Exhibit 99.2
PRECISION INDUSTRIES, INC. AND AFFILIATES
Unaudited Condensed Consolidated Financial Statements
Table of Contents
FINANCIAL INFORMATION
Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of June 25, 2007 (unaudited) and December 27, 2006
Condensed Consolidated Statements of Income for the Six Months Ended June 25, 2007 and June 23, 2006, (unaudited)
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 25, 2007 and June 23, 2006, (unaudited)
Notes to Condensed Consolidated Financial Statements (unaudited)
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PRECISION INDUSTRIES, INC. AND AFFILIATES Condensed Consolidated Balance Sheets June 25, 2007 (unaudited) and December 27, 2006 | |||||
Assets | June 25, 2007 | December 27, 2006 | |||
Current assets: | |||||
Cash and cash equivalents | $ | 318,341 | 572,753 | ||
Accounts receivable, net of allowance for doubtful accounts | |||||
of $248,295 at June 25, 2007 and December 27, 2006, respectively | 25,705,361 | 27,269,380 | |||
Other receivables | 1,431,230 | 2,768,889 | |||
Inventories | 40,195,702 | 43,839,363 | |||
Prepaid expenses | 1,356,402 | 798,737 | |||
Total current assets | 69,007,036 | 75,249,122 | |||
Property, plant, and equipment, net | 15,741,605 | 15,775,023 | |||
Other assets | 6,624,831 | 4,875,406 | |||
Total assets | $ | 91,373,472 | 95,899,551 | ||
Liabilities and Stockholder’s Equity | |||||
Current liabilities: | |||||
Current maturities of long-term debt | $ | 1,718,202 | 1,478,202 | ||
Trade accounts payable | 23,177,264 | 26,977,881 | |||
Cash overdraft | 1,133,311 | 2,824,680 | |||
Accrued liabilities | 984,893 | 1,095,447 | |||
Payroll and related withholding taxes | 1,649,785 | 1,771,247 | |||
Total current liabilities | 28,663,455 | 34,147,457 | |||
Long-term debt, excluding current maturities | 55,735,117 | 57,156,850 | |||
Total liabilities | 84,398,572 | 91,304,307 | |||
Stockholder’s equity: | |||||
Class A common stock, $100 par value, 1,500 shares authorized; 1,158 and 1,166 shares issued at June 25, 2007 and December 27, 2006 respectively | 115,800 | 116,600 | |||
Class B common stock, $100 par value, 500 shares authorized; 160 and 152 shares issued at June 25, 2007 and December 27, 2006, respectively | 16,000 | 15,200 | |||
Paid-in capital | 203,399 | 203,399 | |||
Retained earnings | 13,135,791 | 10,756,135 | |||
13,470,990 | 11,091,334 | ||||
Treasury stock (686 shares), at cost | (2,300,000) | (2,300,000) | |||
Class B common stock held by affiliates (69 shares), at cost | (4,196,090) | (4,196,090) | |||
Total stockholders’ equity | 6,974,900 | 4,595,244 | |||
Total liabilities and stockholders’ equity | $ | 91,373,472 | 95,899,551 | ||
See accompanying notes to unaudited condensed consolidated financial statements. |
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PRECISION INDUSTRIES, INC. AND AFFILIATES Condensed Consolidated Statements of Income Six months ended June 25, 2007 and June 23, 2006 (unaudited) | |||||
2007 | 2006 | ||||
Net revenues: | |||||
Distribution revenue | $ | 36,895,474 | 36,045,291 | ||
Contracted custom solutions revenue | 41,466,876 | 44,939,408 | |||
Supply chain management revenues/fees | 59,860,571 | 68,813,329 | |||
Rental revenues | 22,864 | 22,864 | |||
Total net revenues | 138,245,785 | 149,820,892 | |||
Cost of sales | 104,502,591 | 113,732,650 | |||
Gross profit | 33,743,194 | 36,088,242 | |||
Selling, general, and administrative expenses | 28,668,753 | 31,503,066 | |||
Operating income | 5,074,441 | 4,585,176 | |||
Other income (expenses): | |||||
Interest income | 14,354 | 77,757 | |||
Interest expense | (2,236,623) | (1,874,182) | |||
Total other expenses | (2,222,269) | (1,796,425) | |||
Income before minority interest | 2,852,172 | 2,788,751 | |||
Minority interest in (income) loss of consolidated affiliates | 27,484 | (139,217) | |||
Net income | $ | 2,879,656 | 2,649,534 | ||
See accompanying notes to unaudited condensed consolidated financial statements. |
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PRECISION INDUSTRIES, INC. AND AFFILIATES Condensed Consolidated Statements of Cash Flows Six months ended June 25, 2007 and June 23, 2006 (unaudited) | ||||||||||
2007 | 2006 | |||||||||
Cash flows from operating activities: | ||||||||||
Net income | $ | 2,879,656 | 2,649,534 | |||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||||
Gain on sale of property, plant, and equipment | (17,724) | (7,820) | ||||||||
Depreciation and amortization | 1,660,643 | 1,514,006 | ||||||||
Minority interest in income (loss) of consolidated affiliates | (27,484) | 139,217 | ||||||||
Changes in assets and current liabilities: | ||||||||||
Decrease (increase) in: | ||||||||||
Accounts receivable | 1,564,019 | (3,354,553) | ||||||||
Other receivables | 1,337,659 | (386,267) | ||||||||
Inventories | 3,643,661 | (2,688,783) | ||||||||
Prepaid expenses | (557,665) | (1,195,391) | ||||||||
Other assets | (1,671,941) | 895,018 | ||||||||
Increase (decrease) in: | ||||||||||
Trade accounts payable | (3,800,617) | 1,559,413 | ||||||||
Accrued liabilities | (110,555) | 148,084 | ||||||||
Payroll and related withholding taxes | (121,461) | (65,447) | ||||||||
Net cash provided by (used in) operating activities | 4,778,191 | (792,989) | ||||||||
Cash flows from investing activities: | ||||||||||
Proceeds from sales of property, plant, and equipment | 18,934 | 15,734 | ||||||||
Additions to property, plant, and equipment | (1,628,435) | (1,828,342) | ||||||||
Net cash used in investing activities | (1,609,501) | (1,812,608) | ||||||||
Cash flows from financing activities: | ||||||||||
Distribution to stockholder | (500,000) | (3,525,000) | ||||||||
Debt issuance costs | (50,000) | (35,550) | ||||||||
Increase (decrease) in cash overdraft | (1,691,369) | 2,078,838 | ||||||||
Net borrowings (payments) under revolving line of credit | (1,504,650) | 3,646,160 | ||||||||
Proceeds from long-term borrowings | 1,230,104 | 1,500,000 | ||||||||
Payments on long-term borrowings | (907,187) | (872,960) | ||||||||
Net cash (used in) provided by financing activities | (3,423,102) | 2,791,488 | ||||||||
Net increase (decrease) in cash and cash equivalents | (254,412) | 185,891 | ||||||||
Cash and cash equivalents at beginning of period | 572,753 | 334,294 | ||||||||
Cash and cash equivalents at end of period | $ | 318,341 | 520,185 | |||||||
Supplemental disclosure of cash paid for: | ||||||||||
Interest | $ | 2,390,902 | 2,458,044 | |||||||
Income taxes | 106,200 | 85,120 | ||||||||
See accompanying notes to unaudited condensed consolidated financial statements. |
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PRECISION INDUSTRIES, INC. AND AFFILIATES
Notes to Unaudited Condensed Consolidated Financial Statements
(unaudited)
(1) Summary of Significant Accounting Policies
(a) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information pursuant to rules and regulations of the Securities and Exchange Commission (SEC). The condensed consolidated balance sheet as of December 27, 2006 has been derived from the audited consolidated financial statements at that date. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the financial position of Precision Industries, Inc. as of June 25, 2007, and the results of operations and cash flows for the six month periods ended June 25, 2007 and June 23, 2006, have been included. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to SEC rules and regulations. Accordingly, these condensed consolidated financial statements should be read in conjunction with the audited financial statements included elsewhere in this Form 8-K/A.
Operating results for the six month period ended June 25, 2007 are not necessarily indicative of the results that may be expected for the remainder of the fiscal year.
(b) | Description of Business |
Precision Industries, Inc. and affiliates (collectively, Precision or the Company) engages in the distribution, contracted custom solutions, and supply chain management of industrial maintenance, repair, and operating (MRO) products. Precision’s contracted custom solutions cover procurement programs customized to requirements of the individual client/partner. Precision’s supply chain management programs cover all facets of total supply chain management as requested by the customer.
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(2) | Long-term Debt |
Long-term debt consists of the following:
Description | Entity | June 25, 2007 | December 27, 2006 | ||||
Revolving line of credit, secured by inventory and accounts receivable | Precision | $ | 45,075,124 | 46,579,774 | |||
Variable-rate notes payable to GE Capital, principal and | |||||||
interest payments totaling $16,556 due monthly, maturity | |||||||
dates ranging from October 2011 through June 2012, | |||||||
secured by buildings and improvements | Precision | 2,083,164 | 2,119,770 | ||||
Variable-rate notes payable to GE Capital, principal and | |||||||
interest payments totaling $77,140 due monthly, maturity | |||||||
dates ranging from October 2009 through June 2019, | |||||||
secured by buildings and improvements | VIEs | 3,692,166 | 3,815,136 | ||||
Nonrecourse notes to former members, principal and | |||||||
interest payments totaling $475,000, due annually | |||||||
through May 2013 | VIEs | 2,287,069 | 2,679,374 | ||||
Variable-rate note payable to stockholder, due $15,312 | |||||||
monthly, including interest through April 2012, (fixed | |||||||
rate of 7.03% at June 25, 2007) secured by a | |||||||
Westwind airplane | VIEs | 1,660,499 | 1,689,223 | ||||
Variable-rate note payable to bank, due $3,736 monthly, | |||||||
including interest through May 31, 2015 (6.63% at | |||||||
June 25, 2007, based on 5-year Federal Home Loan | |||||||
Bank rate plus 2.15%), secured by buildings | |||||||
and improvements | Precision | 466,495 | 473,184 | ||||
Note payable to GE Capital, principal and interest payment | |||||||
of $46,802 due monthly through January 2009, secured by | |||||||
equipment | Precision | 835,001 | 1,078,417 | ||||
Note payable to GE Capital, principal and interest payment | |||||||
of $29,742 due monthly through April 2011, secured by | |||||||
vehicles | Precision | 1,163,627 | — | ||||
Variable-rate notes payable to banks, principal and interest | |||||||
payments totaling $5,705 due monthly, maturity dates | |||||||
ranging from June 2007 through November 2016 | VIEs | 101,326 | 111,326 | ||||
Variable-rate note payable to bank, monthly interest | |||||||
payments and annual principal payments of $90,000 due | |||||||
through July 2007 | VIEs | 88,848 | 88,848 | ||||
Total long-term debt | 57,453,319 | 58,635,052 | |||||
Less current maturities of long-term debt | 1,718,202 | 1,478,202 | |||||
Long-term debt, excluding current maturities | $ | 55,735,117 | 57,156,850 |
Maturities of the long-term debt are as follows:
Precision | VIEs | Total | ||||||||||
Year ending: | ||||||||||||
2008 | $ | 829,820 | 888,382 | 1,718,202 | ||||||||
2009 | 897,067 | 570,871 | 1,467,938 | |||||||||
2010 | 633,146 | 1,596,202 | 2,229,348 | |||||||||
2011 | 433,455 | 529,088 | 962,543 | |||||||||
2012 | 45,369,743 | 2,790,822 | 48,160,565 | |||||||||
Thereafter | 1,460,180 | 1,454,543 | 2,914,723 | |||||||||
$ | 49,623,411 | 7,829,908 | 57,453,319 |
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Precision has a $62,000,000 revolving line of credit with an agent bank and two participating banks. The line of credit requires Precision to pay interest at LIBOR plus 2.75% (7.60% as of June 25, 2007) based on Precision’s fixed charge coverage ratio (1.33% at June 25, 2007) through the December 29, 2011 maturity date. The amount available under the revolving line of credit is based on eligible accounts receivable and inventory. Total availability exceeded borrowings by approximately $4,521,000 as of June 25, 2007.
(3) | Related-Party Transactions |
The Company advances funds to related parties and officers/employees. Due from related parties and officers/employees totaled $1,270,421 and $1,238,034 at June 25, 2007 and December 27, 2006, respectively. The balance due at June 25, 2007 and December 27, 2006 consisted of $256,444 and $421,939 due to Precision and $1,013,977 and $816,095 due to VIEs, respectively. These receivables are recorded in other assets at June 25, 2007 and December 27, 2006. The Company recorded interest income on the advances totaling $14,354 for the six months ended June 25, 2007 and $77,757 for the six months ended June 23, 2006. Interest receivable from related parties of $80,395 and $66,041 are recorded in other receivables at June 25, 2007 and December 27, 2006, respectively.
(4) | Variable Interest Entities |
The effect on the Company’s consolidated balance sheets from the consolidation of the VIEs as of June 25, 2007 and December 27, 2006 is an increase in assets of $3,703,451 and $2,755,782 and an increase in liabilities of $7,899,541 and $8,453,540, respectively. With the consolidation of the VIEs, $1,529,152 and $1,501,668 of unallocated accumulated deficits has been added to other assets on the consolidated balance sheets as of June 25, 2007 and December 27, 2006, respectively. The VIEs are obligated to fund the unallocated accumulated deficit to Precision. Management believes the primary funding of this obligation would come from unrealized appreciation of assets held by the VIEs.
(5) | Comprehensive Income |
The Company’s comprehensive income consists of net income and changes in fair value of a cash flow hedge, which was terminated in August 2006, as shown below.
June 25, 2007 | June 23, 2006 | |||
Net income | $ | 2,879,656 | 2,649,534 | |
Change in fair value of cash flow hedge | — | 116,673 | ||
Comprehensive income | $ | 2,879,656 | 2,766,207 |
(6) | Subsequent event |
On September 10, 2007, the stockholders of the Company sold all outstanding common stock of Precision Industries, Inc. under terms of a stock purchase agreement dated August 19, 2007.
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