<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
----------
CURRENT REPORT
(Amendment No. 1)
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): November 6, 1998
PRIMEX TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 0-28942 84-0854616
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
10101 NINTH STREET NORTH, ST. PETERSBURG, FLORIDA 33715-3807
(Address of principal executive offices) (Zip Code)
(727) 578-8100
(Registrant's telephone number, including area code)
Page 1 of 3
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired
The following financial statements of CMS, Inc. and Subsidiaries and
Defense Research Incorporated are attached as Appendix I:
Independent Auditors' Report
Combined Balance Sheets - September 30, 1998 (unaudited) and
December 31, 1997 and 1996
Combined Statements of Operations - Nine Months Ended
September 30, 1998 and 1997 (unaudited) and Years Ended
December 31, 1997 and 1996
Combined Statements of Shareholder's Equity - Nine Months
Ended September 30, 1998 (unaudited) and Years Ended
December 31, 1997 and 1996
Combined Statements of Cash Flows - Nine Months Ended
September 30, 1998 and 1997 (unaudited) and Years Ended
December 31, 1997 and 1996
Notes to Combined Financial Statements
(b) Pro Forma Financial Information
The following pro forma financial information is attached as Appendix II:
Unaudited Pro Forma Condensed Combined Balance Sheet - September 27,
1998
Unaudited Pro Forma Condensed Combined Statement of Operations -
Nine Months Ended September 27, 1998
Unaudited Pro Forma Condensed Combined Statement of Operations -
Year Ended December 31, 1997
Page 2 of 3
<PAGE>
EXHIBITS
23.1 Consent of Independent Auditors
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PRIMEX TECHNOLOGIES, INC.
(Registrant)
Date: January 20, 1999
/s/ George H. Pain
- ------------------------------------------
Vice President, General Counsel and Secretary
Date: January 20, 1999
/s/John E. Fischer
- ------------------------------------------------
Vice President, Chief Financial and Accounting Officer
Page 3 of 3
<PAGE>
APPENDIX I
CMS, INC. AND SUBSIDIARIES
AND DEFENSE RESEARCH INCORPORATED
Table of Contents
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report F-1
Combined Balance Sheets - September 30, 1998 (unaudited) and
December 31, 1997 and 1996 F-2
Combined Statements of Operations - Nine Months Ended
September 30, 1998 and 1997 (unaudited) and
Years Ended December 31, 1997 and 1996 F-4
Combined Statements of Shareholder's Equity - Nine Months Ended
September 30, 1998 (unaudited) and
Years Ended December 31, 1997 and 1996 F-5
Combined Statements of Cash Flows - Nine Months Ended
September 30, 1998 and 1997 (unaudited) and
Years Ended December 31, 1997 and 1996 F-6
Notes to Combined Financial Statements F-8
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
CMS, Inc. and Subsidiaries
and
Defense Research Incorporated:
We have audited the accompanying combined balance sheets of CMS, Inc. and
subsidiaries and Defense Research Incorporated (collectively "the Company") as
of December 31, 1997 and 1996, and the related combined statements of
operations, shareholder's equity and cash flows for the years then ended. These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of CMS, Inc.
and subsidiaries and Defense Research Incorporated as of December 31, 1997 and
1996, and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
KPMG LLP
Tampa, Florida
January 30, 1998, except as to note 2,
which is as of July 6, 1998
F-1
<PAGE>
CMS, INC. AND SUBSIDIARIES
AND DEFENSE RESEARCH INCORPORATED
Combined Balance Sheets
September 30, 1998 (Unaudited) and
December 31, 1997 and 1996
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
--------------------------
ASSETS 1998 1997 1996
-------------- ------------ -----------
(Unaudited)
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,714,058 $ 175,639 $ -
Accounts receivable 10,264,639 8,833,951 10,597,181
Cost and estimated earnings in excess of billings 3,285,349 2,548,623 1,005,190
Receivables from affiliates (note 10) 200,000 226,475 228,219
Contract inventories in progress (note 3) 23,401,375 24,124,998 14,778,997
Prepaid expenses and other current assets 1,677,799 695,855 952,877
----------- ----------- -----------
Total current assets 40,543,220 36,605,541 27,562,464
Property, plant and equipment, net of accumulated
depreciation and amortization (note 4) 20,065,145 19,620,022 17,843,147
Intangible assets, net of accumulated amortization
(note 5) 5,315,900 5,705,636 6,159,640
Other assets 265,873 82,569 108,734
Net assets of discontinued operations (Note 2) 901,470 1,699,175 1,964,756
----------- ----------- -----------
$67,091,608 $63,712,943 $53,638,741
=========== =========== ===========
</TABLE>
(Continued)
F-2
<PAGE>
CMS, INC. AND SUBSIDIARIES
AND DEFENSE RESEARCH INCORPORATED
Combined Balance Sheets, continued
September 30, 1998 (Unaudited) and
December 31, 1997 and 1996
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
----------------------------
1998 1997 1996
-------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY:
Current Liabilities:
Bank overdraft $ - $ - $ 184,739
Short-term debt-affiliate (note 6) 737,438 7,185,321 5,349,278
Accounts payable 2,746,365 5,139,388 6,400,000
Accounts payable - affiliates (note 10) - 51,989 96,867
Accrued incentive compensation (note 12) 7,436,200 4,400,000 1,400,000
Other accrued expenses 6,663,947 4,207,109 3,474,649
Accrued interest payable - affiliates 242,489 594,489 594,489
Income taxes payable (note 9) 1,077,449 809,359 208,588
Billings in excess of costs and estimated earnings 9,352 626,921 556,015
------------ ------------ ------------
Total current liabilities 18,913,240 23,014,576 18,264,625
Note payable - affiliate (note 6) 16,000,000 16,000,000 16,000,000
------------ ------------ ------------
Total liabilities 34,913,240 39,014,576 34,264,625
------------ ------------ ------------
Shareholder's equity:
Preferred stock, nonvoting:
Defense Research Inc., $1 par value, 50,000
shares authorized, issued and outstanding 50,000 50,000 50,000
Common Stock:
CMS, Inc. $1 stated value, 1,000 shares
authorized, issued and outstanding 1,000 1,000 1,000
Defense Research Inc., $.01 par value, 1,000
shares authorized, issued and outstanding 10 10 10
Additional paid-in capital:
CMS, Inc. 94,707,000 94,707,000 94,707,000
Defense Research Inc. 742,014 742,014 742,014
Retained earnings (accumulated deficit):
CMS, Inc. (68,395,622) (75,220,673) (79,666,964)
Defense Research Inc. 5,123,976 4,469,026 3,591,066
Capital stock subscribed - Defense Research Inc. (50,010) (50,010) (50,010)
------------ ------------ ------------
Net Shareholder's equity 32,178,368 24,698,367 19,374,116
------------ ------------ ------------
Commitments and contingencies (notes 7, 8, 12 and 13)
$ 67,091,608 $ 63,712,943 $ 53,454,002
============ ============ ============
</TABLE>
See accompanying notes to combined financial statements.
F-3
<PAGE>
CMS, INC. AND SUBSIDIARIES
AND DEFENSE RESEARCH INCORPORATED
Combined Statements of Operations
Nine months ended September 30, 1998 and 1997 (Unaudited)
and years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Nine months ended Years ended
September 30, December 31,
--------------------------------- --------------------------
1998 1997 1997 1996
------------------ ------------- ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
Net sales $73,929,126 $60,079,824 $79,513,081 $61,118,271
Cost of sales 52,936,453 42,046,411 56,325,266 44,522,335
----------- ----------- ----------- -----------
Gross profit 20,992,673 18,033,413 23,187,815 16,595,936
General and administrative expenses 11,867,965 10,816,647 14,308,455 9,393,953
Amortization of intangible assets 377,832 377,139 504,003 500,263
----------- ----------- ----------- -----------
Operating income 8,746,876 6,839,627 8,375,357 6,701,720
----------- ----------- ----------- -----------
Other income (expense):
Interest income 183,367 56,673 37,191 125,844
Interest expense - affiliates (note 6) (1,391,736) (1,441,571) (1,905,097) (1,758,140)
Interest expense - - (11,565) (1,389)
Net gain (loss) on disposal of
fixed assets(note 4) (79,872) (19,749) 31,572 947,648
Other 293,179 306,866 (19,851) 150,191
----------- ----------- ----------- -----------
(995,062) (1,097,781) (1,867,750) (535,846)
----------- ----------- ----------- -----------
Income from continuing
operations before income taxes 7,751,814 5,741,846 6,507,607 6,165,874
Income tax expense (note 9) 793,963 713,832 1,100,018 351,938
----------- ----------- ----------- -----------
Income from continuing operations 6,957,851 5,028,014 5,407,589 5,813,936
----------- ----------- ----------- -----------
Discontinued operations (note 2):
Income (loss) from operations, net of
income tax expense (benefit) of $29,300,
$(8,389), $(12,599) and $202,040 256,831 (59,101) (83,338) 467,192
Gain on disposal, net of income taxes of
$30,268 265,319 - - -
----------- ----------- ----------- -----------
522,150 (59,101) (83,338) 467,192
----------- ----------- ----------- -----------
Net income $ 7,480,001 $ 4,968,913 $ 5,324,251 $ 6,281,128
=========== =========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements
F-4
<PAGE>
CMS, INC. AND SUBSIDIARIES
AND DEFENSE RESEARCH INCORPORATED
Combined Statements of Shareholder's Equity
Nine months ended September 30, 1998 (Unaudited)
and years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL PAID-IN CAPITAL
---------------- ------------------------------------ --------------------------
DEFENSE DEFENSE DEFENSE
RESEARCH RESEARCH RESEARCH
INCORPORATED CMS, INC. INCORPORATED CMS, INC. INCORPORATED
---------------- --------------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1995 $ 50,000 $ 1,000 $ 10 $94,707,000 $ 742,014
Net income - - - - -
------------ ---------- ---------- ----------- -------------
Balances at December 31, 1996 50,000 1,000 10 94,707,000 742,014
Net income - - - - -
------------ ---------- ---------- ----------- -------------
Balances at December 31, 1997 50,000 1,000 10 94,707,000 94,707,000
Net income (unaudited) - - - - -
------------ ---------- ---------- ----------- -------------
Balances at September 30, 1998 (unaudited) $ 50,000 $ 1,000 $ 10 $94,707,000 $ 742,014
============ ========== ========== =========== =============
</TABLE>
<TABLE>
<CAPTION>
RETAINED EARNINGS
(ACCUMULATED DEFICIT) NET
----------------------------
DEFENSE CAPITAL STOCKHOLDER'S
RESEARCH STOCK EQUITY
CMS, INC. INCORPORATED SUBSCRIBED (DEFICIT)
---------- ------------ ---------- ---------
<S> <C> <C> <C> <C>
Balances at December 31, 1995 $(84,278,025) $1,920,999 $ (50,010) $13,092,988
Net income 4,611,061 1,670,067 - 6,281,128
------------ ---------- ----------- -----------
Balances at December 31, 1996 (79,666,964) 3,591,066 (50,010) 19,374,116
Net income 4,446,291 877,960 - 5,324,251
------------ ---------- ----------- -----------
Balances at December 31, 1997 (75,220,673) 4,469,026 (50,010) 24,698,367
Net income (unaudited) 6,825,051 654,950 - 7,480,001
------------ ---------- ---------- -----------
Balances at September 30, 1998 (unaudited) $(68,395,622) $5,123,976 $ (50,010) $32,178,368
============ ========== ========== ===========
</TABLE>
See accompanying notes to combined financial statements
F-5
<PAGE>
CMS, INC. AND SUBSIDIARIES
AND DEFENSE RESEARCH INCORPORATED
Combined Statements of Cash Flows
Nine months ended September 30, 1998 and 1997 (Unaudited)
and years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Nine months ended Years ended
September 30, December 31,
-------------------------- ---------------------------
1998 1997 1997 1996
------------ ------------ ------------ -------------
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 7,480,001 $ 4,968,913 $ 5,324,251 $ 6,281,128
Adjustments to reconcile net income to
net cash provided by operating activities:
Discontinued operations 809,422 502,372 265,581 (1,964,756)
Depreciation expense 2,194,573 1,937,404 2,540,715 2,511,259
Amortization of intangible assets 377,832 377,139 504,004 500,263
Net gain on disposal of assets 79,872 (19,749) (31,110) (947,648)
Change in assets and liabilities used in operating activities:
Accounts receivable (1,430,688) 394,438 1,763,230 (1,264,705)
Costs and estimated earnings in excess of billings (736,726) 393,729 (1,543,433) (313,977)
Receivables from affiliates 14,758 (10,229) 1,744 995,334
Contract inventories in progress 723,623 (6,509,037) (9,346,001) (5,789,023)
Prepaid expenses and other current assets (981,944) (1,320,367) 257,022 (136,557)
Other assets (183,304) (12,128) 26,165 142,846
Accounts payable (2,393,023) (1,541,124) (1,260,612) 2,549,406
Accounts payable - affiliates (51,989) (96,867) (44,878) (839,837)
Advances from affiliate - - - (1,675,595)
Accrued expenses 5,141,038 3,321,124 3,732,460 1,917,551
Income taxes payable/receivable 268,090 1,080,180 600,771 (318,357)
Billings in excess of costs and estimated earnings (617,569) (247,029) 70,906 (412,904)
----------- ----------- ----------- -----------
Net cash provided by operating activities 10,693,966 3,258,267 2,860,815 1,234,428
----------- ----------- ----------- -----------
Cash flows from investing activities:
Additions to property, plant and equipment (2,707,664) (4,366,777) (4,450,641) (3,685,503)
Proceeds from disposal of property and equipment - 126,127 164,161 601,189
Additions to intangible assets - (50,000) (50,000) -
----------- ----------- ----------- -----------
Net cash used in investing activities (2,707,664) (4,290,650) (4,336,480) (3,084,314)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Increase (decrease) in bank overdraft - - (184,739) 184,739
Net proceeds (payments) from short-term debt - affiliate (6,447,883) 1,450,722 1,836,043 1,643,081
----------- ----------- ----------- -----------
Net cash provided by (used in) financing activities (6,447,883) 1,450,722 1,651,304 1,827,820
----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 1,538,419 418,339 175,639 (22,066)
Cash and cash equivalents at beginning of period 175,639 (184,739) - 22,066
----------- ----------- ----------- -----------
Cash and cash equivalents at end of period $ 1,714,058 $ 233,600 $ 175,639 $ -
=========== =========== =========== ===========
</TABLE>
F-6 (continued)
<PAGE>
CMS, INC. AND SUBSIDIARIES
AND DEFENSE RESEARCH INCORPORATED
Combined Statements of Cash Flows, Continued
Nine months ended September 30, 1998 and 1997 (Unaudited)
and years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Nine months ended Years ended
September 30, December 31,
----------------------- ------------------------
1998 1997 1997 1996
---------- ----------- ------------ ----------
(Unaudited)
<S> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid (received) during the period for:
Interest $1,743,736 $1,793,571 $1,916,662 $1,759,529
========== ========== ========== ==========
Income taxes $ 585,441 $ (374,737) $ 476,771 $ 857,100
========== ========== ========== ==========
NON-CASH FLOW INVESTING ACTIVITY
Included in accounts receivable at December 31,
1996 is $1,138,500 related to the sale of
property, plant and equipment.
Included in accounts payable at December 31, 1996 is
$1,072,652 related to the purchases of property,
plant and equipment.
</TABLE>
See accompanying notes to combined financial statements
F-7
<PAGE>
CMS, INC. AND SUBSIDIARIES
AND DEFENSE RESEARCH INCORPORATED
Notes to Combined Financial Statements
September 30, 1998 and 1997 (Unaudited) December 31, 1997 and 1996
(All information as of September 30, 1998 and the
nine months ended September 30, 1998 and 1997 is unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) ORGANIZATION AND DESCRIPTION OF BUSINESS
CMS, Inc. (CMS) and Defense Research Incorporated (DRI) (collectively
"the Company") are wholly-owned subsidiaries of Daimler-Benz Finance
Company, Inc. (DBFin), which is a wholly-owned subsidiary of Daimler-
Benz of North America Corporation.
CMS is engaged in providing engineering services related to advanced
weapons systems. CMS has four wholly-owned subsidiaries, Hitech
Holdings, Inc. (Hitech), CMS Environmental, Inc. (CMSER), CMS Defense
Systems, Inc. (CMSD) and its wholly-owned subsidiary, Orlando
Technology, Inc. (OTI) and a foreign sales corporation, CMS
International FSC, Inc. (CMSI). Hitech is primarily engaged in the
loading, assembly, and packaging of commercial and military
explosives. CMSER primarily performs ordnance and explosive disposal
operations. CMSD markets and manages all-up weapon systems. OTI is
primarily engaged in munitions testing and engineering consulting
services. DRI is primarily engaged in the manufacture and sale of
parts and components to the United States Department of Defense prime
contractors.
(B) PRINCIPLES OF COMBINATION
The combined financial statements include the accounts of DRI, CMS,
and its wholly-owned subsidiaries. Because DRI is under common control
and management with CMS and subsidiaries and is related in their
operations, its financial statements are included in the combined
financial statements. All significant intercompany accounts and
transactions have been eliminated in combination.
(C) USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and
the disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
F-8
<PAGE>
CMS, INC. AND SUBSIDIARIES
AND DEFENSE RESEARCH INCORPORATED
Notes to Combined Financial Statements
September 30, 1998 and 1997 (Unaudited) December 31, 1997 and 1996
(All information as of September 30, 1998 and the
nine months ended September 30, 1998 and 1997 is unaudited)
(D) CASH EQUIVALENTS
For purposes of reporting combined cash flows, cash and cash
equivalents include short-term investments with a maturity of three
months or less at the date of purchase.
(E) REVENUE RECOGNITION AND INVENTORIES
Revenues attributable to CMS and OTI are recognized on the percentage-
of-completion method. Revenue earned is recorded based on the
percentage of costs incurred to estimates of total costs to perform
each contract. This method is used because management believes costs
incurred to be the best measure of progress on the contracts.
Substantially all revenues attributable to Hitech and DRI are from
sales to the U.S. Department of Defense and its prime contractors
under fixed unit price contracts. Revenues are recognized on a unit
price basis when units are completed and shipped or approved for
shipment by the customer. Cost of sales related to these revenues is
equal to total estimated costs divided by the total number of units to
be delivered.
Revenues attributable to CMSD are recognized dependent upon the nature
of the contract under either the percentage-of-completion method or on
a unit price basis when units are completed and shipped or approved
for shipment by the customer.
Contract inventories in progress are stated at actual costs (including
raw materials, direct labor, factory overhead, general and
administrative costs, and certain non-recurring costs) less progress
payments received in advance of shipments, if any. General and
administrative costs are included in inventories based on the
proportion of these costs to total inventoriable costs. Non-recurring
costs are included in inventories only to the extent that such costs
are recoverable from contracts.
When estimates of costs to complete indicate a probable loss on a
contract, the full amount of the expected loss is accrued or the
inventory is written down to net realizable value.
(F) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation is
calculated on the straight-line method over the estimated useful lives
of the respective assets.
F-9
<PAGE>
CMS, INC. AND SUBSIDIARIES
AND DEFENSE RESEARCH INCORPORATED
Notes to Combined Financial Statements
September 30, 1998 and 1997 (Unaudited) December 31, 1997 and 1996
(All information as of September 30, 1998 and the
nine months ended September 30, 1998 and 1997 is unaudited)
(G) INTANGIBLES
Intangible assets are being amortized on the straight-line basis over
the following periods:
Deferred financing costs 10 years
Licensing agreement 12 years
Patents 14 years
Goodwill 20 years
The Company annually evaluates the impairment of its intangible assets
by comparing estimated future undiscounted cash flows to the then
remaining net book value of the intangible assets.
(H) INCOME TAXES
The Company files a consolidated Federal income tax return with DBFin.
Taxes, both current and deferred, are calculated as if the Company
were to file its returns on a stand-alone basis.
Deferred income taxes are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
The effect on deferred taxes of a change in tax rates is recognized in
income in the period that includes the enactment date.
(I) COMMITMENTS AND CONTINGENCIES
In October 1996, the American Institute of Certified Public
Accountants issued Statement of Position 96-1, Environmental
Remediation Liabilities. SOP 96-1 was adopted by the Company on
January 1, 1997 and requires, among other things, environmental
remediation liabilities to be accrued when the criteria of SFAS No. 5,
Accounting for Contingencies, have been met. SOP 96-1 also provides
guidance with respect to the measurement of the remediation
liabilities. Such accounting is consistent with the Company's current
method of accounting for environmental remediation costs and,
therefore, adoption of SOP 96-1 does not have a material impact on the
Company's financial position, results of operation, or liquidity.
F-10
<PAGE>
CMS, INC. AND SUBSIDIARIES
AND DEFENSE RESEARCH INCORPORATED
Notes to Combined Financial Statements
September 30, 1998 and 1997 (Unaudited) December 31, 1997 and 1996
(All information as of September 30, 1998 and the
nine months ended September 30, 1998 and 1997 is unaudited)
Liabilities for loss contingencies, including environmental
remediation costs, arising from claims, assessments, litigation, fines
and penalties, and other sources are recorded when it is probable that
a liability has been incurred and the amount of the assessment and/or
remediation can be reasonably estimated.
(J) RECLASSIFICATIONS
Certain 1996 amounts as originally reported have been reclassified to
conform with the 1997 presentation.
(2) DISCONTINUED OPERATIONS
The Company sold certain assets of CMSER, its ordnance and explosive
disposal segment, to members of CMSER management on July 6, 1998 in
exchange for a note receivable. Assets not sold include cash, accounts
receivable billed prior to the sale, certain property and equipment,
and other assets. Pursuant to Accounting Principles Board Opinion
(APB) No. 30, Reporting the Results of Operations-Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions, the
combined financial statements of the Company have been reclassified to
reflect the disposition of the CMSER business segment. Accordingly,
the assets and liabilities, revenues, costs and expenses, and cash
flows of CMSER have been excluded from the respective captions in the
combined balance sheets, statements of operations, and statements of
cash flows. The net assets of this entity have been reported as "Net
Assets of Discontinued Operations," the net operating results of this
entity have been reported, net of applicable income taxes, as "Income
(Loss) from Discontinued Operations," and the net cash flows of this
entity have been reported as "Net Cash (Used in) Provided by
Discontinued Operations."
F-11
<PAGE>
CMS, INC. AND SUBSIDIARIES
AND DEFENSE RESEARCH INCORPORATED
Notes to Combined Financial Statements
September 30, 1998 and 1997 (Unaudited) December 31, 1997 and 1996
(All information as of September 30, 1998 and the
nine months ended September 30, 1998 and 1997 is unaudited)
Summarized financial information for the discontinued operations were as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
-------------------------------------
1998 1997 1996
-------------------- ----------------- ----------------
<S> <C> <C> <C>
(unaudited)
Current assets $ 1,244,899 2,375,441 3,151,307
Noncurrent assets 460,338 126,516 192,566
-------------------- ----------------- ----------------
Total assets 1,705,237 2,501,957 3,343,873
Current liabilities 803,767 802,782 1,379,117
-------------------- ----------------- ----------------
Net assets of discontinued operations $ 901,470 1,699,175 1,964,756
==================== ================= ================
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
--------------------------------- -------------------------------------
1998 1997 1997 1996
-------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C>
(unaudited)
Net sales $ 6,248,040 8,716,968 11,500,405 11,644,491
============= ============== ================ ===============
Income (loss) before provision
for income taxes $ 123,271 (67,490) (100,286) 495,432
============= ============== ================ ===============
Income (loss) from discontinued
operations, net of income taxes $ 110,648 (59,101) (83,338) 467,192
============= ============== ================ ===============
</TABLE>
F-12
<PAGE>
CMS, INC. AND SUBSIDIARIES
AND DEFENSE RESEARCH INCORPORATED
Notes to Combined Financial Statements
September 30, 1998 and 1997 (Unaudited) December 31, 1997 and 1996
(All information as of September 30, 1998 and the
nine months ended September 30, 1998 and 1997 is unaudited)
(3) CONTRACT INVENTORIES IN PROGRESS
Contract inventories in progress consist of:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
-------------------------------------
1998 1997 1996
-------------------- ----------------- ----------------
<S> <C> <C> <C>
(unaudited)
Raw materials and work in progress $ 17,888,206 15,940,900 10,933,930
Finished goods 3,232,967 5,852,923 2,627,850
General and administrative costs 2,231,980 2,000,936 969,619
Estimated recoverable nonrecurring costs 48,222 330,239 247,598
-------------------- ----------------- ----------------
$ 23,401,375 24,124,998 14,778,997
==================== ================= ================
</TABLE>
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist
of:
<TABLE>
<CAPTION>
DECEMBER 31, ESTIMATED
-----------------------------------------
1997 1996 USEFUL LIVES
----------------- ----------------- ----------------
<S> <C> <C> <C>
Land $ 1,167,474 1,167,474 --
Buildings 5,844,155 5,076,204 15-30 years
Machinery 23,289,899 20,520,113 3-10 years
Office equipment 2,058,200 1,808,667 5-10 years
Leasehold improvements 2,414,655 2,053,683 10 years
Automotive equipment 706,495 701,308 5 years
----------------- -----------------
35,480,878 31,327,449
Less accumulated depreciation and amortization
(15,860,856) (13,484,302)
----------------- -----------------
$ 19,620,022 17,843,147
================= =================
</TABLE>
F-13
<PAGE>
CMS, INC. AND SUBSIDIARIES
AND DEFENSE RESEARCH INCORPORATED
Notes to Combined Financial Statements
September 30, 1998 and 1997 (Unaudited) December 31, 1997 and 1996
(All information as of September 30, 1998 and the
nine months ended September 30, 1998 and 1997 is unaudited)
(5) INTANGIBLE ASSETS
Intangible assets consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
Goodwill $ 8,878,887 8,878,887
Patents 535,840 535,840
Deferred financing costs 180,983 180,983
Licensing agreement 50,000 --
9,645,710 9,595,710
Less accumulated amortization (3,940,074) (3,436,070)
--------------- ---------------
$ 5,705,636 6,159,640
=============== ===============
</TABLE>
(6) DEBT - AFFILIATE
Short-term debt-affiliate represents unsecured borrowings under a
$22,000,000 line of credit agreement with DBFin. Advances bear interest at
rates that vary each month based on the one-month LIBOR rate plus 10 basis
points (5.82% at December 31, 1997).
Note payable-affiliate consists of a $16,000,000 unsecured note payable to
DBFin which bears interest at 8.8% and is due January 1, 2000.
Interest expense on the short-term debt and note payable-affiliate was
$1,905,097 in 1997 and $1,758,140 in 1996.
(7) LETTERS OF CREDIT
The Company has outstanding at December 31, 1997 under a $5,000,000 bank
line of credit agreement, standby letters of credit totaling $2,307,045 for
the purpose of guaranteeing payments under operating leases and performance
under contracts. The unused portion of the bank line of credit is
$2,692,955 as of December 31, 1997.
(8) LEASES
The Company leases certain land, manufacturing facilities, warehouse
facilities, equipment, office facilities, and vehicles under noncancelable
operating lease agreements which expire on various dates through November
2004. Certain leases contain renewal options. In addition, the Company
leases certain other office equipment, vehicles and residential apartments
with terms not exceeding one year.
F-14
<PAGE>
CMS, INC. AND SUBSIDIARIES
AND DEFENSE RESEARCH INCORPORATED
Notes to Combined Financial Statements
September 30, 1998 and 1997 (Unaudited) December 31, 1997 and 1996
(All information as of September 30, 1998 and the
nine months ended September 30, 1998 and 1997 is unaudited)
Annual future minimum lease payments for the next five years under
operating leases with noncancelable terms of more than one year are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
<S> <C>
1998 $ 1,095,000
1999 425,000
2000 215,000
2001 176,000
2002 174,000
Thereafter 277,000
--------------
$ 2,362,000
==============
</TABLE>
Total rent expense under all operating lease arrangements was approximately
$1,400,000 in 1997 and $1,355,000 in 1996.
(9) INCOME TAXES
Income tax expense consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
-------------- -------------- --------------
<S> <C> <C> <C>
Year ended December 31, 1997:
U.S. Federal $ 188,025 -- 188,025
State and local 911,993 -- 911,993
-------------- -------------- --------------
$ 1,100,018 -- 1,100,018
============== ============== ==============
Year ended December 31, 1996:
U.S. Federal $ -- -- --
State and local 351,938 -- 351,938
-------------- -------------- --------------
$ 351,938 -- 351,938
============== ============== ==============
</TABLE>
F-15
<PAGE>
CMS, INC. AND SUBSIDIARIES
AND DEFENSE RESEARCH INCORPORATED
Notes to Combined Financial Statements
September 30, 1998 and 1997 (Unaudited) December 31, 1997 and 1996
(All information as of September 30, 1998 and the
nine months ended September 30, 1998 and 1997 is unaudited)
Income tax expense in 1997 and 1996 differed from the tax expense amounts
expected from multiplying the book income before income taxes by the U.S.
federal tax rate as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Computed expected tax expense $ 2,278,000 2,158,000
State income taxes 911,993 351,938
Benefit of net operating loss carryforward (2,278,000) (2,158,000)
Alternative minimum taxes 188,025 --
------------ ------------
$ 1,100,018 351,938
============ ============
</TABLE>
The temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities as of December 31, 1997
and 1996 are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
Deferred tax assets:
Inventories, principally due to additional costs
inventoried for tax purposes pursuant to the
Tax Reform Act of 1986 and inventory
provisions $ 952,000 1,633,000
Accrued expenses, not deductible until paid 2,601,000 1,217,000
Net operating loss carryforwards 22,455,000 25,588,000
Loss provision on contracts 105,000 109,000
Alternative minimum tax credit 251,000 --
Other 14,000 17,000
--------------- ---------------
Total gross deferred tax assets 26,378,000 28,564,000
Less valuation allowance (24,116,000) (26,373,000)
--------------- ---------------
Net deferred tax assets 2,262,000 2,191,000
--------------- ---------------
</TABLE>
F-16
<PAGE>
CMS, INC. AND SUBSIDIARIES
AND DEFENSE RESEARCH INCORPORATED
Notes to Combined Financial Statements
September 30, 1998 and 1997 (Unaudited) December 31, 1997 and 1996
(All information as of September 30, 1998 and the
nine months ended September 30, 1998 and 1997 is unaudited)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Deferred tax liabilities -
Plant and equipment, principally due to $
differences in depreciation 2,262,000 2,191,000
Total gross deferred tax liabilities 2,262,000 2,191,000
------------ ------------
Net deferred tax asset (liability) $ -- --
============ ============
</TABLE>
At December 31, 1997, pursuant to the tax sharing arrangement with its
parent, the Company has net operating loss carryforwards for financial
reporting purposes of approximately $60,000,000 which are available to
offset future taxable income, if any, through the year 2009. Net operating
losses for income tax purposes are approximately $30,000,000 at December
31, 1997. Because alternative minimum taxable income can only be offset up
to 90% by net operating losses, there is a current federal income tax
liability on the excess 10% in the amount of $185,872 in 1997.
Management believes it is more likely than not that deferred tax assets in
an amount equal to deferred tax liabilities will be realized since the
source of deferred tax liabilities will reverse during the net operating
loss carryforward period.
(10) TRANSACTIONS WITH AFFILIATES
The Company is a subcontractor for Daimler-Benz Aerospace, A.G. ("DASA"), a
related party, providing defined engineering services related to advanced
weapons systems and also contracts with DASA for similar engineering
services. Balances and transactions with affiliates other than for loans
and interest are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Receivables from affiliates $ 226,475 228,219
Accounts payable - affiliates 51,989 96,867
Purchases from and expenses reimbursed to DASA -- 50,000
Expenses reimbursed by DASA -- 1,875,595
============ ============
</TABLE>
F-17
<PAGE>
CMS, INC. AND SUBSIDIARIES
AND DEFENSE RESEARCH INCORPORATED
Notes to Combined Financial Statements
September 30, 1998 and 1997 (Unaudited) December 31, 1997 and 1996
(All information as of September 30, 1998 and the
nine months ended September 30, 1998 and 1997 is unaudited)
(11) EMPLOYEE BENEFIT PLAN
The Company has a savings and retirement 401(k) plan providing retirement
benefits for substantially all employees. The Plan provides for
contributions from the employer and eligible employees. Employer
contributions are voluntary and at the discretion of the Company's Board of
Directors. Company contributions were approximately $599,000 in 1997 and
$330,000 in 1996.
(12) INCENTIVE COMPENSATION PLAN
The Company incentive compensation plan authorizes the issuance of up to
525,000 units with the value of each unit based upon the Fair Market Value
(to be determined annually by the Board of Directors) of the Company as
defined in the Plan. Compensation expense is recorded based upon the annual
increase in value of the units as those units are vested. Units generally
vest 25% upon grant and 25% each year thereafter until fully vested. At
December 31, 1997, 430,000 units have been granted, of which 412,500 are
vested. Units are not convertible into equity interests. Compensation
expense recorded was $3,000,000 in 1997 and $1,300,000 in 1996 based on an
estimate of fair market value which is approved by the Board of Directors.
(13) LITIGATION
On April 5, 1995, a Company subcontractor filed a civil action in Federal
District Court in Memphis, Tennessee, relating to a government contract
awarded to the Company. The suit named as defendants the Company, its
surety, another Company subcontractor and the United States Secretary of
Defense and alleges breach of contract and violation of various federal and
civil rights statutes. On October 31, 1995, the claim was ordered to
arbitration. The matter was arbitrated during the Spring of 1997, and the
arbitrated award was confirmed by the Federal District Court on November
25, 1997. The judgment was accrued in 1996 and paid by the Company in
December 1997, and a satisfaction of judgment dismissing the Company was
entered in the Federal District Court.
The Company is also engaged in certain other claims and legal actions
arising in the ordinary course of business. The Company believes the
ultimate outcome of these matters will not have a material adverse effect
on the financial position, results of operations or liquidity.
F-18
<PAGE>
APPENDIX II
UNAUDITED PRO FORMA CONDENSED
FINANCIAL INFORMATION
On November 6, 1998, Primex Technologies, Inc. ("Primex") acquired all of the
issued and outstanding stock of CMS, Inc. and Defense Research Incorporated (the
"CMS Group") for $123.0 million in cash. The purchase of the CMS Group, which
is referred to herein as the "Acquisition", is being accounted for using the
purchase method of accounting. The following unaudited pro forma condensed
financial information is based upon the historical consolidated financial
statements of Primex and the historical combined financial statements of the CMS
Group.
The Pro Forma Statements of Operations give pro forma effect to the Acquisition
as if it had occurred at the beginning of the period presented. The Pro Forma
Balance Sheet gives pro forma effect to the Acquisition as if it had occurred on
September 27, 1998. The Pro Forma Financial Statements have been prepared to
illustrate the estimated effect of the Acquisition and do not purport to be
indicative of the results of operations or financial position of Primex that
would have actually been obtained had such transactions been completed as of the
assumed dates and for the periods presented, or which may be obtained in the
future.
A preliminary allocation of the purchase price has been made to major categories
of assets and liabilities in the accompanying Pro Forma Financial Statements
based on available information. The actual allocation of purchase price and the
resulting effect on income from operations may differ from the pro forma amounts
included herein. These pro forma adjustment represent Primex's preliminary
determination of purchase accounting adjustments and are based upon available
information and certain assumptions that Primex believes to be reasonable.
Consequently the amounts reflected the Pro Forma Financial Statements are
subject to change, and the final amounts may differ.
<PAGE>
PRIMEX TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
($ IN THOUSANDS)
<TABLE>
<CAPTION>
Primex
Technologies, Inc. CMS Group Pro Forma Pro Forma
September 27, 1998 September 30, 1998 Adjustments Combined
------------------ ------------------ ----------- ---------
<S> <C> <C> <C> <C>
Assets
- ------
Current Assets:
Cash $ - $ 1,714 $ - $ 1,714
Receivables 109,230 13,750 (200) (A.4) 122,780
Inventories, Net 53,999 23,401 (2,865) (B.1) 74,535
Other Current Assets 8,151 1,678 (950) (A.1) 8,879
-------- -------- -------- --------
Total Current Assets 171,380 40,543 (4,015) 207,908
Property, Plant & Equipment, Net 94,665 20,065 2,089 (B.1) 116,819
Goodwill, Net 42,886 5,079 (5,079) (B.3) 117,106
74,220 (B.1)
Other Assets 16,749 503 6,924 (B.1) 24,176
Net Assets Discounted Operations - 902 (902) (A.2) -
-------- -------- -------- --------
Total Assets $325,680 $ 67,092 $ 73,237 $466,009
======== ======== ======== ========
Liabilities and Shareholder's Equity
- ------------------------------------
Current Liabilities:
Short-Term Borrowing $ 39,000 $ 737 $ (737) (A.4) $ 39,000
Accounts Payable 23,392 2,746 - 26,138
Contract Advances 37,285 9 - 37,294
Accrued Liabilities 35,344 15,421 (8,755) (A.3) 49,918
6,063 (B.1)
1,845 (B.4)
-------- -------- -------- --------
135,021 18,913 (1,584) 152,350
Long-Term Debt - 16,000 (16,000) (A.4) 123,000
123,000 (B.2)
Other Liabilities 28,450 - - 28,450
-------- -------- -------- --------
Total Liabilities 163,471 34,913 105,416 303,800
Common Stock 5,106 51 (51) (B-5) 5,106
Other Shareholder's Equity 157,103 32,128 (32,128) (B.5) 157,103
-------- -------- -------- --------
Total Shareholder's Equity 162,209 32,179 (32,179) 162,209
-------- -------- -------- --------
Total Liabilities & Shareholder's
Equity $325,680 $ 67,092 $ 73,237 $466,009
======== ======== ======== ========
</TABLE>
See notes to unaudited pro forma condensed financial information.
<PAGE>
PRIMEX TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------------------------------------------------
Primex
Technologies, Inc. CMS Group Pro Forma Pro Forma
September 27, 1998 September 30, 1998 Adjustments Combined
--------------------------- ------------------ --------------- ----------
<S> <C> <C> <C> <C>
Sales $336,072 $73,929 $ (448) (C.6) $409,553
Operating Expenses:
Cost of Goods Sold 261,548 53,314 1,014 (C.1) 315,493
65 (C.2)
(448) (C.6)
Selling and Administration 51,699 11,868 - 63,567
Research and Development 6,245 - - 6,245
------- ------- ------- --------
Operating Income 16,580 8,747 (1,079) 24,248
Interest Expense 1,312 1,392 6,458 (C.3) 7,770
(1,392) (C.4)
Other Income, Net 4,838 397 - 5,235
-------- ------- ------- -------
Income From Continuing Operations
Before Taxes 20,106 7,752 (6,145) 21,713
Income Tax Provision 8,274 794 371 (C.5) 9,439
-------- ------- ------- --------
Income From Continuing Operations $ 11,832 $ 6,958 $(6,516) $ 12,274
======== ======= ======= ========
Net Income Per Share:
Basic $2.30 - - $2.39
======= ========
Diluted $2.20 - - $2.28
======= ========
Weighted Average Shares Outstanding (000's)
Basic 5,151 5,141
======= =======
Diluted 5,385 5,385
======= =======
</TABLE>
See notes to unaudited pro forma condensed financial information.
<PAGE>
PRIMEX TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------------
Primex
Technologies, Inc. CMS Group Pro Forma Pro Forma
December 31, 1997 December 31, 1997 Adjustments Combined
--------------------------- --------------------- ------------ --------------
<S> <C> <C> <C> <C>
Sales $490,824 $79,513 $ - $570,337
Operating Expenses:
Cost of Goods Sold 401,590 56,830 1,351 (C.1) 459,859
88 (C.2)
Selling and Administration 62,751 14,308 - 77,059
Research and Development 5,568 - - 5,568
---------- --------- ------- --------
Operating Income 20,915 8,375 (1,439) 27,851
Interest Expense 3,735 1,917 8,610 (C.3) 12,345
(1,917)(C.4)
Other Income, Net 1,776 49 - 1,825
-------- --------- ------- --------
Income From Continuing Operations
Before Taxes 18,956 6,507 (8,132) 17,331
Income Tax Provision 8,331 1,100 (1,012)(C.5) 8,419
-------- --------- ------- --------
Income From Continuing Operations $ 10,625 $ 5,407 $(7,120) $ 8,912
======== ========= ======= ========
Net Income Per Share:
Basic $2.05 - - $ 1.72
======= ========
Diluted $2.01 - - $ 1.69
======= ========
Weighted Average Shares Outstanding (000's)
Basic 5,174 5,174
Diluted 5,287 5,287
</TABLE>
See notes to unaudited pro forma condensed financial information.
<PAGE>
PRIMEX TECHNOLOGIES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
($ IN THOUSANDS)
BASIS OF PRESENTATION
- ---------------------
On November 6, 1998 Primex Technologies, Inc. ("Primex") acquired of all the
issued and outstanding stock (the "Acquisition") of CMS, Inc. and Defense
Research Incorporated (the "CMS Group") for $123,000 in cash, all of which was
paid at closing. The purchase price was paid out of proceeds from bank
borrowing. The Acquisition will be accounted for using the purchase method of
accounting for business combinations. Accordingly the purchase price and related
acquisition costs as well as the allocation of total purchase price among
tangible and intangible assets and liabilities are subject to adjustment based
upon refinements in the application of this method of accounting. The final
actual adjustments may therefore differ from those presented herein. The
unaudited pro forma consolidated financial statements do not give effect to any
potential cost savings and synergy that could result from the acquisition of the
CMS Group.
The Unaudited Pro Forma Condensed Combined Statements of Operations assume the
Acquisition occurred at the beginning of the period presented and the Unaudited
Pro Forma Condensed Combined Balance Sheet assumes the Acquisition occurred on
September 27, 1998.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
- ----------------------------------------------------
(A) In connection with the Acquisition certain assets and liabilities included
in the CMS Group September 30, 1998 Balance Sheet were not acquired or
assumed by Primex. The elimination of these contractual items has been made
in the following pro forma adjustments.
1. Elimination of corporate state income tax and insurance deposits not
acquired.
2. Elimination of net assets of business not acquired.
3. Elimination of accrued liabilities for management performance awards,
corporate income taxes and interest on parent company debt not acquired.
4. Elimination of receivables from and notes payable to former parent.
<PAGE>
PRIMEX TECHNOLOGIES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
($ IN THOUSANDS)
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET (CONTINUED)
- ----------------------------------------------------------------
(B) The following pro forma adjustments reflect application of the purchase
method of accounting in the Combined Balance Sheet at September 27, 1998.
1. This adjustment represents the preliminary allocation of the excess purchase
price over the net tangible and intangible assets acquired, to estimated
goodwill in the amount of $74,220, based upon the allocation of the
estimated $124,845 cost of the Acquisition ($123,000 cash and $1,845
transaction costs), and to certain operating assets and liabilities, as
follows:
Purchase Price:
Estimated cost of Acquisition $124,845
Book value of net assets acquired (50,540)
--------
Purchase price in excess of net assets acquired $ 74,305
========
Preliminary allocation of the excess of the purchase price over the net
assets acquired to goodwill and other assets acquired:
Deferred tax assets arising from Net
Operating losses acquired and differences
between book and tax basis of net assets
acquired $ 7,091
Increase in land, improvements and lease
hold interests 2,089
Adjustments necessary to conform to
Primex accounting policies for
inventory and intangible assets (3,032)
Contract valuation adjustments (6,063)
Estimated goodwill 74,220
--------
Total $ 74,305
========
2. This adjustment represents bank borrowings of $123,000, used specifically
for the Acquisition, as follows:
7.5% Term Debt $ 60,000
Floating Rate Revolving Credit Facility 63,000
--------
Total $123,000
========
3. This adjustment represents the elimination of the CMS Group historical
goodwill.
4. This adjustment records transaction costs related to the Acquisition.
5. This adjustment eliminates equity accounts of the CMS Group.
<PAGE>
PRIMEX TECHNOLOGIES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
($ IN THOUSANDS)
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
- ---------------------------------------------------------------
(C) The following pro forma adjustments reflect application of the purchase
method of accounting in the Combined Statements of Operations for the year
ended December 31, 1997 and the nine months ended September 27, 1998.
1. This adjustment is to record amortization of goodwill resulting from the
Acquisition, net of the CMS Group's historical amortization, of $504 and
$378 for the year ended December 31, 1997 and nine months ended September
30, 1998, respectively. For purposes of this pro forma presentation, it is
assumed that goodwill will be amortized over its estimated period of
benefit, not to exceed 40 years. The amortization expense reflected in this
pro forma statement of operations is based upon 40 years.
2. This adjustment is to record the additional depreciation and amortization
on fair market value adjustments to buildings, improvements and lease hold
interests.
3. This adjustment is to record interest expense and amortization of deferred
financing costs on borrowings at an assumed effective interest rate of 7.0%
per annum.
4. This adjustment represents the elimination of the interest expense of the
CMS Group which would not have been incurred on a pro forma basis.
5. This adjustment records income taxes for (i) the effects of the pro forma
adjustments, and (ii) the effects of the combined Primex and CMS Group
statutory income tax rate of approximately 38.9%.
6. Eliminate inter-company sales between Primex and the CMS Group.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITOR'S CONSENT
The Board of Directors
CMS, Inc. and Subsidiaries
and
Defense Research Incorporated:
We consent to the incorporation by reference in the registration statements (No.
333-33051, No. 333-18297, and No. 333-57857) on Form S-8 of Primex Technologies,
Inc. of our report dated January 30, 1998, except as to Note 2, which is as of
July 6, 1998, with respect to the combined balance sheets of CMS, Inc. and
Subsidiaries and Defense Research Incorporated as of December 31, 1997 and 1996,
and the related combined statements of operations, stockholder's equity, and
cash flows for each of the years in the two-year period ended December 31, 1997,
which report appears in the Form 8-K/A of Primex Technologies, Inc. dated
January 20, 1999.
KPMG LLP
Tampa, Florida
January 20, 1999