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Delaware | 7363 | 57-6218917 | ||
(State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification Number) |
Delaware | 7363 | 20-3812051 | ||
(State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification Number) |
Steven B. Boehm Cynthia M. Krus Sutherland Asbill & Brennan LLP 1275 Pennsylvania Avenue, N.W. Washington, DC 20004 (202) 383-0100 (202) 637-3593 — Facsimile | Ralph F. MacDonald, III Michael P. Reed Alston & Bird LLP One Atlantic Center 1201 West Peachtree Street Atlanta, GA 30309 (404) 881-7000 (404) 253-8272 — Facsimile |
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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. |
Per Share | Total | |||||||
Public offering price | $ | $ | ||||||
Underwriting discount and commissions* | $ | $ | ||||||
Proceeds, before expenses, to us | $ | $ |
* | Includes the financial advisory fee payable solely to Ferris, Baker Watts, Incorporated of $0.0375 per share for a total fee of approximately $525,000 assuming the initial public offering price per share is $15.00. |
BB&T Capital Markets a division of Scott & Stringfellow, Inc. | J.J.B. Hilliard, W.L. Lyons, Inc. | |
Oppenheimer & Co. | Sanders Morris Harris | |
Ladenburg Thalmann & Co. Inc. | Maxim Group LLC |
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• | CBS Personnel Holdings, Inc. and its consolidated subsidiaries, which we refer to as CBS Personnel, a human resources outsourcing firm; | |
• | Crosman Acquisition Corporation and its consolidated subsidiaries, which we refer to as Crosman, a recreational products company; | |
• | Compass AC Holdings, Inc. and its consolidated subsidiary, which we refer to as Advanced Circuits, an electronic components manufacturing company; and | |
• | Silvue Technologies Group, Inc. and its consolidated subsidiaries, which we refer to as Silvue, a global hardcoatings company. |
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Management Strategy |
• | recruiting and retaining talented managers to operate our businesses by using structured incentive compensation programs, including minority equity ownership, tailored to each business; | |
• | regularly monitoring financial and operational performance, instilling consistent financial discipline, and supporting management in the development and implementation of information systems to effectively achieve these goals; | |
• | assisting management in their analysis and pursuit of prudent organic growth strategies; | |
• | identifying and working with management to execute on attractive external growth and acquisition opportunities; and | |
• | forming strong subsidiary level boards of directors to supplement management in their development and implementation of strategic goals and objectives. |
Acquisition Strategy |
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Human Resources Outsourcing Firm |
Recreational Products Company |
Electronic Components Manufacturing Company |
Global Hardcoatings Company |
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(1) | All percentages are approximates and assume that we sell all of the shares offered in this offering and the separate private placement transactions and that the underwriters do not exercise their overallotment option. |
(2) | Mr. Massoud is not a director, officer or member. |
(3) | Owned by members of our management team, including Mr. Massoud as managing member. |
(4) | Mr. Massoud is the managing member. |
(5) | The allocation interests, which carry the right to receive a profit allocation, will represent less than a 0.1% equity interest in the company, assuming we sell all the shares offered in this offering and the separate private placement transactions. |
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Shares offered by us in this offering | 14,000,000 shares (represents 70% of shares and voting power to be outstanding following this offering) | |
Shares outstanding after this offering and separate private placement transactions | 20,000,000 shares | |
Use of proceeds | We estimate that our net proceeds from the sale of 14,000,000 shares in this offering will be approximately $194.8 million (or approximately $224.0 million if the underwriters’ overallotment option is exercised in full), based on the initial public offering price of $15.00 per share (which is the mid-point of the estimated initial public offering price range set forth on the cover page on this prospectus) and after deducting underwriting discounts and commissions (including the financial advisory fee payable to Ferris, Baker Watts, Incorporated) of approximately $15.2 million (or approximately $17.5 million if the underwriter overallotment is exercised), but without giving effect to the payment of public offering costs of approximately $6.0 million. We intend to use the net proceeds from this offering, the $90 million of net proceeds from the separate private placement transactions and the $43.9 million of net proceeds from the initial borrowing under our third party credit facility, each of which are to close in conjunction with this offering, to: | |
• pay the purchase price and related costs of the acquisition of our initial businesses of approximately $140.8 million; | ||
• make loans to each of the initial businesses to repay outstanding debt and provide additional capitalization in an aggregate principal amount of approximately $170.8 million; | ||
• pay the public offering costs of approximately $6.0 million; and | ||
• provide funds for general corporate purposes of approximately $11.1 million. | ||
See the section entitled “Use of Proceeds” for more information about the use of the proceeds of this offering. | ||
Nasdaq National Market symbol | CODI | |
Dividend and distribution policy | We intend to declare and pay regular quarterly cash distributions on all outstanding shares, based on distributions received by the trust on the trust interests in the company. The company’s board of directors intends to declare and pay an initial quarterly distribution for the quarter ending September 30, 2006 of $0.2625 per share. The company’s board of directors also intends to declare an initial distribution equal to the amount of the initial quarterly distribution for the quarter ended September 30, 2006, but pro rated for the period from the completion of this offering to June 30, 2006, which will be paid at the same time as such initial quarterly distribution. The declaration and payment of our initial distribution, initial quarterly distribution and, if | |
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declared, the amount of any future distribution will be subject to the approval of the company’s board of directors, which will include a majority of independent directors, and will be based on the results of operations of our initial businesses and the desire to provide sustainable levels of distributions to our shareholders. Any cash distribution paid by the company to the trust will, in turn, be paid by the trust to its shareholders. | ||
See the sections entitled “Dividend and Distribution Policy” for a discussion of our intended distribution rate and “Material U.S. Federal Income Tax Considerations” for more information about the tax treatment of distributions by the trust. | ||
Management fee | The company will pay our manager a quarterly management fee equal to 0.5% (2.0% annualized) of adjusted net assets, as defined in the management services agreement, subject to certain adjustments. Based on the pro forma condensed combined financial statements set forth in this prospectus at or for the year ended December 31, 2005, the total management fee that would have been payable on a quarterly basis for the year ended December 31, 2005, would have been approximately $6.9 million on a pro forma basis (before taking into account offsetting management fees of approximately $2.4 million), representing approximately 43.9% of the pro forma net income of the company before the management fee. The company’s compensation committee, which is comprised solely of independent directors, will review the calculation of the management fee on an annual basis. | |
See the section entitled “Our Manager — Our Relationship With Our Manager — Our Manager as a Service Provider — Management Fee” for more information about the calculation and payment of the management fee and the specific definitions of the terms used in such calculation, as well as an example of the quarterly calculation of the management fee. | ||
Profit allocation | The company will pay a profit allocation with respect to its businesses to our manager, as holder of 100% of the allocation interests, upon the occurrence of certain events if the company’s profits with respect to a business exceeds an annualized hurdle rate of 7%, which hurdle is tied to such business’ growth relative to our consolidated net equity. The calculation of profit allocation with respect to a particular business will be based on: | |
• such business’ contribution-based profit, which generally will be equal to such business’ aggregate contribution to the company’s profit during the period such business is owned by the company; and | ||
• the company’s cumulative gains and losses to date. | ||
Generally, a profit allocation will be paid in the event that the amount of profit allocation exceeds the annualized hurdle rate of 7% in the following manner: (i) 100% of the amount of profit allocation in excess of the hurdle rate of 7% but that is less than the hurdle rate of 8.75%, which amount is intended to provide our manager with an overall profit allocation of 20% once the hurdle rate of 7% has been surpassed; and (ii) 20% of the amount of profit allocation in excess of the hurdle rate of 8.75%. | ||
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Assuming we do not sell a material amount of the capital stock, assets or a subsidiary of one of our businesses, the earliest a profit allocation may be paid to our manager, if the amount of profit allocation exceeds an annualized hurdle rate, is five years from the date we acquire controlling interests in our initial businesses, which date will be concurrent with the closing of this offering. A profit allocation may be paid earlier if we sell a material amount of the capital stock, assets or a subsidiary of one of our businesses, subject to the annualized hurdle rate discussed above and certain conditions. | ||
The amount of profit allocation that will be payable in the future cannot be estimated with any certainty or reliability as of the date of this prospectus, and such profit allocation, if and when paid, may be greater than the management fee paid to our manager pursuant to the management services agreement. | ||
See the section entitled “Our Manager — Our Relationship with Our Manager — Our Manager as an Equity Holder — Manager’s Profit Allocation” for more information about calculation and payment of profit allocation and the specific definitions of the terms used in such calculation. | ||
Shares of the trust | Each share of the trust represents an undivided beneficial interest in the trust property, and each share of the trust corresponds to one underlying trust interest of the company owned by the trust. Unless the trust is dissolved, it must remain the sole holder of 100% of the trust interests, and at all times the company will have outstanding the identical number of trust interests as the number of outstanding shares of the trust. Each outstanding share of the trust is entitled to one vote on any matter with respect to which the trust, as a holder of trust interests in the company, is entitled to vote. The company, as the sponsor of the trust, will provide to our shareholders proxy materials to enable our shareholders to exercise, in proportion to their percentage ownership of outstanding shares, the voting rights of the trust, and the trust will vote its trust interests in the same proportion as the vote of holders of shares. The allocation interests do not grant to our manager voting rights with respect to the company except in certain limited circumstances. | |
See the section entitled “Description of Shares” for information about the material terms of the shares, the trust interests and allocation interests. | ||
Anti-takeover provisions | Certain provisions of the management services agreement, the trust agreement and the LLC agreement, which we will enter into upon the closing of this offering, may make it more difficult for third parties to acquire control of the trust and the company by various means. These provisions could deprive the shareholders of the trust of opportunities to realize a premium on the shares owned by them. In addition, these provisions may adversely affect the prevailing market price of the shares. | |
See the section entitled “Description of Shares — Anti-Takeover Provisions” for more information about these anti-takeover provisions. |
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U.S. federal income tax considerations | Subject to the discussion in “Material U.S. Federal Income Tax Considerations,” the trust will be classified as a grantor trust for U.S. federal income tax purposes. As a result, for U.S. federal income tax purposes, each holder of shares generally will be treated as the beneficial owner of a pro rata portion of the trust interests of the company held by the trust. Subject to the discussion in “Material U.S. Federal Income Tax Considerations,” the company will be classified as a partnership for U.S. federal income tax purposes. Accordingly, neither the company nor the trust will incur U.S. federal income tax liability; rather, each holder of shares will be required to take into account his or her allocable share of company income, gain, loss, deduction, and other items. | |
See the section entitled “Material U.S. Federal Income Tax Considerations” for information about the potential U.S. federal income tax consequences of the purchase, ownership and disposition of shares. | ||
Risk factors | Investing in our shares involves risks. See the section entitled “Risk Factors” and read this prospectus carefully before making an investment decision with the respect to the shares or the company. |
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Year Ended | |||||||||
December 31, | |||||||||
CBS Personnel | 2004 | 2005 | |||||||
($ in thousands) | |||||||||
Statement of Operations Data: | |||||||||
Revenues | $ | 315,258 | $ | 543,012 | |||||
Income from operations | 9,450 | 18,453 | |||||||
Net income | 7,413 | 8,988 |
At | |||||
December 31, | |||||
2005 | |||||
($ in thousands) | |||||
Balance Sheet Data: | |||||
Total assets | $ | 141,752 | |||
Total liabilities | 88,617 | ||||
Shareholders’ equity | 53,135 |
Predecessor | Successor | (Unaudited) | ||||||||||||||||||
July 1, 2003 | February 10, | Six Months Ended | ||||||||||||||||||
to | 2004 to | Year Ended | ||||||||||||||||||
February 9, | June 30, | June 30, | December 26, | January 1, | ||||||||||||||||
Crosman | 2004 | 2004 | 2005 | 2004 | 2006 | |||||||||||||||
($ in thousands) | ||||||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||
Net sales | $ | 38,770 | $ | 24,856 | $ | 70,060 | $ | 38,234 | $ | 45,223 | ||||||||||
Operating income | 6,924 | 3,142 | 8,031 | 6,060 | 7,044 | |||||||||||||||
Net income | 3,138 | 810 | 489 | 2,349 | 2,821 |
(Unaudited) | ||||||||
At | At | |||||||
June 30, | January 1, | |||||||
2005 | 2006 | |||||||
($ in thousands) | ||||||||
Balance Sheet Data: | ||||||||
Total assets | $ | 84,183 | $ | 91,595 | ||||
Total liabilities | 61,837 | 66,417 | ||||||
Shareholders’ equity | 22,346 | 25,178 |
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Predecessor | Successor | ||||||||||||
Predecessor | Combined | Consolidated | |||||||||||
Combined | January 1, | September 20, | |||||||||||
Year Ended | 2005 to | 2005 to | |||||||||||
December 31, | September 19, | December 31, | |||||||||||
Advanced Circuits | 2004 | 2005 | 2005 | ||||||||||
($ in thousands) | |||||||||||||
Statement of Operations Data: | |||||||||||||
Net sales | $ | 36,642 | $ | 29,726 | $ | 12,243 | |||||||
Income from operations | 12,211 | 10,931 | 3,935 | ||||||||||
Net income | 12,093 | 10,922 | 1,686 |
At | |||||
December 31, | |||||
2005 | |||||
($ in thousands) | |||||
Balance Sheet Data: | |||||
Total assets | $ | 79,970 | |||
Total liabilities | 53,342 | ||||
Stockholders’ equity | 26,628 |
Predecessor | Successor | |||||||||||
January 1, | September 3, | |||||||||||
2004 to | 2004 to | Year Ended | ||||||||||
September 2, | December 31, | December 31, | ||||||||||
Silvue | 2004 | 2004 | 2005 | |||||||||
($ in thousands) | ||||||||||||
Statement of Operations Data: | ||||||||||||
Net sales | $ | 7,604 | $ | 4,532 | $ | 17,093 | ||||||
Operating income | 2,056 | 755 | 4,005 | |||||||||
Net income | 1,271 | 112 | 1,531 |
At | ||||
December 31, | ||||
2005 | ||||
($ in thousands) | ||||
Balance Sheet Data: | ||||
Total assets | $ | 31,245 | ||
Total liabilities and cumulative redeemable preferred stock | 22,396 | |||
Stockholders’ equity | 8,849 |
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We are a new company with no history and we may not be able to successfully manage our initial businesses on a combined basis. |
Our audited financial statements will not include meaningful comparisons to prior years and may differ substantially from the pro forma condensed combined financial statements included in this prospectus. |
Our future success is dependent on the employees of our manager and the management teams of our businesses, the loss of any of whom could materially adversely affect our financial condition, business and results of operations. |
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We face risks with respect to the evaluation and management of future acquisitions. |
We face competition for acquisitions of businesses that fit our acquisition strategy. |
We may not be able to successfully fund future acquisitions of new businesses due to the unavailability of debt or equity financing on acceptable terms, which could impede the implementation of our acquisition strategy and materially adversely impact our financial condition, business and results of operations. |
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While we intend to make regular cash distributions to our shareholders, the company’s board of directors has full authority and discretion over the distributions of the company, other than the profit allocation, and it may decide to reduce or eliminate distributions at any time, which may materially adversely affect the market price for our shares. |
We will rely entirely on distributions from our businesses to make distributions to our shareholders. |
The company’s board of directors will have the power to change the terms of our shares in its sole discretion in ways with which you may disagree. |
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Certain provisions of the LLC agreement of the company and the trust agreement make it difficult for third parties to acquire control of the trust and the company and could deprive you of the opportunity to obtain a takeover premium for your shares. |
• | restrictions on the company’s ability to enter into certain transactions with our major shareholders, with the exception of our manager, modeled on the limitation contained in Section 203 of the Delaware General Corporation Law, or DGCL; | |
• | allowing the chairman of the company’s board of directors to fill vacancies on the company’s board of directors until the second annual meeting of shareholders following the closing of this offering; | |
• | allowing only the company’s board of directors to fill newly created directorships, for those directors who are elected by our shareholders, and allowing only our manager, as holder of the allocation interests, to fill vacancies with respect to the class of directors appointed by our manager; | |
• | requiring that directors elected by our shareholders be removed, with or without cause, only by a vote of 85% of our shareholders; | |
• | requiring advance notice for nominations of candidates for election to the company’s board of directors or for proposing matters that can be acted upon by our shareholders at a shareholders’ meeting; | |
• | having a substantial number of additional authorized but unissued shares that may be issued without shareholder action; | |
• | providing the company’s board of directors with certain authority to amend the LLC agreement and the trust agreement, subject to certain voting and consent rights of the holders of trust interests and allocation interests; | |
• | providing for a staggered board of directors of the company, the effect of which could be to deter a proxy contest for control of the company’s board of directors or a hostile takeover; and | |
• | limitations regarding calling special meetings and written consents of our shareholders. | |
We may have conflicts of interest with the minority shareholders of our businesses. |
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Our third party credit facility exposes us to additional risks associated with leverage and inhibits our operating flexibility and reduces cash flow available for distributions to our shareholders. |
• | maintain a minimum level of cash flow; | |
• | leverage new businesses we acquire to a minimum specified level at the time of acquisition; | |
• | keep our total debt to cash flow at or below a ratio of three to one; and | |
• | make acquisitions that satisfy certain specified minimum criteria. | |
Changes in interest rates could materially adversely affect us. |
We may engage in a business transaction with one or more target businesses that have relationships with our officers, our directors, our manager or CGI, which may create potential conflicts of interest. |
CGI may exercise significant influence over the company. |
The terms and conditions of the stock purchase agreement, the management services agreement and the loan agreements discussed in this prospectus were negotiated among entities affiliated with or related to CGI and our manager in the overall context of this offering, and these terms may be less advantageous to us than if they had been the subject of arm’s-length negotiations. |
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We will incur increased costs as a result of being a publicly traded company. |
If in the future we cease to control and operate our businesses, we may be deemed to be an investment company under the Investment Company Act of 1940, as amended. |
Risks Relating to Our Manager |
Our Chief Executive Officer, directors, manager and management team may allocate some of their time to other businesses, thereby causing conflicts of interest in their determination as to how much time to devote to our affairs, which may materially adversely affect our operations. |
Our manager and its affiliates, including members of our management team, may engage in activities that compete with us or our businesses. |
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Our manager need not present an acquisition or disposition opportunity to us if our manager determines on its own that such acquisition or disposition opportunity does not meet the company’s acquisition or disposition criteria. |
We cannot remove our manager solely for poor performance, which could limit our ability to improve our performance and could materially adversely affect the market price of our shares. |
We may have difficulty severing ties with our Chief Executive Officer, Mr. Massoud. |
If we terminate the management services agreement, we will need to change our name, which may adversely affect our financial condition, business and results of operations. |
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If the management services agreement is terminated, our manager, as holder of the allocation interests in the company, has the right to cause the company to purchase such allocation interests, which may materially adversely affect our liquidity and ability to grow. |
Our manager can resign on 90 days’ notice and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could materially adversely affect our financial condition, business and results of operations as well as the market price of our shares. |
The liability associated with the supplemental put agreement is difficult to estimate and may be subject to substantial period-to-period changes, thereby significantly impacting our future results of operations. |
We must pay our manager the management fee regardless of our performance. |
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We cannot determine the amount of the management fee that will be paid over time with any certainty. |
We cannot determine the amount of profit allocation that will be paid over time with any certainty. |
The fees to be paid to our manager pursuant to the management services agreement, the offsetting management services agreements and transaction services agreements and the profit allocation to be paid to our manager, as holder of the allocation interests, pursuant to the LLC agreement may significantly reduce the amount of cash available for distribution to our shareholders. |
Our manager’s influence on conducting our operations, including on our conducting of transactions, gives it the ability to increase its fees and compensation to our Chief Executive Officer, which may reduce the amount of cash flow available for distribution to our shareholders. |
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Fees paid by the company and our businesses pursuant to transaction services agreements do not offset fees payable under the management services agreement and will be in addition to the management fee payable by the company under the management services agreement. |
Our manager’s profit allocation may induce it to make suboptimal decisions regarding our operations. |
Our shareholders will be subject to taxation on their share of the company’s taxable income, whether or not they receive cash distributions from the trust. |
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All of the company’s income could be subject to an entity-level tax in the United States, which could result in a material reduction in cash flow available for distribution to holders of shares of the trust and thus could result in a substantial reduction in the value of the shares. |
If the trust were determined not to be a grantor trust, the trust may itself be regarded as a partnership for U.S. federal income tax purposes, and the trust’s items of income, gain, loss, and deduction would be reportable to the shareholders of the trust on IRS Schedules K-1. |
If the trust makes one or more new equity offerings, the investors participating in those subsequent offerings will be allocated a portion of any built-in gains (or losses) that exist at the time of the additional offerings. |
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A shareholder may recognize a greater taxable gain (or a smaller tax loss) on a disposition of shares than expected because of the treatment of debt under the partnership tax accounting rules. |
Our results of operations may vary from quarter to quarter, which could adversely impact the market price of our shares. |
• | the general economic conditions including employment levels, of the industry and regions in which each of our businesses operate; | |
• | seasonal shifts in demand for the products and services offered by certain of our businesses; | |
• | the general economic conditions of the customers and clients of our businesses; | |
• | the timing and market acceptance of new products and services introduced by our businesses; and | |
• | the timing of our acquisitions of other businesses. |
Our businesses are or may be vulnerable to economic fluctuations as demand for their products and services tends to decrease as economic activity slows. |
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Our businesses are or may be dependent upon the financial and operating conditions of their customers and clients. If the demand for their customers’ and clients’ products and services declines, demand for their products and services will be similarly affected and could have a material adverse effect on their financial condition, business and results of operations. |
The industries in which our businesses compete or may compete are highly competitive and they may not be able to compete effectively with competitors. |
Our businesses rely and may rely on their intellectual property and licenses to use others’ intellectual property, for competitive advantage. If our businesses are unable to protect their intellectual property, are unable to obtain or retain licenses to use other’s intellectual property, or if they infringe upon or are alleged to have infringed upon others’ intellectual property, it could have a material adverse affect on their financial condition, business and results of operations. |
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• | temporarily or permanently stop producing products that use the intellectual property in question; | |
• | obtain an intellectual property license to sell the relevant technology at an additional cost, which license may not be available on reasonable terms, or at all; and | |
• | redesign those products or services that use the technology or other intellectual property in question. |
The operations and research and development of some of our businesses’ services and technology depend on the collective experience of their technical employees. If these employees were to leave our businesses and take this knowledge, our businesses’ operations and their ability to compete effectively could be materially adversely impacted. |
If our businesses are unable to continue the technological innovation and successful commercial introduction of new products and services, their financial condition, business and results of operations could be materially adversely affected. |
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Some of our businesses rely and may rely on suppliers for the timely delivery of materials used in manufacturing their products. Shortages or price fluctuations in component parts specified by their customers could limit their ability to manufacture certain products, delay product shipments, cause them to breach supply contracts and materially adversely affect our financial condition, business and results of operations. |
Our businesses could experience fluctuations in the costs of raw materials as a result of inflation and other economic conditions, which fluctuations could have a material adverse effect on their financial condition, business and results of operations. |
Our businesses do not have and may not have long-term contracts with their customers and clients and the loss of customers and clients could materially adversely affect their financial condition, business and results of operations. |
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Damage to our businesses’ or their customers’ and suppliers’ offices and facilities could increase costs of doing business and materially adversely affect their ability to deliver their services and products on a timely basis as well as decrease demand for their services and products, which could materially adversely affect their financial condition, business and results of operations. |
Our businesses are and may be subject to federal, state and foreign environmental laws and regulations that expose them to potential financial liability. Complying with applicable environmental laws requires significant resources, and if our businesses fail to comply, they could be subject to substantial liability. |
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Our businesses are and may be subject to a variety of federal, state and foreign laws and regulations concerning employment, health, safety and products liability. Failure to comply with governmental laws and regulations could subject them to, among other things, potential financial liability, penalties and legal expenses which could have a material adverse effect on our financial condition, business and results of operations. |
Some of our businesses are and may be operated pursuant to government permits, licenses, leases, concessions or contracts that are generally complex and may result in disputes over interpretation or enforceability. Our failure to comply with regulations or concessions could subject us to monetary penalties or result in a revocation of our rights to operate the affected business. |
Our businesses are subject to certain risks associated with their foreign operations or business they conduct in foreign jurisdictions. |
• | exposure to local economic conditions; | |
• | difficulties in enforcing agreements and collecting receivables through certain foreign legal systems; | |
• | longer payment cycles for foreign customers; | |
• | adverse currency exchange controls; | |
• | exposure to risks associated with changes in foreign exchange rates; | |
• | potential adverse changes in the political environment of the foreign jurisdictions or diplomatic relations of foreign countries with the United States; | |
• | withholding taxes and restrictions on the withdrawal of foreign investments and earnings; | |
• | export and import restrictions; | |
• | labor relations in the foreign jurisdictions; | |
• | difficulties in enforcing intellectual property rights; and | |
• | required compliance with a variety of foreign laws and regulations. |
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Employees of our businesses may join unions, which may increase our businesses’ costs. |
Our initial businesses have recorded a significant amount of goodwill and other identifiable intangible assets, which may never be fully realized. |
The operational objectives and business plans of our businesses may conflict with our operational and business objectives or with the plans and objective of another business we own and operate. |
The internal controls of our initial businesses have not yet been integrated and we have only recently begun to examine the internal controls that are in place for each business. As a result, we may fail to comply with Section 404 of the Sarbanes-Oxley Act or our auditors may report a material weakness in the effectiveness of our internal control over financial reporting. |
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CBS Personnel’s business depends on its ability to attract and retain qualified staffing personnel that possess the skills demanded by its clients. |
Any significant economic downturn could result in clients of CBS Personnel using fewer temporary employees, which would materially adversely affect the business of CBS Personnel. |
Customer relocation of positions filled by CBS Personnel may materially adversely affect CBS Personnel’s financial condition, business and results of operations. |
CBS Personnel assumes the obligation to make wage, tax and regulatory payments for its employees, and as a result, it is exposed to client credit risks. |
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CBS Personnel is exposed to employment-related claims and costs and periodic litigation that could materially adversely affect its financial condition, business and results of operations. |
• | claims of misconduct or negligence on the part of its employees, discrimination or harassment claims against its employees, or claims by its employees of discrimination or harassment by its clients; | |
• | immigration-related claims; | |
• | claims relating to violations of wage, hour and other workplace regulations; | |
• | claims relating to employee benefits, entitlements to employee benefits, or errors in the calculation or administration of such benefits; and | |
• | possible claims relating to misuse of customer confidential information, misappropriation of assets or other similar claims. |
CBS Personnel’s workers’ compensation loss reserves may be inadequate to cover its ultimate liability for workers’ compensation costs. |
Crosman is dependent on key retailers, the loss of which would materially adversely affect its financial conditions, businesses and results of operations. |
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Crosman may be required to pay remediation costs pursuant to DEC consent orders if the third party indemnitor is unable or unwilling to pay such costs. |
Crosman’s products are subject to governmental regulations in the United States and foreign jurisdictions. |
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The airgun and paintball industries are seasonal, which could materially adversely affect Crosman’s financial condition, business and results of operations. |
Crosman’s products are subject to product safety and liability lawsuits, which could materially adversely affect its financial condition, business and results of operations. |
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Crosman relies on a limited number of suppliers and as a result, if suppliers are unable to provide materials on a timely basis, Crosman’s financial condition, business and results of operations may be materially adversely affected. |
Crosman cannot control certain of its operating expenses and as a result, if it is unable to pass on its cost increases, its financial condition, business and results of operations may be materially adversely affected. |
The members agreement governing GFP has certain covenants that may have important consequences to Crosman. |
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• | engage in, have any equity or profit interest in, make any loan to or for the benefit of, or render services to any business that engages in providing goods or services provided by GFP in the relevant territory; | |
• | employ any person who was employed by GFP and has not ceased to be employed for a period of at least one year; | |
• | solicit any current or previous customer of GFP; and | |
• | directly or indirectly engage in the manufacture of paintballs. |
Defects in the products that Advanced Circuits produces for their customers could result in financial or other damages to those customers, which could result in reduced demand for Advanced Circuits’ services and liability claims against Advanced Circuits. |
Unless Advanced Circuits is able to respond to technological change at least as quickly as its competitors, its services could be rendered obsolete, which could materially adversely affect its financial condition, business and results of operations. |
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Advanced Circuits’ customers operate in industries that experience rapid technological change resulting in short product life cycles and as a result, if the product life cycles of its customers slow materially, and research and development expenditures are reduced, its financial condition, business and results of operations will be materially adversely affected. |
The continued trend of technology companies moving their operations offshore may materially adversely affect Advanced Circuits’ financial conditions, business and results of operations. |
Electronics manufacturing services corporations are increasingly acting as intermediaries, positioning themselves between PCB manufacturers and OEMS, which could reduce operating margins. |
Silvue derives a significant portion of its revenue from the eyewear industry. Any economic downturn in this market or increased regulations by the Food and Drug Administration, would materially adversely affect its operating results and financial condition. |
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Silvue’s technology is compatible with certain substrates and processes and competes with a number of products currently sold on the market. A change in the substrate, process or competitive landscape could have a material adverse affect on its financial condition, business and results of operations. |
Silvue has international operations and is exposed to general economic, political and regulatory conditions and risks in the countries in which they have operations. |
Changes in foreign currency exchange rates could materially adversely affect Silvue’s financial condition, business and results of operations. |
Silvue relies upon valuable intellectual property rights that could be subject to infringement or attack. Infringement of these intellectual property rights by others could have a material adverse affect on its financial condition, business and results of operations. |
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There is no public market for our shares. You cannot be certain that an active trading market or a specific share price will be established, and you may not be able to resell your shares at or above the initial offering price. |
Future sales of shares may affect the market price of our shares. |
We may issue additional debt and equity securities which are senior to our shares as to distributions and in liquidation, which could materially adversely affect the market price of our shares. |
Our earnings and cash distributions may affect the market price of our shares. |
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The market price, trading volume and marketability of our shares may, from time to time, be significantly affected by numerous factors beyond our control, which may materially adversely affect the market price of your shares and our ability to raise capital through future equity financings. |
• | price and volume fluctuations in the stock markets generally which create highly variable and unpredictable pricing of equity securities; | |
• | significant volatility in the market price and trading volume of securities of companies in the sectors in which our businesses operate, which may not be related to the operating performance of these companies and which may not reflect the performance of our businesses; | |
• | changes and variations in our earnings and cash flows; | |
• | any shortfall in revenue or net income or any increase in losses from levels expected by securities analysts; | |
• | changes in regulation or tax law; | |
• | operating performance of companies comparable to us; | |
• | general economic trends and other external factors including inflation, interest rates, and costs and availability of raw materials, fuel and transportation; and | |
• | loss of a major funding source. |
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• | our ability to successfully operate our initial businesses on a combined basis, and to effectively integrate and improve any future acquisitions; | |
• | our ability to remove our manager and our manager’s right to resign; | |
• | our trust and organizational structure, which may limit our ability to meet our dividend and distribution policy; | |
• | our ability to service and comply with the terms of our indebtedness; | |
• | our cash flow available for distribution after the closing of this offering and our ability to make distributions in the future to our shareholders; | |
• | our ability to pay the management fee, profit allocation and put price when due; | |
• | the acquisition price of each initial business and the loan amounts to each initial business; | |
• | decisions made by persons who control our initial businesses, including decisions regarding dividend and distribution policies; | |
• | our ability to make and finance future acquisitions, including, but not limited to, the acquisitions described in this prospectus; | |
• | our ability to implement our acquisition and management strategies; | |
• | the regulatory environment in which our initial businesses operate; | |
• | trends in the industries in which our initial businesses operate; | |
• | changes in general economic or business conditions or economic or demographic trends in the United States and other countries in which we have a presence, including changes in interest rates and inflation; | |
• | environmental risks affecting the business or operations of our initial businesses; | |
• | our and our manager’s ability to retain or replace qualified employees of our initial businesses and our manager; | |
• | costs and effects of legal and administrative proceedings, settlements, investigations and claims; and | |
• | extraordinary or force majeure events affecting the business or operations of our initial businesses. | |
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• | pay the purchase price and related costs of the acquisition of our initial business of approximately $140.8 million; | |
• | make loans to each of our initial businesses to repay outstanding debt and to provide capitalization in an aggregate principal amount of $170.8 million; | |
• | pay the public offering costs of approximately $6.0 million; and | |
• | provide funds for general corporate purposes of approximately of $11.1 million. | |
Sources of Funds | |||||
($ in millions) | |||||
Net proceeds from initial public offering | $ | 194.8 | |||
Investment of Pharos | 4.0 | ||||
Investment of CGI | 86.0 | ||||
Net proceeds from initial borrowing under third party credit facility | 43.9 | ||||
Total Sources | $ | 328.7 | |||
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Uses of Funds | ||||||
($ in millions) | ||||||
Purchase of Equity: | ||||||
CBS Personnel | $ | 54.6 | ||||
Crosman | 26.9 | |||||
Advanced Circuits | 35.3 | |||||
Silvue | 24.0 | |||||
Loans to initial businesses:(1) | ||||||
CBS Personnel | 66.4 | (2) | ||||
Crosman | 43.2 | |||||
Advanced Circuits | 47.4 | |||||
Silvue | 13.8 | |||||
Public offering costs(3) | 6.0 | |||||
General corporate purposes | 11.1 | |||||
Total Uses | $ | 328.7 | ||||
(1) | See the liquidity and capital resources discussion for each initial business in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more information about the outstanding debt of each initial business that will be repaid in connection with this offering. See the section entitled “The Acquisitions of and Loans to Our Initial Businesses” for more information about the loans to each of our initial businesses. |
(2) | The $66.4 million will be comprised of approximately $50.0 million in term loans, approximately $17.2 million of which will be used to pay down third party debt and approximately $32.8 million of which represents a capitalization loan and approximately $16.4 million of a $37.5 million revolving loan commitment which will be made to CBS Personnel in conjunction with the closing of this offering. CBS Personnel will use a portion of the loans to redeem shares of its Class B and Class C common stock from certain holders thereof and to make payments to certain of its option holders as consideration for the termination of a portion of their options to acquire Class C common stock. See the section entitled “The Acquisitions of and Loans to Our Initial Businesses” for more information about the loans to CBS Personnel. |
(3) | This amount will be reimbursed by the company to the manager in conjunction with the closing of this offering. See the section entitled “Management Services Agreement—Reimbursement of Offering Expenses” and “Certain Relationships and Related Party Transactions” for more information about the reimbursement of offering expenses. |
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Year Ended | |||||||
December 31, | |||||||
Cash Flow Available for Distribution | 2005 | ||||||
($ in thousands) | |||||||
Net income per pro forma | $ | 8,783 | |||||
Adjustment to reconcile pro forma net income to pro forma net cash provided by operating activities: | |||||||
Pro forma depreciation | 5,398 | ||||||
Pro forma amortization | 10,433 | ||||||
Pro forma amortization of debt issuance cost | 1,220 | ||||||
Pro forma adjustment to add back in-process R&D expensed at acquisition date | 1,240 | ||||||
Pro forma minority interest | 3,265 | ||||||
Pro forma deferred taxes | 367 | ||||||
Pro forma foregone offering costs(1) | 3,022 | ||||||
Pro forma deferred interest | 1,287 | ||||||
Pro forma loss from equity investment and other | 98 | ||||||
Pro forma changes in operating assets and liabilities | 5,893 | ||||||
Pro forma net cash provided by operating activities | 41,006 | ||||||
Add: | |||||||
Pro forma unused fee on delayed term loan(2) | 2,300 | ||||||
Less: | |||||||
Pro forma changes in operating assets and liabilities | 5,893 | ||||||
Pro forma deferred interest | 1,287 | ||||||
Estimated incremental general and administrative expense(3) | 5,000 | ||||||
Capital expenditures for the year ended December 31, 2005(4) | |||||||
CBS Personnel | 1,018 | ||||||
Crosman | 1,747 | ||||||
Advanced Circuits | 1,184 | ||||||
Silvue | 178 | ||||||
Estimated pro forma cash flow available for distribution | $ | 26,999 | |||||
(1) | Relates to Crosman’s foregone offering costs associated with its intended public offering in the Canadian Income Trust market that was ultimately not consummated. |
(2) | Represents the 2% commitment fee on the $115 million unused delayed term loan. |
(3) | Represents ongoing incremental administrative expenses, professional fees and management fees we expect to incur annually as a public company such as accounting, legal and other consultant fees, SEC and listing fees, directors’ fees and directors’ and officers’ insurance. We currently estimate these costs to be approximately $5.0 million. |
(4) | Represents capital expenditures that were funded from operating cash flow. |
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• | The operating results of our initial businesses which are impacted by factors outside of our control including competition, inflation and general economic conditions; | |
• | The ability of our businesses to make distributions to us, which may be subject to limitations under laws of the jurisdictions in which they are incorporated or organized; | |
• | Insufficient cash to pay distributions due to increases in our general and administrative expenses, including our quarterly management fee, principal and interest payments on our outstanding debt, tax expenses or working capital requirements; | |
• | The obligation to pay our manager a profit allocation upon the occurrence of a trigger event; | |
• | The obligation to pay our manager the put price pursuant to the supplemental put agreement; | |
• | The company’s board of directors’ election to keep a portion of the operating cash flow in the initial businesses or to use such funds for the acquisition of new businesses; | |
• | Restrictions on distributions under our third party credit facility which contains financial tests and covenants that we will have to satisfy in order to make quarterly or annual distributions; | |
• | Any dividends or distributions paid by our businessespro ratato the minority shareholders of our businesses, which portion will not be available to us for any purpose, including for the purpose of making distributions to our shareholders; | |
• | Possible future issuances of debt or debt-like financing arrangements that are secured by all or substantially all of our assets, or issuing debt or equity securities, which could include issuances of commercial paper, medium-term notes, senior notes, subordinated notes or shares, which obligations will have priority over our cash flow; and | |
• | In the future, the company may issue preferred securities and holders of such preferred securities may have a preference with respect to distributions, which could limit our ability to make distributions to our shareholders. |
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• | approximately 97.6% of CBS Personnel on a primary basis, without giving effect to conversion of any convertible securities, and approximately 94.4% on a fully diluted basis, after giving effect to the exercise of vested and in the money options and vested non-contingent warrants (as applicable); | |
• | approximately 75.4% of Crosman on a primary and fully diluted basis; | |
• | approximately 70.2% of Advanced Circuits on a primary and fully diluted basis; and | |
• | approximately 73.0% of Silvue on a primary and fully diluted basis, after giving effect to the conversion of preferred stock of Silvue we acquired. |
• | approximately $50.0 million in term loans and approximately $37.5 million in a financing commitment pursuant to a revolving loan to CBS Personnel. The full amount of the term loans, of which approximately $32.8 million represents a capitalization loan, and approximately $16.4 million of the revolving loan commitment will be funded to CBS Personnel in conjunction with the closing of this offering. At the closing of this offering, an aggregate amount of approximately $66.4 million will be funded to CBS Personnel pursuant to these loans and financing commitments. | |
• | approximately $37.7 million in term loans and approximately $18.0 million in a financing commitment pursuant to a revolving loan to Crosman. The full amount of the term loans and approximately $5.5 million of the revolving loan commitment will be funded to Crosman in conjunction with the closing of this offering. At the closing of this offering, an aggregate amount of approximately $43.2 million will be funded to Crosman pursuant to these loans and financing commitments. | |
• | approximately $37.0 million in term loans and approximately $14.0 million in a financing commitment pursuant to a revolving loan to Advanced Circuits. The full amount of the term loans and approximately $10.4 million of the revolving loan commitment will be funded to Advanced Circuits in conjunction with the closing of this offering. At the closing of this offering, an aggregate amount of approximately $47.4 million will be funded to Advanced Circuits pursuant to these loans and financing commitments. | |
• | approximately $11.0 million in term loans and approximately $5.0 million in a financing commitment pursuant to a revolving loan to Silvue. The full amount of the term loans and approximately $2.8 million of the revolving loan commitment will be funded to Silvue in conjunction with the closing of this offering. At the closing of this offering, an aggregate amount of approximately $13.8 million will be funded to Silvue pursuant to these loans and financing commitments. | |
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• | retire approximately $29.8 million of existing CBS Personnel debt, plus pay an early redemption premium of approximately $0.4 million; | |
• | purchase, in the aggregate, approximately $54.6 million of equity from Compass CS Partners, L.P. and Compass CS II Partners, L.P., subsidiaries of CGI which we together refer to as Compass CS Partners; | |
• | redeem approximately $35.9 million of equity held by Compass CS Partners, members of CBS Personnel’s management team and certain unaffiliated minority stockholders; and | |
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• | make option termination payments aggregating approximately $0.3 million to members of CBS Personnel’s management team. |
Acquisition |
• | 2,830,909 shares of Class A common stock, all of which were held by Compass CS Partners; | |
• | 3,548,384 shares of Class B common stock, 2,274,052 of which were held by Compass CS Partners and 1,274,332 of which were held by Mr. Brown; | |
• | 250,833 shares of Class C common stock, all of which were held by members of CBS Personnel’s management team and certain other investors in CBS Personnel; | |
• | warrants to acquire 23,457.15 shares of Class B common stock, all of which were held by Compass CS Partners and are expected to be exercised prior to the closing of this offering; | |
• | warrants to acquire 922,993.45 shares of Class B common stock, all of which were held by Mr. Brown and are expected to be exercised prior to the closing of this offering; and | |
• | options to purchase 454,417 shares of Series C commons stock, all of which were held by members of CBS Personnel’s management team and certain other investors. | |
Term Loans |
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Revolving Loan |
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Acquisition |
• | 577,232 shares of a single class of common stock, 428,292 of which were held by Compass Crosman Partners and the balance of which was held by members of Crosman’s management team and certain other stockholders of Crosman; and | |
• | options to purchase 30,000 additional shares of Crosman’s common stock, all of which were held by a member of Crosman’s management team. |
Term Loans |
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Revolving Loan |
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Acquisition |
• | 425,729 shares of Series A common stock, all of which were held by members of Advanced Circuits’ management team and certain other stockholders of Advanced Circuits; and | |
• | 904,000 shares of Series B common stock, 882,120 of which were held by Compass Advanced Partners, and the balance of which were held by certain other investors. |
Term Loans |
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Revolving Loan |
Acquisition |
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• | 14,036.72 shares of Series A common stock, all of which were held by members of Silvue’s management team and other stockholders of Silvue; | |
• | 5,000 shares of Series B common stock, 4,901.4 of which were held by Compass Silvue Partners and the remainder of which were held by certain other stockholders of Silvue; | |
• | 22,432.23 shares of Series A convertible preferred stock, 21,521.85 of which were held by CGI’s subsidiary and the remainder of which were held by certain stockholders of Silvue; and | |
• | 4,500 shares of Series B redeemable preferred stock, all of which were held by members of Silvue’s management team. |
Term Loans |
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Revolving Loan |
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• | the company will indemnify CGI and Compass Crosman Partners for any damages arising pursuant to a partial guaranty by Compass Crosman Partners of an obligation of Crosman to pay to the former owners of Crosman an earn-out under the agreement pursuant to which CGI acquired control of Crosman. Such earn-out would be triggered if Crosman meets certain financial performance benchmarks for the fiscal year ending June 30, 2006. If triggered, we do not anticipate that such earn-out would be material to our results of operations or financial condition. A similar earn-out with respect to the fiscal year ended June 30, 2005 was not triggered. | |
• | CGI and Compass Advanced Partners will indemnify the company against any damages resulting from a breach of any representation, warranty, covenant or obligation of Compass Advanced Partners or Advanced Circuits under the agreement pursuant to which CGI originally acquired control of Advanced Circuits, or any failure by either of them to perform any obligation under such original purchase agreement after the date of the closing of CGI’s original acquisition and through the closing of this offering. | |
• | CGI and Compass Silvue Partners will indemnify the company against any damages resulting from a breach of any representation, warranty, covenant or obligation of Compass Silvue Partners or Silvue under the agreement pursuant to which CGI originally acquired control of Silvue, or any |
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failure by either of them to perform any obligation under such original purchase agreement after the date of the closing of CGI’s original acquisition and through the closing of this offering. |
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• | the management services agreements relating to the services our manager will perform for us and the businesses we own; | |
• | the company’s LLC agreement relating to our manager’s rights with respect to the allocation interests it owns; and | |
• | the supplemental put agreement relating to our manager’s right to cause the company to purchase the allocation interests it owns. |
Our Manager as a Service Provider |
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(In thousands) | |||||
Total Management fee: | |||||
1. Total assets | $ | 458,207 | |||
2. Accumulated amortization of intangibles | 0 | ||||
3. Adjusted total liabilities | 113,979 | ||||
4. Adjusted net assets (1 – 2 – 3) | 344,228 | ||||
5. Quarterly management fee (0.5% * 4) | 1,721 | ||||
Offsetting management fees: | |||||
6. CBS Personnel | 250 | ||||
7. Crosman | 145 | ||||
8. Advanced Circuits | 125 | ||||
9. Silvue | 88 | ||||
10. Total offsetting management fees (6 + 7 + 8 + 9) | 608 | ||||
11. Quarterly management fee payable by the company (5 – 10) | $ | 1,113 | |||
• | “Adjusted net assets” will be equal to, with respect to the company as of any calculation date, thesumof (i) consolidated total assets (as determined in accordance with GAAP) of the company as of such calculation date,plus(ii) the absolute amount of consolidated accumulated amortization of intangibles (as determined in accordance with GAAP) for the company as of such calculation date,minus(iii) the absolute amount of adjusted total liabilities of the company as of such calculation date. | |
• | “Adjusted total liabilities” will be equal to, with respect to the company as of any calculation date, the company’s consolidated total liabilities (as determined in accordance with GAAP) as of such calculation date after excluding the effect of any outstanding third party indebtedness of the company. | |
• | “Management fee” will be equal to, as of any calculation date, theproductof (i) 0.5%,multiplied by(ii) the company’s adjusted net assets as of such calculation date;provided, however,that, with | |
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respect to the fiscal quarter in which the closing of this offering occurs, the company will pay our manager a management fee with respect to such fiscal quarter equal to theproductof (i)(x) 0.5%,multiplied by(y) the company’s adjusted net assets as of such calculation date,multiplied by(ii) a fraction, the numerator of which is the number of days from and including the date of closing to and including the last day of such fiscal quarter and the denominator of which is the number of days in such fiscal quarter;provided, further, however,that, with respect to any fiscal quarter in which the management services agreement is terminated, the company will pay our manager a management fee with respect to such fiscal quarter equal to the productof (i)(x) 0.5%,multiplied by(y) the company’s adjusted net assets as of such calculation date,multiplied by(ii) a fraction, the numerator of which is the number of days from and including the first day of such fiscal quarter to but excluding the date upon which the management services agreement is terminated and the denominator of which is the number of days in such fiscal quarter. | ||
• | “Third party indebtedness” means any indebtedness of the company owed to third party lenders that are not affiliated with the company. | |
• | all costs and expenses of the company that are incurred by our manager or its affiliates on behalf of the company, including anyout-of-pocket costs and expenses incurred in connection with the performance of services under the management services agreement, and all costs and expenses the reimbursement of which are specifically approved by the company’s board of directors; and | |
• | the compensation and other costs and expenses of the Chief Financial Officer and his staff as approved by the company’s compensation committee. | |
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• | CBS Personnel and an affiliate of The Compass Group are parties to a five year, automatically renewable management services agreement, dated October 13, 2000. Such management services agreement is currently in its renewal period. Under such management services agreement, CBS Personnel is obligated to pay an annual fee equal to 0.15% of its annual gross revenues, which is payable quarterly in arrears. In addition, CBS Personnel is obligated to provide reimbursement for certain expenses in connection with the services performed under such management services agreement. Such management services agreement may be terminated upon the occurrence of an event of default, as set forth. For the year ended December 31, 2005, CBS Personnel paid approximately $1.0 million to an affiliate of The Compass Group under such management services agreement. | |
• | Crosman and an affiliate of The Compass Group are parties to a one year, automatically renewable management services agreement, dated February 10, 2004. Such management services agreement is currently in its renewal period. Under such management services agreement, Crosman is obligated to pay a fixed annual fee equal to $580,000, which is payable quarterly in advance. In addition, Crosman is obligated to provide reimbursement for certain expenses in connection with the services performed under such management services agreement. Such management services agreement may be terminated upon the occurrence of an event of default, as set forth in such agreement. For the | |
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year ended June 30, 2005, Crosman paid approximately $580,000 to an affiliate of The Compass Group under such management services agreement. | ||
• | Advanced Circuits and an affiliate of The Compass Group are parties to a five year, automatically renewable management services agreement, dated September 20, 2005. Under such management services agreement, Advanced Circuits is obligated to pay a fixed annual fee equal to $500,000, which is payable quarterly in arrears. In addition, Advanced Circuits is obligated to provide reimbursement for certain expenses in connection with the services performed under such management services agreement. Such management services agreement may be terminated upon the occurrence of an event of default, as set forth in such agreement. For the period from September 2005 to December 31, 2005, Advanced Circuits paid approximately $139,000 to an affiliate of The Compass Group under such management services agreement. | |
• | Silvue and an affiliate of The Compass Group are a party to a three year, automatically renewable management services agreement, dated September 2, 2004 as amended September 30, 2004. Under such management services agreement, Silvue is obligated to pay a fixed annual fee equal to $350,000, which is payable quarterly in arrears. In addition, Silvue is obligated to provide reimbursement for certain expenses in connection with the services performed under such management services agreement. Such management services agreement may be terminated upon the occurrence of an event of default, as set forth in such agreement. For the year ended December 31, 2005, Silvue paid approximately $350,000 to an affiliate of The Compass Group under such management services agreement. | |
Our Manager as an Equity Holder |
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• | the sale of a material amount, as determined by our manager and reasonably consented to by a majority of the company’s board of directors, of the capital stock or assets of one of our businesses or a subsidiary of one of our businesses, which event we refer to as a sale event; or | |
• | at the option of our manager, for the 30-day period following the fifth anniversary of the date upon which we acquired a controlling interest in a business, which event we refer to as a holding event. If our manager elects to forego declaring a holding event with respect to such business during such period, then our manager may only declare a holding event with respect to such business during the 30–day period following each anniversary of such fifth anniversary date with respect to such business. Once declared, our manager may only declare another holding event with respect to a business following the fifth anniversary of the calculation date with respect to a previously declared holding event. | |
• | the contribution-based profit of such business as of such calculation date, which will be calculated upon the occurrence of any trigger event with respect to such business;plus | |
• | the cumulative gains and losses of the company as of such calculation date, which will only be calculated upon the occurrence of a sale event with respect to such business. We generally expect this component to be the most significant component in calculating total profit allocation amount. |
• | manager’s profit allocationwill notbe paid with respect to a trigger event relating to any business if the total profit allocation amount, as of any calculation date, with respect to such business doesnotexceed such business’ level 1 hurdle amount (7% annualized), as of such calculation date; and | |
• | manager’s profit allocationwillbe paid with respect to a trigger event relating to any business if the total profit allocation amount, as of any calculation date, with respect to such businessexceedssuch business’ level 1 hurdle amount (7% annualized), as of such calculation date. Manager’s profit allocation to be paid with respect to such calculation date will be equal to thesumof the following: | |
• | 100% of such business’ total profit allocation amount, as of such calculation date, with respect to that portion of the total profit allocation amount that exceeds such business’ level 1 hurdle amount (7% annualized) but is less than or equal to such business’ level 2 hurdle amount (8.75% annualized), in each case, as of such calculation date. We refer to this portion of the total profit allocation amount as the“catch-up.” The“catch-up” is intended to provide our manager with an overall profit allocation of 20% once the level 1 hurdle amount has been surpassed;plus |
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• | 20% of the total profit allocation amount, as of such calculation date, that exceeds such business’ level 2 hurdle amount (8.75% annualized) as of such calculation date;minus | |
• | the high water mark allocation, if any, as of such calculation date. The effect of deducting the high water mark allocation is to take into account allocations our manager has already received in respect of past gains and losses. | |
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Example of Calculation of Manager’s Profit Allocation |
Assumptions | |
Year 1: | |
Acquisition of Company A (“Company A”) | |
Acquisition of Company B (“Company B”) | |
Year 3 | |
Acquisition of Company C (“Company C”) | |
Year 4 | |
Company A (or assets thereof) sold for $20 capital gain over book value of assets at time of sale, which is a qualifying trigger event | |
Company A’s average allocated share of our consolidated net equity over its ownership is $40 | |
Company A’s holding period in quarters is 12 | |
Company A’s contribution-based profit since acquisition is $8.5 | |
Year 6: | |
Company B’s contribution-based profit since acquisition is $4.5 | |
Company B’s average allocated share of our consolidated net equity over its ownership is $30 | |
Company B’s holding period in quarters is 20 | |
Manager elects to have holding period measured for purposes of profit allocation for Company B | |
Year 7: | |
Company B (or assets thereof) is sold for $5 capital loss under book value of assets at time of sale | |
Company B’s average allocated share of our consolidated net equity over its ownership is $30 | |
Company B’s holding period in quarters is 24 | |
Company B’s contribution-based profit since acquisition is $8.5 | |
Company C (or assets thereof) is sold for $12 capital gain over book value of assets at time of sale | |
Company C’s average allocated share of our consolidated net equity over its ownership is $35 | |
Company C’s holding period in quarters is 16 | |
Company C’s contribution-based profit since acquisition is $8 |
With Respect to Relevant Business | Year 4 | Year 6 | Year 7 | Year 7 | ||||||||||||||
A, due to | B, due to | B, due to | C, due to | |||||||||||||||
sale | 5 year hold | sale | sale | |||||||||||||||
1 | Contribution-based profit since acquisition for respective subsidiary | $ | 8.5 | $ | 4.5 | $ | 1 | $ | 8 | |||||||||
2 | Gain/ Loss on sale of company | 20 | 0 | (5 | ) | 12 | ||||||||||||
3 | Cumulative gains and losses | 20 | 20 | 15 | 27 | |||||||||||||
4 | High water mark prior to transaction | 0 | 20 | 20 | 20 | |||||||||||||
5 | Total Profit Allocation Amount (1 + 3) | 28.5 | 24.5 | 16 | 35 | |||||||||||||
6 | Business’ holding period in quarters since ownership or last measurement due to holding event | 12 | 20 | 4 | 16 | |||||||||||||
7 | Business’ average allocated share of consolidated net equity | 40 | 30 | 30 | 35 | |||||||||||||
8 | Business’ level 1 hurdle amount (1.75% * 6 * 7) | 8.4 | 10.5 | 2.1 | 9.8 | |||||||||||||
9 | Business’ excess over level 1 hurdle amount (5 - 8) | 20.1 | 14 | 13.9 | 25.2 | |||||||||||||
10 | Business’ level 2 hurdle amount (125% * 8) | 10.5 | 13.125 | 2.625 | 12.25 | |||||||||||||
11 | Allocated to manager as “catch-up” (10 - 8) | 2.1 | 2.625 | 0.525 | 2.45 | |||||||||||||
12 | Excess over level 2 hurdle amount (9 - 11) | 18 | 11.375 | 13.375 | 22.75 | |||||||||||||
13 | Allocated to manager from excess over level 2 hurdle amount (20% * 12) | 3.6 | 2.275 | 2.675 | 4.55 | |||||||||||||
14 | Cumulative allocation to manager (11 +13) | 5.7 | 4.9 | 3.2 | 7 | |||||||||||||
15 | High water mark allocation (20% * 4) | 0 | 4 | 4 | 4 | |||||||||||||
16 | Manager’s Profit Allocation for Current Period (14 - 15,> 0) | $ | 5.7 | $ | 0.9 | $ | 0 | $ | 3 | |||||||||
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Definitions |
• | An entity’s“adjusted net assets” will be equal to, as of any date, thesumof (i) such entity’s consolidated total assets (as determined in accordance with GAAP) as of such date,plus(ii) the absolute amount of such entity’s consolidated accumulated amortization of intangibles (as determined in accordance with GAAP) as of such date,minus(iii) the absolute amount of such entity’s adjusted total liabilities as of such date. | |
• | An entity’s“adjusted total liabilities” will be equal to, as of any date, such entity’s consolidated total liabilities (as determined in accordance with GAAP) as of such date after excluding the effect of any outstanding third party indebtedness of such entity. | |
• | A business’“allocated share of the company’s overhead” will be equal to, with respect to any measurement period as of any calculation date, the aggregate amount of such business’ quarterly share of the company’s overhead for each fiscal quarter ending during such measurement period. | |
• | A business’“average allocated share of our consolidated equity”will be equal to, with respect to any measurement period as of any calculation date, the average (i.e., arithmetic mean) of a business’ quarterly allocated share of our consolidated equity for each fiscal quarter ending during such measurement period. | |
• | “Capital gains”(i) means, with respect to any entity, capital gains (as determined in accordance with GAAP) that are calculated with respect to the sale of capital stock or assets of such entity and which sale gave rise to a sale event and the calculation of profit allocation and (ii) will be equal to the amount, adjusted for minority interests, by which (x) the net sales price of such capital stock or assets, as the case may be,exceeded(y) the net book value (as determined in accordance with GAAP) of such capital stock or assets, as the case may be, at the time of such sale, as reflected on the company’s consolidated balance sheet prepared in accordance with GAAP;provided, that such amount shall not be less than zero. | |
• | “Capital losses”(i) means, with respect to any entity, capital losses (as determined in accordance with GAAP) that are calculated with respect to the sale of capital stock or assets of such entity and which sale gave rise to a sale event and the calculation of profit allocation and (ii) will be equal to the amount, adjusted for minority interests, by which (x) the net book value (as determined in accordance with GAAP) of such capital stock or assets, as the case may be, at the time of such sale, as reflected on the company’s consolidated balance sheet prepared in accordance with GAAP,exceeded(y) the net sales price of such capital stock or assets, as the case may be;provided, that such absolute amount thereof shall not be less than zero. | |
• | The company’s“consolidated net equity”will be equal to, as of any date, thesum of (i) the company’s consolidated total assets (as determined in accordance with GAAP) as of such date,plus(ii) the aggregate amount of asset impairments (as determined in accordance with GAAP) that were taken relating to any businesses owned by the company as of such date,plus(iii) the company’s consolidated accumulated amortization of intangibles (as determined in accordance with GAAP), as of such dateminus(iv) the company’s consolidated total liabilities (as determined in accordance with GAAP) as of such date. | |
• | A business’“contribution-based profits”will be equal to, for any measurement period as of any calculation date, thesumof (i) the aggregate amount of such business’ net income (loss) (as determined in accordance with GAAP and as adjusted for minority interests) with respect to such measurement period (without giving effect to (x) any capital gains or capital losses realized by such business that arise with respect to the sale of capital stock or assets held by such business and which sale gave rise to a sale event and the calculation of profit allocation or (y) any expense attributable to the accrual or payment of any amount of profit allocation or any amount arising under the supplemental put agreement, in each case, to the extent included in the calculation of | |
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such business’ net income (loss)),plus(ii) the absolute aggregate amount of such business’ loan expense with respect to such measurement period,minus(iii) the absolute aggregate amount of such business’ allocated share of the company’s overhead with respect to such measurement period. | ||
• | The company’s“cumulative capital gains”will be equal to, as of any calculation date, the aggregate amount of capital gains realized by the company as of such calculation date, after giving effect to any capital gains realized by the company on such calculation date, since its inception. | |
• | The company’s“cumulative capital losses”will be equal to, as of any calculation date, the aggregate amount of capital losses realized by the company as of such calculation date, after giving effect to any capital losses realized by the company on such calculation date, since its inception. | |
• | The company’s“cumulative gains and losses”will be equal to, as of any calculation date, thesumof (i) the amount of cumulative capital gains as of such calculation date,minus(ii) the absolute amount of cumulative capital losses as of such calculation date. | |
• | The“high water mark”will be equal to, as of any calculation date, the highest positive amount of the company’s cumulative capital gains and losses as of such calculation date that were calculated in connection with a qualifying trigger event that occurred prior to such calculation date. | |
• | The“high water mark allocation”will be equal to, as of any calculation date, theproductof (i) the amount of the high water mark as of such calculation date,multiplied by(ii) 20%. | |
• | A business’“level 1 hurdle amount”will be equal to, as of any calculation date, theproductof (i) (x) the quarterly hurdle rate of 1.75% (7% annualized),multiplied by(y) the number of fiscal quarters ending during such business’ measurement period as of such calculation date,multiplied by(ii) a business’ average allocated share of our consolidated equity for each fiscal quarter ending during such measurement period. | |
• | A business’“level 2 hurdle amount”will be equal to, as of any calculation date, theproductof (i) (x) the quarterly hurdle rate of 2.1875% (8.75% annualized, which is 125% of the 7% annualized hurdle rate),multiplied by(y) the number of fiscal quarters ending during such business’ measurement period as of such calculation date,multiplied by(ii) a business’ average allocated share of our consolidated equity for each fiscal quarter ending during such measurement period. | |
• | A business’“loan expense”will be equal to, with respect to any measurement period as of any calculation date, the aggregate amount of all interest or other expenses paid by such business with respect to indebtedness of such business to either the company or other company businesses with respect to such measurement period. | |
• | The“measurement period”will mean, with respect to any business as of any calculation date, the period from and including the later of (i) the date upon which the company acquired a controlling interest in such business and (ii) the immediately preceding calculation date as of which contribution-based profits were calculated with respect to such business and with respect to which profit allocation were paid (or, at the election of the allocation member, deferred) by the company up to and including such calculation date. | |
• | The company’s“overhead”will be equal to, with respect to any fiscal quarter, thesumof (i) that portion of the company’s operating expenses (as determined in accordance with GAAP) (without giving effect to any expense attributable to the accrual or payment of any amount of profit allocation or any amount arising under the supplemental put agreement to the extent included in the calculation of the company’s operating expenses), including any management fees actually paid by the company to our manager, with respect to such fiscal quarter that are not attributable to any of the businesses owned by the company (i.e., operating expenses that do not correspond to operating expenses of such businesses with respect to such fiscal quarter),plus (ii) the company’s accrued interest expense (as determined in accordance with GAAP) on any outstanding third party indebtedness of the company with respect to such fiscal quarter,minus(iii) revenue, interest | |
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income and other income reflected in the company’s unconsolidated financial statements as prepared in accordance with GAAP. | ||
• | A“qualifying trigger event”will mean, with respect to any business, a trigger event that gave rise to a calculation of total profit allocation with respect to such business as of any calculation date and (ii) where the amount of total profit allocation so calculated as of such calculation date exceeded such business’ level 2 hurdle amount as of such calculation date. | |
• | A business’“quarterly allocated share of our consolidated equity”will be equal to, with respect to any fiscal quarter, theproductof (i) the company’s consolidated net equity as of the last day of such fiscal quarter,multiplied by(ii) a fraction, the numerator of which is such business’ adjusted net assets as of the last day of such fiscal quarter and the denominator of which is thesum of (x) the company’s adjusted net assets as of the last day of such fiscal quarter,minus (y) the aggregate amount of any cash and cash equivalents as such amount is reflected on the company’s consolidated balance sheet as prepared in accordance with GAAP that is not taken into account in the calculation of any business’ adjusted net assets as of the last day of such fiscal quarter. | |
• | A business’“quarterly share of the company’s overhead”will be equal to, with respect to any fiscal quarter, theproductof (i) the absolute amount of the company’s overhead with respect to such fiscal quarter,multiplied by(ii) a fraction, the numerator of which is such business’ adjusted net assets as of the last day of such fiscal quarter and the denominator of which is the company’s adjusted net assets as of the last day of such fiscal quarter. | |
• | An entity’s“third party indebtedness” means any indebtedness of such entity owed to any third party lenders that are not affiliated with such entity. | |
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• | subject to the company’s right to issue a note in the circumstances described above, the company must use commercially reasonable efforts to raise sufficient debt or equity financing to permit the company to pay the put price or note when due and obtain approvals, waivers and consents or otherwise remove any restrictions imposed under contractual obligations or applicable law or regulations that have the effect of limiting or prohibiting the company from satisfying its obligations under the supplemental put agreement or note; | |
• | our manager will have the right to have a representative observe meetings of the company’s board of directors and have the right to receive copies of all documents and other information furnished to the board of directors; | |
• | the company and its businesses will be restricted in their ability to sell or otherwise dispose of their property or assets or any businesses they own and in their ability to incur indebtedness (other than in the ordinary course of business) without granting a lien on the proceeds therefrom to the manager, which lien will secure the company’s obligations under the supplemental put agreement or note; | |
• | the company will be restricted in its ability to (i) engage in certain mergers or consolidations, (ii) sell, transfer or otherwise dispose of all or a substantial part of its business, property or assets or all or a substantial portion of the stock or beneficial ownership of its businesses or a portion thereof, (iii) liquidate, wind-up or dissolve, (iv) acquire or purchase the property, assets, stock or beneficial ownership or another person, or (v) declare and pay distributions. |
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• | loans retiring; | |
• | debt issuances; | |
• | minority interests; and | |
• | acquisitions. |
(Unaudited) | ||||||
Pro Forma As of | ||||||
December 31, 2005 | ||||||
($ in thousands) | ||||||
Cash and cash equivalents | $ | 16,146 | ||||
Long-term debt: | ||||||
Total long-term debt | 50,000 | |||||
Shareholders’ equity: | ||||||
Shares: (no par value); 500,000,000 shares authorized; 20,000,000 shares issued and outstanding as adjusted for the offering(1) | ||||||
Total shareholders’ equity | 277,535 | |||||
Total capitalization | $ | 327,535 | ||||
(1) | Each trust share representing one undivided beneficial interest in the trust property. |
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• | approximately 94.4% of CBS Personnel; | |
• | approximately 75.4% of Crosman; | |
• | approximately 70.2% of Advanced Circuits; and | |
• | approximately 73.0% of Silvue, |
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Pro Forma | |||||||||||||||||||||||||||||||||
Compass | CBS | Advanced | Combined | ||||||||||||||||||||||||||||||
Diversified | Personnel | Crosman | Circuits | Silvue | Compass | ||||||||||||||||||||||||||||
Trust | As | As | As | As | Pro Forma | Diversified | |||||||||||||||||||||||||||
As Reported | Offering* | Reported | Reported** | Reported | Reported | Adjustments | Trust | ||||||||||||||||||||||||||
($ in thousands) | |||||||||||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||||||||
Current Assets: | |||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 100 | $ | 284,775 | $ | 992 | $ | 796 | $ | 1,602 | $ | 1,516 | $ | (273,635 | )(1) | $ | 16,146 | ||||||||||||||||
Accounts receivable, net | 62,840 | 19,794 | 2,847 | 2,240 | 87,721 | ||||||||||||||||||||||||||||
Inventories | — | 12,316 | 328 | 627 | 13,271 | ||||||||||||||||||||||||||||
Prepaid expenses and other current assets | 3,472 | 2,302 | 132 | 343 | 6,249 | ||||||||||||||||||||||||||||
Deferred offering cost | 3,308 | — | — | — | — | (3,308 | )(2) | — | |||||||||||||||||||||||||
Deferred tax assets | 1,525 | 1,262 | 111 | 398 | 3,296 | ||||||||||||||||||||||||||||
Current assets of discontinued operations | — | — | — | — | — | 901 | 901 | ||||||||||||||||||||||||||
Total current assets | 3,408 | 284,775 | 68,829 | 36,470 | 5,020 | 6,025 | (276,943 | ) | 127,584 | ||||||||||||||||||||||||
Property and equipment, net | 2,876 | 10,069 | 3,185 | 1,257 | 722 | (3) | 18,109 | ||||||||||||||||||||||||||
Investment in subsidiary | — | 520 | — | — | 2,803 | (4) | 3,323 | ||||||||||||||||||||||||||
Goodwill | 59,295 | 30,951 | 50,659 | 11,266 | 12,558 | (5) | 164,729 | ||||||||||||||||||||||||||
Intangible and other assets, net | 9,525 | 13,585 | 21,106 | 12,697 | 86,322 | (6) | 143,235 | ||||||||||||||||||||||||||
Deferred tax assets | 1,227 | — | — | — | 1,227 | ||||||||||||||||||||||||||||
Total assets | $ | 3,408 | $ | 284,775 | $ | 141,752 | $ | 91,595 | $ | 79,970 | $ | 31,245 | $ | (174,538 | ) | $ | 458,207 | ||||||||||||||||
Liabilities and shareholders’ equity | |||||||||||||||||||||||||||||||||
Current liabilities: | |||||||||||||||||||||||||||||||||
Current portion of long-term debt | $ | $ | $ | 2,037 | $ | 4,100 | $ | 3,875 | $ | 1,621 | $ | (11,633 | )(7) | $ | — | ||||||||||||||||||
Accounts payable | 8,777 | 5,863 | 848 | 465 | 15,953 | ||||||||||||||||||||||||||||
Accrued expenses | 3,309 | 33,700 | 4,635 | 2,551 | 3,596 | (3,308 | )(8) | 44,483 | |||||||||||||||||||||||||
Current liabilities of discontinued operations | — | — | — | — | — | 291 | 291 | ||||||||||||||||||||||||||
Total current liabilities | 3,309 | — | 44,514 | 14,598 | 7,274 | 5,973 | (14,941 | ) | 60,727 | ||||||||||||||||||||||||
Long-term debt | 31,154 | 47,605 | 45,688 | 11,591 | (86,038 | )(9) | 50,000 | ||||||||||||||||||||||||||
Workers’ compensation | 12,949 | — | — | — | 12,949 | ||||||||||||||||||||||||||||
Deferred taxes | — | 3,522 | 249 | 4,489 | 30,967 | (10) | 39,227 | ||||||||||||||||||||||||||
Other liabilities | — | 692 | 131 | 253 | 1,076 | ||||||||||||||||||||||||||||
Total liabilities | 3,309 | — | 88,617 | 66,417 | 53,342 | 22,306 | (70,012 | ) | 163,979 | ||||||||||||||||||||||||
Minority interest | 99 | — | — | — | — | 16,594 | (11) | 16,693 | |||||||||||||||||||||||||
Redeemable preferred stock | — | — | — | 90 | (90 | )(12) | — | ||||||||||||||||||||||||||
Total shareholders’ equity | 284,775 | 53,135 | 25,178 | 26,628 | 8,849 | (121,030 | )(13) | 277,535 | |||||||||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 3,408 | $ | 284,775 | $ | 141,752 | $ | 91,595 | $ | 79,970 | $ | 31,245 | $ | (174,538 | ) | $ | 458,207 | ||||||||||||||||
* | Reflects the issuance of shares and the net proceeds from this offering (after deducting underwriting discounts and commissions, including the financial advisory fee payable to Ferris, Baker Watts, Incorporated, of $15,225) and net proceeds from the separate private placement transactions. |
** | Information is as of January 1, 2006. |
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Pro Forma | ||||||||||||||||||||||||||
CBS | Advanced | Combined | ||||||||||||||||||||||||
Personnel | Crosman | Circuits | Silvue | Compass | ||||||||||||||||||||||
As | As | As | As | Pro Forma | Diversified | |||||||||||||||||||||
Reported | Reported* | Reported | Reported | Adjustments | Trust | |||||||||||||||||||||
($ in thousands) | ||||||||||||||||||||||||||
Net Sales | $ | 543,012 | $ | 77,049 | $ | 41,969 | $ | 17,093 | $ | $ | 679,123 | |||||||||||||||
Cost of Sales | 441,685 | 57,319 | 18,102 | 3,816 | 481 | (2) | 521,403 | |||||||||||||||||||
Gross profit | 101,327 | 19,730 | 23,867 | 13,277 | (481 | ) | 157,720 | |||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||
Staffing Expense | 54,249 | — | — | — | 54,249 | |||||||||||||||||||||
Selling, general and administrative expense | 26,723 | 10,029 | 8,283 | 7,491 | (2,080 | )(4) | 57,331 | |||||||||||||||||||
6,885 | (5) | |||||||||||||||||||||||||
Research and development expense | — | — | — | 1,072 | 1,240 | (6) | 2,312 | |||||||||||||||||||
Amortization expense | 1,902 | 686 | 717 | 709 | 6,419 | (1) | 10,433 | |||||||||||||||||||
Operating income (loss) | 18,453 | 9,015 | 14,867 | 4,005 | (12,945 | ) | 33,395 | |||||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||||
Interest income | — | — | 233 | — | 233 | |||||||||||||||||||||
Interest expense | (4,453 | ) | (5,097 | ) | (1,491 | ) | (1,439 | ) | 4,120 | (3) | (8,360 | ) | ||||||||||||||
Other income (expense), net | 138 | (2,531 | ) | — | 90 | (2,303 | ) | |||||||||||||||||||
Income (loss) before provision for income taxes and minority interest | 14,138 | 1,387 | 13,609 | 2,656 | (8,825 | ) | 22,965 | |||||||||||||||||||
Provision for income taxes | 5,150 | 426 | 1,001 | 1,258 | 3,215 | (7) | 11,050 | |||||||||||||||||||
Income (loss) from discontinued operations | — | — | — | 133 | 133 | |||||||||||||||||||||
Minority interest in income of subsidiary | — | — | — | — | 3,265 | (8) | 3,265 | |||||||||||||||||||
Net income (loss) | $ | 8,988 | $ | 961 | $ | 12,608 | $ | 1,531 | $ | (15,305 | ) | $ | 8,783 | |||||||||||||
Pro forma net income per share | $ | 0.44 | ||||||||||||||||||||||||
Pro forma weighted average number of shares outstanding | 20,000 | |||||||||||||||||||||||||
Supplemental Information: | ||||||||||||||||||||||||||
Depreciation Expense | $ | 1,426 | $ | 2,203 | $ | 884 | $ | 404 | $ | 481 | $ | 5,398 | ||||||||||||||
Capital Expenditures | $ | 1,018 | $ | 1,747 | $ | 1,184 | $ | 178 | $ | — | $ | 4,127 | ||||||||||||||
* | Reflects the combination of the unaudited financial information for the period from July 1, 2005 to January 1, 2006 with the unaudited financial information for the period from January 1, 2005 to June 30, 2005. This combination was required due to Crosman having a June 30th fiscal year-end. |
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Note 1. | Pro Forma Adjustments |
Balance Sheet: |
1. Cash and cash equivalents | |||||
Net proceeds from private debt placement to finance acquisitions | $ | 43,900 | a | ||
Net proceeds from offering and private placement transactions to finance acquisitions | (311,535 | )b | |||
Compass Diversified Trust | (6,000 | )g | |||
$ | (273,635 | ) | |||
2. Deferred Offering Costs | |||||
Compass Diversified Trust | $ | (3,308 | )g | ||
3. Property, plant and equipment, net | |||||
Crosman | $ | (141 | )d(1) | ||
Silvue | 863 | f(1) | |||
$ | 722 | ||||
4. Investment in subsidiary | |||||
Crosman | $ | 2,803 | d(1) | ||
5. Goodwill | |||||
CBS Personnel | $ | (1,673 | )c(1) | ||
Crosman | (6,970 | )d(1) | |||
Advanced Circuits | 12,391 | e(1) | |||
Silvue | 8,810 | f(1) | |||
$ | 12,558 | ||||
6. Intangible and other assets, net | |||||
Debt issuance cost incurred as part of private debt placement | $ | 6,100 | a | ||
CBS Personnel | 63,941 | c(1) | |||
Crosman | 4,495 | d(1) | |||
Advanced Circuits | (406 | )e(1) | |||
Silvue | 13,432 | f(1) | |||
Silvue | (1,240 | )h(1) | |||
$ | 86,322 | ||||
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7. Current portion of long-term debt | ||||||
CBS Personnel | $ | (2,037 | )c(1) | |||
Crosman | (4,100 | )d(1) | ||||
Advanced Circuits | (3,875 | )e(1) | ||||
Silvue | (1,621 | )f(1) | ||||
$ | (11,633 | ) | ||||
8. Accrued Expenses | ||||||
Compass Diversified Trust | $ | (3,308 | )g | |||
9. Long-term debt | ||||||
Private Debt Placement | $ | 50,000 | a | |||
CBS Personnel | (31,154 | )c(1) | ||||
Crosman | (47,605 | )d(1) | ||||
Advanced Circuits | (45,688 | )e(1) | ||||
Silvue | (11,591 | )f(1) | ||||
$ | (86,038 | ) | ||||
10. Deferred tax liability | ||||||
CBS Personnel | $ | 24,298 | c(1) | |||
Crosman | 1,708 | d(1) | ||||
Silvue | 4,961 | f(1) | ||||
$ | 30,967 | |||||
11. Minority interest | ||||||
CBS Personnel | $ | 3,340 | c(1) | |||
Crosman | 5,275 | d(1) | ||||
Advanced Circuits | 5,502 | e(1) | ||||
Silvue | 2,477 | f(1) | ||||
$ | 16,594 | |||||
12. Redeemable preferred stock | ||||||
Silvue | $ | (90 | )f(1) | |||
13. Total shareholders’ equity | ||||||
CBS Personnel | $ | (53,135 | )c(1) | |||
Crosman | (25,178 | )d(1) | ||||
Advanced Circuits | (26,628 | )e(1) | ||||
Silvue | (8,849 | )f(1) | ||||
Compass Diversified Trust | (6,000 | )g | ||||
Silvue | (1,240 | )h(1) | ||||
$ | (121,030 | ) | ||||
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Statement of Operations: |
Year Ended | |||||
December 31, | |||||
2005 | |||||
1. Amortization expense | |||||
CBS Personnel | $ | 3,898 | a(1) | ||
Crosman | (168 | )b(1) | |||
Advanced Circuits | 1,944 | c(1) | |||
Silvue | 745 | d(1) | |||
$ | 6,419 | ||||
2. Depreciation expense | |||||
Crosman | $ | 116 | b(3) | ||
Silvue | 365 | d(3) | |||
$ | 481 | ||||
3. Interest expense | |||||
CBS Personnel | $ | 4,453 | a(2) | ||
Crosman | 5,097 | b(2) | |||
Advanced Circuits | 1,491 | c(2) | |||
Silvue | 1,439 | d(2) | |||
Compass Diversified Trust | (8,360 | )g | |||
$ | 4,120 | ||||
4. Elimination of prior management fee | |||||
CBS Personnel | $ | (1,011 | )a(3) | ||
Crosman | (580 | )b(4) | |||
Advanced Circuits | (139 | )c(3) | |||
Silvue | (350 | )d(4) | |||
$ | (2,080 | ) | |||
5. New management fee | |||||
Compass Diversified Trust | $ | 6,885 | e | ||
6. Research and development expense | |||||
Silvue | $ | 1,240 | f | ||
7. Provision for income taxes | |||||
Compass Diversified Trust | $ | 3,215 | h | ||
8. Minority interest in income of subsidiaries | |||||
Compass Diversified Trust | $ | 3,265 | i | ||
Note 2. | Pro Forma Adjustments by Acquisition |
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a. | Reflects the net proceeds received in connection with the third party credit facility (after deducting debt issuance cost and closing fees of $6.1 million): |
Cash | $ | 43,900 | ||
Other assets | 6,100 | |||
Long-term debt | (50,000 | ) | ||
$ | — | |||
b. | Reflects the use of net proceeds from the offering and private debt placement to finance acquisitions, including equity redemptions, and debt repayments: |
CBS Personnel | $ | 120,956 | ||
Crosman | 70,087 | |||
Advanced Circuits | 82,674 | |||
Silvue | 37,818 | |||
$ | 311,535 | |||
c. | CBS Personnel Acquisition |
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1. Reflects (1) purchase accounting adjustments to reflect CBS Personnel assets acquired and liabilities assumed at their estimated fair values, (2) redemption of existing debt of CBS Personnel and (3) elimination of historical shareholders’ equity: |
Goodwill | $ | (1,673 | ) | |
Intangible and other assets | 63,941 | |||
Current portion of long-term debt | 2,037 | |||
Long-term debt | 31,154 | |||
Deferred tax liability | (24,298 | ) | ||
Establishment of minority interest | (3,340 | ) | ||
Elimination of historical shareholders’ equity | 53,135 | |||
$ | 120,956 | |||
d. | Crosman Acquisition |
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1. Reflects (1) purchase accounting adjustments to reflect Crosman assets acquired and liabilities assumed at their estimated fair values, (2) redemption of existing debt of Crosman and (3) elimination of historical shareholders’ equity: |
Property and equipment | $ | (141 | ) | |
Investment in subsidiary | 2,803 | |||
Goodwill | (6,970 | ) | ||
Intangible and other assets | 4,495 | |||
Current portion of long-term debt | 4,100 | |||
Long-term debt | 47,605 | |||
Deferred tax liability | (1,708 | ) | ||
Establishment of minority interest | (5,275 | ) | ||
Elimination of historical shareholders’ equity | 25,178 | |||
$ | 70,087 | |||
e. | Advanced Circuits Acquisition |
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1. | Reflects (1) purchase accounting adjustments to reflect Advanced Circuits assets acquired and liabilities assumed at their estimated fair values, (2) redemption of existing debt of Advanced Circuits and (3) elimination of historical shareholders’ equity: |
Goodwill | $ | 12,391 | ||
Intangible and other assets | (406 | ) | ||
Current portion of long-term debt | 3,875 | |||
Long-term debt | 45,688 | |||
Establishment of minority interest | (5,502 | ) | ||
Elimination of historical shareholders’ equity | 26,628 | |||
$ | 82,674 | |||
f. | Silvue Acquisition |
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1. | Reflects (1) purchase accounting adjustments to reflect Silvue assets acquired and liabilities assumed at their estimated fair values, (2) redemption of existing debt of Silvue and (3) elimination of historical shareholders’ equity: |
Property and equipment | $ | 863 | ||
Goodwill | 8,810 | |||
Intangible and other assets | 13,432 | |||
Current portion of long-term debt | 1,621 | |||
Long-term debt | 11,591 | |||
Deferred tax liability | (4,961 | ) | ||
Repayment of mandatorily redeemable preferred stock | 90 | |||
Establishment of minority interest | (2,477 | ) | ||
Elimination of historical shareholders’ equity | 8,849 | |||
$ | 37,818 | |||
g. | Purchase Accounting Adjustment |
Cash | $ | (6,000 | ) | |
Accrued Expenses | 3,308 | |||
Deferred Offering Cost | (3,308 | ) | ||
Shareholders’ Equity | 6,000 | |||
$ | — | |||
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h. | In-Process Research & Development |
Shareholders’ Equity | $ | 1,240 | ||||
Intangible and Other Assets | (1,240 | ) | ||||
$ | — | |||||
Statements of Operations: |
Year Ended | ||||||
December 31, | ||||||
2005 | ||||||
A. | The following entries represent the pro forma adjustments made by us in Note 1 to reflect the effect of our acquisition of CBS Personnel upon the results of their operations for the year ended December 31, 2005 as if we had acquired CBS Personnel at the beginning of the fiscal year presented: | |||||
1. Additional amortization expense of intangible assets resulting from the acquisition of CBS Personnel: | ||||||
Customer relationships of $61,600 which will be amortized over 11 years | $ | 5,600 | ||||
Non-piracy covenants of $600 which will be amortized over 3 years | 200 | |||||
Subtotal | 5,800 | |||||
Amortization included in historical financial statements | (1,902 | ) | ||||
$ | 3,898 | |||||
2. Reduction of interest expense with respect to the $33.2 million long-term debt redeemed in connection with the acquisition of CBS Personnel | $ | (4,453 | ) | |||
3. Elimination of management fees paid to prior owner of CBS Personnel in connection with management service contract | $ | (1,011 | ) | |||
B. | The following entries represent the pro forma adjustments made by us in Note 1 to reflect the effect of our acquisition of Crosman upon the results of their operations for the year ended December 31, 2005 as if we had acquired Crosman at the beginning of the fiscal year presented: | |||||
1. Additional amortization expense of intangible assets resulting from the acquisition of Crosman: | ||||||
Technology of $780 which will be amortized over 11 years | $ | 71 | ||||
License agreement of $1,100 which will be amortized over 6 years | 183 | |||||
Distributor relationships of $2,900 which will be amortized over 11 years | 264 | |||||
Subtotal | 518 | |||||
Amortization included in historical financial statements | (686 | ) | ||||
$ | (168 | ) | ||||
2. Reduction of interest expense with respect to $51.7 million debt redeemed in connection with acquisition of Crosman | $ | (5,097 | ) | |||
3. Additional depreciation expense resulting from the acquisition of Crosman | $ | 116 | ||||
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Year Ended | ||||||
December 31, | ||||||
2005 | ||||||
4. Elimination of management fees paid to prior owner of Crosman in connection with prior management services contract | $ | (580 | ) | |||
C. | The following entries represent the pro forma adjustments made by us in Note 1 to reflect the effect of our acquisition of Advanced Circuits upon the results of their operations for the year ended December 31, 2005 as if we had acquired Advanced Circuits at the beginning of the fiscal year presented: | |||||
1. Additional amortization expense of intangible assets resulting from the acquisition of Advanced Circuits: | ||||||
Customer relationships of $18,100 which will be amortized over 9 years | $ | 2,011 | ||||
Technology of $2,600 which will be amortized over 4 years | 650 | |||||
Subtotal | $ | 2,661 | ||||
Amortization included in historical financial statements | (717 | ) | ||||
$ | 1,944 | |||||
2. Reduction of interest expense with respect to $49.6 million of debt redeemed in connection with the acquisition of Advanced Circuits | $ | (1,491 | ) | |||
3. Elimination of management fee paid to prior owner of Advanced Circuits in connection with prior management service contract | $ | (139 | ) | |||
D. | The following entries represent the pro forma adjustments made by us in Note 1 to reflect the effect of our acquisition of Silvue upon the results of their operations for the year ended December 31, 2005 as if we had acquired Silvue at the beginning of the fiscal year presented: | |||||
1. Additional amortization expense of intangible assets resulting from the acquisition of Silvue: | ||||||
Customer relationships of $18,700 which will be amortized over 16 years | $ | 1,169 | ||||
Core technology of $3,700 which will be amortized over 13 years | 285 | |||||
Subtotal | 1,454 | |||||
Amortization included in historical financial statements | (709 | ) | ||||
$ | 745 | |||||
2. Reduction of interest expense with respect to $13.2 million of debt redeemed in connection with the acquisition of Silvue | $ | (1,439 | ) | |||
3. Additional depreciation expense resulting from the acquisition of Silvue | $ | 365 | ||||
4. Elimination of management fees paid to prior owner of Silvue in connection with management service contract not assumed by us | $ | (350 | ) | |||
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Year Ended | ||||||
December 31, | ||||||
2005 | ||||||
E. | Adjustment to record the estimated management fee expense pursuant to the Management Services Agreement to be incurred in connection with the closing of this offering. This amount will represent the total management fee to be paid to the manager. | |||||
The amounts were determined by using the combined pro forma balance sheet at December 31, 2005 and was calculated as follows: | ||||||
Total Assets | $ | 458,207 | ||||
Less: Total Liabilities Less Third Party Debt | 113,979 | |||||
Adjusted Net Assets | 344,228 | |||||
Management Fee % | 2.0% | |||||
$ | 6,885 | |||||
F. | Adjustment to record expensing of the IPR&D acquired in connection with the acquisition of Silvue on January 1, 2005 since the IPR&D had no alternative use. | $ | 1,240 | |||
G. | Adjustment to record the estimated interest expense associated with the third party credit facility. The amounts were calculated as follows: | |||||
Interest Expense on the $50.0 million term loan | $ | (3,840 | ) | |||
Unused Fee on revolving loan commitment | (600 | ) | ||||
Unused Fee on delayed term loan commitment and Letter of Credit override fee | (2,700 | ) | ||||
Amortization of debt issuance cost of $6.1 million over 5 years | (1,220 | ) | ||||
$ | (8,360 | ) | ||||
H. | Adjustment to record the estimated tax expense associated with the pro forma adjustments to pre-tax income to reflect income tax expense for Advanced Circuits due to its change from a Subchapter S corporation. The amounts were calculated as follows: | |||||
Advanced Circuits income before provision for income taxes | $ | 13,609 | ||||
Pro Forma Amortization Applicable to Advanced Circuits | (1,944 | ) | ||||
Pro Forma Management Fee Applicable to Advanced Circuits | (362 | ) | ||||
Adjusted Pre-Tax Income | 11,303 | |||||
Provision for income taxes | 4,216 | |||||
Historical Provision for income taxes | (1,001 | ) | ||||
$ | 3,215 | |||||
I. | Adjustment to record the minority interest in net income. The adjustment for minority interest was calculated by applying the minority ownership percentage for each business to the net income applicable to the minority interest holders. | $ | 3,265 | |||
Note 3. | Pro Forma Income from Continuing Operations per Share |
Net Income | $ | 8,783 | ||||
Pro Forma Weighted Average | ||||||
Number of Shares Outstanding(1) | 20,000 | |||||
Pro Forma Net Income Per Share | $ | 0.44 | ||||
(1) | Pro Forma weighted average number of shares outstanding was derived by dividing the estimated gross proceeds from the offering and private placement of $300.0 million by the assumed initial price per share of $15. |
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Note 4. | Other Estimates |
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Fiscal Year Ended December 31, | ||||||||||||
CBS Personnel | 2003 | 2004 | 2005 | |||||||||
($ in thousands) | ||||||||||||
Statements of Operations Data: | ||||||||||||
Revenues | $ | 194,717 | $ | 315,258 | $ | 543,012 | ||||||
Direct cost of revenues | 155,368 | 254,987 | 441,685 | |||||||||
Gross Profit | 39,349 | 60,271 | 101,327 | |||||||||
Operating expenses: | ||||||||||||
Staffing | 23,081 | 31,974 | 54,249 | |||||||||
Selling, general and Administrative | 12,132 | 17,796 | 26,723 | |||||||||
Amortization | 491 | 1,051 | 1,902 | |||||||||
Income from operations | 3,645 | 9,450 | 18,453 | |||||||||
Other income (expense): | ||||||||||||
Interest expense | (2,929 | ) | (2,100 | ) | (4,453 | ) | ||||||
Other Income | 224 | 148 | 138 | |||||||||
Income before provision for income taxes | 940 | 7,498 | 14,138 | |||||||||
Provision for income taxes | (117 | ) | (85 | ) | (5,150 | ) | ||||||
Net income | $ | 823 | $ | 7,413 | $ | 8,988 | ||||||
Cash Flow Data: | ||||||||||||
Cash provided by operating activities | $ | 3,944 | 6,581 | 14,654 | ||||||||
Cash (used in) investing activities | (302 | ) | (30,059 | ) | (1,018 | ) | ||||||
Cash (used in) provided by financing activities | (3,736 | ) | 23,970 | (13,176 | ) | |||||||
Net (decrease) increase in cash | $ | (94 | ) | $ | 492 | $ | 460 | |||||
Supplemental Information: | ||||||||||||
Depreciation Expense | $ | 1,431 | $ | 1,344 | $ | 1,426 | ||||||
At December 31, | ||||||||
2004 | 2005 | |||||||
($ in thousands) | ||||||||
Balance Sheet Data: | ||||||||
Total current assets | $ | 66,371 | $ | 68,829 | ||||
Property and equipment, net | 3,081 | 2,876 | ||||||
Goodwill | 59,307 | 59,295 | ||||||
Other intangibles, net and other assets | 11,228 | 10,752 | ||||||
Total assets | 139,987 | 141,752 | ||||||
Current liabilities | 41,499 | 44,514 | ||||||
Long-term debt | 43,893 | 31,154 | ||||||
Workers’ Compensation and other liabilities | 10,684 | 12,949 | ||||||
Total liabilities | 96,076 | 88,617 | ||||||
Shareholders’ equity | 43,911 | 53,135 |
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(Unaudited) | ||||||||||||||||||||||||
Predecessor | Successor | |||||||||||||||||||||||
Year | July 1, 2003 | February 10, | Year | Six Months Ended | ||||||||||||||||||||
Ended | to | 2004 to | Ended | |||||||||||||||||||||
June 30, | February 9, | June 30 | June 30, | December 26, | January 1, | |||||||||||||||||||
Crosman | 2003 | 2004 | 2004 | 2005 | 2004 | 2006 | ||||||||||||||||||
($ in thousands) | ||||||||||||||||||||||||
Statements of Operations Data: | ||||||||||||||||||||||||
Net sales | $ | 53,333 | $ | 38,770 | $ | 24,856 | $ | 70,060 | $ | 38,234 | $ | 45,223 | ||||||||||||
Cost of sales | 37,382 | 26,382 | 17,337 | 50,874 | 26,471 | 32,916 | ||||||||||||||||||
Gross Profit | 15,951 | 12,388 | 7,519 | 19,186 | 11,763 | 12,307 | ||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Selling, general and administrative | 8,749 | 5,394 | 4,119 | 10,526 | 5,393 | 4,896 | ||||||||||||||||||
Amortization | 132 | 70 | 258 | 629 | 310 | 367 | ||||||||||||||||||
Operating income | 7,070 | 6,924 | 3,142 | 8,031 | 6,060 | 7,044 | ||||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||
Interest expense | (1,978 | ) | (402 | ) | (1,588 | ) | (4,638 | ) | (2,236 | ) | (2,695 | ) | ||||||||||||
Other income (expense) | 424 | (1,560 | ) | (281 | ) | (2,792 | ) | (68 | ) | 193 | ||||||||||||||
Income before provision for income taxes | 5,516 | 4,962 | 1,273 | 601 | 3,756 | 4,542 | ||||||||||||||||||
Provision for income taxes | (2,122 | ) | (1,824 | ) | (463 | ) | (112 | ) | (1,407 | ) | (1,721 | ) | ||||||||||||
Net income | $ | 3,394 | $ | 3,138 | $ | 810 | $ | 489 | $ | 2,349 | $ | 2,821 | ||||||||||||
Cash Flow Data: | ||||||||||||||||||||||||
Cash provided by (used in) operating activities | $ | 4,360 | $ | 8,551 | $ | 89 | $ | 3,110 | $ | (6,133 | ) | $ | 647 | |||||||||||
Cash (used in) investing activities | (572 | ) | (1,181 | ) | (65,809 | ) | (2,014 | ) | (944 | ) | (677 | ) | ||||||||||||
Cash (used in) provided by financing activities | (3,865 | ) | (7,146 | ) | 65,905 | (527 | ) | 7,346 | 53 | |||||||||||||||
Net (decrease) increase in cash | $ | (77 | ) | $ | 224 | $ | 185 | $ | 569 | $ | 269 | $ | 23 | |||||||||||
Supplemental Information: | ||||||||||||||||||||||||
Depreciation Expense | $ | 2,295 | $ | 1,205 | $ | 847 | $ | 2,146 | $ | 1,069 | $ | 1,121 | ||||||||||||
(Unaudited) | ||||||||||||
At June 30, | At | |||||||||||
January 1, | ||||||||||||
2004 | 2005 | 2006 | ||||||||||
($ in thousands) | ||||||||||||
Balance Sheet Data: | ||||||||||||
Total current assets | $ | 25,497 | $ | 28,622 | $ | 36,470 | ||||||
Property, plant and equipment, net | 10,583 | 10,513 | 10,069 | |||||||||
Goodwill | 30,951 | 30,951 | 30,951 | |||||||||
Intangible and other assets | 14,900 | 14,097 | 14,105 | |||||||||
Total assets | 81,931 | 84,183 | 91,595 | |||||||||
Current liabilities | 10,072 | 11,001 | 14,598 | |||||||||
Notes payable under revolving line of credit | 7,138 | 10,385 | 11,329 | |||||||||
Long-term debt | 37,917 | 35,334 | 35,033 | |||||||||
Capitalized lease obligations and other liabilities | 4,878 | 5,117 | 5,457 | |||||||||
Total liabilities | 60,005 | 61,837 | 66,417 | |||||||||
Shareholders’ equity | 21,926 | 22,346 | 25,178 |
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Predecessor | Successor | |||||||||||||||
Predecessor | Predecessor | January 1, | September 20, | |||||||||||||
Year Ended | Year Ended | 2005 to | 2005 to | |||||||||||||
December 31, | December 31, | September 19, | December 31, | |||||||||||||
Advanced Circuits | 2003 | 2004 | 2005 | 2005 | ||||||||||||
($ in thousands) | ||||||||||||||||
Statements of Operations Data: | ||||||||||||||||
Net sales | $ | 27,796 | $ | 36,642 | $ | 29,726 | $ | 12,243 | ||||||||
Cost of sales | 14,568 | 17,867 | 12,960 | 5,143 | ||||||||||||
Gross Profit | 13,228 | 18,775 | 16,766 | 7,100 | ||||||||||||
Operating expenses: | ||||||||||||||||
General and administrative | 5,521 | 6,564 | 5,835 | 2,448 | ||||||||||||
Amortization of intangibles | — | — | — | 717 | ||||||||||||
Income from operations | 7,707 | 12,211 | 10,931 | 3,935 | ||||||||||||
Other income (expense): | ||||||||||||||||
Interest Expense | (204 | ) | (242 | ) | (173 | ) | (1,318 | ) | ||||||||
Interest income | 16 | 42 | 164 | 70 | ||||||||||||
Other income | 15 | 82 | — | — | ||||||||||||
Income before provision for income taxes | 7,534 | 12,093 | 10,922 | 2,687 | ||||||||||||
Provision for income taxes | — | — | — | (1,001 | ) | |||||||||||
Net income | $ | 7,534 | $ | 12,093 | $ | 10,922 | $ | 1,686 | ||||||||
Cash Flow Data: | ||||||||||||||||
Cash provided by operating activities | $ | 8,021 | $ | 12,689 | $ | 11,503 | $ | 3,170 | ||||||||
Cash (used in) investing activities | (2,167 | ) | (1,310 | ) | (502 | ) | (74,724 | ) | ||||||||
Cash (used in) provided financing activities | (4,458 | ) | (8,830 | ) | (17,453 | ) | 73,156 | |||||||||
Net increase (decrease) in cash | $ | 1,396 | $ | 2,549 | $ | (6,452 | ) | $ | 1,602 | |||||||
Supplemental Information: | ||||||||||||||||
Depreciation Expense | $ | 729 | $ | 869 | $ | 715 | $ | 169 | ||||||||
At December 31, | ||||||||
2004 | 2005 | |||||||
($ in thousands) | ||||||||
Balance Sheet Data: | ||||||||
Total current assets | $ | 9,564 | $ | 5,020 | ||||
Property and equipment, net | 6,669 | 3,185 | ||||||
Goodwill and other assets | 556 | 71,765 | ||||||
Total assets | 16,789 | 79,970 | ||||||
Current liabilities | 3,422 | 7,274 | ||||||
Long-term debt | 2,787 | 45,688 | ||||||
Other liabilities | 131 | 380 | ||||||
Total liabilities | 6,340 | 53,342 | ||||||
Shareholders’ equity | 10,449 | 26,628 |
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Predecessor | Successor | |||||||||||||||
Predecessor | January 1, | September 3, | Successor | |||||||||||||
Year Ended | 2004 to | 2004 to | Year Ended | |||||||||||||
December 31, | September 2, | December 31, | December 31, | |||||||||||||
Silvue | 2003 | 2004 | 2004 | 2005 | ||||||||||||
($ in thousands) | ||||||||||||||||
Statements of Operations Data: | ||||||||||||||||
Net sales | $ | 10,446 | $ | 7,604 | $ | 4,532 | $ | 17,093 | ||||||||
Cost of sales | 1,555 | 1,094 | 611 | 3,816 | ||||||||||||
Gross Profit | 8,891 | 6,510 | 3,921 | 13,277 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling, general and administrative | 5,276 | 4,006 | 2,320 | 7,491 | ||||||||||||
Research and Development costs | 550 | 448 | 637 | 1,072 | ||||||||||||
Amortization of intangibles | — | — | 209 | 709 | ||||||||||||
Operating income | 3,065 | 2,056 | 756 | 4,005 | ||||||||||||
Other income (expense): | ||||||||||||||||
Interest income | 8 | 5 | — | — | ||||||||||||
Interest expense | (31 | ) | (5 | ) | (366 | ) | (1,439 | ) | ||||||||
Other income | 377 | 175 | 136 | 90 | ||||||||||||
Income before provision for income taxes | 3,419 | 2,231 | 525 | 2,656 | ||||||||||||
Provision for income taxes | 1,062 | 735 | 472 | 1,257 | ||||||||||||
Income from continuing operations | 2,357 | 1,496 | 53 | 1,399 | ||||||||||||
Income (loss) from discontinued operations | (843 | ) | (225 | ) | 59 | 132 | ||||||||||
Net income | $ | 1,514 | $ | 1,271 | $ | 112 | $ | 1,531 | ||||||||
Cash Flow Data: | ||||||||||||||||
Cash provided by operating activities | $ | 1,853 | $ | 1,378 | $ | 867 | $ | 2,338 | ||||||||
Cash provided by (used in) investing activities | (859 | ) | (210 | ) | (8,460 | ) | 24 | |||||||||
Cash (used in) provided by financing activities | (228 | ) | (3,045 | ) | 7,264 | (1,692 | ) | |||||||||
Net increase (decrease) in cash | $ | 766 | $ | (1,876 | ) | $ | (329 | ) | $ | 670 | ||||||
Supplemental Information: | ||||||||||||||||
Depreciation Expense | $ | 196 | $ | 219 | $ | 104 | $ | 404 | ||||||||
At December 31, | ||||||||
2004 | 2005 | |||||||
($ in thousands) | ||||||||
Balance Sheet Data: | ||||||||
Total current assets | $ | 4,743 | $ | 6,025 | ||||
Property, plant and equipment, net | 750 | 1,257 | ||||||
Goodwill | 9,109 | 11,266 | ||||||
Other Intangibles, net and other assets | 13,899 | 12,697 | ||||||
Total assets | 28,501 | 31,245 | ||||||
Current liabilities | 4,679 | 5,973 | ||||||
Long-term debt | 11,788 | 11,591 | ||||||
Deferred income tax liability and other liabilities | 4,458 | 4,742 | ||||||
Total liabilities | 20,925 | 22,306 | ||||||
Cumulative redeemable preferred stock | 90 | 90 | ||||||
Shareholders’ equity | 7,486 | 8,849 |
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• | first, to meet capital expenditure requirements, management fees and corporate overhead expenses of the company and the trust; | |
• | second, to fund distributions by the company to the trust; and | |
• | third, to be distributed by the trust to shareholders. |
• | CBS Personnel; | |
• | Crosman; | |
• | Advanced Circuits; and | |
• | Silvue. |
• | an aggregate amount of approximately $66.4 million will be funded to CBS Personnel; | |
• | an aggregate amount of approximately $43.2 million will be funded to Crosman; | |
• | an aggregate amount of approximately $47.4 million will be funded to Advanced Circuits; and | |
• | an aggregate amount of approximately $13.8 million will be funded to Silvue. | |
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Business Combinations |
Goodwill, Intangible Assets and Property and Equipment |
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Allowance for Doubtful Accounts |
Year Ended | ||||||||||||||||
Year Ended December 31, 2005 | June 30, 2005 | |||||||||||||||
CBS Personnel | Advanced Circuits(2) | Silvue | Crosman(1) | |||||||||||||
($ in thousands) | ||||||||||||||||
Net Sales | $ | 543,012 | $ | 41,969 | $ | 17,093 | $ | 70,060 | ||||||||
Allowance for doubtful accounts | $ | 2,646 | $ | 105 | $ | 5 | $ | 998 | ||||||||
% of Revenue | 0.48 | % | 0.25 | % | 0.03 | % | 1.42 | % | ||||||||
Accounts Receivable | $ | 65,969 | $ | 2,952 | $ | 2,245 | $ | 14,745 | ||||||||
Allowance for doubtful accounts | $ | 2,646 | $ | 105 | $ | 5 | $ | 998 | ||||||||
% of Accounts Receivable | 4.01 | % | 3.56 | % | 0.22 | % | 6.77 | % |
(1) | For presentation of annualized amounts, it was necessary to reflect amounts as of June 30, 2005 due to Crosman having a June 30th fiscal year end. |
(2) | Computed as net sales for predecessor combined January 1, 2005 through September 19, 2005 plus consolidated successor September 20, 2005 through December 31, 2005. |
Workers’ Compensation Liability |
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Deferred Tax Assets |
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Revenues |
Expenses |
Financial Condition, Liquidity and Capital Resources |
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• | We will be required to maintain a minimum level of cash flow; | |
• | We will be required to leverage new businesses we acquire to a minimum specified level at the time of acquisition; | |
• | We will be required to keep our total debt to cash flow at or below a ratio of 3 to 1; and | |
• | We will only be permitted to make acquisitions that satisfy certain specified minimum criteria. | |
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• | CBS Personnel — Approximately $66.4 million; | |
• | Crosman — Approximately $43.2 million; | |
• | Advanced Circuits — Approximately $47.4 million; and | |
• | Silvue — Approximately $13.8 million. | |
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• | the management services agreement relating to the management services our manager will perform for us and the businesses we own and the management fee to be paid to our manager in respect thereof; and | |
• | the company’s LLC agreement setting forth our manager’s rights with respect to the allocation interests it owns, including the right to receive profit allocations from the company. |
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Overview |
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Fiscal Year Ended December 31, 2005 as Compared to Fiscal Year Ended December 31, 2004 |
Fiscal Year Ended | |||||||||
December 31, | |||||||||
2004 | 2005 | ||||||||
($ in thousands) | |||||||||
Revenues | $ | 315,258 | $ | 543,012 | |||||
Direct cost of revenues | 254,987 | 441,685 | |||||||
Gross profit | 60,271 | 101,327 | |||||||
Staffing expense | 31,974 | 54,249 | |||||||
Selling, general and administrative expenses | 17,796 | 26,723 | |||||||
Amortization expense | 1,051 | 1,902 | |||||||
Income from operations | 9,450 | 18,453 | |||||||
Interest expense | (2,100 | ) | (4,453 | ) | |||||
Other income | 148 | 138 | |||||||
Income before provision for income taxes | 7,498 | 14,138 | |||||||
Provision for income taxes | 85 | 5,150 | |||||||
Net income | $ | 7,413 | $ | 8,988 | |||||
Revenues |
Direct cost of revenues |
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Staffing expense |
Selling, general and administrative expenses |
Amortization expense |
Income from operations |
Interest expense |
Provision for income taxes |
Net income |
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Fiscal Year Ended December 31, 2004 as Compared to Fiscal Year Ended December 31, 2003 |
Fiscal Year Ended | |||||||||
December 31, | |||||||||
2003 | 2004 | ||||||||
($ in thousands) | |||||||||
Revenues | $ | 194,717 | $ | 315,258 | |||||
Direct cost of revenues | 155,368 | 254,987 | |||||||
Gross profit | 39,349 | 60,271 | |||||||
Staffing expense | 23,081 | 31,974 | |||||||
Selling, general and administrative expenses | 12,132 | 17,796 | |||||||
Amortization expense | 491 | 1,051 | |||||||
Income from operations | 3,645 | 9,450 | |||||||
Interest expense | (2,929 | ) | (2,100 | ) | |||||
Other income | 224 | 148 | |||||||
Income before provision for income taxes | 940 | 7,498 | |||||||
Provision for income taxes | 117 | 85 | |||||||
Net income | $ | 823 | $ | 7,413 | |||||
Revenues |
Direct cost of revenues |
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Staffing expense |
Selling, general and administrative expenses |
Amortization expense |
Income from operations |
Interest expense |
Other income |
Provision for income taxes |
111
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Net income |
Liquidity and Capital Resources |
Impact of proposed acquisition by the company |
Sources of and uses for cash |
• | working capital will be financed by CBS Personnel’s revolving credit facility as discussed below and repaid from subsequent reductions in current assets or from subsequent earnings; | |
• | capital expenditures will be financed by the use of the revolving credit facility; and | |
• | third-party long-term debt will be repaid with long-term debt with similar terms. |
Cash and Equivalents |
Operating Activities |
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• | An increase in net income of approximately $1.6 million principally due to higher operating income as a result of the acquisition of VSP partially offset by increases in interest expense and taxes. | |
• | An increase in non-cash charges included in net income of approximately $2.0 million. Significant components of this increase are an increase of approximately $0.9 million in depreciation and amortization primarily due to the amortization of intangibles acquired in connection with the acquisition of VSP, approximately $0.6 million of deferred interest charge in the year ended December 31, 2005, associated with the loan incurred in connection with the acquisition of VSP, and a decrease in deferred taxes of approximately $0.5 million. | |
• | An increase of approximately $1.6 million in accounts receivable for the year ended December 31, 2005, as compared to an increase of approximately $6.9 million in the year ended December 31, 2004. The greater increase in the year ended December 31, 2004, was primarily related to a large increase in revenue and number of customers served as a result of the VSP acquisition. Accounts receivables totaled approximately $62.8 million at December 31, 2005. | |
• | An increase of approximately $0.6 million in prepaid expenses and other assets for the year ended December 31, 2005, as compared to an increase of approximately $1.1 million in the year ended December 31, 2004. The greater increase in the year ended December 31, 2004, was primarily related to assets acquired as part of the VSP acquisition. | |
• | An increase in accounts payable and accrued liabilities of approximately $3.7 million for the year ended December 31, 2005, as compared to a decrease in accounts payable of approximately $1.6 million in the year ended December 31, 2004. The increase in accounts payable is primarily due to CBS Personnel’s purchase of goods and services in the year ended December 31, 2005 at more favorable terms. Accounts payable totaled approximately $8.8 million at December 31, 2005. |
Investing Activities |
Financing Activities |
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Commitments and Contingencies |
Payments Due by Period | ||||||||||||||||||||
Less than | More than | |||||||||||||||||||
Total | 1 Year | 2-3 Years | 4-5 Years | 5 Years | ||||||||||||||||
($ in thousands) | ||||||||||||||||||||
Long-term debt | $ | 33,191 | $ | 2,037 | $ | 3,757 | $ | 27,397 | $ | — | ||||||||||
Operating lease obligations | 13,977 | 4,709 | 6,216 | 2,321 | 731 | |||||||||||||||
Compensation due under employment agreements | 408 | 350 | 58 | — | — | |||||||||||||||
Total contractual cash obligations | $ | 47,576 | $ | 7,096 | $ | 10,031 | $ | 29,718 | $ | 731 | ||||||||||
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Quantitative and Qualitative Disclosures about Market Risk |
Overview |
Q1 | Q2 | Q3 | Q4 | ||||||||||||||
($ in thousands) | |||||||||||||||||
2005 | |||||||||||||||||
Net sales | $ | 15,511 | $ | 22,723 | $ | 12,897 | $ | 18,929 | |||||||||
Operating Income | $ | 1,533 | $ | 4,527 | $ | 820 | $ | 1,151 | |||||||||
Net Income | $ | 347 | $ | 2,002 | $ | (471 | ) | $ | (1,389 | ) | |||||||
2004 | |||||||||||||||||
Net sales | $ | 13,315 | $ | 20,056 | $ | 13,112 | $ | 17,143 | |||||||||
Operating Income | $ | 1,766 | $ | 4,803 | $ | 1,059 | $ | 2,438 | |||||||||
Net Income | $ | 1,036 | $ | 3,145 | $ | (1,311 | ) | $ | 1,078 | ||||||||
2003 | |||||||||||||||||
Net sales | $ | 13,397 | $ | 16,048 | $ | 9,201 | $ | 14,687 | |||||||||
Operating Income | $ | 1,312 | $ | 3,473 | $ | 324 | $ | 1,961 | |||||||||
Net Income | $ | 502 | $ | 1,602 | $ | 58 | $ | 1,232 |
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Results of Operations |
Six Months Ended January 1, 2006 Compared to Six Months Ended December 26, 2004 |
(Unaudited) | |||||||||
Six Months Ended | |||||||||
December 26, | January 1, | ||||||||
2004 | 2006 | ||||||||
($ in thousands) | |||||||||
Net sales | $ | 38,234 | $ | 45,223 | |||||
Cost of sales | 26,471 | 32,916 | |||||||
Gross profit | 11,763 | 12,307 | |||||||
Selling, general and administrative expenses | 5,393 | 4,896 | |||||||
Amortization expense | 310 | 367 | |||||||
Operating income | 6,060 | 7,044 | |||||||
Interest expense | 2,236 | 2,695 | |||||||
Foregone offering costs | 161 | — | |||||||
Equity in losses of joint venture | 132 | 24 | |||||||
Other income | (225 | ) | (217 | ) | |||||
Income before provision for income taxes | 3,756 | 4,542 | |||||||
Provision for income taxes | 1,407 | 1,721 | |||||||
Net income | $ | 2,349 | $ | 2,821 | |||||
Net sales |
Cost of sales |
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Selling, general and administrative expenses |
Amortization expense |
Operating income |
Interest expense |
Equity in losses of joint venture |
Other income |
Provision for income taxes |
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Net income |
Fiscal Year Ended June 30, 2005 Compared to Fiscal Year Ended June 30, 2004 |
Fiscal Year Ended | |||||||||
June 30, | |||||||||
2004(1) | 2005 | ||||||||
($ in thousands) | |||||||||
Net sales | $ | 63,626 | $ | 70,060 | |||||
Cost of sales | 43,719 | 50,874 | |||||||
Gross profit | 19,907 | 19,186 | |||||||
Selling, general and administrative expenses | 9,513 | 10,526 | |||||||
Amortization expense | 328 | 629 | |||||||
Operating income | 10,066 | 8,031 | |||||||
Interest expense | 1,990 | 4,638 | |||||||
Equity in (income) loss of joint venture | (56 | ) | 241 | ||||||
Recapitalization and foregone offering costs | 2,497 | 3,022 | |||||||
Other (income) | (600 | ) | (471 | ) | |||||
Income before provision for income taxes | 6,235 | 601 | |||||||
Provision for income taxes | 2,287 | 112 | |||||||
Net income | $ | 3,948 | $ | 489 | |||||
(1) | The results of the predecessor and successor companies were combined to facilitate this comparison for fiscal year ended June 30, 2004. |
Net sales |
Cost of sales |
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Selling, general and administrative expenses |
Amortization expense |
Operating income |
Interest expense |
Equity in (income) loss of joint venture |
Recapitalization and foregone offering costs |
Other (income) |
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Provision for income taxes |
Net income |
Fiscal Year Ended June 30, 2004 Compared to Fiscal Year Ended June 30, 2003 |
Fiscal Year Ended | |||||||||
June 30, | |||||||||
2003 | 2004(1) | ||||||||
($ in thousands) | |||||||||
Net sales | $ | 53,333 | $ | 63,626 | |||||
Cost of sales | 37,382 | 43,719 | |||||||
Gross profit | 15,951 | 19,907 | |||||||
Selling, general and administrative expenses | 8,749 | 9,513 | |||||||
Amortization expense | 132 | 328 | |||||||
Operating income | 7,070 | 10,066 | |||||||
Interest expense | 1,978 | 1,990 | |||||||
Equity in (income) of joint venture | (158 | ) | (56 | ) | |||||
Recapitalization and foregone offering costs | — | 2,497 | |||||||
Other (income) | (266 | ) | (600 | ) | |||||
Income before provision for income taxes | 5,516 | 6,235 | |||||||
Provision for income taxes | 2,122 | 2,287 | |||||||
Net income | $ | 3,394 | $ | 3,948 | |||||
(1) | The results of the predecessor and successor companies were combined to facilitate this comparison for fiscal year ended June 30, 2004. |
Net sales |
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Cost of sales |
Selling, general and administrative expenses |
Amortization expense |
Operating income |
Interest expense |
Equity in (income) of joint venture |
Recapitalization and foregone offering costs |
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Other (income) |
Provision for income taxes |
Net income |
Liquidity and Capital Resources |
Impact of proposed acquisition by the company |
Sources of and uses for cash |
• | working capital will be financed by Crosman’s revolving credit facility as discussed below and repaid from subsequent reductions in current assets or from future earnings; | |
• | capital expenditures will be financed from the revolving credit facility; and | |
• | long-term debt will be repaid with long-term debt with similar terms. |
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Six Months Ended January 1, 2006 Compared to Six Months Ended December 26, 2004 |
Cash and Equivalents |
Operating Activities |
• | An increase in net income of approximately $0.5 million principally due to increased sales of Soft Air products. | |
• | An increase in inventory of approximately $1.3 million for the six months ended January 1, 2006 as compared to an increase of approximately $6.2 million for the six months ended December 26, 2004. The current year increase in inventory is consistent with the increase in sales. The prior year increase in inventory resulted from purchasing certain products to support Crosman’s sales growth objectives. The inventory growth in the first half of the fiscal year 2005 was offset by a reduction of approximately $4.9 million in the second half of the year. | |
• | An increase in accounts payable and accrued expenses of approximately $2.6 million for the six months ended January 1, 2006 as compared to an increase of approximately $1.9 million for the six months ended December 26, 2004. Accounts payable and accrued expenses provided more cash in the first half of fiscal year 2006 than fiscal year 2005 due primarily to a large bonus that was paid in the first half of fiscal year 2005 that was accrued for at June 30, 2004. There was no such bonus paid for fiscal year 2005 in the first half of fiscal year 2006. Accounts payable and accrued expenses totaled $9.2 million at the end of the six months ended January 1, 2006. |
Investing Activities |
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Financing Activities |
Fiscal Year Ended June 30, 2005 Compared to Fiscal Year Ended June 30, 2004 |
Operating Activities |
• | A decrease in net income of approximately $3.5 million due principally to lower gross margin on sales and higher interest expense associated with the acquisition of Crosman by a subsidiary of CGI. | |
• | An increase in inventory of approximately $1.4 million for the year ended June 30, 2005 as compared to an increase of approximately $2.9 million for the year ended June 30, 2004. Inventory increased at a lower rate in fiscal year 2005 because the sales increase for the year ended June 30, 2005 was less than the increase for the year ended June 30, 2004. | |
• | A decrease in accounts payable and accrued expenses of approximately $1.0 million for the year ended June 30, 2005 as compared to an increase of approximately $3.9 million for the year ended June 30, 2004. The change in accounts payable and accrued expenses is primarily due to two items. First, bonuses accrued at June 30, 2004 were paid in fiscal year 2005. There was only a de minimus bonus accrual at June 30, 2005. Second, accounts payable and accrued expenses declined due to the timing of Crosman’s payments to its suppliers. As described above, in 2005 Crosman purchased a significant portion of its inventory requirements for the second half of its fiscal year during the first half of its fiscal year. Therefore, a greater percentage of the inventory on hand had already been paid for on June 30, 2005 than on June 30, 2004. |
Investing Activities |
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Financing Activities |
Commitments and Contingencies |
Payments Due by Period | ||||||||||||||||||||
Less than | More than | |||||||||||||||||||
Total | 1 Year | 1-3 Years | 3-5 Years | 5 Years | ||||||||||||||||
($ in thousands) | ||||||||||||||||||||
Long-term debt | $ | 39,133 | $ | 4,100 | $ | 21,033 | $ | 14,000 | $ | — | ||||||||||
Revolving line of credit | 11,239 | — | 11,239 | — | — | |||||||||||||||
Deferred interest | 1,243 | — | — | 1,243 | — | |||||||||||||||
Capital lease obligations | 171 | 64 | 82 | 25 | — | |||||||||||||||
Operating lease obligations | 608 | 221 | 366 | 21 | — | |||||||||||||||
Total contractual cash obligations | $ | 52,394 | $ | 4,385 | $ | 32,720 | $ | 15,289 | $ | — | ||||||||||
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Quantitative and Qualitative Discussion about Market Risk |
Overview |
126
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Results of Operations |
Fiscal Year Ended December 31, 2005 Compared to Fiscal Year Ended December 31, 2004 |
Fiscal Year Ended | |||||||||
December 31, | |||||||||
2004 | 2005(1) | ||||||||
($ in thousands) | |||||||||
Net sales | $ | 36,642 | $ | 41,969 | |||||
Cost of sales | 17,867 | 18,102 | |||||||
Gross profit | 18,775 | 23,867 | |||||||
Selling, general and administrative expenses | 6,564 | 8,283 | |||||||
Amortization of Intangibles | — | 717 | |||||||
Income from operations | 12,211 | 14,867 | |||||||
Interest expense | (242 | ) | (1,491 | ) | |||||
Interest income | 42 | 233 | |||||||
Other income | 82 | — | |||||||
Income before provision for income taxes | 12,093 | 13,609 | |||||||
Provision for income taxes | — | 1,001 | |||||||
Net income | $ | 12,093 | $ | 12,608 | |||||
(1) | The results of the predecessor and successor companies were combined to facilitate this comparison for fiscal year ended December 31, 2005. |
Net sales |
Cost of sales |
Selling, general and administrative expenses |
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Amortization of intangible |
Income from operations |
Interest expense |
Interest income |
Provision for income taxes |
Net income |
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Fiscal Year Ended December 31, 2004 Compared to Fiscal Year Ended December 31, 2003 |
Fiscal Year Ended | |||||||||
December 31, | |||||||||
2003 | 2004 | ||||||||
($ in thousands) | |||||||||
Net sales | $ | 27,796 | $ | 36,642 | |||||
Cost of sales | 14,568 | 17,867 | |||||||
Gross profit | 13,228 | 18,775 | |||||||
Selling, general and administrative expenses | 5,521 | 6,564 | |||||||
Income from operations | 7,707 | 12,211 | |||||||
Interest expense | (204 | ) | (242 | ) | |||||
Interest income | 16 | 42 | |||||||
Other income | 15 | 82 | |||||||
Net income | $ | 7,534 | $ | 12,093 | |||||
Net sales |
Cost of sales |
Selling, general and administrative expenses |
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Income from operations |
Interest expense |
Interest income |
Net income |
Liquidity and Capital Resources |
Impact of proposed acquisition by the company |
Sources of and uses for cash |
• | working capital will be financed by Advanced Circuits’ line of credit facility as discussed below and repaid from subsequent reductions in current assets or from subsequent earnings; | |
• | capital expenditures will be financed from the line of credit facility; and | |
• | long-term debt will be repaid with long-term debt with similar terms. |
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Cash and Equivalents |
Operating Activities |
• | An increase in net income of approximately $0.5 million principally due to increased sales in prototype and quick-turn PCBs partially offset by higher operating expenses, greater interest expense and increased tax expenses. | |
• | An increase in non-cash charges included in net income of approximately $1.0 million. This increase was comprised primarily of an increase of approximately $0.7 million in amortization expense related to the amortization of intangibles acquired in connection with the acquisition of Advanced Circuits in September 2005, an increase of approximately $0.1 million in deferred tax benefit and an increase of approximately $0.1 million in compensation cost for options granted to management. | |
• | An increase of approximately $0.3 million in accounts receivable for the year ended December 31, 2005, as compared to an increase of approximately $0.7 million in the year ended December 31, 2004. The larger increase in the year ended December 31, 2004, was primarily related to greater sales growth in the year ended December 31, 2004, as compared to the year ended December 31, 2005. Accounts receivables totaled approximately $2.8 million at December 31, 2005. | |
• | A decrease of approximately $0.4 million in accounts payable for the year ended December 31, 2005, as compared to an increase in accounts payable of approximately $0.2 million for the year ended December 31, 2004. The decrease in accounts payable is primarily due to slightly stricter payment terms received from vendors in the year ended December 31, 2005. Accounts payable totaled $0.8 million at December 31, 2005. | |
• | An increase of approximately $0.9 million in income taxes payable for the year ended December 31, 2005. The increase in income tax is primarily due to Advanced Circuits’ conversion to a C-corporation on September 20, 2005, as part of the acquisition. |
Investing Activities |
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Financing Activities |
Commitments and Contingencies |
Payments Due by Period | ||||||||||||||||||||
Less than | 1-3 | 3-5 | More than | |||||||||||||||||
Total | 1 Year | Years | Years | 5 Years | ||||||||||||||||
($ in thousands) | ||||||||||||||||||||
Long-term debt | $ | 49,563 | $ | 3,875 | $ | 9,563 | $ | 12,750 | $ | 23,375 | ||||||||||
Operating lease obligations | 7,101 | 482 | 965 | 965 | 4,689 | |||||||||||||||
Total contractual cash obligations | $ | 56,664 | $ | 4,357 | $ | 10,528 | $ | 13,715 | $ | 28,064 | ||||||||||
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Quantitative and Qualitative Discussion about Market Risk |
Overview |
133
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Results of Operations |
Fiscal Year Ended December 31, 2005 Compared to Year Ended December 31, 2004 |
Fiscal Year Ended | ||||||||||
December 31, | ||||||||||
2004(1) | 2005 | |||||||||
($ in thousands) | ||||||||||
Net sales | $ | 12,137 | $ | 17,093 | ||||||
Cost of sales | 1,707 | 3,816 | ||||||||
Gross profit | 10,430 | 13,277 | ||||||||
Selling, general and administrative expenses | 6,325 | 7,491 | ||||||||
Research and development costs | 1,085 | 1,072 | ||||||||
Amortization of intangibles | 208 | 709 | ||||||||
Operating income | 2,812 | 4,005 | ||||||||
Other income (expense): | ||||||||||
Interest income | 6 | — | ||||||||
Other income | 41 | 20 | ||||||||
Equity in net income of joint venture | 269 | 70 | ||||||||
Interest expense | (372 | ) | (1,439 | ) | ||||||
Total other expense | (56 | ) | (1,349 | ) | ||||||
Income from continuing operations before provision for income taxes | 2,756 | 2,656 | ||||||||
Provision for income taxes | (1,207 | ) | (1,257 | ) | ||||||
Income from continuing operations | 1,549 | 1,399 | ||||||||
Income (loss) from discontinued operations | (166 | ) | 132 | |||||||
Net income | $ | 1,383 | $ | 1,531 | ||||||
(1) | The results of the predecessor and successor companies were combined to facilitate this comparison for fiscal year ended December 31, 2004. |
Net sales |
Cost of sales |
Selling, general and administrative expense |
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Research and development costs |
Amortization of intangibles |
Operating income |
Equity in net income of joint venture |
Interest expense |
Provision for income taxes |
Income from continuing operations |
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Fiscal Year Ended December 31, 2004 Compared to Fiscal Year Ended December 31, 2003 |
Fiscal Year Ended | ||||||||||
December 31, | ||||||||||
2003 | 2004(1) | |||||||||
($ in thousands) | ||||||||||
Net sales | $ | 10,446 | $ | 12,137 | ||||||
Cost of sales | 1,555 | 1,707 | ||||||||
Gross profit | 8,891 | 10,430 | ||||||||
Selling, general and administrative expenses | 5,276 | 6,325 | ||||||||
Research and development costs | 549 | 1,085 | ||||||||
Amortization of intangibles | — | 208 | ||||||||
Operating income | 3,065 | 2,812 | ||||||||
Other income (expense): | ||||||||||
Interest income | 8 | 6 | ||||||||
Other income | — | 41 | ||||||||
Equity in net income of joint venture | 377 | 269 | ||||||||
Interest expense | (31 | ) | (372 | ) | ||||||
Total other (expense) income | 354 | (56 | ) | |||||||
Income before provision for income taxes | 3,419 | 2,756 | ||||||||
Provision for income taxes | (1,062 | ) | (1,207 | ) | ||||||
Income from continuing operations | 2,357 | 1,549 | ||||||||
Loss from discontinued operations | (843 | ) | (166 | ) | ||||||
Net income | $ | 1,514 | $ | 1,383 | ||||||
(1) | The results of the predecessor and successor companies were combined to facilitate this comparison for fiscal year ended December 31, 2004. |
Net sales |
Cost of sales |
Selling, general and administrative expenses |
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Research and development costs |
Operating income |
Equity in net income of joint venture |
Interest expense |
Provision for income taxes |
Income from continuing operations |
Loss from discontinued operations |
Liquidity and Capital Resources |
Impact of proposed acquisition by the company |
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Sources of and uses for cash |
• | working capital will be financed by Silvue’s line of credit facility as discussed below and repaid from subsequent reductions in current assets or from subsequent earnings; | |
• | capital expenditures will be financed by the use of the equipment line of credit as described below or from the line of credit facility; and | |
• | long-term debt will be repaid with long-term debt with similar terms. |
Cash and Equivalents |
Operating Activities |
• | An increase in net income of approximately $0.1 million principally due to the acquisition of Nippon ARC. | |
• | An increase in non-cash charges included in net income of approximately $0.2 million. Depreciation and amortization increased in the year ended December 31, 2005, by approximately $0.6 million primarily due to the amortization of intangibles acquired in connection with the Nippon ARC acquisition and due to a full year of amortization in 2005 for the acquisition of the company. This increase in depreciation and amortization expense in year ended December 31, 2005, was offset by a charge of approximately $0.5 million in in-process research and development expenses in the year ended December 31, 2004, related to the acquisition of Silvue. This amount was expensed as of the date of acquisition since the IPR&D had no alternative use. No such charge was included for the year ended December 31, 2005. |
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• | A decrease in accounts receivable of approximately $32 thousand for year ended December 31, 2005, as compared to an increase of approximately $1.0 million in the year ended December 31, 2004. The larger increase in year ended December 31, 2004, was primarily related to the timing of cash receipts. Accounts receivables totaled approximately $2.2 million at December 31, 2005. | |
• | A decrease of approximately $0.4 million in accounts payable for the year ended December 31, 2005, as compared to an increase in accounts payable of approximately $0.1 million for the year ended December 31, 2004. The decrease in accounts payable is primarily due to the timing of cash payments. Accounts payable totaled $0.5 million at December 31, 2005. | |
• | A decrease of approximately $0.1 million in income taxes payable for the year ended December 31, 2005, as compared to an increase of $0.9 million for the year ended December 31, 2004, as income tax expense remained relatively flat as opposed to the significant increase in 2004 over 2003 income tax expense. |
Investing Activities |
Financing Activities |
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Commitments and Contingencies |
Payments Due by Period | ||||||||||||||||||||
Less than | More than | |||||||||||||||||||
Total | 1 Year | 1-3 Years | 3-5 Years | 5 Years | ||||||||||||||||
($ in thousands) | ||||||||||||||||||||
Long-term debt | $ | 13,338 | $ | 1,621 | $ | 3,499 | $ | 8,218 | $ | — | ||||||||||
Operating lease obligations | 1,034 | 210 | 435 | 249 | 140 | |||||||||||||||
Total contractual cash obligations | $ | 14,372 | $ | 1,831 | $ | 3,934 | $ | 8,467 | $ | 140 | ||||||||||
Quantitative and Qualitative Disclosures about Market Risk |
Currency Risk Exposure |
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Interest Rate Exposure |
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• | provide ongoing strategic and financial support for their businesses; | |
• | maintain a long-term outlook as to the ownership of those businesses where such an outlook is required for maximization of our shareholders’ return on investment; and | |
• | consummate transactions efficiently without being dependent on third party financing on a transaction-by-transaction basis. | |
• | CBS Personnel, a human resources outsourcing firm; | |
• | Crosman, a recreational products company; | |
• | Advanced Circuits, an electronic components manufacturing company; and | |
• | Silvue, a global hardcoatings company. |
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• | there are fewer potential acquirers for these businesses; | |
• | third-party financing generally is less available for these acquisitions; |
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• | sellers of these businesses frequently consider non-economic factors, such as continuing board membership or the effect of the sale on their employees; and | |
• | these businesses are less frequently sold pursuant to an auction process. |
Management Strategy |
• | recruiting and retaining talented managers to operate our businesses by using structured incentive compensation programs, including minority equity ownership, tailored to each business; | |
• | regularly monitoring financial and operational performance, instilling consistent financial discipline, and supporting management in the development and implementation of information systems to effectively achieve these goals; | |
• | assisting management in their analysis and pursuit of prudent organic growth strategies; | |
• | identifying and working with management to execute on attractive external growth and acquisition opportunities; and | |
• | forming strong subsidiary level boards of directors to supplement management in their development and implementation of strategic goals and objectives. | |
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• | making selective capital investments to expand geographic reach, increase capacity, or reduce manufacturing costs of our businesses; | |
• | investing in product research and development for new products, processes or services for customers; | |
• | improving and expanding existing sales and marketing programs; | |
• | pursuing reductions in operating costs through improved operational efficiency or outsourcing of certain processes and products; and | |
• | consolidating or improving management of certain overhead functions. |
• | leverage manufacturing and distribution operations; | |
• | leverage branding and marketing programs, as well as customer relationships; | |
• | add experienced management or management expertise; | |
• | increase market share and penetrate new markets; and | |
• | realize cost synergies by allocating the corporate overhead expenses of our businesses across a larger number of businesses and by implementing and coordinating improved management practices. |
Acquisition Strategy |
• | engage in a substantial level of internal and third-party due diligence; | |
• | critically evaluate the management team; | |
• | identify and assess any financial and operational strengths and weaknesses of any target business; |
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• | analyze comparable businesses to assess financial and operational performances relative to industry competitors; | |
• | actively research and evaluate information on the relevant industry; and | |
• | thoroughly negotiate appropriate terms and conditions of any acquisition. |
Strategic Advantages |
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Valuation and Due Diligence |
• | discounted cash flow analyses; | |
• | evaluation of trading values of comparable companies; | |
• | expected value matrices; | |
• | assessment of competitor, supplier and customer environments; and | |
• | examination of recent transactions. |
Financing |
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• | CBS Personnel; | |
• | Crosman; | |
• | Advanced Circuits; and | |
• | Silvue. |
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Overview |
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History of CBS Personnel |
Industry |
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Services |
• | providing excellent service to existing clients in a consistent and efficient manner; | |
• | attempting to sell additional service offerings to existing clients to increase revenue per client; | |
• | marketing services to prospective clients to expand the client base; and | |
• | providing incentives to employees through well-balanced incentive and bonus plans to encourage increased sales per client and the establishment of new client relationships. |
• | temporary staffing services in categories such as light industrial, clerical, healthcare, construction, transportation, professional and technical staffing; | |
• | employee leasing and related administrative services; and | |
• | temporary-to-permanent and permanent placement services. |
Temporary Staffing Services |
• | Light Industrial — A substantial portion of CBS Personnel’s temporary staffing revenues are derived from the placement of low-to mid-skilled temporary workers in the light industrial category, which comprises primarily the distribution (“pick-and-pack”) and light manufacturing (such as assembly-line work in factories) sectors of the economy. Approximately 46% of CBS Personnel’s temporary staffing revenues were derived from light industrial for the fiscal year ended December 31, 2005. | |
• | Clerical — CBS Personnel provides clerical workers that have been screened, reference-checked and tested for computer ability, typing speed, word processing and data entry capabilities. Clerical workers are often employed at client call centers and corporate offices. Approximately 40% of CBS Personnel’s temporary staffing revenues were derived from clerical for the fiscal year ended December 31, 2005. | |
• | Technical — CBS Personnel provides placement candidates in a variety of skilled technical capacities, including plant managers, engineering management, operations managers, designers, draftsmen, engineers, materials management, line supervisors, electronic assemblers, laboratory assistants and quality control personnel. Approximately 4% of CBS Personnel’s temporary staffing revenues were derived from technical the fiscal year ended December 31, 2005. |
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• | Healthcare — Through its expert placement agents in its Columbia Healthcare division, CBS Personnel provides trained candidates in the following healthcare categories: medical office personnel, medical technicians, rehabilitation professionals, management and administrative personnel and radiology technicians, among others. Approximately 2% of CBS Personnel’s temporary staffing revenues were derived from healthcare for the fiscal year ended December 31, 2005. | |
• | Niche/ Other — In addition to the light industrial, clerical, healthcare and technical categories, CBS Personnel also provides certain niche staffing services, placing candidates in the skilled industrial, construction and transportation sectors, among others. CBS Personnel’s wide array of niche service offerings allows it to meet a broad range of client needs. Moreover, these niche services typically generate higher margins for CBS Personnel. Approximately 8% of CBS Personnel’s temporary staffing revenues were derived from niche/other for the fiscal year ended December 31, 2005. |
Employee Leasing Services |
Temporary-to-Permanent and Permanent Staffing Services |
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Competitive Strengths |
• | Large Employee Database/Customer List — Over the course of its history, CBS Personnel’s management believes CBS Personnel has built a significant presence in most of its markets in terms of both clients and employees. CBS Personnel is successful in recruiting additional employees because of its reputation as having numerous job openings with a wide variety of clients. CBS Personnel attracts clients through its reputation as having a large database of reliable employees with a wide ranging skill set. CBS Personnel’s employee database and client list has been built over a number of years in each of its markets and serves as a major competitive strength in most of its markets. | |
• | Higher Operating Margins — By establishing multiple offices in the majority of the markets in which it operates, CBS Personnel is able to better leverage its selling, general and administrative expenses at the regional and field level and create higher operating income margins than its less dense competitors. | |
• | Scalable Business Model — By having multiple office locations in each of its markets, CBS Personnel is able to quickly scale its business model in both good and bad economic environments. For example, in 2001 and 2002 during the economic downturn, CBS Personnel was able to close offices and reduce overhead expenses while shifting business to adjacent offices. For competitors with only one office per market, closing an office requires abandoning the clients and employees in that market. During 2001 and 2002, CBS Personnel was able to reduce its overhead costs by approximately 13% while maintaining its presence in each of its markets and retaining its clients and employees. | |
• | Marketing Synergies — By having a number of offices in the majority of its markets, CBS Personnel allocates additional resources to marketing and selling and amortizes those costs over a larger office network. For example, while many of its competitors use selling branch managers who split time between operations and sales, CBS Personnel uses outside sales reps that are exclusively focused on bringing in new sales. | |
Business Strategies |
• | Invest in its Existing Markets — In many of its existing markets, CBS Personnel has multiple branch locations. CBS Personnel plans on continuing to invest in these existing markets through the opening of additional branch locations and the hiring of additional sales and operations employees. In addition, CBS personnel is offering complimentary human resource services to its existing clients such as full time recruiting, consulting, and administrative outsourcing. CBS Personnel has implemented an incentive plan that highly rewards its employees for selling services beyond its traditional temporary staffing services. |
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• | Build a Presence in Contiguous Markets — CBS Personnel plans on opening new branch locations in markets contiguous to those in which it operates. CBS Personnel believes that the cost and time required to establish profitable branch locations is minimized through expansion into contiguous markets as costs associated with advertising and administrative overhead are reduced due to proximity. | |
• | Pursue Selective Acquisitions — CBS Personnel views acquisitions as an attractive means to enter into a new geographical market. In some cases CBS Personnel will consider making acquisitions within its existing markets to increase its market share. | |
Clients |
Sales, Marketing and Recruiting Efforts |
Competition |
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• | multiple offices in its core markets; | |
• | long-standing relationships with its clients; | |
• | a large database of qualified temporary workers which enables CBS Personnel to fill orders rapidly; | |
• | well-recognized brands and leadership positions in its core markets; and | |
• | a reputation for treating employees well and offering competitive benefits. |
Tradenames |
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Facilities |
Number of | Employee | |||||||
State | Branch Offices* | Hours Billed | ||||||
(In thousands) | ||||||||
Ohio | 23 | 10,034 | ||||||
California | 20 | 4,002 | ||||||
Kentucky | 14 | 4,446 | ||||||
Texas | 13 | 4,533 | ||||||
South Carolina | 12 | 2,598 | ||||||
North Carolina | 8 | 1,894 | ||||||
Illinois | 8 | 1,087 | ||||||
Indiana | 6 | 2,218 | ||||||
Pennsylvania | 6 | 991 | ||||||
Massachusetts | 5 | 436 | ||||||
Georgia | 4 | 573 | ||||||
Virginia | 3 | 1,163 | ||||||
New York | 2 | 743 | ||||||
Alabama | 2 | 418 | ||||||
New Jersey | 2 | 160 | ||||||
Washington | 1 | 130 | ||||||
Florida | 1 | 109 | ||||||
Rhode Island | 1 | 56 |
* | Subsequent to December 31, 2005, CBS Personnel closed offices in Tampa, Florida, Pawtucket, Rhode Island and Boston, Massachusetts; opened an office in each of Fort Wayne, Indiana and Hebron, Ohio; and opened two offices in Dallas, Texas. |
Regulatory Environment |
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Workers’ Compensation Program |
Legal Proceedings |
Capital Structure |
Employees |
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Overview |
History of Crosman |
Industry |
Recreational Airgun Market |
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• | Broad Distribution — Mass retailers have become the primary distribution channel for recreational airguns, airgun accessories and related products because of the high margin and high turnover attributes of such products. Continued mass retailer participation in the recreational airgun market should continue to broaden the audience of potential consumers. | |
• | Increasing Popularity of Recreational Airguns — The popularity of activities involving recreational airguns, such as target shooting, increased from 2000 to 2003 according to the Sporting Goods Manufacturers Association, or SGMA, and management believes it will continue to grow. This has resulted in increased participation in such activities, which has resulted in increased sales, partly due to the mini-baby boom of the early 1990s, which is expected to drive up sales in the next decade. Management of Crosman believes that sales of recreational airguns, and in particular soft air guns, should continue to grow as participation in activities involving recreational airguns increases. | |
• | Increased Level of Regulations on Firearms — As laws concerning the purchase and use of firearms become more stringent, management of Crosman believes that sales of airguns, particularly in the high-end sector, should continue to increase because of the similar nature to firearms and the less restrictive regulatory environment concerning the purchase and use of airguns. |
Paintball Market |
Products |
Recreational Airgun Products |
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• | Air Rifles — Crosman offers 14 air rifle product families with typical retail prices ranging from $30 to $150, with high-end models retailing for prices up to $800. Crosman markets its air rifles under the following brands:Crosman®,Benjamin Sheridantm, and, through licensing agreements,Remingtontm andWalthertm. For the fiscal year ended June 30, 2005, air rifles accounted for approximately $24.1 million, or 34%, of Crosman’s net sales. For the six months ended December 26, 2004 and January 1, 2006, air rifles accounted for approximately $14.0 million, or 37%, and $14.3 million, or 32% of net sales, respectively. | |
• | Air Pistols — Crosman markets 14 air pistol product families with average retail prices ranging from $20 to $100. Crosman markets its air pistols under the following brands:Crosman® and, through licensing agreements,Berettatm,Colt tm,Smith & Wessontm, andWalthertm. For the fiscal year ended June 30, 2005, air pistols accounted for approximately $11.8 million, or 17%, of Crosman’s net sales. For the six months ended December 26, 2004 and January 1, 2006, air pistols accounted for approximately $6.4 million, or 17%, and $6.7 million, or 15% of net sales, respectively. | |
• | Soft Air Airguns — Soft air airguns fire plastic BBs at low velocities. Crosman began selling soft air airguns in May 2002. Crosman markets its soft air airguns under theCrosman Soft Airtm brand. For the fiscal year ended June 30, 2005, Soft Air accounted for approximately $15.6 million, or 22%, of Crosman’s net sales. For the six months ended December 26, 2004 and January 1, 2006, Soft Air accounted for approximately $8.4 million, or 22%, and $15.4 million, or 34% of net sales, respectively. | |
• | Consumables — Crosman is a manufacturer of airgun consumables, including CO2 cartridges and ammunition (BBs and pellets). Crosman markets its consumables under theCrosman® andCopperhead tm brands and markets its CO2 cartridges product families under thePowerletstm andAirSource® brands. For the fiscal year ended June 30, 2005, consumables accounted for approximately $16.9 million, or 24%, of Crosman’s net sales. For the six months ended December 26, 2004 and January 1, 2006, consumables accounted for approximately $8.6 million, or 22%, and $8.2 million, or 18% of net sales, respectively. | |
• | Accessories and Other Products — Crosman also offers a variety of miscellaneous recreational airgun accessories, such as scopes, laser sights and targets, as well as other products such as slingshots. Crosman markets its products in this category under theCrosman® brand. For the fiscal year ended June 30, 2005, accessories and other products accounted for approximately $1.6 million, or 2%, of Crosman’s net sales. For the six months ended December 26, 2004 and January 1, 2006, accessories and other products accounted for approximately $0.8 million, or 2%, and $0.6 million, or 1% of net sales, respectively. | |
Paintball Products |
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Competitive Strengths |
• | Leading Market Position — Management believes Crosman has achieved a strong position in the design, manufacturing and distribution of recreational airgun products by investing the necessary resources to establish its strong brands, broad product offering, efficient manufacturing capabilities, excellent sourcing and distribution relationships and by assembling a strong management team. It currently has an approximately 40% share of the United States recreational airgun market which it expects will allow it to further penetrate the paintball market and introduce new products in the recreational airgun market. | |
• | Strong Brand Portfolio — Crosman owns one of the pre-eminent brand portfolios in the recreational airgun market and is widely recognized in the broader outdoor sporting goods industries. Crosman’s recreational airgun products are recognized for their quality features and craftsmanship. The strength of Crosman’s brands portfolio has positioned it as a source for a broad variety of recreational airgun and paintball products and should enable it to capture additional market share. | |
• | Established, Long-Term Relationships with Significant Retailers — Crosman has served two of its top retailers, Wal-Mart and Kmart, for over 25 years and its top ten retailers for an average of 14 years. Crosman invests in its retailer relationships by working closely with retailers in an effort to increase their sales and margins, manage inventory levels and provide superior service to the consumer. Such dedication to relations with their retailers contributes to Crosman’s strong and long-term relationships with its significant retailers. | |
• | High Margin Product Focus — Crosman’s focus on products in the mid- to high-end of the retail price spectrum combined with its low-cost manufacturing capabilities generate higher margins for Crosman and its retailers. We believe that such a focus permits Crosman and its retailers to earn greater margins as compared to major competitors’ lower-priced products. | |
• | Dedication to High Product Quality Standards — Crosman closely monitors the quality of its manufacturing process, beginning by routinely verifying the quality of its raw material used in the manufacturing process. In addition, each component is inspected on the assembly line prior to assembly of the final product. After production, each product is tested and undergoes a final inspection prior to packaging. Such attentive detail to quality has resulted in Crosman experiencing an approximately 1% defect rate with respect to its recreational air guns. | |
• | Proven Product Development Capability — Since 2001, under Crosman’s current management team, Crosman became dedicated to bringing innovative new products to market. For example, since 2001, Crosman has introduced several new products including the 88-gramAirSource® CO2 cartridges, theBenjamin Sheridantm andCrosman® break-barrel spring air rifles, an innovative blow-back semi-automatic air rifle, and soft air airguns marketed under theCrosman Soft Airtm brand name. GFP also introduced a new 88-gramAirSource® disposable CO2 tank in January 2003. Crosman’s strength in developing new products is demonstrated by net sales of new products introduced since 2001 of approximately $33.6 million, or 48%, for fiscal year ended June 30, 2005. | |
• | Experienced Management Team — Crosman’s senior management, collectively, has approximately 83 years of experience in the recreational products industry and closely related industries. Since 2001, the current management team has effected significant improvements in Crosman’s financial performance by focusing on developing new products, leveraging distribution channels to improve market penetration, improving operational efficiencies and expanding and refining supplier networks. | |
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Business Strategies |
• | Driving Organic Growth — Crosman’s management believes that Crosman can leverage its competitive strengths to increase sales of its current products and introduce new products to capitalize on the expected growth in the recreational airgun and paintball markets. Management believes that Crosman can continue to increase its sales by maintaining and building upon its strong relationships with its retailers to more aggressively promote its products and to introduce and promote new products. | |
• | Maintaining Focus on Cost Control and Operating Efficiency — In an effort to achieve further sustainable margin improvements, Crosman plans to maintain its focus on cost control by continuing to improve its manufacturing efficiency and to refine its supplier network. Crosman’s budgeting process allows it to measure departmental spending against budgets each month and to compensate supervisors based partially on their ability to spend at or below budgeted levels. Crosman also has a capital expenditure approval process in which projects must meet return on investment and payback period guidelines before capital projects may be initiated. | |
• | Pursuing Complementary Acquisitions — Crosman intends to pursue strategic acquisition opportunities that will allow it to leverage its competitive strengths to increase sales or improve margins. Such opportunities may include the acquisition of products or recognized brands to broaden or deepen Crosman’s product portfolio as well as the acquisition of suppliers to reduce the costs of its finished goods. Crosman’s management intends to make acquisitions only to the extent it believes such acquisitions will be accretive to its cash flow. |
Research and Development |
Customers |
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Sales and Marketing |
Competition |
Suppliers |
Intellectual Property |
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Facilities |
Regulatory Environment |
Legal Proceedings |
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Capital Structure |
Employees |
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Overview |
History of Advanced Circuits |
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Industry |
• | Prototype PCBs — These PCBs are manufactured typically for customers in research and development departments of original equipment manufacturers, or OEMs, and academic institutions. Prototype PCBs are manufactured to the specifications of the customer, within certain manufacturing guidelines designed to increase speed and reduce production costs. Prototyping is a critical stage in the research and development of new products. These prototypes are used in the design and launch of new electronic equipment and are typically ordered in volumes of 1 to 50 PCBs. Because the prototype is used primarily in the research and development phase of a new electronic product, the life cycle is relatively short and requires accelerated delivery time frames of usually less than 5 days and very high, error-free quality are required. Order, production and delivery time, as well as responsiveness with respect to each, are key factors for customers as PCBs are indispensable to their research and development activities. | |
• | Quick-Turn Production PCBs — These PCBs are used for intermediate stages of testing for new products prior to full scale production. After a new product has successfully completed the prototype phase, customers undergo test marketing and other technical testing. This stage requires production of larger quantities of PCBs in a short period of time, generally 10 days or less, while it does not yet require high production volumes. This transition stage between low-volume prototype production and volume production is known as quick-turn production. Manufacturing specifications conform strictly to end product requirements and order quantities are typically in volumes of 10 to 500. Similar to prototype PCBs, response time remains crucial as the delivery of quick-turn PCBs |
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can be a gating item in the development of electronic products. Orders for quick-turn production PCBs conform specifically to the customer’s exact end product requirements. | ||
• | Volume Production PCBs — These PCBs are used in the full scale production of electronic equipment and specifications conform strictly to end product requirements. Production PCBs are ordered in large quantities, usually over 100 units, and response time is less important, ranging between 15 days to 10 weeks or more. |
• | Increasing Customer Demand for Quick-Turn Production Services — Rapid advances in technology are significantly shortening product life-cycles and placing increased pressure on OEMs to develop new products in shorter periods of time. In response to these pressures, OEMs invest heavily on research and development, which results in a demand for PCB companies that can offer engineering support and quick-turn production services to minimize the product development process. | |
• | Increasing Complexity of Electronic Equipment — OEMs are continually designing more complex and higher performance electronic equipment, requiring sophisticated PCBs. To satisfy the demand for more advanced electronic products PCBs are produced using exotic materials and increasingly have higher layer counts and greater component densities. Maintaining the production infrastructure necessary to manufacture PCBs of increasing complexity often requires significant capital expenditures and has acted to reduce the competitiveness of local and regional PCB manufacturers lacking the scale to make such investments. | |
• | Shifting of High Volume Production to Asia — Asian based manufacturers of PCBs are capitalizing on their lower labor costs and are increasing their market share of volume production of PCBs used, for example, in high-volume consumer electronics applications, such as personal computers and cell phones. Asian based manufacturers have been generally unable to meet the lead time requirements for prototype or quick-turn PCB production or the volume production of the most complex PCBs. This “offshoring” of high-volume production orders has placed increased pricing pressure and margin compression on many small domestic manufacturers that are no longer operating at full capacity. Many of these small producers are choosing to cease operations, rather than operate at a loss, as their scale, plant design and customer relationships do not allow them to focus profitably on the prototype and quick-turn sectors of the market. | |
Products and Services |
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Fiscal Year Ended | Fiscal Year Ended | Fiscal Year Ended | ||||||||||
December 31, 2003 | December 31, 2004 | December 31, 2005 | ||||||||||
Prototype Production | 41.8% | 36.2% | 34.0% | |||||||||
Quick-Turn Production | 27.7% | 29.6% | 32.0% | |||||||||
Volume Production | 17.0% | 19.0% | 20.1% | |||||||||
Third Party | 13.5% | 15.2% | 13.9% | |||||||||
Total | 100.0% | 100.0% | 100.0% | |||||||||
(1) | As a percentage of gross sales, exclusive of sale discounts. |
Competitive Strengths |
• | Numerous Unique Orders Per Day — For the year ended December 31, 2005, Advanced Circuits received an average of over 270 customer orders per day. Due to the large quantity of orders received, Advanced Circuits is able to combine multiple orders in a single panel design prior to production. Through this process, Advanced Circuits is able to significantly reduce the number of costly, labor intensive equipment set-ups required to complete several manufacturing orders. As labor represents the single largest cost of production, management believes this capability gives Advanced Circuits a unique advantage over other industry participants. Advanced Circuits maintains proprietary software to maximize the number of units placed on any one panel design. A |
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single panel set-up typically accommodates 1 to 12 orders. Further, as a “critical mass” of like orders are required to maximize the efficiency of this process, management believes Advanced Circuits is uniquely positioned as a low cost manufacturer of prototype and quick-turn PCBs. | ||
• | Diverse Customer Base — Advanced Circuits possesses a customer base with little industry or customer concentration exposure. During fiscal year ended December 31, 2005, Advanced Circuits did business with over 4,000 customers and added approximately 200 new customers per month. Advanced Circuits’ website receives thousands of hits per day and, each month during 2005, it received approximately 600 requests to establish new web accounts. For the year ended December 31, 2005, no customer represented over 2% of net sales. | |
• | Highly Responsive Culture and Organization — A key strength of Advanced Circuits is its ability to quickly respond to customer orders and complete the production process. In contrast to many competitors that require a day or more to offer price quotes on prototype or quick-turn production, Advanced Circuits offers its customers quotes within seconds and the ability to place or track orders any time of day. In addition, Advanced Circuits’ production facility operates three shifts per day and is able to ship a customer’s product within 24 hours of receiving its order. | |
• | Proprietary FreeDFM.com Software — Advanced Circuits offers its customers unique design verification services through its online FreeDFM.com tool. This tool, which was launched in 2002, enables customers to receive a free manufacturability assessment report, within minutes, resolving design problems before customers place their orders. The service is relied upon by many of Advanced Circuits’ customers to reduce design errors and minimize production costs. Beyond improved customer service, FreeDFM.com has the added benefit of improving the efficiency of Advanced Circuits’ engineers, as many routine design problems, which typically require an engineer’s time and attention to identify, are identified and sent back to customers automatically. | |
• | Established Partner Network — Advanced Circuits has established third party production relationships with PCB manufacturers in North America and Asia. Through these relationships, Advanced Circuits is able to offer its customers a full suite of products including those outside of its core production capabilities. Additionally, these relationships allow Advanced Circuits to outsource orders for volume production and focus internal capacity on higher margin, short lead time, production and quick-turn manufacturing. | |
Business Strategies |
• | Increase Portion of Revenue from Prototype and Quick-Turn Production — Advanced Circuits’ management believes it can grow revenues and cash flow by continuing to leverage its core prototype and quick-turn capabilities. Over its history, Advanced Circuits has developed a suite of capabilities that management believes allow it to offer a combination of price and customer service unequaled in the market. Advanced Circuits intends to leverage this factor, as well as its core skill set, to increase net sales derived from higher margin prototype and quick-turn production PCBs. In this respect, marketing and advertising efforts focus on attracting and acquiring customers that are likely to require these premium services. And while production composition may shift, growth in these products and services is not expected to come at the cost of declining sales in volume production PCBs as Advanced Circuits intends to leverage its extensive network of third-party manufacturing partners to continue to meet customers’ demand for these services. | |
• | Acquire Customers from Local and Regional Competitors — Advanced Circuits’ management believes the majority of its competition for prototype and quick-turn PCB orders comes from smaller scale local and regional PCB manufacturers. As an early mover in the prototype and quick-turn sector of the PCB market, Advanced Circuits has been able to grow faster and achieve greater production efficiencies than many industry participants. Management believes Advanced Circuits | |
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can continue to use these advantages to gain market share. Further, Advanced Circuits has begun to enter into prototype and quick-turn manufacturing relationships with several subscale local and regional PCB manufacturers. According to Fabfile online, in 2004 there were over 400 small PCB manufacturers with annual sales of under $10 million. Management believes that while many of these manufacturers maintain strong, longstanding customer relationships, they are unable to produce PCBs with short turn-around times at competitive prices. As a result, Advanced Circuits is beginning to seize upon a significant opportunity for growth by providing production support to these manufacturers or direct support to the customers of these manufacturers, whereby the manufacturers act more as a broker for the relationship. | ||
• | Remain Committed to Customers and Employees — Over its history, Advanced Circuits has remained focused on providing the highest quality product and service to its customers. Management believes this focus has allowed Advanced Circuits to achieve its outstanding delivery and quality record. Advanced Circuits’ management believes this reputation is a key competitive differentiator and is focused on maintaining and building upon it. Similarly, management believes its committed base of employees is a key differentiating factor. Advanced Circuits currently has a profit sharing program and tri-annual bonuses for all of its employees. Management also occasionally sets additional performance targets for individuals and departments and establishes rewards, such as lunch celebrations or paid vacations, if these goals are met. Management believes that Advanced Circuits’ emphasis on sharing rewards and creating a positive work environment has led to increased loyalty. As a result, Advanced Circuits plans on continuing to focus on similar programs to maintain this competitive advantage. | |
Research and Development |
Customers |
2005 Customer | ||||
Industry Sector | Distribution | |||
Electrical Equipment and Components | 35% | |||
Measuring Instruments | 20% | |||
Electronics Manufacturing Services | 9% | |||
Engineer Services | 9% | |||
Industrial and Commercial Machinery | 5% | |||
Business Services | 5% | |||
Wholesale Trade-Durable Goods | 4% | |||
Educational Institutions | 3% | |||
Transportation Equipment | 2% | |||
All Other Sectors Combined | 8% | |||
Total | 100% | |||
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Sales and Marketing |
Competition |
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Suppliers |
Intellectual Property |
Facilities |
Regulatory Environment |
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Legal Proceedings |
Capital Structure |
Employees |
Overview |
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History of Silvue |
Industry |
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Products |
• | SilvueandCrystalCoat — these products are either non-tintable or tintable and impart index matching and anti-fogging properties; | |
• | Statux — this product imparts anti-static properties; and | |
• | Resinrelease — this product imparts “non-stick” or surface release properties. |
• | Automotive — CrystalCoat coatings are used on a variety of automotive and transit applications, including instrument panel windows, bus shelters, rail car windows, and bus windows. These |
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coatings are used primarily to impart long-term durability, chemical resistance and scratch and abrasion resistance properties. | ||
• | Electronics — CrystalCoat coatings are used for electronic application surfaces, from liquid crystal displays to cell phone windows. These coatings are used primarily to impart scratch and abrasion resistance properties. | |
• | Optical — CrystalCoat coatings are used for vision corrective lenses and other optical applications. These coatings are used primarily to impart high scratch and abrasion resistance properties and UV protection while matching the optical properties of the underlying material to reduce interference. Silvue produces both tintable and non-tintable coatings. | |
• | Safety — CrystalCoat coatings are used for safety applications. These coatings are used primarily to impart anti-fog characteristics. Silvue offers a high performance “water sheeting” anti-fog coating that is specifically designed to meet a customer’s specific standards and testing requirements. | |
• | Sunglasses and Sports Eyewear — CrystalCoat coatings are used for sunglasses and sports eyewear. These coatings are used primarily to impart scratch and abrasion resistance properties, UV protection and anti-fog characteristics. CrystalCoat coatings can be used on tinted or clear materials. |
Research and Development and Technical Services |
• | improving existing products and processes to lower costs, improving product quality, and reducing potential environmental impact; | |
• | developing new product platforms and processes; and | |
• | developing new product lines and markets through applications research. |
• | application engineering and process support; | |
• | equipment and process design; | |
• | product and formulation development and customization; | |
• | test protocols and coating qualifications; | |
• | rapid response for customer technical support; | |
• | analytical testing and competitive product assessment; | |
• | quality assurance testing and reporting; and | |
• | manufacturing support. |
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Competitive Strengths |
• | Extensive Patent Portfolio — Silvue owns nine patents relating to its coating systems, including six patents relating to its core Ultra-Coat platform systems. Beyond its existing patents, Silvue has three patents pending and two provisional patents. Products related to patents represent approximately 66% of Silvue’s net sales and are relied upon by eyewear manufacturers worldwide. Silvue aggressively defends these patents and management believes they represent a significant barrier to entry for new products and that they reduce the threat of similar coating products gaining significant market share. | |
• | Superior Technical Skills and Expertise — Silvue has invested in a team of experts who are ready to support its customers’ specific application needs from new product uses to the optimization of part design for coating application. | |
• | Reputation for Quality and Service — Silvue’s on-going commitment to producing quality coatings and its ability to meet the rigorous requirements of its most valued customers has earned it a reputation as one of the principal providers of coatings for premium eyewear. | |
• | Global Presence — Silvue works with its customers from three offices in North America, Asia and Europe. Many of Silvue’s customers have numerous manufacturing operations globally and management believes its ability to offer its coating systems and related customer service on a global basis is a competitive advantage. | |
• | ISO 9002 Certified — Silvue’s Anaheim, California, and Chiba, Japan manufacturing facilities are ISO 9002 certified, which is a universally accepted quality assurance designation indicating the highest quality manufacturing standards. | |
• | Experienced Management Team — Silvue’s senior management has extensive experience in all aspects of the coating industry. The senior management team, collectively, has approximately 80 years of experience in the global hardcoatings and closely related industries. |
Business Strategies |
• | Develop New Products and Expand into New Markets — Silvue’s management believes that Silvue is one of the principal developers of proprietary high performance coating systems for polycarbonate plastic, glass, acrylic, metals and other materials, and is focused on growth through continued product innovation to provide greater functionality or better value to its customers. Driven by input from customers and the demands of the marketplace, Silvue’s technology development programs are designed to provide an expanding choice of coating systems to protect and enhance existing materials and materials developed in the future. As an example of Silvue’s commitment to product innovation, in 2002, Silvue created a new group with primary focus on the discovery of new technologies and sciences, and the innovation of those findings into useful applications and beneficial results. This group, which is known as the “Discovery and Innovation Group,” is charged with exploring new coatings and coating applications while advancing the state-of-the-art in functional surface coating technologies, nanotechnologies and materials science. | |
• | Pursue Opportunities for Business Development and Global Diversification — Silvue recently had in place and continues to pursue opportunities for joint ventures, equity investments and other alliances. These strategic initiatives are expected to diversify and strengthen Silvue’s business by providing access to new markets and high-growth areas as well as providing an efficient means of |
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ensuring that Silvue is involved in technological innovation in or related to the coating systems industry. Silvue is committed to pursuing these initiatives in order to capitalize on new business development and global diversification opportunities. | ||
• | Improve Gross Margins — Silvue continues to work to maximize the value of its business by improving gross margins by (i) enhancing pricing processes and pricing strategies, and implementing pricing systems to improve responsiveness to increases in operating costs and other factors impacting gross margins; (ii) focusing on more profitable products and business lines to maximize earnings potential of product mix; and (iii) completing cost reduction programs while improving customer satisfaction, and improving efficiency through reduction of variations and defects. |
Customers |
2005 Customer | ||||
Industry | Distribution | |||
Performance eyewear and sunglasses | 75% | |||
Plastic Sheet | 5% | |||
Metal Applications | 5% | |||
Automotive | 1% | |||
Other | 14% | |||
Total | 100% | |||
Sales and Marketing |
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Competition |
Suppliers |
Intellectual Property |
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Facilities |
Regulatory Environment |
Legal Proceedings |
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Capital Structure |
Employees |
Discontinued Operations |
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Directors and Named Executive Officers | Age | Position | ||||
C. Sean Day(3) | 56 | Chairman of the Board | ||||
I. Joseph Massoud(4) | 38 | Chief Executive Officer and Director | ||||
James J. Bottiglieri(2) | 50 | Chief Financial Officer and Director | ||||
Harold S. Edwards(1)(5)(6)(7)(9) | 40 | Director | ||||
D. Eugene Ewing(3)(5)(6)(8)(9) | 57 | Director | ||||
Mark H. Lazarus(1)(6)(7)(9) | 42 | Director | ||||
Ted Waitman(2)(5)(7)(9) | 56 | Director |
(1) | Class I director. | |
(2) | Class II director. | |
(3) | Class III director. | |
(4) | Manager’s appointed director. | |
(5) | Member of the company’s audit committee. | |
(6) | Member of the company’s compensation committee. | |
(7) | Member of the company’s nominating and corporate governance committee. | |
(8) | Audit committee financial expert. | |
(9) | Independent director. |
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Audit Committee |
• | appointing, retaining and overseeing our independent accountants; | |
• | assisting the company’s board of directors in its oversight of the integrity of our financial statements, the qualifications, independence and performance of our independent auditors and our compliance with legal and regulatory requirements; | |
• | reviewing and approving the calculation of profit allocation when it becomes due and payable; | |
• | reviewing and approving the plan and scope of the internal and external audit of our financial statements; | |
• | pre-approving any audit and non-audit services provided by our independent auditors; | |
• | approving the fees to be paid to our independent auditors; | |
• | reviewing with our Chief Executive Officer and Chief Financial Officer and independent auditors the adequacy and effectiveness of our internal controls; | |
• | preparing the audit committee report included in our public filings with the SEC; and |
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• | reviewing and assessing annually the audit committee’s performance and the adequacy of its charter. |
Compensation Committee |
Nominating and Corporate Governance Committee |
• | recommending the number of directors to comprise the company’s board of directors; | |
• | identifying and evaluating individuals qualified to become members of the company’s board of directors, other than our manager’s appointed director; | |
• | reviewing director nominees that are nominated by shareholders; | |
• | reviewing conflicts of interest that may arise between the company and our manager; | |
• | recommending to the company’s board of directors the director nominees for each annual shareholders’ meeting, other than our manager’s appointed director; | |
• | recommending to the company’s board of directors the candidates for filling vacancies that may occur between annual shareholders’ meetings, other than our manager’s appointed director; | |
• | reviewing director compensation and processes, self-evaluations and policies; | |
• | overseeing compliance with our code of ethics and conduct by our officers and directors and our manager; | |
• | monitoring developments in the law and practice of corporate governance; and | |
• | approving any related party transactions. |
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Long-Term | |||||||||||||||||||||||||
Compensation | |||||||||||||||||||||||||
Annual Compensation | Number of | ||||||||||||||||||||||||
Securities | |||||||||||||||||||||||||
Other Annual | Underlying | All Other | |||||||||||||||||||||||
Name and Principal Position | Year | Salary | Bonus | Compensation | Options | Compensation | |||||||||||||||||||
I. Joseph Massoud | 12/31/2005 | $ | —(1 | ) | —(1 | ) | —(1 | ) | —(1 | ) | —(1 | ) | |||||||||||||
Chief Executive Officer | |||||||||||||||||||||||||
James J. Bottiglieri | 12/31/2005 | $ | —(2 | ) | —(2 | ) | —(2 | ) | —(2 | ) | —(2 | ) | |||||||||||||
Chief Financial Officer |
(1) | Mr. I. Joseph Massoud, our Chief Executive Officer, is seconded to us by our manager and does not receive compensation directly from us. We pay our manager a quarterly management fee, and our manager uses the proceeds from the management fee, in part, to pay compensation to Mr. Massoud. Therefore, no compensation information for Mr. Massoud is provided in the above compensation table. |
(2) | As of December 31, 2005, Mr. Bottiglieri, our Chief Financial Officer was not an employee of our manager. Accordingly, no compensation was paid or accrued by our manager from November 18, 2005 to December 31, 2005. See section entitled “— Employment Agreement” below. |
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• | manage ourday-to-day business and operations of the company, including our liquidity and capital resources and compliance with applicable law; | |
• | identify, evaluate, manage, perform due diligence on, negotiate and oversee acquisitions of target businesses and any other investments; | |
• | evaluate and oversee the financial and operational performance of any of our businesses, including monitoring the business and operations of such businesses, and the financial performance any other investments that we make; | |
• | provide, on our behalf, managerial assistance to our businesses; | |
• | evaluate, manage, negotiate and oversee dispositions of all or any part of any of our property, assets or investments, including disposition of all or any part of our businesses; | |
• | provide or second, as necessary, employees of our manager to serve as executive officers or other employees of the company or as members of the company’s board of directors; and | |
• | perform any other services that would be customarily performed by executive officers and employees of a publicly listed or qualified company. | |
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• | (i) a majority of the company’s board of directors vote to terminate the management services agreement and (ii) the holders of at least a majority of the then outstanding shares (other than shares beneficially owned by our manager) vote to terminate the management services agreement; | |
• | neither Mr. Massoud nor his designated successor is the managing member of our manager, which change occurs without the prior written consent of the company’s board of directors; | |
• | there is a finding by a court of competent jurisdiction in a final, non-appealable order that (i) our manager materially breached the terms of the management services agreement and such breach continued unremedied for 60 days after our manager receives written notice from the company setting forth the terms of such breach, or (ii) our manager (x) acted with gross negligence, willful misconduct, bad faith or reckless disregard in performing its duties and obligations under the management services agreement or (y) engaged in fraudulent or dishonest acts in connection with the business or operations of the company; | |
• | (i) the manager has been convicted of a felony under Federal or State law, (ii) the company’s board of directors finds that our manager is demonstrably and materially incapable of performing its duties and obligations under the management services agreement, and (iii) the holders of at least 662/3% of the then outstanding shares, other than shares beneficially owned by our manager, vote to terminate the management services agreement; and | |
• | (i) there is a finding by a court of competent jurisdiction that our manager has (x) engaged in fraudulent or dishonest acts in connection with the business or operations of the company or (y) acted with gross negligence, willful misconduct, bad faith or reckless disregard in performing its duties and obligations under the management services agreement, and (ii) the holders of at least 662/3% of the then outstanding shares, other than shares beneficially owned by our manager, vote to terminate the management services agreement. | |
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Compass Diversified Trust(1) | |||||||||||||||||
Before the Offering(2) | After the Offering | ||||||||||||||||
Number of | Percent of | Number of | Percent of | ||||||||||||||
Shares | Class | Shares | Class | ||||||||||||||
Directors and Executive Officers | |||||||||||||||||
C. Sean Day | — | — | 6,667 | * | |||||||||||||
I. Joseph Massoud(3) | — | — | 266,667 | 1.33 | % | ||||||||||||
James J. Bottiglieri | — | — | 6,667 | * | |||||||||||||
Harold S. Edwards | — | — | 1,333 | * | |||||||||||||
D. Eugene Ewing | — | — | 3,333 | * | |||||||||||||
Mark H. Lazarus | — | — | — | — | % | ||||||||||||
Ted Waitman | — | — | 13,333 | * | |||||||||||||
All directors and executive officers, as a group | — | — | 298,000 | 1.49 | % | ||||||||||||
Shareholders | |||||||||||||||||
CGI(4) | — | — | 5,733,333 | 28.67 | % | ||||||||||||
Pharos(5) | — | — | 266,667 | 1.33 | % |
* | Less than 0.1% |
(1) | The trust will issue shares of trust stock. Each share of the trust represents one undivided beneficial interest in the trust property. Each beneficial interest in the trust corresponds to one trust interest of the company. No other equity interest in the trust will be outstanding after the closing of this offering. |
(2) | Before the closing of this offering, the trust will not have any equity interests authorized or issued and outstanding; the trust will be authorized to issue the shares pursuant to the amended and restated trust agreement to be entered into in conjunction with the closing of this offering. See the section entitled “Description of Shares” for more information. As a result, the company, as sponsor of the trust, will beneficially own the trust before the closing of this offering. In turn, our manager, as sole holder of the allocation interests of the company, and our Chief Executive Officer, Mr. Massoud, as sole and managing member of the manager, will each beneficially own the company before the closing of this offering. |
(3) | Amounts with respect to Mr. Massoud also reflect his beneficial ownership of shares through his interest in and control of Pharos, as discussed in more detail in footnote 5, below. |
(4) | CGI, through its wholly owned subsidiary, CGI Diversified Holdings, LP, has agreed to purchase the number of shares in the trust having an aggregate purchase price of $86 million, at a per share price equal to the initial public offering price, in a separate private placement transaction that will close in conjunction with the closing of this offering. CGI is the sole limited partner of CGI Diversified Holdings, LP. Navco Management, Inc., an affiliate of CGI, is the general partner of CGI Diversified Holdings, LP, and, as a result, Navco Management, Inc. may be deemed to beneficially own the shares held by CGI Diversified Holdings, LP. Navco Management, Inc. is also the general partner of each of the entities selling its controlling interests in the initial businesses to the company. Arthur Coady is a director of Navco Management, Inc. and, as a result, may be deemed to beneficially own the shares held by CGI Diversified Holdings, LP. See the section entitled “Certain Relationships and Related Party Transactions” for more information about this transaction and the relationship of CGI and its affiliated entities. |
(5) | Pharos has agreed to purchase the number of shares in the trust having an aggregate purchase price of $4 million, at a per share price equal to the initial public offering price, in a separate private placement transaction that will close in conjunction with the closing of this offering. Our Chief Executive Officer, Mr. Massoud, as managing member of Pharos exercising sole voting and investment power with respect to Pharos, will beneficially own Pharos before and after the closing of this offering and will be deemed to beneficially own the shares held by Pharos. |
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Compass Group Diversified Holdings LLC(1) | |||||||||||||||||
Before the Offering | After the Offering | ||||||||||||||||
Number of | Percent of | Number of | Percent of | ||||||||||||||
Interests | Class | Interests | Class | ||||||||||||||
Compass Group Management LLC(2) | |||||||||||||||||
Allocation interests(3) | 100 | 100 | % | 1,000 | 100 | % | |||||||||||
Trust interests | — | — | — | — | |||||||||||||
Compass Diversified Trust(4) | |||||||||||||||||
Allocation interests | — | — | — | — | |||||||||||||
Trust interests | — | — | 20,000,000 | 100 | % |
(1) | Compass Group Diversified Holdings LLC has two classes of interests: allocation interests and trust interests. |
(2) | Compass Group Management LLC, our manager, as sole holder of the allocation interests of the company and as our manager under the management services agreement, will beneficially own the company before this offering. Our Chief Executive Officer, Mr. Massoud, as sole and managing member of our manager, will beneficially own the company before the closing of this offering. Our manager is also an affiliate of CGI and Pharos. |
(3) | Allocation interests are being reclassified in conjunction with the closing of this offering. |
(4) | Each beneficial interest in the trust corresponds to one underlying trust interest of the company. Unless the trust is dissolved, it must remain the sole holder of 100% of the trust interests and at all times the company will have outstanding the identical number of trust interests as the number of outstanding shares of the trust. As a result of corresponding interest between shares and trust interests, each holder of shares identified in the table above relating to the trust may be deemed to beneficially own a correspondingly proportionate interest in the company. |
Before the Offering | After the Offering | ||||||||||||||||
Number of | Percent of | Number of | Percent of | ||||||||||||||
Shares | Class | Shares | Class | ||||||||||||||
C. Sean Day | |||||||||||||||||
Crosman, Common Stock | 5,193 | 0.9 | % | 5,193 | 0.9 | % | |||||||||||
Advanced Circuits, Series B Common Stock(1) | 10,000 | 0.8 | % | 10,000 | 0.8 | % | |||||||||||
I. Joseph Massoud | |||||||||||||||||
Crosman, Common Stock | 2,077 | 0.4 | % | — | — | ||||||||||||
Silvue Coinvestment Partners, LLC(2) | |||||||||||||||||
Silvue, Series B Common Stock | 98.6 | 0.2 | % | — | — | ||||||||||||
Silvue, Series A Preferred Stock | 433.1 | 1.0 | % | — | — | ||||||||||||
ACI Coinvestment Partners, LLC(3) | |||||||||||||||||
Advanced Circuits, Series B Common Stock | 11,880 | 1.0 | % | — | — |
(1) | Mr. Day is the direct owner of 6,480 shares of Series B Common Stock and Mr. Day’s children are the owners in the aggregate of 3,520 shares of Series B Common Stock. |
(2) | Mr. Massoud is the managing member of and owns a 26.1% interest in Silvue Coinvestment Partners, LLC and, in such capacity, exercises sole voting and investment power with respect to Silvue Coinvestment Partners, LLC. As a result, Mr. Massoud beneficially owns Silvue Coinvestment Partners, LLC. Mr. Day beneficially owns a 36.2% interest in Silvue Coinvestment Partners, LLC. |
(3) | Mr. Massoud is the managing member of and owns a 42.1% interest in ACI Coinvestment Partners, LLC and, in such capacity, exercises sole voting and investment power with respect to ACI Coinvestment Partners, LLC. As a result, Mr. Massoud beneficially owns ACI Coinvestment Partners, LLC. |
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• | the management services agreement relating to the management services our manager will perform for us and the businesses we own and the management fee to be paid to our manager in respect thereof; | |
• | the company’s LLC agreement setting forth our manager’s rights with respect to the allocation interests it owns, including the right to receive profit allocations from the company; and | |
• | the supplemental put agreement relating to our manager’s right to cause the company to purchase the allocation interests it owns. | |
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Stock Purchase Agreement with Sellers, including CGI and its Subsidiaries |
Loan Agreements with each Initial Business |
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Management Services Agreement |
Offsetting Management Services Agreements |
LLC Agreement |
Supplemental Put Agreement |
Private Placement Agreements |
Registration Rights Agreements |
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• | the shares representing beneficial interests in the trust property, to be issued in this offering; | |
• | the trust interests of the company, which we refer to as trust interests, to be issued to the trust; and | |
• | the allocation interests of the company, which we refer to as allocation interests, to be issued to our manager. |
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General |
Manager’s Profit Allocation |
General |
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• | voting or consent rights in connection with certainanti-takeover provisions, as discussed below; | |
• | a consent right with respect to the amendment or modification of the provisions providing for distributions to the holders of allocation interests; | |
• | a consent right to any amendment to the provision entitling the holders of allocation interests to appoint directors who will serve on the board of directors of the company; | |
• | a consent right with respect to any amendment of the provision of the LLC agreement governing amendments thereof; and | |
• | a consent right with respect to any amendment that would adversely affect the holder of allocation interests. |
Board of Directors Appointee |
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• | the trust or the company, or both, is, or is reasonably likely to be, treated as a corporation for United States federal income tax purposes; | |
• | the trust is, or is reasonably likely to be, required to issue Schedules K-1 to holders of shares; or | |
• | the existence of the trust otherwise results, or is reasonably likely to result, in a material tax detriment to the trust, the holders of shares, the company or any of the members; and | |
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• | the adoption of a resolution by a majority vote of the company’s board of directors approving the dissolution, winding up and liquidation of the company and such action has been approved by the affirmative vote of a majority of the outstanding trust interests entitled to vote thereon; | |
• | the unanimous vote of the outstanding trust interests to dissolve, wind up and liquidate the company; or | |
• | a judicial determination that an event has occurred that makes it unlawful, impossible or impractical to carry on the business of the company as then currently operated as determined in accordance with Section 18-802 of the Delaware Limited Liability Company Act; or | |
• | the termination of the legal existence of the last remaining member or the occurrence of any other event that terminates the continued membership of the last remaining member, unless the company is continued without dissolution in a manner provided under the LLC agreement or the Delaware Limited Liability Company Act. |
• | an acquisition exchange or a voluntary exchange; | |
• | the filing of a certificate of cancellation of the company or its failure to revive its charter within 10 days following revocation of the company’s charter; | |
• | the entry of a decree of judicial dissolution by a court of competent jurisdiction over the company or the trust; or | |
• | the written election of the company. |
• | protect our manager and its economic interests in the company; | |
• | protect the position of our manager and its rights to manage the business and affairs of the company under the management services agreement; | |
• | enhance the likelihood of continuity and stability in the composition of the company’s board of directors and in the policies formulated by the board of directors; | |
• | discourage certain types of transactions which may involve an actual or threatened change in control of the trust and the company; |
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• | discourage certain tactics that may be used in proxy fights; | |
• | encourage persons seeking to acquire control of the trust and the company to consult first with the company’s board of directors to negotiate the terms of any proposed business combination or offer; and | |
• | reduce the vulnerability of the trust and the company to an unsolicited proposal for a takeover that does not contemplate the acquisition of all of the outstanding shares or that is otherwise unfair to shareholders of the trust. |
Anti-Takeover Effects of the Management Services Agreement |
Anti-Takeover Provisions in the Trust Agreement and the LLC Agreement |
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• | the purpose or powers of the company; | |
• | the authorization of an increase in trust interests; | |
• | the distribution rights of the trust interests; | |
• | the voting rights of the trust interests; | |
• | the provisions regarding the right to acquire trust interests after an acquisition exchange described above; | |
• | the right of holders of shares to enforce the LLC agreement or to institute any legal proceeding for any remedy available to the trust; | |
• | the hiring of a replacement manager following the termination of the management services agreement; | |
• | the merger or consolidation of the company, the sale, lease or exchange of all or substantially all of the company’s assets and certain other business combinations or transactions; | |
• | the right of holders to vote on the dissolution, winding up and liquidation of the company; and | |
• | the provision of the LLC agreement governing amendments thereof. |
• | cause the trust to fail or cease to qualify for the exemption from the status of an “investment company” under the Investment Company Act or be classified as anything other than a grantor trust for United States federal income tax purposes; | |
• | cause the trust to fail to qualify as a grantor trust for U.S. federal income tax purposes; | |
• | cause the trust to issue a class of equity securities other than the shares (as described above under “— Shares in the Trust”), or issue any debt securities or any derivative securities or amend the provision of the trust agreement prohibiting any such issuances; | |
• | affect the exclusive and absolute right of our shareholders to direct the voting of the trust, as a member of the company, with respect to all matters reserved for the vote of members of the company pursuant to the LLC agreement; | |
• | effect the merger or consolidation of the trust, effect the sale, lease or exchange of all or substantially all of the trust’s property or assets and certain other business combinations or transactions; |
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• | amend the distribution rights of the shares; | |
• | increase the number of authorized shares; or | |
• | amend the provision of the trust agreement governing the amendment thereof. |
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• | 1% of the total number of shares then outstanding (or approximately 200,000 shares upon closing of this offering); and | |
• | the average weekly trading volume of the shares on the Nasdaq National Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale. | |
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• | brokers and dealers in securities or currencies; | |
• | financial institutions; | |
• | regulated investment companies; | |
• | real estate investment trusts; | |
• | tax-exempt organizations; | |
• | insurance companies; | |
• | persons holding shares as a part of a hedging, integrated or conversion transaction or a straddle, or as part of any other risk reduction transaction; | |
• | traders in securities that elect to use amark-to-market method of accounting for their securities holdings; or | |
• | persons liable for alternative minimum tax. |
• | an individual citizen or resident of the United States; | |
• | a corporation (or other entity taxable as a corporation) created or organized in or under the laws of the United States or any state thereof or the District of Columbia; | |
• | a partnership (or other entity treated as a partnership for tax purposes) created or organized in or under the laws of the United States or any state thereof or the District of Columbia, the interests in which are owned only by U.S. persons; | |
• | an estate the income of which is subject to U.S. federal income taxation regardless of its source; or | |
• | a trust if it (1) is subject to the primary supervision of a federal, state or local court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable Regulations to be treated as a U.S. person. |
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Tax Treatment of the Company |
Tax Treatment of Company Income to Holders |
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Allocation of Company Profits and Losses |
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Treatment of Distributions |
Disposition of Shares |
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Tax Basis in Trust Interests |
Treatment of Securities Loans |
Limitations on Interest Deductions |
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Management Fees and Other Expenses |
• | 3% of the individual’s adjusted gross income in excess of certain threshold amounts; or | |
• | 80% of the amount of certain itemized deductions otherwise allowable for the taxable year. |
Section 754 Election |
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Limitations on Deductibility of Losses |
Passive Activity Income and Loss |
Allocations Among Holders |
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Constructive Termination |
Tax Reporting by the Trust and the Company |
Audits and Adjustments to Tax Liability |
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Foreign Tax Credits |
Taxation of Certain Foreign Earnings |
Tax Shelter Disclosure Rules |
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Number of | |||||
Offered | |||||
Name of Underwriter | Shares | ||||
Ferris, Baker Watts, Incorporated | |||||
BB&T Capital Markets, a division of Scott & Stringfellow, Inc. | |||||
J.J.B. Hilliard, W.L. Lyons, Inc. | |||||
Oppenheimer & Co. Inc. | |||||
Sanders Morris Harris Inc. | |||||
Ladenburg Thalmann & Co. Inc. | |||||
Maxim Group LLC | |||||
Total | 14,000,000 | ||||
• | the representations and warranties made by us to the underwriters are true and our agreements have been performed; | |
• | there is no material adverse change in the financial markets; and | |
• | we deliver customary closing documents to the underwriters. |
• | the information set forth in this prospectus and otherwise available to the representatives of the underwriters; | |
• | the history and the prospects for the industry in which we compete; | |
• | the ability of our manager; | |
• | our prospects for future earnings, the present state of our development, and our current financial position; | |
• | the general condition of the securities markets at the time of this offering; and | |
• | the recent market prices of, and the demand for, publicly traded common stock of generally comparable companies. |
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Total Without | Total With | |||||||||||
Over-Allotment | Over-Allotment | |||||||||||
Per Share | Exercise | Exercise | ||||||||||
Public offering price | $ | $ | $ | |||||||||
Underwriting discount and commissions payable by us | ||||||||||||
Financial advisory fee payable by us | ||||||||||||
Proceeds before public offering costs |
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• | Stabilizing transactions permit bids to purchase offered shares so long as the stabilizing bids do not exceed a specified maximum, and are engaged in for the purpose of preventing or retarding a decline in the market price of the offered shares while the offering is in progress. | |
• | Overallotment transactions involve sales by the underwriters of offered shares in excess of the number of shares the underwriters are obligated to purchase. This creates a syndicate short position that may be either a covered short position or a naked short position. In a covered short position, the number of shares of offered shares overallotted by the underwriters is not greater than the number of shares that they may purchase in the overallotment option. In a naked short position, the number of shares involved is greater than the number of shares in the overallotment option. The underwriters may close out any short position by exercising their overallotment option and/or purchasing shares of offered shares in the open market. | |
• | Syndicate covering transactions involve purchases of offered shares in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared with the price at which they may purchase offered shares through exercise of the overallotment option. If the underwriters sell more offered shares than could be covered by exercise of the overallotment option and, therefore, have a naked short position, the position can be closed out only by buying offered shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that after pricing there could be downward pressure on the price of the offered shares in the open market that could adversely affect investors who purchase in the offering. | |
• | Penalty bids permit the underwriters to reclaim a selling concession from a syndicate member when the offered shares originally sold by that syndicate member is purchased in stabilizing or syndicate covering transactions to cover syndicate short positions. |
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Page | ||||
Number(s) | ||||
Compass Diversified Trust | ||||
F-4 | ||||
F-5 | ||||
F-6 | ||||
F-7 | ||||
F-8 | ||||
F-9 | ||||
CBS Personnel Holdings, Inc. | ||||
F-12 | ||||
F-13 | ||||
F-14 | ||||
F-15 | ||||
F-16 | ||||
F-17 | ||||
Crosman Acquisition Corporation | ||||
F-31 | ||||
F-33 | ||||
F-34 | ||||
F-35 | ||||
F-36 | ||||
F-37 | ||||
F-54 | ||||
F-55 | ||||
F-56 | ||||
F-57 | ||||
F-58 |
F-1
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Page | ||||
Number(s) | ||||
Compass AC Holdings, Inc. | ||||
F-71 | ||||
F-72 | ||||
F-73 | ||||
F-74 | ||||
F-75 | ||||
F-76 | ||||
F-77 | ||||
F-78 | ||||
Silvue Technologies Group, Inc. | ||||
F-89 | ||||
F-90 | ||||
F-91 | ||||
F-92 | ||||
F-93 | ||||
F-94 | ||||
F-96 |
F-2
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Index to Consolidated Financial Statement
Page(s) | ||||
F-4 | ||||
F-5 | ||||
F-6 | ||||
F-7 | ||||
F-8 | ||||
F-9–F-10 |
F-3
Table of Contents
New York, New York
F-4
Table of Contents
December 31, 2005
Assets | ||||||
Current assets: | ||||||
Cash | $ | 100,000 | ||||
Deferred public offering costs | 3,307,535 | |||||
Total assets | $ | 3,407,535 | ||||
Liabilities and Stockholders’ Equity | ||||||
Current liabilities: | ||||||
Accrued expenses | $ | 1,000 | ||||
Due to related party | 3,307,535 | |||||
Total current liabilities | 3,308,535 | |||||
Stockholders’ Equity | ||||||
Member interest | 100,000 | |||||
Accumulated deficit | (1,000 | ) | ||||
Total stockholders’ equity | 99,000 | |||||
Total liabilities and stockholders’ equity | $ | 3,407,535 | ||||
F-5
Table of Contents
November 18, 2005 | ||||
(Date of Inception) | ||||
Through | ||||
December 31, 2005 | ||||
Formation and operating costs | $ | 1,000 | ||
Net loss for the period | $ | (1,000 | ) | |
F-6
Table of Contents
Member | Accumulated | |||||||||||
Interest | Deficit | Total | ||||||||||
Balance — November 18, 2005 (date of inception) | ||||||||||||
Initial capitalization of LLC | $ | 100,000 | $ | 100,000 | ||||||||
Net loss | $ | (1,000 | ) | (1,000 | ) | |||||||
Balance — December 31, 2005 | $ | 100,000 | $ | (1,000 | ) | $ | 99,000 | |||||
F-7
Table of Contents
November 18, 2005 | ||||||||
(Date of Inception) | ||||||||
Through | ||||||||
December 31, 2005 | ||||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (1,000 | ) | |||||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
Changes in: | ||||||||
Accrued expenses | 1,000 | |||||||
Net cash provided by operating activities | 0 | |||||||
Cash flows from financing activities: | ||||||||
Issuance of trust shares | 100,000 | |||||||
Net cash provided by financing activities | 100,000 | |||||||
Net increase in cash and cash equivalents | 100,000 | |||||||
Cash and cash equivalents — beginning of period | 0 | |||||||
Cash and cash equivalents — end of period | $ | 100,000 | ||||||
Supplemental Disclosure of Non-Cash Activities: | ||||||||
Deferred public offering costs payable to a related party | $ | 3,307,535 |
F-8
Table of Contents
December 31, 2005
• | CBS Personnel Holdings, Inc. and its consolidated subsidiaries, a human resources outsourcing firm; | |
• | Crosman Acquisition Corporation and its consolidated subsidiaries, a recreational products company; | |
• | Compass AC Holdings, Inc. and its consolidated subsidiary, an electronic components manufacturing company; and | |
• | Silvue Technologies Group, Inc. and its consolidated subsidiaries, a global hardcoatings company. |
F-9
Table of Contents
F-10
Table of Contents
Page(s) | ||||
F-12 | ||||
F-13 | ||||
F-14 | ||||
F-15 | ||||
F-16 | ||||
F-17-F-29 |
F-11
Table of Contents
CBS Personnel Holdings, Inc.
Cincinnati, Ohio
F-12
Table of Contents
2005 | 2004 | ||||||||||
Assets | |||||||||||
Current assets: | |||||||||||
Cash | $ | 992,132 | $ | 532,540 | |||||||
Accounts receivable: | |||||||||||
Trade, net of allowance for doubtful accounts and reserves of $3,128,763 and $3,415,595 at December 31, 2005 and 2004, respectively | 56,193,627 | 54,126,110 | |||||||||
Unbilled revenue | 6,646,556 | 6,966,431 | |||||||||
Prepaid expenses and other current assets | 3,471,665 | 2,971,406 | |||||||||
Deferred tax assets | 1,525,486 | 1,774,536 | |||||||||
Total current assets | 68,829,466 | 66,371,023 | |||||||||
Property and equipment — net | 2,876,353 | 3,080,613 | |||||||||
Other assets: | |||||||||||
Goodwill | 59,294,763 | 59,307,301 | |||||||||
Other intangibles — net | 8,658,587 | 10,559,217 | |||||||||
Deferred tax assets — long-term | 1,227,195 | — | |||||||||
Other | 865,679 | 669,127 | |||||||||
Total assets | $ | 141,752,043 | $ | 139,987,281 | |||||||
Liabilities and shareholders’ equity | |||||||||||
Current liabilities: | |||||||||||
Current portion of long-term debt | $ | 2,037,300 | $ | 2,037,300 | |||||||
Accounts payable | 8,776,785 | 4,947,227 | |||||||||
Accrued expenses: | |||||||||||
Accrued payroll, bonuses and commissions | 11,277,083 | 11,335,902 | |||||||||
Payroll taxes and other withholdings | 7,398,293 | 7,862,404 | |||||||||
Current portion of workers’ compensation obligation | 7,867,094 | 6,965,050 | |||||||||
Other | 7,157,341 | 8,351,255 | |||||||||
Total current liabilities | 44,513,896 | 41,499,138 | |||||||||
Long-term debt | 31,154,121 | 43,893,282 | |||||||||
Workers’ compensation obligation | 12,948,822 | 10,586,981 | |||||||||
Deferred tax liabilities | — | 96,951 | |||||||||
Total liabilities | 88,616,839 | 96,076,352 | |||||||||
Commitments and contingencies | |||||||||||
Shareholders’ equity: | |||||||||||
Common stock: | |||||||||||
Class A, $0.001 par value, 5,000,000 shares authorized; issued and outstanding 2,830,909 at December 31, 2005 and 2004 | 2,831 | 2,831 | |||||||||
Class B, $0.001 par value, 5,000,000 shares authorized; issued and outstanding 3,548,384 at December 31, 2005 and 2004 | 3,548 | 3,548 | |||||||||
Class C, $0.001 par value, 2,000,000 shares authorized; issued and outstanding 185,299 and 94,799 shares at December 31, 2005 and 2004, respectively | 186 | 95 | |||||||||
Additional paid-in capital | 47,292,454 | 47,111,544 | |||||||||
Accumulated other comprehensive income | 132,015 | 60,932 | |||||||||
Accumulated earnings (deficit) | 5,704,170 | (3,268,021 | ) | ||||||||
Total shareholders’ equity | 53,135,204 | 43,910,929 | |||||||||
Total liabilities and shareholders’ equity | $ | 141,752,043 | $ | 139,987,281 | |||||||
F-13
Table of Contents
2005 | 2004 | 2003 | ||||||||||||
Revenues | $ | 543,012,261 | $ | 315,258,481 | $ | 194,716,531 | ||||||||
Direct costs of revenues | 441,685,300 | 254,987,042 | 155,367,752 | |||||||||||
Gross profit | 101,326,961 | 60,271,439 | 39,348,779 | |||||||||||
Operating expenses: | ||||||||||||||
Staffing expense | 54,249,140 | 31,974,144 | 23,081,487 | |||||||||||
Selling, general and administrative expense | 26,723,233 | 17,796,997 | 12,131,533 | |||||||||||
Amortization | 1,901,821 | 1,050,762 | 491,087 | |||||||||||
Income from operations | 18,452,767 | 9,449,536 | 3,644,672 | |||||||||||
Other income (expense): | ||||||||||||||
Interest expense | (4,452,739 | ) | (2,099,989 | ) | (2,928,727 | ) | ||||||||
Other income | 138,382 | 148,650 | 223,589 | |||||||||||
Income before provision for income taxes | 14,138,410 | 7,498,197 | 939,534 | |||||||||||
Provision for income taxes | 5,150,426 | 84,730 | 116,816 | |||||||||||
Net income | 8,987,984 | 7,413,467 | 822,718 | |||||||||||
Other comprehensive income: | ||||||||||||||
Unrealized gain and change in unrealized loss on interest rate swap | 71,083 | 60,932 | 763,689 | |||||||||||
Comprehensive income | $ | 9,059,067 | $ | 7,474,399 | $ | 1,586,407 | ||||||||
F-14
Table of Contents
Common Stock | ||||||||||||||||||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||||||||||||||||||
Other | ||||||||||||||||||||||||||||||||||||||||
Class A | Class B | Class C | Additional | Comprehensive | Accumulated | |||||||||||||||||||||||||||||||||||
Paid in | Income | Earnings | ||||||||||||||||||||||||||||||||||||||
Shares | Value | Shares | Value | Shares | Value | Capital | (Loss) | (Deficit) | Total | |||||||||||||||||||||||||||||||
Balance — December 31, 2002 | 644,320 | $ | 644 | 487,160 | $ | 488 | — | $ | — | $ | 39,749,345 | $ | (763,689 | ) | $ | (7,746,927 | ) | $ | 31,239,861 | |||||||||||||||||||||
Net income | — | — | — | — | — | — | — | — | 822,718 | 822,718 | ||||||||||||||||||||||||||||||
Change in unrealized loss on interest rate swap | — | — | — | — | — | — | — | 763,689 | — | 763,689 | ||||||||||||||||||||||||||||||
Balance — December 31, 2003 | 644,320 | 644 | 487,160 | 488 | — | — | 39,749,345 | — | (6,924,209 | ) | 32,826,268 | |||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | — | — | 7,413,467 | 7,413,467 | ||||||||||||||||||||||||||||||
Conversion of debt to Common Stock | 2,186,589 | 2,187 | 3,061,224 | 3,060 | — | — | 7,194,753 | — | — | 7,200,000 | ||||||||||||||||||||||||||||||
Stock Options Exercised | — | — | — | — | 94,799 | 95 | 167,446 | — | — | 167,541 | ||||||||||||||||||||||||||||||
Change in unrealized gain on interest rate swap | — | — | — | — | — | — | — | 60,932 | — | 60,932 | ||||||||||||||||||||||||||||||
Deemed distribution to shareholder | — | — | — | — | — | — | — | — | (3,757,279 | ) | (3,757,279 | ) | ||||||||||||||||||||||||||||
Balance — December 31, 2004 | 2,830,909 | 2,831 | 3,548,384 | 3,548 | 94,799 | 95 | 47,111,544 | 60,932 | (3,268,021 | ) | 43,910,929 | |||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | — | — | 8,987,984 | 8,987,984 | ||||||||||||||||||||||||||||||
Stock Options Exercised | — | — | — | — | 90,500 | 91 | 180,910 | — | — | 181,001 | ||||||||||||||||||||||||||||||
Change in unrealized gain on interest rate swap | — | — | — | — | — | — | — | 71,083 | — | 71,083 | ||||||||||||||||||||||||||||||
Deemed distribution to shareholder | — | — | — | — | — | — | — | — | (15,793 | ) | (15,793 | ) | ||||||||||||||||||||||||||||
Balance — December 31, 2005 | 2,830,909 | $ | 2,831 | 3,548,384 | $ | 3,548 | 185,299 | $ | 186 | $ | 47,292,454 | $ | 132,015 | $ | 5,704,170 | $ | 53,135,204 | |||||||||||||||||||||||
F-15
Table of Contents
2005 | 2004 | 2003 | |||||||||||||
Cash flows from operating activities: | |||||||||||||||
Net income | $ | 8,987,984 | $ | 7,413,467 | $ | 822,718 | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||
Depreciation and amortization | 3,327,959 | 2,394,436 | 1,922,058 | ||||||||||||
Loss on disposal of property and equipment | — | 117,539 | — | ||||||||||||
Debt issuance cost | — | 225,442 | — | ||||||||||||
Deferred taxes | (1,075,096 | ) | (1,677,585 | ) | — | ||||||||||
Deferred interest | 616,947 | — | — | ||||||||||||
Changes in operating assets and liabilities, net of acquisition: | |||||||||||||||
Increase in accounts receivable and unbilled receivables | (1,637,560 | ) | (6,883,598 | ) | (3,107,530 | ) | |||||||||
(Increase) in prepaid expenses and other assets | (625,727 | ) | (1,062,571 | ) | (376,926 | ) | |||||||||
(Decrease) increase in accounts payable | 3,716,221 | (1,594,484 | ) | 1,995,644 | |||||||||||
Increase in accrued expenses and other long-term liabilities | 1,343,664 | 7,647,860 | 2,687,696 | ||||||||||||
Net cash provided by operating activities | 14,654,392 | 6,580,506 | 3,943,660 | ||||||||||||
Cash flows from investing activities: | |||||||||||||||
Proceeds from sale of property and equipment | — | 1,080,718 | — | ||||||||||||
Cash paid for acquisition | — | (30,256,149 | ) | — | |||||||||||
Purchases of equipment and improvements | (1,018,502 | ) | (883,578 | ) | (302,198 | ) | |||||||||
Net cash used in investing activities | (1,018,502 | ) | (30,059,009 | ) | (302,198 | ) | |||||||||
Cash flows from financing activities: | |||||||||||||||
Proceeds from exercise of stock options | 181,001 | 167,541 | — | ||||||||||||
Cash payments for debt issuance costs | (1,191 | ) | (2,605,043 | ) | — | ||||||||||
Increase (decrease) in swing-line/revolver | (9,530,000 | ) | 11,949,000 | (679,000 | ) | ||||||||||
Proceeds from issuance of long-term debt | — | 20,000,000 | — | ||||||||||||
Repayment of long-term debt | (3,826,108 | ) | (5,541,085 | ) | (3,056,666 | ) | |||||||||
Net cash provided by (used in) financing activities | (13,176,298 | ) | 23,970,413 | (3,735,666 | ) | ||||||||||
Net increase (decrease) in cash | 459,592 | 491,910 | (94,204 | ) | |||||||||||
Cash — Beginning of year | 532,540 | 40,630 | 134,834 | ||||||||||||
Cash — End of year | $ | 992,132 | $ | 532,540 | $ | 40,630 | |||||||||
Supplemental disclosures of cash flows information: | |||||||||||||||
Cash paid for interest | $ | 4,538,515 | $ | 2,458,085 | $ | 1,061,633 | |||||||||
Cash paid for taxes | $ | 6,477,076 | $ | 134,832 | $ | 118,260 | |||||||||
Cash paid (received) for interest rate swap | $ | (11,522 | ) | $ | 102,907 | $ | 803,576 | ||||||||
Non-cash investing and financing activity — | |||||||||||||||
Shareholders’ notes payable converted to Common Stock | $ | — | $ | 7,200,000 | $ | — | |||||||||
Landlord-provided tenant improvements | $ | (191,947 | ) | $ | — | $ | — | ||||||||
Purchase accounting adjustments | $ | (3,255 | ) | $ | — | $ | — | ||||||||
F-16
Table of Contents
1. | Summary of Significant Accounting Policies |
F-17
Table of Contents
Goodwill and Other Intangible Assets |
Impairment of Long-Lived Assets and Intangible Assets |
Property and Equipment |
Years | ||||
Buildings and building improvements | 31.5 | |||
Equipment | 5 | |||
Furniture and fixtures | 7 | |||
Computer software costs | 3-5 |
Advertising |
Use of Estimates |
Workers’ Compensation Liability |
F-18
Table of Contents
Income Taxes |
Stock Options |
2005 | 2004 | 2003 | ||||||||||
Net income — as reported | $ | 8,987,984 | $ | 7,413,467 | $ | 822,718 | ||||||
Stock compensation expense required under fair value method — net of tax | (102,059 | ) | (104,837 | ) | (66,368 | ) | ||||||
Net income — pro forma | $ | 8,885,925 | $ | 7,308,630 | $ | 756,350 | ||||||
Weighted average fair value of stock options granted | $11.53 | $7.02 | $1.95 | |||||||||
Risk free interest rates | 4.0-4.2% | 3.83-4.73% | 3.33-4.454% | |||||||||
Expected lives | 10 years | 10 years | 6-10 years |
Interest Rate Swap |
Reclassifications |
F-19
Table of Contents
2. | Long-term Debt |
2005 | 2004 | ||||||||
Senior Credit Agreement: | |||||||||
Swing-line and revolving line-of-credit, maturing, June 30, 2009 | $ | 6,780,000 | $ | 16,310,000 | |||||
Term note due in quarterly installments through June 30, 2008 | 5,794,474 | 9,620,582 | |||||||
Term note maturing on December 31, 2009 | 20,616,947 | 20,000,000 | |||||||
33,191,421 | 45,930,582 | ||||||||
Less: current maturities | (2,037,300 | ) | (2,037,300 | ) | |||||
Long-term debt | $ | 31,154,121 | $ | 43,893,282 | |||||
F-20
Table of Contents
2006 | $ | 2,037,300 | ||
2007 | 2,716,400 | |||
2008 | 1,040,774 | |||
2009 | 27,396,947 | |||
$ | 33,191,421 | |||
3. | Capital Structure |
Class B | Exercise | Expiration | ||||||||||||||
Issue Date | Shares | Price | Date | Issued To | ||||||||||||
5/15/01 | 9,529 | $ | 0.20 | 7/12/06 | Majority Shareholder | |||||||||||
2/7/02 | 13,929 | $ | 0.20 | 7/12/06 | Majority Shareholder | |||||||||||
2/7/02 | 4,821 | $ | 0.20 | 7/12/06 | Minority Shareholder | |||||||||||
11/20/02 | 918,172 | $ | 4.85 | 11/15/22 | Minority Shareholder |
F-21
Table of Contents
4. | Stock Option Plan |
Weighted | |||||||||
Average | |||||||||
Number of | Exercise | ||||||||
Options | Price | ||||||||
Balance — December 31, 2002 | 24,531 | $ | 5.00 | ||||||
Granted | 656,500 | 1.95 | |||||||
Forfeited | (56,000 | ) | 2.00 | ||||||
Balance — December 31, 2003 | 625,031 | $ | 2.14 | ||||||
Granted | 265,000 | 7.02 | |||||||
Exercised | (94,799 | ) | 1.77 | ||||||
Forfeited | (67,250 | ) | 2.88 | ||||||
Balance — December 31, 2004 | 727,982 | $ | 3.90 | ||||||
Granted | 25,000 | 11.53 | |||||||
Exercised | (90,500 | ) | 2.00 | ||||||
Forfeited | (103,031 | ) | 6.40 | ||||||
Balance — December 31, 2005 | 559,451 | $ | 4.00 | ||||||
Outstanding | ||||||||||||
Weighted | Weighted Avg. | |||||||||||
Avg. Exercise | Contractual | |||||||||||
Range of Exercise Price | Shares | Price | Remaining Life | |||||||||
$0.00 — $5.00 per share | 369,451 | $ | 2.03 | 4.55 | ||||||||
$5.01 — $7.25 per share | 165,000 | $ | 7.25 | 8.76 | ||||||||
$7.26 — $11.53 per share | 25,000 | $ | 11.53 | 9.60 |
F-22
Table of Contents
Exercisable | ||||||||||||
Weighted | Weighted Avg. | |||||||||||
Avg. Exercise | Contractual | |||||||||||
Range of Exercise Price | Shares | Price | Remaining Life | |||||||||
$0.00 — $5.00 per share | 192,518 | $ | 1.97 | 4.81 | ||||||||
$5.01 — $7.25 per share | 36,333 | $ | 7.25 | 8.76 | ||||||||
$7.26 — $11.53 per share | — | — | — |
5. | Income Taxes |
2005 | 2004 | 2003 | |||||||||||
Current: | |||||||||||||
Federal | $ | 5,567,291 | $ | 1,407,262 | — | ||||||||
State and local | 673,959 | 363,908 | — | ||||||||||
Deferred | (1,120,542 | ) | 844,982 | 186,322 | |||||||||
5,120,708 | 2,616,152 | 186,322 | |||||||||||
Change in valuation allowance | — | (2,522,567 | ) | (186,322 | ) | ||||||||
Other | 29,718 | (8,855 | ) | 116,816 | |||||||||
$ | 5,150,426 | $ | 84,730 | $ | 116,816 | ||||||||
2005 | 2004 | 2003 | ||||||||||
Provision at federal statutory rate | $ | 4,948,444 | $ | 2,549,387 | $ | 319,441 | ||||||
State and local taxes — net of federal benefit | 499,107 | 374,910 | 46,977 | |||||||||
Change in valuation allowance | — | (2,522,567 | ) | (186,322 | ) | |||||||
Work opportunity tax credits (“WOTC”) | (622,273 | ) | (561,963 | ) | (314,511 | ) | ||||||
AMT credits | — | — | (56,097 | ) | ||||||||
Permanent items | 312,812 | 242,218 | 190,511 | |||||||||
Other | 12,336 | 2,745 | 116,817 | |||||||||
Income tax provision | $ | 5,150,426 | $ | 84,730 | $ | 116,816 | ||||||
F-23
Table of Contents
2005 | 2004 | ||||||||||
Deferred Income Tax Assets | |||||||||||
Allowance for Bad Debt | $ | 1,005,829 | $ | 825,997 | |||||||
Workers’ Compensation | 5,777,435 | 3,628,303 | |||||||||
Other Accrued Expenses | 629,640 | 654,746 | |||||||||
Work Opportunity Tax Credits (WOTC) | — | 218,320 | |||||||||
AMT Credits | — | 105,562 | |||||||||
State NOL’s | 92,007 | 78,000 | |||||||||
Total Deferred Income Tax Assets | 7,504,911 | 5,510,928 | |||||||||
Deferred Income Tax Liabilities | |||||||||||
Tax Effect of Other Comprehensive Income | $ | (45,447 | ) | $ | — | ||||||
Depreciation and Amortization | (4,706,783 | ) | (3,833,343 | ) | |||||||
Total Deferred Income Tax Liabilities | (4,752,230 | ) | (3,833,343 | ) | |||||||
Total Deferred Income Tax Assets, net | $ | 2,752,681 | $ | 1,677,585 | |||||||
Current Deferred Income Tax Assets | $ | 1,525,486 | $ | 1,774,536 | |||||||
Long-Term Deferred Income Tax Assets (Liabilities) | 1,227,195 | (96,951 | ) | ||||||||
$ | 2,752,681 | $ | 1,677,585 | ||||||||
6. | Intangible Assets and Deferred Financing Costs |
Balance at January 1, 2004 | $ | 49,200,419 | ||
Acquisition (Note 11) | 10,106,882 | |||
Balance at December 31, 2004 | 59,307,301 | |||
Purchase Accounting Adjustments | (12,538 | ) | ||
Balance at December 31, 2005 | $ | 59,294,763 | ||
F-24
Table of Contents
2005 | 2004 | Useful Lives | |||||||||||
Loan Origination Costs | $ | 3,920,191 | $ | 3,919,001 | Life of related loan | ||||||||
Non-compete agreement | 1,000,000 | 1,000,000 | 5 Years | ||||||||||
Trademarks and names | 1,205,656 | 1,205,656 | 4 Years | ||||||||||
Customer Lists | 7,016,690 | 7,016,690 | 9 Years | ||||||||||
13,142,537 | 13,141,347 | ||||||||||||
Accumulated amortization: | |||||||||||||
Loan origination costs | (2,132,643 | ) | (1,476,858 | ) | |||||||||
Non-compete agreement | (1,000,000 | ) | (843,011 | ) | |||||||||
Trademarks and tradenames | (376,767 | ) | (67,354 | ) | |||||||||
Customer Lists | (974,540 | ) | (194,907 | ) | |||||||||
$ | 8,658,587 | $ | 10,559,217 | ||||||||||
Years Ended December 31: | ||||
2006 | $ | 1,577,747 | ||
2007 | 1,577,747 | |||
2008 | 1,463,178 | |||
2009 | 1,116,295 | |||
2010 | 779,632 | |||
Thereafter | 2,143,988 | |||
$ | 8,658,587 | |||
7. | Property and Equipment |
2005 | 2004 | |||||||
Furniture, fixtures and equipment | $ | 8,663,074 | $ | 7,876,173 | ||||
Leasehold improvements | 1,638,899 | 1,261,887 | ||||||
10,301,973 | 9,138,060 | |||||||
Less — accumulated depreciation | (7,425,620 | ) | (6,057,447 | ) | ||||
$ | 2,876,353 | $ | 3,080,613 | |||||
F-25
Table of Contents
8. | Related Party Transactions |
9. | Commitments and Contingencies |
F-26
Table of Contents
Net Operating | ||||||||||||
Gross | Sublease | Lease | ||||||||||
Years Ended December 31, | Payments | Receipts | Commitments | |||||||||
2006 | $ | 4,837,185 | $ | (128,255 | ) | $ | 4,708,930 | |||||
2007 | 3,817,942 | (95,587 | ) | 3,722,355 | ||||||||
2008 | 2,589,592 | (95,587 | ) | 2,494,005 | ||||||||
2009 | 1,751,896 | (95,587 | ) | 1,656,309 | ||||||||
2010 | 672,482 | (7,966 | ) | 664,516 | ||||||||
Thereafter | 731,227 | — | 731,227 | |||||||||
Total minimum lease payments | $ | 14,400,324 | $ | (422,982 | ) | $ | 13,977,342 | |||||
10. | Retirement Savings Plans |
F-27
Table of Contents
11. | Acquisition |
Accounts receivable | $ | 29,067 | ||
Property and equipment | 750 | |||
Other assets | 1,158 | |||
Trademarks and trade names | 1,206 | |||
Customer list | 7,017 | |||
Goodwill | 10,094 | |||
Accounts payable | (3,175 | ) | ||
Workers’ compensation | (8,120 | ) | ||
Accrued expenses, mainly payroll and related costs | (11,514 | ) | ||
Deemed distribution | 3,773 | |||
$ | 30,256 | |||
F-28
Table of Contents
2004 | ||||
Net revenues | $ | 519,692 | ||
Net income | $ | 8,641 |
F-29
Table of Contents
Page(s) | ||||
Report of independent auditors | F-31–F-32 | |||
F-33 | ||||
F-34 | ||||
F-35 | ||||
F-36 | ||||
F-37–F-52 |
F-30
Table of Contents
F-31
Table of Contents
F-32
Table of Contents
Successor | ||||||||||
June 30, | ||||||||||
2005 | 2004 | |||||||||
Assets | ||||||||||
Current assets | ||||||||||
Cash | $ | 773 | $ | 204 | ||||||
Accounts receivable, net | 13,747 | 12,689 | ||||||||
Inventories, net | 11,060 | 9,694 | ||||||||
Refundable income taxes | 132 | 210 | ||||||||
Other current assets | 1,806 | 1,757 | ||||||||
Deferred taxes | 1,104 | 943 | ||||||||
Total current assets | 28,622 | 25,497 | ||||||||
Property, plant and equipment, net | 10,513 | 10,583 | ||||||||
Investment in equity investee | 545 | 786 | ||||||||
Goodwill | 30,951 | 30,951 | ||||||||
Intangible and other assets, net | 13,552 | 14,114 | ||||||||
Total assets | $ | 84,183 | $ | 81,931 | ||||||
Liabilities and Shareholders’ Equity | ||||||||||
Current liabilities | ||||||||||
Current portion of long-term debt | $ | 2,583 | $ | 2,333 | ||||||
Current portion of capitalized lease obligations | 69 | 61 | ||||||||
Accounts payable | 3,991 | 4,257 | ||||||||
Accrued payroll costs | 214 | 1,436 | ||||||||
Accrued foregone offering costs | 1,716 | — | ||||||||
Accrued expenses | 2,428 | 1,985 | ||||||||
Total current liabilities | 11,001 | 10,072 | ||||||||
Notes payable under revolving line of credit | 10,385 | 7,138 | ||||||||
Long-term debt, net of current portion | 35,334 | 37,917 | ||||||||
Capitalized lease obligations, net of current portion | 135 | 132 | ||||||||
Accrued interest on Senior Subordinated Notes | 901 | 247 | ||||||||
Deferred taxes | 3,509 | 3,951 | ||||||||
Other liabilities | 572 | 548 | ||||||||
Total liabilities | 61,837 | 60,005 | ||||||||
Commitments and contingencies (Note 14) | ||||||||||
Shareholders’ equity | ||||||||||
Common stock — $.01 par value, authorized 1,500,000 shares; issued and outstanding 573,536 and 573,408 shares | 6 | 6 | ||||||||
Additional paid-in capital | 22,076 | 22,083 | ||||||||
Shareholders’ notes receivable | (1,035 | ) | (973 | ) | ||||||
Retained earnings | 1,299 | 810 | ||||||||
Total shareholders’ equity | 22,346 | 21,926 | ||||||||
Total liabilities and shareholders’ equity | $ | 84,183 | $ | 81,931 | ||||||
F-33
Table of Contents
Successor | Predecessor | |||||||||||||||||
February 10, 2004 | July 1, 2003 | |||||||||||||||||
Year Ended | through | through | Year Ended | |||||||||||||||
June 30, | June 30, | February 9, | June 30, | |||||||||||||||
2005 | 2004 | 2004 | 2003 | |||||||||||||||
Net sales | $ | 70,060 | $ | 24,856 | $ | 38,770 | $ | 53,333 | ||||||||||
Cost of sales | 50,874 | 17,337 | 26,382 | 37,382 | ||||||||||||||
Gross profit | 19,186 | 7,519 | 12,388 | 15,951 | ||||||||||||||
Selling, general and administrative expenses | 10,526 | 4,119 | 5,394 | 8,749 | ||||||||||||||
Amortization of intangible assets | 629 | 258 | 70 | 132 | ||||||||||||||
Operating income | 8,031 | 3,142 | 6,924 | 7,070 | ||||||||||||||
Interest expense | 4,638 | 1,588 | 402 | 1,978 | ||||||||||||||
Recapitalization and foregone offering expenses | 3,022 | 644 | 1,853 | — | ||||||||||||||
Equity in (earnings) losses of investee | 241 | 14 | (70 | ) | (158 | ) | ||||||||||||
Other expense (income), net | (471 | ) | (377 | ) | (223 | ) | (266 | ) | ||||||||||
Income before income taxes | 601 | 1,273 | 4,962 | 5,516 | ||||||||||||||
Income tax expense | 112 | 463 | 1,824 | 2,122 | ||||||||||||||
Net income | $ | 489 | $ | 810 | $ | 3,138 | $ | 3,394 | ||||||||||
F-34
Table of Contents
Capital in | Shareholders’ | Total | ||||||||||||||||||||||
Preferred | Common | Excess of | Notes | Retained | Shareholders’ | |||||||||||||||||||
Stock | Stock | Par Value | Receivable | Earnings | Equity | |||||||||||||||||||
Predecessor Balance at June 30, 2003 | $ | 8,778 | $ | 12 | $ | 3,635 | $ | (722 | ) | $ | 1,731 | $ | 13,434 | |||||||||||
Interest accretion on Series B Preferred stock | 321 | — | — | — | (321 | ) | — | |||||||||||||||||
Exercise of options | — | — | 342 | — | — | 342 | ||||||||||||||||||
Issuance of common stock, net of notes receivable thereon | — | — | 43 | — | — | 43 | ||||||||||||||||||
Payment of notes due on common stock | — | — | — | 76 | — | 76 | ||||||||||||||||||
Net income | — | — | — | — | 3,138 | 3,138 | ||||||||||||||||||
Predecessor Balance at February 9, 2004 | $ | 9,099 | $ | 12 | $ | 4,020 | $ | (646 | ) | $ | 4,548 | $ | 17,033 | |||||||||||
Successor Balance at February 10, 2004 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Issuance of common stock, net of notes receivable thereon | — | 6 | 22,083 | (954 | ) | — | 21,135 | |||||||||||||||||
Interest on notes | — | — | — | (19 | ) | — | (19 | ) | ||||||||||||||||
Net income | — | — | — | — | 810 | 810 | ||||||||||||||||||
Successor Balance at June 30, 2004 | — | 6 | 22,083 | (973 | ) | 810 | 21,926 | |||||||||||||||||
Redemption of stock | — | — | (7 | ) | — | — | (7 | ) | ||||||||||||||||
Interest on notes | — | — | — | (62 | ) | — | (62 | ) | ||||||||||||||||
Net income | — | — | — | — | 489 | 489 | ||||||||||||||||||
Successor Balance at June 30, 2005 | $ | — | $ | 6 | $ | 22,076 | $ | (1,035 | ) | $ | 1,299 | $ | 22,346 | |||||||||||
F-35
Table of Contents
Successor | Predecessor | ||||||||||||||||||
February 10, 2004 | July 1, 2003 | ||||||||||||||||||
Year Ended | through | through | Year Ended | ||||||||||||||||
June 30, | June 30, | February 9, | June 30, | ||||||||||||||||
2005 | 2004 | 2004 | 2003 | ||||||||||||||||
Cash flows from operating activities | |||||||||||||||||||
Net income | $ | 489 | $ | 810 | $ | 3,138 | $ | 3,394 | |||||||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities | |||||||||||||||||||
Depreciation and amortization | 2,776 | 1,106 | 1,277 | 2,427 | |||||||||||||||
Deferred income taxes | (603 | ) | (51 | ) | 390 | 831 | |||||||||||||
Foregone offering costs | 3,022 | — | — | — | |||||||||||||||
Recapitalization expenses | — | 644 | 1,853 | — | |||||||||||||||
Repayment of note discount | — | — | (853 | ) | |||||||||||||||
Accretion of note discount | — | — | — | 35 | |||||||||||||||
Loss on unamortized discount of senior subordinated notes | — | — | — | 595 | |||||||||||||||
Loss (income) from equity investment | 241 | 14 | (70 | ) | (158 | ) | |||||||||||||
Tax Benefit of stock option exercise | — | — | 130 | — | |||||||||||||||
Loss on sale of property, plant and equipment | 9 | 95 | 38 | 645 | |||||||||||||||
Interest deferred on senior subordinated notes | 654 | 247 | — | (744 | ) | ||||||||||||||
Other non-cash expenses | — | — | 342 | — | |||||||||||||||
(Increase) decrease in operating assets and increase (decrease) in operating liabilities | |||||||||||||||||||
Accounts receivable | (1,058 | ) | (4,240 | ) | 2,924 | (1,135 | ) | ||||||||||||
Inventories | (1,366 | ) | (1,308 | ) | (1,607 | ) | (155 | ) | |||||||||||
Other current assets | (49 | ) | 226 | (555 | ) | (379 | ) | ||||||||||||
Refundable income taxes/income taxes payable | 78 | (255 | ) | (394 | ) | (27 | ) | ||||||||||||
Accounts payable and accrued expenses | (1,045 | ) | 2,817 | 1,090 | (108 | ) | |||||||||||||
Other liabilities | (38 | ) | (16 | ) | (5 | ) | (8 | ) | |||||||||||
Net cash provided by operating activities | 3,110 | 89 | 8,551 | 4,360 | |||||||||||||||
Cash flows from investing activities | |||||||||||||||||||
Capital expenditures | (2,014 | ) | (1,107 | ) | (1,156 | ) | (572 | ) | |||||||||||
Investment | — | — | (25 | ) | — | ||||||||||||||
Acquisition costs | — | (64,702 | ) | — | — | ||||||||||||||
Net cash used in investing activities | (2,014 | ) | (65,809 | ) | (1,181 | ) | (572 | ) | |||||||||||
Cash flows from financing activities | |||||||||||||||||||
Proceeds from revolving credit facility | 81,473 | 31,233 | 43,355 | 61,611 | |||||||||||||||
Repayments under revolving credit facility | (78,226 | ) | (24,095 | ) | (45,621 | ) | (62,442 | ) | |||||||||||
Proceeds from issuance of long-term debt | — | 41,000 | — | 4,000 | |||||||||||||||
Principal payments and retirement of long-term obligations | (2,394 | ) | (788 | ) | (3,146 | ) | (8,994 | ) | |||||||||||
Financing costs associated with issuance of debt | (67 | ) | (1,272 | ) | — | (93 | ) | ||||||||||||
Foregone offering costs | (1,306 | ) | — | — | — | ||||||||||||||
Recapitalization expenses | — | (1,308 | ) | (1,853 | ) | — | |||||||||||||
Redemption of common stock | (7 | ) | — | — | (3,408 | ) | |||||||||||||
Redemption of warrants | — | (855 | ) | ||||||||||||||||
Receipt of payment on notes used to fund common stock purchase | — | — | 76 | — | |||||||||||||||
Issuance of common stock | — | 21,135 | 43 | 6,316 | |||||||||||||||
Net cash provided by (used in) financing activities | (527 | ) | 65,905 | (7,146 | ) | (3,865 | ) | ||||||||||||
Net increase (decrease) cash and cash equivalents | 569 | 185 | 224 | (77 | ) | ||||||||||||||
Cash at beginning of year | 204 | 19 | 205 | 282 | |||||||||||||||
Cash at end of year | $ | 773 | $ | 204 | $ | 429 | $ | 205 | |||||||||||
Supplemental disclosure of non-cash activities | |||||||||||||||||||
Equipment financed under capital lease | $ | 72 | $ | — | $ | 127 | $ | 1,000 | |||||||||||
Foregone offering costs incurred not yet paid | 1,716 | — | — | — | |||||||||||||||
Equipment financed with issuance of note payable | — | — | — | 77 |
F-36
Table of Contents
1. | Organization and Nature of Operations |
2. | Significant Accounting Policies |
Revenue Recognition |
Use of Estimates |
Consolidation |
Accounts Receivable |
Inventories |
F-37
Table of Contents
Property, Plant and Equipment |
Building | 25 years | |||
Building improvements | 5-10 years | |||
Machinery and equipment | 8-10 years | |||
Furniture and fixtures | 5-10 years | |||
Computers and software | 3-6 years | |||
Tooling | 3-6 years | |||
Assets under capital lease | Term of lease |
Long-Lived Assets |
Goodwill |
Advertising Costs |
Self-Insurance |
Guarantees |
F-38
Table of Contents
New Accounting Pronouncement |
Financial Instruments |
Income Taxes |
F-39
Table of Contents
Reclassification |
3. | Inventories |
Successor | ||||||||
June 30, | ||||||||
2005 | 2004 | |||||||
Raw materials | $ | 3,224 | $ | 3,127 | ||||
Work-in-process | 1,672 | 1,933 | ||||||
Finished goods | 6,164 | 4,634 | ||||||
$ | 11,060 | $ | 9,694 | |||||
4. | Warranty Reserve |
Successor | ||||||||
June 30, | ||||||||
2005 | 2004 | |||||||
Balance at July 1 | $ | 392 | $ | 335 | ||||
Accruals for warranties issued during period | 1,651 | 1,438 | ||||||
Settlements made during the period | (1,582 | ) | (1,381 | ) | ||||
$ | 461 | $ | 392 | |||||
5. | Property, Plant and Equipment |
Successor | ||||||||
June 30, | ||||||||
2005 | 2004 | |||||||
Land | $ | 256 | $ | 256 | ||||
Building and improvements | 2,340 | 2,328 | ||||||
Machinery and equipment | 6,705 | 5,072 | ||||||
Furniture and fixtures | 141 | 108 | ||||||
Computers and software | 620 | 483 | ||||||
Tooling | 2,721 | 2,249 | ||||||
Assets under capital lease | 254 | 182 | ||||||
Construction-in-progress | 459 | 749 | ||||||
13,496 | 11,427 | |||||||
Less: Accumulated depreciation | (2,983 | ) | (844 | ) | ||||
$ | 10,513 | $ | 10,583 | |||||
F-40
Table of Contents
6. | Intangibles and Other Assets |
Successor | ||||||||||
June 30, | ||||||||||
2005 | 2004 | |||||||||
Intangible assets subject to amortization: | ||||||||||
Financing costs | $ | 1,339 | $ | 1,272 | ||||||
Developed Technology | 900 | 900 | ||||||||
License and distribution agreements | 2,400 | 2,400 | ||||||||
4,639 | 4,572 | |||||||||
Less: Accumulated amortization | (887 | ) | (258 | ) | ||||||
3,752 | 4,314 | |||||||||
Intangible assets not subject to amortization, excluding goodwill: | ||||||||||
Trademarks | 9,800 | 9,800 | ||||||||
Total intangibles and other assets, excluding goodwill, net | $ | 13,552 | $ | 14,114 | ||||||
There- | |||||||||||||||||||||||||||||
2006 | 2007 | 2008 | 2009 | 2010 | after | Total | |||||||||||||||||||||||
Financing costs | $ | 280 | $ | 280 | $ | 280 | $ | 117 | $ | — | $ | — | $ | 957 | |||||||||||||||
Developed Technology | 90 | 90 | 90 | 90 | 90 | 322 | 772 | ||||||||||||||||||||||
License and distribution agreement | 266 | 266 | 266 | 266 | 182 | 777 | 2,023 | ||||||||||||||||||||||
Totals | $ | 636 | $ | 636 | $ | 636 | $ | 473 | $ | 272 | $ | 1,099 | $ | 3,752 | |||||||||||||||
7. | Investment |
Successor | Predecessor | |||||||||||||
June 30, | June 30, | |||||||||||||
2005 | 2004 | 2003 | ||||||||||||
Summary of operations: | ||||||||||||||
Revenues | $ | 13,547 | $ | 18,316 | $ | 11,708 | ||||||||
Costs and expenses | 14,029 | 18,204 | 11,392 | |||||||||||
Net (loss) income | $ | (482 | ) | $ | 112 | $ | 316 | |||||||
Company equity in net (loss) income | $ | (241 | ) | $ | 56 | $ | 158 | |||||||
F-41
Table of Contents
Successor | Predecessor | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2005 | 2004 | 2003 | |||||||||||||
Balance sheet data: | |||||||||||||||
Assets: | |||||||||||||||
Current assets | $ | 5,410 | $ | 6,616 | $ | 5,651 | |||||||||
Non-current assets | 475 | 468 | 517 | ||||||||||||
Total assets | $ | 5,885 | $ | 7,084 | $ | 6,168 | |||||||||
Liabilities and membership interests: | |||||||||||||||
Current liabilities | $ | 5,078 | $ | 5,794 | $ | 4,990 | |||||||||
Membership interests | 807 | 1,290 | 1,178 | ||||||||||||
Total liabilities and membership interests | $ | 5,885 | $ | 7,084 | $ | 6,168 | |||||||||
8. | Recapitalization |
Uses of Cash | |||||
Redemption of 684,917 of common stock, net of option exercise price and receipt of payment on note receivable to fund purchase of stock | $ | 26,281 | |||
Redemption of 100% of the redeemable Series B preferred stock at full redemption value as of February 10, 2004 (see Note 10) | 9,099 | ||||
Prepayment Senior Term Debt (see Note 9) | 6,508 | ||||
Payment of Outstanding Revolving Line of Credit | 121 | ||||
Seller fees | 1,693 | ||||
Purchaser fees | 2,418 | ||||
$ | 46,120 | ||||
F-42
Table of Contents
Sources of Cash | |||||
Senior Term Loan (see Note 9) | $ | 27,000 | |||
Senior Subordinated Notes (see Note 9) | 14,000 | ||||
New borrowings under revolving line of credit (see Note 9) | 5,120 | ||||
$ | 46,120 | ||||
9. | Long-Term Debt |
Successor | |||||||||
June 30, | |||||||||
2005 | 2004 | ||||||||
Collateralized: | |||||||||
Term Loan Facility | $ | 23,917 | $ | 26,250 | |||||
Senior Subordinated Notes | 14,000 | 14,000 | |||||||
37,917 | 40,250 | ||||||||
Less: Current portion | (2,583 | ) | (2,333 | ) | |||||
$ | 35,334 | $ | 37,917 | ||||||
Notes payable under revolving line of credit | $ | 10,385 | $ | 7,138 | |||||
Senior Credit Facility |
F-43
Table of Contents
Senior Subordinated Notes |
Subsequent Event Refinancing |
F-44
Table of Contents
Long-Term Debt — Five Year Repayment Schedule (excluding the Revolver) |
2006 | $ | 2,583 | ||
2007 | 2,600 | |||
2008 | 3,142 | |||
2009 | 15,592 | |||
2010 | 14,000 | |||
$ | 37,917 | |||
Successor | Predecessor | |||||||||||||||
February 10, | July 1, | |||||||||||||||
2004 | 2003 | |||||||||||||||
Year Ended | through | through | Year Ended | |||||||||||||
June 30, | June 30, | February 9, | June 30, | |||||||||||||
2005 | 2004 | 2004 | 2003 | |||||||||||||
Interest expense components are | ||||||||||||||||
Interest expense | $ | 3,984 | $ | 1,341 | $ | 402 | $ | 1,257 | ||||||||
Amortization of discount | — | — | — | 35 | ||||||||||||
Write-off of unamortized discount costs | — | — | — | 595 | ||||||||||||
Interest deferred on senior subordinated notes | 654 | 247 | — | 91 | ||||||||||||
$ | 4,638 | $ | 1,588 | $ | 402 | $ | 1,978 | |||||||||
Cash paid for interest | $ | 4,016 | $ | 524 | $ | 1,148 | $ | 2,666 | ||||||||
Effective interest rate on all debt | 9.0 | % | 7.6 | % | 7.6 | % | 12.6 | % |
10. | Shareholders’ Equity |
F-45
Table of Contents
11. | Income Taxes |
Successor | ||||||||||
June 30, | ||||||||||
2005 | 2004 | |||||||||
Current deferred tax assets/(liabilities) | ||||||||||
Accounts receivable | $ | 185 | $ | 252 | ||||||
Inventory | 268 | 222 | ||||||||
Workers’ compensation | — | 113 | ||||||||
Warranty and product liability | 413 | 159 | ||||||||
Tax credits | 180 | 250 | ||||||||
Other | 58 | (53 | ) | |||||||
Total net current deferred tax assets | 1,104 | 943 | ||||||||
Long-term deferred tax assets/(liabilities) | ||||||||||
Supplemental retirement | 217 | 203 | ||||||||
Property, plant and equipment | (1,894 | ) | (2,042 | ) | ||||||
Intangible assets | (995 | ) | (1,113 | ) | ||||||
Tax credits | 293 | 126 | ||||||||
Goodwill | (1,130 | ) | (1,130 | ) | ||||||
Other | — | 5 | ||||||||
Total net long-term deferred tax liabilities | (3,509 | ) | (3,951 | ) | ||||||
Net deferred tax liability | $ | (2,405 | ) | $ | (3,008 | ) | ||||
Successor | Predecessor | ||||||||||||||||
February 10, | July 1, | ||||||||||||||||
2004 | 2003 | ||||||||||||||||
Year Ended | through | through | Year Ended | ||||||||||||||
June 30, | June 30, | February 9, | June 30, | ||||||||||||||
2005 | 2004 | 2004 | 2003 | ||||||||||||||
Current: | |||||||||||||||||
Federal | $ | 602 | $ | 508 | $ | 1,290 | $ | 1,200 | |||||||||
State | 96 | 6 | 120 | 91 | |||||||||||||
Deferred income tax | (586 | ) | (51 | ) | 414 | 831 | |||||||||||
$ | 112 | $ | 463 | $ | 1,824 | $ | 2,122 | ||||||||||
F-46
Table of Contents
Rate Reconciliation |
Successor | Predecessor | |||||||||||||||||||||||||||||||
February 10, | July 1, | |||||||||||||||||||||||||||||||
Year Ended | 2004 | 2003 | Year Ended | |||||||||||||||||||||||||||||
June 30, | through June 30, | through February 9, | June 30, | |||||||||||||||||||||||||||||
2005 | 2004 | 2004 | 2003 | |||||||||||||||||||||||||||||
Statutory federal income tax rate | $ | 204 | 34.0 | % | $ | 433 | 34.0 | % | $ | 1,687 | 34.0 | % | $ | 1,875 | 34.0 | % | ||||||||||||||||
State taxes, net of federal benefit | 23 | 3.8 | % | 48 | 3.80 | % | 189 | 3.8 | % | 221 | 4.0 | % | ||||||||||||||||||||
Investment tax credits | (84 | ) | (14.0 | )% | (28 | ) | (2.2 | )% | (103 | ) | (2.0 | )% | (17 | ) | (0.3 | )% | ||||||||||||||||
Non taxable (income) expenses, net | (4 | ) | (0.7 | )% | 7 | 0.6 | % | (11 | ) | (0.2 | )% | (10 | ) | 0.2 | % | |||||||||||||||||
Adjustment to prior year taxes | (34 | ) | (5.6 | )% | 4 | 0.3 | % | 9 | 0.2 | % | (5 | ) | (0.1 | )% | ||||||||||||||||||
Miscellaneous | 7 | 1.1 | % | (1 | ) | (0.1 | )% | 53 | 1.0 | % | 58 | 1.1 | % | |||||||||||||||||||
$ | 112 | 18.7 | % | $ | 463 | 36.4 | % | $ | 1,824 | 36.8 | % | $ | 2,122 | 38.5 | % | |||||||||||||||||
12. | Leases |
Years Ending | Capital | Operating | |||||||
2006 | $ | 84 | $ | 74 | |||||
2007 | 58 | 55 | |||||||
2008 | 49 | 55 | |||||||
2009 | 29 | 36 | |||||||
2010 | 18 | — | |||||||
Total minimum lease payments | 238 | 220 | |||||||
Less: Amount representing interest | (34 | ) | |||||||
Total obligations under capital lease | 204 | ||||||||
Less: Current portion | (69 | ) | |||||||
Long-term obligations under capital lease | $ | 135 | |||||||
F-47
Table of Contents
13. | Stock Based Plans |
A) Director Stock Option Plan |
Weighted | ||||||||
Average | ||||||||
Number | Exercise | |||||||
of Shares | Price | |||||||
Outstanding at June 30, 2003 | 15,667 | $ | 6.76 | |||||
Granted in period July 1, 2003 through February 9, 2004 | 3,000 | 21.31 | ||||||
Exercised in period July 1, 2003 through February 9, 2004 | (18,667 | ) | 9.10 | |||||
Outstanding at February 9, 2004 | — | $ | — | |||||
Outstanding at June 30, 2004 | — | $ | — | |||||
Outstanding at June 30, 2005 | — | $ | — | |||||
B) Stock Incentive Plan |
Stock Purchases |
F-48
Table of Contents
Stock Options |
Weighted Average | |||||||||
Number | Minimum | ||||||||
of Shares | Exercise Price | ||||||||
Date of Vesting | |||||||||
February 10, 2005 | 6,000 | $ | 73.00 | ||||||
February 10, 2006 | 6,000 | 99.67 | |||||||
February 10, 2007 | 6,000 | 140.33 | |||||||
February 10, 2008 | 6,000 | 194.67 | |||||||
February 10, 2009 | 6,000 | 270.37 | |||||||
30,000 | $ | 155.61 | |||||||
14. | Commitment and Contingencies |
F-49
Table of Contents
15. | Employee Retirement Plan |
16. | Concentration of Sales and Credit Risk |
17. | Related Party Transactions |
F-50
Table of Contents
18. | Warrants for Common Stock |
19. | Segment Reporting |
Successor | Predecessor | |||||||||||||||
February 10, | July 1, | |||||||||||||||
2004 | 2003 | |||||||||||||||
Year ended | through | through | Year ended | |||||||||||||
June 30, | June 30, | February 9, | June 30, | |||||||||||||
2005 | 2004 | 2004 | 2003 | |||||||||||||
Air rifles | $ | 24,072 | $ | 8,829 | $ | 16,785 | $ | 24,720 | ||||||||
Air pistols | 11,817 | 5,004 | 8,288 | 10,890 | ||||||||||||
Soft air | 15,626 | 3,221 | 2,578 | 1,099 | ||||||||||||
Related consumables | 16,947 | 7,180 | 9,971 | 15,148 | ||||||||||||
Other | 1,598 | 622 | 1,148 | 1,476 | ||||||||||||
$ | 70,060 | $ | 24,856 | $ | 38,770 | $ | 53,333 | |||||||||
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Table of Contents
20. | Acquisition Adjustment |
Successor | ||||||
February 10, | ||||||
2004 | ||||||
Allocated to assets and liabilities: | ||||||
Cash | $ | 19 | ||||
Accounts receivable | 8,449 | |||||
Inventory | 8,386 | |||||
Other current assets | 2,223 | |||||
Investment in equity investee | 800 | |||||
Property, plant and equipment, net | 10,419 | |||||
Liabilities assumed | (8,980 | ) | ||||
Intangible assets acquired: | ||||||
Trademarks | 9,800 | |||||
Developed Technology | 900 | |||||
License and distribution agreements | 2,400 | |||||
Goodwill | 30,286 | |||||
Total purchase price | $ | 64,702 | ||||
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Page(s) | ||||
F-54 | ||||
F-55 | ||||
F-56 | ||||
F-57 | ||||
F-58–F-69 |
F-53
Table of Contents
January 1, | ||||||
2006 | ||||||
(Unaudited) | ||||||
Assets | ||||||
Current assets | ||||||
Cash | $ | 796 | ||||
Accounts receivable, net | 19,794 | |||||
Inventories, net | 12,316 | |||||
Other current assets | 2,302 | |||||
Deferred taxes | 1,262 | |||||
Total current assets | 36,470 | |||||
Property, plant and equipment, net | 10,069 | |||||
Investment in equity investee | 520 | |||||
Goodwill | 30,951 | |||||
Intangible and other assets, net | 13,585 | |||||
Total assets | $ | 91,595 | ||||
Liabilities and Shareholders’ Equity | ||||||
Current liabilities | ||||||
Current portion of long-term debt | $ | 4,100 | ||||
Current portion of capitalized lease obligations | 64 | |||||
Accounts payable | 5,863 | |||||
Accrued expenses | 3,355 | |||||
Income taxes payable | 1,216 | |||||
Total current liabilities | 14,598 | |||||
Long-term debt, net of current portion | 35,033 | |||||
Revolving line of credit | 11,329 | |||||
Capitalized lease obligations, net of current portion | 107 | |||||
Deferred interest | 1,243 | |||||
Deferred taxes | 3,522 | |||||
Other liabilities | 585 | |||||
Total liabilities | 66,417 | |||||
Commitments and contingencies (Note 11) | ||||||
Shareholders’ equity | ||||||
Common stock — $.01 par value, authorized 1,500,000 shares; Issued and outstanding 577,232 and 573,408 shares | 6 | |||||
Additional paid-in capital | 22,270 | |||||
Shareholders’ notes receivable | (1,218 | ) | ||||
Retained earnings | 4,120 | |||||
Total shareholders’ equity | 25,178 | |||||
Total liabilities and shareholders’ equity | $ | 91,595 | ||||
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Table of Contents
Six Months Ended | |||||||||
January 1, | December 26, | ||||||||
2006 | 2004 | ||||||||
(Unaudited) | (Unaudited) | ||||||||
Net sales | $ | 45,223 | $ | 38,234 | |||||
Cost of sales | 32,916 | 26,471 | |||||||
Gross profit | 12,307 | 11,763 | |||||||
Selling, general and administrative expenses | 4,896 | 5,393 | |||||||
Amortization of intangible assets | 367 | 310 | |||||||
Operating income | 7,044 | 6,060 | |||||||
Interest expense | 2,695 | 2,236 | |||||||
Foregone offering costs | — | 161 | |||||||
Equity in losses of investee | 24 | 132 | |||||||
Other (income)/expense, net | (217 | ) | (225 | ) | |||||
Income before income taxes | 4,542 | 3,756 | |||||||
Income tax expense | 1,721 | 1,407 | |||||||
Net income | $ | 2,821 | $ | 2,349 | |||||
F-55
Table of Contents
Capital in | Shareholders’ | Total | ||||||||||||||||||||||
Preferred | Common | Excess of | Notes | Retained | Shareholders’ | |||||||||||||||||||
Stock | Stock | Par Value | Receivable | Earnings | Equity | |||||||||||||||||||
Balance at June 30, 2004 | $ | — | $ | 6 | $ | 22,083 | $ | (973 | ) | $ | 810 | $ | 21,926 | |||||||||||
Redemption of stock | — | — | (7 | ) | — | — | (7 | ) | ||||||||||||||||
Interest on notes | — | — | — | (32 | ) | — | (32 | ) | ||||||||||||||||
Net income | — | — | — | — | 2,349 | 2,349 | ||||||||||||||||||
Balance at December 26, 2004 | $ | — | $ | 6 | $ | 22,076 | $ | (1,005 | ) | $ | 3,159 | $ | 24,236 | |||||||||||
Balance at June 30, 2005 | $ | — | $ | 6 | $ | 22,076 | $ | (1,035 | ) | $ | 1,299 | $ | 22,346 | |||||||||||
Redemption of stock | — | — | (6 | ) | — | — | (6 | ) | ||||||||||||||||
Issuance of stock | — | — | 200 | (150 | ) | — | 50 | |||||||||||||||||
Interest on notes | — | — | — | (33 | ) | — | (33 | ) | ||||||||||||||||
Net income | — | — | — | — | 2,821 | 2,821 | ||||||||||||||||||
Balance at January 1, 2006 | $ | — | $ | 6 | $ | 22,270 | $ | (1,218 | ) | $ | 4,120 | $ | 25,178 | |||||||||||
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Six Months Ended | ||||||||||
January 1, | December 26, | |||||||||
2006 | 2004 | |||||||||
(Unaudited) | (Unaudited) | |||||||||
Cash flows from operating activities | ||||||||||
Net income | $ | 2,821 | $ | 2,349 | ||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities | ||||||||||
Depreciation and amortization | 1,485 | 1,379 | ||||||||
Deferred income taxes | (143 | ) | (83 | ) | ||||||
Loss from equity investment | 24 | 132 | ||||||||
Loss on sale of property, plant and equipment | 2 | 13 | ||||||||
Interest deferred on senior subordinated notes | 342 | 326 | ||||||||
Changes in operating assets and liabilities | ||||||||||
Increase in accounts receivable | (6,047 | ) | (5,639 | ) | ||||||
Increase in inventories | (1,256 | ) | (6,225 | ) | ||||||
Increase in other current assets | (496 | ) | (1,094 | ) | ||||||
Decrease in refundable income taxes/income taxes payable | 1,348 | 873 | ||||||||
Increase in accounts payable and accrued expenses | 2,585 | 1,855 | ||||||||
Decrease in accrued interest and other liabilities | (18 | ) | (19 | ) | ||||||
Net cash provided by (used in) operating activities | 647 | (6,133 | ) | |||||||
Cash flows from investing activities | ||||||||||
Capital expenditures | (677 | ) | (944 | ) | ||||||
Net cash used in investing activities | (677 | ) | (944 | ) | ||||||
Cash flows from financing activities | ||||||||||
Proceeds from revolving credit facility | 54,193 | 47,809 | ||||||||
Repayments under revolving credit facility | (53,249 | ) | (39,257 | ) | ||||||
Proceeds from issuance of long-term debt | 26,000 | — | ||||||||
Principal payments and retirement of long-term obligations | (24,817 | ) | (1,160 | ) | ||||||
Financing costs associated with issuance of debt | (402 | ) | (40 | ) | ||||||
Failed offering costs | (1,716 | ) | — | |||||||
Redemption of common stock | (6 | ) | (6 | ) | ||||||
Issuance of common stock | 50 | — | ||||||||
Net cash provided by financing activities | 53 | 7,346 | ||||||||
Net increase cash and cash equivalents | 23 | 269 | ||||||||
Cash at beginning of year | 773 | 204 | ||||||||
Cash at end of year | $ | 796 | $ | 473 | ||||||
F-57
Table of Contents
1. | Organization and Nature of Operations |
2. | Significant Accounting Policies |
Revenue Recognition |
Use of Estimates |
Consolidation |
Accounts Receivable |
Inventories |
Property, Plant and Equipment |
F-58
Table of Contents
Long-Lived Assets |
Goodwill |
Advertising Costs |
Self-Insurance |
Guarantees |
New Accounting Pronouncement |
F-59
Table of Contents
Stock Based Compensation |
Income Taxes |
Recapitalization |
Interim Financial Statements |
F-60
Table of Contents
3. | Inventories |
January 1, | ||||
2006 | ||||
(Unaudited) | ||||
Raw materials | $ | 3,160 | ||
Work-in-process | 1,358 | |||
Finished goods | 7,798 | |||
$ | 12,316 | |||
4. | Warranty Reserve |
January 1, | ||||
2006 | ||||
(Unaudited) | ||||
Balance at July 1 | $ | 461 | ||
Accruals for warranties issued during period | 1,483 | |||
Settlements made during the period | (1,097 | ) | ||
$ | 847 | |||
5. | Property, Plant and Equipment |
January 1, | ||||
2006 | ||||
(Unaudited) | ||||
Land | $ | 256 | ||
Building and improvements | 2,349 | |||
Machinery and equipment | 7,076 | |||
Furniture and fixtures | 144 | |||
Computers and software | 692 | |||
Tooling | 3,220 | |||
Assets under capital lease | 254 | |||
Construction-in-progress | 181 | |||
14,172 | ||||
Less: Accumulated depreciation | (4,103 | ) | ||
$ | 10,069 | |||
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Table of Contents
6. | Intangibles and Other Assets |
January 1, | ||||||
2006 | ||||||
(Unaudited) | ||||||
Intangible assets subject to amortization: | ||||||
Financing costs | $ | 1,739 | ||||
Developed Technology | 900 | |||||
License and distribution agreements | 2,400 | |||||
5,039 | ||||||
Less: Accumulated amortization | (1,254 | ) | ||||
3,785 | ||||||
Intangible assets not subject to amortization, excluding goodwill: | ||||||
Trademarks | 9,800 | |||||
Total intangibles and other assets, excluding goodwill, net | $ | 13,585 | ||||
7. | Investment |
Six-Months Ended | ||||||||||
January 1, | December 26, | |||||||||
2006 | 2004 | |||||||||
(Unaudited) | (Unaudited) | |||||||||
Summary of operations: | ||||||||||
Revenues | $ | 6,644 | $ | 5,841 | ||||||
Costs and expenses | 6,693 | 6,105 | ||||||||
Net loss | $ | (49 | ) | $ | (264 | ) | ||||
Company equity in net loss | $ | (24 | ) | $ | (132 | ) | ||||
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January 1, | |||||||
2006 | |||||||
(Unaudited) | |||||||
Balance sheet data: | |||||||
Assets: | |||||||
Current assets | $ | 4,711 | |||||
Non-current assets | 430 | ||||||
Total assets | $ | 5,141 | |||||
Liabilities and membership interests: | |||||||
Current liabilities | $ | 4,382 | |||||
Membership interests | 759 | ||||||
Total liabilities and membership interests | $ | 5,141 | |||||
8. | Long-Term Debt |
January 1, | |||||
2006 | |||||
(Unaudited) | |||||
Collateralized: | |||||
Term Loan Facility | $ | 25,133 | |||
Senior Subordinated Notes | 14,000 | ||||
39,133 | |||||
Less: Current portion | (4,100 | ) | |||
$ | 35,033 | ||||
Notes payable under revolving line of credit | $ | 11,329 | |||
Senior Credit Facility |
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Table of Contents
Six-Months Ended | ||||||||
January 1, | December 26, | |||||||
2006 | 2004 | |||||||
(Unaudited) | (Unaudited) | |||||||
Interest expense components are | ||||||||
Interest expense | $ | 2,354 | $ | 1,910 | ||||
Interest deferred on senior subordinated notes | 341 | 326 | ||||||
$ | 2,695 | $ | 2,236 | |||||
Cash paid for interest | $ | 2,341 | $ | 1,942 | ||||
Effective interest rate on all debt | 10.6 | % | 8.6 | % |
F-64
Table of Contents
9. | Income Taxes |
January 1, | ||||||
2006 | ||||||
(Unaudited) | ||||||
Current deferred tax assets/(liabilities) | ||||||
Accounts receivable | $ | 328 | ||||
Inventory | 326 | |||||
Warranty and product liability | 341 | |||||
Tax credits | 275 | |||||
Other | (8 | ) | ||||
Total net current deferred tax as sets | 1,262 | |||||
Long-term deferred tax assets/(liabilities) | ||||||
Supplemental retirement | 222 | |||||
Property, plant and equipment | (1,698 | ) | ||||
Intangible assets | (934 | ) | ||||
Tax credits | 18 | |||||
Goodwill | (1,130 | ) | ||||
Total net long-term deferred tax liabilities | (3,522 | ) | ||||
Net deferred tax liability | $ | (2,260 | ) | |||
Six Months Ended | |||||||||
January 1, | December 26, | ||||||||
2006 | 2004 | ||||||||
(Unaudited) | (Unaudited) | ||||||||
Current: | |||||||||
Federal | $ | 1,811 | $ | 1,445 | |||||
State | 53 | 44 | |||||||
Deferred income tax | (143 | ) | (82 | ) | |||||
$ | 1,721 | $ | 1,407 | ||||||
F-65
Table of Contents
Six-Months Ended | ||||||||||||||||
January 1, | December 26, | |||||||||||||||
2006 | 2004 | |||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Statutory federal income tax rate | $ | 1,544 | 34.0 | % | $ | 1,277 | 34.0 | % | ||||||||
State taxes, net of federal benefit | 156 | 4.1 | % | 156 | 4.1 | % | ||||||||||
Investment tax credits | (19 | ) | (0.4 | )% | (45 | ) | (1.1 | )% | ||||||||
Non taxable (income) expenses, net | (11 | ) | (0.2 | )% | 7 | 0.2 | % | |||||||||
Miscellaneous | 22 | 0.4 | % | 12 | 0.3 | % | ||||||||||
$ | 1,721 | 37.9 | % | $ | 1,407 | 37.5 | % | |||||||||
10. | Stock Based Plans |
B) Stock Incentive Plan |
F-66
Table of Contents
Weighted | |||||||||
Average | |||||||||
Minimum | |||||||||
Number of | Exercise | ||||||||
Shares | Price | ||||||||
Date of Vesting | |||||||||
February 10, 2005 | 6,000 | $ | 73.00 | ||||||
February 10, 2006 | 6,000 | 99.67 | |||||||
February 10, 2007 | 6,000 | 140.33 | |||||||
February 10, 2008 | 6,000 | 194.67 | |||||||
February 10, 2009 | 6,000 | 270.37 | |||||||
30,000 | $ | 155.61 | |||||||
11. | Commitment and Contingencies |
F-67
Table of Contents
12. | Employee Retirement Plan |
13. | Concentration of Sales and Credit Risk |
F-68
Table of Contents
14. | Related Party Transactions |
15. | Warrants for Common Stock |
16. | Segment Reporting |
Six Months Ended | ||||||||
January 1, | December 26, | |||||||
2006 | 2004 | |||||||
(Unaudited) | (Unaudited) | |||||||
Air rifles | $ | 14,271 | $ | 13,990 | ||||
Air pistols | 6,691 | 6,384 | ||||||
Soft air | 15,412 | 8,446 | ||||||
Related consumables | 8,210 | 8,566 | ||||||
Other | 639 | 848 | ||||||
$ | 45,223 | $ | 38,234 | |||||
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Page(s) | ||||
F-71 | ||||
F-72 | ||||
F-73 | ||||
F-74 | ||||
F-75 | ||||
F-76 | ||||
F-77 | ||||
F-78–F-87 |
F-70
Table of Contents
F-71
Table of Contents
F-72
Table of Contents
Consolidated | ||||||||||
Compass AC | Predecessor | |||||||||
Holdings, Inc. | Combined | |||||||||
2005 | 2004 | |||||||||
Assets | ||||||||||
Current Assets | ||||||||||
Cash and Cash Equivalents | $ | 1,602,329 | $ | 6,619,956 | ||||||
Accounts Receivable — Net of Allowance of $105,000 and $80,000 for 2005 and 2004, Respectively | 2,847,087 | 2,582,185 | ||||||||
Deferred Income Tax Asset | 111,000 | — | ||||||||
Inventory | 328,316 | 309,402 | ||||||||
Other Current Assets | 131,174 | 52,500 | ||||||||
Total Current Assets | 5,019,906 | 9,564,043 | ||||||||
Property and Equipment — Net | 3,185,027 | 6,668,509 | ||||||||
Other Assets | ||||||||||
Other Assets | — | 258,555 | ||||||||
Note Receivable | — | 297,500 | ||||||||
Other Intangibles — Net | 20,034,722 | — | ||||||||
Debt Issuance Cost — Net of Accumulated | ||||||||||
Amortization of $51,803 | 1,071,774 | — | ||||||||
Goodwill | 50,658,604 | — | ||||||||
Total Other Assets | 71,765,100 | 556,055 | ||||||||
Total Assets | $ | 79,970,033 | $ | 16,788,607 | ||||||
Liabilities, Stockholders’ Equity and Members’ Capital | ||||||||||
Current Liabilities | ||||||||||
Accounts Payable | $ | 848,410 | $ | 1,237,578 | ||||||
Accrued Wages and Payroll Taxes | 290,236 | 375,709 | ||||||||
Current Portion of Notes Payable | 3,875,000 | 380,000 | ||||||||
Income Taxes Payable | 863,000 | — | ||||||||
Other Accrued Liabilities | 711,157 | 385,734 | ||||||||
Accrued Vacation | 390,542 | 313,769 | ||||||||
Accrued Bonuses | 295,868 | 375,000 | ||||||||
Due to Members | — | 354,108 | ||||||||
Total Current Liabilities | 7,274,213 | 3,421,898 | ||||||||
Long-Term Liabilities | ||||||||||
Deferred Income Tax Liability | 249,000 | — | ||||||||
Other Long Term Liabilities | 130,801 | 131,000 | ||||||||
Notes Payable | 45,687,500 | 2,786,667 | ||||||||
Total Long-Term Liabilities | 46,067,301 | 2,917,667 | ||||||||
Total Liabilities | 53,341,514 | 6,339,565 | ||||||||
Stockholders’ Equity and Members’ Capital | ||||||||||
Members’ Capital | — | 2,601,676 | ||||||||
Common Stock, $0.01 Par Value; 2,000,000 | 11,364 | — | ||||||||
Shares Authorized; 1,136,364 Shares Issued and | ||||||||||
Outstanding for December 31, 2005 and | ||||||||||
No Par Value; 100,000 Shares Authorized; 27,000 Shares Issued and Outstanding for December 31, 2004 | ||||||||||
Additional Paid in Capital | 28,397,736 | 25,200 | ||||||||
Notes Receivable from Stockholders | (3,466,100 | ) | — | |||||||
Retained Earnings | 1,685,519 | 7,822,166 | ||||||||
Total Stockholders’ Equity and Members’ Capital | 26,628,519 | 10,449,042 | ||||||||
Total Liabilities, Stockholders’ Equity and Members’ Capital | $ | 79,970,033 | $ | 16,788,607 | ||||||
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Table of Contents
Compass AC | |||||||||||||||||
Holdings, Inc. | Predecessor | ||||||||||||||||
Consolidated | Combined | ||||||||||||||||
Sept. 20, 2005 | Jan. 1, 2005 | Predecessor | Predecessor | ||||||||||||||
through | through | Combined | Combined | ||||||||||||||
Dec. 31, 2005 | Sept. 19, 2005 | 2004 | 2003 | ||||||||||||||
Net Sales | $ | 12,243,134 | $ | 29,725,862 | $ | 36,642,080 | $ | 27,796,468 | |||||||||
Cost of Sales | 5,142,763 | 12,959,524 | 17,866,698 | 14,568,676 | |||||||||||||
Gross Profit | 7,100,371 | 16,766,338 | 18,775,382 | 13,227,792 | |||||||||||||
Selling, General and Administrative Expenses | 2,447,858 | 5,835,356 | 6,564,616 | 5,521,248 | |||||||||||||
Amortization | 717,081 | — | — | — | |||||||||||||
Income from Operations | 3,935,432 | 10,930,982 | 12,210,766 | 7,706,544 | |||||||||||||
Other Income (Expense) | |||||||||||||||||
Interest Income | 69,221 | 163,972 | 42,079 | 15,705 | |||||||||||||
Other Income | — | — | 82,331 | 15,313 | |||||||||||||
Interest Expense | (1,318,134 | ) | (172,656 | ) | (241,903 | ) | (203,585 | ) | |||||||||
Income before Provision for Income Taxes | 2,686,519 | 10,922,298 | 12,093,273 | 7,533,977 | |||||||||||||
Provision for Income Taxes | 1,001,000 | — | — | — | |||||||||||||
Net Income | $ | 1,685,519 | $ | 10,922,298 | $ | 12,093,273 | $ | 7,533,977 | |||||||||
F-74
Table of Contents
Common Stock | Additional | Total | ||||||||||||||||||||||
Paid-In | Stockholders’ | Retained | Stockholders’ | |||||||||||||||||||||
Shares | Amount | Capital | Note Receivable | Earnings | Equity | |||||||||||||||||||
Capital from Acquisition at September 20, 2005 | 1,000,000 | $ | 10,000 | $ | 24,990,000 | $ | — | $ | — | $ | 25,000,000 | |||||||||||||
Issuance of Shares to Management | 136,364 | 1,364 | 3,407,736 | (3,409,100 | ) | — | — | |||||||||||||||||
Net Income | — | — | — | — | 1,685,519 | 1,685,519 | ||||||||||||||||||
Interest on Notes Receivable from Management | — | — | — | (57,000 | ) | — | (57,000 | ) | ||||||||||||||||
Balance at December 31, 2005 | 1,136,364 | $ | 11,364 | $ | 28,397,736 | $ | (3,466,100 | ) | $ | 1,685,519 | $ | 26,628,519 | ||||||||||||
F-75
Table of Contents
R.J.C.S. | Common Stock | Total | ||||||||||||||||||
Members’ | Retained | Stockholders’ | ||||||||||||||||||
Capital | Shares | Amount | Earnings | Equity | ||||||||||||||||
Predecessor Combined Balance at December 31, 2002 | $ | 1,043,763 | 27,000 | $ | 25,200 | $ | 2,721,916 | $ | 3,790,879 | |||||||||||
Net Income | 973,204 | — | — | 6,560,773 | 7,533,977 | |||||||||||||||
Distributions | (284,292 | ) | — | — | (4,541,327 | ) | (4,825,619 | ) | ||||||||||||
Predecessor Combined Balance at December 31, 2003 | 1,732,675 | 27,000 | 25,200 | 4,741,362 | 6,499,237 | |||||||||||||||
Net Income | 869,001 | — | — | 11,224,272 | 12,093,273 | |||||||||||||||
Distributions | — | — | — | (8,143,468 | ) | (8,143,468 | ) | |||||||||||||
Predecessor Combined Balance at December 31, 2004 | 2,601,676 | 27,000 | 25,200 | 7,822,166 | 10,449,042 | |||||||||||||||
Net Income | 625,243 | — | — | 10,297,055 | 10,922,298 | |||||||||||||||
Distributions | (1,077,610 | ) | — | — | (15,962,692 | ) | (17,040,302 | ) | ||||||||||||
Predecessor Combined Balance at September 19, 2005 | $ | 2,149,309 | 27,000 | $ | 25,200 | $ | 2,156,529 | $ | 4,331,038 | |||||||||||
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Compass AC | ||||||||||||||||||
Holdings, Inc. | Predecessor | |||||||||||||||||
Consolidated | Combined | |||||||||||||||||
Sept. 20, 2005 | Jan. 1, 2005 | Predecessor | Predecessor | |||||||||||||||
through | through | Combined | Combined | |||||||||||||||
Dec. 31, 2005 | Sept. 19, 2005 | 2004 | 2003 | |||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||||
Net Income | $ | 1,685,519 | $ | 10,922,298 | $ | 12,093,273 | $ | 7,533,977 | ||||||||||
Non-Cash Items Included in Net Income: | ||||||||||||||||||
Depreciation | 168,578 | 715,347 | 869,203 | 728,756 | ||||||||||||||
Amortization | 717,081 | — | — | — | ||||||||||||||
Deferred Income Taxes | 138,000 | — | — | — | ||||||||||||||
Compensation Cost For Put Options | 130,801 | — | — | — | ||||||||||||||
(Increase) Decrease in Assets: | ||||||||||||||||||
Accounts Receivable | (526,595 | ) | 261,693 | (703,658 | ) | (359,253 | ) | |||||||||||
Deposits | — | — | 51,500 | (51,500 | ) | |||||||||||||
Prepaid Expenses | (18,310 | ) | (112,864 | ) | — | — | ||||||||||||
Inventory | (15,714 | ) | (3,200 | ) | (5,402 | ) | (179,000 | ) | ||||||||||
Increase (Decrease) in Liabilities: | ||||||||||||||||||
Accounts Payable | 186,933 | (576,101 | ) | 178,398 | 107,384 | |||||||||||||
Other Accrued Liabilities | (69,951 | ) | 294,410 | (89,538 | ) | 139,356 | ||||||||||||
Accrued Wages and Payroll Taxes | (69,675 | ) | (15,798 | ) | (54,095 | ) | 165,704 | |||||||||||
Income Taxes Payable | 863,000 | — | — | — | ||||||||||||||
Accrued Vacation | 21,083 | 55,690 | 99,719 | 10,858 | ||||||||||||||
Accrued Bonuses | (40,545 | ) | (38,587 | ) | 250,000 | (75,000 | ) | |||||||||||
Net Cash Provided By Operating Activities | 3,170,205 | 11,502,888 | 12,689,400 | 8,021,282 | ||||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||||
Proceeds from Sale and Leaseback of Building | 5,000,000 | — | — | — | ||||||||||||||
Acquisition of Company, net of cash acquired of $167,984 | (79,613,970 | ) | — | — | — | |||||||||||||
Purchase of Property and Equipment | (109,605 | ) | (1,075,229 | ) | (816,339 | ) | (2,087,420 | ) | ||||||||||
(Issuance) Repayment of Notes Receivable | — | 350,000 | (350,000 | ) | — | |||||||||||||
(Increase) Decrease in Annuities and Cash Surrender Value — Life Insurance | — | 223,555 | (144,550 | ) | (79,005 | ) | ||||||||||||
Net Cash Used In Investing Activities | (74,723,575 | ) | (501,674 | ) | (1,310,889 | ) | (2,166,425 | ) | ||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||||
Repayment of Notes Payable | (937,500 | ) | (285,000 | ) | (756,191 | ) | (1,272,445 | ) | ||||||||||
Capital from Acquisition | 25,000,000 | — | — | — | ||||||||||||||
Issuance of Note Payable in Connection with Acquisition | 50,500,000 | — | — | — | ||||||||||||||
Proceeds from Notes Payable | — | — | — | 1,355,362 | ||||||||||||||
Note Payable Issuance Costs | (1,123,577 | ) | — | — | — | |||||||||||||
Due to Members — Net | (226,224 | ) | (127,884 | ) | 69,816 | 284,292 | ||||||||||||
Interest on Notes Receivable from Stockholders | (57,000 | ) | — | — | — | |||||||||||||
Distributions | — | (17,040,302 | ) | (8,143,468 | ) | (4,825,619 | ) | |||||||||||
Net Cash Provided By (Used In) Financing Activities | 73,155,699 | (17,453,186 | ) | (8,829,843 | ) | (4,458,410 | ) | |||||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 1,602,329 | (6,451,972 | ) | 2,548,668 | 1,396,447 | |||||||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD/ YEAR | — | 6,619,956 | 4,071,288 | 2,674,841 | ||||||||||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD/ YEAR | $ | 1,602,329 | $ | 167,984 | $ | 6,619,956 | $ | 4,071,288 | ||||||||||
SUPPLEMENTAL DISCLOSURES: | ||||||||||||||||||
Interest Paid | $ | 1,312,394 | $ | 163,997 | $ | 241,903 | $ | 203,585 | ||||||||||
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1. | Basis of Presentation |
2. | Summary of Significant Accounting Policies |
F-78
Table of Contents
2005 | 2004 | |||||||
Raw Materials and Supplies | $ | 142,526 | $ | 115,402 | ||||
Work-in-Process | 185,790 | 194,000 | ||||||
$ | 328,316 | $ | 309,402 | |||||
Machinery and Equipment | 5 to 7 years | |
Office Furniture and Equipment | 5 to 7 years | |
Buildings and Building Improvements | 7 to 39 years | |
Vehicles | 5 years | |
Leasehold Improvements | Shorter of useful life or lease term |
F-79
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F-80
Table of Contents
3. | Acquisition of Company |
Tangible Assets | |||||
Cash | $ | 167,984 | |||
Other Current Assets | 2,740,959 | ||||
Property, Plant and Equipment | 8,176,327 | ||||
Identifiable Intangible Assets | 20,700,000 | ||||
31,785,270 | |||||
Less: Current Liabilities Assumed | (2,661,920 | ) | |||
29,123,350 | |||||
Goodwill Recorded | 50,658,604 | ||||
Net Assets Acquired | $ | 79,781,954 | |||
4. | Property and Equipment |
2005 | 2004 | |||||||
Machinery and Equipment | $ | 2,846,910 | $ | 5,005,409 | ||||
Office Furniture and Fixtures | 298,734 | 479,427 | ||||||
Buildings | — | 4,161,155 | ||||||
Land | — | 115,615 | ||||||
Vehicles | — | 23,154 | ||||||
Leasehold Improvements | 207,961 | 861,313 | ||||||
3,353,605 | 10,646,073 | |||||||
Less: Accumulated Depreciation | 168,578 | 3,977,564 | ||||||
$ | 3,185,027 | $ | 6,668,509 | |||||
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5. | Sale and Leaseback of Building |
December 31: | ||||
2006 | $ | 482,500 | ||
2007 | 482,500 | |||
2008 | 482,500 | |||
2009 | 482,500 | |||
2010 | 482,500 | |||
Thereafter | 4,689,062 | |||
Total Minimum Future Rental Payments | $ | 7,101,562 | ||
6. | Goodwill and Intangible Assets — Net. |
Gross | ||||||||||||
Carrying | ||||||||||||
Value | Impairment | Goodwill | ||||||||||
Goodwill | $ | 50,658,604 | $ | — | $ | 50,658,604 | ||||||
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Estimated | Gross | |||||||||||||||
Useful | Carrying | Accumulated | Net | |||||||||||||
Lives | Value | Amortization | Intangibles | |||||||||||||
Customer Relationships | 9 | $ | 18,100,000 | $ | 502,778 | $ | 17,597,222 | |||||||||
Technology | 4 | 2,600,000 | 162,500 | 2,437,500 | ||||||||||||
$ | 20,700,000 | $ | 665,278 | $ | 20,034,722 | |||||||||||
2006 | $ | 2,661,111 | ||
2007 | 2,661,111 | |||
2008 | 2,661,111 | |||
2009 | 2,498,611 | |||
2010 | 2,011,111 | |||
Thereafter | 7,541,667 | |||
$ | 20,034,722 | |||
7. | Note Receivable |
8. | Shareholders’ Note Receivable |
F-83
Table of Contents
9. | Related Party Transactions |
10. | Long Term Debt |
Facility: | $4 million of which $-0- was outstanding at December 31, 2005. | |
Term: | 5 years. | |
Availability: | Revolving loans availability is equal to the sum of 85% of eligible accounts receivable and 50% of eligible inventory as defined in the credit agreement. The Company had borrowing capability of approximately $2.5 million at December 31, 2005, under this facility. | |
Interest Rate: | 2.75% over the Base Rate or 3.75% over the LIBOR Rate. | |
Interest Payable: | Monthly on Base Rate loans or at the end of the LIBOR period on LIBOR Rate loans. The rate of interest on these borrowings would have been 7.91% at December 31, 2005. |
Facility: | $35 million of which $34,062,500 was outstanding at December 31, 2005. | |
Term: | 6 years. | |
Amortization: | Payments are due quarterly on the last day of each calendar quarter commencing December 31, 2005. | |
Interest Rate: | 2.75% over the Base Rate or 3.75% over the LIBOR Rate and is paid in the same manner as is done for revolving credit loans. The rate of interest at December 31, 2005 was 7.91%. |
F-84
Table of Contents
Facility: | $15.5 million, all of which was outstanding at December 31, 2005. | |
Term: | 6.5 years. | |
Amortization: | Due in full on March 31, 2012. | |
Interest Rate: | 6.50% over the Base Rate or 7.50% over the LIBOR Rate and is paid in the same manner as is done for revolving credit loans. The rate of interest at December 31, 2005 was 11.66%. |
2005 | 2004 | |||||||
Term A Loan | $ | 34,062,500 | $ | — | ||||
Term B Loan | 15,500,000 | — | ||||||
Key Bank (payable in monthly installments of $31,667, plus interest at 6.5%, adjusted by the LIBOR index, through April, 2013; secured by real estate) | — | 3,166,667 | ||||||
49,562,500 | 3,166,667 | |||||||
Less: Current Maturities included in Current Liabilities | 3,875,000 | 380,000 | ||||||
Notes Payable | $ | 45,687,500 | $ | 2,786,667 | ||||
Year | Repayment | |||
December 31, 2006 | $ | 3,875,000 | ||
December 31, 2007 | 4,437,500 | |||
December 31, 2008 | 5,125,000 | |||
December 31, 2009 | 5,625,000 | |||
December 31, 2010 | 7,125,000 | |||
Thereafter | 23,375,000 | |||
$ | 49,562,500 | |||
11. | Defined Contribution Plan |
F-85
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12. | Key Employee — Deferred Compensation Plan |
13. | Income Taxes |
9/20/2005- | |||||
12/31/2005 | |||||
Current Income Taxes: | |||||
Federal | $ | 755,000 | |||
State | 108,000 | ||||
Deferred Income Taxes | 138,000 | ||||
$ | 1,001,000 | ||||
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Deferred Tax Asset: | ||||||
Allowance for Doubtful Accounts | $ | 40,000 | ||||
Deferred Vacation | 71,000 | |||||
Total Deferred Tax Asset | $ | 111,000 | ||||
Deferred Tax Liability: | ||||||
Depreciation and Amortization | $ | 249,000 | ||||
14. | Subsequent Event |
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Page(s) | ||||
F-89 | ||||
F-90 | ||||
F-91 | ||||
F-92 | ||||
F-93 | ||||
F-94–F-95 | ||||
F-96–F-113 |
F-88
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F-89
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F-90
Table of Contents
As of | |||||||||||
December 31, | December 31, | ||||||||||
2005 | 2004 | ||||||||||
(Restated)(1) | |||||||||||
Assets | |||||||||||
Current Assets: | |||||||||||
Cash and Cash Equivalents | $ | 1,515,731 | $ | 1,006,720 | |||||||
Trade Accounts and Other Receivables, Net of Allowance of $5,213 and $3,019, Respectively | 2,240,173 | 1,738,005 | |||||||||
Inventories, Net | 626,696 | 430,778 | |||||||||
Prepaid Expenses and Other Current Assets | 342,909 | 138,697 | |||||||||
Deferred Income Tax Asset | 397,799 | 396,519 | |||||||||
Current Assets of Discontinued Operations | 901,271 | 1,032,131 | |||||||||
Total Current Assets | 6,024,579 | 4,742,850 | |||||||||
Property, Plant and Equipment | 1,769,344 | 857,530 | |||||||||
Less: Accumulated Depreciation | (511,941 | ) | (107,889 | ) | |||||||
Total Property, Plant and Equipment at Net Book Value | 1,257,403 | 749,641 | |||||||||
Other Assets: | |||||||||||
Investment in Joint Venture | — | 2,474,793 | |||||||||
Goodwill | 11,265,603 | 9,108,727 | |||||||||
Other Intangible Assets, Net | 11,907,830 | 10,485,143 | |||||||||
Other Assets | 508,719 | 430,965 | |||||||||
Other Assets of Discontinued Operations | 280,539 | 509,189 | |||||||||
Total Other Assets | 23,962,691 | 23,008,817 | |||||||||
Total Assets | $ | 31,244,673 | $ | 28,501,308 | |||||||
Liabilities and Stockholders’ Equity | |||||||||||
Current Liabilities: | |||||||||||
Accounts Payable | $ | 464,765 | $ | 621,332 | |||||||
Accrued Bonuses | 404,640 | 371,423 | |||||||||
Other Accrued Expenses | 1,275,312 | 355,710 | |||||||||
Income Taxes Payable | 1,917,010 | 1,724,789 | |||||||||
Current Liabilities of Discontinued Operations | 290,563 | 552,076 | |||||||||
Current Maturities of Long-Term Debt | 1,620,843 | 1,053,213 | |||||||||
Total Current Liabilities | 5,973,133 | 4,678,543 | |||||||||
Long-Term Liabilities: | |||||||||||
Long-Term Liabilities of Discontinued Operations | 114,787 | 413,243 | |||||||||
Other Liabilities | 137,360 | 48,917 | |||||||||
Long-Term Debt | 11,591,467 | 11,787,886 | |||||||||
Net Deferred Income Tax Liability | 4,488,508 | 3,996,443 | |||||||||
Total Long-Term Liabilities | 16,332,122 | 16,246,489 | |||||||||
Cumulative Mandatorily Redeemable Preferred Stock $1.00 par value; authorized 1,500,000 shares in 2005 and 30,000,000 shares in 2004; issued and outstanding 4,500 shares and 90,000 shares at December 31, 2005 and 2004, respectively | 90,000 | 90,000 | |||||||||
Stockholders’ Equity: | |||||||||||
Convertible Preferred Stock — $.01 par value; authorized 150,000 shares; issued and outstanding 22,432 shares at December 31, 2005 and 3,000,000 shares authorized and 448,645 shares issued and outstanding at December 31, 2004, respectively | 224 | 4,486 | |||||||||
Common Stock, Series A — $.01 par value; authorized 100,000 shares in 2005 and 2,000,000 shares in 2004, issued and outstanding 14,037 shares and 280,734 shares at December 31, 2005 and 2004, respectively | 140 | 2,807 | |||||||||
Common Stock, Series B — $.01 par value; authorized 50,000 shares in 2005 and 1,000,000 shares in 2004, issued and outstanding 5,000 shares and 100,000 shares at December 31, 2005 and 2004, respectively | 50 | 1,000 | |||||||||
Additional Paid in Capital | 9,140,667 | 8,176,583 | |||||||||
Accumulated Deficit | (82,036 | ) | (641,675 | ) | |||||||
Accumulated Other Comprehensive Loss | (209,627 | ) | (56,925 | ) | |||||||
Total Stockholders’ Equity | 8,849,418 | 7,486,276 | |||||||||
Total Liabilities and Stockholders’ Equity | $ | 31,244,673 | $ | 28,501,308 | |||||||
(1) | -See Note T |
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Silvue | Predecessor | |||||||||||||||||
Silvue | Consolidated | Consolidated | Predecessor | |||||||||||||||
Consolidated | Sept. 3, 2004 | Jan. 1, 2004 | Consolidated | |||||||||||||||
Year Ended | Through | Through | Year Ended | |||||||||||||||
Dec. 31, 2005 | Dec. 31, 2004 | Sept. 2, 2004 | Dec. 31, 2003 | |||||||||||||||
(Restated)(1) | (Restated)(1) | (Restated)(1) | ||||||||||||||||
Net Sales | $ | 17,092,933 | $ | 4,532,475 | $ | 7,604,112 | $ | 10,446,074 | ||||||||||
Cost Of Sales | 3,815,509 | 611,588 | 1,094,565 | 1,555,465 | ||||||||||||||
Gross Profit | 13,277,424 | 3,920,887 | 6,509,547 | 8,890,609 | ||||||||||||||
Selling, General and Administrative Expenses | 7,491,317 | 2,319,566 | 4,005,513 | 5,275,891 | ||||||||||||||
Research and Development Costs | 1,072,063 | 636,931 | 447,929 | 549,400 | ||||||||||||||
Amortization of Intangibles | 708,657 | 208,857 | — | — | ||||||||||||||
Operating Income | 4,005,387 | 755,533 | 2,056,105 | 3,065,318 | ||||||||||||||
Other Income (Expense): | ||||||||||||||||||
Interest Income | 336 | 618 | 5,436 | 7,814 | ||||||||||||||
Other Income | 19,395 | 40,609 | — | — | ||||||||||||||
Equity In Net Income of Joint Venture | 69,885 | 94,604 | 174,487 | 376,840 | ||||||||||||||
Interest Expense | (1,438,523 | ) | (366,363 | ) | (4,835 | ) | (30,754 | ) | ||||||||||
Total Other Income (Expense) | (1,348,907 | ) | (230,532 | ) | 175,088 | 353,900 | ||||||||||||
Income from Continuing Operations before Provision for Income Taxes | 2,656,480 | 525,001 | 2,231,193 | 3,419,218 | ||||||||||||||
Provision for Income Taxes | 1,257,662 | 472,254 | 734,712 | 1,062,230 | ||||||||||||||
Income from Continuing Operations | 1,398,818 | 52,747 | 1,496,481 | 2,356,988 | ||||||||||||||
Income (loss) from Discontinued Operations, | ||||||||||||||||||
Net of Income Taxes | 132,637 | 59,720 | (225,019 | ) | (842,697 | ) | ||||||||||||
Net Income | 1,531,455 | 112,467 | 1,271,462 | 1,514,291 | ||||||||||||||
Other Comprehensive Income (Loss), Net of Tax Foreign Currency Translation Adjustment | (152,702 | ) | (56,925 | ) | 37,538 | 68,426 | ||||||||||||
Comprehensive Income | $ | 1,378,753 | $ | 55,542 | $ | 1,309,000 | $ | 1,582,717 | ||||||||||
(1) | -See Note T |
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Table of Contents
Accumulated | ||||||||||||||||||||||||||||||||||||||||
Convertible Preferred | Common Stock | Other | ||||||||||||||||||||||||||||||||||||||
Stock | Common Stock Series A | Series B | Additional | Retained | Comprehensive | Total | ||||||||||||||||||||||||||||||||||
Paid-In | Earnings | Income | Stockholders’ | |||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | (Deficit) | (Loss) | Equity | |||||||||||||||||||||||||||||||
(Restated)(1) | (Restated)(1) | (Restated)(1) | (Restated)(1) | |||||||||||||||||||||||||||||||||||||
Predecessor Consolidated Balance At December 31, 2002 | — | $ | — | 5,000 | $ | 200,000 | — | — | $ | 1,327,505 | $ | 5,466,071 | $ | (154,688 | ) | $ | 6,838,888 | |||||||||||||||||||||||
Net Income (restated) | — | — | — | — | — | — | — | 1,514,291 | — | 1,514,291 | ||||||||||||||||||||||||||||||
Other Comprehensive Income | — | — | — | — | — | — | — | — | 68,426 | 68,426 | ||||||||||||||||||||||||||||||
Predecessor Consolidated | ||||||||||||||||||||||||||||||||||||||||
Balance At December 31, 2003 | — | — | 5,000 | 200,000 | — | — | 1,327,505 | 6,980,362 | (86,262 | ) | 8,421,605 | |||||||||||||||||||||||||||||
Net Income (restated) | — | — | — | — | — | — | — | 1,271,462 | — | 1,271,462 | ||||||||||||||||||||||||||||||
Dividends Paid | — | — | — | — | — | — | — | (3,000,000 | ) | — | (3,000,000 | ) | ||||||||||||||||||||||||||||
Other Comprehensive Income | — | — | — | — | — | — | — | — | 37,538 | 37,538 | ||||||||||||||||||||||||||||||
Predecessor Consolidated Balance at September 2, 2004 | — | $ | — | 5,000 | $ | 200,000 | — | $ | — | $ | 1,327,505 | $ | 5,251,824 | $ | (48,724 | ) | $ | 6,730,605 | ||||||||||||||||||||||
Capital From Acquisition | 448,645 | $ | 4,486 | 280,734 | $ | 2,807 | 100,000 | $ | 1,000 | $ | 7,422,441 | $ | — | $ | — | $ | 7,430,734 | |||||||||||||||||||||||
Net Income (restated) | — | — | — | — | — | — | — | 112,467 | — | 112,467 | ||||||||||||||||||||||||||||||
Beneficial Conversion Feature of Preferred Stock | — | — | — | — | — | — | 448,645 | (448,645 | ) | — | — | |||||||||||||||||||||||||||||
Accretion in Value of Preferred Stock | — | — | — | — | — | — | 305,497 | (305,497 | ) | — | — | |||||||||||||||||||||||||||||
Other Comprehensive Loss | — | — | — | — | — | — | — | — | (56,925 | ) | (56,925 | ) | ||||||||||||||||||||||||||||
Balance At December 31, 2004 | 448,645 | 4,486 | 280,734 | 2,807 | 100,000 | 1,000 | 8,176,583 | (641,675 | ) | (56,925 | ) | 7,486,276 | ||||||||||||||||||||||||||||
Reverse Stock Split | (426,213 | ) | (4,262 | ) | (266,697 | ) | (2,667 | ) | (95,000 | ) | (950 | ) | 7,879 | — | — | — | ||||||||||||||||||||||||
Net Income | — | — | — | — | — | — | — | 1,531,455 | — | 1,531,455 | ||||||||||||||||||||||||||||||
Dividends Declared | — | — | — | — | — | — | — | (15,611 | ) | — | (15,611 | ) | ||||||||||||||||||||||||||||
Accretion in Value of Preferred Stock | — | — | — | — | — | — | 956,205 | (956,205 | ) | — | — | |||||||||||||||||||||||||||||
Other Comprehensive Loss | — | — | — | — | — | — | — | (152,702 | ) | (152,702 | ) | |||||||||||||||||||||||||||||
Balance At December 31, 2005 | 22,432 | $ | 224 | 14,037 | $ | 140 | 5,000 | $ | 50 | $ | 9,140,667 | $ | (82,036 | ) | $ | (209,627 | ) | $ | 8,849,418 | |||||||||||||||||||||
(1) | See Note T |
F-93
Table of Contents
Silvue | Predecessor | ||||||||||||||||||
Silvue | Consolidated | Consolidated | Predecessor | ||||||||||||||||
Consolidated | Sept. 3, 2004 | Jan. 1, 2004 | Consolidated | ||||||||||||||||
Year Ended | Through | Through | Year Ended | ||||||||||||||||
Dec. 31, 2005 | Dec. 31, 2004 | Sept. 2, 2004 | Dec. 31, 2003 | ||||||||||||||||
(Restated)(1) | (Restated)(1) | (Restated)(1) | |||||||||||||||||
Cash Flows From Operating Activities: | |||||||||||||||||||
Net Income | $ | 1,531,455 | $ | 112,467 | $ | 1,271,462 | $ | 1,514,291 | |||||||||||
Noncash Items Included In Net Income of Continuing Operations: | |||||||||||||||||||
Depreciation | 404,052 | 104,499 | 218,909 | 195,584 | |||||||||||||||
Amortization | 708,657 | 208,857 | — | — | |||||||||||||||
Allowance For Doubtful Accounts | 2,194 | 2,458 | (3,771 | ) | 439 | ||||||||||||||
Reserve For Inventory Obsolescence | 21,732 | — | — | (20,387 | ) | ||||||||||||||
Loss on Sale of Property, Plant and Equipment | 22,520 | — | — | — | |||||||||||||||
Deferred Income Tax Expense (Benefit) | (164,356 | ) | (114,053 | ) | 61,158 | 180,100 | |||||||||||||
Equity In Net Income Of Joint Venture | (69,885 | ) | (94,604 | ) | (174,487 | ) | (376,839 | ) | |||||||||||
Write off of IPR&D | — | 458,000 | — | — | |||||||||||||||
Changes In Assets And Liabilities: | |||||||||||||||||||
Trade Accounts And Other Receivables | 31,517 | (302,499 | ) | (710,371 | ) | (211,180 | ) | ||||||||||||
Inventories | (158,572 | ) | 42,731 | (146,980 | ) | (91,275 | ) | ||||||||||||
Prepaid Expenses | 20,971 | 71,926 | (69,558 | ) | 51,035 | ||||||||||||||
Accounts Payable | (387,492 | ) | 177,201 | (78,921 | ) | 188,102 | |||||||||||||
Other Accrued Expenses | 653,992 | 334,742 | (65,909 | ) | (30,524 | ) | |||||||||||||
Income Taxes Payable | (62,078 | ) | (75,835 | ) | 961,414 | 215,500 | |||||||||||||
Net Cash Provided By Continuing Operations: | 2,554,707 | 925,890 | 1,262,946 | 1,614,846 | |||||||||||||||
(Income)Loss from Discontinued Operations | (132,637 | ) | (59,720 | ) | 225,019 | 842,697 | |||||||||||||
Changes In Net Assets and Liabilities of Discontinued Operations | (84,548 | ) | 1,243 | (109,250 | ) | (603,691 | ) | ||||||||||||
Net Cash Provided By (Used In) Discontinued Operations | (217,185 | ) | (58,477 | ) | 115,769 | 239,006 | |||||||||||||
Cash Provided By Operating Activities | 2,337,522 | 867,413 | 1,378,715 | 1,853,852 | |||||||||||||||
Cash Flows From Investing Activities: | |||||||||||||||||||
Purchases Of Property, Plant, And Equipment | (178,313 | ) | (1,546 | ) | (168,820 | ) | (1,091,928 | ) | |||||||||||
Dividends Received From Joint Venture | — | 392,941 | — | 232,561 | |||||||||||||||
Acquisition Of Company | (398,944 | ) | (8,851,600 | ) | — | — | |||||||||||||
Cash Acquired in Acquisition of Remaining Joint Venture Interest | 511,791 | — | — | — | |||||||||||||||
Net Cash Used In Continuing Operations | (65,466 | ) | (8,460,205 | ) | (168,820 | ) | (859,367 | ) | |||||||||||
Net Cash Provided By (Used In) Discontinued Operations | 90,000 | — | (41,427 | ) | — | ||||||||||||||
Net Cash Provided By (Used In) Investing Activities | 24,534 | (8,460,205 | ) | (210,247 | ) | (859,367 | ) | ||||||||||||
Cash Flows From Financing Activities: | |||||||||||||||||||
Net Payments on Bank Line of Credit | — | — | — | (270,216 | ) | ||||||||||||||
Borrowings on Long-Term Debt | — | — | 36,027 | 767,346 | |||||||||||||||
Payments On Long-Term Debt | (1,692,211 | ) | (252,980 | ) | (71,537 | ) | (354,704 | ) | |||||||||||
Dividends Paid | — | — | (3,000,000 | ) | (350,352 | ) | |||||||||||||
Proceeds from Issuance of Capital Stock | — | 7,520,734 | — | — | |||||||||||||||
Other | — | (3,500 | ) | (9,097 | ) | (20,096 | ) | ||||||||||||
Net Cash Provided By (Used In) Financing Activities | (1,692,211 | ) | 7,264,254 | (3,044,607 | ) | (228,022 | ) | ||||||||||||
Net Increase (Decrease) In Cash And Cash Equivalents | 669,845 | (328,538 | ) | (1,876,139 | ) | 766,463 | |||||||||||||
Currency Adjustments | (91,862 | ) | 27,653 | (23,620 | ) | 76,770 | |||||||||||||
Beginning Cash And Cash Equivalents | 1,009,289 | 1,310,174 | 3,209,933 | 2,366,700 | |||||||||||||||
Ending Cash And Cash Equivalents | $ | 1,587,272 | $ | 1,009,289 | $ | 1,310,174 | $ | 3,209,933 | |||||||||||
Cash of Continuing Operations | $ | 1,515,731 | $ | 1,006,720 | $ | 1,307,157 | $ | 3,168,999 | |||||||||||
Cash of Discontinued Operations | 71,541 | 2,569 | 3,017 | 40,934 | |||||||||||||||
Total Cash and Cash Equivalents | $ | 1,587,272 | $ | 1,009,289 | $ | 1,310,174 | $ | 3,209,933 | |||||||||||
(1) | See Note T |
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Silvue | Predecessor | ||||||||||||||||
Silvue | Consolidated | Consolidated | Predecessor | ||||||||||||||
Consolidated | Sept. 3, 2004 | Jan. 1, 2004 | Consolidated | ||||||||||||||
Year Ended | through | through | Year Ended | ||||||||||||||
Dec. 31, 2005 | Dec. 31, 2004 | Sept. 2 ,2004 | Dec. 31, 2003 | ||||||||||||||
Supplemental Cash Flow Information | |||||||||||||||||
Income Taxes Paid | $ | 1,350,192 | $ | 291,641 | $ | — | $ | 268,933 | |||||||||
Interest Paid | $ | 1,240,819 | $ | 360,323 | $ | 29,429 | $ | 58,073 | |||||||||
Noncash Investing And Financing Activities | |||||||||||||||||
Purchase Of Property, Plant And Equipment Through Equipment Loan | $ | — | $ | — | $ | (36,027 | ) | $ | — | ||||||||
Acquisition Of Company Through Financing | $ | 2,381,000 | $ | 13,000,000 | $ | — | $ | — | |||||||||
Increase In Equipment Line And Long-Term Debt | $ | — | $ | — | $ | 36,027 | $ | — | |||||||||
Dividend Payable | $ | 15,611 | $ | — | $ | — | $ | — | |||||||||
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December 31 | December 31, | |||||||
2005 | 2004 | |||||||
Raw Materials And Supplies | $ | 261,057 | $ | 173,370 | ||||
Finished Goods | 387,371 | 257,408 | ||||||
Less Obsolescence Reserve | (21,732 | ) | — | |||||
$ | 626,696 | $ | 430,778 | |||||
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Year Ended | Sep. 3, 2004 thru | Jan. 1, 2004 thru | Year Ended | |||||||||||||
Dec. 31, 2005 | Dec. 31, 2004 | Sep. 2, 2004 | Dec. 31, 2003 | |||||||||||||
Net Income as Reported | $ | 1,531,455 | $ | 112,467 | $ | 1,271,462 | $ | 1,514,291 | ||||||||
Less Fair Value of Stock Options (net of tax) | (55,866 | ) | — | — | — | |||||||||||
Pro forma Net Income | $ | 1,475,589 | $ | 112,467 | $ | 1,271,462 | $ | 1,514,291 | ||||||||
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Current Assets | ||||||
Cash | $ | 511,791 | ||||
Accounts Receivable | 730,908 | |||||
Inventory | 74,167 | |||||
Other Assets | 253,208 | |||||
Total Current Assets | 1,570,074 | |||||
Property, Plant and Equipment | 844,473 | |||||
Other Assets | 72,821 | |||||
Intangible Assets | 2,340,000 | |||||
Goodwill | 2,257,926 | |||||
Total Assets | $ | 7,085,294 | ||||
Current Liabilities | ||||||
Accounts Payable | $ | (334,311 | ) | |||
Other Current Liabilities | (871,728 | ) | ||||
Total Current Liabilities | (1,206,039 | ) | ||||
Deferred Tax Liability | (950,776 | ) | ||||
Long-Term Liabilities | (69,854 | ) | ||||
Pre-Acquisition Equity in Joint Venture | (806,324 | ) | ||||
Write-up of investment in Joint Venture as part of purchase price allocation done in September 2004 | (1,671,301 | ) | ||||
Net Assets Acquired | $ | 2,381,000 | ||||
Sept. 3, 2004 | Jan. 1, 2004 | |||||||||||
Year Ended | through | through | ||||||||||
Dec. 31, 2005 | Dec. 31, 2004 | Sept. 2, 2004 | ||||||||||
Revenue | $ | 18,561,135 | $ | 5,912,762 | $ | 11,744,972 | ||||||
Income from continuing operations | $ | 1,419,613 | $ | 81,896 | $ | 1,540,058 | ||||||
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Current Assets | $ | 4,428,735 | ||
Property, Plant and Equipment, Net | 855,984 | |||
Other Assets | 336,385 | |||
Investment In Joint Venture | 2,404,908 | |||
Deferred Financing Cost | 447,059 | |||
Intangible Assets Arising From The Acquisition | 11,152,000 | * | ||
Goodwill Arising From The Acquisition | 9,108,727 | |||
Total Assets | 28,733,798 | |||
Current Liabilities | 3,100,087 | |||
Long-Term Liabilities | 3,782,111 | |||
Total Liabilities | 6,882,198 | |||
Net Assets Acquired | $ | 21,851,600 | ||
* | Amount includes $458,000 of In-Process Research and Development which was subsequently written-off (see Note B(9)). |
Estimated Useful Life | 2005 | 2004 | |||||||||
Building | 3-38 | $ | 575,645 | $ | — | ||||||
Transportation Equipment | 3-4 | 16,859 | 15,011 | ||||||||
Machinery And Equipment | 4-15 | 536,690 | 215,537 | ||||||||
Furniture, Fixtures, And Office Equipment | 2-15 | 561,754 | 548,586 | ||||||||
Leasehold Improvements | shorter of 10 years or the lease term | 45,058 | 45,058 | ||||||||
Capital Projects In Progress | N/A | 33,338 | 33,338 | ||||||||
Total Property, Plant And Equipment | $ | 1,769,344 | $ | 857,530 | |||||||
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Goodwill | ||||
Balance December 31, 2003 | $ | — | ||
Acquired | 9,108,727 | |||
Balance December 31, 2004 | 9,108,727 | |||
Acquired | 2,156,876 | * | ||
Balance December 31, 2005 | $ | 11,265,603 | ||
Patented | Customer | Other | ||||||||||||||||||||
Trademarks | Technology | Relations | Technology | Total | ||||||||||||||||||
Bal. Dec 31, 2003 | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Acquired | 709,000 | 4,441,000 | 4,610,000 | 934,000 | 10,694,000 | |||||||||||||||||
Amortization | — | (92,521 | ) | (90,392 | ) | (25,944 | (208,857 | ) | ||||||||||||||
Bal. Dec 31, 2004 | 709,000 | 4,348,479 | 4,519,608 | 908,056 | 10,485,143 | |||||||||||||||||
Acquired | — | — | 1,915,778 | 215,566 | 2,131,344 | * | ||||||||||||||||
Amortization | — | (277,563 | ) | (341,957 | ) | (89,137 | ) | (708,657 | ) | |||||||||||||
Bal. Dec 31, 2005 | $ | 709,000 | $ | 4,070,916 | $ | 6,093,429 | $ | 1,034,485 | $ | 11,907,830 | ||||||||||||
* | The difference in international goodwill and intangible assets reported at December 31, 2005, as compared to the goodwill and intangible assets presented in Note D as of April 1, 2005, was the result of fluctuations in the foreign currency exchange rates used to translate the balance in U.S. dollars. |
2006 | $ | 733,197 | ||
2007 | 733,197 | |||
2008 | 733,197 | |||
2009 | 733,197 | |||
2010 | 733,197 | |||
Thereafter | 7,532,845 | |||
$ | 11,198,830 | |||
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Nippon ARC Company, Ltd. (NAR) — (50%) | $ | 2,474,793 | ||
2004 | ||||
Current Assets | $ | 1,354,483 | ||
Other Assets (Net) | 1,047,632 | |||
Total Assets | $ | 2,402,115 | ||
Current Liabilities | $ | 629,554 | ||
Long-Term Liability | 165,577 | |||
Total Liabilities | $ | 795,131 | ||
Joint Venture Equity | $ | 1,606,984 | ||
Years Ended December 31, | ||||||||||||
Three Months Ended | ||||||||||||
March 31, 2005 | 2004 | 2003 | ||||||||||
(Unaudited) | ||||||||||||
Sales | $ | 1,468,202 | $ | 5,521,146 | $ | 6,165,002 | ||||||
Net Income | $ | 139,770 | $ | 538,182 | $ | 753,680 | ||||||
Company’s Proportionate Share of Earnings | $ | 69,885 | $ | 269,091 | $ | 376,840 | ||||||
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2005 | 2004 | |||||||
Note payable to a bank, due in twenty-three quarterly installments ranging from $250,000 to $400,000 plus accrued interest. Interest accrues at a rate equal to one of the following as selected by the Company: LIBOR plus a margin ranging from 2.75% to 3.5% depending on the Company’s ratio of consolidated debt to EBITDA, or Prime plus a margin ranging from 1.25% to 2% depending on the Company’s ratio of consolidated debt to EBITDA. At December 31, 2005 and 2004, the rate was based on LIBOR and was 7.66% and 5.66%, respectively. The final principal and interest payment is due September 2010. The note is secured by all assets of the Company | $ | 5,975,000 | $ | 7,750,000 | ||||
Note payable to a bank, interest only payments are due quarterly. All outstanding principal and unpaid interest is due at maturity. Interest accrues at a rate equal to one of the following as selected by the Company: LIBOR plus a margin ranging from 3.25% to 4.0% depending on the Company’s ratio of consolidated debt to EBITDA, or Prime plus a margin ranging from 1.75% to 2.5%, depending on the Company’s ratio of consolidated debt to EBITDA. At December 31, 2005 and 2004, the rate was based on LIBOR and was 8.16% and 6.16%, respectively. The final principal and interest payment is due September 2010. The note is secured by all assets of the Company | 2,000,000 | 2,000,000 | ||||||
Note payable to bank, interest only payments are due quarterly. All outstanding principal and unpaid interest is due at maturity. For the period September 2, 2004 through September 1, 2005, the rate of interest is equal to one of the following as selected by the Company: LIBOR plus a margin of 5.0%, or Prime plus a margin of 3%. Commencing on the first anniversary date and ending at the maturity date, the interest rate is equal to one of the following as selected by the Company: LIBOR plus a margin of 7%, or Prime plus a margin of 5%. At December 31, 2005 and 2004, the rate was based on LIBOR and was 11.19% and 7.16%, respectively. In addition to the quarterly interest payments, a yield enhancement fee equal to 5% for the period September 2, 2004 through September 1, 2005, and 3% for the period September 2, 2005 through maturity is due on the outstanding principal balance. The final interest payment, yield enhancement fee and principal are due September 2010. The note is secured by all assets of the Company | 3,000,000 | 3,000,000 | ||||||
Note payable to a bank, payable in monthly installments of $2,121, including principal and interest at a fixed rate of 6.24%, final payment January 2009, secured by equipment | 71,168 | 91,099 | ||||||
On April 1, 2005 the Company acquired the remaining 50% interest in NAR, held by its former joint venture partner, for total consideration of 400,000,000 Japanese Yen (see also Note D). Terms of the note require 5 annual non-interest bearing payments on March 31 as follows: |
March 31 | Yen | |||
2006 | 50,000,000 | |||
2007 | 50,000,000 | |||
2008 | 75,000,000 | |||
2009 | 75,000,000 | |||
2010 | 150,000,000 |
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2005 | 2004 | |||||||
The note is carried at the net present value of the future payments. The note is secured by the shares of stock of SDC Asia Tech, LTD. and by a standby letter of credit | 2,164,184 | — | ||||||
Note payable to a Bank, with a maturity date of March 31, 2006, with interest calculated at a rate of 1.375% | 127,248 | — | ||||||
Unrealized gain on interest rate swap (See Note S) | (125,290 | ) | — | |||||
Total | 13,212,310 | 12,841,099 | ||||||
Less: Current Maturities Of Long-Term Debt | 1,620,843 | 1,053,213 | ||||||
Long-Term Debt | $ | 11,591,467 | $ | 11,787,886 | ||||
Year Ended December 31: | ||||
2006 | $ | 1,620,843 | ||
2007 | 1,647,713 | |||
2008 | 1,851,143 | |||
2009 | 1,876,583 | |||
2010 | 6,341,318 | |||
$ | 13,337,600 | |||
Year Ended | Period of Sep. 3 to | Jan. 1 2004 to | Year Ended | ||||||||||||||
Dec. 31, 2005 | Dec. 31, 2004 | Sep. 2, 2004 | Dec. 31, 2003 | ||||||||||||||
Current: | |||||||||||||||||
Federal | $ | 719,336 | $ | 388,019 | $ | 505,443 | $ | 485,774 | |||||||||
State | 73,429 | (35,831 | ) | 128,486 | 17,568 | ||||||||||||
Foreign | 740,999 | 261,697 | 271,824 | 348,938 | |||||||||||||
1,533,764 | 613,885 | 905,753 | 852,280 | ||||||||||||||
Deferred | |||||||||||||||||
Federal | (241,811 | ) | (229,180 | ) | (140,198 | ) | 215,519 | ||||||||||
State | (34,291 | ) | 87,549 | (30,843 | ) | (5,569 | ) | ||||||||||
(276,102 | ) | (141,631 | ) | (171,041 | ) | 209,950 | |||||||||||
Provision For Income Taxes | $ | 1,257,662 | $ | 472,254 | $ | 734,712 | $ | 1,062,230 | |||||||||
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2005 | 2004 | ||||||||
Current | |||||||||
Section 263(a) Inventory Costs | $ | 6,495 | $ | 4,028 | |||||
Exclusion Of Accrued Expenses | 254,065 | 203,129 | |||||||
State Income Taxes | 153,621 | 159,949 | |||||||
Amounts Applicable to Discontinued Operations | (16,382 | ) | 29,413 | ||||||
Net Deferred Income Tax Asset | $ | 397,799 | $ | 396,519 | |||||
Non-Current | |||||||||
Excess Amortization | $ | (4,621,119 | ) | $ | (4,074,527 | ) | |||
Excess Depreciation | 382,398 | 556,521 | |||||||
Federal and State Tax Credits | 1,588,748 | 1,402,392 | |||||||
Less Amounts Applicable to Discontinued Operations | (249,787 | ) | (478,437 | ) | |||||
(2,899,724 | ) | (2,594,051 | ) | ||||||
Valuation Allowance | (1,588,784 | ) | (1,402,392 | ) | |||||
Net Deferred Income Tax Liability | $ | (4,488,508 | ) | $ | (3,996,443 | ) | |||
Year Ended Dec. 31, 2005 | $ | 71,594 | ||
Sept. 3, 2004 — Dec. 31, 2004 | $ | (6,942 | ) | |
Jan. 1, 2004 — Sept. 2, 2004 | $ | (66,649 | ) | |
Year Ended Dec. 31, 2003 | $ | (283,151 | ) |
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December 31, | ||||
2006 | $ | 210,230 | ||
2007 | 216,411 | |||
2008 | 218,299 | |||
2009 | 201,381 | |||
2010 | 47,367 | |||
Thereafter | 140,792 | |||
Total Minimum Future Rental Payments | $ | 1,034,480 | ||
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Granted | 1,663 | |||
Forfeited | (82 | ) | ||
Cancelled | — | |||
Balance — December 31, 2005 | 1,581 | |||
Outstanding | ||||||||
Weighted Average | ||||||||
Shares | Exercise Price | Contractual Remaining Life | ||||||
1,066 | $ | 183.60 | 9.33 Years | |||||
515 | $ | 350.00 | 9.75 Years |
Exercisable | ||||||||
Weighted Average | ||||||||
Shares | Exercise Price | Contractual Remaining Life | ||||||
-0- | $ | 183.60 | 9.33 Years | |||||
-0- | $ | 350.00 | 9.75 Years |
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Risk Free Interest Rate | 4.21% and 4.39 | % | ||
Expected Life | 10 years | |||
Expected Volatility | 0 | % | ||
Expected Dividend Yield | 0 | % |
December 31, 2005 | December 31, 2004 | ||||||||||||||||
Cost Basis | Fair Value | Cost Basis | Fair Value | ||||||||||||||
Assets: | |||||||||||||||||
Cash & Cash Equivalents | $ | 1,515,731 | $ | 1,515,731 | $ | 1,006,720 | $ | 1,006,720 | |||||||||
Liabilities: | |||||||||||||||||
Long-Term Debt | $ | 11,591,467 | $ | 11,591,467 | $ | 11,787,886 | $ | 11,787,886 | |||||||||
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2005 | 2004 | |||||||||||
Current Assets | ||||||||||||
Cash | $ | 71,541 | $ | 2,569 | ||||||||
Accounts Receivable (net of allowance of $169,547 and $5,470) | 511,947 | 646,309 | ||||||||||
Inventory | 168,893 | 266,128 | ||||||||||
Prepaid Expenses | 132,508 | 117,125 | ||||||||||
Deferred Taxes | 16,382 | — | ||||||||||
Total | $ | 901,271 | $ | 1,032,131 | ||||||||
Other Assets | ||||||||||||
Deposits | $ | 30,752 | $ | 30,752 | ||||||||
Deferred Taxes | 249,787 | 478,437 | ||||||||||
$ | 280,539 | $ | 509,189 | |||||||||
Current Liabilities | ||||||||||||
Accounts Payable | $ | 61,480 | $ | 315,125 | ||||||||
Accrued Expenses | 168,522 | 66,072 | ||||||||||
Deferred Taxes | — | 29,413 | ||||||||||
Current Portion of Bank Loan | 60,561 | (A) | 141,466 | (A) | ||||||||
Total | $ | 290,563 | $ | 552,076 | ||||||||
Long-Term Liabilities | ||||||||||||
Long-Term Portion of Bank Loan | $ | 114,787 | (A) | $ | 413,243 | (A) | ||||||
(A) | These amounts represent a note payable to a bank which is payable in monthly installments. At December 31, 2005 and 2004, the monthly payment was $6,466 and $14,628, respectively, including principal and interest at a variable rate. At December 31, 2005 and 2004, this variable rate was 7.62%, and 5.9%, respectively. Final payment on the note is due April 2008. The note is secured by the equipment at the Nevada location. |
• | to expense in-process research and development (IPR&D) of $458,000 that was recorded as part of the purchase price allocation in September 2004 (adjustment A), | |
• | to further reallocate the purchase price between goodwill and intangibles (adjustment B), | |
• | to record the accretion and beneficial conversion features for the convertible preferred stock not previously recognized (adjustment C), |
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• | to correct an error in the provision for income taxes to reflect a lower utilization of foreign tax credits (adjustment D). |
Preferred Stock | ||||||||||||||||||||||||
Purchase | Beneficial | |||||||||||||||||||||||
Amount | Price | Conversion Feature | ||||||||||||||||||||||
Previously | I P R & D | Allocation | and Accretion | Tax Credit | Restated | |||||||||||||||||||
Reported(1) | Adjustment A | Adjustment B | Adjustment C | Adjustment D | Amounts | |||||||||||||||||||
Balance Sheet at Dec. 31, 2004 | ||||||||||||||||||||||||
Deferred Tax Asset | $ | 1,153,899 | $ | — | $ | — | $ | — | $ | (757,380 | ) | $ | 396,519 | |||||||||||
Intangible Assets | $ | 9,161,282 | $ | (458,000 | ) | $ | 1,781,861 | $ | — | $ | — | $ | 10,485,143 | |||||||||||
Goodwill | $ | 9,066,612 | $ | — | $ | (1,126,455 | ) | $ | — | $ | 1,168,570 | $ | 9,108,727 | |||||||||||
Income Taxes Payable | $ | 876,380 | $ | — | $ | — | $ | — | $ | 848,409 | $ | 1,724,789 | ||||||||||||
Deferred Tax Liability | $ | 3,600,980 | $ | — | $ | 690,000 | $ | — | $ | (294,537 | ) | $ | 3,996,443 | |||||||||||
Additional Paid-In Capital | $ | 7,422,441 | $ | — | $ | — | $ | 754,142 | $ | — | $ | 8,176,583 | ||||||||||||
Retained Earnings (Deficit) | $ | 747,743 | $ | (458,000 | ) | $ | (34,594 | ) | $ | (754,142 | ) | $ | (142,682 | ) | $ | (641,675 | ) | |||||||
Income Statement Period 9/3/04 through 12/31/04 | ||||||||||||||||||||||||
Research and Development Expense | $ | 178,931 | $ | 458,000 | $ | — | $ | — | $ | — | $ | 636,931 | ||||||||||||
Amortization of Intangibles | $ | 174,263 | $ | — | $ | 34,594 | $ | — | $ | — | $ | 208,857 | ||||||||||||
Income Tax Expense | $ | 329,572 | $ | — | $ | — | $ | — | $ | 142,682 | $ | 472,254 | ||||||||||||
Income Statement Period 1/1/04 to 9/2/04 | ||||||||||||||||||||||||
Income Tax Expense | $ | 549,231 | $ | — | $ | — | $ | — | $ | 185,481 | $ | 734,712 | ||||||||||||
Income Statement Year Ended 12/31/03 | ||||||||||||||||||||||||
Income Tax Expense | $ | 859,949 | $ | — | $ | — | $ | — | $ | 202,281 | $ | 1,062,230 |
(1) | Adjusted for Discontinued Operations Classification |
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Item 13. | Other Expenses of Issuance and Distribution. |
SEC Registration Fee | $ | 30,763 | ||
Financial Advisory Fee | $ | 525,000 | ||
NASD Filing Fee | $ | 29,250 | ||
Listing Application Fee | $ | 5,000 | ||
Accounting Fees and Expenses | $ | 1,635,000 | ||
Printing and Engraving Expenses | $ | 750,000 | ||
Legal Fees and Expenses | $ | 2,800,000 | ||
Hart Scott Rodino Filing Fee | $ | 125,000 | ||
Miscellaneous(1) | $ | 104,987 | ||
Total | $ | 6,000,000 | ||
(1) | This amount represents additional expenses that may be incurred by the company or underwriters in connection with the offering over and above those specifically listed above, including distribution and mailing costs. |
Item 14. | Indemnification of Directors and Officers. |
• | for any breach of the director’s duty of loyalty to the company or its members; | |
• | for acts or omissions not in good faith or a knowing violation of law; | |
• | regarding unlawful dividends and stock purchases analogous to Section 174 of the Delaware General Corporation Law; or | |
• | for any transaction from which the director derived an improper benefit. |
• | we must indemnify our directors and officers, manager and members to the equivalent extent permitted by Delaware General Corporation Law; | |
• | we may indemnify our other employees and agents to the same extent that we indemnified our officers and directors, unless otherwise determined by the company’s board of directors; and | |
• | we must advance expenses, as incurred, to our directors and executive officers in connection with a legal proceeding to the extent permitted by Delaware law and may advance expenses as incurred to our other employees and agents, unless otherwise determined by the company’s board of directors. |
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Item 15. | Recent Sales of Unregistered Securities. |
Item 16. | Exhibits and Financial Statement Schedules. |
Exhibit No. | Description | |||
1 | .1 | Form of Underwriting Agreement* | ||
2 | .1 | Form of Stock Purchase Agreement by and among Compass Group Diversified Holdings LLC, Compass Group Investments, Inc., Compass CS Partners, L.P., Compass CS II Partners, L.P., Compass Crosman Partners, L.P., Compass Advanced Partners, L.P. and Compass Silvue Partners, L.P. | ||
3 | .1 | Certificate of Trust of Compass Diversified Trust† | ||
3 | .2 | Trust Agreement dated as of November 18, 2005 of Compass Diversified Trust† | ||
3 | .3 | Certificate of Formation of Compass Group Diversified Holdings LLC† | ||
3 | .4 | LLC Agreement dated as of November 18, 2005 of Compass Group Diversified Holdings LLC† | ||
3 | .5 | Form of Amended and Restated Trust Agreement of Compass Diversified Trust* | ||
3 | .6 | Form of Amended and Restated Operating Agreement of Compass Group Diversified Holdings LLC* | ||
4 | .1 | Specimen certificate evidencing share of trust stock of Compass Diversified Trust (included in 3.2) | ||
4 | .2 | Specimen certificate evidencing Trust interest of Compass Group Diversified Holdings LLC* | ||
5 | .1 | Form of Opinion of Sutherland Asbill & Brennan LLP* | ||
5 | .2 | Form of Opinion of Richards, Layton & Finger, P.A.* | ||
8 | .1 | Form of Tax Opinion* | ||
10 | .1 | Form of Management Services Agreement among Compass Group Diversified Holdings LLC and certain of its subsidiaries named therein and Compass Group Management LLC* | ||
10 | .2 | Form of Option Plan* | ||
10 | .3 | Form of Registration Rights Agreement* | ||
10 | .4 | Form of Supplemental Put Agreement* | ||
10 | .5 | Employment Agreement by and between Compass Group Management LLC and James Bottiglieri dated as of September 28, 2005 | ||
10 | .6 | Form of Private Placement Agreement by and between Compass Group Diversified Holdings LLC and Compass Group Investments, Inc.* | ||
10 | .7 | Form of Private Placement Agreement by and between Compass Group Diversified Holdings LLC and Pharos I LLC* | ||
10 | .8 | Form of Credit Agreement by and between Compass Group Diversified Holdings LLC and each of the initial businesses* | ||
10 | .9 | Shareholders’ Agreement for holders of CBS Personnel Holdings, Inc. Class C common stock | ||
10 | .10 | Stockholder’s Agreement for holders of Crosman Acquisition Corp. common stock | ||
10 | .11 | Stockholder’s Agreement for holders of Compass AC Holdings, Inc. common stock | ||
10 | .12 | Stockholder’s Agreement for holders of Silvue Technologies Group, Inc. common stock |
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Exhibit No. | Description | |||
10 | .13 | Form of Lock-up Agreement* | ||
10 | .14 | Diablo Marketing LLC Members Agreement | ||
10 | .15 | Management Services Agreement by and between Compass CS Inc. and Kilgore Consulting II LLC dated as of October 13, 2000 | ||
10 | .16 | Form of Amendment of Management Services Agreement by and between Compass CS Inc. and Kilgore Consulting II LLC | ||
10 | .17 | Management Services Agreement by and between Crosman Corporation and Kilgore Consulting III LLC dated as of February 10, 2004 | ||
10 | .18 | Form of Amendment of Management Services Agreement by and between Crosman Corporation and Kilgore Consulting III LLC | ||
10 | .19 | Management Services Agreement by and between Advanced Circuits, Inc. and WAJ, LLC dated as of September 20, 2005 | ||
10 | .20 | Form of Amendment of Management Services Agreement by and between Advanced Circuits, Inc. and WAJ, LLC | ||
10 | .21 | Management Services Agreement by and between SDC Technologies, Inc. and Kilgore Consulting III LLC dated as of September 2, 2004 | ||
10 | .22 | Form of Second Amendment of Management Services Agreement by and between SDC Technologies, Inc. and Kilgore Consulting III LLC | ||
10 | .23 | Form of Amendment to Stockholders’ Agreement for holders of Silvue Technologies Group, Inc. common stock | ||
10 | .24 | Commitment Letter by and among Compass Group Diversified Holdings LLC The Compass Group International LLC and Ableco Finance LLC | ||
23 | .1 | Consent of Grant Thornton LLP | ||
23 | .2 | Consent of Grant Thornton LLP | ||
23 | .3 | Consent of PricewaterhouseCoopers LLP | ||
23 | .4 | Consent of PricewaterhouseCoopers LLP | ||
23 | .5 | Consent of Bauerle and Company, P.C. | ||
23 | .6 | Consent of White, Nelson & Co. LLP | ||
23 | .7 | Consent of Grant Thornton LLP | ||
23 | .8 | Consent of Grant Thornton LLP | ||
23 | .9 | Consent of Sutherland, Asbill & Brennan LLP (included in exhibit 5.1)* | ||
23 | .10 | Consent of Richards, Layton & Finger, P.A. (included in exhibit 5.2)* | ||
24 | Powers of Attorney† | |||
99 | .1 | Consent of Duff & Phelps LLC |
* | To be filed by amendment. |
† | Previously filed on December 14, 2005. |
(b) | All financial statement schedules required pursuant to this item were either included in the financial information set forth in the prospectus or are inapplicable, and, therefore, have been omitted. |
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Item 17. | Undertakings. |
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; | |
(ii) any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; | |
(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registration or its securities provided by or on behalf of the undersigned registrant; and | |
(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
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COMPASS DIVERSIFIED TRUST |
By: | COMPASS GROUP DIVERSIFIED |
HOLDINGS LLC, as Sponsor |
By: | /s/I. Joseph Massoud |
I. Joseph Massoud | |
Chief Executive Officer |
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COMPASS GROUP DIVERSIFIED HOLDINGS LLC |
By: | /s/I. Joseph Massoud |
I. Joseph Massoud | |
Chief Executive Officer |
Signature | Title | Date | ||||
/s/I. Joseph Massoud I. Joseph Massoud | Chief Executive Officer (Principal Executive Officer) and Director | April 13, 2006 | ||||
/s/James J. Bottiglieri James J. Bottiglieri | Chief Financial Officer (Principal Financial and Accounting Officer) and Director | �� | April 13, 2006 | |||
* C. Sean Day | Director | April 13, 2006 | ||||
* D. Eugene Ewing | Director | April 13, 2006 | ||||
* Ted Waitman | Director | April 13, 2006 | ||||
* Harold S. Edwards | Director | April 13, 2006 | ||||
* Mark H. Lazarus | Director | April 13, 2006 | ||||
*By: | /s/I. Joseph Massoud I. Joseph Massoud Attorney-in-fact |
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Exhibit No. | Description | |||
1 | .1 | Form of Underwriting Agreement* | ||
2 | .1 | Form of Stock Purchase Agreement by and among Compass Group Diversified Holdings LLC, Compass Group Investments, Inc., Compass CS Partners, L.P., Compass CS II Partners, L.P., Compass Crosman Partners, L.P., Compass Advanced Partners, L.P. and Compass Silvue Partners, L.P. | ||
3 | .1 | Certificate of Trust of Compass Diversified Trust† | ||
3 | .2 | Trust Agreement dated as of November 18, 2005 of Compass Diversified Trust† | ||
3 | .3 | Certificate of Formation of Compass Group Diversified Holdings LLC† | ||
3 | .4 | LLC Agreement dated as of November 18, 2005 of Compass Group Diversified Holdings LLC† | ||
3 | .5 | Form of Amended and Restated Trust Agreement of Compass Diversified Trust* | ||
3 | .6 | Form of Amended and Restated Operating Agreement of Compass Group Diversified Holdings LLC* | ||
4 | .1 | Specimen certificate evidencing share of trust stock of Compass Diversified Trust (included in 3.2) | ||
4 | .2 | Specimen certificate evidencing Trust interest of Compass Group Diversified Holdings LLC* | ||
5 | .1 | Form of Opinion of Sutherland Asbill & Brennan LLP* | ||
5 | .2 | Form of Opinion of Richards, Layton & Finger, P.A.* | ||
8 | .1 | Form of Tax Opinion* | ||
10 | .1 | Form of Management Services Agreement among Compass Group Diversified Holdings LLC and certain of its subsidiaries named therein and Compass Group Management LLC* | ||
10 | .2 | Form of Option Plan* | ||
10 | .3 | Form of Registration Rights Agreement* | ||
10 | .4 | Form of Supplemental Put Agreement* | ||
10 | .5 | Employment Agreement by and between Compass Group Management LLC and James Bottiglieri dated as of September 28, 2005 | ||
10 | .6 | Form of Private Placement Agreement by and between Compass Group Diversified Holdings LLC and Compass Group Investments, Inc.* | ||
10 | .7 | Form of Private Placement Agreement by and between Compass Group Diversified Holdings LLC and Pharos I LLC* | ||
10 | .8 | Form of Credit Agreement by and between Compass Group Diversified Holdings LLC and each of the initial businesses* | ||
10 | .9 | Shareholders’ Agreement for holders of CBS Personnel Holdings, Inc. Class C common stock | ||
10 | .10 | Stockholder’s Agreement for holders of Crosman Acquisition Corp. common stock | ||
10 | .11 | Stockholder’s Agreement for holders of Compass AC Holdings, Inc. common stock | ||
10 | .12 | Stockholder’s Agreement for holders of Silvue Technologies Group, Inc. common stock | ||
10 | .13 | Form of Lock-up Agreement* | ||
10 | .14 | Diablo Marketing LLC Members Agreement | ||
10 | .15 | Management Services Agreement by and between Compass CS Inc. and Kilgore Consulting II LLC dated as of October 13, 2000 | ||
10 | .16 | Form of Amendment of Management Services Agreement by and between Compass CS Inc. and Kilgore Consulting II LLC | ||
10 | .17 | Management Services Agreement by and between Crosman Corporation and Kilgore Consulting III LLC dated as of February 10, 2004 | ||
10 | .18 | Form of Amendment of Management Services Agreement by and between Crosman Corporation and Kilgore Consulting III LLC | ||
10 | .19 | Management Services Agreement by and between Advanced Circuits, Inc. and WAJ, LLC dated as of September 20, 2005 | ||
10 | .20 | Form of Amendment of Management Services Agreement by and between Advanced Circuits, Inc. and WAJ, LLC |
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Exhibit No. | Description | |||
10 | .21 | Management Services Agreement by and between SDC Technologies, Inc. and Kilgore Consulting III LLC dated as of September 2, 2004 | ||
10 | .22 | Form of Second Amendment of Management Services Agreement by and between SDC Technologies, Inc. and Kilgore Consulting III LLC | ||
10 | .23 | Form of Amendment to Stockholders’ Agreement for holders of Silvue Technologies Group, Inc. common stock | ||
10 | .24 | Commitment Letter by and among Compass Group Diversified Holdings LLC The Compass Group International LLC and Ableco Finance LLC | ||
23 | .1 | Consent of Grant Thornton LLP | ||
23 | .2 | Consent of Grant Thornton LLP | ||
23 | .3 | Consent of PricewaterhouseCoopers LLP | ||
23 | .4 | Consent of PricewaterhouseCoopers LLP | ||
23 | .5 | Consent of Bauerle and Company, P.C. | ||
23 | .6 | Consent of White, Nelson & Co. LLP | ||
23 | .7 | Consent of Grant Thornton LLP | ||
23 | .8 | Consent of Grant Thornton LLP | ||
23 | .9 | Consent of Sutherland, Asbill & Brennan LLP (included in exhibit 5.1)* | ||
23 | .10 | Consent of Richards, Layton & Finger, P.A. (included in exhibit 5.2)* | ||
24 | Powers of Attorney† | |||
99 | .1 | Consent of Duff & Phelps LLC |
* | To be filed by amendment. |
† | Previously filed on December 14, 2005. |
(b) | All financial statement schedules required pursuant to this item were either included in the financial information set forth in the prospectus or are inapplicable, and, therefore, have been omitted. |
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