Exhibit 99.2
ANNUAL REPORT
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Year Ended December 31, 1997
CORCOM, INC.
LIBERTYVILLE, ILLINOIS
CORCOM, INC. AND SUBSIDIARIES
INDEX OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Page(s)
Report of Independent Accountants F-2
The following consolidated financial statements of Corcom, Inc. and
Subsidiaries are included:
Consolidated Balance Sheets, December 31, 1997 and 1996 F-3
Consolidated Statements of Income for each of the three years
ended December 31, 1997 F-4
Consolidated Statements of Stockholders' Equity for each of the
three years ended December 31, 1997 F-5
Consolidated Statements of Cash Flow for each of the three years
ended December 31, 1997 F-6
Notes to Consolidated Financial Statements F-7 to F-14
The following consolidated financial statement schedule of Corcom,
Inc. and Subsidiaries is included:
Schedule II - Valuation and Qualifying Accounts F-15
All other schedules for which provision is made in the applicable regulation
of the Securities and Exchange Commission are not required under the related
instructions or are inapplicable and, therefore, have been omitted.
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
Stockholders and Board of Directors
Corcom, Inc.
Libertyville, Illinois
We have audited the consolidated financial statements and related financial
statement schedule of Corcom, Inc. and Subsidiaries listed in the index on page
F-1. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and related schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and related
schedules are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and related schedules. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Corcom, Inc. and
Subsidiaries as of December 31, 1997 and 1996 and the consolidated results of
their operations and their cash flows for each of the years in the three year
period ended December 31, 1997 in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedules
referred to above, when considered in relation to the basic financial statements
taken as a whole, present fairly, in all material respects, the information
required to be included herein.
S/S Coopers & Lybrand, L.L.P.
Chicago, Illinois
February 27, 1998
F-2
CORCOM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 and 1996
(Amounts in thousands, except share information)
ASSETS 1997 1996
- ------ ------- -------
Current Assets:
Cash and cash equivalents $ 8,232 $ 4,789
Accounts receivable, net of allowance for uncollectible
accounts of $60 in 1997 and $76 in 1996 4,599 4,688
Inventories 6,192 6,691
Deferred income tax asset, net 885 2,000
Other current assets 596 682
------- -------
Total current assets 20,504 18,850
------- -------
Property, plant and equipment:
Land 340 340
Buildings and improvements 844 936
Leasehold improvements 456 516
Machinery and equipment 16,206 15,017
Furniture and fixtures 1,477 1,582
------- -------
19,323 18,391
Less: accumulated depreciation 14,849 14,014
------- -------
4,474 4,377
------- -------
Total assets $24,978 $23,227
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Current maturities of long-term debt $ 62 $ 59
Accounts payable 767 1,368
Other accrued liabilities 2,077 1,728
------- -------
Total current liabilities 2,906 3,155
------- -------
Long-term debt, net of current maturities 40 102
------- -------
Commitments (Note 7)
Stockholders' Equity:
Common stock, no par value; 10,000,000 shares authorized;
3,863,543 (1997) and 3,815,543 (1996) issued and outstanding 14,134 14,057
Retained earnings 9,026 6,023
Accumulated exchange rate adjustments (283) (110)
Less treasury shares at cost ; 98,300 (1997) and 0 (1996) (845) 0
------- -------
Total stockholders'equity 22,032 19,970
------- -------
Total liabilities and stockholders' equity $24,978 $23,227
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
CORCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
for the three years ended December 31, 1997
(Amounts in thousands, except share information)
1997 1996 1995
------- ------- -------
Net Sales $36,788 $33,166 $30,660
------- ------- -------
Costs and expenses:
Cost of sales 22,394 20,582 19,287
Engineering expenses 1,333 1,220 1,247
Selling , administrative and
other expenses 8,344 7,799 7,095
------- ------- -------
32,071 29,601 27,629
------- ------- -------
Operating income 4,717 3,565 3,031
Interest expense 10 16 71
Interest income (306) (134) (7)
------- ------- -------
Income before provision for income taxes 5,013 3,683 2,967
Provision (benefit) for income taxes 2,010 (1,789) 181
------- ------- -------
Net income $ 3,003 $ 5,472 $ 2,786
======= ======= =======
Earnings-Per-Share Data:
Net Income:
Basic EPS $.79 $1.45 $.76
Diluted EPS $.76 $1.38 $.72
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
CORCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the three years ended December 31, 1997
(Amounts in thousands except share information)
Common Stock Cost of
Issued Retained Accumulated Common
------------------------ Earnings Exchange Rate Stock in
Shares Amount (Deficit) Adjustments Treasury
------------------------ --------- ------------- --------
Balance at January 1, 1995 3,619,543 13,749 (2,235) (82) 0
Stock options exercised for $1.00 to $2.50
per share 121,000 193
Net income 2,786
Exchange rate adjustments 54
-----------------------------------------------------------------
Balance at December 31, 1995 3,740,543 $13,942 $ 551 $ (28) $ 0
Stock options exercised for $1.00 to $3.00 per share 75,000 115
Net income 5,472
Exchange rate adjustments (82)
-----------------------------------------------------------------
Balance at December 31, 1996 3,815,543 $14,057 $ 6,023 $(110) $ 0
Purchase of 98,300 shares for treasury (845)
Stock options exercised for $1.13 to $3.25 per share 48,000 77
Net income 3,003
Exchange rate adjustments (173)
-----------------------------------------------------------------
Balance at December 31, 1997 3,863,543 $14,134 $ 9,026 $(283) $(845)
========= ======= ======= ===== =====
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
CORCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three years ended December 31, 1997
(Amounts in Thousands)
____
1997 1996 1995
------- ------- -------
Cash flows from operating activities:
Net income $ 3,003 $ 5,472 $ 2,786
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for uncollectible accounts receivable 26 33 77
Restructuring costs (36) (25) (263)
Depreciation 1,189 1,028 1,105
Deferred tax expense (benefit) 1,117 (2,000)
Changes in operating assets and liabilities:
Trade accounts receivable 63 436 (1,009)
Inventories 326 298 (599)
Other current assets 86 (151) 41
Accounts payable (601) 345 (212)
Accrued liabilities 385 63 696
------- ------- -------
Net cash provided by operating activities 5,558 5,499 2,622
------- ------- -------
Cash flows from investing activities:
Expenditures for property, plant and equipment (1,288) (1,657) (1,454)
------- ------- -------
Net cash used in investing activities (1,288) (1,657) (1,454)
------- ------- -------
Cash flows from financing activities:
Common stock purchased for treasury (845)
Net payments under bank line of credit (483)
Stock options exercised 77 115 193
Principal payments on long-term debt (59) (55) (63)
Decrease in cash overdraft 0 0 (130)
------- ------- -------
Net cash (used in) provided by financing activities (827) 60 (483)
------- ------- -------
Net increase in cash and cash equivalents 3,443 3,902 685
Cash and cash equivalents at beginning of year 4,789 887 202
------- ------- -------
Cash and cash equivalents at end of year $ 8,232 $ 4,789 $ 887
======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 10 $ 16 $ 71
Income taxes 824 223 181
The accompanying notes are an integral part
of the consolidated financial statements.
F-6
CORCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_____________
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Corcom, Inc.
and its wholly-owned subsidiaries (the Company). Intercompany accounts and
transactions have been eliminated in consolidation.
Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less as cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. The first-in, first-
out method is used to determine cost.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is computed
principally by the straight-line method over the estimated useful lives of
the related assets or terms of the related leases for leasehold
improvements, if shorter. Estimated useful lives range from three to eight
years.
Amounts incurred for maintenance and repairs are charged to operations as
incurred. Expenditures for improvements are capitalized. Upon sale or
retirement, the related cost and accumulated depreciation are removed from
the respective accounts and any resulting gain or loss is included in the
consolidated statements of income.
Treasury Stock
In March, 1997 the board of directors authorized the repurchase, at
management's discretion, of up to 200,000 shares of the Company's stock.
Shares repurchased under this authorization were used to offset the
dilution caused by the Company's employee stock option plan. The Company's
repurchases of shares of common stock are recorded as "Treasury Stock" and
result in a reduction of "Stockholders' Equity."
Income Taxes
Income taxes are accounted for in accordance with SFAS No. 109, "Accounting
for Income Taxes". The Company recognizes deferred tax liabilities and
assets for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method,
deferred income taxes are recorded to reflect the tax consequences on
future years of differences between the basis of assets and liabilities for
income tax and for financial reporting purposes using enacted tax rates in
effect for the year in which the differences are expected to reverse. In
addition, the amounts of any future tax benefits are reduced by a valuation
allowance to the extent such benefits are not expected to be fully
realized.
Translation of Foreign Currencies
The Company measures foreign assets, liabilities, equity, and results of
operations in the functional currencies of the countries in which it
operates except for its operations in Mexico for which the U.S. dollar is
the functional currency. The Company translates foreign currency financial
statements by translating balance sheet accounts at the current exchange
rate in effect at year-end and income statement accounts at the average
exchange rates during the year.
Translation adjustments result from the process of translating foreign
currency financial statements into U.S. dollars. These translation
adjustments, which are generally not included in the determination of net
income, are reported separately as a component of stockholders' equity.
F-7
Revenue Recognition
-------------------
Sales to customers are recorded at the time of shipment net of estimated
discounts and allowances.
Earnings per Share
------------------
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings per Share." Statement 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of stock options. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share. All
earnings per share amounts for all periods have been presented, and where
appropriate, restated to conform to the Statement 128 requirements.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
New Accounting Pronouncements
-----------------------------
The Company will implement the provisions of Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income Summary"
(SFAS 130) for financial statements issued for fiscal years beginning after
December 15, 1997. SFAS 130 establishes standards for reporting and display
of comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general-purpose financial statements. Management
does not believe this statement will have a material impact on its
financial statements.
The Company will implement the provisions of Statement of Financial
Accounting Standard No. 131, "Disclosures about Segments of an Enterprise
and Related Information" (SFAS 131) for financial statements issued for
periods beginning after December 15, 1997. SFAS 131, which is based on the
management approach to segment reporting, includes requirements to report
selected segment information quarterly and entity-wide disclosures about
products and services, major customers, and the material countries in which
the entity holds assets and reports revenues. Management does not believe
this statement will have a material impact on its financial statements.
Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" (SFAS 132),
effective for fiscal years beginning after December 15, 1997, standardizes
the disclosure requirements for pensions and other postretirement benefits,
requires additional information on changes in the benefit obligation and
fair values of plan assets and eliminates certain disclosures that are no
longer useful. Management has yet to determine the impact of this
pronouncement on its financial statements.
2. Inventories
-----------
The Company's inventories consist of the following at December 31 (in
thousands):
1997 1996
------ ------
Finished products $2,188 $2,693
Raw materials and work-in-process 4,004 3,998
------ ------
$6,192 $6,691
====== ======
F-8
3. Accrued Liabilities
-------------------
Accrued liabilities consist of the following at December 31 (in thousands):
1997 1996
------ ------
Accrued payroll, incentive bonus and commissions $1,430 $1,045
Other 647 683
------ ------
$2,077 $1,728
====== ======
4. Bank Notes Payable
------------------
The Company has a loan agreement with a bank which provides for a revolving
line of credit through April 30, 1998, of up to $4,000,000, limited by a
borrowing base calculated as a percentage of eligible accounts receivable,
with interest at the bank's base rate (8.5% at December 31, 1997) or LIBOR
plus 1.5%. There were no borrowings in 1997 or 1996. Under the provisions
of the agreement the Company is subject to certain covenants which, among
other things, restrict the payment of dividends to a calculation based upon
net income.
5. Income Taxes
------------
Income before provision for income taxes consisted of the following as of
December 31:
1997 1996 1995
------ ------- ------
(In thousands)
Domestic $4,349 $ 3,138 $2,184
Foreign 664 545 783
------ ------- ------
$5,013 $ 3,683 $2,967
====== ======= ======
The provision (benefit) for income taxes is comprised of the following:
1997 1996 1995
------ ------- ------
(In thousands)
Current income tax expenses:
State $ 41 $ 1 $ 1
Domestic 615 65 80
Foreign 237 145 100
------ ------- ------
$ 893 $ 211 $ 181
Deferred income tax expenses (credits)
Domestic 1,117 (2,000) -
------ ------- ------
$2,010 $(1,789) $ 181
====== ======= ======
The provision (benefit) for income tax differs from a provision computed at
the U.S. statutory rate as follows:
1997 1996 1995
------ ------- ------
(In thousands)
Statutory rate provision $1,704 $ 1,252 $1,008
State taxes, net 256 188 151
Effect of utilization of net
operating loss carryforwards (1,309) (998)
Reduction of valuation allowance (2,000)
Other 50 80 20
------ ------- ------
$2,010 $(1,789) $ 181
====== ======= ======
F-9
The components of the deferred tax asset and the tax effect are as follows at
December 31:
1997 1996
------------------------------------------------------------------
Temporary Temporary
Difference Tax Effect Difference Tax Effect
---------- ---------- ---------- ----------
Inventory valuation $ 479 $ 192 $ 322 $ 129
Fixed assets 72 29 158 63
Reserve for lease cancellation 57 23 94 37
Self-insurance 30 12 30 12
Allowance for doubtful accounts 60 24 60 24
Foreign NOL carryforwards 1,894 388 1,296 280
Domestic NOL carryforwards -- -- 3,870 1,548
Other 61 24 58 24
Alternative minimum tax credit -- 581 -- 163
------ ------ ------ ------
Subtotal $2,653 1,273 $5,888 2,280
====== ======
Valuation allowance (388) (280)
------ ------
Total $ 885 $2,000
====== ======
As of December 31, 1997, the Company maintained a valuation allowance with
respect to the deferred tax asset as a result of the uncertainty of
ultimate realization of foreign NOL carryforwards. The Company had foreign
income tax carryforwards of $1,894,000, principally in Hong Kong, Mexico
and the West Indies. Approximately $1,485,000 of the foreign NOL
carryforwards have no expiration date.
6. Employee Benefit Plans
----------------------
The Company has established certain stock-based compensation plans,
described below, for the benefit of certain officers, key employees, and
directors. The Company accounts for these plans under APB Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations. Accordingly, no compensation expense has been recognized
related to these plans. Under Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), compensation
expense is measured based on the fair value method. The Company has adopted
the disclosure-only provisions of SFAS 123.
The Company has stock option plans which provide for the granting of
options to certain officers, key employees, and directors. The option price
per share is not less than the market price at the date of grant. Options
granted under the officer and key employee plan become exercisable at 40%
one year from date of grant and an additional 20% per year thereafter.
Options granted under the directors' plan become exercisable six months
after date of grant. All unexercised options expire five years after the
date of grant.
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option pricing model with the following
assumptions: (1) expected volatility of 57.6%, (2) risk-free interest rate
of 6.9% in 1995 and 5.9% in 1994, and (3) expected life of 4.13 to 4.26
years. The Company has declared no cash dividends during 1997, 1996, and
1995.
There were no stock options granted in 1997. The weighted average fair
value of stock options, calculated using the Black-Scholes option pricing
model, granted during 1996 and 1995, respectively, was $3.68 and $1.63. Had
the Company elected to apply the provisions SFAS 123 regarding recognition
of compensation expense to the extent of the calculated fair value of
compensatory options, or shares, the Company's net income would have been
reduced to the following pro-forma amounts:
1996 1995
---- ----
Net Income
As reported $5,472,000 $2,786,000
Pro Forma $5,361,600 $2,671,600
F-10
A summary of the status of the Company's stock options as of December 31, 1997,
1996, and 1995 and changes during the year ended on those dates is presented
below:
1997 1996 1995
-------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------ -------------- ------ -------------- ------ --------------
Outstanding at 248,000 $2.55 293,000 $1.84 350,000 $1.49
beginning of year
Granted 30,000 $7.00 70,000 $3.19
Exercised 48,000 $1.61 75,000 $1.54 121,000 $1.60
Forfeited
Expired 6,000 $2.25
Outstanding at end 200,000 $2.78 248,000 $2.55 293,000 $1.84
of year
Options 168,000 $2.83 178,000 $2.71 168,000 $1.65
exercisable at
year end
Under the Company's defined contribution incentive savings plan, covering
substantially all United States employees, Company contributions are based
on varying percentages of the participants' total contributions. The
aggregate contributions made by the Company to the savings plan and charged
to operations were $42,000 (1997), $38,000 (1996), and $34,000 (1995).
7. Leases
------
The Company leases certain facilities and equipment under operating leases.
The leases generally require the company to pay real estate taxes,
insurance, and maintenance costs. Rental expense amounted to $544,000
(1997), $547,000 (1996), and $597,000 (1995).
Future minimum rental commitments as of December 31, 1997 for noncancelable
leases (principally real estate) are as follows:
(In thousands)
1998 $ 528
1999 317
2000 188
------
$1,033
======
8. Business Information by Geographic Area
---------------------------------------
The Company's operations consist of one business segment: the design,
manufacture, and sale of radio frequency interference filters for digital
electronic equipment to the commercial, military, and facility filter
markets. Operations are conducted principally in the United States, Mexico,
and Germany. The net assets of the Company's operations located outside the
United States at December 31 were: $2,727,000 (1997), $3,080,000 (1996),
and $2,660,000 (1995).
Foreign sales and operations may be subject to various risks including, but
not limited to, possible unfavorable exchange rate fluctuations,
governmental regulations (including import and export controls),
restrictions on currency repatriation and labor relations laws.
Intercompany transactions consist of the transfer of raw material between
the United States parent and its manufacturing subsidiaries and the
purchase of finished goods by the United States parent or its German
subsidiary. Raw materials are
F-11
transferred at cost. Finished goods are purchased at predetermined transfer
prices that allow the parent or its manufacturing subsidiaries to recover cost
plus an operating profit.
No single customer accounted for 10% of net sales for any of the years
presented.
Interest and dividend income, interest expense and general corporate expenses
are not allocated to specific geographic areas. Corporate assets consist of cash
and cash equivalents.
(In Thousands)
-------------------------------------------------
United States (A) Germany
-------------------------------------------------
1997 1996 1995 1997 1996 1995
- ----------------------------------------------------------------------------------------
Revenues:
Net sales $28,901 $24,935 $24,098 $7,650 $7,445 $5,424
Intercompany transfers 5,004 5,840 4,013 28 8 3
------- ------- ------- ------ ------ ------
Geographic area totals $33,905 $30,775 $28,111 $7,678 $7,453 $5,427
======= ======= ======= ====== ====== ======
Operating income (loss) $ 5,311 $ 4,411 $ 3,458 $ 119 $ 108 $ 215
======= ======= ======= ====== ====== ======
Identifiable assets at
December 31:
Operating Assets $13,710 $14,877 $13,249 $1,815 $2,101 $1,640
======= ======= ======= ====== ====== ======
Corporate Assets
Total Assets
- ----------------------------------------------------------------------------------------
---------------------------------------------------
Other Consolidated
---------------------------------------------------
1997 1996 1995 1997 1996 1995
- ------------------------------------------------------------------------------------------
Revenues:
Net sales $ 237 $ 786 $1,138 $36,788 $33,166 $30,660
Intercompany transfers 4,287 3,607 3,079 9,319 9,455 7,095
------ ------ ------ ------- ------- -------
Geographic area totals $4,524 $4,393 $4,217 $46,107 $42,621 $37,755
====== ====== ======
Elimination of intercompany transfers (9,319) (9,455) (7,095)
------- ------- -------
Net sales $36,788 $33,166 $30,660
======= ======= =======
Operating income $ 287 $ 75 $ 255 5,717 4,594 $ 3,928
====== ====== ======
Interest income (expense) 296 118 (64)
General corporate expenses (1,000) (1,029) (897)
------- ------- -------
Income before income taxes $ 5,013 $ 3,683 $ 2,967
======= ======= =======
Identifiable assets at
December 31:
Operating Assets $1,221 $1,460 $1,618 $16,746 $18,438 $16,507
====== ====== ======
Corporate Assets 8,232 4,789 887
------- ------- -------
Total Assets $24,978 $23,227 $17,394
======= ======= =======
- ------------------------------------------------------------------------------------------
(A) Direct export sales of $2,046,000, $1,259,000, and $1,126,000 for
1997, 1996, and 1995, respectively, are included under "United
States."
9. Earnings Per Share Data
-----------------------
The following is a reconciliation of the numerators and the denominators of
the basic and diluted EPS computation for net income.
F-12
Net Weighted Avg
Income Shares Per Share
(Numerator) (Denominator) Amounts
----------------------------------------------------
Year ended December 31, 1997:
Basic EPS
- ---------
Income available to common stockholders $3,003,000 3,817,217 $ .79
Effect of Dilutive Options 134,291
Diluted EPS
- -----------
Income available to common stockholders plus $3,003,000 3,951,508 $ .76
assumed conversions
Year ended December 31, 1996:
Basic EPS
- ---------
Income available to common stockholders $5,472,000 3,784,844 $1.45
Effect of Dilutive Options 172,000
Diluted EPS
- -----------
Income available to common stockholders plus $5,472,000 3,956,844 $1.38
assumed conversions
Year ended December 31, 1995:
Basic EPS
- ---------
Income available to common stockholders $2,786,000 3,686,605 $ .76
Effect of Dilutive Options 180,004
Diluted EPS
- -----------
Income available to common stockholders plus $2,786,000 3,866,609 $ .72
assumed conversions
10. Subsequent Event [unaudited]
- --- ----------------------------
On March 10, 1998 the Company entered into an Agreement and Plan of
Merger by and among Communications Instruments, Inc., a North Carolina
corporation ("CII"), RF Acquisition Corp., an Illinois corporation and wholly
owned subsidiary of CII ("Merger Sub") and the Company (the "Merger Agreement").
CII is owned by Code Hennessy & Simmons, LLC, a Chicago based private investment
firm, and CII management. Pursuant to the Merger Agreement, (a) CII will acquire
all of the Company's issued and outstanding shares of common stock for $13.00
per share in cash, or approximately $51.2 million, and (b) Merger Sub will merge
with and into the Company (the "Merger"), with the Company being the surviving
corporation in the Merger.
The closing of the Merger is subject to the satisfaction of certain
conditions, including, among other matters, approval by the holders of two-
thirds of the issued and outstanding shares of common stock of the Company,
certain regulatory approvals and receipt by CII of debt financing necessary to
consummate the Merger, a commitment for which has been provided by Bank of
America National Trust and Savings Association. This financing is subject to
certain conditions, including the execution of a definitive credit agreement
satisfactory to Bank of America.
F-13
CII also entered into an agreement with Werner E. Neuman, the President and
Chairman of the Board of Directors of the Company, and James A. Steinback, a
Director of the Company, whereby such individuals agreed to vote in favor of the
Merger. These two individuals hold approximately 31% of the shares outstanding.
F-14
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
CORCOM, INC. AND SUBSIDIARIES
Column A Column B Column C Column D Column E
- ---------------------------------------------------------------------------------------------------
Additions Deductions
---------------------------------------------------
Balance at Charged to Balance
Beginning Costs and At End
Description of Period Expenses Describe of Period
===================================================================================================
Year ended December 31, 1997:
- ----------------------------
Allowance for doubtful accounts $ 76 $ 26 42 (A) $ 60
Reserve for excess and obsolete inventories 558 252 319 (B) 491
Year ended December 31, 1996:
- ----------------------------
Allowance for doubtful accounts $ 80 $ 33 37 (A) $ 76
Reserve for excess and obsolete inventories 583 386 411 (B) 558
Year ended December 31, 1995:
- ----------------------------
Allowance for doubtful accounts $145 $ 77 142 (A) $ 80
Reserve for excess and obsolete inventories 523 489 429 (B) 583
- ---------------------------------------------------------------------------------------------------
Note A - Uncollectible accounts written off, net of recoveries
Note B - Obsolete inventories disposed of and written off
F-15
CORCOM, INC.
INDEX
PART I - FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Consolidated Balance Sheets - F-17
April 4, 1998 (unaudited) and December 31, 1997
Consolidated Statements of Income (unaudited)-- F-18
for the 13 weeks ended April 4, 1998 and
March 29, 1997
Consolidated Statements of Cash Flows (unaudited) -
for the 13 weeks ended April 4, 1998 and
March 29, 1997 F-19
Notes to Consolidated Financial Statements F-20 and F-21
F-16
CORCOM, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
April 4, 1998 December 31, 1997
------------- -----------------
(unaudited)
ASSETS
CURRENT ASSETS
Cash & cash equivalents $ 8,151 $ 8,232
Accounts receivable (net) 5,250 4,599
Inventories - Note B 5,883 6,192
Deferred income tax benefit, net 760 885
Other current assets 806 596
------- -------
Total current assets 20,850 20,504
------- -------
PROPERTY, PLANT & EQUIPMENT AT COST 19,804 19,323
Less accumulated depreciation & amortization 15,156 14,849
------- -------
4,648 4,474
------- -------
TOTAL ASSETS $25,498 $24,978
======= =======
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 62 $ 62
Accounts payable 1,515 767
Other accrued liabilities 1,133 2,077
------- -------
Total current liabilities 2,710 2,906
------- -------
LONG TERM DEBT 25 40
------- -------
STOCKHOLDERS' EQUITY
Common stock, no par value: 14,217 14,134
Authorized 10,000,000 shares; issued 3,921,543
shares in 1998 and 3,863,543 shares in 1997
Retained Earnings 9,726 9,026
Accumulated exchange rate adjustments (335) (283)
Less cost of common stock in treasury: (845) (845)
98,300 shares in 1998 and 1997 ------- -------
Total stockholders' equity 22,763 22,032
------- -------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $25,498 $24,978
======= =======
See notes to Consolidated Financial Statements
F-17
NOTE D - INCOME TAXES
The components of the net deferred tax asset, tax effected, recognized in the
accompanying balance sheet as of April 4, 1998 and December 31, 1997 are as
follows (in thousands):
April 4, 1998 December 31, 1997
------------- -----------------
Deferred tax assets $1,148 $1,273
Less: valuation reserve (388) (388)
------ ------
Net deferred tax assets $ 760 $ 885
====== ======
NOTE E MERGER
On March 10, 1998, the Company entered into an Agreement and Plan of Merger by
and among Communications Instruments, Inc., a North Carolina corporation
("CII"), RF Acquisition Corp., an Illinois corporation and wholly owned
subsidiary of CII ("Merger Sub") and the Company (the "Merger Agreement"). CII
is owned by Code Hennessy & Simmons, LLC, a Chicago based private investment
firm, and CII management. Pursuant to the Merger Agreement, (a) CII will
acquire all of the Company's issued and outstanding shares of common stock for
$13.00 per share in cash, or approximately $51.2 million, and (b) Merger Sub
will merge with and into the Company (the "Merger"), with the Company being the
surviving corporation in the Merger.
The closing of the Merger is subject to the satisfaction of certain conditions,
including, among other matters, approval by the holders of two-thirds of the
issued and outstanding shares of common stock of the Company, certain regulatory
approvals and receipt by CII of debt financing necessary to consummate the
Merger, a commitment for which has been provided by Bank of America National
Trust and Savings Association. This financing is subject to certain conditions,
including the execution of a definitive credit agreement satisfactory to Bank of
America.
CII also entered into an agreement with Werner E. Neuman, the President and
Chairman of the Board of Directors of the Company, and James A. Steinback, a
Director of the Company, whereby such individuals agreed to vote in favor of the
Merger. These two individuals hold approximately 31% of the shares outstanding.
F-21
CORCOM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Thirteen Weeks Ended
-----------------------------------------
April 4, 1998 March 29, 1997
------------------- -------------------
OPERATING ACTIVITIES
Net cash flows from operating activities $ 346 $1,556
INVESTING ACTIVITIES
Additions to property, plant, & equipment (495) (524)
(net)
FINANCING ACTIVITIES
Stock options exercised 83 26
Repayments of notes payable and long-term (15) (16)
debt ------ ------
TOTAL FINANCING ACTIVITIES 68 10
(DECREASE)INCREASE IN CASH AND CASH (81) 1,042
EQUIVALENTS
Cash and cash equivalents at beginning of 8,232 4,789
period ------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $8,151 $5,831
====== ======
See notes to Consolidated Financial Statements
F-19
CORCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information in a format provided by the instructions to Form 10-Q
and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and disclosures required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the thirteen weeks ended April 4, 1998 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1998. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for
the year ended December 31, 1997.
NOTE B - INVENTORIES
Major classes of the Company's inventories are as follows (in thousands):
April 4, 1998 December 31, 1997
------------- -----------------
Finished products $1,758 $2,188
Materials and work-in-process 4,125 4,004
------ ------
$5,883 $6,192
====== ======
NOTE C - EARNINGS PER SHARE
Basic earnings per share are based upon the weighted average number of shares of
common stock outstanding during each period. Diluted earnings per share are
based upon the weighted average number of shares of common stock and common
stock equivalents (dilutive stock options) outstanding during the each period.
The following is a reconciliation of the numerators and denominators of the
basic and diluted EPS computation for net income:
Weighted Avg
Net Income Shares Per Share
(Numerator) (Denominator) Amounts
--------------- ----------------- ------------
Thirteen weeks ended April 4, 1998:
BASIC EPS
- ---------
Income available to common shareholders $700,000 3,782,425 $.19
Effect of dilutive options 92,968
DILUTED EPS
- -----------
Income available to common shareholders $700,000 3,875,393 $.18
plus assumed conversions
Thirteen weeks ended March 29, 1997:
BASIC EPS
- ---------
Income available to common shareholders $741,000 3,825,708 $.19
Effect of dilutive options 145,538
DILUTED EPS
- -----------
Income available to common shareholders $741,000 3,971,246 $.19
plus assumed conversions
F-20
NOTE D - INCOME TAXES
The components of the net deferred tax asset, tax effected, recognized in the
accompanying balance sheet as of April 4, 1998 and December 31, 1997 are as
follows (in thousands):
April 4, 1998 December 31, 1997
------------- -----------------
Deferred tax assets $1,148 $1,273
Less: valuation reserve (388) (388)
------ ------
Net deferred tax assets $ 760 $ 885
====== ======
NOTE E MERGER
On March 10, 1998, the Company entered into an Agreement and Plan of Merger by
and among Communications Instruments, Inc., a North Carolina corporation
("CII"), RF Acquisition Corp., an Illinois corporation and wholly owned
subsidiary of CII ("Merger Sub") and the Company (the "Merger Agreement"). CII
is owned by Code Hennessy & Simmons, LLC, a Chicago based private investment
firm, and CII management. Pursuant to the Merger Agreement, (a) CII will
acquire all of the Company's issued and outstanding shares of common stock for
$13.00 per share in cash, or approximately $51.2 million, and (b) Merger Sub
will merge with and into the Company (the "Merger"), with the Company being the
surviving corporation in the Merger.
The closing of the Merger is subject to the satisfaction of certain conditions,
including, among other matters, approval by the holders of two-thirds of the
issued and outstanding shares of common stock of the Company, certain regulatory
approvals and receipt by CII of debt financing necessary to consummate the
Merger, a commitment for which has been provided by Bank of America National
Trust and Savings Association. This financing is subject to certain conditions,
including the execution of a definitive credit agreement satisfactory to Bank of
America.
CII also entered into an agreement with Werner E. Neuman, the President and
Chairman of the Board of Directors of the Company, and James A. Steinback, a
Director of the Company, whereby such individuals agreed to vote in favor of the
Merger. These two individuals hold approximately 31% of the shares outstanding.
F-21