-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QK4lzkmlY0UNgTlNMHrgSUMPuOXaBCj9tO4BxIAe2UgkXf5GStqqHYeGOp0dacCe PvK4uIMvdqPUGfuHIgtcew== 0000890566-98-001666.txt : 19980930 0000890566-98-001666.hdr.sgml : 19980930 ACCESSION NUMBER: 0000890566-98-001666 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980717 ITEM INFORMATION: FILED AS OF DATE: 19980929 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PENTACON INC CENTRAL INDEX KEY: 0001050504 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-HARDWARE [5072] IRS NUMBER: 760531585 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 001-13931 FILM NUMBER: 98716999 BUSINESS ADDRESS: STREET 1: 9432 OLD KATY ROAD STREET 2: SUITE 222 CITY: HOUSTON STATE: TX ZIP: 77055 BUSINESS PHONE: 7134638850 MAIL ADDRESS: STREET 1: 9432 OLD KATY ROAD STREET 2: SUITE 222 CITY: HOUSTON STATE: TX ZIP: 77055 8-K/A 1 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------- FORM 8-K/A AMENDING THE CURRENT REPORT OF FORM 8-K FILED ON JULY 31, 1998 Pursuant to Section 13 or 15(d) of Securities Exchange Act of 1934 ----------------- DATE OF EARLIEST EVENT REPORTED: JULY 17, 1998 PENTACON, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 001-13931 76-0531585 (State or other (Commission File No.) (I.R.S. Employer jurisdiction of Identification No.) incorporation) 9432 OLD KATY ROAD, SUITE 222 HOUSTON, TEXAS 77055 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 463-8850 - -------------------------------------------------------------------------------- Item 7. Financial Statements and Exhibits (a) Financial Statements of Business Acquired This Form 8-K/A is being filed to include in the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on July 31, 1998 the financial statements and pro forma financial information required by Item 7. The required financial statements of the businesses acquired by the Registrant are included as exhibits to this Form 8-K/A. (b) Pro Forma Financial Information The required pro forma financial information of the Registrant is included as an exhibit to this Form 8-K/A. (c) Exhibits PAGE -------- Pentacon, Inc. Pro Forma Introduction to Unaudited Pro Forma Financial Statements............ F-1 Pro Forma Combined Balance Sheet-Unaudited.......................... F-3 Pro Forma Combined Statements of Operations-Unaudited Nine Months Ended June 30, 1998................................ F-4 Twelve Months Ended September 30, 1997......................... F-5 Notes to Unaudited Pro Forma Financial Statements................... F-6 Texas International Aviation, Inc. and Subsidiary Report of Independent Certified Public Accountants.................. F-8 Consolidated Balance Sheets......................................... F-9 Consolidated Statements of Earnings................................. F-10 Consolidated Statement of Stockholders' Equity...................... F-11 Consolidated Statements of Cash Flows............................... F-12 Notes to Consolidated Financial Statements.......................... F-13 23.1 Consent of Grant Thornton LLP 2 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PENTACON, INC. By: /s/ BRUCE M. TATEN Bruce M. Taten Senior Vice President, Chief Administrative Officer and General Counsel Dated: September 29, 1998 3 PENTACON, INC. AND SUBSIDIARIES INTRODUCTION TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS Pentacon, Inc. ("Pentacon" or the "Company") was incorporated in March 1997. On March 10, 1998, Pentacon and separate wholly-owned subsidiaries acquired in separate transactions (the "Acquisitions"), simultaneously with the closing of its initial public offering (the "Offering") of its common stock (the "Common Stock"), five businesses: Alatec Products, Inc. (Alatec), AXS Solutions, Inc. (AXS), Capitol Bolt & Supply, Inc. (Capitol), Maumee Industries, Inc. (Maumee), and Sales Systems Limited (SSL), collectively referred to as the "Founding Companies." The consideration for the Acquisitions of the Founding Companies consisted of a combination of cash and Common Stock. Because (i) the stockholders of the Founding Companies owned a majority of the outstanding shares of Common Stock following the Offering and the Acquisitions, and (ii) the stockholders of Alatec received the greatest number of shares of Common Stock among the stockholders of the Founding Companies, for financial statement presentation purposes, Alatec has been identified as the accounting acquiror. The Acquisitions of the remaining Founding Companies have been accounted for using the purchase method of accounting. Therefore, Alatec's historical financial statements as of September 30, 1997 and for all periods prior to March 10, 1998 are presented as the historical financial statements of the registrant. Unless the context otherwise requires, all references herein to the Company include Pentacon and the Founding Companies. The pro forma combined financial statements should be read in conjunction with the Unaudited Pro Forma Combined Financial Statements of the Company and the related notes thereto, the Financial Statements of Pentacon, Alatec, AXS, Maumee and SSL and related notes thereto, and management's discussion and analysis of financial condition and results of operations related thereto, all of which are included in the Company's Registration Statement on Form S-1 (No. 333-41383), as amended (the "Registration Statement"), filed with the United States Securities and Exchange Commission in connection with the Offering. In May 1998, the Company acquired Pace Products, Inc. ("Pace"), a distributor of fasteners and other small parts which also provides inventory procurement and management services primarily to the telecommunications industry. In June 1998, the Company acquired D-Bolt Company Inc. ("D-Bolt"), a distributor of fasteners and other small parts primarily to the fabrication, construction and mining industries. In July 1998, the Company acquired Texas International Aviation, Inc. ("TIA"), a distributor of fasteners and other small parts which provides inventory procurement and management services primarily to the aerospace industry. The allocations of purchase price to the assets acquired and liabilities assumed has been initially assigned and recorded based on preliminary estimates of fair value and may be revised as additional information concerning the valuation of such assets and liabilities becomes available. The following unaudited pro forma financial statements of Pentacon, Inc. and Subsidiaries give effect to: (i) the Acquisitions of the Founding Companies and (ii) the acquisitions of Pace, D-Bolt and TIA for the periods prior to the consummation of the acquisitions. The pro forma combined balance sheet-unaudited is based upon: (i) the unaudited consolidated balance sheet of Pentacon, Inc. as of June 30, 1998; and (ii) the unaudited consolidated balance sheet of TIA as if the acquisition occurred on June 30, 1998. F-1 The pro forma combined statement of operations-unaudited for the nine months ended June 30, 1998 is based upon: (i) the unaudited historical consolidated statement of operations of Pentacon, Inc. for the nine months ended June 30, 1998; (ii) the unaudited historical consolidated statements of operations of AXS, Capitol, Maumee, SSL and Pentacon for the period October 1, 1997 through March 10, 1998 (the date of the Acquisitions); (iii) the unaudited statement of operations of TIA for the nine months ended June 30, 1998; and (iv) the unaudited statements of operations of Pace and D-Bolt include results of operations from October 1, 1997 through the respective acquisition date. The pro forma combined statement of operations-unaudited for the twelve months ended September 30, 1997 is based upon: (i) the unaudited statements of operations of the Founding Companies for the twelve months ended September 30, 1997; (ii) the unaudited statements of operations of Pace and D-Bolt for the twelve months ended September 30, 1997; and (iii) the unaudited statement of operations of TIA for the year ended December 31, 1997. The pro forma financial statements have been prepared based upon certain assumptions and include all adjustments as detailed in the Notes to Unaudited Pro Forma Financial Statements. The pro forma financial data does not purport to represent what the Company's financial position or results of operations would actually have been if the transactions had occurred on those dates or to project the Company's financial position or results of operations for any future period. F-2 PENTACON, INC. AND SUBSIDIARIES PRO FORMA COMBINED BALANCE SHEET - UNAUDITED JUNE 30, 1998 (IN THOUSANDS)
TEXAS HISTORICAL INTERNATIONAL PRO PENTACON, AVIATION, PRO FORMA FORMA INC. INC. ADJUSTMENTS COMBINED ----------- ------------- ------------- ----------- (NOTE 2) ASSETS Cash and cash equivalents .............. $ 1,080 $ 20 $ -- $ 1,100 Accounts receivable .................... 25,124 4,627 -- 29,751 Inventories ............................ 50,447 20,861 -- 71,308 Deferred income taxes .................. 2,194 15 260 (A) 2,469 Other current assets ................... 248 25 -- 273 -------- ------- -------- -------- Total current assets .............. 79,093 25,548 260 104,901 Property, plant and equipment, net of accumulated depreciation ............. 5,636 270 (270)(A) 5,636 Goodwill, net of accumulated amortization ......................... 66,407 -- 13,504 (B) 79,911 Deferred income taxes .................. 943 -- 70 (A) 1,013 Other assets ........................... 1,043 575 (575)(C) 1,043 -------- ------- -------- -------- Total assets ...................... $153,122 $26,393 $ 12,989 $192,504 ======== ======= ======== ======== LIABILITIES & STOCKHOLDERS' EQUITY Accounts payable ....................... $ 17,433 $ 5,215 $ -- $ 22,648 Accrued expenses and other current liabilities .......................... 5,064 324 1,393 (A) 6,781 Income taxes payable ................... 590 93 -- 683 Current maturities of long-term debt and capital lease obligations ........ 401 13,876 (13,876)(D) 401 -------- ------- -------- -------- Total current liabilities ......... 23,488 19,508 (12,483) 30,513 Long-term debt and capital lease obligations, less current maturities . 23,642 173 25,838 (D) 49,653 -------- ------- -------- -------- Total liabilities ................. 47,130 19,681 13,355 80,166 Common stock ........................... 161 7 (1)(E) 167 Paid-in capital ........................ 94,032 2,516 3,824 (E) 100,372 Retained earnings ...................... 11,799 4,189 (4,189)(A) 11,799 -------- ------- -------- -------- Total stockholders' equity ........ 105,992 6,712 (366) 112,338 -------- ------- -------- -------- Total liabilities and stockholders' equity .......................... $153,122 $26,393 $ 12,989 $192,504 ======== ======= ======== ========
See accompanying notes. F-3 PENTACON, INC. PRO FORMA COMBINED STATEMENT OF OPERATIONS - UNAUDITED NINE MONTHS ENDED JUNE 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
OCTOBER 1, 1997 TO MARCH 10, 1998 ---------------------------------------------------------------------- HISTORICAL PENTACON, INC. PENTACON, INC. AXS CAPITOL MAUMEE SSL TIA -------------- -------------- --------- ---------- ----------- -------- ---------- Revenues ............... $ 80,786 $ -- $13,521 $ 5,346 $ 20,061 $7,053 $ 21,885 Cost of sales .......... 51,322 -- 9,002 3,652 14,316 4,625 15,701 -------- ------- ------- ------- -------- ------ -------- Gross profit ...... 29,464 -- 4,519 1,694 5,745 2,428 6,184 Operating expenses ..... 23,547 4,900 3,149 1,636 3,868 2,204 3,572 Goodwill amortization .. 489 -- 53 -- -- -- -- -------- ------- ------- ------- -------- ------ -------- Operating income .. 5,428 (4,900) 1,317 58 1,877 224 2,612 Other (income)/expense . (67) -- 33 (25) (13) -- (45) Interest expense ....... 976 -- 53 13 349 46 739 -------- ------- ------- ------- -------- ------ -------- Income before taxes 4,519 (4,900) 1,231 70 1,541 178 1,918 Income taxes ........... 2,344 (95) 1 55 639 -- 742 -------- ------- ------- ------- -------- ------ -------- Net income ........ $ 2,175 $(4,805) $ 1,230 $ 15 $ 902 $ 178 $ 1,176 ======== ======= ======= ======= ======== ====== ========
OTHER MERGER PRO FORMA OFFERING AS ACQUISITIONS ADJUSTMENTS COMBINED ADJUSTMENTS ADJUSTED -------------- ----------- ----------- ----------- ----------- (Note 3) (Note 3) Revenues ............... $ 9,643 $ -- $ 158,295 $ -- $ 158,295 Cost of sales .......... 6,134 -- 104,752 -- 104,752 ------- ------- --------- ------- --------- Gross profit ...... 3,509 -- 53,543 -- 53,543 Operating expenses ..... 2,365 (1,830)(A) 43,411 (6,480)(E) 36,931 Goodwill amortization .. -- 951 (B) 1,493 -- 1,493 ------- ------- --------- ------- --------- Operating income .. 1,144 879 8,639 6,480 15,119 Other (income)/expense . (3) -- (120) -- (120) Interest expense ....... 1 1,427 (C) 3,604 (1,301)(C) 2,303 ------- ------- --------- ------- --------- Income before taxes 1,146 (548) 5,155 7,781 12,936 Income taxes ........... 79 (1,040)(D) 2,725 3,191 (D) 5,916 ------- ------- --------- ------- --------- Net income ........ $ 1,067 $ 492 $ 2,430 $ 4,590 $ 7,020 ======= ======= ========= ======= ========= Diluted net income per share $ 0.42 ========= Shares used in computing diluted net income per share (Note 3-F) 16,772 =========
See accompanying notes. F-4 PENTACON, INC. PRO FORMA COMBINED STATEMENT OF OPERATIONS - UNAUDITED TWELVE MONTHS ENDED SEPTEMBER 30, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
TIA HISTORICAL YEAR ENDED PENTACON, INC. PENTACON, INC. AXS CAPITOL MAUMEE SSL DEC. 31, 1997 -------------- -------------- ------- --------- -------- -------- ------------- Revenues ............... $ 53,755 $-- $30,569 $ 11,537 $34,545 $ 15,712 $ 21,976 Cost of sales .......... 32,084 -- 20,883 8,023 25,080 10,589 16,274 -------- ---- ------- -------- ------- -------- -------- Gross profit ...... 21,671 -- 9,686 3,514 9,465 5,123 5,702 Operating expenses ..... 15,145 18 6,796 3,250 8,139 4,658 4,304 Goodwill amortization .. -- -- 80 -- -- -- -- -------- ---- ------- -------- ------- -------- -------- Operating income .. 6,526 (18) 2,810 264 1,326 465 1,398 Other (income)/expense . (41) -- 103 (41) 19 (18) (75) Interest expense ....... 1,245 -- 278 37 749 123 664 -------- ---- ------- -------- ------- -------- -------- Income before taxes 5,322 (18) 2,429 268 558 360 809 Income taxes ........... 2,176 -- -- 87 232 -- 368 -------- ---- ------- -------- ------- -------- -------- Net income ........ $ 3,146 $(18) $ 2,429 $ 181 $ 326 $ 360 $ 441 ======== ==== ======= ======== ======= ======== ========
OTHER MERGER PRO FORMA OFFERING AS ACQUISITIONS ADJUSTMENTS COMBINED ADJUSTMENTS ADJUSTED ------------ ----------- ------------ ------------- ---------- (NOTE 3) (NOTE 3) Revenues ............... $ 14,268 $ -- $ 182,362 $ -- $ 182,362 Cost of sales .......... 9,166 -- 122,099 -- 122,099 -------- ------- --------- ------- --------- Gross profit ...... 5,102 -- 60,263 -- 60,263 Operating expenses ..... 3,959 (3,025)(A) 43,244 -- 43,244 Goodwill amortization .. -- 1,912 (B) 1,992 -- 1,992 -------- ------- --------- ------- --------- Operating income .. 1,143 1,113 15,027 -- 15,027 Other (income)/expense . (8) -- (61) -- (61) Interest expense ....... 333 1,622 (C) 5,051 (2,419)(C) 2,632 -------- ------- --------- ------- --------- Income before taxes 818 (509) 10,037 2,419 12,456 Income taxes ........... 244 1,826 (D) 4,933 992 (D) 5,925 -------- ------- --------- ------- --------- Net income ........ $ 574 $(2,335) $ 5,104 $ 1,427 $ 6,531 ======== ======= ========= ======= ========= Diluted net income per share $ 0.39 ========= Shares used in computing diluted net income per share (Note 3-F) 16,686 =========
See accompanying notes. F-5 PENTACON, INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS In May 1998, the Company acquired Pace, a distributor of fasteners and other small parts which also provides inventory procurement and management services primarily to the telecommunications industry. In June 1998, the Company acquired D-Bolt, a distributor of fasteners and other small parts primarily to the fabrication, construction and mining industries. In July 1998, the Company acquired TIA, a distributor of fasteners and other small parts which provides inventory procurement and management services primarily to the aerospace industry. The allocations of purchase price to the assets acquired and liabilities assumed has been initially assigned and recorded based on preliminary estimates of fair value and may be revised as additional information concerning the valuation of such assets and liabilities becomes available. 1. HISTORICAL FINANCIAL STATEMENTS The historical financial statements represent the financial position and results of operations of Pentacon and the Founding Companies and were derived from their respective financial statements. The Company has a fiscal year-end of September 30. The Founding Companies have been presented for the twelve months ended September 30, 1997, except for Capitol, which has been presented for the twelve months ended August 31, 1997. The historical financial statements of TIA are presented for the twelve months ended December 31, 1997. The historical financial statements of the other acquisitions are presented for the twelve months ended September 30, 1997. 2. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS The pro forma adjustments include: (A) Records the fair value of assets and liabilities acquired and the related tax effect. (B) Records the goodwill associated with the acquisition. (C) Records the estimated direct costs of the acquisition. (D) Reflects the repayment of TIA debt and the disbursement of approximately $10.6 million in cash. (E) Reflects the issuance of 566,858 shares of Common Stock. F-6 3. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS Nine months ended June 30, 1998 and twelve months ended September 30, 1997: (A) Adjusts salaries, bonuses, benefits, and lease expense amounts to reflect those established in contractual agreements between the Company and certain owners and key employees of the Founding Companies and the subsequently acquired companies. (B) Records pro forma goodwill amortization using a 40-year estimated life. (C) Reflects the increase or (decrease) in interest expense attributed to obligations incurred to make acquisitions or retired with proceeds from the Offering. (D) Adjusts the provision for federal and state income taxes to the effective tax rate for the Company. (E) Reflects the elimination of the non-recurring, non-cash compensation charge of $4.7 million recorded by Pentacon, Inc. during the three months ended December 31, 1997 related to Common Stock issued to management of the Company. Contemporaneously with the Offering, a non-cash, non-recurring charge of approximately $1.8 million was recorded to reflect compensation related to the revaluation of 225,000 of the 450,000 shares of Common Stock issued to management in November 1997. (F) Includes (i) 2,830,000 shares issued by Pentacon, Inc. prior to the Offering (including 535,000 shares issued to management and directors), (ii) 6,720,000 shares issued to the stockholders of the Founding Companies in connection with the Acquisitions, (iii) 5,980,000 shares issued in connection with the Offering (including the over-allotment), (iv) the effect of the 50,000 warrants outstanding with an assumed exercise price of $6.00 per share using the treasury stock method, (v) 1,134,010 shares issued in connection with the acquisitions of Pace, D-Bolt and TIA, and (vi) the dilutive effect of stock options in the nine months ended June 30, 1998. F-7 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors Texas International Aviation, Inc. We have audited the accompanying consolidated balance sheet of Texas International Aviation, Inc. and Subsidiary (a Texas corporation) as of December 31, 1997 and March 31, 1997, and the related consolidated statements of earnings, changes in retained earnings and cash flows for the nine months ended December 31, 1997 and the year ended March 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Texas International Aviation, Inc. and Subsidiary as of December 31, 1997 and March 31, 1997, and the consolidated results of their operations and their consolidated cash flows for the nine months ended December 31, 1997 and the year ended March 31, 1997, in conformity with generally accepted accounting principles. Grant Thornton LLP Dallas Texas April 3, 1998 F-8 TEXAS INTERNATIONAL AVIATION, INC. CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31, JUNE 30, 1997 1997 1998 ------------- ------------- ----------- (UNAUDITED) ASSETS CURRENT ASSETS Cash and cash equivalents ....................... $ 8,593 $ 20,093 $ 20,467 Trade accounts receivable, net of allowance for doubtful accounts of $15,259 at March 31, 1997 and December 31, 1997 and $946 at June 30, 1998 2,716,444 4,533,895 4,626,526 Inventories ..................................... 9,393,408 15,885,605 20,861,277 Prepaid expenses ................................ 43,254 43,014 25,443 Deferred income taxes ........................... -- 15,358 15,358 ----------- ----------- ----------- Total current assets ................... 12,161,699 20,497,965 25,549,071 PROPERTY, PLANT AND EQUIPMENT - AT COST Property, plant and equipment ................... 635,723 883,561 930,605 Less accumulated depreciation ................. 434,542 565,018 660,571 ----------- ----------- ----------- 201,181 318,543 270,034 OTHER ASSETS Receivables from stockholders ................... 362,334 486,599 565,852 Other ........................................... 9,500 9,500 9,500 ----------- ----------- ----------- $12,734,714 $21,312,607 $26,394,457 =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Bank overdrafts ................................. $ -- $ -- $ 1,088,561 Current maturities of long-term debt ............ 153,992 141,235 146,743 Accounts payable - trade ........................ 2,512,800 4,763,771 4,126,764 Accrued liabilities ............................. 207,208 352,467 325,209 Line of credit .................................. 4,755,505 10,035,345 13,729,698 Income taxes payable ............................ 18,977 323,019 93,164 ----------- ----------- ----------- Total current liabilities .............. 7,648,482 15,615,837 19,510,139 LONG-TERM DEBT, LESS CURRENT MATURITIES ............ 347,137 241,680 172,620 STOCKHOLDERS' EQUITY Common stock $.10 par value; authorized 1,000,000 shares; issued and outstanding 65,763 shares ..................... 6,576 6,576 6,576 Additional paid-in capital ...................... 2,515,908 2,515,908 2,515,908 Retained earnings ............................... 2,216,611 2,932,606 4,189,214 ----------- ----------- ----------- Total stockholders' equity ............. 4,739,095 5,455,090 6,711,698 ----------- ----------- ----------- $12,734,714 $21,312,607 $26,394,457 =========== =========== ===========
F-9 TEXAS INTERNATIONAL AVIATION, INC. CONSOLIDATED STATEMENTS OF EARNINGS
NINE MONTHS YEAR ENDED ENDED SIX MONTHS ENDED JUNE 30, MARCH 31, DECEMBER 31, ----------------------------- 1997 1997 1997 1998 ------------- -------------- ------------ ------------- (UNAUDITED) Net sales .............................. $ 11,823,132 $ 17,721,766 $ 9,070,866 $ 14,945,051 Cost of sales .......................... 8,091,140 12,894,231 6,805,210 10,271,146 ------------ ------------ ----------- ------------ 3,731,992 4,827,535 2,265,656 4,673,905 Operating costs and expenses Selling expenses .................... 409,481 353,469 250,551 447,579 General and administrative expenses . 2,465,861 2,929,298 1,741,692 1,799,306 ------------ ------------ ----------- ------------ 2,875,342 3,282,767 1,992,243 2,246,885 ------------ ------------ ----------- ------------ Operating profit ........... 856,650 1,544,768 273,413 2,427,020 Other income (expenses) Interest expense .................... (325,318) (530,882) (271,173) (534,774) Other income ........................ 1,674 70,202 9,632 11,705 ------------ ------------ ----------- ------------ Earnings before income taxes 533,006 1,084,088 11,872 1,903,951 Income tax expense ..................... 135,655 368,093 4,031 647,343 ------------ ------------ ----------- ------------ Net earnings ............... $ 397,351 $ 715,995 $ 7,841 $ 1,256,608 ============ ============ =========== ============
F-10 TEXAS INTERNATIONAL AVIATION, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY For the two fiscal years in the period ended December 31, 1997 and the six months ended June 30, 1998
COMMON STOCK ADDITIONAL ------------------ PAID-IN RETAINED SHARES AMOUNT CAPITAL EARNINGS TOTAL -------- -------- ------------ ----------- ----------- Balance at April 1, 1996 ........... 65,763 $6,576 $2,515,908 $1,819,260 $4,341,744 Net earnings ....................... -- -- -- 397,351 397,351 ------ ------ ---------- ---------- ---------- Balance at March 31, 1997 .......... 65,763 6,576 2,515,908 2,216,611 4,739,095 Net earnings ....................... -- -- -- 715,995 715,995 ------ ------ ---------- ---------- ---------- Balance at December 31, 1997 ....... 65,763 6,576 2,515,908 2,932,606 5,455,090 Net earnings (unaudited) ........... -- -- -- 1,256,608 1,256,608 ------ ------ ---------- ---------- ---------- Balance at June 30, 1998 (unaudited) 65,763 $6,576 $2,515,908 $4,189,214 $6,711,698 ====== ====== ========== ========== ==========
F-11 TEXAS INTERNATIONAL AVIATION, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR NINE MONTHS SIX MONTHS ENDED ENDED ENDED MARCH 31, DECEMBER 31, JUNE 30, 1997 1997 1998 ------------- -------------- ----------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES Net earnings ....................................... $ 397,351 $ 715,995 $ 1,256,608 Adjustments to reconcile net earnings to net cash used in operating activities Depreciation ................................... 112,421 130,476 95,553 Deferred income taxes .......................... -- (15,358) -- Inventory obsolescence ......................... 400,000 431,206 307,536 Changes in operating assets and liabilities Accounts receivable - trade .................. (1,159,669) (1,817,451) (92,631) Inventories .................................. (4,021,498) (6,923,403) (5,283,208) Income taxes payable ......................... -- 304,042 (229,855) Prepaid expenses ............................. (16,417) 240 17,571 Other assets ................................. (1,000) -- -- Liability for bank overdraft ................. -- -- 1,088,561 Accounts payable - trade ..................... 1,052,036 2,250,971 (637,007) Accrued liabilities .......................... 125,261 145,259 (27,258) ----------- ----------- ----------- Net cash used in operating activities ..... (3,111,515) (4,778,023) (3,504,130) CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property, plant and equipment ......... (197,518) (247,838) (47,044) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from notes payable and line of credit ..... 5,011,172 5,280,149 3,694,353 Repayments of notes payable and line of credit ..... (1,573,323) (118,523) (63,552) Change in receivables from stockholders ............ (132,690) (124,265) (79,253) ----------- ----------- ----------- Net cash provided by financing activities . 3,305,159 5,037,361 3,551,548 ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .................. (3,874) 11,500 374 Cash and cash equivalents at beginning of period ...... 12,467 8,593 20,093 ----------- ----------- ----------- Cash and cash equivalents at end of period ............ $ 8,593 $ 20,093 $ 20,467 =========== =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during period for Interest ......................................... $ 325,318 $ 458,660 $ 502,116 Income taxes ..................................... 80,000 $ 65,000 $ 892,555
F-12 TEXAS INTERNATIONAL AVIATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997 and March 31, 1997 NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies applied in the preparation of the accompanying financial statements follows. NATURE OF OPERATIONS Texas International Aviation, Inc. and its wholly-owned subsidiary TIA International (collectively, the Company) are engaged in wholesale distribution of aircraft hardware products. Sales of the Company's products are worldwide. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Company and its subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation. REVENUE RECOGNITION Revenue is recognized at the time of shipment. CASH EQUIVALENTS The Company considers highly liquid investments with original maturities of three months or less to be cash equivalents. INVENTORIES Inventories are comprised of goods held for resale, which are valued at the lower of cost (specific identification) or market. DEPRECIATION Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives ranging from 5 to 7 years on an accelerated method. Computer software is depreciated using the straight-line method over three years. 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 may differ from those estimates. NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED INCOME TAXES Deferred income taxes are determined using the liability method, under which deferred tax assets and liabilities are determined based on differences between financial and tax bases of assets and liabilities at the rate expected to be in effect when taxes become payable. INTERIM FINANCIAL STATEMENTS In the opinion of management, the unaudited interim financial statements as of June 30, 1998 and for the six months ended June 30, 1997 and 1998 include all adjustments, consisting only of those of a normal recurring nature, necessary to present fairly the Company's financial position as of June 30, 1998 and the results of its operations and cash flows for the six months ended June 30, 1997 and 1998. The results of operations for the six months ended June 30, 1997 and 1998 are not necessarily indicative of the results to be expected for the full year. NOTE B - LINE OF CREDIT The Company has a $12.5 million line of credit with a bank expiring on July 1, 1998. The Company may borrow up to $10 million for operations and up to $5 million on eligible inventory buyback contracts, with total borrowings not to exceed $12.5 million. Borrowings under the line of credit bear interest at the lesser of prime or a maximum rate, as defined, (8.5% at December 31, 1997). Borrowings are collateralized by substantially all assets of the Company. The Company had $2,464,655 and $7,744,495 available for borrowings under the line of credit at December 31, 1997 and March 31, 1997, respectively. The line of credit includes certain restrictive covenants which include, among others, working capital requirements, interest coverage, and tangible net worth. NOTE C - LONG-TERM DEBT DECEMBER 31, MARCH 31, 1997 1997 ------------- ---------- Notes payable to stockholders, in 60 monthly installments, of principal of $5,705 through January 2001, plus interest at 7% ........................... $187,263 $237,945 Note payable to a bank bearing interest at a rate equal to the lesser of prime or a maximum rate, as defined, (8.5% at December 31, 1997) due in 36 monthly installments of principal ($6,945) plus interest through May 1, 2000 .... 194,440 250,000 Other ............................................ 1,212 13,184 -------- -------- 382,915 501,129 Less current maturities ....................... 141,235 153,992 -------- -------- $241,680 $347,137 ======== ======== F-14 NOTE C - LONG-TERM DEBT - CONTINUED The following are scheduled future maturities of long-term debt at December 31, 1997: YEAR ENDING DECEMBER 31, -------------- 1998 $141,235 1999 144,120 2000 91,049 2001 6,511 -------- $382,915 ======== NOTE D - INCOME TAXES The income tax provision is comprised of the following components: NINE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, 1997 1997 ---------------- --------------- Current Federal ................... $ 347,855 $131,155 State ..................... 35,596 4,500 --------- -------- 383,451 135,655 Deferred Federal ................... (14,113) -- State ..................... (1,245) -- --------- -------- (15,358) -- --------- -------- Total ..................... $ 368,093 $135,655 ========= ======== F-15 NOTE D - INCOME TAXES - CONTINUED The income tax provision reconciled to the tax computed at the statutory Federal rate is as follows: NINE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, 1997 1997 -------------- ----------- Tax at statutory rate ...................... $ 368,590 $ 181,222 State income taxes, net of Federal benefit . 23,493 2,970 Impact of foreign sales corporation ........ (27,517) (43,822) Other ...................................... 3,527 (4,715) --------- --------- $ 368,093 $ 135,655 ========= ========= Deferred tax assets consist of the following at December 31, 1997: Allowance for doubtful accounts ............ $ 5,645 Accrued vacation ........................... 9,713 --------- $15,358 ========= NOTE E - BENEFIT PLAN The Company sponsors the Texas International Aviation, Inc. 401(k) Plan (the Plan). Under the Plan, eligible employees are permitted to contribute to the Plan up to 20% of gross compensation and the Company matches 50% of the employees' contributions up to 3% of the employees' gross compensation. Matching contributions begin vesting after three years of employment at a rate of 20% per year and fully vest after seven years. The Company made approximately $14,300 and $14,000 of matching contributions during the nine months and year ended December 31, 1997 and March 31, 1997, respectively. NOTE F - CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS A significant portion of the Company's sales are to customers whose activities are related to the aviation industry, including some who are located in foreign countries. The Company generally extends credit to these customers and, therefore, collection of receivables is affected by the economy of the aviation industry. Also, with respect to foreign sales, collection may be more difficult in the event of a default. However, the Company closely monitors extensions of credit and has not experienced significant credit losses. Most foreign sales are made to large, well-established companies. F-16 NOTE F - CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS - CONTINUED During the nine months ended December 31, 1997, sales to three customers were approximately 12% each (total 36%) of the Company's total sales. The loss of any one of these customers could have a severe impact on the operations of the Company. Some product purchases are denominated in foreign currencies. The Company had foreign currency transaction gains of approximately $65,000 and $1,000 for the nine months and year ended December 31, 1997 and March 31, 1997, respectively. NOTE G - COMMITMENTS The Company leases office and warehouse facilities in Grand Prairie, Texas from a partnership owned by the stockholders. The lease expires December 31, 1997 and rental payments of $7,500 are due monthly. Rent expense for these facilities was $82,065 and $82,500 for the period ended December 31, 1997 and March 31, 1997, respectively. The Company leases office facilities in California, under a lease agreement classified as an operating lease. Total rent expense for this facility during 1997 was approximately $10,700 and $3,000 for the periods ended December 31, 1997 and March 31, 1997, respectively. The lease expires August 31, 1999 and rental payments of $1,425 are due monthly. The Company leases office facilities in Washington under a lease agreement classified as an operating lease. Total rent expense for this facility for the period ended December 31, 1997 was approximately $1,900. The lease expires July 16, 1998, and rental payments of $345 are due monthly. Future minimum rentals on these leases at December 31, 1997 are as follows: YEAR ENDING DECEMBER 31, -------------- 1998 $21,341 1999 13,399 ------- $34,740 ======= F-17 EX-23.1 2 EXHIBIT 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our report dated April 3, 1998, accompanying the consolidated financial statements of Texas International Aviation, Inc. contained in the 8-K dated July 31, 1998 of Pentacon, Inc. We hereby consent to the incorporation by references of said report in the Registration Statements of Pentacon, Inc. on Form S-8 (File No. 333-48913, effective March 30, 1998) and on Form S-1 (File No. 333-49809, effective April 9, 1998). Grant Thornton LLP Dallas, Texas September 28, 1998 -----END PRIVACY-ENHANCED MESSAGE-----