EXHIBIT 99.2
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Products Unlimited
Corporation and Subsidiaries
Consolidated Balance Sheets 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 and Independent Auditors'
Report
INDEPENDENT AUDITORS' REPORT
To the Stockholders of Products Unlimited Corporation:
We have audited the accompanying consolidated balance sheets of Products
Unlimited Corporation and subsidiaries (the "Company") 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.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at August 31, 1997 and
1998 and the results of their operations and their cash flows for each of the
three years in the period ended August 31, 1998 in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Chicago, Illinois
June 2, 1999
PRODUCTS UNLIMITED CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands Except Share Amounts)
- -------------------------------------------------------------------------------
August 31,
---------------------
1997 1998
ASSETS
CURRENT ASSETS:
Accounts receivable (less allowance for doubtful
accounts: 1997 - $25, 1998 - $25) $ 7,183 $ 8,328
Inventories 2,885 3,117
Advances for equipment 679 5
Prepaids and other current assets 474 1,011
-------- --------
Total current assets 11,221 12,461
PROPERTY, PLANT AND EQUIPMENT - Net 12,132 12,962
OTHER ASSETS:
Deferred income taxes 430 275
Equity investments in limited partnerships 3,703 5,343
-------- --------
Total other assets 4,133 5,618
-------- --------
TOTAL ASSETS $ 27,486 $ 31,041
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 2,168 $ 2,793
Revolving credit facility 1,369 1,309
Accounts payable 3,184 3,546
Accrued liabilities:
Wages and commissions 1,078 1,331
Insurance 589 389
Other 360 303
-------- --------
Total current liabilities 8,748 9,671
LONG-TERM DEBT 7,332 7,508
-------- --------
Total liabilities 16,080 17,179
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Class B Common stock - $1.00 par value; 50,000
shares authorized, 1,000 shares issued
and outstanding 1 1
Preferred stock - no par value; 50,000 shares
authorized, 1,000 shares issued and outstanding
Additional paid-in capital 863 863
Notes receivable from stockholders (1,058) (1,398)
Retained earnings 11,600 14,396
-------- --------
Total stockholders' equity 11,406 13,862
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 27,486 $ 31,041
======== ========
See notes to consolidated financial statements.
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PRODUCTS UNLIMITED CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands)
- --------------------------------------------------------------------------------
Year Ended August 31,
-----------------------------
1996 1997 1998
NET SALES $49,745 $53,057 $57,424
COST OF SALES 40,554 43,142 47,833
------- ------- -------
GROSS MARGIN 9,191 9,915 9,591
OPERATING EXPENSES:
Selling expenses 1,986 2,195 2,381
General and administrative expenses 2,118 2,103 1,734
Research and development expenses 319 307 365
------- ------- -------
Total operating expenses 4,423 4,605 4,480
------- ------- -------
OPERATING INCOME 4,768 5,310 5,111
INTEREST EXPENSE AND OTHER FINANCING COSTS-Net (818) (855) (833)
OTHER EXPENSE-Net (122) (13) (172)
------- ------- -------
INCOME OF CONSOLIDATED GROUP BEFORE INCOME TAXES 3,828 4,442 4,106
INCOME TAX EXPENSE (1,479) (1,706) (1,579)
------- ------- -------
INCOME OF CONSOLIDATED GROUP 2,349 2,736 2,527
EQUITY IN LOSS OF LIMITED PARTNERSHIPS-
Net of tax benefits of $116, $139, and $130 and
low income housing credits of $329, $494, and
$494 for 1996, 1997, and 1998, respectively 87 269 269
------- ------- -------
NET INCOME $ 2,436 $ 3,005 $ 2,796
======= ======= =======
See notes to consolidated financial statements.
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PRODUCTS UNLIMITED CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands Except Share Amounts)
- ----------------------------------------------------------------------------------------------------------------------------------
Notes
Additional Receivable Total
Common Stock Preferred Stock Paid-in From Retained Stockholders'
Shares Amount Shares Amount Capital Stockholders Earnings Equity
BALANCES - August 31, 1995 1,000 $ 1 1,000 $863 $ 6,159 $ 7,023
Issuance of notes receivable from stockholders $ (157) (157)
Net income 2,436 2,436
------ ------ ------ ------ ---- ------- ------- -------
BALANCES - August 31, 1996 1,000 1 1,000 863 (157) 8,595 9,302
Issuance of notes receivable from stockholders (901) (901)
Net income 3,005 3,005
------ ------ ------ ------ ---- ------- ------- -------
BALANCES - August 31, 1997 1,000 1 1,000 863 (1,058) 11,600 11,406
Issuance of notes receivable from stockholders (340) (340)
Net income 2,796 2,796
------ ------ ------ ------ ---- ------- ------- -------
BALANCES - August 31, 1998 1,000 $ 1 1,000 $863 $(1,398) $14,396 $13,862
====== ====== ====== ====== ==== ======= ======= =======
See notes to consolidated financial statements.
-4-
PRODUCTS UNLIMITED CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
- ------------------------------------------------------------------------------------------------------
Year Ended August 31,
-----------------------------------
1996 1997 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,436 $ 3,005 $ 2,796
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation and amortization 2,075 2,716 3,111
Deferred income taxes 116 (37) 155
Loss (gain) on disposal of property, plant and equipment 25 10
Equity in loss of limited partnerships 358 364 355
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (2,414) 1,256 (1,145)
Decrease (increase) in inventories (160) 550 (232)
Decrease (increase) in advances for equipment (679) 674
Decrease (increase) in prepaids and other current assets (359) 427 (537)
Increase (decrease) in accounts payable 1,251 (1,356) 362
Increase (decrease) in accrued wages and commissions 392 177 253
Increase (decrease) in accrued insurance 13 266 (200)
Increase (decrease) in accrued other liabilites (386) 45 (57)
------- ------- -------
Net cash provided by operating activities 3,322 6,759 5,545
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (3,418) (5,709) (4,139)
Proceeds from disposal of property, plant and equipment 75 188
Investments in and contributions to limited partnerships (3,464) (961) (1,995)
------- ------- -------
Net cash used in investing activities (6,882) (6,595) (5,946)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under revolving credit facility 306 (900) (60)
Borrowings under long-term debt agreements 4,776 3,712 2,969
Principal payments under long-term debt agreements (1,365) (2,075) (2,168)
Funds advanced to stockholders represented by noted receivable (157) (901) (340)
------- ------- -------
Net cash provided by (used in) financing activities 3,560 (164) 401
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS -- -- --
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR -- -- --
------- ------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR $ -- $ -- $ --
======= ======= =======
SEE NOTES 6 AND 8 FOR INTEREST AND TAXES PAID, RESPECTIVELY
See notes to consolidated financial statements.
-5-
PRODUCTS UNLIMITED CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unless Specified, Dollars In Thousands Except Share Amounts)
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1. BUSINESS DESCRIPTION
Products Unlimited Corporation and subsidiaries, an Iowa corporation (the
"Company"), is engaged in the design, manufacture and distribution of
electro-mechanical products primarily to the heating, ventilating, and air
conditioning ("HVAC") industry. Manufacturing and assembly operations are
performed primarily in Sterling, Illinois; Guttenberg, Iowa; Prophetstown,
Illinois; and Sabula, Iowa.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The accompanying consolidated financial
statements include the following: Products Unlimited Corporation, GW
Industries, Inc., Marc Enterprises, Inc., Products Unlimited Export
Corporation, and S.O.L. Industries, Inc. All intercompany transactions have
been eliminated in consolidation.
Equity Investments in Limited Partnerships - The Company records its
investments in real estate limited partnerships (the "Limited
Partnerships"), which invest in low income housing properties and related
tax credits, on the equity method. Acquisition, selection and other costs
related to the acquisition of the Limited Partnerships are capitalized to
the investment account and are being amortized on a straight-line basis
over the estimated lives of the underlying assets, which is 27.5 years.
Cash and Cash Equivalents - All highly liquid investments with an original
maturity of three months or less are considered to be cash equivalents.
Revenue Recognition - Sales and the related cost of sales generally are
recognized upon shipment of products sold, net of estimated discounts and
allowances.
Warranty Costs - Estimated warranty costs are provided based on known
claims and historical claims experience.
Inventories - Inventories are stated at the lower of cost (first-in, first-
out method) or market.
Property, Plant and Equipment - Property, plant and equipment are stated at
cost. Maintenance and repairs are charged to expense as incurred.
Depreciation and amortization is computed using the straight-line method
over the estimated useful lives of the assets, which range from 3 to 39
years.
Income Taxes - The Company accounts for income taxes using an asset and
liability approach as prescribed by Statement of Financial Accounting
Standards ("SFAS") No. 109, Accounting for Income Taxes. The asset and
liability approach requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary
differences between the financial reporting basis and tax basis of assets
and liabilities. An allowance is provided whenever management believes it
is more likely than not that tax benefits will not be utilized.
Employee Benefit Plans - The Company maintains a qualified 401(k) plan to
provide retirement benefits to substantially all employees. Employees can
elect to withhold between 1% and 15% of their
-6-
pre-tax earnings. The plan provides for the employer to match 50% of all
employee contributions up to 5% of the employees' annual salary.
Long-Lived Assets - The Company analyzes the carrying value of long-lived
assets for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. If the Company determines
it is unable to recover the carrying value of the assets, the assets will
be written down using an appropriate method. Management does not believe
current events or circumstances provide evidence to suggest that carrying
values have been impaired.
Research and Development - Research and development costs are charged to
expense as incurred.
Use of Estimates in the Preparation of Financial Statements - 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.
Examples of significant estimates and assumptions made in the preparation
of these financial statements include the Company's allowance for doubtful
accounts, reserves for inventory obsolescence, warranty accrual, insurance-
related accruals, and provision for losses, if any, to be incurred on fixed
price sales contracts.
Commodity Contracts - The Company uses options and swaps, individually or
in combination, to reduce the effects of fluctuations in raw material
prices of copper and silver. All contracts meet the risk reduction and
correlation criteria and are recorded using hedge accounting. Effectiveness
is measured based upon high correlation between commodity gains and losses
on the contracts and those on the firm commitment. Under hedge accounting,
the gain or loss on the hedge is deferred and recorded as a component of
the underlying inventory purchase. Deferred gains or losses were not
significant at August 31, 1997 and 1998. Differences between the contract
price and market price are settled monthly. The fair value of open
contracts was not significant at August 31, 1997 and 1998.
Fair Value of Financial Instruments - The estimated fair values of the
Company's financial instruments, including primarily cash and cash
equivalents, accounts receivable and accounts payable, approximate their
carrying values at August 31, 1997 and 1998, due to their nature. The fair
value of the Company's indebtedness is estimated using the current rates
that would be available for such a borrowing.
Concentration of Credit Risk - Financial instruments that potentially
subject the Company to concentration of credit risk consist principally of
accounts receivable. The Company's customers are concentrated in the HVAC
industry. The Company's customers are not concentrated in any specific
geographical region. The Company generally does not require customers to
provide collateral related to such accounts receivable. The Company
establishes an allowance for doubtful accounts based upon factors relating
to the credit risk of specific customers, historical trends and other
information.
New Accounting Standards - The Financial Accounting Standards Board
("FASB") issued SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, effective for all fiscal quarters beginning after June
15, 2000. The new standard establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires that
an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. The Company has not determined at this time what impact, if any,
that this new accounting standard will have on its financial statements.
-7-
In 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income, and
SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information, which must be adopted by fiscal year 1999. These Statements
will have no effect on the Company's financial position or net income.
3. INVENTORIES
Inventories consist of the following at August 31:
1997 1998
Finished goods $ 872 $1,168
Work-in-process 851 1,083
Raw materials and supplies 1,162 866
------ ------
Total $2,885 $3,117
====== ======
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at August 31:
1997 1998
Leasehold improvements $ 752 $ 643
Machinery and equipment 17,814 20,324
------- -------
18,566 20,967
Less accumulated depreciation and amortization (6,434) (8,005)
------- -------
Total $12,132 $12,962
======= =======
Property, plant and equipment generally are depreciated using the following
lives: leasehold improvements - lesser of term of lease or useful lives,
generally 5 to 39 years; and machinery and equipment - 3 to 10 years.
5. EQUITY INVESTMENTS IN LIMITED PARTNERSHIPS
The Company owned an equity investment in three Limited Partnerships as of
August 31, 1998. Two of the interests were acquired in 1995 and one in
1998. The Limited Partnerships owned as of August 31, 1998, invest in
residential low income rental projects consisting of 101 apartment units.
The mortgage loans on these projects are payable to banks and the other
liabilities consist of fees payable to the developers and contractors.
The Company, as a limited partner of the Limited Partnerships, is entitled
to 99% of the profits and losses in the Limited Partnerships.
Equity in losses of Limited Partnerships are recognized in the financial
statements until the limited partnership account is reduced to a zero
balance. Losses incurred after the limited partnership investment account
is reduced to zero are not recognized. No cumulative amount of unrecognized
equity in losses exists for any of the years presented.
-8-
Distributions from the Limited Partnerships are accounted for as a return
of capital until the investment balance is reduced to zero. Subsequent
distributions are recognized as income.
The difference between the investment per the accompanying balance sheets
at August 31, 1997 and 1998, and the equity per the Limited Partnerships'
combined financial statements is due primarily to costs capitalized to the
investment account and minimal distributions recognized as income.
Selected financial information for the combined financial statements of the
Limited Partnerships, at August 31, 1997 and 1998 and for each of the three
years in the period ended August 31, 1998, is as follows:
August 31,
--------------------
Balance Sheets 1997 1998
Land and buildings, net $6,343 $7,711
Total assets 6,769 7,730
Mortgage payable 1,896 2,316
Total liabilities 3,029 2,379
Equity of the limited 3,740 5,351
partnerships
Year Ended August 31,
---------------------------------
Statements of Operations 1996 1997 1998
Total revenues $ 33 $ 365 $ 360
Interest expense 221 249 177
Depreciation and amortization 76 231 231
Total expenses 395 733 719
Net loss (362) (368) (359)
In contemplation of the sale of the Company to Communications Instruments,
Inc., the Company sold its equity investments in Limited Partnerships to a
syndication fund, a nonrelated third party, on February 13, 1999 (see Note
13).
6. INDEBTEDNESS
Indebtedness consists of the following at August 31:
-9-
1997 1998
Revolving credit facility with Firstar Bank, Iowa, .50% below prime rate
announced by Firstar $ 1,369 $ 1,309
======= =======
Long-term debt:
Note payable to Firstar Bank, Iowa, 8.00% interest rate, due October 1, 1997 $ 77
Note payable to Firstar Bank, Iowa, 8.25% interest rate, due April 1, 2001 5,719 $ 4,328
Note payable to Firstar Bank, Iowa, 7.75% interest rate, due January 1, 2002 2,704 2,174
Note payable to Firstar Bank, Iowa, 8.25% interest rate, due July 1, 2002 1,000 840
Note payable to Firstar Bank, Iowa, 7.35% interest rate, due August 1, 2003 2,959
------- -------
9,500 10,301
Less - current portion (2,168) (2,793)
------- -------
Total $ 7,332 $ 7,508
======= =======
Long-term debt maturities at August 31, 1998 are as follows:
1999 $ 2,793
2000 3,024
2001 2,652
2002 1,186
2003 646
Thereafter
-------
Total $10,301
=======
The Company has a revolving credit facility with Firstar Bank, Iowa. As of
August 31, 1998, the Company could borrow up to $5,000 under this facility.
All indebtedness requires monthly principal and interest payments until
maturity when any remaining principal balance and interest shall be due.
The revolving credit facility is secured by inventory, accounts receivable,
and equipment. Remaining indebtedness is collateralized by all assets of
the Company. The Company was in compliance with all debt covenants or
received necessary waivers at August 31, 1997 and 1998.
The carrying value of indebtedness approximates fair value because the
floating interest rates reflect market rates and the fixed rates
approximate market rates currently available to the Company for similar
indebtedness.
Interest paid amounted to $807, $925 and $877 for the years ended August
31, 1996, 1997 and 1998, respectively.
All the indebtedness referred to above was retired in connection with
Communications Instruments, Inc. purchase of the Company on March 19, 1999
(see Note 13).
7. LEASES
The Company leases four manufacturing facilities from the stockholders of
the Company (see Note 12) under noncancelable operating leases which have
remaining terms from one to five years and which provide for various
renewal options. The Company also leases a third party warehouse on a
monthly basis based upon square footage occupied. No formal agreement
exists for this lease. Total rent
-10-
expense charged to operations for all operating leases was $509, $524 and
$521 for the years ended August 31, 1996, 1997 and 1998, respectively.
Future minimum rental payments required under operating leases that have
initial or remaining noncancelable lease terms in excess of one year at
August 31, 1998 are as follows:
1999 $523
2000 370
2001 17
----
Total $910
====
The four manufacturing facilities leased by the Company from the
stockholders were purchased by Communications Instruments, Inc. on March
19, 1999 (see Note 13).
8. INCOME TAXES
The significant components of income tax expense are:
August 31,
-----------------------------------
1996 1997 1998
Current tax expense:
Federal $1,094 $1,411 $1,153
State 269 332 271
------ ------ ------
Total current tax expense 1,363 1,743 1,424
Deferred tax expense (benefit) 116 (37) 155
------ ------ ------
Total tax expense $1,479 $1,706 $1,579
====== ====== ======
Income tax payments amounted to $1,276, $1,471 and $1,156 for the years
ended August 31, 1996, 1997 and 1998, respectively.
The Company's effective tax rate differs from the statutory rate for the
following reasons:
Year Ended August 31,
-------------------------------------------
1996 1997 1998
Provision at statutory federal tax rate 34.0% 34.0% 34.0%
Effective state income tax rate 4.3 4.3 4.3
Nondeductible meals, entertainment and penalties 0.3 0.1 0.1
---- ---- ----
38.6% 38.4% 38.4%
==== ==== ====
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Deferred income taxes consisted of the following at August 31:
1997 1998
Current deferred tax assets:
Inventory costs capitalization $ 154 $ 45
Other 67 67
----- -----
Total current deferred tax assets 221 112
----- -----
Long-term deferred tax assets:
Fixed assets 45 64
Accrued expenses 164 99
----- -----
Total long-term deferred tax assets 209 163
----- -----
Deferred tax assets, net $ 430 $ 275
===== =====
9. COMMITMENTS AND CONTINGENCIES
From time to time, the Company is a party to certain lawsuits and
administrative proceedings that arise in the conduct of its business. While
the outcome of these lawsuits and proceedings cannot be predicted with
certainty, management believes that the lawsuits and proceedings, either
singularly or in the aggregate, would not have a material adverse effect on
the financial condition or results of operations of the Company.
10. EMPLOYEE BENEFITS
The Company has a 401(k) tax deferred retirement investment plan in which
employees can elect to withhold between 1% and 15% of their pre-tax
earnings. The plan is offered to all employees who have completed at least
six (6) months of service with the Company and have completed at least 1000
hours of service during those six months. The plan has a 100% vesting
clause in which all employee contributions and Company match amounts
immediately vest. The Company matches 50% of all employees contributions up
to 5% of the employees' annual salary. Employer contributions amounted to
$114, $129 and $156 for the years ended August 31, 1996, 1997, and 1998.
During 1996, the Company adopted a continuous improvement profit sharing
plan in order to reward employees for improvements in the Company's
operating results. All employees participate in the plan in which annual
pay-out is determined by the stockholders of the Company, based upon a
profitability indicator. This profitability indicator corresponds to a
bonus amount as a percent of an employees' annual salary. Continuous
improvement bonuses amounted to $81, $106 and $221 for the years ended
August 31, 1996, 1997, and 1998.
The Company also provides annual bonuses to certain key members of
management. These bonuses are determined on a discretionary basis by the
stockholders of the Company using factors such as length of service and
contributions to key facets of the Company's operations. In addition to the
annual bonus, another discretionary bonus is given to one key member of
management for his role in the automation
-12-
and reengineering of certain plants. Total discretionary bonuses amounted
to $499, $624 and $587 for the years ended August 31, 1996, 1997, and 1998.
11. SIGNIFICANT CUSTOMERS AND SUPPLIERS
The Company's top ten customers constitute approximately 57%, 55% and 56%
of net sales in 1996, 1997 and 1998, respectively. No single customer has
accounted for more than 10% of the Company's net sales since 1996. The
Company maintains both formal and informal sales agreements with its top
ten customers, which are a mix of annual renewals and long-term contracts
renewed on an annual basis.
The Company's top ten suppliers constitute approximately 75% of purchases
in 1996, 1997 and 1998. Copper wire, lamination steel, transformer bobbins,
plastics and stampings are the primary materials purchased from these
suppliers.
12. RELATED PARTY TRANSACTIONS
The Company has numerous related party loans. The total outstanding balance
disclosed below includes the Company's payment of life insurance premiums
on behalf of the stockholders, in addition to other loaned amounts. The
remaining balances represent loans with certain key employees. The
following represents the outstanding principal balance for each individual
as of August 31, 1997 and 1998:
Related Party 1997 1998
Gary Schreiner, stockholder $ 922 $1,248
Edward Chernoff, stockholder 150 150
Steve Schreiner, employee 31
Ben Shade, employee 26 18
The Company purchases a majority of its production machinery and equipment
from Eagle Automation, which is wholly owned by a stockholder of the
Company. The following reflects the Company's transactions with Eagle
Automation over the three years ended August 31, 1998:
Transactions with Eagle Automation 1996 1997 1998
Purchases from $3,084 $3,573 $2,044
Net payable to, at August 31 479 5
Advances to, at August 31 200
The Company's largest customer is Motors & Armatures, a company that is
wholly owned by a stockholder of the Company. The following reflects the
Company's transactions with Motors & Armatures over the three years ended
August 31, 1998:
Transactions with Motors & Armatures 1996 1997 1998
Sales to $5,239 $5,026 $5,288
Net receivable from, at August 31 367 322 474
13. SUBSEQUENT EVENTS (UNAUDITED)
On March 19, 1999, Communications Instruments, Inc. ("CII") purchased all
of the outstanding equity securities of the Company (the "Stock Purchase").
Pursuant to the Stock Purchase Agreement, CII paid approximately $59,400.
In addition, if the Company achieves certain sales targets for the 12-month
-13-
periods ending December 31, 1999 and 2000, CII will make additional
payments to the former stockholders of the Company not to exceed $4,000 in
the aggregate.
In connection with the Stock Purchase by CII, all the Company's
indebtedness, including the revolving credit facility and notes payable to
Firstar Bank of Cedar Rapids, Iowa, was paid in full.
In connection with the Stock Purchase by CII, CII acquired four
manufacturing facilities previously leased by the Company from the former
stockholders of the Company.
The Company sold its equity investments in real estate limited partnerships
that invest in low income housing properties and related tax credits on
February 13, 1999, for approximately $2,700, as such investments were
excluded from the terms of the Stock Purchase Agreement. The sale of these
investments resulted in a significant loss of approximately $2,600 to the
Company, which management believes is attributable primarily to conditions
of the sale that did not favor the Company, including, among other things,
the limited time in which the sale could take place.
* * * * * *
-14-
PRODUCTS UNLIMITED CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(Dollars in Thousands Except Share Amounts)
- --------------------------------------------------------------------------------
February 28,
1999
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,573
Accounts receivable (less allowance for doubtful accounts: $25) 11,379
Inventories 4,407
Prepaids and other current assets 1,576
--------
Total current assets 18,935
PROPERTY, PLANT AND EQUIPMENT - Net 14,906
DEFERRED INCOME TAXES 275
--------
TOTAL ASSETS $ 34,116
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 2,793
Revolving credit facility 5,524
Accounts payable 3,283
Accrued liabilities:
Wages and commissions 1,031
Insurance 504
Other 326
--------
Total current liabilities 13,461
LONG-TERM DEBT 7,063
--------
Total liabilities 20,524
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Class B Common stock - $1.00 par value; 50,000 shares
authorized, 1,000 shares issued and outstanding 1
Preferred stock - no par value; 50,000 shares authorized,
1,000 shares issued and outstanding
Additional paid-in capital 863
Notes receivable from stockholders (1,863)
Retained earnings 14,591
--------
Total stockholders' equity 13,592
--------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 34,116
========
See notes to condensed consolidated financial statements.
-1-
PRODUCTS UNLIMITED CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in Thousands)
- -------------------------------------------------------------------------------
Six Months Ended
February 28,
--------------------
1998 1999
NET SALES $25,696 $30,877
COST OF SALES 21,244 25,430
------- -------
GROSS MARGIN 4,452 5,447
OPERATING EXPENSES:
Selling expenses 1,236 1,228
General and administrative expenses 859 969
Research and development expenses 185 162
------- -------
Total operating expenses 2,280 2,359
------- -------
OPERATING INCOME 2,172 3,088
INTEREST EXPENSE AND OTHER FINANCING COSTS - Net (416) (441)
OTHER INCOME - Net 4 24
------- -------
INCOME OF CONSOLIDATED GROUP BEFORE INCOME TAXES 1,760 2,671
INCOME TAX EXPENSE (665) (1,003)
------- -------
INCOME OF CONSOLIDATED GROUP 1,095 1,668
EQUITY IN LOSS OF LIMITED PARTNERSHIPS -
Net of tax benefits of $94 and $29 and low income
housing credits of $247 and $247 for 1998 and 1999,
respectively 91 201
LOSS ON DISPOSAL OF LIMITED PARTNERSHIPS - Net of tax
benefit of $940 (1,674)
------- -------
NET INCOME $ 1,186 $ 195
======= =======
See notes to condensed consolidated financial statements.
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PRODUCTS UNLIMITED CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
(Dollars in Thousands Except Share Amounts)
- --------------------------------------------------------------------------------------------------------------------------
Notes
Additional Receivable
Common Stock Preferred Stock Paid-in From
Shares Amount Shares Amount Capital Stockholders
BALANCES - August 31, 1998 1,000 $ 1 1,000 $863 $(1,398)
Increases to notes receivable from stockholders (465)
Net income
------ ------ ------ ------ ---- -------
BALANCES - February 28, 1999 1,000 $ 1 1,000 $863 $(1,863)
====== ====== ====== ====== ==== =======
- -------------------------------------------------------------------------------
Total
Retained Stockholders'
Earnings Equity
BALANCES - August 31, 1998 $14,396 $13,862
Increases to notes receivable from stockholders (465)
Net income 195 195
------- -------
BALANCES - February 28, 1999 $14,591 $13,592
======= =======
See notes to condensed consolidated financial statements.
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PRODUCTS UNLIMITED CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars In Thousands)
- ------------------------------------------------------------------------------------------
Six Months Ended
February 28,
-----------------
1998 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,186 $ 195
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization 1,578 1,795
Equity in (income) loss of limited partnerships 250 75
Loss on disposal of limited partnerships 2,614
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (1,748) (3,051)
Decrease (increase) in inventories 1,189 (1,290)
Decrease (increase) in advances for equipment 679 5
Decrease (increase) in prepaids and other current assets (829) (565)
Increase (decrease) in accounts payable (668) (263)
Increase (decrease) in accrued wages and commissions (320) (300)
Increase (decrease) in accrued insurance 16 115
Increase (decrease) in accrued other liabilities 923 23
------- -------
Net cash provided by (used in) operating activities 2,256 (647)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (1,581) (3,739)
Investments in and contributions to limited partnerships (700)
Proceeds from disposal of limited partnerships 2,654
------- -------
Net cash used in investing activities (2,281) (1,085)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under revolving credit facility 1,259 4,215
Borrowings under long-term debt agreements 950
Principal payments under long-term debt agreements (1,089) (1,395)
Funds advanced to stockholders under notes receivable (145) (465)
------- -------
Net cash provided by financing activities 25 3,305
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS -- 1,573
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD -- --
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ -- $ 1,573
======= =======
See notes to condensed consolidated financial statements.
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PRODUCTS UNLIMITED CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Amounts in Thousands)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The condensed consolidated financial statements have been prepared from the
Company's books and records without audit and are subject to year-end
adjustments. The condensed financial statements reflect all adjustments
which are, in the opinion of management, necessary for a fair presentation
of information for the interim periods presented. The condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in this
filing. The results of operations for the interim periods should not be
considered indicative of results to be expected for the full year.
2. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Inventories consist of the following at February 28, 1999:
Finished goods $1,775
Work-in-process 2,312
Raw materials and supplies 320
------
Total $4,407
------
3. CONTINGENCIES
From time to time, the Company is a party to certain lawsuits and
administrative proceedings that arise in the conduct of its business. While
the outcome of the lawsuits and proceedings cannot be predicted with
certainty, management believes that the lawsuits and proceedings, either
singularly or in the aggregate, will not have a material adverse effect on
the financial condition, results of operations or cash flows of the
Company.
4. NEW ACCOUNTING PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997, or the
Company's fiscal year ending August 31, 1999. SFAS No. 131 establishes
standards for reporting information about operating segments and related
disclosures about products and services, geographic areas and major
customers. The requirements of this statement only impact financial
statement disclosure. Accordingly, this statements will have no impact on
the Company's financial position or the results of its operations.
Also in 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, effective for all fiscal quarters of
all fiscal years beginning after June 15, 2000. It establishes accounting
and reporting standards for derivative instruments and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and
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measure those instruments at fair value. The Company is assessing the
impact this statement will have on its statement of financial position and
the results of its operations.
5. SUBSEQUENT EVENTS
On March 19, 1999, Communications Instruments, Inc. ("CII") purchased all
of the outstanding equity securities of the Company (the "Stock Purchase").
Pursuant to the Stock Purchase Agreement, CII paid approximately $59,400.
In addition, if the Company achieves certain sales targets for the 12-month
periods ending December 31, 1999 and 2000, CII will make additional
payments to the former stockholders of the Company not to exceed $4,000 in
the aggregate.
In connection with the Stock Purchase by CII, all the Company's
indebtedness, including the revolving credit facility and notes payable to
Firstar Bank of Cedar Rapids, Iowa, was paid in full.
In connection with the Stock Purchase by CII, CII acquired four
manufacturing facilities previously leased by the Company from the former
stockholders of the Company.
The Company sold its equity investments in limited partnerships that invest
in low income housing properties and related tax credits on February 13,
1999, for approximately $2,700, as such investments were excluded from the
terms of the Stock Purchase Agreement. The sale of these investments
resulted in a loss of approximately $2,600 to the Company, which management
believes is attributable primarily to conditions of the sale which did not
favor the Company, including, among other things, the limited time in which
the sale could take place.
* * * * * *
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