-----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, JoOQYcKxGbFhiJ6MZBdBHpCTkerJQ3T2A6R0C2fnGvR/dK9n9z2T5MyeojyJo15w eQkMcysQ8szeWMnpsS0PPA== 0000950131-00-003316.txt : 20000515 0000950131-00-003316.hdr.sgml : 20000515 ACCESSION NUMBER: 0000950131-00-003316 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMUNICATIONS INSTRUMENTS INC CENTRAL INDEX KEY: 0001053916 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRICAL INDUSTRIAL APPARATUS [3620] IRS NUMBER: 561828270 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-38209 FILM NUMBER: 627458 BUSINESS ADDRESS: STREET 1: 1396 CHARLOTTE HIGHWAY STREET 2: P O BOX 520 CITY: FAIRVIEW STATE: NC ZIP: 28730 BUSINESS PHONE: 8286281711 MAIL ADDRESS: STREET 1: 1396 CHARLOTTE HIGHWAY STREET 2: P O BOX 520 CITY: FAIRVIEW STATE: NC ZIP: 28730 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM___________TO___________ CII TECHNOLOGIES, INC. (formerly known as 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.) 1200 Ridgefield Blvd., Suite 200, 28806 Asheville, North Carolina (Zip Code) (Address of principal executive offices) (828) 670-5300 (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 Part 1. Financial Information Item 1. Financial Statements CII TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands Except Share Amounts)
March 31, December 31, 2000 1999 --------------- ---------------- (Unaudited) (1) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 178 $ 6,045 Accounts receivable (less allowance for doubtful accounts: March 31, 2000 - $776, 1999 - $621) 27,427 23,658 Inventories 27,521 27,498 Deferred income taxes 2,472 2,471 Cash restricted for environmental remediation 233 233 Environmental settlement receivable 1,250 1,250 Other current assets 2,214 2,232 ------------ ------------ Total current assets 61,295 63,387 ------------ ------------ PROPERTY, PLANT AND EQUIPMENT, net 39,559 40,747 ------------ ------------ OTHER ASSETS: Goodwill (net of accumulated amortization: March 31, 2000 - $4,560 1999 - $3,985) 64,317 64,892 Intangible assets, net 29,818 30,537 Other noncurrent assets 463 462 ------------ ------------ Total other assets 94,598 95,891 ------------ ------------ TOTAL ASSETS $195,452 $200,025 ============ ============ LIABILITIES AND STOCKHOLDER'S DEFICIENCY CURRENT LIABILITIES: Accounts payable $14,693 $13,141 Accrued interest 1,633 4,192 Other accrued liabilities 7,922 7,842 Current portion of long-term debt 7,206 7,694 ------------ ------------ Total current liabilities 31,454 32,869 LONG-TERM DEBT 180,987 182,975 ACCRUED ENVIRONMENTAL REMEDIATION COSTS 1,953 1,953 DUE TO PARENT 1,891 1,866 DEFERRED INCOME TAXES 13,433 13,733 OTHER LIABILITIES 418 455 ------------ ------------ Total liabilities 230,136 233,851 ------------ ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDER'S DEFICIENCY: Common stock, $.01 par value, 1,000 shares authorized, issued and outstanding - - Additional paid in capital 22,317 22,317 Accumulated deficit (56,825) (56,019) Accumulated other comprehensive loss (176) (124) ------------- ------------- Total stockholder's deficiency (34,684) (33,826) ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIENCY $195,452 $200,025 ============= =============
(1) Derived from December 31, 1999 audited consolidated financial statements See notes to unaudited condensed consolidated financial statements CII TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited) (In Thousands)
Three months ended -------------------------- March 31, March 31, 2000 1999 -------- -------- Net sales $ 48,174 $ 33,852 Cost of sales 36,077 24,327 -------- -------- Gross profit 12,097 9,525 Operating expenses: Selling expenses 3,345 2,808 General and administrative expenses 3,170 2,637 Research and development expenses 457 384 Amortization of goodwill and other intangibles 1,233 755 -------- -------- Total operating expenses 8,205 6,584 -------- -------- Operating income 3,892 2,941 Interest expense (4,859) (3,645) Other income (expense), net 2 (10) -------- -------- Loss before income taxes (965) (714) Benefit from income taxes (159) (139) -------- -------- Net loss (806) (575) Other comprehensive loss: Foreign currency translation adjustment (52) (83) -------- -------- Other comprehensive loss (52) (83) -------- -------- Comprehensive loss $ (858) $ (658) ======== ========
See notes to unaudited condensed consolidated financial statements
CII TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In Thousands) Three Months Ended March 31, ------------------------- 2000 1999 ---------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (806) $ (575) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 3,819 2,424 Deferred income taxes (300) (276) Changes in operating assets and liabilities, net of effects of acquisitions: Increase in accounts receivable (3,769) (1,976) (Increase) decrease in inventories (23) 752 Decrease in other current assets 18 5 Increase in accounts payable 1,552 91 Increase in accrued liabilities 866 789 Decrease in accrued interest (2,559) (2,315) Changes in other assets and liabilities (24) (52) ------ ------ Net cash used in operating activities (1,226) (1,133) ------ ------ CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of business, net of cash acquired (786) (60,125) Purchases of property, plant and equipment (1,128) (656) Other investing activities (5) - ------ ------ Net cash used in investing activities (1,919) (60,781) ------ ------ CASH FLOWS FROM FINANCING ACTIVITIES: Net (repayments) borrowings under line of credit (100) 4,305 Borrowings under long-term debt agreements - 55,000 Principal payments under long-term debt agreements (2,363) (1,000) Payment of loan fees (211) (1,656) Payment of capital lease obligations (13) (16) Advances from Parent 25 87 Additional paid-in capital (from Parent) - 5,000 Other (60) (67) ------ ------ Net cash (used in) provided by financing activities (2,722) 61,653 ------ ------ NET DECREASE IN CASH AND CASH EQUIVALENTS (5,867) (261) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,045 469 ------ ------ CASH AND CASH EQUIVALENTS, END OF PERIOD $ 178 $ 208 ====== ====== See notes to unaudited condensed consolidated financial statements
CII Technologies, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands except share amounts) 1. Basis of Presentation The accompanying condensed consolidated financial statements include the accounts of CII Technologies, Inc. (formerly known as 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 S.A. ("Electro-Mech"), Corcom, Inc. ("Corcom"), which became a wholly owned subsidiary on June 19, 1998, and Products Unlimited Corporation ("Products"), which became a wholly owned subsidiary on March 19, 1999, operate facilities in Carpenteria, California (Kilovac), Juarez, Mexico (Electro-Mech and Corcom), Libertyville, Illinois (Corcom), Sterling and Prophetstown, Illinois (Products), Sabula and Guttenburg, Iowa (Products) and Munich, Germany (Corcom). The Company also has the CII Division, which operates in North Carolina and the Hartman Division, which operates in Ohio. The interim financial data as of and for the quarters ended March 31, 2000 and March 31, 1999 are unaudited and have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, it does 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, 1999 financial information was derived from audited consolidated financial statements, but excludes certain disclosures included in the Company's audited consolidated financial statements. Certain reclassifications have been made to the 1999 financial information in order to conform with the 2000 presentation. 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, 1999 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, 2000 or any other interim period. 2. Recapitalization, Acquisitions and Joint Ventures 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 CIIT Holdings, Inc. (formerly known as CII Technologies Inc.), a Delaware Corporation (the "Parent"). CII Technologies, Inc. (formerly known as 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 $95.0 million of 10% Senior Subordinated Notes due 2004 (the "Old Notes") pursuant to an Indenture, dated September 18, 1997, by and among CII Technologies, Inc. (formerly known as Communications Instruments, Inc.), Kilovac, Kilovac International, Inc. ("Kilovac International") and Norwest Bank Minnesota, National Association (the "Indenture") through a private placement 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. Also, on September 18, 1997, 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 "Refinancing"). Additionally, 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 Acquisitions, unless otherwise noted below, are accounted for as purchases. The purchase prices are allocated to the assets acquired and liabilities assumed based on their fair values, and any excess cost is allocated to goodwill. The fair value of significant property, plant and equipment and intangibles and other assets acquired are determined generally by appraisals. Products Unlimited On March 19, 1999, the Company purchased all of the outstanding equity securities of Products (the "Products Acquisition"), a manufacturer and marketer of relays, transformers, and contactors primarily for the HVAC industry. Pursuant to the Stock Purchase Agreement, the Company paid approximately $59.4 million for the outstanding capital stock of Products. In addition, if Products achieves certain sales targets for the years ending December 31, 1999 and December 31, 2000, the Company will make additional payments to the former shareholders of Products not to exceed $4.0 million in the aggregate. For the year ended December 31, 1999, the Company accrued approximately $786 in accordance with the terms of the agreement which was then paid in February 2000. For the year ending December 31, 2000, the Company could be required to make an additional payment not to exceed approximately $3.2 million. The payment of the purchase price and related fees was financed by the issuance of $55.0 million of Tranche Term B loans, in accordance with an amendment to the Senior Credit Facility (as defined), the contribution of $5.0 million in additional paid in capital by the Parent, and a draw on the revolving loan portion of the Company's Senior Credit Facility (as defined). Products has manufacturing facilities in Sterling and Prophetstown, Illinois and Sabula and Guttenberg, Iowa. Cornell Dubilier On July 24, 1998, the Company purchased certain assets and assumed certain liabilities of the Cornell Dubilier electronics relay division ("CD") for $848 (the "CD Acquisition"). During 1998, CD was consolidated into the Company's Midtex factory located in Juarez, Mexico. The CD Acquisition was financed through a draw on the Company's Senior Credit Facility. Pro forma financial information is not presented relating to the CD Acquisition, as this entity was not a significant subsidiary of the Company in 1998. Corcom, Inc. On June 19, 1998, the Company acquired all of the outstanding capital stock of Corcom, an Illinois corporation, 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 Corcom 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. Wilmar Electronics Inc. On May 6, 1998, the Company purchased certain assets and assumed certain liabilities of Wilmar Electronics Inc. ("Wilmar") for approximately $2.1 million (the "Wilmar Acquisition"). Wilmar was a producer of high performance protective relays. Wilmar 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. Pro forma financial information is not presented relating to the Wilmar Acquisition as this entity was not a significant subsidiary of the Company in 1998. 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"). GRD, which was located in Waynesboro, Virginia, was a manufacturer of high performance signal relays. The GRD Acquisition was financed by a draw on the Company's Old Senior Credit Facility. The Company finalized its plans to relocate the manufacturing in the Waynesboro, VA facility to its facilities in North Carolina in 1998. The costs of this facility relocation, including estimated costs of employee separation and preparing the North Carolina facilities for the relocation, totaled approximately $1.1 million, of which approximately $911 was expensed in 1999 in cost of goods sold. Under the terms of the purchase agreement with Genicom, the Company was entitled to recover up to $500 for inventory unsold or unused during the two years following the acquisition. In December 1999, the Company submitted a claim against Genicom for the $500. In March 2000, Genicom filed a Chapter 11 bankruptcy petition in Federal Bankruptcy Court. As a result, the Company recorded a valuation reserve of $500 against this receivable in 1999. ibex Aerospace Inc. On October 31, 1997, the Company acquired certain assets and assumed certain liabilities of ibex Aerospace Inc. ("ibex") for approximately $2.0 million (the "ibex Acquisition"). Of the $2.0 million, approximately $1.3 million was paid at closing. The company issued a noninterest bearing note payable to the sellers in the amount of $850 (discounted to $697) for the remainder of the purchase price. This note was payable on October 31, 1999. Ibex was a manufacturer and marketer of high current electromechanical relays for critical applications in the military and commercial aerospace markets. In 1998, ibex was consolidated into the Company's Hartman Division. The transaction was financed through a draw on the Company's Old Senior Credit Facility and the issuance of the note payable to the sellers discounted to $697. In September 1999, the Company and the sellers agreed to adjust the purchase price of ibex and reduce the note payable by $400. The remaining note payable of $450 was repaid by the Company in September 1999. The reduction in purchase price resulted in a reduction of goodwill. 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 financed through proceeds from the Recapitalization and the issuance of senior subordinated notes. On October 11, 1995, the Company had purchased an 80% ownership interest in Kilovac for an aggregate purchase price of approximately $15.7 million including acquisition costs of approximately $1.3 million. Kilovac designs and manufactures high voltage electromechanical relays. The Company was obligated to purchase the remaining 20% interest in Kilovac at the option of the selling shareholders on either December 31, 2000 or December 31, 2005, or upon the occurrence of certain events, if earlier, at an amount determined in accordance with the terms of the purchase agreement. An estimated $2.3 million ($468, net of tax at March 31, 2000 and December 31, 1999) was initially payable to the sellers upon the future realization of potential tax benefits associated with a net operating loss carryforward. 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. The following summarizes the purchase price allocations as the respective dates of acquisitions:
Kilovac ibex GRD Wilmar Corcom CD Products Purchase Acquisition Acquisition Acquisition Merger Acquisition Acquisition Current assets $47 $1,041 $3,887 $381 $12,904 $505 $14,320 Property, plant and equipment 169 150 2,045 80 7,374 82 21,427 Intangibles and other assets 4,577 1,493 24 2,023 35,777 380 40,692 Liabilities assumed (293) (965) (1,273) (356) (11,005) (119) (17,078) ------ ------ ------ ------ ------- ---- ------- Purchase price, net of acquired cash $4,500 $1,719 $4,683 $2,128 $45,050 $848 $59,361 ====== ====== ====== ====== ======= ==== =======
The following unaudited first quarter of 1999 pro forma financial information shows the results of operations as though the Products Acquisition occurred as of January 1, 1999. These results include, but are not limited to, the straight- line amortization of excess purchase price over the net assets acquired over a thirty-year period and an increase in interest expense as a result of the debt borrowed to finance the transactions.
Three Months ended March 31, 1999 -------------- Net sales $49,099 Operating income 4,766 Net loss (200)
The unaudited pro forma financial information presented above does not purport to be indicative of either (i) the results of operations had the Products Acquisition taken place on January 1, 1999 or (ii) future results of operations of the combined businesses. Joint Ventures In January 1999, the Company formed a joint venture, Shanghai CII Electronics Co. Ltd. with Shanghai CI Electric Appliance Co. Ltd (the "Chinese Joint Venture"). Each party holds 50% of the shares of the new company. The Company accounts for the Chinese Joint Venture using the equity method. The Chinese Joint Venture is a manufacturer and marketer of relays, filters and sub- assemblies. The Company's initial investment was approximately $144. The Chinese Joint Venture began production in March 1999. The investment in the Chinese Joint Venture at December 31, 1999 and March 31, 2000 was $164 and $166, respectively. In November 1995, the Company formed a joint venture in India with Guardian Controls Ltd., an Indian Company, a bank and certain financial investors. The Company has a 40% interest in the joint venture which was formed for the purpose of manufacturing relays, relay components, and sub-assemblies in India for the domestic Indian market and global markets. The Company accounts for the Indian joint venture using the equity method. The joint venture started production during the fourth quarter of 1996. The investment in the joint venture at December 31, 1999 and March 31, 2000 was $116 and $114, respectively. 3. Inventories Components of inventory are as follows:
March 31, December 31, 2000 1999 ---- ---- Finished goods $6,967 $7,446 Work-in-process 9,769 8,715 Raw materials and supplies 17,295 18,168 Reserve for obsolescence (6,510) (6,831) ------- ------- Total $27,521 $27,498 ======= =======
4. Long-Term Debt On June 19, 1998, the Company retired the Old Senior Credit Facility and borrowed approximately $48.1 million pursuant to a 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"). On March 19, 1999 the Company was issued a Tranche B Term Loan of $55.0 million as an amendment to the Senior Credit Facility. The Company's long-term debt at March 31, 2000 consists primarily of the $95.0 million Notes and revolving loans of $12.5 million and term loans of $80.6 million under the Senior Credit Facility. The Company and its wholly owned subsidiaries, Kilovac, Kilovac International, Inc., Corcom, Inc., Products Unlimited Corporation, Marc Industries, Inc., SOL Industries, Inc., and GW Industries, Inc. have guaranteed the Notes on a full, unconditional, and joint and several basis, which guarantees are fully secured by the assets of such guarantors. CII Technologies, Inc. (formerly known as Communications Instruments, Inc.), its wholly owned subsidiaries, including Kilovac, Kilovac International, Inc., Corcom, Inc., Products Unlimited Corporation, Marc Industries, Inc., SOL Industries, Inc., GW Industries, Inc. and the Parent have guaranteed the Senior Credit Facility on a full, unconditional, and joint and several basis which guarantees are fully secured by the assets of such guarantors. Interest on the 10% Senior Subordinated Notes is payable semi-annually in arrears on March 15 and September 15 of each year. 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, with the net cash proceeds of an Equity Offering (as defined in the Indenture), 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, provided that not less than $63.4 million 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 $115.0 million limited by outstanding indebtedness under the initial $90.0 million term loan agreements (as amended) 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%. At March 31, 2000, LIBOR borrowing rates ranged from 8.4375% to 9.8125%. At March 31, 2000, the base rate-borrowing rate was 10.75%. The weighted average borrowing rate, calculated based on borrowings outstanding at March 31, 1999 and March 31, 2000 under base rate and LIBOR loans was 8.03% and 9.29%, respectively. The Senior Credit Facility provides a line of credit of $25.0 million due on June 19, 2003, a Tranche A term loan with a remaining balance of $26.6 million due in full by June 19, 2003, and a Tranche B Term Loan of $54.0 million due in full by March 15, 2004. The Tranche A term loan is payable as follows: $4.9 million remaining in 2000, $7.8 million in 2001, $9.3 million in 2002, $4.6 million in 2003. The Tranche B term loan is payable as follows: $413 remaining in 2000, $550 in 2001, $550 in 2002, $26.7 million in 2003 and $25.8 million in 2004. The terms of the Senior Credit Facility and the Indenture place certain 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 has a Mandatory prepayment clause based upon a calculation of excess cash flow (as defined in the Senior Credit Facility). The first excess cash payment was made on March 30, 2000 in the amount of $850. The Senior Credit Facility also contains financial covenants including interest coverage ratios, leverage ratios, limitations on capital expenditures and minimum levels of earnings before interest, taxes, depreciation and amortization, as defined by the Senior Credit Facility. As of March 31, 2000, 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 were $100 at March 31, 2000 and December 31, 1999. 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 March 31, 2000, the Company had available unused borrowing capacity of approximately $12.4 million under the Senior Credit Facility. 5. 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 or in the aggregate, will not have a material adverse effect on the financial condition, results of operations or cash flows of the Company. Environmental Remediation - The Company has been notified by the State of North Carolina Department of Environment, Health & Natural Resources ("NCDHNR") that its manufacturing facility in Fairview, North Carolina has sites containing hazardous wastes resulting from activities by a prior owner (the "Prior Owner"). Additionally, the Company has been identified as a potentially responsible party for remediation at two superfund sites which formerly were used by hazardous waste disposal companies employed by the Company. Several areas of soil and groundwater contamination had been noted at the Fairview facility, the most serious of which is TCE contamination in the groundwater. Remedial investigations have been undertaken at the facility and the NCDHNR has placed the facility on the Inactive Hazardous Sites Inventory. Soil remediation was completed in January 1996 and the groundwater remediation system was formally set in operation on April 1, 1997. In the acquisition agreement of the Predecessor Company, the Company obtained indemnity from the selling shareholders for any environmental clean up costs as a result of existing conditions which would not be paid by the Prior Owner. The indemnity was limited to the extent of amounts owed to the selling shareholders through the subordinated note. On May 11, 1995, the Company reached a settlement with the Prior Owner. In accordance with the Settlement Agreement, the Prior Owner has placed $1.75 million in escrow to fund further investigation, the remediation of contaminated soils and the installation and start-up of a groundwater remediation system at the Fairview facility. The Company is responsible for investigation, soil remediation and start-up costs in excess of the escrowed amount, if any. The Settlement Agreement further provides that after the groundwater remediation system has been operating at 90% of its intended capacity for three years, the Company will provide to the Prior Owner an estimate of the then present value of the cost to continue operating and maintaining the system for an additional 27 years. After receiving the estimate, the Prior Owner is to deposit with the escrow agent an additional sum equal to 90% of the estimate, up to a maximum of $1.25 million, unless it provides a substantially lower estimate. In that case, any substantial differences are to be resolved through negotiation or expedited arbitration. The Company has reflected the present value of the receivable, discounted at 5% ($1.25 million at December 31, 1999 and March 31, 2000, respectively) and the escrowed cash as restricted assets. In October, 1995, the Company released the selling shareholders from their indemnity obligation. The environmental remediation liability is recorded at the present value, discounted at 5%, of the best estimate of the cash flows to remediate and monitor the remediation over the estimated thirty-year remediation period, which was developed by a third party environmental consultant based on experience with similar remediation projects and methods and taking inflation into consideration. Total amounts estimated to be paid related to environmental liabilities are approximately $3.6 million calculated as follows at March 31, 2000: 2000 $ 130 2001 130 2002 130 2003 130 2004 130 Thereafter 2,990 ------ 3,640 Discount to present value -1,687 ------ Liability at present value $1,953 ====== Assets recorded in relation to the above environmental liabilities are approximately $1.48 million at December 31, 1999 and March 31, 2000, respectively. In connection with the Company's purchase of certain assets and certain liabilities of Hartman Electrical Manufacturing ("Hartman"), a division of Figgie International, Inc. ("Figgie") (the "Hartman Acquisition"), the Company entered into an agreement pursuant to which it leased from a wholly-owned subsidiary of Figgie a manufacturing facility in Mansfield, Ohio, (the "Mansfield Property") at which Hartman has conducted operations (the "Lease"). The Mansfield Property may contain contamination at levels that will require further investigation and may require soil and/or groundwater remediation. The Company may become subject to liability for remediation of such contamination at and/or from such property, which liability may be joint and several except under certain circumstances. The Lease included an indemnity by the Lessor to the Company, guaranteed by Figgie, for certain environmental liabilities in connection with the Mansfield Property, subject to a dollar limitation of $12.0 million (the "Indemnification Cap"). In addition, in connection with the Hartman Acquisition, Figgie had placed $515 in escrow for environmental remediation costs at the Mansfield Property to be credited towards the Indemnification Cap as provided in the lease (the "Escrowed Funds"). During January 2000, the Company entered into an agreement with the former owners of the Mansfield Property in which the Company purchased the property and certain equipment and released $515 of funds contributed by the former owners of Hartman and held in escrow from the date the Company acquired Hartman. This agreement followed the decision by the former owner's registered environmental consultant that no further environmental remediation was needed at the property as long as the property was restricted to industrial usage. The agreement reduces the indemnity cap to $1.0 million over nine years if the former owner does not seek and obtain a covenant not to sue from the Ohio EPA relating to the site and reduces the cap to zero over ten years if the former owner obtains a covenant not to sue relating to the site from the Ohio EPA. In either event, the agreement leaves in place the Company's right to seek contribution or indemnity under common law or statute from the former owners for environmental issues and requires the former owners to complete some soil cleanup actions within six months of closing. The transaction was closed on January 7, 2000. The Company believes that remediation costs will not exceed the Indemnification Cap. If such costs exceed the Cap and the Company is unable to obtain, or is delayed in obtaining indemnification or contribution for any reason, the Company could be materially and adversely affected. The Company does not maintain environmental impairment liability insurance. 6. Segment Disclosure The Company has five business units which have separate management teams and infrastructures that offer electronic products. These business units have been aggregated into two reportable segments that are managed separately because each operating segment represents a strategic business platform that offers different products and serves different markets. The Company's two reportable operating segments are: (i) the High Performance Group ("HPG") and (ii) the Specialized Industrial Group ("SIG"). HPG includes the Communications Instruments Division, Kilovac and Hartman. Products manufactured by HPG include high performance signal level relays and power relays, high voltage and power switching relays, solenoids and other electronic products. SIG includes Corcom, Products and the Midtex Brand. The SIG group manufactures RFI filters, general purpose relays, transformers and definite purpose contactors. The accounting policies of the operating segments are the same as those of the Company. Intersegment sales, which are eliminated in consolidation, are recorded at standard cost. In evaluating financial performance, management focuses on operating income as a segment's measure of profit or loss. Operating income is before interest expense, interest income, other income and expense, income taxes and extraordinary items. Financial information for the Company's operating segments and a reconciliation of reportable segment net sales, operating income, and assets to the Company's consolidated totals are as follows:
Three Months Ended March 31, 2000 1999 ----- ---- Net sales: High Performance Group $ 19,251 $ 20,319 Specialized Industrial Group 29,131 13,706 Intersegment elimination (1) (208) (173) -------- -------- Consolidated net sales $ 48,174 $ 33,852 ======== ======== Operating income: High Performance Group $ 2,877 $ 2,596 Specialized Industrial Group 1,862 1,141 Corporate (847) (796) -------- -------- Consolidated operating income 3,892 2,941 -------- -------- Interest expense (4,859) (3,645) Other income (expense), net 2 (10) -------- -------- Consolidated loss before income taxes $ (965) $ (714) ======== ======== Depreciation and amortization expense: High Performance Group $ 1,255 $ 1,196 Specialized Industrial Group 2,282 1,021 Corporate 3 - -------- -------- 3,540 2,217 Amortization of debt issuance costs (2) 279 207 -------- -------- Consolidated depreciation and amortization expense $ 3,819 $ 2,424 ======== ======== Purchases of property, plant and equipment: High Performance Group $ 686 $ 436 Specialized Industrial Group 432 220 Corporate 10 - -------- -------- Consolidated capital expenditures $ 1,128 $ 656 ======== ======== March 31, December 31, 2000 1999 -------- -------- Assets: High Performance Group $ 60,538 $ 59,769 Specialized Industrial Group 129,547 128,787 Corporate 5,367 11,469 -------- -------- Consolidated assets $195,452 $200,025 ======== ========
(1) - represents net sales between HPG and SIG (2) - included on the consolidated statements of cash flows as depreciation and amortization and included in the consolidated statement of operations as interest expense. Management does not consider these costs in managing the operations of the reportable segments 7. New Accounting Pronouncements The Financial Accounting Standards Board issued SFAS No. 133, as amended by SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities, effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The new standard establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Company has not determined at this time what impact, if any, that this new accounting standard will have on its financial statements. 8. Subsequent Event On April 13, 2000, the Company announced the relocation of its Midtex Product Lines from its Juarez, Mexico facility. These product lines will be merged into existing Company divisions and Joint Ventures facilities. The relocations are planned to begin in 2000. The estimated costs of the product line relocations, including employee separation costs and preparing current facilities for the relocation, are approximately $850. Management expects substantially all of these costs to be expensed during the second quarter of 2000. Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Introduction Some of the matters discussed below and elsewhere herein contain forward-looking statements regarding the future performance of the Company and future events. These matters involve risks and uncertainties that could cause actual results to differ materially from the statements contained herein. 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, 1999 on Form 10-K. Overview On April 13, 2000, the Company announced the relocation of its Midtex Product Lines from its Juarez, Mexico facility. These product lines will be merged into existing Company divisions and Joint Ventures facilities. The relocations are planned to begin in 2000. The estimated costs of the product line relocations, including employee separation costs and preparing current facilities for the relocation, are approximately $850. Management expects substantially all of these costs to be expensed during the second quarter of 2000. In March 1999, the Company purchased all of the outstanding equity securities of Products, a manufacturer and marketer of relays, transformers, and contactors primarily for the HVAC industry. Pursuant to the Stock Purchase Agreement, the Company paid approximately $59.4 million for all of the outstanding capital stock of Products. In addition, if Products achieves certain sales targets for the years ending December 31, 1999 and December 31, 2000, the Company will make additional payments to the former shareholders of Products not to exceed $4.0 million in the aggregate. For the year ended December 31, 1999, the Company accrued approximately $786,000 in accordance with the terms of the agreement which was then paid in February 2000. For the year ending December 31, 2000, the Company could be required to make an additional payment not to exceed approximately $3.2 million. The payment of the purchase price and related fees was financed by the issuance of $55.0 million of Tranche Term B loans, in accordance with an amendment to the Senior Credit Facility (as defined), the contribution of $5.0 million in additional paid in capital by the Parent, and a draw on the revolving loan portion of the Company's Senior Credit Facility (as defined). Products has manufacturing facilities in Sterling and Prophetstown, Illinois and Sabula and Guttenberg, Iowa. In July 1998, the Company purchased certain assets and assumed certain liabilities of Cornell Dublier'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 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 (the "Old Senior Credit Facility") 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 approximately $2.1 million (the "Wilmar Acquisition"). Wilmar was consolidated into the Kilovac Subsidiary in June 1998. The Wilmar Acquisition was financed with a draw on the Company's Old Senior Credit Facility. In December 1997, the Company purchased certain assets and assumed certain liabilities of Genicom Relays Division ("GRD") of Genicom Corporation ("Genicom") for $4.7 million (the "GRD Acquisition"). The Company financed the GRD Acquisition with funds borrowed on the Old Senior Credit Facility. Under the terms of the purchase agreement with Genicom, the Company was entitled to recover up to $500,000 for inventory unsold or unused during the two years following the acquisition. In December 1999, the Company submitted a claim against Genicom for $500,000. In March 2000, Genicom filed a Chapter 11 bankruptcy petition in Federal Bankruptcy Court. As a result, the Company recorded a valuation reserve of $500,000 against this receivable in 1999. 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 was payable on October 31, 1999. The Company financed the $1.3 million paid at closing with funds borrowed on the Old Senior Credit Facility. In September 1999, the Company and the sellers agreed to adjust the purchase price of ibex and reduce the note payable by $400,000. The remaining balance of $450,000 was paid by the Company in September, 1999. The reduction in purchase price resulted in a reduction of goodwill. 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 unaudited 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 sales growth or operating results will continue in the future.
Three Months Ended March 31 ------------------- 2000 1999 ----- ----- Net sales 100.0% 100.0% Cost of sales 74.9% 71.9% Gross profit 25.1% 28.1% Selling expenses 6.9% 8.3% General and administrative expenses 6.6% 7.8% Research and development expenses 0.9% 1.1% Amortization of goodwill and other intangibles 2.6% 2.2% Operating income 8.1% 8.7%
Discussion of Consolidated Results of Operations Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999 Net sales of the Company for the quarter ended March 31, 2000, increased $14.3 million, or 42.3%, to $48.2 million from $33.9 million for the corresponding period in 1999. Excluding the effect of the Products Acquisition, net sales of the Company for the quarter ended March 31, 2000, increased $570,000, or 1.8%, to $32.3 million from $31.7 million for the corresponding period in 1999. This increase is due primarily to (i) a strong automatic test equipment market, (ii) a recovering military/defense market, (iii) a strong communications market, and (iv) growth in the industrial equipment market partially offset by (v) continued price pressure in an increasingly competitive global market place (vi) an expected slow down in the commercial airframe market and (vii) a slower than expected ramp up of production to meet customer demand. Gross profit of the Company for the quarter ended March 31, 2000, increased $2.6 million, or 27.0%, to $12.1 million from $9.5 million for the corresponding period in 1999. Gross profit as a percentage of net sales decreased to 25.1% from 28.1% for the same period in 1999. Excluding the effect of the Products Acquisition, gross profit of the Company for the quarter ended March 31, 2000, increased $380,000, or 4.2%, to $9.5 million from $9.1 million for the corresponding period in 1999. Excluding the effect of the Products Acquisition, gross profit as a percentage of net sales increased to 29.5% from 28.8% for the corresponding period in 1999. The increase in gross margin as a percentage of net sales is due primarily to (i) cost incurred in the quarter ended March 31, 1999 of approximately $250,000 for a portion of the costs of relocating the Waynesboro, VA facility, (ii) lower overhead costs in 2000 due to the relocation of the Waynesboro, VA facility, (iii) higher sales volume and (iv) continued cost reductions partially offset by (v) continued price pressure in an increasingly competitive global market place (vi) unfavorable foreign exchange rates and (vii) costs associated with a slower than expected ramp up of production to meet higher customer demand. Selling expenses for the Company for the quarter ended March 31, 2000, increased $537,000, or 19.1%, to $3.3 million from $2.8 million for the same corresponding period in 1999. Selling expenses as a percentage of net sales decreased to 6.9% from 8.3% in the same period in 1999. Excluding the effect of the Products Acquisition, selling expenses for the Company for the quarter ended March 31, 2000, increased $1,000 to $2.7 million. Excluding the effect of the Products Acquisition, selling expenses as a percentage of net sales decreased to 8.4% from 8.6% for the same period in 1999. This decrease in selling expenses as a percentage of net sales is due primarily to a restructuring of commissions and the control of fixed costs. General and administrative expenses for the Company for the quarter ended March 31, 2000, increased $533,000, or 20.2%, to $3.2 million from $2.6 million in 1999. General and administrative expenses as a percentage of net sales decreased to 6.6% from 7.8% for the corresponding period in 1999. Excluding the effect of the Products Acquisition, general and administrative expenses for the Company for the quarter ended March 31, 2000 increased $38,000, or 1.5%. Excluding the effect of the Products Acquisition, general and administrative expenses as a percentage of net sales remained the same at 8.2% for the corresponding period in 1999. Research and development expenses for the Company for the quarter ended March 31, 2000, increased $73,000, or 19.0%, to $457,000 from $384,000 for the corresponding period in 1999. Excluding the effect of the Products Acquisition, research and development expenses for the quarter ended March 31, 2000, decreased $7,000, or 1.9%, to $371,000 from $378,000 for the corresponding period in 1999. Amortization of goodwill and other intangibles for the Company for the quarter ended March 31, 2000, increased $478,000, or 63.3%, to $1.2 million from $755,000 for the corresponding period in 1999. Excluding the effect of the Products Acquisition, amortization of goodwill and other intangibles for the Company for the quarter ended March 31, 2000, decreased $2,000, or 0.3%, to $672,000 from $674,000 for the corresponding period in 1999. Interest expense of the Company for the three months ended March 31, 2000, increased $1.2 million, or 33.3%, to $4.9 million from $3.6 million for the corresponding period in 1999. The increase was due primarily to the increased debt levels associated with financing the Products Acquisition and an increase in interest rates partially offset by lower debt. The income tax benefit of the Company for the three months ended March 31, 2000 was 16.5% of loss before income taxes as compared to 19.5% of loss before income taxes for the corresponding period in 1999. The decreased benefit percentage is due primarily to the goodwill amortization not deductible for tax purposes of the Products Acquisition. Segment Discussion Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999 High Performance Group Net sales of HPG decreased by $1.1 million, or 5.3%, to $19.3 million from $20.3 million for the corresponding period in 1999. This decrease is due primarily to (i) a slower than expected ramp up of production to meet customer demand driven by a strong automatic test market, and a recovering military/defense market, (ii) an expected slow down in the commercial airframe market and (iii) continued price pressure in an increasingly competitive global market place. Operating income of HPG increased $281,000, or 10.8%, to $2.9 million from $2.6 million for the same period in 1999. Operating income of HPG as a percentage of net sales of HPG increased to 14.9% from 12.8% for the same period in 1999. The increase in operating income as a percentage of net sales is due primarily to (i) a charge in the quarter ended March 31, 1999 of approximately $300,000 for a portion of the costs of relocating the Waynesboro, VA facility, (ii) lower overhead costs in 2000 due to the relocation of the Waynesboro, VA facility, (iii) higher sales volume in some of the product lines, (iv) control of fixed costs, (v) continued cost reductions partially offset by (vi) continued price pressure in an increasingly competitive global marketplace and (vii) costs associated with a slower than expected ramp up of production to meet customer demands. Specialized Industrial Group Net sales of SIG increased $15.4 million, or 112.5%, to $29.1 million from $13.7 million for the same period in 1999. Excluding the effect of the Products Acquisition, net sales of SIG increased $1.7 million, or 14.8%, to $13.2 million from $11.5 million for the same period in 1999. This increase is due primarily to (i) a strong communications market, and (ii) growth in the industrial market partially offset by (iii) continued price pressure in an increasingly competitive global marketplace. Operating income of SIG increased $721,000, or 63.2%, to $1.9 million from $1.1 million for the same period in 1999. Operating income of SIG as a percentage of SIG net sales decreased to 6.4% from 8.3% for the same period in 1999. Excluding the effect of the Products Acquisition, operating income of SIG increased $229,000 or 23.8%, to $1.2 million from $964,000 for the corresponding period in 1999. Excluding the effect of the Products Acquisition, operating income of SIG as a percentage of SIG net sales increased to 9.0% from 8.3% for the same period in 1999. This increase in operating income as a percentage of net sales is due primarily to (i) higher sales volumes, (ii) continued cost reductions, and (iii) control of fixed costs partially offset by (iv) continued price pressure in an increasingly competitive global marketplace and (v) unfavorable foreign exchange rates. 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, business, and other factors, including factors beyond the Company's control. At March 31, 2000, the Company had available unused borrowing capacity of approximately $12.4 million under the Senior Credit Facility. The Company expects that capital expenditures for the remainder of fiscal 2000 will be approximately $3.8 million. Cash Used in Operating Activities For the three months ended March 31, 2000, cash used in operating activities was $1.2 million, compared to $1.1 million for the same period in 1999. The increase in cash used in operations was primarily due to (i) an increase in accounts receivable due to higher revenues in the first quarter of 2000 as compared to the fourth quarter of 1999 at comparable days' sales outstanding, (ii) a slight increase in inventory, (iii) higher interest expense due to increased interest rates partially, offset by an increase in accounts payable. The days' sales outstanding for accounts receivable was approximately 47.0 trade days at December 31, 1999 and approximately 47.3 at March 31, 2000. The Company continually focuses on increasing its collection efforts. The Company's inventories of $27.5 million remained substantially the same from December 31, 1999 to March 31, 2000. Inventory turns were 5.3 at March 31, 2000 and 4.6 at December 31, 1999. The Company continues to focus on improving its inventory management. The Company's accounts payable increased from $13.1 million at December 31, 1999 to $14.7 million at March 31, 2000. Cash Used in Investing Activities Capital expenditures were $1.1 million for the three months ended March 31, 2000 and $656,000 million for the corresponding period in 1999. Of this increase in capital expenditures, approximately $230,000 is attributable to Products. Acquisition spending totaled $786,000 for the three months ended March 31, 2000 and $60.1 million for the three months ended March 31, 1999 due to the Products Acquisition. Cash Flows from Financing Activities Cash used in financing activities for the three months ended March 31, 2000 was $2.7 million compared to cash provided by financing activities of $61.7 million for the same period in 1999. This decrease is due primarily to financing the Products Acquisition through additional borrowings under the amended Senior Credit Facility as well as additional paid-in capital from the Parent in 1999. 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, non cash charges resulting from the Parent Stock options granted, 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. Adjusted EBITDA increased to $7.5 million for the three months ended March 31, 2000 from $5.2 million for the corresponding period in 1999. Adjusted EBITDA increased due to the inclusion of Products for the entire quarter of 2000. EBITDA was also impacted by (i) costs in 1999 due to the relocation of the Waynesboro, VA facility, (ii) higher sales volume, (iii) continued costs reductions and (iv) control of fixed costs, partially offset by (v) continued price pressure in an increasingly competitive global marketplace, (vi) unfavorable exchange rates and (vii) costs associated with a slower than expected ramp up of production to meet customer demand. Inflation The Company does not believe inflation had any material effect on the Company's business during 1997 and 1998. However, the Company does believe that inflation began to have an unfavorable impact on the Company's business during 1999 due to a tighter U. S. labor market which the Company believes has caused labor costs to increase at a higher percentage level than in previous 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. Item 3: Quantitative and Qualitative Disclosures about Market Risk The Company is exposed to market risks from changes in interest rates and foreign currency exchange rates which may adversely affect its results of operations and financial condition. The Company seeks to minimize these risks through its regular operating and financing activities. The Company engages in neither speculative nor derivative financial or trading activities Interest Rate Risk The Company has exposure to interest rate risk related to certain instruments entered into for other than trading purposes. Specifically, the Company has in place the Senior Credit Facility, which consists of two term loans, Tranche A with a balance of $26.6 million at March 31, 2000, Tranche B with a balance of $54.0 million at March 31, 2000 and $12.5 million outstanding on the Revolving Credit Facility which bears interest at variable rates. Borrowings under the Senior Credit Facility bear interest based on the Lenders' Reference Rate (as defined in the credit agreement) or Eurodollar Rate plus an applicable margin. While changes in the Reference Rate or the Eurodollar Rate could affect the cost of funds borrowed in the near future, only $12.0 million of the Revolving Credit Facility at March 31, 2000 was carried at a variable rate, with the remainder of the Senior Credit Facility on short term fixed rates. The Company, therefore, believes the effect, if any, of reasonable possible near-term changes in interest rates on the Company's consolidated financial position, results of operations and cash flows would not be material. In September 1997, the Company consummated an offering of $95,000,000 aggregate principal amount of 10% Senior Subordinated Notes (the "Notes:), due 2004, (the "Offering"). Interest on the Notes is payable semi-annually in arrears on March 15 and September 15 of each year. 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 redemption. In addition, at any time prior to September 15, 2000, the Company may, at its option, with the net cash proceeds of an equity offering (as defined in the Indenture), 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, provided that not less than $63.4 million aggregate principal amount of the Notes remains outstanding immediately after the occurrence of such redemption. The Company's Notes are at a fixed interest rate of 10%. As a result, a change in the fixed rate interest market would change the estimated fair market value of its fixed rate long term bond debt. The Company believes that a 10% change in the long term interest rates would not have a material effect on the Company's financial conditions, results of operations or cash flows. While the Company historically has not used interest rate swaps, it may, in the future, use interest rate swaps to assist in managing the Company's overall borrowing costs and reduce exposure to adverse fluctuations in interest rates. Foreign Currency Exchange Risk The Company has seven foreign subsidiaries or divisions, located in Mexico, Germany, Jamaica, Barbados and Hong Kong as well as Joint Ventures in India and China. The Company generates about 18% of its net sales from customers located outside the United States. The Company's ability to sell its products in these foreign markets may be affected by changes in economic, political or market conditions in the foreign markets in which it does business. The Company experiences foreign currency translations gains and losses, which are reflected in the Company's consolidated statement of operations and comprehensive loss, due to the strengthening and weakening of the US dollar against the currencies of the Company's foreign subsidiaries or divisions and the resulting effect on the valuation of the intercompany accounts and certain assets of the subsidiaries which are denominated in US dollars. The net loss resulting from foreign currency translations was $52,000 in the three months ended March 31, 2000 compared to $83,000 in the comparable period of 1999. The Company anticipates that it will continue to have exchange gains or loss from foreign operations in the future. 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-K See Index of Exhibits. The Company did not file any current reports on Form 8-K for the quarterly period ended March 31, 2000. SIGNATURES CII Technologies, Inc. (formerly known as Communications Instruments, Inc.) May 12, 2000 /s/ Michael A. Steinback - ------------- ------------------------------------------ Date Michael A. Steinback President and Chief Executive Officer May 12, 2000 /s/ Richard L. Heggelund - ------------- ------------------------------------------ Date Richard L. Heggelund Vice President and Chief Financial Officer INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - -------------------------------------------------------------------------------------------------------------- 2.1+ Agreement and Plan of Merger, dated as of March 10, 1998, by and among the Company, RF Acquisition Corp. and Corcom, Inc. is incorporated herein by reference to Report on Form 8-K (File Number 333-38209). 3.1 Articles of Incorporation of the Company is incorporated herein by reference to Registration Statement on Form S-4 (File Number 333-38209) 3.2 By-laws of the Company is incorporated herein by reference to Registration Statement on Form S-4 (File Number 333-38209) 3.3 Articles of Amendment of the Company 4.1 Indenture dated as of September 18, 1997 by and among the Company, Kilovac, Kilovac International and Norwest Bank Minnesota, National Association, is incorporated herein by reference to Registration Statement on Form S-4 (File Number 333-38209) 4.2 Purchase Agreement dated as of September 12, 1997 between the Company, Kilovac and Kilovac International and BancAmerica Securities, Inc. and Salomon Brothers, Inc., is incorporated herein by reference to Registration Statement on Form S-4 (File Number 333-38209) 4.3 Registration Rights Agreement dated as of September 18, 1997 between the Company, Kilovac and Kilovac International and BancAmerica Securities, Inc. and Salomon Brothers, Inc., is incorporated herein by reference to Registration Statement on Forms S-4 (File number 333-38209) 4.4 Supplemental Indenture, dated as of June 18, 1998 between Corcom, Inc. and Norwest Bank Minnesota, National Association is incorporated herein by reference to Report on Form 10-K (File Number 333-38209) 10.1 Employment Agreement dated as of May, 1993 between the Company and Ramzi A. Dabbagh is incorporated herein by reference to Registration Statement on Form S-4 (File Number 333-38209) 10.2 Employment Agreement dated as of May, 1993 between the Company and G. Dan Taylor is incorporated herein by reference to Registration Statement on Form S-2 (File Number 333-38209)
10.3 Employment agreement dated as of May, 1993 between the Company and Michael A. Steinback is incorporated herein by reference to Registration Statement on Form S-4 (File Number 333-38209) 10.4 Employment Agreement dated as of January 7, 1994 between the Company and David Henning is incorporated herein by reference to Registration Statement on Form S-4 (File Number 333-38209) 10.5 Management Agreement, dated as of September 18, 1997 among the Company, parent and CHS Management III, L.P. is incorporated by reference to Registration Statement on Form S-4 (File Number 333-38209) 10.6 Tax Sharing Agreement dated as of September 18, 1997 between the Company, Parent, Kilovac International and Kilovac International FSC Ltd. is incorporated herein by reference to Registration Statement on Form S-4 (File Number 333-38209) 10.7+ Credit Agreement dated as of September 18, 1997 between the Company, Parent, various banks, Bank of America National Trust and Savings Association and BancAmerica Securities, Inc., is incorporated herein by reference to Registration Statement on Forms S-4 (File Number 333-38209) 10.8 Pledge Agreements dated as of September 18, 1997 by parent, the Company, Kilovac and Kilovac International in favor of Bank of America Trust and Savings Association, is incorporated herein by reference to Registration Statement on Form S-4 (File Number 333-38209) 10.9 Subsidiary Guarantee dated as of September 18, 1997 by Kilovac and Kilovac International in favor of Bank of America National Trust and Savings Association, is incorporated herein by reference to Registration Statement on Form S-4 (File Number 333-38209) 10.10 Security Agreement dated as of September 18, 1997 among Parent, the Company, Kilovac and Kilovac International in favor of Bank of America National Trust and Savings Association is incorporated herein by reference to Registration Statement on Form S-4 (File Number 333-3820) 10.11 Stock Subscription and Purchase Agreement dated as of September 20, 1995, by and among the Company, Kilovac and the stockholders and optionholders of Kilovac name therein, is incorporated herein by reference to Registration Statement on Form S-4 (File Number 333-38209) 10.12+ Asset Purchase Agreement dated as of June 27, 1996 between the Company and Figgie International Inc., is incorporated herein by reference to Registration Statement on Form S-4
(File Number 333-38209) 10.13 Environmental Remediation and Escrow Agreement, dated as of July 2, 1996, is incorporated herein by reference to Registration Statement on Form S-4 (File Number 333-38209) 10.14 Lease Agreement dated as of July 2, 1996 by and between Figgie Properties, Inc. and Communications Instruments, Inc. d/b/a Hartman Division of CII Technologies Inc. is incorporated herein by reference to Registration Statement on Form S-4 (File Number 333-38209) 10.15 Second Amendment to Stock Subscription and Purchase Agreement dated as of August 26, 1996, by and among the Company, Kilovac and certain selling stockholders, is incorporated herein by reference to Registration Statement on Form S-4 (File Number 333-38209) 10.16+ Recapitalization Agreement dated as of August 6, 1997 and among Parent, certain investors and certain selling stockholders, is incorporated herein by reference to Registration Statement on Form S-4 (File Number 333-38209) 10.17 Amendment to the Recapitalization Agreement dated as of September 18, 1997 by and among Parent, certain investors and certain selling stockholders, is incorporated herein by reference to Registration Statement on Form S-4 (File Number 333-38209) 10.18 Indemnification and Escrow Agreement dated as of September 18, 1997 by and among Parent, certain investors, certain selling stockholders and American National Bank and Trust Company of Chicago, is incorporated herein by reference to Registration Statement on Form S-4 (File Number 333-38209) 10.19 Stockholders Agreement dated September 18, 1997 by and among Parent and certain of its stockholders, is incorporated herein by reference to Registration Statement on Form S-4 (File Number 333-38209) 10.20 Registration Agreement dated as of September 18, 1997 by and among Parent and certain of its stockholders is incorporated by reference to Registration Statement on Form S-4 (File Number 333-38209) 10.21 Form of Junior Subordinated Promissory Note of Parent is incorporated herein by reference to Registration Statement on Form S-4 (File Number 333-38209) 10.22 Employment Agreement dated as of October 11, 1995 between Kilovac and Dan McAllister is incorporated herein by reference to Registration Statement on Form S-4 (File Number 333-38209)
10.23 Employment Agreement dated as of October 11, 1995 between Kilovac and Pat McPherson is incorporated herein by reference to Registration Statement on Form S-4 (File Number 333-38209) 10.24 Employment Agreement dated as of October 11, 1997 between Kilovac and Rick Danchuk is incorporated herein by reference to Registration Statement on Form S-4 (File Number 333-38209) 10.25 Employment Agreement dated as of October 11, 1997 between Kilovac and Robert A. Helman is incorporated herein by reference to Registration Statement on Form S-4 (File Number 333-38209) 10.26 Asset Purchase Agreement dated as of November 30, 1997 by and between the Company and Genicom Corporation is incorporated by reference to Report on Form 8-K (File number 333-38209) 10.27+ Stock Purchase Agreement dated as of October 31, 1997 by and between the Company and Societe Financiere D'Investissements Dans L'Equipement et la Construction Electrique, S.A., the sole stockholder of IBEX Aerospace Technologies, Inc. is incorporated herein by reference to Report on Form 10-K (File Number 333-38209) 10.28+ Asset Purchase Agreement dated May 6, 1998, between Kilovac Corporation, Zerubavel Heifetz, Cesar Marestaing and Wilmar Electronics, Inc. is incorporated herein by reference to Report on Form 10-K (File Number 333-38209) 10.29+ Asset Purchase Agreement dated as of July 24, 1998, by and between the Company and Cornell-Dubilier Electronics, Inc. 10.30 Voting Agreement dated as of March 10, 1998, by and among RF Acquisition Corp., Werner E. Neuman and James A. Steinback is incorporated herein by reference to Report on Form 10-K (File Number 333-38209) 10.31+ Credit Agreement dated as of June 19, 1998, among the Company, Parent, Bank of America National Trust and Savings Association and certain other lending institutions from time to time a party thereto is incorporated herein by reference to Report on Form 10-K (File Number 333-38209) 10.32+ Pledge Agreement dated as of June 19, 1998, among Parent, the Company, Kilovac and Kilovac International in favor of Bank of America National Trust and Savings Association is incorporated herein by reference to Report on form 10-K (File Number 333-38209) 10.33+ Subsidiary Guarantee dated as of June 19, 1998 by Kilovac, Kilovac International and Corcom, Inc. in favor of Bank of America National Trust
and Savings Association is incorporated herein by reference to Report on Form 10-K (File Number 333-38209) 10.34+ Security Agreement dated as of June 19, 1998, among Parent, the Company, Kilovac, Kilovac International and Corcom, Inc. in favor of Bank of America National Trust and Savings Association is incorporated herein by reference to Report on Form 10-K (File Number 333-38209) 10.35+ Stock Purchase Agreement dated March 19, 1999, by and among Products Unlimited Corporation, the Stockholders of Products Unlimited Corporation and the Company is incorporated herein by reference to Report on Form 8-K (File Number 333-38209) 10.36+ Amended and restated Credit Agreement among Parent, the Company, various lenders, NationsBank, N.A., as an Issuing Lender and Swingline Lender, and NationsBank, N. A., as the Administrative Agent, is incorporated herein by reference to Report on Form 8-K (File Number 333-38209) 10.37+ Amended and restated Subsidiary Guaranty by certain subsidiaries of the Company in favor of NationsBank, N.A. is incorporated herein by reference to Report on Form 8-K (File Number 333-38209) 10.38+ Amended and restated Security Agreement among Parent, the Company, certain subsidiaries of the Company and Bank of America National Trust and Savings Association, as collateral agent, is incorporated herein by reference to report on Form 8-K (File Number 333-38209) 10.39+ Amended and restated Pledge Agreement by Parent, the Company and certain subsidiaries of the Company in favor of Bank of America National Trust and Savings Association, as collateral agent, is incorporated herein by reference to Report on Form 8-K (File Number 333-38209) 10.40 First Amendment and Waiver to Credit Agreement, among Parent, the Company, various lenders, and Bank of America N. A., as Administrative Agent is incorporated herein by reference to report on Form 10K. (File Number 333-38209). 10.41 Second Amendment to Credit Agreement, among Parent, the Company, various lenders, and Bank of America N. A., as Administrative Agent. 11.1 Statement re-Computation of Per Share Earnings. Not required because the relevant computations can be clearly determined from the material contained in the financial statements included herein. 27 Financial Data Schedule for the three months ended March 31, 2000
+ The Company agrees to furnish supplementally to the Commission a copy of any omitted schedule to such agreement upon the request of the Commission in accordance with Item 601 of Regulation S-K. EX-3.3 2 ARTICLES OF AMENDMENT OF THE COMPANY Exhibit 3.3 606ID: 0323970 Date Filed: 4/11/2000 3:37 PM Elaine F. Marshall North Carolina Secretary of State ARTICLES OF AMENDMENT Pursuant to (S)55-10-06 of the General Statutes of North Carolina, the undersigned corporation hereby submits the following Articles of Amendment for the purpose of amending its Articles of Incorporation: 1. The name of the corporation is: Communications Instruments, Inc. 2. The text of each amendment adopted is as follows: Article FIRST of the Articles of Incorporation shall be amended to read as follows: FIRST: The corporate name for the corporation (hereinafter called the "Corporation") is CII Technologies, Inc. 3. The date of adoption of the amendment was as follows: March 31, 2000 4. The amendment was approved by shareholder action, and such shareholder approval was obtained as required by the North Carolina Business Corporation Act and Chapter 55 of the North Carolina General Statutes. 5. These Articles will be effective upon filing with the North Carolina Secretary of State. This the 6th day of April, 2000. Communication Instruments, Inc. By: /s/ Richard Hegglund ------------------------------------- Printed Name: Richard Hegglund --------------------------- Title: Vice President and Chief Financial Officer ---------------------------------- EX-10.41 3 SECOND AMENDMENT TO CREDIT AGREEMENT EXHIBIT 10.41 ------------- SECOND AMENDMENT TO CREDIT AGREEMENT ------------------------------------ SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of March 3, 2000, among CII TECHNOLOGIES, INC., a Delaware corporation ("Holdings"), COMMUNICATIONS INSTRUMENTS, INC., a North Carolina corporation (the "Borrower"), the lending institutions from time to time party to the Credit Agreement referred to below (the "Lenders"), BANK OF AMERICA, N.A. (as successor to NationsBank, N.A.), as an Issuing Lender and the Swingline Lender, and BANK OF AMERICA, N.A. (as successor to NationsBank, N.A.), as Administrative Agent (in such capacity, the "Administrative Agent"). All capitalized terms used herein and not otherwise defined herein shall have the respective meanings provided such terms in the Credit Agreement referred to below. W I T N E S S E T H : - - - - - - - - - - WHEREAS, Holdings, the Borrower, the Lenders and the Administrative Agent are parties to an Amended and Restated Credit Agreement, dated as of June 19, 1998, and amended and restated as of March 19, 1999 (as amended, modified or supplemented through, but not including, the date hereof, the "Credit Agreement"); and WHEREAS, the parties hereto wish to amend certain provisions of the Credit Agreement as herein provided, subject to and on the terms and conditions set forth herein; NOW, THEREFORE, it is agreed: 1. Section 1.01 of the Credit Agreement is hereby amended by: (i) amending the definition of "Consolidated EBITDA" appearing therein by (a) deleting the word "and" appearing immediately before clause (x)(iv) thereof and (b) inserting the following text immediately after the parenthetical appearing in such clause (x)(iv) but before the comma after such parenthetical: ", and (v) up to $850,000 of costs associated with the relocation of the Borrower's plant currently at Camino Viejo a San Lorenzo #6881, y Rafael Perez Serna, Cd. Juarez, Chih. C.P. 32320"; (ii) deleting the definition of "Excess Cash Flow" appearing therein and inserting in lieu thereof the following new definition of "Excess Cash Flow": "Excess Cash Flow" means, for any period, the remainder of (a) the sum of, without duplication, (i) Consolidated Net Income for such period and (ii) the amount of all non-cash charges included in determining Consolidated Net Income for such period, minus (b) the sum of, without duplication, (i) the amount of all Capital Expenditures made by Holdings and its Subsidiaries during such period (other than Capital Expenditures to the extent financed with equity proceeds, Asset Sale proceeds, insurance proceeds or Indebtedness), (ii) the amount of all Permitted Acquisitions made by Holdings and its Subsidiaries during such period (other than Permitted Acquisitions to the extent financed with equity proceeds, Asset Sale proceeds, insurance proceeds or Indebtedness), (iii) the aggregate amount of permanent principal payments of Indebtedness of Holdings and its Subsidiaries during such period (other than (A) repayments to the extent made with equity proceeds, Asset Sale proceeds, insurance proceeds or Indebtedness and (B) repayments of Loans, provided that repayments of Loans shall be deducted in determining Excess Cash Flow if such repayments were (x) required as a result of a Scheduled Repayment under Section 2.08(c)(i) or (c)(ii) or (y) made as a voluntary prepayment with internally generated funds (but in the case of a voluntary prepayment of Revolving Loans or Swingline Loans only to the extent accompanied by a voluntary reduction to the Aggregate Revolving Commitment)), (iv) any non-cash credits (including from sales of assets and insurance recoveries) included in determining Consolidated Net Income for such period, (v) non-cash charges added back in a previous period pursuant to clause (a)(ii) above to the extent any such charge has become a cash item in the current period, and (vi) the amount of all cash payments made by the Borrower pursuant to Section 2.5 of the Acquisition Agreement during such period."; (iii) inserting the following new definition of Level V in the appropriate alphabetical order therein: "Level V" has the meaning specified in Section 2.09(a)(ii)."; and (iv) deleting in their entirety the definitions of "Adjusted Consolidated Working Capital", "Consolidated Current Assets" and "Consolidated Current Liabilities" appearing therein. 2. Section 2.09 of the Credit Agreement is hereby amended by: (i) deleting the table appearing in clause (a)(ii) thereof in its entirety and inserting in lieu thereof the following new table:
Applicable Margin ----------------- LIBOR Base Rate Consolidated Senior Leverage Ratio is less than 0.50 to 1.00 ("Level I") 1.500% 0.500% Consolidated Senior Leverage
-2- Ratio is less than 1.00 to 1.00 but greater than or equal to 0.50 to 1.00 ("Level II") 2.000% 1.000% Consolidated Senior Leverage Ratio is less than 1.75 to 1.00 but greater than or equal to 1.00 to 1.00 ("Level III") 2.250% 1.250% Consolidated Senior Leverage Ratio is less than 2.50 to 1.00 but greater than or equal to 1.75 to 1.00 ("Level IV") 2.500% 1.500% Consolidated Senior Leverage Ratio is greater than or equal to 2.50 to 1.00 2.750% 1.750% ("Level V")
(ii) deleting the text "Level IV" in each place where it appears in clause (a)(iii) thereof and inserting in lieu thereof in each such place the text "Level V"; and (iii) deleting the percentages "2.250%" and "3.250%" appearing in clause (b) thereof and inserting in lieu thereof the percentages "2.500%" and "3.500%", respectively. 3. Section 2.10 of the Credit Agreement is hereby amended by: (i) inserting the following new row in the table appearing in clause (a) thereof immediately following the last row of such table: "Level V 0.500%"; and (ii) deleting the text "Level IV" in each place where it appears in the provisos to clause (a) thereof and inserting in lieu thereof in each such place the text "Level V". 4. Section 3.08 of the Credit Agreement is hereby amended by: (i) inserting the following new row in the table appearing in clause (a) thereof immediately following the last row of such table: "Level V 2.750%"; and -3- (ii) deleting the text "Level IV" in each place where it appears in the provisos to clause (a) thereof and inserting in lieu thereof in each such place the text "Level V". 5. Section 8.08(a) of the Credit Agreement is hereby amended by deleting the table appearing therein in its entirety and inserting in lieu thereof the following new table: "Fiscal Quarter Ending On Ratio ------------------------- ----- December 31, 1999 1.50:1.00 March 31, 2000 1.50:1.00 June 30, 2000 1.50:1.00 September 30, 2000 1.50:1.00 December 31, 2000 1.60:1.00 March 31, 2001 1.65:1.00 June 30, 2001 1.70:1.00 September 30, 2001 1.75:1.00 December 31, 2001 1.80:1.00 March 31, 2002 1.85:1.00 June 30, 2002 1.90:1.00 September 30, 2002 1.95:1.00 December 31, 2002 2.00:1.00 March 31, 2003 2.00:1.00 June 30, 2003 2.00:1.00 September 30, 2003 2.00:1.00 December 31, 2003 2.00:1.00 March 31, 2004 2.00:1.00". 6. Section 8.08(b) of the Credit Agreement is hereby amended by deleting the table appearing therein in its entirety and inserting in lieu thereof the following new table: "Fiscal Quarter Ending On Ratio ------------------------- ----- December 31, 1999 1.05:1.00 March 31, 2000 1.05:1.00 June 30, 2000 1.05:1.00 September 30, 2000 1.05:1.00 December 31, 2000 1.05:1.00 March 31, 2001 1.10:1.00 June 30, 2001 1.10:1.00 September 30, 2001 1.10:1.00 -4- December 31, 2001 1.10:1.00 March 31, 2002 1.15:1.00 June 30, 2002 1.15:1.00 September 30, 2002 1.15:1.00 December 31, 2002 1.15:1.00 March 31, 2003 1.20:1.00 June 30, 2003 1.20:1.00 September 30, 2003 1.20:1.00 December 31, 2003 1.25:1.00 March 31, 2004 1.25:1.00". 7. Section 8.09 of the Credit Agreement is hereby amended by deleting the table appearing therein in its entirety and inserting in lieu thereof the following new table: "Period Ratio ------ ----- December 31, 1999 through and 5.80:1.00 including March 30, 2000 March 31, 2000 through 6.25:1.00 and including June 29, 2000 June 30, 2000 through 6.00:1.00 and including September 29, 2000 September 30, 2000 through 5.75:1.00 and including December 30, 2000 December 31, 2000 through 5.50:1.00 and including December 30, 2001 December 31, 2001 through 5.00:1.00 and including December 30, 2002 December 31, 2002 through 4.50:1.00 and including December 30, 2003 4.00:1.00". December 31, 2003 and thereafter -5- 8. Section 8.10 of the Credit Agreement is hereby amended by deleting the table appearing therein in its entirety and inserting in lieu thereof the following new table: "Fiscal Quarter Ending On Amount ------------------------ ------ December 31, 1999 $ 30,000,000 March 31, 2000 $ 30,000,000 June 30, 2000 $ 30,000,000 September 30, 2000 $ 30,000,000 December 31, 2000 $ 31,000,000 March 31, 2001 $ 32,000,000 June 30, 2001 $ 32,500,000 September 30, 2001 $ 33,000,000 December 31, 2001 $ 33,500,000 March 31, 2002 $ 34,000,000 June 30, 2002 $ 34,500,000 September 30, 2002 $ 35,000,000 December 31, 2002 $ 35,250,000 March 31, 2003 $ 35,750,000 June 30, 2003 $ 36,000,000 September 30, 2003 $ 36,500,000 December 31, 2003 $ 36,750,000 March 31, 2004 $37,000,000". 9. In order to induce the Lenders to enter into this Amendment, each of Holdings and the Borrower hereby represents and warrants that (i) the representations and warranties contained in the Credit Agreement are true and correct in all material respects on and as of the Second Amendment Effective Date (as defined below) (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date) and (ii) there exists no Default or Event of Default on the Second Amendment Effective Date, in each case after giving effect to this Amendment. 10. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Credit Agreement or any other Loan Document. -6- 11. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with Holdings, the Borrower and the Administrative Agent. 12. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. 13. This Amendment shall become effective on the date (the "Second Amendment Effective Date") when Holdings, the Borrower and the Majority Lenders (i) shall have signed a counterpart hereof (whether the same or different counterparts) and (ii) shall have delivered (including by way of facsimile transmission) the same to the Administrative Agent; it being understood that all interest, letter of credit fees and commitment fees that have accrued prior to the Second Amendment Effective Date shall accrue at the respective rates provided for in the Credit Agreement prior to giving effect to this Amendment. 14. From and after the Second Amendment Effective Date, all references in the Credit Agreement and each of the Loan Documents to the Credit Agreement shall be deemed to be references to the Credit Agreement as amended hereby. 15. Each of Holdings and the Borrower hereby covenants and agrees that, so long as the Second Amendment Effective Date occurs, the Borrower shall pay to each Lender which executes and delivers to the Administrative Agent a counterpart hereof by the later to occur of (x) the close of business on the Second Amendment Effective Date or (y) 5:00 p.m. (New York time) on March 3, 2000, a cash fee in an amount equal to 20 basis points (.20%) of an amount equal to the sum of (a) such Lender's outstanding Term Loans plus (b) such Lender's Revolving Commitment, in each case as same is in effect on the Second Amendment Effective Date after giving effect to this Amendment. All fees payable pursuant to this Section 15 shall be paid by the Borrower to the Administrative Agent for distribution to the respective Lenders not later than the first Business Day following the Second Amendment Effective Date. * * * -7- IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Amendment to be duly executed and delivered as of the date first above written. CII TECHNOLOGIES, INC. By_______________________________________ Name: Title: COMMUNICATIONS INSTRUMENTS, INC. By_______________________________________ Name: Title: BANK OF AMERICA, N.A., as the Administrative Agent By_______________________________________ Name: Title: BANK OF AMERICA, N.A., as an Issuing Lender By_______________________________________ Name: Title: BANK OF AMERICA, N.A., as the Swingline Lender By_______________________________________ Name: Title: BANK OF AMERICA, N.A., as a Lender By --------------------------------------- Name: Title: ANTARES CAPITAL CORPORATION By --------------------------------------- Name: Title: FIRST SOURCE FINANCIAL LLP By: FIRST SOURCE FINANCIAL, INC., its Agent/Manager By --------------------------------------- Name: Title: PNC BANK, NATIONAL ASSOCIATION By --------------------------------------- Name: Title: BANK AUSTRIA CREDITANSTALT CORPORATE FINANCE, INC. By --------------------------------------- Name: Title: By --------------------------------------- Name: Title: MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST By --------------------------------------- Name: Title: JACKSON NATIONAL LIFE INSURANCE COMPANY By: PPM America, Inc., as attorney-in-fact, on behalf of Jackson National Life Insurance Company By --------------------------------------- Name: Title: VAN KAMPEN PRIME RATE INCOME TRUST By --------------------------------------- Name: Title: SENIOR DEBT PORTFOLIO By: Boston Management and Research, as Investment Advisor By --------------------------------------- Name: Title: EATON VANCE SENIOR INCOME TRUST By: Eaton Vance Management, as Investment Advisor By --------------------------------------- Name: Title: STATE STREET BANK AND TRUST COMPANY, as Trustee for General Motors Employees Global Group Pension Trust By --------------------------------------- Name: Title: CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as trustee of the Antares Funding Trust created under the Trust Agreement dated as of November 30, 1999 By --------------------------------------- Name: Title: EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 178 0 24,427 (776) 27,521 61,295 64,772 (25,213) 195,452 31,454 188,193 0 0 0 (34,684) 195,452 48,174 48,174 36,077 36,077 8,203 0 4,859 (965) (159) (806) 0 0 0 (806) 0 0
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