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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) August 21, 1998
PEN-TAB INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 54-1833398
(State or other jurisdiction (I.R.S. Employer
Incorporation or organization) Identification Number)
167 KELLEY DRIVE
FRONT ROYAL, VA 22630
TELEPHONE: (540) 622-2000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
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Item 2. Acquisition or Disposition of Assets.
Pen-Tab Industries, Inc. ("Pen-Tab") issued a press release announcing that
on August 21, 1998, that it has completed the purchase of Stuart all Company
Inc. ("Stuart Hall"), a subsidiary of Newell Co. Stuart Hall, is a manufacturer
and marketer of school, home, and office supply products which will complement
Pen-Tab's current product offerings. The impact of the purchase is material to
Pen-Tab's consolidated results. Pen-Tab Industries is financing the stock
purchase through an equity contribution of $40 million from Pen-Tab Holdings and
$70 million of bank debt.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Pro Forma Financial Information
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PRO FORMA CONDENSED FINANCIAL STATEMENTS
The pro forma condensed financial statements are presented for the purpose of
providing investors and other interested parties with information about the
impact of the purchase of Stuart Hall Company, Inc. ("Stuart Hall") by Pen-Tab
Industries, Inc. ("Pen-Tab") on Pen-Tab's financial statements as if the
transaction had been consummated at an earlier date. Pen-Tab consummated the
purchase of Stuart Hall a subsidiary of Newell Co., on August 20, 1998. Pen-Tab
Industries is financing the stock purchase through an equity contribution of
$39.2 million from its parent company, Pen-Tab Holdings, Inc. and the balance in
bank debt. The purchase price is $107 million plus a post closing purchase
price adjustment based on the closing date working capital balance. This post
closing purchase price adjustment is expected to be approximately $22 million
and will be paid during the first quarter of 1999. For purposes of the pro
forma condensed balance sheet as of July 4, 1998, the post closing purchase
price adjustment was estimated to be $34 million at that time. The pro forma
condensed balance sheet is presented at July 4, 1998 and the pro forma condensed
statement of operations is presented for the year ended January 3, 1998 and for
the six month period ended July 4, 1998.
FOR THE YEAR ENDED JANUARY 3, 1998
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<CAPTION>
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS STUART PRO FORMA PRO FORMA
PEN-TAB HALL ADJUSTMENTS RESULTS
In thousands
<S> <C> <C> <C> <C>
Net Sales.............................................. $96637 $87183 $183820
Cost of goods sold..................................... 71701 65732 $-2000 (1) 136833
1400 (2)
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Gross profit.......................................... 24936 21451 600 46987
Selling, general and administration
expenses. 17642 13128 -4600 (1) 26472
-1400 (3)
1702 (4)
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Income from operations................................. 7294 8323 4898 20515
Interest expense....................................... 8194 1252 6090 (5) 15536
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(Loss) income before income tax
expense.............................................. -900 7071 -1192 4979
Income tax provision (benefit)......................... 1945 3183 -3236 (6) 1892
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Net (loss) income...................................... $-2845 $3888 $2044 $3087
====================================================================
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1) Income from operations: reflects $6.6 million of operational synergies in
combining the two businesses including headcount reductions and freight out
cost savings from the reallocation of product shipments among the company's
three manufacturing and distribution facilities. Synergies for the year
ended are $6.6 million of which $2.0 million is allocated to cost of goods
sold and $4.6 million is allocated to S, G & A expense.
2) Depreciation expense of $1.4 million due to $14.3 million step up to fair
value of the Stuart Hall Property, Plant and Equipment.
3) Reverse existing goodwill amortization expense of $1.4 million on Stuart
Hall's statement of operations.
4) Record goodwill of $68.1 million due to acquisition of Stuart Hall.
Goodwill is amortized over 40 years using the straight line method of which
$1.7 million was recorded for the year ended as goodwill amortization
expense.
5) Interest expense: reflects acquisition debt as if the acquisition occurred at
the beginning of the period. Average annual debt of $71.0 million at an
interest rate of 7.45% (LIBOR +2%). In addition amortization of debt issuance
costs for the year is $0.8 million.
6) Income taxes; reflects adjustment to bring income taxes to an effective
rate of 38%.
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FOR THE SIX MONTHS JULY 4, 1998
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<CAPTION>
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS STUART PRO FORMA PRO FORMA
PEN-TAB HALL ADJUSTMENTS RESULTS
In Thousands
<S> <C> <C> <C> <C>
Net Sales.............................................. $55440 $52125 $107565
Cost of goods sold..................................... 41015 34989 $-1000(1) 75737
733(2)
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Gross profit.......................................... 14425 17136 267 31828
Selling, general and administrative
expenses............................................. 9022 7587 -2300(1) 427
-733(3)
851(4)
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Income from operations................................. 5403 9549 2449 17401
Interest expense....................................... 4261 626 3045(3) 7932
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Income income before income taxes...................... 1142 8923 -596 9469
Income tax provision (benefit)......................... 542 4015 -957(6) 3600
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Net income............................................. $600 $4908 $361 $5869
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1)
Income from operations: reflects $6.6 million of operational synergies in
combining the two businesses including headcount reductions and freight out
cost savings from the reallocation of product shipments among the Company's
three manufacturing and distribution facilities. Synergies for the six months
are fifty percent or $3.3 million of which $1.0 million is allocated to cost
of goods sold and $2.3 million is allocated to S, G & A expense.
2)
Depreciation expense of $0.7 million due to a $14.3 million step up to fair
value of the Stuart Hall Property, Plant and Equipment.
3)
Reverse existing goodwill amortization expense of $0.7 million on Stuart Hall's
statement of operations.
4)
Record goodwill of $68.1 million due to acquisition of Stuart Hall. Goodwill is
amortized over 40 years using the straight line method of which $0.8 million
was recorded for the six month period as goodwill amortization expense.
5)
Interest expense: reflects acquisition debt as if the acquisition occurred at
the beginning of the period. Average annual debt of $71.0 million at an
interest rate of 7.45% (LIBOR + 2%). In addition amortization of debt
issuance costs for the six months is $0.4 million.
6)
Income taxes; reflects adjustment to bring income taxes to an effective rate of
38%.
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<TABLE>
<CAPTION>
Pro Forma Condensed Balance Sheet
July 4, 1998 Stuart Pro Forma Pro Forma
Pen-Tab Hall Adjustments Balance
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<S> <C> <C> <C> <C>
Assets
Current Assets:
Cash, inventories, accounts receivables
and other current assets $ 63,406 $ 72,357 $ (6,000) (1) $ 127,749
(2,014) (2)
Property, plant and equipment
Property, plant and equipment 29,362 44,576 (7,404) (3) 66,534
Less accumulated depreciation (13,816) (21,683) 21,683 (3) 13,816
------------------ ----------------- ---------------- -------------------
Property, plant and equipment - net 15,546 22,893 14,279 52,718
Other assets 2,731 232 2,175 (4) 5,138
Goodwill 374 49,227 (49,227) (5) 67,927
67,553 (6)
------------------ ----------------- ---------------- -------------------
Total assets $ 82,057 $ 144,709 $ 26,766 $ 253,532
================== ================= ================ ===================
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable, accrued expenses, current
portion of long-term debt and other current
liabilities $ 11,593 $ 42,392 $ (34,092) (7) $ 60,893
34,000 (8)
7,000 (12)
Long-term debt 97,869 14,615 35,800 (9) 180,844
35,000 (9)
(2,440) (10)
Stockholders' equity (27,405) 87,702 (87,702) (11) 11,795
39,200 (11)
------------------ ----------------- ---------------- ---------
Total liabilities and stockholders' equity $ 82,057 $ 144,709 $ 26,766 $ 253,532
================== ================= ================ =========
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Notes:
The purhcase price paid for Stuart Hall was $107 million plus an estimated
working capital adjustment of $34 million. The allocation of the purchase price
is as follows: current assets $64 million, property, plant and equipment $37
million, intangible assets $68 million and assumed liabilities $28 million.
(1) In accordance with Rule 11-02 (b) (6) of Regulation S-X Pen-Tab's management
determined that certain product lines were redundant and such existing finished
products and raw materials associated with such finished products would have to
be scraped. The loss associated with the disposal of such product lines is
estimated to be $6.0 million.
(2) Write off of deferred tax asset of $2.0 million on the balance sheet of
Stuart Hall.
(3) Step up Stuart Hall Property, Plant and Equipment to fair value of
$37.2 million and write off accumulated depreciation of $21.7 million on Stuart
Hall's balance sheet.
(4) Record debt issuance costs of $2.2 million associated with the financing
of the acqusition of Stuart Hall.
(5) Write off $49.2 million of goodwill on the balance sheet of Stuart Hall
at the date of acquisition.
(6) Record $67.6 million of goodwill associated with the purchase of Stuart Hall
(7) Write off intercompany balance due sellor on the balance sheet of
Stuart Hall at the date of acquisition
(8) Record estimated post-closing purchase price adjustment of $34 million
expected to be paid during the first quarter of 1999.
(9) Reflects bank debt incurred to acquire the stock of Stuart Hall.
$35 million is in the form of a fully drawn three year term loan. $35.8 million
is in drawings under a 3 year $100 million dollar revolving credit facility.
(10) Write off deferred income liability of $2.4 million on the balance sheet
of Stuart Hall
(11) Write off of Stuart Hall's stockholders' equity of $87.7 million and
record the equity contribution of $39.2 million from Pen-Tab Holdings, Inc.
(12) Record liability for costs associated with the acquisition including
legal and accounting fees, stay bonuses, severance payments and employee
relocation expenses.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Pen-Tab Industries, Inc.
(Registrant)
Date: By: /s/ William Leary
- ----- ---------------------
William Leary
Vice President, Chief Financial and
Administrative Officer
(principal financial officer
and accounting officer)
