8-K/A
FORM 8-K/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): OCTOBER 18, 1996
CRAIN INDUSTRIES, INC.
- ------------------------------------------------------------------------------
(Exact name of Registrant as specified in Charter)
DELAWARE 33-96808 43-1714086
- -----------------------------------------------------------------------------
(State or other (Commission File Number) (I.R.S. Employer
jurisdiction of Identification
Incorporation) Number)
101 SOUTH HANLEY ROAD, SUITE 1400
ST. LOUIS, MISSOURI 63105
- -----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 719-0100
<PAGE>
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
(i) Report of Independent Accountants
(ii) The Comfort Clinic Division of Sunrise Medical
Inc.'s Statements of Assets to be Acquired and
Liabilities to be Assumed as of June 28, 1996
and June 30, 1995, and the Statements of Operating
Revenues and Expenses for the years ended June 28,
1996, June 30, 1995 and July 1, 1994 and the
accompanying Notes to the Financial Statements.
(iii) The Comfort Clinic Division of Sunrise Medical
Inc.'s Unaudited Statements of Assets to be
Acquired and Liabilities to be Assumed as of
October 18, 1996 and the accompanying Notes to
the Statements of Assets to be Acquired and
Liabilities to be Assumed.
(b) Pro Forma Financial Information
(i) Crain Industries, Inc. Pro Forma Combined Statements
of Operations for the year ended December 31, 1995.
(ii) Crain Industries, Inc. Pro Forma Combined Statements
of Operations for the nine months ended September
30, 1996.
(iii) Crain Industries, Inc. Pro Forma Combined Balance
Sheet as of September 30, 1996.
(c) Exhibits
2.1 Asset Purchase Agreement dated as of August 29,
1996, by and among Bio Clinic Corporation, Sunrise
Medical Inc., and Crain Industries, Inc.*
* Previously filed as an exhibit to the Form 8-K of Crain Industries,
Inc. and incorporated by reference herein.
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Sunrise Medical Inc.:
We have audited the accompanying statements of assets to be acquired and
liabilities to be assumed of Comfort Clinic, a division of Sunrise Medical
Inc., as of June 28, 1996 and June 30, 1995, and the related statements of
operating revenues and expenses for each of the years in the three-year period
ended June 28, 1996. These financial statements are the responsibility of the
management of Sunrise Medical Inc. 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.
As described in Note 1, the accompanying financial statements were prepared
solely to present the assets to be acquired and liabilities to be assumed
pursuant to the Asset Purchase Agreement, and are not intended to be a
complete presentation of the Comfort Clinic, a division of Sunrise Medical
Inc., financial position, results of operations or cash flows.
In our opinion, the statements referred to above present fairly the assets to
be acquired and liabilities to be assumed of Comfort Clinic, a division of
Sunrise Medical Inc., as of June 28, 1996 and June 30, 1995, and its operating
revenues and expenses for each of the years in the three-year period ended
June 28, 1996, in conformity with generally accepted accounting principles.
/s/KPMG Peat Marwick LLP
---------------------------------
Los Angeles, California
November 7, 1996
<PAGE>
<TABLE>
THE COMFORT CLINIC DIVISION
OF SUNRISE MEDICAL INC.
Statements of Assets to be Acquired
and Liabilities to be Assumed
(In thousands)
<CAPTION>
June 28, June 30,
1996 1995
--------- ---------
<S> <C> <C>
Assets
Trade receivables, net of allowance for
doubtful accounts of $3,572 and $427, respectively..... $ 7,554 $ 10,523
Inventories.............................................. 1,480 2,575
Property and equipment, net.............................. 3,636 2,892
Goodwill................................................. 4,979 10,380
Covenants not to compete, net of accumulated
amortization of $656 and $475, respectively............ 644 825
Other assets............................................. 400 172
--------- ---------
Total assets........................................... $ 18,693 $ 27,367
========= =========
Liabilities
Trade accounts payable................................... $ 2,668 $ 4,188
Accrued compensation..................................... 237 19
Other accrued liabilities................................ 1,013 661
Covenants not to compete................................. 775 950
--------- ---------
Total liabilities...................................... 4,693 5,818
--------- ---------
Net assets............................................. $ 14,000 $ 21,549
========= =========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
THE COMFORT CLINIC DIVISION
OF SUNRISE MEDICAL INC.
Statements of Operating Revenues and Expenses
(In thousands)
<CAPTION>
Year Ended
----------------------------------------
June 28, June 30, July 1,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net Sales............................. $ 45,715 $ 66,316 $ 44,258
Costs of sales........................ 42,672 55,204 32,279
------------ ------------ ------------
Gross profit........................ 3,043 11,112 11,979
------------ ------------ ------------
Operating expenses:
Marketing........................... 2,049 3,168 1,256
Selling............................. 2,884 2,323 879
Distribution and customer service... 355 297 100
General and administrative.......... 6,361 4,413 3,214
Impairment of goodwill.............. 5,020 -- --
------------ ------------ ------------
Total operating expenses............ 16,669 10,201 5,449
------------ ------------ ------------
Operating income (loss) before taxes.. $ (13,626) $ 911 $ 6,530
============ ============ ============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
THE COMFORT CLINIC DIVISION
OF SUNRISE MEDICAL INC.
Notes to Financial Statements
Years ended June 28, 1996, June 30, 1995 and July 1, 1994
(Dollar amounts in thousands)
(1) Basis of Presentation
Comfort Clinic was established as a separate division of Sunrise Medical
Inc. in July 1995. Previously, it operated as a division of Bio Clinic
Corporation (Bio Clinic), a wholly owned subsidiary of Sunrise Medical Inc.
Comfort Clinic designs, manufactures and markets therapeutic sleep
products, principally foam mattress pads and pillows, to consumers. These
products are sold through various retail distribution channels, including
mass merchants, department stores and specialty stores throughout the
United States, Canada and Europe.
Pursuant to an Asset Purchase Agreement (the Agreement) dated August 29,
1996, between Sunrise Medical Inc. (Sunrise) and Crain Industries,
Inc. (Crain), Sunrise agreed to sell to Crain specified assets and
related liabilities of Comfort Clinic (the Business) in exchange for
$14,000, subject to certain adjustments at closing.
The accompanying Statements of Assets to be Acquired and Liabilities to
be Assumed and Statements of Operating Revenues and Expenses reflect
historical cost of the identified assets, liabilities and results
of operations of the Business identified in the Agreement.
The Business' financial statements include all of the direct operating
expenses of Comfort Clinic and allocations of certain shared administrative
services costs from Bio Clinic Corporation based on a percentage of net
sales. Sunrise's management believes that these allocations are based on
assumptions that are reasonable in the circumstances. However, these
allocations are not necessarily indicative of the costs and expenses that
would have resulted if the Business had been operated as a separate entity.
(2) Summary of Significant Accounting Policies
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 amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Fiscal Year-end
The Business' fiscal year ends on the Friday closest to June 30, resulting
in years of either 52 or 53 weeks. The years ended June 28, 1996, June 30,
1995 and July 1, 1994 each contained 52 weeks.
Inventories
Inventories are stated at the lower of average cost or market value. Cost
is determined using the first-in, first-out method.
<PAGE>
THE COMFORT CLINIC DIVISION
OF SUNRISE MEDICAL INC.
Notes to Financial Statements, continued
(Dollar amounts in thousands)
Property and Equipment
Property and equipment are recorded at cost and depreciated over estimated
useful lives by use of the straight-line method. Leasehold improvements
are amortized over the shorter of their useful lives or the term of the
lease. The estimated useful lives of property and equipment range from
three to seven years. Depreciation expense was $1,048, $364 and $201 for
the years ended June 28, 1996, June 30, 1995 and July 1,1994, respectively.
Goodwill
The excess of Sunrise's purchase price over the fair value of net assets
at the date of acquisition (goodwill) is being amortized on a straight-line
basis over 30 years. Management of the Business assesses the
recoverability of this intangible asset by determining whether the
amortization over its remaining life can be recovered through undiscounted
future operating cash flows. A provision for impairment of goodwill was
recorded in the year ended June 28, 1996 to reflect the anticipated
proceeds from the sale of the Business.
Covenant Not to Compete
The amount of two noncompete agreements is being amortized over the six
and eight-year periods covered by the agreements. Total annual payments
of $175 are scheduled through October 1998 and at $125 annually thereafter
through October 2000.
Contract Rebates
The Business enters into contractual agreements with its customers for
rebates on certain products based on the attainment of specified purchase
volumes or in connection with cooperative advertising. The cost of these
rebates is accrued as earned by the customers.
Foreign Currency Transactions
Revenues and expenses denominated in foreign currencies are translated at
exchange rates prevailing during the year. Assets and liabilities are
translated at exchange rates in effect at the end of the period.
Income Taxes
The Business is not a separate taxable entity for Federal, state, or local
income tax purposes. The Business' operations are included in the
consolidated tax returns of Sunrise. No allocation of income tax expense
or benefit has been made to the Business.
<PAGE>
THE COMFORT CLINIC DIVISION
OF SUNRISE MEDICAL INC.
Notes to Financial Statements, continued
(Dollar amounts in thousands)
Fair Value of Financial Instruments
The carrying amounts of accounts receivable, accounts payable and accrued
liabilities approximate their fair values, based on the current aging of
the receivables and the short maturity of the liabilities. The fair value
of the noncompete liability at June 28, 1996 based on current interest
rates is $665.
3) Balance Sheet Items
Inventories consist of the following at June 28, 1996 and June 30, 1995
(in thousands):
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Raw material....................................... $ 1,038 $ 2,046
Finished goods..................................... 1,180 734
---------- ----------
2,218 2,780
Less reserves...................................... (738) (205)
---------- ----------
Total inventories.................................. $ 1,480 $ 2,575
========== ==========
</TABLE>
The components of property and equipment are as follows at June 28, 1996
and June 30, 1995:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Land and buildings................................. $ -- $ 706
Machinery and equipment............................ 4,874 3,466
Furniture and fixtures............................. 1,561 673
Leasehold improvements............................. 326 120
---------- ----------
6,761 4,965
Less accumulated depreciation and amortization..... (3,125) (2,073)
---------- ----------
Property and equipment, net........................ $ 3,636 $ 2,892
========== ==========
</TABLE>
4) Leases
The Business leases office and operating facilities under operating leases
which expire over the next eight years. The leases generally provide for
the lessee to pay taxes, maintenance, insurance and certain other operating
costs of the leased property. The leases on most of the properties
contain renewal provisions. Rent expense was $718 in 1996, $379 in 1995
and $322 in 1994.
<PAGE>
THE COMFORT CLINIC DIVISION
OF SUNRISE MEDICAL INC.
Notes to Financial Statements, Continued
(Dollar amounts in thousands)
Minimum lease payments under operating leases expiring subsequent to June
28, 1996 are as follows:
<TABLE>
<CAPTION>
Amount
----------
<S> <C>
Year ended:
1997......................................................... $ 828
1998......................................................... 821
1999......................................................... 791
2000......................................................... 759
2001......................................................... 564
Thereafter................................................... 3,232
----------
Total minimum lease payments................................. $ 6,995
==========
</TABLE>
5) Concentration of Business and Credit Risk
The Business' customers are located throughout the United States and in
Canada and Europe. Two customers each accounted for 22% of net sales in
fiscal 1996. The same two customers accounted for 26% and 17% of net
sales, respectively, in 1995 and 43% and 12%, respectively, in 1994.
A portion of the accounts receivable of the Business are sold to a third
party on a recourse basis. The amount of outstanding receivables sold with
recourse was $885 at June 28, 1996 and $783 at June 30, 1995. An allowance
has been provided for estimated credit losses.
6) Indirect Operating Expenses (Unaudited)
The accompanying statements of revenues and expenses do not include
management fees allocated by Sunrise, as follows: 1996 - $1,008; 1995 -
$647 and 1994 - $578. Cash generated by and cash requirements of the
Business flow through the centralized treasury system of Sunrise. Interest
expense of $1,413 was allocated to the Business in 1996. Interest charges
allocable to the Business for 1995 and 1994 cannot be determined.
7) Profit Sharing/Savings Plan
The employees of the Business are included in a 401(k) profit sharing/
savings plan of Sunrise Medical Inc. Employees may make contributions to
the plan, which are matched by the division in an amount determined by the
parent company's Board of Directors. The parent company may also make
discretionary contributions to each employee's account equal to a
percentage of salary for the fiscal year, based upon attainment of certain
earnings targets for the Business.
<PAGE>
<TABLE>
THE COMFORT CLINIC DIVISION
OF SUNRISE MEDICAL INC.
Statements of Assets to be Acquired
and Liabilities to be Assumed
As of October 18, 1996
(Unaudited)
(In thousands)
<CAPTION>
October 18,
1996
-------------
<S> <C>
ASSETS
Cash............................................................ $ (1,713)
Trade receivables, net of allowance for
doubtful accounts of $3,573.................................... 9,558
Inventories, net................................................ 1,405
Property and equipment, net..................................... 3,656
Other assets.................................................... 148
-------------
Total assets................................................ $ 13,054
=============
LIABILITIES
Trade accounts payable.......................................... $ 3,940
Accrued compensation............................................ 191
Other accrued liabilities....................................... 582
-------------
Total liabilities........................................... 4,713
-------------
Net assets.................................................. $ 8,341
=============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
THE COMFORT CLINIC DIVISION
OF SUNRISE MEDICAL INC.
Notes to Statement of Assets to be Acquired and
Liabilities to be Assumed
as of October 18, 1996
(Unaudited)
(in thousands)
(1) Basis of Presentation
Comfort Clinic was established as a separate division of Sunrise Medical
Inc. in July 1995. Previously, it operated as a division of Bio Clinic
Corporation (Bio Clinic), a wholly owned subsidiary of Sunrise Medical
Inc. Comfort Clinic designs, manufactures and markets therapeutic sleep
products, principally foam mattress pads and pillows, to consumers. These
products are sold through various retail distribution channels, including
mass merchants, department stores and specialty stores throughout the
United States, Canada and Europe.
Pursuant to an Asset Purchase Agreement (the Agreement) dated August 29,
1996, between Sunrise Medical Inc. (Sunrise) and Crain Industries, Inc.
(Crain), Sunrise agreed to sell to Crain specified assets and related
liabilities of Comfort Clinic (the Business) in exchange for $14,000,
subject to certain adjustments at closing. Crain acquired the business on
October 18, 1996.
The accompanying Statements of Assets to be Acquired and Liabilities to be
Assumed reflect historical cost of the identified assets. The Statement
of Assets to be Acquired and Liabilities to be Assumed data presented is
as of October 18, 1996, which approximates the balance sheet data as of
September 30, 1996.
(2) Summary of Significant Accounting Policies
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 amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Fiscal Year-end
The Business' fiscal year ends on the Friday closest to June 30, resulting
in years of either 52 or 53 weeks. The years ended June 28, 1996, June 30,
1995 and July 1, 1994 each contained 52 weeks.
Inventories
Inventories are stated at the lower of average cost or market value. Cost
is determined using the first-in, first-out method.
<PAGE>
THE COMFORT CLINIC DIVISION
OF SUNRISE MEDICAL INC.
Notes to Statement of Assets to be Acquired
and Liabilities to be Assumed, Continuted
Income Taxes
The Business is not a separate taxable entity for Federal, state, or local
income tax purposes. The Business' operations are included in the
consolidated tax returns of Sunrise. No allocation of income tax expense
or benefit has been made to the Business.
3) Balance Sheet Items
Inventories consist of the following at October 18, 1996:
<TABLE>
<CAPTION>
<S> <C>
Raw material................................................... $ 1,062
Finished goods................................................. 1,055
----------
2,117
Less reserves.................................................. (712)
----------
Total inventories........................................... $ 1,405
==========
</TABLE>
<PAGE>
PRO FORMA STATEMENTS
The unaudited Pro Forma Combined Statement of Operations of Crain Industries,
Inc. for the year ended December 31, 1995 has been prepared to give effect to
(i) the August 31, 1995 acquisition of Crain Industries, Inc., a Delaware
corporation ("Crain") (the "Company") from Crain Industries, Inc., an Arkansas
corporation (the "Predecessor") (the "Crain Acquisition") and the borrowings
incurred in connection therewith, (ii) the October 18, 1996 acquisition by
Crain of certain assets and liabilities of the Comfort Clinic Division
("Comfort Clinic") of Sunrise Medical Inc., ("Sunrise") a Delaware corporation
(the "Comfort Acquisition") and the borrowings incurred in connection
therewith, as though the transactions occurred as of January 1, 1995. The
Crain Acquisition was financed by (i) the sale of $100.0 million of senior
subordinated notes due 2005 (the "Senior Notes"), (ii) the proceeds from a
$10.0 million promissory note payable to the Predecessor due 2006 (the
"Predecessor Note"), (iii) borrowings of $5.5 million under the Revolving
Credit Agreement (the "Revolving Facility") between the Company, the several
financial institutions from time to time party thereto (the "Revolving Credit
Agreement"), as agent ("Agent"), and (iv) $25.0 million in capital
contributions from Crain Holdings Corporation ("Holdings"). The Comfort
Acquisition was financed by (i) borrowings of $9.5 million under the Revolving
Facility and (ii) $5.1 million of capital contributions from Holdings.
The unaudited Pro Forma Combined Statements of Operations of Crain Industries,
Inc. for the nine months ended September 30, 1996 has been prepared to give
effect to the Comfort Acquisition as though the transaction occurred as of
January 1, 1996. The unaudited Pro Forma Combined Balance Sheet as of
September 30, 1996 has been prepared to give effect to the Comfort Acquisition
as though the transaction occurred as of September 30, 1996. The Pro Forma
adjustments are based upon available information and certain assumptions that
the Company believes are reasonable.
The Crain Acquisition and the Comfort Acquisition were accounted for using
the purchase method of accounting. Allocations of the purchase price for the
Comfort Acquisition have been determined based upon preliminary independent
appraisals and other estimates of fair value and are subject to change.
Differences between the amounts included herein and the final allocations are
not expected to have a material effect on the pro forma financial information.
The Pro Forma Statements should be read in conjunction with the historical
financial statements of Comfort Clinic presented elsewhere in this Form
8-K/A-1.
The Pro Forma Statements do not purport to be indicative of the results which
would have been obtained had such transactions been completed as of the
assumed dates and for the periods presented or which may be obtained in the
future.
<PAGE>
<TABLE>
CRAIN INDUSTRIES, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the year ended December 31, 1995
(Unaudited)
(In thousands)
<CAPTION>
Historical Pro Forma Adjustments
-------------------- --------------------------
Comfort Comfort Pro Forma
Crain(1) Clinic(2) Crain Clinic Combined
--------- --------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
Net sales.......... $268,987 $ 53,499 $ -- (27,411)(10) $295,075
Operating expenses:
Cost of goods
sold............. 218,838 46,234 1,333 (3) (27,411)(10) 238,994
Selling,
general and
administrative... 32,810 12,113 (2,159)(4) (1,611)(11) 41,153
Depreciation and
amortization..... 5,968 1,261 2,042 (5) (83)(12) 9,188
--------- --------- --------- --------- ---------
Operating income
(loss)............ 11,371 (6,109) (1,216) 1,694 5,740
Other expense
(income):
Interest.......... 7,511 707 7,945 (6) -- (6) 16,163
Amortization of
deferred
financing costs.. 597 -- 1,113 (7) 198 (13) 1,908
Other............. (2,862) -- (410)(8) -- (3,272)
--------- --------- -------- --------- ---------
Net income (loss).. 6,125 (6,816) (9,864) 1,496 (9,059)
Income tax
provision
(benefit)......... 91 -- (1,512)(9) (2,022)(14) (3,443)
--------- --------- --------- --------- ---------
Net income (loss).. $ 6,034 $ (6,816) $ (8,352) $ 3,518 $ (5,616)
========= ========= ========= ========= =========
</TABLE>
<PAGE>
CRAIN INDUSTRIES, INC.
NOTES TO PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the year ended December 31, 1995
(In thousands)
(1) During 1995, the Company converted its year end to December 31 from
the Predecessor's year end of the last Friday in August. As a result,
the following unaudited historical operating data of the Predecessor and
Crain is used to arrive at the historical twelve months ended December 31,
1995.
<TABLE>
<CAPTION>
Crain
Combined
The Predecessor Crain Historical
---------------------- ---------- ----------
Less:
Four Plus:
Twelve months Four Twelve
months ended months months
ended December ended ended
August 31, 1994 December December
25, 1995 (a) 31, 1995 31, 1995
---------- ---------- ---------- ----------
(Audited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales....................... $ 258,895 $ 86,371 $ 96,463 $ 268,987
Operating expenses:
Cost of goods sold............ 209,350 68,397 77,885 218,838
Selling, general and
administrative.............. 33,785 11,413 10,438 32,810
Depreciation and amortization. 5,283 1,754 2,439 5,968
---------- ---------- ---------- ----------
Operating income................ 10,477 4,807 5,701 11,371
Other expense (income):
Interest...................... 3,431 1,076 5,156 7,511
Amortization of
deferred financing costs.... -- -- 597 597
Other......................... (2,510) 455 103 (2,862)
---------- ---------- ---------- ----------
Net income (loss)............... 9,556 3,276 (155) 6,125
Income tax provision............ -- -- 91 91
---------- ---------- ---------- ----------
Net income (loss) (b)........... $ 9,556 $ 3,276 $ (246) $ 6,034
========== ========== ========== ==========
<FN>
(a) The financial data for the Predecessor's four months ended December 31,
1994 include adjustments which relate to year end adjustments made for the
year ended August 25, 1995.
(b) The Predecessor elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code, accordingly, taxable income of the Predecessor
was allocated to the sole shareholder of the Predecessor who was
responsible for the payment of taxes thereon.
</TABLE>
<PAGE>
CRAIN INDUSTRIES, INC.
NOTES TO PRO FORMA COMBINED STATEMENT OF OPERATIONS, continued
For the year ended December 31, 1995
(In thousands)
(2) Comfort Clinic's fiscal year end was the Friday closest to June 30, while
the Company's fiscal year end is December 31. In order to present
comparable data, the following unaudited operating data of Comfort Clinic
is used to arrive at the historical twelve months ended December 31, 1995.
<TABLE>
<CAPTION>
Comfort Clinic
----------------------------------------
Combined
Historical
Twelve
Six months Six months months
ended ended ended
June 30, December December
1995 31, 1995 31, 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net sales............................. $ 28,831 $ 24,668 $ 53,499
Operating expenses:
Cost of goods sold.................. 23,761 22,473 46,234
Selling, general and
administrative.................... 4,913 7,200 12,113
Depreciation and amortization....... 484 777 1,261
---------- ---------- ----------
Operating loss........................ (327) (5,782) (6,109)
Other expense:
Interest............................ -- (a) 707 707
---------- ---------- ----------
Net loss (b).......................... $ (327) $ (6,489) $ (6,816)
========== ========== ==========
<FN>
(a) Interest expense of $707 was allocated to Comfort Clinic for the six
months ended December 31, 1995. Interest charges allocable to Comfort
Clinic for the six months ended June 30, 1995 cannot be determined.
(b) Comfort Clinic is not a separate taxable entity for Federal, state, or
local income tax purposes. The operations are included in the
consolidated tax returns of Sunrise. No allocation of income tax expense
or benefit has been made to Comfort Clinic.
</TABLE>
<PAGE>
CRAIN INDUSTRIES, INC.
NOTES TO PRO FORMA COMBINED STATEMENT OF OPERATIONS, continued
For the year ended December 31, 1995
(In thousands)
(3) Reflects additional lease expense incurred as a result of leasing
certain real properties which were not purchased by the Company from the
Predecessor, but will be leased by the Company and accounted for as an
operating lease.
(4) Reflects the elimination of certain administrative costs.
(5) Reflects the following:
(a) Additional depreciation expense reflecting the step-up in basis
of property, plant and equipment related to the Crain Acquisition in
the amount of $1,904.
(b) Additional amortization expense reflecting the increase in
amortization of goodwill as if the Crain Acquisition had been
consummated as of the beginning of the period in the amount of $466.
(c) Elimination of depreciation expense reflecting the decrease in
depreciation associated with certain real property not included in
the Crain Acquisition in the amount of $328.
(6) Reflects the interest expense on the certain debt instruments entered into
in connection with the financing as if the Crain Acquisition and the
Comfort Acquisition had been consummated as of the beginning of the period
as follows:
<TABLE>
<CAPTION>
<S> <C>
Revolving Facility at 8.75% (a) (b)............................ $ 1,313
Senior Subordinated Notes due 2005 at 13.50%................... 13,500
Predecessor Note due 2006 at 13.50%............................ 1,350
Elimination of historical interest expense..................... (8,218)
----------
Net adjustment.............................................. $ 7,945
==========
</TABLE>
(a) A one-half of one percent change in interest rates would impact
interest expense for borrowings under the Revolving Facility in the
amount of approximately $75 per annum.
(b) The interest rates per annum applicable to the loans under the
Revolving Facility will be either the Eurodollar Rate plus up to
2.5% or the Alternate Base Rate plus up to 1.5%. The Alternate Base
Rate is, for any day, the higher of the Prime Rate in effect on such
day, and the Federal Funds Effective Rate in effect on such day plus
0.5%. The Company has estimated the rate to be 8.75%.
(7) Reflects the amortization of deferred financing costs associated with the
financing of the Crain Acquisition as if it had been consummated as of
the beginning of the period. These costs are amortized over the term of
the related debt using the straight-line method, which approximates the
effective interest method.
(8) Reflects the reclassification of historical franchise tax expenses.
(9) Reflects the effect of the pro forma adjustments described above and the
estimated pro forma tax provision of Crain as a C corporation.
<PAGE>
CRAIN INDUSTRIES, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS, continued
For the year ended December 31, 1995
(In thousands)
(10) Reflects the elimination of inter-company sales and cost of sales
pertaining to purchases of mattress pads and pillows, as well as foam bun
purchases by Comfort Clinic from Crain in the amount of $27,411.
(11) Reflects the elimination of certain administrative costs.
(12) Reflects the following:
(a) Elimination of amortization expense reflecting the decrease in
amortization of goodwill as if the Comfort Acquisition had been
consummated as of the beginning of the period in the amount of $130.
(b) Additional depreciation expense reflecting the step-up in basis
of property, plant and equipment in the amount of $47.
(13) Reflects the amortization of deferred financing costs associated with
the financing of the Comfort Acquisition as if it had been consummated as
of the beginning of the period. These costs are amortized over the term
of the related debt using the straight line method, which approximates
the effective interest method.
(14) Reflects the effect of the pro forma adjustments described above and
the estimated pro forma tax provision of Comfort Clinic as a C corporation.
<PAGE>
<TABLE>
CRAIN INDUSTRIES INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the Nine Months ended September 30, 1996
(Unaudited)
(In thousands)
<CAPTION>
Pro
Comfort Forma
Clinic Adjust-
Crain (1) ments Combined
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales.................... $226,191 $ 32,938 $(10,872)(2) $248,257
Operating expenses:
Cost of goods sold......... 180,111 30,376 (10,872)(2) 199,615
Selling, general and
administrative........... 25,206 4,704 (1,215)(3) 28,695
Depreciation and
amortization............. 6,567 5,677 (4,888)(4) 7,356
--------- --------- --------- ---------
Operating income (loss)...... 14,307 (7,819) 6,103 12,591
Other expense (income):
Interest................... 10,851 913 (84)(5) 11,680
Amortization of deferred
financing costs.......... 1,268 -- 94 (6) 1,362
Other...................... (24) -- -- (24)
--------- --------- --------- ---------
Net income (loss)............ 2,212 (8,732) 6,093 (427)
Income tax provision
(benefit).................. 938 -- (1,003)(7) (65)
--------- --------- --------- ---------
Net income (loss)............ $ 1,274 $ (8,732) $ 7,096 $ (362)
========= ========= ========= =========
</TABLE>
<PAGE>
CRAIN INDUSTRIES, INC.
NOTES TO PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(In thousands)
(1) Comfort Clinic's fiscal year end was the Friday closest to June 30, the
following unaudited operating data of Comfort Clinic is used to arrive
at the historical nine-months ended September 30, 1996.
<TABLE>
<CAPTION>
Combined
Comfort Clinic Historical
----------------------------------------
Six-months Three-months Nine-months
ended ended ended
6/30/96 9/30/96 (a) 9/30/96
------------ ------------ ------------
<S> <C> <C> <C>
Net sales............................. $ 21,047 $ 11,891 $ 32,938
Operating expenses:
Cost of goods sold.................. 20,199 10,177 30,376
Selling, general and
administrative.................... 3,021 1,683 4,704
Depreciation and amortization....... 5,671 6 5,677
------------ ------------ ------------
Operating income...................... (7,844) 25 (7,819)
Other expense:
Interest............................ 913 -- 913
------------ ------------ ------------
Net Income (loss) (b)................. $ (8,757) $ 25 $ (8,732)
============ ============ ============
</TABLE>
(a) The three months ended September 30, 1996 are derived from the
statements for the period from June 29, 1996 through October 18,
1996.
(b) Comfort Clinic is not a separate taxable entity for Federal, state,
or local income tax purposes. The operations are included in the
consolidated tax returns of Sunrise. No allocation of income tax
expense or benefit has been made to Comfort Clinic.
(2) Reflects the elimination of inter-company sales and cost of sales
pertaining to purchases of mattress pads and pillows, as well as foam bun
purchases by Comfort Clinic in the amount of $10,872.
(3) Reflects the elimination of certain administrative costs.
(4) Reflects the following:
(a) Reduction of Comfort Clinic's amortization expense for the goodwill
as if the acquisition had been consummated as of the beginning of
the period in the amount of $4,737.
(b) Elimination of Comfort Clinic's depreciation expense reflecting a
decrease in historical depreciation expense compared to the step-up
in basis associated with the Comfort Acquisition during the period
in the amount of $151.
<PAGE>
CRAIN INDUSTRIES, INC.
NOTES TO PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(In thousands)
(5) Reflects a decrease in interest expense based on the new debt at the
rate of 8.75% (a) (b) as if the Comfort Acquisition had been consummated
as of the beginning of the period.
(a) A one-half of one percent change in interest rates would impact
interest expense for borrowing under the Revolving facility in the
amount of approximately $48 per annum.
(b) The interest rates per annum applicable to the loans under the
Revolving Facility will be either the Eurodollar Rate plus up to
2.5% or the Alternate Base Rate plus up to 1.5%. The Alternate Base
Rate is, for any day, the higher of the Prime Rate in effect on such
day, and the Federal Funds Effective Rate in effect on such day plus
0.5%. The Company has estimated the rate to be 8.75%.
(6) Reflects the amortization of deferred financing costs associated with the
financing of the Comfort Acquisition as if it had been consummated as
of the beginning of the period. These costs are amortized over the term
of the related debt using the straight line method, which approximates the
effective interest method.
(7) Reflects the effect of the pro forma adjustments described above and the
estimated pro forma tax provision of Comfort Clinic as a C corporation.
<PAGE>
<TABLE>
CRAIN INDUSTRIES, INC.
PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(In thousands)
(Unaudited)
<CAPTION>
Comfort
Clinic Pro Forma
Crain (1) Adjustments Combined
--------- --------- ------------ ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...... $ 1,822 $ (1,713) $ -- $ 109
Accounts receivable, net....... 42,167 9,558 (3,155)(2) 48,570
Inventories.................... 29,147 1,405 -- 30,552
Prepaid expenses and other..... 2,420 83 -- 2,503
--------- --------- --------- ---------
Total current assets......... 75,556 9,333 (3,155) 81,734
Property, plant and
equipment, net................. 45,346 3,656 988 (3) 49,990
Deferred financing costs, net.... 10,778 -- 501 (4) 11,279
Intangibles, net................. 50,097 -- 6,475 (5) 56,572
Other assets..................... 1,048 65 -- 1,113
--------- --------- --------- ---------
Total assets................... $182,825 $ 13,054 $ 4,809 $200,688
========= ========= ========= =========
LIABILITIES AND
STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of
long-term obligations........ $ 123 $ -- $ -- $ 123
Accounts payable............... 24,670 3,940 (3,155)(6) 25,455
Accrued and other liabilities.. 9,455 512 1,262 (7) 11,229
Accrued interest............... 1,751 -- -- 1,751
Accrued payroll and personnel.. 5,211 191 -- 5,402
Income taxes payable........... 1,029 70 -- 1,099
--------- --------- --------- ---------
Total current liabilities.... $ 42,239 4,713 (1,893) 45,059
Long-term obligations, less......
current maturities............. 110,177 -- 9,500 (8) 119,677
Other long-term liabilities...... 4,953 -- 475 (9) 5,428
Stockholder's equity............. 24,428 8,341 (3,273)(10) 29,496
Retained Earnings................ 1,028 -- -- 1,028
--------- --------- --------- ---------
Total stockholder's equity..... 25,456 8,341 (3,273) 30,524
--------- --------- --------- ---------
Total liabilities and
stockholder's equity......... $182,825 $ 13,054 $ 4,809 $200,688
========= ========= ========= =========
</TABLE>
<PAGE>
CRAIN INDUSTRIES, INC.
NOTES TO PRO FORMA COMBINED BALANCE SHEET
(In thousands)
(1) The balance sheet data presented is as of October 18, 1996, which
approximates the balance sheet data as of September 30, 1996.
(2) Reflects the following:
(a) Elimination of Crain's accounts receivable from Comfort Clinic in
the amount of $2,610.
(b) Elimination of Comfort Clinic's accounts receivable from Crain
associated with the purchases of packaging supplies used for Comfort
Clinic's products in the amount of $545.
(3) Reflects the write-up of property, plant and equipment acquired in the
Acquisition to estimated fair market value.
(4) Reflects the capitalization of deferred financing fees associated with
the Acquisition.
(5) Reflects the excess purchase price of the Acquisition over the estimated
fair value of the net assets acquired in the Acquisition.
(6) Reflects the following:
(a) Elimination of Comfort Clinic's accounts payable to Crain in the
amount of $2,610.
(b) Elimination of Crain's accounts payable to Comfort Clinic
associated with the purchases of packaging supplies used for
Comfort Clinic's products in the amount of $545.
(7) Reflects the current accrued liabilities incurred in connection with the
acquisition and related financing.
(8) Reflects the borrowing under the Revolving Facility used to finance a
portion of the Acquisition.
(9) Reflects the adjustments to record other long-term liabilities incurred in
connection with the Comfort Acquisition.
(10) Reflects the following:
(a) Elimination of Comfort Clinic's inter-company account to Sunrise
Medical, Inc. in the amount of $8,341.
(b) Contribution of equity by Holdings used to finance a portion of the
Acquisition in the amount of $5,068.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 19334, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CRAIN INDUSTRIES, INC.
Date: December 31, 1996 By: /s/ James G. Powers
---------------------------------
James G. Powers
Vice President and
Chief Financial Officer
