<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
-----------------------------
Date of Report
(Date of earliest
event reported): November 17, 1997
American Builders & Contractors Supply Co., Inc.
(Exact name of registrant as specified in its charter)
Delaware 333-26991 39-1413708
(State or other jurisdiction (Commission File (I.R.S. Employer
of incorporation) (Number) Identification No.)
One ABC Parkway, Beloit, Wisconsin 53511
(Address of principal executive offices including zip code)
(608) 362-7777
(Registrant's telephone number)
<PAGE>
Item 7. Financial Statements and Exhibits
- ------ ---------------------------------
(a) Financial Statements of Business Acquired -- Champ Industries,
Inc. and Affiliated Companies
Report of Independent Public Accountants
Financial Statements:
Combined Balance Sheets--December 31, 1996 and 1995
Combined Statements of Income,
Years Ended December 31, 1996, 1995 and 1994
Combined Statements of Stockholders' Equity,
Years Ended December 31, 1996, 1995 and 1994
Combined Statements of Cash Flows,
Years Ended December 31, 1996, 1995 and 1994
Notes to Combined Financial Statements
Unaudited Condensed Combined Balance Sheet, September 30, 1997
Unaudited Condensed Combined Statements of Income for the
nine-month period ended September 30, 1997 and 1996
Unaudited Condensed Combined Statements of Cash Flows for the
nine-month period ended September 30, 1997 and 1996
(b) Pro Forma Financial Information
-------------------------------
Unaudited Pro Forma Condensed Combined Balance Sheet, September
30, 1997
Unaudited Pro Forma Condensed Combined Statement of Income, for
the year ended December 31, 1996 and the nine months ended
September 30, 1997
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: January 16, 1997
American Builders & Contractors Supply Co., Inc.
By: /s/ Kendra A. Story
-------------------
Kendra A. Story
Chief Financial Officer
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Champ Industries, Inc. and
Affiliated Companies:
We have audited the accompanying combined balance sheets of Champ Industries,
Inc. and Affiliated Companies (the Companies), as defined in Note 1, as of
December 31, 1996 and 1995, and the related combined statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These combined financial statements and the schedules
referred to below are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Champ Industries,
Inc. and Affiliated Companies as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the three years ended
December 31, 1996, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Houston, Texas
April 30, 1997
<PAGE>
CHAMP INDUSTRIES, INC. AND AFFILIATED COMPANIES
-----------------------------------------------
COMBINED BALANCE SHEETS
-----------------------
<TABLE>
<CAPTION>
December 31,
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash $ 2,133,247 $ 1,433,696
Accounts and notes receivable-
Trade, less allowance for doubtful accounts and notes receivable of $1,847,397
and $1,899,928, respectively 22,346,590 25,021,642
Related parties 102,608 35,641
Current income tax receivable 358,336 474,562
Deferred income taxes 223,053 -
Inventories 17,417,420 16,124,612
Prepaid expenses and other current assets 699,666 528,508
----------- -----------
Total current assets 43,280,920 43,618,661
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, at cost 11,462,157 9,992,955
Less- Accumulated depreciation (4,435,298) (2,678,204)
----------- -----------
Net property, plant and equipment 7,026,859 7,314,751
----------- -----------
OTHER ASSETS:
Goodwill, net of accumulated amortization of $824,809 and $389,640, respectively
12,625,022 13,000,190
Noncompetition agreements, net of accumulated amortization of $1,141,164 and
$607,481, respectively 1,597,169 2,130,852
Other 282,402 700,624
----------- -----------
Total other assets 14,504,593 15,831,666
----------- -----------
Total assets $64,812,372 $66,765,078
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $13,142,604 $17,839,871
Accrued liabilities 3,585,512 3,085,319
Current maturities-
Long-term debt 2,167,234 1,749,683
Long-term debt to related parties 1,421,350 1,713,573
Distributions payable to shareholders 253,185 604,281
----------- -----------
Total current liabilities 20,569,885 24,992,727
----------- -----------
LONG-TERM DEBT, net of current maturities 29,748,438 28,260,334
----------- -----------
LONG-TERM DEBT TO RELATED PARTIES, net of current maturities 6,078,359 6,716,912
----------- -----------
DEFERRED INCOME TAXES PAYABLE 207,045 116,112
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY:
Common stock 28,711 28,711
Additional paid-in capital 632,089 632,089
Retained earnings 7,547,845 6,018,193
----------- -----------
Total shareholders' equity 8,208,645 6,678,993
----------- -----------
Total liabilities and shareholders' equity $64,812,372 $66,765,078
=========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
<PAGE>
CHAMP INDUSTRIES, INC. AND AFFILIATED COMPANIES
-----------------------------------------------
COMBINED STATEMENTS OF INCOME
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
----------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
SALES $202,639,518 $198,508,586 $85,093,076
COST OF SALES 159,679,116 157,674,654 66,598,924
------------ ------------ -----------
Gross profit 42,960,402 40,833,932 18,494,152
OPERATING EXPENSES 37,055,619 34,488,684 15,533,460
------------ ------------ -----------
Operating income 5,904,783 6,345,248 2,960,692
------------ ------------ -----------
OTHER INCOME (EXPENSE):
Interest expense (3,278,393) (2,823,585) (792,399)
Other expense (60,913) (125,506) (138,038)
Other income 468,985 229,890 167,927
------------ ------------ -----------
Total other income (expense) (2,870,321) (2,719,201) (762,510)
------------ ------------ -----------
INCOME BEFORE TAXES 3,034,462 3,626,047 2,198,182
PROVISION FOR TAXES 365,269 233,418 158,945
------------ ------------ -----------
NET INCOME $ 2,669,193 $ 3,392,629 $ 2,039,237
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
<PAGE>
CHAMP INDUSTRIES, INC. AND AFFILIATED COMPANIES
-----------------------------------------------
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
-------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
----------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Additional
----------------------- Paid-In Retained
Shares Amount Capital Earnings
---------- --------- ---------- ------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1993 1,910,800 $ 19,108 $ 390,892 $ 3,221,401
Net income - - - 2,039,237
Issuance of common shares for formation of
SHR 950,000 9,500 90,500 -
Distributions to shareholders - - - (1,153,005)
---------- --------- --------- ------------
BALANCE, December 31, 1994 2,860,800 28,608 481,392 4,107,633
Net income - - - 3,392,629
Issuance of common shares for formation of
United 100,000 100 99,900 -
Issuance of Champ common shares 800 1 799 -
Issuance of Perfection common shares for stock
warrants exercised 200 2 49,998 -
Distributions to shareholders - - - (1,482,069)
---------- --------- --------- -------------
BALANCE, December 31, 1995 2,961,800 28,711 632,089 6,018,193
Net income - - - 2,669,193
Distributions to shareholders - - - (1,139,541)
---------- --------- --------- -------------
BALANCE, December 31, 1996 2,961,800 $ 28,711 $ 632,089 $ 7,547,845
========== ========= ========= =============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
<PAGE>
CHAMP INDUSTRIES, INC. AND AFFILIATED COMPANIES
-----------------------------------------------
COMBINED STATEMENTS OF CASH FLOWS
---------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
----------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,669,193 $ 3,392,629 $ 2,039,237
------------ ------------ -----------
Adjustments to reconcile net income to net cash provided by (used
in) operating activities-
Deferred tax provision (133,894) 116,112 -
Depreciation and amortization 2,990,628 2,488,315 997,648
Provision for losses on receivables 2,235,564 2,203,835 553,572
(Increase) decrease in assets, net of effect of assets acquired-
Accounts and notes receivable 326,681 (8,899,163) (4,012,109)
Current income tax receivable 116,226 (474,562) -
Inventories (1,292,808) (1,493,344) (2,010,339)
Prepaid expenses (171,158) (144,840) 139,889
Other 281,656 (166,611) (142,159)
Increase (decrease) in liabilities, net of effect of assets
acquired-
Accounts payable (4,697,267) 286,660 3,035,768
Accrued liabilities 500,193 717,909 104,873
------------ ------------ -----------
Total adjustments 155,821 (5,365,689) (1,332,857)
------------ ------------ -----------
Net cash provided by (used in) operating activities 2,825,014 (1,973,060) 706,380
------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of assets, net of cash acquired - (9,259,692) (1,277,922)
Capital expenditures (943,603) (1,423,525) (898,069)
Proceeds from sale of property, plant and equipment 212,512 285,235 47,578
------------ ------------ -----------
Net cash used in investing activities (731,091) (10,397,982) (2,128,413)
------------ ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to shareholders (1,490,637) (1,260,917) (999,907)
Proceeds from indebtedness 57,898,425 46,674,101 10,969,108
Repayments of indebtedness (57,802,160) (32,445,571) (8,284,173)
Common stock issuances - 150,800 100,000
----------- ------------ -----------
Net cash (used in) provided by financing activities (1,394,372) 13,118,413 1,785,028
------------ ------------ -----------
NET INCREASE IN CASH 699,551 747,371 362,995
CASH, beginning of period 1,433,696 686,325 323,330
------------ ------------ -----------
CASH, end of period $ 2,133,247 $ 1,433,696 $ 686,325
============ ============ ===========
SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest expense $ 3,538,675 $ 2,499,494 $ 614,119
============ ============ ===========
Cash paid during the period for taxes $ 292,843 $ 617,588 $ 116,908
============ ============ ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITY:
Capital lease obligations incurred $ 891,842 $ 799,297 $ -
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
<PAGE>
CHAMP INDUSTRIES, INC. AND AFFILIATED COMPANIES
-----------------------------------------------
NOTES TO COMBINED FINANCIAL STATEMENTS
--------------------------------------
DECEMBER 31, 1996
-----------------
1. ORGANIZATION AND BUSINESS:
--------------------------
The combined financial statements of Champ Industries, Inc. and Affiliated
Companies include the accounts of Texas corporations which elected Subchapter S
Corporation status at inception and one Delaware corporation which elected C
Corporation status at inception (United), collectively referred to as the
Companies or the Group. The Companies are under common control and are managed
by Champ Industries, Inc. (Champ), a Delaware corporation formerly known as
Champ Investment Group. The Companies are engaged primarily in the wholesale
distribution and sale of roofing materials and supplies, and the Group consists
of the following:
Perfection Roofing Materials, Inc. (Perfection)--Perfection was formed on March
26, 1991, and has two principal operating divisions based in Houston and San
Antonio with a total of seven operating branches located in Texas. The San
Antonio division is also engaged in the wholesale and retail sale of household
appliances.
SHR Roofing Supply, Inc. (SHR)--SHR was formed on April 14, 1994, and is based
in Webster, Texas, with four branch locations in Texas.
Stone Metal Products, Inc. (Stone Metal)--Stone Metal was formed on December 1,
1992, and operates one location in Houston, Texas. Approximately 40 percent or
$984,000 of its fiscal 1996 revenues were from companies within the Group.
Marshall Roofing Supply, Inc. (Marshall)--Marshall was formed on November 12,
1993, and is based in Hollister, California, with 13 branch locations in
California and Nevada.
United Building Supply, Inc. (United)--United was formed on April 27, 1995, and
is based in Tulsa, Oklahoma, with eight operating branch locations in Missouri,
Kansas, Oklahoma, Nebraska and Arkansas.
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
----------------------
Basis of Presentation
- ---------------------
The accompanying combined financial statements have been prepared in accordance
with generally accepted accounting principles and are not the basis for
reporting taxable income to shareholders. All significant accounts and
transactions between and among entities of the Group and Champ have been
eliminated. The financial results reported by Champ in these financial
statements include those activities related to the operations of the roofing
supply companies described above. See Note 7 for discussion of transactions by
the Group with various related parties.
Cash
- ----
Cash includes cash on hand and in bank checking accounts.
<PAGE>
Concentration of Credit Risk
- ----------------------------
The Companies are engaged in the distribution of roofing products throughout the
United States. The Companies grant credit to customers, substantially all of
whom are dependent upon the re-roofing market. The Companies continually
evaluate their customers' financial condition and, when deemed necessary, obtain
liens or customer guarantees. The concentration of credit risk is limited due
to the Companies' large customer base, which is diversified among many
locations. The Companies maintain an allowance for doubtful accounts based upon
the expected collectibility of accounts receivable.
Accounts and Notes Receivable
- -----------------------------
Trade accounts and notes receivable include approximately $1,327,000 and
$1,494,000 at December 31, 1996 and 1995, respectively, related to accounts
receivable that have been converted to notes. Interest rates on notes
receivable primarily range from 8 percent to 12 percent, and interest income on
such notes is included in other income when payments are received. An allowance
is estimated and provided for amounts considered not to be collectible.
Inventories
- -----------
Inventories consisting primarily of roofing materials and related supplies are
stated at the lower of cost or market, which approximates the first-in, first-
out method.
Intangibles
- -----------
Goodwill represents the cost in excess of fair value of the net assets acquired
in purchase transactions. Goodwill is being amortized on a straight-line basis
over 30 years. Noncompetition agreements are generally amortized over the terms
of the agreements which range from three to 10 years. Other intangibles are
amortized over five years. The Companies periodically review intangibles to
assess recoverability, and impairments would be recognized in operating results
if a permanent diminution in value were to occur. Total amortization expense in
1996, 1995 and 1994 was approximately $1,046,000, $892,000 and $203,000,
respectively.
Property, Plant and Equipment
- -----------------------------
Capital additions, improvements and major renewals are classified as property,
plant and equipment and are carried at cost. Depreciation is recorded using the
straight-line method over the estimated useful lives of the assets, which range
from five to 20 years. Maintenance, repairs and minor renewals are charged to
earnings when they are incurred. Upon the disposal of an asset, the related
cost and accumulated depreciation are removed from the accounts, and any
resulting gain or loss is reflected in earnings.
Income Taxes
- ------------
Except for United and Champ, no provision is made in the accounts of the
Companies for federal income taxes since such taxes are liabilities of the
individual shareholders and the amounts thereof depend on their respective tax
situations. Shareholder equity accounts reflected in the accompanying combined
financial statements may differ from amounts reflected in the Companies' federal
income tax returns due to differences in accounting policies adopted for
financial and tax reporting purposes. As there is no basis for combining the
entities for federal income tax reporting purposes, net income for tax purposes
is not meaningful on a combined basis. Therefore, no reconciliation between net
income for financial reporting purposes and net income for tax purposes is
presented herein. Provision for state income taxes has been recorded as
appropriate in the accounts of the Companies.
<PAGE>
The federal and state income tax provisions for United and Champ are based on
income before taxes as reported for financial reporting purposes and have been
computed in accordance with Statement of Financial Accounting Standards (SFAS)
No. 109, "Accounting for Income Taxes." Deferred income taxes for United and
Champ were provided in recognition of temporary differences in reporting certain
transactions for financial reporting and income tax reporting purposes and
consist primarily of goodwill amortization and property and equipment
depreciation differences.
The Companies' tax returns and the amounts of distributable income or loss are
subject to examination by the federal and state taxing authorities. In the
event of an examination of the Companies' individual tax returns, the tax
liability of the shareholders could be changed if an adjustment to the
Companies' income or loss is ultimately sustained by the taxing authorities.
Revenue Recognition
- -------------------
Sales are recorded at the time goods are shipped and are reported net of returns
and allowances.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, including such financial statement
accounts as the allowance for doubtful accounts and notes receivable and
goodwill, and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
New Accounting Standard Regarding Impairment
- --------------------------------------------
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." This statement establishes the recognition and measurement
standards related to the impairment of long-lived assets. Effective January 1,
1996, Champ and the Companies adopted SFAS No. 121. The adoption of this
standard did not have a material effect on the combined financial position or
combined results of operations of Champ or the Companies.
Reclassifications
- -----------------
Certain prior-year balances have been reclassified to conform with the fiscal
year 1996 financial statement presentation.
3. ACQUISITIONS:
-------------
During 1995 and 1994, the shareholders of the Group acquired certain assets and
liabilities of the entities described below, which were accounted for by the
purchase method of accounting. The results of operations of the acquired
operations are included in the Group's combined statements of income for the
periods in which they were owned by the shareholders.
Effective April 1, 1994, SHR acquired substantially all of the assets and
assumed certain liabilities of South Houston Roofing, Inc., for $900,000 in cash
and $300,000 in a subordinated note payable to the former owner, as discussed in
Note 5. The transaction was funded through borrowings pursuant to subordinated
note agreements payable to the shareholders. The $166,000 excess of the
purchase price over the estimated fair value of the tangible and identifiable
intangible net assets acquired was recorded as goodwill (also see note 8).
Effective July 1, 1994, Marshall acquired certain assets of Marshall Supply,
Inc. The acquisition included a cash payment of $10,000 and assumption of
approximately $9,466,000 of liabilities. The excess of the purchase price over
the estimated fair value of the tangible and identifiable intangible net assets
acquired of $1.2 million was recorded as goodwill.
<PAGE>
Effective November 3, 1994, Marshall acquired certain assets of Southern
Distributors Corporation and Southern Distributors Corp. of Nevada (collectively
referred to as SDC). The acquisition included a cash payment of $425,000 and the
assumption of a subordinated note payable to the former owner of $189,000.
Marshall is also obligated through December 31, 1999, subject to certain
conditions, to pay SDC 25 percent of profits up to $1.0 million and 50 percent
of profits exceeding $1.0 million which are attributable to four branch
locations formerly operated by SDC. Any such future payments will be recorded as
goodwill. As of December 31, 1995, no such payments were required. Marshall's
obligations under noncompetition agreements with three of the officers of
Marshall Supply, Inc., and an officer of SDC have been recorded in the
accompanying financial statements as discussed in Note 5.
Effective March 31, 1995, United acquired substantially all of the assets and
assumed certain liabilities of United Roofing and Building Supply Co. and United
Roofing and Building Supply Co. of Missouri (collectively referred to as the
Sellers). The acquisition was accounted for by the purchase method of
accounting, and the results of operations have been included in the Group's
combined statements of income from the date of acquisition. The purchase price
included approximately $10.0 million in cash and $6.75 million of subordinated
notes payable to the former owners bearing interest at 8 percent per annum and
payable in monthly installments beginning June 1, 1995, and ending May 1, 2005.
The cash payment was financed with borrowings under a revolving loan agreement
described in Note 5 and $5 million of subordinated notes payable to certain of
the shareholders of United. The excess of the purchase price over the estimated
fair value of the tangible and identifiable net assets acquired of $11.6 million
was recorded as goodwill.
United agreed to pay up to approximately $3.0 million to purchase certain
accounts receivable of the Sellers pursuant to an aged receivables agreement
dated April 27, 1995. Under terms of the agreement, payments for these
receivables are made to the Sellers as cash is received and certain criteria for
each account are met. Receivables which do not meet the criteria over a two-year
period beginning March 31, 1995, may be returned to the Sellers with no
additional payments required or may be retained by United with a cash payment
made to the Sellers. As of December 31, 1996 and 1995, approximately $949,000
and $1.8 million, respectively, of these accounts receivable remain unsettled by
United. Of the $949,000 unsettled balance, at the final settlement date of March
31, 1997, approximately $902,000 was returned to the Sellers and approximately
$47,000 was paid in cash.
Under the terms of the asset purchase agreement, United also had a one-time
right to return certain notes receivable and related accrued interest to the
former owners and offset the value of the returned notes to the former owners in
the form of a reduction of the principal portion of the monthly subordinated
note payment. United returned approximately $880,000 of notes receivable and
related accrued interest to the former owners as of December 31, 1995.
In addition during 1995, the former owners entered into noncompetition
agreements obligating United to make payments aggregating $2.25 million over a
five-year period. Amounts owed under these noncompetition agreements represent
subordinated debt under the Companies' master revolving loan agreement. United's
obligations under these noncompetition agreements have been recorded in the
accompanying financial statements as discussed in Note 5. Two of the former
owners also entered into three-year employment agreements with United during
1995.
4. PROPERTY, PLANT AND EQUIPMENT:
------------------------------
The cost and accumulated depreciation applicable to property, plant and
equipment at December 31, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Land and improvements $ 91,333 $ 91,333
Buildings and improvements 814,435 704,643
Machinery and equipment 7,978,959 7,306,023
Machinery and equipment under capital 2,577,430 1,890,956
leases ----------- -----------
11,462,157 9,992,955
Less- Accumulated depreciation (4,435,298) (2,678,204)
----------- -----------
Net property, plant and $ 7,026,859 $ 7,314,751
equipment =========== ===========
</TABLE>
<PAGE>
Depreciation expense related to these assets was approximately $1,944,000,
$1,597,000 and $795,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
5. LONG-TERM DEBT:
---------------
Long-term debt as of December 31, 1996 and 1995, consists of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Revolving line of credit payable to a bank $22,027,000 $20,647,000
Term equipment notes payable to a bank 1,417,300 395,560
Subordinated notes payable to vendors 1,284,300 1,702,140
Subordinated notes payable to shareholders, related parties 5,720,000 6,070,000
Subordinated notes payable to former owners of net assets acquired 4,248,461 4,453,523
Subordinated notes payable to former owners of net assets acquired,
related parties 1,334,215 1,368,841
Other notes payable 168,169 357,718
----------- -----------
36,199,445 34,994,782
Obligations under capital leases 1,686,557 1,373,665
Obligations under noncompetition agreements 1,083,885 1,080,411
Obligations under noncompetition agreements, related parties 445,494 991,644
----------- -----------
39,415,381 38,440,502
Less- Current maturities-
Subordinated notes payable to vendors (513,914) (538,076)
Obligations payable to related parties (1,421,350) (1,713,573)
Other long-term obligations (1,653,320) (1,211,607)
----------- -----------
Total long-term debt, net of current maturities $35,826,797 $34,977,246
=========== ===========
</TABLE>
Revolving Line of Credit
and Term Equipment Notes
- ------------------------
Champ entered into a master revolving loan agreement (the Master Agreement)
dated April 25, 1995, with a bank. Borrowings under the Master Agreement are
secured by substantially all of the assets of the Companies. The Master
Agreement provides for a revolving commitment not to exceed $25 million and a
term note commitment not to exceed $1.5 million. At December 31, 1996 and 1995,
$22,027,000 and $20,647,000, respectively, was outstanding under the revolving
commitment, and $1,218,750 and $50,000, respectively, was outstanding under the
term note and included in the classification of term equipment notes payable to
a bank presented above. The revolving commitment available at any time is
subject to a borrowing base calculation based on accounts receivable and
inventory levels, as defined in the agreement. Each facility bears a variable
interest rate of up to .25 percent above the bank's prime rate or, at Champ's
option, up to 3 percent above LIBOR, depending on certain financial conditions.
The interest rate averaged 8.5 percent and 8.74 percent during 1996 and 1995,
respectively, and was 8.5 percent at December 31, 1996 and 1995. Annual
commitment fees of .25 percent of the available commitment and facility fees of
.125 percent of the total commitment are also required. During 1996, the Master
Agreement was amended and the revolving commitment was extended through June 30,
1998. Also during 1996, Champ borrowed the full commitment of $1.5 million under
the term note, and the terms were extended through March 31, 2000, with
quarterly principal payments of $93,750 plus interest required beginning June
30, 1996.
Restrictions under the Master Agreement include, among other restrictions,
limits on capital expenditures, incurrence of additional indebtedness,
distributions to shareholders, changes in senior management personnel and change
in ownership structure of the Companies. The Companies are also required to
comply with certain financial covenants including minimum levels of tangible net
worth, cash flow leverage, current maturities and debt-to-worth ratios.
<PAGE>
Subordinated Notes Payable to Vendors
- -------------------------------------
In 1994, Marshall assumed certain unsecured credit agreements with various
vendors. These borrowings of $1.28 million and $1.70 million at December 31,
1996 and 1995, respectively, bear interest at fixed rates which average 7
percent and are payable in monthly installments, with final maturity dates
ranging from November 15, 1996, through November 15, 1999. These notes are
subordinate to indebtedness associated with the Master Agreement discussed
above.
Subordinated Notes Payable to Shareholders
- ------------------------------------------
Subordinated notes payable to shareholders of $5.72 million and $6.07 million at
December 31, 1996 and 1995, respectively, represent borrowings in association
with certain purchase transactions made by the Companies. Each note bears a
stated interest rate of 10 percent per annum, with interest payments due
monthly. Principal is payable in annual installments with maturities ranging
from 1997 through 2001. These notes are subordinate to indebtedness associated
with the Master Agreement discussed above. In addition, the subordinated notes
payable to shareholders of United totaling $5 million at December 31, 1996 and
1995, provide that, in the event of a change of control of United, as defined by
the agreement, or the sale of substantially all of its assets, the shareholders
shall have the right to receive payment in full of the subordinated notes.
Subordinated Notes Payable to Former Owners
and Subordinated Notes Payable to Former
Owners, Related Parties
- -------------------------------------------
On April 21, 1994, SHR entered into a subordinated note agreement with the
former owner of SHR in conjunction with the purchase of certain assets of SHR.
The debt, with an original face value of $300,000, bears an interest rate of 8
percent per annum, with principal payments due in 60 monthly installments in the
amount of $5,000 plus interest until April 1, 1999, the final maturity date. The
note is subordinate to indebtedness associated with the Master Agreement
discussed above and all other debt owed by SHR and is guaranteed by certain
shareholders.
The remaining balance in the subordinated notes payable to former owners and
subordinated notes payable to former owners, related parties, relates to amounts
owed to the former owners of United, discussed in Note 3, and Marshall and is
subordinate to indebtedness associated with the Master Agreement discussed
above.
Debt Maturities
- ---------------
Aggregate debt maturities for 1997 through 2001 and thereafter, excluding
obligations under capital lease and noncompetition agreements, are as follows:
1997 - $2,496,114, 1998 - $24,930,518, 1999 - $2,570,254, 2000 - $1,809,718,
2001 - $1,736,561 and thereafter - $2,656,280.
Leases
- ------
The Companies conduct certain of their operations from leased warehouse and
office facilities and use certain leased equipment. Rental expense under
operating leases for the years ended December 31, 1996, 1995 and 1994, was
approximately $2,637,000, $1,459,000 and $904,000, respectively. The Companies
have also financed the purchase of certain equipment with capital lease
obligations. Capitalized leases are discounted using the interest rates
appropriate at the inception of each lease.
<PAGE>
Future minimum lease payments under capital leases, including interest, and
under noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
---------- -----------
<S> <C> <C>
1997 $ 684,301 $ 2,542,685
1998 630,129 2,389,921
1999 392,039 1,893,928
2000 195,677 1,172,737
2001 31,448 661,787
Thereafter - 1,519,862
---------- -----------
Future minimum lease payments 1,933,594 $10,180,920
===========
Less- Interest on capital leases 247,037
----------
Present value of future minimum lease payments $1,686,557
==========
</TABLE>
Noncompetition Agreements
- -------------------------
In connection with the acquisition of certain of the Companies' assets, the
Companies entered into certain noncompetition agreements with the former owners
of the acquired assets. The aggregate minimum payments due under these
agreements for the five years subsequent to December 31, 1996, are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 650,800
1998 535,000
1999 500,000
2000 56,773
2001 -
----------
Future minimum payments 1,742,573
Less- Interest (213,194)
----------
Present value of aggregate minimum payments $1,529,379
==========
</TABLE>
6. SHAREHOLDERS' EQUITY:
--------------------
The balances of common stock and additional paid-in capital as of December 31,
1996, consist of the following:
<TABLE>
<CAPTION>
Common Stock Additional
----------------------- Paid-In
Shares Amount Capital
--------- ------- ----------
<S> <C> <C> <C>
Champ common stock, $.001 par value, 100,000 shares authorized, 800 shares
outstanding 800 $ 1 $ 799
Perfection common stock, $.01 par value, 1,000 shares authorized, 1,000
shares outstanding 1,000 10 249,990
SHR common stock, $.01 par value, 1,000,000 shares authorized, 950,000
shares outstanding 950,000 9,500 90,500
Stone Metal common stock, $.01 par value, 1,000,000 shares authorized,
960,000 shares outstanding 960,000 9,600 100,400
Marshall common stock, $.01 par value, 1,000,000 shares authorized,
950,000 shares outstanding 950,000 9,500 90,500
United common stock, $.001 par value, 100,000 shares authorized, 100,000
shares outstanding --------- ------- --------
100,000 100 99,900
--------- ------- --------
Combined total 2,961,800 $28,711 $632,089
========= ======= ========
</TABLE>
<PAGE>
Perfection issued stock warrants to four of its shareholders on March 27, 1991.
These warrants represented the right to purchase up to 200 shares of Perfection
common stock on or before March 27, 1996. These warrants were exercised in 1995
at the exercise price for these shares of $250 per share.
Stone Metal issued stock options to certain key employees on January 1, 1993.
These options represented the right to purchase up to 10,000 shares of Stone
Metal common stock, over a period expiring December 31, 2003, at the book value
of Stone Metal's common stock as of the option grant date. As of December 31,
1996, no options had been exercised.
7. RELATED-PARTY TRANSACTIONS:
---------------------------
The Companies pay management fees to Champ as well as certain additional fees
charged by Champ to the Companies. During 1996, 1995 and 1994, total fees
recorded were $1,750,461, $1,635,365 and $995,856, respectively. These fees are
reflected as other income to Champ and are eliminated in the accompanying
combined statements of income.
8. COMMITMENTS AND CONTINGENCIES:
------------------------------
Marshall is obligated through December 31, 1999, subject to certain conditions,
to pay the former owner, Southern Distributors Corporation and Southern
Distributors Corporation of Nevada (collectively referred to as SDC), 25 percent
of profits up to $1.0 million and 50 percent of profits exceeding $1.0 million
which are attributable to four branch locations formerly operated by SDC. Such
future payments, if any, will be recorded as goodwill. As of December 31, 1996,
no such payments were required.
Under the terms of the 1994 purchase agreement to acquire the business of SHR,
SHR may be required to make annual payments to the former owner equal to 50
percent of pretax profits in excess of $400,000 for the three-year period ending
March 31, 1997. Through March 31, 1997, no such payments were required. In
addition, the former owner of SHR entered into an employment agreement which may
be terminated by the employee at will and which guarantees an annual salary of
$120,000. Effective August 31, 1995, the employee resigned and a five-year
noncompetition agreement went into effect. During 1996 and 1995, payments of
approximately $33,000 were made to the former owner in each year. The remaining
payments on the noncompetition agreement approximate $234,000. SHR believes that
the former owner violated the terms of the noncompetition agreement and ceased
making payments effective April 1996. In addition, SHR discontinued making
payments on the $300,000 note payable due to the former owner based on amounts
owed SHR. The former owner has filed suit against SHR for alleged breach of the
note payable and noncompetition agreement. SHR has filed a counterclaim against
the former owner alleging breach of contract on the part of the former owner.
The case is currently set for trial in August 1997. Management believes that the
ultimate disposition will not have a material adverse effect on the financial
position or operating results of SHR. Because future payments on the
noncompetition agreement, if any, are uncertain, they are treated as period
costs when paid.
The Companies are involved in various other legal matters in the normal course
of business. Management believes that the ultimate outcome of these matters will
not have a material adverse effect on the combined financial position or
combined results of operations of the Companies.
<PAGE>
Champ Industries, Inc. and Affiliated Companies
Condensed Combined Balance Sheet (Unaudited)
September 30, 1997
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash $ 400,000
Accounts receivable 32,796,000
Inventories 19,396,000
Prepaid expenses and other 1,112,000
-----------
Total current assets 53,704,000
Property and equipment, net 6,359,000
Intangible assets, net 13,616,000
Other assets 398,000
-----------
$74,077,000
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $22,454,000
Other payables and accrued liabilities 5,475,000
Current portion of long-term debt 1,203,000
-----------
Total current liabilities 29,132,000
Long-term debt 35,819,000
Stockholders' equity:
Common stock 29,000
Additional paid-in capital 632,000
Retained earnings 8,465,000
-----------
Total stockholders' equity 9,126,000
-----------
$74,077,000
===========
</TABLE>
See notes to condensed combined financial statements.
<PAGE>
Champ Industries, Inc. and Affiliated Companies
Condensed Combined Statements of Income (Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
---------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Net sales $154,087,000 $154,025,000
Cost of sales 121,236,000 121,701,000
------------ ------------
Gross profit 32,851,000 32,324,000
Operating expenses 28,766,000 26,715,000
------------ ------------
Operating income 4,085,000 5,609,000
Other income (expense):
Interest expense (2,464,000) (2,454,000)
Other 369,000 40,000
------------ ------------
(2,095,000) (2,414,000)
------------ ------------
Income before provision for income taxes 1,990,000 3,195,000
Provision for income taxes 148,000 562,000
------------ ------------
Net income $ 1,842,000 $ 2,633,000
============ ============
</TABLE>
See notes to condensed combined financial statements.
<PAGE>
Champ Industries, Inc. and Affiliated Companies
Condensed Combined Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Operating activities
Net income $ 1,842,000 $ 2,633,000
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization 2,514,000 2,224,000
Provision for doubtful accounts 1,576,000 1,540,000
Loss on disposal of property and equipment 3,000 8,000
Changes in operating assets and liabilities:
Accounts receivable (11,923,000) (5,989,000)
Inventories (1,979,000) (4,254,000)
Prepaid expenses and other (412,000) (584,000)
Other assets 466,000 909,000
Trade accounts payable 9,312,000 4,452,000
Other payables and accrued liabilities 1,429,000 2,794,000
------------ ------------
Cash provided by operating activities 2,828,000 3,733,000
Investing activities
Additions to property and equipment (1,627,000) (1,341,000)
Proceeds from disposal of property and equipment 384,000 190,000
------------ ------------
Cash used in investing activities (1,243,000) (1,151,000)
Financing activities
Proceeds from long-term debt 35,215,000 41,092,000
Payments on long-term debt (37,608,000) (41,949,000)
Distributions to stockholders (925,000) (934,000)
------------ ------------
Cash used in financing activities (3,318,000) (1,791,000)
------------ ------------
Net increase (decrease) in cash (1,733,000) 791,000
Cash at beginning of period 2,133,000 1,434,000
------------ ------------
Cash at end of period $ 400,000 $ 2,225,000
============ ============
</TABLE>
See notes to condensed combined financial statements.
<PAGE>
Champ Industries, Inc. and Affiliated Companies
Notes to Condensed Combined Financial Statements (Unaudited)
September 30, 1997
1. Basis of Presentation
The accompanying unaudited condensed combined financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of only normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the nine-month period ended September 30, 1997 are not indicative of
the results that may be expected for the year ending December 31, 1997.
<PAGE>
Unaudited Pro Forma Condensed Combined Financial Statements
American Builders & Contractors Supply Co., Inc. and Subsidiaries and
Champ Industries, Inc. and Affiliated Companies
The following unaudited pro forma condensed combined balance sheet as of
September 30, 1997 and condensed combined statements of income for the year
ended December 31, 1996 and nine months ended September 30, 1997 (collectively,
the Pro Forma Statements) give effect to the acquisition (the Acquisition) of
five corporations affiliated with Champ Industries, Inc. (Champ) by American
Builders & Contractors Supply Co., Inc. and Subsidiaries (the Company), as if
the Acquisition had occurred for balance sheet presentation purposes as of
September 30, 1997, and for statement of income purposes as of the beginning of
the respective periods presented.
The Pro Forma Statements do not purport to represent what the Company's
financial position or results of operations would actually have been if the
Acquisition in fact had occurred at the beginning of the periods indicated or on
such date or to project the Company's financial position or results of
operations for any future date or period.
The pro forma adjustments are based upon available information and upon certain
assumptions that the Company believes are reasonable. The Pro Forma Statements
and accompanying notes should be read in conjunction with the historical
consolidated financial statements of the Company including the notes thereto.
The Acquisition will be accounted for using the purchase method of accounting.
The total purchase price of approximately $65 million will be allocated to the
assets and liabilities of Champ based upon their respective fair values, with
the remainder allocated to goodwill. Such allocations have been made based upon
preliminary estimates and may be adjusted as the Company is waiting for
additional information on fixed assets and intangible asset valuations.
Accordingly, the allocation of the purchase price included in the accompanying
Pro Forma Statements is preliminary. The final values may differ from those set
forth in the historical consolidated financial statements of the Company and
from those set forth herein. In addition, the purchase price is subject to a net
worth adjustment which is currently being determined.
<PAGE>
Unaudited Pro Forma Condensed Combined Balance Sheet
American Builders & Contractors Supply Co., Inc. and Subsidiaries and
Champ Industries, Inc. and Affiliated Companies
September 30, 1997
<TABLE>
<CAPTION>
Pro Forma Adjustments
----------------------------------------
ABC Champ Purchase Operations not Pro Forma
Supply Industries Adjustments Acquired (1) Combined
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash $ 286,000 $ 400,000 $ - $ (3,000) $ 683,000
Accounts receivable 138,058,000 32,796,000 - (808,000) 170,046,000
Inventories 135,364,000 19,396,000 - (658,000) 154,102,000
Prepaid expenses and other 2,974,000 1,112,000 - (84,000) 4,002,000
------------------------------------------------------------------------------------------
Total current assets 276,682,000 53,704,000 (1,553,000) 328,833,000
Property and equipment, net 65,469,000 6,359,000 1,800,000 (3) (216,000) 73,412,000
Net receivable from sole stockholder 5,369,000 - 5,369,000
Intangible assets, net 13,917,000 13,616,000 33,203,000 (3) - 47,120,000
(13,616,000) (3)
Security deposits 1,108,000 - - - 1,108,000
Other assets 663,000 398,000 - - 1,061,000
------------------------------------------------------------------------------------------
$363,208,000 $74,077,000 $ 21,387,000 $(1,769,000) $456,903,000
==========================================================================================
LIABILITIES AND
STOCKHOLDER'S EQUITY
Current liabilities:
Trade accounts payable $113,596,000 $22,454,000 $ - $ (285,000) $135,765,000
Other payables and accrued liabilities 24,441,000 5,475,000 - (191,000) 29,725,000
Current portion of long-term debt 6,613,000 1,203,000 - (65,000) 7,751,000
------------------------------------------------------------------------------------------
Total current liabilities 144,650,000 29,132,000 - (541,000) 173,241,000
Long-term debt 196,757,000 35,819,000 29,678,000 (2) (393,000) 261,861,000
Stockholder's equity:
Common stock 109,000 29,000 (29,000) - 109,000
Additional paid-in capital 1,755,000 632,000 (631,000) (1,000) 1,755,000
Retained earnings 19,937,000 8,465,000 (7,631,000) (834,000) 19,937,000
------------------------------------------------------------------------------------------
Total stockholder's equity 21,801,000 9,126,000 (8,291,000) (835,000) 21,801,000
------------------------------------------------------------------------------------------
$363,208,000 $74,077,000 $ 21,387,000 $(1,769,000) $456,903,000
==========================================================================================
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
<PAGE>
Unaudited Pro Forma Condensed Combined Statement of Income
American Builders & Contractors Supply Co., Inc. and Subsidiaries and
Champ Industries, Inc. and Affiliated Companies
For the Year ended December 31, 1996
<TABLE>
<CAPTION>
Pro Forma Adjustments
---------------------------------
ABC Champ Purchase Operations not Pro Forma
Supply Industries Adjustments Acquired (1) Combined
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $789,103,000 $202,640,000 $ - $(5,132,000) $986,611,000
Cost of sales 615,627,000 159,679,000 - (4,136,000) 771,170,000
----------------------------------------------------------------------------------------------
Gross profit 173,476,000 42,961,000 - (996,000) 215,441,000
Operating expenses 152,316,000 37,056,000 197,000 (4) (2,469,000) 187,100,000
----------------------------------------------------------------------------------------------
Operating income 21,160,000 5,905,000 (197,000) 1,473,000 28,341,000
Other income (expense):
Interest income 689,000 - - - 689,000
Interest expense (11,146,000) (3,278,000) (1,421,000) (4) 72,000 (15,773,000)
Other - 407,000 - (63,000) 344,000
----------------------------------------------------------------------------------------------
(10,457,000) (2,871,000) (1,421,000) 9,000 (14,740,000)
----------------------------------------------------------------------------------------------
Income before provision
for income taxes 10,703,000 3,034,000 (1,618,000) 1,482,000 13,601,000
Provision for income taxes 329,000 365,000 - (10,000) 684,000
----------------------------------------------------------------------------------------------
Net income $ 10,374,000 $ 2,669,000 $(1,618,000) $ 1,492,000 $ 12,917,000
==============================================================================================
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
<PAGE>
Unaudited Pro Forma Condensed Combined Statement of Income
American Builders & Contractors Supply Co., Inc. and Subsidiaries and
Champ Industries, Inc. and Affiliated Companies
For the Nine months ended September 30, 1997
<TABLE>
<CAPTION>
Pro Forma Adjustments
----------------------------------------
ABC Champ Purchase Operations not Pro Forma
Supply Industries Adjustments Acquired (1) Combined
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $693,459,000 $154,087,000 $ - $(4,244,000) $843,302,000
Cost of sales 537,222,000 121,236,000 - (3,366,000) 655,092,000
----------------------------------------------------------------------------------------------
Gross profit 156,237,000 32,851,000 - (878,000) 188,210,000
Operating expenses 141,233,000 28,766,000 (114,000)(4) (1,982,000) 167,903,000
----------------------------------------------------------------------------------------------
Operating income 15,004,000 4,085,000 (114,000) 1,104,000 20,307,000
Other income (expense):
Interest income 331,000 - - - 331,000
Interest expense (11,510,000) (2,464,000) (1,064,000)(4) 58,000 (14,980,000)
Other - 369,000 - - 369,000
----------------------------------------------------------------------------------------------
(11,179,000) (2,095,000) (1,064,000) 58,000 (14,280,000)
----------------------------------------------------------------------------------------------
Income (loss) before
provision for income taxes 3,825,000 1,990,000 (950,000) 1,162,000 6,027,000
Provision for income taxes 273,000 148,000 - (4,000) 417,000
----------------------------------------------------------------------------------------------
Net income (loss) $ 3,552,000 $ 1,842,000 $ (950,000) $ 1,166,000 $ 5,610,000
==============================================================================================
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
<PAGE>
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
(1) The Company acquired all of Champ except Champ Industries, Inc., a company
which managed the operations of the affiliated companies and otherwise had
no operations and Stone Appliance Division, a division of one of the
corporations. This adjustment removes the balances related to such
operations which were not acquired by the Company.
(2) Reflects increase in outstanding indebtedness as a result of the
Acquisition. The purchase price of approximately $65 million, which
includes estimated transaction costs and assumed debt, is subject to a net
worth adjustment that is currently being determined.
(3) Under purchase accounting, Champ's assets and liabilities are required to
be adjusted to their estimated fair values. The estimated fair values have
been determined by the Company based on available information. The
following are the pro forma adjustments made to reflect Champ's fair values
as of September 30, 1997:
<TABLE>
<CAPTION>
<S> <C>
Purchase price $ 65,000,000
Book value of net assets acquired (8,291,000)
Elimination of Champ debt excluding
decrease from 9/30 to acquisition date (35,322,000)
Elimination of Champ intangible assets 13,616,000
------------
"Excess" purchase price $ 35,003,000
============
Preliminary allocation:
Property and equipment $ 1,800,000
Intangible assets, including goodwill 33,203,000
------------
$ 35,003,000
============
</TABLE>
<PAGE>
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
(continued)
(4) For purposes of determining the pro forma effect of the Champ acquisition on
the Company's consolidated statement of income, the following pro forma
adjustments have been made:
<TABLE>
<CAPTION>
Year Nine Months
Ended Ended
December 31, September 30,
1996 1997
----------------------------------
Increase (Decrease) Income
<S> <C> <C> <C>
(a) Elimination of historical interest expense except $(1,421,000) $(1,064,000)
that relating to assumed debt. Record interest
expense on purchase price, excluding assumed
debt, funded under the Company's credit agreement
(approximately 7.1%).
(b) Elimination of historical depreciation. Record 313,000 497,000
depreciation based on fair value of fixed assets
and estimate of remaining useful lives.
(c) Elimination of historical intangible amortization. (510,000) (383,000)
Record amortization of intangibles over approximately
30 years.
</TABLE>
