U. S. 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):
July 22, 1998
SDC International, Inc.
(Exact name of registrant as specified in its charter)
Delaware 0-27520 75-2583767
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation or
organization)
2065 Montgomery Street
Ft. Worth, Texas 76107
(Address of principal executive offices) (Zip code)
Issuer's telephone number (561) 882-9300
Not Applicable
(Former name and former address, if changed
since last report)
<PAGE>
ITEM 5. Other Events.
On July 22, 1998, SDC International, Inc., ("SDC") issued a
press release announcing the signing of two agreements
which, together, provide for its acquisition of controlling
interest in Czech Republic truck manufacturer, TATRA, a.s.
A copy of the press release is filed as Exhibit 99.1under
Item 7 (c).
Any and all estimates of cost savings, synergies, projected
earnings and share calculations, and pro forma financial
information included in the Exhibits hereto are "forward-
looking" and inherently subject to significant uncertainties
and contingencies, many of which are beyond Registrant's and
Tatra's control, including: (a) future economic conditions
in the markets in which Registrant and Tatra operate; (b)
financial market conditions; (c) inflation and currency
exchange rates; (d) changing competition and the effects of
new and increased competition in the areas served by
Registrant and Tatra; (e) changes in the economic regulatory
climate in the countries in which Registrant and Tatra sell
their products; (f) labor uncertainties and Registrant's and
Tatra's ability to implement anticipated labor savings; (g)
unanticipated environmental and other situations relating to
Tatra's assets; (h) adverse changes in applicable laws,
regulations or rules governing environmental, tax or
accounting matters. There can be no assurance that the
estimated savings, synergies, projected earnings and share
valuations, or pro forma financial information may vary
materially from those estimates. The inclusion of such
estimates herein should not be regarded as an indication or
affirmation that Registrant or Tatra or any other party
considers such estimates an accurate prediction of future
events.
ITEM 7. Financial Statements
(a) Financial Statements of Business Acquired.
Financial statements required to be filed with respect
to the Company's acquisition will be filed by amendment of
the Company's Current Report within sixty days of the date
of this report by amendment of the Company's 8-K.
(c) Exhibits
99.1 Text of press release issued by SDC on July
22,1998 with Background Information Sheets
<PAGE>
SIGNATURE
In accordance with Section 13 or 15 (d) of the Exchange
Act, the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SDC International, Inc.
(Registrant)
Date: July 22, 1998 By:/s/Ronald A. Adams
Ronald A. Adams, Chairman
and Chief Executive Officer
E-1
Exhibit Index
Exhibit
Number
System Description
99.1 Text of press release issued by SDC on July
22, 1998
<PAGE>
Exhibit 99.1
SDC International, Inc.
Manufacturing, Trade and Finance
for Emerging Global Markets
FOR IMMEDIATE RELEASE
Information contact: SDC International, Inc.
Ronald A. Adams, Chairman
Telephone 561-882-9300
Facsimile 561-882-9310
EMail [email protected]
SDC to Acquire Prized Czech Truck Manufacturer
July 22, 1998
Palm Beach, Florida............In what would create the
largest Czech Republic industrial operation to be majority-
owned by an American company, SDC International, Inc.,
(SDCN) today announced the signing of two agreements
providing for SDC's acquisition of the 100 year-old Czech
truck manufacturer, Tatra, a.s. SDC International, Inc.
is a publicly owned US-based company established to market,
sell, and finance high quality Eastern and Central European
industrial products such as diesel generators, cogeneration
equipment, on-road and off-road trucks, tractors, and other
transport equipment.
SDC has executed an agreement for acquisition of 43.5% of
the outstanding shares of Tatra from the Czech engineering
giant SKODA, a.s.. A second agreement with the largest
commercial bank in the Czech Republic, KOMERCNI BANKA,
provides for SDC's discounted acquisition of the Bank's
senior secured 2.8 billion Czech koruna ($90 million US)
loan to Tatra. SDC will pay US$30 million for the senior
secured loan. Closing of SDC's acquisition of Tatra stock
and senior debt is scheduled for September 30th, pending
appropriate due diligence reviews and financing matters.
Upon closing the acquisition, SDC will become one of the few
NASD Bulletin Board stocks to attain the growth which should
enable it to immediately qualify for larger US exchanges.
According to Tatra's consolidated audit report certified by
Ernst & Young, Tatra's revenues for 1997 were about US$290
million, with about US$230 million in assets. Tatra employs
over 7500 employees. If SDC fully converts the bank debts
of Tatra into equity, Tatra would have a book value of about
US $100 million, of which SDC could have up to 84% of the
outstanding shares, giving SDC's stock a US$ 15-18 book
value per share. Tatra would currently contribute at least
$1.00 earnings to each SDC share.
SDC Chairman, Ronald A. Adams, said "the most exciting
aspect of the acquisition is working with Tatra to help them
take advantage of the company's vast earnings potential by
managing and marketing improvements and by the injection of
capital." He added, "despite the 'handcuffs' caused by
<PAGE>
former state ownership and capital restrictions, Tatra,
after serious losses in prior years, seems to have turned
the corner. 1997 profits were US$2 million and were also
US$2 million for the first quarter of 1998. The
disintegration of the company's markets caused by the fall
of communism choked Tatra's earnings for many years. We
want to lift the yoke."
SDC plans to increase earnings per share by infusing capital
for raw material and component inventories, thereby
increasing efficiency and output. New marketing and sales
programs along with Tatra's first-ever leasing program will
be introduced to modernize and revitalize this sleeping
giant. Additionally, the Tatra labor union's recent
approval to reduce the workforce by 20% will, also, provide
a substantial increase in earnings.
SDC International is traded on the NASD Bulletin Board under
the symbol "SDCN". The Company completed an 8-K filing with
the Securities and Exchange Commission today regarding the
acquisition agreements.
Note: Any and all estimates of cost savings, synergies,
projected earnings and share valuations, and pro forma
financial information included herein are "forward-looking"
and inherently subject to significant uncertainties and
contingencies, many of which are beyond SDC's and Tatra's
control, including: (a) future economic conditions in the
markets in which SDC and Tatra operate; (b) financial market
conditions; (c) inflation and currency exchange rates; (d)
changing competition and effects of new and increased
competition in the areas served by SDC and Tatra; (e)
changes in the economic regulatory climate in the countries
in which SDC and Tatra sell their products; (f) labor
uncertainties and SDC's and Tatra's ability to implement
anticipated labor savings; (g) unanticipated environmental
and other situations relating to Tatra's assets; (h) adverse
changes in laws, regulations or rules governing
environmental, tax or accounting matters. There can be no
assurance that the estimated savings, synergies, projected
earnings and share valuations or pro forma financial
information will not vary materially from those estimates.
The inclusion of such estimates herein should not be
regarded as an indication or affirmation that SDC or Tatra
or any other party considers such estimates an accurate
prediction of future events.
End of release
Complete background information sheets are immediately
available upon request.
BACKGROUND INFORMATION SHEETS FOR PRESS RELEASE
Press Release Title:
SDC to Acquire Prized Czech Truck Manufacturer
Press Release Date: July 22, 1998
Background Information:
Palm Beach, Florida............In what will create perhaps
the largest Czech Republic industrial operation to be
majority-owned by an American company, SDC International,
Inc., (SDCN) today announced the signing of two significant
agreements. The first provides for SDC's acquisition of
43.5% of the outstanding shares of 100 year-old Czech truck
manufacturer, TATRA, a.s., from the Czech engineering giant
SKODA, a.s. SDC has simultaneously executed an agreement
providing for SDC's discounted acquisition of the senior
secured 2.8 billion Czech koruna (90 million US dollar)
loan to Tatra from KOMERCNI BANKA, the largest commercial
bank in the Czech Republic.
Tatra is considered to be a strategic industrial
complex and by many a crown jewel of the Czech Republic.
SDC will become one of very few NASD Bulletin Board stocks
to attain the growth which should enable it to immediately
qualify for larger U.S. exchanges.
Tatra's revenues for 1997 were about US$290 million,
according to Tatra's audit report, certified by Ernst &
Young. Tatra has over US$230 million in assets and it
employs over 7,500 workers. If SDC fully converts the bank
debts of Tatra into equity, Tatra will have a book value of
about US$100 million and SDC can own up to 84% of the issued
and outstanding Tatra shares. This holding alone will give
SDC a book value of US$15-18 per share. SDC's Chairman
Ronald A. Adams states that "SDC has been able to arrange
this acquisition because of our unique position among
American companies in the Czech Republic and due to the
unique circumstances of Tatra's heavy debt, which primarily
remains from the Communist period. This acquisition is also
beneficial to the bank, which must "clean up" its loan
portfolio in preparation for the pending privatization of
the major Czech banks."
The first agreement, by which SDC obtained the 43.5%
interest in Tatra held by Czech engineering giant SKODA,
provides for a purchase price of approximately US$13.6
million. The second agreement, by which SDC will acquire
Tatra's US$85-90 million-equivalent senior secured debt
from Komercni Banka, provides for a purchase price of US$30
million. Both agreements are scheduled to close on
September 30th, subject to SDC's satisfaction with the
results of the due diligence review. Tatra's audited
financial statements have been certified for the past four
years by Ernst & Young. Deloitte & Touche has been
separately engaged by SDC to provide due diligence review of
Tatra's accounting, management and tax matters. In
addition, Deloitte & Touche will assist in the preparation
of SDC's post-acquisition strategic plan for Tatra. The
international law firm Baker & McKenzie, in both the U.S.
and Czech Republic, has been retained to complete all other
due diligence and securities-related matters.
Komercni Banka, with US$ 14 billion in assets, is
the largest commercial bank in the Czech Republic and is
one of the largest banks within Central and Eastern Europe.
Recently, its shareholders, which include the government of
Czech Republic as a 49% owner, appointed a new board of
directors to improve its performance after profits tumbled
last year. The government presently plans to sell its
stake in the bank to outside investors in order to provide
the bank with access to new capital and know-how. In a
June 18th Merrill Lynch Capital Markets report on the Czech
banking industry, Merrill Lynch stated "we view today's
announcement by the CNB of strict new requirements on banks'
provisioning for loss loans as a very positive development
that will force the banks to address their huge problem
loan portfolios by end 2000." On the same day, Credit
Suisse First Boston maintained a "buy" recommendation on
Komercni because CSFB continues to believe that the
government will use a loan bailout strategy to "maximize its
privatization revenues". According to SDC, this banking
situation is precisely part of the reason for the
opportunity afforded SDC by this acquisition.
Tatra's history extends back to 1850 when it was founded
as a carriage and buggy business. As a result of military
<PAGE>
orders during both World Wars, the Tatra factory became a
designer and manufacturer of dependable trucks uniquely
engineered for both on-road and off-road use. Today, the
firm's core product is a truck particularly dependable in
off-road, rough terrain and severe climate conditions.
According to a preliminary Deloitte & Touche due diligence
memorandum, "the product has a reputation for its rugged
quality as is evidenced by the fact that Tatra has four
times won the acclaimed Paris-Dakar Rallye, the defining
test of off-road vehicle quality". According to the
Deloitte & Touche memorandum, "Tatra has financial and
control systems with standards that are superior to those
practiced in Central Europe, as well as a highly skilled
management. Tatra has the capacity to produce in excess of
10,000 vehicles per year." Tatra moved back into the black
in 1997 after suffering losses beginning shortly after the
1989 fall of Communism and the resulting disintegration of
its captive markets.
Next week, in culmination of nearly two years' planning,
a special Tatra "LIWA Wildfire-fighting Vehicle" will be
reviewed by the U.S. government at the Nevada Automotive
Test Center. The event will be in conjunction with
American transmission builder Twin Disc, of Racine,
Wisconsin. Twin Disc's transmissions have recently been
installed with a German Deutz diesel engine in hundreds of
Tatra's LIWA military vehicles SDC's Chairman Ronald Adams
will be on hand for the test-site demonstration. "We
expect to see one of the most sophisticated and most
capable all-terrain firefighting vehicles under very
grueling conditions," Adams predicts. The Twin Disc
transmission is an impressive electronically controlled,
fully automated system perfect for this type of
application. "Tatra expects to do substantial business with
companies such as Twin Disc once the need and old idea of
purchasing components only from Central and East European
suppliers is overcome," Adams states.
Today, Tatra trucks have two basic market applications:
civilian and military. Last year, Tatra's non-military
sales accounted for 68% of total Tatra sales. Divided into
five geographical areas, non-military sales were 37% in
Czech and Slovakia, 37% in China and the Americas, 17% in
Russia and the CIS, 7% in Europe and about 2% in Africa and
the Middle East. Military sales consisted mainly of a
number of large orders for Tatra's LIWA vehicle from the
United Arab Emirates, after Tatra won a competition
against Mercedes Benz for the orders.
Once SDC's acquisition of Tatra is completed, SDC
expects to increase the profitability through management and
marketing improvements and as a result of the injection of
new capital. For the first time since the end of the cold
war, Tatra was able to show a 1997 profit of just over US$2
million. SDC Chairman Adams expects Tatra to gain further
increases in profitability through a number of measures.
First, SDC's new injections of capital will be directed
to raw material and component inventories which in the past
have been sporadic at best. A stable supply of raw
materials and supplies are expected to increase efficiency
and output, resulting in rapid improvement in the overall
bottom line. Because of the uncertain supplies, Tatra has
not been able to maintain an adequate inventory of
completed trucks. SDC plans to use some of the new capital
to establish an inventory of finished trucks.
Second, as a major step in improving productivity and
efficiency, a 20% reduction in the labor force is planned
and has already been accepted by the workers' union.
Third, in what may be the most important addition for
Tatra, SDC plans to establish the first leasing and
financing program for Tatra trucks. Mr. Adams believes
that only about 15% of the truck market worldwide is on a
cash sales basis. "Since Tatra was able to create US$290
<PAGE>
million in revenue on cash sales only, we expect that with
the new leasing and financing programs, Tatra should be able
to reach several times its current levels. Not
coincidentally, such levels would be in line with its past
capacity and in line with existing Tatra capabilities
defined in the preliminary Deloitte & Touche memorandum to
SDC."
Fourth, SDC plans to bring a core group of advisors to
Tatra. These advisors will be selected by SDC and will work
with Milota Srkal, the Czech-born President of SDC. SDC
does not plan wholesale replacement of the present Tatra
management, engineering or workforce, but does plan a
number of steps necessary to enhance Tatra.
Although SDC has had for several months a likely
financing source for the acquisition, it is currently in
discussions with institutional investors. SDC believes
that an institutional partner should be capable of a larger
long-term relationship because SDC's growth plans merit
larger amounts of capital than the 50-60 million planned for
the Tatra project. Adams stated "this is a very unique
opportunity for SDC and its shareholders, and we know that
it can be a very attractive situation for institutional
investors whose mission is similar to ours."
Although SDC expects no major roadblocks to completion
of the acquisition, the deal remains contingent upon
successful completion of the due diligence review by SDC,
Deloitte & Touche, and Baker & MacKenzie. SDC has known
Tatra and its management for several years and expects to
find no substantial skeletons in their closets. Another
possible impediment could arise from irreconcilable
conflicts between Czech and U.S. business law. By working
with international accounting firms, Deloitte & Touche and
Ernst & Young, and with the global law firm Baker &
McKenzie, SDC believes that a solution will be found to any
such problems. The closing is scheduled for September 30,
barring any unforeseen difficulties.
SDC International, Inc., is a US-based company originally
established to market, sell, and finance high-quality
Eastern and Central European industrial products such as
diesel generators, cogeneration equipment, on-road and off-
road trucks, tractors, and other transport equipment. SDC
became a public company almost upon its founding, and as a
result has gained acceptance in Central and Eastern Europe
as a credible, SEC-reporting American entity. SDC offers
itself as the vehicle of choice for establishing financial
relationships for major industrial producers of its target
region.
End of background information sheets
