Exhibit 99.1
Index to Financial Statements
Independent Auditors’ Report | i |
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Audited Financial Statements | |
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Balance Sheets as of December 31, 2004 and 2003 | 1 |
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Statements of Income for the years ended December 31, 2004 and 2003 | 2 |
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Statements of Changes in Stockholders’ Equity for the years ended December 31, 2004 and 2003 | 3 |
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Statements of Cash Flows for the years ended December 31, 2004 and 2003 | 4 |
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Notes to the Financial Statements | 5 |
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Unaudited Financial Statements | |
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Unaudited Balance Sheets as of June 30, 2005 and December 31, 2004 | 12 |
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Unaudited Statements of Income for the six months ended June 30, 2005 and 2004 | 13 |
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Unaudited Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2005 | 14 |
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Unaudited Statements of Cash Flows for the six months ended June 30, 2005 and 2004 | 15 |
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Notes to the Unaudited Financial Statements | 16 |
Independent Auditors’ Report
To the Board of Directors
Campbell Engineering, Inc.
Huntsville, Alabama
We have audited the accompanying balance sheets of Campbell Engineering, Inc. as of December 31, 2004 and 2003, and the related statements of income, changes in stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Campbell Engineering, Inc. as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
CERTIFIED PUBLIC ACCOUNTANTS
August 31, 2005
(October 3, 2005 as to Note 12)
| Beason & Nalley, Inc. |
| 101 Monroe Street |
| Huntsville, Alabama |
| 35801-4829 |
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| (256) 533-1720 |
| (800) 416-1946 |
| (256) 534-8558 Fax |
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| www.beasonnalley.com |
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CAMPBELL ENGINEERING, INC.
Balance Sheets
December 31, 2004 and 2003
| | 2004 | | 2003 | |
Current Assets: | | | | | |
Cash | | $ | 395,022 | | $ | 90,556 | |
Marketable securities | | 104,785 | | — | |
Accounts receivable, net of allowance for doubtful accounts of $2,846 and $0 at December 31, 2004 and 2003, respectively | | 1,840,032 | | 659,159 | |
Other receivables | | 10,993 | | 28,684 | |
Inventory | | 1,051,477 | | 635,166 | |
Prepaid expenses | | 20,961 | | 13,053 | |
Total Current Assets | | 3,423,270 | | 1,426,618 | |
Note receivable related party | | — | | 211,447 | |
Property and equipment, net | | 2,759,719 | | 1,624,550 | |
Total Assets | | 6,182,989 | | 3,262,615 | |
Current Liabilities: | | | | | |
Accounts payable | | $ | 371,068 | | $ | 254,938 | |
Accrued expenses | | 286,987 | | 178,773 | |
Other current liabilities | | 13,092 | | 9,101 | |
Current portion of notes payable | | 416,277 | | 167,656 | |
Current portion of capital lease obligations | | 44,783 | | 33,364 | |
Total Current Liabilities | | 1,132,207 | | 643,832 | |
Long-Term Liabilities: | | | | | |
Notes payable, net of current portion | | 981,017 | | 346,258 | |
Capital lease obligations, net of current portion | | 83,086 | | 102,384 | |
Total Long-Term Liabilities | | 1,064,103 | | 448,642 | |
Total Liabilities | | 2,196,310 | | 1,092,474 | |
Stockholders’ Equity | | | | | |
Common stock, $1 par value; 1,000 shares authorized, issued and outstanding | | 1,000 | | 1,000 | |
Paid-in capital | | 10,000 | | 10,000 | |
Retained earnings | | 3,969,900 | | 2,159,141 | |
Accumulated other comprehensive income | | 5,779 | | — | |
Total Stockholders’ Equity | | 3,986,679 | | 2,170,141 | |
Total Liabilities and Stockholders’ Equity | | $ | 6,182,989 | | $ | 3,262,615 | |
The accompanying notes are an integral part of the financial statements.
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CAMPBELL ENGINEERING, INC.
Statements of Income
For the years ended December 31, 2004 and 2003
| | 2004 | | 2003 | |
Sales | | $ | 10,899,271 | | $ | 5,403,960 | |
Cost of goods sold | | 7,037,197 | | 4,199,910 | |
Gross Profit | | 3,862,074 | | 1,204,050 | |
General and administrative expenses | | 481,719 | | 410,348 | |
Income From Operations | | 3,380,355 | | 793,702 | |
Other Expenses: | | | | | |
Interest expense, net | | 40,795 | | 35,104 | |
Other expense | | 25,801 | | 7,047 | |
Total Other Expense | | 66,596 | | 42,151 | |
Net Income | | $ | 3,313,759 | | $ | 751,551 | |
The accompanying notes are an integral part of the financial statements.
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CAMPBELL ENGINEERING, INC.
Statements of Changes in Stockholders’ Equity
For the years ended December 31, 2004 and 2003
| | Common Stock
Shares | | Common Stock
Amount | | Paid-in
Capital | | Retained
Earnings | | Accumulated
Other
Comprehensive
Income | | Total | |
Balance, January 1, 2003 | | 1,000 | | $ | 1,000 | | $ | 10,000 | | $ | 1,622,587 | | $ | — | | $ | 1,633,587 | |
Comprehensive income: | | | | | | | | | | | | | |
Net income | | — | | — | | — | | 751,551 | | — | | 751,551 | |
Total comprehensive income | | — | | — | | — | | — | | — | | 751,551 | |
Distributions | | — | | — | | — | | (214,997 | ) | — | | (214,997 | ) |
Balance, December 31, 2003 | | 1,000 | | 1,000 | | 10,000 | | 2,159,141 | | — | | 2,170,141 | |
Comprehensive income: | | | | | | | | | | | | | |
Net income | | — | | — | | — | | 3,313,759 | | — | | 3,313,759 | |
Unrealized gain on marketable securities | | — | | — | | — | | — | | 5,779 | | 5,779 | |
Total comprehensive income | | — | | — | | — | | — | | — | | 3,319,538 | |
Distributions | | — | | — | | — | | (1,503,000 | ) | — | | (1,503,000 | ) |
Balance, December 31, 2004 | | 1,000 | | $ | 1,000 | | $ | 10,000 | | $ | 3,969,900 | | $ | 5,779 | | $ | 3,986,679 | |
The accompanying notes are an integral part of the financial statements.
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CAMPBELL ENGINEERING, INC.
Statements of Cash Flows
For the years ended December 31, 2004 and 2003
| | 2004 | | 2003 | |
Cash Flows From Operating Activities: | | | | | |
Net Income | | $ | 3,313,759 | | $ | 751,551 | |
Adjustments to reconcile net income to net cash provided (used) by operating activities: | | | | | |
Depreciation expense | | 383,589 | | 251,005 | |
(Gain) loss on disposal of property and equipment | | (3,187 | ) | 4,974 | |
Provision for doubtful accounts | | 2,846 | | — | |
Change in: | | | | | |
Accounts receivable | | (1,183,719 | ) | 1,157,327 | |
Other receivables | | 17,691 | | (15,637 | ) |
Inventory | | (416,311 | ) | (635,166 | ) |
Prepaid expenses | | (7,908 | ) | 4,887 | |
Accounts payable | | 116,130 | | 90,168 | |
Accrued expenses | | 108,214 | | 47,761 | |
Other current liabilities | | 3,991 | | (7,371 | ) |
Total adjustments | | (978,664 | ) | 897,948 | |
Net Cash Provided by Operating Activities | | 2,335,095 | | 1,649,499 | |
Cash Flows From Investing Activities: | | | | | |
Purchase of property and equipment | | (1,490,975 | ) | (421,375 | ) |
Proceeds from sale of property and equipment | | 3,187 | | — | |
Purchase of marketable securities | | (99,006 | ) | — | |
Net Cash Used by Investing Activities | | (1,586,794 | ) | (421,375 | ) |
Cash Flows From Financing Activities: | | | | | |
Net payments on line of credit | | — | | (877,121 | ) |
Principal payments on notes payable | | (595,200 | ) | (340,350 | ) |
Proceeds from issuance of notes payable | | 1,478,580 | | 303,388 | |
Principal payments on capital lease obligations | | (35,662 | ) | (27,853 | ) |
Payments received on not receivable—related party | | 211,447 | | 2,672 | |
Distributions to stockholders | | (1,503,000 | ) | (214,997 | ) |
Net Cash Used by Financing Activities | | (443,835 | ) | (1,154,261 | ) |
Net Increase in Cash | | 304,466 | | 73,863 | |
Cash, beginning of year | | 90,556 | | 16,693 | |
Cash, end of year | | $ | 395,022 | | $ | 90,556 | |
Supplemental Information: | | | | | |
Cash paid for: | | | | | |
Interest | | $ | 50,404 | | $ | 43,561 | |
Supplemental Schedule of Noncash Investing and Financing Activities: | | | | | |
Property and equipment purchased under capital lease | | $ | 27,783 | | $ | 34,071 | |
Unrealized gain on marketable securities | | $ | 5,779 | | $ | — | |
The accompanying notes are an integral part of the financial statements.
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CAMPBELL ENGINEERING, INC.
Notes to Financial Statements
December 31, 2004 and 2003
1. Summary of Significant Accounting Policies
Nature of Business—Campbell Engineering, Inc. (the Company) was incorporated in Alabama in 1979. The Company provides engineering, design, precision machining and assembly of aerospace hardware and commercial products. The Company maintains its offices in Huntsville, Alabama. The Company’s customers are located throughout the continental United States.
Marketable Securities—Available-for-sale securities are stated at fair value, and unrealized holding gains and losses are reported as a separate component of stockholders’ equity.
Accounts Receivable—Customers are typically commercial entities, the US. Government, various government agencies and subcontractors. Bad debts arising from contracts with commercial customers are estimated using the allowance method.
Inventory—Inventoried costs are stated at the lower of average cost or estimated net realizable value. Costs include actual production cost, allocable overhead, factory administrative costs, initial tooling and other related non-recurring costs incurred to-date with revenue recognized on units delivered. All inventory is classified as work in process.
Property and equipment—Property and equipment are carried at cost less accumulated depreciation. Depreciation is provided on a straight-line basis over the estimated useful life.
Expenditures for maintenance and repairs are charged to operations as incurred. Expenditures for renewals and betterments are capitalized and written off through depreciation and amortization charges. Property retired or sold is removed from the asset and related accumulated depreciation accounts, and any profit or loss resulting is reflected in the statement of income.
Leased equipment meeting certain criteria is capitalized and the present value of the related lease payments is recorded as a liability. Amortization of leased equipment is included in depreciation.
Revenue Recognition—Revenue in which the Company produces units of a basic product in a continuous or sequential production process to the buyers’ specifications under valid purchase orders is recognized upon transfer of title of the product to the customer.
Amounts billed to customers for shipping and handling costs are included in sales in the statement of income with the associated costs included as a component of costs of goods sold.
Income Taxes—The Company has elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Under those provisions, the Company does not pay corporate income taxes on its taxable income. Instead, the stockholders are liable for individual income taxes on their respective share of the Company’s taxable income.
Concentration of Credit Risk—Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. The Company maintains cash in accounts with high quality, federally insured financial institutions. At times, the balances in these accounts may be in excess of federally insured limits. The Company also extends credit to its customers, including commercial entities and governmental agencies.
Use of Estimates—Management uses estimates and assumptions in preparing financial statements in accordance with accounting principles generally accepted in the United States of America. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of
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contingent assets and liabilities, and the reported revenues and expenses. Significant estimates used in preparing these financial statements include those assumed in computing the allowance for doubtful accounts. It is at least reasonably possible that the significant estimates used will change within the next year.
Comprehensive Income—Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income, governs the financial statement presentation of changes in stockholders’ equity resulting from non-owner sources. Accumulated other comprehensive income as reported in the accompanying balance sheet represents unrealized gains and losses on available for sale securities.
2. Marketable Securities
The Company held the following marketable securities as of December 31, 2004:
| | 2004 | |
| | Amortized
Cost | | Gross
Unrealized
Gains | | Fair Value | |
Corporate equity securities | | $ | 99,006 | | $ | 5,779 | | $ | 104,785 | |
Total equity securities | | $ | 99,006 | | $ | 5,779 | | $ | 104,785 | |
3. Accounts Receivable
Accounts receivable, net as of December 31, 2004 and 2003, are comprised of the following:
| | 2004 | | 2003 | |
Commercial Customers | | | | | |
Amounts billed | | $ | 1,745,918 | | $ | 588,666 | |
U.S. Government: | | | | | |
Amounts billed | | 94,114 | | 70,493 | |
Total accounts receivable, net | | $ | 1,840,032 | | $ | 659,159 | |
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4. Property and Equipment
A summary of property and equipment as of December 31, 2004 and 2003, is as follows:
| | 2004 | | 2003 | |
Land | | $ | 70,250 | | $ | 70,250 | |
Building and improvements | | 634,491 | | 634,491 | |
Machinery and equipment | | 5,035,808 | | 3,562,267 | |
Furniture and fixtures | | 31,253 | | 31,253 | |
Other capital assets | | 68,277 | | 48,277 | |
| | 5,840,079 | | 4,346,538 | |
Less accumulated depreciation | | 3,080,360 | | 2,721,988 | |
Property and equipment, net | | $ | 2,759,719 | | $ | 1,624,550 | |
The capitalized cost of leased equipment as of December 31, 2004 and 2003 is $224,140 and $196,814, respectively. Amortization of capitalized lease equipment is computed on the straight-line basis over the shorter of the term of the lease or the estimated life of the equipment. Total accumulated amortization expense of capitalized lease equipment as of December 31, 2004 and 2003 is $79,382 and $49,336, respectively. Amortization expense of capital leases totaled $30,046 and $22,472 for the years ended December 31, 2004 and 2003, respectively.
5. Line of Credit
The Company has an open revolving line-of-credit at a local financial institution that permits the Company to borrow up to $1,500,000 and $1,000,000 at December 31, 2004 and 2003, respectively. Interest is payable monthly at 5.25% and 4.00% at December 31, 2004 and 2003, respectively. The variable interest rate is based on LIBOR. The line is scheduled to expire on May 15, 2006. The outstanding balance was zero as of December 31, 2004 and 2003. The financial institution has a security interest in all of the Company’s business assets and a second lien on the Company’s main facilities. Up to $1,000,000 of the line is personally guaranteed by the Company’s president and secretary/treasurer. In 2003 the financial institution required that the Company comply with various financial and reporting covenants.
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6. Notes Payable
Notes payable as of December 31, 2004 and 2003, consists of the following:
| | 2004 | | 2003 | |
Note payable to a local financial institution, requiring monthly payments of $5,339 including interest at a variable rate, which is based on the prime rate, of 4.00% at December 31, 2003. The note, maturing on November 18, 2007, has a security interest in a building and was paid in full during 2004. The note was guaranteed by the president and secretary/treasurer of the Company. | | $ | — | | $ | 115,836 | |
Note payable to a local financial institution, requiring monthly payments of $3,429 including interest at a variable rate, which is based on the prime rate, of 5.25% at December 31, 2004. The note, maturing on June 30, 2007, has a security interest in a piece of equipment. | | 103,388 | | — | |
Note payable to a local financial institution, requiring monthly payments of $3,803 including interest at a variable rate, which is based on the bank’s base rate, of 4.00% at December 31, 2003, respectively. The note, maturing on May 25, 2006, has a security interest in accounts and contracts receivable and property and equipment and was paid in full during 2004. The note was guaranteed by the president and secretary/treasurer of the Company. | | — | | 92,988 | |
Note payable to a local financial institution, requiring monthly payments of $11,116 including interest at a variable rate, which is based on the prime rate, of 5.25% at December 31, 2004. The note, maturing on October 5, 2007, has a security interest in equipment. | | 353,366 | | — | |
Note payable to a finance company, requiring monthly payments of $722 including interest at a fixed rate of 3.9% at December 31, 2003. The note, maturing on October 18, 2005, has a security interest in a vehicle and was paid in full during 2004. | | — | | 14,638 | |
Note payable to a local financial institution, requiring monthly payments of $14,115 including interest at a fixed rate of 5.98% at December 31, 2004. The note, maturing on December 20, 2008, has a security interest in a building and property and equipment. The note was guaranteed by the president and secretary/treasurer of the Company. | | 600,000 | | — | |
Note payable to a finance company, requiring monthly payments of $517 including interest at a fixed rate of 4.95% at December 31, 2003. The note, maturing on April 29, 2008, has a security interest in a vehicle and was paid in full during 2004. | | — | | 24,536 | |
Note payable to a local financial institution, requiring monthly payments of $3,005 including interest at a variable rate of 4.00% at December 31, 2003. The note, maturing on October 14, 2008, has a security interest in accounts and contracts receivable and property and equipment and was paid in full during 2004. The note was guaranteed by the president and secretary/treasurer of the Company. | | — | | 158,031 | |
Note payable to a local financial institution, requiring monthly payments of $2,084 including interest at a variable rate, which is based on the bank’s base rate, of 4.00% at December 31, 2003. The note, maturing on September 5, 2008, has a security interest in accounts and contracts receivable and property and equipment and was paid in full during 2004. The note was guaranteed by the president and secretary/treasurer of the Company. | | — | | 107,885 | |
Note payable to a local financial institution, requiring monthly payments of $11,603 including interest at a variable rate, which is based on the prime rate, of 5.25% at December 31, 2004. The note, maturing on July 15, 2007, has a security interest in equipment. The note was guaranteed by the president and secretary/treasurer of the Company. | | 340,540 | | — | |
Total notes payable | | 1,397,294 | | 513,914 | |
Less: current portion of notes payable | | 416,277 | | 167,656 | |
Notes payable, net of current portion | | $ | 981,017 | | $ | 346,258 | |
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Annual maturities of notes payable at December 31, 2004 are as follows:
| 2005 | | $ | 416,277 | | | |
| 2006 | | 439,177 | | | |
| 2007 | | 380,043 | | | |
| 2008 | | 161,797 | | | |
| | | $ | 1,397,294 | | | |
At December 31, 2004 and 2003, the fair values of these borrowings approximated their carrying values based on the variable nature of the interest rates.
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7. Capital Lease Obligations
The Company leases certain office equipment and manufacturing machinery under long-term lease agreements. Capital lease obligations as of December 31, 2004 and 2003, consists of the following
| | 2004 | | 2003 | |
Capital lease obligation, requiring monthly payments of $2,553, including interest at a rate of 6.9% per annum. | | $ | 76,603 | | $ | 107,801 | |
Capital lease obligation, requiring monthly payments of $627, including interest at a rate of 4.0% per annum. | | 30,119 | | 37,648 | |
Capital lease obligation, requiring monthly payments of $778, including interest at a rate of 0.1% per annum. | | 25,672 | | — | |
Capital lease obligation, requiring monthly payments of $61, including interest at a rate of 14.5% per annum. | | — | | 143 | |
Capital lease obligation, requiring monthly payments of $235, including interest at a rate of 13.0% per annum. | | 4,944 | | 7,792 | |
Total capital lease obligations, including interest | | 137,338 | | 153,384 | |
Less: amount representing interest | | 9,469 | | 17,636 | |
Total capital lease obligations | | 127,869 | | 135,748 | |
Less: current portion of capital lease obligations | | 44,783 | | 33,364 | |
Capital lease obligations, net of current portion | | $ | 83,086 | | $ | 102,384 | |
Future minimum lease payments under the capital lease obligations at December 31, 2004 are as follows:
| 2005 | | $ | 50,331 | | | |
| 2006 | | 49,625 | | | |
| 2007 | | 29,852 | | | |
| 2008 | | 7,530 | | | |
| Total minimum lease payments | | 137,338 | | | |
| Less: amount representing interest | | 9,469 | | | |
| Capital lease obligations | | $ | 127,869 | | | |
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8. Operating Leases
Total rent expense under operating lease agreements, including lease agreements with expiration dates of less than one year, for the year ended December 31, 2004 and 2003 was $109,584 and $121,110, respectively.
9. Profit Sharing Plan
The Company has established a 401(k) profit sharing plan, for all eligible employees. The plan provides for employee contributions ranging from 0% to 10% of their earnings. Employer contributions to the plan are made on a discretionary basis and employees become wholly vested after 5 years of service. The Company had a total of $25,806 and $2,155 related to contribution and plan expenses for the years ended December 31, 2004 and 2003, respectively.
10. Related Party Transactions
The note receivable account represents unsecured advances to Company stockholders and are payable on demand. Interest is calculated on these loans at the base rate charged by the Company’s local financial institution. The base rate was 4.00% at December 31, 2003.
The Company leases an office building from a stockholder of the Company. Lease expense for the building was $96,000 and $84,000 for 2004 and 2003, respectively.
11. Concentration of Credit Risk and Major Customer
One customer accounted for 79% and 64% of total revenues in 2004 and 2003, respectively, and 89% and 89% of Accounts Receivable at December 31, 2004 and 2003, respectively. A second customer accounted for 19% and 33% of total revenues in 2004 and 2003, respectively, and 5% and 10% of Accounts Receivable at December 31, 2004 and 2003, respectively. No other customers accounted for greater than 10% of total revenues in either 2004 or 2003.
12. Subsequent Event
Effective September 12, 2005, the Company was sold to Accellent Corp.
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Campbell Engineering, Inc.
Unaudited Balance Sheets
June 30, 2005 and December 31, 2004
| | June 30, 2005 | | December 31,
2004 | |
Current Assets: | | | | | |
Cash | | $ | 443,096 | | $ | 395,022 | |
Marketable securities | | 106,343 | | 104,785 | |
Accounts receivable, net of allowance for doubtful accounts of $55,176 and $2,846 at June 30, 2005 and December 31, 2004, respectively | | 1,916,011 | | 1,840,032 | |
Other receivables | | 12,441 | | 10,993 | |
Inventory | | 1,341,027 | | 1,051,477 | |
Prepaid expenses | | 8,000 | | 20,961 | |
Total Current Assets | | 3,826,918 | | 3,423,270 | |
Property and equipment, net | | 3,868,332 | | 2,759,719 | |
Total Assets | | $ | 7,695,250 | | $ | 6,182,989 | |
Current Liabilities: | | | | | |
Accounts payable | | $ | 270,797 | | $ | 371,068 | |
Accrued expenses | | 299,352 | | 286,987 | |
Other current liabilities | | 11,047 | | 13,092 | |
Current portion of notes payable | | 673,074 | | 416,277 | |
Current portion of capital lease obligations | | 46,028 | | 44,783 | |
Total Current Liabilities | | 1,300,298 | | 1,132,207 | |
Long-Term Liabilities: | | | | | |
Notes payable, net of current portion | | 1,442,588 | | 981,017 | |
Capital lease obligations, net of current portion | | 59,756 | | 83,086 | |
Total Long-Term Liabilities | | 1,502,344 | | 1,064,103 | |
Total Liabilities | | 2,802,642 | | 2,196,310 | |
Stockholders’ Equity: | | | | | |
Common stock, $1 par value; 1,000 shares authorized, issued and outstanding | | 1,000 | | 1,000 | |
Paid-in capital | | 10,000 | | 10,000 | |
Retained earnings | | 4,879,129 | | 3,969,900 | |
Accumulated other comprehensive income | | 2,479 | | 5,779 | |
Total Stockholders’ Equity | | 4,892,608 | | 3,986,679 | |
Total Liabilities and Stockholders’ Equity | | $ | 7,695,250 | | $ | 6,182,989 | |
The accompanying notes are an integral part of the financial statements.
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Campbell Engineering, Inc.
Unaudited Statements of Income
For the six months ended June 30, 2005 and 2004
| | 2005 | | 2004 | |
Sales | | $ | 6,643,241 | | $ | 5,014,398 | |
Cost of goods sold | | 4,713,493 | | 3,054,030 | |
Gross Profit | | 1,929,748 | | 1,960,368 | |
General and administrative expenses | | 304,155 | | 216,880 | |
Income From Operations | | 1,625,593 | | 1,743,488 | |
Other Expenses: | | | | | |
Interest expense, net | | 57,466 | | 17,854 | |
Other expense | | 12,798 | | 6,314 | |
Total Other Expense | | 70,264 | | 24,168 | |
Net Income | | $ | 1,555,329 | | $ | 1,719,320 | |
The accompanying notes are an integral part of the financial statements.
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Campbell Engineering, Inc.
Unaudited Statements of Changes in Stockholders’ Equity
For the six months ended June 30, 2005
| | Common Stock
Shares | | Common Stock
Amount | | Paid-in
Capital | | Retained
Earnings | | Accumulated Other
Comprehensive
Income | | Total | |
Balance, January 1, 2005 | | 1,000 | | $ | 1,000 | | $ | 10,000 | | $ | 3,969,900 | | $ | 5,779 | | $ | 3,986,679 | |
Comprehensive income: | | | | | | | | | | | | | |
Net income | | — | | — | | — | | 1,555,329 | | — | | 1,555,329 | |
Unrealized gain on marketable securities | | — | | — | | — | | — | | (3,300 | ) | (3,300 | ) |
Total comprehensive income | | — | | — | | — | | — | | — | | 1,552,029 | |
Distributions | | — | | — | | — | | (646,100 | ) | — | | (646,100 | ) |
Balance, June 30, 2005 | | 1,000 | | $ | 1,000 | | $ | 10,000 | | $ | 4,879,129 | | $ | 2,479 | | $ | 4,892,608 | |
The accompanying notes are an integral part of the financial statements.
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Campbell Engineering, Inc.
Unaudited Statements of Cash Flows
For the six months ended June 30, 2005 and 2004
| | 2005 | | 2004 | |
Cash Flows From Operating Activities: | | | | | |
Net Income | | $ | 1,555,329 | | $ | 1,719,320 | |
Adjustments to reconcile net income to net cash provided (used) by operating activities: | | | | | |
Depreciation expense | | 279,676 | | 160,274 | |
Realized gain on sale of on investments | | (4,209 | ) | — | |
Loss on disposal of property and equipment | | 4,880 | | — | |
Provision for doubtful accounts | | 52,330 | | — | |
Change in: | | | | | |
Accounts receivable | | (128,309 | ) | (1,074,659 | ) |
Other receivables | | (1,448 | ) | (400 | ) |
Inventory | | (289,550 | ) | (29,684 | ) |
Prepaid expenses | | 12,961 | | 792 | |
Accounts payable | | (100,271 | ) | 418,796 | |
Accrued expenses | | 12,365 | | 44,803 | |
Other | | (2,045 | ) | 61,355 | |
Total adjustments | | (163,620 | ) | (418,723 | ) |
Net Cash Provided by Operating Activities | | 1,391,709 | | 1,300,597 | |
Cash Flows From Investing Activities: | | | | | |
Purchase of property and equipment | | (1,405,169 | ) | (909,854 | ) |
Proceeds from sale of property and equipment | | 12,000 | | 2,187 | |
Purchase of marketable securities | | (56,208 | ) | — | |
Proceeds from sale of marketable securities | | 55,559 | | — | |
Net Cash Used by Investing Activities | | (1,393,818 | ) | (907,667 | ) |
Cash Flows From Financing Activities: | | | | | |
Principal payments on notes payable | | (492,712 | ) | (189,931 | ) |
Proceeds from issuance of notes payable | | 1,211,080 | | 432,960 | |
Principal payments on capital lease obligations | | (22,085 | ) | (13,355 | ) |
Distributions | | (646,100 | ) | (443,000 | ) |
Net Cash Provided (Used) by Financing Activities | | 50,183 | | (213,326 | ) |
Net Increase in Cash | | 48,074 | | 179,604 | |
Cash, beginning of year | | 395,022 | | 90,556 | |
Cash, at end of period | | $ | 443,096 | | $ | 270,160 | |
Supplemental Information: | | | | | |
Cash paid for: | | | | | |
Interest | | $ | 61,005 | | $ | 17,855 | |
Supplemental Schedule of Noncash Investing and Financing Activities: | | | | | |
Unrealized Gain on marketable securities | | $ | 909 | | $ | — | |
The accompanying notes are an integral part of the financial statements.
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Campbell Engineering, Inc.
Notes to Unaudited Financial Statements
June 30, 2005
1. Summary of Significant Accounting Policies
Nature of Business—Campbell Engineering, Inc. (the Company) was incorporated in Alabama in 1979. The Company provides engineering, design, precision machining and assembly of aerospace hardware and commercial products. The Company maintains its offices in Huntsville, Alabama. The Company’s customers are located throughout the continental United States.
Marketable Securities—Available-for-sale securities are stated at fair value, and unrealized holding gains and losses are reported as a separate component of stockholders’ equity.
Accounts Receivable—Customers are typically commercial entities, the U.S. Government, various government agencies and subcontractors. Bad debts arising from contracts with commercial customers are estimated using the allowance method.
Inventory—Inventoried costs are stated at the lower of average cost or estimated net realizable value. Costs include actual production cost, allocable overhead factory administrative costs, initial tooling and other related non-recurring costs incurred to-date with revenue recognized on units delivered. All inventory is classified as work in process.
Property and equipment—Property and equipment are carried at cost less accumulated depreciation. Depreciation is provided on a straight-line basis over the estimated useful life.
Expenditures for maintenance and repairs are charged to operations as incurred. Expenditures for renewals and betterments are capitalized and written off through depreciation and amortization charges. Property retired or sold is removed from the asset and related accumulated depreciation accounts, and any profit or loss resulting is reflected in the statement of income.
Leased equipment meeting certain criteria is capitalized and the present value of the related lease payments is recorded as a liability. Amortization of leased equipment is included in depreciation.
Revenue Recognition—Revenue in which the Company produces units of a basic product in a continuous or sequential production process to the buyers’ specifications under valid purchase orders is recognized upon transfer of title of the product to the customer.
Amounts billed to customers for shipping and handling costs are included in sales in the statement of income with the associated costs included as a component of costs of goods sold.
Income Taxes—The Company has elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Under those provisions, the Company does not pay corporate income taxes on its taxable income. Instead, the stockholders are liable for individual income taxes on their respective share of the Company’s taxable income.
Concentration of Credit Risk—Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. The Company maintains cash in accounts with high quality, federally insured financial institutions. At times, the balances in these accounts may be in excess of federally insured limits. The Company also extends credit to its customers, including commercial entities and governmental agencies.
Use of Estimates—Management uses estimates and assumptions in preparing financial statements in accordance with accounting principles generally accepted in the United States of America. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of
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contingent assets and liabilities, and the reported revenues and expenses. Significant estimates used in preparing these financial statements include those assumed in computing the allowance for doubtful accounts. It is at least reasonably possible that the significant estimates used will change within the next year.
Comprehensive Income—Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income, governs the financial statement presentation of changes in stockholders’ equity resulting from non-owner sources. Accumulated other comprehensive income as reported in the accompanying balance sheet represents unrealized gains and losses on available for sale securities.
2. Marketable Securities
The Company held the following marketable securities as of June 30, 2005 and December 31, 2004:
| | June 30, 2005 | |
| | Amortized Cost | | Gross
Unrealized
Gains | | Fair Value | |
Corporate equity securities | | $ | 103,864 | | $ | 2,479 | | $ | 106,343 | |
Total equity securities | | $ | 103,864 | | $ | 2,479 | | $ | 106,343 | |
| | December 31, 2004 | |
| | Amortized Cost | | Gross
Unrealized
Gains | | Fair Value | |
Corporate equity securities | | $ | 99,006 | | $ | 5,779 | | $ | 104,785 | |
Total equity securities | | $ | 99,006 | | $ | 5,779 | | $ | 104,785 | |
3. Accounts Receivable
Accounts receivable as of June 30, 2005 and December 31, 2004, are comprised of the following:
| | June 30, 2005 | | December 31,
2004 | |
Commercial Customers: | | | | | |
Amounts billed | | $ | 1,833,917 | | $ | 1,745,918 | |
U.S. Government: | | | | | |
Amounts billed | | 82,094 | | 94,114 | |
Total accounts receivable, net | | $ | 1,916,011 | | $ | 1,840,032 | |
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4. Property and Equipment
A summary of property and equipment as of June 30, 2005 and December 31, 2004, is as follows:
| | June 30, 2005 | | December 31,
2004 | |
Land | | $ | 70,250 | | $ | 70,250 | |
Building and improvements | | 634,491 | | 634,491 | |
Machinery and equipment | | 6,410,331 | | 5,035,808 | |
Furniture and fixtures | | 31,253 | | 31,253 | |
Other capital assets | | 68,277 | | 68,277 | |
| | 7,214,602 | | 5,840,079 | |
Less accumulated depreciation | | 3,346,270 | | 3,080,360 | |
Property and equipment, net | | $ | 3,868,332 | | $ | 2,759,719 | |
The capitalized cost of leased equipment as of June 30, 2005 and December 31, 2004 is $224,140. Amortization of capitalized lease equipment is computed on the straight-line basis over the shorter of the term of the lease or the estimated life of the equipment. Total accumulated amortization expense of capitalized lease equipment as of June 30, 2005 and December 31, 2004 is $98,457 and $79,382, respectively. Amortization expense of capital leases totaled $19,075 and $22,472 for the six months ended June 30, 2005 and year ended December 31, 2004, respectively.
5. Line of Credit
The Company has an open revolving line-of-credit at a local financial institution that permits the Company to borrow up to $1,500,000 at June 30, 2005 and December 31, 2004. Interest is payable monthly at 6.25% and 5.25% at June 30, 2005 and December 31, 2004, respectively. The variable interest rate is based on LIBOR. The line is scheduled to expire on May 15, 2006. The outstanding balance was zero as of June 30, 2005 and December 31, 2004. The financial institution has a security interest in all of the Company’s business assets and a second lien on the Company’s main facilities. Up to $1,000,000 of the line is personally guaranteed by the Company’s president and secretary/treasurer.
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6. Notes Payable
Notes payable as of June 30, 2005 and December 31, 2004, consists of the following:
| | June 30, 2005 | | December 31,
2004 | |
Note payable to a local financial institution, requiring monthly payments of $9,430 including interest at a variable rate, which is based on the prime rate, of 6.46% at June 30, 2005. The note, maturing on April 15, 2008, has a security interest in equipment. The note was guaranteed by the president and secretary/tresurer of the Company. | | $ | 285,847 | | $ | — | |
Note payable to a local financial institution, requiring monthly payments of $3,429 including interest at a variable rate, which is based on the prime rate, of 5.25% at June 30, 2005. The note, maturing on June 30, 2007, has a security interest in a piece of equipment and was paid in full during 2005. | | — | | 103,388 | |
Note payable to a local financial institution, requiring monthly payments of $5,940 including interest at a fixed rate of 6.46% at June 30, 2005. The note, maturing on February 22, 2009, has a security interest in equipment. The note was guaranteed by the president and secretary/tresurer of the Company. | | 231,559 | | — | |
Note payable to a local financial institution, requiring monthly payments of $11,116 including interest at a variable rate, which is based on the prime rate, of 6.25% and 5.25% at June 30, 2005 and December 31, 2004. The note, maturing on October 5, 2007, has a security interest in equipment. | | 285,097 | | 353,366 | |
Note payable to a local financial institution, requiring monthly payments of $6,155 including interest at a fixed rate of 6.8% at June 30, 2005. The note, maturing on April 18, 2009, has a security interest in equipment. | | 248,015 | | — | |
Note payable to a local financial institution, requiring monthly payments of $14,115 including interest at a fixed rate of 5.98% at June 30, 2005 and December 31, 2004. The note, maturing on December 20, 2008, has a security interest in a building and property and equipment. The note was guaranteed by the president and secretary/tresurer of the Company. | | 520,886 | | 600,000 | |
Note payable to a local financial institution, requiring monthly payments of $9,335 including interest at a fixed rate of 6.24% at June 30, 2005. The note, maturing on January 20, 2009, has a security interest in equipment. | | 366,006 | | — | |
Note payable to a local financial institution, requiring monthly payments of $11,603 including interest at a variable rate, which is based on the prime rate, of 5.25% at June 30, 2005. The note, maturing on July 15, 2007, has a security interest in equipment. The note was guaranteed by the president and secretary/tresurer of the Company. | | 178,252 | | 340,540 | |
Total notes payable | | 2,115,662 | | 1,397,294 | |
Less: current portion of notes payable | | 673,074 | | 416,277 | |
Notes payable, net of current portion | | $ | 1,442,588 | | $ | 981,017 | |
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Annual maturities of notes payable at June 30, 2005 are as follows:
2006 | | $ | 673,074 | |
2007 | | 698,488 | |
2008 | | 507,845 | |
2009 | | 236,255 | |
| | $ | 2,115,662 | |
At June 30, 2005 and December 31, 2004, the fair values of these borrowings approximated their carrying values based on the variable nature of the interest rates.
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7. Capital Lease Obligations
The Company leases certain office equipment and manufacturing machinery under long-term lease agreements. Capital lease obligations as of June 30, 2005 and December 31, 2004, consists of the following:
| | June 30, 2005 | | December 31,
2004 | |
| | | | | |
Capital lease obligation, requiring monthly payments of $2,553, including interest at a rate of 6.9% per annum. | | $ | 61,282 | | $ | 76,603 | |
Capital lease obligation, requiring monthly payments of $627, including interest at a rate of 4.0% per annum. | | 26,354 | | 30,119 | |
Capital lease obligation, requiring monthly payments of $778, including interest at a rate of 0.1% per annum. | | 21,004 | | 25,672 | |
Capital lease obligation, requiring monthly payments of $235, including interest at a rate of 13.0% per annum. | | 3,532 | | 4,944 | |
Total capital lease obligations, including interest | | 112,172 | | 137,338 | |
Less: amount representing interest | | 6,388 | | 9,469 | |
Total capital lease obligations | | 105,784 | | 127,869 | |
Less: current portion of capital lease obligations | | 46,028 | | 44,783 | |
Capital lease obligations, net of current portion | | $ | 59,756 | | $ | 83,086 | |
Future minimum lease payments under the capital lease obligations at June 30, 2005 are as follows:
2006 | | $ | 50,331 | |
2007 | | 48,212 | |
2008 | | 9,863 | |
2009 | | 3,766 | |
Total minimum lease payments | | 112,172 | |
Less: amount representing interest | | 6,388 | |
Capital lease obligations | | $ | 105,784 | |
8. Operating Leases
Total rent expense under operating lease agreements, including lease agreements with expiration dates of less than one year, for the six months ended June 30, 2005 and 2004 was $48,717 and $62,877, respectively.
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9. Profit Sharing Plan
The Company has established a 401(k) profit sharing plan, for all eligible employees. The plan provides for employee contributions ranging from 0% to 10% of their earnings. Employer contributions to the plan are made on a discretionary basis and employees become fully vested after 5 years of service. The Company had a total of $19,584 and $5,155 related to contribution and plan expenses for the six months ended June 30, 2005 and 2004, respectively.
10. Related Party Transactions
The Company leases an office building from a stockholder of the Company. Lease expense for the building was $48,000 for the six months ended June 30, 2005 and 2004.
11. Concentration of Credit Risk and Major Customer
One customer accounted for 78% and 75% of total revenues for the six months ended June 30, 2005 and 2004, respectively, and 80% and 89% of Accounts Receivable at June 30, 2005 and December 31, 2004, respectively. A second customer accounted for 12% and 20% of total revenues for the six months ended June 30, 2005 and 2004, respectively, and 4% and 5% of Accounts Receivable at June 30, 2005 and December 31, 2004, respectively. No other customers accounted for greater than 10% of total revenues in either the six month period ended June 30, 2005 and 2004.
12. Subsequent Event
Effective September 12, 2005, the Company was sold to Accellent Corp.
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