<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended September 30, 1996
----------------------------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
------------------- -----------------
Commission file number 0-11365
---------------------------------------------------------
THT Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 73-1284563
- ------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
33 Riverside Avenue, Westport, Connecticut 06880
- ------------------------------------------ ---------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 226-6408
-----------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of Each
Title of Each Class Exchange on Which Registered
------------------- ----------------------------
None. None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
- --------------------------------------------------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes X . No .
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the shares of the Common Stock held by non-
affiliates of the Registrant as of November 25, 1996 was approximately
$4,978,133. On such date, the average of the closing bid and asked prices of
the Common Stock was approximately $2.50.
The Registrant had 3,982,605 shares of Common Stock outstanding as of
November 25, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Certain exhibits listed on Part IV of this Annual Report are incorporated by
reference from prior filings made by the Registrant under the Securities Act of
1933, as amended, and the Securities Exchange Act of 1934, including the
Registrant's Annual Report on Form 10-K for the fiscal years ended September 30,
1988, 1990, 1991, 1992, 1993 and 1995.
<PAGE>
PART I
Item 1. Business
--------
(a) General Development of Business
-------------------------------
THT Inc. (the "Company") was incorporated under the laws of the State of
Delaware on April 23, 1983. The Company conducts business through two operating
subsidiaries, Jackburn Mfg., Inc., a Pennsylvania corporation ("Jackburn"), and
Setterstix Corporation, a Delaware corporation ("Setterstix"). Jackburn is
engaged in the business of manufacturing stove-top grills, fabricated steel
parts and other wire forming products. Setterstix is engaged in the manufacture
of rolled paper products used principally in the confectionery and health-
related industries. Unless the context otherwise requires, "Company" shall
hereinafter also include Setterstix and Jackburn.
(b) Financial Information about Industry Segments
---------------------------------------------
The Company, through its wholly-owned subsidiaries, is currently engaged
in two different industry segments, the manufacture of fabricated steel
products, and the manufacture of rolled paper products. See Note 14 to the Notes
to the Consolidated Financial Statements.
(c) Narrative Description of Business
---------------------------------
The Company is engaged, through its wholly-owned subsidiary, Setterstix,
in the manufacture, distribution and sale of rolled paper products for use
principally in the confectionery and health-related industries. The rolled paper
products are used by the confectionery and food industries in the manufacture of
lollipops and assorted candies and foods which require a paper base in order to
facilitate consumption. The rolled paper products are used by health-related
industries principally as sanitary applicators (i.e., cotton swabs).
In addition, through its wholly-owned subsidiary, Jackburn, the Company is
engaged in the manufacture, distribution and sale of stove-top grills ("Grids").
A stove-top Grid is a product fabricated from steel and coated with powder or
liquid enamel, and sits on top of a gas range. It is the surface which supports
a pot or pan above the cooking flame. The Grids are used by manufacturers and
suppliers of both consumer and institutional cooking stoves, outdoor barbecue
grills and recreational vehicle stoves. In addition, the Company is engaged in
the manufacture of fabricated steel parts, including wire forming products. The
Company produces such wire forming products as pail and bucket handles, "S"
hooks and special wire designs. The non-Grid product line of Jackburn accounts
for approximately 16% of the gross sales of Jackburn.
2
<PAGE>
For the fiscal year ended September 30, 1996, Setterstix accounted for
approximately 66% of the Company's total revenues, while Jackburn accounted for
the remaining 34%. For each of the fiscal years ended September 30, 1995, and
1994, Setterstix accounted for approximately 58 % and 52 % of the Company's
total revenues, respectively, and Jackburn for approximately 42% and 48%,
respectively.
Sales and Marketing
- -------------------
Sales promotion activities with respect to both Setterstix and Jackburn
include direct mail campaigns, participation in trade shows, and publicity and
advertising principally in trade journals.
Sources and Availability of Raw Materials
- -----------------------------------------
With respect to Setterstix and Jackburn, the raw materials used in the
manufacture of their respective products are purchased from suppliers located
throughout the United States. Although Setterstix and Jackburn each acquired a
material portion of the paper and steel used, respectively, in their
manufacturing processes from single suppliers, the Company believes that none of
the materials required for both the Setterstix and Jackburn operations are
proprietary in nature and that such materials are in good supply and are
available from multiple sources.
Patents, Trademarks and Licenses
- --------------------------------
There are currently five patents issued by the United States Patent and
Trademark Office to Setterstix with respect to certain designs and equipment
used in the manufacture of rolled paper products. Such patents were issued at
various times commencing in 1978, and terminate at various times between 1997
and 1999. Although the Company believes that such patent protection will afford
the Company protection, no assurance can be given that such patents will, if
challenged, be upheld. Accordingly, the Company also relies upon trade secrets
and confidentiality to protect the proprietary nature of its technology. The
Company also was issued patents in Canada. The Company believes that the loss of
any of its patents would not have an adverse affect on the business of the
Company. In addition, the Company has obtained registrations from the United
States Patent and Trademark Office for the trademark "Setterstix." The Company
has also obtained trademark registration for the name "Setterstix" in the
following countries: Australia, Canada, Germany, Great Britain, Ireland, Italy,
and Mexico. No assurance can be given, however, that such foreign trademarks and
patents would, if challenged be upheld, since among other things, the assignment
of such trademarks and patents were not filed with the respective foreign
patent/trademark offices by the previous owners thereof because it was not
deemed cost-effective at the time.
3
<PAGE>
With respect to the Jackburn operations, the Company relies upon trade
secrets and confidentiality to protect the proprietary nature of its technology.
Customers
- ---------
For the fiscal year ended September 30, 1996, Setterstix had three
customers each of which accounted for more than ten percent (10%) of
Setterstix's total sales. Megas Beauty Aids accounted for approximately 25%,
American White Cross, Inc. ("AWC") accounted for approximately 20%, and Presto
Products Company accounted for approximately 13%. With respect to Jackburn, for
the fiscal year ended September 30, 1996, Frigidaire Range Division accounted
for approximately 35%, Amana Refrigeration, Inc. accounted for approximately 16%
and Sunbeam Outdoor Products Co. accounted for approximately 11% of such
entity's total sales. No other customers of Setterstix or Jackburn accounted for
ten percent or more of its sales. The loss of any of such customers could have a
material adverse effect on the respective businesses of Setterstix and Jackburn.
In July, 1996, one of the Company's customers, AWC, filed for Chapter 11
bankruptcy protection. While Setterstix continues to sell to AWC on a C.O.D.
basis, the effect of this action on future business with AWC is uncertain at
this time. If AWC ceases operations, Setterstix intends to make corresponding
reductions in Manufacturing, Selling, General and Administrative expenses to
minimize the loss of this customer. Management believes that, in the event of
the loss of the AWC business, such loss would not have a material adverse effect
on the Company's consolidated financial position.
Employees
- ---------
The services of certain of the Executive Officers of the Company are
provided through PH II, Inc. ("PH II"). See "Certain Relationships and Related
Transactions."
As of November 1, 1996, the Company employed 104 persons as follows: 2
executives, 11 general administrative employees, and 91 production personnel.
With respect to such employees, 48 employees were employed with respect to the
Setterstix operations in the following capacities: 1 executive, 6 general
administrative; and 41 production. With respect to such employees, 56 employees
were employed by Jackburn as follows: 1 as an executive, 5 general
administrative and 50 production personnel.
In connection with Setterstix, the Company has a contract with the
International Association of Machinists and Aerospace Workers. The contract
expires on May 2, 2001. The employees with respect to the Jackburn operations
are not covered by a collective bargaining agreement. The Company considers its
relationship with its employees to be satisfactory.
4
<PAGE>
Competition
- -----------
With respect to both the Setterstix and Jackburn operations, the Company
competes directly with end-users who manufacture their own respective rolled
paper and fabricated steel products for use in their manufacturing processes.
The Company estimates that its United States market share in the rolled paper
product business is approximately 80%. The Company estimates that its market
share with respect to Grid products is approximately 60% and with respect to
non-Grid products, less than 1%. Except as described herein and to the best of
the Company's knowledge, there are no other entities which are dominant
competitors in the rolled paper manufacturing or fabricated Grid products
businesses. With respect to end-users with which the Company competes, such
entities are larger and have greater financial resources than the Company.
Research and Development
- ------------------------
The Company did not expend any funds on research and development
activities during the last three fiscal years. With respect to its Setterstix
and Jackburn operations, new products are only developed at the specific request
of a customer and such development costs are reflected in the cost of goods
sold.
Seasonal Business
- -----------------
The nature of the business in which the Company is engaged is not
seasonal.
Backlog
- -------
As of September 30, 1996, Setterstix had a backlog of approximately
$835,000, as compared to $787,000 as of September 30, 1995. Such backlog is
expected to be filled within 30 days. With respect to Jackburn, as of September
30, 1996, Jackburn had a backlog of approximately $1,860,000, as compared to
$1,897,000, as of September 30, 1995, which backlog is expected to be filled
within 60-90 days. The Company believes such backlogs to be firm, although no
assurance can be given that a particular customer may not cancel a purchase
order. In the event of any such cancellation the customer will typically be
assessed a penalty by the Company for such cancellation. The Company incurred no
cancellations for which penalties were assessed by the Company during the fiscal
year ended September 30, 1996.
Government Control
- ------------------
No portion of the Company's business is subject to renegotiation of profits
or termination of contracts or subcontracts at the election of the Government.
5
<PAGE>
Environmental Compliance
- ------------------------
Environmental aspects of the Company's business are regulated principally
by the ordinances of the localities where the Company's properties are situated.
To the best of the Company's knowledge, the Company is in compliance with all
environmental laws.
(d) Financial Information about Foreign and Domestic Operations and
---------------------------------------------------------------
Export Sales
------------
For the fiscal year ended September 30, 1996, Setterstix generated
domestic sales of approximately $11,074,000 (or approximately 91% of total
sales) and foreign sales of approximately $1,142,000 (or approximately 9%). For
the fiscal year ended September 30, 1995, Setterstix generated domestic sales of
approximately $9,512,000 (or approximately 89% of total sales) and foreign sales
of approximately $1,156,000 (or approximately 11%). For the fiscal year ended
September 30, 1994, Setterstix generated domestic sales of approximately
$8,176,000 (or approximately 91% of total sales) and foreign sales of
approximately $764,000 (or approximately 9%). With respect to Jackburn,
substantially all of Jackburn's sales were domestic in origin during the last
three fiscal years.
Item 2. Properties
----------
The Company owns, with respect to its Jackburn operations, an approximate
50,000 square foot manufacturing plant in Girard, Pennsylvania; an approximate
20,000 square foot tool and die stamping plant in Girard, Pennsylvania; and an
approximate 15,000 square foot warehouse facility in Girard, Pennsylvania. With
respect to the Setterstix operations, the Company owns an approximate 29,000
square foot manufacturing plant in Cattaraugus, New York.
Item 3. Legal Proceedings
-----------------
The Company is currently not a party to any litigation nor is any
litigation currently threatened which may adversely affect the Company's
business or operations.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matter was submitted to the Company's stockholders for a vote during
the quarter ended September 30, 1996.
6
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
---------------------------------------------------------------------
(a) The Company's Common Stock is traded in the over-the-counter market
and has been quoted on the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") under the symbol "TXHI" since November 1983. The
following table sets forth the range of high and low bid quotations for each
quarterly period during the two most recent fiscal years as reported by NASDAQ.
The quotations set forth below represent prices between dealers and do not
including retail mark-ups, markdowns or commissions, nor do they represent
actual transactions.
<TABLE>
<CAPTION>
Fiscal 1996 High Bid Low Bid
- ----------- -------- -------
<S> <C> <C>
October 1, 1995 - December 31, 1995 $2.00 $1.62
January 1, 1996 - March 31, 1996 1.87 1.59
April 1, 1996 - June 30, 1996 2.62 1.62
July 1, 1996 - September 30, 1996 3.37 2.06
Fiscal 1995
- -----------
October 1, 1994 - December 31, 1994 $1.13 $0.88
January 1, 1995 - March 31, 1995 1.50 1.00
April 1, 1995 - June 30, 1995 1.75 1.25
July 1, 1995 - September 30, 1995 2.00 1.44
</TABLE>
(b) As of November 25, 1996 there were 1,142 record holders of the
Company's Common Stock. To the best of the Company's knowledge, there were an
additional approximately 1,200 beneficial holders of the Company's Common Stock.
(c) The Company has not paid any cash dividends to the holders of its
Common Stock and presently intends to retain earnings for future business
operations.
7
<PAGE>
Item 6. Selected Financial Data
-----------------------
The following information represents certain selected consolidated
financial data of the Company and its subsidiaries as of and for the years ended
September 30, 1996, 1995, 1994, 1993, and 1992:
<TABLE>
<CAPTION>
Year Ended September 30,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Results of Operations
- ---------------------
Net Sales $ 18,628,989 $ 18,469,444 $ 17,084,632 $ 16,424,616 $ 15,326,389
Income before Extraordi-
nary Items and Cumula-
tive Effect of Change in
Accounting Principle $ 2,052,836 $ 1,815,480 $ 1,373,244 $ 868,640 $ 1,091,977
Extraordinary Income $ -- $ -- $ -- $ 540,000 $ 743,000
Cumulative Effect of
Change in Accounting
Principle $ -- $ -- $ 226,800 $ -- $ --
Net Income $ 2,052,836 $ 1,815,480 $ 1,600,044 $ 1,408,640 $ 1,834,977
Net Income
per Common and
Common Equivalent
Share from Operations,
after Preferred Stock
Dividends and before
Extraordinary Items and
Cumulative Effect
of Change in
Accounting Principle $ .45 $ .36 $ .24 $ .13 $ .18
Extraordinary Income $ -- $ -- $ -- $ .13 $ .15
Cumulative Effect of
Change in Accounting
Principle $ -- $ -- $ .05 $ -- $ --
Net Income per Common
and Common Equivalent
Share
- Primary $ .45 $ .36 $ .29 $ .26 $ .35
- Fully Diluted $ .45 $ .36 $ .29 $ .26 $ .33
Balance at Year End:
- --------------------
Total Assets at end of
Period $ 11,034,141 $ 11,038,027 $ 11,766,217 $ 11,711,900 $ 11,776,475
Long-term Debt $ 1,034,012 $ 2,058,147 $ 3,524,391 $ 3,357,664 $ 5,445,650
</TABLE>
8
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
Liquidity and Capital Resources:
- --------------------------------
The Company had working capital of $2,624,931 as of September 30, 1996,
as compared to working capital of $1,989,629 as of September 30, 1995. The
increase in the Company's working capital was due primarily to the Company's
profits which were partially offset by certain long-term liabilities which
became due in the September 30, 1996 fiscal year, were reclassified as current,
and subsequently repaid during the 1996 fiscal year. The Company also had cash
on hand as of September 30, 1996 of $914,325, as compared to $458,824 as of
September 30, 1995.
In accordance with the terms of an agreement (the "Agreement"), with the
former shareholders of Jackburn (the "Former Jackburn Shareholders"), the
Company has accrued as of September 30, 1996, $8,821 for payment to the Former
Jackburn Shareholders based on the excess cash flow, as defined in such
Agreement.
As of September 30, 1996, Jackburn had repaid in full to PH II Holdings,
Inc., a principal stockholder of the Company ("PH II Holdings"), the remaining
principal sum with respect to a senior collateralized promissory note,
originally issued in the principal amount of $2,280,000.
As a consequence of the Jackburn acquisition in September, 1990, there
remains outstanding a 9% Mortgage Note (the "Mortgage Note") in the principal
amount of $604,000, due October, 2000. Pursuant to the terms of the Mortgage
Note, principal is payable in four equal annual installments of $151,000
commencing October 1, 1997, and interest is payable monthly. Such principal
payments are deferred annually until October 1, 2000, if certain cash flow
requirements are not met by Jackburn. The Mortgage Note is guaranteed by the
Company and Jackburn and is secured by a lien on three parcels of real property
located in Girard, Pennsylvania, owned by Jackburn.
On June 5, 1992, the Company issued a promissory note to PH II Holdings
in the principal amount of $430,012. Such note currently bears interest at the
higher of 10% or 2% over the Prime Rate and will mature on May 31, 2002. The
current rate is 10.25%.
In addition, the Company maintains a revolving credit loan of $1,000,000
with Fleet Bank, of which no balance was outstanding at September 30, 1996. The
revolving credit loan is payable on May 1, 1997 and bears interest at the rate
of 1/2% above the bank's peg rate as announced from time to time for short-term
commercial loans. Interest on the revolving credit loan is payable monthly in
arrears on the last business day of each month and at maturity. In addition, the
Company entered into
9
<PAGE>
a $1,000,000 note with PH II Holdings, which funding was used, in part, to
finance the Setterstix acquisition in April, 1990. Pursuant to the terms of this
note, the Company agreed to pay PH II Holdings the principal amount of
$1,000,000 on April 30, 1997. The Company has accelerated payment of this note
and, at September 30, 1996, the note was repaid in full.
The remaining principal sum of a promissory note to PH II Holdings, in the
original amount of $1,116,710, has been repaid in full during the 1996 fiscal
year.
The Company intends to fund its operations in the near term from cash on
hand and from cash flow generated from operations, and from existing, unused
lines of credit from Fleet Bank, as described above (which unused line of credit
was $1,000,000 at September 30, 1996). Depending upon the amount of revenues
generated from Setterstix and Jackburn, the Company may require additional
financing. As a consequence of the aforementioned Agreement with the Former
Jackburn Shareholders, the Company is currently operating under the following
additional restrictions. The Company's wholly-owned subsidiary, Jackburn, has
agreed not to, among other things, repay the Company for indebtedness owing in
an amount to exceed $350,000 in principal, to declare any dividends on its
capital stock, or to make loans or convey assets to the Company or pay the
Company any fees in excess of $250,000 in the aggregate during any fiscal year
of Jackburn, as long as such Agreement is in place. Except as described herein,
the Company is unaware of any other material commitments which may adversely
affect its liquidity in the near term.
Results of Operations:
- ----------------------
Fiscal Year Ended September 30, 1996, as compared to Fiscal Year Ended September
- --------------------------------------------------------------------------------
30, 1995
- --------
The Company, on a consolidated basis, generated net sales of $18,626,989
for the fiscal year ended September 30, 1996, as compared to net sales of
$18,469,444 for the prior fiscal year.
The increase in sales of $157,545 (or approximately 1%) is the result of
increased sales of $1,547,637 (or approximately 15%) generated by Setterstix,
offset by a decrease in sales by Jackburn of $1,390,092 (or approximately 18%).
The increase in sales by Setterstix was the result of improved product demand
and increased marketing efforts (accounting for 8% of such increase) and price
increases (accounting for 7% of such increase). The decrease in sales generated
by Jackburn was mainly due to a drop in sales from one customer who has
announced it will be exiting the low-cost stove market, and, in part, to a
softening in customer demand.
10
<PAGE>
The Company's cost of goods sold decreased $327,176 (or approximately 3%).
The decrease was the result of a combination of an increase in cost of sales at
Setterstix of $822,580 (or approximately 13%) and a decrease in cost of sales at
Jackburn of $1,149,756 (or approximately 19%). The corresponding results at each
company were related directly to the results of each subsidiary's sales. The
gross profit margin for the period ending September 30, 1996 was approximately
32% versus 29% for the prior year end. The increase in gross profit percentage
is attributable to lower material and direct labor costs, as a percentage of
sales, at both of the Company's operations.
Selling, general and administrative expenses increased $687,354 (or
approximately 26% of net sales) from the prior fiscal year. Such increase was
the result, in part, to higher incentive compensation related to incentives
which are based upon higher earnings, and the write-off of $280,000 of accounts
receivable at Setterstix due to the bankruptcy of one of its customers. In
addition, interest expense decreased $156,380 (or approximately 35%), as a
result, in part, to the payment of outstanding debt.
Federal income tax expense decreased by $158,000 from the prior fiscal
year. This decrease was the result of higher deferred tax expenses in the prior
year, due to the write-down of a deferred tax asset, which did not exist in the
current year which was partially offset by higher taxable income. State income
tax expense decreased $44,000 from the prior fiscal year. This decrease was
related to lower overall state taxes due to higher earnings at subsidiaries with
lower effective state income tax rates.
The Company generated net income of $2,052,836 for the fiscal year ended
September 30, 1996, as compared to net income of $1,815,480 for the prior fiscal
year. The increase in net income of $237,356 (or approximately 13%) was
attributable to increased operating income at Setterstix, as partially offset by
reduced operating income at Jackburn.
In addition, for the fiscal year ended September 30, 1996, the Company
relied on three major customers with respect to Setterstix and to Jackburn (over
10% of sales). See "Business - Customers" for further discussion of major
customer information.
Fiscal Year Ended September 30, 1995, as compared to Fiscal Year Ended September
- --------------------------------------------------------------------------------
30, 1994
- --------
The Company, on a consolidated basis, generated net sales of $18,469,444
for the fiscal year ended September 30, 1995, as compared to net sales of
$17,084,632 for the prior fiscal year.
11
<PAGE>
The increase in sales of $1,384,812 (or approximately 8%) is the result
of increased sales of $1,727,792 (or approximately 19%) generated by Setterstix,
offset by a decrease in sales by Jackburn of $342,355 (or approximately 4%). The
increase in sales by Setterstix was the result of improved product demand and
increased marketing efforts (accounting for 6% of such increase) and price
increases (accounting for 13% of such increase). The decrease in sales generated
by Jackburn was the result, in part, of a softening in customer demand.
The Company's cost of goods sold increased $751,816 (or approximately 6%),
as a result of the increase in sales. The gross profit margin for the period
ending September 30, 1995 was approximately 29% versus 28% for the prior year
end.
Selling, general and administrative expenses increased $298,924 (or
approximately 2% of net sales) from the prior fiscal year. Such increase was the
result, in part, of higher expenses at the corporate level. In addition,
interest expense decreased $125,798 (or approximately 22%), as a result, in
part, to the payment of outstanding debt.
Federal income tax expense increased by $124,673 from the prior fiscal
year. This increase was related to higher taxable income, and the expense
related to the write down of a deferred tax asset. State income tax expense
increased $97,298 from the prior fiscal year. This increase was directly
related to higher taxable income.
The Company generated net income of $1,815,480 for the fiscal year ended
September 30, 1995, as compared to net income of $1,600,044 for the prior fiscal
year. The increase in net income of $215,436 (or approximately 13%) was
attributable to increased operating income at Setterstix, as partially offset by
reduced operating income at Jackburn.
In addition, for the fiscal year ended September 30, 1995, the Company
relied on three major customers with respect to Setterstix and on two major
customers with respect to Jackburn (over 10% of sales). See "Business -
Customers" for further discussion of major customer information.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
The Financial Statements and Schedules that constitute Item 8 of this
Report on Form 10-K are included in Item 14 below.
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
None.
12
<PAGE>
PART III
--------
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
(a)(b) Identification of Directors and Executive Officers
--------------------------------------------------
<TABLE>
<CAPTION>
Year First
Name Age Position with Company Became a Director
- ---- --- --------------------- -----------------
<S> <C> <C> <C>
Paul K. Kelly 56 Chairman of the Board of Direc- 1985
tors and Co-Chief Executive Offi-
cer
Frederick A. Rossetti 39 President, Co-Chief Executive 1990
Officer, Treasurer and Director
Jeffrey B. Gaynor 39 Secretary, Executive Vice Presi- 1991
dent and Director
</TABLE>
(c) Identification of Certain Significant Employees
-----------------------------------------------
None.
(d) Family Relationships
--------------------
There are no relationships by blood, marriage, or adoption between
any Director or Executive Officer of the Company.
(e) Business Experience
-------------------
(1) Background
----------
Paul K. Kelly. Mr. Kelly has been a Director of the Company since July
-------------
1985, and was elected Chairman of the Board of Directors on June 3, 1992 and was
named Co-Chief Executive Officer on June 1, 1993. Since October 1988, Mr. Kelly
has been the President and a Director of PH II, Inc., a diversified financial
company and an affiliate of the Company, and since February 1, 1992, Mr. Kelly
has been the President and a Director of Knox & Co., a company engaged in
investment banking and consulting activities. Mr. Kelly received an A.S. degree
from the University of Pennsylvania and received an M.B.A. degree in Finance
from the Wharton School. Mr. Kelly has served as a director of various public
and private corporations.
Frederick A. Rossetti. Mr. Rossetti has served as the President,
---------------------
Treasurer, and as a Director of the Company since January 1990, and became Co-
Chief Executive
13
<PAGE>
Officer on June 1, 1993. Since April 1990 he has also served as President and
Chief Executive Officer of Setterstix, since September 1990, as President of
Jackburn Corporation, and since October 1, 1996, as President of Jackburn Mfg.,
Inc. Since October 1, 1991, Mr. Rossetti has been Executive Vice President,
Chief Financial Officer, and a Director of PH II, Inc., a diversified financial
company and an affiliate of the Company. Since February 1, 1992, Mr. Rossetti
has served as Secretary and Treasurer, and since mid 1993, as Managing Director
of Knox & Co., a company engaged in investment banking and consulting
activities. From October 1, 1991 until December 31, 1993, Mr. Rossetti had
served as a Director of Arrow Financial Corp., a consulting and contract
management services company and, at the time, an affiliate of the Company, as
its President from October 1, 1991 until June 4, 1993, and as its Managing
Director from June 4, 1993 until December 31, 1993. Previously, Mr. Rossetti was
a certified public accountant with Price Waterhouse. He graduated from the
Boston College School of Management where he received a Bachelor of Science
degree in Accounting. Mr. Rossetti has served as a director of various public
and private corporations.
Jeffrey B. Gaynor. Mr. Gaynor has been a Director of the Company since
-----------------
June 13, 1991, and has served as Secretary of the Company since October 20,
1991. On June 1, 1993, Mr. Gaynor was elected Executive Vice President of the
Company. Since mid 1993, Mr. Gaynor has served as Managing Director of Knox &
Co., a company engaged in investment banking and consulting activities. From
July 1, 1992 until June 4, 1993, Mr. Gaynor served as a Managing Director of
Arrow Financial Corp., a consulting and contract management services company,
and an affiliate of the Company at that time. From June 4, 1993 until December
31, 1993, Mr. Gaynor served as President and a Director of Arrow Financial Corp.
Since November 19, 1993, Mr. Gaynor has served as a Director of PH II, Inc., a
diversified financial company and an affiliate of the Company. Previously, Mr.
Gaynor was a certified public accountant with Price Waterhouse. Mr. Gaynor
graduated from the Boston University School of Management where he received a
Bachelor of Science Degree in Accounting. Mr. Gaynor has served as a director of
various public and private corporations.
(2) Directorships
-------------
Except as set forth in Item 10(e)(1) above, no Director of the Registrant
held any other directorships in any other Company with a class of securities
registered pursuant to Section 12 of the Securities Exchange Act of 1933 (the
"Exchange Act") or Section 15(d) of the Exchange Act or any company registered
as an investment company under the Investment Company Act of 1940.
(f) Involvement in Certain Legal Proceedings
----------------------------------------
None.
14
<PAGE>
Item 11. Executive Compensation
----------------------
Summary Compensation Table
- --------------------------
The following table summarizes the aggregate compensation paid by the
Company to the Chief Executive Officer of the Company and other Executive
Officers who received compensation in excess of $100,000:
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Securities Long-term
Annual Restricted Under- Incentive
Name & Com- Stock lying Op- Plan All Other
Principal Salary Bonus pensa- Award(s) tions/SAR Payouts Compensa-
Position Year ($) ($) tion ($) ($) 's(#) ($) tion ($)
-------- ---- ------ ----- -------- ---------- ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Paul K. Kelly 1996 (1)
Co-Chief Executive 1995 (1)
Officer 1994 (1)
Frederick A.
Rossetti 1996 (1)
Co-Chief Executive 1995 (1)
Officer 1994 (1)
</TABLE>
(1) Messrs. Kelly and Rossetti's services were provided to the Company through
PH II, Inc. ("PH II"), an affiliate of the Company. See "Certain
Relationships and Related Transactions." For the fiscal year ended
September 30, 1996, the Company paid PH II an aggregate $1,108,900
including $533,900 of incentive compensation, plus expenses, in
consideration for the services of Messrs. Kelly and Rossetti and for the
services of Jeffrey B. Gaynor, Executive Vice President and Secretary of
the Company. For the fiscal year ended September 30, 1995, the Company
paid PH II an aggregate $765,000, including $275,000 of incentive
compensation, plus expenses, in consideration for the services of Messrs.
Kelly, Rossetti and Gaynor. For the fiscal year ended September 30, 1994,
the Company paid PH II an aggregate $526,500, including $76,500 of
incentive compensation, plus expenses, in consideration for the services
of Messrs. Kelly, Rossetti and Gaynor.
15
<PAGE>
Option/SAR Grants in Last Fiscal Year
- -------------------------------------
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of
Securities % of Total
Underlying Options/SAR's Exercise
Options/ Granted to or Base
SAR's Employees in Price
Name Granted (#) Fiscal Year ($/Sh) Expiration Date
---- ----------- ------------- -------- ---------------
<S> <C> <C> <C> <C>
Paul K. Kelly -0- -0- -0-
Frederick A. Rossetti -0- -0- -0-
</TABLE>
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
- -----------------------------------------------------------------------
Option/SAR Values
- -----------------
Aggregated Option/SAR Exercises in Last Fiscal Year
---------------------------------------------------
and FY End Option/SAR Values
----------------------------
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercisable In-the-Money
Options/SAR's Options/SAR's
Shares Value at FY-End (#) at FY-End ($)
Acquired on Realized Exercisable Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable
---- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Paul K. Kelly -0- -0- -0- -0-
Frederick A. Rossetti -0- -0- -0- -0-
</TABLE>
16
<PAGE>
Compensation of Directors
- -------------------------
The Company does not compensate any Director of the Company for services
performed as a Director.
Employment Contracts and Termination of Employment and Change-in-Control
- ------------------------------------------------------------------------
Arrangements
- ------------
For the fiscal year ended September 30, 1996, no Executive Officer of the
Company was employed as such pursuant to an employment contract with the
Company. See "Certain Relationships and Related Transactions" with respect to an
agreement entered into by and between the Company and PH II, pursuant to which
the services of Messrs. Kelly, Rossetti, and Gaynor are provided to the Company.
Item 12. Securities Ownership of Certain Beneficial Owners and Management
----------------------------------------------------------------
(a)(b) Securities ownership of Certain Beneficial Owners and Management.
The following table summarizes certain information as of November 15, 1996 with
respect to the ownership of each person known by the Company to be the
beneficial owner of more than five percent of the Company's Common Stock, by
each Director, and by all Officers and Directors as a group:
<TABLE>
<CAPTION>
Number of Shares Percentage
Name of of Common Stock of Shares
Beneficial Owner Owned Beneficially Outstanding
---------------- ------------------ -----------
<S> <C> <C>
Paul K. Kelly 1,991,350 (1) 50%
Frederick A. Rossetti 1 (2) - %
Jeffrey B. Gaynor 1 (2) - %
All Directors and Officers
as a Group (3 persons) 1,991,352 50%
PH II Holdings, Inc.
33 Riverside Ave.
Westport, CT 06880 1,811,350 (3) 45.5%
</TABLE>
17
<PAGE>
(1) Includes 1,731,349 shares of Common Stock owned of record by PH II
Holdings, a wholly-owned subsidiary of PH II, and 80,001 shares of Common
Stock owned of record by PH II, both entities of which Mr. Kelly is
affiliated. Excludes 2,000 shares of Preferred Stock owned of record by PH
II Holdings.
(2) Mr. Rossetti is an Officer and Director of PH II and PH II Holdings. Mr.
Gaynor is a Director of PH II. Excludes shares of Common Stock beneficially
owned by PH II Holdings and PH II, as described in Note (1) above.
(3) Excludes 2,000 shares of Preferred Stock owned of record by PH II Holdings.
In addition, includes 80,001 shares of Common Stock owned of record by PH
II.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
On October 1, 1995, an agreement was entered into between the Company and
PH II, an affiliate of the Company, pursuant to which the services of Mr.
Frederick A. Rossetti, Mr. Paul K. Kelly and Mr. Jeffrey B. Gaynor are provided
to the Company, together with telephone usage, office space and all other
standard office related services. Frederick A. Rossetti has been provided to act
on behalf of the Company as its Co-Chief Executive Officer, President and
Treasurer, Mr. Kelly as Co-Chief Executive Officer and Chairman of the Board,
and Mr. Gaynor as Secretary and Executive Vice President. PH II did not have the
right under the agreement to elect or appoint the Officers of the Company, which
right was solely the responsibility of the Company's Board of Directors. In
consideration for such services, PH II was paid a base annual fee of $575,000
plus incentive compensation of $533,900, plus expenses. On October 1, 1996, a
similar agreement was entered into between the Company and PH II, for a one-year
term at an annual fee of $725,000 plus incentive compensation and expenses. See
"Executive Compensation."
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a description of certain loans by and between PH II
Holdings, a principal shareholder of the Company, and the Company.
(b) Certain Business Relationships
------------------------------
None.
(c) Indebtedness of Management
--------------------------
None.
(d) Transactions with Promoters
---------------------------
None.
18
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
(a)(b) Financial Statements. The financial statements listed in the
--------------------
following index are filed as part of this Annual Report on Form 10-K.
Index to Financial Statements
-----------------------------
Page
----
Report of Independent Certified Public Accountants F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Earnings F-4
Consolidated Statements of Stockholders' Equity F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-9
(1) Financial Statement Schedules
-----------------------------
Schedule II - Valuation and Qualifying Accounts F-25
Exhibit 11 - Schedule of Computation of
Net Income Per Share F-26
All other schedules are omitted because they either are not applicable or
the required information is presented in the consolidated financial statements
or notes thereto.
(c) Reports on Form 8-K. No reports were filed by the Company on Form 8-K
-------------------
during the three months ended September 30, 1996.
19
<PAGE>
Exhibits
- --------
3.1 Certificate of Incorporation, as amended*
3.2 Amendment to Certificate of Incorporation***
3.3 By-laws*
4.1 Certificate of Designation relating to the Preferred Stock****
4.2 Amendment to Certificate of Designation relating to the Preferred
Stock****
10.1 Credit Agreement, dated as of April 13, 1990, by and between the
Registrant and Norstar Bank**
10.2 Settlement Agreement, dated as of May 15, 1992*****
10.3 Amendment to Credit Agreement, dated as of March 12, 1993******
10.4 Agreement, dated as of October 1, 1995, by and between the Registrant
and PH II, Inc.*******
10.5 Amendment to Credit Agreement, dated as of April 17, 1995*******
10.6 Amendment to Credit Agreement, dated as of August 31, 1995*******
10.7 Management Services Agreement, dated October 1, 1996, by and between
the Registrant and PH II, Inc.
21.1 Subsidiaries of Registrant
See footnote references on next page.
20
<PAGE>
* Incorporated by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended September 30, 1988.
** Incorporated by reference to the Registrant's Current Report on Form
8-K, dated April 20, 1990.
*** Incorporated by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended September 30, 1990.
**** Incorporated by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended September 30, 1991.
***** Incorporated by reference to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1992.
****** Incorporated by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended September 30, 1993.
******* Incorporated by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended September 30, 1995.
21
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
THT Inc.
We have audited the accompanying consolidated balance sheets of THT Inc. and
Subsidiaries as of September 30, 1996 and 1995, and the related consolidated
statements of earnings, stockholders' equity, and cash flows for each of the
years ended September 30, 1996, 1995 and 1994. These financial statements and
schedules 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 consolidated financial position of THT Inc. and
Subsidiaries as of September 30, 1996 and 1995, and the consolidated results of
their operations and their consolidated cash flows for each of the three years
in the period ended September 30, 1996, in conformity with generally accepted
accounting principles.
As discussed in Note 13 to the financial statements, the Company adopted
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" for the year ended September 30, 1994.
We have also audited Schedule II of THT Inc. as of and for the three years ended
September 30, 1996. In our opinion, this schedule presents fairly, in all
material respects, the information required to be set forth therein.
GRANT THORNTON LLP
New York, New York
November 11, 1996
F-1
<PAGE>
THT Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
September 30,
<TABLE>
<CAPTION>
ASSETS 1996 1995
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 914,325 $ 458,824
Trade accounts receivable, net of reserve of
$25,000 in 1996 and 1995 1,236,254 1,755,727
Inventories 1,897,701 2,009,346
Deferred income taxes 315,000 277,000
Prepaid expenses and other current assets 128,786 150,385
----------- -----------
Total current assets 4,492,066 4,651,282
PROPERTY, PLANT AND EQUIPMENT, NET 3,073,464 2,854,266
INTANGIBLE ASSETS, NET 3,203,744 3,295,907
OTHER ASSETS 264,867 236,572
----------- -----------
$11,034,141 $11,038,027
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
THT Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS (continued)
September 30,
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
---- ----
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 843,442 $ 591,947
Accrued liabilities 462,991 399,142
Accrued incentive compensation 533,900 275,000
Current portion of long-term debt 17,034
Due to Former Shareholders of Jackburn - current 8,821 31,980
Notes to related party - current 1,332,500
Income taxes payable 17,981 14,050
---------- ----------
Total current liabilities 1,867,135 2,661,653
LONG-TERM DEBT 24,135
DUE TO FORMER SHAREHOLDERS 604,000 604,000
NOTES TO RELATED PARTY 430,012 1,430,012
DEFERRED INCOME TAXES 323,000 371,000
OTHER LONG-TERM LIABILITIES 393,738 303,807
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Cumulative nonvoting preferred stock,
$.01 par value; 2,000 shares authorized; 2,000
shares issued and outstanding at September 30,
1996 and 1995 2,000,000 2,000,000
Common stock, $.01 par value; 25,000,000 shares
authorized; 3,982,605 shares issued and
outstanding at September 30, 1996 and 1995 39,826 39,826
Additional paid-in capital 13,055,280 13,055,280
Accumulated deficit (7,678,850) (9,451,686)
----------- -----------
7,416,256 5,643,420
----------- -----------
$11,034,141 $11,038,027
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
THT Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended September 30,
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales $18,626,989 $18,469,444 $17,084,632
----------- ----------- -----------
Costs and expenses
Cost of sales 12,714,095 13,041,271 12,289,455
Selling, general and
administrative expenses 3,375,539 2,688,185 2,389,261
----------- ----------- -----------
16,089,634 15,729,456 14,678,716
----------- ----------- -----------
Income from operations 2,537,355 2,739,988 2,405,916
----------- ----------- -----------
Other income (expense)
Interest expense (285,592) (441,972) (567,770)
Interest income 30,161 34,021 35,584
Other (114,088) (199,557) (405,457)
----------- ----------- -----------
(369,519) (607,508) (937,643)
----------- ----------- -----------
Income before provision for
income taxes and cumulative
effect of change in
accounting principle 2,167,836 2,132,480 1,468,273
----------- ----------- -----------
Income taxes
Federal (22,000) 136,000 11,327
State 137,000 181,000 83,702
----------- ----------- -----------
115,000 317,000 95,029
----------- ----------- -----------
Income before cumulative effect
of change in accounting
principle 2,052,836 1,815,480 1,373,244
Cumulative effect of change in 226,800
accounting principle ----------- ----------- -----------
NET INCOME 2,052,836 1,815,480 1,600,044
Less dividends accrued on (280,000) (280,000) (280,000)
preferred shares ----------- ----------- -----------
Income available to common shares $ 1,772,836 $ 1,535,480 $ 1,320,044
=========== =========== ===========
</TABLE>
F-4
<PAGE>
THT Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS (continued)
Year ended September 30,
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Primary Primary Primary
and fully and fully and fully
diluted diluted diluted
---------- ---------- ----------
<S> <C> <C> <C>
Net income per common and common
equivalent share from operations, after
preferred stock dividend and before
cumulative effect of change in
accounting principle $0.45 $0.36 $0.24
Cumulative effect of change in accounting
principle 0.05
----- ----- ----
Net income per common share $0.45 $0.36 $0.29
===== ===== =====
Weighted average number of shares outstanding
Primary and fully diluted 3,982,605 4,254,806 4,527,007
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
THT Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended September 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Additional
Preferred stock Common Stock paid-in Accumulated Treasury stock
--------------- ------------ --------------
Shares Amount Shares Amount capital deficit Shares Amount
------ -------- ------ ------ ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at September 30,
1993 2,000 $2,000,000 4,268,125 $42,681 $13,870,025 $(12,307,210) 21,118 $(224,374)
Value assigned to decrease
in exercise price of
warrants 212,520
Value assigned to issuance
of warrants 8,500
Warrants exercised 280,000 2,800
Dividend on preferred stock (280,000)
Net income 1,600,044
------ ---------- --------- ------- ----------- ------------ ------- -----------
Balances at September 30,
1994 2,000 2,000,000 4,548,125 45,481 14,091,045 (10,987,166) 21,118 (224,374)
Cancelled treasury stock (21,118) (211) (224,163) (21,118) 224,374
Common stock repurchase (544,402) (5,444) (811,602)
Dividend on preferred stock (280,000)
Net income 1,815,480
------ ---------- --------- ------- ----------- ------------ ------- -----------
Balances at September 30, 2,000 2,000,000 3,982,605 39,826 13,055,280 (9,451,686)
1995
Dividend on preferred stock (280,000)
Net income 2,052,836
------ ---------- --------- ------- ----------- ------------ ------- -----------
Balances at September 30, 2,000 $2,000,000 3,982,605 $39,826 $13,055,280 $ (7,678,850) $
1996 ====== ========== ========= ======= ----------- ============ ======= ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
THT Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended September 30,
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
Net income $2,052,836 $1,815,480 $1,600,044
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation and amortization 538,196 614,509 817,429
Deferred compensation 89,931 190,136 32,615
Deferred taxes (86,000) 112,000
Issuance of warrants for services 8,500
Cumulative effect of change in
accounting principle (226,800)
Changes in assets and liabilities
Trade accounts receivable, net 519,473 (101,696) (22,542)
Inventories 111,645 (108,211) (174,090)
Prepaid expenses and other 21,599 83,985 (38,093)
Other assets (28,295) (19,906) (38,058)
Due to related parties (436,610)
Due to former shareholders (30,003) (349,428) (466,134)
Accounts payable 251,495 (74,503) 157,687
Accrued liabilities and incentive
compensation 322,749 237,909 22,509
Income taxes receivable/payable 3,931 59,608 (3,408)
Other long-term liabilities 15,546
---------- ---------- ----------
Net cash provided by operating
activities 3,767,557 2,459,883 1,248,595
---------- ---------- ----------
Cash flows from investing activities
Purchase of property and equipment (714,961) (623,735) (140,726)
Disposal of property and equipment 56,574
---------- ---------- ----------
Net cash used in investing
activities (658,387) (623,735) (140,726)
---------- ---------- ----------
</TABLE>
F-7
<PAGE>
THT Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Year ended September 30,
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities
Proceeds from exercise of warrants $ 2,800
Repayment of notes payable to related party $(2,332,500) $ (686,711) (991,152)
Repayment of long-term debt (41,169) (17,034) (9,936)
Repayment of credit line (726,000)
Long-term debt - proceeds 68,139
Cash dividends paid (280,000) (280,000) (210,000)
Common stock repurchased (817,046)
---------- ---------- ----------
Net cash used in financing activities (2,653,669) (2,526,791) (1,140,149)
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 455,501 (690,643) (32,280)
Cash and cash equivalents at beginning of year 458,824 1,149,467 1,181,747
---------- ---------- ----------
Cash and cash equivalents at end of year $ 914,325 $ 458,824 $ 1,149,467
========== ========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for
Interest $ 285,591 $ 389,596 $ 950,020
========== ========== ==========
Taxes $ 197,285 $ 145,830 $ 186,992
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-8
<PAGE>
THT Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
NOTE 1 - NATURE OF OPERATIONS
Nature of Operations
THT Inc. (the "Company") was incorporated under the laws of the State of
Delaware on April 23, 1983. The Company conducts business through two
operating subsidiaries, Jackburn Mfg., Inc. ("Jackburn") and Setterstix Corp.
("Setterstix"). Jackburn is engaged in the business of manufacturing stove-
top grills (grids) and fabricated steel and wire products. Setterstix is
engaged in the manufacture of rolled paper products used principally in the
confectionery and health-related industries. Unless the content otherwise
requires, the "Company" hereinafter shall also refer to its subsidiaries.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Revenue Recognition
Sales and related cost of sales are included in income when goods are shipped
to the customer.
Inventories
Inventories of Setterstix are valued at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method.
Inventories of Jackburn are valued at the lower of cost or market on a last-
in, first-out (LIFO) basis for generally all raw materials, including the raw
material content of work in process and finished goods. Approximately 70% of
Jackburn's inventories are valued on a LIFO basis. Labor and manufacturing
overhead in work in process and finished goods, along with the remainder of
raw materials not valued using the LIFO method, are valued at cost on a first-
in, first-out (FIFO) basis.
Had the FIFO method of inventory valuation been used, inventories at September
30, 1996 and 1995 would have been higher by approximately $39,000 and $52,000,
respectively.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation is provided
over the esti mated useful lives of the assets using the straight-line method.
Repairs and maintenance are charged to expense as incurred.
F-9
<PAGE>
THT Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 30, 1996, 1995 and 1994
NOTE 2 (continued)
Intangibles
Goodwill represents the excess purchase price paid by the Company over the
estimated fair value of net assets acquired and is being amortized over forty
years. The amortization of such excess was approximately $99,000, $94,000 and
$98,000 and for the periods ended September 30, 1996, 1995 and 1994,
respectively. Accumulated amortization totaled approximately $530,000 and
$431,000 for the periods ended September 30, 1996 and 1995, respectively.
Costs associated with noncompete agreements were amortized over a period of
five years from the date of acquisition. Amortization of noncompete
agreements totaled $0, $47,500 and $60,000 for the periods ended September 30,
1996, 1995 and 1994, respectively. Accumulated amortization totaled $300,000
for the periods ended September 30, 1996 and 1995.
Deferred Financing Costs
The Company incurred financing costs of approximately $791,000 in connection
with certain acquisitions. Amortization of deferred financing costs totaled
approximately $0, $63,000 and $289,000 for the periods ended September 30,
1996, 1995 and 1994, respectively. Accumu lated amortization totaled
approximately $791,000 for the periods ended September 30, 1996 and 1995.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Fair Value of Financial Instruments
Based on borrowing rates currently available to the Company for bank loans
with similar terms and maturities, the fair value of the Company's due to
former shareholders approxi mates the carrying value. Furthermore, the
carrying value of all other financial instruments potentially subject to
valuation risk (principally consisting of cash and cash equivalents, accounts
receivable and accounts payable) also approximates fair value.
Net Income Per Common Share
Net income per common share was calculated by dividing net income (adjusted
for dividends on preferred stock) by the weighted average number of shares of
common stock outstanding during each year.
F-10
<PAGE>
THT Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 30, 1996, 1995 and 1994
NOTE 2 (continued)
Statements of Cash Flows
For purposes of the consolidated statements of cash flows, the Company treats
certificates of deposit, which have a maturity of less than three months at
date of purchase, as cash equivalents.
The following are the noncash transactions for the years ended September 30,
1996, 1995 and 1994:
The Company recorded an increase in intangible assets of approximately
$9,000 and $32,000 for the periods ended September 30, 1996 and 1995,
respectively, as a result of amounts accrued for the former Jackburn Mfg.
shareholders, as additional purchase price (Note 5).
In 1995, the Company cancelled 21,118 shares of its common stock held in
treasury and valued at a cost of approximately $224,000.
In 1994, accrued dividends and interest due on accrued dividends through
Decem ber 31, 1993, in the amount of $1,116,210 were declared and paid in
the form of a promissory note. The remaining $210,000 of accrued dividends
for the period ended September 30, 1994 were paid in cash.
In 1994, the Company reduced the value assigned to warrants held by a
related party totaling approximately $213,000 (Note 7).
NOTE 3 - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Raw materials $ 933,946 $1,085,969
Work in process 228,926 267,003
Finished goods 716,845 645,788
Packaging and supplies 56,845 62,474
--------- ---------
1,936,562 2,061,234
LIFO valuation adjustment (38,861) (51,888)
--------- ---------
$1,897,701 $2,009,346
========= =========
</TABLE>
F-11
<PAGE>
THT Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 30, 1996, 1995 and 1994
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land $ 102,557 $ 67,000
Buildings and improvements 1,816,181 1,378,465
Machinery and equipment 3,403,627 3,299,387
Furniture, fixtures and autos 97,171 87,765
--------- ---------
5,419,536 4,832,617
Less accumulated depreciation 2,346,072 1,978,351
--------- ---------
$3,073,464 $2,854,266
========= =========
</TABLE>
NOTE 5 - SHORT-TERM DEBT
Line of Credit
Setterstix entered into an agreement with a bank under which it has available
a line of credit for short-term borrowings up to an aggregate amount of
$1,000,000. The line of credit is based upon eligible receivables and
inventories and expires on May 1, 1997. Advances under the line of credit are
in the form of loans payable on demand and bear interest at the bank's prime
rate plus 1/2%
payable monthly in arrears. A commitment fee of 1/4% per annum on the average
daily amount of unused credit line, is payable in arrears on a calendar
quarter basis. Amounts outstanding under this agreement are collateralized by
Setterstix's accounts receivable and inventories. At September 30, 1996 and
1995, there was no outstanding balance. The effective interest rate was 8.75%
and 9.25% at September 30, 1996 and 1995, respectively.
Due to Former Shareholders of Jackburn
As part of its purchase price for Jackburn, the Company agreed to pay the
Former Shareholders 50% of Jackburn's excess cash flow, as defined, for the
years ended September 30, 1993 through September 30, 1997, and 37.5% of excess
cash flow, as defined, for the year ended September 30, 1998. Excess cash
flow is based upon a formula of net income before taxes plus addbacks for
certain noncash items and deductions for certain Jackburn debt payments and
capital expenditures. For the years ended September 30, 1996 and 1995, the
Company accrued approximately $9,000 and $32,000, respectively, which is
reflected as due to the former shareholders - current, under such formula.
The 1995 accrual was paid in January 1996. The related cost has been
reflected as an intangible asset and will be written off over the remaining
life of 40 years from the original date of purchase in 1990.
F-12
<PAGE>
THT Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
NOTE 6 - LONG-TERM DEBT
1996 1995
---- ----
<S> <C> <C>
Long-term debt consists of the following:
A. Long-term debt
Collateralized note payable to finance
company of $68,139 due in 48 equal monthly
installments of $1,419.50 plus interest at
9% at September 30, 1995 (collateralized
by equipment). $ 41,169
Less portion due within one year 17,034
--------
$ 24,135
========
B. Due to former shareholders of Jackburn
Mortgage note, bearing interest at 9%,
monthly payments of interest, principal
payments in four equal annual installments
from October 1, 1997 through October 1,
2000 (annual installments are deferred if
certain cash flows of Jackburn are not
achieved). $ 604,000 $ 604,000
======== ========
C. Notes to related party
Note to PH II Holdings, Inc. ("PH II") due
on May 31, 2002. Note bears interest at
the higher of 10% or 2% over prime rate
as reported in the Wall Street Journal,
payable monthly, effective interest of
10.25% at September 30, 1996 and 10.75%
at September 30, 1995. $ 430,012 $ 430,012
Collateralized note to PH II of $2,280,000, due
in equal monthly installments of $47,500, plus
interest at the higher of 12% or 2% over prime
rate as reported in the Wall Street Journal,
effective interest of 12% at September 30, 1995. 332,500
Balance carried forward 430,012 762,512
</TABLE>
F-13
<PAGE>
THT Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
NOTE 6 (continued)
1996 1995
---- ----
<S> <C> <C>
Balance brought forward $430,012 $762,512
C. Notes to related party (continued)
Note to PH II due on December 31, 1995.
Note bears interest at the higher of 10% or 2%
over prime rate as reported in the Wall Street
Journal, payable monthly, effective interest
of 10.75% at September 30, 1995. 1,000,000
Adjustable rate capital note (subordinated) due
to PH II on April 30, 1997 from THT, Inc.
Note bears interest at the higher of 10% or 2%
over prime rate as reported in the Wall Street
Journal, payable monthly, effective interest of
10.75% at September 30, 1995. 1,000,000
------- ---------
430,012 2,762,512
Less portion due within one year 1,332,500
------- ---------
$430,012 $1,430,012
======= =========
</TABLE>
The aggregate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year ending September 30,
<S> <C>
1997 $ -
1998 151,000
1999 151,000
2000 151,000
2001 151,000
2002 and thereafter 430,012
---------
$1,034,012
=========
</TABLE>
A portion of the Company's consolidated assets are assets of its subsidiaries
which are restricted as to payment of dividends due to terms of a certain loan
agreement. In addition, a subsidiary of the Company is required to comply
with certain loan covenants, including maintenance of working capital levels
and a $75,000 minimum cash balance, in connection with such bank loan
agreements. Restricted net assets of the subsidiary totaled approximately
$1,600,000 at September 30, 1996.
F-14
<PAGE>
THT Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 30, 1996, 1995 and 1994
NOTE 7 - COMMON STOCKHOLDERS' EQUITY
Due to certain financing transactions in the past, PH II was given three
separate registration rights for its restricted common stock. In January
1994, one such right was exercised.
In October 1993, the Company reduced the exercise price relating to 200,000
and 80,000 warrants from $2.31 and $1.81, respectively, to $.01 per warrant,
in return for forgiveness of $212,520 of accrued interest due to PH II. The
Company and PH II mutually agreed that the fair value associated with this
reduction in exercise prices was $212,520.
In October 1993, the Company issued 200,000 one-year warrants to PH II at the
market price of $1.50 per warrant. A value of $8,500 was placed on the
warrants, resulting in an increase to paid-in capital (Note 9).
On May 23, 1994, PH II exercised 280,000 warrants at a price of $.01 per share
of common stock.
On April 1, 1995, the Company purchased and cancelled 544,402 shares of its
common stock for approximately $817,000 in accordance with the terms of a
self-tender offer.
At September 30, 1996 and 1995, 40,000 and 200,000 shares, respectively, of
the Company's common stock were reserved for stock option and/or bonus plans.
NOTE 8 - CUMULATIVE PREFERRED STOCK
In August 1986, the Company's stockholders authorized 5,000 shares of $.01 par
value preferred stock. The preferred stock is nonvoting and has a liquidation
preference over all shares of the Company's common stock.
At September 30, 1996, 2,000 shares of $.01 par value preferred stock with a
face amount of $2,000,000 were outstanding. The annual dividend rate is the
higher of 14% or 3% over the prime rate as reported in the Wall Street Journal
("Prime Rate"). The holder of record of all 2,000 shares outstanding is PH
II.
On December 31, 1993, the Company declared and paid all accrued dividends on
its preferred stock up through that date. Payment of approximately $1,117,000
was made in the form of a two-year promissory note (Note 6).
The Company declared and paid annual dividends of $280,000 due on the
preferred stock for 1996, 1995 and 1994.
F-15
<PAGE>
THT Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 30, 1996, 1995 and 1994
NOTE 9 - RELATED PARTY TRANSACTIONS
PH II
The Company and PH II entered into a number of equity transactions during 1994
which are described in Notes 7 and 8. In addition, PH II provides financing
to the Company (Note 6).
In the event $4,880,000 of subordinated obligations due PH II were not repaid
by June 30, 1992, PH II was entitled to 4,880,000 additional warrants, which
would be exercisable for a five-year period.
On May 15, 1992, $600,000 was repaid and on June 5, 1992, the Company issued a
subordi nated note to PH II in the principal amount of $430,012. Such note
was issued to PH II in consideration of PH II's agreement to waive any rights
to require the Company to issue to PH II an aggregate 4,280,000 warrants in
the event the Company failed to repay certain notes to PH II before June 30,
1992. The Company and PH II mutually agreed that the fair value associated
with this waiver was $430,012. Such note bears interest at the higher of 10%
or 2% over the Prime Rate and will mature on May 31, 2002.
On October 27, 1993, the Company and PH II mutually agreed to reduce the
exercise price on 280,000 warrants to $.01. These warrants were exercised on
May 23, 1994 (Note 7).
On October 27, 1993, the Company issued 200,000 one-year warrants at an
exercise price of $1.50 (the then market price) to PH II. Such warrants were
issued to PH II as a performance incentive. A value of $8,500 was placed on
the warrants and charged against the Company's earnings (Note 7). These
warrants expired on November 1, 1994.
In 1996, 1995, and 1994, the Company declared and paid annual dividends on its
preferred stock of $280,000 (Note 8).
Effective October 1, 1993, 1994 and 1995, one-year agreements ("the
Agreements") were entered into between the Company and PH II, whereby PH II
provides certain management services. Under such Agreements, officers and
directors have been provided to act on behalf of the Company. On October 1,
1996, such agreement was extended for one year at an annual base fee of
$725,000, plus an incentive plan which is based on the Company's September 30,
1997 performance. For such services, the Company incurred base fees of
approximately $575,000, $490,000 and $450,000 for the periods ending September
30, 1996, 1995 and 1994, respectively. The incentive compensation earned was
approximately $534,000, $275,000 and $77,000 for the same respective periods.
Jackburn Mfg.
The Company is obligated to the former shareholders of Jackburn Mfg. as
described in Note 5. There are potential additional obligations to the former
shareholders as discussed in Note 12.
F-16
<PAGE>
THT Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 30, 1996, 1995 and 1994
NOTE 10 - EMPLOYEE BENEFIT PLANS
Setterstix and Jackburn have single employer defined benefit pension plans
which cover substantially all employees. The Company's funding policy is to
contribute amounts at least sufficient to meet minimum funding requirements.
Net pension cost for the years ended September 30, 1996, 1995 and 1994
included the following:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost - benefits earned during
the period $ 88,198 $ 71,308 $ 72,550
Interest cost on projected benefit
obligations 87,197 74,302 64,428
Actual (return) on plan assets (9,418) (80,339) (87)
------- ------- -------
165,977 65,271 136,891
Net amortization and deferral (59,203) 20,100 (55,542)
------- ------- -------
Net pension cost $106,774 $ 85,371 $ 81,349
======= ======= =======
</TABLE>
Actuarial assumptions used for 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
September 30, 1996 September 30, 1995
------------------ ------------------
Accumulated Assets Accumulated Assets
benefits exceed benefits exceed
exceed accumulated exceed accumulated
assets benefits assets benefits
------ -------- ------ --------
<S> <C> <C> <C> <C>
Discount rate 8.0% 8.0% 8.0% 8.0%
Expected long-term rate of return on
assets 8.0 8.0 8.0 8.0
Rate of increase in compensation levels 4.5 4.5
</TABLE>
Plan assets (for both defined benefit plans) primarily consist of listed
stocks, corporate and government bonds and demand money market accounts.
The Setterstix benefit formula is based upon years of credited service at
retirement multiplied by a benefit factor of $10.50 for service after January
1, 1985, plus $3.50 for service prior to January 1, 1985. Jackburn's benefit
formula is based upon 20% of average compensation for the five years prior to
retirement plus 20% of amounts in excess of $400 to $650 (based on retirement
date).
F-17
<PAGE>
THT Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 30, 1996, 1995 and 1994
NOTE 10 (continued)
The following sets forth the funded status of the plans at September 30, 1996
and 1995:
<TABLE>
<CAPTION>
September 30, 1996 September 30, 1995
------------------ ------------------
Assets Accumulated Assets
Accumulated
benefits exceed benefits exceed
exceed accumulated exceed accumulated
assets benefits assets benefits
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Actuarial present value of accumu-
lated benefit obligation
Vested $ 223,637 $ 802,795 $ 158,947 $ 690,728
Nonvested 6,381 17,489 6,627 16,813
--------- ----------- --------- ---------
$ 230,018 $ 820,284 $ 165,574 $ 707,541
========= =========== ========= =========
Fair value of plan assets $ 176,346 $ 834,620 $ 133,881 $ 799,254
Actuarial present value of projected
benefit obligation (230,018) (1,013,544) (165,574) (883,631)
--------- ----------- --------- ---------
Deficiency of plan assets over
projected benefit obligation (53,672) (178,924) (31,693) (84,377)
Unrecognized transition amount 21,008 (99,604) 23,239 (106,149)
Unrecognized net loss 46,501 287,948 24,645 217,878
Unrecognized prior service cost 22,356 13,856
Minimum liability (89,865) (61,740)
--------- ---------- ---------
Prepaid (accrued) pension cost $ (53,672) $ 9,420 $ (31,693) $ 27,352
========= =========== ========= =========
</TABLE>
The additional minimum liability at September 30, 1996 and 1995 is included in
"Other Long-Term Liabilities" in the consolidated balance sheet.
A subsidiary of the Company maintains a defined contribution plan for salaried
employees. Contributions of approximately $33,000, $22,000 and $35,000 are
included in the 1996, 1995 and 1994 consolidated statement of earnings,
respectively.
In addition, the Company maintains a deferred retirement compensation plan for
a select group of management personnel, officers and directors. The Company
has recorded an expense of approximately $90,000, $190,000, and $33,000 for
the periods ended September 30, 1996, 1995 and 1994, respectively.
F-18
<PAGE>
THT Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 30, 1996, 1995 and 1994
NOTE 11 - STOCK BONUS PLAN
In August 1986, the stockholders approved the Company's 1986 Stock Bonus Plan
(the "Bonus Plan"), pursuant to which the Company is authorized to issue up to
an aggregate of 40,000 shares of the common stock of the Company. In 1996, no
stock was issued under this plan.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
General
For the years ended September 30, 1996, 1995 and 1994, rent expense charged to
operations was approximately $37,000, $37,000 and $29,000, respectively.
Acquisitions
Certain contingencies exist with respect to the acquisition of Jackburn Mfg.
(Note 5). The Company is obligated to make payments for additional purchase
price in the event that specified cash flow levels are achieved in fiscal
years 1993 through 1998. For the years ended September 30, 1996 and 1995, the
Company accrued approximately $9,000 and $32,000, respectively, to the former
shareholders of Jackburn. Such amount has been reflected as additional
goodwill.
NOTE 13 - INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109 ("SFAS
No. 109"), "Accounting for Income Taxes," effective October 1, 1993. This
statement supersedes Accounting Principles Board ("APB") Opinion No. 11,
"Accounting for Income Taxes," previously utilized by the Company to determine
its provision for income taxes. Financial statements for the year ended
September 30, 1993, were not restated to apply the provisions of SFAS No. 109.
The adoption of SFAS No. 109 required recognition of a net increase in
property, plant and equipment of $194,400 for the remaining deferred tax
consequences of the difference between the assigned values and tax basis of
property, plant and equipment recognized in the Company's purchase of Jackburn
in September 1990, accounted for under the purchase method of accounting. The
effect of the adjustment to pretax income totalled approximately $32,000. The
prospective adoption of SFAS No. 109 resulted in a cumulative effect
adjustment at October 1, 1993 of $226,800.
F-19
<PAGE>
THT Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 30, 1996, 1995 and 1994
NOTE 13 (continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The income tax effect
of significant items comprising the Company's net deferred tax liability as of
September 30, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
September 30, September 30,
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets
Net operating loss carryforward $ 561,000 $ 1,391,000
Excess of tax basis of inventory over
book basis 12,000 36,000
Other differences between book and
tax bases 303,000 294,000
Alternative Minimum Tax (AMT) credit
carryforward 179,000 133,000
---------- -----------
1,055,000 1,854,000
Deferred tax liabilities
Difference between the book and tax bases
of property, plant and equipment 323,000 371,000
---------- -----------
Net deferred tax asset 732,000 1,483,000
Less valuation allowance (740,000) (1,577,000)
---------- -----------
Net deferred tax (liability) asset $ (8,000) $ (94,000)
========== ===========
</TABLE>
The Company anticipates utilizing its deferred tax assets primarily to the
extent of its deferred tax liabilities. A valuation allowance of $740,000 has
been established to reduce the following deferred tax assets to zero: net
operating loss and AMT credit carryforward.
F-20
<PAGE>
THT Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 30, 1996, 1995 and 1994
NOTE 13 (continued)
For the years ended September 30, 1996 and 1995, income tax expense (benefit)
is composed of:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Current taxes $201,000 $205,000
Deferred taxes (86,000) 112,000
-------- -------
$115,000 $317,000
======== ========
</TABLE>
At September 30, 1996 and 1995, the Company has net operating loss
carryforwards for tax purposes of approximately $1,700,000 and $4,100,000,
respectively, and net operating loss carryforwards for alternative minimum tax
purposes of approximately $2,400,000 and $4,600,000, respectively, which
expire in varying amounts from 1999 through 2004. The Internal Revenue Code
of 1986, as amended, limits the amount of taxable income the Company may
offset with net operating loss carryforwards in any single year.
The following is a reconciliation of the normal expected statutory Federal
income tax rate to the effective rate reported in the financial statements:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Computed "expected" provision for
Federal income taxes 34.0% 34.0% 34.0%
State taxes, net of Federal income
tax benefit 4.1 5.6 3.8
Amortization of intangible assets 1.4 1.5 1.6
Debt forgiveness income 4.9
Officer's life insurance .9 .6 .6
Inventory reserve 5.3
Utilization of net operating loss
carryforward (36.0) (32.1) (38.0)
Income taxes computed on loss of
investment .9
----- ----- -----
5.3% 14.9% 6.9%
===== ===== =====
</TABLE>
F-21
<PAGE>
THT Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 30, 1996, 1995 and 1994
NOTE 14 - SIGNIFICANT CUSTOMERS AND SEGMENT INFORMATION
During 1996, 1995 and 1994, the Company was primarily engaged in two industry
segments, the manufacture of fabricated steel products and the manufacture of
rolled paper products.
The rolled paper segment included one customer who accounted for 16.4%, 16.9%
and 18.2% of consolidated net sales in 1996, 1995 and 1994, respectively. In
addition, in 1996 there was a second customer who accounted for 13.4% of
consolidated net sales.
In July 1996, one of the aforementioned customers filed for Chapter 11
bankruptcy protection. If this customer ceases operations, the rolled paper
segment intends to make corresponding reductions in its manufacturing,
selling, general and administrative expenses to minimize the impact of the
loss of this customer. Management believes that the loss of this customer's
business would not have a material adverse effect on the Company's
consolidated financial position.
The fabricated steel segment included one customer who accounted for 11.9% of
consolidated net sales in 1996. This customer accounted for 12.7% and 13.3%
of consolidated net sales in 1995 and 1994, respectively. One other customer
accounted for 10.9% of consolidated net sales in 1995.
No other customers accounted for 10% or more of consolidated net sales in each
of the three years ended September 30, 1996, 1995 and 1994.
Financial information for these segments is summarized in the following table.
The Company primarily operates in the continental United States.
F-22
<PAGE>
THT Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 30, 1996, 1995 and 1994
NOTE 14 (continued)
Segment information for the years ended September 30, 1996, 1995 and 1994 is
as follows:
<TABLE>
<CAPTION>
Eliminations
Fabricated Rolled and
steel paper corporate Consolidated
products products items total
---------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
1996
- ----
Sales $6,411,181 $12,215,808 $18,626,989
Operating income 683,546 3,336,050 $(1,482,241) 2,537,355
Identifiable assets 3,178,296 5,797,075 2,058,770 11,034,141
Depreciation 295,066 144,123 439,189
Additions to property,
plant and equipment 656,641 52,913 5,407 714,961
1995
- ----
Sales $7,801,273 $10,668,171 $18,469,444
Operating income 954,153 3,009,152 $(1,223,317) 2,739,988
Identifiable assets 3,511,930 5,381,557 2,144,540 11,038,027
Depreciation 259,350 131,764 391,114
Additions to property,
plant and equipment 553,809 69,926 623,735
1994
- ----
Sales $8,143,628 $ 8,940,379 $ 625 $17,084,632
Operating income 1,199,057 2,033,540 (826,681) 2,405,916
Identifiable assets 4,135,430 6,105,862 1,524,925 11,766,217
Depreciation 234,828 146,879 381,707
Additions to property,
plant and equipment 102,093 38,633 140,726
</TABLE>
F-23
<PAGE>
THT Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 30, 1996, 1995 and 1994
NOTE 15 - FUTURE ACCOUNTING PRONOUNCEMENTS
Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of" ("SFAS No.
121") effective for fiscal years beginning after December 15, 1995. SFAS No.
121 requires that long-lived assets and certain identifiable intangibles to be
held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Management believes that the adoption of SFAS No. 121 will
not have a material impact on the Company's financial position or results of
operations.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for
Stock-Based Compensation." SFAS No. 123 defines a fair value based method of
accounting for an employee stock option. Fair value of the stock option is
determined considering factors such as the exercise price, the expected life
of the option, the current price of the underlying stock and its volatility,
expected dividends on the stock, and the risk-free interest rate for the
expected term of the option. Under the fair value based method, compensation
cost is measured at the grant date based on the fair value of the award and is
recognized over the service period. A company may elect the measurement
provisions of SFAS No. 123 or to continue to account for its stock option or
similar equity awards using the intrinsic method, where compensation cost is
measured at the date of grant based on the excess of the market value of the
underlying stock over the exercise price. If a company elects not to adopt
SFAS No. 123, then it must provide pro forma disclosure of net income and
earnings per share, as if the fair value based method has been applied.
SFAS No. 123 is effective for the fiscal year beginning on October 1, 1996.
Pro forma disclosures for entities that elect to continue to measure
compensation cost under the old method must include the effects of all awards
granted in fiscal years that begin after December 15, 1994. Effective October
1, 1996, the Company has elected to account for stock-based compensation plans
under the intrinsic method and to disclose the effect of SFAS No. 123 on a pro
forma basis.
F-24
<PAGE>
THT Inc. and Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
---------
Balance at Charged to Charged to Deductions Balance at
beginning costs and other from end of
Description of period expenses accounts reserves period
----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 1996
Reserve for doubtful accounts,
returns, discounts and billing
adjustments $25,000 $25,000
========== ==========
Reserve for inventory
obsolescence and rework $11,373 $11,373
========== ==========
Year ended September 30, 1995
Reserve for doubtful accounts,
returns, discounts and
billing adjustments $25,000 $25,000
========== ==========
Reserve for inventory
obsolescence and rework $11,373 $11,373
========== ==========
Year ended September 30, 1994
Reserve for doubtful accounts,
returns, discounts and
billing adjustments $28,826 $3,826 $25,000
========== ========== ==========
Reserve for inventory
obsolescence and rework $11,373 $11,373
========== ==========
</TABLE>
F-25
<PAGE>
Exhibit 11
----------
THT Inc. and Subsidiaries
SCHEDULE OF COMPUTATION OF NET INCOME
PER SHARE
Year ended September 30,
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Primary income per share
Net income $2,052,836 $1,815,480 $1,600,044
Less dividends accrued on preferred shares (280,000) (280,000) (280,000)
---------- ---------- ----------
Income available to common shares $1,772,836 $1,535,480 $1,320,044
========== ========== ==========
Weighted average number of common shares
outstanding during year 3,982,605 4,254,806 4,527,007
========== ========== ==========
Per share net income $ .45 $ .36 $ .29
========== ========== ==========
Fully diluted income per share
Net income $2,072,836 $1,815,480 $1,600,004
Add interest expense, net (Note 1 below)
Less dividends accrued on preferred shares (280,000) (280,000) (280,000)
---------- ---------- ----------
Income available to common shares $1,792,836 $1,535,480 $1,320,044
========== ========== ==========
Weighted average number of common shares
outstanding during year 3,982,605 4,254,806 4,527,007
========== ==========
Per share net income $ .45 $ .36 $ .29
========== ========== ==========
</TABLE>
F-26
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THT INC.
Date: December 2, 1996 By: /s/ Frederick A. Rossetti
------------------------------------
Frederick A. Rossetti, President,
Principal Executive Officer,
Principal Financial Officer
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: December 2, 1996 /s/ Paul K. Kelly
-----------------------------------------
Paul K. Kelly, Chairman of the
Board of Directors
Date: December 2, 1996 /s/ Jeffrey B. Gaynor
-----------------------------------------
Jeffrey B. Gaynor, Director
Date: December 2, 1996 /s/ Frederick A. Rossetti
-----------------------------------------
Frederick A. Rossetti, Director
<PAGE>
Exhibit 10.7
MANAGEMENT SERVICES AGREEMENT
This Agreement, dated October 1, 1996, between THT Inc., a Delaware
corporation ("THT") located at 33 Riverside Avenue, Westport, CT 06880 and PH
II, Inc. a Delaware corporation ("PH II") located at 33 Riverside Avenue,
Westport, CT 06880.
W I T N E S S E T H:
WHEREAS, THT and PH II each desire that PH II provide certain managerial,
administrative, and accounting services and personnel to THT;
NOW, THEREFORE, in consideration of the premises and of the mutual covenants
and agreements herein contained and other good and valuable consideration,
receipt of which is hereby acknowledged, the parties, intending to be legally
bound, hereby covenant and agree as follows:
1. Management Personnel. PH II will provide management personnel to act on
--------------------
behalf of THT as Chairman of the Board, President, Treasurer, Secretary, Chief
Executive Officer, Chief Operating Officer and Executive Vice President, and as
members of the Board of Directors of THT.
2. Administrative Support and Expenses. PH II will provide the services of
------------------------------------
additional personnel, as required, to carry out the services outlined in
Paragraph 3 of this agreement, except as noted in Paragraph 4 below. PH II will
charge THT 50% of its actual cost to provide such additional personnel. Further
PH II will charge THT 50% of its actual cost for the following expenses: rent,
office equipment, office insurance, stationary and supplies, postage, telephone
and repairs and maintenance expenses. It is estimated at current staffing levels
that these charges will approximate $92,632 annually.
3. Management Services. PH II agrees to provide to THT "day to day"
--------------------
management and operating services in addition to accounting, shareholder
relations, and other miscellaneous services as follows:
(i) general ledger accounting;
(ii) accounts receivable collections;
(iii) accounts payable processing;
(iv) monitoring of cash receipts and disbursements;
(v) generation of quarterly financial statements relating to the current
operations of THT;
(vi) provision of the time of personnel in the employ of PH II in performance
of the services covered hereby;
(vii) Securities and Exchange Commission ("SEC") reporting;
(viii) monitoring and supervision of any litigation and threatened litigation
against THT;
(ix) State and Federal tax return filings;
(x) ordinary correspondence with shareholders, stockbrokers, market markers
and the Transfer Agent of THT stock;
(xi) due diligence and other services performed in efforts to help consummate
proposed
<PAGE>
acquisitions for THT;
(xii) supervision, monitoring and operational responsibility for each of THT's
two subsidiaries (Setterstix Corp. and Jackburn Mfg., Inc.).
4. Additional Personnel. To the extent there are extraneous factors which
---------------------
increase the staffing levels required by PH II to manage THT (i.e., acquisition
of a third operating subsidiary by THT, or special projects requested by THT),
the payment for services outlined in Paragraph 5 below will be reevaluated and
renegotiated between PH II and THT.
5. Payment for Services. In consideration for the services provided
--------------------
hereunder to THT, THT shall pay PH II a Management Fee in the amount of $725,000
per year, plus THT's allocated portion of expenses as outlined in Paragraph 2
above, plus an incentive-related performance bonus as authorized by THT's Board
of Directors. PH II personnel shall be reimbursed for ordinary out-of-pocket
business expenses incurred while performing services for THT.
6. Term. This Agreement shall terminate one year from the date first
----
written above, unless otherwise extended upon such terms and conditions as the
parties shall agree upon in writing.
7. Miscellaneous.
-------------
(a) Governing Law. This Agreement and the rights and obligations of
-------------
the parties hereunder shall be construed in accordance with and be governed by
the laws of the State of Delaware.
(b) Descriptive Headings. The descriptive headings of the Sections of
--------------------
this Agreement are intended for convenience only and shall not be deemed to
affect the meaning or construction of any of the provisions hereof.
(c) Counterparts. This Agreement may be executed in any number of
------------
counterparts, and all of such counterparts shall together constitute one and the
same instrument.
(d) Severability. Any provision of this Agreement which is illegal,
------------
invalid, prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such illegality, invalidity,
prohibition or unenforceability without affecting the validity or enforceability
of such provision in any other jurisdiction.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
as of the day and year first above written.
PH II, INC.
By: /s/ Paul K. Kelly
----------------------------------
Name: Paul K. Kelly
Title: President
THT INC.
By: /s/ Frederick A. Rossetti
----------------------------------
Name: Frederick A. Rossetti
Title: President
<PAGE>
EXHIBIT 21.1 - Subsidiaries of Registrant
Jackburn Mfg., Inc. (Pennsylvania)
Setterstix Corporation (Delaware)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000721602
<NAME> THT INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 914,325
<SECURITIES> 0
<RECEIVABLES> 1,261,254
<ALLOWANCES> 25,000
<INVENTORY> 1,897,701
<CURRENT-ASSETS> 4,492,066
<PP&E> 5,419,536
<DEPRECIATION> 2,346,072
<TOTAL-ASSETS> 11,034,141
<CURRENT-LIABILITIES> 1,867,135
<BONDS> 604,000
0
2,000,000
<COMMON> 39,826
<OTHER-SE> 13,055,280
<TOTAL-LIABILITY-AND-EQUITY> 11,034,141
<SALES> 18,626,989
<TOTAL-REVENUES> 18,626,989
<CGS> 12,714,095
<TOTAL-COSTS> 16,089,634
<OTHER-EXPENSES> 399,680
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,659,261
<INCOME-PRETAX> 2,167,836
<INCOME-TAX> 115,000
<INCOME-CONTINUING> 2,052,836
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,052,836
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.45
</TABLE>
