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8-K/A - FORM 8-K AMENDMENT NO. 1 - Coleman Cable, Inc.d8ka.htm
EX-23.2 - CONSENT OF MAYER HOFFMAN MCCANN PC. - Coleman Cable, Inc.dex232.htm
EX-99.2 - AUDITED FINANCIAL STATEMENTS OF TECHNOLOGY RESEARCH CORPORATION - Coleman Cable, Inc.dex992.htm
EX-23.1 - CONSENT OF KIRKLAND, RUSS, MURPHY & TAPP, P.A. - Coleman Cable, Inc.dex231.htm

Exhibit 99.3

Preliminary Unaudited Pro Forma Condensed Combined Financial Statements

On May 16, 2011, Coleman Cable Inc. (“Company,” “Coleman,” “us,” “we,” or “our”) became the owner of 100% of the common stock of Technology Research Corporation and its subsidiaries (“TRC”) for total consideration of approximately $51.5 million. The consideration transferred was calculated based on Coleman’s agreement with TRC to redeem all of TRC’s outstanding shares at an agreed upon price of $7.20 per share. To finance the acquisition, Coleman utilized cash on hand in combination with borrowings under its revolving credit facility. Because the acquisition was not effective until May 16, 2011, the results of TRC were not included in Coleman’s results of operations for the year ended December 31, 2010 or the three months ended March 31, 2011. The following preliminary unaudited pro forma condensed combined financial statements have been prepared to give effect to the completed acquisition, which was accounted for using the purchase method of accounting.

The preliminary unaudited pro forma condensed combined balance sheet presented below gives effect to the acquisition and the Company’s related borrowings under its revolving credit facility (collectively, the “Pro Forma Events”) as if they occurred on March 31, 2011, and combines the historical balance sheets of Coleman and TRC as of March 31, 2011. The preliminary unaudited pro forma condensed combined balance sheet includes adjustments that are both recurring and nonrecurring in nature. The preliminary unaudited pro forma condensed combined statement of income for the year ended December 31, 2010 gives effect to the Pro Forma Events as if they occurred on January 1, 2010, and combines the historical consolidated statement of income for Coleman for the year ended December 31, 2010 with the historical consolidated statement of income for TRC for their fiscal year ended March 31, 2011. Given TRC’s year-end differs from that of Coleman by fewer than 93 days, the historical financial information presented herein for TRC has not been recast to account for the difference in year ends. The preliminary unaudited pro forma condensed combined statement of income for the three months ended March 31, 2011 gives effect to the Pro Forma Events as if they occurred on January 1, 2010, and combines the historical consolidated statements of income for the three months ended March 31, 2011 for both Coleman and TRC. The preliminary unaudited pro forma condensed statements of income do not include adjustments that are nonrecurring in nature.

The preliminary unaudited pro forma condensed combined financial statements presented are based on the assumptions and adjustments described in the accompanying notes. As required, the preliminary unaudited pro forma condensed combined financial information includes adjustments which give effect to events that are directly attributable to the transaction and factually supportable; as such, any planned adjustments affecting the balance sheet, income statement or shares of common stock outstanding subsequent to the assumed acquisition completion date are not included. The statements are presented for illustrative purposes only, and are not necessarily indicative of what the actual combined financial position or results of operations would have been had the Pro Forma Events actually been completed on the dates indicated or what such financial position or results will be for future periods.

The preliminary unaudited pro forma condensed combined financial information was prepared using the purchase method of accounting. Accordingly, we have adjusted the historical consolidated financial information to give effect to the purchase price paid in connection with the acquisition. We have completed the valuation of tangible assets, with the exception of income-tax related assets, and do not expect any significant changes in the valuation of such assets to result from finalizing our purchase accounting. We have valued intangible assets and liabilities based on facts and information obtained thus far as of the date of preparing the purchase price allocation presented herein. The obtaining of additional information or facts may result in a change in the composition or value allocated to one or more intangible assets or liabilities, or in the estimated useful lives assigned to one or more of such assets. Any excess of the fair value of the consideration paid over the fair value of the assets acquired and liabilities assumed is reflected as goodwill in the accompanying preliminary unaudited pro forma condensed combined balance sheet. The preliminary unaudited pro forma condensed combined statement of income does not include the impacts of any revenue, cost or other synergies that may result from the acquisition or any related restructuring costs other than the elimination of sales and costs of sales between the two entities. Cost savings, if achieved, could result from, among other things, material sourcing and elimination of redundant costs, including headcount and facilities.

We will continue to review TRC’s accounting policies to determine if it may be necessary to harmonize any differences between those policies and our policies. The preliminary unaudited pro forma condensed combined financial information does not adjust for any differences in accounting policies between those of Coleman and TRC. Based on our review of TRC’s summary of significant accounting policies disclosed in TRC’s historical financial data, the nature and amount of any adjustments to the historical financial data of TRC to conform their accounting policies to those of Coleman are not expected to be significant.


The preliminary unaudited pro forma condensed combined financial information is derived from and should be read in conjunction with the historical consolidated financial statements and related notes of Coleman and the historical consolidated financial statements and related notes of TRC.

Property, Plant and Equipment, Amortizable Intangible Assets and Goodwill

Property, plant and equipment will be depreciated over the following useful lives: Buildings range from 9 to 20 years; leasehold improvements equal the shorter of the useful life of the asset or the lease term; machinery, fixtures and equipment range from 3 to 8 years.

The preliminary estimated fair value of intangible assets and the respective individual weighted-average useful life at the acquisition date are as follows:

 

     Weighted
Average Life
   Amount  

Trade names

   6    $ 1,450   

Developed technology

   3      2,000   

Customer relationships

   6      1,570   

Backlog

   0      310   

Military contracts

   3      2,800   

Covenants not-to-compete

   2      80   

Favorable lease

   10      57   
     

 

 

 

Total intangible assets

      $ 8,267   

The above intangible assets will be amortized on an accelerated basis based on the estimated pattern of economic benefit derived from the rate the assets will be consumed. Estimated amortization expense for these intangible assets over the next five years is as follows:

 

Year ending December 31,

   Amount  

2011

   $ 1,296   

2012

     1,403   

2013

     1,374   

2014

     1,188   

2015

     885   

Thereafter

     2,121   

Pro Forma Adjustments

Pro forma adjustments give effect to the acquisition under the purchase method of accounting; the use of available excess cash; borrowings under our revolving credit facility; the payment of professional fees and other merger-related expenses; and the recording of assets acquired and certain liabilities assumed.


Preliminary Unaudited Pro Forma Condensed Combined Balance Sheet

As of March 31, 2011

(in thousands, except share and per share amounts)

 

     CCI as
reported
    TRC as reported      Pro Forma Adjustments     Pro Forma
Combined
 

Assets

         

Current Assets:

         

Cash and cash equivalents

   $ 14,204      $ 8,578       $ (14,204 )(a)    $ 8,578   

Accounts receivable, net of allowances

     123,089        5,410         (105 )(h)      128,394   

Inventories

     92,664        7,261         792 (c)      100,717   

Deferred income taxes

     3,234        574           3,808   

Prepaid expenses and other current assets

     3,496        879         (2,331 )(g)      2,044   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total current assets

     236,687        22,702         (15,848     243,541   

Property, plant and equipment, net

     44,933        3,066         1,602 (c)      49,601   

Goodwill

     29,178        4,453         17,889 (b)(c)      51,520   

Intangible assets

     22,184        2,937         5,330 (b)(c)      30,451   

Deferred income taxes

     330        —           —          330   

Other assets

     9,968        33         —          10,001   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total Assets

   $ 343,280      $ 33,191       $ 8,973      $ 385,444   
  

 

 

   

 

 

    

 

 

   

 

 

 

Liabilities and Shareholders’ Equity

         

Current Liabilities:

         

Current portion of long-term debt

   $ 4      $ —         $ —        $ 4   

Accounts payable

     24,829        1,984         (105 )(h)      26,708   

Accrued liabilities

     24,415        2,071         —          26,486   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total current liabilities

     49,248        4,055         (105     53,198   
  

 

 

   

 

 

    

 

 

   

 

 

 

Long-term debt

     271,932        —           34,976 (d)      306,908   

Other long-term liabilities

     3,492        398           3,890   

Deferred income taxes

     710        461         2,379 (c)      3,549   

Commitments and Contingencies

     —          —           —          —     

Shareholders’ Equity

         

Common stock, $0.001 par value

     17        3,407         (3,407 )(e)      17   

Additional paid-in capital

     91,003        12,996         (12,996 )(e)      91,003   

Accumulated earnings (deficit)

     (74,034     11,874         (11,121 )(e)(f)      (73,281

Accumulated other comprehensive income

     912        —           (753 )(f)      159   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total shareholders’ equity

     17,898        28,277         (28,277     17,898   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities and equity

   $ 343,280      $ 33,191       $ 8,973      $ 385,444   
  

 

 

   

 

 

    

 

 

   

 

 

 

See notes to preliminary unaudited pro forma condensed combined financial statements.

 

 


Preliminary Unaudited Pro Forma Condensed Combined Statement of Income

For the Year Ended December 31, 2010

(in thousands, except share and per share amounts)

 

     CCI as
reported
    TRC as reported     Pro Forma
Adjustments
    Pro Forma Combined  

Net sales

   $ 703,763      $ 35,982      $ (1,032 )(i)    $ 738,713   

Cost of goods sold

     606,734        22,729        (1,261 )(i)(n)      628,202   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     97,029        13,253        229        110,511   
  

 

 

   

 

 

   

 

 

   

 

 

 

Selling, general, and administrative expenses

     46,944        10,967        (808 )(k)(n)      57,103   

Intangible asset amortization

     6,826        1,715        189 (j)      8,730   

Asset impairments

     324        —          —          324   

Restructuring charges

     1,953        —          —          1,953   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     40,982        571        848        42,401   

Interest expense

     27,436        (1     969 (l)      28,404   

Loss on extinguishment of debt

     8,566        —          —          8,566   

Other income

     (230     (360 )     —          (590
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     5,210        932        (121     6,021   

Income tax expense (benefit)

     1,483        (613     (306 )(m)      564   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 3,727      $ 1,545      $ 185      $ 5,457   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic shares

     16,925            16,925   

Basic EPS

   $ 0.22          $ 0.32   

Diluted shares

     16,991            16,991   

Diluted EPS

   $ 0.22          $ 0.32   

See notes to preliminary unaudited pro forma condensed combined financial statements.

 

 


Preliminary Unaudited Pro Forma Condensed Combined Statement of Income

For the Three Months Ended March 31, 2011

(in thousands, except share and per share amounts)

 

     CCI as
reported
    TRC as
reported
    Pro Forma
Adjustments
    Pro Forma
Combined
 

Net sales

   $ 205,802      $ 9,428      $ (291 )(i)    $ 214,939   

Cost of goods sold

     175,775        5,838        (380 )(i)(n)      181,233   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     30,027        3,590        89        33,706   
  

 

 

   

 

 

   

 

 

   

 

 

 

Selling, general, and administrative expenses

     13,853        3,476        (1,674 )(k)(n)      15,655   

Intangible asset amortization

     1,583        294        51 (j)      1,928   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     14,591        (180     1,712        16,123   

Interest expense

     6,971        —          241 (l)      7,212   

Other income

     (132     (360     —          (492
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     7,752        180        1,470        9,402   

Income tax expense (benefit)

     2,526        (799     251 (m)      1,978   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 5,226      $ 979      $ 1,219      $ 7,424   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic shares

     17,079            17,079   

Basic EPS

   $ 0.30          $ 0.43   

Diluted shares

     17,205            17,205   

Diluted EPS

   $ 0.30          $ 0.43   

See notes to preliminary unaudited pro forma condensed combined financial statements.

 

 


Notes to Preliminary Unaudited Pro Forma Condensed Combined Financial Statements

Purchase Price

The purchase price was approximately $51.5 million. The purchase price was comprised of a cash payout including the fair value of other consideration transferred, and the fair value of Coleman’s previously held interest in TRC. The fair value of other consideration paid relates to share-based awards paid to TRC employees as a result of change of control provisions in the original award agreements. Additionally, prior to the merger, Coleman owned 323,710 shares of TRC common stock worth $7.20 per share as a result of the agreed upon purchase price. In accordance with relevant accounting guidance, the fair value of the previously owned investment was included in the total purchase price.

 

Cash

   $ 46,201   

Fair value of other consideration transferred

     2,979   

Fair value of Coleman’s previously held interest in TRC

     2,331   
  

 

 

 

Total purchase price

   $ 51,511   
  

 

 

 

Under the purchase method of accounting, the total purchase price as shown in the table above was allocated to net tangible and intangible assets of TRC based on their estimated fair values. The allocations are preliminary and subject to change based upon the finalizations of management’s valuation analysis and income taxes.

The table below summarizes the purchase price allocation of the assets acquired and liabilities assumed as if the acquisition date was March 31, 2011. The preliminary allocation of the purchase price to the fair value of TRC’s assets acquired and liabilities assumed in the Pro Forma Events is as follows:

 

Cash and cash equivalents

   $ 8,578   

Accounts receivable, net of allowances

     5,305   

Inventories, net

     8,053   

Deferred income taxes, prepaid expenses and other current assets

     1,453   

Property, plant and equipment

     4,668   

Amortizable intangible assets

     8,267   

Goodwill

     22,342   

Other assets

     33   
  

 

 

 

Total assets acquired

     58,699   
  

 

 

 

Accounts payable

     (1,879

Accrued liabilities

     (2,071

Other long term liabilities

     (398

Deferred income tax liability

     (2,840
  

 

 

 

Net assets acquired

   $ 51,511   
  

 

 

 

The preliminary purchase price allocation will be finalized in the future based upon the finalization of the valuation analysis of acquired net assets and income taxes. Accordingly, the preliminary purchase price allocation adjustments have been made solely for the purpose of preparing these statements. The preliminary unaudited pro forma condensed combined statement of income does not include the impact of the reversal into cost of sales of the purchase accounting adjustment for the increase in fair value of inventory.


Pro forma EBITDA:

 

     Year Ended December 31,
2010
     Three Months Ended March 31,
2011
 

Net income

   $ 5,457       $ 7,424   

Interest expense, net

     28,404         7,212   

Income tax expense

     564         1,978   

Depreciation and amortization

     20,649         4,847   
  

 

 

    

 

 

 

EBITDA

   $ 55,074       $ 21,461   

EBITDA

EBITDA represents net income before interest, income taxes, depreciation, and amortization expense. EBITDA is a non-GAAP financial measure. We are providing this information to permit a more complete comparative analysis of our operating performance relative to other companies. Other companies may define EBITDA differently, and, as a result, our measure of EBITDA may not be directly comparable to EBITDA of other companies.

We believe EBITDA serves as an appropriate measure to be used in evaluating the performance of our business. We employ the use of this measure in the preparation of our annual operating budgets and in determining levels of operating and capital investments. We believe EBITDA allows us to readily view operating trends, perform analytical comparisons and identify strategies to improve operating performance. We also believe EBITDA is a performance measure that provides investors, securities analysts and other interested parties a measure of operating results unaffected by differences in capital structures, business acquisitions, capital investment cycles and ages of related assets among otherwise comparable companies in our industry. However, the usefulness of EBITDA as a performance measure is limited by the fact that it excludes the impact of interest expense, depreciation and amortization expense, and taxes. We borrow money in order to finance our operations; therefore, interest expense is a necessary element of our costs and ability to generate revenue. Similarly, our use of capital assets makes depreciation and amortization expense a necessary element of our costs and ability to generate income. Since we are subject to state and federal income taxes, any measure that excludes tax expense has material limitations. Due to these limitations, we do not, and you should not, use EBITDA as the only measures of our performance. We also use, and recommend that you consider, net income in accordance with GAAP as a measure of our performance. Finally, other companies may define EBITDA differently and, as a result, our measure of EBITDA may not be directly comparable to EBITDA measures of other companies.

Pro Forma Adjustments

The following pro forma adjustments are based on preliminary estimates, which may change as additional information is obtained:

 

a. To reflect the utilization of $14,204 in available excess cash applied towards the purchase price.

 

b. To reflect the elimination of TRC’s historic intangible assets of $2,937 and goodwill of $4,453.

 

c. To reflect the recognition of fair value adjustments resulting from the preliminary allocation, as outlined above, of the total estimated preliminary purchase price, including an increase of $792 to reflect a total estimated fair value of $8,053 in TRC inventories, an increase of $1,602 to reflect a total estimated fair value of $4,668 in TRC property, plant and equipment, an increase of $2,379 in deferred income tax liabilities to reflect the tax impact of the step-up on inventories, intangible assets and property, plant and equipment, a total fair value of $8,267 assigned to TRC amortizable intangible assets, and a total value of $22,342 assigned to goodwill related to the TRC acquisition.


d. To reflect $34,976 of borrowings under Coleman’s revolving line of credit used to fund a corresponding amount of the consideration paid for TRC.

 

e. To reflect the elimination of TRC’s historic equity accounts.

 

f. To reflect the elimination of a $753 unrealized gain related to Coleman’s investment in TRC prior to the Merger which was recorded on Coleman’s March 31, 2011 balance sheet as a component of accumulated other comprehensive income, as well as a corresponding adjustment to retained earnings.

 

g. To reflect the elimination of Coleman’s investment in TRC made prior to the merger which was valued at $2,331.

 

h. To reflect the elimination of a $105 intercompany accounts receivable and accounts payable between Coleman and TRC.

 

i. To reflect the elimination of intercompany sales between Coleman and TRC of $1,032 and $291 for the year ended December 31, 2010 and the three months ended March 31, 2011, respectively, as well as the elimination of related cost of sales of $1,040 and $305 for the same periods, respectively.

 

j. To reflect an increase in amortization expense recorded at TRC for purchase accounting adjustments related to amortizable intangible assets of $189 and $51 for the year ended December 31, 2010 and the three months ended March 31, 2011, respectively.

 

k. To reflect the elimination of merger related transaction costs of $1,655 and $753 for the year ended December 31, 2010 and the three months ended March 31, 2011, respectively.

 

l. To reflect the addition of $969 and $241 in interest expense for the year ended December 31, 2010 and the three months ended March 31, 2011, respectively. This interest expense is associated with the debt issued under Coleman’s revolving line of credit.

 

m. To reflect an adjustment of $306 in income tax benefit for the year ended December 31, 2010 and an adjustment of $251 in income tax expense for the three months ended March 31, 2011.

 

n. To reflect the adjustment to reduce depreciation expense in selling, general, and administrative expenses and cost of goods sold for purchase accounting adjustments related to depreciable property, plant and equipment of $276 and $99 for the year ended December 31, 2010 and the three months ended March 31, 2011, respectively.