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): October 13, 2010
MINE SAFETY APPLIANCES COMPANY
(Exact name of registrant as specified in its charter)
Pennsylvania | 1-15579 | 25-0668780 | ||
(State or other jurisdiction of incorporation or organization) |
(Commission File Number) |
(IRS Employer Identification Number) |
MSA Corporate Center 1000 Cranberry Woods Drive Cranberry Township, PA |
16066 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code: 724-776-8600
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:
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Explanatory Note
This amendment is being filed to amend and supplement Item 9.01 of the Current Report on Form 8-K filed on October 19, 2010, to include the financial statements and pro forma financial information described in Item 9.01 below.
Item 9.01. | Financial Statements and Exhibits. |
(a) Financial Statements of Business Acquired
The audited financial statements of General Monitors, Inc. (GMI), General Monitors Ireland Limited (GMIL), and General Monitors Transnational, LLC (GMT) at December 31, 2009 and for the year then ended are filed as Exhibits 99.1, 99.2, and 99.3, respectively, to this amendment.
The unaudited condensed financial statements of GMI, GMIL, and GMT at September 30, 2010 and for the nine months then ended are filed as Exhibits 99.4, 99.5, and 99.6, respectively, to this amendment.
(b) Pro Forma Financial Information
The pro forma financial information at September 30, 2010 and for the nine months then ended and for the year ended December 31, 2009 is filed as Exhibit 99.7 to this amendment.
(c) The following exhibits are furnished with this report on Form 8-K.
Exhibit No. |
Description | |
99.1 |
Audited consolidated financial statements of General Monitors, Inc. at December 31, 2009 and for the year then ended. | |
99.2 |
Audited financial statements of General Monitors Ireland Limited at December 31, 2009 and for the year then ended. | |
99.3 |
Audited consolidated financial statements of General Monitors Transnational, LLC at December 31, 2009 and for the year then ended. | |
99.4 |
Unaudited interim condensed consolidated financial statements of General Monitors, Inc. at September 30, 2010 and for the nine months then ended. | |
99.5 |
Unaudited interim condensed financial statements of General Monitors Ireland Limited at September 30, 2010 and for the nine months then ended. | |
99.6 |
Unaudited interim condensed consolidated financial statements of General Monitors Transnational, LLC at September 30, 2010 and for the nine months then ended. | |
99.7 |
Unaudited pro forma condensed combined financial information. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, MSA has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
MINE SAFETY APPLIANCES COMPANY | ||
By: | /S/ DENNIS L. ZEITLER | |
Dennis L. Zeitler | ||
Senior Vice President Finance |
Date: December 23, 2010
EXHIBIT INDEX
Number |
Description |
Method of Filing | ||
99.1 | Audited consolidated financial statements of General Monitors, Inc. at December 31, 2009 and for the year then ended. | Filed herewith | ||
99.2 | Audited financial statements of General Monitors Ireland Limited at December 31, 2009 and for the year then ended. | Filed herewith | ||
99.3 | Audited consolidated financial statements of General Monitors Transnational, LLC at December 31, 2009 and for the year then ended. | Filed herewith | ||
99.4 | Unaudited interim condensed consolidated financial statements of General Monitors, Inc. at September 30, 2010 and for the nine months then ended. | Filed herewith | ||
99.5 | Unaudited interim condensed financial statements of General Monitors Ireland Limited at September 30, 2010 and for the nine months then ended. | Filed herewith | ||
99.6 | Unaudited interim condensed consolidated financial statements of General Monitors Transnational, LLC at September 30, 2010 and for the nine months then ended. | Filed herewith | ||
99.7 | Unaudited pro forma condensed combined financial information. | Filed herewith |
Exhibit 99.1
General Monitors, Inc.
Consolidated Financial Report
December 31, 2009
Report of Independent Auditors
To the Board of Directors and Shareholders of General Monitors, Inc.:
In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, cash flows, and changes in shareholders equity present fairly, in all material respects, the financial position of General Monitors, Inc. and its subsidiary (the Company) at December 31, 2009, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP |
Pittsburgh, Pennsylvania |
December 23, 2010 |
1
GENERAL MONITORS, INC.
CONSOLIDATED STATEMENT OF INCOME
(In thousands)
Year Ended December 31, 2009 |
||||
Net sales |
$ | 50,756 | ||
Other income |
101 | |||
50,857 | ||||
Costs and expenses |
||||
Cost of products sold |
20,755 | |||
Selling, general and administrative |
13,629 | |||
Research and development |
4,758 | |||
Interest |
2 | |||
Currency exchange gains |
(88 | ) | ||
39,056 | ||||
Income before income taxes |
11,801 | |||
Provision for income taxes |
241 | |||
Net income |
11,560 | |||
See Notes to Consolidated Financial Statements.
2
GENERAL MONITORS, INC.
CONSOLIDATED BALANCE SHEET
(In thousands, except share amounts)
December 31, 2009 |
||||
Assets |
||||
Current Assets |
||||
Cash and cash equivalents |
$ | 9,043 | ||
Accounts receivable, less allowance for doubtful accounts of $576 |
8,131 | |||
Inventories, net |
3,718 | |||
Prepaid expenses and other current assets |
640 | |||
Total current assets |
21,532 | |||
Property and equipment, net |
3,292 | |||
Other noncurrent assets |
65 | |||
Total assets |
24,889 | |||
Liabilities and Shareholders Equity |
||||
Current Liabilities |
||||
Accounts payable |
$ | 1,032 | ||
Other current liabilities |
3,075 | |||
Income taxes payable |
133 | |||
Total current liabilities |
4,240 | |||
Other noncurrent liabilities |
190 | |||
Total liabilities |
4,430 | |||
Shareholders Equity |
||||
Common stock-authorized 800,000 shares of $0.10 par value; issued 79,026 shares |
8 | |||
Additional paid in capital |
1,821 | |||
Note receivable from shareholder |
(639 | ) | ||
Retained earnings |
19,269 | |||
Total shareholders equity |
20,459 | |||
Total liabilities and shareholders equity |
24,889 | |||
See Notes to Consolidated Financial Statements.
3
GENERAL MONITORS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Year Ended December 31, 2009 |
||||
Operating Activities |
||||
Net income |
$ | 11,560 | ||
Depreciation |
542 | |||
Net loss from investing activities property disposals |
24 | |||
Other noncurrent assets and liabilities |
234 | |||
Operating cash flow before changes in working capital |
12,360 | |||
Accounts receivable |
1,042 | |||
Inventories |
696 | |||
Accounts payable and accrued liabilities |
(2,170 | ) | ||
Prepaid expenses and other current assets |
50 | |||
Increase in working capital |
(382 | ) | ||
Cash flow from operating activities |
11,978 | |||
Investing Activities |
||||
Property additions |
(632 | ) | ||
Property disposals |
35 | |||
Cash flow from investing activities |
(597 | ) | ||
Financing Activities |
||||
Distributions to shareholders |
(8,535 | ) | ||
Payments on short-term debt, net |
(1,000 | ) | ||
Payments on long-term debt |
(168 | ) | ||
Collections on note receivable from shareholder |
200 | |||
Cash flow from financing activities |
(9,503 | ) | ||
Increase in cash and cash equivalents |
1,878 | |||
Beginning cash and cash equivalents |
7,165 | |||
Ending cash and cash equivalents |
9,043 | |||
Supplemental cash flow information |
||||
Interest payments |
$ | 26 | ||
Income tax payments |
$ | 206 |
See Notes to Consolidated Financial Statements.
4
GENERAL MONITORS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
Year Ended December 31, 2009
(In thousands)
Common Stock |
Additional Paid In Capital |
Note Receivable From Shareholder |
Retained Earnings |
Total Equity | ||||||||||||||||
Balances December 31, 2008 |
$ | 8 | $ | 1,821 | $ | (839 | ) | $ | 16,244 | $ | 17,234 | |||||||||
Net income |
| | | 11,560 | 11,560 | |||||||||||||||
Distributions to shareholders |
| | | (8,535 | ) | (8,535 | ) | |||||||||||||
Collections on note receivable |
| | 200 | | 200 | |||||||||||||||
Balances December 31, 2009 |
8 | 1,821 | (639 | ) | 19,269 | 20,459 | ||||||||||||||
See Notes to Consolidated Financial Statements.
5
GENERAL MONITORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies
Nature of business: General Monitors, Inc. (GMI) and its wholly owned subsidiary, General Monitors DISC, Inc., (collectively the Company or the Companies) design, engineer, manufacture and distribute gas monitoring and flame detection devices primarily for the oil and gas and mining industries. The Companys products are sold internationally and domestically, with international sales comprising approximately 46 percent of net sales.
The Companys exported products are regulated by the U.S. Department of Commerce. While GMIs management makes every effort to maintain full compliance with all applicable export laws and regulations, an ongoing risk exists that one or more of the Companys activities may at some point be determined to be noncompliant. Notwithstanding the risks inherent in the Companys business, management believes that GMI enjoys a good reputation and is in compliance with applicable regulations.
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, General Monitors DISC, Inc. Intercompany accounts and transactions are eliminated.
Use of estimates: The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying note disclosures. Actual results could differ from those estimates. Significant estimates and assumptions made by management are used for, but not limited to, the allowance for doubtful accounts, the reserve for slow-moving or obsolete inventories, the carrying value of long-lived assets, warranty accrual, accrued liabilities and accrued employee benefits.
Cash and cash equivalents: Cash in excess of daily requirements is invested in money market accounts or certificates of deposit with original maturities of three months or less. Such investments are deemed to be cash equivalents.
The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.
Accounts receivable: Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customers financial condition and credit history, and current economic conditions. An account receivable is considered to be past due if any portion of the receivable balance is outstanding for more than the agreed terms. Interest is not charged on accounts receivable that are considered past due. Accounts receivable are written off when deemed uncollectible. Recoveries of accounts receivable previously written off are recorded when received.
6
Inventories: Inventories are valued on a first-in first-out (FIFO) basis at the lower of cost or market (net realizable value). Management periodically reviews inventories for slow-moving and/or obsolete items and directly writes off amounts as needed.
Property and equipment: Property and equipment are recorded at cost. Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets. Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the term of the lease.
Useful Lives | ||
Automobiles |
3 years | |
Machinery, furniture and equipment |
3 10 years | |
Leasehold improvements |
5 30 years | |
Buildings |
30 40 years |
Depreciation expense included in the Consolidated Statement of Income for the year ended December 31, 2009 was $0.5 million.
Impairment of long-lived assets: The Company reviews its long-lived assets for impairment whenever events or changes in circumstances have indicated that an asset may not be recoverable. Long-lived assets evaluated for impairment are grouped with other assets to the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. If the sum of the projected undiscounted cash flows is less than the carrying value of the assets, the assets will be written down to the estimated fair value and the loss recognized in income from continuing operations in the period in which the determination is made. Management has determined that no impairment of long-lived assets exists at December 31, 2009.
Revenue recognition: Revenue is recognized when title, ownership and the risk of loss have transferred to the customer, which generally occurs when the product is shipped to the customer. Revenue related to services is recognized when services are performed.
Shipping and handling: Shipping and handling expenses are recorded as costs of products sold in the Consolidated Statement of Income.
Product returns and warranties: The Company provides a limited two-year warranty for its products. The Companys standard warranties require the Company to repair or replace defective products during such warranty period at no cost to the consumer. Factors that affect the Companys warranty liability include the number of units sold, historical and anticipated rates of warranty claims, and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.
Research and development: Research and development costs related to present and future products are expensed as they are incurred.
Income taxes: The Company, with the consent of its shareholders, has elected to be taxed under sections of income tax law (federal and various states) which provide that, in lieu of corporate income taxes, the shareholders separately account for their pro rata shares of the Companys items of income, deductions, losses and credits. As a result of this election, no federal income taxes have been recorded in the accompanying consolidated financial statements and state income taxes are at a rate per each states respective tax law.
7
Foreign exchange contracts: The Company enters into foreign exchange contracts as a hedge against receivables, payables and anticipated sales of inventories which are denominated in a foreign currency. Unrealized gains and losses on forward exchange contracts are recognized in income as the derivative instruments do not qualify as hedging instruments pursuant to Financial Accounting Standards Board (FASB) ASC topic Derivatives and Hedging. Cash flows related to purchases and maturities of foreign exchange contracts are included in cash flows from operations.
Fair value of financial instruments: The carrying value of cash and cash equivalents and certificates of deposit approximates their fair value. The estimated fair value of foreign exchange contracts is based on quoted market prices for these contracts and approximates their carrying amount. Interest on long-term debt is payable at variable and fixed rates, which approximate market rates at December 31, 2009.
We estimate the fair value of these financial instruments using valuation models with inputs that generally can be verified by observable market conditions and do not involve significant management judgment. Accordingly, the fair values of these financial instruments are classified within Level 2 of the fair value hierarchy.
The fair value estimates are based on pertinent information available to management as of December 31, 2009. Although management is not aware of any factors that would significantly affect the estimated fair value amounts as of these dates, such amounts have not been comprehensively revalued for the purpose of these financial statements since that date. Current estimates of fair value may differ from the amounts presented.
Recent accounting pronouncements: In September 2006, the FASB issued a new accounting pronouncement which defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. The Company adopted this accounting pronouncement for financial assets and financial liabilities in 2008 and for non-financial assets and non-financial liabilities in 2009. The adoption of this pronouncement did not have a material effect on the Companys results of operations or financial condition.
In July 2006, FASB issued a new accounting pronouncement which clarifies the accounting for uncertainty due to tax positions taken or expected to be taken in an income tax return and requires additional disclosures. The Company adopted this accounting pronouncement in 2009. The adoption of this pronouncement did not have a material effect on the Companys results of operations or financial condition.
In December 2007, the FASB issued a new accounting pronouncement which significantly changed the accounting for business combinations and will impact financial statements both on the acquisition date and in subsequent periods. This accounting pronouncement establishes principles and requirements for the reporting entity in a business combination, including recognition and measurement in the financial statements of the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. The accounting pronouncement also includes a substantial number of new disclosure requirements. The Company adopted this pronouncement in 2009. The adoption of this pronouncement did not have a material effect on the Companys results of operations or financial condition.
8
In June 2009, the FASB issued an Accounting Standard Codification which identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements that are presented in conformity with U.S. GAAP. The Codification does not change how the Company accounts for its transactions or the nature of related disclosures made. The Codification affects the way the Company references U.S. GAAP in the consolidated financial statements. The Company adopted the Codification in 2009.
In June 2009, the FASB issued a new accounting pronouncement which revises the approach to determine the primary beneficiary of a variable interest entity (VIE) and requires more frequent reassessment of whether a VIE must be consolidated. This accounting pronouncement is effective for the Company beginning in 2010. The adoption of this pronouncement in 2010 did not have a material effect on the Companys results of operations or financial condition.
In October 2009, the FASB issued a new accounting pronouncement which changes the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a consolidated unit. This accounting pronouncement requires significantly expanded disclosures related to a vendors multiple deliverable revenue arrangements and is effective for the Company beginning in 2011. The Company is currently evaluating the impact of this pronouncement.
Note 2. Inventories
Inventories were comprised of the following at December 31, 2009:
(In thousands) |
||||
Raw materials |
$ | 1,920 | ||
Finished goods |
2,599 | |||
4,519 | ||||
Reserve for obsolescence |
801 | |||
3,718 |
Note 3. Property and Equipment
Property and equipment consisted of the following at December 31, 2009:
(In thousands) |
||||
Land and buildings |
$ | 1,297 | ||
Leasehold improvements |
3,421 | |||
Machinery, furniture and equipment |
9,136 | |||
13,854 | ||||
Accumulated depreciation |
10,562 | |||
3,292 |
9
Note 4. Other Current Liabilities
Other current liabilities consisted of the following at December 31, 2009:
(In thousands) |
||||
Accrued salary and bonus |
$ | 184 | ||
Accrued vacation |
181 | |||
Accrued employee benefits |
386 | |||
Accrued warranty reserve |
103 | |||
Accrued sales and GST taxes |
594 | |||
Accrued commissions |
1,024 | |||
Other accrued liabilities |
603 | |||
3,075 |
Note 5. Commercial Credit and Long-term Debt
On March 5, 2009, the Company entered into a joint bank commercial credit agreement with General Monitors Transnational, LLC (GMT), an affiliated company, which replaced its previous commercial credit agreement. Under the terms of this commercial credit agreement (the Agreement), the Company had a $7.5 million revolving loan, which expired on May 1, 2010. As of December 31, 2009 there were no borrowings outstanding under the revolving loan. In connection with the Agreement, the Company had a $0.6 million standby letter-of-credit sublimit, of which $0.1 million was outstanding at December 31, 2009.
At the Companys option, borrowings under the Agreement bore interest at either the banks reference rate (3.25% at December 31, 2009) or the banks LIBOR (.23% at December 31, 2009) plus 1.5%. The Agreement required the maintenance of certain joint financial ratios and minimum net worth levels, and restricted changes in ownership greater than 10%.
GMT had borrowings under the revolving loan under the Agreement. On April 1, 2009, the outstanding balance under the revolving loan was converted into a term loan with equal monthly payments of $52,500 plus interest through August 1, 2012 which were being paid by GMT.
On May 1, 2010, the Company and GMT amended the Agreement reducing the revolving loan limit to $2.0 million and extending the expiration date until May 1, 2013. The standby letter-of-credit sublimit was increased to $2.0 million. Standby letter-of-credits issued reduce the amount available under the revolving loan on a dollar-for-dollar basis.
On October 13, 2010, in connection with the sale of the Company (as further described in Note 11), the Agreement was cancelled and amounts due under the term loan were paid in full.
Note 6. Related Party Transactions
The Company transacts business with two companies General Monitors Transnational, LLC and Subsidiaries (GMT) and General Monitors Ireland Limited (GMIL) which are affiliated through certain common ownership and management. GMT provides product components and
10
finished products for resale. In addition, GMT provides services for certain administrative, product development and marketing and sales promotion services, while the Company provides inventory to GMT and GMIL.
The Company transacts business with Wuxi General Monitors Co., Ltd. (Wuxi) which is affiliated through a 30 percent ownership by GMT. The Company provides product components and finished products for resale.
Related-party transactions were as follows for the year ended December 31, 2009:
(In thousands) |
||||
Sales to affiliates (included in net sales) |
$ | 2,661 | ||
Cost of goods sold to affiliates (included in cost of products sold) |
1,786 | |||
Purchases from affiliates* |
7,173 | |||
Servicing fees from affiliates (included in SG&A and R&D expenses) |
10,694 | |||
Rent charged to affiliates (included in other income) |
70 | |||
Net due to affiliates |
448 |
* | Purchases from affiliates are generally charged to inventories and ultimately reported in cost of products sold. |
Note 7. Commitments and Contingencies
Lease commitments and rent expense: The Company leases an operating facility under a non-cancelable operating lease agreement which calls for Consumer Price Index adjustments and expires in November 2016. Rent paid was $0.7 million for the twelve months ended December 31, 2009.
Future minimum lease commitments are as follows:
(In thousands) | ||||
2010 |
$ | 671 | ||
2011 |
671 | |||
2012 |
671 | |||
2013 |
671 | |||
2014 |
671 | |||
Thereafter |
1,285 |
11
Warranty accrual: Changes in the Companys warranty liability for the twelve months ended December 31, 2009 are as follows:
(In thousands) | ||||
Beginning balance |
$ | 153 | ||
Provision for warranty costs |
30 | |||
Warranty claims paid |
(80 | ) | ||
Ending balance |
103 |
Self-insurance of general liability: The Company acts as a self-insurer for its general liability coverage up to $0.5 million per claim. As of December 31, 2009, the Company is not aware of any amounts to be accrued as claims against the self-insured portion of the coverage.
Self-insurance of employee medical benefits: For most of the U.S. employees, the Company acts as a self-insurer for its medical, dental and vision claims, with stop-loss coverage for individual medical participant costs over $60,000 per year and an annual cap based on the number of employees. The Company has recorded a liability classified in other current liabilities, related to the Companys self-insurance of its employee medical plan of $0.4 million at December 31, 2009. Medical expenses are included in cost of products sold or selling, general and administrative expenses.
Shareholders Equity: Upon death, termination of employment or permanent disability, the Company will purchase, to the extent permitted by law, all of the outstanding shares owned by a shareholder. The purchase price is based upon the adjusted net worth, as defined, of the Company determined as of the end of the month immediately preceding the month in which the event requiring determination of the purchase price occurs.
Note 8. Retirement Plan
The Company has a defined contribution plan covering substantially all U.S. employees who have completed a minimum of six months of service. Non-vesting, discretionary contributions matching 100% up to $1,000 of each employees annual contribution are determined by the Board of Directors. The Company contributed $0.1 million to the defined contribution plan for the year ended December 31, 2009.
12
Note 9. Issuance of Common Stock
On January 1, 2008, GMI sold 3,533 additional shares of the Companys common stock at $222 per share to an existing shareholder for $0.8 million including $500 in cash and a promissory note. The note receivable, bearing interest at the prime rate (3.25% at December 31, 2009), was collateralized by the common stock sold. On October 13, 2010, in connection with the sale of the Company (as further described in Note 11), the balance due, including accrued but unpaid interest, was paid in full.
Note 10. Derivative Financial Instruments
The Company enters into certain derivative foreign currency forward contracts that do not meet the GAAP criteria for hedge accounting, but which have the impact of partially offsetting certain foreign currency exposures. These forward contracts are accounted for on a full mark-to-market basis and the related gains or losses are reported in currency exchange gains or losses. At December 31, 2009, the notional amount of open forward contracts was $1.2 million and the unrealized gain on these contracts was immaterial. All open forward contracts matured during the first quarter of 2010.
The fair values of assets and liabilities associated with derivative financial instruments at December 31, 2009 were insignificant. We estimate the fair value of these financial instruments using valuation models with inputs that generally can be verified by observable market conditions and do not involve significant management judgment. Accordingly, the fair values of these financial instruments are classified within Level 2 of the fair value hierarchy.
Losses on foreign exchange contracts are reported in currency exchange gains and losses and were $0.1 million for the twelve months ended December 31, 2009.
Note 11. Subsequent Events
On October 13, 2010, the Company sold substantially all of its assets to Mine Safety Appliances Company (MSA). MSA paid cash consideration of approximately $145.0 million, plus the assumption of substantially all of the liabilities of the Company. The sales price is subject to a working capital adjustment. There is no contingent consideration. Approximately $20.0 million of the cash consideration is held in an escrow account to cover potential unrecorded liabilities as of the closing date. Amounts not disbursed to pay unrecorded liabilities will be released to the Company approximately 24 months after the transaction date. The Company is not aware of any amount that currently needs to be disbursed from the escrow account. In connection with the sale, the Company changed its name to GLMNT CORP.
Management has evaluated subsequent events through December 23, 2010, the date the financial statements were issued, and has concluded that all events that would require recognition or disclosure are appropriately reflected in the financial statements.
13
Exhibit 99.2
General Monitors Ireland Limited
Financial Statements
Year ended 31 December 2009
General Monitors Ireland Limited
Directors report and financial statements
Contents |
Page | |||
Independent auditors report |
2 | |||
Profit and loss account |
3 | |||
Balance sheet |
4 | |||
Cash flow statement |
5 | |||
Notes forming part of the financial statements |
7 |
1
KPMG Chartered Accountants Odeon House Eyre Square Galway Ireland |
Independent auditors report to the members of General Monitors Ireland Limited
We have audited the accompanying financial statements of General Monitors Ireland Limited for the year ended 31 December 2009 which comprise of the Profit and Loss Account, Balance Sheet, Cash Flow Statement and the related notes. These financial statements are the responsibility of the directors. Our responsibility is to express an opinion thereon, based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal controls over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly, in all material respects, the financial position of the company as of 31 December 2009 and the results of its operations and cash flows for the year then ended in conformity with financial reporting standards as issued by the Accounting Standards Board, and as promulgated by Chartered Accountants Ireland (Irish GAAP).
Irish GAAP vary in certain significant respects from U.S. generally accepted accounting principles. Information relating to the nature and effect of such differences is presented in Note 21 to the financial statements.
/s/ KPMG |
KPMG |
Galway, Ireland |
February 1, 2010, except as to Note 21, which is as of November 15, 2010
KPMG, an Irish partnership and a member firm of the KPMG network
of independent member firms affiliated with KPMG International
Cooperative (KPMG International), a Swiss entity
2
General Monitors Ireland Limited
Profit and loss account
for the year ended 31 December 2009
2009 | ||||||
Note | | |||||
Turnover continuing operations |
16,578,272 | |||||
Cost of goods sold |
(9,441,844) | |||||
Gross profit |
7,136,428 | |||||
Distribution costs |
(1,611,789 | ) | ||||
Administrative expenses |
(2,891,326 | ) | ||||
Operating profit continuing operations |
2,633,313 | |||||
Interest receivable and similar income |
2 | 21,253 | ||||
Interest payable and similar charges |
3 | (7,430 | ) | |||
Profit on ordinary activities before taxation |
4 - 5 | 2,647,136 | ||||
Tax on profit on ordinary activities |
6 | (287,500 | ) | |||
Profit for the financial year |
13 | 2,359,636 | ||||
The company had no recognised gains or losses in the financial year other than those dealt with in the profit and loss account.
The notes on pages 7 to 19 form an integral part of these financial statements.
3
General Monitors Ireland Limited
Balance sheet
at 31 December 2009
2009 | ||||||||||||
Note | | | ||||||||||
Fixed assets |
||||||||||||
Tangible assets |
8 | 1,957,982 | ||||||||||
Current assets |
||||||||||||
Stocks |
9 | 1,604,177 | ||||||||||
Debtors |
10 | 1,482,595 | ||||||||||
Cash at bank and in hand |
3,486,786 | |||||||||||
6,573,558 | ||||||||||||
Creditors: amounts falling due within one year |
11 | (1,453,537 | ) | |||||||||
Net current assets |
5,120,021 | |||||||||||
Net assets |
7,078,003 | |||||||||||
Capital and reserves |
||||||||||||
Called up share capital |
12 | 320,000 | ||||||||||
Reserves |
13 | 6,758,003 | ||||||||||
Shareholders funds |
14 | 7,078,003 | ||||||||||
The notes on pages 7 to 19 form an integral part of these financial statements.
4
General Monitors Ireland Limited
Cash flow statement
for the year ended 31 December 2009
2009 | ||||||||
Note | | |||||||
Net cash inflow from operating activities |
(a | ) | 3,716,324 | |||||
Servicing of finance and returns on investments |
(b | ) | 9,523 | |||||
Taxation |
(238,358 | ) | ||||||
Capital expenditure and financial investment |
(b | ) | (721,439 | ) | ||||
2,766,050 | ||||||||
Dividends paid |
(1,983,081 | ) | ||||||
Increase in cash |
782,969 | |||||||
5
General Monitors Ireland Limited
Cash flow statement (continued)
for the year ended 31 December 2009
(a) | Reconciliation of operating profit to net cash inflow from operating activities |
2009 | ||||
| ||||
Operating profit |
2,633,313 | |||
Depreciation |
468,086 | |||
Profit on disposal of fixed assets |
(4,000 | ) | ||
Decrease in debtors |
1,886,925 | |||
Decrease in stocks |
383,186 | |||
Decrease in creditors |
(1,651,186 | ) | ||
Net cash inflow from operating activities |
3,716,324 | |||
(b) | Gross cash flows |
2009 | ||||
| ||||
Servicing of finance and returns on investments |
||||
Interest received |
16,953 | |||
Interest paid |
(7,430 | ) | ||
9,523 | ||||
Capital expenditure and financial investment |
||||
Payments to acquire tangible fixed assets |
(749,327 | ) | ||
Proceeds from disposal of tangible fixed assets |
27,888 | |||
(721,439 | ) | |||
(c) | Analysis of net funds |
2009 | ||||
| ||||
Cash at bank and in hand |
3,486,786 | |||
6
General Monitors Ireland Limited
Notes
forming part of the financial statements
1 | Accounting policies |
The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the financial statements.
Basis of preparation
The financial statements are prepared in accordance with generally accepted accounting principles under the historical cost convention and comply with financial reporting standards of the Accounting Standards Board, as promulgated by the Institute of Chartered Accountants in Ireland.
Turnover
Turnover represents the fair value of goods, excluding value added tax, delivered to third party customers in the accounting period. Goods are deemed to have been delivered to customers, when the customer has access to the significant benefits inherent in the goods and exposure to the risks inherent in those benefits.
Reporting currency
The financial statements are stated in Euro, .
Tangible fixed assets
All fixed assets are shown at original cost, less accumulated depreciation.
Depreciation is provided at rates calculated to write off the cost less estimated residual value, of each asset, on a straight-line basis over its expected useful life as follows:
Property and leasehold improvements |
10% - 20% per annum | |
Machinery and equipment |
12 1/2% - 33 1/3% per annum | |
Office equipment |
10% - 33 1/3% per annum | |
Motor vehicles |
20% - 25% per annum |
Stocks
Stocks are stated at the lower of cost and net realisable value.
Cost incurred in bringing each product to its present location and condition is based on:
Raw materials |
- |
purchase cost on a first in, first out basis, including freight and import duties and other handling costs. | ||
Work in progress | - | cost of direct materials and labour plus the attributable proportion of manufacturing overheads based on normal levels of activity. |
Demonstration and show stock are valued at cost and are written off in equal installments over three years.
7
General Monitors Ireland Limited
Notes (continued)
1 | Accounting policies (continued) |
Stocks (continued)
Net realisable value is based on estimated normal selling price less further costs expected to be incurred to completion and disposal. Provision is made for obsolete, slow moving or defective items, where appropriate.
Significant differences between balance sheet and replacement cost values are disclosed. For these purposes, replacement cost is based on latest invoice prices before the balance sheet date.
Foreign currencies
Trading activities denominated in foreign currencies are recorded in Euro at actual exchange rates as of the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are reported at the rates of exchange prevailing at the period end or at the rate of exchange in a related forward exchange contract where such contracts exist. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is reported as an exchange gain or loss in the profit and loss account.
Taxation
Current tax, including Irish corporation tax, is provided on the companys taxable profits, at amounts expected to be paid using the tax rates and laws that have been enacted or substantially enacted by the balance sheet date.
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date. Provision is made at the rates expected to apply when the timing differences reverse. Timing differences are differences between the companys taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses in taxable profits in periods different from those in which they are recognised in the financial statements.
A net deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted.
Leased assets
Where assets are acquired by leasing arrangements which give rights approximating to ownership, namely finance leases, the amount representing the outright purchase price of such assets is included in tangible fixed assets but separately identified. Depreciation is provided at rates designed to write off this net cost, less any residual value in equal annual amounts over the shorter of the estimated useful lives of the assets, which are the same as those for assets purchased outright, and the period of the leases.
The capital element of future rentals is treated as a liability and the interest element is charged to the profit and loss account over the period of the leases in proportion to the balances outstanding.
8
General Monitors Ireland Limited
Notes (continued)
1 | Accounting policies (continued) |
Leased assets (continued)
Expenditure on leases other than finance leases, namely operating leases is charged to the profit and loss account on a basis representative of the benefit derived from the asset, normally on a straight-line basis over the lease period.
Warranty costs
Warranty costs are provided for by the company in cases where they are expected to materialise.
Research and development
Expenditure on pure and applied research and development is written off to the profit and loss account in the period in which it is incurred.
Government grants
Revenue government grants are credited to the profit and loss account to offset the matching expenditure.
2 | Interest receivable and similar income |
2009 | ||||
| ||||
Interest receivable and similar income |
21,253 | |||
3 | Interest payable and similar charges |
2009 | ||||
| ||||
Interest payable on bank loans, overdrafts and other loans wholly repayable within five years |
7,430 | |||
4 | Statutory and other information |
2009 | ||||
| ||||
Profit on ordinary activities before taxation has been arrived at after charging: |
||||
Auditors remuneration, including expenses |
33,000 | |||
Directors emoluments |
541,259 | |||
Depreciation |
468,086 | |||
Rentals payable under operating leases |
414 | |||
9
General Monitors Ireland Limited
Notes (continued)
5 | Staff numbers and costs |
The average number of persons employed by the company (including executive directors) during the period, analysed by category, was as follows:
Number of employees 2009 |
||||
Administration |
21 | |||
Production |
18 | |||
39 | ||||
The aggregate payroll costs of these employees were as follows:
2009 | ||||
| ||||
Wages and salaries |
2,114,796 | |||
Social welfare costs |
292,025 | |||
2,406,821 | ||||
10
General Monitors Ireland Limited
Notes (continued)
6 | Tax on profit on ordinary activities |
2009 | ||||
| ||||
Irish corporation tax |
||||
Current corporation tax |
287,500 | |||
Factors affecting tax charge for the period
The current tax charge differs from the standard rate of corporation tax in the Republic of Ireland. The differences are explained as follows:
2009 | ||||
| ||||
Profit on ordinary activities before tax |
2,647,136 | |||
Current tax at 12.5% |
330,892 | |||
Effects of: |
||||
Expenses not deductible for tax purposes |
27,797 | |||
Depreciation for year in excess of capital allowances |
8,661 | |||
Manufacturing relief |
(68,412 | ) | ||
Passive income adjustment |
4,657 | |||
Miscellaneous adjustments |
(16,095 | ) | ||
Total current tax charge (see above) |
287,500 | |||
Factors that may affect future tax charges
Manufacturing profits in Ireland are taxed at 10% due to manufacturing relief, which is due to expire on 31 December 2010.
Unrecognised deferred tax
An unrecognised deferred tax asset of 61,000 attributable to differences between the net book value and tax written down value of property, plant and equipment exists at the balance sheet date. The movement during the year can be analysed as follows:
2009 | ||||
| ||||
Unrecognised at beginning of year |
39,000 | |||
New temporary differences on property, plant and equipment |
22,000 | |||
Unrecognised at end of year |
61,000 | |||
11
General Monitors Ireland Limited
Notes (continued)
7 | Dividends paid |
2009 | ||||
|
||||
Ordinary shares of 1 each |
1,636,042 | |||
C shares of 1 each |
99,154 | |||
D shares of 1 each |
247,885 | |||
1,983,081 | ||||
The dividends paid on the C and D shares were paid to directors of the company.
8 | Tangible fixed assets |
Property & leasehold improvements |
Machinery & equipment |
Office equipment |
Motor vehicles |
Total | ||||||||||||||||
| | | | | ||||||||||||||||
Cost |
||||||||||||||||||||
At beginning of year |
2,498,338 | 1,436,436 | 956,770 | 338,423 | 5,229,967 | |||||||||||||||
Additions |
19,206 | 615,956 | 37,738 | 76,427 | 749,327 | |||||||||||||||
Disposals |
| (452,382 | ) | | (131,785 | ) | (584,167 | ) | ||||||||||||
At end of year |
2,517,544 | 1,600,010 | 994,508 | 283,065 | 5,395,127 | |||||||||||||||
Depreciation |
||||||||||||||||||||
At beginning of year |
1,431,615 | 1,156,456 | 773,211 | 168,056 | 3,529,338 | |||||||||||||||
Charge for year |
113,759 | 205,313 | 79,049 | 69,965 | 468,086 | |||||||||||||||
Disposals |
| (452,382 | ) | | (107,897 | ) | (560,279 | ) | ||||||||||||
At end of year |
1,545,374 | 909,387 | 852,260 | 130,124 | 3,437,145 | |||||||||||||||
Net book value |
||||||||||||||||||||
At 31 December 2009 |
972,170 | 690,623 | 142,248 | 152,941 | 1,957,982 | |||||||||||||||
At 31 December 2008 |
1,066,723 | 279,980 | 183,559 | 170,367 | 1,700,629 | |||||||||||||||
The depreciable element of property and leasehold improvements in the company, namely buildings, amounts to 2,454,971.
12
General Monitors Ireland Limited
Notes (continued)
9 | Stocks |
2009 | ||||
| ||||
Raw materials |
981,678 | |||
Work in progress |
241,739 | |||
Finished goods |
354,448 | |||
Demonstration goods and show stock |
26,312 | |||
1,604,177 | ||||
The replacement cost of stocks does not differ significantly from the figures shown.
10 | Debtors |
2009 | ||||
| ||||
Trade debtors |
1,343,127 | |||
Amounts owed by fellow group undertakings |
10,000 | |||
Prepayments and accrued income |
44,927 | |||
VAT receivable |
84,541 | |||
1,482,595 | ||||
Trade debtors are stated net of a provision for doubtful debts of 162,000. The movement in the provision for doubtful debts during the year is analysed as follows:
2009 | ||||
| ||||
Opening balance |
87,000 | |||
Provisions made during year |
75,000 | |||
Closing balance |
162,000 | |||
13
General Monitors Ireland Limited
Notes (continued)
11 | Creditors: amounts falling due within one year |
2009 | ||||
| ||||
Trade creditors |
404,370 | |||
Other creditors including tax and social welfare (see below) |
74,378 | |||
Accruals |
699,789 | |||
Warranty reserves (see below) |
275,000 | |||
1,453,537 | ||||
The movement in the warranty reserves during the year is analysed as follows:
2009 | ||||
| ||||
Opening balance |
200,000 | |||
Reserves made during year |
75,000 | |||
Closing balance |
275,000 | |||
2009 | ||||
| ||||
Taxation creditors |
||||
Tax and social welfare included in other creditors: |
||||
Corporation tax |
32,110 | |||
PAYE |
17,030 | |||
49,140 | ||||
Social welfare |
19,695 | |||
Dividend withholding tax |
5,543 | |||
74,378 | ||||
14
General Monitors Ireland Limited
Notes (continued)
12 | Called up share capital |
2009 | ||||
| ||||
Authorised |
||||
319,000 ordinary shares of 1 each |
319,000 | |||
16,000 C shares of 1 each |
16,000 | |||
40,000 D shares of 1 each |
40,000 | |||
375,000 | ||||
Allotted, called up and fully paid |
||||
264,000 ordinary shares of 1 each |
264,000 | |||
16,000 C shares of 1 each |
16,000 | |||
40,000 D shares of 1 each |
40,000 | |||
320,000 | ||||
The ordinary shares, the C shares and the D shares rank pari passu except the holders of the C shares and D shares are not entitled to receive notice of, attend, speak or vote at general meetings of the company at any time prior to 1 November 2011.
13 | Reserves |
Capital conversion reserve fund |
Capital reserve |
Profit and loss |
Total | |||||||||||||
| | | | |||||||||||||
At beginning of year |
5,006 | 7,618 | 6,368,824 | 6,381,448 | ||||||||||||
Dividends on equity shares |
| | (1,983,081 | ) | (1,983,081 | ) | ||||||||||
Profit for the financial year |
| | 2,359,636 | 2,359,636 | ||||||||||||
At end of year |
5,006 | 7,618 | 6,745,379 | 6,758,003 | ||||||||||||
15
General Monitors Ireland Limited
Notes (continued)
14 | Reconciliation of shareholders funds |
2009 | ||||
|
||||
Total recognised gains for the year |
2,359,636 | |||
Transactions with shareholders: |
||||
Dividends on equity shares |
(1,983,081 | ) | ||
Net increase in shareholders funds |
376,555 | |||
Opening shareholders funds |
6,701,448 | |||
Closing shareholders funds |
7,078,003 | |||
15 | Commitments |
(a) | Capital commitments |
Future capital expenditure approved by the directors but not provided for in these financial statements is as follows:
2009 | ||||
| ||||
Capital expenditure approved but not contracted for |
417,650 | |||
(b) | Operating lease commitments |
The company has annual commitments under operating leases to make payments totalling 5,000 for the next year as follows:
2009 | ||||
| ||||
Expiring in five years or more |
5,000 | |||
(c) | Currency |
At the balance sheet date, the company had foreign currency contracts for the sale of US$1,050,000 to hedge against future exchange rate fluctuations. These contracts are not used for speculative purposes.
16
General Monitors Ireland Limited
Notes (continued)
16 | Contingencies |
Bank guarantees:
In the normal course of the business of the company, performance bonds are given which are supported by bank guarantees. The bank guarantees are secured by a fixed and floating charge on certain company assets.
17 | Related party disclosures |
The company in the nominal course of business, has transactions with related parties as defined by Financial Reporting Standard No. 8, which are summarised below:
2009 | ||||
| ||||
Sales to related companies |
865,173 | |||
Purchases from related companies |
1,923,860 | |||
Management and other charges from related companies |
2,144,349 | |||
Dividends paid to immediate parent undertaking |
1,576,549 | |||
At 31 December 2009, an amount of 139,982 is included within trade debtors relating to amounts due from related companies.
At 31 December 2009, an amount of 178,689 is included within trade creditors relating to amounts due to related companies.
Directors remuneration and other transactions are given in note 4. Details of dividends paid to directors are given in note 7.
18 | Ultimate parent undertaking and parent undertaking of larger groups |
The companys immediate parent undertaking is Raybeam Limited, a company incorporated and operating in the Republic of Ireland. The companys ultimate parent undertaking is Florucci Limited, a company incorporated and operating in Cyprus.
19 | Post balance sheet events |
No material events have occurred since the balance sheet date which would affect the financial statements of the company.
20 | Financial period |
The financial period in these financial statements represents the twelve month period to 31 December 2009.
17
General Monitors Ireland Limited
Notes (continued)
21 | Summary of significant differences between Irish GAAP and United States generally accepted accounting principles |
The financial statements of General Monitors Ireland Limited are prepared in accordance with Irish GAAP which differs significantly in certain respects from those generally accepted in the United States (US). The significant differences between Irish GAAP and generally accepted accounting principles in the United States of America (US GAAP) for the year ended 31 December 2009 that are of relevance to these financial statements are described below:
Profit and loss account |
2009 | |||
000 | ||||
Profit in accordance with Irish GAAP |
2,360 | |||
Adjustments |
||||
Distribution and administrative expenses (Note 1) |
75 | |||
Taxation (Note 2) |
22 | |||
Taxation - effect of adjustment in Note 1 |
(8 | ) | ||
Profit in accordance with US GAAP |
2,449 | |||
Shareholders equity |
2009 | |||
000 | ||||
Shareholders equity as reported in accordance with Irish GAAP |
7,078 | |||
Adjustments |
||||
Provisions (Note 1) |
225 | |||
Taxation (Note 2) |
61 | |||
Tax effect of adjustment in Note 1 |
(23 | ) | ||
Shareholders equity as adjusted in accordance with US GAAP |
7,341 | |||
Note 1 - Provisions
Under Irish GAAP, a provision should be recognised when an entity has a present obligation (legal or constructive) as a result of a past event, it is probable that a transfer of economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
Provisions for warranty do not meet the recognition criteria under US GAAP. US GAAP contains specific requirements that warranty provisions be based on the warranty history of specific product categories. Irish GAAP permits estimation of warranty provisions across a general product range.
18
General Monitors Ireland Limited
Notes (continued)
21 | Summary of significant differences between Irish GAAP and United States generally accepted accounting principles (continued) |
Note 2 - Deferred taxes
Under Irish GAAP, deferred taxes are recorded in respect of timing differences between the recognition of items for tax and accounting purposes, subject to certain exceptions and to the extent that realisation of a gain or loss is probable. Under US GAAP, deferred taxes are accounted for in full on all temporary differences using the liability method. A valuation allowance is established in respect of those deferred tax assets where it is more likely than not that some portion will remain unrealised.
Note 3 - Revenue presentation and classification
The company sells products to distributors who in turn resell the products to the end customers. 1,925,000 discounts given in 2009 to distributors is included in cost of goods sold under Irish GAAP. Under US GAAP, such discounts given to distributors should be accounted for as an adjustment of the selling price of the companys products and therefore characterised as a reduction of revenue when recognised in the companys income statement. This reclassification from cost of goods sold to turnover has no net income effect for the year ended 31 December 2009.
There are no other Irish GAAP/US GAAP differences that have a significant effect on these financial statements.
22 | Approval of financial statements |
The board of directors approved these financial statements on 1 February 2010.
19
Exhibit 99.3
General Monitors Transnational, LLC
And Subsidiaries
(A Limited Liability Company)
Consolidated Financial Report
December 31, 2009
Report of Independent Auditors
To the Board of Directors and Members of General Monitors Transnational, LLC:
In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, cash flows, members equity, and comprehensive income present fairly, in all material respects, the financial position of General Monitors Transnational, LLC and its subsidiaries (the Company) at December 31, 2009, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
December 23, 2010
1
GENERAL MONITORS TRANSNATIONAL, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In thousands)
Year Ended December 31, 2009 |
||||
Net sales |
$ | 32,645 | ||
Other income |
804 | |||
33,449 | ||||
Cost and expenses |
||||
Cost of products sold |
9,270 | |||
Selling, general and administrative |
12,180 | |||
Research and development |
4,949 | |||
Interest |
82 | |||
26,481 | ||||
Income before income taxes |
6,968 | |||
Provision for income taxes |
190 | |||
Net income |
6,778 | |||
Net income attributable to noncontrolling interests |
(640 | ) | ||
Net income attributable to General Monitors Transnational, LLC |
6,138 | |||
See Notes to Consolidated Financial Statements
2
GENERAL MONITORS TRANSNATIONAL, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands)
December 31, 2009 |
||||
Assets |
||||
Current assets |
||||
Cash and cash equivalents |
$ | 6,478 | ||
Accounts receivables |
2,584 | |||
Inventories |
852 | |||
Prepaid expenses and other current assets |
182 | |||
Total current assets |
10,096 | |||
Property and equipment, net |
8,989 | |||
Deferred tax assets |
39 | |||
Goodwill |
2,906 | |||
Other noncurrent assets |
4,136 | |||
Total assets |
26,166 | |||
Liabilities and Members Equity |
||||
Current liabilities |
||||
Current portion of long-term debt |
$ | 630 | ||
Accounts payable |
361 | |||
Accrued expenses and other current liabilities |
2,607 | |||
Income taxes payable |
55 | |||
Total current liabilities |
3,653 | |||
Long-term debt |
998 | |||
Total liabilities |
4,651 | |||
Members equity: |
||||
Common stock |
96 | |||
Paid in capital |
10,300 | |||
Note receivable from member |
(185 | ) | ||
Accumulated other comprehensive income |
14 | |||
Retained earnings |
9,732 | |||
Total members equity attributable to General Monitors Transnational, LLC |
19,957 | |||
Noncontrolling interests |
1,558 | |||
Total equity |
21,515 | |||
Total liabilities and equity |
26,166 | |||
See Notes to Consolidated Financial Statements
3
GENERAL MONITORS TRANSNATIONAL, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Year Ended December 31, 2009 |
||||
Operating Activities |
||||
Net income |
$ | 6,778 | ||
Net income of unconsolidated affiliate |
(709 | ) | ||
Depreciation and amortization |
818 | |||
Other, net |
1 | |||
Operating cash flow before changes in working capital |
6,888 | |||
Accounts receivable |
1,914 | |||
Inventories |
1,084 | |||
Accounts payable and accrued liabilities |
(764 | ) | ||
Prepaid expenses and other current assets |
(39 | ) | ||
Decrease in working capital |
2,195 | |||
Cash flow from operating activities |
9,083 | |||
Investing Activities |
||||
Property additions |
(2,584 | ) | ||
Property disposals |
29 | |||
Decrease in notes receivable |
75 | |||
Cash flow from investing activities |
(2,480 | ) | ||
Financing Activities |
||||
Payments on short-term debt, net |
(1,000 | ) | ||
Payment on long-term debt |
(1,213 | ) | ||
Distributions paid to members and noncontrolling interests |
(4,152 | ) | ||
Members contributions and collections on note receivable from member |
2,066 | |||
Cash flow from financing activities |
(4,299 | ) | ||
Effect of exchange rate changes on cash and cash equivalents |
32 | |||
Increase in cash and cash equivalents |
2,336 | |||
Beginning cash and cash equivalents |
4,142 | |||
Ending cash and cash equivalents |
6,478 | |||
Supplemental cash flow information: |
||||
Interest payments |
$ | 188 | ||
Interest tax payments |
$ | 154 |
See Notes to Consolidated Financial Statements
4
GENERAL MONITORS TRANSNATIONAL, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF MEMBERS EQUITY
(In thousands)
Common Stock |
Paid in Capital |
Note Receivable | Retained Earnings |
Accumulated Other Comprehensive Income |
Noncontrolling Interest |
Total Equity |
||||||||||||||||||||||
Balance at December 31, 2008 |
$ | 96 | $ | 8,297 | $ | (274 | ) | $ | 7,415 | $ | (17 | ) | $ | 1,243 | $ | 16,760 | ||||||||||||
Net income |
| | | 6,138 | | 640 | 6,778 | |||||||||||||||||||||
Capital contributions |
| 1,995 | | | | | 1,995 | |||||||||||||||||||||
Distributions |
| | (3,804 | ) | | (339 | ) | (4,143 | ) | |||||||||||||||||||
Repurchase of members equity |
| 8 | | (17 | ) | | | (9 | ) | |||||||||||||||||||
Collections on note receivable from member |
| | 89 | | | | 89 | |||||||||||||||||||||
Cumulative translation adjustments |
| | | 31 | 14 | 45 | ||||||||||||||||||||||
Balance at December 31, 2009 |
96 | 10,300 | (185 | ) | 9,732 | 14 | 1,558 | 21,515 |
See Notes to Consolidated Financial Statements
5
GENERAL MONITORS TRANSNATIONAL, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(In thousands)
Year Ended December 31, 2009 |
||||
Net income |
$ | 6,778 | ||
Other comprehensive income |
45 | |||
6,823 | ||||
Income attributable to noncontrolling interests |
(654 | ) | ||
Comprehensive income attributable to General Monitors Transnational, LLC |
6,169 | |||
December 31, 2009 | ||||
Accumulated other comprehensive income: |
||||
Cumulative translation adjustments |
$ | 14 | ||
See Notes to Consolidated Financial Statements
6
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies
Nature of business: General Monitors Transnational, LLC (GMT or the Company) commenced operations on January 1, 2006 and is engaged in the servicing and coordination of certain administrative functions, new product development, and marketing services and sales promotion for affiliated companies. GMTs subsidiaries are engaged in the design, engineering, manufacture and distribution of gas monitoring and flame detection devices primarily for the oil and gas industry. Approximately 46 percent of the Companys net sales are from outside the United States. GMTs primary subsidiaries are General Monitors Systems and Electrasem located in the United States and Gassonic located in Denmark.
The Companys international product sales are regulated by the U.S. Department of Commerce and other international laws. While GMTs management makes every effort to maintain full compliance with all applicable export laws and regulations, an ongoing risk exists that one or more of the Companys activities may at some point be determined to be noncompliant. Notwithstanding the risks inherent in the Companys business, management believes that GMT enjoys a good reputation and is in compliance with applicable regulations.
GMT has a 30 percent ownership in a Chinese joint venture, Wuxi General Monitors Co., Ltd. (Wuxi). GMT has neither management nor board of director control in Wuxi, and accordingly accounts for the entity using the equity method.
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany accounts and transactions are eliminated.
Use of estimates: The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying note disclosures. Actual results could differ from those estimates. Significant estimates and assumptions made by management are used for, but not limited to, the allowance for doubtful accounts, the reserve for slow-moving or obsolete inventories, the carrying value of long-lived assets, warranty accrual, accrued liabilities and accrued employee benefits.
Cash and cash equivalents: Cash in excess of daily requirements is invested in money market accounts or certificates of deposit with original maturities of three months or less. Such investments are deemed to be cash equivalents.
The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.
Accounts receivable: Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customers financial condition and credit history, and current economic conditions. An account is considered to be past due if any portion of the receivable balance is outstanding for more than the agreed
7
terms. Interest is not charged on accounts that are considered past due. Accounts receivable are written off when deemed uncollectible. Recoveries of accounts receivable previously written off are recorded when received.
Inventories: Inventories are valued on a first-in first-out (FIFO) basis at the lower of cost or market (net realizable value). Management periodically reviews inventories for slow-moving and/or obsolete items and directly writes off amounts as needed.
Property and equipment: Property and equipment are recorded at cost. Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets. Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the term of the lease.
Useful Lives | ||
Automobiles |
3 years | |
Machinery, furniture and equipment |
310 years | |
Leasehold improvements |
5-30 years | |
Buildings |
30-40 years |
Depreciation expense included in the Consolidated Statement of Income for the year ended December 31, 2009 was $0.6 million.
Impairment of long-lived assets: The Company reviews its long-lived assets for impairment whenever events or changes in circumstances have indicated that an asset may not be recoverable. Long-lived assets evaluated for impairment are grouped with other assets to the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. If the sum of the projected undiscounted cash flows (excluding interest charges) is less than the carrying value of the assets, the assets will be written down to the estimated fair value and the loss recognized in income from continuing operations in the period in which the determination is made. Management has determined that no impairment of long-lived assets exists at December 31, 2009.
Goodwill: The Company records as goodwill the excess of purchase price over the fair value of the identifiable net assets acquired. The Company periodically reviews the carrying value of goodwill to determine whether impairment may exist. Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) topic IntangiblesGoodwill and Other, requires that goodwill be assessed annually for impairment using fair value measurement techniques. The Company performed its annual impairment test for goodwill and has determined that no impairment of goodwill exists at December 31, 2009. The annual goodwill impairment tests are performed as of December 31 each year. Fair value is estimated using discounted cash flow methodologies.
Revenue recognition: Revenue is recognized when title, ownership and the risk of loss have transferred to the customer, which generally occurs when the product is shipped to the customer. Revenue related to services is recognized when services are performed.
Shipping and handling: Shipping and handling expenses are recorded as costs of products sold.
8
Product returns and warranties: The Company provides a limited two-year warranty for its products. The Companys standard warranties require the Company to repair or replace defective products during such warranty period at no cost to the consumer. Factors that affect the Companys warranty liability include the number of units sold, historical and anticipated rates of warranty claims, and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.
Research and development: Research and development costs related to present and future products are expensed as they are incurred.
Income taxes: The Company is a limited liability company with more than one member and, as such, is automatically taxed as a partnership. Accordingly, the members separately account for their pro rata share of the Companys items of income, deductions, losses and credits. The members may take distributions annually to pay for the applicable members share of annual taxes due. Certain non-U.S. subsidiaries of the Company are taxed as regular corporations in their respective tax jurisdictions.
Foreign currency translation: The functional currency of one non-U.S. subsidiary of the Company is the local currency. Assets and liabilities of this company are translated at year-end exchange rates. Income statement accounts are translated using the average exchange rate for the reporting period. Translation adjustments for this company are reported as a compnent of equity and are not included in income. Foreign currency transaction gains and losses are included in other income for the reporting period.
Fair value of financial instruments: The carrying value of cash and cash equivalents and certificates of deposit approximates their fair value. Interest on long-term debt is payable at variable and fixed rates, which approximate market rates at December 31, 2009.
We estimate the fair value of these financial instruments using valuation models with inputs that generally can be verified by observable market conditions and do not involve significant management judgment. Accordingly, the fair values of these financial instruments are classified within Level 2 of the fair value hierarchy.
The fair value estimates are based on pertinent information available to management as of December 31, 2009. Although management is not aware of any factors that would significantly affect the estimated fair value amounts as of these dates, such amounts have not been comprehensively revalued for the purpose of these financial statements since that date. Current estimates of fair value may differ from the amounts presented.
Recent accounting pronouncements: In September 2006, the FASB issued a new accounting pronouncement which defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles (GAAP), and expands disclosures about fair value
9
measurements. The Company adopted this accounting pronouncement for financial assets and financial liabilities in 2008 and for non-financial assets and non-financial liabilities in 2009. The adoption of this pronouncement did not have a material effect on the Companys results of operations or financial condition.
In July 2006, FASB issued a new accounting pronouncement which clarifies the accounting for uncertainty due to tax positions taken or expected to be taken in an income tax return and requires additional disclosures. The Company adopted this accounting pronouncement in 2009. The adoption of this pronouncement did not have a material effect on the Companys results of operations or financial condition.
In December 2007, the FASB issued a new accounting pronouncement which significantly changes the accounting for business combinations and will impact financial statements both on the acquisition date and in subsequent periods. This accounting pronouncement establishes principles and requirements for the reporting entity in a business combination, including recognition and measurement in the financial statements of the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. The accounting pronouncement also includes a substantial number of new disclosure requirements. The Company adopted this pronouncement in 2009. The adoption of this pronouncement did not have a material effect on the Companys results of operations or financial condition.
In June 2009, the FASB issued an Accounting Standard Codification which identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements that are presented in conformity with U.S. GAAP. The Codification does not change how the Company accounts for its transactions or the nature of related disclosures made. The Codification affects the way the Company references U.S. GAAP in the consolidated financial statements. The Company adopted the Codification in 2009.
In June 2009, the FASB issued a new accounting pronouncement which revises the approach to determine the primary beneficiary of a variable interest entity (VIE) and requires more frequent reassessment of whether a VIE must be consolidated. This accounting pronouncement is effective for the Company beginning in 2010. The adoption of this pronouncement in 2010 did not have a material effect on the Companys results of operations or financial condition.
In October 2009, the FASB issued a new accounting pronouncement which changes the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a consolidated unit. This accounting pronouncement requires significantly expanded disclosures related to a vendors multiple deliverable revenue arrangements and is effective for the Company beginning in 2011. The Company is currently evaluating the impact of this pronouncement.
10
Note 2. Inventories
Inventories consisted of the following at December 31, 2009:
(In thousands) |
||||
Raw materials |
$ | 421 | ||
Work in process |
282 | |||
Finished goods |
149 | |||
852 |
Note 3. Property and Equipment
Property and equipment consisted of the following at December 31, 2009:
(In thousands) |
||||
Land and buildings |
$ | 6,834 | ||
Leasehold improvements |
975 | |||
Machinery, furniture and equipment |
2,812 | |||
10,621 | ||||
Accumulated depreciation |
(1,632 | ) | ||
8,989 |
Note 4. Goodwill and Intangible Assets
Goodwill and intangible assets consisted of the following at December 31, 2009:
(In thousands) |
Gross
Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
|||||||||
Goodwill (no accumulated impairment) |
$ | 2,906 | $ | | $ | 2,906 | ||||||
Technology (10 year life) |
2,954 | (652 | ) | 2,302 | ||||||||
Brand (10 year life) |
315 | (63 | ) | 252 | ||||||||
6,175 | (715 | ) | 5,460 |
Amortization expense for the twelve months ended December 31, 2009 was $0.4 million.
The estimated annual amortization expense for each of five years from 2010 through 2014 is approximately $0.3 million.
11
Note 5. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following at December 31, 2009:
(In thousands) |
||||
Accrued salary and bonus |
$ | 270 | ||
Accrued vacation |
101 | |||
Accrued employee benefits |
259 | |||
Accrued warranty reserve |
308 | |||
Accrued sales and GST taxes |
37 | |||
Accrued cost of goods sold |
199 | |||
Other accrued liabilities |
433 | |||
Note payable |
1,000 | |||
2,607 |
Note 6. Commercial Credit and Long-term Debt
On March 5, 2009, the Company entered into a joint bank commercial credit agreement with General Monitors, Inc. (GMI), an affiliated company, which replaced its previous commercial credit agreement. Under the terms of this commercial credit agreement (the Agreement), the Company had a $7.5 million revolving loan, which expired on May 1, 2010. As of December 31, 2009 there were no borrowings outstanding under the revolving loan. In connection with the Agreement, the Company had a $0.6 million standby letter-of-credit sublimit available.
At the Companys option, borrowings under the Agreement bore interest at either the banks reference rate (3.25% at December 31, 2009) or the banks LIBOR (.23% at December 31, 2009) plus 1.5%. The Agreement required the maintenance of certain joint financial ratios and a minimum net worth levels, and restricted changes in ownership greater than 10%.
GMI had commitments under the standby letter-of-credit totaling $0.1 million at December 31, 2009. Should these commitments be drawn under the standby letter-of-credit and not be paid by GMI, GMT would be obligated to make such payments.
Aggregate maturities of long-term debt were as follows:
(In thousands) |
Years Ending December 31 |
|||
2010 |
$ | 630 | ||
2011 |
630 | |||
2012 |
368 | |||
1,628 |
On May 1, 2010, the Company and GMI amended the Agreement reducing the revolving loan limit to $2.0 million and extended the expiration date until May 1, 2013. The standby letter-of-credit sublimit was increased to $2.0 million. Standby letters-of-credit issued reduce the amount available under the revolving loan on a dollar-for-dollar basis.
12
On October 13, 2010, in connection with the sale of the Company, as further described in Note 14, the Agreement was cancelled and amounts due under the term loan were paid in full.
Note 7. Related-party Transactions
The Company transacts business with General Monitors, Inc. (GMI) and General Monitors Ireland Limited (GMIL) which are affiliated through certain common ownership and management. The Company provides product components and finished products for resale, as well as certain administrative, new product development, and sales and marketing services.
The Company transacts business with Wuxi General Monitors Co., Ltd. (Wuxi) which is affiliated through a 30 percent ownership by GMT. The Company provides product components and finished products for resale.
The Company leases certain facilities from related parties. For the twelve months ended December 31, 2009, $0.2 million was paid in rent and related expenses for use of these facilities.
The Company had an unsecured note payable to a related party bearing interest at 2.58%, reset annually, due on or before February 15, 2012, of which $1.0 million was outstanding at December 31, 2009. Interest is paid annually on the anniversary date of the note. In March 2010, the outstanding balance and accrued interest was paid in full.
13
Related-party transactions were as follows for the twelve months ended December 31, 2009:
(In thousands) |
||||
Sales to affiliates (included in net sales) |
$ | 24,443 | ||
Cost of goods sold to affiliates (included in cost of products sold) |
5,550 | |||
Purchases from affiliates* |
1,164 | |||
Net due from affiliates |
1,045 |
* | Purchases from affiliates are generally charged to inventories and ultimately reported in cost of products sold. |
Note 8. Commitments and Contingencies
Lease commitments and rent expense: The Company leases certain operating facilities under non-cancelable operating lease agreements which expire at various dates through December 2014. Rent paid was $0.2 million for the twelve months ended December 31, 2009.
Future minimum lease commitments are as follows:
(In thousands) |
||||
2010 |
$ | 248 | ||
2011 |
217 | |||
2012 |
161 | |||
2013 |
166 | |||
2014 |
170 | |||
962 |
Warranty accrual: Changes in the Companys warranty liability for the twelve months ended December 31, 2009 were as follows:
(In thousands) |
||||
Beginning balance |
$ | 57 | ||
Provision for warranty costs |
265 | |||
Warranty claims paid |
(14 | ) | ||
Ending balance |
308 |
Self-insurance of general liability: In the United States, the Company is self-insured for its general liability coverage up to $0.5 million per claim. As of December 31, 2009 the Company is not aware of any amounts to be accrued as claims against the self-insured portion of the coverage.
14
Self-insurance of employee medical benefits: For most of the U.S. employees, the Company acts as a self-insurer for its medical, dental and vision claims, with stop-loss coverage for individual medical participant costs over $60,000 per year and an annual cap based on the number of employees. Medical expenses are included in Cost of Products Sold or General and Administrative expenses, depending on which department the employee works for.
Note 9. Retirement Plan
The Company has a defined contribution plan covering substantially all U.S. employees who have completed a minimum of six months of service. Non-vesting, discretionary contributions matching 100% up to $1,000 of each employees annual contribution are determined by the Board of Directors. The Company made no contributions to the defined contribution plan for the year ended December 31, 2009.
Note 10. Members Equity
GMT is a limited liability company where common unit holders share equally in net profits in proportion to their percentage interests. Losses are also allocated based on their percentage interest; however, these losses are limited as described in the operating agreement.
There is only one class of units. Members may make additional capital contributions from time-to-time.
Upon death, termination of employment or permanent disability, GMT will purchase, to the extent permitted by law, all of the outstanding units owned by the member. The purchase price is based upon the capital account balance of the member, increased or decreased to reflect the difference, if any, of the fair value of any real estate owned by GMT.
Note 11. Issuance of Common Stock
On January 1, 2008, GMT sold a total of 53 units to two officers for $0.3 million cash and promissory notes. The notes receivable, bearing interest at the prime rate (3.25% at December 31, 2009), are collateralized by the common units sold. The notes are full recourse.
Note 12. Note Receivable from Employee
In October 2008, the Company loaned $0.1 million to an employee payable over a 5 year period (plus accrued interest) with annual payments due on anniversary of the loan. The loan bears interest at the prime rate (3.25% at December 31, 2009), and is reset on the anniversary date of the notes to the then current prime rate.
15
Note 13. Investments Accounted for by the Equity Method
The Company holds a 30% interest in a joint venture (Wuxi General Monitors Co., Ltd.) with an unrelated third party. The joint venture was formed for the purpose of manufacturing and selling gas detection equipment in the local Chinese market. The unrelated third party is responsible for the general management of the operations and voting interests are distributed based on ownership interest. The Company accounts for the investment in joint venture using the equity method of accounting, under which its share of income or losses resulting from operations are recorded through the related investment account and included in earnings. As of December 31, 2009, the Companys net investment in the joint venture was $1.5 million.
The following is a summary of the joint ventures financial position and results of operations as of and for the year ended December 31, 2009:
(In thousands) |
||||
Assets |
$ | 7,079 | ||
Liabilities |
2,125 | |||
Net equity |
4,954 | |||
Revenue earned |
11,276 | |||
Net income |
2,363 | |||
Companys 30% interest in net income (reported in other income) |
709 |
Note 14. Subsequent Events
On October 13, 2010, the Members of the Company, and the minority interest shareholders in certain subsidiaries of the Company, sold all of their ownership interests to Mine Safety Appliances Company (MSA). MSA paid approximately $87.0 million in cash plus the payment of amounts outstanding under the Companys term loan to a bank of approximately $1.2 million. Approximately $12.0 million of the cash consideration is held in an escrow account to cover potential unrecorded liabilities as of the closing date. Amounts not disbursed to pay unrecorded liabilities will be released to the appropriate members and minority interest shareholders approximately 24 months after the transaction date.
Management has evaluated subsequent events through December 23, 2010, the date the financial statements were issued, and has concluded that all events that would require recognition or disclosure are appropriately reflected in the financial statements.
16
Exhibit 99.4
GENERAL MONITORS, INC.
CONSOLIDATED FINANCIAL REPORT
(Unaudited)
September 30, 2010
GENERAL MONITORS, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In thousands)
Unaudited
Nine Months
Ended September 30 |
||||||||
2010 | 2009 | |||||||
Net sales |
$ | 36,443 | $ | 38,308 | ||||
Other income |
157 | 99 | ||||||
36,600 | 38,407 | |||||||
Costs and expenses |
||||||||
Cost of products sold |
13,535 | 16,576 | ||||||
Selling, general and administrative |
9,961 | 9,967 | ||||||
Research and development |
3,580 | 3,618 | ||||||
Interest expense |
1 | 2 | ||||||
Currency exchange gains |
(9 | ) | (63 | ) | ||||
27,068 | 30,100 | |||||||
Income before income taxes |
9,532 | 8,307 | ||||||
Provision for income taxes |
120 | 166 | ||||||
Net income |
9,412 | 8,141 | ||||||
See notes to condensed consolidated financial statements.
1
GENERAL MONITORS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except share amounts)
Unaudited
September 30 2010 |
December 31 2009 |
|||||||
Assets |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 9,745 | $ | 9,043 | ||||
Accounts receivable, less allowance for doubtful accounts of $592 and $576 |
8,437 | 8,131 | ||||||
Inventories |
5,506 | 3,718 | ||||||
Prepaid expenses and other current assets |
51 | 640 | ||||||
Total current assets |
23,739 | 21,532 | ||||||
Property, less accumulated depreciation of $10,865 and $10,561 |
3,188 | 3,292 | ||||||
Other noncurrent assets |
182 | 65 | ||||||
Total assets |
27,109 | 24,889 | ||||||
Liabilities |
||||||||
Current liabilities |
||||||||
Accounts payable |
$ | 1,766 | $ | 1,032 | ||||
Other current liabilities |
4,431 | 3,075 | ||||||
Income taxes payable |
48 | 133 | ||||||
Total current liabilities |
6,245 | 4,240 | ||||||
Other noncurrent liabilities |
190 | 190 | ||||||
Total liabilities |
6,435 | 4,430 | ||||||
Shareholders Equity |
||||||||
Common stock authorized 800,000 shares of $0.10 par value; issued 79,026 shares |
8 | 8 | ||||||
Additional paid in capital |
1,821 | 1,821 | ||||||
Note receivable from shareholder |
(493 | ) | (639 | ) | ||||
Retained earnings |
19,338 | 19,269 | ||||||
Total shareholders equity |
20,674 | 20,459 | ||||||
Total liabilities and shareholders equity |
27,109 | 24,889 | ||||||
See notes to condensed consolidated financial statements.
2
GENERAL MONITORS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Unaudited
Nine Months Ended September 30 |
||||||||
2010 | 2009 | |||||||
Operating Activities |
||||||||
Net income |
$ | 9,412 | $ | 8,141 | ||||
Depreciation |
335 | 419 | ||||||
Other noncurrent assets and liabilities |
(117 | ) | 188 | |||||
Other, net |
34 | 11 | ||||||
Operating cash flow before changes in working capital |
9,664 | 8,759 | ||||||
Accounts receivable |
(306 | ) | (679 | ) | ||||
Inventories |
(1,788 | ) | 869 | |||||
Accounts payable and accrued liabilities |
2,005 | (1,107 | ) | |||||
Prepaid expenses and other current assets |
589 | (17 | ) | |||||
Decrease (increase) in working capital |
500 | (934 | ) | |||||
Cash flow from operating activities |
10,164 | 7,825 | ||||||
Investing Activities |
||||||||
Property additions |
(265 | ) | (884 | ) | ||||
Cash flow from investing activities |
(265 | ) | (884 | ) | ||||
Financing Activities |
||||||||
Distributions to shareholders |
(9,343 | ) | (5,111 | ) | ||||
Collections on shareholder note |
146 | 200 | ||||||
Cash flow from financing activities |
(9,197 | ) | (4,911 | ) | ||||
Increase in cash and cash equivalents |
702 | 2,030 | ||||||
Beginning cash and cash equivalents |
9,043 | 7,165 | ||||||
Ending cash and cash equivalents |
9,745 | 9,195 | ||||||
See notes to condensed consolidated financial statements.
3
GENERAL MONITORS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
(1) Basis of Presentation
The condensed consolidated financial statements of General Monitors, Inc. and its wholly-owned subsidiary (the Company) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, they do not include certain information and disclosures required for comprehensive financial statements.
The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. The other information in these financial statements is unaudited; however, we believe that all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of these interim periods have been included. The results for interim periods are not necessarily indicative of the results to be expected for the full year.
(2) Inventories
(In thousands) |
September 30 2010 |
December 31 2009 |
||||||
Finished products |
$ | 2,930 | $ | 2,599 | ||||
Raw materials and supplies |
3,292 | 1,920 | ||||||
6,222 | 4,519 | |||||||
Reserve for obsolescence |
716 | 801 | ||||||
5,506 | 3,718 |
(3) Derivative Financial Instruments
The Company enters into certain derivative foreign currency forward contracts that do not meet the GAAP criteria for hedge accounting, but which have the impact of partially offsetting certain foreign currency exposures. These forward contracts are accounted for on a full mark-to-market basis and the related gains or losses are reported in currency exchange gains or losses. At September 30, 2010, the notional amount of open forward contracts was $1.2 million and the unrealized gain on these contracts was immaterial. All open forward contracts will mature during the fourth quarter of 2010.
The fair values of assets and liabilities associated with derivative financial instruments at September 30, 2010 and December 31, 2009 were insignificant. We estimate the fair value of these financial instruments using valuation models with inputs that generally can be verified by observable market conditions and do not involve significant management judgment. Accordingly, the fair values of these financial instruments are classified within Level 2 of the fair value hierarchy.
Losses on foreign exchange contracts are reported in currency exchange losses (gains) and were insignificant for the nine months ended September 30, 2010 and $0.1 million for the nine months ended September 30, 2009.
4
(4) Income Taxes
The Company, with the consent of its shareholders, has elected to be taxed under sections of income tax law (federal and various states) which provide that, in lieu of corporate income taxes, the shareholders separately account for their pro rata shares of income, deductions, losses and credits. As a result of this election, no federal income taxes have been recorded in the accompanying financial statements. State income taxes are recorded in accordance with each states respective tax law.
(5) Related Party Transactions
The Company transacts business with two companies General Monitors Transnational, LLC and Subsidiaries (GMT) and General Monitors Ireland Limited (GMIL) that are affiliated through certain common ownership and management. GMT provides product components and finished products for resale. In addition, GMT provides services for certain administrative, product development and marketing and sales promotion services, while the Company provides inventory to GMT and GMIL.
The Company also transacts business with Wuxi General Monitors Co., Ltd. (Wuxi) which is affiliated through a 30 percent ownership by GMT. The Company provides product components and finished products for resale.
Related-party transactions for the nine months ended September 30, 2010 and 2009 were as follows:
Nine Months
Ended September 30 |
||||||||
(In thousands) |
2010 | 2009 | ||||||
Sales to affiliates (included in net sales) |
$ | 875 | $ | 2,301 | ||||
Cost of goods sold to affiliates (included in cost of products sold) |
571 | 1,559 | ||||||
Purchases from affiliates * |
3,944 | 5,277 | ||||||
Servicing fees from affiliates (included in SG&A and R&D expenses) |
8,048 | 8,132 | ||||||
Rent charged to affiliates (included in other income) |
55 | 52 |
* | Purchases from affiliates are generally charged to inventories and ultimately reported in cost of products sold. |
Related-party balances at September 30, 2010 and December 31, 2009 were as follows:
(In thousands) |
September 30 2010 |
December 31 2009 |
||||||
Net due to affiliates |
$ | 1,046 | $ | 448 |
(6) Contingencies
Self-insurance of general liability: The Company acts as a self-insurer for its general liability coverage up to $0.5 million per claim. As of September 30, 2010, the Company is not aware of any amounts to be accrued as claims against the self-insured portion of the coverage.
5
Self-insurance of employee medical benefits: For most of the U.S. employees, the Company acts as a self-insurer for its medical, dental and vision claims, with stop-loss coverage for individual medical participant costs over $60,000 per year and an annual cap based on the number of employees. The Company has recorded a liability related to the Companys self-insurance of its employee medical plan of $0.3 million at September 30, 2010.
(7) Statement of Changes in Shareholders Equity
(In thousands) |
Common Stock |
Additional Paid in Capital |
Note Receivable From Shareholder |
Retained Earnings |
Total Equity |
|||||||||||||||
Balance at December 31, 2009 |
$ | 8 | $ | 1,821 | $ | (639 | ) | $ | 19,269 | $ | 20,459 | |||||||||
Net income |
| | | 9,412 | 9,412 | |||||||||||||||
Distributions to shareholders |
| | | (9,343 | ) | (9,343 | ) | |||||||||||||
Collections on note receivable from shareholder |
| | 146 | | 146 | |||||||||||||||
Balance at September 30, 2010 |
8 | 1,821 | (493 | ) | 19,338 | 20,674 | ||||||||||||||
(In thousands) |
Common Stock |
Additional Paid in Capital |
Note Receivable From Shareholder |
Retained Earnings |
Total Equity |
|||||||||||||||
Balance at December 31, 2008 |
$ | 8 | $ | 1,821 | $ | (839 | ) | $ | 16,244 | $ | 17,234 | |||||||||
Net income |
| | | 8,141 | 8,141 | |||||||||||||||
Distributions to shareholders |
| | | (5,111 | ) | (5,111 | ) | |||||||||||||
Collections on note receivable from shareholder |
| | 200 | | 200 | |||||||||||||||
Balance at September 30, 2009 |
8 | 1,821 | (639 | ) | 19,274 | 20,464 |
On January 1, 2008, the Company sold 3,533 shares of common stock at $222 per share to an existing shareholder for $0.8 million, including $500 in cash and a promissory note. The note receivable, bearing interest at the prime rate, is collateralized by the common stock sold. On October 13, 2010, in connection with the sale of substantially all of the Companys assets, as further described in Note 9, the balance due was paid in full.
(8) Recently Adopted and Recently Issued Accounting Standards
In May 2009, and as updated in February 2010, the FASB issued a statement that establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, the statement sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. See Note 9 for disclosures.
6
In June 2009, the FASB issued a new accounting pronouncement which revises the approach to determine the primary beneficiary of a variable interest entity (VIE) and requires more frequent reassessment of whether a VIE must be consolidated. This accounting pronouncement is effective for the Company beginning in 2010. The adoption of the new standard had no impact on the financial statements.
In October 2009, the FASB issued a new accounting pronouncement which changes the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a consolidated unit. This accounting pronouncement requires significantly expanded disclosures related to a vendors multiple deliverable revenue arrangements and is effective for the Company beginning in 2011. The Company is currently evaluating the impact of this pronouncement.
(9) Subsequent Events
On October 13, 2010, the Company sold substantially all of its assets to Mine Safety Appliances Company (MSA). MSA paid cash consideration of approximately $145.0 million, plus the assumption of substantially all of the liabilities of the Company. The sales price is subject to a working capital adjustment. There is no contingent consideration. Approximately $20.0 million of the cash consideration is held in an escrow account to cover potential unrecorded liabilities as of the closing date. Amounts not disbursed to pay unrecorded liabilities will be released to the Company approximately 24 months after the transaction date. The Company is not aware of any amount that currently needs to be disbursed from the escrow account. In connection with the sale, the Company changed its name to GLMNT CORP.
Management has evaluated subsequent events through December 23, 2010, the date the financial statements were issued, and has concluded that all events that would require recognition or disclosure are appropriately reflected in the financial statements.
7
Exhibit 99.5
GENERAL MONITORS IRELAND LIMITED
FINANCIAL REPORT
(Unaudited)
September 30, 2010
GENERAL MONITORS IRELAND LIMITED
CONDENSED STATEMENT OF INCOME
(In thousands)
Unaudited
Nine Months
Ended September 30 |
||||||||
2010 | 2009 | |||||||
Net sales |
| 12,477 | | 11,836 | ||||
Other income |
11 | 17 | ||||||
12,488 | 11,853 | |||||||
Costs and expenses |
||||||||
Cost of products sold |
6,186 | 5,877 | ||||||
Selling, general and administrative |
3,223 | 2,602 | ||||||
Research and development |
1,243 | 1,197 | ||||||
Interest |
7 | 5 | ||||||
Currency exchange losses (gains) |
16 | (15 | ) | |||||
10,675 | 9,666 | |||||||
Income before income taxes |
1,813 | 2,187 | ||||||
Provision for income taxes |
109 | 241 | ||||||
Net income |
1,704 | 1,946 | ||||||
See notes to condensed financial statements.
1
GENERAL MONITORS IRELAND LIMITED
CONDENSED BALANCE SHEET
(In thousands, except share amounts)
Unaudited
September 30 2010 |
December 31 2009 |
|||||||
Assets |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
| 1,989 | | 3,487 | ||||
Trade receivables, less allowance for doubtful accounts of 162 and 162 |
2,809 | 1,343 | ||||||
Inventories |
1,841 | 1,604 | ||||||
Prepaid expenses and other current assets |
171 | 140 | ||||||
Total current assets |
6,810 | 6,574 | ||||||
Property, less accumulated depreciation of 3,746 and 3,437 |
1,853 | 1,958 | ||||||
Total assets |
8,663 | 8,532 | ||||||
Liabilities |
||||||||
Current liabilities |
||||||||
Accounts payable |
| 1,107 | | 404 | ||||
Accrued expenses and other current liabilities |
841 | 787 | ||||||
Total current liabilities |
1,948 | 1,191 | ||||||
Shareholders Equity |
||||||||
Common stock authorized 375,000 shares of 1 par value; issued 320,000 shares |
320 | 320 | ||||||
Retained earnings |
6,395 | 7,021 | ||||||
Total shareholders equity |
6,715 | 7,341 | ||||||
Total liabilities and equity |
8,663 | 8,532 | ||||||
See notes to condensed financial statements.
2
GENERAL MONITORS IRELAND LIMITED
CONDENSED STATEMENT OF CASH FLOWS
(In thousands)
Unaudited
Nine Months Ended September 30 |
||||||||
2010 | 2009 | |||||||
Operating Activities |
||||||||
Net income |
| 1,704 | | 1,946 | ||||
Depreciation |
309 | 355 | ||||||
Other, net |
(31 | ) | (4 | ) | ||||
Operating cash flow before changes in working capital |
1,982 | 2,297 | ||||||
Trade receivables |
(1,466 | ) | 519 | |||||
Inventories |
(237 | ) | 468 | |||||
Accounts payable and accrued liabilities |
757 | (756 | ) | |||||
(Increase) decrease in working capital |
(946 | ) | 231 | |||||
Cash flow from operating activities |
1,036 | 2,528 | ||||||
Investing Activities |
||||||||
Property additions |
(204 | ) | (654 | ) | ||||
Cash flow from investing activities |
(204 | ) | (654 | ) | ||||
Financing Activities |
||||||||
Cash dividends paid |
(2,330 | ) | (1,776 | ) | ||||
Cash flow from financing activities |
(2,330 | ) | (1,776 | ) | ||||
(Decrease) increase in cash and cash equivalents |
(1,498 | ) | 98 | |||||
Beginning cash and cash equivalents |
3,487 | 2,704 | ||||||
Ending cash and cash equivalents |
1,989 | 2,802 | ||||||
See notes to condensed financial statements.
3
GENERAL MONITORS IRELAND LIMITED
NOTES TO CONDENSED FINANCIAL STATEMENTS
Unaudited
(1) Basis of Presentation
The condensed financial statements of General Monitors Ireland Limited (the Company) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, they do not include certain information and disclosures required for comprehensive financial statements.
The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. The other information in these financial statements is unaudited; however, we believe that all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of these interim periods have been included. The results for interim periods are not necessarily indicative of the results to be expected for the full year.
(2) Inventories
(In thousands) |
September 30 2010 |
December 31 2009 |
||||||
Finished products |
| 326 | | 380 | ||||
Work in process |
510 | 242 | ||||||
Raw materials and supplies |
1,005 | 982 | ||||||
Total inventories |
1,841 | 1,604 | ||||||
(3) Derivative Financial Instruments
The Company enters into certain derivative foreign currency forward contracts that do not meet the GAAP criteria for hedge accounting, but which have the impact of partially offsetting certain foreign currency exposures. These forward contracts are accounted for on a full mark-to-market basis and the related gains or losses are reported in currency exchange gains or losses. At September 30, 2010, the notional amount of open forward contracts was 0.4 million and the unrealized gain on these contracts was insignificant. All open forward contracts will mature during the fourth quarter of 2010.
The fair values of assets and liabilities associated with derivative financial instruments at September 30, 2010 and December 31, 2009 were insignificant. We estimate the fair value of these financial instruments using valuation models with inputs that generally can be verified by observable market conditions and do not involve significant management judgment. Accordingly, the fair values of these financial instruments are classified within Level 2 of the fair value hierarchy.
Gains and losses on foreign exchange contracts are reported in currency exchange gains or losses and were insignificant for the nine month periods ended September 30, 2010 and 2009.
4
(4) Related-party Transactions
The Company transacts business with General Monitors, Inc. (GMI) and General Monitors Transnational, LLC and Subsidiaries (GMT) which are affiliated through certain common ownership and management. The Company provides product components and finished products for resale. In addition, GMT provides the company with certain administrative, new product development and marketing and sales promotion services.
Related-party transactions for the nine months ended September 30, 2010 and 2009 were as follows:
(In thousands) |
2010 | 2009 | ||||||
Sales to affiliates (included in net sales) |
| 818 | | 486 | ||||
Cost of goods sold to affiliates (included in cost of products sold) |
649 | 404 | ||||||
Purchases from affiliates* |
1,680 | 1,525 | ||||||
Servicing fees from affiliates (included in SG&A and R&D expenses) |
1,947 | 1,761 |
* | Purchases from affiliates are generally charged to inventories and ultimately reported in cost of products sold. |
Related-party balances at September 30, 2010 and December 31, 2009 were as follows:
(In thousands) |
September 30 2010 |
December 31 2009 |
||||||
Net due to affiliates |
| 343 | | 39 |
(5) Contingencies
The company provides performance bonds that are supported by bank guarantees. The bank guarantees are secured by fixed and floating charges on certain assets of the company.
(6) Statement of Changes in Shareholders Equity
(In thousands) |
Common Stock |
Retained Earnings |
Total | |||||||||
Balance at December 31, 2009 |
| 320 | | 7,021 | | 7,341 | ||||||
Net income |
| 1,704 | 1,704 | |||||||||
Dividends paid |
| (2,330 | ) | (2,330 | ) | |||||||
Balance at September 30, 2010 |
320 | 6,395 | 6,715 | |||||||||
Balance at December 31, 2008 |
| 320 | | 6,555 | | 6,875 | ||||||
Net income |
| 1,946 | 1,946 | |||||||||
Dividends paid |
| (1,776 | ) | (1,776 | ) | |||||||
Balance at September 30, 2009 |
320 | 6,725 | 7,045 | |||||||||
5
(7) Recently Adopted and Recently Issued Accounting Standards
In May 2009, and as updated in February 2010, the FASB issued a statement that establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, the statement sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The adoption of the new statement on June 30, 2009 had no impact on the financial statements.
In June 2009, the FASB issued a new accounting pronouncement which revises the approach to determine the primary beneficiary of a variable interest entity (VIE) and requires more frequent reassessment of whether a VIE must be Consolidated. This accounting pronouncement is effective for the Company beginning in 2010. The adoption of the new standard had no impact on the financial statements.
In October 2009, the FASB issued a new accounting pronouncement which changes the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a consolidated unit. This accounting pronouncement requires significantly expanded disclosures related to a vendors multiple deliverable revenue arrangements and is effective for the Company beginning in 2011. The Company is currently evaluating the impact of this pronouncement.
(8) Subsequent Events
On October 13, 2010, the shareholders of the Company sold all of their ownership interest to Mine Safety Appliances Company (MSA) for approximately 34.9 million in cash. Approximately 4.8 million of the cash consideration paid by MSA is held in an escrow account to cover potential unrecorded liabilities as of the closing date. Escrow amounts not disbursed to pay unrecorded liabilities will be released to the appropriate members and minority interest shareholders approximately 24 months after the transaction date. As of October 13, 2010, the Company is a wholly-owned subsidiary of MSA.
Management has evaluated subsequent events through December 23, 2010, the date the financial statements were issued, and has concluded that all events that would require recognition or disclosure are appropriately reflected in the financial statements.
6
Exhibit 99.6
GENERAL MONITORS TRANSNATIONAL, LLC
AND SUBSIDIARIES
(A Limited Liability Company)
CONSOLIDATED FINANCIAL REPORT
(Unaudited)
September 30, 2010
GENERAL MONITORS TRANSNATIONAL, LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In thousands)
Unaudited
Nine Months Ended September 30 |
||||||||
2010 | 2009 | |||||||
Net sales and service revenue |
$ | 22,087 | $ | 23,311 | ||||
Other income |
538 | 505 | ||||||
22,625 | 23,816 | |||||||
Costs and expenses |
||||||||
Cost of products sold |
4,675 | 6,665 | ||||||
Selling, general and administrative |
8,810 | 8,118 | ||||||
Research and development |
3,425 | 3,858 | ||||||
Interest |
29 | 70 | ||||||
Currency exchange gains |
(26 | ) | (7 | ) | ||||
16,913 | 18,704 | |||||||
Income before income taxes |
5,712 | 5,112 | ||||||
Provision for income taxes |
229 | 175 | ||||||
Net income |
5,483 | 4,937 | ||||||
Net income attributable to noncontrolling interests |
(411 | ) | (426 | ) | ||||
Net income attributable to General Monitors Transnational, LLC |
5,072 | 4,511 | ||||||
See notes to condensed financial statements.
1
GENERAL MONITORS TRANSNATIONAL, LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
Unaudited
September 30 2010 |
December 31 2009 |
|||||||
Assets |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 6,249 | $ | 6,478 | ||||
Accounts receivable |
3,066 | 2,584 | ||||||
Inventories |
1,200 | 852 | ||||||
Prepaid expenses and other current assets |
63 | 182 | ||||||
Total current assets |
10,578 | 10,096 | ||||||
Property, less accumulated depreciation of $2,113 and $1,632 |
8,895 | 8,989 | ||||||
Deferred tax assets |
39 | 39 | ||||||
Goodwill |
2,906 | 2,906 | ||||||
Other noncurrent assets |
5,056 | 4,136 | ||||||
Total assets |
27,474 | 26,166 | ||||||
Liabilities |
||||||||
Current liabilities |
||||||||
Current portion of long-term debt |
$ | 630 | $ | 630 | ||||
Accounts payable |
703 | 361 | ||||||
Accrued expenses and other current liabilities |
1,546 | 2,607 | ||||||
Income taxes payable |
136 | 55 | ||||||
Total current liabilities |
3,015 | 3,653 | ||||||
Long-term debt |
525 | 998 | ||||||
Total liabilities |
3,540 | 4,651 | ||||||
Members Equity |
||||||||
Common stock |
96 | 96 | ||||||
Members contributions |
10,300 | 10,300 | ||||||
Note receivable from member |
(116 | ) | (185 | ) | ||||
Accumulated other comprehensive (loss) income |
(70 | ) | 14 | |||||
Retained earnings |
12,042 | 9,732 | ||||||
Total General Monitors Transnational, LLC members equity |
22,252 | 19,957 | ||||||
Noncontrolling interests |
1,682 | 1,558 | ||||||
Total equity |
23,934 | 21,515 | ||||||
Total liabilities and equity |
27,474 | 26,166 | ||||||
See notes to condensed financial statements.
2
GENERAL MONITORS TRANSNATIONAL, LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Unaudited
Nine Months Ended September 30 |
||||||||
2010 | 2009 | |||||||
Operating Activities |
||||||||
Net income |
$ | 5,483 | $ | 4,937 | ||||
Depreciation and amortization |
619 | 457 | ||||||
Equity income |
(525 | ) | (445 | ) | ||||
Other noncurrent assets and liabilities |
(492 | ) | (28 | ) | ||||
Other, net |
(124 | ) | 76 | |||||
Operating cash flow before changes in working capital |
4,961 | 4,997 | ||||||
Trade receivables |
(372 | ) | 953 | |||||
Inventories |
(348 | ) | 421 | |||||
Accounts payable and accrued liabilities |
99 | 9 | ||||||
Income taxes receivable, prepaid expenses and other current assets |
131 | 90 | ||||||
(Increase) decrease in working capital |
(490 | ) | 1,473 | |||||
Cash flow from operating activities |
4,471 | 6,470 | ||||||
Investing Activities |
||||||||
Property additions |
(216 | ) | (2,084 | ) | ||||
Cash flow from investing activities |
(216 | ) | (2,084 | ) | ||||
Financing Activities |
||||||||
Payments on debt, net |
(1,473 | ) | (1,856 | ) | ||||
Distributions |
(2,762 | ) | (2,581 | ) | ||||
Other financing |
(251 | ) | (180 | ) | ||||
Cash flow from financing activities |
(4,486 | ) | (4,617 | ) | ||||
Effect of exchange rate changes on cash |
2 | (1 | ) | |||||
Decrease in cash and cash equivalents |
(229 | ) | (232 | ) | ||||
Beginning cash and cash equivalents |
6,478 | 4,142 | ||||||
Ending cash and cash equivalents |
6,249 | 3,910 | ||||||
See notes to condensed financial statements.
3
GENERAL MONITORS TRANSNATIONAL, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
(1) Basis of Presentation
The condensed consolidated financial statements of General Monitors Transnational, LLC and subsidiaries (the Company) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, they do not include certain information and disclosures required for comprehensive financial statements.
The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. The other information in these financial statements is unaudited; however, we believe that all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of these interim periods have been included. The results for interim periods are not necessarily indicative of the results to be expected for the full year.
The condensed consolidated financial statements include the accounts of the Company and all subsidiaries. Intercompany accounts and transactions have been eliminated.
(2) Comprehensive Income
Components of comprehensive income are as follows:
Nine Months Ended September 30 |
||||||||
(In thousands) |
2010 | 2009 | ||||||
Net income |
$ | 5,483 | $ | 4,937 | ||||
Foreign currency translation adjustments |
(120 | ) | 76 | |||||
Comprehensive income |
5,363 | 5,013 | ||||||
Comprehensive income attributable to noncontrolling interests |
(375 | ) | (449 | ) | ||||
Comprehensive income attributable to General Monitors Transnational, LLC |
4,988 | 4,564 | ||||||
Components of accumulated other comprehensive (loss) income are as follows:
(In thousands) |
September 30 2010 |
December 31 2009 |
||||||
Cumulative translation adjustments |
$ | (70 | ) | $ | 14 | |||
(3) Goodwill and Intangible Assets
Changes in goodwill and intangible assets, net of accumulated amortization, during the nine months ended September 30, 2010 were as follows:
(In thousands) |
Goodwill | Intangibles | ||||||
Net balances at January 1, 2010 |
$ | 2,906 | $ | 2,554 | ||||
Amortization expense |
| (232 | ) | |||||
Net balances at September 30, 2010 |
2,906 | 2,322 | ||||||
4
(4) Inventories
(In thousands) |
September 30 2010 |
December 31 2009 |
||||||
Raw materials |
$ | 372 | $ | 421 | ||||
Work in process |
602 | 281 | ||||||
Raw materials and supplies |
226 | 150 | ||||||
Total inventories |
1,200 | 852 | ||||||
(5) Related-party Transactions
The Company transacts business with GMI and General Monitors International, Ireland (GMIL) which are affiliated through certain common ownership and management. The Company provides product components and finished products for resale. In addition GMT provides services for certain administrative, new product development and marketing and sales promotion services.
The Company transacts business with Wuxi General Monitors Co., Ltd. (Wuxi) which is affiliated through a 30 percent ownership by GMT. The Company provides product components and finished products for resale.
Related-party transactions for the nine months ended September 30, 2010 and 2009 were as follows:
(In thousands) |
2010 | 2009 | ||||||
Sales and service revenue to affiliates (included in net sales and service revenue) |
$ | 19,041 | $ | 20,219 | ||||
Cost of goods sold to affiliates (included in cost of products sold) |
2,697 | 4,307 | ||||||
Purchases from affiliates* |
873 | 554 |
* | Purchases from affiliates are generally charged to inventories and ultimately reported in cost of products sold. |
5
Related-party balances at September 30, 2010 and December 31, 2009 were as follows:
(In thousands) |
September 30 2010 |
December 31 2009 |
||||||
Net due from affiliates |
$ | 1,756 | $ | 1,045 |
(6) Income Taxes
The Company is a limited liability company with more than one member and, as such, is automatically taxed as a partnership. Accordingly, the members separately account for their pro rata share of the Companys items of income deductions, losses and credits. The members may take distributions annually to pay for the applicable members share of annual taxes due. Certain subsidiaries of the Company are taxed as regular corporations.
(7) Contingencies
Self insurance of general liability: In the United States, the Company is self-insured for its general liability coverage up to $500,000 per claim. As of September 30, 2010, the Company is not aware of any amounts to be accrued as claims against the self-insured portion of the coverage.
Self-insurance of employee medical benefits: For most of the U.S. employees, the Company acts as a self-insurer for its medical, dental and vision claims, with stop-loss coverage for individual medical participant costs over $60,000 per year and an annual cap based on the number of employees. Medical expenses are included in Cost of Goods Sold or General and Administrative expenses, depending on which department the employee works for.
(8) Recently Adopted and Recently Issued Accounting Standards
In May 2009, and as updated in February 2010, the FASB issued a statement that establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, the statement sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The adoption of the new statement on June 30, 2009 had no impact on the financial statements.
In June 2009, the FASB issued a new accounting pronouncement which revises the approach to determine the primary beneficiary of a variable interest entity (VIE) and requires more frequent reassessment of whether a VIE must be Consolidated. This accounting pronouncement is effective for the Company beginning in 2010. The adoption of the new standard had no impact on the financial statements.
In October 2009, the FASB issued a new accounting pronouncement which changes the accounting for multiple-deliverable arrangements to enable vendors to account for products or
6
services (deliverables) separately rather than as a consolidated unit. This accounting pronouncement requires significantly expanded disclosures related to a vendors multiple deliverable revenue arrangements and is effective for the Company beginning in 2011. The Company is currently evaluating the impact of this pronouncement.
In June 2009, the FASB issued a statement that amends the consolidation guidance applicable to variable interest entities. The adoption of this statement on January 1, 2010 did not have a material effect on our consolidated financial statements.
(9) Statement of Changes in Shareholders Equity
Common Stock |
Paid in Capital |
Note Receivable | Retained Earnings |
Accumulated Other Comprehensive Income |
Noncontrolling Interest |
Total Equity |
||||||||||||||||||||||
Balance at December 31, 2009 |
$ | 96 | $ | 10,300 | $ | (185 | ) | $ | 9,732 | $ | 14 | $ | 1,558 | $ | 21,515 | |||||||||||||
Net income |
| | | 5,072 | | 411 | 5,483 | |||||||||||||||||||||
Distributions to stockholders |
| (2,762 | ) | | (251 | ) | (3,013 | ) | ||||||||||||||||||||
Collections on note receivable from member |
| | 69 | | | | 69 | |||||||||||||||||||||
Cumulative translation adjustments |
| | | (84 | ) | (36 | ) | (120 | ) | |||||||||||||||||||
Balance at September 30, 2010 |
96 | 10,300 | (116 | ) | 12,042 | (70 | ) | 1,682 | 23,934 |
Common Stock |
Paid in Capital |
Note Receivable | Retained Earnings |
Accumulated Other Comprehensive Income |
Noncontrolling Interest |
Total Equity |
||||||||||||||||||||||
Balance at December 31, 2008 |
$ | 96 | $ | 8,297 | $ | (274 | ) | $ | 7,415 | $ | (17 | ) | $ | 1,243 | $ | 16,760 | ||||||||||||
Net income |
| | | 4,511 | | 426 | 4,937 | |||||||||||||||||||||
Distributions to stockholders |
| (2,581 | ) | | (180 | ) | (2,761 | ) | ||||||||||||||||||||
Collections on note receivable from member |
| | | | | | | |||||||||||||||||||||
Cumulative translation adjustments |
| | | | 53 | 23 | 76 | |||||||||||||||||||||
Balance at September 30, 2009 |
96 | 8,297 | (274 | ) | 9,345 | 36 | 1,512 | 19,012 |
7
(10) Subsequent Events
On October 13, 2010, the Members of GMT and minority interest shareholders sold all of their ownership interests to Mine Safety Appliances Company (MSA). MSA paid approximately $87.0 million in cash consideration plus the payment of amounts outstanding under the Companys term loan of approximately $1.2 million due to a bank. Approximately $12.0 million of the cash consideration is held in an escrow account to cover potential unrecorded liabilities as of the closing date. Amounts not disbursed to pay unrecorded liabilities will be released to the appropriate members and minority interest shareholders approximately 24 months after the transaction date.
Management has evaluated subsequent events through December 23, 2010, the date the financial statements were issued, and has concluded that all events that would require recognition or disclosure are appropriately reflected in the financial statements.
8
Exhibit 99.7
MINE SAFETY APPLIANCES COMPANY, GENERAL MONITORS, INC.,
GENERAL MONITORS IRELAND LIMITED, AND GENERAL MONITORS TRANSNATIONAL, LLC
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(In thousands)
Unaudited
The unaudited pro forma condensed combined balance sheet combines the historical balance sheets of Mine Safety Appliances Company (MSA or the Company), General Monitors, Inc (GMI), General Monitors Ireland Limited (GMIL) and General Monitors Transnational, LLC (GMT) at September 30, 2010 and is presented as if the acquisitions occurred on September 30, 2010. The foreign exchange rate used to translate the GMIL balance sheet to U.S. dollars was 1.36 U.S. dollars equals one euro.
The unaudited pro forma condensed combined statements of income for the year ended December 31, 2009 and for the nine months ended September 30, 2010 combine the historical statements of income for MSA, GMI, GMIL, and GMT as if the acquisitions took place on January 1, 2009. The historical statement of income for GMIL for the year ended December 31, 2009 has been adjusted to conform to U.S. GAAP. The foreign exchange rates used to translate the GMIL income statements for the year ended December 31, 2009 and the nine months ended September 30, 2010 were 1.39 and 1.32 U.S. dollars, respectively, equals one euro.
The historical financial information has been adjusted in the unaudited condensed combined pro forma financial statements to give effect to events that are (1) directly attributable to the acquisitions; (2) factually supportable; and (3) with respect to the statements of income, expected to have a continuing impact on the combined companys results. The pro forma adjustments are described in the accompanying footnotes.
The unaudited pro forma condensed combined financial information was based on and should be read in conjunction with the following historical financial statements and accompanying notes:
| Separate unaudited financial statements of MSA at September 30, 2010 and for the nine months then ended included in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2010; |
| Separate unaudited historical financial statements of GMI, GMIL, and GMT at September 30, 2010 and for the nine months then ended included in this Current Report on Form 8-K/A; |
| Separate audited historical financial statements of MSA at December 31, 2009 and for the year then ended included in our Annual Report on Form 10-K for the year ended December 31, 2009; and |
| Separate audited historical financial statements of GMI, GMIL, and GMT at December 31, 2009 and for the year then ended included in this Current Report on Form 8-K/A. |
The unaudited pro forma condensed combined financial information is presented for informational purposes only and is not intended to represent or be indicative of the combined results of operations or financial position that we would have reported had the acquisitions been completed as of the date and for
1
the periods presented, and should not be taken as representative of our consolidated results of operations or financial condition following the acquisitions. In addition, the unaudited pro forma condensed combined financial information is not intended to project the future financial position or results of operations of the combined company. There were no material transactions between MSA and GMI, GMIL, or GMT during the periods presented that are required to be eliminated. Transactions between GMI, GMIL, and GMT during the periods presented have been eliminated in the unaudited pro forma condensed combined financial information.
The unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting under existing U.S. generally accepted accounting principles (GAAP). MSA has been treated as the acquirer. The acquisition accounting is dependent upon certain valuations and other studies that have yet to commence or progress to a stage where there is sufficient information for a definitive measurement. Accordingly, the pro forma adjustments are preliminary and have been made solely for the purpose of providing unaudited pro forma condensed combined financial information. Differences between these preliminary management estimates (for example, estimates as to the values of acquired property and equipment and intangible assets) and the final acquisition accounting will occur and these differences could have a material impact on the accompanying unaudited pro forma condensed combined financial statements and the combined companys future results of operations and financial position.
The unaudited pro forma condensed combined financial information does not reflect any cost savings, operating synergies or revenue enhancements that the combined company may achieve as a result of the acquisitions or the costs to integrate the operations or the costs necessary to achieve cost savings, operating synergies or revenue enhancements.
2
MINE SAFETY APPLIANCES COMPANY, GENERAL MONITORS, INC.,
GENERAL MONITORS IRELAND LIMITED, AND GENERAL MONITORS TRANSNATIONAL, LLC
Unaudited Pro Forma Condensed Combined Statement of Income
For the Year Ended December 31, 2009
(In thousands, except share amounts)
HISTORICAL | PRO FORMA | |||||||||||||||||||||||||||
MSA | GMI | GMIL | GMT | Adjustments | Combined | |||||||||||||||||||||||
Net sales |
$ | 909,991 | $ | 50,756 | $ | 23,120 | $ | 32,645 | $ | (26,060 | ) | a | $ | 990,452 | ||||||||||||||
Other income |
5,860 | 101 | 20 | 804 | | 6,785 | ||||||||||||||||||||||
915,851 | 50,857 | 23,140 | 33,449 | (26,060 | ) | 997,237 | ||||||||||||||||||||||
Costs and expenses |
||||||||||||||||||||||||||||
Cost of products sold |
573,266 | 20,755 | 13,168 | 9,270 | (2,223 | ) | b | 614,236 | ||||||||||||||||||||
Selling, general and administrative |
230,894 | 13,629 | 3,929 | 12,180 | (8,209 | ) | c | 252,423 | ||||||||||||||||||||
Research and development |
28,781 | 4,758 | 2,248 | 4,949 | (6,741 | ) | d | 33,995 | ||||||||||||||||||||
Restructuring and other charges |
11,378 | | | | | 11,378 | ||||||||||||||||||||||
Interest |
7,080 | 2 | | 82 | 8,650 | e | 15,814 | |||||||||||||||||||||
Currency exchange gains |
(888 | ) | (88 | ) | | | | (976 | ) | |||||||||||||||||||
850,511 | 39,056 | 19,345 | 26,481 | (8,523 | ) | 926,870 | ||||||||||||||||||||||
Income before taxes |
65,340 | 11,801 | 3,795 | 6,968 | (17,537 | ) | 70,367 | |||||||||||||||||||||
Provision for income taxes |
22,003 | 241 | 382 | 190 | (250 | ) | f | 22,566 | ||||||||||||||||||||
Net income |
43,337 | 11,560 | 3,413 | 6,778 | (17,287 | ) | 47,801 | |||||||||||||||||||||
Net income attributable to noncontrolling interests |
(42 | ) | | | (640 | ) | 640 | g | (42 | ) | ||||||||||||||||||
Net income attributable to Mine Safety Appliances Company |
43,295 | 11,560 | 3,413 | 6,138 | (16,647 | ) | 47,759 | |||||||||||||||||||||
Earnings per share attributable to Mine Safety Appliances Company common shareholders |
||||||||||||||||||||||||||||
Basic |
$ | 1.21 | $ | 1.34 | ||||||||||||||||||||||||
Diluted |
$ | 1.21 | $ | 1.33 | ||||||||||||||||||||||||
Basic shares outstanding |
35,668 | 35,668 | ||||||||||||||||||||||||||
Diluted shares outstanding |
35,879 | 35,879 |
See the accompanying notes to the unaudited pro forma condensed combined financial statements which are an integral part of these statements. The pro forma adjustments are explained in Adjustments to Unaudited Pro Forma Condensed Combined Statements of Income for the year ended December 31, 2009 and for the nine months ended September 30, 2010.
3
MINE SAFETY APPLIANCES COMPANY, GENERAL MONITORS, INC.,
GENERAL MONITORS IRELAND LIMITED, AND GENERAL MONITORS TRANSNATIONAL, LLC
Unaudited Pro Forma Condensed Combined Statement of Income
For the Nine Months Ended September 30, 2010
(In thousands, except share amounts)
HISTORICAL | PRO FORMA | |||||||||||||||||||||||||||
MSA | GMI | GMIL | GMT | Adjustments | Combined | |||||||||||||||||||||||
Net sales |
$ | 691,626 | $ | 36,443 | $ | 16,432 | $ | 22,087 | $ | (19,372 | ) | a | $ | 747,216 | ||||||||||||||
Other income (expense) |
2,359 | 157 | 14 | 538 | | 3,068 | ||||||||||||||||||||||
693,985 | 36,600 | 16,446 | 22,625 | (19,372 | ) | 750,284 | ||||||||||||||||||||||
Costs and expenses |
||||||||||||||||||||||||||||
Cost of products sold |
428,268 | 13,535 | 8,147 | 4,675 | (1,230 | ) | b | 453,395 | ||||||||||||||||||||
Selling, general and administrative |
184,005 | 9,961 | 4,245 | 8,810 | (8,844 | ) | c | 198,177 | ||||||||||||||||||||
Research and development |
23,956 | 3,580 | 1,637 | 3,425 | (5,175 | ) | d | 27,423 | ||||||||||||||||||||
Restructuring and other charges |
11,509 | | | | | 11,509 | ||||||||||||||||||||||
Interest |
4,911 | 1 | 9 | 29 | 6,488 | e | 11,438 | |||||||||||||||||||||
Currency exchange (gains) losses |
(90 | ) | (9 | ) | 21 | (26 | ) | | (104 | ) | ||||||||||||||||||
652,559 | 27,068 | 14,059 | 16,913 | (8,761 | ) | 701,838 | ||||||||||||||||||||||
Income before taxes |
41,426 | 9,532 | 2,387 | 5,712 | (10,611 | ) | 48,446 | |||||||||||||||||||||
Provision for income taxes |
14,387 | 120 | 144 | 229 | 1,200 | f | 16,080 | |||||||||||||||||||||
Net income |
27,039 | 9,412 | 2,243 | 5,483 | (11,811 | ) | 32,366 | |||||||||||||||||||||
Net income attributable to noncontrolling interests |
(703 | ) | | | (411 | ) | 411 | g | (703 | ) | ||||||||||||||||||
Net income attributable to Mine Safety Appliances Company |
26,336 | 9,412 | 2,243 | 5,072 | (11,400 | ) | 31,663 | |||||||||||||||||||||
Earnings per share attributable to Mine Safety Appliances Company common shareholders |
||||||||||||||||||||||||||||
Basic |
$ | 0.73 | $ | 0.88 | ||||||||||||||||||||||||
Diluted |
$ | 0.72 | $ | 0.87 | ||||||||||||||||||||||||
Basic shares outstanding |
35,819 | 35,819 | ||||||||||||||||||||||||||
Diluted shares outstanding |
36,366 | 36,366 |
See the accompanying notes to the unaudited pro forma condensed combined financial statements which are an integral part of these statements. The pro forma adjustments are explained in Adjustments to Unaudited Pro Forma Condensed Combined Statements of Income for the year ended December 31, 2009 and for the nine months ended September 30, 2010.
4
MINE SAFETY APPLIANCES COMPANY, GENERAL MONITORS, INC.,
GENERAL MONITORS IRELAND LIMITED, AND GENERAL MONITORS TRANSNATIONAL, LLC
Unaudited Pro Forma Condensed Combined Balance Sheet
September 30, 2010
(In thousands)
HISTORICAL | PRO FORMA | |||||||||||||||||||||||||||
MSA | GMI | GMIL | GMT | Adjustments | Combined | |||||||||||||||||||||||
Assets |
||||||||||||||||||||||||||||
Current assets |
||||||||||||||||||||||||||||
Cash and cash equivalents |
$ | 47,413 | $ | 9,745 | $ | 2,707 | $ | 6,249 | $ | (17,155 | ) | A | $ | 48,959 | ||||||||||||||
Trade receivables, net |
186,128 | 8,437 | 3,824 | 3,066 | (1,725 | ) | B | 199,730 | ||||||||||||||||||||
Inventories |
142,600 | 5,506 | 2,506 | 1,200 | 3,000 | C | 154,812 | |||||||||||||||||||||
Deferred tax assets |
21,256 | | | | | 21,256 | ||||||||||||||||||||||
Income taxes receivable |
8,001 | | | | | 8,001 | ||||||||||||||||||||||
Prepaid expenses and other current assets |
33,198 | 51 | 234 | 63 | | 33,546 | ||||||||||||||||||||||
Total current assets |
438,596 | 23,739 | 9,271 | 10,578 | (15,880 | ) | 466,304 | |||||||||||||||||||||
Property, net |
141,114 | 3,188 | 2,522 | 8,895 | 4,000 | D | 159,719 | |||||||||||||||||||||
Prepaid pension cost |
115,415 | | | | | 115,415 | ||||||||||||||||||||||
Deferred tax assets |
12,167 | | | 39 | | 12,206 | ||||||||||||||||||||||
Goodwill |
84,874 | | | 2,906 | 136,582 | E | 224,362 | |||||||||||||||||||||
Other noncurrent assets |
118,783 | 182 | | 5,056 | 82,749 | F | 206,770 | |||||||||||||||||||||
Total assets |
910,949 | 27,109 | 11,793 | 27,474 | 207,451 | 1,184,776 | ||||||||||||||||||||||
Liabilities and Shareholders Equity |
||||||||||||||||||||||||||||
Current liabilities |
||||||||||||||||||||||||||||
Notes payable and current portion of long-term debt |
$ | 51,447 | $ | | $ | | $ | 630 | $ | (630 | ) | G | $ | 51,447 | ||||||||||||||
Accounts payable |
55,589 | 1,766 | 1,507 | 703 | (1,725 | ) | B | 57,840 | ||||||||||||||||||||
Employees compensation |
32,025 | | | | | 32,025 | ||||||||||||||||||||||
Insurance and product liability |
14,244 | | | | | 14,244 | ||||||||||||||||||||||
Taxes on income |
5,252 | 48 | | 136 | | 5,436 | ||||||||||||||||||||||
Other current liabilities |
47,544 | 4,431 | 1,145 | 1,546 | | 54,666 | ||||||||||||||||||||||
Total current liabilities |
206,101 | 6,245 | 2,652 | 3,015 | (2,355 | ) | 215,658 | |||||||||||||||||||||
Long-term debt |
72,106 | | | 525 | 263,475 | H | 336,106 | |||||||||||||||||||||
Pensions and other employee benefits |
126,973 | | | | | 126,973 | ||||||||||||||||||||||
Deferred tax liabilities |
45,075 | | | | | 45,075 | ||||||||||||||||||||||
Other noncurrent liabilities |
14,012 | 190 | | | | 14,202 | ||||||||||||||||||||||
Total liabilities |
464,267 | 6,435 | 2,652 | 3,540 | 261,120 | 738,014 | ||||||||||||||||||||||
Mine Safety Appliances Company shareholders equity: |
||||||||||||||||||||||||||||
Preferred stock |
3,569 | | | | | 3,569 | ||||||||||||||||||||||
Common stock |
80,550 | 8 | 436 | 96 | (540 | ) | I | 80,550 | ||||||||||||||||||||
Additional paid in capital |
| 1,821 | | 10,300 | (12,121 | ) | I | | ||||||||||||||||||||
Notes receivable from shareholders |
| (493 | ) | | (116 | ) | 609 | I | | |||||||||||||||||||
Stock compensation trust |
(8,935 | ) | | | | | (8,935 | ) | ||||||||||||||||||||
Treasury shares, at cost |
(261,017 | ) | | | | | (261,017 | ) | ||||||||||||||||||||
Accumulated other comprehensive loss |
(45,088 | ) | | | (70 | ) | 70 | I | (45,088 | ) | ||||||||||||||||||
Retained earnings |
673,559 | 19,338 | 8,705 | 12,042 | (40,005 | ) | I | 673,639 | ||||||||||||||||||||
Total Mine Safety Appliances Company shareholders equity |
442,638 | 20,674 | 9,141 | 22,252 | (51,987 | ) | 442,718 | |||||||||||||||||||||
Noncontrolling interests |
4,044 | | | 1,682 | (1,682 | ) | J | 4,044 | ||||||||||||||||||||
Total shareholders equity |
446,682 | 20,674 | 9,141 | 23,934 | (53,669 | ) | 446,762 | |||||||||||||||||||||
Total liabilities and equity |
910,949 | 27,109 | 11,793 | 27,474 | 207,451 | 1,184,776 | ||||||||||||||||||||||
See the accompanying notes to the unaudited pro forma condensed combined financial statements which are an integral part of these statements. The pro forma adjustments are explained in Adjustments to Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 2010.
5
MINE SAFETY APPLIANCES COMPANY, GENERAL MONITORS, INC.,
GENERAL MONITORS IRELAND LIMITED, AND GENERAL MONITORS TRANSNATIONAL, LLC
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
Description of Transaction
On October 13, 2010, Mine Safety Appliances Company acquired General Monitors, Inc. and its affiliated companies, General Monitors Ireland Limited and General Monitors Transnational, LLC, for $280.0 million in cash, along with the assumption of certain liabilities. The purchase price is subject to a working capital adjustment. There is no contingent consideration. At the same time, the Company entered into an escrow agreement (Escrow Agreement) with the sellers, pursuant to which approximately $38.0 million of the purchase price was placed into escrow (Escrow Amount) with PNC Bank, N.A. Except for certain claims which can be made up to two years after the closing, any claims against the Escrow Amount are required to be made within one year of closing. The Escrow Agreement expires two years after the closing. GMI, GMIL and GMT are now wholly-owned subsidiaries of MSA.
Approximately $264.0 million of the acquisition price was funded through the issuance of $100.0 million in 4.00% Series A Senior Notes and borrowings on a $250.0 million unsecured senior revolving credit facility. The Series A Senior Notes will mature on October 13, 2021 and are payable in five annual installments of $20.0 million, commencing October 13, 2017. Interest is payable quarterly beginning January 13, 2011. The Series A Senior Notes are unsecured. Borrowings made under the unsecured senior revolving credit facility bear interest at a variable annual rate and may be used for general corporate purposes, including working capital, permitted acquisitions, capital expenditures, and repayment of existing debt.
Basis of Presentation
The unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting and the historical financial statements of MSA, GMI, GMIL, and GMT. The acquisition method of accounting is based on Accounting Standards Codification (ASC) Topic 805, Business Combinations, which MSA adopted on January 1, 2009 and uses the fair value concepts defined in ASC Topic 820, Fair Value Measurements and Disclosures, which MSA has adopted as required. The GMI, GMIL and GMT financial statements were prepared, or were adjusted to be, in accordance with U.S. generally accepted accounting principles and, where applicable, are translated into U.S. dollars using the average exchange rates in effect during the periods in question for the statements of income and the daily exchange rate in effect on the balance sheet date.
The acquisition method of accounting requires, among other things, that most assets acquired and liabilities acquired be recognized at their fair values as of the acquisition date. Financial statements of MSA issued after the acquisitions will reflect such fair values, measured as of the acquisition date, which may be different than the estimated fair values included in these unaudited pro forma condensed combined financial statements. The financial statements of MSA issued after the acquisition will not be retroactively restated to reflect the historical financial position or results of operations of GMI, GMIL, and GMT.
ASC Topic 820 defines the term fair value, sets forth the valuation requirements for any asset or liability measured at fair value, expands related disclosure requirements and specifies a hierarchy of valuation techniques based on the nature of the inputs used to develop the fair value measures. Fair value is defined 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. In addition, market participants are assumed to be unrelated buyers and sellers in the principal (or most advantageous) market for the asset or liability. Fair value measurements for an asset assume the highest and best use by these market participants. As a result of these standards, MSA may be required to record assets which are not intended to be used or may be sold and/or to value assets at fair value measures that do not reflect MSAs intended use of those assets. Many of these fair value measurements can be highly subjective and it is possible that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts.
6
Acquisition costs (e.g., advisory, legal, valuation, other professional fees, etc.) are accounted for as expenses in the periods in which the costs are incurred. Total advisory, legal, regulatory and valuation costs expected to be incurred by MSA are estimated to be approximately $7.0 million, of which $2.5 million was expensed in the nine months ended September 30, 2010.
Accounting Policies
MSA is performing a detailed review of the accounting policies of GMI, GMIL, and GMT. This review may identify differences between the accounting policies of MSA and the three General Monitors companies that, when conformed, could have a material impact on the combined financial statements.
Estimate of Assets to be Acquired and Liabilities to be Assumed
The following is a preliminary estimate of the assets acquired and the liabilities assumed by MSA in the acquisition, reconciled to the cash consideration transferred:
(In millions) |
||||
Fair value of GMI, GMIL and GMT tangible assets, net of liabilities |
$ | 55.5 | ||
Identifiable intangible assets including technology, trade names, customer lists and other |
85.0 | |||
Goodwill |
139.5 | |||
Total cash consideration |
280.0 | |||
These preliminary estimates of fair value and weighted-average useful life will likely differ from the amounts reported in the final acquisition accounting, and the difference could have a material impact on the accompanying unaudited pro forma condensed combined financial statements. When MSA and its third party valuation advisors have full knowledge of the specifics of GMIs, GMILs, and GMTs long-lived assets, additional insight will be gained that could impact: (i) the estimated total value assigned to long-lived assets; (ii) the estimated allocation of value between finite-lived and indefinite-lived assets and/or (iii) the estimated weighted-average useful life of each category of long-lived assets. The cash consideration is subject to a working capital adjustment that will affect the final cash consideration paid and, ultimately, goodwill.
Following is a discussion of the adjustments made to GMIs, GMILs, and GMTs and C/Gs assets and liabilities in connection with the preparation of these unaudited pro forma condensed combined financial statements:
Property: At the acquisition date, property is required to be measured at fair value, unless those assets are classified as held-for-sale on the acquisition date. The acquired assets can include assets that are not intended to be used or sold, or that are intended to be used in a manner other than their highest and best use. Based on internal assessments for purposes of these unaudited pro forma condensed combined financial statements, it is assumed that all assets will be used in a manner that represents their highest and best use. This estimate of fair value is preliminary and subject to change and could vary materially from the final actual adjustment. For each $0.5 million change in the fair value adjustment to property, plant and equipment, there would be an increase or decrease in depreciation expense of approximately $0.1 million per year, assuming a weighted-average useful life of 7 years.
Intangible assets: At the acquisition date, identifiable intangible assets are required to be measured at fair value and these acquired assets could include assets that are not intended to be used or sold, or that are intended to be used in a manner other than their highest and best use. For purposes of these unaudited pro forma condensed combined financial statements, it is assumed that all assets will be used in a manner that represents their highest and best use.
7
The fair value of these intangible assets is normally determined primarily through the use of the income approach, which requires an estimate or forecast of all the expected future cash flows through the use of either the multi-period excess earnings method or relief-from-royalty method. At this time, MSA has not completed its valuation of technology, trade names, customer relationships, and other identifiable intangible assets of GMI, GMIL, and GMT. Some of the more significant assumptions in the development of estimated cash flows, from the perspective of a market participant, include: the amount and timing of projected future cash flows (including revenue, cost of goods sold, sales and marketing expenses, and working capital/contributory asset charges) and the discount rate selected to measure the risks inherent in the future cash flows. For purposes of these unaudited pro forma condensed combined financial statements, MSA management has estimated the fair value of the identifiable intangible assets to be $85.0 million with a weighted average useful life of 11 years. For each $1.0 million change in the fair value adjustment to identifiable intangible assets, there would be an increase or decrease in cost of products sold and selling, general and administrative expenses of approximately $0.1 million per year, assuming a weighted-average useful life of 11 years.
Other long-term liabilities and contingencies: At the acquisition date, contingencies are required to be measured at fair value. If the acquisition-date fair value of the asset or liability cannot be determined, the asset or liability would be recognized at the acquisition date if both of the following criteria are met: (i) it is probable that an asset existed or that a liability had been incurred at the acquisition date, and (ii) the amount of the asset or liability can be reasonably estimated. These criteria are to be applied using the guidance in ASC Topic 450, Contingencies. The acquisition method of accounting is dependent upon certain valuations and other studies that have yet to commence or progress to a stage where there is sufficient information for a definitive measurement.
Goodwill: Goodwill is calculated as the difference between (i) the cash consideration paid and (ii) the values assigned to the assets acquired and liabilities assumed. Goodwill is not amortized, but is subject to an annual fair value impairment test.
Related Party Transactions
There were no transactions between MSA and GMI, GMIL, or GMT during the periods presented. Sales of product and services and other transactions among GMI, GMIL, and GMT during the periods presented have been eliminated in the unaudited pro forma condensed combined financial statements.
Adjustments to MSA, GMI, GMIL, and GMT Unaudited Pro Forma Condensed Combined Statements of Income for the Year Ended December 31, 2009 and for the Nine Months Ended September 30, 2010
(a) | To record the elimination of sales of product and services among GMI, GMIL, and GMT. |
(b) | Reflects the elimination of cost of sales of products among GMI, GMIL, and GMT and increased depreciation and amortization expense as a result of recording property and identifiable intangible assets at their estimated fair values. The components of the adjustments to cost of products sold are: |
(In thousands) |
Year
Ended December 31, 2009 |
Nine Months Ended September 30, 2010 |
||||||
Related party eliminations |
$ | (10,773 | ) | $ | (7,640 | ) | ||
Increased depreciation and amortization due to recording property and intangible assets at their fair values |
8,550 | 6,410 | ||||||
(2,223 | ) | (1,230 | ) |
8
(c) | Reflects the elimination of cost of sales of services among GMI, GMIL, and GMT; the reversal of GMT historical intangible asset amortization expense; increased depreciation expense as a result of recording property at its estimated fair value; incremental compensation expense for key employees; and the elimination of incremental transaction-related expenses. The components of the adjustments to selling, general and administrative expenses are: |
(In thousands) |
Year
Ended December 31, 2009 |
Nine Months Ended September 30, 2010 |
||||||
Related party eliminations |
$ | (8,486 | ) | $ | (6,512 | ) | ||
Reverse GMT amortization expense |
(338 | ) | (232 | ) | ||||
Increased depreciation due to recording property at fair values |
240 | 180 | ||||||
Incremental compensation expense |
375 | 220 | ||||||
Elimination of incremental transaction-related expenses |
| (2,500 | ) | |||||
(8,209 | ) | (8,844 | ) |
(d) | Reflects the elimination of cost of sales of research and development among GMI, GMIL, and GMT and increased depreciation expense as a result of recording property estimated fair values. The components of the adjustments to research and development are: |
(In thousands) |
Year
Ended December 31, 2009 |
Nine Months Ended September 30, 2010 |
||||||
Related party eliminations |
$ | (6,801 | ) | $ | (5,220 | ) | ||
Increased depreciation due to recording property at fair values |
60 | 45 | ||||||
(6,741 | ) | (5,175 | ) |
(e) | Reflects the incremental interest expense on additional borrowings made to finance the acquisition including: (i) the issuance of $100.0 million in 4.00% Series A Senior Notes and (ii) borrowings of $164.0 million under our senior revolving credit facility, bearing interest at our current interest rate of 2.75%. The senior revolving credit facility interest rate used for pro forma purposes is based on current market rates. For each 0.125% increase or decrease in the assumed rates with respect to the senior revolving credit facility, our annual interest expense would increase or decrease by $0.2 million. |
(f) | Represents the additional income tax provision required to report GMI and GMT as taxpaying entities and the tax effect of the net pro forma adjustments to income before income taxes. The adjustments were calculated using the U.S. statutory income tax rate of 35%. The components of the adjustments to provision for income taxes are: |
(In thousands) |
Year
Ended December 31, 2009 |
Nine Months Ended September 30, 2010 |
||||||
Record income tax expense on reported income before tax |
$ | 5,900 | $ | 4,900 | ||||
Tax effect of pro forma adjustments |
(6,150 | ) | (3,700 | ) | ||||
(250 | ) | 1,200 |
9
(g) | To reverse GMT adjustment for net income attributable to noncontrolling interests. As part of the acquisition of GMT by MSA, all subsidiaries of GMT are now wholly-owned by MSA. |
Adjustments to MSA, GMI, GMIL, and GMT Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 2010
A. | To adjust cash and cash equivalents to reflect proceeds from incremental borrowing and cash consideration paid to acquire GMI, GMIL, and GMT, including the repayment of GMT long-term debt outstanding at the date of acquisition: |
(In thousands) |
||||
Proceeds from incremental borrowings |
$ | 264,000 | ||
Portion of cash consideration |
(280,000 | ) | ||
Repayment of GMT long-term debt |
(1,155 | ) | ||
(17,155 | ) |
B. | To eliminate related party balances. |
C. | To adjust GMI, GMIL, and GMT inventories to their estimated net realizable value. MSA believes that fair value approximates net realizable value, which is defined as expected sales price less costs to sell plus a reasonable margin for the selling effort. |
D. | To adjust GMI, GMIL, and GMT property to estimated fair values. |
E. | Reflects adjustments to goodwill associated with the transaction: |
(In thousands) |
||||
Difference between the estimated fair values of the net assets acquired and the consideration paid |
$ | 139,488 | ||
Elimination of goodwill previously recorded by GMT |
(2,906 | ) | ||
136,582 |
F. | Reflects adjustments for the following: |
(In thousands) |
||||
Recognition of the estimated fair value of GMI, GMIL, and GMT intangible assets brand, customer relationships, and technology |
$ | 85,000 | ||
Elimination of intangible assets previously recorded by GMT |
(2,251 | ) | ||
82,749 |
The amortization of these intangible assets was estimated using the straight-line method over estimated lives averaging 11 years.
G. | Reflects repayment of the current portion of GMT debt. |
10
H. | Reflects adjustments to long-term debt for the following: |
(In thousands) |
||||
Issuance of 4.00% Series A Senior Notes |
$ | 100,000 | ||
Borrowings on unsecured senior revolving credit facility |
164,000 | |||
Repayment of noncurrent portion of GMT debt |
(525 | ) | ||
263,475 |
I. | Reflects adjustments to eliminate the shareholders equity accounts of GMI, GMIL, and GMT, as follows: |
(In thousands) |
||||
Common stock |
$ | (540 | ) | |
Additional paid in capital |
(12,121 | ) | ||
Notes receivable from shareholders |
609 | |||
Accumulated other comprehensive loss |
70 | |||
Retained earnings |
(40,005 | ) | ||
(51,987 | ) |
J. | To eliminate portion of GMT equity owned by noncontrolling interests. As part of the acquisition of GMT, MSA purchased the noncontrolling interest of all GMT subsidiaries. |
11