, dated as of January 1, 1995, by and between John P. Reilly and the Company. 21. Subsidiaries of the Company 23. Consent of Independent Public Accountants 27. Financial Data Schedule - Previously Filed * Management contracts or compensatory plans filed pursuant to Item 14(c). (b) Reports on Form 8-K The Company filed a report on Form 8-K on December 6, 1994. 31 32 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ---------------------------------------- To the Board of Directors and Stockholders, Figgie International Inc.: We have audited in accordance with generally accepted auditing standards, the financial statements of Figgie International Inc. and Subsidiaries included in this Form 10K, and have issued our report thereon dated April 12, 1995. Our report on the financial statements includes an explanatory paragraph with respect to the Company's adoption of the provisions of SFAS No. 109 "Accounting for Income Taxes" in the first quarter of 1993 (as discussed in Note 1 to the financial statements) and to the change in the method of accounting for certain costs associated with its factory automation project in the fourth quarter of 1993 (as discussed in Note 18 to the financial statements). Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The financial statement schedule is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Cleveland, Ohio, April 12, 1995. 32 33 FIGGIE INTERNATIONAL INC. AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (in thousands)
Balance, Balance, Beginning Charged to Amounts End of Description of Year Costs & Expenses Charged Off Year - ----------------------------- --------- ---------------- ----------- -------- Allowance for uncollectible trade accounts receivables- Year ending December 31, 1994 $ 184 $263 $ 188 $ 259 ======= ==== ======= ======= Year ending December 31, 1993 $ 254 $230 $ 300 $ 184 ======= ==== ======= ======= Year ending December 31, 1992 $ 144 $169 $ 59 $ 254 ======= ==== ======= =======
33 34 Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this amendment to be signed on its behalf by the undersigned, thereto duly authorized. FIGGIE INTERNATIONAL INC. (Company) May 8, 1995 By: /s/ Steven L. Siemborski ------------------------------- Steven L. Siemborski Senior Vice President and Chief Financial Officer 34 35 EXHIBIT INDEX ------------- (3) (a) The Restated Certificate of Incorporation of the Company, as amended, as Exhibit 19 to the Company's Quarterly Report on Form 10-Q for the quarter ending June 30, 1987, File No. 1-8591, is hereby incorporated herein by reference. (b) The Bylaws of the Company, as amended and restated effective December 13, 1994. (4) Instruments defining rights of security holders, including indentures, for the following classes of securities: (a) Class A Common Stock, par value $.10 per share, are contained in the Restated Certificate of Incorporation, as amended, incorporated by reference in Exhibit (3) above and are incorporated herein by reference. (b) Class B Common Stock, par value $.10 per share, are contained in the Restated Certificate of Incorporation, as amended, and incorporated by reference in Exhibit (3) above and are incorporated herein by reference. (c) Indenture, dated as of October 1, 1989, between Figgie International Inc. and Continental Bank, National Association, as Trustee, with respect to the 9.875% Senior Notes due October 1, 1999, included as Exhibit (4) (c) to the Company's Annual Report on Form 10-K for the year ending December 31, 1989, is hereby incorporated herein by reference. State Street Trust succeeded Continental Bank as Trustee pursuant to an agreement dated as of February 7, 1994, which was included as Exhibit (4)(c) to the Company's Annual Report on Form 10-K for the year ending December 31, 1993, and is hereby incorporated herein by reference. (d) Second Supplemental Indenture, dated as of December 31, 1986, among Figgie International Inc. and Marine Midland Bank, N.A., as Trustee, with respect to the 10.375% Subordinated Debentures due April 1, 1998, included as Exhibit (4)(c) to the Company's Annual Report on Form 10-K for the year ending December 31, 1986, File No. 1-8591, and the First Supplemental Indenture, dated as of July 18, 1983, among Figgie International Inc., Figgie International Holdings Inc., and Marine Midland Bank, N.A., as Trustee with respect to the 10-3/8% Subordinated Debentures due 1998, along with the Original Indenture dated as of April 1, 1978, included as Exhibit (3)(4)(f) to the Company's Form 8-B filed October 19, 1983, (File No. 1-8591) with the Commission are hereby incorporated herein by reference. (10) (a)* The Company's Compensation Plan for Executives, included as Exhibit (3)(10)(b) to the Company's Form 8-B filed October 19, 1983, with the Commission is hereby incorporated herein by reference. (b)* The description of the Company's Performance Incentive Bonus Program, included in the Company's definitive Proxy Statement filed May 12, 1988, with the Commission, is hereby incorporated herein by reference. 35 36 (c)* The Company's Senior Executive Benefits Program, as amended, included as Exhibit (19) to the Company's Quarterly Report on Form 10-Q for the quarter ending September 30, 1988, is hereby incorporated herein by reference. (d)* The Company's 1983 Deferred Compensation Agreement, included as Exhibit (3)(10)(f) to the Company's Form 8-B filed October 19, 1983, with the Commission, is hereby incorporated herein by reference. (e)* The Company's 1982 Deferred Compensation Agreement, included as Exhibit 10(g) to the Company's Annual Report on Form 10-K for the year ending December 31, 1984, File No. 1-8591, is hereby incorporated herein by reference. (f)* The Company's Split Dollar Life Insurance Plan, included as Exhibit 10(h) to the Company's Annual Report on Form 10-K for the year ending December 31, 1985, File No. 1-8591, is hereby incorporated herein by reference. (g)* The Company's 1993 Restricted Stock Purchase Plan for Employees, included as Exhibit A to the Company's definitive Proxy Statement dated May 25, 1993 is hereby incorporated herein by reference. (h)* The Company's 1993 Restricted Stock Purchase Plan for Directors, included as Exhibit B to the Company's definitive Proxy Statement dated May 25, 1993, is hereby incorporated herein by reference. (i)* Employment Agreement, dated as of November 18, 1988, by and between the Company and Harry E. Figgie, Jr., included as Exhibit 10 (k) to the Company's Annual Report on Form 10-K for the year ending December 31, 1988, is hereby incorporated herein by reference. (j)* Form of Agreement, dated as of May 1, 1989, among the Company and corporate officers and department heads who report to the Company's Chief Executive Officer, included as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ending March 31, 1989, is hereby incorporated herein by reference. (k)* Employment agreement dated July 1, 1994, by and between the Company and Steven L. Siemborski, included as Exhibit 10(b) to the Company's Quarterly Report on Form 10Q for the quarter ending September 30, 1994, is hereby incorporated by reference. (l)* Override Agreement between the Company and various lenders, dated as of June 30, 1994 included as Exhibit 10(a) to the Company's Quarterly Report on Form 10Q for the quarter ending September 30, 1994, is hereby incorporated by reference. (m) First Amendment dated as of December 5, 1994 to the Override Agreement dated as of June 30, 1994 between the Company and various lenders. (n) Second Amendment dated as of March 31, 1995 to the Override Agreement dated as of June 30, 1994 between the Company and various lenders. (o)* Employment Agreement, dated as of October 28, 1994, by and between Walter M. Vannoy and the Company. (p)* Employment Agreement, dated as of January 1, 1995, by and between John P. Reilly and the Company. 36 37 (21) Subsidiaries of the Company (23) Consent of Independent Public Accountants (27) Financial Data Schedule 37 EX-23 2 FIGGIE INTERNATIONAL EX-23 1 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS ----------------------------------------- As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K/A, into the Company's previously filed Registration Statements File No. 33-66208 and File No. 33-56705. ARTHUR ANDERSEN LLP Cleveland, Ohio, May 8, 1995. -----END PRIVACY-ENHANCED MESSAGE-----