<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
TRANSITION PERIOD FROM ____________ TO ____________
COMMUNICATIONS INSTRUMENTS, INC.
(Exact name of registrant as specified in its charter)
North Carolina 56-182-82-70
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1396 Charlotte Highway, Fairview, NC 28730
(Address of principal executive offices) (Zip Code)
(828) 628-1711
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [_] No
<PAGE>
PART I
ITEM 1: Financial Statements
<TABLE>
<CAPTION>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands Except Share Amounts)
September 30, December 31,
1998 1997
------------ ------------
(Unaudited) (1)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 390 $ 298
Accounts receivable (less allowance for doubtful accounts:
September 30, 1998 - $680, 1997 - $796) 18,814 11,602
Inventories 26,540 19,377
Deferred income taxes 2,645 2,130
Other current assets 1,859 1,334
------------ ------------
Total current assets 50,248 34,741
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, NET 22,917 16,824
OTHER ASSETS:
Goodwill (net of accumulated amortization: September 30, 1998 -
$1,528, 1997 - $874) 40,317 16,010
Environmental assets 1,566 1,605
Intangible assets, net 19,184 6,969
Other noncurrent assets 226 134
------------ ------------
Total other assets 61,293 24,718
------------ ------------
TOTAL ASSETS $ 134,458 $ 76,283
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable $ 7,371 $ 4,753
Accrued interest 383 2,820
Other accrued liabilities 8,864 5,844
Current portion of long-term debt 4,494 56
------------ ------------
Total current liabilities 21,112 13,473
LONG-TERM DEBT 139,289 101,566
DEFERRED INCOME TAXES 7,113 1,862
ACCRUED ENVIRONMENTAL REMEDIATION COSTS 2,353 2,364
OTHER NONCURRENT LIABILITIES 842 612
------------ ------------
Total liabilities 170,709 119,877
------------ ------------
CONTINGENCIES - -
STOCKHOLDERS' DEFICIENCY:
Common stock, $.01 par value, 1,000 shares authorized,
issued and outstanding - -
Additional paid in capital 17,317 12,317
Accumulated deficit (53,578) (55,827)
Accumulated other comprehensive income (expense) 10 (42)
Accounts receivable due from Parent - (42)
------------ ------------
Total stockholders' deficiency (36,251) (43,594)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 134,458 $ 76,283
============ ============
</TABLE>
(1) Derived from December 31, 1997 audited consolidated financial statements
See notes to condensed consolidated financial statements
<PAGE>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Three months ended Nine months ended
---------------------------- ---------------------------
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $34,933 $21,375 $88,585 $67,454
Cost of sales 23,920 14,115 60,137 44,704
------- ------- ------- -------
Gross profit 11,013 7,260 28,448 22,750
Operating expenses:
Selling expenses 2,639 1,454 6,210 4,506
General and administrative expenses 2,824 1,655 6,615 5,750
Research and development expenses 391 380 990 878
Amortization of goodwill and other intangibles 677 152 1,096 463
------- ------- ------- -------
Total operating expenses 6,531 3,641 14,911 11,597
------- ------- ------- -------
Operating income 4,482 3,619 13,537 11,153
Interest expense and other financing costs, net (3,522) (2,033) (8,978) (3,859)
Cancellation fees - (800) - (800)
Other expense, net (145) (50) (142) (49)
------- ------- ------- -------
Income before income taxes and minority
interest in subsidiary and extraordinary item 815 736 4,417 6,445
Provision for income taxes 360 295 1,817 2,570
------- ------- ------- -------
Income after income taxes before minority
interest in subsidiary and extraordinary item 455 441 2,600 3,875
Income applicable to minority interest in subsidiary - - - 55
------- ------- ------- -------
Income before extraordinary item 455 441 2,600 3,820
Extraordinary item (less income tax benefit
of $234 in 1998 and $266 in 1997) - 398 351 398
------- ------- ------- -------
Net income 455 43 2,249 3,422
Other comprehensive income:
Foreign currency translation adjustment 51 1 52 -
------- ------- ------- -------
Comprehensive income $ 506 $ 44 $ 2,301 $ 3,422
======= ======= ======= =======
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
COMMUNICATIONS INSTRUMENTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
Nine months ended
September 30,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 2,249 3,422
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,907 3,130
Write-off of financing fees 585 664
Deferred income taxes (927) (589)
Equity loss in investment 16 81
Minority interest - 55
Loss on disposal of assets 76 -
Changes in operating assets and liabilities, net of
effects of acquisitions:
Increase in accounts receivable (2,549) (2,355)
(Increase) decrease in inventories (718) 1,615
(Increase) decrease in other current assets 197 (152)
Increase (decrease) in accounts payable 1,095 (290)
Increase in accrued liabilities 987 948
Increase (decrease) in accrued interest (2,437) 76
Changes in other assets and liabilities (27) (2,128)
---------- ----------
Net cash provided by operating activities 3,454 4,477
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses, net of cash received (47,675) (4,500)
Purchases of property, plant and equipment (1,915) (1,413)
Investment in joint venture (95) -
---------- ----------
Net cash used in investing activities (49,685) (5,913)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under term loans 35,000 -
Repayments under term loans (1,000) -
Net (repayments) borrowings under former line of credit (5,800) 1,200
Net borrowings under new line of credit 13,800 -
Principal payments under long-term debt agreements - (30,599)
Proceeds from issuance of bond payable - 95,000
Proceeds from loans 100 -
Dividend to parent - (59,531)
Payment of loan financing fees (821) (4,688)
Payment of capital lease obligations (65) (23)
Receipts from parent 115 414
Currency translation 52 -
Repayments of amounts owed to prior stockholders of subsidiary (113) -
Additonal paid-in capital (from parent) 5,000 -
Other 55 -
---------- ----------
Net cash provided by financing activities 46,323 1,773
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 92 337
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 298 116
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD 390 453
========== ==========
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
Communications Instruments, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Basis of Presentation
The accompanying condensed consolidated financial statements include the
accounts of Communications Instruments, Inc. and its wholly owned subsidiaries
(the "Company"). The Company's subsidiaries, Kilovac Corporation ("Kilovac"),
which became a wholly owned subsidiary on September 18, 1997, Electro-Mech
Corporation ("Electro-Mech"), and Corcom, Inc. ("Corcom"), which became a wholly
owned subsidiary on June 19, 1998, operate facilities in Carpenteria, California
(Kilovac), Juarez, Mexico (Electro-Mech and Corcom), Libertyville, IL (Corcom)
and Munich, Germany (Corcom).
Financial information related to foreign operations is translated into US
dollars based on exchange rates as obtained from a local U.S. bank and The Wall
Street Journal. Assets and liabilities are translated based on rates in effect
on the balance sheet date. Income statement amounts are translated using average
exchange rates in effect during the period. The resulting currency translation
adjustments are accumulated and reported as comprehensive income.
The interim financial data as of and for the nine months ended September 30,
1998 and September 30, 1997 and the quarters ended September 30, 1998 and
September 30, 1997 are unaudited and have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and notes required by
generally accepted accounting principles for complete financial statements. In
management's opinion, all adjustments (consisting only of adjustments of a
normal recurring nature) necessary for a fair presentation have been included.
The December 31, 1997 financial information was derived from audited
consolidated financial statements, but excludes certain disclosures included in
the Company's audited consolidated financial statements.
These condensed consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto for the
year ended December 31, 1997 as well as the other information included in the
Company's annual report filed on Form 10-K. The results of operations and cash
flows for the interim periods presented are not necessarily indicative of the
results for the year ending December 31, 1998 or any other interim period.
2. Transactions
Recapitalization
On September 18, 1997, the Company entered into a series of recapitalization
transactions, (collectively the "Transactions"). The Transactions are described
below.
Code, Hennessy & Simmons III, L.P., certain members of Company management and
certain other investors acquired approximately 87% of the capital stock of CII
Technologies, Inc., a Delaware Corporation (the "Parent"). Communications
Instruments, Inc. is a wholly owned subsidiary of the Parent. Certain of the
Parent's existing stockholders, including certain members of management,
retained approximately 13% of the Parent's capital stock (collectively, the
"Recapitalization").
Concurrently, the Company issued $95 million of 10% Senior Subordinated Notes
due 2004 (the "Old Notes") pursuant to an Indenture, dated September 18, 1997,
by and among
<PAGE>
Communications Instruments, Inc., Kilovac, Kilovac International, Inc. ("Kilovac
International") and Norwest Bank Minnesota, National Association (the
"Indenture") through an offering permitted by Rule 144A of the Securities Act of
1933, as amended (the "Offering"). On January 30, 1998, the Company filed a
registration statement with the Securities and Exchange Commission for the
registration of its 10% Senior Subordinated Notes due 2004, Series "B" (the
"Notes") to be issued in exchange for the Old Notes (the "Exchange"). The
registration statement became effective on January 30, 1998 and the Exchange was
completed on March 9, 1998.
The Company borrowed approximately $2.7 million pursuant to a senior credit
facility with a syndicate of financial institutions providing for revolving
loans of up to $25.0 million that was subsequently retired in connection with
the acquisition of Corcom on June 19, 1998 (the "Old Senior Credit Facility").
The Company repaid approximately $29.3 million of outstanding obligations under
the then existing credit facility (the "Old Credit Facility"), including a
success fee of approximately $1.5 million in connection therewith and certain
other liabilities.
The Company paid a dividend of approximately $59.4 million to the Parent, which
was used by the Parent in conjunction with the proceeds of issuances of the
Parent's common stock (approximately $9.8 million), the Parent's preferred stock
(approximately $2.0 million) and junior subordinated debt of the Parent
(approximately $12.7 million) as follows: approximately $71.5 million was used
to purchase shares of the Parent's capital stock from existing shareholders;
approximately $3.5 million was used to pay Recapitalization and other financing
expenses; and approximately $7.6 million was used to repay certain indebtedness
of the Parent.
Acquisitions
Cornell Dubilier
On July 27, 1998, the Company purchased certain assets and assumed certain
liabilities of the Cornell Dubilier electronics relay division ("CD") for
$848,000 (the "CD Acquisition"). The CD Acquisition was financed with a draw on
the Company's Senior Credit Facility. The transaction was accounted for as a
purchase. The purchase price was allocated to the assets of CD based on their
relative fair values, and excess cost was allocated to goodwill.
The following summarizes the purchase price allocation as of the date of the CD
Acquisition (In thousands):
<TABLE>
<S> <C> <C>
Current assets $ 505
Property, plant and equipment 82
Intangibles and other assets 380
Liabilities assumed (119)
-----------
Total purchase price $ 848
===========
</TABLE>
Pro forma financial information is not presented relating to the CD Acquisition,
as this entity was not a significant subsidiary of the Company.
<PAGE>
Corcom, Inc.
On June 19, 1998, the Company acquired all of the outstanding capital stock of
Corcom, Inc., an Illinois corporation ("Corcom") pursuant to the merger of RF
Acquisition Corp., a newly formed wholly owned subsidiary of the Company, with
and into Corcom (the "Merger"). The Company paid $13.00 per share to the
shareholders of Corcom in exchange for the shares received in the Merger
(approximately $51.1 million in the aggregate). The Company used a portion of
the proceeds of $48.1 million of borrowings under a $60.0 million credit
facility entered into with the Bank of America National Trust and Savings
Association on June 19, 1998, additional paid-in capital of $5.0 million
contributed by the Parent, and $7.4 million in cash from Corcom to finance the
Merger, repay $7.4 million of debt and fund the related merger costs. Corcom is
an electromagnetic interference filter manufacturer located in Libertyville,
Illinois.
The Corcom Merger was accounted for as a purchase. The purchase price was
allocated to the assets of Corcom based on their relative fair values, and
excess cost was allocated to goodwill, as follows (In thousands):
<TABLE>
<S> <C> <C>
Current assets $ 12,541
Property, plant and equipment 7,374
Intangibles and other assets 35,552
Liabilities assumed (10,417)
-------------
Total purchase price $ 45,050
=============
</TABLE>
Such allocations of purchase price are subject to final determination based on
valuations and other studies that may be completed after the closing. Management
believes that there will be no material changes to the allocation of the
purchase price.
The following unaudited pro forma financial information shows the results of
consolidated operations of the Company (including effects of the Kilovac
Purchase (as defined), the Transactions and Genicom Relays Division ("GRD")
Acquisition for the year ended December 31, 1997) for the nine months ended
September 30, 1998 and the year ended December 31, 1997, as though the Corcom
Merger occurred as of January 1, 1998 and January 1, 1997, respectively. These
results include, but are not limited to, an increase in interest expense as a
result of the debt borrowed to finance the Corcom Merger.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nine Months Ended Twelve Months Ended
September 30, 1998 December 31, 1997
(In thousands)
Net sales $104,869 $140,568
Operating income 13,798 18,862
Income before extraordinary item 1,494 1,306
Pro forma net income 1,143 908
</TABLE>
The unaudited pro forma financial information presented above does not purport
to be indicative of either (i) the results of consolidated operations had the
Corcom Merger taken place on January 1, 1998 or had the Kilovac Purchase, the
Transactions, the GRD Acquisition and the Corcom Merger taken place on January
1, 1997, respectively, or (ii) future results of consolidated operations of the
combined business.
<PAGE>
Wilmar Electronics Inc.
On May 6, 1998, the Company purchased certain assets and assumed certain
liabilities of Wilmar Electronics Inc. ("Wilmar") for $2.1 million (the "Wilmar
Acquisition"). The Wilmar Acquisition was consolidated into the Company's
Kilovac subsidiary in June 1998. The Wilmar Acquisition was financed with a draw
on the Company's Old Senior Credit Facility. The transaction was accounted for
as a purchase. The purchase price was allocated to the assets of Wilmar based on
their relative fair values, and excess cost was allocated to goodwill.
The following summarizes the purchase price allocation as of the date of the
Wilmar Acquisition (In thousands):
<TABLE>
<S> <C> <C>
Current assets $ 381
Property, plant and equipment 80
Intangibles and other assets 2,023
Liabilities assumed (356)
----------------
Total purchase price $ 2,128
================
</TABLE>
Pro forma financial information is not presented relating to the Wilmar
Acquisition as this entity is not a significant subsidiary of the Company.
Genicom Relays Division
On December 1, 1997, the Company acquired certain assets and assumed certain
liabilities of the Genicom Relays Division ("GRD") of Genicom Corporation
("Genicom") for approximately $4.7 million (the "GRD Acquisition"). The GRD
Acquisition was financed by a draw on the Company's Old Senior Credit Facility.
The transaction was accounted for as a purchase. The purchase price was
allocated to the assets of GRD based on their relative fair values, as follows
(In thousands):
<TABLE>
<S> <C> <C>
Current assets $ 3,757
Property, plant and equipment 1,850
Intangibles and other assets 24
Liabilities assumed (948)
----------------
Total purchase price $ 4,683
================
</TABLE>
<PAGE>
ibex Aerospace Inc.
On October 31, 1997, the Company purchased 100% ownership in ibex Aerospace Inc.
(the "ibex Acquisition"). The purchase price for the acquisition was
approximately $2.0 million, of which approximately $1.3 million was paid at
closing through a draw on the Company's Old Senior Credit Facility and the
issuance of the note payable to the sellers discounted to $697,000. The Company
issued a noninterest bearing note payable to the sellers in the amount of
$850,000 (discounted to $697,000) for the remainder of the purchase price. This
note is payable on October 31, 1999. The transaction was accounted for as a
purchase. The purchase price was allocated to the assets of ibex Aerospace Inc.
based on their relative fair values, and excess cost was allocated to goodwill.
The following summarized the purchase price allocation as of the date of the
ibex Acquisition (In thousands):
<TABLE>
<S> <C> <C>
Current assets $ 1,041
Property, plant and equipment 150
Intangibles and other assets 1,762
Liabilities assumed (965)
----------------
Total purchase price $ 1,988
================
</TABLE>
Pro forma financial information is not presented relating to the ibex
Acquisition as this entity was not a significant subsidiary of the Company in
1997.
Kilovac Corporation - 20% Purchase
On September 18, 1997, the Company purchased for approximately $4.5 million the
remaining 20% of the outstanding stock of Kilovac that the Company did not then
own (the "Kilovac Purchase"). The transaction was accounted for as a purchase.
To the extent of the remaining 20% change in ownership, the purchase price was
allocated to the assets of Kilovac based on their relative fair values. Excess
cost was allocated to goodwill.
The following summarizes the purchase price allocation as of the date of the
Kilovac Purchase (In thousands):
<TABLE>
<S> <C> <C>
Current assets $ 47
Property, plant and equipment 169
Intangibles and other assets 4,577
Liabilities assumed (293)
----------------
Total purchase price $ 4,500
================
</TABLE>
The transaction was financed through proceeds from the Recapitalization and the
issuance of the Notes.
Pro forma financial information is not presented relating to the purchase of the
remaining 20% ownership of Kilovac as Kilovac's accounts have been consolidated
into the Company's financial statements since October 1995.
<PAGE>
3. Inventories
Components of inventory are as follows: (In thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
September 30, December 31,
1998 1997
----------------- ----------------
Finished goods $ 6,993 $ 2,882
Work-in process 8,874 8,981
Raw materials 17,335 12,520
Reserve for obsolescence (6,662) (5,006)
----------------- ----------------
Total $ 26,540 $ 19,377
================= ================
</TABLE>
4. Comprehensive Income (Expense) (In thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Accumulated other
Foreign currency Comprehensive Income
Translation (Expense)
------------------------------- ---------------------------------
1998 1997 1998 1997
---- ---- ---- ----
Beginning balance, January 1 (42) (38) (42) (38)
Period income (expense) 3 (1) 3 (1)
-------------- ----------- --------------- -------------
Ending balance, March 31 (39) (39) (39) (39)
Period income (expense) (2) - (2) -
-------------- ----------- --------------- -------------
Ending balance, June 30 (41) (39) (41) (39)
Period income 51 1 51 1
-------------- ----------- --------------- -------------
Ending balance, September 30 10 (38) 10 (38)
============== =========== =============== =============
</TABLE>
5. Long-Term Debt
On June 19, 1998, the Company retired the Old Senior Credit Facility and
borrowed approximately $48.1 million pursuant to a new senior credit facility
with a syndicate of financial institutions providing for revolving loans of up
to $25.0 million and term loans of $35.0 million (the "Senior Credit Facility").
The Company's long-term debt at September 30, 1998 consists primarily of the
$95.0 million Notes and revolving loans of $13.8 million and term loans of $34.0
million under the Senior Credit Facility. The Company and its wholly owned
subsidiaries, Kilovac and Kilovac International, Inc., have guaranteed the Notes
on a full, unconditional, and joint and several basis, which guarantees are
fully collateralized by the assets of such guarantors. Communications
Instruments, Inc., its wholly owned subsidiaries, including Kilovac, Kilovac
International, Inc. and Corcom, Inc. and the Parent have guaranteed the Senior
Credit Facility on a full, unconditional, and joint and several basis.
Interest on the Notes is payable semi-annually in arrears on March 15 and
September 15 of each year, commencing on March 15, 1998. The Notes will mature
on September 15, 2004, unless previously redeemed, and the Company will not be
required to make any mandatory redemption or sinking fund payment prior to
maturity except in connection with a change in ownership. The Notes may be
redeemed, in whole or in part, at any time on or after September 15, 2001 at the
option of the Company, at the redemption prices set forth in the Indenture,
plus, in each case, accrued and unpaid interest and premium, if any, to the date
of the redemption. In addition, at any time prior to September 15, 2000, the
Company may at its option, redeem up to 33.3% in aggregate principal amount of
the Notes at a redemption price of 110% of the principal amount thereof, plus
accrued and unpaid interest to the date of redemption, with the net cash
proceeds of an Equity Offering (as defined in the Indenture), provided that not
less than $63.4 million
<PAGE>
aggregate principal amount of the Notes remains outstanding immediately after
the occurrence of such redemption.
The Senior Credit Facility provides for a maximum credit facility of $60.0
million limited by an outstanding indebtedness under the $35.0 million term loan
agreement or availability on the borrowing base, as defined in the loan
agreement. All funds may be borrowed as either a base rate loan or LIBOR loan.
For base rate loans and LIBOR loans an applicable margin is added to the base
rate interest rate or the LIBOR interest rate based on a Consolidated Senior
Leverage Ratio Level (as defined in the Senior Credit Facility). The base rate
interest rate is the higher of a Reference Rate (as defined) or the federal
funds rate plus 1/2%. The "Reference Rate" means the rate of interest announced
by the lender as "Reference Rate." At September 30, 1998, LIBOR borrowing rates
ranged from 7.875% to 8.25%. At September 30, 1998, the base rate-borrowing rate
was 9.75%. The weighted average borrowing rate, calculated based on borrowings
outstanding at September 30, 1998 under base rate and LIBOR loans was 8.00%.
The Senior Credit Facility has a line of credit of $25.0 million due on June 19,
2003, and a Term Loan of $35.0 million due in full by June 19, 2003. The term
loan is payable as follows: $2.0 million in fiscal 1998, $4.8 million in fiscal
1999, $6.3 million in fiscal 2000, $7.7 million in fiscal 2001, $9.2 million in
fiscal 2002 and $5.0 million in fiscal 2003.
The terms of the Senior Credit Facility and the Indenture place restrictions on
the Company including, but not limited to the Company's ability to incur
additional indebtedness, incur liens, pay dividends or make certain other
restricted payments (as defined), consummate certain asset sales, enter into
certain transactions with affiliates, merge or consolidate with any person or
sell, assign, transfer, lease, convey or otherwise dispose of the assets of the
Company and its subsidiaries. The Senior Credit Facility also contains financial
covenants including interest coverage ratios, leverage ratios, fixed charge
coverage ratios and minimum levels of earnings before interest, taxes,
depreciation and amortization, as defined by the Senior Credit Facility. As of
September 30, 1998, the Company was in compliance with all of the terms of the
Indenture and the covenants of the Senior Credit Facility.
Letters of credit outstanding under the Senior Credit Facility at September 30,
1998 were $950,000 and under the Old Senior Credit Facility at December 31, 1997
were $850,000.
The Senior Credit Facility requires the Company to pay commitment fees at an
annual rate of 0.5% on the undrawn amount of the Senior Credit Facility, subject
to adjustment based on the Consolidated Senior Leverage Ratio of the Company.
As of September 30, 1998, the Company had available unused borrowing capacity of
$10.3 million under the Senior Credit Facility.
On June 19, 1998, the Company extinguished all outstanding debt, which was $5.8
million at December 31, 1997, under the Old Senior Credit Facility (see Note 2).
The extraordinary loss recorded in the nine months ended September 30, 1998
relates to the write-off of the debt issuance costs related to the Old Senior
Credit Facility.
6. Contingencies
From time to time the Company is a party to certain lawsuits and administrative
proceedings that arise in the conduct of its business. While the outcome of the
lawsuits and proceedings cannot be predicted with certainty, management believes
that the lawsuits and proceedings, either singularly
<PAGE>
or in the aggregate, will not have a material adverse effect on the financial
condition, results of operations or cash flows of the Company.
Item 2:
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Introduction
The following discussion and analysis provides information which management
believes is relevant to an understanding of the operations and financial
condition of the Company. This discussion and analysis should be read in
conjunction with the condensed consolidated financial statements and notes
thereto included in this quarterly report as well as in the Registrant's Annual
Report for the year ended December 31, 1997 on Form 10-K.
Overview
In July 1998, the Company purchased certain assets and assumed certain
liabilities of Cornell Dubilier's electronics relay division ("CD") for $848,000
(the "CD Acquisition"). The CD Acquisition was financed with a draw on the
Company's Senior Credit Facility.
In June 1998, the Company acquired all of the outstanding capital stock of
Corcom, Inc., an Illinois corporation ("Corcom") pursuant to the merger of RF
Acquisition Corp., a newly formed wholly owned subsidiary of the Company, with
and into Corcom (the "Corcom Merger"). The Company paid $13.00 per share to the
shareholders of Corcom in exchange for the shares received in the Merger
(approximately $51.1 million in the aggregate). The Company used a portion of
the proceeds of $48.1 million of borrowings under a $60.0 million credit
facility entered into with the Bank of America National Trust and Savings
Association on June 19, 1998 (the "Senior Credit Facility"), additional paid in
capital of $5.0 million contributed by the Parent, and $7.4 million in cash from
Corcom to finance the Merger, repay $7.4 million of debt and fund the related
merger costs. Corcom is an electromagnetic interference filter manufacturer
located in Libertyville, Illinois.
In May 1998, the Company purchased certain assets and assumed certain
liabilities of Wilmar Electronics Inc. ("Wilmar") for $2.1 million (the "Wilmar
Acquisition"). The Wilmar Acquisition was consolidated into the Kilovac
subsidiary in June 1998. The Company financed the Wilmar Acquisition with funds
borrowed on the Old Senior Credit Facility.
In December 1997, the Company purchased certain assets and assumed certain
liabilities of Genicom Relays Division ("GRD") of Genicom Corporation for $4.7
million (the "GRD Acquisition"). The Company financed the GRD Acquisition with
funds borrowed on the Old Senior Credit Facility.
In October 1997, the Company purchased 100% ownership in ibex Aerospace Inc.
("ibex") for $2.0 million, excluding expenses (the "ibex Acquisition"). ibex was
a wholly owned subsidiary of SOFIECE of Paris, France. The ibex operation was
consolidated into the Company's Hartman division in 1998. Of the $2.0 million
purchase price, approximately $1.3 million was paid at closing, and the
remainder of the purchase price was paid by the Company through the issuance of
a non-interest bearing note in the amount of $850,000 to the sellers, which note
is payable on October 31, 1999. The Company financed the $1.3 million paid at
closing with funds borrowed on the Old Senior Credit Facility.
<PAGE>
In October 1995, the Company acquired an 80% interest in Kilovac for an
aggregate purchase price of $14.4 million, excluding acquisition costs, which
was financed with secured bank debt, subordinated debt of Parent and the
issuance by Parent of preferred stock. In September 1997, the Company acquired
the remaining 20% interest in Kilovac (the "Kilovac Purchase"), refinanced such
indebtedness and Parent redeemed such preferred stock in conjunction with the
Transactions.
The Company continues to work on improving gross margins by building economies
of scale at existing facilities as a result of the acquisition of product lines
which have been incorporated into the Company's existing manufacturing
facilities, internal growth, improved pricing, greater use of low labor cost
production facilities in Mexico and China, and improved production efficiencies
due to improved manufacturing processes at certain of the Company's plants. Due
to the Company's historical growth through acquisitions, the Company believes
that period-to-period comparisons of its financial results are not necessarily
meaningful and should not be relied upon as an indication of future performance.
Results of Operations
The following table sets forth information derived from the condensed
consolidated statements of operations expressed as a percentage of net sales for
the periods indicated. There can be no assurance that the trends in operating
results will continue in the future.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30 September 30
------------------------------------------------------
1998 1997 1998 1997
---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 68.5% 66.0% 67.9% 66.3%
Gross profit 31.5% 34.0% 32.1% 33.7%
Selling expenses 7.6% 6.8% 7.0% 6.7%
General and administrative expenses 8.1% 7.7% 7.5% 8.5%
Research and development expenses 1.1% 1.8% 1.1% 1.3%
Amortization of goodwill and other intangibles 1.9% 0.7% 1.2% 0.7%
Operating income 12.8% 16.9% 15.3% 16.5%
</TABLE>
Nine Months Ended September 30, 1998 Compared to the Nine Months Ended September
30, 1997
Net sales of the Company for the nine months ended September 30, 1998, increased
$21.1 million, or 31.3%, to $88.6 million from $67.5 million for the
corresponding period in 1997. Excluding the effect of the Corcom Merger, net
sales of the Company for the nine months ended September 30, 1998, increased
$12.0 million, or 17.8%, to $79.4 million from $67.5 million for the
corresponding period in 1997. This increase is due primarily to the effect of
fourth quarter 1997 and fiscal 1998 acquisitions.
<PAGE>
Gross profit of the Company for the nine months ended September 30, 1998,
increased $5.7 million, or 25.0%, to $28.4 million from $22.8 million for the
corresponding period in 1997. Gross profit as a percentage of net sales
decreased to 32.1% from 33.7% for the same period in 1997. Excluding the effect
of the Corcom Merger, gross profit of the Company for the nine months ended
September 30, 1998, increased $3.1 million, or 13.7%, to $25.9 million from
$22.8 million for the corresponding period in 1997. Excluding the effect of the
Corcom Merger, gross profit as a percentage of net sales decreased to 32.6% from
33.7% for the corresponding period in 1997. The decrease in gross margin as a
percentage of sales is due primarily to assimilating the GRD Acquisition, the
ibex Acquisition, the Wilmar Acquisition and the CD Acquisition into existing
operations.
Selling expenses for the Company for the nine months ended September 30, 1998,
increased $1.7 million, or 37.8%, to $6.2 million from $4.5 million for the same
corresponding period in 1997. Selling expenses as a percentage of net sales
increased to 7.0% from 6.7% in the same period in 1997. Excluding the effect of
the Corcom Merger, selling expenses for the Company for the nine months ended
September 30, 1998, increased $810,000, or 18.0%, to $5.3 million from $4.5
million for the corresponding period in 1997. Excluding the effect of the Corcom
Merger, selling expenses as a percentage of net sales were 6.7% for the nine
months ended September 30, 1998 and September 30, 1997.
General and administrative expenses for the Company for the nine months ended
September 30, 1998, increased $865,000, or 15.0%, to $6.6 million from $5.8
million in 1997. General and administrative expenses as a percentage of net
sales decreased to 7.5% from 8.5% for the corresponding period in 1997.
Excluding the effect of the Corcom Merger, general and administrative expenses
for the Company for the nine months ended September 30, 1998, decreased $2,000,
or .03%, to $5.7 million from $5.8 million for the corresponding period in 1997.
Excluding the effect of the Corcom Merger, general and administrative expenses
as a percentage of net sales decreased to 7.2% from 8.5% for the same period in
1997. The decrease in general and administrative expenses as a percentage of net
sales is caused primarily by a reduction in bad debt expense for 1998 when
compared to 1997. The bad debt expense relates primarily to the collectiblity of
an account receivable from a single customer relating to a dispute over product
specification.
Research and development expenses for the Company for the nine months ended
September 30, 1998, increased $112,000, or 12.8%, to $990,000 from $878,000 for
the corresponding period in 1997. Excluding the effect of the Corcom Merger,
research and development expenses for the nine months ended September 30, 1998,
increased $69,000, or 7.9%, to $947,000 from $878,000 for the corresponding
period in 1997. This increase is due primarily to costs incurred in the
implementation of new research and development projects.
Amortization of goodwill and other intangibles for the Company for the nine
months ended September 30, 1998, increased $633,000, or 136.7%, to $1.1 million
from $463,000 for the corresponding period in 1997. Excluding the effect of the
Corcom Merger, amortization of goodwill and other intangibles for the Company
for the nine months ended September 30, 1998, increased $101,000, or 21.8%, to
$564,000 from $463,000 for the corresponding period in 1997. This increase is
due primarily to the amortization of goodwill due to the Kilovac Purchase (third
quarter 1997), the ibex Acquisition (fourth quarter 1997), and the Wilmar
Acquisition (second quarter of 1998).
<PAGE>
Interest expense and other financing costs of the Company for the nine months
ended September 30, 1998, increased $5.1 million, or 132.7%, to $9.0 million
from $3.9 million for the same period in 1997. Interest expense in 1997 includes
other financing costs related to the Recapitalization of $917,000 for the
success fee associated with the repayment of the Old Credit Facility. The
increase was due primarily to the increased debt levels associated with the
issuance of the $95.0 million in bonds and financing the ibex Acquisition, the
GRD Acquisition, the Wilmar Acquisition, the Corcom Merger and the CD
Acquisition, partially offset by the pay down of the Old Credit Facility on
September 18, 1997.
Cancellation fees for the nine months ended September 30, 1998 reflect $800,000
of commitment fees and other expenses incurred in connection with a credit
facility to provide financing in the event that the offering was not
consummated.
The extraordinary item for the nine months ended September 30, 1998 reflects the
write-off of $585,000 of unamortized deferred financing costs associated with
the Old Senior Credit Facility, net of an income tax benefit of $234,000. The
extraordinary item for the nine months ended September 30, 1997 reflects the
write-off of $664,000 of unamortized deferred financing costs associated with
the Old Credit Facility, net of an income tax benefit of $266,000.
Three Months Ended September 30, 1998 Compared to Three Months Ended September
30, 1997
Net sales of the Company for the quarter ended September 30, 1998, increased
$13.6 million, or 63.4%, to $34.9 million from $21.4 million for the
corresponding period in 1997. Excluding the effect of the Corcom Merger, net
sales of the Company for the quarter ended September 30, 1998, increased $5.4
million, or 25.1%, to $26.7 million from $21.4 million for the corresponding
period in 1997. This increase is due primarily to the effect of fourth quarter
1997 and fiscal 1998 acquisitions.
Gross profit of the Company for the quarter ended September 30, 1998, increased
$3.8 million, or 51.7%, to $11.0 million from $7.3 million for the corresponding
period in 1997. Gross profit as a percentage of net sales decreased to 31.5%
from 34.0% for the same period in 1997. Excluding the effect of the Corcom
Merger, gross profit of the Company for the quarter ended September 30, 1998,
increased $1.5 million, or 20.3%, to $8.7 million from $7.3 million for the
corresponding period in 1997. Excluding the effect of the Corcom Merger, gross
profit as a percentage of net sales decreased to 32.7% from 34.0% for the
corresponding period in 1997. The decrease in gross margin as a percentage of
sales is due primarily to assimilating the GRD Acquisition, the ibex
Acquisition, the Wilmar Acquisition and the CD Acquisition into existing
operations.
Selling expenses for the Company for the quarter ended September 30, 1998,
increased $1.2 million, or 81.5%, to $2.6 million from $1.5 million for the same
corresponding period in 1997. Selling expenses as a percentage of net sales
increased to 7.6% from 6.8% in the same period in 1997. Excluding the effect of
the Corcom Merger, selling expenses for the Company for the quarter ended
September 30, 1998, increased $388,000, or 26.7%, to $1.8 million from $1.5
million for the corresponding period in 1997. Excluding the effect of the Corcom
Merger, selling expenses as a percentage of net sales increased to 6.9% from
6.8% for the same period in 1997.
<PAGE>
General and administrative expenses for the Company for the quarter ended
September 30, 1998, increased $1.2 million, or 70.6%, to $2.8 million from $1.7
million in 1997. General and administrative expenses as a percentage of net
sales increased to 8.1% from 7.7% for the corresponding period in 1997.
Excluding the effect of the Corcom Merger, general and administrative expenses
for the Company for the quarter ended increased $402,000, or 24.3%, to $2.1
million from $1.7 million for the corresponding period in 1997. Excluding the
effect of the Corcom Merger, general and administrative expenses as a percentage
of net sales were 7.7% for the quarters ended September 30, 1998 and September
30, 1997.
Research and development expenses for the Company for the quarter ended
September 30, 1998, increased $11,000, or 2.9%, to $391,000 from $380,000 for
the corresponding period in 1997. Excluding the effect of the Corcom Merger,
research and development expenses for the quarter ended September 30, 1998,
decreased $25,000, or 6.6%, to $355,000 from $380,000 for the corresponding
period in 1997.
Amortization of goodwill and other intangibles for the Company for the quarter
ended September 30, 1998, increased $525,000, or 345.4%, to $677,000 from
$152,000 for the corresponding period in 1997. Excluding the effect of the
Corcom Merger, amortization of goodwill and other intangibles for the Company
for the quarter months ended September 30, 1998, increased $43,000, or 28.3%, to
$195,000 from $152,000 for the corresponding period in 1997. This increase is
due primarily to the amortization of goodwill due to the Kilovac Purchase (third
quarter 1997), the ibex Acquisition (fourth quarter 1997), and the Wilmar
Acquisition (second quarter of 1998).
Interest expense and other financing costs of the Company for the three months
ended September 30, 1998, increased $1.5 million, or 73.2%, to $3.5 million from
$2.0 million for the corresponding period in 1997 Interest expense in 1997
includes other financing costs related to the Recapitalization of $917,000 for
the success fee associated with the repayment of the Old Credit Facility. The
increase was due primarily to the increased debt levels associated with the
issuance of the $95.0 million in bonds and financing the ibex Acquisition, the
GRD Acquisition, the Wilmar Acquisition, the Corcom Merger and the CD
Acquisition, partially offset by the pay down of the Old Credit Facility on
September 18, 1997.
Cancellation fees for the three months ended September 30, 1997 reflect $800,000
of commitment fees and other expenses incurred in connection with a credit
facility to provide financing in the event that the Offering was not
consummated.
The extraordinary item for the three months ended September 30, 1997 reflects
the write-off of $664,000 of unamortized deferred financing costs associated
with the Old Credit Facility, net of income tax benefit of $266,000.
Liquidity and Capital Resources
Although there can be no assurances, the Company anticipates that its cash flow
generated from operations and borrowings under the Senior Credit Facility will
be sufficient to fund the Company's working capital needs, planned capital
expenditures, scheduled interest payments (including interest payments on the
Notes and amounts outstanding under the Senior Credit Facility) and its business
strategy for the next twelve months. However, the Company may require additional
funds if it enters into strategic alliances, acquires significant assets or
businesses or makes significant investments in furtherance of its growth
strategy. The ability of the Company to satisfy its capital requirements will
depend upon the future financial performance of the Company, which in turn will
be subject to general economic conditions and to financial,
<PAGE>
business, and other factors, including factors beyond the Company's control. At
September 30, 1998, the Company had available unused borrowing capacity of $10.3
million under the Senior Credit Facility.
Cash Provided by Operating Activities
For the nine months ended September 30, 1998, cash provided by operating
activities was $3.5 million, compared to $4.5 million for the same period in
1997. This change was caused primarily by (i) an increase in operating profits
adjusted for depreciation and amortization, (ii) an increase in accounts
payable, (iii) the one time payment of items related to the Recapitalization
including $1.5 million for the success fee and $800,000 for commitment fees and
other expenses incurred in 1997 in connection with a credit facility setup to
provide financing in the event the Offering was not consummated offset by (iv)
an increase in interest paid in 1998 and (v) an increase in inventory.
The Company's accounts receivable as of September 30, 1998 increased $7.2
million, to $18.8 million from $11.6 million at December 31, 1997. $4.7 million
of this increase is due to fiscal 1998 acquisitions and the remainder of the
increase is due primarily to increased revenues. The days sales outstanding as
of September 30, 1998 were approximately 48 compared to 50 as of December 31,
1997. This reduction in average days sales outstanding is due primarily as a
result of continued collection efforts.
The Company's inventories increased from $19.4 million at December 31, 1997 to
$26.5 million at September 30, 1998. $6.4 million of this increase is due to
fiscal 1998 acquisitions and the remainder of the increase is due primarily to
growth to support future sales.
The Company's accounts payable increased from $4.8 million at December 31, 1997
to $7.4 million at September 30, 1998. $1.5 million of this increase was due to
the Corcom Merger. The remainder of the increase is due primarily to increased
inventory.
Cash Used in Investing Activities
Capital Expenditures were $1.9 million for the nine months ended September 30,
1998 and $1.4 million for the corresponding period in 1997. Acquisition spending
totaled $47.7 million for the nine months ended September 30, 1998 and $4.5
million for the corresponding period in 1997.
Cash Provided By Financing Activities
Cash provided by financing activities for the nine months ended September 30,
1998 was $46.3 million compared to $1.8 million for the same period in 1997.
This increase is due primarily to financing the Corcom Merger.
Adjusted EBITDA
Adjusted EBITDA represents income (loss) before interest expense (net), income
taxes, depreciation and amortization, and before any gain (loss) on disposal of
assets, adjusted for extraordinary, unusual, and nonrecurring items, and
additional charges to cost of sales and general and administrative costs
resulting from the fair value adjustments to inventory and fixed assets pursuant
to Accounting Principles Board Opinion Nos. 16 and 17. Adjusted EBITDA is not
intended to represent cash flow from operations or net income as defined by
generally accepted accounting principles and should not be considered as a
measure of liquidity or an alternative to, or more meaningful than, operating
income or operating cash flow as an indication of the Company's operating
performance. Adjusted EBITDA is included herein because management believes that
certain investors find it a useful tool for measuring the Company's ability to
service its debt. There are no significant commitments for expenditures of funds
not contemplated by this measure of adjusted EBITDA. Adjusted EBITDA as
presented may not be comparable to other similarly titled measures presented by
other companies and could be misleading unless substantially all companies and
analysts calculate adjusted EBITDA the same.
<PAGE>
Adjusted EBITDA increased to $18.3 million for the nine months ended September
30, 1998 from $14.6 million for the corresponding period in 1997. Adjusted
EBITDA increased to $6.8 million for the three months ended September 30, 1998
from $4.6 million for the corresponding period in 1997.
Inflation
- ---------
The Company does not believe inflation has had any material effect on the
Company's business over the past three years.
Disclosure Regarding Forward-Looking Statements
- -----------------------------------------------
Statements made by the Company which are not historical facts are forward
looking statements that involve risks and uncertainties. Actual results could
differ materially from those expressed or implied in forward looking statements.
All such forward looking statements are subject to the safe harbor created by
the Private Securities Litigation Reform Act of 1995. Important factors that
could cause future financial performance to differ materially from past results
and from those expressed or implied in this document, include, without
limitation, the risks of acquisition of businesses (including limited knowledge
of the businesses acquired and potential misrepresentations from sellers),
changes in business strategy or development plans, dependence on independent
sales representatives and distributors, environmental regulations, availability
of financing, competition, reliance on key management personnel, ability to
manage growth, loss of customers and a variety of other factors.
Year 2000 Compliance
- --------------------
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a two-
digit year is commonly referred to as the "Year 2000 Compliance" issue. As the
year 2000 approaches, such systems may be unable to accurately process certain
databased information.
The Company has identified all significant applications that will require
modification to ensure Year 2000 Compliance. Many of the Company's systems
include new hardware and packaged software recently purchased from large vendors
who have represented that these systems are Year 2000 compliant. Internal and
external resources are being used to make the required modifications to the
remaining hardware and software. These modifications are expected to be
completed and tested by December 31, 1998.
In addition, the Company is in the process of communicating with others with
whom it does significant business to determine their Year 2000 Compliance
readiness and the extent to which the Company is vulnerable to any third party
Year 2000 issues. However, there can be no guarantee that the systems of other
companies on which the Company's systems rely will be timely converted, or that
a failure to convert by another company, or a conversion that is incompatible
with the Company's systems, would not have a material adverse effect on the
Company. If it has been determined that a vendor will not be Year 2000 compliant
in a timely manner, the Company will replace them with an alternative vendor. In
most cases there are more than one vendor for the Company's purchasing
requirements. In the case of no alternative suppliers, the Company will build
inventory to maintain production until the situation can be resolved. The
Company is verifying that its major customers are Year 2000 compliant. If it is
determined that a customer will not be compliant in a timely manner, the Company
may request
<PAGE>
C.O.D. terms. However, in most cases the Company believes that its records will
be sufficient to ensure collectability from their customers.
The total cost to the Company of these Year 2000 Compliance activities has been
insignificant and is not anticipated to be material to its future financial
position, results of operations or cash flows in any given year. These costs and
the date on which the Company plans to complete the Year 2000 modification and
testing processes are based on management's best estimates, which were derived
utilizing numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ from those plans.
Item 3:
Quantitative and Qualitative Disclosures about Market Risk
On May 15, 1998, the Registrant had a market capitalization of $2.5 billion or
less and accordingly, such disclosures are not required in this Form 10-Q. Such
disclosures will be included in filings that include financial statements for
fiscal years ended after June 15, 1998.
Part II - Other Information
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - Not Applicable
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-KA
a. Form 8-K filed on July 6, 1998 reporting the merger of RF
Acquisition Corp., a wholly owned subsidiary of the Company, with
and into Corcom, Inc. Required audited financial statements were
filed with this form.
b. Form 8-KA filed on September 4, 1998 reporting the unaudited
proforma financial statements of Corcom for the year ended
December 31, 1997 and six months ended June 30, 1998.
SIGNATURES
Communications Instruments, Inc.
<TABLE>
<CAPTION>
<S> <C>
November 16, 1998
- -------------------- --------------------------------------------------
Date Ramzi A. Dabbagh
Chairman of the Board
November 16, 1998
- -------------------- --------------------------------------------------
Date Richard L. Heggelund
Chief Financial Officer
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 390
<SECURITIES> 0
<RECEIVABLES> 18,814
<ALLOWANCES> 680
<INVENTORY> 26,540
<CURRENT-ASSETS> 50,248
<PP&E> 36,914
<DEPRECIATION> (13,997)
<TOTAL-ASSETS> 134,458
<CURRENT-LIABILITIES> 21,112
<BONDS> 143,783
0
0
<COMMON> 17,317
<OTHER-SE> (53,568)
<TOTAL-LIABILITY-AND-EQUITY> 134,458
<SALES> 34,933
<TOTAL-REVENUES> 34,933
<CGS> 23,920
<TOTAL-COSTS> 23,920
<OTHER-EXPENSES> 6,653
<LOSS-PROVISION> 23
<INTEREST-EXPENSE> 3,522
<INCOME-PRETAX> 815
<INCOME-TAX> 360
<INCOME-CONTINUING> 455
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 455
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
