ITEM 1. BUSINESS
General
Juno Lighting, Inc. began operations in 1976 and was incorporated in Illinois. It changed its state of incorporation to Delaware in 1983. Its executive offices and principal plant are located at 1300 S. Wolf Road, Des Plaines, Illinois 60018, a suburb of Chicago; the telephone number is (847) 827-9880. Juno also has facilities in the Los Angeles, San Francisco, Indianapolis, Toronto, Philadelphia, Dallas and Atlanta areas. The terms "Juno" and "Company" as used herein mean Juno Lighting, Inc. and its subsidiaries, collectively.
The Company is a leading designer, assembler and marketer of recessed and track lighting fixtures. Its broad product line is used in commercial and residential remodeling and in new construction. Its principal products use a variety of light sources and are designed for reliable and flexible function, efficient operation, attractive appearance and simple installation and servicing. The Company is also engaged in the marketing, design and manufacture of other incandescent, fluorescent and High Intensity Discharge ("HID") lighting products with application in the commercial lighting market, primarily in department and chain stores.
Approximately 91% of the Company's sales in fiscal 2003 were made in the United States, with most of the balance made in Canada. The Company's sales are made primarily to electrical distributors as well as certain wholesale lighting outlets. Such distributors resell the Company's products for use in remodeling of existing structures and in new residential, commercial and institutional construction.
The Company produces a wide variety of fixtures and related equipment for the recessed, track and HID lighting markets. Its recessed lighting fixtures are designed to be installed directly into ceilings, while its track lighting fixtures are mounted on electrical tracks affixed to ceilings or walls. End-users of the Company's products generally prefer them due to their superior design, reliability and ease of installation. Juno designs and assembles substantially all of its products in-house. However, it outsources virtually all component manufacturing to a number of independent vendors principally located near its production facilities. Inventories are maintained at three production and distribution facilities located near Chicago, Indianapolis and Toronto and at distribution facilities near Atlanta, Dallas, Los Angeles, San Francisco and Philadelphia.
The Company's primary means of distribution is through over 1,900 distributors of lighting products located throughout the United States and Canada. The Company has established itself as a preferred lighting supplier by providing high quality and well-designed products, superior customer service, timely delivery, technical advice and product training. Its distributors maintain their own inventory of the Company's products, and, in turn, sell to electrical contractors and builders and, in some cases, at the retail level. Sales to distributors are made through the Company's knowledgeable sales staff and through manufacturers' agents who also sell other, non-competing electrical products. The Company also has a national accounts sales force that focuses on department store, specialty retail, supermarket and commercial accounts. The Company works closely with these national accounts to provide custom solutions to their lighting needs and, in turn, to have the Company's products specified for their major renovations or store expansions.
Products
The Company produces a wide variety of lighting fixtures and related equipment for residential, commercial and industrial applications. Major product categories include recessed lighting, track lighting, cabinet/display lighting and HID lighting. The company believes its innovations in simplifying installation and improving the function of its lighting products has served to increase demand for its products.
The Company markets recessed lighting for residential applications under the Juno, Aculux and Pro-Vector brands and for commercial/institutional applications under the Juno and Indy brands. Recessed products are also sold under the Lowes Builder's Best brand. Each recessed fixture is composed of a housing and a separate trim. Various size and style housings may be fitted with a variety of light sources and trim designs to satisfy different optical and aesthetic requirements for ambient downlighting, wall wash, accent and task lighting. Housing styles are adapted for various construction conditions including insulated ceilings, providing direct downlight in sloped ceilings and to install from below the ceiling in remodel installations. Insulated ceiling housings are marketed with an Air-Loc feature that restricts the passage of air into and out of a residence through the fixture to minimize energy loss.
The Juno brand is positioned as a high quality, high value line for residential and light commercial applications with an extensive product range. Pro-Vector and Builder's Best are value offerings with limited product features and scope of line. The Aculux brand features precision optics and very low brightness apertures to allow more dramatic lighting effects as typically specified by lighting designers for higher-end custom homes. The Company's Juno and Indy brand commercial recessed fixtures are used most frequently in department and chain stores and offer commercial-grade construction and a wider selection of incandescent, HID and compact fluorescent light sources to provide the higher wattage, energy efficiency and longer lamp life required for these applications.
The Company offers several track lighting systems under the Trac-Master, Trac-Lites, Trac-12, Flex12 and Alfa brands. These products are used to provide flexible display lighting in retail, exhibit, hospitality and many other commercial and residential applications. Each system utilizes an electrified channel or rail, called the trac, that can accept a variety of individual fixtures that may be positioned anywhere along its length. The individual spotlight, flood and decorative pendant fixtures are available in different styles, sizes, finishes and light sources.
The Juno Trac-Master brand offers the most versatile assortment of halogen, compact fluorescent and ceramic metal halide light sources and fixture styles and options required for commercial accent and display lighting. Trac-Lites is marketed as an economy brand with lighter-duty construction and fewer features, options and unique designs as compared to Trac-Master. Trac12 is a miniature 12-volt trac system that is used in settings where a smaller-scale, less obtrusive trac system is desirable and for concealed linear lighting in undercabinet, casework and coves. The Flex12 and Alfa brands feature decorative low voltage trac systems including flexible monorails that can be curved into a variety of shapes and a cable system with two parallel small diameter braided steel cables. Alfa products are characterized by more finely detailed spotlights and pendants in a wider assortment of decorative styles and finishes. The Alfa line also includes decorative wall sconces and bath bars with designs that coordinate with their track fixtures. Juno acquired Alfa in October 2002.
The Company sells undercabinet and casework lighting products under the Juno and Danalite brands. These products compliment the Trac12 system mentioned above, which is also used extensively for these applications. Juno brand undercabinet products, introduced to the market in 2002, include a full offering of halogen, xenon and fluorescent models with varying features and price points to solve for the most common residential kitchen undercabinet lighting applications. Danalite brand products are made-to-order custom length linear extruded luminaires that are typically specified for use in more specialized millwork and showcase applications.
HID lighting products are sold under the Acculite brand for commercial and industrial applications. Indoor lighting products include highbay and lowbay luminaires designed to illuminate large spaces such as factories, warehouses, indoor sports arenas and retail stores. Outdoor lighting products include area, flood, building and canopy mount luminaires to provide security lighting, to illuminate building facades, parking garages and parking lots. Acculite products are characterized by high quality construction and superior photometric performance to facilitate lower installation and operating costs. Juno acquired Acculite in 2001.
In September 2003 the Company announced the launch of Modulight - an innovative fluorescent lighting system. Modulight system benefits include significant installation cost savings, ease of use, energy cost savings, improved safety and enhanced lighting layout flexibility. Modulight products began shipping to customers in early 2004.
Additionally during 2003, Juno announced the launch of nine new families of track lighting products targeted at the commercial and residential end markets. The products - carrying the sub-brands of Avio, Trapezia, Uno/Duo, and Gyrus - include low voltage, line voltage, pendants, and T5HO wall wash executions for a variety of accent and area lighting applications. The products feature leading edge styling and innovative designs intended to excite the end-markets and enhance Juno's position as a leader in track lighting.
Juno, Indy, Trac-Master, Real Nail , Air-Loc, Wireforms, Accents, Conix, Delta 200 Series, IdeaLab, It's All in the Lighting, Design Only and MH2 are registered trademarks of Juno.
Production
The Company designs and assembles substantially all of its products in-house. However, the Company outsources virtually all component manufacturing to a number of independent vendors who are located in the United States and abroad. Tools, dies and molds are manufactured by outside sources to the Company's designs and specifications. Tooling is consigned to independent job shops, largely near the Company's manufacturing facilities, which fabricate and finish the components of the Company's products. The Company inspects the components and assembles, tests, packages, stores and ships the finished products. Most assembly operations are performed at the Des Plaines, Illinois plant, Indianapolis, Indiana and Kitchener, Ontario assembly facilities. However, in October 2003, limited production of fully assembled products was begun in Tijuana, Mexico with respect to several high volume units.
The Company outsources manufacturing of virtually all components to minimize fixed costs and capital requirements and to produce flexibility in responding to market needs. It believes its utilization of subcontractors with specialized skills is the most efficient method of manufacturing its products. The Company further believes that alternate tool making specialists and fabricators are generally available. It uses multiple subcontractors for most of its components to facilitate availability. In addition, the Company purchases many of the raw materials used in the manufacturing of its components to control the quality of the raw materials used by the subcontractors and to receive more competitive prices for the raw materials. Currently the Company engages subcontractors whose facilities are located in Mexico and China.
The Company spent approximately $6,192,000, $4,840,000, and $4,973,000 on research, development and testing of new products and development of related tooling in fiscal 2003, 2002, and 2001, respectively.
Sales and Distribution
The Company has relationships with a broad base of over 1,900 distributors across the United States and in Canada. Each of the Company's distributors maintains its own inventory of Company products and in turn, sells to electrical contractors and builders and, in some cases, also sells at the retail level. In some cases, distributors will require that goods be drop shipped directly to the end user. Sales to distributors are made through the Company's own staff of sales managers and sales personnel and also through manufacturers' agents who sell other electrical products of a non-competitive character. The Company also seeks to have its products specified by architects, engineers and contractors for large commercial and institutional projects with actual sales made through the Company's distributors. The Company also sells to certain wholesale lighting outlets and national accounts.
Inventories of substantially all items Juno produces are maintained at the Des Plaines, Illinois and Indianapolis, Indiana plants and substantially all items are maintained in Juno's warehouses in the Atlanta, Dallas, Los Angeles, Philadelphia and Toronto areas. Most orders are shipped from stock inventory within 48 hours of receipt.
Backlog and Material Customers
We have no material long-term contracts. The Company is not dependent on any single customer or group of customers and no single customer accounted for as much as 10% of sales in fiscal 2003.
Competition
We are not aware of any published figures that identify the overall market for the Company's products. Nevertheless, the Company believes that its sales place the Company among the five highest-selling manufacturers of track and recessed lighting products in the United States. The Company estimates that there are more than 50 manufacturers of competing track and recessed lighting products. The Company competes not only with manufacturers in its own fields, but also with manufacturers of a variety of fluorescent and decorative lighting products. A number of competitors, including the Company's two largest competitors, are divisions or subsidiaries of larger companies, which have substantially greater resources than the Company.
There is wide price variance in competitive products and the Company believes that its line can be described as moderately priced in order to be attractive to the high-volume commercial and residential markets. However, lighting fixtures are often purchased in small quantities and, as a result, product features may be more important to a purchaser in small quantities than cost. The Company believes that its growth has been attributable principally to the design and construction of its products, the quality of its sales force and its reputation for prompt delivery and service.
As of November 30, 2003, the Company owned a substantial number of United States patents and had several patent applications on file with the United States Patent Office. The Company also has corresponding foreign patents and registered trademarks in the United States. There is no assurance that any patents will be issued with respect to pending or future applications. As the Company develops products for new markets and uses, it normally seeks available patent protection. The Company believes that its patents are important, but does not consider itself materially dependent upon any single patent or group of related patents.
Employees
The Company employs approximately 1,000 persons. Most of the Company's factory employees are represented by one of two unions. The expiration dates for the collective bargaining agreements pertaining to the Company's Des Plaines, Illinois, and Indianapolis, Indiana locations are September 2005 and September 2004, respectively.
Available Information
The Company's Internet address is www.junolighting.com. The Company makes the reports it files with the Securities and Exchange Commission pursuant to Section 13(a) or 15(d) of the Exchange Act available on its Internet website. The information on the Company's website is not part of this report.
ITEM 2.
ITEM 2. PROPERTIES
Juno owns a building located in Des Plaines, Illinois of approximately 510,000 square feet, which serves at its principal assembly, warehouse and executive office facility. Juno also owns distribution warehouses in New Jersey, Georgia, and Brampton, Ontario, Canada which have, in the aggregate, approximately 140,700 square feet of floor space and a 130,000 square foot assembly and general office facility in Indianapolis, Indiana for its Indy Lighting, Inc. subsidiary. The Company leases four additional distribution warehouses located in the Los Angeles, San Francisco, Dallas areas as well as in Kitchener, Ontario for relatively short terms, which have, in the aggregate, approximately 138,000 square feet of floor space. These warehouse leases call for an aggregate annual rental of approximately $837,000. The Company's facilities are modern, considered adequate for its business as presently conducted and experience varying levels of utilization.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of business, there are various claims and lawsuits brought by or against the Company. In the opinion of management, the ultimate outcome of these matters will not materially affect the Company's operations or financial position.
On or about May 17, 2002, Juno filed a Complaint against U.S. Industries, Inc. in the Superior Court of the State of Delaware in and for New Castle County and issued written discovery to U.S. Industries. In the Complaint, Juno alleged that U.S. Industries breached an exclusivity agreement with Juno related to a proposed acquisition, by engaging in negotiations with another company, Hubbell Incorporated, during an exclusivity period with Juno. The Complaint sought damages of $8,500,000 based on a liquidated damages provision contained in the exclusivity agreement to cover expenses incurred and additional losses by Juno, as well as attorneys' fees and costs. U.S. Industries has answered the Complaint and denied liability. After performing discovery, the claim was voluntarily dismissed in February 2004.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Executive Officers Of The Registrant
The following table gives certain information with respect to the Executive Officers of the Company as of January 31, 2004:
T. Tracy Bilbrough
has served as Chief Executive Officer and director since May 2000. From September 1997 to May 2000 he was President - Commercial Division of Thomas & Betts Corporation, a manufacturer of electrical and electronic components. From October 1995 to September 1997 he was President - Eastern Hemisphere of Black & Decker Corporation, a manufacturer of power tools, plumbing fixtures and various other hardware products and accessories.
Glenn R. Bordfeld has been Executive Vice President and Chief Operating Officer since October 2003. From May 2000 to October 2003 he was Executive Vice President, Chief Operating Officer and President, Juno Lighting Division. From July 1999 until May 2000 served as a Director. From January 1999 to May 2000 he was President and Chief Operating Officer of the Company. He was the Company's Vice President, Sales from July 1991 to January 1999. Previously, he was employed by the Company as its National Sales Manager from November 1988 to July 1991; its Assistant Sales Manager from November 1985 to November 1988 and its Advertising Manager from November 1982 to November 1985.
George J. Bilek has been Executive Vice President, Chief Financial Officer, Treasurer and Secretary since October 2003. He served as Vice President, Finance and Treasurer from April 1990 until October 2003. He was appointed Secretary as of March 2001. He was employed by the Company as its Comptroller from September 1985 to April 1990.
W. Allen Fromm has been Executive Vice President, Operations since October 2003. He was Vice President, Purchasing from April 2001 until October 2003. From 1996 through 2001, he was Global Commodity Director for Black & Decker Corporation. Prior to 1996 he held various roles of increasing responsibility in marketing and global product development for Black & Decker and DeWalt Professional Power Tools, a division of Black & Decker.
Daniel S. Macsherry has been Executive Vice President, Business Development since October 2003. He was Vice President, Business Development from October 2000 until October 2003. From December 1998 to September 2000 he was Director of Finance for Stanley Fastening Systems, a division of the Stanley Works and a manufacturer of pneumatic tools and accessories. He was the Director of Business Planning and Analysis at DeWalt Professional Power Tools, a division of Black & Decker Corporation, from 1996 to 1998. From 1983 through 1995 he held various financial roles of increasing responsibility supporting operations at Black & Decker.
Jacques P. LeFevre has been Senior Vice President, Sales since October 2003. He served as a Vice President from August 1999 until October 2003. He served as President of Indy Lighting, Inc. (acquired by Juno in 1988) from October 1994 until October 2003. He was Vice President and General Manager of Indy Lighting from October 1983 to October 1994. Previously, he was a Certified Public Accountant with Arthur Young & Company for six years.
Charles F. Huber has been Vice President, Engineering and Special Projects since July 1999. He was the Company's Vice President, Corporate Development from December 1992 to July 1999. From January 1989 to December 1992 he was employed by the Company as the Director of Corporate Development. From October 1984 to January 1989 he was employed by Reliance Electric, Inc., a manufacturer and distributor of electrical products, as its Vice President and General Manager.
Scott L. Roos rejoined Juno in October 1998 as Vice President, Product Management and Development. From August 1994 through October 1998 he was Vice President, Product Development and Marketing for Alkco, a division of the JJI Lighting Group (a manufacturer of lighting products). From 1990 through August 1994 he was the Company's Director of New Product Development.
Richard B. Stam has been Vice President, Sales since August 1999. From 1997 to 1999, he was employed by the Company as its National Sales Manager for North America. From 1994 to 1997, he was the National Sales Manager for Juno Lighting, Ltd., Juno's Canadian subsidiary.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Common Stock and Dividend Information
The Company's Common Stock is being traded on The Nasdaq SmallCap Market. Prior to August 3, 2000, the Company's Common Stock was traded on the Nasdaq National Market.
As of January 31, 2004 there were approximately 1,400 holders of record of Common Stock.
The following table sets forth, for the fiscal years indicated, the range of high and low sales prices as reported by the Nasdaq Stock Market:
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
FINANCIAL HIGHLIGHTS
(1) Defined as total Current Assets minus total Current Liabilities.
(2) Defined as total Current Assets divided by total Current Liabilities.
Both Working Capital and Current Ratio as defined above are important and relevant measurements given the Company's current capital structure and level of outstanding debt. In order to maximize debt reduction the Company must focus on sales growth, earnings and minimizing working capital.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Summary Of Significant Accounting Policies
Use Of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenues from sales are recognized at the time goods are shipped. All shipments are FOB shipping point. A contemporaneous generation of invoices set up the fixed and determinable price. Freight billed to our customers is not considered material and has been netted against selling expense. Shipping and handling costs are included in Selling, General and Administrative costs on the income statement.
Goodwill
The Company adopted SFAS 142 "Goodwill and Other Intangibles" during fiscal 2002. The Company reviews goodwill for impairment during the fourth quarter of each year. No events have occurred, nor has there been a change in circumstances, that would reduce the fair value of the reporting unit below its carrying amount. Furthermore, the Company has not amortized any of its goodwill subsequent to the adoption of SFAS 142 in 2002.
Income Taxes
The Company uses the asset and liability approach under which deferred taxes are provided for temporary differences between the financial reporting and income tax bases of assets and liabilities based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. The Company has recognized a one-time tax benefit of $1,300,000 during the third quarter as a result of the closing of certain tax years.
Stock-Based Compensation
As permitted by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), the Company has elected to continue to account for its stock-based awards in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25").
Derivative Instruments
Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. The Company entered into two interest rate swap agreements in fiscal 2001 (notional amounts of $30,000,000 pay-fixed rate swap (expired April, 2003) and $60,000,000 pay-floating rate swap (expiring July, 2009)), which resulted in net unrealized gains of $422,000 and $418,000 for the years ending November 30, 2003 and 2002 respectively. These derivatives do not qualify for hedge accounting. Accordingly, the net impact was recorded as other income on the consolidated statements of income for fiscal 2003 and 2002. The Company also realized a gain of $1,549,000 for the fiscal year ended November 30, 2002 as a result of exiting an interest rate swap transaction. The Company entered into these agreements to reduce the risk of adverse changes in variable interest rates on certain of the long-term debt. These derivative instruments will be adjusted to estimated market values quarterly with any adjustment impacting current earnings until their respective maturities.
Contractual Obligations and Commitments
The Company has a senior credit facility (the "Senior Credit Facility") with Bank of America, N.A., Credit Suisse First Boston and certain other lenders providing (i) a $90 million term facility consisting of a (a) $40 million tranche A term loan ("Term Loan A"), and (b) $50 million tranche B term loan ("Term Loan B"), and (ii) a $35 million revolving credit facility (the "Revolving Credit Facility").
In addition, the Company issued $125 million principal amount of 11-7/8% senior subordinated notes due July 1, 2009 (the "Notes") to qualified institutional buyers under a private placement offering pursuant to Rule 144A and Regulation S of the Securities Act of 1933, which notes were then exchanged for new notes registered under the Securities Act of 1933 with substantially identical economic terms, resulting in approximately $120.4 million in proceeds to the Company.
The Company also has noncancelable operating leases for distribution warehouse space and equipment.
The following table summarizes the timing of principal payments on outstanding borrowings and contractual lease obligations:
(1) Liability recorded on the balance sheet. See Note 7 for additional details.
(2) Commitment not recorded on the balance sheet. See Note 13 for additional details.
Results of Operations
This document contains various forward-looking statements. Statements in this document that are not historical are forward-looking statements. Such statements are subject to various risks and uncertainties that could cause actual results to vary materially from those stated. Such risks and uncertainties include: economic conditions generally, levels of construction and remodeling activities, the ability to improve manufacturing and operating efficiencies, disruptions in manufacturing or distribution, product and price competition, raw material prices, the ability to develop and successfully introduce new products, technology changes, patent issues, exchange rate fluctuations, and other risks and uncertainties. The Company undertakes no obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future events or developments.
Fiscal 2003 Compared to Fiscal 2002. For the fiscal year ended November 30, 2003, net sales increased approximately $18.8 million or 10.3% to $200,566,000 from $181,770,000 for the like period in 2002. Approximately 40% of the consolidated sales increase was due to new product introductions, approximately 35% was from Alfa Lighting, which was acquired by Juno in October 2002, with the remainder due primarily to volume increases (including new channels of distribution). This increase was net of sales decreases totaling $5.07 million, of
which, approximately 50% was from the Indy Lighting division and 50% was from price competition in commercial markets. Sales through Juno's Canadian subsidiary (which includes the Acculite division acquired in August 2001) increased 10.9% to $17,881,000 for the fiscal year ended November 30, 2003 compared to $16,122,000 for the like period in 2002.
Gross profit expressed as a percentage of sales increased to 50.2% in fiscal 2003 compared to 49.9% in fiscal 2002 due primarily to margin contribution from Alfa Lighting.
Selling, general and administrative expenses increased $7.3 million to $61,031,000 (30.4% of sales) in fiscal 2003 compared to $53,760,000 (29.6% of sales) in fiscal 2002. Of this increase, approximately 30% was due to expenses from the Alfa division, which was acquired in October 2002, approximately 20% was due to the provision for the fiscal 2003 management incentive program, approximately 10% was attributed to sales and administrative salaries, approximately 10% was attributed to expenses associated with developing new channels of distribution, and approximately 10% was attributed to product development expenses with the remainder due primarily to variable expenses.
In addition, operating expenses for fiscal 2002 included $3,050,000 of one-time expenses incurred in connection with a proposed major acquisition that was not consummated.
Interest expense was $15,605,000 for fiscal 2003 compared to $16,907,000 for 2002. This decrease is due to the reduction in debt from $166,357,000 at November 30, 2002 to $153,353,000 at November 30, 2003, reductions in interest rates on the Company's floating rate debt and the net effect of interest rate swaps.
The effective income tax rate for fiscal 2003 was 31.2% compared to 38.4% for fiscal 2002. This decline was primarily due to the recognition of a one-time tax benefit of $1,300,000 in the third quarter of 2003 as a result of the closing of certain tax years and to a lesser extent effective state tax planning initiatives.
Fiscal 2002 Compared to Fiscal 2001. For the fiscal year ended November 30, 2002, net sales increased approximately $1,823,000 or 1.0% to $181,770,000 from $179,947,000 for the like period in 2001 due primarily to new products introduced over the past year and the full year impact of the Acculite product line acquired in August 2001, offset by lower volumes in some of the Company's commercial product lines and selling price pressure. Sales through Juno's Canadian subsidiary (which includes the Acculite division acquired in August 2001) increased 28.5% to $16,122,000 for the fiscal year ended November 30, 2002 compared to $12,548,000 for the like period in 2001.
Gross profit expressed as a percentage of sales decreased to 49.9% in fiscal 2002 compared to 50.7% in fiscal 2001. This decrease was due primarily to unfavorable sales mix and a more competitive selling price environment, which were offset, to some degree, by favorable purchase price variances on the Company's principal raw materials.
Selling, general and administrative expenses expressed as a percentage of sales decreased to 29.6% in fiscal 2002 compared to 31.2% in fiscal 2001. This decrease of approximately $2,200,000 was due primarily to one-time expenses incurred in 2001of approximately $1,350,000 for a process re-engineering project and approximately $2,000,000 for a non-recurring sales promotion program designed to increase revenue. The decrease was offset in part by an $828,000 increase in expenses from the Acculite division, which was acquired in August 2001. The Company also incurred one-time expenses of approximately $3,050,000 in connection with a proposed major acquisition that was not consummated.
Interest expense was $16,907,000 for fiscal 2002 compared to $19,930,000 for 2001. This decrease is due to the reduction in debt from $176,803,000 at November 30, 2001 to $166,357,000 at November 30, 2002, reductions in interest rates on the Company's floating rate debt and the net effect of interest rate swaps.
Inflation While management believes it has generally been successful in controlling the prices it pays for materials and passing on increased costs by increasing its prices, no assurances can be given as to the Company's future success in limiting material price increases or that it will be able to fully reflect any material price increases in the prices it charges its customers or fully offset such price increases through improved efficiencies.
Financial Condition
Fiscal 2003
The Company generated positive net cash flow provided by operating activities of $16,070,000 comprised principally of net income, depreciation and amortization, deferred charges, decreases in inventories and increases in the allowance for doubtful accounts, accounts payable and accrued liabilities, (collectively aggregating $26,077,000), net of unrealized gain on interest rate swap, and increases in accounts receivable, prepaid expenses and other assets, (collectively aggregating $10,007,000).
Accounts receivable increased $6,646,000 or 20.6% due partly to strong year-end sales as well as to an increased number of customers (associated with large marketing groups) that are subject to extended payment terms. Prepaid expenses and miscellaneous increased $679,000 or 14.3% due primarily to the cost of promotional materials for new product introductions as well as the cost of product displays associated with new channels of distribution. Goodwill increased $3,483,000 or 29.6% due primarily to contingent consideration payments made relating to the acquisitions of Acculite and Alfa Lighting and to a lesser extent due to favorable exchange rates. Payments made in 2003 under the Acculite and Alfa Lighting acquisition purchase agreements were approximately $340,000 and $2,100,000 respectively. Accounts payable increased $1,298,000 or 11.8% due primarily to the timing of year-end disbursements.
Net cash used in investing activities amounted to $3,178,000 comprised of capital expenditures for fiscal 2003.
The net cash used in financing activities of $12,411,000 consisted primarily of principal payments on the term debt under the senior credit facility (the Senior Credit Facility") of $84,630,000 less proceeds from its revolving credit facility (the "Revolving Credit Facility") of $71,550,000.
Prior to the June 30, 1999 merger of Jupiter Acquisition Corp., a Delaware company and wholly-owned subsidiary of Fremont Investors I, LLC, with and into the Company (the "Merger"), the Company historically had funded its operations principally from cash generated from operations and available cash. The Company incurred substantial indebtedness in connection with the Merger. The Company's liquidity needs are expected to arise primarily from operating activities and servicing indebtedness incurred in connection with the Merger.
Principal and interest payments under the Senior Credit Facility and the $125 million principal amount of 11-7/8% senior subordinated notes due July 1, 2009 issued by the Company (the "Subordinated Debt" or "Notes"), both entered into in connection with the Merger, represent significant liquidity requirements for the Company. As of November 30, 2003, the Company had cash of approximately $1.7 million, a $5.7 million balance on the Company's Revolving Credit Facility and total term debt of approximately $147.7 million. Detailed information concerning the terms of the Senior Credit Facility and the Subordinated Debt can be found in the Company's audited financial statements and notes thereto appearing elsewhere in this document.
The Company's $35 million Revolving Credit Facility is available to finance its working capital requirements and had an outstanding balance on November 30, 2003 of $5.7 million. The Company's principal source of cash to fund its liquidity needs will be net cash from operating activities and borrowings under the Revolving Credit Facility.
The Company has 1,060,000 shares of Series A preferred stock and 3,500 of Series B preferred stock outstanding. Holders of the preferred stock are entitled to receive cumulative quarterly dividends, whether or not declared by the Company's board of directors, in an amount equal to the greater of (1) dividends which would have been payable to the holders of Series A or Series B, as the case may be, in such quarter had they converted their preferred stock into Juno common stock prior to the record date of dividends declared on the common stock in such quarter, or the stated amount then in effect multiplied by 2%. Until June 30, 2004, with respect to the Series A preferred stock and November 30, 2005, with respect to the Series B preferred stock, such dividends are payable by an increase in the stated amount of such stock. After such dates such dividends are required to be paid in cash until redemption or conversion. The preferred stock is convertible into shares of the Company's common stock at a rate of $26.25 per share; entitles the holder to one vote for each whole share of common stock that would be issuable to such holder upon the conversion; and provides the holder with preferences to common stockholders in the event of liquidation, dissolution, winding up or sale of the Company. The Company may, at any time after the ninth anniversary of the original issuance date, redeem the shares of Series A Preferred Stock at stated value, plus accrued but unpaid dividends. The Company may, at any time after the eighth anniversary of the original issuance date, redeem the shares of the Series B Preferred Stock at stated value, plus accrued but unpaid dividends. These redemptions are completely within the control of the Company and not at the option of the holders.
The Company believes these sources will be adequate to meet its anticipated future requirements for working capital, capital expenditures, and scheduled payments of principal and interest on its existing indebtedness for at least the next 12 months. However, the Company may not generate sufficient cash flow from operations or have future working capital borrowings available in an amount sufficient to enable it to service its indebtedness, including the Notes, or to make necessary capital expenditures.
Fiscal 2002 The Company generated positive net cash flow provided by operating activities of $19,467,000 comprised principally of net income, depreciation and amortization, deferred charges, decreases in inventories and other assets, and an increase in accounts payable, (collectively aggregating $21,927,000), net of a decrease to the allowance for doubtful accounts and accrued liabilities, unrealized gain on interest rate swap and increases in accounts receivable and prepaid expenses, (collectively aggregating $2,460,000).
Net cash used in investing activities amounted to $9,372,000 and was used to finance capital expenditures of $2,494,000. In addition, on October 15, 2002 the Company purchased the stock of Alfa Lighting, Inc., manufacturers and marketers of low voltage lighting systems for $7,200,000 in cash. The acquisition was financed using the Company's Revolving Credit Facility under the Company's existing Senior Credit Facility with Bank of America, N.A., Credit Suisse First Boston and certain other lenders. The purchase agreement calls for an additional purchase price due at the end of the first twelve and twenty-four months after acquisition contingent upon this division attaining certain operating objectives. As a result of this acquisition, the Company recorded additional working capital of $2,428,000 and goodwill of $4,450,000. Information regarding the first resultant payment under the purchase agreement can be found in the above Fiscal 2003 Financial Condition section.
The net cash used in financing activities of $10,154,000 consisted primarily of principal payments on the term debt under the Senior Credit Facility of $67,815,000 less proceeds from its Revolving Credit Facility of $57,300,000.
As of November 30, 2002, the Company had cash of approximately $1.2 million, a $6.0 million balance on the Company's Revolving Credit Facility and total term debt of approximately $160.3 million. Detailed information concerning the terms of the Senior Credit Facility and the Subordinated Debt can be found in the Company's audited financial statements and notes thereto appearing elsewhere in this document.
The Company's $35 million Revolving Credit Facility is available to finance its working capital requirements and had an outstanding balance on November 30, 2002 of $6.0 million.
Fiscal 2001 The Company generated positive net cash flow provided by operating activities of $17,993,000 comprised principally of net income, depreciation and amortization, deferred charges, decreases in inventory, and an increase in accrued liabilities, (collectively aggregating $22,883,000), net of a decrease to the allowance for doubtful accounts and accounts payable and increases in accounts receivable, prepaid expenses and other assets, (collectively aggregating $4,890,000).
Net cash used in investing activities amounted to $11,870,000 and was used to finance capital expenditures of $2,796,000, and make payments of $3,220,000 associated with licensing certain intellectual property rights. In addition, on August 28, 2001 the Company purchased the net assets of Acculite Mfg., Inc. and two of its affiliates, manufacturers and marketers of HID (High Intensity Discharge) lighting fixtures for commercial and industrial use for $5,900,000 in cash. The acquisition was financed using the Company's existing Revolving Credit Facility. The purchase agreement calls for an additional payment of up to approximately $1,305,000, due at the end of the first twenty-four months after acquisition contingent upon this division attaining certain operating objectives. As a result of this acquisition, the Company recorded additional working capital of $1,889,000 and goodwill of $3,965,000. Information regarding the resultant payment under the purchase agreement can be found in the above Fiscal 2003 Financial Condition section.
The net cash used in financing activities of $9,660,000 consisted primarily of principal payments on the term debt under the Senior Credit Facility of $52,515,000 less proceeds from the $35 million Revolving Credit Facility of $42,700,000.
As of November 30, 2001, the Company had cash of approximately $1.3 million, a $5.3 million balance on the Company's Revolving Credit Facility and total term debt of approximately $171.5 million. Detailed information concerning the terms of the Senior Credit Facility and the Subordinated Debt can be found in the Company's audited financial statements and notes thereto appearing elsewhere in this document.
The Company's $35 million Revolving Credit Facility was available to finance its working capital and had an outstanding balance on November 30, 2001 of $5.3 million.
Other Matters
Recently Issued Accounting Standards
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure". This standard amends the disclosure requirements of FASB Statement No. 123, "Accounting for Stock-Based Compensation," to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. This statement is effective for all interim periods beginning after December 15, 2002. The Company adopted this standard in the second quarter of 2003.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The Company is exposed to market risks arising from changes in interest rates. As of November 30, 2003, the Company had both floating-rate and fixed rate long-term debt that is exposed to changes in interest rates. In order to manage the Company's risk, the Company entered into two interest rate swap agreements in fiscal 2001 (notional amounts of $30,000,000 pay-fixed rate swap (expired April, 2003) and $60,000,000 pay-floating rate swap (expiring July, 2009)), which resulted in a net unrealized gain of $422,000 for the year ended November 30, 2003 and a unrealized gain of $418,000 for the year ended November 30, 2002, based on the swaps' estimated market values as of November 30, 2003, and 2002, respectively. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. These derivatives do not qualify for hedge accounting. Accordingly, the net impact was recorded as other income/expense on the consolidated statements of income for fiscal 2003 and 2002. The Company also realized a gain of $1,549,000 for the fiscal year ended November 30, 2002 as a result of exiting an interest rate swap transaction. These derivative instruments will be adjusted to estimated market values quarterly with any adjustment impacting current earnings until their respective maturities. Detailed information concerning the terms of these swaps can be found in the Company's audited Financial Statement and notes thereto appearing elsewhere in this document.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
Financial Statements:
Report of Independent Auditors
Consolidated Statements of Income for the three years ended November 30, 2003
Consolidated Balance Sheets at November 30, 2003 and 2002
16-17
Consolidated Statements of Stockholders' Deficit for the three years ended November 30, 2003
Consolidated Statements of Cash Flows for the three years ended November 30, 2003
Notes to Consolidated Financial Statements
20-34
Selected Quarterly Financial Data (Unaudited)
Financial Statement Schedule:
Valuation and Qualifying Accounts for the three years ended November 30, 2003
Report of Independent Auditors
To the Board of Directors and
Stockholders of Juno Lighting, Inc.
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, stockholders' deficit and cash flows present fairly, in all material respects, the financial position of Juno Lighting, Inc. and its subsidiaries at November 30, 2003 and 2002, and the results of their
operations and their cash flows for each of the three years in the period ended November 30, 2003 in conformity with accounting principles generally accepted in the United States of America. 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 of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As disclosed in Note 1 to the financial statements, the Company changed the manner in which it accounts for goodwill and other intangible assets upon the adoption of Statement of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets" on December 1, 2001.
PricewaterhouseCoopers LLP
Chicago, Illinois
January 9, 2004
CONSOLIDATED STATEMENTS OF INCOME
See notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
Return to Index
CONSOLIDATED BALANCE SHEETS
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
See notes to consolidated financial statements.
Return to Index
CONSOLIDATED STATEMENTS OF CASH FLOW
See notes to consolidated financial statements.
Return to Index
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Juno Lighting, Inc.
Note 1: Summary of Significant Accounting Policies
Nature of the Business Juno Lighting, Inc. (the "Company") is a leader in the design, manufacture and marketing of lighting fixtures for commercial and residential use primarily in the United States.
Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated.
Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition Revenues from sales are recognized at the time goods are shipped. All shipments are FOB shipping point. A contemporaneous generation of invoices set up the fixed and determinable price. Freight billed to our customers is not considered material and has been netted against selling expense. Shipping and handling costs are included in Selling, General and Administrative costs on the income statement.
Inventories Inventories are valued at the lower of cost (first-in, first-out) or market.
Property and Equipment Property and equipment are stated at cost. Depreciation is computed over estimated useful lives using the straight-line method for financial reporting purposes and accelerated methods for income tax reporting. Depreciation expense in 2003, 2002, and 2001 amounted to approximately $4,454,000, $4,483,000, and $4,462,000 respectively.
Useful lives for property and equipment are as follows:
Goodwill The Company adopted SFAS 142 "Goodwill and Other Intangibles" during 2002. Management conducted a review of the estimated fair market value of its business segment, using discounted cash flow techniques. Based on management's review, no goodwill impairment was recorded for the year ended November 30, 2003. Furthermore, the Company has not amortized any of its goodwill for the year ended November 30, 2003. Had SFAS 142 been in effect for fiscal 2001, the net income (loss) attributable to common shareholders and earnings per share attributable to common shareholders for the three years ending November 30, 2003 would have been as follows:
Income Taxes The Company uses the asset and liability approach under which deferred taxes are provided for temporary differences between the financial reporting and income tax bases of assets and liabilities based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. The Company has recognized a one-time tax benefit of $1,300,000 during the third quarter as a result of the closing of certain tax years.
Research and Development The Company spent approximately $6,192,000, $4,840,000 and $4,973,000 on research, development and testing of new products and development of related tooling in fiscal 2003, 2002 and 2001, respectively.
Foreign Currency Translation The financial statements of the Company's Canadian subsidiary have been translated using local currency as the functional currency.
Net Income Per Share Basic net income per share is computed based upon weighted average number of shares of common stock. Diluted earnings per share is computed based on the weighted average number of shares of common stock and dilutive common stock equivalents outstanding. The effects of convertible Preferred Stock have been excluded from dilutive earnings per share in the periods presented because the impact would be antidilutive. Share and per share information have been adjusted for all stock splits.
Stock-based Compensation As permitted by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), the Company has elected to continue to account for its stock-based awards in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and has provided the pro forma disclosures below:
Pro forma information regarding net income and earnings per share is required by SFAS 123 for stock-based awards granted after November 30, 1995, as if the Company had accounted for its stock-based awards under the fair value method of SFAS 123. The fair value of the Company's stock-based awards was estimated as of the date of grant using the Black-Scholes option pricing model.
The weighted average estimated grant date fair value, as defined by SFAS 123, for options granted to employees during fiscal 2003, 2002 and 2001 was $3.38, $1.86 and $1.03 per share, respectively, under the Company's Stock Option Plan and $2.78, $3.26 and $2.84, respectively, under the Company's Stock Purchase Plan. The fair value of the Company's stock-based awards was estimated assuming the following weighted average assumptions:
Had the Company recorded compensation based on the estimated grant date fair value, as defined by SFAS 123, for awards granted under its stock-based compensation plans, the Company's net (loss) income available to common shareholders and net (loss) income per share would have been reduced, or increased, to the pro forma amounts below for the years ended November 30, 2003, 2002 and 2001:
Derivative Instruments Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. The Company entered into two interest rate swap agreements in fiscal 2001 (notional amounts of $30,000,000 pay-fixed rate swap (expired April, 2003) and $60,000,000 pay-floating rate swap (expiring July, 2009)), which resulted in a net unrealized gain of $422,000 for the year ended November 30, 2003 and a unrealized gain of $418,000 for the year ended November 30, 2002, based on the swaps' estimated market values as of November 30, 2003, and 2002, respectively. These derivatives do not qualify for hedge accounting. Accordingly, the net impact was recorded as other income/expense on the consolidated statements of income for fiscal 2003 and 2002. The Company also realized a gain of $1,549,000 for the fiscal year ended November 30, 2002 as a result of exiting an interest rate swap transaction. The Company entered into these agreements to reduce the risk of adverse changes in variable interest rates on certain of the long-term debt. These derivative instruments will be adjusted to estimated market values quarterly with any adjustment impacting current earnings until their respective maturities.
Recently Issued Accounting Standards In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure". This standard amends the disclosure requirements of FASB Statement No. 123, "Accounting for Stock-Based Compensation," to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. This statement is effective for all interim periods beginning after December 15, 2002. The Company adopted this standard in the second quarter of 2003.
Note 2: Merger and Recapitalization
On June 30, 1999, Jupiter Acquisition Corp. ("Merger Sub"), a Delaware corporation and a wholly-owned subsidiary of Fremont Investors I, LLC ("Fremont Investors"), was merged (the "Merger") with and into the Company pursuant to an Agreement and Plan of Recapitalization and Merger dated March 26, 1999 (the "Merger Agreement") by and among Merger Sub, the Company and Fremont Investors. Pursuant to the Merger, the holders of all the issued and outstanding shares of Juno common stock, $.01 par value per share, were entitled to receive either $25 cash or one share of Juno common stock, $.001 par value per share, for each share of common stock issued and outstanding; provided that this consideration was subject to proration, as such holders were entitled to receive an aggregate of 2,400,000 shares of Juno common stock. The Company funded this effective retirement of 16,242,527 shares of the Company's common stock with a payment to stockholders in the aggregate of approximately $406 million. The sources of this funding included the Company's available cash and marketable securities, a $106 million preferred stock investment by Fremont and key employees of Juno ("Preferred Stock"), approximately $94.9 million of bank debt ("Bank Debt") and the issuance of $125 million of subordinated debt ("Subordinated Debt"). In connection with the Merger, the Company incurred approximately $9.9 million in transaction costs and $10.2 million of deferred financing costs. Included in these costs were payments of approximately $4.9 million to Fremont Investors.
Note 3: Acquisition
In October 2002, the Company purchased all of the outstanding stock of Alfa Lighting, Inc., a manufacturer and marketer of low voltage lighting systems for $7,200,000. The Company performed an analysis of the purchase price and determined that there were no identifiable intangibles. As a result the purchase price was allocated to working capital of $2,750,000 and goodwill of $4,450,000. The purchase agreement calls for an additional purchase price that is contingent upon Alfa Lighting, Inc. attaining certain operating objectives. The additional purchase price is payable at the end of the first twelve and twenty-four months after the acquisition date if the objectives are met. The payment made under the purchase agreement in fiscal 2003 was approximately $2,100,000.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition.
Note 4: Inventories
Inventories consist of the following:
Work in process inventories are not significant in amount and are included in finished goods.
Note 5: License Agreement
In 2001, the Company invested $3,200,000 to license the rights to develop an innovative fluorescent lighting system under the Modulight brand name. This license is being amortized on a straight-line basis over twenty years. Amortization amounted to approximately $161,000, $161,000 and $134,000 in 2003, 2002 and 2001, respectively. This license agreement is classified in Miscellaneous other assets.
Note 6: Accrued Liabilities
Accrued liabilities consist of the following:
Note 7: Long-Term Debt
Long-term debt consists of the following:
The Company has a senior credit facility (the "Senior Credit Facility") with Bank of America, N.A., Credit Suisse First Boston and certain other lenders providing (i) a $90 million term facility consisting of a (a) $40 million tranche A term loan ("Term Loan A"), and (b) $50 million tranche B term loan ("Term Loan B"), and (ii) a $35 million revolving credit facility (the "Revolving Credit Facility"). Borrowings under the Senior Credit Facility bear interest, at the Company's option, at a rate per annum equal to either the Eurodollar rate (the London interbank offered rate for eurodollar deposits as adjusted for statutory reserve requirements) or a base rate plus variable applicable percentages. At November 30, 2003, the nominal interest rates for Term Loan A and Term Loan B were 3.37% and 4.12%, respectively. Term Loan A and Term Loan B are each payable in separate quarterly installments. The final maturity of Term Loan A is November 30, 2005 and the final maturity of Term Loan B is November 30, 2006. Amounts outstanding under the Revolving Credit Facility at November 30, 2003 and November 30, 2002 were $5,700,000 and $6,050,000 respectively. At November 30, 2003, the nominal interest rate for borrowing on the Revolving Credit Facility was 4.5%. Borrowings under the Revolving Credit Facility are due on November 30, 2005. In addition, the Company issued $125 million principal amount of 11-7/8% senior subordinated notes due July 1, 2009 (the "Notes") to qualified institutional buyers under a private placement offering pursuant to Rule 144A and Regulation S of the Securities Act of 1933, which notes were then exchanged for new notes registered under the Securities Act of 1933 with substantially identical economic terms, resulting in approximately $120.4 million in proceeds to the Company. Interest is payable on the Notes semi- annually on January 1 and July 1 of each year. The Notes are unsecured senior subordinated obligations of the Company, subordinated in right of payment to all existing and future senior indebtedness of the Company, including the Senior Credit Facility. Each of the aforementioned debt facilities contain restrictive covenants. The credit agreement related to the Senior Credit Facility including the Revolving Credit Facility (the "Secured Credit Agreement") requires the Company to maintain certain financial ratios, as defined therein.
Relating to the Senior Credit Facility and the Notes, the Company incurred approximately $3.9 million and $6.3 million of financing fees, respectively, which are being amortized over the life of the related debt.
The Senior Credit Facility is collateralized by substantially all of the assets of the Company and its domestic subsidiaries as more particularly described in the Secured Credit Agreement dated June 29, 1999,including all applicable amendments. The aggregate amounts of existing long-term debt maturing in each of the next three years are as follows: 2004 - $2,919,000; 2005 - $3,605,000; 2006 - $16,746,000.
Note 8: Taxes On Income
Provisions for federal and state income taxes in the consolidated statements of income are comprised of the following:
Deferred tax assets (liabilities) are comprised of the following:
The following summary reconciles taxes at the federal statutory tax rate to the Company's effective tax rate:
The decrease in the effective income tax rate for fiscal 2003 was primarily due to the recognition of a one-time tax benefit of $1,300,000 in the third quarter of 2003 as a result of the closing of certain tax years and to a lesser extent effective state tax planning initiatives.
Note 9: Stock Based Compensation Plans
The Company maintains two stock-based compensation programs: a stock option plan and a stock purchase plan. Prior to June 30, 1999, stock options were issued under the 1993 Stock Option Plan. The 1993 Stock Option Plan ("the 1993 Plan") provided for the granting of stock options or stock appreciation rights ("SAR") to certain key employees, including officers. Under the 1993 Plan, up to 600,000 shares of the Company's common stock may be issued upon exercise of stock options, and SARs may be granted with respect to up to 600,000 shares of the Company's common stock. At November 30, 2003, remaining options outstanding under the 1993 Plan totaled 138,400. On December 2, 2003 the 1993 Plan expired and no further options were available for issuance. The Company's 1999 Stock Award and Incentive Plan (the "1999 Plan") provides for the granting of stock options or stock appreciation rights ("SAR") to certain key employees, including officers, directors (including non-employee directors), and independent contractors. The stock option plan provides for the grant of "incentive stock options" or "non-qualified stock options" as defined in Section 422 of the Internal Revenue Code as amended. Under the 1999 Plan, up to 940,000 shares of the Company's common stock may be issued upon the exercise of stock options, and SARs may be granted with respect to up to 940,000 shares of the Company's common stock. At November 30, 2003, a total of 33,695 shares were available for grant under the 1999 Plan. The per-share option price for options granted under the stock option plan may not be less than 100% of the fair market value of the Company's common stock on the date of grant.
The Company's stock purchase plan allows employees to purchase shares of the Company's common stock through payroll deductions over a twelve-month period. The purchase price is equal to 85 percent of the fair market value of the common stock on either the first or last day of the accumulation period, whichever is lower. Purchases under the stock purchase plan are limited to the lesser of $5,000 or 10% of an employees base salary. In connection with the Company's stock purchase plan, 400,000 shares of common stock are authorized for issuance of which 238,212 remain available for issuance as of November 30, 2003. Under this stock purchase plan, 30,305 shares of common stock were issued at $8.08 per share in fiscal 2003.
A summary of activity under the Company's stock option plan is as follows:
A summary of outstanding and exercisable stock options as of November 30, 2003, is as follows:
Pro forma information regarding net income and earnings per share is required by SFAS 123 for stock-based awards granted after November 30, 1995, as if the Company had accounted for its stock-based awards under the fair value method of SFAS 123. The fair value of the Company's stock-based awards was estimated as of the date of grant using the Black-Scholes option pricing model.
The weighted average estimated grant date fair value, as defined by SFAS 123, for options granted to employees during fiscal 2003, 2002 and 2001 was $3.38, $1.86 and $1.03 per share, respectively, under the Company's Stock Option Plan and $2.78, $3.26 and $2.84, respectively, under the Company's Stock Purchase Plan. The fair value of the Company's stock-based awards was estimated assuming the following weighted average assumptions:
Had the Company recorded compensation based on the estimated grant date fair value, as defined by SFAS 123, for awards granted under its stock-based compensation plans, the Company's net (loss) income available to common shareholders and net (loss) income per share would have been reduced, or increased, to the pro forma amounts below for the years ended November 30, 2003, 2002 and 2001:
Note 10: Profit Sharing Plan
The Company has a profit sharing plan pursuant to Section 401(k) of the Internal Revenue Code, whereby participants may contribute a percentage of compensation, but not in excess of the maximum allowed under the Code. As of January 1, 2002, the Company amended the plan to satisfy the 401(k) safe-harbor requirements by increasing the Company matching contribution to 4%. The matching contribution provided by the Company amounted to approximately $730,000, $669,000 and $257,000 in 2003, 2002, and 2001 respectively. In addition, the Company may make additional contributions at the discretion of the Board of Directors. The Board authorized an additional contribution of $576,000 for fiscal 2003, $531,000 for fiscal 2002 and $860,000 for fiscal 2001.
Note 11: Series A and Series B Preferred Stock On June 30, 1999, the Company issued 1,060,000 shares of Series A convertible preferred stock ("Series A") to Fremont Investors and certain employees of the Company. On November 30, 2000, the Company issued 3,500 shares of Series B convertible preferred stock ("Series B", and together with the Series A, the "Preferred Stock") to the Company's Chief Executive Officer. Holders of the Preferred Stock are entitled to receive cumulative quarterly dividends, whether or not declared by the Board of Directors, in an amount equal to the greater of:
-
dividends which would have been payable to the holders of Series A or Series B, as the
case may be, in such quarter had they converted their Preferred stock into Juno common
stock prior to the record date of dividends declared on the common stock in such quarter, or
-
the stated amount then in effect multiplied by 2%.
Through June 30, 2004, the dividends for the Series A will be payable by an increase in the stated amount of such stock, and through November 30, 2005, the dividends for the Series B will be payable by an increase in the stated amount of such stock. After June 30, 2004, the dividends on the Series A will be paid in cash until redemption or conversion, and after November 30, 2005, the dividends on the Series B will be paid in cash until redemption or conversion. The Preferred Stock is convertible into shares of the Company's common stock at a rate of $26.25 per share. Holders of Preferred Stock are entitled to one vote for each whole share of common stock that would be issuable to such holder upon the conversion of all the shares of the Preferred Stock held by such holder on the record date for the determination of stockholders entitled to vote. Additionally, holders of Preferred Stock have preference to common stockholders in the event of liquidation, dissolution, winding up or sale of the Company.
The Company may, at any time after the ninth anniversary of the original issuance date, redeem the shares of Series A Preferred Stock at stated value, plus accrued but unpaid dividends. The Company may, at any time after the eighth anniversary of the original issuance date, redeem the shares of the Series B Preferred Stock at stated value, plus accrued but unpaid dividends. These redemptions are completely within the control of the Company and not at the option of the holders.
Note 12: Business Segments and Geographical Information The Company operates in one product segment - the design, manufacture and marketing of lighting fixtures. The aggregation criteria for sales are based on point of shipment while the aggregation criteria for assets are based on their physical location.
Financial information by geographic area is as follows:
Note 13: Commitments and Contingencies
Total minimum rentals under noncancelable operating leases for distribution warehouse space and equipment at November 30, 2003 are as follows:
Total rent expense charged to operations amounted to approximately $1,308,000 $1,190,000, and $991,000 for the years ended November 30, 2003, 2002 and 2001, respectively.
In the ordinary course of business, there are various claims and lawsuits brought by or against the Company. In the opinion of management, the ultimate outcome of these matters will not materially affect the Company's operations or financial position.
Note 14: Certain Relationships and Related Transactions Mr. Michael M. Froy, a Director of the Company since September 2000, is a partner of the law firm of Sonnenschein Nath & Rosenthal, which billed the Company an aggregate of $647,770, $720,880 and $412,069 for legal services provided to the Company for the fiscal years ended November 30, 2003, 2002 and 2001 respectively.
The Company and Fremont Partners L.L.C., a shareholder of the Company, entered into a management services agreement at the effective time of the Merger, pursuant to which agreement Fremont Partners L.L.C. renders certain management services in connection with the Company's business operations, including strategic planning, finance, tax and accounting services. Juno pays Fremont Partners L.L.C. an annual management fee of $325,000 to render such services.
Note 15: Guarantors' Financial Information The Company has issued and registered $125 million of Series B Senior Subordinated Notes at 11-7/8% (the "Senior Subordinated Notes") under the Securities Act of 1933, as amended (the "Act"). Pursuant to the registration and issuance of the Senior Subordinated Notes under the Act, the Company's domestic subsidiaries, Juno Manufacturing, Inc., Alfa Lighting, Inc. and Indy Lighting, Inc. will provide full and unconditional senior subordinated guarantees for the Senior Subordinated Notes on a joint and several basis.
Following is consolidating condensed financial information pertaining to the Company ("Parent") and its subsidiary guarantors and subsidiary non-guarantors.
Note 16: Selected Quarterly Financial Data (Unaudited) A summary of selected quarterly information for 2003 and 2002 is as follows:
*Due to rounding differences, the totals for the fiscal years ended November 30, 2003 and 2002 may not equal the sum of the respective items for the four quarters then ended.
Return to Index
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Under the supervision and with the participation of the Company's management, including the Company's principal executive officer and principal financial officer, the Company conducted an evaluation of its disclosure controls and procedures, as such term is defined under Rule 13a-14(c) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), within 90 days of the filing date of this report. Based on their evaluation, the Company's principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures are effective.
(b) There have been no significant changes (including corrective actions with regard to significant deficiencies or material weaknesses) in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referenced in paragraph (a) above.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the directors of the Company will be set forth in the Proxy Statement and is incorporated herein by this reference.
Information regarding the Executive Officers of the Company is set forth in Part I of this Form 10-K on pages 6 and 7.
CODE OF ETHICS
We have adopted a Code of Ethics within the meaning of Item 406(b) of Regulation S-K. This Code of Ethics applies to our principal executive officer, principal financial officer and principal accounting officer. This Code of Ethics is publicly available on our website at www.junolighting.com. If we make substantive amendments to this Code of Ethics or grant any waiver, including any implicit waiver, we will disclose the nature of such amendment or waiver on our website or in a report on Form 8-K within five days of such amendment or waiver.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item will be set forth in the Proxy Statement and is incorporated herein by this reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item will be set forth in the Proxy Statement and is incorporated herein by this reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT AND OTHERS; CERTAIN BUSINESS RELATIONSHIPS
Mr. Jaunich is Chairman of the Board and a director of Juno Lighting. He is also President and Chief Executive Officer of Fremont Investors, a Managing Director of Fremont Partners, a member of FP Advisors, L.L.C. ("FP Advisors") and a Managing Director and a member of the Fremont Group. Mr. Williamson is a director of Juno Lighting, and is also Vice President and Treasurer of Fremont Investors, a Managing Director of Fremont Partners and a member of FP Advisors. As a result of the Merger, Fremont Investors obtained control of the Company in June 1999.
Mr. Froy is a partner of the law firm of Sonnenschein Nath & Rosenthal, LLP which provided legal services to the Company in fiscal 2003.
The Company and Fremont Partners L.L.C., a shareholder of the Company and an affiliate of Fremont Investors, Fremont Partners and FP Advisors (collectively, the "Fremont Entities"), entered into a management services agreement at the effective time of the Merger, pursuant to which agreement Fremont Partners L.L.C. renders certain management services in connection with the Company's business operations, including strategic planning, finance, tax and accounting services. Juno pays Fremont Partners L.L.C. an annual management fee of $325,000 to render such services.
INDEBTEDNESS OF MANAGEMENT
In connection with the purchase by Mr. Bilbrough, Juno's President and Chief Executive Officer, of shares of the Company's common stock, the Company made a loan to him in the principal amount of $199,968.33. All of the proceeds of this loan were used to pay a portion of the purchase price of the shares. Subject to certain terms and conditions, Mr. Bilbrough will not owe any interest on this debt on or before May 22, 2010 and will owe 18% per annum thereafter on any remaining balance. As of November 30, 2003, the outstanding balance of Mr. Bilbrough's debt was $199,968.33.
ITEM 14.
ITEM 14. PRINCIPAL ACOUNTANT FEES AND SERVICES
The information required by this Item will be set forth in the Proxy Statement and is incorporated herein by this reference.
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a)
(1).
Financial Statements - Appear as part of Item 8 of this Form 10-K.
Supplementary Data
The supplementary data required by Item 302 of Regulation S-K is contained on page 34 of this Annual Report on Form 10-K
Report of Independent Auditors.
The Report of the Company's Independent Auditors, PricewaterhouseCoopers LLP, dated January 9, 2004, on the consolidated financial statements as of and for the fiscal years ended November 30, 2003, November 30, 2002, and November 30, 2001, is filed as a part of this Annual Report on Form 10-K on page 15.
(a)
(2).
Financial Statement Schedule:
The following financial statement schedule is submitted in response to this Item 15(a) 2 on page 41 of this Annual Report on Form 10-K.
Schedule II - Valuation and Qualifying Accounts and Reserves.
Report of Independent Auditors Relating to Schedule.
The Report of the Company's Independent Auditors, PricewaterhouseCoopers LLP, on the financial statement Schedule, insofar as the information therein relates to November 30, 2003 and November 30, 2002 and the fiscal years then ended, is filed as a part of this Annual Report on Form 10-K on page 37.
Schedules other than those noted above have been omitted because they are either inapplicable or the information is contained elsewhere in the Annual Report.
Report of Independent Auditors on
Financial Statement Schedule
To the Board of Directors
of Juno Lighting, Inc.
Our audits of the consolidated financial statements referred to in our report dated January 9, 2004, appearing in the 2003 Annual Report to Shareholders of Juno Lighting, Inc. (which report and consolidated financial statements are incorporated in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 15(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Chicago, Illinois
January 9, 2004
JUNO LIGHTING, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Exhibit 11.1
JUNO LIGHTING, INC. AND SUBSIDIARIES
COMPUTATIONS OF NET INCOME (LOSS) PER COMMON SHARE
Exhibit 21.1
SUBSIDIARIES OF JUNO LIGHTING, INC.
Exhibit 23.1
Consent of Independent Auditors
We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-93659) of Juno Lighting, Inc. of our report dated January 9, 2004 relating to the financial statements, which appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated January 9, 2004 relating to the financial statement schedule, which appears in this Form 10-K.
PricewaterhouseCoopers LLP
Chicago, Illinois
February 25, 2004
Exhibit 31.1
CERTIFICATION
I, T. Tracy Bilbrough, certify that:
1. I have reviewed this annual report on Form 10-K of Juno Lighting, Inc., a Delaware corporation;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered in this report based on such evaluation;
and
c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect , the registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function);
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information;
and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Dated: February 25, 2004
/s/ T. TRACY BILBROUGH
T. Tracy Bilbrough
Chief Executive Officer
Exhibit 31.2
CERTIFICATION
I, George J. Bilek, certify that:
1. I have reviewed this annual report on Form 10-K of Juno Lighting, Inc., a Delaware corporation;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered in this report based on such evaluation;
and
c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect , the registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function);
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information;
and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Dated: February 25, 2004
/s/ GEORGE J. BILEK
George J. Bilek
Executive Vice President,
Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
I, T. Tracy Bilbrough, Chief Executive Officer of Juno Lighting, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The annual report on Form 10-K for the year ended November 30, 2003, as filed with the Securities and Exchange Commission on February 25, 2004 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Juno Lighting, Inc.
Dated: February 25, 2004
/s/ T. TRACY BILBROUGH
T. Tracy Bilbrough
Chief Executive Officer
Exhibit 32.2
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
I, George J. Bilek, Vice President, Finance of Juno Lighting, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The annual report on Form 10-K for the year ended November 30, 2003, as filed with the Securities and Exchange Commission on February 25, 2004 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Juno Lighting, Inc.
Dated: February 25, 2004
/s/ GEORGE J. BILEK
George J. Bilek
Executive Vice President,
Chief Financial Officer
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
Report of Independent Accountants
Consolidated Statements of Income for the three years ended November 30, 2001
Consolidated Balance Sheets at November 30, 2001 and 2000
Consolidated Statements of Stockholders' Equity (Deficit) for the three years ended November 30, 2001
Consolidated Statements of Cash Flows for the three years ended November 30, 2001
Notes to Consolidated Financial Statements
Selected Quarterly Financial Data (Unaudited)
Item 9. Changes in and Disagreements on Accounting and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13 Certain Relationships and Related Transactions
Item 14 Controls and Procedures
Part IV
Item 15 Exhibits, Financial Statement Schedules and Reports on Form 8-K
Valuation and Qualifying Accounts for the three years ended November 30, 2001
Signatures
Certifications
Exhibit 11.1
Exhibit 21.1
Exhibit 23.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
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