UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT Pursuant to
Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 12, 2013
COLT DEFENSE LLC
COLT FINANCE CORP.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
333-171547 |
|
32-0031950 27-1237687 |
(Registration Number) |
|
(IRS Employer Identification Number) |
547 New Park Avenue, West Hartford, CT |
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06110 |
(Address of Principal Executive Offices) |
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(Zip Code) |
Registrants telephone number, including area code: (860) 232-4489
Not applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.01 Completion of Acquisition or Disposition of Assets.
This Current Report on Form 8-K/A is filed as an amendment to the Current Report on Form 8-K (the Original Form 8-K) filed on July 15, 2013 by Colt Defense LLC (the Company) with the Securities and Exchange Commission disclosing the merger with New Colt Holding Corp (New Colt) on July 12, 2013. By this amendment to the Original Form 8-K, the Company is amending and restating Item 9.01 thereof to include the required financial statements and pro forma financial information.
Item 9.01 Financial Statements and Exhibits
(a) Financial Statements of Businesses Acquired
The audited consolidated balance sheets of New Colt as of December 31, 2012 and 2011 and the audited consolidated statements of operations, stockholders equity and cash flows of New Colt for the years ended December 31, 2012 and 2011 and the notes related thereto and the related independent auditors report by Marcum LLP are filed as Exhibit 99.1 to this Current Report and are incorporated herein by reference.
The unaudited consolidated balance sheet of New Colt as of March 31, 2013 and the related unaudited consolidated statements of operations and cash flows for the three months ended March 31, 2013 and April 1, 2012 and the unaudited notes related thereto, are filed hereto as Exhibit 99.2 and are incorporated herein by reference.
(b) Pro Forma Financial Information
The required unaudited pro forma condensed consolidated financial statements as of and for the three months ended March 31, 2013 and the year ended December 31, 2012 and the notes thereto are filed as Exhibit 99.3 to this Current Report on Form 8-K/A and are incorporated herein by reference.
(c) Exhibits
Exhibit No. |
|
Description |
2.1 |
|
Agreement and Plan of Merger, dated July 12, 2013, by and among Colt Defense LLC, New Colt Acquisition Corp., New Colt Holding Corp. and Donald E. Zilkha and Edward L. Koch III (incorporated by reference from Exhibit 2.1 to the Original Form 8-K). |
99.1 |
|
Audited consolidated balance sheets of New Colt as of December 31, 2012 and 2011 and the audited consolidated statements of operations, stockholders equity, and cash flows of New Colt for the years ended December 31, 2012 and 2011 and the notes related thereto and the related independent auditors report. |
99.2 |
|
Unaudited consolidated balance sheet of New Colt as of March 31, 2013 and related unaudited consolidated statements of operations and cash flows for the three months ended March 31, 2013 and April 1, 2012 and the unaudited notes related thereto. |
99.3 |
|
Unaudited pro forma condensed consolidated financial statements as of and for the three months ended March 31, 2013 and for the year ended December 31, 2012 and the notes thereto. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
|
COLT DEFENSE LLC | |
|
| |
Dated: November 6, 2013 |
| |
|
| |
|
By: |
/s/ Scott B. Flaherty |
|
Name: |
Scott B. Flaherty |
|
Title: |
Sr. Vice President and Chief Financial Officer |
Exhibit 99.1
NEW COLT HOLDING CORP.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012 AND 2011
NEW COLT HOLDING CORP. AND SUBSIDIARY
CONTENTS
Independent Auditors Report |
1-2 |
|
|
Financial Statements |
|
|
|
Consolidated Balance Sheets |
3-4 |
Consolidated Statements of Income |
5 |
Consolidated Statements of Comprehensive Income |
6 |
Consolidated Statements of Changes in Stockholders Equity |
7 |
Consolidated Statements of Cash Flows |
8 |
|
|
Notes to Consolidated Financial Statements |
9-28 |
INDEPENDENT AUDITORS REPORT
To the Board of Directors
New Colt Holding Corp. and Subsidiary
Report on the Financial Statements
We have audited the accompanying consolidated balance sheets of New Colt Holding Corp. and Subsidiary (the Company) as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, changes in stockholders equity, and cash flows for the years then ended, and the related notes to the financial statements.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entitys preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of New Colt Holding Corp. and Subsidiary as of December 31, 2012 and 2011, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
New Haven, CT
March 5, 2013, except for the revisions (See Note 16), as to which the date is November 5, 2013
NEW COLT HOLDING CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
DECEMBER 31, 2012 AND 2011
|
|
2012 |
|
2011 |
| ||
|
|
|
|
|
| ||
Assets |
|
|
|
|
| ||
|
|
|
|
|
| ||
Current Assets |
|
|
|
|
| ||
Cash and cash equivalents |
|
$ |
7,496 |
|
$ |
3,607 |
|
Accounts receivable, net of allowance for doubtful accounts and cash discounts of $70 in 2012 and $74 in 2011 |
|
8,739 |
|
3,996 |
| ||
Inventories, net |
|
9,138 |
|
6,550 |
| ||
Deferred income taxes |
|
2,208 |
|
1,778 |
| ||
Prepaid expenses and other current assets |
|
1,318 |
|
1,389 |
| ||
|
|
|
|
|
| ||
Total Current Assets |
|
28,899 |
|
17,320 |
| ||
|
|
|
|
|
| ||
Equipment and Leasehold Improvements - net |
|
3,232 |
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2,984 |
| ||
|
|
|
|
|
| ||
Other Assets |
|
|
|
|
| ||
Deferred income taxes |
|
10,909 |
|
11,318 |
| ||
Intellectual property |
|
6,672 |
|
6,679 |
| ||
Goodwill |
|
1,043 |
|
1,043 |
| ||
Other long-term assets |
|
718 |
|
244 |
| ||
|
|
|
|
|
| ||
Total Other Assets |
|
19,342 |
|
19,284 |
| ||
|
|
|
|
|
| ||
Total Assets |
|
$ |
51,473 |
|
$ |
39,588 |
|
The accompanying notes are an integral part of these consolidated financial statements.
NEW COLT HOLDING CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(dollars in thousands)
DECEMBER 31, 2012 AND 2011
|
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2012 |
|
2011 |
| ||
|
|
|
|
|
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Liabilities and Stockholders Equity |
|
|
|
|
| ||
|
|
|
|
|
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Current Liabilities |
|
|
|
|
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Current portion of capital lease obligations |
|
$ |
547 |
|
$ |
515 |
|
Accounts payable |
|
2,468 |
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1,727 |
| ||
Accounts payable to Colt Defense LLC |
|
12,321 |
|
2,125 |
| ||
Accrued expenses |
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3,211 |
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2,843 |
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Current portion of accrued employee benefit costs |
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478 |
|
443 |
| ||
Customer advances |
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1,172 |
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1,168 |
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|
|
|
|
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Total Current Liabilities |
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20,197 |
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8,821 |
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|
|
|
|
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Other Liabilities |
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|
|
|
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Capital lease obligations, less current portion |
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291 |
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838 |
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Accrued employee benefit costs, less current portion |
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10,987 |
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9,551 |
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Deferred income and other liabilities |
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2,572 |
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2,665 |
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|
|
|
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Total Other Liabilities |
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13,850 |
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13,054 |
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|
|
|
|
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Total Liabilities |
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34,047 |
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21,875 |
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|
|
|
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Stockholders Equity |
|
|
|
|
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Common stock, $0.01 par value, 200,000 shares authorized, 41,252 and 41,333 shares issued in 2012 and 2011, respectively |
|
|
|
|
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Paid in capital |
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23,911 |
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23,933 |
| ||
Accumulated deficit |
|
(2,100 |
) |
(2,660 |
) | ||
Accumulated other comprehensive loss |
|
(4,385 |
) |
(3,560 |
) | ||
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|
|
|
|
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Total Stockholders Equity |
|
17,426 |
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17,713 |
| ||
|
|
|
|
|
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Total Liabilities and Stockholders Equity |
|
$ |
51,473 |
|
$ |
39,588 |
|
The accompanying notes are an integral part of these consolidated financial statements.
NEW COLT HOLDING CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands)
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
|
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2012 |
|
2011 |
| ||
|
|
|
|
|
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Net Sales |
|
|
|
|
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Rifles |
|
$ |
86,860 |
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$ |
12,120 |
|
Handguns and other |
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40,599 |
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37,239 |
| ||
Royalty income |
|
2,051 |
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1,499 |
| ||
|
|
|
|
|
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Total Net Sales |
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129,510 |
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50,858 |
| ||
|
|
|
|
|
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Cost of Sales |
|
117,736 |
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39,642 |
| ||
|
|
11,774 |
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11,216 |
| ||
Selling, General and Administrative Expenses |
|
9,155 |
|
7,114 |
| ||
|
|
|
|
|
| ||
Operating Income |
|
2,619 |
|
4,102 |
| ||
|
|
|
|
|
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Other Income (Expense) |
|
|
|
|
| ||
Transaction costs |
|
(1,116 |
) |
|
| ||
Other, net |
|
(203 |
) |
(168 |
) | ||
|
|
|
|
|
| ||
Total Other Income, net |
|
(1,319 |
) |
(168 |
) | ||
|
|
|
|
|
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Income Before Income Tax Expense |
|
1,300 |
|
3,934 |
| ||
|
|
|
|
|
| ||
Income Tax Expense |
|
740 |
|
1,693 |
| ||
|
|
|
|
|
| ||
Net Income |
|
$ |
560 |
|
$ |
2,241 |
|
The accompanying notes are an integral part of these consolidated financial statements.
NEW COLT HOLDING CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
|
|
2012 |
|
2011 |
| ||
|
|
|
|
|
| ||
Net Income |
|
$ |
560 |
|
$ |
2,241 |
|
|
|
|
|
|
| ||
Other Comprehensive Income (Loss), net of tax |
|
|
|
|
| ||
Pension liability |
|
(19 |
) |
(980 |
) | ||
Post retirement healthcare liability |
|
(806 |
) |
(971 |
) | ||
|
|
|
|
|
| ||
Total Other Comprehensive Income (Loss), net of tax |
|
(825 |
) |
(1,951 |
) | ||
|
|
|
|
|
| ||
Total Comprehensive Income |
|
$ |
(265 |
) |
$ |
290 |
|
The accompanying notes are an integral part of these consolidated financial statements.
NEW COLT HOLDING CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(dollars in thousands)
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
|
|
Common |
|
Common |
|
Paid-in |
|
Accumulated |
|
Accumulated |
|
Total |
| |||||
Balance - December 31, 2010 |
|
41,576 |
|
$ |
|
|
$ |
23,951 |
|
$ |
(4,901 |
) |
$ |
(1,609 |
) |
$ |
17,441 |
|
Purchase of Common Stock |
|
(243 |
) |
|
|
(18 |
) |
|
|
|
|
(18 |
) | |||||
Net Income |
|
|
|
|
|
|
|
2,241 |
|
|
|
2,241 |
| |||||
Other Comprehensive Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Pension liability |
|
|
|
|
|
|
|
|
|
(980 |
) |
(980 |
) | |||||
Post retirement health care liabilities |
|
|
|
|
|
|
|
|
|
(971 |
) |
(971 |
) | |||||
Balance - December 31, 2011 |
|
41,333 |
|
|
|
23,933 |
|
(2,660 |
) |
(3,560 |
) |
17,713 |
| |||||
Purchase of Common Stock |
|
(81 |
) |
|
|
(22 |
) |
|
|
|
|
(22 |
) | |||||
Net Income |
|
|
|
|
|
|
|
560 |
|
|
|
560 |
| |||||
Other Comprehensive Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Pension liability |
|
|
|
|
|
|
|
|
|
(19 |
) |
(19 |
) | |||||
Post retirement health care liabilities |
|
|
|
|
|
|
|
|
|
(806 |
) |
(806 |
) | |||||
Balance - December 31, 2012 |
|
41,252 |
|
$ |
|
|
$ |
23,911 |
|
$ |
(2,100 |
) |
$ |
(4,385 |
) |
$ |
17,426 |
|
The accompanying notes are an integral part of these consolidated financial statements.
NEW COLT HOLDING CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
|
|
2012 |
|
2011 |
| ||
Cash Flows from Operating Activities |
|
|
|
|
| ||
Net income |
|
$ |
560 |
|
$ |
2,241 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| ||
Depreciation and amortization |
|
606 |
|
462 |
| ||
Gain on sale of equipment |
|
|
|
(24 |
) | ||
Amortization of deferred license fee income |
|
(101 |
) |
(101 |
) | ||
Amortization of deferred royalty income |
|
(54 |
) |
(54 |
) | ||
Deferred rent expense |
|
62 |
|
247 |
| ||
Pension curtailment expense |
|
334 |
|
|
| ||
Provision for deferred income taxes |
|
592 |
|
1,449 |
| ||
Changes in operating assets and liabilities: |
|
|
|
|
| ||
Receivables |
|
(4,743 |
) |
(2,387 |
) | ||
Inventories |
|
(2,588 |
) |
(2,411 |
) | ||
Prepaid expenses and other assets |
|
(64 |
) |
(1,012 |
) | ||
Accounts payable and accrued expenses |
|
11,246 |
|
5,184 |
| ||
Employee benefit costs |
|
(238 |
) |
(572 |
) | ||
|
|
|
|
|
| ||
Net Cash Provided by Operating Activities |
|
5,612 |
|
3,022 |
| ||
|
|
|
|
|
| ||
Cash Flows from Investing Activities |
|
|
|
|
| ||
Purchases of equipment |
|
(841 |
) |
(770 |
) | ||
Purchase of design rights |
|
(345 |
) |
|
| ||
Security deposits |
|
|
|
18 |
| ||
|
|
|
|
|
| ||
Net Cash Used in Investing Activities |
|
(1,186 |
) |
(752 |
) | ||
|
|
|
|
|
| ||
Cash Flows from Financing Activities |
|
|
|
|
| ||
Payments on capital lease obligations |
|
(515 |
) |
(445 |
) | ||
Purchase of common stock |
|
(22 |
) |
(18 |
) | ||
|
|
|
|
|
| ||
Net Cash Used in Financing Activities |
|
(537 |
) |
(463 |
) | ||
|
|
|
|
|
| ||
Change in Cash and Cash Equivalents |
|
3,889 |
|
1,807 |
| ||
|
|
|
|
|
| ||
Cash and Cash Equivalents - Beginning |
|
3,607 |
|
1,800 |
| ||
|
|
|
|
|
| ||
Cash and Cash Equivalents - End |
|
$ |
7,496 |
|
$ |
3,607 |
|
|
|
|
|
|
| ||
Supplemental Disclosures of Cash Flow Information |
|
|
|
|
| ||
Cash paid for interest |
|
$ |
69 |
|
$ |
86 |
|
Cash paid for income taxes |
|
$ |
375 |
|
$ |
10 |
|
The accompanying notes are an integral part of these consolidated financial statements.
NEW COLT HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
NOTE 1 BUSINESS AND PRINCIPLES OF CONSOLIDATION
New Colt Holding Corp. (NCHC) has one wholly-owned subsidiary, Colts Manufacturing Company LLC (CMC) (collectively, the Company). The Company designs, manufactures and sells handguns and spare parts and also distributes and sells a line of rifles manufactured by Colt Defense LLC sold in the commercial marketplace. The Company also earns royalties related to licensing the use of the Colt trade name through agreements with third parties to promote their products.
The accompanying consolidated financial statements include the accounts of NCHC and CMC. All intercompany transactions and balances have been eliminated from these consolidated fmancial statements.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP).
USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates affecting the consolidated financial statements of the Company include allowances for excess and slow moving inventories, realization of deferred tax assets, the discount rate used in the valuation of pension and post- retirement health care liabilities, the expected return on pension plan assets and the liability for incurred and reported, and incurred but not yet reported claims for the employee group medical program.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with maturities of three months or less when purchased to be cash equivalents.
NEW COLT HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company maintains its cash accounts at a high credit quality and federally insured financial institution. Those deposits are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per depositor. Cash deposited at such institutions is normally in excess of the insured limit.
REVENUE AND ACCOUNTS RECEIVABLE RECOGNITION
The Company recognizes revenue and accounts receivable from the sales of its product when ownership of the product transfers to the buyer, primarily upon shipment. Credit is extended based on an evaluation of a customers financial condition; generally, collateral is not required. Credit losses are provided for in the financial statements, primarily on a specific identification basis, and have been within managements expectations. Once a customer is identified as high risk based on the customers history and credit worthiness, the Company will provide an allowance for the estimated uncollectible portion. Accounts are considered past due based on the original invoice date. Write-off of uncollectible accounts occurs when all reasonable collection efforts have been made.
INVENTORIES
Inventories are stated at the lower of cost, using the first-in, first-out method, or market. Cost includes materials, labor and manufacturing overhead related to the purchase of materials and parts, and production of products. The Company provides allowances for excess or slow moving inventories as well as inventories whose carrying value is in excess of net realizable value.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment, including tooling, and leasehold improvements are recorded at cost. Depreciation of equipment (including assets under capital leases) and amortization of leasehold improvements are computed using the straight-line method over the estimated useful life of the assets, which vary from 3 to 15 years, or the life of the lease, whichever is shorter. The Company evaluates equipment and leasehold improvements for impairment when there is an indication that impairment may exist. To date, there have been no impairment losses.
NEW COLT HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL AND INTANGIBLE ASSETS
Goodwill and intellectual property with indefinite lives are not amortized but rather are tested annually for impairment as of year-end. Impairment of goodwill and intellectual property would exist if the carrying value of the asset exceeds its estimated fair value. The intellectual property is evaluated annually to determine if useful lives continue to be indefinite. To date there have been no impairments.
SHIPPING AND HANDLING COSTS
Shipping and handling costs are classified within cost of sales on the statements of income.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. The Company incurred advertising and promotional costs of $1,500 and $1,146 in 2012 and 2011, respectively.
WARRANTY COSTS
The Company offers a service agreement in lieu of a warranty. The Company provides a reserve for warranty expense in the period of sale based on past experience. Accrued warranty cost at December 31, 2012 and 2011 was $256 and $210, respectively.
CUSTOMER ADVANCES
Customer advances represent payments by certain customers for products that have not yet been shipped.
DEFERRED LICENSE FEE INCOME
Deferred license fees are amortized to income over the initial term of the license (see Note 15).
TRANSACTION COSTS
Transaction costs consist of legal and professional fees incurred in connection with the exploration of certain strategic alternatives. During the years ended December 31, 2012 and 2011, the Company incurred $1,116 and $0, respectively, in transaction costs.
NEW COLT HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SELF-FUNDED MEDICAL PLAN AND WORKERS COMPENSATION
The Company maintains a self-funded employee group medical plan under which the liability is limited by individual and aggregate stop loss insurance coverage. Included in the accompanying financial statements is a liability for reported claims outstanding, as well as an estimate of incurred but unreported claims, based on the Companys best estimate of the ultimate cost not covered by stop loss insurance. The actual amount of the claims could differ from the estimated liability recorded of $145 and $90 at December 31, 2012 and 2011, respectively.
TAXES COLLECTED FROM CUSTOMERS
The Company presents taxes collected from customers on a net basis.
INCOME TAXES
Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for operating loss and tax credit carry forwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided to the extent that it is more likely than not that the Company will not be able to utilize deferred income tax assets in the future.
The Company accounts for uncertainty in income taxes using a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. The Company classifies the liability for unrecognized tax benefits as current to the extent that the Company anticipates payment (or receipt) of cash within one year. Interest and penalties related to uncertain tax positions are recognized and recorded as necessary in the provision for income taxes. During 2012 the Company recorded a $260 liability for contingencies. The Companys evaluation of uncertain tax positions was performed for the tax years ended December 31, 2009 and forward, the tax years which remain subject to examination as of December 31, 2012.
NEW COLT HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments are generally defined as cash, evidence of ownership interest in an entity, or a contractual obligation that both conveys to one entity a right to receive cash or other financial instruments from another entity and imposes on the other entity the obligation to deliver cash or other financial instruments to the first entity. At December 31, 2012, management believes that the carrying value of cash and cash equivalents, receivables and payables approximated fair value because of the short maturity of these financial instruments. At December 31, 2012, management believes that the fair value of the Companys debt approximated its carrying value based on interest rates available to the Company at the time.
SUBSEQUENT EVENTS
The Company completed its review of subsequent events through March 5, 2013, the date the accompanying financial statements were available to be issued. There were no subsequent events requiring recognition or disclosure in these financial statements.
NOTE 3 INVENTORIES
The components of inventories at December 31 are as follows:
|
|
2012 |
|
2011 |
| ||
|
|
|
|
|
| ||
Raw materials |
|
$ |
5,440 |
|
$ |
5,198 |
|
Work-in-process |
|
3,844 |
|
2,455 |
| ||
Finished goods |
|
2,045 |
|
1,296 |
| ||
|
|
|
|
|
| ||
|
|
11,329 |
|
8,949 |
| ||
Less allowance for excess and slow moving inventories |
|
2,191 |
|
2,399 |
| ||
|
|
|
|
|
| ||
|
|
$ |
9,138 |
|
$ |
6,550 |
|
NEW COLT HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
NOTE 4 LINE OF CREDIT
The Company has an available $2,000,000 line of credit agreement with a bank with interest payable on any outstanding amount at a rate equal to LIBOR plus 3.25 percentage points which expires on June 30, 2013. The line of credit is collateralized by the Companys receivables, inventories, and equipment. Under the loan agreement, the Company is required to maintain specified debt service and interest coverage ratios and a minimum amount of members equity. The Company was in compliance with these financial covenants at December 31, 2012. The line of credit was not drawn on during the year ended December 31, 2012.
NOTE 5 LEASE OBLIGATIONS
Future minimum lease payments at December 31 follow:
|
|
Capital |
|
Operating |
| ||
2013 |
|
$ |
584 |
|
$ |
1,007 |
|
2014 |
|
247 |
|
743 |
| ||
2015 |
|
52 |
|
743 |
| ||
2016 |
|
|
|
658 |
| ||
2017 |
|
|
|
445 |
| ||
Thereafter |
|
|
|
567 |
| ||
|
|
|
|
|
| ||
|
|
883 |
|
$ |
4,163 |
| |
Less amount representing interest at approximately 6.2% |
|
45 |
|
|
| ||
Present value of net minimum lease payments |
|
$ |
838 |
|
|
|
No capital leases were entered into during 2012. During 2011, $281 of equipment was acquired by entering into capital leases.
Machinery and equipment under capital lease follows:
|
|
2012 |
|
2011 |
| ||
Machinery and equipment |
|
$ |
2,386 |
|
$ |
2,386 |
|
Accumulated depreciation |
|
1,111 |
|
770 |
| ||
|
|
$ |
1,275 |
|
$ |
1,616 |
|
NEW COLT HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
NOTE 5 LEASE OBLIGATIONS (CONTINUED)
The Company leased its facility from Colt Defense LLC for $161 per year through October 25, 2012. The lease was extended by mutual agreement at a rate of $349 per year commencing on October 25, 2012. Total lease expense in 2012 and 2011 was $192 and $161, respectively.
Rent expense incurred under all operating leases during 2012 and 2011 was $626 and $417, respectively.
In November 2011, the Company entered into an agreement with Osceola County in Florida to lease a 16,000 square foot facility located in Kissimmee, Florida (the Florida Facility). The Florida Facility was renovated by the County at their cost and the building was made available for occupancy during 2012. The State of Florida contributed $250 of funds to the County to assist with the cost of renovations. The Company is responsible for making a minimum capital investment of $2.5 million, of which $181 had been made through December 31, 2012. The Company entered into a twelve year lease of the Florida Facility. There are no lease payments due during the initial 5 years of the lease and the annual cost of the lease for the remainder of the term of the lease will be $108 per year with the lease expiring on January 15, 2023. The lease expense is being accounted for on a straight-line basis, with an annual charge of $66 being incurred over the term of the lease. At December 31, 2012, deferred lease expense was $82. In connection with these agreements, as amended, the Company is expected to hire a minimum number of employees commencing in 2013. As of December 31, 2012, the Company had not occupied the Florida Facility.
NOTE 6 PENSION, SAVINGS AND POST-RETIREMENT BENEFITS
The Company has two noncontributory defined benefit pension plans that cover substantially all eligible salaried and hourly employees. The Company has recorded a pension liability, which represents the excess of the accumulated benefit pension obligation over the related pension plan assets.
The Company also provides certain post-retirement health care coverage to retired employees who were subject to the Companys collective bargaining agreement when they were employees. The cost of these post-retirement benefits is determined actuarially and is recognized in the financial statements during the employees active working career. In connection with the Companys collective bargaining agreement, the Company capped certain retirees to approximately $250 (not in thousands) per employee per month.
NEW COLT HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
NOTE 6 PENSION, SAVINGS AND POST-RETIREMENT BENEFITS (CONTINUED)
Disclosures related to the pension plans and the post-retirement health care coverage for the years ended December 31 are as follows:
|
|
Pension Plans |
|
Post Retirement |
| ||||||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Projected benefit obligation at beginning of year |
|
$ |
8,585 |
|
$ |
7,212 |
|
$ |
7,915 |
|
$ |
6,251 |
|
Service cost |
|
231 |
|
167 |
|
156 |
|
104 |
| ||||
Interest cost |
|
387 |
|
376 |
|
365 |
|
376 |
| ||||
Actuarial loss |
|
698 |
|
1,164 |
|
1,382 |
|
1,587 |
| ||||
Benefits paid |
|
(464 |
) |
(334 |
) |
(377 |
) |
(403 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Projected benefit obligation at end of year |
|
9,437 |
|
8,585 |
|
9,441 |
|
7,915 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Fair value of plan assets at beginning of year |
|
6,506 |
|
6,151 |
|
|
|
|
| ||||
Employer contributions |
|
800 |
|
875 |
|
|
|
|
| ||||
Actual return on plan assets |
|
571 |
|
(186 |
) |
|
|
|
| ||||
Benefits paid |
|
(464 |
) |
(334 |
) |
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Fair value of plan assets at end of year |
|
7,413 |
|
6,506 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Unfunded benefit obligations at end of year |
|
$ |
(2,024 |
) |
$ |
(2,079 |
) |
$ |
(9,441 |
) |
$ |
(7,915 |
) |
The components of the unfunded benefit obligation of the hourly and salary defined benefit plans as of December 31 follow:
|
|
2012 |
|
2011 |
| ||||||||||||||
|
|
Hourly |
|
Salary |
|
|
|
Hourly |
|
Salary |
|
|
| ||||||
|
|
Plan |
|
Plan |
|
Total |
|
Plan |
|
Plan |
|
Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected Benefit Obligation |
|
$ |
7,230 |
|
$ |
2,207 |
|
$ |
9,437 |
|
$ |
6,570 |
|
$ |
2,015 |
|
$ |
8,585 |
|
Fair Value of Plan Assets |
|
5,733 |
|
1,680 |
|
7,413 |
|
5,014 |
|
1,492 |
|
6,506 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Unfunded Benefit Obligation |
|
$ |
(1,497 |
) |
$ |
(527 |
) |
$ |
(2,024 |
) |
$ |
(1,556 |
) |
$ |
(523 |
) |
$ |
(2,079 |
) |
Effective January 1, 2010, the Company froze the pension benefits under the Salaried Defined Benefits Plan. Accordingly, participants retain the pension benefits already accrued, however no additional benefits will accrue after the effective date of the freeze.
NEW COLT HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
NOTE 6 PENSION, SAVINGS AND POST-RETIREMENT BENEFITS (CONTINUED)
Hourly bargaining unit employees hired after April 1, 2012, were no longer eligible to participate in the Hourly Defined Benefit Plan but were eligible to participate in the Companys 401K Plan. Effective December 31, 2012, the Company froze the pension benefits under the Hourly Defined Benefit Plan. Accordingly, participants retain the pension benefits already accrued, however no additional benefits will accrue after the effective date of the freeze.
During 2013, the Company expects to make contributions of $696 to the pension plans and payments of $405 for post-retirement health benefits.
The components of the amounts recognized in the Companys income statement are as follows:
|
|
Pension Plans |
|
Post Retirement |
| ||||||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
Service cost |
|
$ |
231 |
|
$ |
167 |
|
$ |
156 |
|
$ |
104 |
|
Interest cost |
|
387 |
|
376 |
|
365 |
|
376 |
| ||||
Expected return on assets |
|
(547 |
) |
(498 |
) |
|
|
|
| ||||
Curtailment charge |
|
334 |
|
|
|
|
|
|
| ||||
Amortization of unrecognized (benefit) prior service cost |
|
59 |
|
39 |
|
(104 |
) |
(104 |
) | ||||
Amortization of unrecognized loss |
|
249 |
|
176 |
|
143 |
|
73 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net periodic benefit cost |
|
$ |
713 |
|
$ |
260 |
|
$ |
560 |
|
$ |
449 |
|
Weighted average assumptions are as follows:
|
|
Pension Plans |
|
Post Retirement |
| ||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
4.00 |
% |
4.50 |
% |
3.50 |
% |
4.50 |
% |
Expected return on plan assets |
|
7.50 |
% |
8.00 |
% |
N/A |
|
N/A |
|
During 2012, individual stop loss coverage was deemed to be unnecessary and eliminated as a cost of the plan and excluded from administrative expense, which in 2012 is included as a load to service cost. For the year ended December 31, 2012, the average cost per month was $191 (not in thousands) per employee.
NEW COLT HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
NOTE 6 PENSION, SAVINGS AND POST-RETIREMENT BENEFITS (CONTINUED)
In developing the overall expected long-term return on plan assets assumption, a building block approach was used in which rates of return in excess of inflation were considered separately for equity securities, debt securities and other assets. The excess returns were weighted by the representative target allocation and added along with an appropriate rate of inflation to develop the overall expected long-term return on plan assets.
ESTIMATED FUTURE BENEFIT PAYMENTS
The following benefit payments, which reflect future service, are expected to be paid. The benefit payments are based on the same assumptions used to measure the Companys benefit obligation at December 31, 2012.
|
|
Pension |
|
Post Retirement |
| ||
|
|
|
|
|
|
|
|
2013 |
|
$ |
520 |
|
$ |
478 |
|
2014 |
|
537 |
|
500 |
| ||
2015 |
|
538 |
|
525 |
| ||
2016 |
|
536 |
|
545 |
| ||
2017 |
|
545 |
|
558 |
| ||
2018 - 2022 |
|
2,743 |
|
2,875 |
|
401K PLAN
The Company has a contributory savings plan (the 401K Plan) under Section 401(k) of the Internal Revenue Code covering substantially all U.S. employees. The 401K Plan allows participants to make voluntary contributions on a pretax basis, subject to IRS limitations. The 401K Plan provides for discretionary contributions by the Company. No discretionary contributions were made in 2012 or 2011. The Company also provides a match of a portion of salaried employee contributions. For the years ended December 31, 2012 and 2011, total plan expense was $99 and $81, respectively.
NEW COLT HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
NOTE 7 INCOME TAXES
Components of deferred income tax assets at December 31 follow:
|
|
2012 |
|
2011 |
| ||
|
|
|
|
|
| ||
Current Deferred Tax Assets |
|
|
|
|
| ||
Inventories |
|
$ |
1,036 |
|
$ |
960 |
|
Other |
|
1,172 |
|
818 |
| ||
|
|
|
|
|
| ||
|
|
2,208 |
|
1,778 |
| ||
|
|
|
|
|
| ||
Long-Term Deferred Tax Assets |
|
|
|
|
| ||
Retirement plans |
|
4,104 |
|
3,551 |
| ||
Net operating loss carryforwards |
|
6,090 |
|
6,885 |
| ||
Other |
|
715 |
|
882 |
| ||
|
|
|
|
|
| ||
|
|
10,909 |
|
11,318 |
| ||
|
|
|
|
|
| ||
Total net deferred income tax asset |
|
$ |
13,117 |
|
$ |
13,096 |
|
The Company has approximately $17,900 of federal income tax operating loss carry forwards which expires beginning in 2020 and no state net operating loss carry forwards at December 31, 2012.
The principal components of income tax expense consist of the following:
|
|
2012 |
|
2011 |
| ||
|
|
|
|
|
| ||
Current |
|
|
|
|
| ||
Federal |
|
$ |
258 |
|
$ |
33 |
|
State |
|
154 |
|
151 |
| ||
|
|
|
|
|
| ||
|
|
412 |
|
184 |
| ||
Deferred |
|
328 |
|
1,509 |
| ||
|
|
|
|
|
| ||
|
|
$ |
740 |
|
$ |
1,693 |
|
NEW COLT HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
NOTE 8 STOCKHOLDERS EQUITY
The authorized common stock of the Company consists of 200,000 shares, $.01 par value, of which 41,252 and 41,333 shares were issued and outstanding as of December 31, 2012 and 2011, respectively. The Company has also authorized 1,000 shares of Series A Redeemable Preferred Stock, $0.01 par value, of which zero shares are outstanding as of December 31, 2012. In addition, the Company has authorized one share of Series B Redeemable Junior Preferred Stock, par value $0.01. This share was issued to the United Automobile, Aerospace and Agricultural Implement Workers of America (the UAW or the Union) for the benefit of CMC employees who are members of the UAW. At any time after the New Colt Holding Corp. Profit Sharing Plan no longer holds common shares of the Company, the Company may redeem the share for a redemption price of $1.00. The Series B share has no conversion, voting or dividend rights.
The New Colt Holding Corp. Profit Sharing Plan (the Plan) owns 287 shares of common stock of the Company for the benefit of certain of its bargaining unit employees who are members of the UAW. These shares represent less than one percent of the Companys outstanding common stock at December 31, 2012. The right to participate in this plan was terminated on September 1, 1997 and since then the Company has no obligation to make contributions to the Plan. During 2012, the Company acquired 81 shares for $22 from the Plan on behalf of retirees who had withdrawn from the Plan. During 2011, the Company acquired 243 shares for $18.
The Company has granted 100,431 nonqualified warrants to purchase common stock of the Company. No warrants were exercised during 2012 or 2011. A summary of the status of the outstanding warrants, which all expire on August 8, 2013, follows:
2012 and 2011 |
| ||||||
Number of |
|
Warrant Exercise |
|
Total |
| ||
Warrants |
|
Price/Share |
|
Exercise Price |
| ||
11,709 |
|
$ |
30 |
|
$ |
351 |
|
87,486 |
|
39 |
|
3,412 |
| ||
1,236 |
|
45 |
|
56 |
| ||
100,431 |
|
|
|
$ |
3,819 |
| |
NEW COLT HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
NOTE 9 TRANSACTIONS WITH COLT DEFENSE LLC
The Company has entered into various transactions with Colt Defense LLC for various services and product purchases and sales. These are summarized below:
|
|
2012 |
|
2011 |
| ||
Purchases of commercial rifles and spare parts (a) |
|
$ |
83,010 |
|
$ |
11,999 |
|
Sales of Marine pistols and spare parts |
|
1,261 |
|
167 |
| ||
Rent (see Note 5) |
|
192 |
|
161 |
| ||
Services agreement (b) |
|
1,098 |
|
430 |
| ||
Utility expense (c) |
|
188 |
|
|
| ||
Receivables from Colt Defense LLC |
|
771 |
|
108 |
| ||
Payables to Colt Defense LLC |
|
12,321 |
|
2,125 |
| ||
(a) Purchases of commercial rifles from Colt Defense LLC are made in accordance with the terms of a memorandum of understanding which expires on December 31, 2013.
(b) The Company entered into a service agreement with Colt Defense LLC which provides for a fee to cover the costs of certain factory, data processing and other services provided to the Company by Colt Defense LLC. This agreement was renewed on July 1, 2012 and has a cost of $1,766 per year. The agreement expires on October 27, 2013 and is renewable annually thereafter.
(c) Effective July 1, 2012, the Company began reimbursing Colt Defense LLC for a pass through of costs for electricity used by the Company.
NOTE 10 ROYALTY INCOME
The Company has licensing agreements with third parties for limited use of the Colt trade name to promote products. Royalty income of $2,051 and $1,499 was recognized in connection with these agreements during 2012 and 2011, respectively, of which $547 and $485 is receivable at December 31, 2012 and 2011, respectively, and included in other current assets on the consolidated balance sheet.
NOTE 11 ROYALTY EXPENSE
The Company pays a third party 50% of income received from certain types of royalty income. Maximum payments under this agreement are subject to a cap. Royalty expense in connection with this agreement was $15 and $9 in 2012 and 2011, respectively.
NEW COLT HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
NOTE 12 COMMITMENTS AND CONTINGENCIES
During 2012, the Union filed a charge with the National Labor Relations Board (NLRB) regarding the opening of the Florida Facility. The Union charged that the Company had not fulfilled certain contractual obligations required by the collective bargaining agreement and that the Company had the obligation to bargain over the opening of a new plant in Florida. The NLRB ruled that the Unions charge was a matter of contract interpretation and should be arbitrated pursuant to the terms of the collective bargaining agreement. The Union and the Company are currently in the process of selecting an agreeable arbitrator.
In October 2012, two former employees brought actions against the Company for wrongful termination and breach of their employment agreements. Management intends to vigorously respond to the lawsuits and believes the charges are without merit. Discovery depositions have not begun, and at this early stage of litigation the Company is unable to assess whether it is possible that any loss might be incurred which would have a material impact on the accompanying financial statements.
The Company is a defendant in Gary v. Smith and Wesson et.al., a case brought by the City of Gary, Indiana against various gun manufacturers and distributors. The suit is based on a nontraditional theory of public nuisance. Similar suits filed by other governmental agencies have all been dismissed with prejudice, some based on the Protection of Lawful Commerce in Arms Act (PLCAA). The City has taken no steps to advance the case toward trial since 2010 and it is the opinion of our outside counsel that they do not intend to pursue the matter. Moreover, based in part on the advice of legal counsel, the Company believes that the allegations of the lawsuit are without merit and that this litigation is not likely to have a material effect on the financial condition of the Company. There are no other municipal firearm lawsuits pending against the Company.
The Company is involved in other various matters of litigation incidental to the normal conduct of its business. In managements opinion, the disposition of these matters will not have a material adverse effect on the financial condition or results of operations or cash flows of the Company.
NEW COLT HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
NOTE 13 CONCENTRATION OF RISK
Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of trade receivables. Accounts receivable from three customers represented approximately 45.5% of trade receivables at December 31, 2012. During 2012, sales from three customers were approximately 38.8% of net sales, respectively. Accounts receivable from three customers represented approximately 31.5% of trade receivables at December 31, 2011. During 2011, sales from three customers were approximately 20.5% of net sales, respectively.
Approximately 74.4% of the Companys workforce is subject to a collective bargaining agreement, with the Union, which expires April 1, 2014.
NOTE 14 OTHER LONG-TERM ASSETS
Other long-term assets at December 31 consisted of the following:
|
|
Amortized |
|
2012 |
|
2011 |
| ||
Archive guns |
|
|
|
$ |
110 |
|
$ |
110 |
|
Security deposits |
|
|
|
268 |
|
134 |
| ||
Technical data design rights |
|
20 |
|
340 |
|
|
| ||
|
|
|
|
|
|
|
| ||
|
|
|
|
$ |
718 |
|
$ |
244 |
|
NOTE 15 DEFERRED INCOME AND OTHER LONG-TERM LIABILITIES
Deferred income and other long-term liabilities at December 31 consisted of the following:
|
|
Amortized |
|
2012 |
|
2011 |
| ||
Deferred license fees from Colt Defense LLC for use of certain Colt trademarks (a) |
|
20 |
|
$ |
1,110 |
|
$ |
1,210 |
|
Deferred license fees with unrelated party |
|
40 |
|
1,154 |
|
1,208 |
| ||
Deferred lease expense (Note 5) |
|
|
|
308 |
|
247 |
| ||
|
|
|
|
|
|
|
| ||
|
|
|
|
$ |
2,572 |
|
$ |
2,665 |
|
NEW COLT HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
NOTE 15 DEFERRED INCOME AND OTHER LONG-TERM LIABILITIES (CONTINUED)
(a) Under the terms of the License, Colt Defense LLC received a twenty-year-paid-up license for the limited use of certain Colt trade names, which expires December 31, 2023. Thereafter, the license may be extended for successive five-year periods.
NOTE 16 REVISIONS TO THE CONSOLIDATED FINANCIAL STATEMENTS
Certain adjustments were identified that affected the Companys reported results for the years ended December 31, 2012 and 2011, respectively. The adjustments were determined to have an immaterial impact on the consolidated financial statements and related primarily to information and related accounting for the Companys post-retirement health plan, certain related tax matters and classification of certain balances on the consolidated statements of income and consolidated balance sheets. As a result of the adjustments, the Company concluded that they would revise their consolidated financial statements for the years ended December 31, 2012 and 2011. Based on an analysis of qualitative and quantitative factors, the adjustments were deemed immaterial, individually and in aggregate, to all periods presented.
The effects of the revision on the Companys Consolidated Statement of Operations for the year ended December 31, 2012 are as follows:
|
|
December 31, 2012 |
| |||||||
|
|
Previously Reported |
|
Adjustments |
|
Revised |
| |||
|
|
|
|
|
|
|
| |||
Net Sales - Royalty Income |
|
$ |
|
|
$ |
2,051 |
|
$ |
2,051 |
|
Total Net Sales |
|
127,459 |
|
2,051 |
|
129,510 |
| |||
Cost of Sales |
|
117,781 |
|
(45 |
) |
117,736 |
| |||
Gross Profit |
|
9,678 |
|
2,096 |
|
11,774 |
| |||
Selling, General and Administrative Expenses |
|
8,594 |
|
561 |
|
9,155 |
| |||
Operating Income |
|
1,084 |
|
1,535 |
|
2,619 |
| |||
Other Income - Royalty Income |
|
2,017 |
|
(2,017 |
) |
|
| |||
Other Expense - Transaction Costs |
|
(1,670 |
) |
554 |
|
(1,116 |
) | |||
Total Other Income, net |
|
144 |
|
(1,463 |
) |
(1,319 |
) | |||
Income Before Income Tax Expense |
|
1,228 |
|
72 |
|
1,330 |
| |||
Income Tax Expense |
|
490 |
|
250 |
|
740 |
| |||
Net Income |
|
738 |
|
(178 |
) |
560 |
| |||
NEW COLT HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
NOTE 16 REVISIONS TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The effects of the revision on the Companys Consolidated Statement of Operations for the year ended December 31, 2011 are as follows:
|
|
December 31, 2011 |
| |||||||
|
|
Previously Reported |
|
Adjustments |
|
Revised |
| |||
|
|
|
|
|
|
|
| |||
Net Sales - Royalty Income |
|
$ |
|
|
$ |
1,499 |
|
$ |
1,499 |
|
Total Net Sales |
|
49,359 |
|
1,499 |
|
50,858 |
| |||
Cost of Sales |
|
39,448 |
|
194 |
|
39,642 |
| |||
Gross Profit |
|
9,911 |
|
1,305 |
|
11,216 |
| |||
Operating Income |
|
2,797 |
|
1,305 |
|
4,102 |
| |||
Other Income - Royalty Income |
|
1,611 |
|
(1,611 |
) |
|
| |||
Income Before Income Tax Expense |
|
4,240 |
|
(306 |
) |
3,934 |
| |||
Income Tax Expense |
|
1,833 |
|
(140 |
) |
1,693 |
| |||
Net Income |
|
2,407 |
|
(166 |
) |
2,241 |
| |||
The effects of the revision in the Companys Consolidated Statements of Comprehensive Income for the year ended December 31, 2012 are as follows:
|
|
December 31, 2012 |
| |||||||
|
|
Previously Reported |
|
Adjustments |
|
Revised |
| |||
|
|
|
|
|
|
|
| |||
Net Income |
|
$ |
738 |
|
$ |
(178 |
) |
$ |
560 |
|
Other Comprehensive Income (Loss), net of tax |
|
|
|
|
|
|
| |||
Pension Liability |
|
(32 |
) |
13 |
|
(19 |
) | |||
Post-retirement Healthcare Liability |
|
(362 |
) |
(444 |
) |
(806 |
) | |||
Total Other Comprehensive Income (Loss), net of ta |
|
(394 |
) |
(431 |
) |
(825 |
) | |||
Total Comprehensive Income |
|
344 |
|
(609 |
) |
(265 |
) | |||
The effects of the revision in the Companys Consolidated Statements of Comprehensive Income for the year ended December 31, 2011 are as follows:
|
|
December 31, 2011 |
| |||||||
|
|
Previously Reported |
|
Adjustments |
|
Revised |
| |||
|
|
|
|
|
|
|
| |||
Net Income |
|
$ |
2,407 |
|
$ |
(166 |
) |
$ |
2,241 |
|
Other Comprehensive Income (Loss), net of tax |
|
|
|
|
|
|
| |||
Pension Liability |
|
(1,634 |
) |
654 |
|
(980 |
) | |||
Post-retirement Healthcare Liability |
|
(1,471 |
) |
500 |
|
(971 |
) | |||
Total Other Comprehensive Income (Loss), net of ta |
|
(3,105 |
) |
1,154 |
|
(1,951 |
) | |||
Total Comprehensive Income |
|
(698 |
) |
988 |
|
290 |
| |||
NEW COLT HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
NOTE 16 REVISIONS TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The effects of the revision on the Companys Consolidated Balance Sheet as of December 31, 2012 are as follows:
|
|
December 31, 2012 |
| |||||||
|
|
Previously Reported |
|
Adjustments |
|
Revised |
| |||
|
|
|
|
|
|
|
| |||
Current Assets - Cash and Cash Equivalents |
|
$ |
7,714 |
|
$ |
(218 |
) |
$ |
7,496 |
|
Current Assets - Deferred Income Taxes |
|
1,804 |
|
404 |
|
2,208 |
| |||
Total Current Assets |
|
28,713 |
|
186 |
|
28,899 |
| |||
Equipment and Leasehold Improvements, net |
|
2,982 |
|
250 |
|
3,232 |
| |||
Other Assets - Deferred Income Taxes |
|
7,348 |
|
3,561 |
|
10,909 |
| |||
Other Assets - Intellectual Property |
|
6,679 |
|
(7 |
) |
6,672 |
| |||
Total Other Assets |
|
15,788 |
|
3,554 |
|
19,342 |
| |||
Total Assets |
|
47,483 |
|
3,990 |
|
51,473 |
| |||
Current Liabilities - Accrued Expenses |
|
3,367 |
|
(156 |
) |
3,211 |
| |||
Current Liabilities - Accrued Employee Benefit Costs |
|
1,101 |
|
(623 |
) |
478 |
| |||
Total Current Liabilities |
|
20,976 |
|
(779 |
) |
20,197 |
| |||
Other Liabilities - Accrued Employee Benefit Costs |
|
8,989 |
|
1,998 |
|
10,987 |
| |||
Other Liabilities - Deferred Income and Other Liabiliti |
|
1,717 |
|
855 |
|
2,572 |
| |||
Total Other Liabilities |
|
10,997 |
|
2,853 |
|
13,850 |
| |||
Total Liabilities |
|
31,973 |
|
2,074 |
|
34,047 |
| |||
Stockholders Equity - Accumulated Deficit |
|
(1,590 |
) |
(510 |
) |
(2,100 |
) | |||
Stockholders Equity - Accumulated and Other Comprehensive Income |
|
(6,811 |
) |
2,426 |
|
(4,385 |
) | |||
Total Stockholders Equity |
|
15,510 |
|
1,916 |
|
17,426 |
| |||
Total Liabilities and Stockholders Equity |
|
47,483 |
|
3,930 |
|
51,473 |
| |||
NEW COLT HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
NOTE 16 REVISIONS TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The effects of the revision on the Companys Consolidated Balance Sheet as of December 31, 2011 are as follows:
|
|
December 31, 2011 |
| |||||||
|
|
Previously Reported |
|
Adjustments |
|
Revised |
| |||
Current Assets - Cash and Cash Equivalents |
|
$ |
3,899 |
|
$ |
(292 |
) |
$ |
3,607 |
|
Current Assets - Deferred Income Taxes |
|
1,331 |
|
447 |
|
1,778 |
| |||
Total Current Assets |
|
17,165 |
|
155 |
|
17,320 |
| |||
Equipment and Leasehold Improvements, net |
|
2,734 |
|
250 |
|
2,984 |
| |||
Other Assets - Deferred Income Taxes |
|
8,163 |
|
3,155 |
|
11,318 |
| |||
Total Other Assets |
|
16,129 |
|
3,155 |
|
19,284 |
| |||
Total Assets |
|
36,028 |
|
3,560 |
|
39,588 |
| |||
Current Liabilities - Accrued Expenses |
|
3,136 |
|
(293 |
) |
2,843 |
| |||
Current Liabilities - Accrued Employee Benefit Costs |
|
1,405 |
|
(962 |
) |
443 |
| |||
Total Current Liabilities |
|
10,076 |
|
(1,255 |
) |
8,821 |
| |||
Other Liabilities - Accrued Employee Benefit Costs |
|
8,171 |
|
1,380 |
|
9,551 |
| |||
Other Liabilities - Deferred Income and Other Liabiliti |
|
1,755 |
|
910 |
|
2,665 |
| |||
Total Other Liabilities |
|
10,764 |
|
2,290 |
|
13,054 |
| |||
Total Liabilities |
|
20,840 |
|
1,035 |
|
21,875 |
| |||
Stockholders Equity - Accumulated Deficit |
|
(2,328 |
) |
(332 |
) |
(2,660 |
) | |||
Stockholders Equity - Accumulated and Other Comprehensive Income |
|
(6,417 |
) |
2,857 |
|
(3,560 |
) | |||
Total Stockholders Equity |
|
15,188 |
|
2,525 |
|
17,713 |
| |||
Total Liabilities and Stockholders Equity |
|
36,028 |
|
3,560 |
|
39,588 |
| |||
NEW COLT HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
NOTE 16 REVISIONS TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The effects of the revision on the Companys Consolidated Statements of Cash Flows for the year ended December 31, 2012 are as follows:
|
|
December 31, 2012 |
| |||||||
|
|
Previously Reported |
|
Adjustments |
|
Revised |
| |||
|
|
|
|
|
|
|
| |||
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
738 |
|
$ |
(178 |
) |
$ |
560 |
|
Depreciation and Amortization |
|
599 |
|
7 |
|
606 |
| |||
Amortization of Deferred |
|
|
|
|
|
|
| |||
Royalty Income |
|
(19 |
) |
(35 |
) |
(54 |
) | |||
Deferred Rent Expense |
|
82 |
|
(20 |
) |
62 |
| |||
Provision for Deferred Income Taxes |
|
342 |
|
250 |
|
592 |
| |||
Accounts Payable and Accrued Expenses |
|
11,172 |
|
74 |
|
11,246 |
| |||
Employee Benefit Costs |
|
(214 |
) |
(24 |
) |
(238 |
) | |||
Net Cash Provided by Operating Activities |
|
5,538 |
|
74 |
|
5,612 |
| |||
Change in Cash and Cash Equivalents |
|
3,815 |
|
74 |
|
3,889 |
| |||
Cash and Cash Equivalents - Beginning |
|
3,899 |
|
(292 |
) |
3,607 |
| |||
Cash and Cash Equivalents - End |
|
7,714 |
|
(218 |
) |
7,496 |
|
The effects of the revision on the Companys Consolidated Statements of Cash Flows for the year ended December 31, 2011 are as follows:
|
|
December 31, 2011 |
| |||||||
|
|
Previously Reported |
|
Adjustments |
|
Revised |
| |||
|
|
|
|
|
|
|
| |||
Cash Flows from Operating Activities: |
|
|
|
|
|
|
| |||
Net Income |
|
$ |
2,407 |
|
$ |
(166 |
) |
$ |
2,241 |
|
Amortization of Deferred Royalty Income |
|
(166 |
) |
112 |
|
(54 |
) | |||
Deferred Rent Expense |
|
|
|
247 |
|
247 |
| |||
Provision for Deferred Income Taxes |
|
1,589 |
|
(140 |
) |
1,449 |
| |||
Employee Benefit Costs |
|
(769 |
) |
197 |
|
(572 |
) | |||
Net Cash Provided by Operating Activities |
|
2,772 |
|
250 |
|
3,022 |
| |||
Cash Flows from Investing Activities |
|
|
|
|
|
|
| |||
Purchases of Equipment |
|
(520 |
) |
(250 |
) |
(770 |
) | |||
Net Cash Used in Investing Activities |
|
(502 |
) |
(250 |
) |
(752 |
) | |||
Cash and Cash Equivalents - Beginning |
|
2,092 |
|
(292 |
) |
1,800 |
| |||
Cash and Cash Equivalents - End |
|
3,899 |
|
(292 |
) |
3,607 |
| |||
Exhibit 99.2
NEW COLT HOLDING CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
MARCH 31, 2013 AND DECEMBER 31, 2012
|
|
March 31, 2013 |
|
December 31, 2012 |
| ||
ASSETS |
|
|
|
|
| ||
Current Assets: |
|
|
|
|
| ||
Cash and cash equivalents |
|
$ |
4,363 |
|
$ |
7,496 |
|
Accounts receivable, net of allowance for doubtful accounts and cash discounts of $103 and $70, respectively |
|
10,813 |
|
8,739 |
| ||
Inventories, net |
|
8,698 |
|
9,138 |
| ||
Deferred income taxes |
|
2,208 |
|
2,208 |
| ||
Prepaid expenses and other current assets |
|
1,431 |
|
1,318 |
| ||
Total Current Assets |
|
27,513 |
|
28,899 |
| ||
Equipment and Leasehold Improvements - net |
|
3,117 |
|
3,232 |
| ||
Other Assets: |
|
|
|
|
| ||
Deferred income taxes |
|
9,865 |
|
10,909 |
| ||
Intellectual property |
|
6,679 |
|
6,672 |
| ||
Goodwill |
|
1,044 |
|
1,043 |
| ||
Other long-term assets |
|
879 |
|
718 |
| ||
Total Other Assets |
|
18,467 |
|
19,342 |
| ||
Total Assets |
|
$ |
49,097 |
|
$ |
51,473 |
|
|
|
|
|
|
| ||
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
| ||
Current Liabilities: |
|
|
|
|
| ||
Current portion of capital lease obligations |
|
$ |
556 |
|
$ |
547 |
|
Accounts payable |
|
1,984 |
|
2,468 |
| ||
Accounts payable to Colt Defense LLC |
|
8,846 |
|
12,321 |
| ||
Accrued expenses |
|
4,052 |
|
3,211 |
| ||
Current portion of accrued employee benefit costs |
|
478 |
|
478 |
| ||
Customer advances |
|
1,208 |
|
1,172 |
| ||
Total Current Liabilities |
|
17,124 |
|
20,197 |
| ||
Other Liabilities: |
|
|
|
|
| ||
Capital lease obligations, less current portion |
|
149 |
|
291 |
| ||
Accrued employee benefit costs, less current portion |
|
10,573 |
|
10,987 |
| ||
Deferred income and other liabilities |
|
2,544 |
|
2,572 |
| ||
Total Other Liabilities |
|
13,266 |
|
13,850 |
| ||
Total Liabilities |
|
30,390 |
|
34,047 |
| ||
|
|
|
|
|
| ||
Stockholders Equity: |
|
|
|
|
| ||
Common stock, $0.01 par value, 200,000 shares authorized, 41,242 and 41,252 shares issued as of March 31, 2013 and December 31, 2012, respectively |
|
|
|
|
| ||
Paid in capital |
|
23,908 |
|
23,911 |
| ||
Accumulated deficit |
|
(832 |
) |
(2,100 |
) | ||
Accumulated other comprehensive loss |
|
(4,369 |
) |
(4,385 |
) | ||
Total Stockholders Equity |
|
18,707 |
|
17,426 |
| ||
Total Liabilities and Stockholders Equity |
|
$ |
49,097 |
|
$ |
51,473 |
|
See accompanying notes and independent accountants review report.
NEW COLT HOLDING CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands)
FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND APRIL 1, 2012
|
|
March 31, 2013 |
|
April 1, 2012 |
| ||
Net Sales: |
|
|
|
|
| ||
Rifles |
|
$ |
30,791 |
|
$ |
9,148 |
|
Handguns and other |
|
12,783 |
|
9,812 |
| ||
Royalty income |
|
645 |
|
439 |
| ||
Total Net Sales |
|
44,219 |
|
19,399 |
| ||
|
|
|
|
|
| ||
Cost of Sales |
|
39,075 |
|
17,237 |
| ||
|
|
5,144 |
|
2,162 |
| ||
|
|
|
|
|
| ||
Selling, General and Administrative Expenses |
|
2,782 |
|
2,032 |
| ||
|
|
|
|
|
| ||
Operating Income (Loss) |
|
2,362 |
|
130 |
| ||
|
|
|
|
|
| ||
Other Income (Expense): |
|
|
|
|
| ||
Transaction costs |
|
(85 |
) |
|
| ||
Other, net |
|
(13 |
) |
(44 |
) | ||
|
|
|
|
|
| ||
Total Other Income (Expense), net |
|
(98 |
) |
(44 |
) | ||
|
|
|
|
|
| ||
Income Before Income Tax Expense |
|
2,264 |
|
86 |
| ||
|
|
|
|
|
| ||
Income Tax Expense |
|
996 |
|
34 |
| ||
|
|
|
|
|
| ||
Net Income |
|
$ |
1,268 |
|
$ |
52 |
|
See accompanying notes and independent accountants review report.
NEW COLT HOLDING CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND APRIL 1, 2012
|
|
March 31, 2013 |
|
April 1, 2012 |
| ||
Net Income |
|
$ |
1,268 |
|
$ |
52 |
|
|
|
|
|
|
| ||
Other Comprehensive Income (Loss), net of tax: |
|
|
|
|
| ||
Pension liability |
|
54 |
|
150 |
| ||
Post retirement healthcare liability |
|
(38 |
) |
(295 |
) | ||
|
|
|
|
|
| ||
Total Other Comprehensive Income (Loss), net of tax |
|
16 |
|
(145 |
) | ||
|
|
|
|
|
| ||
Total Comprehensive Income |
|
$ |
1,284 |
|
$ |
(93 |
) |
See accompanying notes and independent accountants review report.
NEW COLT HOLDING CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(dollars in thousands)
FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND APRIL 1, 2012
|
|
Common |
|
Common |
|
Paid-in |
|
Accumulated |
|
Accumulated |
|
Total |
| |||||
Balance - December 31, 2011 |
|
41,333 |
|
$ |
|
|
$ |
23,933 |
|
$ |
(2,660 |
) |
$ |
(3,560 |
) |
$ |
17,713 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Purchase of Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net Income |
|
|
|
|
|
|
|
52 |
|
|
|
52 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Other Comprehensive Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Pension liability |
|
|
|
|
|
|
|
|
|
150 |
|
150 |
| |||||
Post retirement healthcare liabilities |
|
|
|
|
|
|
|
|
|
(295 |
) |
(295 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance - April 1, 2012 |
|
41,333 |
|
$ |
|
|
$ |
23,933 |
|
$ |
(2,608 |
) |
$ |
(3,705 |
) |
17,620 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance - December 31, 2012 |
|
41,252 |
|
$ |
|
|
$ |
23,911 |
|
$ |
(2,100 |
) |
$ |
(4,385 |
) |
$ |
17,426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Purchase of Common Stock |
|
(10 |
) |
|
|
(3 |
) |
|
|
|
|
(3 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net Income |
|
|
|
|
|
|
|
1,268 |
|
|
|
1,268 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Other Comprehensive Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Pension liability |
|
|
|
|
|
|
|
|
|
54 |
|
54 |
| |||||
Post retirement healthcare liabilities |
|
|
|
|
|
|
|
|
|
(38 |
) |
(38 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance - March 31, 2013 |
|
41,242 |
|
$ |
|
|
$ |
23,908 |
|
$ |
(832 |
) |
$ |
(4,369 |
) |
$ |
18,707 |
|
See accompanying notes and independent accountants review report.
NEW COLT HOLDING CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND APRIL 1, 2012
|
|
March 31, 2013 |
|
April 1, 2012 |
| ||
Cash Flows from Operating Activities |
|
|
|
|
| ||
Net income |
|
$ |
1,268 |
|
$ |
52 |
|
Adjustments to reconcile net income to net cash (used in) provided by operating activities: |
|
|
|
|
| ||
Depreciation and amortization |
|
165 |
|
137 |
| ||
Amortization of deferred license fee income |
|
(25 |
) |
(25 |
) | ||
Amortization of deferred royalty income |
|
(14 |
) |
(14 |
) | ||
Deferred rent expense |
|
11 |
|
11 |
| ||
Pension curtailment expense |
|
|
|
354 |
| ||
Provision for deferred income taxes |
|
775 |
|
24 |
| ||
Changes in operating assets and liabilities: |
|
|
|
|
| ||
Receivables |
|
(2,074 |
) |
(2,225 |
) | ||
Inventories |
|
440 |
|
(413 |
) | ||
Prepaid expenses and other assets |
|
(112 |
) |
88 |
| ||
Accounts payable and accrued expenses |
|
(3,117 |
) |
3,270 |
| ||
Contract advances |
|
36 |
|
417 |
| ||
Employee benefit costs |
|
(130 |
) |
(74 |
) | ||
Net Cash (Used in) Provided by Operating Activities |
|
(2,777 |
) |
1,602 |
| ||
Cash Flows From Investing Activities |
|
|
|
|
| ||
Purchases of equipment |
|
(43 |
) |
(273 |
) | ||
Purchase of design rights |
|
(177 |
) |
|
| ||
Net Cash Used in Investing Activities |
|
(220 |
) |
(273 |
) | ||
Cash Flows From Financing Activities |
|
|
|
|
| ||
Payments on capital lease obligations |
|
(133 |
) |
(125 |
) | ||
Purchase of common stock |
|
(3 |
) |
|
| ||
Net Cash Used in Financing Activities |
|
(136 |
) |
(125 |
) | ||
|
|
|
|
|
| ||
Change in Cash and Cash Equivalents |
|
(3,133 |
) |
1,204 |
| ||
Cash and Cash Equivalents, beginning |
|
7,496 |
|
3,607 |
| ||
Cash and Cash Equivalents, end |
|
$ |
4,363 |
|
$ |
4,811 |
|
|
|
|
|
|
| ||
Supplemental Disclosures of Cash Flow Information |
|
|
|
|
| ||
Cash paid for interest |
|
$ |
12 |
|
$ |
20 |
|
Cash paid for income taxes |
|
$ |
|
|
$ |
196 |
|
See accompanying notes and independent accountants review report.
NEW COLT HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND APRIL 1, 2012
NOTE 1 BUSINESS AND PRINCIPLES OF CONSOLIDATION
New Colt Holding Corp. (NCHC) has one wholly-owned subsidiary, Colts Manufacturing Company LLC (CMC) (collectively, the Company). The Company designs, manufactures and sells handguns and spare parts and also distributes and sells a line of rifles manufactured by Colt Defense LLC sold in the commercial marketplace. The Company also earns royalties related to licensing the use of the Colt trade name through agreements with third parties to promote their products.
The accompanying consolidated financial statements include the accounts of NCHC and CMC. All intercompany transactions and balances have been eliminated from these consolidated financial statements.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP).
USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates affecting the consolidated financial statements of the Company include allowances for excess and slow moving inventories, realization of deferred tax assets, the discount rate used in the valuation of pension and post retirement health care liabilities, the expected return on pension plan assets and the liability for incurred and reported, and incurred but not yet reported claims for the employee group medical program.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with maturities of three months or less when purchased to be cash equivalents.
NEW COLT HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND APRIL 1, 2012
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company maintains its cash accounts at a high credit quality and federally insured financial institution. Those deposits are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per depositor. Cash deposited at such institutions is normally in excess of the insured limit.
REVENUE AND ACCOUNTS RECEIVABLE RECOGNITION
The Company recognizes revenue and accounts receivable from the sales of its product when ownership of the product transfers to the buyer, primarily upon shipment. Credit is extended based on an evaluation of a customers financial condition; generally, collateral is not required. Credit losses are provided for in the financial statements, primarily on a specific identification basis, and have been within managements expectations. Once a customer is identified as high risk based on the customers history and credit worthiness, the Company will provide an allowance for the estimated uncollectible portion. Accounts are considered past due based on the original invoice date. Write-off of uncollectible accounts occurs when all reasonable collection efforts have been made.
INVENTORIES
Inventories are stated at the lower of cost, using the first-in, first-out method, or market. Cost includes materials, labor and manufacturing overhead related to the purchase of materials and parts, and production of products. The Company provides allowances for excess or slow moving inventories as well as inventories whose carrying value is in excess of net realizable value.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment, including tooling, and leasehold improvements are recorded at cost. Depreciation of equipment (including assets under capital leases) and amortization of leasehold improvements are computed using the straight-line method over the estimated useful life of the assets, which vary from 3 to 15 years, or the life of the lease, whichever is shorter. The Company evaluates equipment and leasehold improvements for impairment when there is an indication that impairment may exist. To date, there have been no impairment losses.
NEW COLT HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND APRIL 1, 2012
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL AND INTANGIBLE ASSETS
Goodwill and intellectual property with indefinite lives are not amortized but rather are tested annually for impairment as of year-end. Impairment of goodwill and intellectual property would exist if the carrying value of the asset exceeds its estimated fair value. The intellectual property is evaluated annually to determine if useful lives continue to be indefinite. To date there have been no impairments.
SHIPPING AND HANDLING COSTS
Shipping and handling costs are classified within cost of sales on the statements of income.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. The Company incurred advertising and promotional costs of $544 and $444 for the three months ended March 31, 2013 and April 1, 2012, respectively.
WARRANTY COSTS
The Company offers a service agreement in lieu of a warranty. The Company provides a reserve for warranty expense in the period of sale based on past experience. Accrued warranty cost at March 31, 2013 and December 31, 2012 was $295 and $256, respectively.
CUSTOMER ADVANCES
Customer advances represent payments by certain customers for products that have not yet been shipped.
DEFERRED LICENSE FEE INCOME
Deferred license fees are amortized to income over the initial term of the license (see Note 15).
TRANSACTION COSTS
Transaction costs consist of legal and professional fees incurred in connection with the exploration of certain strategic alternatives. During the three months ended March 31, 2013 and April 1, 2012, the Company incurred $85 and $0, respectively, in transaction costs.
NEW COLT HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND APRIL 1, 2012
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SELF-FUNDED MEDICAL PLAN AND WORKERS COMPENSATION
The Company maintains a self-funded employee group medical plan under which the liability is limited by individual and aggregate stop loss insurance coverage. Included in the accompanying financial statements is a liability for reported claims outstanding, as well as an estimate of incurred but unreported claims, based on the Companys best estimate of the ultimate cost not covered by stop loss insurance. The actual amount of the claims could differ from the estimated liability recorded of $150 and $145 at March 31, 2013 and December 31, 2012, respectively.
TAXES COLLECTED FROM CUSTOMERS
The Company presents taxes collected from customers on a net basis.
INCOME TAXES
Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for operating loss and tax credit carry forwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided to the extent that it is more likely than not that the Company will not be able to utilize deferred income tax assets in the future.
The Company accounts for uncertainty in income taxes using a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. The Company classifies the liability for unrecognized tax benefits as current to the extent that the Company anticipates payment (or receipt) of cash within one year. Interest and penalties related to uncertain tax positions are recognized and recorded as necessary in the provision for income taxes. During 2012 the Company recorded a $260 liability for contingencies. The Companys evaluation of uncertain tax positions was performed for the tax years ended December 31, 2009 and forward, the tax years which remain subject to examination as of March 31, 2013.
NEW COLT HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND APRIL 1, 2012
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments are generally defined as cash, evidence of ownership interest in an entity, or a contractual obligation that both conveys to one entity a right to receive cash or other financial instruments from another entity and imposes on the other entity the obligation to deliver cash or other financial instruments to the first entity. At March 31, 2013, management believes that the carrying value of cash and cash equivalents, receivables and payables approximated fair value because of the short maturity of these financial instruments. At March 31, 2013, management believes that the fair value of the Companys debt approximated its carrying value based on interest rates available to the Company at the time.
REVISION
In connection with the consolidated financial statements for the years ended December 31, 2012 and 2011, certain adjustments were identified that affected the quarterly results in 2013 and 2012. The adjustments related primarily to information and related accounting for the Companys post-retirement health plan, certain related tax matters and classification of certain balances on the consolidated statements of income and balance sheets. As a result of these items, the Company concluded that they would revise their consolidated financial statements for the quarter ended April 1, 2012. Based on an analysis of qualitative and quantitative factors, the adjustments were deemed immaterial to all of the periods presented.
SUBSEQUENT EVENTS
The Company completed its review of subsequent events through November 5, 2013, the date the accompanying financial statements were available to be issued. On July 12, 2013, Colt Defense LLC, New Colt Acquisition Corp., a wholly-owned subsidiary of Colt Defense LLC, the Company and Donald E. Zilkha and Edward L. Koch III (the Stockholder Representatives) entered into an Agreement and Plan of Merger. As a result of the Merger, the two manufacturers of Colt firearms were consolidated into a single enterprise, reversing a separation that occurred in 2003.
NEW COLT HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND APRIL 1, 2012
NOTE 3 INVENTORIES
The component of inventories are as follows:
|
|
March 31, 2013 |
|
December 31, 2012 |
| ||
Raw materials |
|
$ |
5,341 |
|
$ |
5,440 |
|
Work-in-process |
|
3,514 |
|
3,844 |
| ||
Finished goods |
|
1,876 |
|
2,045 |
| ||
|
|
10,731 |
|
11,329 |
| ||
Less allowance for excess and slow moving inventories |
|
2,033 |
|
2,191 |
| ||
|
|
$ |
8,698 |
|
$ |
9,138 |
|
NOTE 4 LINE OF CREDIT
The Company has an available $2,000,000 line of credit agreement with a bank with interest payable on any outstanding amount at a rate equal to LIBOR plus 3.25 percentage points which expires on September 30, 2013. The line of credit is collateralized by the Companys receivables, inventories, and equipment. Under the loan agreement, the Company is required to maintain specified debt service and interest coverage ratios and a minimum amount of members equity. The Company was in compliance with these financial covenants at March 31, 2013. The line of credit was not drawn on during the three months ended March 31, 2013. The line of credit was cancelled as of July 12, 2013 as a result of the Merger. See Note 2, subsequent events.
NEW COLT HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND APRIL 1, 2012
NOTE 5 LEASE OBLIGATIONS
Future minimum lease payments at March 31, 2013 follow:
|
|
Capital Leases |
|
Operating Leases |
| ||
2014 |
|
$ |
584 |
|
$ |
917 |
|
2015 |
|
121 |
|
743 |
| ||
2016 |
|
33 |
|
707 |
| ||
2017 |
|
|
|
668 |
| ||
2018 |
|
|
|
285 |
| ||
Thereafter |
|
|
|
567 |
| ||
|
|
738 |
|
3,887 |
| ||
Less amount representing interest at approximately 6.2% |
|
33 |
|
|
| ||
Present value of net minimum lease payments |
|
$ |
705 |
|
|
| |
Machinery and equipment under capital lease follow:
|
|
March 31, 2013 |
|
December 31, 2012 |
| ||
Machinery and equipment |
|
$ |
2,386 |
|
$ |
2,386 |
|
Accumulated depreciation |
|
1,196 |
|
1,111 |
| ||
|
|
$ |
1,190 |
|
$ |
1,275 |
|
The Company leased its facility from Colt Defense LLC for $161 per year through October 25, 2012. The lease was extended by mutual agreement at a rate of $349 per year commencing on October 25, 2012. Total lease expense for the three months ended March 31, 2013 and April 1, 2012 was $87 and $40, respectively.
Rent expense incurred under all operating leases for the three months ended March 31, 2013 and April 1, 2012 was $295 and $102, respectively.
NEW COLT HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND APRIL 1, 2012
NOTE 5 LEASE OBLIGATIONS (CONTINUED)
In November 2011, the Company entered into an agreement with Osceola County in Florida to lease a 16,000 square foot facility located in Kissimmee, Florida (the Florida Facility). The Florida Facility was renovated by the County at their cost and the building was made available for occupancy during 2012. The State of Florida contributed $250 of funds to the County to assist with the cost of renovations. The Company is responsible for making a minimum capital investment of $2.5 million, of which $181 had been made through March 31, 2013. The Company entered into a twelve year lease of the Florida Facility. There are no lease payments due during the initial 5 years of the lease and the annual cost of the lease for the remainder of the term of the lease will be $108 per year with the lease expiring on January 15, 2023. The lease expense is being accounted for on a straight-line basis, with an annual charge of $66 being incurred over the term of the lease. At March 31, 2013, deferred lease expense was $16. In connection with these agreements, as amended, the Company is expected to hire a minimum number of employees commencing in 2013. As of March 31, 2013, the Company had not occupied the Florida Facility.
NOTE 6 PENSION, SAVINGS AND POST RETIREMENT BENEFITS
The Company has two noncontributory, domestic defined benefit pension plans that cover substantially all eligible salaried and hourly employees. The Company has recorded a pension liability, which represents the excess of the accumulated benefit pension obligation over the related pension plan assets.
On March 31, 2012, the Company agreed to a new two-year collective bargaining unit agreement with Local 376 of the United Auto Workers. Under the terms of the contract, the Company froze the pension benefits under the hourly defined benefit plan effective December 31, 2012. Benefits under the salaried defined benefit plan have been frozen since January 1, 2010. Accordingly, participants retain the pension benefits that have already accrued. However, no additional benefits will accrue after the effective dates of the freezes.
The Company also provides certain postretirement health care coverage to retired U.S. employees who were subject to our collective bargaining agreement when they were employees. The cost of these postretirement benefits is determined actuarially and is recognized in the Companys consolidated financial statements during the employees active working career. In connection with the Companys collective bargaining agreement, they have capped certain retirees to approximately $250 (not in thousands) per employee per month.
NEW COLT HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND APRIL 1, 2012
NOTE 6 PENSION, SAVINGS AND POST RETIREMENT BENEFITS (CONTINUED)
Disclosures related to the pension plans and the post retirement health care coverage as of and for the three months ended March 31, 2013 and April 1, 2012 are as follows:
|
|
Pension Plans |
|
Post Retirement Healthcare Plan |
| ||||||||
|
|
March 31, |
|
April 1, |
|
March 31, |
|
April 1, |
| ||||
Projected benefit obligation, beginning of year |
|
$ |
9,437 |
|
$ |
8,585 |
|
$ |
9,441 |
|
$ |
7,915 |
|
Service cost |
|
174 |
|
58 |
|
55 |
|
39 |
| ||||
Interest cost |
|
136 |
|
97 |
|
73 |
|
92 |
| ||||
Actuarial cost |
|
39 |
|
428 |
|
(220 |
) |
97 |
| ||||
Benefits paid |
|
(101 |
) |
(88 |
) |
(119 |
) |
(94 |
) | ||||
Projected benefit obligation, end of year |
|
9,685 |
|
9,080 |
|
9,230 |
|
8,049 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Fair value of plan assets, beginning of year |
|
7,413 |
|
6,506 |
|
|
|
|
| ||||
Employer contributions |
|
174 |
|
200 |
|
|
|
|
| ||||
Actual return on plan assets |
|
378 |
|
354 |
|
|
|
|
| ||||
Benefits paid |
|
(101 |
) |
(88 |
) |
|
|
|
| ||||
Fair value of plan assets, end of year |
|
7,864 |
|
6,972 |
|
|
|
|
| ||||
Unfunded benefit obligations, end of period |
|
$ |
(1,821 |
) |
$ |
(2,108 |
) |
$ |
(9,230 |
) |
$ |
(8,049 |
) |
The components of the unfunded benefit obligation of the hourly and salary defined benefit plans are as follows:
|
|
March 31, 2013 |
|
December 31, 2012 |
| ||||||||||||||
|
|
Hourly |
|
Salary |
|
Total |
|
Hourly |
|
Salary |
|
Total |
| ||||||
Projected benefit obligations |
|
$ |
7,391 |
|
$ |
2,294 |
|
$ |
9,685 |
|
$ |
7,230 |
|
$ |
2,207 |
|
$ |
9,437 |
|
Fair value of plan assets |
|
6,065 |
|
1,799 |
|
7,864 |
|
5,733 |
|
1,680 |
|
7,413 |
| ||||||
Unfunded benefit obligations |
|
$ |
(1,326 |
) |
$ |
(495 |
) |
$ |
(1,821 |
) |
$ |
(1,497 |
) |
$ |
(527 |
) |
$ |
(2,024 |
) |
NEW COLT HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND APRIL 1, 2012
NOTE 6 PENSION, SAVINGS AND POST RETIREMENT BENEFITS (CONTINUED)
The components of the amounts recognized in the Companys income statement are as follows:
|
|
Pension Plans |
|
Post Retirement Healthcare Plan |
| ||||||||
|
|
March 31, |
|
April 1, |
|
March 31, |
|
April 1, |
| ||||
Service cost |
|
$ |
174 |
|
$ |
58 |
|
$ |
55 |
|
$ |
39 |
|
Interest cost |
|
136 |
|
97 |
|
73 |
|
91 |
| ||||
Expected return on assets |
|
|
|
(137 |
) |
|
|
|
| ||||
Curtailment charge |
|
|
|
334 |
|
|
|
|
| ||||
Amortization of unrecognized (benefit) prior service cost |
|
|
|
15 |
|
69 |
|
26 |
| ||||
Amortization of unrecognized loss |
|
|
|
62 |
|
|
|
36 |
| ||||
Net periodic benefit cost |
|
$ |
310 |
|
$ |
429 |
|
$ |
197 |
|
$ |
192 |
|
Weighted average assumptions are as follows:
|
|
Pension Plans |
|
Post Retirement Healthcare Plan |
| ||||
|
|
March 31, |
|
April 1, |
|
March 31, |
|
April 1, |
|
Discount rate |
|
4.00 |
% |
4.00 |
% |
3.50 |
% |
3.50 |
% |
Expected return on plan assets |
|
7.50 |
% |
7.50 |
% |
N/A |
|
N/A |
|
In developing the overall expected long-term return on plan assets assumption, a building block approach was used in which rates of return in excess of inflation were considered separately for equity securities, debt securities and other assets. The excess returns were weighted by the representative target allocation and added along with an appropriate rate of inflation to develop the overall expected long-term return on plan assets.
NEW COLT HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND APRIL 1, 2012
NOTE 6 PENSION, SAVINGS AND POST RETIREMENT BENEFITS (CONTINUED)
401K PLAN
The Company has a contributory savings plan (the 401K Plan) under Section 401(k) of the Internal Revenue Code covering substantially all U.S. employees. The 401K Plan allows participants to make voluntary contributions on a pretax basis, subject to IRS limitations. The 401K Plan provides for discretionary contributions by the Company. No discretionary contributions were made during the three months ended March 31, 2013 and April 1, 2012. The Company also provides a match of a portion of salaried employee contributions. For the three months ended March 31, 2013 and April 1, 2012, total plan expense was $75 and $25, respectively.
NOTE 7 INCOME TAXES
Components of deferred income tax assets at March 31, 2013 and December 31, 2012 follow:
|
|
March 31, 2013 |
|
December 31, 2012 |
| ||
Current deferred tax assets |
|
|
|
|
| ||
Inventories |
|
$ |
1,036 |
|
$ |
1,036 |
|
Other |
|
1,172 |
|
1,172 |
| ||
|
|
2,208 |
|
2,208 |
| ||
Long-term deferred tax assets |
|
|
|
|
| ||
Retirement plans |
|
4,533 |
|
4,104 |
| ||
Net operating loss carryforwards |
|
5,315 |
|
6,090 |
| ||
Other |
|
17 |
|
715 |
| ||
|
|
9,865 |
|
10,909 |
| ||
Total net deferred income tax asset |
|
$ |
12,073 |
|
$ |
13,117 |
|
The Company has approximately $17,900 of federal income tax operating loss carry forwards which expires beginning in 2020 and no state net operating loss carry forwards at March 31, 2013.
NEW COLT HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND APRIL 1, 2012
NOTE 7 INCOME TAXES (CONTINUED)
The principal components of income tax expense consist of the following:
|
|
March 31, 2013 |
|
December 31, 2012 |
| ||
Current |
|
|
|
|
| ||
Federal |
|
$ |
44 |
|
$ |
2 |
|
State |
|
177 |
|
6 |
| ||
|
|
221 |
|
8 |
| ||
Deferred |
|
775 |
|
26 |
| ||
|
|
$ |
996 |
|
$ |
34 |
|
NOTE 8 STOCKHOLDERS EQUITY
The authorized common stock of the Company consists of 200,000 shares, $.01 par value, of which 41,252 and 41,252 shares were issued and outstanding as of March 31, 2013 and December 31, 2012, respectively. The Company has also authorized 1,000 shares of Series A Redeemable Preferred Stock, $0.01 par value, of which zero shares are outstanding as of March 31, 2013. In addition, the Company has authorized one share of Series B Redeemable Junior Preferred Stock, par value $0.01. This share was issued to the United Automobile, Aerospace and Agricultural Implement Workers of America (the UAW or the Union) for the benefit of CMC employees who are members of the UAW. At any time after the New Colt Holding Corp. Profit Sharing Plan no longer holds common shares of the Company, the Company may redeem the share for a redemption price of $1.00. The Series B share has no conversion, voting or dividend rights.
The New Colt Holding Corp. Profit Sharing Plan (the Plan) owns 287 shares of common stock of the Company for the benefit of certain of its bargaining unit employees who are members of the UAW. These shares represent less than one percent of the Companys outstanding common stock at March 31, 2013. The right to participate in this plan was terminated on September 1, 1997 and since then the Company has no obligation to make contributions to the Plan. During the three months ended March 31, 2013, the Company acquired 10 shares for $3 from the Plan on behalf of retirees who had withdrawn from the Plan. The Company did not acquire any shares during the three months ended April 1, 2012.
NEW COLT HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND APRIL 1, 2012
NOTE 8 STOCKHOLDERS EQUITY (CONTINUED)
The Company has granted 100,431 nonqualified warrants to purchase common stock of the Company. No warrants were exercised during 2013 or 2012. A summary of the status of the outstanding warrants, which all expire on August 8, 2013, follows:
2013 and 2012 |
| ||||||
Number of |
|
Warrant Exercise |
|
Total |
| ||
11,709 |
|
$ |
30 |
|
$ |
351 |
|
87,486 |
|
39 |
|
3,412 |
| ||
1,236 |
|
45 |
|
56 |
| ||
100,431 |
|
|
|
$ |
3,819 |
| |
NOTE 9 TRANSACTIONS WITH COLT DEFENSE LLC
The Company has entered into various transactions with Colt Defense LLC for various services and product purchases and sales. These are summarized below:
|
|
March 31, 2013 |
|
April 1, 2012 |
| ||
For the three months ended: |
|
|
|
|
| ||
Purchases of commercial rifles and spare parts (a) |
|
$ |
25,168 |
|
$ |
8,423 |
|
Sales of marine pistols and spare parts |
|
994 |
|
15 |
| ||
Rent (see Note 5) |
|
87 |
|
40 |
| ||
Services agreement (b) |
|
441 |
|
107 |
| ||
Utility expense (c) |
|
64 |
|
|
| ||
|
|
March 31, 2013 |
|
December 31, 2012 |
|
As of: |
|
|
|
|
|
Receivables from Colt Defense LLC |
|
151 |
|
771 |
|
Payables to Colt Defense LLC |
|
8,846 |
|
12,321 |
|
(a) Purchases of commercial rifles from Colt Defense LLC are made in accordance with the terms of a memorandum of understanding which expires on December 31, 2013.
(b) The Company entered into a service agreement with Colt Defense LLC which provides for a fee to cover the costs of certain factory, data processing and other services provided to the Company by Colt Defense LLC. This agreement was renewed on July 1, 2012 and has a cost of $1,766 per year. The agreement expires on October 27, 2013 and is renewable annually thereafter.
(c) Effective July 1, 2012, the Company began reimbursing Colt Defense LLC for a pass through of costs for electricity used by the Company.
NEW COLT HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND APRIL 1, 2012
NOTE 10 ROYALTY INCOME
The Company has licensing agreements with third parties for limited use of the Colt trade name to promote products. Royalty income of $645 and $439 was recognized, based on the terms of the related agreements and goods sold, in connection with these agreements during the three months ended March 31, 2013 and April 1, 2012, respectively, of which $606 and $547 is receivable at March 31, 2013 and December 31, 2012, respectively, and included in other current assets on the consolidated balance sheet.
NOTE 11 ROYALTY EXPENSE
The Company pays a third party 50% of income received from certain types of royalty income. Maximum payments under this agreement are subject to a cap. Royalty expense in connection with this agreement was $6 and $2 for the three months ended March 31, 2013 and April 1, 2012, respectively.
NOTE 12 COMMITMENTS AND CONTINGENCIES
During 2012, the Union filed a charge with the National Labor Relations Board (NLRB) regarding the opening of the Florida Facility. The Union charged that the Company had not fulfilled certain contractual obligations required by the collective bargaining agreement and that the Company had the obligation to bargain over the opening of a new plant in Florida. The NLRB ruled that the Unions charge was a matter of contract interpretation and should be arbitrated pursuant to the terms of the collective bargaining agreement. The Union and the Company are currently in the process of selecting an agreeable arbitrator.
In October 2012, two former employees brought actions against the Company for wrongful termination and breach of their employment agreements. Management intends to vigorously respond to the lawsuits and believes the charges are without merit. Discovery depositions have not begun, and at this early stage of litigation the Company is unable to assess whether it is possible that any loss might be incurred which would have a material impact on the accompanying financial statements.
NEW COLT HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND APRIL 1, 2012
NOTE 12 COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company is a defendant in Gary v. Smith and Wesson et.al., a case brought by the City of Gary, Indiana against various gun manufacturers and distributors. The suit is based on a nontraditional theory of public nuisance. Similar suits filed by other governmental agencies have all been dismissed with prejudice, some based on the Protection of Lawful Commerce in Arms Act (PLCAA). The City has taken no steps to advance the case toward trial since 2010 and it is the opinion of our outside counsel that they do not intend to pursue the matter. Moreover, based in part on the advice of legal counsel, the Company believes that the allegations of the lawsuit are without merit and that this litigation is not likely to have a material effect on the financial condition of the Company. There are no other municipal firearm lawsuits pending against the Company.
The Company is involved in other various matters of litigation incidental to the normal conduct of its business. In managements opinion, the disposition of these matters will not have a material adverse effect on the financial condition or results of operations or cash flows of the Company.
NOTE 13 CONCENTRATION OF RISK
Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of trade receivables. Accounts receivable from three customers represented approximately 54% of trade receivables at March 31, 2013. Accounts receivable from three customers represented approximately 46% of trade receivables at December 31, 2012. During the three months ended March 31, 2013, sales from three customers were approximately 48% of net sales, respectively. During the three months ended April 1, 2012, sales from three customers were approximately 33% of net sales, respectively.
Approximately 71.84% and 74.4% at March 31, 2013 and December 31, 2012, respectively, of the Companys workforce is subject to a collective bargaining agreement, with the Union, which expires April 1, 2014.
NEW COLT HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND APRIL 1, 2012
NOTE 14 OTHER LONG-TERM ASSETS
Other long-term assets consisted of the following:
|
|
Amortized Period |
|
March 31, 2013 |
|
December 31, 2012 |
| ||
Archive guns |
|
|
|
$ |
110 |
|
$ |
110 |
|
Security deposits |
|
|
|
268 |
|
268 |
| ||
Technical data design rights |
|
20 |
|
501 |
|
340 |
| ||
|
|
|
|
$ |
879 |
|
$ |
718 |
|
NOTE 15 DEFERRED INCOME AND OTHER LONG-TERM LIABILITIES
Deferred income and other long-term liabilities consisted of the following:
|
|
Amortized Period |
|
March 31, 2013 |
|
December 31, 2012 |
| ||
Deferred license fees from Colt Defense LLC for use of certain Colt trademarks (a) |
|
20 |
|
$ |
1,084 |
|
$ |
1,110 |
|
Deferred license fees with unrelated party |
|
40 |
|
1,141 |
|
1,154 |
| ||
Deferred rent expense (Note 5) |
|
|
|
319 |
|
308 |
| ||
|
|
|
|
$ |
2,544 |
|
$ |
2,572 |
|
(a) Under the terms of the License, Colt Defense LLC received a twenty-year-paid-up license for the limited use of certain Colt trade names, which expires December 31, 2023. Thereafter, the license may be extended for successive five-year periods.
Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(in thousands of dollars)
On July 12, 2013 (the Merger Date), Colt Defense LLC (the Company or Colt Defense), New Colt Acquisition Corp., a wholly owned subsidiary of the Company (Merger Sub), New Colt Holding Corp. (New Colt) and Donald E. Zilkha and Edward L. Koch III entered into an Agreement and Plan of Merger (the Merger Agreement). In accordance with the Merger Agreement and pursuant to the Delaware General Corporation Law, on July 12, 2013 Merger Sub merged with and into New Colt and New Colt, the surviving corporation, became a wholly owned subsidiary of the Company (the Merger). Colt Defense acquired 100% ownership of New Colt for a total preliminary purchase price of $83,148, subject to adjustments (Purchase Price), which included approximately $67,912 of cash consideration transferred (Cash Consideration) and a $15,236 gain on the effective settlement of a pre-existing relationship. The Company funded the Cash Consideration with the proceeds from a $50,000 senior secured term loan, the issuance and sale of $9,000 of Colt Defense common units and available cash on hand.
The following unaudited pro forma condensed consolidated financial information has been prepared to give effect to the completed Merger. The unaudited pro forma condensed consolidated balance sheet as of March 31, 2013 gives effect to the Merger as if it occurred on March 31, 2013. The unaudited pro forma condensed consolidated balance sheet was derived from the unaudited historical financial statements of the Company and New Colt as of March 31, 2013. The unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 2012 and the three months ended March 31, 2013 give effect to the Merger as if it had occurred on January 1, 2012. The unaudited pro forma condensed consolidated statements of operations are derived from the audited historical financial statements of the Company and New Colt as of and for the year ended December 31, 2012 and the unaudited, historical financial statements of the Company and New Colt as of and for the three months ended March 31, 2013.
The unaudited pro forma condensed consolidated financial information was prepared in accordance with the rules and regulations of the Securities and Exchange Commission (SEC) and should not be considered indicative of the consolidated financial position or results of operations that would have occurred if the Merger had been completed on the dates indicated, nor are they indicative of the future consolidated financial position or results of operations of Colt Defense and New Colt following completion of the Merger. The unaudited pro forma condensed consolidated financial information does not reflect the potential realization of cost savings, restructuring or other costs relating to the integration of New Colt, nor do they include any other items not expected to have a continuing impact on the consolidated results of the two companies. The historical consolidated financial statements of the Company and New Colt has been adjusted in the unaudited pro forma condensed consolidated financial information to give effect to pro forma events that are (1) directly attributable to the Merger, (2) factually supportable and (3) with respect to the statement of operations, expected to have a continuing impact on the consolidated results.
The unaudited pro forma condensed consolidated financial information is based on the preliminary information available and managements preliminary valuation of the fair value of tangible and intangible assets acquired and liabilities assumed. The finalization of the Companys purchase accounting assessment may result in changes to the valuation of assets acquired and liabilities assumed, particularly in regards to infinite and finite-lived intangible assets, which could be material. The Company will finalize the purchase price allocation as soon as practicable within the measurement period in accordance with Accounting Standards Codification Topic 805 Business Combinations (ASC 805), but in no event later than one year following the Merger Date.
The unaudited pro forma condensed consolidated financial information should be read in conjunction with the accompanying notes thereto. In addition, the unaudited pro forma condensed consolidated information was based on and should be read in conjunction with the:
· Historical consolidated financial statements of the Company as of and for the year ended December 31, 2012 and the related notes included in Colt Defenses Annual Report on Form 10-K for the fiscal year ended December 31, 2012 and the historical consolidated financial statements for the quarter ended March 31, 2013, including related notes, as filed in Colt Defenses Quarterly Report on Form 10-Q for the quarter ended March 31, 2013.
· The audited consolidated historical financial statements and related notes of New Colt as of and for the year ended December 31, 2012 and the unaudited historical consolidated financial statements and related notes of New Colt as of and for the three months ended March 31, 2013, which are attached to this Form 8-K/A as Exhibit 99.1 and 99.2, respectively.
Colt Defense LLC
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As Of March 31, 2013
(In thousands of dollars)
Pro forma Financials
|
|
March 31, 2013 Balance Sheet |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma |
| |||||
|
|
Colt |
|
New Colt |
|
|
|
|
|
Pro forma |
|
|
|
Colt |
| |||||
($ in thousands) |
|
Defense LLC |
|
Holding Corp. |
|
Eliminations |
|
Note |
|
Adjustments |
|
Note |
|
Defense LLC |
| |||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
|
$ |
17,959 |
|
$ |
4,363 |
|
$ |
|
|
|
|
$ |
(13,889 |
) |
6a |
|
$ |
8,433 |
|
Restricted cash |
|
772 |
|
|
|
|
|
|
|
|
|
|
|
772 |
| |||||
Accounts receivable, net |
|
38,216 |
|
10,813 |
|
(9,346 |
) |
5a |
|
|
|
|
|
39,683 |
| |||||
Inventories |
|
46,481 |
|
8,698 |
|
(229 |
) |
5b |
|
169 |
|
6b |
|
55,119 |
| |||||
Deferred income tax benefit |
|
|
|
2,208 |
|
|
|
|
|
(291 |
) |
6c |
|
1,917 |
| |||||
Other current assets |
|
3,531 |
|
1,431 |
|
(149 |
) |
5a |
|
|
|
|
|
4,813 |
| |||||
Total current assets |
|
106,959 |
|
27,513 |
|
(9,724 |
) |
|
|
(14,011 |
) |
|
|
110,737 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Property and equipment, net |
|
22,286 |
|
3,117 |
|
|
|
|
|
2,170 |
|
6d |
|
27,573 |
| |||||
Goodwill |
|
14,728 |
|
1,044 |
|
154 |
|
5b |
|
31,952 |
|
6e |
|
47,878 |
| |||||
Colt trademarks |
|
|
|
6,679 |
|
|
|
|
|
43,421 |
|
6f |
|
50,100 |
| |||||
Intangible assets, net |
|
5,779 |
|
|
|
|
|
|
|
9,340 |
|
6g |
|
15,119 |
| |||||
Deferred financing costs |
|
7,228 |
|
|
|
|
|
|
|
1,969 |
|
6h |
|
9,197 |
| |||||
Long-term restricted cash |
|
810 |
|
|
|
|
|
|
|
|
|
|
|
810 |
| |||||
Long-term deferred tax asset |
|
|
|
9,865 |
|
|
|
|
|
(806 |
) |
6c |
|
9,059 |
| |||||
Other assets |
|
1,562 |
|
879 |
|
|
|
|
|
62 |
|
6i |
|
2,503 |
| |||||
Total assets |
|
$ |
159,352 |
|
$ |
49,097 |
|
$ |
(9,570 |
) |
|
|
$ |
74,097 |
|
|
|
$ |
272,976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
LIABILITIES AND DEFICIT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Current portion capital lease obligations |
|
$ |
|
|
$ |
556 |
|
$ |
|
|
|
|
$ |
(70 |
) |
6j |
|
$ |
486 |
|
Accounts payable |
|
16,938 |
|
10,830 |
|
(9,495 |
) |
5a |
|
|
|
|
|
18,273 |
| |||||
Accrued expenses |
|
23,527 |
|
4,052 |
|
(75 |
) |
5b |
|
1,008 |
|
6k |
|
28,512 |
| |||||
Retirement obligations - current portion |
|
626 |
|
478 |
|
|
|
|
|
|
|
|
|
1,104 |
| |||||
Customer advances and deferred income |
|
9,174 |
|
1,208 |
|
|
|
|
|
|
|
|
|
10,382 |
| |||||
Accrued distributions to members |
|
1,418 |
|
|
|
|
|
|
|
|
|
|
|
1,418 |
| |||||
Deferred income tax liability |
|
|
|
|
|
|
|
|
|
812 |
|
6l |
|
812 |
| |||||
Long-term debt - current portion |
|
|
|
|
|
|
|
|
|
2,500 |
|
6m |
|
2,500 |
| |||||
Total current liabilities |
|
51,683 |
|
17,124 |
|
(9,570 |
) |
|
|
4,250 |
|
|
|
63,487 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Long-term debt, less current portion |
|
247,671 |
|
|
|
|
|
|
|
45,242 |
|
6m |
|
292,913 |
| |||||
Capital lease obligations |
|
|
|
149 |
|
|
|
|
|
(107 |
) |
6j |
|
42 |
| |||||
Pension and retirement obligations |
|
19,790 |
|
10,573 |
|
|
|
|
|
(875 |
) |
6n |
|
29,488 |
| |||||
Long-term deferred income tax liability |
|
1,473 |
|
|
|
|
|
|
|
23,352 |
|
6l |
|
24,825 |
| |||||
Other long-term liabilities |
|
880 |
|
2,544 |
|
|
|
|
|
(2,544 |
) |
6o |
|
880 |
| |||||
Total long-term liabilities |
|
269,814 |
|
13,266 |
|
|
|
|
|
65,068 |
|
|
|
348,148 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total liabilities |
|
321,497 |
|
30,390 |
|
(9,570 |
) |
|
|
69,318 |
|
|
|
411,635 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Deficit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Paid in capital |
|
|
|
23,908 |
|
|
|
|
|
(23,908 |
) |
6p |
|
|
| |||||
Accumulated deficit |
|
(147,860 |
) |
(832 |
) |
|
|
|
|
24,318 |
|
6p |
|
(124,374 |
) | |||||
Accumulated other comprehensive loss |
|
(14,285 |
) |
(4,369 |
) |
|
|
|
|
4,369 |
|
6q |
|
(14,285 |
) | |||||
Total deficit |
|
(162,145 |
) |
18,707 |
|
|
|
|
|
4,779 |
|
|
|
(138,659 |
) | |||||
Total liabilities and deficit |
|
$ |
159,352 |
|
$ |
49,097 |
|
$ |
(9,570 |
) |
|
|
$ |
74,097 |
|
|
|
$ |
272,976 |
|
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.
Colt Defense LLC
Unaudited Pro Forma Condensed Consolidated Statements of Operations
For The Three Months Ended March 31, 2013
(In thousands of dollars)
|
|
March 31, 2013 YTD P&L |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma |
| |||||
|
|
Colt |
|
New Colt |
|
|
|
|
|
Pro forma |
|
|
|
Colt |
| |||||
|
|
Defense LLC |
|
Holding Corp. |
|
Eliminations |
|
Note |
|
Adjustments |
|
Note |
|
Defense LLC |
| |||||
Net sales |
|
$ |
63,849 |
|
$ |
44,219 |
|
$ |
(26,251 |
) |
5c |
|
$ |
|
|
|
|
$ |
81,817 |
|
Cost of sales |
|
45,098 |
|
39,075 |
|
(26,359 |
) |
5d |
|
399 |
|
6r |
|
58,213 |
| |||||
Gross profit |
|
18,751 |
|
5,144 |
|
108 |
|
|
|
(399 |
) |
|
|
23,604 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Selling, general and administrative expenses |
|
7,718 |
|
2,782 |
|
(204 |
) |
5e |
|
166 |
|
6s |
|
10,462 |
| |||||
Operating income |
|
11,033 |
|
2,362 |
|
312 |
|
|
|
(565 |
) |
|
|
13,142 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Other (income)/expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest expense |
|
5,994 |
|
12 |
|
|
|
|
|
1,640 |
|
6t |
|
7,646 |
| |||||
Royalty (income)/expense, net |
|
|
|
85 |
|
|
|
|
|
13 |
|
6u |
|
98 |
| |||||
Other (income)/expense, net |
|
(712 |
) |
1 |
|
466 |
|
5f |
|
(85 |
) |
6v |
|
(330 |
) | |||||
Total other expense, net |
|
5,282 |
|
98 |
|
466 |
|
|
|
1,568 |
|
|
|
7,414 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Loss before provision for income taxes |
|
5,751 |
|
2,264 |
|
(154 |
) |
|
|
(2,133 |
) |
|
|
5,728 |
| |||||
Provision (benefit) for income taxes |
|
681 |
|
996 |
|
|
|
|
|
(835 |
) |
6w |
|
842 |
| |||||
Net income (loss) |
|
$ |
5,070 |
|
$ |
1,268 |
|
$ |
(154 |
) |
|
|
$ |
(1,298 |
) |
|
|
$ |
4,886 |
|
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.
Colt Defense LLC
Unaudited Pro Forma Condensed Consolidated Statements of Operations
For The Year Ended December 31, 2012
(In thousands of dollars)
|
|
December 31, 2012 YTD P&L |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma |
| |||||
|
|
Colt |
|
New Colt |
|
|
|
|
|
Pro forma |
|
|
|
Colt |
| |||||
|
|
Defense LLC |
|
Holding Corp. |
|
Eliminations |
|
Note |
|
Adjustments |
|
Note |
|
Defense LLC |
| |||||
Net sales |
|
$ |
213,328 |
|
$ |
129,510 |
|
$ |
(84,233 |
) |
5c |
|
$ |
|
|
|
|
$ |
258,605 |
|
Cost of sales |
|
162,177 |
|
117,736 |
|
(84,731 |
) |
5d |
|
1,754 |
|
6r |
|
196,936 |
| |||||
Gross profit |
|
51,151 |
|
11,774 |
|
498 |
|
|
|
(1,754 |
) |
|
|
61,669 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Selling, general and administrative expenses |
|
32,594 |
|
9,155 |
|
(433 |
) |
5e |
|
365 |
|
6s |
|
41,681 |
| |||||
Operating income |
|
18,557 |
|
2,619 |
|
931 |
|
|
|
(2,119 |
) |
|
|
19,988 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Other (income)/expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest expense |
|
24,579 |
|
68 |
|
|
|
|
|
6,866 |
|
6t |
|
31,513 |
| |||||
Other (income)/expense, net |
|
(26 |
) |
1,116 |
|
|
|
|
|
54 |
|
6u |
|
1,144 |
| |||||
Other (income)/expense, net |
|
(691 |
) |
135 |
|
1,199 |
|
5f |
|
(1,116 |
) |
6v |
|
(473 |
) | |||||
Total other expense, net |
|
23,862 |
|
1,319 |
|
1,199 |
|
|
|
5,804 |
|
|
|
32,184 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Loss before provision for income taxes |
|
(5,305 |
) |
1,300 |
|
(268 |
) |
|
|
(7,923 |
) |
|
|
(12,196 |
) | |||||
Provision (benefit) for income taxes |
|
1,750 |
|
740 |
|
|
|
|
|
(3,392 |
) |
6w |
|
(902 |
) | |||||
Net income (loss) |
|
$ |
(7,055 |
) |
$ |
560 |
|
$ |
(268 |
) |
|
|
$ |
(4,531 |
) |
|
|
$ |
(11,294 |
) |
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.
Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements
(in thousands of dollars)
Note 1 Basis of Presentation
On July 12, 2013, pursuant of the terms of the Merger Agreement, the Company acquired 100% ownership of New Colt. Pursuant to the terms of the Merger Agreement, Merger Sub merged with and into New Colt, with New Colt surviving the merger as a wholly owned subsidiary of the Company.
The Merger is accounted for under the acquisition method of accounting in accordance with Accounting Standards Codification Topic 805 Business Combinations (ASC 805). The Company is accounting for the Merger by using the historical information and accounting policies of Colt Defense and adding the assets and liabilities of New Colt, as of the Merger Date, at their respective fair values. Further, the accounting policies of New Colt have been conformed to those of Colt Defense in determining the results of operations and the amounts of assets and liabilities to be fair valued. The assets and liabilities of New Colt have been measured at fair value based on various assumptions that Colt Defenses management believes are reasonable utilizing information as of the Merger Date.
The process for measuring the fair value of New Colts identifiable intangible assets, liabilities and certain tangible assets requires the use of significant assumptions, including estimates of future cash flows and appropriate discount rates. The excess of the purchase price over the amount of identifiable assets and liabilities of New Colt acquired, as of the Merger Date, was allocated to goodwill in accordance with ASC 805.
The fair value of New Colt assets acquired and liabilities assumed, as reflected in the unaudited pro forma condensed consolidated financial information, was measured in accordance with Accounting Standards Codification Topic 820 Fair Value Measurement and Disclosure (ASC 820), which establishes the framework for measuring fair values. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). Market participants are buyers and sellers in the principal (most advantageous) market for the asset or liability. Additionally, under ASC 820, fair value measurements for an asset assume the highest and best use of that asset by market participants.
Note 2 Accounting Policies
The unaudited pro forma condensed consolidated financial information reflects adjustments to conform New Colts results to Colt Defenses accounting policies. Significant differences between the respective accounting policies that have been adjusted include the following:
a) Inventory New Colt recognizes as inventory amounts related to samples, loaners and certain other handguns. Colt Defenses policy is to expense samples, loaners and certain other inventory to selling and commission expense as the inventory is designated as such. Therefore, the unaudited pro forma condensed consolidated balance sheet as of March 31, 2013 reflects a net decrease of $471 to inventory and accumulated deficit to conform to Colt Defenses accounting policy.
b) Effective Settlement of pre-existing relationship Prior to the Merger, Colt Defense has several pre-existing contractual relationships with New Colt (See Note 5 - Eliminations). Colt Defense evaluated these pre-existing relationships and determined that the terms of Colt Defenses license agreement (the License) with New Colt for the use of certain Colt trademarks, was favorable as compared to market rates. Therefore, immediately prior to the Merger, Colt Defense and New Colt effectively settled the pre-existing relationship between the companies related to the License. As a result of the settlement of the License, Colt Defense recorded a gain of $15,236 (Settlement
Gain), which equals the calculated gain of $16,320 reduced by the write-off of Colt Defenses prepaid license balance of $1,084. The gain was calculated by a third-party by comparing the value of the royalty rate in the License to the current market rate for such a license. The Company has not included the Settlement Gain in the unaudited pro forma condensed consolidated statements of operations because it was recorded immediately prior to the Merger. In the unaudited pro forma condensed consolidated balance sheets, Colt Defenses accumulated deficit was reduced to reflect the Settlement Gain and goodwill was increased as this gain effectively increases the Companys purchase consideration.
The Company is still in the process of evaluating Colts Manufacturings accounting policies. As a result of this review, it may become necessary to conform other accounting policies for the combined entity. The unaudited pro forma condensed consolidated financial information does not assume any adjustments for any remaining differences in accounting policies.
Note 3 Preliminary Purchase Price
Colt Defense acquired 100% ownership of New Colt in exchange for a Purchase Price of $83,148, subject to certain adjustments. A portion of the Purchase Price was placed in a third party escrow as security for certain post-closing adjustments to the Purchase Price and potential obligations of New Colts former equityholders under the Merger Agreement.
|
|
Amount |
| |
Cash Consideration |
|
$ |
67,912 |
|
Gain on settlement of pre-existing relationship |
|
15,236 |
| |
Total preliminary purchase price |
|
$ |
83,148 |
|
To partially fund the Cash Consideration, Colt Defense entered into a $50,000 senior secured term loan agreement (Term Loan). Net proceeds from the Term Loan less related deferred financing fees and debt discount were $45,773. The Term Loan, which matures on November 15, 2016, bears interest at a rate of 9.75% plus the greater of the 3-month LIBOR rate or 1.0%. The Term Loan contains several financial covenants, including a minimum EBITDA, a fixed charge coverage ratio, a secured leverage ratio and a maximum level of capital expenditures.
Colt Defense also partially funded the Cash Consideration through the issuance and sale of 31,165.589 of the Companys common units to certain new and existing holders for aggregate proceeds of $9,000. For the remainder of the Cash Consideration, Colt Defense used approximately $13,139 of cash on hand.
Note 4 Preliminary Purchase Price Allocation
The unaudited pro forma condensed consolidated financial information have been prepared using the acquisition method of accounting under ASC 805, which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values, with limited exceptions, at the Merger Date. Transaction costs are not included as a component of the Cash Consideration and are expensed as incurred. The excess of the Purchase Price over the estimated amounts of identifiable assets and liabilities of New Colt as of the Merger Date has been allocated to goodwill. The process for estimating fair values in many cases requires the use of significant estimates and assumptions, including the estimation of future cash flows and the development of appropriate discount rates. The Company has developed its fair value estimates from a market participant perspective which could materially differ from entity specific assumptions. Managements judgments used in determining these estimates may materially impact our financial position or results from operations.
Under the acquisition method of accounting, the total estimated purchase price is allocated to New Colts net tangible and intangible assets acquired and liabilities assumed based on their estimated fair value. Managements preliminary valuation of the fair value of tangible and intangible assets acquired and liabilities assumed are based on estimates and assumptions that are subject to change. The areas of the purchase price allocation that are not yet finalized relate primarily to the Colt trademarks, finite-lived intangible assets, deferred income taxes and customer advances and deferred revenue. The following summarizes the estimated preliminary fair value of assets acquired and liabilities assumed in the Merger, assuming the Merger had been completed on March 31, 2013:
Cash and cash equivalents |
|
$ |
4,363 |
|
Accounts receivable |
|
1,467 |
| |
Inventory |
|
8,638 |
| |
Property and equipment |
|
5,287 |
| |
Deferred tax assets |
|
10,976 |
| |
Other assets |
|
2,223 |
| |
Finite-lived intangible assets |
|
9,340 |
| |
Colt trademarks |
|
50,100 |
| |
Goodwill |
|
33,150 |
| |
Total assets acquired |
|
125,544 |
| |
|
|
|
| |
Accounts payable and accrued expenses |
|
6,320 |
| |
Customer advances and deferred revenue |
|
1,208 |
| |
Capitalized lease obligations |
|
528 |
| |
Deferred tax liabilities |
|
24,164 |
| |
Retirement obligations |
|
10,176 |
| |
Total liabilities assumed |
|
42,396 |
| |
Net assets acquired |
|
$ |
83,148 |
|
The estimated fair value of the identifiable intangible assets and their preliminary estimated weighted-average useful lives are as follows:
|
|
Fair Value |
|
Useful Life |
| |
Colt trademarks |
|
$ |
50,100 |
|
indefinite |
|
Existing license agreements |
|
5,240 |
|
6 years |
| |
Developed technology |
|
2,970 |
|
20 years |
| |
Backlog |
|
1,130 |
|
3 years |
| |
|
|
$ |
59,440 |
|
|
|
Trademarks represent the estimated fair value of the Colt brand and related trademarks. Existing license agreements represents the estimated fair value of license agreements for licensing the Colt trademarks to various third parties. Developed technology represents the estimated fair value of designs, trade secrets, materials, specifications and other proprietary intellectual property included in the technical data packages and related manufacturing processes and know-how. Backlog represents the estimated fair value of unfilled contractual orders from customers.
Preliminary estimated amortization expense, based upon the Companys newly acquired intangible assets as of March 31, 2013, is as follows:
Year Ending December 31, |
|
Amount |
| |
Remaining 2013 |
|
$ |
1,687 |
|
2014 |
|
2,544 |
| |
2015 |
|
1,996 |
| |
2016 |
|
1,187 |
| |
2017 |
|
587 |
| |
Thereafter |
|
1,339 |
| |
Total |
|
$ |
9,340 |
|
Note 5 Eliminations
Both prior and subsequent to the Merger, Colt Defense has conducted and continues to conduct transactions with New Colt under the following key agreements:
In August 2012, the Company signed the Services Agreement 2012 (Services Agreement), under which Colt Defense provides certain factory, administrative and data processing services to Colts Manufacturing for an annual fee of $1,766. Colt Defense includes the service fee income in other (income) expense, net and Colts Manufacturing allocates the charges to cost of sales and selling, general and administrative expense in the consolidated statements of operations. In addition, under the terms of the Services Agreement, Colts Manufacturing paid Colt Defense at an estimated rate of $35 per month for their electricity usage in July and August 2012. Since September 1, 2012, Colt Defense has invoiced Colts Manufacturing each month for the cost of their actual electricity usage based on a newly installed meter. The total amount received for electricity usage for the period from September 1 to December 31, 2012 was approximately $81. Colt Defense and Colts Manufacturing both included the amounts for electricity usage in cost of sales in the consolidated statements of operations. The Services Agreement, which was effective July 1, 2012, supersedes the Intercompany Services Agreement dated June 26, 2007 between Colt Defense and Colts Manufacturing under which Colt Defense received a $430 annual fee.
In May 2011, Colt Defense signed a memorandum of understanding (MOU) with Colts Manufacturing to jointly coordinate the marketing and sales of rifles into the commercial market. Under the MOU, Colt Defense sells rifles and carbines to Colts Manufacturing, which sells them into the commercial market.
During 2012, Colt Defense entered into a contract to supply the M45A1 Close Quarters Battle Pistol to the United States Marine Corps and the Company has begun offering this product to our international customers. This product is manufactured for and supplied to Colt Defense by Colts Manufacturing pursuant to purchase orders.
Colt Defense also subleases a portion of its West Hartford facility to Colts Manufacturing.
As a result of the Merger, historical transactions under the above agreements with New Colt that the Company previously recorded as third-party transactions have become intercompany transactions and are therefore required to be eliminated in the unaudited pro forma condensed consolidated financial information.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
Eliminations included in the unaudited pro forma condensed consolidated balance sheet as of March 31, 2013 were as follows:
a) Accounts receivable, Other current Assets and Accounts payable The Company eliminated $8,846 of accounts receivable and the corresponding accounts payable for Colt Defense rifles sold to Colts Manufacturing under the MOU. When Colts Manufacturing sells Colt Defenses rifles to the commercial market pursuant to the MOU, customers are offered a 2% cash discount for payment within ten days. Colt Defense reimburses Colts Manufacturing for the 2% cash discounts taken. Therefore, the Company eliminated $149 from both other current assets and accounts payable, which represents the amount due from Colt Defense to Colts Manufacturing for cash discounts as of March 31, 2013. In addition, the Company eliminated $500 of accounts receivable and the corresponding accounts payable for M45A1 pistols that Colts Manufacturing sold to Colt Defense that was outstanding as of March 31, 2013.
b) Inventory, Goodwill and Accrued Expenses As of March 31, 2013, Colts Manufacturing had commercial rifles in its inventory that it had purchased from Colt Defense. In the unaudited pro forma condensed balance sheet, the Company reduced inventory by $229, increased goodwill by $154 and reduced accrued expenses by $75 to properly reflect the cost of Colt Defense commercial rifles and to eliminate federal excise tax that is not incurred until inventory is sold outside the Company.
Unaudited Pro Forma Condensed Consolidated Statements of Income
Eliminations included in the unaudited pro forma condensed consolidated statements of income for the quarter ended March 31, 2013 and the year ended December 31, 2012 were as follows:
c) Sales
|
|
Quarter Ended |
|
Year Ended |
| ||
Elimination of sales from Colt Defense to Colts Manufacturing |
|
$ |
(25,257 |
) |
$ |
(82,998 |
) |
Elimination of sales from Colts Manufacturing to Colt Defense |
|
(994 |
) |
(1,235 |
) | ||
Total |
|
$ |
(26,251 |
) |
$ |
(84,233 |
) |
d) Cost of sales
|
|
Quarter Ended |
|
Year Ended |
| ||
Elimination of Colts Manufacturings cost of sales on purchases from Colt Defense |
|
$ |
(25,257 |
) |
$ |
(82,998 |
) |
Elimination of Colt Defenses cost of sales on purchases from Colts Manufacturing |
|
(994 |
) |
(1,235 |
) | ||
Elimination of Colt Defenses profit on rifles that were sold to Colts Manufacturing and were still in Colts Manufacturings inventory at end of period (lower of cost or market adjustment) |
|
154 |
|
268 |
| ||
Elimination of portion of Colt Manufacturings expense under Services Agreement 2012 allocated to cost of sales |
|
(237 |
) |
(665 |
) | ||
Elimination of Colt Defenses License amortization expense |
|
(25 |
) |
(101 |
) | ||
Total |
|
$ |
(26,359 |
) |
$ |
(84,731 |
) |
e) General and administrative Colts Manufacturing allocates a portion of the expense under the Services Agreement 2012 to general and administrative expense. The Company eliminated $204 and $433 of this expense from general and administrative expense for the quarter ended March 31, 2013 and the year ended December 31, 2012, respectively.
f) Other (income)/expense, net -
|
|
Quarter Ended |
|
Year Ended |
| ||
Elimination of Colt Defenses income under Service Agreement 2012 |
|
$ |
441 |
|
$ |
1,098 |
|
Elimination of Colts Manufacturings License income |
|
25 |
|
101 |
| ||
Total |
|
$ |
466 |
|
$ |
1,199 |
|
Note 6 Pro Forma Adjustments
The following pro forma adjustments are included in the Companys unaudited pro forma condensed consolidated financial information to reflect the merger.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
Adjustments to the unaudited pro forma condensed consolidated balance sheet as of March 31, 2013 were as follows:
a) Cash Colt Defense used $13,139 of cash on hand to partially fund the Cash Consideration and $750 to fund other transaction related expenses.
b) Inventories The Company recorded a net increase of $640 to record Colts Manufacturings acquired inventory at fair market value. The Company also recorded a net decrease of $471 to acquired inventory to conform Colts Manufacturings inventory accounting for samples, loaners and certain other handguns.
c) Deferred income tax benefit and Long-term deferred tax asset The Company recorded a net reduction in deferred tax assets of $1,097 related to the tax impact of the fair value adjustments, primarily other long-term liabilities, retirement obligations and property and equipment.
d) Property and equipment, net The Company recorded $1,713 of property and equipment as a result of the payoff of the G.E. Capital operating and capital leases. The Company recorded an adjustment of $457 to increase Colts Manufacturings property and equipment to its appraised fair market value.
e) Goodwill - Existing goodwill of Colts Manufacturing of $1,044 was eliminated. Of the preliminary total Purchase Price, $32,996 was allocated to goodwill and is not deductible for federal income tax purposes. Goodwill is the excess of the purchase price of an acquired business over the fair value of net assets acquired. Goodwill will not be amortized but instead will be tested for impairment at least annually or more frequently if indicators of impairment arise.
f) Colt trademarks The existing Colt trademarks intangible asset of $6,679 was eliminated. The acquired Colt trademarks were measured at fair value as determined primarily by using the income approach, which required a forecast of all expected future cash flows. The estimated fair value of the indefinite-lived asset was $50,100.
g) Intangible assets, net Acquired identifiable intangible assets of $9,340 were measured at fair value determined primarily by using the income approach, which required a forecast of all expected future cash flows.
h) Deferred financing costs The Company recorded $1,969 of deferred financing costs associated primarily with the Term Loan. Such costs will be amortized over the life of the Term Loan.
i) Other assets The Company recorded a $330 asset associated with a below-market rate lease on the Florida Facility. The Company also recorded a $268 reduction to eliminate the security deposit on the G.E. Capital leases, which was utilized when the leases were paid off.
j) Current portion of capital lease obligations and Capital lease obligations The Company recorded a $70 reduction in current capital lease obligations and a $107 reduction in long-term capital lease obligations to reflect the payoff of the G.E. Capital capital lease obligations immediately prior to the Merger.
k) Accrued expenses The Company recorded a $1,008 liability related to the retirement of Colt Defenses former Chief Executive Officer in conjunction with the Merger.
l) Deferred income tax liability and Long-term deferred income tax liability - The Company also recorded deferred tax liabilities of $24,164 related to the tax impact of the fair value adjustments, primarily acquired intangibles and fixed assets.
m) Long-term debt current portion and Long-term debt, less current portion The Company recorded a current debt liability of $2,500 to reflect payments due over the next twelve months on the Term Loan. The remaining $47,500 balance of the Term Loan was reduced to $45,242 by $2,258 of debt discount and was recorded as a long-term debt liability.
n) Pension and retirement obligations Pension and post-retirement liabilities were decreased by $875 to reflect the actuarially determined fair value of the liabilities and the fair value of pension assets acquired as of the Merger Date.
o) Other long-term liabilities The Company eliminated a $319 deferred rent liability and $1,141 of deferred royalty income related to a license agreement for which New Colt has no future performance obligations.
In addition, the Company eliminated $1,084 of deferred income related to the License, which was settled immediately prior to the Merger.
p) Paid in capital and Accumulated deficit The Company recorded a $23,908 adjustment to paid in capital to eliminate Colts Manufacturings historical unitholders equity. Accumulated deficit was also adjusted as follows:
|
|
March 31, 2013 |
| |
Issuance and sale of 31,165.589 Colt Defense common units |
|
$ |
9,000 |
|
Eliminate Colts Manufacturings historical accumulated deficit |
|
832 |
| |
Settlement Gain |
|
15,236 |
| |
Record transaction costs related to the Merger |
|
(750 |
) | |
Total |
|
$ |
24,318 |
|
q) Accumulated other comprehensive loss The Company recorded an adjustment of $4,369 to eliminate Colts Manufacturings accumulated other comprehensive loss associated with prior service costs and actuarial losses on pension and retirement obligations as a result of regarding the pension and post-retirement obligations at fair value.
Unaudited Pro Forma Condensed Consolidated Statements of Income
Adjustments to the unaudited pro forma condensed consolidated statements of income for the quarter ended March 31, 2013 and the year ended December 31, 2012, respectively, were as follows:
r) Cost of sales The Company eliminated $116 and $337 of expense for the quarter ended March 31, 2013 and the year ended December 31, 2012, respectively, for the G.E. Capital leases that were paid off immediately prior to the Merger. The Company also recorded $7 and $65 of expense for the quarter ended March 31, 2013 and the year ended December 31, 2012, respectively, to reflect the additional depreciation expense on fixed assets acquired. In addition, the Company recorded $508 and $2,026 of expense for the quarter ended March 31, 2013 and the year ended December 31, 2012, respectively, to reflect the amortization of the acquired identifiable intangible assets, which was allocated to cost of sales. The Company did not include the $640 adjustment to record Colts Manufacturings acquired inventory at fair market value in the pro forma unaudited condensed consolidated statements of operations. Since the Company expects the acquired inventory to turn in less than one year, the adjustment was excluded as a one-time expense.
s) Selling, general and administrative The Company recorded $157 and $326 of expense for the quarter ended March 31, 2013 and the year ended December 31, 2012, respectively, to reflect the amortization of acquired intangible assets, which was allocated to selling, general and administrative expense. The Company also recorded $7 and $29 of expense for the quarter ended March 31, 2013 and the year ended December 31, 2012, respectively, to reflect the amortization of the asset associated with a below-market rate lease on the Florida Facility. As of March 31, 2013, the Company eliminated the existing deferred rent balance and recorded the straight-line amortization of the lease expense associated with the Florida Facility as if it started as of the transaction date. As a result, the Company recorded $2 and $10 of additional expense for the quarter ended March 31, 2013 and the year ended December 31, 2012, respectively.
t) Interest expense The Company recorded $1,640 and $6,866 of interest expense for the quarter ended March 31, 2013 and the year ended December 31, 2012, respectively, to reflect the interest expense as well as the amortization of both the deferred financing fees and the debt discount associated with the Term Loan. The Term Loan bears interest at a rate of 9.75% plus the greater of the 3-month LIBOR rate or 1.0%. To calculate the interest expense above, the Company assumed an interest rate of 10.75%, which is the interest rate floor for the Term Loan. A 1/8th percent increase in this rate would result in an increase to the above noted interest expense of approximately $15 and $62 for the quarter ended March 31, 2013 and the year ended December 31, 2012, respectively.
u) Royalty income, net - The Company recorded $13 and $54 of reductions in royalty income for the quarter ended March 31, 2013 and the year ended December 31, 2012, respectively. These adjustments were made to eliminate royalty income related to a license agreement for which New Colt has no future performance obligations.
v) Other (income)/expense, net The Company recorded expense reductions of $85 and $1,116 for the quarter ended March 31, 2013 and the year ended December 31, 2012, respectively, to eliminate advisory, legal and accounting expenses that New Colt incurred as a result of the Merger.
w) Provision for income taxes The Company recorded income tax benefits of $835 and $3,392 for the quarter ended March 31, 2013 and the year ended December 31, 2012, respectively. These pro forma income tax adjustments reflect the tax effect of the pro forma adjustments on income before tax at the applicable statutory rate. These rates are estimates and do not take into account any possible future tax events that may occur for the combined Company.