<PAGE> 1
FORM 8-K/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT TO APPLICATION OR REPORT
Filed pursuant to Section 12, 13 and 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
ACR GROUP, INC.
AMENDMENT NO. 1
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K dated
September 9, 1997, as set forth in the pages attached hereto:
Item 7. Financial Statements and Exhibits
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
ACR GROUP, INC.
Date: November 24, 1997 By: /s/ Anthony R. Maresca
--------------------- --------------------------
Anthony R. Maresca
Senior Vice President and
Chief Financial Officer
<PAGE> 2
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(A) Financial Statements of Business Acquired:
1. Report of Independent Auditors.
2. Balance Sheets of Contractors Heating and Supply Company as of
December 31, 1996 and 1995.
3. Statements of Income and Retained Earnings of Contractors
Heating and Supply Company for the years ended December 31,
1996 and 1995.
4. Statements of Cash Flows of Contractors Heating and Supply
Company for the years ended December 31, 1996 and 1995.
5. Notes to Financial Statements.
(B) Pro Forma Financial Information:
1. ACR Group, Inc. and Contractors Heating and Supply Company
Unaudited Pro Forma Consolidated Financial Information.
(a) Unaudited Pro Forma Consolidated Balance Sheet of ACR
Group, Inc. and Contractors Heating and Supply Company
as of August 31, 1997.
(b) Unaudited Pro Forma Consolidated Statement of Income of
ACR Group, Inc. and Contractors Heating and Supply
Company for the six-month period from March 1, 1997 to
August 31, 1997.
(c) Unaudited Pro Forma Consolidated Statement of Income of
ACR Group, Inc. and Contractors Heating and Supply
Company for the year ended February 28, 1997.
(d) Notes to Unaudited Pro Forma Consolidated Financial
Information.
<PAGE> 3
Contractors Heating and Supply Company
Financial Statements
Years ended December 31, 1996 and 1995
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors............................................1
Audited Financial Statements
Balance Sheets............................................................2
Statements of Income and Retained Earnings................................3
Statements of Cash Flows..................................................4
Notes to Financial Statements.............................................5
</TABLE>
<PAGE> 4
Report of Independent Auditors
Board of Directors
Contractors Heating and Supply Company
We have audited the accompanying balance sheets of Contractors Heating and
Supply Company (the "Company") as of December 31, 1996 and 1995, and the related
statements of income and retained earnings 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 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 financial statements referred to above present fairly, in
all material respects, the financial position of Contractors Heating and Supply
Company at December 31, 1996 and 1995, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
November 14, 1997
ERNST & YOUNG LLP
<PAGE> 5
Contractors Heating and Supply Company
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
-------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,361,966 $ 698,627
Accounts receivable 1,696,639 1,893,743
Inventories:
Raw materials 757,927 680,562
Finished goods 1,890,657 1,675,986
----------- -----------
2,648,584 2,356,548
Prepaid expenses 24,972 72,514
----------- -----------
Total current assets 5,732,161 5,021,432
Property and equipment, at cost:
Land and buildings 2,122,486 2,078,554
Equipment 937,815 860,404
Autos and trucks 311,215 294,558
----------- -----------
3,371,516 3,233,516
Less accumulated depreciation 1,855,160 1,674,375
----------- -----------
1,516,356 1,559,141
Cash surrender value of life insurance 189,523 184,921
----------- -----------
Total assets $ 7,438,040 $ 6,765,494
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,260,694 $ 2,054,469
Accrued liabilities 400,209 414,561
----------- -----------
Total current liabilities 2,660,903 2,469,030
Long-term debt with related parties 880,000 880,000
----------- -----------
Total liabilities 3,540,903 3,349,030
Stockholders' equity:
Class A common stock, nonvoting, no par value:
Authorized shares - 1,000
Issued and outstanding shares - 100 -- --
Class B common stock, voting, $0.01
par value:
Authorized shares - 10
Issued and outstanding shares - 2 -- --
Additional paid-in capital 793,845 793,845
Retained earnings 3,103,292 2,622,619
----------- -----------
Total liabilities and stockholders' equity $ 7,438,040 $ 6,765,494
=========== ===========
</TABLE>
See accompanying notes.
2
<PAGE> 6
Contractors Heating and Supply Company
Statements of Income and Retained Earnings
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995
------------ ------------
<S> <C> <C>
Sales $ 20,176,773 $ 18,065,050
Cost of sales 14,341,860 12,988,851
------------ ------------
Gross profit on sales 5,834,913 5,076,199
Selling, general, and administrative expenses 3,915,399 3,863,815
------------ ------------
Operating income 1,919,514 1,212,384
Interest and other income 24,376 61,599
Interest expense 87,904 88,000
------------ ------------
Net income 1,855,986 1,185,983
Retained earnings at beginning of year 2,622,619 3,076,401
Dividends paid (1,375,313) (1,639,765)
------------ ------------
Retained earnings at end of year $ 3,103,292 $ 2,622,619
============ ============
</TABLE>
See accompanying notes.
3
<PAGE> 7
Contractors Heating and Supply Company
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,855,986 $ 1,185,983
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 240,249 200,408
Gain on sale of assets -- (250)
Changes in operating asset and liability accounts:
Decrease (increase) in accounts receivable 197,104 (346,997)
Increase in inventories (292,036) (217,804)
Increase in cash surrender value of insurance (4,602) (13,804)
Decrease in prepaid expense 47,542 164,068
Increase in accounts payable and accrued liabilities 191,873 483,437
------------ ------------
Net cash provided by operating activities 2,236,116 1,455,041
INVESTING ACTIVITIES
Purchases of property and equipment - net (197,464) (288,110)
------------ ------------
Net cash used in investing activities (197,464) (288,110)
FINANCING ACTIVITIES
Proceeds from long-term debt 530,000 350,000
Payments on long-term debt (530,000) --
Dividends paid (1,375,313) (1,639,765)
------------ ------------
Net cash used in financing activities (1,375,313) (1,289,765)
------------ ------------
Net increase (decrease) in cash and cash equivalents 663,339 (122,834)
Cash and cash equivalents at beginning of year 698,627 821,461
------------ ------------
Cash and cash equivalents at end of year $ 1,361,966 $ 698,627
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 87,904 $ 88,000
============ ============
</TABLE>
See accompanying notes.
4
<PAGE> 8
Contractors Heating and Supply Company
Notes to Financial Statements
December 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Contractors Heating and Supply Company (the "Company") is a wholesale
distributor of heating and air conditioning equipment and supplies operating in
the states of Colorado and New Mexico.
In 1985 the predecessor to Contractors Heating and Supply Company (the
"Predecessor") merged with Gambray, Inc., and the assets and liabilities were
restated to their fair values. As part of the merger, new shares of Contractors
Heating and Supply Company common stock were issued in exchange for all the
outstanding shares of Gambray, Inc., which, along with the old shares of the
Predecessor, were then canceled.
INCOME TAXES
The Company is an S Corporation; accordingly, the individual stockholders
include the taxable income in their personal tax returns and no income tax
expense is recorded in the Company's books and records.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash in both bank and money market accounts.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out basis) or
market.
DEPRECIATION
Depreciation is provided using straight-line and accelerated methods based on
the following useful lives:
<TABLE>
<S> <C>
Buildings 10 - 40 years
Equipment 3 - 10 years
Autos and trucks 5 years
</TABLE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
REVENUE RECOGNITION
The Company recognizes revenue upon the transfer of title to the customer, which
generally coincides with shipment.
5
<PAGE> 9
Contractors Heating and Supply Company
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LIFE INSURANCE POLICIES
The Company's Class B stockholders have entered into a buy-sell arrangement
which provides that upon the death of either stockholder, the remaining
stockholder will purchase the ownership interest of the deceased stockholder
and his family members at a predetermined value. The arrangement is fully
funded by life insurance policies, the premiums of which are paid by
the Company. The Company is entitled to receive the cash surrender value of the
policies in the event the policies expire.
2. LINE OF CREDIT
The Company has a line of credit with a commercial bank for borrowings of up to
$500,000, with interest on advances at the bank's prime rate. There were no
amounts outstanding under the line of credit at December 31, 1996 and 1995.
The line of credit is secured by accounts receivable, inventories, and
equipment. In addition, if the Company used this line of credit, there would be
certain working capital, debt to equity, and other requirements.
3. LONG-TERM DEBT WITH RELATED PARTIES
In 1984, the Company entered into a $530,000 promissory note with a third party.
In July 1996, the Company entered into a revolving credit facility with an
affiliated company to borrow up to $800,000 and borrowed $530,000 under the
credit facility to repay the 1984 promissory note. Principal is due in full
on June 30, 2006, with interest payable quarterly at 10%. The credit facility
is secured by land and buildings in Denver, Colorado. At December 31,1996,
the outstanding balance under the credit facility was $530,000.
In December 1994, the Company entered into a promissory note with its owners to
borrow up to $600,000. Principal is due in full on December 31, 1999, with
interest payable monthly at 10%. In January 1995, the Company borrowed $350,000
on the promissory note and this amount remained outstanding at December 31, 1996
and 1995. The promissory note is secured by land and buildings in Colorado
Springs, Colorado, and Albuquerque, New Mexico.
4. CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of temporary cash investments and trade accounts
receivable.
The Company maintains its cash and cash equivalent balances in primarily one
financial institution in Denver, Colorado. The balances are insured up to
$100,000 by the Federal Deposit Insurance Corporation. At December 31, 1996 and
1995, the Company's uninsured cash and cash equivalent balances were
approximately $1,262,000 and $599,000, respectively.
6
<PAGE> 10
Contractors Heating and Supply Company
Notes to Financial Statements (continued)
4. CONCENTRATION OF CREDIT RISK (CONTINUED)
Concentrations of credit risk with respect to trade receivables are limited due
to the large number of customers in the Company's customer base and the
Company's policies granting credit to customers. As of December 31, 1996 and
1995, the Company had no significant concentrations of credit risk.
5. LEASE COMMITMENT
In 1996, the Company began leasing office and warehouse space in Glenwood
Springs, Colorado. Future minimum rental payments under the lease are $35,364
and $36,252 for 1997 and 1998, respectively.
Rent expense incurred for the year ended December 31, 1996 was $37,500.
6. DEFINED CONTRIBUTION PLAN
The Company sponsors a defined contribution plan commonly referred to as a
401(k) plan covering substantially all of its employees. Contributions are 50%
of the participating employees' contributions up to a maximum of 5% of their
regular salaries. Contributions totaled approximately $13,800 and $12,000 for
the years ended December 31, 1996 and 1995, respectively.
7. SUBSEQUENT EVENTS
Subsequent to December 31, 1997, cash dividends of $1,800,000 were distributed
to the Company's stockholders.
On September 9, 1997, ACR Group, Inc., through its wholly owned subsidiary,
Contractors Heating & Supply, Inc., a Texas corporation, acquired certain of
the assets and assumed certain of the liabilities of Contractors Heating and
Supply Company. Upon closing of this transaction, the Company has been renamed
Gambray, Inc. The accompanying financial statements present the historical
information of the Company and do not give effect to this transaction.
7
<PAGE> 11
ACR GROUP, INC. AND
CONTRACTORS HEATING AND SUPPLY COMPANY
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
On September 9, 1997, ACR Group, Inc. (the "Company"), through its
wholly-owned subsidiary, Contractors Heating & Supply, Inc., a Texas corporation
("CHS") acquired certain of the assets, and assumed certain of the liabilities,
of Contractors Heating and Supply Company, a Colorado corporation (the
"Seller"). Concurrent with the closing of the transaction, the Seller changed
its name to Gambray, Inc. A copy of the Asset Purchase Agreement is filed as an
exhibit to the Company's Current Report on Form 8-K dated September 9, 1997,
File No. 0-12490, and reference is made to such Agreement for details of the
terms of the acquisition.
The accompanying unaudited pro forma consolidated financial information
("Pro Formas") includes (i) a pro forma consolidated balance sheet as of August
31, 1997, assuming that the transaction was completed as of such date, and (ii)
pro forma consolidated statements of income and retained earnings for the year
ended February 28, 1997 and for the six-month period ended August 31, 1997,
assuming that the transaction was completed as of March 1, 1996. The Pro Formas
are derived from (a) the Company's audited historical consolidated financial
statements for the fiscal years ended February 28, 1997, February 29, 1996 and
February 28, 1995, which are included in the Company's Annual Report on Form
10-K for the year ended February 28, 1997, (b) the Company's unaudited financial
statements for the six-month period ended August 31, 1997, which are included in
the Company's Quarterly Report on Form 10-Q for the quarterly period ended
August 31, 1997, (c) audited historical financial statements of Seller for
the years ended December 31, 1996 and 1995, which are included with this report
and (d) unaudited interim financial statements of Seller for the six-month
period ended August 31, 1997.
The Pro Formas should be read in conjunction with the related notes
thereto and the historical financial statements of the Company and the
historical financial statements of the Seller referred to above. The Pro Formas
are not necessarily indicative of either the results that actually would have
been reported had the transaction been completed on the dates indicated, or of
future operations. The effects of the transaction will be reflected in the
Company's results of operations from the effective date of the transaction.
<PAGE> 12
ACR GROUP, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
AUGUST 31, 1997
(unaudited)
<TABLE>
<CAPTION>
Contractors
ACR Group, Heating and Pro Forma Pro Forma
Inc. Supply Co. Adjustments Combined
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 496,992 $ 1,184,931 $ (783,911) (A) $ 563,012
(335,000) (B)
Accounts receivable, net 13,334,359 1,859,374 15,193,733
Inventories 14,437,228 2,180,543 16,617,771
Prepaid expenses and other 172,740 178,121 (173,685) (A) 177,176
Deferred income taxes 347,000 347,000
------------- ------------- ------------- -------------
Total current assets 28,788,319 5,402,969 (1,292,596) 32,898,692
------------- ------------- ------------- -------------
Property and equipment, net of (1,125,242) (A)
accumulated depreciation 3,655,773 1,588,373 202,334 (B) 4,321,238
Deferred income taxes 693,000 693,000
Goodwill, net of accumulated (100,000) (A)
amortization 2,760,486 100,000 3,745,962 (B) 6,506,448
Other assets 463,199 463,199
------------- ------------- ------------- -------------
Total assets $ 36,360,777 $ 7,091,342 $ 1,430,458 $ 44,882,577
============= ============= ============= =============
Current liabilities:
Current maturities of (1,200,000) (B)
long-term debt $ 1,418,642 $ 1,200,000 $ 400,000 (B) $ 1,818,642
Accounts payable 14,261,340 1,446,646 15,707,986
Accrued expenses and
other liabilities 1,398,280 572,058 (198,219) (A) 1,772,119
------------- ------------- ------------- -------------
Total current liabilities 17,078,262 3,218,704 (998,219) 19,298,747
------------- ------------- ------------- -------------
Long-term debt, less (1,157,102) (A)
current maturities 11,326,020 1,157,102 6,301,315 (B) 17,627,335
------------- ------------- ------------- -------------
Total liabilities 28,404,282 4,375,806 4,145,994 36,926,082
------------- ------------- ------------- -------------
Shareholders' equity
Common stock 103,800 0 103,800
Additional paid-in capital 41,621,740 793,845 (793,845) (A)(B) 41,621,740
Accumulated deficit (33,769,045) 1,921,691 (1,921,691) (A)(B) (33,769,045)
------------- ------------- ------------- -------------
Total shareholders' equity 7,956,495 2,715,536 (2,715,536) 7,956,495
------------- ------------- ------------- -------------
$ 36,360,777 $ 7,091,342 $ 1,430,458 $ 44,882,577
============= ============= ============= =============
</TABLE>
See notes to Unaudited Pro Forma Consolidated Financial Information.
<PAGE> 13
ACR GROUP, INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED FEBRUARY 28, 1997
(unaudited)
<TABLE>
<CAPTION>
Contractors
ACR Group, Heating and Pro Forma Pro Forma
Inc. Supply Co. Adjustments Combined
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 78,371,020 $ 20,176,773 $ $ 98,547,793
Cost of sales 63,285,694 14,341,860 77,627,554
------------ ------------ ------------ ------------
Gross profit 15,085,326 5,834,913 20,920,239
Selling, general and 137,133 (C)
administrative expenses (13,859,797) (3,915,399) (276,000) (D) (18,007,712)
(93,649) (E)
Commission income 290,919 290,919
Energy services income, net 142,226 142,226
------------ ------------ ------------ ------------
Operating income 1,658,674 1,919,514 (232,516) 3,345,672
87,904 (C)
Interest expense, net (925,409) (87,904) (603,118) (F) (1,528,527)
Other non-operating income 153,238 24,376 177,614
------------ ------------ ------------ ------------
Income before taxes 886,503 1,855,986 (747,730) 1,994,759
Provision (benefit) for
income taxes:
Current 101,715 84,133 (G) 185,848
Deferred (360,000) (360,000)
------------ ------------ ------------ ------------
Net income $ 1,144,788 $ 1,855,986 $ (831,863) $ 2,168,911
============ ============ ============ ============
Average outstanding
common and equivalent
shares
Primary 10,884,495 10,884,495
Fully diluted 10,913,309 10,913,309
Earnings per share
Primary $ 0.11 $ 0.20
Fully diluted 0.10 0.20
</TABLE>
See notes to Unaudited Pro Forma Consolidated Financial Information.
<PAGE> 14
ACR GROUP, INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX-MONTH PERIOD ENDED AUGUST 31, 1997
(unaudited)
<TABLE>
<CAPTION>
Contractors
ACR Group, Heating and Pro Forma Pro Forma
Inc. Supply Co. Adjustments Combined
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 48,223,439 $ 9,469,540 $ $ 57,692,979
Cost of sales 38,772,525 6,917,159 45,689,684
------------ ------------ ------------ ------------
Gross profit 9,450,914 2,552,381 12,003,295
Selling, general and 68,567 (C)
administrative expenses (8,037,034) (2,116,407) (138,000) (D) (10,269,699)
(46,825) (E)
Commission income 94,894 94,894
Energy services income, net 89,491 89,491
------------ ------------ ------------ ------------
Operating income 1,598,265 435,974 (116,258) 1,917,981
52,001 (C)
Interest expense, net (688,310) (52,001) (301,559) (F) (989,869)
Other non-operating income 81,206 63,340 144,546
------------ ------------ ------------ ------------
Income before taxes 991,161 447,313 (365,816) 1,072,658
Provision (benefit) for
income taxes:
Current (41,810) 8,983 (G) (32,827)
Deferred
------------ ------------ ------------ ------------
Net income $ 949,351 $ 447,313 $ (356,833) $ 1,039,831
============ ============ ============ ============
Average outstanding
common and equivalent
shares 11,671,144 11,671,144
============ ============
Earnings per share $ 0.08 $ 0.09
============ ============
</TABLE>
See notes to Unaudited Pro Forma Consolidated Financial Information.
<PAGE> 15
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION
Pro forma adjustments relating to the accompanying pro forma consolidated
financial statements of ACR Group, Inc. have been made using the purchase method
of accounting and are based on the following assumptions:
(1) The Company borrowed $5,701,315 under its bank line of credit
for the cash portion of the purchase price and to pay
$1,200,000 of indebtedness of the Seller to certain of its
shareholders which was assumed by the Company. The line of credit
bears interest at the prime rate plus 1/2% (currently 9%). In
addition, the Company issued a note to Gambray, Inc., the selling
shareholder ("Gambray Note"), in the amount of $1,200,000. The
Gambray note bears interest at 9% per annum and is payable in
quarterly installments, plus interest, over three years. CHS
will pay transaction costs out of currently available funds.
(2) Certain assets of the Seller, including land and buildings
occupied by the operating facilities, were not acquired by
the Company. The Company has entered into operating leases
for the continued use of such facilities.
(3) The excess of the purchase price over the fair value of the
net assets acquired is recorded as goodwill. Goodwill is
amortized based on an amortization period of forty years.
(4) The Company has previously unbenefitted net operating loss
carryforwards which are sufficient to benefit the incremental
taxable income associated with the acquisition and,
accordingly, income taxes are provided principally for state
income taxes.
The following notes describe the pro forma adjustments reflecting in the
accompanying pro forma financial statements.
(A) To eliminate assets of the Seller that were not acquired, and
liabilities that were not assumed, by the Company.
(B) To record the excess of fair value over net book value of
assets acquired, the debt incurred and the goodwill recorded
in connection with the acquisition of LFI, and the effect on
equity of the acquired entity in accordance with the
principles of purchase accounting.
(C) To eliminate depreciation attributable to the Seller's assets
not acquired by the Company, and to record depreciation on
the excess of fair value over net book value of assets acquired.
(D) To record rent expense for the occupancy of buildings retained
by Seller.
<PAGE> 16
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION
(continued)
(E) To record amortization of goodwill relating to the assets
acquired.
(F) To record interest expense on the acquisition indebtedeness
and the Gambray note, and to eliminate interest expense of the
Seller on debt that was not assumed by the Company.
(G) To record the income tax effects of (i) the net income
recognized by the Seller for the periods presented, and (ii)
the pro forma adjustments relating to asset acquired and
liabilites assumed by the Company.
