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2015

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155 Spring Street, 6th FloorNew York, NY 10012

646-291-2445axeljohnson.com

Axel Joh

nson

Inc. / 2015 Annual Review

Passion for Leadership. Patience for Growth.

AJI: 2015 Annual Review 1

Materials handling at Sprague’s Portland, Maine terminal.

Axel Johnson Inc.Annual Review2015 / We believe that private business is one of the most

powerful forces for change in society. We seek to

create shareholder value and improve the world

around us through the exercise of good business

values. We are keenly aware that what we create,

and how we conduct ourselves while doing so, is

the legacy we leave behind.

Our Family of Companies

Axel Johnson Inc. /Headquartered in New York City, Axel Johnson Inc. (AJI) is the corporate home for a collection of industry-leading businesses. We acquire and invest in companies to own and operate them, with the aim of building long-term enterprise value. In 2015 our companies recorded combined revenues of $3.9 billion, employed in excess of 2,500 people, and served over 30,000 wholesale and trade customers.

SpragueA leading provider of energy products and materials handling services.

CadencePreeminent single source contract manufacturer for medical device, life sciences, and industrial markets.

HighRes BiosolutionsInventive manufacturer of

laboratory automation systems and devices.

ConforMISInnovative medical device company, pioneering the patient-specific approach to orthopedic implants.

Mountain LumberLeading provider of reclaimed wood for the production of commercial and residential flooring and millwork.

Walk2CampusReal estate company focused on providing pedestrian-oriented housing for the off-

campus university residential market.

DecisyonProvider of collaborative business software solutions that integrate analysis, planning and execution—all within a single environment.

KineticoRenowned manufacturer of premium water treatment systems for the residential, commercial and OEM markets.

ParksonA global leader in water

and wastewater treatment technologies for the municipal

and industrial markets.


As an owner and investor, we look for strong ideas, proven leadership, and the potential to earn an attrac-tive return on our invested capital.

Values-Driven Ownership

AJI /

Refinishing wood for reclaimed flooring at Mountain Lumber’s Ruckersville, Virginia facility.


We acquire or invest in a company only when we are convinced that its leadership and employees also share our ownership values. Where they remain enthusiastic about, and committed to, their company’s future and its as yet unrealized potential. Where they are eager to pursue new ideas, take risks, and bring novel products and services to market. Where they believe that how they go about running their business, and the impact they have on their customers, trade partners and communities, is as important as the products they sell. In short, where they remain passionate about the opportunities their business offers to deliver both profits and a positive contribution to society over the long term.

A Year in Review

2015 /

Michael D. Milligan/President and CEO

LAST YEAR I TOLD YOU TO WATCH THIS SPACE. I SUGGESTED THAT ON THE HEELS OF TWO

RECORD YEARS IN A ROW, WE WERE POISED TO REALIZE EVEN GREATER ACCOMPLISHMENTS

IN 2015. WELL, IT’S GOOD TO BE RIGHT.

It’s official—2015 delivered the promised three-peat. Three record years in a row on a consoli-dated basis, with each and every company contributing to the group’s success. Six of our nine companies realized record performances of their own, and all delivered strong strategic and operational progress. Every company in the group won new customers and increased mar-ket share, and every company expanded their product and service scope. It is hard to identify a dimension on which our businesses did not improve in 2015.

As also promised, our family grew in 2015 with the addition of HighRes Biosolutions to the group. Head quartered in Woburn, MA, HighRes designs and builds innovative, flexible automa-tion systems for pharmaceutical, biotech, and academic research laboratories, helping custom-ers to accelerate development and lower the cost of drug discovery, high throughput geno-typing, RNA screening, molecular diagnostics, and a range of other complex research activities.

Founded in 2004 by industry veteran Lou Guarracina, the company designs solutions for some of the sector’s most successful and demanding institutional clients, including Bristol-Meyers Squibb, AstraZeneca, The Broad Institute, Massachusetts Institute of Technology, and Oxford University, to name just a few.

After more than a year of getting to know one another, we were delighted when Lou and HighRes agreed to join the Axel Johnson Inc. family last June. And our partnership is off to a tremendous start with a 2016 backlog that is already more than double 2015 sales.

In 2015 we also welcomed to the group new col-leagues at Sprague, Kinetico, Parkson, Cadence, and Walk2Campus as each company acquired and integrated new operations into their respec-tive businesses. It was, once again, a year of material growth and expansion for each of our companies, with steady progress made in deep-ening our focus on our core energy, water, and medical technology sectors.

Over the years I have noted many times how our collective success ultimately flows from the intellect, energy, creativity, and commitment of the people who make up our group companies. Never was this more evident than in 2015. The results we realized this past year were entirely a function of the ingenuity and tireless efforts of the people who face our customers each and every day.

7.4%increase in EBITDA, which

grew to $119 million


Across the Corporation, in each and every company in the group, curious and driven minds experimented with new ideas, embraced vexing challenges, and sought out ways in which we could better serve our customers.


The first quarter of 2015 delivered some of the coldest, most inhospitable weather the Northeast has ever experienced, leaving Boston and much of New England buried in snow that was measured in stories for more than six weeks. Throughout the ordeal, Sprague’s terminal and fleet operators, its natural gas dispatchers and logistics manag-ers, and its distillate and residual supply and fulfillment professionals worked round the clock to ensure that no customer went dark or cold. It was a challenge of monumental proportions as ship and barge transportation ground to a halt and gas pipeline interruptions became a daily occurrence. Sprague’s ability to not only navigate, but excel in serving its customer base through these conditions contributed substantially to realizing yet another record year.

The team at Kinetico took on a challenge of a dif-ferent sort when they simultaneously launched new efforts to accelerate their penetration of the Western European restaurant drinking water market and substantially expand their distribution into mainland China. Western Europe has been at the vanguard of the trend to reduce bottled water sales through HoReCa (hotels, restaurant, and café) channels, and competition in this sector is increasingly dominated by product marketing strategies that demand sophisticated, brand- centric offerings. In turn, China, notwithstanding its first-world ambitions, is confronting severe urban drinking water challenges in virtually all

of its major cities. Decades of uncontrolled industrial development have resulted in munici-pal water systems suffering from a myriad of biological and chemical contaminants, for which the only practical solution is distributed water treatment.

Kinetico’s ingenuity in engineering customized products and go-to-market solutions for each of these very different market challenges played a large role in its achieving its fourth record year in a row.

Parkson, in turn, unleashed its own remarkable engineering creativity in the course of designing and building the world’s largest solar drying facil-ity for the Municipal Authority of Dubai during the year. The fully automated plant, completed in late 2015, is capable of processing more than 140,000 metric tons of solid waste a year, and reduced the Dubai municipality’s annual haulage and tipping fee expense by more than 80%. This effort also heralded Parkson’s developing focus on delivering turn-key projects for a customer base increasingly seeking a single point of respon-sibility for complex treatment challenges.

And, not to be outdone, after five years of research and development Cadence com-mercialized for one of its longtime customers a new product capability founded on a novel combination of six-axis Swiss machining and

laser cutting integrated into a single process. This new-to-the-world manufacturing technology enabled product performance capabilities here-tofore thought unobtainable, with a cost profile that is competitive with legacy product technolo-gies. This breakthrough, along with several other significant engineering innovations made possi-ble by the creativity and perseverance of the company’s talented manufacturing engineering team, powered Cadence—as well—to its fourth record performance year in a row.

Across the Corporation, in each and every com-pany in the group, curious and driven minds experimented with new ideas, embraced vexing challenges, and sought out ways in which we could better serve our customers. They took on difficult problems, and at every turn defined the objective as delivering a better outcome from the customer’s perspective—even at some cost to ourselves. And, once again, these efforts earned the sort of loyalty, repeat purchasing, and fair, sustainable, value sharing that enabled us to maintain the trajectory of record breaking collective performance.

So, where from here?

In truth, I can’t say with certainty that we will set new records for growth and profitability each and every year. We live in a world beset with chal-lenges, characterized by weak global economic

growth brought on by escalating regulatory fric-tion and increasingly polarized political rhetoric that seeks to place blame for the shortcomings of our circumstances instead of bringing us together to find ways to grow the pie for all.

What I can say for certain, however, is that if we continue to place the customer at the center of our collective focus, if we continue to invest in each other and in our capacity to explore, exper-iment, and challenge ourselves, we will continue to win and grow at the expense of those who are less ambitious. Those who look out on the world with a shorter-term horizon and believe that when they give something to their custom-ers they have lost something for themselves.

And that means more records ahead for us eventually.

This being said, I still like our chances for four years in a row. Stay tuned.

Michael D. MilliganPresident and CEO


FIVE-YEAR GROSS PROFIT CAGR OF

14.0%FIVE-YEAR EBITDA CAGR OF

16.9%

AJI EBITDA(dollars in millions)


2013

$64.

8

2014

$110

.7

2015

$118

.9

AJI SALES(dollars in billions)


2013

$4.8

2014

$5.3

2015

$3.7

0

15

30

45

60

75

90

105

120

AJI GROSS PROFIT(dollars in millions)


2013

$256

.0

2014

$333

.6

2015

$374

.9

0

50

100

150

200

250

300

350

400

SALES(dollars in billions)


0

1

2

3

4

5

6

0.0

1.2

2.4

3.6

4.8

6.0

TOTAL ASSETS(dollars in billions)


2011

$1.2

2012

$1.4

2013

$1.7

2014

$2.0

2015

$1.6

0.0

0.4

0.8

1.2

1.6

2.0

GROSS PROFIT(dollars in millions)


2011

$222

.2

2012

$216

.9

2013

$256

.0

2014

$333

.6

2015

$374

.9

0

80

160

240

320

400



2011

$4.0

2012

$4.2

2013

$4.8

2014

$5.3

2015

$3.7

2011

$4.0

2012

$4.2

2013

$4.8

2014

$5.3

2015

$3.7

0

1

2

3

4

5

6

EBITDA(dollars in millions)


2011

$63.

6

2012

$47.

2

2013

$64.

8

2014

$110

.7

2015

$118

.9

0

20

40

60

80

100

120



2013

$64.

8

2014

$110

.7

2015

$118

.9



2013

$4.8

2014

$5.3

2015

$3.7

0

15

30

45

60

75

90

105

120



2013

$256

.0

2014

$333

.6

2015

$374

.9

0

50

100

150

200

250

300

350

400



0

1

2

3

4

5

6

0.0

1.2

2.4

3.6

4.8

6.0



2011

$1.2

2012

$1.4

2013

$1.7

2014

$2.0

2015

$1.6

0.0

0.4

0.8

1.2

1.6

2.0



2011

$222

.2

2012

$216

.9

2013

$256

.0

2014

$333

.6

2015

$374

.9

0

80

160

240

320

400



2011

$4.0

2012$4

.22013

$4.8

2014

$5.3

2015

$3.7

2011

$4.0

2012

$4.2

2013

$4.8

2014

$5.3

2015

$3.7

0

1

2

3

4

5

6



2011

$63.

6

2012

$47.

2

2013

$64.

8

2014

$110

.7

2015

$118

.9

0

20

40

60

80

100

120

The Axel Johnson Group has a long tradition of building and developing companies around the world. The group has total revenues from wholly and partially owned businesses of $13 billion and over 22,000 employees across more than 25 countries. The Group consists of three separate and financially independent groups of companies.

/

The Axel Johnson Group

While legally and financially independent from one another, the three members of the Axel Johnson Group actively seek out opportunities that are mutually benefi-cial and share an extensive business network with activities that span the globe. The spirit of cooperation is the cornerstone of the Axel Johnson Group’s growth and success—past, present and future.

AXEL JOHNSON INC.Owns and develops companies with a focus on the energy, water, medical technology, housing, and building product sectors. Though based in North America, the companies of Axel Johnson Inc. compete in markets around the world. Sales for Axel Johnson Inc. were approximately $3.9 billion in 2015.

AXEL JOHNSON ABBuilds and develops businesses within trade and services in the European market, with an emphasis on the Nordic region. It is estimated that every day more than one million people come into contact with employees or the products and services of Axel Johnson AB. Sales for the wholly and partially owned companies in Axel Johnson AB were approximately $8 billion in 2015.

AXFAST ABOwns and develops commercial properties in Stockholm and properties for trade and logistics in Sweden. The market value of AxFast’s holdings totaled approximately $1 billion in 2015.


An AJI Company Since 1972/ Sprague embraces the idea that all energy

sources must contribute to the future of energy in North America.

Sprague


FOUNDED IN 1870 AS THE CHARLES H. SPRAGUE COMPANY, SPRAGUE (NYSE: SRLP) IS A LEADING

PROVIDER OF ENERGY PRODUCTS FOR MORE THAN 16,000 INDUSTRIAL AND COMMERCIAL CUSTOM-

ERS. INITIALLY SUPPLYING SOLELY COAL, AND THEN RESIDUAL FUEL OIL, SPRAGUE HAS STEADILY

EXPANDED ITS PRODUCT AND SERVICE LINES AND DISTRIBUTION NETWORK TO INCLUDE MOTOR

FUELS, HEATING FUELS, BIOFUELS, NATURAL GAS, BUNKER FUELS AND RELATED MATERIAL

HANDLING SERVICES FOR PRODUCTS AS DIVERSE AS CRUDE OIL AND WINDMILL COMPONENTS.

Sprague’s CapabilitiesREFINED PRODUCTS:Owns and/or controls a network of 19 terminals with a combined storage capacity of approximately 14.2 million barrels in the Northeast U.S. and Quebec, Canada. Through these facilities and an extensive network of thirdparty terminals, marketed 1.7 billion gallons of energy products in 2015.

NATURAL GAS:A natural gas provider since 1994, supplying more than 56 billion cubic feet of natural gas behind 46 utility locations across 12 states and Washington, D.C. by offering commercial, industrial, utility and wholesale customers an attractive alternative to traditional utility service.

MATERIALS HANDLING:Leverages Sprague’s terminal asset base and strategic port locations to receive, offload, store and process approximately 2.7 million short tons of bulk and break bulk goods and more than 266 million gallons of liquid bulk products.

An AJI company since 1972, Sprague embraces the

idea that all energy sources must contribute to the

future of energy in North America. The company is

committed to using its physical assets, logistical

expertise and market knowledge to increase the

efficiency and reduce the risk associated with trans

acting in an ever more complex and volatile energy

marketplace.

One of Sprague’s greatest strengths is its focus on

building enduring relationships with customers as

a provider of energy and logistics solutions, rather

than acting as a productspecific retailer. The prem

ise is simple—the most effective longterm growth

strategy for Sprague is to continue to support the

success of its customers. As such, the company is

committed to constantly evolving to provide cus

tomers with the optimal mix of energy, materials

handling, and risk management offerings best suited

to enhancing their operating performance.

In 2014, Sprague completed three important acqui

sitions: Metromedia Energy, a natural gas marketing

and electricity brokerage business; Castle Oil, the

largest deep water refined products terminal in

New York City; and the successful dropdown pur

chase of the Kildair terminal from AJI. All three

transactions were closed in the fourth quarter.

These new resources, together with Sprague’s

strong financial and operational momentum, posi

tioned the company to outperform the volatile

energy markets of 2015.

2015 HIGHLIGHTS

Sprague’s steadfast execution in meeting customer needs, and the successful integration of acquired assets, delivered a financial performance that eclipsed 2014’s landmark results. The business achieved a 13% yearoveryear increase in adjusted gross margin to $276 million in 2015, and increased its distributable cash flow by 20% to $90 million—another milestone for the company. This enabled another year of steady distribution growth for unitholders: 13% higher than in 2014. The company simultaneously kept its coverage ratio higher than most Master Limited Partnership (MLP) peers, ending 2015 with a distribution coverage level of 2.1 times.

Each of Sprague’s business segments made a meaningful contribution to the company’s success. Adjusted gross margin for the Materials Handling business rose 21%, reflecting a full year of crude storage at Kildair and the increased handling of windmill components at Searsport. Refined Products’ adjusted gross margin of $170 million was a 17% increase over 2014 and a record for the segment, primarily due to the acquisition of the Castle Oil terminal in the Bronx, New York.

One notable achievement came in early 2015, when Sprague was able to provide customers with an uninterrupted supply of natural gas during an unprecedented number of weather driven supply disruptions. At the same time, the former Castle terminal proved to be the local operational base the company had long sought to effectively support its extensive transportation fuel contracts throughout the New York City metropolitan area in the midst of a series of severe winter storms.

Sprague continued to grow its Natural Gas footprint and product offerings throughout 2015, while leveraging its logistics expertise to serve a larger customer base. Overall adjusted gross unit margins finished at 90 cents per dekatherm —more than 15% higher than in 2013—despite more muted cash market volatility in 2015. This metric is a key indicator of the progress the company has made in executing its downmarket growth strategy with smaller commercial users of natural gas.

Sprague ended 2015 with a permanent debt to EBITDA ratio of 2.5 times, and significant liquidity to finance future growth opportunities. The company’s strong balance sheet and robust

$90 millionof distributable cash flow,

increasing 20% year-over-year


financial performance place Sprague in an enviable position within the MLP space. Notable distribution growth and a robust coverage ratio demonstrate the resilience of Sprague’s business model. These attributes serve to further differentiate Sprague from its peers.

Today, Sprague is operating from a position of strength as it continues to pursue opportunities that expand its scale and earning power. At the same time, the company is investing in existing assets to grow its product and service offerings.

In 2015, Sprague completed a $3 million upgrade to the rack system in the Bronx terminal and

began a $5.5 million project at Kildair to return two excess storage tanks to distillate service. A $1 million investment in Searsport supported growth in the Materials Handling business by upgrading storage capabilities for windmill components. A $1.6 million dock upgrade at a New Hampshire terminal is also underway.

Sprague will continue to execute a strategy of prudent investments and intense customer service to deliver a stellar financial and operational performance.

Based in Portsmouth, New Hampshire, Sprague has a network of 19 owned and/or controlled refined products and materials handling terminals along the coast of the Northeast U.S. from New York to Maine and in Quebec, Canada.

PORTSMOUTH, NEW HAMPSHIRE

An AJI Company Since 1967/ Parkson offers leading technologies that

are used in virtually all steps of water and wastewater processing.

ParksonAJI: 2015 Annual Review 19

FOUNDED IN 1960, PARKSON BRINGS LEADING TECHNOLOGIES TO MARKET FOR USE IN MECHANICAL,

BIOLOGICAL AND SOLIDS PROCESSING APPLICATIONS WORLDWIDE, TREATING MORE THAN SEVEN

TRILLION GALLONS OF WATER EACH YEAR. VIRTUALLY ALL STAGES OF WATER AND WASTEWATER

PROCESSING ARE ENHANCED BY PARKSON INNOVATION: MECHANICAL AND PHYSICAL SEPARATION

OF WASTE STREAMS, BIOLOGICAL REMOVAL OF CONTAMINANTS, ADVANCED FILTRATION FOR

ENHANCED NUTRIENT REMOVAL, AND WASTE-MINIMIZING SOLIDS PROCESSING.

Parkson’s CapabilitiesMUNICIPAL:Applications include solutions for disinfection, headworks, clarification, filtration, nutrient removal, water reuse, biosolids and odor control.

INDUSTRIAL:Applications include headworks, pretreatment, boiler feed water, cooling tower filtration and wastewater treatment in markets for food and beverage, refining, produced water and pharmaceuticals.

AFTERMARKET:Parts, service, certified rebuilds and retrofits, and nextgeneration system upgrades to extend the life and economic benefits of Parkson’s installed base of equipment and address the evolving regulatory environment.

An AJI company since 1967, Parkson’s value proposition is

straightforward: to provide water treatment equipment that

delivers a significantly longer and more productive system life

cycle, reduced energy consumption, lower chemicals usage, and

a superior operator interface experience. Its broader ambition

as an AJI company is to operate in the water treatment space in

a way that makes a sustainable difference for all stakeholders

involved.

2014 marked a shift toward strong growth and profitability for

Parkson, with wellbalanced performance derived from four

main sources. These were: the realization of prior investments

in its core product portfolio; revenue growth from new product

introductions such as the MaximOS® and EcoCycle SBR®; the

successful execution of an extensive tar sands project for

Canadian Natural Resources Limited; and the broader tailwind

of a recovery in the municipal market.

Based in Fort Lauderdale, Florida, Parkson operates across the globe, with more than 25,000 installations worldwide.

FORT LAUDERDALE, FLORIDA

2015 HIGHLIGHTS

2015 was a year of solid profitability for Parkson, with the core business delivering a better than 12% return on equity (ROE) despite a slight decline in municipal channel revenues. This was more than offset by strong demand from the aftermarket and industrial verticals. Operational improvements dramatically reduced the cost of quality by better than 99%. This contributed to a 20% yearoveryear margin improvement, resulting in the highest margin of the company’s past five years.

Parkson’s balanced approach to the use of capital is designed to support core business growth while investing in new products and services to expand the company’s addressable markets. In 2015, the company made several new investments that focused on the industrial and international markets, as well as new product introductions:

Equanox Systems™ license: The company signed an agreement for a longterm license with Equanox, a well established player in the North American food and beverage market. The partnership gives

Parkson greater access to industrial channels, new biological process offerings, and valuable knowledge and experienced resources in biological process engineering.

Dubai solar dryer: In December, Parkson completed the startup of the world’s largest solar biosolids dryer, purposebuilt for Dubai Municipality. The municipality lacked the ability to process the sludge generated at one of its largest treatment plants for beneficial reuse. Dubai Municipality entrusted Parkson with the electro mechanical design, as well as the supply and installation of this landmark solution.

Ongoing strategic investments: The company also continued to invest in its MaximOS® onsite water disinfection technology, completing its first largescale pilot of the MaximOS® RIO S unit in 2015—a new product that decreases delivered cost, improves ease of operations and reduces maintenance. This innovation has opened the door to substantially largerscale projects, and Parkson anticipates that the MaximOS® RIO S will become a significant new product in its lineup over the coming year.

20%year-over-year margin

improvement

In addition, the company expanded its service offerings for MaximOS® systems by delivering its first design/build project for the City of Richland, Washington. The project required Parkson to design, construct, install and start up onsite disinfection systems at three separate plants in the city’s system.

Parkson also invested in core business growth by participating in an Energy Savings Performance Contract that provided an opportunity to test a new channel to market. The contract with the City of Riverbank, California involved retrofitting treatment ponds with Parkson’s Biolac® WaveOX™ systems. This installation is expected to save the 23,000 residents of Riverbank up to 65% of the total cost for electricity used for wastewater treatment each year.

Recurring revenue: Parkson continues to extract value from over 25,000 installations and more than 50 years of superior aftersale customer service. This has driven aftermarket parts and service growth of more than 15% since 2013. It was particularly evident during the Omaha, Nebraska—Missouri River project, which involved replacing four large AquaGuard® units after 25

years of service. Parkson’s longterm relationship with this customer was a major factor in winning the contract, and led to an expanded scope that included three new AWP 17 wash presses in a sluicing system.

Parkson’s disciplined attention to all areas of the business fostered profitable growth in 2015, while delivering longterm benefits to customers. The company’s investments fund unique solutions, longer and more productive system lifecycles, reduced energy consumption, lower chemicals usage, and a superior operator interface experience.


KineticoAn AJI Company Since 2006/ Kinetico is a leading

manufacturer of premium water treatment systems for the residential, commercial and OEM markets.


FOUNDED IN 1970, KINETICO IS RENOWNED FOR OFFERING DIFFERENTIATED WATER TREAT-

MENT PRODUCTS CHARACTERIZED BY EXCEPTIONAL PERFORMANCE. AROUND THE WORLD,

MORE THAN ONE MILLION KINETICO SYSTEMS ARE IMPROVING OVER 100 MILLION GALLONS OF

WATER EACH DAY.

Kinetico’s CapabilitiesRESIDENTIAL:Water softeners, drinking water systems and wholehouse water treatment systems to soften water and remove contaminants such as sulfur, chlorine, bacteria and viruses.

COMMERCIAL AND INDUSTRIAL:Systems to enhance water quality for commercial and industrial applications, including hospitality, food service, educational, medical, assisted care and HVAC. Aftermarket support to extend the life and economic benefits of the equipment.

CHANNEL NETWORK:A network of authorized independent dealers and international distributors in nearly 100 countries, with new channels under development.

An AJI company since 2006, Kinetico has built its business upon a highly innovative water conditioning system powered by the force of moving water rather than electricity. The nonelectric technology of Kinetico products makes them ideally suited for today’s environmentally conscious world seeking better water solutions.

Kinetico sells its products to the residential market primarily through an independent network of professional water treatment dealers. In recent years, the company has also continued to grow its OEM business that addresses commercial water treatment applications in the restaurant, hospitality and specialty markets. Restaurants, in particular, are a burgeoning market for the company.

In 2014, Kinetico forged a number of important strategic relationships. The company secured placement of its Kube® underthesink water filtration device in more than 2,000 Home Depot® stores in the United States and in every Lowe’s® store in Canada. In Europe, Kinetico expanded its capabilities in France and other national markets. And in Asia, the company finalized a multiyear, multimillion dollar agreement with KPA, a leading Chinese distributor, to sell Kinetico products through premier retailers, builders and spas.

2015 HIGHLIGHTS

Kinetico’s passion for changing lives through better water solutions continues to translate into high growth and a strong competitive position. In 2015, Kinetico generated its sixth consecutive year of doubledigit growth in its local markets. The company’s existing lines of business performed well yearoveryear, with all units in the European and North American markets exceeding 2014 sales levels.

The residential business was particularly strong in 2015—a landmark year for Kinetico’s U.S. and UK dealers. Innovative consumer promotions and sales effectiveness programs helped Kinetico’s dealer networks exceed historical benchmarks. In addition, the company’s commercial business drove doubledigit growth through partnerships with Ecolab®, Hobart® and Winterhalter®, as well as direct commercial relationships with Darden® and other major restaurant chains.

Another highlight was Kinetico’s growth in China, where the company built on its successful 2014 launch of wholesale and retail lines. Kinetico has important new partnerships in China that expand its channels and geographies. A prime example is the company’s agreement with Vaillant®, a major global provider of boilers and hot water equipment.

Elsewhere in the world, British Gas®, the UK’s largest heating service provider, selected Kinetico to work with its service engineers to provide water treatment equipment to residential customers. And in the United States, The Home Depot® featured Kinetico’s Kube® underthesink filtration system with a multimonth endcap promotion. The Kube® was also given the lead position in the water treatment category in 1,500 Home Depot® stores.

9.4%REVENUE GROWTH

AJI: 2015 Annual Review

25

2015 was also a year when Kinetico took important actions to position itself for the future. The company acquired a majority stake in Aquacare, the largest water treatment provider in Belgium. The acquired operations will support the rollout of Kinetico’s successful frontofthehouse offering for highend restaurants, and its differentiated inhome and restaurant service platforms.

In addition, Kinetico made significant investments in operational capabilities in 2015. These included the next generation of lean manufacturing and operational improvement programs —simultaneously improving product quality and service levels for customers, while controlling the cost base. The company also invested in its core valve and water filtration technologies to drive market awareness and develop powerful new products for the future.

Each of these initiatives has been undertaken within the framework of Kinetico’s core values of environmental stewardship and transforming lives through better water solutions. The company is committed to making reliable, economical and sustainable water treatment accessible to homes and restaurants. Kinetico’s approach has proved to be the bedrock of its success—but more important, it improves the lives of millions of people through better water.

Based in Newbury, Ohio, Kinetico also has offices in Ontario, Canada, the UK,

Denmark, France, Germany and Belgium.

NEWBURY, OHIO


HighRes Biosolutions

FOUNDED IN 2004, HIGHRES OFFERS MODULAR SYSTEMS AND BENCH-TOP DEVICES USED BY PHAR-

MACEUTICAL, BIOTECH AND ACADEMIC RESEARCH LABORATORIES. ITS PRODUCTS ADAPT EASILY TO

DYNAMIC LABORATORY ENVIRONMENTS AND EVOLVING RESEARCH NEEDS.

The HighRes mission is to provide customers with turnkey, validated solutions that are ready to use upon delivery. In addition to a focus on modularity and integration, the company is differentiated by its ability to take complex projects from concept to completion with great speed and efficacy. Its products help scientists accelerate drug discovery, high throughput genotyping, siRNA screening, next generation sequencing sample prep, biorepository science, molecular diagnostics and other critical research activities.

Initially, HighRes focused on its core competencies of highthroughput screening and compound management to support basic research for pharmaceutical companies. The company subsequently extended its portfolio to include other types of laboratory automation. Over the past two years, HighRes has focused on genomics applications such as DNA/RNA extraction,

genotyping and highthroughput sequencing with nextgeneration sequencing technologies.

Cellario™ is one of the company’s flagship proprietary products—a cuttingedge suite of scheduling software for the multifunctional control of robotics platforms. Cellario’s flexible scheduling capabilities and advanced flow control options optimize both static and dynamic scheduling domains. The software can easily be integrated with standard, thirdparty laboratory information management systems (LIMS), as well as custom inhouse LIMS and HighRes’ own LIMS offerings.

In addition to systems and software, HighRes offers innovative lab automation devices and a revolutionary line of labware storage solutions, including carousels, incubators and freezers. All HighRes’ products and systems are designed to make the most efficient use of precious laboratory square footage.

An AJI Company Since 2015/ HighRes is a leader in the

design and manufacturing of highly flexible, innovative robotic systems and laboratory devices.


AJI SINCE 2015In June 2015, AJI acquired a majority interest in HighRes, giving the company new financial solidity and the resources to support its growth trajectory. The partnership will allow the company to take a more aggressive approach in accelerating product development, leading to new industryleading products in the next few years.

2015 HIGHLIGHTSThe partnership between AJI and HighRes was a tailwind to an already strong year—the company ended 2015 with approximately twice the bookings it realized in 2014.

Furthermore, HighRes’ commitment to innovation led to three notable introductions in 2015. First, the company debuted CoLAB™, the first truly collaborative robotics platform for life science research. CoLAB™ gives scientists the means to interact directly with robots without the need for complex procedures or cumbersome protections. Second, HighRes launched Cellario Connect™, which gives users control over laboratory systems and devices using their smartphones and tablets.

And third, HighRes was instrumental in introducing potent mass spectrometry capabilities into screening laboratories. In the first of several planned collaborations with innovation partner Bruker Daltonics, HighRes created the MALDI PharmaPulse™—a breakthrough, highthroughput screening solution that helps pharmaceutical, biotech and other customers accelerate drug discovery and development.

Another exciting highlight of 2015 was a multiyear agreement between HighRes and global pharmaceutical and biologics firm AstraZeneca. The goal of this partnership is to enable the screening of approximately two million chemical structures per drug target.

The AstraZeneca agreement provides for the development and deployment of several new screening systems that leverage nextgeneration robotics technology originally developed for the European Space Agency. The core robotics at the heart of these systems are both lightweight and powerful—they can be operated without the extensive safety measures required by traditional laboratory automation systems. The new technology will enhance interaction between the automation system and the user, while retaining the modularity and flexibility that are the hallmarks of HighRes quality. AstraZeneca plans to pilot these new systems at its global center for research and development in the UK.

Now in its first full year as an AJI company, HighRes is expanding its sales, support and product development operations to reach a larger segment of the market in 2016.

Based in Woburn, Massachusetts, HighRes has a global presence, with installations, service

and support in North America, the UK, Europe and Asia.

WOBURN, MASSACHUSETTS

Cadence is a preeminent single-source contract manufacturer in the medical device market.

CadenceAn AJI Company Since 2008/


2015 HIGHLIGHTSCadence continued to generate strong financial results in 2015, driven in part by the strategic investments of the prior year. The company increased earnings per share by 20% to a record $3.66, grew full year revenue 17% to $88.4 million, and set new quarterly revenue records in each of the last three periods of 2015.

A number of other notable accomplishments in 2015 are expected to be accretive to revenue and earnings going forward. First, Cadence completed the bulk of the integration of the former Plainfield Precision operations, and focused on capturing synergies within its footprint. By yearend, more than 20% of new projects involved multiple company facilities.

Second, the company created a divisional structure within its organization to improve scalability. Under the new structure, the Metals Division includes precision metals capabilities (Virginia, Rhode Island and Wisconsin) and the Finished Device Division includes design and finished device assembly and injection molding (Pennsylvania, Massachusetts and the Dominican Republic).

Third, the company took multiple actions to accommodate future demand: it began construction on a 62,000 square foot facility in Wisconsin; expanded its processing capacity for Nitinol, a material wellsuited to minimally invasive surgical devices; and introduced an innovative CNC machine that combines laser cutting and Swiss machining in one platform. This allows for greater design intricacy while significantly reducing costs.

And fourth, a large new platform program in Virginia is nearing commercialization after several years of investment. All four of these initiatives should be tailwinds for future financial growth.

From the perspective of market dynamics, the Affordable Care Act continues to spur change, including industry consolidation and global medical device outsourcing. Cadence has the agility to adapt to external changes in its operating environment, while fostering an internal culture of continuous improvement. In 2015, the company formalized its Cadence Business System (CBS), a type of lean business management that engages all employees in common goals, including value creation. The CBS framework, together with prudent investments in scale, will serve Cadence well going forward.

Headquartered in Staunton, Virginia, Cadence also has facilities in Rhode Island,

Pennsylvania, Massachusetts, Wisconsin and the Dominican Republic.

STAUNTON, VIRGINIA

FOUNDED IN 1985, CADENCE MANUFACTURES VITAL ELEMENTS OF THE MOST COMPLEX MINIMALLY

INVASIVE SURGICAL DEVICES IN THE WORLD. ITS BRANDS ARE RENOWNED FOR THEIR HIGH PER-

FORMANCE AND CRITICAL RELIABILITY.

The company’s expertise in the medical device market encompasses:• Critical components with a focus

on the “business end” of the devices, where the real surgical work gets done.

• Complex sub-assembly manufac-turing techniques such as laser welding and overmolding, leading the market in precision joining technologies.

• Integrated supply chain services, including clean room assembly and packaging, and sterilization.

In addition, the company provides precision products for the Life Science market under the Cadence Science® brand and high performance specialty blades under the Endurium® and Optima® brands.

At the forefront of Cadence’s strategic plan is an unrelenting focus on innovation. The company is committed to continually seeking out new manufacturing technologies to serve the diverse needs of its customers and create value for its investors.

AJI SINCE 2008AJI made its initial investment in Cadence in 2008 to help fund the company’s multiyear growth plan. Cadence used this capital to expand its production capacity through acquisition, and began building the infrastructure needed to transition from a component supplier to an assembly and finished device supplier. In 2011, AJI invested an additional $10 million of growth capital, which was used

to purchase over $8 million of new equipment and fund nearly $2 million of engineering, research and development services.

2014 was a milestone year of financial success and operational development for Cadence. The company purchased Plainfield Precision, adding precision metal stamping and plastic injection molding to the portfolio, and doubled the company’s footprint to six locations. In Virginia, Cadence opened a new Advanced Welding Lab™ with custom applications that offer functional and cost advantages to customers.

Walk2CampusWalk2Campus is a real estate acquisition and management company focused on providing pedestrian-oriented housing for the off-campus residential market. The company owns and manages its real estate in close proximity to carefully selected universities.

An AJI Company Since 2010/


WALK2CAMPUS PRESENTLY SERVES LONGWOOD UNIVERSITY IN FARMVILLE, VIRGINIA; THE

UNIVERSITY OF VIRGINIA’S COLLEGE AT WISE; WINTHROP UNIVERSITY IN ROCK HILL, SOUTH

CAROLINA; COASTAL CAROLINA UNIVERSITY IN CONWAY, SOUTH CAROLINA; WESTERN KENTUCKY

UNIVERSITY IN BOWLING GREEN, KENTUCKY; THE STATE UNIVERSITY OF NEW YORK AT CORTLAND;

THE UNIVERSITY OF TENNESSEE AT CHATTANOOGA; AND PLYMOUTH STATE UNIVERSITY IN

PLYMOUTH, NH.

Walk2Campus provides highquality student housing in close proximity to carefully selected public universities. The company believes that location represents the only sustainable competitive advantage in student housing—consequently, it owns and manages real estate assets that are no more than onehalf mile from campus.

This “walkability factor” is a hallmark of the company’s value proposition: to provide safe, affordable student housing that is appealing to both students and their parents and, at the same time, supports the interests of the university and its surrounding community.

AJI SINCE 2010AJI made its first investment in Walk2Campus in 2010, purchasing 22% of the company and helping to fund the expansion of its asset network. This was followed by further equity investments of $15 million and $6.9 million in 2011 and 2012, respectively. The 2012 commitment was part of a larger $21.2 million coinvestment by AJI and Markel Corporation (NYSE: MKL).

In May 2015, AJI and Markel both made an additional equity investment in Walk2Campus, each now owning 47% of outstanding shares.

2015 HIGHLIGHTSWalk2Campus achieved compelling results in 2015. The company increased its scale and operating leverage, outpacing strong yearoveryear revenue growth of 33% with net operating income growth of 44%.

In June 2015, the company purchased a substantial scattered site portfolio in New Hampshire near Plymouth State University, encompassing 365 student bedrooms within easy walking distance of campus. Through the first six months of ownership, these assets generated net operating income ahead of expectations.

Internally, 2015 was a year of substantial cultural progress. Walk2Campus instilled clear core values and sharpened its service model. On the sustainability front, the company monitored electricity usage through enhanced reporting, giving property managers the tools to identify and educate tenant outliers. The company also piloted an energy conservation competition in Rock Hill using Wattvision energy monitoring appliances. This program, which won the York County, South Carolina Green Business Award, provided realtime electricity usage data to tenants and rewarded those who conserved.

Looking forward, Walk2Campus has a robust pipeline of future opportunities in existing markets, including new construction in Chattanooga, Tennessee slated for mid2016 completion, and several potential partnerships in Virginia with the Longwood University Real Estate Foundation. The Longwood opportunities potentially include placement of an athletic facility and university bookstore on property owned by Walk2Campus. The company believes that non traditional partnerships are important to its longterm growth strategy, and remains open to emerging opportunities in all of its markets.

When classes begin in the fall of 2016, Walk2Campus expects to house over 2,500 tenants in eight university locations. This includes the 2,394 bedrooms as of yearend 2015, and another 149 under contract or construction.

The common thread across all these initiatives is an important distinction in the Walk2Campus strategy. The company is committed to serving all four of its customer groups equally: students, parents, universities and towns. This philosophy is the bedrock of the Walk2Campus’ business model; that is, to create longterm stakeholder value by buying, building and branding assets in targeted university markets, and managing them for the balanced and interrelated needs of each of our core customers.

AJI: 2015 Annual Review

33

ConforMIS

FOUNDED IN 2004, CONFORMIS IS PIONEERING A PATIENT-SPECIFIC APPROACH TO ORTHOPEDIC

IMPLANTS AND INSTRUMENTATION USING PROPRIETARY TECHNOLOGY SUPPORTED BY NEARLY 500

PATENTS AND PATENT APPLICATIONS.

ConforMIS is one of the fastest growing orthopedic companies, serving the multibillion dollar global orthopedic joint replacement market. The company’s total and partial knee replacement solutions for osteoarthritis—the iTotal® CR, iTotal® PS, iUni® and iDuo®—are individually designed for each patient. They have been cleared by the U.S. FDA and are CE Marked in Europe.

By manufacturing customized implants, ConforMIS is addressing many of the primary causes of patient dissatisfaction associated with offtheshelf total knee replacements, including pain from an improper fit and malrotation, and functional limitations due to altered kinematics (movement of the knee).

ConforMIS’s imaging technology converts a standard CT scan into an implant that is precisely sized and shaped to fit the patient. The same data that determines the implant’s design is then utilized to create precise placement and cutting guides. This eliminates the need for manual sizing, reduces surgical time and trauma, and improves reproducibility.

The company also utilizes a justintime delivery model that is unique in orthopedics, with a sterile kit that contains the implants and singleuse instruments needed for the procedure. The ConforMIS model reduces hospital inventory management, lowers sterilization costs, and accelerates operating room procedure time. By contrast, offtheshelf implants are stored locally at the hospital, requiring inventory management, and come with multiple trays of instruments that must be cleaned and resterilized before each procedure.

AJI SINCE 2011In 2011, ConforMIS completed one of the largest financings in private healthcare history: approximately $89 million to fund sales and marketing, research and development, and manufacturing infrastructure. The capital came principally from AJI and several other privatecapital funds originating in the United States, Europe, Asia and the Middle East. These investors recognized the longterm potential of the company’s portfolio of intellectual property, and the value of its relationships with some of the world’s most sophisticated orthopedic surgeons.

In 2014, several clinical studies were published that demonstrated the superiority of ConforMIS customized implants over traditional, offtheshelf implants. Clinical researchers documented that patients with iTotal implants have more natural knee motion, greater stability, higher functional outcome scores and higher patient satisfaction. On the economic front, iTotal implants were shown to significantly reduce the risk of adverse events and improve discharge status with no increase in hospital costs.

2015 HIGHLIGHTSOn July 7, 2015, ConforMIS announced the closing of its initial public offering of 9,000,000 shares of common stock at a price of $15.00 per share, before underwriting discounts. The offering was fully subscribed, and ConforMIS granted the underwriters an option to purchase up to 1,350,000 additional shares of common stock at the public offering price, less the underwriting discount. ConforMIS common stock is traded on the NASDAQ Global Select Market under the symbol CFMS.

In its first public filing of full year results, ConforMIS reported that total revenue in 2015 increased by 39% yearoveryear to $66.9 million, including royalty revenue of $4.1 million related to patent license agreements. Total revenue increased 45% yearoveryear on a constant currency basis.

Product revenue increased 30% yearoveryear on a reported basis and 36% on a constant currency basis. U.S. product revenue was up 38% yearover

year, while Rest of World product revenue was up 12% yearoveryear on a reported basis and 33% on a constant currency basis.

Total gross profit improved to 37% of revenue, or $24.5 million, in 2015, compared with 36% of revenue, or $17.5 million, in 2014. Total operating expenses in 2015 increased to $80.4 million, reflecting a 28% yearoveryear increase.

In 2016, ConforMIS has several key catalysts working in its favor. The company has expanded its addressable market by approximately threefold with the launch of its iTotal PS® partial knee implant line in March. Geographically, a targeted regional strategy is increasing the number of Metropolitan Statistical Areas in which ConforMIS has at least 10% market share of all primary knee replacements.

The new Medicare Comprehensive Care for Joint Replacement Model (CJR) proposed by the Center for Medicare and Medicaid Innovation is another exciting avenue for growth. ConforMIS has signed new contracts that give the company access to more than 50 additional hospitals in the CJR program, and is leveraging its economic value proposition to this larger base.

The ability to give patients a longlasting, natural feeling knee has been the mission of orthopedic innovation for decades. ConforMIS’s success in addressing this goal bodes well for the company’s growth trajectory in 2016 and subsequent years.

An AJI Company Since 2011/ ConforMIS (NasdaqGS: CFMS) is a

medical technology company that uses its proprietary iFit platform to develop, manufacture and sell joint replacement implants customized to each patient’s unique anatomy.

ConforMIS conducts its manufacturing activities in state-of-the-art design and manufacturing facilities in Bedford and Wilmington, Massachusetts.

BEDFORD, MASSACHUSETTS


Mountain Lumber

With facilities in Renick, West Virginia, and Ruckersville, Virginia, Mountain Lumber is dedicated to the reuse of reclaimed wood in the production of residential and commercial flooring and millwork.

An AJI Company Since 2007/

FOUNDED IN 1974, MOUNTAIN LUMBER HAS TRAVELED THE GLOBE TO RESCUE RARE WOODS FROM

DETERIORATING STRUCTURES NO LONGER IN USE—RANGING FROM CENTURY-OLD AMERICAN FAC-

TORIES TO CIDER VATS FROM IRELAND AND RAILROAD CARS FROM RUSSIA—TO CREATE BEAUTIFUL

WOOD PRODUCTS.

By reusing the wood from these deteriorating locations, mountain lumber preserves a little bit of history with every reclaimed floor, beam, mantle and custom milling product it delivers. Each piece of reclaimed wood is handselected for its character and beauty, and the company remains committed to uncompromised quality.

AJI SINCE 2007In 2007, AJI acquired 50% of Mountain Lumber and guided the company through a strategic plan for market expansion. Within two years, Mountain Lumber introduced its FSC® Harvest product line, an economically priced flooring product that uses new woods from sustainably managed forests in accordance with guidelines set by the Forest Stewardship Council. Further investments by AJI funded inhouse capabilities for engineered flooring and prefinished products. By broadening its scope in this way, the company achieved greater control over production cycles and the final appearance of its wood.

In 2013, AJI backed Mountain Lumber’s combination with Renick Millworks—a West Virginia company with a similar product line and commitment to quality. Mountain Lumber gained a distribution sales model through the combination, which also created manufacturing and purchasing economies of scale.

To optimize its new footprint, the company began executing a plan to close its Virginia production facility and open a much larger operation in West Virginia for prefinishing production work. By consolidating its sawing and milling activities in West Virginia, Mountain Lumber determined to strengthen its product and service offerings while reducing costs. The company emerged in a much better position to serve its growing commercial and residential customer bases.

As the result of these initiatives, 2014 was a year of strong growth for Mountain Lumber, highlighted by accelerating sales in the commercial sector. The company consolidated its operations in West Virginia and closed redundant operations in Virginia as planned, and brought a new prefinishing plant online. These activities significantly improved operating results in the last half of 2014.

2015 HIGHLIGHTS2015 was a superlative year for Mountain Lumber. The company’s revenue grew by 42%, fueled primarily by strong commercial sales growth. It was also the first full year of operation in Mountain Lumber’s new West Virginia facilities, which had a beneficial impact on results. In addition to capitalizing on capacity, the transition to West Virginia allowed the company to further improve its cost base and operate more cohesively overall.

While the past three years have been a planned transformation for Mountain Lumber, the company’s dedication to quality and customer service remains unchanged. By developing new competencies in product engineering and finishing, the company is serving two core objectives: broadening its customer relationships to include a larger set of commercial and retail clients, and expanding its capabilities to address a greater range of design applications. These competencies will sustain the business through the inevitable cyclicality of the residential housing market and keep it relevant as design styles evolve.

In pursuing this plan, Mountain Lumber is successfully building on its uniqueness as a pioneer in the environmentally friendly wood market. The company will continue to strengthen its presence in both the residential and commercial sectors, with a value proposition that is perfectly attuned to an environmentally conscious marketplace.


DecisyonAn AJI Company Since 2012/ Headquartered in San Francisco, California, Decisyon provides

enterprises, manufacturers and global brands with the only unified platform for building intelligent, end-to-end solutions for the Internet-of-Everything.

FOUNDED IN LATINA, ITALY IN 2005, DECISYON IS TRANSFORMING THE INTERNET OF EVERYTHING

(IOE) INTO REAL-WORLD VALUE FOR DATA-DRIVEN BUSINESSES, SYSTEMS INTEGRATORS AND

COMMERCIAL DEVELOPERS. DECISYON MARKETS ITS SOFTWARE IN THE U.S. AND EUROPE THROUGH

PARTNERS AND DIRECT SALES, AND ITS SOLUTIONS ARE USED IN OVER 200 COMPANIES WORLDWIDE.

The company’s flagship product, Decisyon 360, is the industry’s only unified platform for rapidly building intelligent endtoend IoE solutions that connect people, processes, information, and “things” (sensors, devices and equipment).

Unifying big data aggregation, advanced analytics, decisionmaking, business logic, and process execution capabilities in a collaborative environment, Decisyon 360 radically simplifies the creation of solutions that scale to the realtime requirements of the IoE—all while slashing development time and cost.

2015 HIGHLIGHTS2015 was an eventful year for Decisyon, highlighted by a strategic move into the Industrial Internet of Things space. This was formalized in March, when Decisyon joined the Industrial Internet Consortium (IIC). Cofounded by AT&T, Cisco, General Electric, IBM and Intel, the IIC’s mission is to accelerate the development, adoption and widespread use of interconnected machines and devices, intelligent analytics and people at work.

In a related move, in April the company released a new version (5.1) of its core Decisyon 360 platform, which deepened support for big data, IoE realtime analytics, and process methodologies, including key features such as: complex event processing, to extract and process realtime intelligence and patterns from IoE data; advanced business rules management, to define, deploy, and execute automated rules that help businesses streamline operations, lower cost and minimize timetoaction; R integration, to easily incorporate statistical and analytical algorithms for advanced analysis, data mining and pattern recognition; Historian database integration; and advanced inmemory management, to accelerate processing speed by supporting Hadoop and Massively Parallel Processing (MPP) databases such as HANA and Kognitio.

In May, Decisyon announced a new OEM commercial partnership with Genpact®, a global leader in digitally powered business process management and related services. Genpact®, a former unit of GE, chose to deploy Decisyon 360 as part of its new generation of managed services for supply chains and assetintensive industries. Genpact® will leverage the Decisyon 360 platform to help its customers drive operational excellence, enhance asset optimization, and benefit from advanced analytics.

In Europe, Decisyon continues to serve its traditional manufacturing, supply chain and social CRM base, both directly and together with its partners. Notably, in 2015, the company successfully executed the pilot for a large, twoyear, multinational expansion project at J&J. Decisyon expects that this work will not only grow its business with J&J, but will establish an important reference use case that supports its work with other pharmaceutical and manufacturing clients, and the consulting firm partners who serve them.

In the latter half of 2015, Decisyon began working with large technology vendors who are investing in the Industrial Internet of Things solutions for their own customer bases. Decisyon’s environment for graphical (nocode) application development creates exciting new possibilities for these vendors. Consequently, Decisyon was invited to install its software in both the Dell® Santa Clara and HP® Palo Alto innovation centers. The company also developed an IoTbased supply chain management prototype with HP®, which was showcased at major industry events in Barcelona, London and San Francisco.

Decisyon’s many 2015 accomplishments served to reinforce the company’s value proposition and the growing demand from its target markets. In 2016, the company will continue to execute its strategy of serving its customers with innovative and powerful software products, while nurturing partner relationships that will yield operational leverage and accelerate growth.



Financial Highlights

2015 2014 2013

Income Statement Data

Net Sales $ 3,680,347 $ 5,265,290 $ 4,847,825

Gross Profit 374,930 333,601 255,993

Selling, General, and Administrative Expense 252,459 219,878 187,647

Other Operating (Income) Expense 3,584 3,032 3,569

EBITDA $ 118,887 $ 110,691 $ 64,777

Balance Sheet Data

Cash and Equivalents $ 282,849 $ 298,401 $ 192,699

Accounts Receivable, Net 197,757 318,366 301,198

Inventories, Net 267,194 409,598 476,705

Property, Plant and Equipment, Net 286,128 285,631 236,806

Goodwill and Identifiable Intangibles 218,043 190,291 176,859

Other Assets 362,105 456,984 289,221

Total Assets $ 1,614,076 $ 1,959,271 $ 1,673,489

Accounts Payable and Accrued Liabilities $ 205,310 $ 331,346 $ 288,554

External Debt—Working Capital Facility 332,500 503,200 394,214

External Debt—Other 322,203 349,698 215,086

Other Liabilities 197,426 247,141 264,339

Total Liabilities 1,057,439 1,431,385 1,162,193

Total Equity $ 556,637 $ 527,887 $ 511,296

(1) AJI’s financials are shown on a mark-to-market (“MTM”) basis. AJI also prepares consolidated financial statements each year in conformity with U.S. generally accepted accounting principles (“GAAP”). The company’s GAAP and MTM financial statements differ primarily as a result of the company’s decision not to formally qualify as hedges, per GAAP, the energy derivatives that its Sprague subsidiary uses for commodity hedging purposes. The company believes that the MTM basis provides information that is the most useful for understanding the company’s economic performance.

AJI CONSOLIDATED(1)

(In Thousands)

7.4%EBITDA GROWTH IN 2015

12.4%GROSS PROFIT GROWTH IN 2015



2013

$64.

8

2014

$110

.7

2015

$118

.9



2013

$4.8

2014

$5.3

2015

$3.7

0

15

30

45

60

75

90

105

120



2013

$256

.0

2014

$333

.6

2015

$374

.9

0

50

100

150

200

250

300

350

400



0

1

2

3

4

5

6

0.0

1.2

2.4

3.6

4.8

6.0



2011

$1.2

2012

$1.4

2013

$1.7

2014

$2.0

2015

$1.6

0.0

0.4

0.8

1.2

1.6

2.0



2011

$222

.2

2012

$216

.9

2013

$256

.0

2014

$333

.6

2015

$374

.9

0

80

160

240

320

400



2011

$4.0

2012

$4.2

2013

$4.8

2014$5

.32015

$3.7

2011

$4.0

2012

$4.2

2013

$4.8

2014

$5.3

2015

$3.7

0

1

2

3

4

5

6



2011

$63.

6

2012

$47.

2

2013

$64.

8

2014

$110

.7

2015

$118

.9

0

20

40

60

80

100

120



2013

$64.

8

2014

$110

.7

2015

$118

.9



2013

$4.8

2014

$5.3

2015

$3.7

0

15

30

45

60

75

90

105

120



2013

$256

.0

2014

$333

.6

2015

$374

.9

0

50

100

150

200

250

300

350

400



0

1

2

3

4

5

6

0.0

1.2

2.4

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4.8

6.0



2011

$1.2

2012

$1.4

2013

$1.7

2014

$2.0

2015

$1.6

0.0

0.4

0.8

1.2

1.6

2.0



2011

$222

.2

2012

$216

.9

2013

$256

.0

2014

$333

.6

2015

$374

.9

0

80

160

240

320

400



2011

$4.0

2012

$4.2

2013

$4.8

2014

$5.3

2015

$3.7

2011

$4.0

2012

$4.2

2013

$4.8

2014

$5.3

2015

$3.7

0

1

2

3

4

5

6



2011

$63.

6

2012

$47.

2

2013

$64.

8

2014

$110

.7

2015

$118

.9

0

20

40

60

80

100

120


1) REVENUE SENSITIVITY TO OIL PRICE VOLATILITY

Revenue from the sale of energy products constitutes the greater part of AJI’s sales. The company’s net sales figures, therefore, are highly dependent on fluctuations in oil and natural gas prices, and can vary materially from one year to the next. Energy price volatility can also have a significant impact on the recorded value of accounts receivable and inventory, as well as the level of utilization of Sprague’s credit facility related to working capital.

It should be noted, however, that oil and natural gas price levels are not well correlated with the company’s ultimate profitability. Rather, the level of profit generated by the company depends primarily on the company’s successful management of marketing margins and logistics activities, on the opportunity presented by futures market prices to store petroleum products profitably from one month (or season) to the next, and on the effectiveness of the company’s supply and hedging activities, among other factors.

2) WORKING CAPITAL DEBTAJI had approximately $655 million of debt on its Balance Sheet as of December 31, 2015. Roughly 95% of this debt was from its Sprague subsidiary’s senior secured credit facility. This facility is used to fund working capital and acquisitions at Sprague. The facility is secured by substantially all of the assets of Sprague Resources and its subsidiaries. Sprague’s utilization of the facility to finance its seasonal working capital levels throughout the course of the year is consistent with industry practice and within industrystandard parameters established by its bank syndicates. Management views these secured credit facilities as an economic, flexible and conservative source of financing; by design, a significant portion of the debt is repaid in the normal course of business as the assets underlying the borrowings are converted to cash.

3) DERIVATIVESAJI values eligible financial assets and financial liabilities on a fair value basis.

Commodity DerivativesIn the normal course of business, AJI’s Sprague subsidiary utilizes futures contracts, forward contracts, swaps, options and other derivatives in an effort to minimize the impact of fluctuations in prices of refined petroleum products and natural gas. Sprague’s commodity derivative contracts, though economic hedges, are not accounted for as cash flow or fair value hedges and, thus, are accounted for under marktomarket accounting with associated gains and losses recorded directly to income in the period of change.

AJI records the fair value of its energy derivative instruments in the company’s Consolidated Balance Sheets, with associated gains and losses recognized in earnings as cost of products sold in the Consoli dated Statement of Operations.

Interest Rate DerivativesAJI also uses interest rate swaps to convert a portion of its variable rate debt to fixed rates. These interest rate swaps are designated as cash flow hedges and the effective portion of changes in the fair value of the swaps are included as a component of other comprehensive income.

Forward Currency ContractsSprague’s Canadian subsidiary utilizes forward currency contracts to manage its exposure to currency fluctuations of certain transactions that are denominated in Canadian dollars. These foreign currency exchange contracts are recorded at fair value at the balance sheet date. The change in fair value is recognized in earnings as these forward currency contracts have not been designated as hedges.



2013

$64.

8

2014

$110

.7

2015

$118

.9



2013

$4.8

2014

$5.3

2015

$3.7

0

15

30

45

60

75

90

105

120



2013

$256

.0

2014

$333

.6

2015

$374

.9

0

50

100

150

200

250

300

350

400



0

1

2

3

4

5

6

0.0

1.2

2.4

3.6

4.8

6.0



2011

$1.2

2012

$1.4

2013

$1.7

2014

$2.0

2015

$1.6

0.0

0.4

0.8

1.2

1.6

2.0



2011

$222

.2

2012

$216

.9

2013

$256

.0

2014

$333

.6

2015

$374

.9

0

80

160

240

320

400



2011

$4.0

2012

$4.2

2013

$4.8

2014

$5.3

2015

$3.7

2011

$4.0

2012

$4.2

2013

$4.8

2014

$5.3

2015

$3.7

0

1

2

3

4

5

6



2011

$63.

6

2012

$47.

2

2013

$64.

8

2014

$110

.7

2015

$118

.9

0

20

40

60

80

100

120

Antonia Ax:son JohnsonDirectorOwner and Chairman of Axel Johnson GroupChairman of The Axel and Margaret Ax:son Johnson FoundationVice Chairman of NordstjernanFounder and Director, Axfoundation—The Antonia Ax:son Johnson Foundation for Sustainable DevelopmentDirector, Axel Johnson AB, AxFast, Axfood, The Axel and Margaret Ax:son Johnson Foundation for Public Welfare, the Royal Swedish Academy of Engineering Sciences and others

Alexandra MörnerChairman of the BoardChairman, Axfoundation— The Antonia Ax:son Johnson Foundation for Sustainable Development and Alnarp Cleanwater ABDirector, Axel Johnson AB and Mistra Center for Sustainable Markets at Stockholm School of EconomicsMember of the Advisory Board, AltoCumulus Asset Management

Nicholas K. BrookesDirectorPast Chairman, De La Rue PLCDirector, Corporación Financiera Alba S.A.

Alf GöranssonDirectorPresident and Chief Executive Officer, Securitas ABChairman, Loomis ABDirector, Hexpol AB

Sarah E. McPheeDirectorChairman, Center for Business and Policy Studies (SNS) and Fourth AP FundChairman, Investment Committee, Royal Academy of SciencesDirector, Klarna AB and Bure AB

Michael D. MilliganDirectorPresident and Chief Executive Officer, Axel Johnson Inc.Chairman, Sprague Resources LP (NYSE: SRLP)

Axel MörnerDirectorChairman, We aRe SpinDye ABDirector, Novax AB and DAx AB

From left to right:

Axel Mörner, Sarah E. McPhee, Antonia Ax:son Johnson, Alexandra Mörner, Nicholas K. Brooks, Michael D. Milligan, Alf Göransson

Antonia Ax:son Johnson on Fargo at Axel Johnson’s Board retreat at Lovsta South in Wellington, Florida, March 2016.

Board of Directors—March 2016AJI /


Timothy P. GrierVice President—Tax

C. Peter HarrisVice President and Managing Director— Corporate Development

Sally A. SarsfieldChief Financial Officer

Michael D. MilliganPresident and Chief Executive Officer

CorporateOfficers

AJI /

Clare E. PeetersVice President and

Managing Director—Corporate Development

MadiDrop

About MadiDrop/ Working with humanitarian, relief and mission-based organizations, MadiDrop PBC provides a simple approach to address the critical

number of waterborne diseases that result from drinking contaminated water. Its

primary product, the MadiDrop, is a small ceramic tablet that releases silver ions

when placed in a household water storage container, neutralizing waterborne

pathogens and providing safe drinking water for a family of five for six months. The

MadiDrop is also the best solution on the market to address the fundamental need

for safe water storage, providing residual disinfection to prevent recontamination of

home-based stored water.

AXEL JOHNSON INC. REMAINS COMMITTED TO THE WELL-BEING OF OUR PLANET. WE HAVE A

LONGSTANDING TRADITION OF GIVING BACK BOTH LOCALLY AND GLOBALLY, AND WE ENCOURAGE

OUR EMPLOYEES TO BE ACTIVE PARTICIPANTS IN HELPING THOSE IN NEED.

MADIDROP PBCOne notable example of this is the investment that AJI made in MadiDrop PBC in the beginning of 2016. MadiDrop is a public benefit company that manufactures and distributes safe drinking water technologies to communities throughout the world.

AJI’s contribution to a second round of bridge funding for MadiDrop will be used to increase manufacturing capabilities at the company’s Virginiabased facility

and to build market share. This level of activity supports new and ongoing relationships with international nongovernmental agencies (NGOs) and other organizations that provide humanitarian relief, particularly in the field of water, sanitation and hygiene (WASH). MadiDrop currently has household drinking water and safe water storage projects underway in Afghanistan, the Amazon, Cambodia, Haiti, India, Kenya, South Africa, Tanzania, Uganda and Zambia.

2015 annual review€¦ · aji: 2015 annual review 1 materials handling at sprague’s portland,...

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