<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT N0. 1
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date earliest event reported): March 18, 1997
<TABLE>
<S> <C> <C>
Registrant, State of I.R.S.
Commission File Incorporation, Address and Employer
Number Telephone Number Identification No.
0-8410 WYANT CORPORATION 11-2236837
(a New York corporation)
100 Readington Road
Somerville, New Jersey
08876
Telephone (908) 707-1800
</TABLE>
<PAGE> 2
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired
Included after the signature page of this report as follows:
<TABLE>
<S> <C>
Page
----
- -Financial Statements of The Canadian Operations of G.H. Wood + Wyant Inc.
(Wyant & Company as of March 18, 1997).............................................. 4
- -Auditors' Reports............................................................................ 5
- -Statement of Net Assets of The Canadian Operations of G.H. Wood + Wyant Inc.
as at December 31, 1995 and 1996.................................................... 7
- -Statement of Earnings of The Canadian Operations of G.H. Wood + Wyant Inc.
for the Years Ended December 31, 1994, 1995 and 1996................................ 8
- -Statement of Changes in Net Assets of The Canadian Operations of G.H. Wood +
Wyant Inc. for the Years Ended December 31, 1994, 1995 and 1996...................... 9
- -Statement of Changes in Financial Position of The Canadian Operations of G.H. Wood +
Wyant Inc. for the Years Ended December 31, 1994, 1995 and 1996...................... 10
- -Notes to Financial Statements of The Canadian Operations of G.H. Wood +
Wyant Inc............................................................................ 11
</TABLE>
(b) Pro Forma Financial Information
Included after the signature page of this report as follows:
<TABLE>
<S> <C>
Page
----
- -Unaudited Pro Forma Condensed Combined Financial Information................................. 21
- -Pro Forma Condensed Combined Balance Sheet as at December 31, 1996........................... 22
- -Pro Forma Condensed Combined Statement of Operations for the Year Ended
December 31, 1996...................................................................... 23
- -Pro Forma Condensed Combined Statement of Operations for the Year Ended
December 31, 1995...................................................................... 24
- -Pro Forma Condensed Combined Statement of Operations for the Year Ended
December 31, 1994...................................................................... 25
- -Notes to Unaudited Pro Forma Condensed Combined Financial Information........................ 26
</TABLE>
(c) Exhibits
[Item 7(c) is not amended hereby]
2
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Amendment No. 1 to the Current Report on Form
8-K to be signed on its behalf by the undersigned thereunto duly authorized.
WYANT CORPORATION
By:/s/ Marc D'Amour
------------------------------
Name: Marc D'Amour
Title:Vice President, Chief Financial
Officer and Treasurer
Dated: May 28, 1997
3
<PAGE> 4
FINANCIAL STATEMENTS
OF THE CANADIAN OPERATIONS
OF G.H. WOOD + WYANT INC.
DECEMBER 31, 1996
4
<PAGE> 5
AUDITORS' REPORT
To the Directors of
G.H. WOOD + WYANT INC.
We have audited the statement of net assets of The Canadian Operations of
G.H. Wood + Wyant Inc. as at December 31, 1995 and 1996 and the statements
of earnings, changes in net assets and changes in financial position for
each of the years ended December 31, 1995 and 1996. These financial
statements are the responsibility of the management of The Canadian
Operations of G.H. Wood + Wyant Inc. 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 Canada. Those standards require that we plan and perform an
audit to obtain reasonable assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of The Canadian Operations of G.H. Wood
+ Wyant Inc. as at December 31, 1995 and 1996 and the results of its
operations and the changes in its financial position for each the years ended
December 31, 1995 and 1996 in accordance with accounting principles generally
accepted in Canada.
The Canadian Operations of G.H. Wood + Wyant Inc. is a component of G.H.
Wood + Wyant Inc. and has no separate legal status or existence.
Transactions with other divisions and affiliates of G.H. Wood + Wyant Inc.
are described in notes 2 and 11.
<TABLE>
<S> <C>
Montreal, Canada Ernst & Young
February 17, 1997 Chartered Accountants
(except note 19 which is
dated as of March 17, 1997)
</TABLE>
5
<PAGE> 6
AUDITOR'S REPORT
To the Directors of
G.H. WOOD + WYANT INC.
We have audited the statements of earnings, changes in net assets and changes
in financial position of The Canadian Operations of G.H. Wood + Wyant Inc.
for the year ended December 31, 1994. These financial statements are the
responsibility of the management of The Canadian Operations of G.H. Wood +
Wyant Inc. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in Canada. Those standards require that we plan and perform an
audit to obtain reasonable assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the results of operations and the changes in financial position of
The Canadian Operations of G.H. Wood + Wyant Inc. for the year ended
December 31, 1994 in accordance with accounting principles generally accepted
in Canada.
The Canadian Operations of G.H. Wood + Wyant Inc. is a component of G.H.
Wood + Wyant Inc. and has no separate legal status or existence.
Transactions with other divisions and affiliates of G.H. Wood + Wyant Inc.
are described in notes 2 and 11.
Deloitte & Touche
Chartered Accountants
Montreal, Canada
March 10, 1995
(except for notes 18 and 19, which were not
part of the audited financial statements)
6
<PAGE> 7
THE CANADIAN OPERATIONS OF G.H. WOOD + WYANT INC.
STATEMENT OF NET ASSETS
AS AT DECEMBER 31
(In Canadian Dollars)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
ASSETS (note 9)
Current:
Accounts receivable, net of allowance
for doubtful accounts of
$411,413 (1995 - $761,500) (notes 4, 11)...... $ 9,648,954 $ 9,876,105
Income taxes recoverable...................... -- 596,714
Inventories (note 5).......................... 7,625,740 8,811,108
Prepaid expenses.............................. 817,209 407,613
Capital assets held for resale (note 12)...... -- 336,634
----------- -----------
Total current assets............................ 18,091,903 20,028,174
Investments, at cost (note 6)................... 3,079 3,079
Capital assets (note 7)......................... 10,603,968 10,183,076
Goodwill (net of amortization of $749,520;
1995 - $562,140)................................ 562,140 749,520
Other assets (note 8)........................... 342,500 119,400
Deferred income taxes........................... -- 54,591
----------- -----------
Total Assets.................................... $29,603,590 $31,137,840
----------- -----------
LIABILITIES
Current:
Bank indebtedness (note 9).................... $ 1,772,667 $ 2,421,030
Accounts payable and accrued
liabilities (note 11)......................... 8,597,728 8,648,772
Termination of supply agreement (note 12)..... -- 1,454,000
Restructuring accrual (note 12)............... 65,000 219,000
Employee related accruals..................... 1,246,714 1,136,298
Income taxes payable.......................... 384,765 --
Current portion of long-term debt (note 10)... 2,093,712 2,603,714
----------- -----------
Total current liabilities....................... 14,160,586 16,482,814
Long-term debt (note 10)........................ 3,030,573 4,292,285
Deferred income taxes........................... 1,025,409 --
----------- -----------
Total Liabilities............................... $18,216,568 $20,775,099
----------- -----------
Commitments and Contingencies (note 15)
Total Net Assets................................ $11,387,022 $10,362,741
=========== ===========
</TABLE>
__________
See accompanying notes
7
<PAGE> 8
THE CANADIAN OPERATIONS OF G.H. WOOD + WYANT INC.
STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31
(In Canadian Dollars)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Sales (note 11) $72,115,821 $71,602,554 $71,331,954
Cost of sales (including
amortization of $507,902;
1995 - $527,174; 1994 -
$560,000) (note 11).................. 42,127,681 41,733,300 44,309,801
----------- ----------- -----------
Gross profit......................... 29,988,140 29,869,254 27,022,153
----------- ----------- -----------
Selling, general and
administrative....................... 21,250,464 21,137,552 23,032,274
Shipping............................. 4,569,627 4,846,818 5,564,360
Amortization of capital assets....... 473,310 597,474 633,641
Amortization of goodwill............. 187,380 187,380 187,380
----------- ----------- -----------
Income (loss) from operations........ 3,507,359 3,100,030 (2,395,502)
Interest on long-term debt........... 410,509 700,204 699,687
Interest and bank charges............ 195,275 318,943 223,216
Unusual and non-recurring
items (note 12)...................... (167,464) 1,594,000 272,687
Other income......................... (74,771) (69,157) (16,899)
----------- ----------- -----------
Earnings (loss) before
income taxes......................... 3,143,810 556,040 (3,574,193)
----------- ----------- -----------
Provision for (recovery of)
income taxes (note 13):
Current............................ 305,000 261,714 (803)
Benefit of losses carried
forward............................ -- (239,000) --
Deferred........................... 1,080,000 10,815 (748,565)
----------- ----------- -----------
1,385,000 33,529 (749,368)
----------- ----------- -----------
Net earnings (loss).................. $ 1,758,810 $ 522,511 $(2,824,825)
=========== =========== ===========
</TABLE>
__________
See accompanying notes
8
<PAGE> 9
THE CANADIAN OPERATIONS OF G.H. WOOD + WYANT INC.
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31
(In Canadian Dollars)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net Assets at beginning of year...... $10,362,741 $10,335,526 $14,755,067
Net earnings (loss) for the year..... 1,758,810 522,511 (2,824,825)
Distributions to G.H. Wood +
Wyant Inc............................ (734,529) (495,296) (1,594,716)
----------- ----------- -----------
Net Assets at end of year............ $11,387,022 $10,362,741 $10,335,526
=========== =========== ===========
</TABLE>
__________
See accompanying notes
9
<PAGE> 10
THE CANADIAN OPERATIONS OF G.H. WOOD + WYANT INC.
STATEMENT OF CHANGES IN FINANCIAL POSITION
YEAR ENDED DECEMBER 31
(In Canadian Dollars)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings (loss).................. $1,758,810) $ 522,511 $(2,824,825)
Items not affecting cash:
Amortization....................... 1,168,592 1,312,028 1,381,028
Deferred income taxes.............. 1,080,000 10,815 (748,565)
Write-down of capital assets....... -- 272,444 --
Write-off of organization costs.... -- 2,576 --
Gain on disposal of capital assets. (167,464) (132,444) --
Decrease in deferred charges....... -- 38,529 77,016
Deferred pension costs............. (223,100) (119,400) --
Gain on sale of investment (note 12) -- -- (2,760,424)
---------- ---------- -----------
3,616,838 1,907,059 (4,875,777)
Changes in non-cash working
capital balances related to
operations (note 17)................. 435,774 2,237,528 6,713,824
---------- ---------- -----------
Cash provided by operating
activities........................... 4,052,612 4,144,587 1,838,047
---------- ---------- -----------
INVESTING ACTIVITIES:
Proceeds on sale of capital assets... 322,066 373,069 --
Acquisition of long-term investments. -- (1,900) (342)
Purchases of capital assets.......... (1,220,072) (497,215) (926,365)
Proceeds on sale of investment
(note 12)............................ -- -- 10,000,000
---------- ---------- -----------
Cash provided by (used in)
investing activities................. (898,006) (126,046) 9,073,293
---------- ---------- -----------
FINANCING ACTIVITIES:
Increase in other long-term
liabilities.......................... -- -- 223,501
Increase in long-term debt........... 1,000,000 -- --
Repayment of long-term debt.......... (2,771,714) (2,178,531) (1,960,170)
Distributions to G.H. Wood + Wyant
Inc.................................. (734,529) (495,296) (1,594,716)
---------- ---------- -----------
Cash used in
financing activities................. (2,506,243) (2,673,827) (3,331,385)
---------- ---------- -----------
Increase in cash during the year..... 648,363 1,344,714 7,579,955
Bank indebtedness, beginning of year. (2,421,030) (3,765,744) (11,345,699)
---------- ---------- -----------
Bank indebtedness, end of year....... $(1,772,667) $(2,421,030) $(3,765,744)
========== ========== ===========
</TABLE>
__________
See accompanying notes
10
<PAGE> 11
THE CANADIAN OPERATIONS OF G.H. WOOD + WYANT INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
G.H. Wood + Wyant Inc. ("Wyant") is a company incorporated in Canada, and is an
integrated distributor and manufacturer of sanitation products in Canada. The
Canadian Operations of G.H. Wood + Wyant Inc. ("Canadian Operations") comprise
only those subsidiaries and divisions of Wyant which operate in Canada. Sales
by the Canadian Operations are primarily within Canada except for those to
related parties as described in note 11.
2. BASIS OF FINANCIAL STATEMENT PRESENTATION
These financial statements include the accounts of the Canadian Operations of
Wyant and its wholly owned Canadian subsidiary, Wyant Chemicals Company
Limited, and are expressed in Canadian dollars. These financial statements
reflect the financial position and results of the Canadian Operations of Wyant
which are to be sold to Hosposable Products, Inc. ("HPI") pursuant to the
transaction described in note 19 and do not reflect Wyant's investment in HPI.
The net assets of the Canadian Operations comprise the accumulated earnings of
the Canadian Operations and contributions of Wyant, net of distributions to
Wyant.
Wind-up
On December 30, 1996 Wyant's wholly-owned subsidiary, Wyant Chemicals
Company Limited was wound-up into the Company on a tax-free basis under
subsection 88(1) of the Income Tax Act (Canada) and section 556 of the
Quebec Taxation Act. Wyant Chemicals Company Limited's operations were
continued by Wyant, which received all of the assets and assumed all of the
liabilities.
On January 4, 1995, Wyant's wholly owned subsidiary, Papiers Grande Ville
Inc., was wound-up into Wyant on a tax-free basis under subsection 88(1) of
the Income Tax Act (Canada) and section 556 of the Quebec Taxation Act.
Papiers Grande Ville Inc.'s operations were continued by Wyant, which
received all of the assets and assumed all of the liabilities.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements have been prepared by management in accordance with
accounting principles generally accepted in Canada, and conform in all material
respects to accounting principles generally accepted in the United States
except as set forth in note 18. The preparation of financial statements in
conformity with such principles requires management to make estimates and
assumptions that affect the reported assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting periods.
Actual results could differ from those estimates.
Revenue Recognition
Revenue is recognized upon shipment of merchandise.
Inventories
Inventories are stated at the lower of cost and net realizable value. Cost is
determined on a first-in, first-out basis.
11
<PAGE> 12
THE CANADIAN OPERATIONS OF G.H. WOOD + WYANT INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Cont'd]
Capital assets
Capital assets are recorded at cost. The capital assets are amortized over
their estimated useful lives on the following basis and rates:
<TABLE>
<S> <C> <C>
Buildings declining balance 5%
Machinery declining balance 6% to 22%
Furniture and declining balance 20% to 30%
equipment
Computer equipment declining balance 30%
Leasehold straight-line over the terms of the
improvements leases
Deferred charges straight-line 5 years
Patents straight-line 17 years
</TABLE>
Goodwill
Costs in excess of net assets of businesses acquired are being amortized on a
straight-line basis over seven years.
On an ongoing basis, management reviews the valuation and amortization of
goodwill, taking into consideration any events or circumstances which might
have impaired the fair value. These reviews include establishing that the
unamortized balance will be recovered over its estimated remaining useful life
through the projected undiscounted future net income of the business acquired.
Income taxes
The Canadian Operations follows the deferral method of tax allocation in
accounting for income taxes. Under this method, timing differences between
accounting and taxable income result in the recording of deferred income taxes.
Foreign currency translation
Monetary assets and liabilities denominated in foreign currencies are
translated into Canadian dollars at rates of exchange prevailing at the balance
sheet date. Revenues and expenses are translated into Canadian dollars at rates
of exchange in effect at the related transaction dates. Exchange gains and
losses arising from the translation of foreign currency items are included in
the determination of net earnings.
4. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Trade.................................... $9,459,731 $9,485,401
Other.................................... 189,223 390,704
---------- ----------
$9,648,954 $9,876,105
========== ==========
</TABLE>
The Canadian Operations operates primarily in the institutional sanitation
industry in Canada. The Canadian Operations sells to a large number of
customers and no single customer accounts for more than 2% of sales or 1% of
accounts receivable.
The carrying value of the accounts receivable approximates the fair market
value.
12
<PAGE> 13
THE CANADIAN OPERATIONS OF G.H. WOOD + WYANT INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INVENTORIES
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Raw materials............................... $1,229,893 $1,659,196
Finished goods.............................. 6,395,847 7,151,912
---------- ----------
$7,625,740 $8,811,108
========== ==========
</TABLE>
6. INVESTMENTS
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Portfolio investments, at cost.............. $3,079 $3,079
====== ======
</TABLE>
7. CAPITAL ASSETS
<TABLE>
<CAPTION>
Accumulated Net book
Cost amortization value
------- ------------ -----------
<S> <C> <C> <C>
1996
Land........................ $ 896,076 $ -- $ 896,076
Building.................... 4,567,878 1,609,419 2,958,459
Machinery................... 10,050,802 5,508,301 4,542,501
Furniture and equipment..... 2,689,113 2,263,070 426,043
Computer equipment.......... 2,216,596 1,878,874 337,722
Leasehold improvements...... 900,436 525,515 374,921
----------- ----------- -----------
21,320,901 11,785,179 9,535,722
Patents..................... 1,400,915 332,669 1,068,246
----------- ----------- -----------
$22,721,816 $12,117,848 $10,603,968
=========== =========== ===========
1995
Land........................ $ 896,076 $ -- $ 896,076
Building.................... 4,368,312 1,453,711 2,914,601
Machinery................... 9,266,751 5,191,826 4,074,925
Furniture and equipment..... 2,497,721 2,063,124 434,597
Computer equipment.......... 2,213,955 1,737,338 476,617
Leasehold improvements...... 866,327 458,101 408,226
----------- ----------- -----------
20,109,142 10,904,100 9,205,042
Patents..................... 1,254,091 276,057 978,034
----------- ----------- -----------
$21,363,233 $11,180,157 $10,183,076
=========== =========== ===========
</TABLE>
8. OTHER ASSETS
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred pension costs....................... $342,500 $119,400
======== ========
</TABLE>
13
<PAGE> 14
THE CANADIAN OPERATIONS OF G.H. WOOD + WYANT INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. REVOLVING CREDIT FACILITY
The Canadian Operations has arranged a revolving credit facility in the amount
of $6 million ($7.5 million prior to June 14, 1996), bearing interest at prime
and is repayable on demand. At December 31, 1996 $1,772,667 (1995 - $2,421,050)
was utilized and the prime rate of interest was 4.75% (1995- 7.5%). The
revolving credit facility and certain term loans described in note 10 are
collateralized by a general assignment of book debts, a pledge of inventory
under Section 427 of the Bank Act, a hypothec in the amount of $24,000,000 on
all movable property, a hypothec in the amount of $15,000,000 on 709,490 shares
of HPI owned by Wyant and a general security agreement. The weighted average
prime rate of interest was 6.14% for 1996 (1995 _ 8.64%).
10. LONG-TERM DEBT
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Term loan bearing interest at the prime rate
plus 3/4% (1% prior to June 14, 1996),
repayable in monthly installments of
$126,000 plus interest, maturing on May 31,
1998. The loan is collateralized by the
security described in note 9................... $2,108,000 $3,620,000
Term loan bearing interest at the prime rate
plus 3/4% (1% prior to June 14, 1996),
repayable in monthly installments of $20,476
plus interest, maturing on October 1, 1998.
The loan is collateralized by a first fixed
charge in the amount of $4,000,000 on land
and a building and by the security described
in note 9...................................... 2,184,285 2,429,999
Term loan bearing interest at prime rate
plus 3/4% (1% prior to June 14, 1996),
repayable in monthly installments of $28,000
plus interest, maturing on June 1, 1999. The
loan is collateralized by the security
described in note 9............................ 832,000 --
Promissory note bearing interest at 5%,
maturing on January 17, 2000, which, as
described in note 12, was repaid on January
15, 1996....................................... -- 846,000
--------- ---------
5,124,285 6,895,999
Current portion................................ 2,093,712 2,603,714
--------- ---------
$3,030,573 $4,292,285
========= =========
</TABLE>
The loans are recorded at book value which approximates market value.
Principal payments required are as follows:
<TABLE>
<S> <C>
1996.............................................. $2,093,712
1997.............................................. 2,870,573
1998.............................................. 160,000
---------
$5,124,285
</TABLE> =========
Cash payments for interest in 1996 amounted to $642,000 (1995 - $1,017,000;
1994 - $986,000).
14
<PAGE> 15
THE CANADIAN OPERATIONS OF G.H. WOOD + WYANT INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. RELATED PARTY TRANSACTIONS
During the year, the Canadian Operations purchased raw materials and finished
goods in the amount of $399,000 (1995 - $334,000; 1994 - $498,000) from HPI.
The Canadian Operations also sold finished goods in the amount of $2,797,000
(1995 - $1,460,000; 1994 - $340,000) to HPI. At December 31, 1996 accounts
receivable includes $655,000 (1995 - $317,000) due from HPI and accounts
payable includes $4,000 (1995 - $29,000) due to HPI.
During 1996, the Canadian Operations distributed cash to Wyant in the amount of
$734,529 (1995 - $495,296; 1994 - $1,594,716).
12. UNUSUAL AND NON-RECURRING ITEMS
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
(A) Gain on disposal of capital assets... $(167,464) $ (132,444) $ --
(B) Termination of supply agreement...... -- 1,454,000 --
(C) Write-down of capital assets......... -- 272,444 --
(D) Restructuring charge................. -- -- 3,033,111
(E) Gain on sale of investment........... -- -- (2,760,424)
--------- --------- ----------
$(167,464) $1,594,000 $ 272,687
</TABLE> ========= ========== ==========
(A) Gain of disposal of capital assets
In connection with the restructuring of its operations, the Canadian Operations
disposed of surplus capital assets. As a result of such transactions, net
gains were realized of $167,464 in 1996 and $132,444 in 1995.
(B) Termination of supply agreement
On February 17, 1993, as part of an asset purchase agreement, the Canadian
Operations entered into a seven-year supply agreement to purchase a specified
minimum volume of chemical products. Included in this agreement was the
assumption of a lease and a requirement to pay a minimum monthly handling
charge over the term of the supply agreement. In addition, the
Canadian Operations issued a 5% promissory note to the vendor, repayable in
monthly installments to January 17, 2000, to finance a portion of the
assets acquired.
On December 29, 1995, the Canadian Operations entered into an agreement to
commute the obligation under the above supply agreement and the related
charges and repay the promissory note.
The payment has been allocated as follows:
<TABLE>
<S> <C>
Supply agreement....................................... $ 749,707
Monthly handling charges............................... 660,292
Lease costs............................................ 44,000
Balance to relieve all other obligations............... 1
---------
Expenses accrued in current liabilities................ 1,454,000
Promissory note repayment.............................. 846,000
---------
$2,300,000
=========
</TABLE>
The entire balance plus applicable sales taxes was paid on January 15,
1996.
15
<PAGE> 16
THE CANADIAN OPERATIONS OF G.H. WOOD + WYANT INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. UNUSUAL AND NON-RECURRING ITEMS [Cont'd]
(C) Write-down of capital assets
As a result of the wind-up of Papiers Grande Ville Inc. and the consolidation
of the paper converting operations, the Canadian Operations identified
surplus machinery which is recorded at the lower of its depreciated cost and
estimated realizable value. A write-down of $272,444 was recorded in 1995.
(D) Restructuring charge
During the fourth quarter of 1994, the Canadian Operations initiated a program
to reduce the number of its distribution centers and consolidate its paper
converting operations. The resulting restructuring charge comprised:
<TABLE>
<S> <C>
Employee severance pay........................................... $1,582,070
Lease abandonment................................................ 628,610
Employee relocation.............................................. 256,000
Consulting fees.................................................. 180,000
Write-off of obsolete marketing and operating materials.......... 173,000
Consolidation of paper converting operations - other expense..... 170,000
Other............................................................ 43,431
----------
$3,033,111
==========
</TABLE>
As at December 31, 1995, the restructuring charge from 1994 had been paid
except for employee severance pay of $66,000 and lease abandonment costs of
$153,000. As at December 31, 1996, $65,000 of the lease abandonment costs were
outstanding.
(E) Gain on sale of investment
On February 21, 1994, the Canadian Operations sold its investment in
Industries Cascades Inc. for a cash consideration of $10,000,000,
resulting in a gain on sale of $2,760,424.
13. INCOME TAXES
A reconciliation of the statutory income tax rate to the effective income tax
rate is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
% % %
Statutory income tax rate............................. 42.6 43.9 43.8
Increase (decrease) resulting from the
following:
Small business deduction............................ -- (5.9) --
Manufacturing and processing credit................. (2.2) (1.7) --
Large corporations tax.............................. 0.6 4.1 (0.8)
Unrecorded tax benefit of losses from prior years... -- (39.8) (15.1)
Non-deductible items................................ 2.0 4.6 (1.0)
Revision of estimated tax provisions for prior years -- -- (3.7)
Other............................................... 1.0 0.8 (2.2)
---- ----- ----
Effective income tax rate............................. 44.0 6.0 21.0
==== ===== ====
</TABLE>
The Canadian Operations has non-capital losses of approximately $280,000
available to offset future taxable income. The tax benefit of these losses has
been recognized in the financial statements as a reduction of deferred taxes.
Cash payments for income taxes in 1996 amounted to $27,000 (1995 - $8,000;
1994 - $790,000).
16
<PAGE> 17
THE CANADIAN OPERATIONS OF G.H. WOOD + WYANT INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
14. PENSION PLAN
The Canadian Operations maintains a contributory defined benefit pension plan.
The pension plan includes the employees of Wyant Chemicals Company Limited, as
well as certain Canadian employees. The remaining Canadian employees are
members of a non- contributory defined contribution plan.
The accrued pension obligation was estimated to be $5,129,600 (1995 -
$4,174,000), based on an actuarial valuation as of January 31, 1995, and the
net assets available for benefits at market value are $8,346,000 (1995 -
$7,605,900). To date, the Canadian Operations has recognized an asset,
deferred pension costs, of $342,500 (1995 - $119,400) in other assets.
The pension income (expense) for the year was $223,100 (1995 - $119,400;
1994 - ($97,800)).
15. COMMITMENTS & CONTINGENCIES
(a) The Canadian Operations leases its premises under operating leases which
expire at various dates to 2004. Future minimum lease payments will
aggregate $6,887,000 as follows:
<TABLE>
<S> <C>
1997............................................. $1,375,000
1998............................................. $1,241,000
1999............................................. $1,188,000
2000............................................. $1,123,000
2001............................................. $ 677,000
Thereafter....................................... $1,283,000
</TABLE>
Annual rental expenses incurred during 1996 under operating leases were
$1,760,000 (1995 - $1,619,000; 1994 - $2,115,000).
(b) Supply agreement
In February 1994, the Canadian Operations signed a five-year supply
agreement to purchase 16,000 short tons of paper toweling and tissue
annually at market prices. This supplier provides 100% of the company's
requirements for these products.
16. FORWARD EXCHANGE CONTRACTS
The Canadian Operations enters into forward exchange contracts to purchase
Swiss Francs required to settle liabilities incurred in the ordinary course of
business. As at December 31, 1996 contracts outstanding totalled $137,245
(134,018 Swiss Francs); [1995 - $129,556 (109,589 Swiss Francs)].
17. CHANGES IN NON-CASH OPERATING WORKING CAPITAL ITEMS
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Accounts receivable..................... $ 227,151 $ 896,868 $1,988,843
Income taxes recoverable................ 981,479 704,601 707,238
Inventories............................. 1,185,368 289,249 2,992,029
Prepaid expenses........................ (409,596) 433,806 111,935
Accounts payable and accrued liabilities (1,548,628) (86,996) 913,779
----------- ---------- ----------
$ 435,774 $2,237,528 $6,713,824
=========== ========== ==========
</TABLE>
17
<PAGE> 18
THE CANADIAN OPERATIONS OF G.H. WOOD + WYANT INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
18. ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES
These financial statements have been prepared in accordance with accounting
principles generally accepted ("GAAP") in Canada. They conform in all material
respects to accounting principles generally accepted in the United States,
except as set forth below, and the requirements of the Securities and Exchange
Commission pursuant to Item 17 of Form 20-F:
Earnings Adjustments
<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- -----------
<S> <C> <C> <C>
Net earnings (loss) in
accordance with Canadian GAAP......... $1,758,810 $ 522,511 $(2,824,825)
Restructuring charge, net of
income taxes(1)....................... -- (112,600) 114,000
Pension income (expense), net
of income taxes(2).................... (123,100) (42,800) 168,000
Deferred income taxes(3).............. -- 49,000 152,000
---------- --------- -----------
Net earnings (loss) in accordance
with U.S. GAAP........................ $1,635,710 $ 416,111 $(2,390,825)
========== ========= ===========
</TABLE>
Notes to Earnings Adjustments
(1) Under U.S. GAAP, recognition of the cost of certain restructuring charges
must be deferred for income statement purposes until specified conditions have
been satisfied. Accordingly, a charge of $189,055 would have been recognized
in 1995 and not in 1994 as reported in the Canadian GAAP financial statements.
(2) Accounting for pension benefits under U.S. GAAP utilized the corridor
method to amortize experience gains and losses. In addition, there are
differences under U.S. GAAP in the manner of dealing with plan curtailments.
The pension income (expense) recorded in 1996 would have been $18,000 (1995 -
$48,700; 1994 -- $182,200).
A weighted average discount rate of 7.5% (1995 - 7.5%; 1994 - 6%) and a rate of
compensation increase of 5% (1995 - 5%; 1994 - 5%) were utilized to measure the
projected benefit obligations and the long term rate of return on plan assets.
The projected benefit obligation at December 31, 1996 was $5,129,600 ( 1995 -
$4,174,000) and assets available for benefits at market value was $8,346,000
(1995 _ $7,605,900).
(3) Under U.S. GAAP, the liability method is used in accounting for income
taxes. For purposes of this reconciliation, the liability method was applied
prospectively from January 1, 1991. This requires recognition of deferred tax
assets and liabilities for temporary differences resulting from differences
between the financial reporting and tax bases of assets and liabilities using
enacted tax rates. Under U.S. GAAP, a valuation allowance of nil (1995 -
$104,000; 1994 - $361,000) would have been recognized to offset deferred tax
assets.
(4) In accordance with Staff Accounting Bulletin 67 issued by the Securities
and Exchange Commission, the charges presented in the income statement as
restructuring charge, termination of supply agreement and write-down of capital
assets would be required to be presented as components of operating income.
Under this presentation, earnings (loss) from operations for the year ended
December 31, 1996 would be $3,507,359 (1995 - $1,373,586; 1994 -
$(5,428,613)). This difference in presentation has no effect on net income
(loss).
18
<PAGE> 19
THE CANADIAN OPERATIONS OF G.H. WOOD + WYANT INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
18. ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES [Cont'd]
Net Assets Adjustments
<TABLE>
<CAPTION>
1996 1995
------------------------- ---------------------
Canadian U.S. Canadian U.S.
GAAP GAAP GAAP GAAP
----------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Other assets (1)...... $ 342,500 $ 563,200 $119,400 $300,167
Deferred income tax
(asset) (2)........... 1,025,409 1,111,637 (54,591) 31,637
</TABLE>
Notes to Net Assets Adjustments
(1) Accounting for pension benefits under U.S. GAAP results in a timing
difference in the amortization of experience gains and losses, which causes a
change in the deferred pension cost assets.
(2) Income taxes are provided on the deferral method under Canadian GAAP,
whereas under U.S. GAAP the liability method is used. In addition, the tax
impact of adjustments for pension benefits and restructuring charges are also
reflected.
Cash Flow Presentation
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
Cash provided by (used in)
financing activities in accordance
with Canadian GAAP................ $(2,506,243) $(2,673,827) $(3,331,385)
Drawdown of revolving credit
facility(1)......................... (648,363) (1,344,714) (7,579,955)
----------- ----------- ------------
Cash provided by (used in)
financing activities
in accordance with U.S. GAAP........ $(3,154,606) $(4,018,541) $(10,911,340)
=========== =========== ============
Increase in cash during the year in
accordance with Canadian GAAP....... $ 648,363 $ 1,344,714 $ 7,579,955
Drawdown of revolving credit
facility as included in financing
activities(1)....................... (648,363) (1,344,714) (7,579,955)
----------- ----------- ------------
Increase (Decrease) in cash during
the year in accordance with
U.S. GAAP........................... 0 0 0
Cash and cash equivalents at
beginning of year in accordance
with U.S. GAAP(2)................... 0 0 0
----------- ----------- ------------
Cash and cash equivalents at end of
year in accordance with
U.S. GAAP........................... $ 0 $ 0 $ 0
=========== =========== ============
</TABLE>
Notes to Cash Flow Presentation
(1) Under U.S. GAAP, changes to amounts outstanding under a revolving credit
facility are classified as financing activities in the Statement of Changes in
Financial Position.
(2) Under U.S. GAAP, amounts outstanding under a revolving credit facility are
classified as debt and consequently are not included in the cash and cash
equivalents balance.
19
<PAGE> 20
THE CANADIAN OPERATIONS OF G.H. WOOD + WYANT INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
19. SUBSEQUENT EVENT
As of November 12, 1996, Wyant entered into an asset purchase agreement
("Agreement") pursuant to which it will sell its business and all operating
assets (excluding the common stock of Hosposable Products, Inc. ["HPI"] held by
the Company) to 3290441 Canada Inc., a wholly owned and newly formed subsidiary
of HPI. Under the terms of the Agreement, 3290441 Canada Inc. will acquire
all of the assets and assume all of the liabilities of the Canadian Operations.
In consideration for this sale, Wyant will receive cash of $5,000,000, a
promissory note in the amount of $4,262,741 (the amount of which is subject to
adjustment on closing of the transaction and will be exchanged, after
adjustment, for Class A preferred shares of 3290441 Canada Inc. on the basis
of one share for each dollar of unpaid principal amount of the note), 3,800,000
Class B preferred shares and 1,000,000 Class E preferred shares. The Class A
and B preferred shares carry cumulative dividends of 4% and 3.9999%
respectively and are mandatorily redeemable over ten years. The 1,000,000
Class E preferred shares are exchangeable into 1,000,000 shares of HPI common
stock. A Special Meeting of the shareholders of HPI was held on March 17, 1997
at which time the Agreement was approved.
20
<PAGE> 21
UNAUDITED PRO FORMA
CONDENSED COMBINED
FINANCIAL INFORMATION
21
<PAGE> 22
PRO FORMA CONDENSED COMBINED BALANCE SHEET
December 31, 1996
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Subtotal
Historical Historical Pro Forma Pro Forma Pro Form
HPI Wyant Combined Adjustments Combined
---------- ---------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Current
Cash and Cash Equivalents... $ 2,017 $ -- $ 2,017 $(2,017) (1) $ --
Accounts Receivable - Net... 4,726 7,040 11,766 (467) (2) 11,299
Income Taxes Recoverable.... 456 -- 456 -- 456
Inventories................. 4,448 5,564 10,012 -- 10,012
Deferred Income Taxes....... 331 -- 331 -- 331
Prepaid Expenses............ 240 596 836 -- 836
------- ------- ------- ------- -------
Total Current Assets......... 12,218 13,200 25,418 (2,484) 22,934
Investments.................. -- 2 2 -- 2
Property, Plant and
Equipment, Net............... 11,544 7,737 19,281 -- 19,281
Goodwill..................... -- 410 410 -- 410
Other Assets................. 349 250 599 -- 599
------- ------- ------- ------- -------
Total Assets................. $24,111 $21,599 $45,710 $(2,484) $43,226
======= ======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bank Indebtedness........... $ -- $ 1,293 $ 1,293 $ 1,633 (1) $ 2,926
Accounts Payable and
Accrued Expenses............ 5,381 7,230 12,611 (467) (2) 12,144
Income Taxes Payable........ -- 281 281 -- 281
Current Portion of
Long-Term Debt............. 579 1,528 2,107 -- 2,107
------- ------- ------- ------ -------
Total Current Liabilities.... 5,960 10,332 16,292 1,166 17,458
Long-Term Debt............... 5,177 2,211 7,388 -- 7,388
Redeemable Preferred Shares.. -- -- -- 5,214 (1) 5,214
Acquisition Clearing Account. -- 8,308 8,308 (8,308) (1) --
Deferred Income Taxes........ 837 748 1,585 -- 1,585
------- ------- ------- ------ -------
Total Liabilities............ 11,974 21,599 33,573 (1,928) 31,645
Stockholders' Equity
Common Stock................ 17 -- 17 10 (1) 27
Additional Paid-in Capital.. 6,894 -- 6,894 4,936 (1) 6,328
(5,502) (1)
Retained Earnings........... 5,257 -- 5,257 -- 5,257
------- ------- ------- ------ -------
12,168 -- 12,168 (556) 11,612
Less: Treasury Stock
Held, at Cost.............. 31 -- 31 -- 31
------- ------- ------- ------ -------
Total Stockholders' Equity... 12,137 -- 12,137 (556) 11,581
------- ------- ------- ------ -------
Total Liabilities and
Stockholders' Equity......... $24,111 $21,599 $45,710 $(2,484) $43,226
======= ======= ======= ======= =======
See accompanying notes to unaudited pro forma condensed combined financial information.
</TABLE>
22
<PAGE> 23
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
for the Year Ended December 31, 1996
(Unaudited)
(Dollars in Thousands except per share amounts)
<TABLE>
<CAPTION>
Subtotal Pro U.S.
Historical Historical Pro Forma Forma GAAP Pro Forma
HPI Wyant Combined Adjs. Adjs. Combined
--------- ---------- --------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Sales.................. $42,294 $52,886 $95,180 $(2,335) (3) $ -- $92,845
Cost of sales.......... 34,971 30,894 65,865 (2,335) (3) -- 63,530
------- ------- ------- ------- ----- -------
Gross profit........... 7,323 21,992 29,315 -- -- 29,315
Selling, general and
administrative....... 8,358 18,812 27,170 (167) (6) 150 (8) 27,153
Depreciation and
amortization......... 83 485 568 -- -- 568
Other income........... (312) (55) (367) 167 (6) -- (200)
Interest expense....... 307 444 751 154 (4) -- 905
Acquisition costs...... 550 -- 550 -- -- 550
------- ------- ------- ------- ----- -------
8,986 19,686 28,672 154 150 28,976
------- ------- ------- ------- ----- -------
Income (Loss)
before income tax.... (1,663) 2,306 643 (154) (150) 339
Provision for
(Recovery of)
income taxes......... (608) 1,016 408 (56) (5) (60) (10) 292
------- ------- ------- ------- ----- -------
Net income (Loss)...... (1,055) 1,290 235 (98) (90) 47
Dividend requirements
and accretion of
mandatorily redeemable
Preferred shares..... -- -- -- (278) (1) -- (278)
------- ------- ------- ------- ----- -------
Net income (Loss)
attributable to
common shares........ $(1,055) $1,290 $ 235 $ (376) $ (90) $ (231)
======= ======= ======= ======= ====== =======
Income (Loss) per
common share......... $ (0.62) -- -- -- -- $ (0.14)
Weighted average
number of common
shares outstanding... 1,692,476 (7) 1,692,476
See accompanying notes to unaudited pro forma condensed combined financial information.
</TABLE>
23
<PAGE> 24
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
for the Year Ended December 31, 1995
(Unaudited)
(Dollars in Thousands except per share amounts)
<TABLE>
<CAPTION>
Subtotal Pro U.S.
Historical Historical Pro Forma Forma GAAP Pro Forma
HPI Wyant Combined Adjs. Adjs. Combined
--------- ---------- --------- ------ -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Sales.................. $40,481 $52,165 $92,646 $(1,291) (3) $ -- $91,355
Cost of sales.......... 33,000 30,404 63,404 (1,291) (3) -- 62,113
------- ------- ------- ------- ------ -------
Gross profit........... 7,481 21,761 29,242 -- -- 29,242
Selling, general and
administrative....... 7,329 18,930 26,259 (317) (6) 52 (8) 25,994
Depreciation and
amortization......... 87 572 659 -- -- 659
Other income........... (435) (50) (485) 317 (6) -- (168)
Interest expense....... 322 742 1,064 154 (4) -- 1,218
Non-recurring items.... 550 1,161 1,711 -- 138 (9) 1,849
------- ------- ------- ------- ------ -------
7,853 21,355 29,208 154 190 29,552
------- ------- ------- ------- ------ -------
Income (Loss)
before income tax.... (372) 406 34 (154) (190) (310)
Provision for
(Recovery of)
income taxes......... (163) 24 (139) (56) (5) (112) (10)(11) (307)
------- ------- ------- ------- ------ -------
Net income (Loss) (209) 382 173 (98) (78) (3)
Dividend requirements
and accretion of
mandatorily redeemable
Preferred shares..... -- -- -- (307) (1) -- (307)
------- ------- ------- ------- ------ -------
Net income (Loss)
attributable to
common shares........ $ (209) $ 382 $ 173 $ (405) $ (78) $ (310)
======= ======= ======= ======= ====== =======
Income (Loss) per
common share......... $ (0.12) -- -- -- -- $ (0.18)
Weighted average
number of common
shares outstanding... 1,692,476 (7) 1,692,476
See accompanying notes to unaudited pro forma condensed combined financial information.
</TABLE>
24
<PAGE> 25
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
for the Year Ended December 31, 1994
(Unaudited)
(Dollars in Thousands except per share amounts)
<TABLE>
<CAPTION>
Subtotal Pro U.S.
Historical Historical Pro Forma Forma GAAP Pro Forma
HPI Wyant Combined Adjs. Adjs. Combined
--------- ---------- --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Sales...................... $34,515 $52,223 $86,738 $(618) (3) $ -- $86,120
Cost of sales.............. 26,534 32,440 58,974 (618) (3) -- 58,356
------- ------- ------- ---- ----- -------
Gross profit............... 7,981 19,783 27,764 -- -- 27,764
Selling, general
and administrative........ 6,454 20,936 27,390 (298) (6) (205) (8) 26,887
Depreciation and
amortization.............. 165 601 766 -- -- 766
Other income............... (672) (23) (695) 298 (6) -- (397)
Interest expense........... 385 676 1,061 154 (4) -- 1,215
Non-recurring items........ -- 200 200 -- (138) (9) 62
------- ------- ------- ---- ----- -------
6,332 22,390 28,722 154 (343) 28,533
------- ------- ------- ---- ----- -------
Income (Loss)
before income tax......... 1,649 (2,607) (958) (154) 343 (769)
Provision for
(Recovery of)
income taxes............. 613 (549) 64 (62) (5) 26 (10)(11) 28
------- ------- ------- ---- ----- -------
Net income (Loss).......... 1,036 (2,058) (1,022) (92) 317 (797)
Dividend requirements
and accretion of
mandatorily redeemable
Preferred shares.......... -- -- -- (335) (1) -- (335)
------- ------- ------- ----- ----- -------
Net income (Loss)
attributable to
common shares............. $1,036 $(2,058) $(1,022) $(427) $317 $(1,132)
======= ======= ======= ===== ===== =======
Income (Loss) per
common share............. $(0.61) -- -- -- -- $(0.67)
Weighted average
number of common
shares outstanding........ 1,691,906 (7) 1,691,906
See accompanying notes to unaudited pro forma condensed combined financial information.
</TABLE>
25
<PAGE> 26
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
The pro forma adjustments on the Pro Forma Condensed Combined Balance Sheet
reflect the following:
1. The Transactions result in the payment of $3,649,635 (CDN. $5,000,000)
in cash, through the utilization of $2,017,437 available cash and
marketable securities and incurring bank indebtedness of $1,632,198,
and the issuance of the following shares:
<TABLE>
<CAPTION>
Redemption
No. Value Fair Value
-- ------------ -----------
<S> <C> <C>
4,262,741 Class A Preferred Stock... $3,096,891 $2,940,000
3,800,000 Class B Preferred Stock... $2,773,723 $2,274,000
1,000,000 Class E Preferred Stock... N/A $4,946,000
</TABLE>
The shares of Class E Preferred Stock having a fair value of
$4,946,000 are recorded at par of $10,000 in Hosposable Products,
Inc. ("HPI") Common Stock and $4,936,000 in Additional Paid-in
Capital. The fair value was based on the thirty day (to February 5,
1997) average closing price of the HPI Common Stock.
The excess of the fair value of the consideration paid of
$13,809,635 over the book value of the net assets acquired is
considered a deemed dividend for accounting purposes, which reduces the
balance of Additional Paid-in Capital by $5,501,635.
The deemed dividend is computed as follows:
<TABLE>
<S> <C>
Class A Preferred Stock................................. $ 2,940,000
Class B Preferred Stock................................. 2,274,000
Class E Preferred Stock................................. 4,946,000
Cash.................................................... 3,649,635
-----------
Total................................................... 13,809,635
Less: Book value of net assets acquired................. 8,308,000
-----------
Excess of fair value of consideration over book value
of net assets acquired................................. $ 5,501,635
</TABLE> ===========
The shares of Class A Preferred Stock and Class B Preferred Stock are
mandatorily redeemable and as such, are presented as a
liability in the accompanying balance sheet. The excess of their
redemption value over their carrying value (fair value) at the
Closing Date ($656,614) is to be accreted over the 10 year
redemption period resulting in an annual charge against earnings
available for common shareholders in addition to the annual
dividend on the Class A Preferred Stock and Class B Preferred Stock.
The dividends on the mandatorily redeemable preferred stock are computed
at the rate of 4.0% on the Class A Preferred Stock and 3.999999% on the
Class B Preferred Stock, on the number of shares of each class
outstanding during the applicable periods. These dividends and the
accretion of the excess of the redemption value of the Class A and B
shares over their fair value at the Closing Date are broken down as
follows:
26
<PAGE> 27
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION (CONT'D)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Dividends.................... $188,000 $211,000 $235,000
Accretion.................... 90,000 96,000 100,000
-------- -------- --------
$278,000 $307,000 $335,000
======== ======== ========
</TABLE>
2. Elimination of receivables and payables of $467,000 relating to
transactions between HPI and the Canadian Operations of Wyant.
The pro forma adjustments on the Pro Forma Condensed Combined Statements of
Operations result from:
3. Elimination of sales between HPI and the Canadian Operations of
Wyant.
4. Interest of 9.43% per annum on the debt incurred of $1,632,198.
5. Income tax benefit resulting from note 4 above.
6. Elimination of other income and a corresponding selling, general and
administrative expense to remove the effect of payments made by the
Canadian Operations of Wyant to HPI relating to a marketing agreement
between the Companies.
7. 1,000,000 shares of HPI Common Stock issuable upon the exchange of
shares of Class E Preferred Stock are considered outstanding for
earnings per share purposes only when the effect on earnings per share
is dilutive.
The U.S. GAAP adjustments on the Pro Forma Condensed Combined Statements of
Operations result from the following which are more fully described on page 18
hereof:
8. The difference in accounting for pension benefits compared to
Canadian GAAP.
9. The timing of recognition of certain employee severance costs.
10. The income tax effect of notes 8 and 9 above.
11. The difference in accounting for income taxes.
The statements of operations of the Canadian Operations of Wyant have been
translated into United States dollars at the following average rates of
exchange for each of the years ended December 31 ($1.00 United States is equal
to the following Canadian dollar amounts):
<TABLE>
<S> <C>
1996............................................................ $1.3636
1995............................................................ $1.3726
1994............................................................ $1.3659
</TABLE>
The balance sheet of the Canadian Operations of Wyant has been translated at
December 31, 1996 using the exchange rate of $1.3706 for every United States
dollar.
27
