UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 2
-----------------------------------
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (date of earliest event reported): JULY 20, 1997
Commission File No. 1-12575
UTAH MEDICAL PRODUCTS, INC.
----------------------------------------------------
(Exact name of Registrant as specified in its charter)
UTAH 87-0342734
------------------------------ -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7043 South 300 West
Midvale, Utah 84047
--------------------------------------
Address of principal executive offices
Registrant's telephone number: (801) 566-1200
(PAGE>
AMENDMENT NO. 2
Utah Medical Products, Inc. ("UM" or the "Company") hereby amends the
following items, financial statements, exhibits or other portions of its
Current Report on Form 8-K dated July 20, 1997, as follows:
Item 7. Financial statements and exhibits
Item 7(a): Financial statements of businesses acquired
Columbia Medical, Inc. ("CMI") audited balance sheet as of December 31, 1996,
and the related statements of income and retained earnings, and of cash
flows for the year ended December 31, 1996 and related notes and report of
independent auditors.
CMI unaudited balance sheet as of June 30, 1997 and unaudited statements of
income and retained earnings and of cash flows for the six month periods ended
June 30, 1997 and 1996.
Item 7(b): Pro forma financial information.
Pro forma consolidated balance sheet of UM as of June 30, 1997 and pro forma
consolidated statements of income for the year ended December 31, 1996 and the
six month period ended June 30, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchanges Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
UTAH MEDICAL PRODUCTS, INC.
Registrant
Date: October 7, 1997 By: /s/ Kevin L. Cornwell
CEO and CFO
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) The CMI audited balance sheet as of December 31, 1996 and the
related statements of income and retained earnings and of cash flows for the
year ended December 31, 1996, and the related notes and report of independent
auditors, along with the CMI unaudited balance sheet as of June 30, 1997 and
the unaudited statements of income and retained earnings and of cash flows for
the six month periods ended June 30, 1997 and 1996 are included herein.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Columbia Medical, Inc.:
We have audited the accompanying balance sheet of Columbia Medical, Inc.(CMI)
as of December 31, 1996, and the related statements of income and retained
earnings and of cash flows for the year then ended. These financial
statements are the responsibility of CMI's management. Our responsibility
is to express an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of CMI at December 31, 1996, and the results
of its operations and its cash flows for the year then ended in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
August 22, 1997
<PAGE>
COLUMBIA MEDICAL, INC.
BALANCE SHEETS
JUNE 30, 1997 DECEMBER 31,
(UNAUDITED) 1996
------------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $860,268 $468,686
Accounts receivable 477,746 426,124
Inventory 752,317 716,558
Prepaid expenses and other current assets 20,475 48,030
Deferred income taxes - current 15,518 13,342
--------- ---------
Total current assets 2,126,324 1,672,740
PROPERTY AND EQUIPMENT - Net 397,889 457,381
DEFERRED INCOME TAXES - Long term 12,395 12,395
OTHER ASSETS - Net 6,967 7,190
--------- ---------
TOTAL $2,543,575 $2,149,706
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 93,686 $ 37,792
Accrued expenses 108,130 101,466
Income taxes payable 93,773 12,195
Current portion of long-term debt 19,452 58,574
--------- ---------
Total current liabilities 315,041 210,027
LONG-TERM DEBT 10,204 11,798
--------- ---------
Total liabilities 325,245 221,825
--------- ---------
COMMITMENTS (Note 6)
STOCKHOLDERS' EQUITY:
Common stock, no par value, 100 shares
authorized, issued, and outstanding 66,000 66,000
Retained earnings 2,152,330 1,861,881
--------- ---------
Total stockholders' equity 2,218,330 1,927,881
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,543,575 $ 2,149,706
========= =========
See notes to financial statements.
<PAGE>
COLUMBIA MEDICAL, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
YEAR ENDED
SIX MONTHS ENDED JUNE 30, DECEMBER 31,
1997 1996 1996
----------- ------------ ------------
(UNAUDITED) (UNAUDITED)
NET SALES $ 2,308,533 $ 1,898,144 $ 3,953,669
COST OF SALES 1,042,726 856,164 1,732,392
----------- ----------- -----------
GROSS PROFIT 1,265,807 1,041,980 2,221,277
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSES 751,476 707,047 1,614,418
----------- ----------- -----------
OPERATING INCOME 514,331 334,933 606,859
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (2,107) (8,098) (14,677)
Loss on disposal of assets (341) (341)
Other, net 9,328 8,926 20,132
----------- ----------- -----------
Total other income - net 7,221 487 5,114
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 521,552 335,420 611,973
PROVISION FOR INCOME TAXES 231,103 130,520 246,087
----------- ----------- -----------
NET INCOME 290,449 204,900 365,886
RETAINED EARNINGS, Beginning of period 1,861,881 1,495,995 1,495,995
----------- ----------- -----------
RETAINED EARNINGS, End of period $ 2,152,330 $ 1,700,895 $ 1,861,881
----------- ----------- -----------
See notes to financial statements
<PAGE>
COLUMBIA MEDICAL, INC.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1997 1996 1996
----------- ---------- -----------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 290,449 $ 204,900 $ 365,886
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 82,730 99,764 196,274
Deferred income tax benefit (2,176) (3,358) (6,061)
Loss on disposal of assets 341 341
Changes in operating assets and liabilities:
Accounts receivable (51,622) (522) 17,491
Inventory (35,759) 70,470 82,271
Prepaid expenses and other current assets 27,555 25,011 8,849
Other assets 223 (343) 596
Accounts payable 55,894 27,602 (14,965)
Accrued expenses 6,664 (31,257) (21,346)
Income taxes payable 81,578 (156,095) (163,543)
--------- --------- ---------
Net cash provided by operating
activities 455,536 236,513 465,793
CASH FLOW FROM INVESTING ACTIVITIES -
Purchase of property and equipment (23,238) (7,959) (11,677)
--------- --------- ---------
CASH FLOW FROM FINANCING ACTIVITIES -
Payments on long-term debt (40,716) (80,033) (142,686)
--------- --------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 391,582 148,521 311,430
CASH AND CASH EQUIVALENTS, Beginning of
period 468,686 157,256 157,256
--------- --------- ---------
CASH AND CASH EQUIVALENTS, End of period $ 860,268 $ 305,777 $ 468,686
--------- --------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during period for:
Interest $ 2,107 $ 8,098 $ 14,677
========= ========= =========
Income taxes $ 151,700 $ 289,974 $ 415,692
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Equipment was acquired for $18,269 during the six month period ended June
30, 1996 in exchange for a capital lease of $16,995 plus a credit of of $1,274
received for the trade-in of equipment.
See notes to financial statements.
COLUMBIA MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - Columbia Medical, Inc. (CMI) was incorporated in the
State of Oregon in 1984. CMI's primary business is the manufacture and sale
of disposable medical devices used in the health care industry throughout
the United States.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
CARRYING VALUE OF LONG-TERM ASSETS - CMI evaluates the carrying value of
long-term assets based upon current and anticipated undiscounted cash flows,
and recognizes an impairment when such estimated cash flows will be less
than the carrying value of the asset. Measurement of the amount of
impairment, if any, is based upon the difference between carrying value and
fair value.
CASH AND CASH EQUIVALENTS - For financial reporting purposes, CMI considers
all highly liquid investments with a maturity of three months or less when
purchased to be cash equivalents.
CONCENTRATION OF CREDIT RISK - CMI maintains bank accounts which may exceed
depository insurance limits and therefore exposes CMI to credit risk. CMI
restricts its cash deposits to financial institutions with high credit
standing and which are members of the Federal Deposit Insurance Corporation.
INVENTORY - Inventory consists of raw materials, work-in-process, and
finished goods, which are valued at the lower of first-in, first-out cost or
market.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost.
Depreciation is computed using the straight-line method over the following
estimated useful lives:
CATEGORY USEFUL LIFE
Manufacturing equipment 5 - 7 years
Transportation equipment 3 - 5 years
Furniture and fixtures 5 - 7 years
Leasehold improvements 10 years
INCOME TAXES - CMI recognizes deferred tax liabilities for the expected
future tax consequences of temporary differences between the financial
statement bases and the tax bases of CMI's assets and liabilities using the
enacted tax rates in effect at year end.
INTERIM FINANCIAL INFORMATION - In the opinion of management, the unaudited
information presented as of June 30, 1997 and for the six month periods
ended June 30, 1997 and 1996 reflect all adjustments, which consist of
normal recurring adjustments, necessary for a fair presentation of the
interim period financial statements. Operating results for interim periods
are not necessarily indicative of the results that may be expected for a
full year.
2. INVENTORY
Inventory consists of the following at December 31, 1996:
Raw materials $ 180,398
Work in process 274,177
Finished goods 261,983
----------
Total $ 716,558
==========
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1996:
Manufacturing equipment $ 1,244,794
Transportation equipment 16,008
Furniture and equipment 217,928
Leasehold improvements 49,961
----------
Total 1,528,691
Less accumulated depreciation (1,071,310)
-----------
Total $ 457,381
===========
4. ACCRUED EXPENSES
Accrued expenses consist of the following at December 31, 1996:
Accrued commissions $ 40,555
Accrued payroll and related payroll taxes 39,687
Accrued vacation 21,224
----------
Total $ 101,466
==========
5. LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1996:
Wells Fargo Bank, due in monthly payments of $3,998,
including interest at 9.75% through November 1997;
collateralized with machinery and equipment $37,739
Wells Fargo Bank, due in monthly payments of $2,652
including interest at 9.75% through May 1997;
collateralized with machinery 12,826
Wells Fargo Bank, due in monthly payments of $520,
including interest at 9.5% through August 1997;
collateralized with machinery 5,129
Obligations under capital lease (Note 6) 14,678
-------
Total 70,372
Less current portion (58,574)
-------
Total $11,798
=======
Contractual maturities of long-term debt are as follows:
Year ending December 31:
1997 $ 58,574
1998 3,299
1999 3,780
2000 4,331
2001 388
---------
Total $ 70,372
=========
6. COMMITMENTS
As of December 31, 1996, CMI had an operating lease which relates to its
office, manufacturing facility and warehouse in Redmond, Oregon. Total
rental expense was approximately $90,000 for the year ended December 31,
1996.
Assets under capital lease obligations, included with property at December
31, 1996, were as follows:
Equipment $ 23,690
Less accumulated depreciation (3,399)
---------
Total $ 20,291
=========
At December 31, 1996, future minimum rental payments under capital and
operating leases are as follows:
OPERATING CAPITAL
LEASES LEASE
--------- -------
Year ending December 31:
1997 $ 80,964 $ 4,711
1998 80,964 4,711
1999 33,735 4,711
2000 4,711
2001 393
--------- --------
Total $ 195,663 $ 19,237
=========
Less amount representing interest at
13.7% (4,559)
--------
Present value of future minimum
capital lease obligations 14,678
(Note 5)
Current portion (2,880)
--------
Total $11,798
========
7. INCOME TAXES
Income tax expense (benefit) consists of the following at December 31, 1996:
Current:
Federal $208,971
State 43,177
Deferred:
Federal (5,228)
State (833)
--------
Total $246,087
Computed "expected" income taxes on income for financial reporting purposes
are reconciled to income tax expense as follows:
Federal income tax expense at the statutory rate (34%) $ 214,407
State income taxes, net of federal benefit 27,948
Other 3,732
----------
Income tax expense $ 246,087
The components of the deferred tax assets are as follows at December 31, 1996
Current Deferred Tax Asset:
Accrued vacation $ 8,617
Inventory reserve 3,673
Other 1,052
---------
Total $ 13,342
---------
Long-Term Deferred Tax Asset - Difference in tax basis
of property and equipment $ 12,395
---------
8. SUBSEQUENT EVENT
On July 20, 1997, CMI entered into a Stock Purchase Agreement with Utah
Medical Products, Inc. (UM) whereby UM purchased all of the common stock
of CMI.
* * * * * *
(b) The accompanying unaudited pro forma consolidated balance sheet as of June
30, 1997 and unaudited pro forma statements of income for the year ended
December 31, 1996 and the six month period ended June 30, 1997 are presented to
reflect the acquisition of all of the outstanding common shares of CMI by UM
(the "Acquisition") for a purchase price of $8.16 million, including
consideration for patents rights and non-competition agreements. The
Acquisition was effected pursuant to a Stock Purchase Agreement, dated as of
July 20, 1997. The Acquisition was accounted for using the "purchase" method
of accounting. The accompanying unaudited pro forma financial statements
reflect the effects of a preliminary allocation of the purchase price.
The accompanying unaudited pro forma consolidated financial statements should
be read in conjunction with the respective companies' historical consolidated
financial statements and notes thereto. The unaudited pro forma consolidated
financial statements are presented for information purposes only and are not
necessarily indicative of actual results, nor do they purport to represent
results of future operations of the merged companies.
The pro forma consolidated balance sheet assumes the Acquisition occurred on
June 30, 1997. The pro forma consolidated statements of income present UM's
historical consolidated statements of income for the year ended December 31,
1996 and the six months ended June 30, 1997, along with CMI's statements of
income for the same periods adjusted to give effect to the Acquisition as if
the Acquisition had occurred on January 1, 1996. Unaudited pro forma
consolidated financial information presented herein reflects adjustments for
(i) the estimated allocation of the purchase price to the fair value of assets
acquired, including goodwill, and liabilities assumed, and (ii) the effect of
recurring charges related to the Acquisition, primarily the amortization of
goodwill, recording of interest expense on borrowings to finance the
Acquisition and the increase in depreciation expense due to the write-up to
fair value of fixed assets.
The amount of the purchase price is subject to post-closing adjustments based
on certain indemnities from CMI's prior owners.
The preliminary allocation of the purchase price resulted in approximately $5.0
million in goodwill. The actual amount of goodwill recorded may vary based
upon the final purchase price allocation resulting from completion of the
merger plan and asset valuations. Changes in goodwill and the related
amortization expense resulting from these activities may be material.
<TABLE>
<CAPTION>
UTAH MEDICAL PRODUCTS, INC. AND
SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1997
UTAH MEDICAL
PRODUCTS, PRO FORMA
INC., AND COLUMBIA PURCHASE ADJUSTED
SUBSIDIARY MEDICAL,INC. ADJUSTMENTS NOTES BALANCE
ASSETS ------------ ---------- ----------- ----- -----------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $2,439,956 $ 860,268 $(2,160,000) (C) $1,140,224
Accounts receivable 3,804,856 477,746 4,282,602
Inventory 6,389,444 752,317 52,000 (D) 7,193,761
Other 925,376 35,993 961,369
---------- ---------- ----------- ----------
Total current assets 13,559,632 2,126,324 (2,108,000) 13,577,956
PROPERTY AND EQUIPMENT - Net 13,170,250 397,889 660,000 (E) 14,228,139
OTHER ASSETS:
Intangible assets - net 900,757 250,000 (F) 1,150,757
Goodwill 4,979,670 (G) 4,979,670
Other 19,362 19,362
---------- ---------- ----------- ----------
TOTAL $27,630,639 $2,543,575 $3,781,670 $33,955,884
---------- ---------- ----------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $1,684,560 $ 93,686 $1,778,246
Accrued expenses 1,617,176 201,903 1,819,079
Other 85,600 19,452 105,052
---------- ---------- ----------- ----------
Total current liabilities 3,387,336 315,041 3,702,377
LONG-TERM DEBT 2,150,000 (B) 10,204 $6,000,000 (H) 8,160,204
OTHER LONG-TERM LIABILITIES 509,395 509,395
---------- ---------- ----------- ----------
Total liabilities 6,046,731 325,245 6,000,000 12,371,976
STOCKHOLDERS' EQUITY 21,583,908 2,218,330 (2,218,330) (I) 21,583,908
---------- ---------- ----------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $27,630,639 $2,543,575 $3,781,670 $33,955,884
---------- ---------- ----------- ----------
</TABLE>
See notes to the unaudited pro forma consolidated
financial statements.
<TABLE>
<CAPTION>
UTAH MEDICAL PRODUCTS, INC. AND
SUBSIDIARY
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
UTAH MEDICAL
PRODUCTS, PRO FORMA
INC., AND COLUMBIA PURCHASE ADJUSTED
SUBSIDIARY MEDICAL,INC. ADJUSTMENTS NOTES BALANCE
------------ ---------- ----------- ----- -----------
<S> <C> <C> <C> <C> <C>
NET SALES $38,672,632 $3,953,669 $42,626,301
COST OF SALES 19,549,252 1,732,392 $ 59,596 (J) 21,341,240
----------- ---------- -------- -----------
GROSS PROFIT 19,123,380 2,221,277 (59,596) 21,285,061
----------- ---------- -------- -----------
EXPENSES:
Selling, general, and
administrative 7,056,657 1,583,014 8,639,671
Depreciation and
amortization 257,328 31,404 359,924 (J) 648,656
----------- ---------- -------- -----------
Total 7,313,985 1,614,418 359,924 9,288,327
----------- ---------- -------- -----------
OPERATING INCOME 11,809,395 606,859 (419,520) 11,996,734
OTHER INCOME 1,834,337 5,114 (427,200) (K) 1,412,251
----------- ---------- -------- -----------
INCOME BEFORE TAXES 13,643,732 611,973 (846,720) 13,408,985
PROVISION FOR INCOME TAXES 4,889,841 246,087 (153,792) (L) 4,982,136
----------- ---------- -------- -----------
NET INCOME $8,753,891 $365,886 $(692,928) $8,426,849
----------- ---------- -------- -----------
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $ 0.93 $ 0.89
---------- ----------
EARNINGS PER COMMON SHARE
ASSUMING FULL DILUTION $ 0.93 $ 0.89
---------- ----------
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON
EQUIVALENT SHARES 9,451,581 9,451,581
---------- ----------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES ASSUMING
FULL DILUTION 9,451,581 9,451,581
---------- ----------
</TABLE>
See notes to the unaudited pro forma
consolidated financial statements.
<TABLE>
<CAPTION>
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARY
UNAUDITED PROFORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997
UTAH MEDICAL
PRODUCTS, PRO FORMA
INC., AND COLUMBIA PURCHASE ADJUSTED
SUBSIDIARY MEDICAL,INC. ADJUSTMENTS NOTES BALANCE
------------ ---------- ----------- ----- -----------
<S> <C> <C> <C> <C> <C>
NET SALES $10,273,971 $ 2,308,533 $12,582,504
COST OF SALES 4,895,164 1,042,726 $ 42,740 (J) 5,980,630
---------- ----------- -------- -----------
GROSS PROFIT 5,378,807 1,265,807 (42,740) 6,601,874
---------- ----------- -------- -----------
EXPENSES:
Selling, general, and
administrative 3,065,445 738,239 3,803,684
Depreciation and
amortization 137,740 13,237 182,427 333,404
---------- ----------- -------- -----------
Total 3,203,185 751,476 182,427 4,137,088
---------- ----------- -------- ------------
OPERATING INCOME 2,175,622 514,331 (225,167) 2,464,786
OTHER INCOME 821,901 7,221 (213,600) (K) 615,522
---------- ----------- -------- -----------
INCOME BEFORE TAXES 2,997,523 521,552 (438,767) 3,080,308
PROVISION FOR INCOME
TAXES 1,062,153 231,103 (76,896) (L) 1,216,360
---------- ----------- -------- -----------
NET INCOME $1,935,370 $ 290,449 $(361,871) $1,863,948
---------- ----------- -------- -----------
EARNINGS PER COMMON AND
COMMON EQUIVALENT
SHARE $ 0.22 $ 0.22
---------- -----------
EARNINGS PER COMMON SHARE
ASSUMING FULL DILUTION $ 0.22 $ 0.22
---------- -----------
WEIGHTED AVERAGE NUMBER
OF COMMON AND COMMON
EQUIVALENT SHARES 8,612,269 8,612,269
---------- -----------
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
ASSUMING FULL DILUTION 8,612,269 8,612,269
---------- -----------
</TABLE>
See notes to the unaudited pro forma consolidated
financial statements.
UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
(A) The unaudited pro forma balance sheet as of June 30, 1997 reflects the
adjustments necessary to record the Acquisition as though it had occurred
on June 30, 1997.
The unaudited pro forma consolidated statements of income for the year
ended December 31, 1996 and for the six month period ended June 30,
1997 have been prepared assuming the Acquisition had occurred January 1,
1996 and reflect the effects of certain adjustments to the historical
consolidated financial statements that result from the Acquisition of CMI
by UM.
Based upon the terms of the Acquisition, the transaction is accounted for
as a purchase of CMI by UM for financial reporting and accounting
purposes. Accordingly, UM revalued the basis of CMI's acquired assets and
assumed liabilities to fair value. The purchase price of CMI is equal
to the cash paid to the previous shareholders of CMI, including
consideration for patent rights and non-competition agreements. The
difference between the purchase price and the fair value of the
identifiable tangible and intangible assets acquired and liabilities
assumed is recorded as goodwill which will be amortized over a period
of 15 years. The amount of the purchase price is subject to post-closing
adjustments based on certain indemnities from CMI's prior owners. The
preliminary allocation of the purchase price is subject to adjustments
resulting from final asset valuations. The preliminary allocation of
the purchase price to the fair value of assets acquired and liabilities
assumed is as follows:
Purchase price $8,160,000
Fair value of assets acquired (3,505,600)
Liabilities assumed 325,200
----------
Cost in excess of net assets
acquired $4,979,600
==========
THE UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1997
GIVES EFFECT TO THE FOLLOWING PRO FORMA ADJUSTMENTS:
(B) Amount was previously reported by UM on Form 10-Q for quarter ended June
30, 1997 as a current liability. Amount borrowed under UM's revolving
line of credit is due in March 1999 and has been reclassified as a long-
term obligation.
(C) Represents cash used in the purchase of CMI.
(D) Represents the write-up of finished goods inventory to its estimated
selling price less the estimated disposal and selling costs of such
inventory as of the Acquisition date.
(E) Represents the write-up of property and equipment to their estimated
fair values as of the Acquisition date.
(F) Represents $200,000 of patents and $50,000 of non-compete agreements
acquired in connection with the Acquisition. The patents will be
amortized over a period of 15 years and the non-compete agreements will be
amortized over the lives of the agreements.
(G) Represents goodwill resulting from the Acquisition which will be
amortized over a period of 15 years.
(H) Represents borrowings under UM's revolving line of credit used to finance
the Acquisition.
(I) Represents the elimination of CMI's common stock and retained earnings as
of the Acquisition date.
THE UNAUDITED PRO FORMA STATEMENTS OF INCOME FOR THE YEAR ENDED DECEMBER 31,
1996 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 GIVE EFFECT TO THE FOLLOWING
PRO FORMA ADJUSTMENTS:
(J) Represents the following for both the year ended December 31, 1996 and
for the six months ended June 30,1997: (i) an increase in amortization
expense of goodwill and patents, calculated as of January 1, 1996 over an
estimated useful life of 15 years and (ii) an increase in depreciation
expense resulting from the write-up of property and equipment to fair
value. The net adjustment is computed approximately as follows:
1996 1997
--------- --------
Increase in goodwill amortization $332,000 $166,000
Increase in patent and non-compete agreement
amortization 16,600 8,300
Increase in depreciation expense 70,900 50,900
-------- --------
Net adjustment $ 419,500 $ 225,200
========= =========
(K) Represents an increase in total interest expense related to debt acquired
to finance the Acquisition calculated as additional borrowings of $6
million multiplied by the actual interest rate on the revolving line of
credit on July 20, 1997 of 7.12%.
(L) Represents the estimated income tax benefit of the taxable purchase
adjustments using an estimated effective tax rate of 36%.
