1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) April 4, 1997
TRANSMATION, INC.
(Exact Name of Registrant as Specified in Charter)
Ohio 0-3905 16-0874418
(State or Other Jurisdiction) (Commission (IRS Employer
of Incorporation File Number) Identification No.)
10 Vantage Point Drive, Rochester, New York 14624
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (716) 352-7777
(Former Name or Former Address, if Changed Since Last Report)
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Item 2. Acquisition or Disposition of Assets
On April 4, 1997, the Registrant acquired Accounts Receivable, Inventory,
Fixed Assets, certain intangibles and certain prepaid assets, and assumed
certain Trade Accounts Payable, Accrued Liabilities and contracts of the
Sales and Service Division of E.I.L. Instruments, Inc., a Maryland
corporation. The assets were purchased pursuant to an Asset Purchase Agreement,
dated March 4, 1997 between the Registrant and E.I.L. Instruments, Inc.
Consideration for the assets was negotiated at arms length and consists of cash
totaling $22,000,000, subject to certain post-closing adjustments as defined in
the Asset Purchase Agreement, and assumption of the assumed liabilities (in the
amount of approximately $3,325,000).
The source of the cash payment made at closing, together with other costs and
expenses of the transaction, was financing provided under the Registrant's
$32,000,000 Revolving Credit and Term Loan Agreement dated April 4, 1997 with
Manufacturers and Traders Trust Company (M&T), State Street Bank and Trust
Company (State Street) and M&T, as agent. In connection with the acquisition and
the Revolving Credit and Term Loan Agreement, M&T and State Street were given
security interests in the assets of the Registrant (including the assets
acquired by the Registrant from E.I.L. Instruments, Inc.) and of certain of the
Registrant's subsidiaries.
Prior to the acquisition, the assets acquired by the Registrant from E.I.L.
Instruments, Inc. were used in the distribution and service of industrial
instrumentation. The Registrant intends to continue such use.
The foregoing information contained in this Form 8-K with respect to the
acquisition and the financing thereof is qualified in its entirety by reference
to the complete text of the Asset Purchase Agreement and the Revolving Credit
and Term Loan Facility, copies of which are filed herewith as Exhibits.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Business Acquired.
INDEX TO FINANCIAL STATEMENTS OF E.I.L. SALES AND SERVICE DIVISION (A DIVISION
OF E.I.L. INSTRUMENTS, INC.)
Report of Independent Public Accountants
Balance Sheets as of October 31, 1995 and 1996
Statements of Operations for the Years Ended October 31, 1994,
1995 and 1996
Statements of Division Equity (Deficit) for the Years Ended October 31, 1994,
1995 and 1996
Statements of Cash Flows for the Years Ended October 31,1994,
1995 and 1996
Notes to Financial Statements
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ARTHUR ANDERSON LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
E.I.L. Instruments, Inc.:
We have audited the accompanying statements of assets, liabilities and division
equity (deficit) of E.I.L. Sales and Service Division (a Division of E.I.L.
Instruments, Inc., (a Maryland corporation)) as of October 31, 1995 and 1996,
and the related statements of operations, division equity (deficit) and cash
flows for the years ended October 31, 1994, 1995 and 1996. 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.
The accompanying financial statements have been prepared pursuant to the Asset
Purchase Agreement described in Note 9 between E.I.L. Instruments, Inc. and
Transmation, Inc. dated March 4, 1997.
The holders of the Company's warrants outstanding have a put option which,
effective January 9, 1997, if exercised, would require the Company to redeem the
warrants at fair value, as defined in the Loan and Security Agreement. As of
March 4, 1997, the Company does not have sufficient liquidity to redeem the
warrants; nor does the Company have alternative financing arranged. These
statements have been prepared assuming that E.I.L. Instruments, Inc. will
continue as a going concern. Management's plans in regard to these matters are
described in Note 1.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of E.I.L. Sales and Service
Division as of October 31, 1995 and 1996, and the results of its operations and
its cash flows for the years ended October 31, 1994, 1995 and 1996, in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Baltimore, Maryland,
December 17, 1996 (except for
the event discussed in
Note 9, for which the date is
March 4, 1997)
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E.I.L. SALES AND SERVICE DIVISION
(a Division of E.I.L. Instruments, Inc.)
STATEMENTS OF ASSETS, LIABILITIES AND DIVISION EQUITY (DEFICIT)
AS OF OCTOBER 31, 1995 AND 1996
1995 1996
----------------- ------------------
ASSETS
- -------------------------------------------------------------
CURRENT ASSETS:
Cash $71,300 $171,000
Accounts receivable, net of allowance for doubtful
accounts of $191,300 and $188,300 6,967,200 6,971,500
Inventories 3,221,900 3,107,200
Prepaid expenses 211,000 287,100
Deferred income taxes 397,000 350,200
----------------- ------------------
Total current assets 10,868,400 10,887,000
----------------- ------------------
PROPERTY AND EQUIPMENT, net 2,502,800 2,587,400
CASH SURRENDER VALUE OF LIFE INSURANCE,
net of loans 125,400 132,600
OTHER ASSETS 198,900 132,800
INTANGIBLE ASSETS, net of accumulated
amortization of $455,400 and $531,900 2,592,300 2,515,100
----------------- ------------------
Total assets $16,287,800 $16,254,900
----------------- ------------------
LIABILITIES AND DIVISION EQUITY (DEFICIT)
- -------------------------------------------------------------
CURRENT LIABILITIES:
Cash overdrafts $442,800
Accounts payable $4,029,800 3,826,500
Accrued payroll expenses 613,100 657,000
Accrued expenses 885,000 717,100
Income taxes payable 28,100 207,800
Current portion of long-term debt 730,600 5,806,800
----------------- ------------------
Total current liabilities 6,286,600 11,658,000
----------------- ------------------
LONG-TERM DEBT, net of current portion 10,758,400 5,572,300
DEFERRED INCOME TAXES 346,900 284,700
----------------- ------------------
Total liabilities 17,391,900 17,515,000
----------------- ------------------
COMMITMENTS AND CONTINGENCIES
DIVISION EQUITY (DEFICIT) (1,104,100) (1,260,100)
----------------- ------------------
Total liabilities and division equity (deficit) $16,287,800 $16,254,900
----------------- ------------------
The accompanying notes are an integral part of these statements.
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E.I.L. SALES AND SERVICE DIVISION
(a Division of E.I.L. Instruments, Inc.)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996
1994 1995 1996
----------------- ------------------ -----------------
Net sales $44,326,300 $46,999,300 $44,892,600
Cost of sales 33,400,700 35,050,200 33,458,000
----------------- ------------------ -----------------
Gross profit 10,925,600 11,949,100 11,434,600
----------------- ------------------ -----------------
Selling, general and administrative expenses:
Division's direct expenses 5,375,000 5,316,500 5,068,600
Division's direct management expenses 1,233,000 1,716,000 1,660,000
Corporate expenses 2,257,000 2,666,000 2,745,100
----------------- ------------------ -----------------
Total selling, general and admin. expenses 8,865,000 9,698,500 9,473,700
----------------- ------------------ -----------------
Operating income 2,060,600 2,250,600 1,960,900
Interest expense 1,614,300 1,984,700 1,639,000
----------------- ------------------ -----------------
Income before provision for income taxes 446,300 265,900 321,900
----------------- ------------------ -----------------
Provision for income taxes 513,800 577,500 477,900
----------------- ------------------ -----------------
Net loss $(67,500) $(311,600) $(156,000)
================= ================== =================
The accompanying notes are an integral part of these statements.
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E.I.L. SALES AND SERVICE DIVISION
(a Division of E.I.L. Instruments, Inc.)
STATEMENTS OF DIVISION EQUITY (DEFICIT)
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995, AND 1996
BALANCE, October 31, 1993 $(725,000)
Net Loss (67,500)
-----------------
BALANCE, October 31, 1994 (792,500)
Net Loss (311,600)
-----------------
BALANCE, October 31, 1995 (1,104,100)
Net Loss (156,000)
-----------------
BALANCE, October 31, 1996 $(1,260,100)
=================
The accompanying notes are an integral part of these statements.
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E.I.L. SALES AND SERVICE DIVISION
(a Division of E.I.L. Instruments, Inc.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996
1994 1995 1996
--------------- ---------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (67,500) (311,600) (156,000)
Adjustments to reconcile net loss to net cash
provided by operating activities -
Depreciation and amortization 671,900 680,400 813,800
Loss on disposal of equipment and
other assets 8,800 9,800 10,700
Deferred income tax provision (benefit) 47,700 55,300 (15,400)
Changes in operating assets & liabilities
Decrease(increase) in accts receive. net 62,200 (355,900) (4,300)
Decrease in inventories 307,000 570,400 114,700
(Increase)decrease in prepaid expenses (202,600) 113,200 (76,100)
Decrease in income taxes receivable 62,300 55,000 - - - - -
Increase(decrease) in accounts payable 206,600 (69,700) (203,300)
Increase(decrease) in accrued payroll
expenses and accrued expenses 183,900 (128,900) (124,000)
Increase in income taxes payable - - - - - 28,100 179,700
--------------- ---------------- ---------------
Net cash provided by operating 1,280,300 646,100 539,800
activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (508,400) (1,213,100) (775,500)
Additions to other assets 3,600 81,200 18,600
Increase in cash surrender value of
life insurance (27,500) (17,000) (23,600)
--------------- ---------------- ---------------
Net cash used in investing activities (532,300) (1,148,900) (780,500)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease)increase in cash overdrafts (306,200) (149,500) 442,800
Net (decrease)increase in long-term debt (444,800) 569,800 (110,000)
Borrowings against cash surrender value of
life insurance 43,500 6,100 7,600
--------------- ---------------- ---------------
Net cash used in financing activities (707,500) 426,400 340,400
NET INCREASE (DECREASE) IN CASH 40,500 (76,400) 99,700
CASH, beginning of year 107,200 147,700 71,300
--------------- ---------------- ---------------
CASH, end of year $147,700 $71,300 $171,000
=============== ================ ===============
The accompanying notes are an integral part of these statements.
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E.I.L. SALES AND SERVICE DIVISION
(a Division of E.I.L. Instruments, Inc.)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1994, 1995 AND 1996
1. BASIS OF PRESENTATION:
----------------------
E.I.L. Sales and Service Division (the Division), a division of E.I.L.
Instruments, Inc. (the Company), is engaged in the distribution, customization,
and repair and calibration of test, measurement and control instrumentation.
These financial statements have been prepared pursuant to the Asset Purchase
Agreement described in Note 9 between E.I.L. Instruments, Inc. and Transmation,
Inc. dated March 4, 1997.
As of January 9, 1997, the Company's warrants outstanding (see Note 2) are
eligible to be "put" by the preferred stockholders. In the event that the
warrants would be put to the Company, the Company would not have sufficient
liquidity to redeem them and does not have alternative financing in place.
Management believes that the event described in Note 9, if consummated, would
provide sufficient funds to redeem the warrants. In the event that the
transaction with Transmation, Inc. is not consummated, management believes that
the Company will be able to obtain alternative financing.
Inter-Divisional Transactions
- -----------------------------
The Company has allocated to the Division various expenses it incurred for
corporate services, overhead and interest costs. The amounts incurred for
corporate services and overhead allocations are comprised mainly of corporate
office salaries, related payroll taxes and employee benefits, professional fees
and administrative expenses. Initially, these costs were allocated based on
specific identification to the Division to the extent known, then, based on
utilization where reasonably identifiable. Finally, all remaining costs were
allocated based on the relative percentage of direct payroll expenses of the
Division to the total payroll expenses of the Company.
The Division's share of the Company's long-term debt, preferred stock and
warrants outstanding has been reflected in the accompanying statements of
assets, liabilities and division equity (deficit) as Due to the Company, a
component of Long-Term Debt. Interest expense was allocated based upon
intercompany debt balances, which were initially allocated based upon the
relative percentage of the sum of accounts receivable, inventory and property
and equipment values of the Division to the sum of those asset category values
of the Company.
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 as of the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
2. SIGNIFICANT ACCOUNTING POLICIES:
--------------------------------
Revenue
- -------
The Division recognizes revenue as product is shipped to customers.
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Inventories
- -----------
Inventories are stated at the lower of cost or market. Cost for approximately
94% and 96% of the inventories as of October 31, 1995 and 1996, respectively, is
determined using the last-in, first-out (LIFO) method, and cost for the
remainder is determined using the first-in, first out (FIFO) method. These
methods are utilized as they result in the best matching of costs and revenues
for the respective inventory types. In order to compare the Division's financial
position to companies on the FIFO method, it is noted that if the FIFO cost
basis had been used for the inventories stated on a LIFO cost basis, they would
have been $347,100 and $344,700 higher than reported as of October 31, 1995 and
1996, respectively.
The LIFO inventory values of the Division for financial reporting purposes
differ from the LIFO inventory values for income tax purposes due to the
application of purchase accounting. Inventories for financial statement purposes
exceeded inventories for tax purposes by $567,100 and $566,400 at October 31,
1995 and 1996, respectively.
Property and Equipment
- ----------------------
Property and equipment are carried at cost. Maintenance and repairs are charged
to expense as incurred; major renewals and improvements are capitalized.
Depreciation expense is determined using the straight-line method for all
property and equipment. Depreciation is based on the following estimated
useful lives:
Buildings and building improvements 20 years
Machinery and equipment 7-10 years
Furniture and fixtures 5-10 years
Computer equipment 3-5 years
Leasehold improvements are amortized on a straight-line basis over the lesser of
the property's useful life or lease term.
Other Assets
- ------------
Included in other assets in the accompanying statements of assets, liabilities
and division equity (deficit) are fees paid to lending institutions and
associated legal fees paid to secure the Company's debt financing. These fees
are being amortized over five years, the length of the financing agreement, as
additional interest expense on the accompanying statements of operations. For
each of the years ended October 31, 1994, 1995 and 1996, the Division's
amortization of these fees was $75,500.
Intangible Assets
- -----------------
Intangible assets consist primarily of the excess of the redemption price over
the estimated fair market value of net assets acquired and is being amortized on
a straight-line basis over forty years.
Supplemental Disclosure of Cash Flow Information
1994 1995 1996
---- ---- ----
Cash items paid during the year:
Interest $864,600 $923,200 $870,900
Income taxes 473,000 519,800 352,400
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3. INVENTORIES:
------------
Inventories consist of the following as of October 31, 1995 and 1996:
1995 1996
---- ----
Raw materials and merchandise inventory $2,748,200 $2,667,400
Work-in-process and finished goods 473,700 439,800
---------- ----------
$3,221,900 $3,107,200
4. PROPERTY AND EQUIPMENT:
-----------------------
Property and equipment consist of the following as of October 31, 1995 and 1996:
1995 1996
---- ----
Machinery and equipment $3,199,600 $3,695,100
Furniture and fixtures 547,200 661,400
Computer equipment 1,185,900 1,297,800
Buildings 45,700 45,700
Leasehold and building improvements 336,800 350,200
---------- ----------
5,315,200 6,050,200
Less: Accumulated depreciation & amortization 2,812,400 3,462,800
---------- ----------
$2,502,800 $2,587,400
5. LONG-TERM DEBT:
---------------
Long-term debt of the Division consists of the following as of October 31, 1995
and 1996:
1995 1996
---- ----
Due to the Company $11,368,500 $11,271,100
Note payable to former owner of
acquired business 120,500 108,000
----------- -----------
11,489,000 11,379,100
Less: Current portion 730,600 5,806,800
----------- -----------
Total long-term debt, net of current portion $10,758,400 $ 5,572,300
----------- -----------
Revolving Loan
- --------------
The Company's revolving loan is limited to the lesser of a specified amount or
the amount available under a borrowing base calculation consisting of certain
percentages of qualified accounts receivable and inventories. The revolving loan
bears interest at prime plus 1.5% and includes a commitment fee of one-half of
one percent of the unused availability. The Loan and Security Agreement contains
certain financial covenants.
Senior Term Loan
- ----------------
The Company's senior term loan bears interest at prime plus 2.5% and is due in
24 equal quarterly principal payments that began on April 1, 1992. The note is
secured by substantially all assets of the Company.
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Subordinated Promissory Notes
- -----------------------------
The Company's subordinated promissory notes have a face value of $1,395,000 and
were issued in 1992 to related parties of the Company. The promissory notes bear
interest at 13.5% and require monthly payments of principal and interest that
began February 9, 1995.
Redeemable Preferred Stock and Class B Warrants Outstanding
- -----------------------------------------------------------
The Company's Redeemable Preferred Stock consists of 3,000 shares of $1.00 par
value stock. The shares are entitled to cumulative annual dividends of 9% of the
$1,000 redemption value per share. The Division's share of such "dividends" was
$236,000 for each of the years ended October 31, 1994, 1995 and 1996, and has
been included in interest expense in the accompanying statements of operations.
Additionally, detachable warrants to purchase approximately 29% of the common
stock of the Company at $.10 per share, were issued to the purchasers of the
preferred stock.
The warrants may be redeemed by the preferred stockholders on or after January
9, 1997. The redemption will occur at a price per share equal to the repurchase
price, as defined in the Loan and Security Agreement.
The proceeds from the Company's issuance of preferred stock on January 9, 1992,
were allocated between the preferred stock and the warrants, based upon relative
fair value. The difference between the recorded value at the date of issuance
and the estimated repurchase price at the time of redemption is being accreted
on the Company's books. The effective interest rate on the preferred stock
accretion is approximately 18.5%.
The Division's share of allocated accretion on the Company's warrants and
preferred stock was $508,100, $824,300 and $543,900 during the fiscal years
ended October 31, 1994, 1995 and 1996, and has been included in interest expense
on the accompanying statements of operations and in long-term debt in the
accompanying balance sheet. Any future changes in the estimated repurchase price
will be accounted for as a change in estimate.
The Division's share of the revolving loan, senior term loan, promissory notes,
preferred stock and warrants totaled $11,368,500 and $11,271,100 as of October
31, 1995 and 1996, respectively, and is presented as Due to the Company, a
component of Long-Term Debt.
6. EMPLOYEE BENEFIT PLAN:
----------------------
The Company has a 401(k) plan for its employees. Under the 401(k) plan, the
Company matched 40% of participant contributions up to 5% of a participant's
annual salary through April 1996. Effective April 1996, the Company matched 50%
of participant contributions up to 6% of a participant's annual salary. The
Division's expense under the 401(k) plan was approximately $57,400, $104,000 and
$136,400 in 1994, 1995 and 1996, respectively.
7. INCOME TAXES:
-------------
The Division's share of the Company's income tax provision (benefit) and
deferred tax assets and liabilities is included in the accompanying financial
statements.
The provision for income taxes consists of the following for the years ended
October 31, 1994, 1995 and 1996:
1994 1995 1996
---- ---- ----
Current:
Federal $374,900 $ 418,900 $ 395,100
State 90,800 103,300 98,200
-------- --------- ---------
465,700 522,200 493,300
-------- --------- ---------
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Deferred:
Federal 38,500 45,100 (12,400)
State 9,600 10,200 (3,000)
-------- --------- ---------
48,100 55,300 (15,400)
-------- --------- ---------
$513,800 $ 577,500 $ 477,900
-------- --------- ---------
The following is a reconciliation of the statutory federal income taxes to be
recorded provision for the years ended October 31, 1994, 1995 and 1996:
1994 1995 1996
---- ---- ----
Statutory federal income taxes $152,000 $ 90,000 $109,000
Adjustments:
State income taxes, net of
federal effect 24,000 14,000 17,000
Nondeductible portion of
interest expense 253,000 360,000 264,000
Goodwill amortization 26,000 26,000 26,000
Other 58,800 87,500 61,900
-------- -------- --------
Provision for income taxes $513,800 $577,500 $477,900
-------- -------- --------
Total deferred tax assets and deferred tax liabilities as of October 31, 1995
and 1996, and the sources of the difference between financial accounting and tax
bases of the Division's assets and liabilities which give rise to the deferred
tax assets and deferred tax liabilities at their respective tax effects are as
follows:
1995 1996
---- ----
Deferred Tax Assets:
Accounts Receivable $ 75,000 $ 73,000
Inventories 140,000 116,000
Nondeductible accrued expenses 304,100 340,500
Other 22,000 32,000
-------- --------
541,100 561,500
--------
Deferred Tax Liabilities:
Inventories 225,000 225,000
Prepaid expenses 44,000 53,000
Property and equipment 212,000 208,000
Other 10,000 10,000
-------- --------
491,000 496,000
-------- --------
Net Deferred Tax Asset $ 50,100 $ 65,500
-------- --------
8. COMMITMENTS AND CONTINGENCIES:
------------------------------
Lease Obligations
- -----------------
The Company is obligated under noncancelable operating leases, principally on
office facilities and equipment. Future minimum lease payments related to the
Division are as follows:
1997 $977,000
1998 811,400
1999 691,300
2000 487,900
2001 and thereafter 40,900
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The Division's rent expense under these leases was approximately $949,800,
$962,800 and $1,044,600 in 1994, 1995 and 1996, respectively.
9. SUBSEQUENT EVENT:
-----------------
On March 4, 1997, the Company entered into an Asset Purchase Agreement with
Transmation, Inc. (buyer) to sell substantially all the assets relating to the
operations of the Division for $22,000,000. Additionally, the buyer will assume
the accounts payable trade and certain other liabilities of the Division. At
closing, two escrow accounts, a short-term and a long-term account, each in the
amount of $1,000,000, will be established. The short-term escrow account will be
established for potential buyer's credits due in the event the net book value of
the assets purchased, less assumed liabilities, as of the closing date are below
$8,400,000. The long-term escrow account will be established for indemnification
of losses associated with certain representations made by the seller for a
period of one year after the close.
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(b) Pro Forma Financial Information.
TRANSMATION, INC. AND E.I.L.
UNAUDITED PRO-FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1996
TRANS-
MATION E.I.L. PRO-FORMA
12/31/96 10/31/96 ADJUST- PRO-FORMA
HISTORICAL HISTORICAL MENTS COMBINED
---------------- ---------------- ---------------- ----------------
ASSETS:
- -------------------------------------
Cash 324,251 171,000 (171,000) 324,251
Accounts Receivable 6,425,498 6,971,500 13,396,998
Inventories 7,291,750 3,107,200 10,398,950
Pre-paid expenses &
deferred charges 1,081,669 287,100 1,292,669
Deferred Tax Assets 526,923 350,200 (350,200) 526,923
---------------- ---------------- ---------------- ----------------
Current Assets 15,650,091 10,887,000 (521,200) 26,050,191
---------------- ---------------- ---------------- ----------------
Property, plant & equipment, net 2,246,029 2,587,400 2,400,185 7,233,614
Deferred Charges 197,202 197,202
Deferred Income Taxes 92,331 92,331
Other Assets 266,095 265,400 (132,600) 398,895
Goodwill 6,053,206 2,515,100 8,568,015 17,136,321
---------------- ---------------- ---------------- ----------------
24,504,954 16,254,900 10,314,400 51,074,254
---------------- ---------------- ---------------- ----------------
LIABILITIES AND
STOCKHOLDERS' EQUITY:
- -------------------------------------
Current Liabilities:
Current Portion - Notes Payable 1,700,000 5,806,800 (5,806,800) 1,700,000
Accounts Payable 2,916,670 4,269,300 7,185,970
Accrued Liabilities 1,611,771 1,374,100 (1,074,100) 1,911,771
Income Taxes Payable 557,141 207,800 (207,800) 557,141
---------------- ---------------- ---------------- ----------------
6,785,582 11,658,000 (7,088,700) 11,354,882
Long-Term Debt 5,822,800 5,572,300 16,427,700 27,822,800
Deferred Compensation 615,016 615,016
Deferred Income Taxes 284,700 (284,700)
---------------- ---------------- ---------------- ----------------
13,223,398 17,515,000 9,054,300 39,792,698
---------------- ---------------- ---------------- ----------------
Stockholders' Equity:
Common Stock 1,314,635 1,314,635
Capital in Excess of Par 1,910,376 1,910,376
Stock Payable former owners
of Altek 1,225,000 1,225,000
Accumulated Translation
Adjustment (121,301) (121,301)
Retained Earnings 6,952,846 (1,260,100) 1,260,100 6,952,846
---------------- ---------------- ---------------- ----------------
11,281,556 (1,260,100) 1,260,100 11,281,556
---------------- ---------------- ---------------- ----------------
24,504,954 16,254,900 10,314,400 51,074,254
================ ================ ================ ================
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TRANSMATION, INC. AND E.I.L.
UNAUDITED PRO-FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1996
TRANS-
MATION E.I.L. PRO-FORMA
12/31/96 1/31/97 ADJUST- PRO-FORMA
HISTORICAL HISTORICAL MENTS COMBINED
---------------- ---------------- ---------------- ----------------
ASSETS:
Cash 324,251 10,200 (10,200) 324,251
Accounts Receivable 6,425,498 6,356,400 12,781,898
Inventories 7,291,750 2,877,100 10,168,850
Pre-paid expenses &
deferred charges 1,081,669 299,400 1,381,069
Deferred Tax Assets 526,923 350,200 (350,200) 526,923
---------------- ---------------- ---------------- ----------------
Current Assets 15,650,091 9,893,300 (360,400) 25,182,991
---------------- ---------------- ---------------- ----------------
Property, plant & equipment, net 2,246,029 2,559,100 2,428,485 7,233,614
Deferred Charges 197,202 197,202
Deferred Income Taxes 92,331 92,331
Other Assets 266,095 189,400 (132,600) 322,895
Goodwill 6,053,206 2,495,800 8,522,515 17,071,521
---------------- ---------------- ---------------- ----------------
24,504,954 15,137,600 10,458,000 50,100,554
---------------- ---------------- ---------------- ----------------
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Current Liabilities:
Current Portion - Notes Payable 1,700,000 5,347,300 (5,347,300) 1,700,000
Accounts Payable 2,916,670 3,295,600 6,212,270
Accrued Liabilities 1,611,771 1,710,400 (1,410,400) 1,911,771
Income Taxes Payable 557,141 125,400 (125,400) 557,141
---------------- ---------------- ---------------- ----------------
6,785,582 10,478,700 (6,883,100) 10,381,182
Long-Term Debt 5,822,800 5,782,100 16,217,900 27,822,800
Deferred Compensation 615,016 615,016
Deferred Income Taxes 284,700 (284,700)
---------------- ---------------- ---------------- ----------------
13,223,398 16,545,500 9,050,100 38,818,998
---------------- ---------------- ---------------- ----------------
Stockholders' Equity:
Common Stock 1,314,635 1,314,635
Capital in Excess of Par 1,910,376 1,910,376
Stock Payable former owners
of Altek 1,225,000 1,225,000
Accumulated Translation
Adjustment (121,301) (121,301)
Retained Earnings 6,952,846 (1,407,900) 1,407,900 6,952,846
---------------- ---------------- ---------------- ----------------
11,281,556 (1,407,900) 1,407,900 11,281,556
---------------- ---------------- ---------------- ----------------
24,504,954 15,137,600 10,458,000 50,100,554
================ ================ ================ ================
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16
TRANSMATION AND E.I.L.
UNAUDITED PRO-FORMA COMBINED STATEMENT OF INCOME
12 MONTHS ENDED DECEMBER 31, 1996
TRANS-
MATION E.I.L. PRO-FORMA
1/1-12/31/96 11/1-10/31/96 ADJUST- PRO-FORMA
HISTORICAL HISTORICAL MENTS COMBINED
---------------- ---------------- ---------------- ----------------
Net Sales 44,335,435 44,892,600 89,268,035
---------------- ---------------- ---------------- ----------------
Costs & Expenses
Cost of Product Sold 27,228,251 33,458,000 350,000 61,036,251
S G & A 12,814,020 9,473,700 600,000 22,887,720
R & D 1,490,272 1,490,272
Interest Expense 508,120 1,639,000 148,000 2,295,120
---------------- ---------------- ---------------- ----------------
42,040,663 44,570,700 1,098,000 87,709,363
---------------- ---------------- ---------------- ----------------
Income Before Taxes 2,294,772 321,900 (1,098,000) 1,558,672
Income Tax 880,900 477,900 (735,210) 623,590
---------------- ---------------- ---------------- ----------------
Net Income (Loss) 1,413,872 (156,000) (362,790) 935,082
================ ================ ================ ================
Earnings Per Share:
Net Income 1,413,872 935,082
================ ================
Average Common Shares
Outstanding 2,913,846 2,913,846
================ ================
Income Per Share $.49 $.32
================ ================
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TRANSMATION AND E.I.L.
UNAUDITED PRO-FORMA COMBINED STATEMENT OF INCOME
3 MONTHS ENDED DECEMBER 31, 1996
TRANS-
MATION E.I.L.
3 MO'S ENDED 3 MO'S ENDED PRO-FORMA
12/31/96 1/31/97 ADJUST- PRO-FORMA
HISTORICAL HISTORICAL MENTS COMBINED
---------------- ---------------- ---------------- ----------------
Net Sales 12,210,882 11,026,500 23,237,382
---------------- ---------------- ---------------- ----------------
Costs & Expenses
Cost of Product Sold 7,377,367 8,380,800 87,500 15,845,667
S G & A 3,567,901 2,354,900 150,000 6,072,801
R & D 399,802 399,802
Interest Expense 163,209 392,200 54,675 610,084
---------------- ---------------- ---------------- ----------------
11,508,279 11,127,900 292,175 22,928,354
---------------- ---------------- ---------------- ----------------
Income(Loss) Before Taxes 702,603 (101,400) (292,175) 309,028
Income Tax 275,065 46,400 (197,853) 123,612
---------------- ---------------- ---------------- ----------------
Net Income (Loss) 427,538 (147,800) (94,322) 185,416
================ ================ ================ ================
Earnings Per Share:
Net Income 427,538 185,416
================ ================
Average Common Shares
Outstanding 2,913,846 2,913,846
================ ================
Income Per Share $.15 $.06
================ ================
17
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TRANSMATION, INC.
NOTES TO UNAUDITED PRO-FORMA COMBINED FINANCIAL STATEMENTS
Note 1: Basis of Presentation
The unaudited pro-forma combined statements of income and balance sheet reflect
the acquisition of the assets of the Sales and Service Division of E.I.L.
Instruments, Inc. which is to be accounted for under the purchase method of
accounting, as of the beginning of the most recent fiscal year. The unaudited
proforma combined statements also reflect combined results for the most recent
interim period (12/31/96).
In order to conform with S.E.C. reporting requirements, Transmation's
1/1-12/31/96 unaudited ProForma P&L was determined by combining results reported
for the periods 1/1-3/31/96 and 4/1-12/31/96 as calculated using the Company's
Annual Report on Form 10K for the year ended March 31, 1996 and quarterly report
for the 9 months ended December 31, 1996.
Transmation's management believes the assumptions used in preparing the
unaudited proforma combined financial statements provide a reasonable basis for
presenting all of the significant effects of its transactions, that the proforma
adjustments give appropriate effect to those adjustments and that the proforma
adjustments are properly applied in the unaudited proforma financial statements.
Note 2: Proforma Adjustments
Unaudited Proforma Adjustments consist of the following:
Transmation, Inc. will purchase certain assets and assume certain
liabilities of the Sales and Service Division of E.I.L. Instruments, Inc. for
$22,000,000 cash, subject to adjustment as described in the Asset Purchase
Agreement dated March 4, 1997 between Transmation, Inc. and E.I.L. Instruments,
Inc. This transaction will be accounted for using the purchase method of
accounting.
The purchase price is allocated to the net assets acquired on the basis
of an appraisal performed by an independent appraiser on the long-term assets.
Goodwill is calculated as the difference between the purchase price and the fair
value of the assets acquired and is amortized over 20 years.
The proforma adjustments to operating expenses in the Statement of
Income for the year ended December 31, 1996 and the three months ended December
31, 1996 (both of which are unaudited) represent the amortization of goodwill,
and the increase in interest expense and depreciation expense which will result
from this transaction. No adjustments are reflected which assume operating or
other efficiencies which may result from this combination on a prospective
basis. As Transmation did not have sufficient cash as of December 31, 1996 to
complete the transaction without incurring additional debt, the proforma
adjustment to operating expenses also assumes additional bank borrowings at
Transmation's borrowing rate of $8.125%.
Transmation's statutory tax rate of 40% is used to calculate the tax
effect of unaudited proforma combined statement of income adjustments.
18
19
(c) Exhibits. See Index to Exhibits.
19
20
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 hereunto duly authorized.
TRANSMATION, INC.
April 17 , 1997 By: /s/ Robert G. Klimasewski
--------- ------------------------------
Robert G. Klimasewski
President
April 17 , 1997 By: /s/ John A. Misiaszek
--------- ------------------------------
John A. Misiaszek
Vice President-Finance
20
21
INDEX TO EXHIBITS
(1) Underwriting Agreement
Not applicable.
(2) Plan of acquisition, reorganization, arrangement, liquidation or succession
* (a) Asset Purchase Agreement dated March 4, 1997 between the
Registrant and E.I.L. Instruments, Inc., together with a brief
identification of the contents of all omitted exhibits and
schedules thereto, is included herein as Exhibit 2(a). Upon
written request, the Registrant will provide to security holders
copies of any of the referenced omitted exhibits and schedules.
(4) Instruments defining the rights of security holders, including indentures
(a) Articles of Incorporation, as amended, are incorporated herein by
reference to Exhibit 4(a) to the Registrant's Registration
Statement on Form S-8 (Registration No. 33-61665) as filed on
August 8, 1995, and Exhibit I to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996.
(b) Code of Regulations, as amended, is incorporated herein by
reference to Exhibit 3 to the Registrant's Annual Report on Form
10-K for the fiscal year ended March 31, 1988.
* (c) Revolving Credit and Term Loan Agreement dated April 4, 1997
among the Registrant, Manufacturers and Traders Trust Company,
State Street Bank and Trust Company, and Manufacturers and
Traders Trust Company, as Agent, together with a brief
identification of the contents of all omitted exhibits and
schedules thereto, is included herein as Exhibit 4(c). Upon
written request, the Registrant will provide to security holders
copies of any of the referenced omitted exhibits and schedules.
* (d) Security Agreement dated April 4, 1997 made by the Registrant
in favor of Manufacturers and Traders Trust Company, as Agent,
together with a brief identification of the contents of all
omitted exhibits and schedules thereto, is included herein as
Exhibit 4(d). Upon written request, the Registrant will provide
to security holders copies of any of the referenced omitted
exhibits and schedules.
(16) Letter re change in certifying accountant
Not applicable.
21
22
(17) Letter re director resignation
Not applicable.
(20) Other documents or statements to security holders
Not applicable.
(23) Consents of experts and counsel
* Consent of Arthur Andersen LLP is included herein as Exhibit 23.
(24) Power of attorney
Not applicable.
(27) Financial Data Schedule
Not applicable.
(99) Additional Exhibits
Not applicable.
- -----------------
* Exhibit filed with this Report.
22