<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
MAY 12, 2000
Commission File Number: 333-57209
-----------
OUTSOURCING SERVICES GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0597491
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
650 FIFTH AVENUE, 14TH FLOOR
NEW YORK, NY 10019
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 957-6368
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS:
On February 29, 2000, pursuant to a stock purchase agreement dated February
29th, 2000, Outsourcing Services Group, Inc. (the "Company") acquired all of the
issued and outstanding stock of Precision Packaging and Services, Inc., an Ohio
Corporation ("Precision"), and the related real estate from the Susan L.
Purkrabek Small Business Trust, an electing small business trust, the David G.
Knust Small Business Trust, an electing small business trust and K.P.
Properties, an Ohio general partnership controlled by Ms. Purkrabek and Mr.
Knust (the "Sellers") for $42.4 million. Precision is a contract manufacturer of
consumer products (i.e., high-speed liquid filling, cartoning, shrink wrapping,
packaging) for some of the largest U.S. consumer products companies. The Company
plans for Precision to continue in this line of business. The Company drew
against its existing revolving credit facility to pay Sellers.
================================================================================
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS:
(a) Financial statements of business acquired.
Financial statements and accompanying notes of Precision
Packaging and Services, Inc. as of January 1, 2000, January 2,
1999 and December 27, 1997, and for the years then ended, and
Independent Auditors' Report.
(b) Pro forma financial information.
Unaudited Pro Forma Consolidated Balance Sheet as of
December 31, 1999.
Unaudited Pro Forma Consolidated Statement of Operations for the
year ended December 31, 1999
Notes to Unaudited Pro Forma Consolidated Financial Statements.
(c) Exhibits.
(1) * Stock purchase agreement, dated February 29, 2000, among
the Sellers and the Company.
* Previously filed.
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to signed on its behalf by the
undersigned hereunto duly authorized.
OUTSOURCING SERVICES GROUP, INC.
Dated: May 12, 2000 /s/ Perry Morgan
---------------------------------------
Perry Morgan
Chief Financial Officer, Vice President
And Secretary (Principal Financial and
Accounting Officer)
3
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
On February 29, 2000, the Company acquired Precision in a stock and asset
acquisition for a cash purchase price of $42.4 million (the "Precision
Acquisition"). The Company also incurred various transaction-related
expenditures. The acquisition has been accounted for by the purchase method of
accounting, which contemplates an allocation of the acquisition cost to the
acquired company's assets and liabilities based upon their fair value.
The following unaudited pro forma consolidated balance sheet as of December 31,
1999 reflects the historical consolidated balance sheets of the Company and
Precision, adjusted to give effect to the Precision Acquisition and the
simultaneous incurrence of additional indebtedness to acquire Precision, as if
such transaction had occurred on December 31, 1999.
The following unaudited proforma consolidated statements of operations for the
year ended December 31, 1999 reflect the historical financial statements of the
Company and Precision, adjusted to give effect to the Precision Acquisition as
if such transactions had occurred on January 1, 1999.
The unaudited pro forma consolidated financial statements should be read in
conjunction with the respective historical audited financial statements, of
Precision contained herein and the historical audited consolidated financial
statements of the Company.
The pro forma adjustments are based upon available information and upon certain
assumptions that the Company's management believes are reasonable given the
circumstances. The unaudited pro forma consolidated financial statements are
provided for comparative purposes only and are not necessarily indicative of the
results that would have occurred had the transaction happened on the dates
indicated or that may be achieved in the future.
4
<PAGE>
OUTSOURCING SERVICES GROUP, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Outsourcing
Services Group, Pro Forma
Inc. Precision Adjustments Total Pro Forma
------------------- ------------------- ------------------- -----------------
ASSETS
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash $ 2,530 $ 592 $ - $ 3,122
Short-term investments 254 - - 254
Accounts receivable, net 36,206 4,527 - 40,733
Other receivables 2,372 - - 2,372
Inventories, net 30,848 1,674 - 32,522
Prepaid expenses and other current
assets 1,085 51 - 1,136
Deferred income taxes, current 3,555 - - 3,555
------------------- ------------------- ------------------- -----------------
Total current assets 76,850 6,844 - 83,694
PROPERTY AND EQUIPMENT, net 33,342 1,598 6,000 a
1,720 b 42,660
GOODWILL, net 74,179 - 30,357 c 104,536
DEFERRED INCOME TAXES, non current 3,051 - - 3,051
DEFERRED FINANCING COSTS, net 6,243 - - 6,243
ENVIRONMENT INSURANCE RECEIVABLE 350 - - 350
DUE FROM CCL 3,376 - - 3,376
OTHER ASSETS 1,434 59 - 1,493
------------------- ------------------- ------------------- -----------------
$ 198,825 $ 8,501 $ 38,077 $ 245,403
=================== =================== =================== =================
LIABILITIES, REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 29,513 $ 1,851 $ - $ 31,364
Accrued expenses 15,074 172 1,255 d 16,501
Deferred income taxes, current 274 - - 274
Other current liabilities 91 - 975 e 1,066
------------------- ------------------- ------------------- -----------------
Total current liabilities 44,952 2,023 2,230 49,205
DEFERRED INCOME TAXES, non current 3,406 - - 3,406
ENVIRONMENTAL CONTINGENCIES AND OTHER
LIABILITIES 8,348 - - 8,348
LONG-TERM DEBT 112,413 - 42,325 f 154,738
------------------- ------------------- ------------------- -----------------
Total liabilities 169,119 2,023 44,555 215,697
REDEEMABLE PREFERRED STOCK 4,679 - - 4,679
STOCKHOLDERS' EQUITY:
Common stock 3 1 (1) g 3
Common stock warrants 663 - - 663
Additional paid-in capital 32,140 19 (19) g 32,140
Notes receivable from stockholders (764) - - (764)
Accumulated deficit (7,083) 6,458 (6,458) g (7,083)
Accumulated other comprehensive income 68 - - 68
------------------- ------------------- ------------------- -----------------
Total stockholder's equity 25,027 6,478 (6,478) 25,027
------------------- ------------------- ------------------- -----------------
$ 198,825 $ 8,501 $ 38,077 $ 245,403
=================== =================== =================== =================
</TABLE>
See notes to unaudited pro forma consolidated financial statements.
5
<PAGE>
OUTSOURCING SERVICES GROUP, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE
LOSS (Unaudited)
FOR THE YEAR ENDED DECEMBER 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
Outsourcing
Services Group, Pro Forma
Inc. Precision Adjustments Total Pro Forma
------------------ ------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
NET REVENUES $ 257,040 $ 38,745 $ - $ 295,785
COST OF GOODS SOLD 219,497 29,832 (960) h 248,369
------------------ ------------------- ------------------ ------------------
GROSS PROFIT 37,543 8,913 960 47,416
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 23,658 1,706 2,024 c 27,388
------------------ ------------------- ------------------ ------------------
INCOME FROM OPERATIONS 13,885 7,207 (1,064) 20,028
FOREIGN CURRENCY TRANSLATION GAIN 446 - - 446
INTEREST EXPENSE (INCOME), net 13,486 (40) 3,915 f 17,361
------------------ ------------------- ------------------ ------------------
INCOME BEFORE PROVISION FOR INCOME
TAXES 845 7,247 (4,979) 3,113
PROVISION FOR INCOME TAXES (1,096) (73) (848) i (2,017)
------------------ ------------------- ------------------ ------------------
NET INCOME (LOSS) (251) 7,174 (5,827) 1,096
ACCRETION AND DIVIDENDS ON PREFERRED STOCK (248) - - (248)
------------------ ------------------- ------------------ ------------------
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON
SHAREHOLDERS (499) 7,174 (5,827) (848)
------------------ ------------------- ------------------ ------------------
OTHER COMPREHENSIVE LOSS:
FOREIGN CURRENTLY TRANSLATION ADJUSTMENT (8) - - (8)
================== =================== ================== ==================
COMPREHENSIVE INCOME (LOSS) $ (259) $ 7,174 $ (5,827) $ 1,088
================== =================== ================== ==================
EARNINGS (LOSS) PER SHARE:
NET INCOME (LOSS) PER SHARE - BASIC AND
DILUTED $ (0.07) $ 0.32
================== ==================
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON
STOCKHOLDERS - BASIC AND DILUTED $ (0.14) $ 0.25
================== ==================
WEITGHTED AVERAGE COMMON SHARES - BASIC AND
DILUTED 3,444,182 3,444,182
================== ==================
</TABLE>
See notes to unaudited pro forma consolidated financial statements.
<PAGE>
OUTSOURCING SERVICES GROUP, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
a. On February 29, 2000 (the "Closing Date"), the Company also acquired
from K.P. Properties, an entity owned and controlled by the owners of
Precision, certain real property including land and building which
serves as Precision's manufacturing facility for $6,000. Based on an
appraisal of the property, the purchase price has been allocated
between land and building at $374 and $5,626, respectively.
Accordingly, the pro forma consolidated financial statements reflect an
increase in depreciation using a 30-year remaining useful life on the
building.
b. Based on an appraisal of the equipment acquired in the Precision
Acquisition, the basis in the equipment acquired was increased by
$1,720 over the net book value at December 31, 1999 at Precision.
Accordingly, in the pro forma consolidated financial statements this
increase was amortized over the estimated remaining useful life of
these assets of 6 years.
c. On the Closing Date, the Company completed its acquisition of Precision
in a stock and asset acquisition accounted for under the purchase
method of accounting. Consequently, goodwill increased by approximately
$30,357. The pro forma consolidated financial statements reflect the
amortization of this increase in goodwill on a straight-line basis,
preliminarily over 15 years pending completion of an in depth review of
the valuation of the acquisition.
d. Represents the Company's various costs to acquire Precision including
legal, accounting, transaction fees due StoneCreek Capital pursuant to
the Company's existing management agreement with StoneCreek Capital and
other estimated expenses.
e. Represents the Company's estimated obligation under the terms of the
purchase agreement to subrogate the Sellers for the potential federal
tax liability up to a maximum of $1,000 that they might incur in
treating this transaction, for their tax purposes, as a "Deemed Asset"
sale. The built-in gain is currently estimated to be $2,788.
f. In connection with the closing, the Company drew $42,325 against it's
revolving credit facility. As such, the pro forma consolidated
financial statements include interest expense on the borrowing at 9.25%
for each year presented.
g. Represents the elimination of Precision's pre-acquisition common stock,
additional paid-in-capital and accumulated retained earnings as if the
acquisition were effective on December 31, 1999.
h. Pro forma adjustments to Cost of Goods sold are as follows:
<TABLE>
<CAPTION>
1999
-------------------
<S> <C>
Building Depreciation on $5,626 over 30 years $ 188
Equipment Depreciation on $1,720 over 6 years (estimated
remaining useful life) 286
Elimination of real property rent for real property acquired
in transaction (1,020)
Elimination of equipment rent for equipment acquired in
transaction (414)
-------------------
Total Net Adjustment to Cost of Goods sold $ (960)
===================
</TABLE>
7
<PAGE>
OUTSOURCING SERVICES GROUP, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
Continued
i. Pro forma adjustments to the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1999
-------------------
<S> <C>
Income before provision for income taxes for Precision $ 7,247
Add net adjustment to cost of sales as shown in footnote h above 960
Less amortization of goodwill (2,024)
Less pro forma interest expense adjustment (3,915)
-------------------
Pro forma adjusted income before provision for income taxes for Precision 2,268
City income tax at 1% 23
-------------------
Pro forma adjusted income before federal and state taxes for Precision 2,249
Combined federal and state tax at 40% 898
-------------------
Total taxes including federal, state and city taxes 921
Less city income taxes as currently reflected (73)
-------------------
Net pro forma tax adjustment required $ 848
===================
</TABLE>
Precision had not recorded a provision for federal and state income taxes
previously because of its S-Corporation status.
8
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Precision Packaging & Services, Inc.
Monroe, Ohio
We have audited the accompanying balance sheets of Precision Packaging &
Services, Inc. as of January 1, 2000, January 2, 1999 and December 27, 1997,
and the related statements of income, changes in stockholders' equity, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the 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, such financial statements present fairly, in all material
respects, the financial position of the Company as of January 1, 2000,
January 2, 1999 and December 27, 1997, and the results of its operations and
its cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States of America.
As discussed in Note 10, on February 29, 2000, Outsourcing Services Group,
Inc. acquired all of the issued and outstanding stock of the Company.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
April 14, 2000
<PAGE>
PRECISION PACKAGING & SERVICES, INC.
BALANCE SHEETS
JANUARY 1, 2000, JANUARY 2, 1999, AND DECEMBER 27, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2, DECEMBER 27,
2000 1999 1997
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 592,006 $ 699,017 $1,330,145
Accounts receivable 4,526,686 4,970,819 4,701,206
Inventory 1,674,018 1,418,942 1,732,434
Prepaid expenses 50,909 34,813 24,321
---------- ---------- ----------
Total current assets 6,843,619 7,123,591 7,788,106
---------- ---------- ----------
EQUIPMENT:
Original cost 3,757,308 2,902,960 2,211,402
Less accumulated depreciation 2,159,296 1,687,796 1,339,619
---------- ---------- ----------
Equipment, net 1,598,012 1,215,164 871,783
---------- ---------- ----------
OTHER ASSETS:
Cash surrender value - officers' life insurance 58,434 58,434 58,434
Deposit 1,000 1,000 1,000
---------- ---------- ----------
Total other assets 59,434 59,434 59,434
---------- ---------- ----------
TOTAL ASSETS $8,501,065 $8,398,189 $8,719,323
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $1,850,954 $1,033,438 $1,488,980
Accrued expenses 171,992 225,848 206,643
---------- ---------- ----------
Total current liabilities 2,022,946 1,259,286 1,695,623
---------- ---------- ----------
STOCKHOLDERS' EQUITY:
Capital stock; $1 stated value; 750 shares
authorized, issued and outstanding 750 750 750
Paid-in surplus 19,250 19,250 19,250
Retained earnings 6,458,119 7,118,903 7,003,700
---------- ---------- ----------
Total stockholders' equity 6,478,119 7,138,903 7,023,700
---------- ---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $8,501,065 $8,398,189 $8,719,323
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
-2-
<PAGE>
PRECISION PACKAGING & SERVICES, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED JANUARY 1, 2000, JANUARY 2, 1999 AND DECEMBER 27, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2, DECEMBER 27,
2000 1999 1997
<S> <C> <C> <C>
NET REVENUES $38,745,170 $38,304,671 $32,472,294
COST OF GOODS SOLD 29,832,332 26,882,500 24,084,569
----------- ----------- -----------
GROSS MARGIN 8,912,838 11,422,171 8,387,725
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSES 1,706,358 1,491,905 1,388,870
----------- ----------- -----------
INCOME FROM OPERATIONS 7,206,480 9,930,266 6,998,855
INTEREST EXPENSE 676 776 --
INTEREST INCOME 41,412 35,713 41,090
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 7,247,216 9,965,203 7,039,945
----------- ----------- -----------
LOCAL INCOME TAXES 73,000 100,000 71,000
----------- ----------- -----------
NET INCOME $ 7,174,216 $ 9,865,203 $ 6,968,945
=========== =========== ===========
NET INCOME PER SHARE - BASIC $ 9,565.62 $ 13,153.60 $ 9,291.93
=========== =========== ===========
</TABLE>
-3-
See accompanying notes to financial statements.
<PAGE>
PRECISION PACKAGING AND SERVICES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 1, 2000, JANUARY 2, 1999 AND DECEMBER 27, 1997
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2, DECEMBER 27,
2000 1999 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,174,216 $ 9,865,203 $ 6,968,945
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 471,500 348,177 291,676
Gain on sale of assets -- -- (12,813)
Changes in current assets and liabilities:
Accounts receivable 444,133 (269,613) (1,475,412)
Inventory (255,076) 313,492 718,131
Prepaid expenses (16,096) (10,492) 58,724
Accounts payable 817,516 (455,542) 324,914
Accrued expenses (53,856) 19,205 (13,737)
------------ ----------- ------------
Net cash provided by operating activities 8,582,337 9,810,430 6,860,428
------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (854,348) (691,558) (309,273)
Proceeds from disposal of fixed assets -- -- 30,278
------------ ----------- ------------
Net cash used in investing activities (854,348) (691,558) (278,995)
------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in bank overdraft -- -- (554,303)
Distributions to stockholders (7,835,000) (9,750,000) (4,900,000)
------------ ----------- ------------
Net cash used in financing activities (7,835,000) (9,750,000) (5,454,303)
------------ ----------- ------------
NET INCREASE (DECREASE) IN CASH (107,011) (631,128) 1,127,130
CASH AT BEGINNING OF YEAR 699,017 1,330,145 203,015
------------ ----------- ------------
CASH AT END OF YEAR $ 592,006 $ 699,017 $ 1,330,145
============ =========== ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for local income taxes $ 129,052 $ 100,000 $ 50,414
Cash paid for interest 676 776 --
</TABLE>
See accompanying notes to financial statements.
-4-
<PAGE>
PRECISION PACKAGING & SERVICES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 1, 2000, JANUARY 2, 1999 AND DECEMBER 27, 1997
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL
CAPITAL PAID-IN RETAINED STOCKHOLDERS'
STOCK SURPLUS EARNINGS EQUITY
<S> <C> <C> <C> <C>
BALANCE DECEMBER 28, 1996 $750 $19,250 $ 4,934,755 $ 4,954,755
Net Income 6,968,945 6,968,945
Distributions to stockholders (4,900,000) (4,900,000)
---- ------- ----------- -----------
BALANCE DECEMBER 27, 1997 750 19,250 7,003,700 7,023,700
Net Income 9,865,203 9,865,203
Distributions to stockholders (9,750,000) (9,750,000)
---- ------- ----------- -----------
BALANCE JANUARY 2, 1999 750 19,250 7,118,903 7,138,903
Net Income 7,174,216 7,174,216
Distributions to stockholders (7,835,000) (7,835,000)
---- ------- ----------- -----------
BALANCE JANUARY 1, 2000 $750 $19,250 $ 6,458,119 $ 6,478,119
==== ======= =========== ==========
</TABLE>
See accompanying notes to financial statements.
-5-
<PAGE>
PRECISION PACKAGING & SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 1, 2000, JANUARY 2, 1999 AND DECEMBER 27, 1997
- -------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - Precision Packaging & Services, Inc. (the "Company")
was incorporated on March 16, 1983. It became an S Corporation for federal
tax purposes effective March 1, 1995 and adopted a December year end at
that time. The Company's primary operations consist of packaging and
filling consumer product items.
SALE OF THE COMPANY - On February 29, 2000 Outsourcing Services Group,
Inc. acquired all of the issued and outstanding stock of the Company. See
Note 10.
The accounting policies of the Company conform to generally accepted
accounting principles and reflect practices appropriate to the industry in
which the Company operates. Those policies that affect the more
significant elements of the financial statements are summarized below:
52/53 WEEK YEAR END - The Company ends its fiscal years on the Saturday
closest to December 31. The year ended January 1, 2000 and the years ended
January 2, 1999 and December 27, 1997 were 52 week, 53 week, and 52 week
periods, respectively.
USE OF ESTIMATES - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual amounts could differ from those estimates.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents are stated at cost.
Cash equivalents include operating cash accounts, time deposits, and money
market instruments with original maturities of three months or less. The
carrying amount approximates fair value because of the short maturity of
these instruments.
FINANCIAL INSTRUMENTS - The Company's financial instruments consist
primarily of investments in cash and cash equivalents, trade receivables
and certain other assets, as well as obligations under accounts payable.
The carrying values of these financial instruments approximate fair value.
CONCENTRATION OF CREDIT RISK - The Company's financial instruments that
are exposed to concentrations of credit risk consist primarily of cash and
cash equivalents and trade accounts receivable. The Company places its
cash and temporary cash investments with high credit quality financial
institutions. At times, such investments may be in excess of the FDIC
insurance limit. The Company conducts business based upon periodic credit
evaluations of its customers' financial condition and generally does not
require collateral.
The Company's operations are located in Southwestern Ohio and six
customers account for substantially all of the Company's revenues and
accounts receivable.
UNCOLLECTIBLE ACCOUNTS - Accounts receivable are considered fully
collectible by management; therefore, no allowance for uncollectible
accounts has been provided.
-6-
<PAGE>
INVENTORY - Inventory is stated at cost, not to exceed market, using the
first-in, first-out (FIFO) pricing method. Inventory consists primarily of
products acquired from the Company's major customers or their suppliers
and is in its various stages of packaging or filling.
EQUIPMENT - Equipment is recorded at cost. Depreciation is provided on the
double-declining balance method over the estimated useful lives of the
respective assets. Generally, equipment is depreciated over five to seven
years; furniture and fixtures are depreciated over seven years and
vehicles are depreciated over 5 years. Expenditures for maintenance and
repairs are charged to operations in the period incurred; renewals and
betterments are capitalized.
CASH SURRENDER VALUE - The Company maintains life insurance on each of its
two stockholders under a split-dollar arrangement whereby the Company is
entitled to the cash surrender value of the policy up to the amount of the
premiums paid.
REVENUE RECOGNITION - Sales are recognized primarily upon shipment of
products except for sales to one customer. These sales are recognized upon
the products completion and held at the customer's request until shipping
instructions are received, generally in seven to ten days.
COMPUTATION OF NET INCOME PER SHARE - For the years ended January 1, 2000,
January 2, 1999 and December 27, 1997, there were 750 weighted average
shares outstanding, no dilutive securities outstanding and no adjustments
to net income for the basic net income per share computation.
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS - In June 1998, the
FASB issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (SFAS No.
133). In general, SFAS No. 133 requires that all derivatives be recognized
as either assets or liabilities in the balance sheet at their fair value,
and sets forth the manner in which gains or losses thereon are to be
recorded. The treatment of such gains and losses depends on the intended
use of the derivative and the resulting designation. This statement is
effective for the Company in the first quarter of its year ending December
31, 2001. Although the Company has not fully evaluated the effects of SFAS
No. 133 on its financial statements, its adoption is not expected to have
a significant impact.
2. INVENTORY
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2, DECEMBER 27,
2000 1999 1997
<S> <C> <C> <C>
Raw Materials $1,284,551 $1,198,634 $1,427,176
Finished Goods 389,467 220,308 305,258
---------- ---------- ----------
Total $1,674,018 $1,418,942 $1,732,434
========== ========== ==========
</TABLE>
-7-
<PAGE>
3. EQUIPMENT
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2, DECEMBER 27,
2000 1999 1997
<S> <C> <C> <C>
Equipment $3,503,587 $2,680,785 $1,989,227
Furniture and fixtures 175,990 175,990 175,990
Vehicles 77,731 46,185 46,185
---------- ---------- ----------
3,757,308 2,902,960 2,211,402
Less accumulated depreciation 2,159,296 1,687,796 1,339,619
---------- ---------- ----------
Total $1,598,012 $1,215,164 $ 871,783
========== ========== ==========
</TABLE>
4. ACCRUED EXPENSES
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2, DECEMBER 27,
2000 1999 1997
<S> <C> <C> <C>
Salaries $ 76,682 $ 69,126 $ 62,171
Payroll taxes 43,103 64,631 50,504
City income tax -- 29,760 32,822
Personal property tax 52,207 62,331 61,146
-------- -------- --------
Total $171,992 $225,848 $206,643
======== ======== ========
</TABLE>
5. CREDIT AGREEMENT
The Company entered into a revolving credit agreement (Credit Agreement)
in September 1999 which provides $2,500,000 through September 2000 for
general corporate purposes, replacing a similar $2,500,000 facility which
expired in September 1999. There were no borrowings outstanding under
either facility at January 1, 2000, January 2, 1999 or December 27, 1997.
6. LEASE COMMITMENTS
Future minimum rental commitments as of January 1, 2000 under
noncancellable operating leases, which expire in March 2000 are $3,192.
Rental expense was approximately $47,100, $54,300 and $10,400 for the
years ended January 1, 2000, January 2, 1999 and December 27, 1997,
respectively.
7. RELATED PARTY TRANSACTIONS
The Company leases its office and factory space from a partnership which
is owned by the Company's two stockholders. The Company also leases
equipment from the two stockholders. The lease arrangement does not
provide for a specified term, expiration date, or lease payment including
future increases. Total rent paid to the stockholders in the years ended
January 1, 2000, January 2, 1999 and December 27, 1997 was $1,434,264,
$1,247,454 and $1,261,692, respectively.
8. CONTINGENCIES
As indicated in Note 1, the Company's stockholders elected S Corporation
status for federal tax purposes effective March 1, 1995. Such election was
approved by the Internal Revenue Service and, accordingly, income and
losses of the Company are passed through to the individual stockholders.
It is management's
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<PAGE>
intention to distribute sufficient cash from the Corporation to cover the
additional taxes incurred by the individual stockholders.
9. 401(K) PLAN
The Company sponsors a 401(K) plan for all eligible employees. Company
contributions to the plan are made at the discretion of the Board of
Directors. The related expense totaled $10,057, $8,386 and $7,665 for the
years ended January 1, 2000 and the years ended January 2, 1999 and
December 27, 1997, respectively.
10. SALE OF THE COMPANY
On February 29, 2000 Outsourcing Services Group, Inc. acquired all of the
issued and outstanding stock of the Company and the related real estate
from the Susan L. Purkrabek Small Business Trust, an electing small
business trust and the David G. Knust Small Business Trust, an electing
small business trust and K.P.
Properties, a general partnership for approximately $42,100,000.
* * * * *
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