FORM 8-K/A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JUNE 4, 1999 (MARCH 19, 1999)
COMMUNICATIONS INSTRUMENTS, INC.
(Exact name of registrant as specified in its charter)
North Carolina 56-182-82-70
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1396 Charlotte Highway, Fairview, NC 28730
(Address of principal executive offices) (Zip Code)
(828) 628-1711
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name or former address, if changed since last report)
The undersigned Registrant hereby amends the following item and exhibit of
its Current Report on Form 8-K, dated April 5, 1999, relating to events
occurring on March 19, 1999, as set forth on the pages attached hereto.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
The audited consolidated balance sheets for Products Unlimited Corporation
and subsidiaries ("Products") as of August 31, 1997 and 1998, and the
related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended August 31, 1998, the
unaudited consolidated balance sheet as of February 28, 1999, and the
related consolidated statements of income, stockholders' equity, and cash
flows for the six months ended February 28, 1998 and 1999, together with a
report of the independent public accountants, are hereby filed as a part of
this Report on Form 8-KA in the form as attached as Exhibit 99.2.
(b) PRO FORMA FINANCIAL INFORMATION
The required pro forma financial information for the transaction that is
the subject of this Report on Form 8-K/A is hereby filed as part of this Report
in the form attached as Exhibit B.
(c) EXHIBITS
99.2 Financial Statements of Business Acquired
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMUNICATIONS INSTRUMENTS, INC.
DATE: JUNE 4, 1999
BY: /s/ Richard Heggelund
--------------------------------
NAME: RICHARD L. HEGGELUND
TITLE: CHIEF FINANCIAL OFFICER
Item 7
- --------------------------------------------------------------------------------
COMMUNICATIONS INSTRUMENTS, INC.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information (the "Pro Forma
Financial Information") is based on the historical financial statements of
Communications Instruments, Inc., a North Carolina corporation (the "Company"),
included in the Company's Form 10-K and the Company's quarterly report filed on
Form 10-Q.
On March 19, 1999, the Company purchased all of the outstanding equity
securities of Products Unlimited Corporation, an Iowa corporation
("Products"), a manufacturer and marketer of relays, transformers, and
contactors for the HVAC industry (the "Products Acquisition"). Pursuant to the
Stock Purchase Agreement the Company paid approximately $59.4 million, excluding
expenses. In addition, if Products achieves certain sales targets for the years
ending December 31, 1999 and December 31, 2000, the Company will make additional
payments to the former shareholders of Products not to exceed $4.0 million in
the aggregate. The payment of the purchase price and related fees was financed
by the issuance of $55.0 million of Tranche Term B loans, in accordance with an
amendment to the Senior Credit Facility (as defined), the contribution of $5.0
million in additional paid-in capital by CII Technologies, Inc., the Company's
parent (the "Parent"), and a draw on the revolving portion of the Company's
Senior Credit Facility (as defined). Products has manufacturing facilities in
Sterling and Prophetstown, Illinois and Sabula and Guttenberg, Iowa and employs
approximately 1,000 people. The Company does not intend to change the use of the
acquired assets.
The allocation of purchase price is subject to final determination based on
changes in certain estimates of the asset valuations and determinations of
liabilities assumed that may occur within the first year of operations.
Management believes that there may be material changes to the allocation of the
purchase price to certain assets and liabilities due to potential changes in
asset valuations and determinations of liabilities assumed.
On June 19, 1998, the Company acquired all of the outstanding capital stock of
Corcom, Inc., an Illinois corporation ("Corcom") pursuant to the merger of RF
Acquisition Corp., a newly formed wholly-owned subsidiary of the Company, with
and into Corcom (the "Merger"). The Company paid $13.00 per share to the
shareholders of Corcom in exchange for the shares received in the Merger
(approximately $51.1 million in the aggregate). The Company used a portion of
the proceeds of $48.1 million of borrowings under a $60.0 million credit
facility entered into with the Bank of America National Trust and Savings
Association on June 19, 1998 (the "Senior Credit Facility"), additional paid in
capital of $5.0 million contributed by the Parent, and $7.4 million in cash from
Corcom to finance the Merger, repay $7.4 million of debt associated with the Old
Senior Credit Facility (as defined) and fund the related merger costs. Corcom is
an electromagnetic interference filter manufacturer located in Libertyville,
Illinois.
The unaudited pro forma statement of operations for the year ended December 31,
1998 gives effect to the Corcom Merger and the Products Acquisition as if such
events were consummated on January 1, 1998. The unaudited pro forma statement of
operations for the three months ended March 31, 1999 gives effect to the
Products Acquisition as if such event was consummated on January 1, 1998. The
pro forma adjustments are based on available information and certain assumptions
that the Company believes are reasonable.
The pro forma financial information does not purport to be indicative of the
results that would have been obtained had such transactions described above
occurred as of the assumed dates. In
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addition, pro forma financial information does not purport to project the
Company's results of operations for any future date or period.
The pro forma financial information should be read in conjunction with the
financial statements of the Company contained in its Form 10-K filed on March
31, 1999, financial statements of Corcom contained in the Company's Form 8-K
filed on July 6, 1998 and the financial statements of Products filed within this
Form 8-KA.
Statements made by the Company which are not historical facts are forward
looking statements that involve risks and uncertainties. Actual results could
differ materially from those expressed or implied in forward looking statements.
All such forward looking statements are subject to the safe harbor created by
the Private Securities Litigation Reform Act of 1995. Important factors that
could cause future financial performance to differ materially from past results
and from those expressed or implied in this document, include, without
limitation, the risks of acquisition of businesses (including limited knowledge
of the businesses acquired and potential misrepresentations from sellers),
changes in business strategy or development plans, dependence on independent
sales representatives and distributors, environmental regulations, availability
of financing, competition, reliance on key management personnel, ability to
manage growth, loss of customers and a variety of other factors.
2
COMMUNICATIONS INSTRUMENTS, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
For the Twelve Months Ended December 31, 1998
Pro Forma Pro Forma Pro Forma
Adjustments As Adjusted Adjustments
for the for the for the
Corcom Corcom Products
Company Corcom (16) Merger (1) Merger (7) Products (8) Acquisition (9) Pro Forma (15)
======== =========== ======= ======== ======== =========== =========
Net sales $120,030 $16,284 $ - $136,314 $60,877 $ - $197,191
Cost of sales 81,285 11,032 (54) (2) 92,263 50,571 (842) (10) 141,992
-------- ------- ------- -------- ------- ------- --------
Gross profit 38,745 5,252 54 44,051 10,306 842 55,199
Selling expense 8,635 1,741 - 10,376 2,321 (18) (11) 12,679
General and administrative
expenses 8,935 4,292 (2,049) (3) 11,178 2,040 (638) (12) 12,580
Research and development
expenses 1,328 183 - 1,511 341 - 1,852
Amortization of goodwill
and other intangible assets 1,769 - 878 (4) 2,647 - 2,264 (13) 4,911
-------- ------- ------- -------- ------- ------- --------
Income (loss) from operations 18,078 (964) 1,225 18,339 5,604 (766) 23,177
Interest expense (income), net 12,552 (198) 1,758 (5) 14,112 845 4,175 (14) 19,132
Other expense (income), net 171 - - 171 166 337
-------- ------- ------- -------- ------- ------- --------
Income (loss) before income
taxes and extraordinary item 5,355 (766) (533) 4,056 4,593 (4,941) 3,708
Provision for (benefit from)
income taxes (6) 2,371 221 (414) 2,178 1,792 (1,591) 2,379
-------- ------- ------- -------- ------- ------- --------
Income (loss) before
extraordinary item $ 2,984 $ (987) $ (119) $ 1,878 $ 2,801 $(3,350) $ 1,329
======== ======= ======= ======== ======= ======= ========
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COMMUNICATIONS INSTRUMENTS, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
(1) The Company has accounted for the Corcom Merger as a purchase, applying the
provisions of Accounting Principles Board Opinion No. 16. The purchase
price has been allocated to the acquired assets and assumed liabilities
based upon their estimated relative fair values as of the closing of the
Corcom Merger.
The Company used a portion of the proceeds of $48.1 million of borrowings
under the Senior Credit Facility, additional paid-in capital of $5.0
million contributed by the Parent (as defined), and $7.4 million in cash
from Corcom to finance the Merger, repay $7.4 million of debt associated
with the Old Senior Credit Facility and fund the related merger costs.
The purchase price was allocated to the net assets of Corcom based on their
relative fair value, as follows (in thousands):
Current assets $ 12,761
Property, plant and equipment 7,374
Intangible and other assets 35,550
Liabilities assumed (10,635)
--------
Total purchase price, including expenses $ 45,050
========
Management believes that there will be no material changes to the
allocation of the purchase price.
(2) Adjustment reflects a lower depreciation expense based on the fair value of
the assets purchased ($54,000). Does not give effect to the write-off of
$392,000 due to the purchase accounting adjustment for the increase of
inventories to estimated fair market value in connection with the Corcom
Merger.
(3) Adjustment reflects a lower depreciation expense based on the fair value of
the assets purchased ($9,000) and the removal of expenses associated with
the Merger (approximately $2.0 million).
(4) Adjustment reflects $349,000 of amortization of goodwill and $529,000 of
amortization of other intangible assets recorded in connection with the
Corcom Merger. Goodwill is amortized over 30 years due to the long life
cycles of the products. Other intangible assets are amortized over lives
ranging from 2.5 years to 30 years.
(5) Adjustment reflects primarily the additional interest expense associated
with approximately $40.7 million of incremental bank debt incurred to
finance the Corcom Merger. The interest rate assumed with respect to such
bank debt is 8.125%, the rate in effect at the date of the Corcom Merger.
An increase
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in this rate of 1/8% would increase interest expense by approximately
$51,000 for the year and a decrease of 1/8% would lower interest expense by
approximately $51,000 for the year.
(6) Assumes an effective tax rate of 77.7% for the Corcom Merger and 57.8% for
the Products Acquisition. The effective tax rate was computed based upon
statutory rates adjusted for certain known permanent differences in
accordance with Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes".
(7) Adjustments give effect to the Corcom Merger as if such event had occurred
on January 1, 1998.
(8) Products' historical fiscal year-end was based on an August 31 year-end
date. As such, and for purposes of filing Products' historical results on a
basis consistent with the Company's fiscal year-end, Products' unaudited
1998 statement of operations was derived by adding Products' unaudited
operating results for the period from September 1, 1998 through December
31, 1998 to the audited amounts for the fiscal year ended August 31, 1998,
and then by deducting the unaudited operating results for the period from
September 1, 1997 through December 31, 1997. Products' unaudited historical
financial information presented herein excludes the effects of its former
investments in limited real estate partnerships, as such investments were
sold by Products prior to the Products Acquisition and were therefore not
acquired by the Company.
(9) The Company has accounted for the Products Acquisition as a purchase,
applying the provisions of Accounting Principles Board Opinion No. 16. The
purchase price has been allocated to the acquired assets and assumed
liabilities based upon their estimated relative fair market values as of
the close date of the Products Acquisition.
The payment of the purchase price and related fees was financed by the
issuance of $55.0 million of Tranche Term B loans, in accordance with an
amendment to the Senior Credit Facility (as defined), the contribution of
$5.0 million in additional paid-in capital by the Parent, and a draw on the
revolving portion of the Company's Senior Credit Facility (as defined).
The purchase price was allocated to the net assets of Products based on
their relative fair value, as follows (in thousands):
Current assets $ 15,046
Property, plant and equipment 21,237
Intangible and other assets 39,711
Liabilities assumed (15,869)
--------
Total purchase price, including expenses $ 60,125
========
Such allocations of purchase price are subject to final determination based
on valuations and other studies that will be completed after the closing.
Management believes that there may be material changes to the allocation of
the purchase price.
(10) Adjustment reflects a lower depreciation expense based on the fair value of
the assets purchased including buildings previously leased ($177,000), the
elimination of the rent expense allocated to cost of goods sold as the
buildings are part of the acquired assets and are now owned rather than
leased ($458,000) and terminated officers' salaries ($207,000) not
replaced. Does not give effect to the write-off of approximately $363,000
related to the write-up of inventories to estimated fair market value under
purchase accounting in connection with the Products Acquisition.
5
(11) Adjustment reflects the elimination of the rent expense allocated to
selling expenses as the buildings are part of the acquired assets and are
now owned rather than leased ($18,000).
(12) Adjustment reflects the elimination of (i) terminated officers' salaries
($725,000) not replaced, (ii) rent expense allocated to general and
administrative expenses as the buildings are part of the acquired assets
and are now owned rather than leased ($18,000), and (iii) a lower
depreciation expense based on the fair value of the assets purchased
($19,000) offset by expense to add management personnel ($124,000).
(13) Adjustment reflects $860,000 of amortization of goodwill and approximately
$1.4 million of amortization of other intangible assets recorded in
connection with the Products Acquisition. Goodwill is amortized over 30
years due to the long life cycles of the products. Other intangible assets
are amortized over lives ranging from 2 years to 30 years.
(14) Adjustment reflects primarily the additional interest expense associated
with approximately $56.9 million of incremental bank debt incurred to
finance the Products Acquisition. The interest rate assumed with respect to
such bank debt is 8.25% the rate in effect at the date of the Products
acquisition. An increase in this rate of 1/8% would increase interest
expense by approximately $72,000 for the year and a decrease of 1/8% would
lower interest expense by approximately $72,000 for the year.
(15) Adjustments give effect to the Products Acquisition and the Corcom Merger
as if such events had occurred on January 1, 1998.
(16) Corcom historical financial information is for the period from January 1,
1998 through June 18, 1998.
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COMMUNICATIONS INSTRUMENTS, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 1999
Pro Forma
Adjustments
for the
Products
Company Products (1) Acquisition (2) Pro Forma (9)
Net sales $33,852 $ 15,247 $ - $49,099
Cost of sales 24,327 12,093 (134) (3) 36,286
------- -------- ------- -------
Gross profit 9,525 3,154 134 12,813
Selling expense 2,808 531 (3) (4) 3,336
General and administrative expenses 2,637 2,596 (2,230) (5) 3,003
Research and development expenses 384 85 - 469
Amortization of goodwill and other intangible assets 755 - 484 (6) 1,239
------- -------- ------- -------
Income (loss) from operations 2,941 (58) 1,883 4,766
Interest expense, net 3,645 205 906 (7) 4,756
Other expense (income), net 10 (16) (6)
------- -------- ------- -------
Income (loss) before income taxes (714) (247) 977 16
Provision for (benefit from) income taxes (139) (96) 451 (8) 216
------- -------- ------- -------
Net income (loss) $ (575) $ (151) $ 526 $ (200)
======= ======== ======= =======
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COMMUNICATIONS INSTRUMENTS, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(1) Represents Products' unaudited operating results for the period from
January 1, 1999 - March 18, 1999 (date prior to date of acquisition by the
Company). Products' unaudited results for the period presented herein
exclude the effects of its former investments in limited real estate
partnerships, as such investments were sold by Products prior to the
Products Acquisition, and were therefore not acquired by the Company.
(2) The Company has accounted for the Products Acquisition as a purchase,
applying the provisions of Accounting Principles Board Opinion No. 16. The
purchase price has been allocated to the acquired assets and assumed
liabilities based upon their estimated relative fair values as of the
closing of the Products Acquisition.
The payment of the purchase price and related fees was financed by the
issuance of $55.0 million of Tranche Term B loans, in accordance with an
amendment to the Senior Credit Facility (as defined), the contribution of
$5.0 million in additional paid-in capital by the Parent, and a draw on the
revolving portion of the Company's Senior Credit Facility (as defined).
The purchase price was allocated to the net assets of Products based on
their relative fair value, as follows (in thousands):
Current assets $ 15,046
Property, plant and equipment 21,237
Intangible and other assets 39,711
Liabilities assumed (15,869)
--------
Total purchase price, including expenses $ 60,125
========
Such allocations of purchase price are subject to final determination based
on valuations and other studies that will be completed after the closing.
Management believes that there may be material changes to the allocation of
the purchase price.
(3) Adjustment reflects a lower depreciation expense based on the fair value of
the assets purchased including buildings previously leased ($54,000), the
elimination of the rent expense allocated to cost of goods sold as the
buildings are part of the acquired assets and are now owned rather than
leased ($73,000) and terminated officers' salaries ($7,000) not replaced.
Does not give effect to the write-off of approximately $363,000 related to
the write-up of inventories to estimated fair market value under purchase
accounting in connection with the Products Acquisition.
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(4) Adjustment reflects the elimination of the rent expense allocated to
selling expenses as the buildings are part of the acquired assets and are
now owned rather than leased ($3,000).
(5) Adjustment reflects the elimination of (i) terminated officers' salaries
($102,000) not replaced, (ii) rent expense allocated to general and
administrative expenses as the buildings are part of the acquired assets
and are now owned rather than leased ($3,000), (iii) nonrecurring expenses
related to and incurred as a direct result of the Products Acquisition
(approximately $2.2 million) and (iv) a lower depreciation expense based on
the fair value of the assets purchased ($6,000) offset by an expense to add
management personnel. ($31,000).
(6) Adjustment reflects $184,000 of amortization of goodwill and approximately
$300,000 of amortization of other intangible assets recorded in connection
with the Products Acquisition. Goodwill is amortized over 30 years due to
the long life cycles of the products. Other intangible assets are amortized
over lives ranging from 2 years to 30 years.
(7) Adjustment reflects primarily the additional interest expense associated
with approximately $56.9 million of incremental bank debt incurred to
finance the Products Acquisition. The interest rate assumed with respect to
such bank debt is 8.25%, the rate in effect at the date of the Products
merger. An increase in this rate of 1/8% would increase interest expense by
approximately $18,000 for the three months and a decrease of 1/8% would
lower interest expense by approximately $18,000 for the three months.
(8) Assumes an effective tax rate of 48.6% for the Products Acquisition. The
effective tax rate was computed based upon statutory rates adjusted for
certain known permanent differences in accordance with Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes".
(9) Adjustments give effect to the Products Acquisition as if such event had
occurred on January 1, 1998.
9