SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT ON FORM 8-K Filed with the
Securities and Exchange Commission on February 15, 1994.
SPARTECH CORPORATION
(Exact name of registrant as specified in its charter)
AMENDMENT NO. 1
This amendment to Form 8-K, filed with the Securities and
Exchange Commission on February 15, 1994, is submitted to file
certain financial statements and Pro forma financial statements
concerning Spartech Corporation's February 2, 1994 acquisition of the
net assets of Product Components, Inc. (PROCOM).
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired.
(i) Included herein are the following financial statements of
Product Components, Inc.:
- Product Components, Inc, audited balance sheets as of
May 31, 1993 and 1992, and the related statements of
income and retained earnings and cash flows for the
years then ended.
- Product Components, Inc. audited balance sheets as of
May 31, 1992 and 1991, and the related statements of
income and retained earnings and cash flows for the
years then ended.
- Product Components, Inc. condensed unaudited balance
sheet as of November 30, 1993 and audited balance sheet
as of May 31, 1993 and the unaudited condensed
statements of income and cash flows for the six month
periods ended November 30, 1993 and November 30, 1992.
(b) Pro Forma Financial Information.
(i) Spartech Corporation Pro forma consolidated condensed
balance sheet as of January 29, 1994 and Pro forma
consolidated condensed statement of operations for the
fiscal year ending October 29, 1993 and for the thirteen
weeks ending January 29, 1994.<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
SPARTECH CORPORATION
Date 4/18/94 By /S/ David B. Mueller
David B. Mueller
Vice President of Finance and
Chief Financial Officer
<PAGE>
PRODUCT COMPONENTS, INC.
AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 1993 AND 1992<PAGE>
GEO. S. OLIVE & CO.
Certified Public Accountants
808 South "A" Street
Richmond, IN 47374-5576
(317)966-8341
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Product Components, Inc.
Richmond, Indiana
We have audited the accompanying balance sheet of Product Components,
Inc. as of May 31, 1993 and 1992, and the related statements of
income and retained earnings and cash flows for the years then ended.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Product
Components, Inc. at May 31, 1993 and 1992, and the results of its
operations and cash flows for the years then ended in conformity with
generally accepted accounting principles.
Geo. S. Olive & Co.
Richmond, Indiana
July 30, 1993<PAGE>
PRODUCT COMPONENTS, INC.
Statement of Income and Retained Earnings
Year Ended May 31
1993 1992
GROSS SALES $ 36,967,316 $ 20,292,259
Less:
Returns and allowances:
Elkhart 469,262 ---
Other locations 524,557 321,895
Customer furnished materials 2,408,340 1,954,875
3,402,159 2,276,770
NET SALES 33,565,157 18,015,489
COST OF GOODS SOLD 29,054,124 15,155,272
GROSS PROFIT 4,511,033 2,860,217
OPERATING EXPENSE 4,107,215 2,366,169
Operating income 403,818 494,048
OTHER INCOME (EXPENSE)
Interest income 44,419 33,347
Interest expense ( 319,119) ( 216,769)
Sundry income 5,712 634
( 268,988) ( 182,788)
INCOME BEFORE INCOME TAXES 134,830 311,260
INCOME TAX 67,960 105,631
NET INCOME 66,870 205,629
RETAINED EARNINGS, BEGINNING OF YEAR 612,715 407,086
RETAINED EARNINGS, END OF YEAR $ 679,585 $ 612,715
See notes to financial statements.
<PAGE>
PRODUCT COMPONENTS, INC.
Balance Sheet
ASSETS May 31
1993 1992
CURRENT ASSETS:
Cash $ 1,137 $ 1,000
Accounts receivable:
Trade--less allowance for doubtful accounts
of $54,000 and $23,000 5,386,506 3,651,422
Related party 460,636 409,188
Employees 6,847 3,933
Notes receivable 162,333 88,947
Inventories 3,761,925 1,447,115
Prepaid expenses 49,124 21,562
Total current assets 9,828,508 5,623,167
PROPERTY AND EQUIPMENT 1,532,986 1,405,703
OTHER ASSETS:
Lease deposits 58,066 39,316
Elkhart facility startup expenses, net of
accumulated amortization of $2,120 112,852 ---
Unamortized bond issue costs 736 1,539
Deferred income taxes 35,146 969
206,800 41,824
$11,568,294 $7,070,694
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Excess of outstanding checks over bank
balance $ 346,761 $ 613,293
Note payable, bank 471,828 ---
Note payable --- 224,491
Current maturities of long-term debt 77,473 92,465
Accounts payable--trade 5,598,570 2,692,405
Employees' withholdings 105,521 37,166
Accrued expenses 508,903 534,292
7,109,056 4,194,112
Revolving Loan 3,765,739 2,165,707
Total current liabilities 10,874,795 6,359,819
LONG-TERM DEBT--net of current maturities 7,330 91,576
STOCKHOLDERS' EQUITY:
Common stock--$100 par value:
Authorized--100 shares
Issued and outstanding--31 shares 3,100 3,100
Additional paid-in capital 3,484 3,484
Retained earnings 679,585 612,715
686,169 619,299
$11,568,294 $7,070,694
See notes to financial statements.<PAGE>
PRODUCT COMPONENTS, INC.
Statement of Cash Flows
Year Ended May 31
1993 1992
OPERATING ACTIVITIES:
Net Income $ 66,870 $ 205,629
Adjustments to reconcile net income to
net cash used by operating activities:
Depreciation and amortization 348,453 344,196
Provision for doubtful accounts 336,059 56,921
Deferred income taxes ( 34,177) ( 8,034)
Changes in assets and liabilities:
Accounts receivable, trade (2,091,253) (1,229,340)
Accounts receivable, related party
and employees ( 54,362) ( 243,302)
Inventories (2,314,810) ( 391,829)
Lease deposits ( 18,750) ( 1,032)
Prepaid expenses ( 27,562) 23,645
Accounts payable--trade 2,906,165 841,224
Employees' withholdings 68,355 9,003
Accrued expenses ( 25,389) 170,371
Net cash used by operating activitie ( 840,401) ( 222,548)
INVESTING ACTIVITIES:
Purchases of property and equipment ( 472,813) ( 446,209)
Elkhart facility startup costs of acquiring
new manufacturing facility ( 114,972) ---
Additions to notes receivable ( 192,065) ( 151,781)
Collections on notes receivable 118,679 103,449
Net cash used by investing activitie ( 661,171) ( 494,541)
FINANCING ACTIVITIES:
Net increase in revolving loan 1,600,032 187,950
Proceeds from short-term borrowings 500,000 ---
Reduction of short-term debt ( 232,553) ---
Reduction of long-term debt ( 99,238) ( 119,808)
Excess of outstanding checks over bank
balance ( 266,532) 613,293
Net cash provided by financing
activities 1,501,709 681,435
INCREASE (DECREASE) IN CASH 137 ( 35,654)
CASH, BEGINNING OF YEAR 1,000 36,654
CASH, END OF YEAR $ 1,137 $ 1,000
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash paid for interest $ 307,966 $ 219,564
Cash paid for income taxes 181,557 36,856
Reduction of note payable by return of
certain accounts receivable 20,110 ---
See notes to financial statements. <PAGE>
PRODUCT COMPONENTS, INC.
Notes to Financial Statements
NOTE 1--SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
General:
The primary business activity of Product Components, Inc. (PROCOM) is
the development, marketing, sale and extrusion of sheet, roll stock
and various products through the extrusion process from plastic
polymer and proprietary reclaimed rubber products. PROCOM
manufactures this product from locations in Richmond and Elkhart,
Indiana and in Clare, Michigan. Customers are located in various
geographical areas of the United States while some new international
markets are being developed and expected to grow.
Inventories:
Substantially all raw materials are valued at the lower of actual
cost on the first-in, first-out (FIFO) method or market. Finished
goods are valued at estimated costs which approximate the lower of
cost, determined by the FIFO method, or market.
Property and Equipment:
PROCOM provides for depreciation on the historical cost basis.
Expenditures for additions, improvements and replacements are added
to the property and equipment accounts. Repairs and maintenance are
charged to expense as incurred. Upon sale of equipment, the values
are eliminated from the respective accounts and the resulting gain or
loss is included in current income.
PROCOM provides for depreciation using the straight-line method for
financial accounting purposes. Accelerated methods are used for
income tax purposes.
Bond Issue Costs:
Costs incurred in connection with the issuance of economic
development revenue bonds have been deferred and are amortized on a
straight-line basis over a period of ten years.
Bad Debts:
The Company uses the reserve method of accounting for bad debts on
receivables.
Organizational Costs:
The Company has facility startup costs of $114,972 associated with
its acquisition of the Elkhart, Indiana equipment. Amortization is
computed using the straight-line method over a five-year life.
<PAGE>
PRODUCT COMPONENTS, INC.
Notes to Financial Statements
NOTE 2--INCOME TAXES:
The components of income taxes are as follows:
1993 1992
Federal:
Current $ 57,875 $ 73,433
Deferred (34,177) ( 8,034)
State 44,262 40,232
$ 67,960 $105,631
Following is a reconciliation of income tax expense as compared to
the federal statutory rate:
1993 1992
Federal tax expense at statutory rate(34%) $ 45,842 $105,828
Tax effect of:
Investment tax credits --- (28,260)
Graduated tax rates (10,008) ( 2,681)
Other 2,913 4,191
State income tax, net of federal effect 29,213 26,553
$ 67,960 $105,631
PROCOM provides for deferred income taxes to give recognition to
timing differences between financial statements pretax income and
taxable income. Deferred taxes applicable to timing differences
relate primarily to differences in methods of book depreciation and
tax depreciation and when bad debts are deductible for book purposes
as compared to tax purposes. Beginning in the year ended May 31,
1993, there are timing differences between when accrued property
taxes may be deducted for book purposes versus tax purposes.
Deferred income taxes have been partially absorbed by tax credits
utilized for accounting purposes. When these credits are utilized
for tax purposes, in future years, the deferred income tax liability
will be reinstated for the applicable timing differences.
For tax purposes only, investment tax credits in the amount of $7,188
are available to reduce future federal income taxes. The expiration
date of such unused carryforwards on a tax basis is May 31, 2001.
<PAGE>
PRODUCT COMPONENTS, INC.
Notes to Financial Statements
In February, 1992, the Financial Accounting Standards Board (the
FASB) issued Statement No. 109 (SFAS 109) on accounting for income
taxes which requires an asset and liability approach rather than the
current method which uses the income statement approach. This
Statement is effective for the fiscal year ending May 31, 1994, but
earlier application is permitted. The changes required by SFAS 109
are not expected to have a material impact on the Company's financial
position.
At May 31, 1993, the Company had a minimum tax credit carryforward of
$77,180 for income tax purposes. The minimum tax credit is available
to reduce the excess of regular tax over alternative minimum tax in
future years.
NOTE 3--INVENTORIES:
The inventories by classification are as follows:
May 31
1993 1992
Raw Materials $3,277,295 $1,233,510
Work in process 61,263 61,373
Finished goods 423,367 152,232
$3,761,925 $1,447,115
NOTE 4--PROPERTY AND EQUIPMENT:
The property and equipment by classification is as follows:
May 31
1993 1992
Leasehold improvements $ 219,155 $ 205,833
Machinery and equipment 3,464,675 3,104,788
Transportation equipment 80,648 73,648
Office furniture and equipment 331,161 238,558
4,095,639 3,622,827
Deduct: Accumulated depreciation 2,562,653 2,217,124
$1,532,986 $1,405,703
NOTE 5--NOTE PAYABLE, BANK:
Note payable, bank is comprised of a $471,828 note to Star Bank. The
note is secured by machinery and equipment and the personal guaranty
of a stock-holder and bears interest at 1% over Star Bank
Cincinnati's base rate.
<PAGE>
PRODUCT COMPONENTS, INC.
Notes to Financial Statements
NOTE 6--REVOLVING LOAN:
PROCOM may borrow the lesser of a $4,000,000 credit limitation or the
sum of 85% of eligible accounts receivable plus 50% of eligible
inventory (with a sublimit of $600,000 of eligible inventory), on
their line of credit with National City Bank, Kentucky. Interest is
payable on the average daily cash advance outstanding at 2% in excess
of the New York prime rate. under certain conditions, a termination
charge of $500 per month is payable should the borrower terminate the
loan agreement without giving appropriate notice. The note is
secured by accounts receivable, inventories, certain machinery and
equipment and the $250,000 personal guaranty of a stockholder.
NOTE 7--LONG-TERM DEBT:
Interest Due Monthly May 31
Rate Date Payment 1993 1992
City of Richmond, Indiana
Economic Development
Revenue Bonds, Series D (1) Jun.,1994 $7,372(2) $84,803 $163,203
Star Bank, NA, Richmond,
Indiana (4) (3) Oct.,1992 3,792(5) --- 20,838
84,803 184,041
Deduct current maturities 77,473 92,465
$ 7,330 $ 91,576
(1) 75% of the base rate announced by Star Bank, NA, Richmond,
Indiana, adjusted quarterly. Maximum interest may not
exceed 30% per annum.
(2) Includes interest, adjusted quarterly.
(3) 1% above bank's base rate, adjusted daily.
(4) Secured by all machinery and equipment and personal
guarantee of a stockholder.
(5) Includes interest, adjusted annually with a balloon payment
due at maturity.
The future maturities of long-term debt are as follows:
Year ending
May 31:
1995 $7,330
In May, 1984, PROCOM and two of its stockholders borrowed $1,400,000
under the terms of an Economic Development Revenue Bond Issue to
finance the acquisition of land, buildings and equipment.<PAGE>
PRODUCT COMPONENTS, INC.
Notes to Financial Statements
Although PROCOM and its stockholders have jointly and severally
guaranteed the payment of the entire bond issue, PROCOM's direct
liability pertains specifically to Series D bonds in the amount of
$84,803 and $163,203 at May 31, 1993 and 1992. Series A, B and C
bonds are the direct liability of two of the stockholders. The
entire bond issue is secured by a first mortgage on real estate and
a security interest in certain equipment. The real estate is owned
by two of PROCOM's stockholders and is leased by PROCOM. Ownership
of the equipment is divided among PROCOM and the same two stock-
holders.
The bonds are divided into four series as follows:
Current
Variable Current
Interest Monthly Due May 31
Series Rate Payment Date 1993 1992
A . . . . . . . . 7.875% $4,582 6-01-04 $405,657 $427,738
B . . . . . . . . 7.875 1,684 6-01-94 20,916 38,707
C . . . . . . . . 7.875 1,684 6-01-94 20,916 38,707
D . . . . . . . . 7.875 7,372 6-01-94 84,803 163,203
$532,292 $668,355
NOTE 8--RELATED PARTY TRANSACTIONS:
PROCOM had transactions with the following related parties:
PCI Manufacturing, Inc. (PCI) - 10% owned by Claude Cason, Jr. (CC
Jr.) and 90% owned by Wilma Cason
C.C.E., Inc. - 50% owned by CC Jr. and 50% owned by Wilma Cason
Injectech Corporation - 50% owned by CC Jr. and 50% owned by a third
party
Aeroplus, Inc. - 50% owned by CC Jr. and 50% owned by a third party
Georgco - 100% owned by CC Jr. for 1993; and 50% owned by CC Jr. and
50% owned by a third party for 1992
CC Jr. - owns 93.6% of PROCOM stock
Wilma Cason - owns 3.2% of PROCOM stock
Mrs. CC Jr. - owns 3.2% of PROCOM stock
<PAGE>
PRODUCT COMPONENTS, INC.
Notes to Financial Statements
Aeropro, a division of Injectech Corporation, manufactures product
from extruded plastic product (plastic sheet) produced by and
purchased from PROCOM. Income and expense reported by PROCOM related
to transactions with Injectech Corporation were:
May 31
1993 1992
Income:
Sales $ 749,547 $1,113,174
Leases --- 246
Interest income 38,002 16,498
Inventory purchases --- 36,528
Building rent 20,000 ---
Auto lease 4,664 ---
Other related party expenses which have an effect on the operations
of PROCOM are summarized below:
1993 1992
Building rent:
CC Jr. $ 54,654 $ 58,765
Claude Cason, Sr. (CC Sr.) 57,667 54,655
C.C.E., Inc. 19,854 1,652
Equipment leases:
PCI 53,484 53,493
C.C.E., Inc. 168,977 33,557
CC Jr. 127,074 127,074
CC Sr. 24,000 24,000
Office space rent:
C.C.E., Inc. 10,800 10,800
Auto lease:
CC Jr. 21,177 21,282
Mrs. CC Jr. 5,607 11,766
Trailer rent--CC Jr. 2,400 3,200
Tractor leasing--CC Jr. 6,300 11,550
Van trailer--CC Jr. 2,216 2,216
Aircraft lease--Aeroplus, Inc. 10,326 9,780
Loan guarantee fees--CC Sr. 12,000 12,000
Total rent expense for related parties was $589,199 and $423,790 for
1993 and 1992.<PAGE>
PRODUCT COMPONENTS, INC.
Notes to Financial Statements
Included in the balance sheet are the following amounts applicable to
the above mentioned related parties:
May 31
1993 1992
Accounts receivable--Injectech Corporation $ 459,810 $ 380,105
Accounts receivable--Georgco --- 28,463
Note receivable--Aeroplus, Inc. 826 620
Lease deposits:
CC Jr. 36,553 36,553
Mrs. CC Jr. 331 331
PROCOM and its stockholders have jointly and severally guaranteed the
payment of an installment obligation of PCI in the amount of $33,875
and $61,280 at May 31, 1993 and 1992. PCI's ability to meet its
obligation is substantially dependent upon receipt of equipment lease
income from PROCOM.
NOTE 9--OTHER LEASE COMMITMENTS
PROCOM leased certain delivery equipment under the terms of an
operating lease which expires in June, 1994. Minimum annual lease
payments of $51,411 and $50,623 for 1993 and 1992, were paid in
addition to a milage charge. Milage charges were approximately
$30,000 for 1993 and $22,000 for 1992. Total rent expense for other
lease commitments was $169,813 and $72,498 for 1993 and 1992.
Future minimum lease commitments are as follows:
Years ending
May 31:
1994 $51,456
1995 4,288
NOTE 10--EMPLOYEE INSURANCE OBLIGATION
PROCOM has adopted a plan of self-insuring employee group medical
insurance. Stop loss insurance policies in force limit PROCOM's
annual liability generally at $25,000 per individual and at
approximately $349,000 in the aggregate with a maximum life-time
insurance coverage of $1,000,000 per individual. Benefits are
charged to expense when paid. No provisions has been made in these
financial statements to recognize benefits, if any, to be paid in
future periods.<PAGE>
PRODUCT COMPONENTS, INC.
Notes to Financial Statements
NOTE 11--MAJOR CUSTOMERS:
There were no major customers for the year ended May 31, 1993. One
customer accounted for approximately $2,332,108 of sales during the
year ended May 31, 1992.
NOTE 12--ACQUISITION OF ADDITIONAL OPERATING FACILITY:
On May 1, 1992, PROCOM acquired the accounts receivable and inventory
of the Clare, Michigan facility of Durakon Industries, Inc.
(Durakon). PROCOM acquired the accounts receivable by executing a
promissory note in the principal amount of $224,491 with interest on
the unpaid principal balance at 1/2% over the Manufacturers Bank,
N.A. prime rate payable in ten monthly installments of $20,438 each
beginning May 31, 1992.
C.C.E., Inc., a related party, acquired the real estate and equipment
of Durakon's Clare, Michigan facility. PROCOM operates this facility
and leases the real estate and equipment from C.C.E., Inc.
NOTE 13--SUBSEQUENT EVENT:
Subsequent to the year ended May 31, 1993, PROCOM acquired equipment
for a new manufacturing facility in Elkhart, Indiana at a cost of
$1,455,000. PROCOM has elected to amortize certain startup costs
associated with the acquisition. These deferred costs are classified
as long-term assets on the balance sheet at May 31, 1993.
NOTE 14--ELKHART OPERATION (UNAUDITED):
During the year ended May 31, 1993, PROCOM paid a material conversion
fee, which management estimated to be approximately $841,000 in
excess of its standard processing rates, to manufacture products at
the Elkhart facility. PROCOM experienced losses in the approximate
amount of $500,000 as a result of quality problems and collection
problems associated with the Elkhart subcontractor relationship.
These costs were to have been reimbursed by the subcontractor but
were not as a result of the subcontractor's insolvency. These costs
have been included in the total results of operations on the
Statement of Income and Retained Earnings.
<PAGE>
PRODUCT COMPONENTS, INC.
AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 1992 AND 1991<PAGE>
GEO. S. OLIVE & CO.
Certified Public Accountants
808 South "A" Street
Richmond, IN 47374-5576
(317)966-8341
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Product Components, Inc.
Richmond, Indiana
We have audited the accompanying balance sheet of Product Components,
Inc. as of May 31, 1992 and 1991, and the related statements of
income and retained earnings and cash flows for the years then ended.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Product
Components, Inc. as of May 31, 1992 and 1991, and the results of its
operations and cash flows for the years then ended, in conformity
with generally accepted accounting principles.
Geo. S. Olive & Co.
Richmond, Indiana
November 4, 1992<PAGE>
PRODUCT COMPONENTS, INC.
Statement of Operations and Retained Earnings
Year Ended May 31
1992 1991
GROSS SALES $ 20,292,259 $ 18,476,572
Less:
Returns and allowances 321,895 159,982
Customer furnished material 1,954,875 2,094,747
2,276,770 2,254,729
NET SALES 18,015,489 16,221,843
COST OF GOODS SOLD 15,155,272 14,087,552
GROSS PROFIT ON SALES 2,860,217 2,134,291
OPERATING EXPENSES:
Shipping 845,282 608,335
Selling 838,729 601,217
Information services 42,359 38,335
General and administrative 639,799 459,970
2,366,169 1,707,857
INCOME FROM OPERATIONS 494,048 426,434
OTHER INCOME (EXPENSE)
Interest income 33,347 27,514
Lease income 531 10,762
Sundry income 103 3,303
Gain on sale of property and equipment --- 579
Interest expense ( 216,769) ( 254,121)
Research and Development--Promat
Division--note 9 --- ( 150,334)
( 182,788) ( 362,297)
INCOME BEFORE INCOME TAXES 311,260 64,137
INCOME TAX--note 2 105,631 18,885
NET INCOME 205,629 45,252
RETAINED EARNINGS, BEGINNING OF YEAR 407,086 361,834
RETAINED EARNINGS, END OF YEAR $ 612,715 $ 407,086
See notes to financial statements.
<PAGE>
PRODUCT COMPONENTS, INC.
Balance Sheet
Year Ended May 31
1992 1991
ASSETS
CURRENT ASSETS:
Cash $ 1,000 $ 36,654
Accounts receivable--note 4:
Trade--net allowance for losses
of $23,000 and $24,000 3,651,422 2,479,003
Related party--note 6 409,188 168,411
Employees 3,933 1,408
Notes receivable 88,947 40,615
Inventories--notes 3 and 4 1,447,115 1,055,286
Prepaid expenses 21,562 45,207
Total current assets 5,623,167 3,826,584
PROPERTY AND EQUIPMENT--notes 4 and 5:
Leasehold improvements 205,833 198,600
Machinery and equipment 3,104,788 2,732,648
Transportation equipment 73,648 58,907
Office furniture and equipment 238,558 186,463
3,622,827 3,176,618
Deduct: Accumulated depreciation 2,217,124 1,873,731
1,405,703 1,302,887
OTHER ASSETS:
Lease deposits--note 6 39,316 38,284
Unamortized bond issue costs 1,539 2,342
Deferred income taxes--note 2 969 ---
41,824 40,626
$7,070,694 $5,170,097
See notes to financial statements. <PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
May 31
1992 1991
CURRENT LIABILITIES:
Excess of outstanding checks over bank
balance $ 613,293 $ ---
Accounts payable 2,692,405 1,851,181
Note payable--note 11 224,491 ---
Current maturities of long-term debt 92,465 112,493
Employees' withholdings 37,166 28,163
Accrued expenses:
Interest 15,591 18,386
Property taxes 132,960 101,262
Salaries and wages 284,882 219,874
Payroll taxes 5,165 5,514
Income taxes 95,694 18,885
4,194,112 2,355,758
Revolving Loan--note 4 2,165,707 2,202,248
Total current liabilities 6,359,819 4,558,006
LONG-TERM DEBT--net of current maturities
note 5 91,576 191,356
DEFERRED INCOME TAXES--note 2 --- 7,065
STOCKHOLDERS' EQUITY:
Common stock--$100 par value:
Authorized--100 shares
Issued and outstanding--31 shares 3,100 3,100
Additional paid-in capital 3,484 3,484
Retained earnings 612,715 407,086
619,299 413,670
$7,070,694 $5,170,097
<PAGE>
PRODUCT COMPONENTS, INC.
Statement of Cash Flows
Year Ended May 31
1992 1991
OPERATING ACTIVITIES:
Net Income $ 205,629 $ 45,252
Items not affecting net cash provided
(used) by operating activities:
Depreciation and amortization 344,196 334,231
Provision for losses on accounts
receivable 40,902 28,575
Gain on sale of property and equipment --- ( 579)
Deferred income tax ( 8,034) ---
Changes in:
Accounts receivable (1,456,623) 243,973
Inventories ( 391,829) 318,209
Prepaid expenses 23,645 ( 1,094)
Deposits ( 1,032) ( 1,425)
Federal and state income tax receivable --- 17,282
Accounts payable and accrued
expenses 1,020,598 (438,370)
Net cash used by investing
activities ( 222,548) 546,054
INVESTING ACTIVITIES:
Purchases of property and equipment ( 446,209) (253,681)
Proceeds from sale of equipment --- 1,062
Additions to notes receivable ( 151,781) (125,465)
Collections on notes receivable 103,449 84,850
Net cash used by financing
activities (494,541) (293,234)
FINANCING ACTIVITIES:
Principal payments on debt ( 119,808) (135,182)
Excess of outstanding checks over bank
balance 613,293 ---
Net increase (decrease) in short-term
borrowings 187,950 (144,033)
Net cash provided (used) by financing
activities 681,435 (279,215)
DECREASE IN CASH ( 35,654) ( 26,395)
CASH, BEGINNING OF YEAR 36,654 63,049
CASH, END OF YEAR $ 1,000 $ 36,654
SUPPLEMENTAL CASH FLOWS INFORMATION:
Interest Paid $ 219,564 $ 260,014
Income taxes paid (refunded) 36,856 ( 17,282)
See notes to financial statements.<PAGE>
PRODUCT COMPONENTS, INC.
Notes to Financial Statements
NOTE 1--SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
General:
The primary business activity of Product Components, Inc. (PROCOM) is
the conversion of raw plastic to extruded plastic products.
Customers are located in various geographical areas of the United
States while some new international markets are being developed and
expected to grow.
Inventories:
Substantially all raw materials are valued at the lower of actual
cost on the first-in, first-out (FIFO) method or market. Finished
goods are valued at estimated costs which approximate the lower of
cost, determined by the FIFO method, or market.
Property and Equipment:
PROCOM provides for depreciation on the historical cost basis.
Expenditures for additions, improvements and replacements are added
to the property and equipment accounts. Repairs and maintenance are
charged to expense as incurred. Upon sale of equipment, the values
are eliminated from the respective accounts and the resulting gain or
loss is included in current income.
PROCOM provides for depreciation using the straight-line method for
financial accounting purposes. Accelerated methods are used for
income tax purposes.
Bond Issue Costs:
Costs incurred in connection with the issuance of economic
development revenue bonds have been deferred and are amortized on a
straight-line basis over a period of ten years.
NOTE 2--INCOME TAXES:
The components of income taxes are as follows:
1992 1991
Federal:
Current $ 73,433 $ 11,931
Deferred ( 8,034) ---
State 40,232 6,954
$105,631 $ 18,885<PAGE>
PRODUCT COMPONENTS, INC.
Notes to Financial Statements
Following is a reconciliation of income tax expense as compared to
the federal statutory rate:
1992 1991
Federal tax expense at statutory rate (34%) $105,828 $ 21,807
Tax effect of:
Investment tax credits (28,260) ( 3,977)
Graduated tax rates ( 2,681) (10,773)
Other 4,191 7,238
State income tax, net of federal effect 26,553 4,590
$105,631 $ 18,885
PROCOM provides for deferred income taxes to give recognition to
timing differences between financial statements pretax income and
taxable income. Deferred taxes applicable to timing differences
relate primarily to differences in methods of book depreciation and
tax depreciation.
Deferred income taxes have been partially absorbed by tax credits
utilized for accounting purposes. When these credits are utilized
for tax purposes, in future years, the deferred income tax liability
will be reinstated for the applicable timing differences.
Investment tax credits are available to reduce future federal income
taxes. Expiration of such unused carryforwards at May 31, 1992 on a
tax basis is as follows:
Investment
Tax
Credits
Expiration date:
2000 $10,223
2001 16,253
$26,476
In February, 1992, the Financial Accounting Standards Board (the
FASB) issued Statement No. 109 (SFAS 109) on accounting for income
taxes which requires an asset and liability approach rather than the
current method which uses the income statement approach. This
Statement is effective for the fiscal year ending May 31, 1994, but
earlier application is permitted. The changes required by SFAS 109
are not expected to have a material impact on the Company's financial
position.
At May 31, 1992, the Company had a minimum tax credit carryforward of
$77,142 for income tax purposes. The minimum tax credit is available
to reduce the excess of regular tax over alternative minimum tax in
future years.<PAGE>
PRODUCT COMPONENTS, INC.
Notes to Financial Statements
NOTE 3--INVENTORIES:
The inventories by classification are as follows:
May 31
1992 1991
Raw materials $1,233,510 $ 886,436
Work in process 61,373 49,157
Finished goods 152,232 119,693
$1,447,115 $1,055,286
NOTE 4--REVOLVING LOAN:
PROCOM has entered into a $3,500,000 line-of-credit agreement
(including an inventory sublimit of $750,000) with the First National
Bank of Louisville. Interest is payable on the average daily cash
advance outstanding at 1-3/4% in excess of the New York prime rate.
Under certain conditions, a termination charge of $500 per month is
payable should the borrower terminate the loan agreement without
giving appropriate notice. The note is secured by accounts
receivable, inventories, certain machinery and equipment and the
$250,000 personal guaranty of a stockholder.
NOTE 5--LONG-TERM DEBT:
Interest Due Monthly May 31
Rate Date Payment 1992 1991
City of Richmond, Indiana
Economic Development
Revenue Bonds, Series D (1) Jun.,1994 $7,372(2) $163,203 $235,133
Star Bank, NA, Richmond,
Indiana (4) (3) Oct.,1992 3,792(5) 20,838 68,716
184,041 303,849
Deduct: Current Maturities 92,465 112,493
$ 91,576 $191,356
(1) 75% of the base rate announced by Star Bank, NA, Richmond,
Indiana, adjusted quarterly. Maximum interest may not
exceed 30% per annum.
(2) Includes interest, adjusted quarterly.
(3) 1% above bank's base rate, adjusted daily.
(4) Secured by all machinery and equipment and personal
guarantee of a stockholder.
(5) Includes interest, adjusted annually with a balloon payment
due at maturity.<PAGE>
PRODUCT COMPONENTS, INC.
Notes to Financial Statements
Aggregate maturities of the above debt, payable during the year
subsequent to May 31, 1993 are as follows:
Fiscal year
ending:
1994 $91,576
In May, 1984, PROCOM and two of its stockholders borrowed $1,400,000
under the terms of an Economic Development Revenue Bond Issue to
finance the acquisition of land, buildings and equipment.
Although PROCOM and its stockholders have jointly and severally
guaranteed the payment of the entire bond issue, PROCOM's direct
liability pertains specifically to Series D bonds in the amount of
$163,203 and $235,133 at May 31, 1992 and 1991. Series A, B and C
bonds are the direct liability of two of the stockholders. The
entire bond issue is secured by a first mortgage on real estate and
a security interest in certain equipment. The real estate is owned
by two of PROCOM's stockholders and is leased by PROCOM. Ownership
of the equipment is divided among PROCOM and the same two
stockholders.
The bonds are divided into four series as follows:
Current
Variable Current
Interest Monthly Due May 31
Rate Payment Date 1992 1991
Series
A . . . . . . . . . 7.875% $4,582 6-01-04 $427,738 $445,633
B . . . . . . . . . 7.875 1,684 6-01-94 38,707 53,687
C . . . . . . . . . 7.875 1,684 6-01-94 38,707 53,687
D . . . . . . . . . 7.875 7,372 6-01-94 163,203 235,133
$668,355 $788,140
NOTE 6--RELATED PARTY TRANSACTIONS:
PROCOM had transactions with the following related parties:
PCI Manufacturing, Inc. (PCI) - 10% owned by Claude Cason, . (CC Jr.)
and 90% owned by Wilma Cason
C.C.E., Inc. - 50% owned by CC Jr. and 50% owned by Wilma Cason
Injectech Corporation - 50% owned by CC Jr. and 50% owned by a third
party
Aeroplus, Inc. - 50% owned by CC Jr. and 50% owned by a third party
Georgco - 50% owned by CC Jr. and 50% owned by a third party
CC Jr. - owns 93.6% of PROCOM stock
Wilma Cason - owns 3.2% of PROCOM stock
Mrs. CC Jr. - owns 3.2% of PROCOM stock
<PAGE>
PRODUCT COMPONENTS, INC.
Notes to Financial Statements
Effective July 1, 1991, Aeropro, Ltd. was merged into Injectech
Corporation with Injectech Corporation as the surviving corporation.
Injectech Corporation manufactures product from extruded plastic
product (plastic sheet) produced by and purchased from PROCOM at
prevailing market rates. Income and expense reported by PROCOM
related to transactions with Injectech Corporation were:
1992 1991
Income:
Sales $1,113,174 $684,817
Leases 246 2,525
Interest income 16,498 14,087
Inventory purchases 36,528 36,612
Other related party expenses which have an effect on the operations
of PROCOM are summarized below:
1992 1991
Building rent:
CC Jr. $58,765 $54,654
Claude Cason, Sr. (CC Sr.) 54,655 54,655
C.C.E., Inc 1,652 ---
Equipment leases:
PCI 53,493 53,493
C.C.E., Inc. 33,557 11,240
CC Jr. 127,074 127,074
CC Sr. 24,000 24,000
Office space rent:
C.C.E., Inc. 10,800 10,800
Auto lease:
CC Jr. 21,282 23,265
Mrs. CC Jr 11,766 3,972
Trailer rent--CC Jr. 3,200 4,800
Tractor leasing--CC Jr. 11,550 13,860
Van trailer--CC Jr. 2,216 2,216
Aircraft lease--Aeroplus, Inc. 9,780 9,780
Loan guarantee fees--CC Sr. 12,000 12,000
Total rent expense for related parties was $434,138 and $393,809 for
1992 and 1991.
<PAGE>
PRODUCT COMPONENTS, INC.
Notes to Financial Statements
Included in the balance sheet are the following amounts applicable to
the above mentioned related parties:
May 31
1992 1991
Accounts receivable--Injectech Corporation $380,105 $138,464
Accounts receivable--Georgco 28,463 26,116
Note receivable--Aeroplus, Inc. 620 3,831
Lease deposits:
CC Jr. 36,553 37,295
Mrs. CC Jr. 331 331
PROCOM and its stockholders have jointly and severally guaranteed the
payment of an installment obligation of PCI in the amount of $61,280
and $86,278 at May 31, 1992 and 1991. PCI's ability to meet its
obligation is substantially dependent upon receipt of equipment lease
income from PROCOM.
NOTE 7--OTHER LEASE COMMITMENTS
PROCOM leased certain delivery equipment under the terms of an
operating lease which expires in June, 1994. Minimum annual lease
payments of $50,623 and $49,155 for 1992 and 1991, were paid in
addition to a mileage charge. Mileage charges were approximately
$22,000 for 1992 and $18,500 for 1991. Total rent expense for other
lease commitments was $72,498 and $68,089 for 1992 and 1991.
Future minimum lease commitments are as follows:
Fiscal year
Ending: Amount
1993 $48,493
1994 48,493
1995 4,041
NOTE 8--EMPLOYEE INSURANCE OBLIGATION
PROCOM has adopted a plan of self-insuring employee group medical
insurance. Stop loss insurance policies in force limit PROCOM's
annual liability generally at $25,000 per individual and at
approximately $259,000 in the aggregate with a maximum life-time
insurance coverage of $1,000,000 per individual. Benefits are
charged to expense when paid. No provision has been made in these
financial statements to recognize benefits, if any, to be paid in
future periods.
<PAGE>
PRODUCT COMPONENTS, INC.
Notes to Financial Statements
NOTE 9--RESEARCH AND DEVELOPMENT:
Promat, a new division of PROCOM, expended research and development
costs of $150,334 in connection with development of a new product
line during the year ended May 31, 1991. Promat is now operating,
and its sales and expenses are included in the statement of
operations for the year ended May 31, 1992.
NOTE 10--MAJOR CUSTOMERS:
One customer accounted for approximately $2,332,108 of sales during
the year ended May 31, 1992.
NOTE 11--ACQUISITION OF ADDITIONAL OPERATING FACILITY:
On May 1, 1992, PROCOM acquired the accounts receivable and inventory
of the Clare, Michigan facility of Durakon Industries, Inc.
(Durakon). PROCOM acquired the accounts receivable by executing a
promissory note in the principal amount of $224,491 with interest on
the unpaid principal balance at 1/2% over the Manufacturers Bank,
N.A. prime rate payable in ten monthly installments of $22,449 each
beginning May 31, 1992.
C.C.E., Inc., a related party, acquired the real estate and equipment
of Durakon's Clare, Michigan facility. PROCOM operates this facility
and leases the real estate and equipment from C.C.E., Inc.
<PAGE>
PRODUCT COMPONENTS, INC.
CONDENSED UNAUDITED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1993 AND 1992
<PAGE>
PRODUCT COMPONENTS, INC.
CONDENSED STATEMENT OF OPERATIONS
(Unaudited and Dollars in Thousands)
Six Months Ended November 30
1993 1992
Revenues $18,027 $18,400
Cost of sales
Cost of Sales 16,016 16,077
Selling and administrative 2,129 1,387
Depreciation and amortization 263 163
18,408 17,627
Operating earnings (381) 773
Interest 246 147
Earnings before income taxes (627) 626
Provision for income tax
Federal - 89
State - 32
Net earnings $ (627) $ 505
See notes to condensed financial statements.
<PAGE>
PRODUCT COMPONENTS, INC.
CONDENSED BALANCE SHEET
(Dollars in Thousands, Except Per Share Amounts)
Nov. 30, May 31,
1993 1993
(Unaudited) (Audited)
ASSETS
Current assets
Cashes $ 1 $ 1
Accounts and notes receivable, net 5,205 6,010
Inventories 2,850 3,762
Prepayments and other 104 55
Total current assets 8,160 9,828
Plant and equipment, net 3,032 1,533
Other assets 94 207
$11,286 $11,568
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt 43 77
Note payable, bank 1,733 472
Accounts payable 3,956 5,946
Accrued liabilities 1,782 614
7,514 7,109
Revolving Loan 3,713 3,766
11,227 10,875
Long-term debt, less current maturities - 7
Total liabilities 11,227 10,882
Shareholders' equity
Common stock $100 par value,
100 shares authorized, 31 shares
issued and outstanding 3 3
Contributed capital 3 3
Retained earnings 53 680
59 686
$11,286 $11,568
See notes to condensed financial statements.<PAGE>
PRODUCT COMPONENTS, INC.
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited and Dollars in Thousands)
Six Months Ended November 30
1993 1992
OPERATING ACTIVITIES:
Net earnings (loss) $ (627) $ 505
Adjustments to reconcile net earnings (loss)
to net cash provided (used) by operating
activities:
Depreciation and amortization 263 163
Changes in assets and liabilities 845 (1,767)
Other, net 4 (122)
Net cash provided (used) by operating
activities 485 (1,221)
INVESTING ACTIVITIES:
Purchases of property and equipment (1,652) (166)
Net cash used by investing activities (1,652) (166)
FINANCING ACTIVITIES:
Net increase (decrease) in revolving loan (53) 1,447
Proceeds from short-term borrowings 1,400 -
Reduction of other short-term debt (173) (39)
Reduction of long-term debt (7) (21)
Net cash provided by financing
activities 1,167 1,387
INCREASE (DECREASE) IN CASH - -
CASH, BEGINNING OF YEAR 1 1
CASH, END OF YEAR $ 1 $ 1
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash paid for interest $ 242 $ 138
Cash paid for income taxes - 38
See notes to condensed financial statements.<PAGE>
PRODUCT COMPONENTS, INC.
Notes to Condensed Financial Statements
NOTE 1--SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
General:
The accompanying financial statements have been prepared on a
condensed basis and, accordingly, certain information and note
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission.
The primary business activity of Product Components, Inc. (ProCom) is
the development, marketing, sale and extrusion of sheet, roll stock
and various products through the extrusion process from plastic
polymer and proprietary reclaimed rubber products. ProCom
manufactures this product from locations in Richmond and Elkhart,
Indiana and in Clare, Michigan. Customers are located in various
geographical areas of the United States while some new international
markets are being developed and expected to grow.
Inventories:
Substantially all raw materials are valued at the lower of actual
cost on the first-in, first-out (FIFO) method or market. Finished
goods are valued at estimated costs which approximate the lower of
cost, determined by the FIFO method, or market.
Property and Equipment:
PROCOM provides for depreciation on the historical cost basis.
Expenditures for additions, improvements and replacements are added
to the property and equipment accounts. Repairs and maintenance are
charged to expense as incurred. Upon sale of equipment, the values
are eliminated from the respective accounts and the resulting gain or
loss is included in current income.
PROCOM provides for depreciation using the straight-line method for
financial accounting purposes. Accelerated methods are used for
income tax purposes.<PAGE>
PRODUCT COMPONENTS, INC.
Notes to Condensed Financial Statements
(Dollars in Thousands)
NOTE 2--INVENTORIES:
The inventories by classification are as follows:
Nov.30, May 31,
1993 1993
Raw materials $2,547 $3,277
Work in process - 61
Finished goods 303 424
$2,850 $3,762
NOTE 3--PROPERTY AND EQUIPMENT:
The property and equipment by classification is as follows:
Nov.30, May 31,
1993 1993
Leasehold improvements $ 301 $ 219
Machinery and equipment 5,099 3,465
Transportation equipment 32 81
Office furniture and equipment 428 331
5,860 4,096
Deduct: Accumulated depreciation 2,828 2,563
$3,032 $1,533
On June 24, 1993, ProCom acquired equipment for its manufacturing
facility in Elkhart, Indiana at a cost of $1,400. ProCom obtained a
six month note with an interest rate of 8% to finance the payment for
this equipment.<PAGE>
SPARTECH CORPORATION
PRO FORMA FINANCIAL STATEMENTS
<PAGE>
SPARTECH CORPORATION
PRO FORMA FINANCIAL INFORMATION
On February 2, 1994, Spartech Corporation completed the
acquisition of the net assets of Product Components, Inc.
The following statements represent the unaudited Pro forma
consolidated condensed balance sheet as of January 29, 1994 and the
unaudited Pro forma consolidated condensed statement of operations
for the fiscal year ended October 30, 1993 and for the thirteen weeks
ended January 29, 1994. The Pro forma consolidated condensed balance
sheet was prepared under the assumption that the acquisition occurred
on January 29, 1994, while the Pro forma consolidated condensed
statement of operations assume that the acquisition occurred at the
beginning of each period presented.<PAGE>
SPARTECH CORPORATION
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
JANUARY 29, 1994
(Unaudited and dollars in thousands, except per share amounts)
Spartech PROCOM
Corporation Acquisition Consolidated
(Historical) Amounts Pro Forma
ASSETS
Current Assets
Cash $ 1,487 $ 1 $ 1,488
Accounts and notes receivable, net 30,914 3,137 34,051
Inventories 22,632 972 23,604
Prepayments and other 2,194 - 2,194
Total current assets 57,227 4,110 61,337
Plant and equipment, net 39,288 5,000 44,288
Goodwill 18,365 3,160 21,525
Other assets 1,506 4 1,510
$116,386 $12,274 $128,660
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 4,000 $ - $ 4,000
Accounts payable 21,938 3,937 25,875
Accrued liabilities 6,402 1,644 8,046
Total current liabilities 32,340 5,581 37,921
Senior long-term debt, less current
maturities 24,820 6,693 31,513
9% Convertible subordinated
debentures 10,134 - 10,134
Other liabilities 675 - 675
Total long-term liabilities 35,629 6,693 42,322
Shareholders' equity
6% Cumulative convertible preferred stock,
776,700 shares issued and outstanding
($50 per share liquidation value) 777 - 777
Common stock, 8,326,296 shares issued 6,245 - 6,245
Contributed capital 73,926 - 73,926
Retained deficit (30,566) - (30,566)
Treasury stock, at cost, 325,499 shares
in 1994 and 453,059 shares in 1993 (1,965) - (1,965)
Total shareholders' equity 48,417 - 48,417
$116,386 $12,274 $128,660
See accompanying notes to the unaudited pro forma consolidated
condensed balance sheet.
<PAGE>
SPARTECH CORPORATION
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED OCTOBER 30, 1993
(Unaudited and dollars in thousands, except per share amounts)
Spartech
Corporation PROCOM
(Hist- (Hist- Pro Forma Consolidated
orical) orical) Adjustments Pro Forma
Revenues $189,401 $36,599 $(13,226) $212,774
Costs and expenses
Costs of sales 158,561 32,275 (13,065) 177,771
Selling and
administrative 16,271 3,662 (1,607) 18,326
Depreciation and
amortization 4,000 386 64 4,450
178,832 36,323 (14,608) 200,547
Operating earnings 10,569 276 1,382 12,227
Interest 3,350 394 100 3,844
Earnings before income
taxes 7,219 (118) 1,282 8,383
Provision for income taxes
Federal - 90 (90) -
State 503 23 67 593
Net earnings 6,716 (231) 1,305 7,790
Preferred stock
accretion (2,015) - - (2,015)
Net earnings applicable to
common shares $ 4,701 $ (231) $ 1,305 $ 5,775
Net earnings per common share:
Primary $ 0.54 $ 0.66
Fully diluted $ 0.30 $ 0.34
Weighted average shares
outstanding:
Primary 9,163,000 9,163,000
Fully diluted 23,438,000 23,438,000
See accompanying notes to the unaudited pro forma consolidated condensed
statement of operations.
<PAGE>
SPARTECH CORPORATION
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE THIRTEEN WEEKS ENDED JANUARY 29, 1994
(Unaudited and dollars in thousands, except per share amounts)
Spartech
Corporation PROCOM
(Hist- (Hist- Pro Forma Consolidated
orical) orical) Adjustments Pro Forma
Revenues $ 49,158 $6,778 $(1,396) $ 54,540
Costs and expenses
Cost of sales 41,222 6,217 (1,724) 45,715
Selling and administrative 4,009 995 (355) 4,649
Depreciation and
amortization 983 96 16 1,095
46,214 7,308 (2,063) 51,459
Operating earnings 2,944 (530) 667 3,081
Interest 671 114 - 785
Earnings before income taxes 2,273 (644) 667 2,296
Provision for income taxes
Federal - - - -
State 170 - - 170
Net earnings 2,103 (644) 667 2,126
Preferred stock accretion (518) - - (518)
Net earnings applicable to
common shares $ 1,585 $ (644) $ 667 $ 1,608
Net earnings per common share:
Primary $ 0.17 $ 0.17
Fully diluted $ 0.09 $ 0.09
Weighted average shares
outstanding:
Primary 9,314,000 9,314,000
Fully diluted 23,589,000 23,589,000
See accompanying notes to the unaudited pro forma consolidated condensed
statement of operations.<PAGE>
SPARTECH CORPORATION
NOTES TO PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in Thousands)
Basis of Presentation
Spartech Corporation's (the Company's) historical amounts shown
for the consolidated condensed statement of operations for the fiscal
year ended October 30, 1993 represent its audited results for that
period. The Company's historical amounts shown for the consolidated
condensed balance sheet as of January 29, 1994 and for the
consolidated condensed statement of operations for the thirteen weeks
ended January 29, 1994, represent its unaudited results for those
periods. ProCom's historical amounts shown for the consolidated
condensed statements of operations for the fiscal year ended October
30, 1993 and for the thirteen weeks ended January 29, 1994 represent
its unaudited results for those periods.
The acquired assets of ProCom have been recorded at their
estimated fair market values or net realizable values with the excess
purchase price over the fair market values and net realizable values
recorded as goodwill. Spartech Corporation assumed ProCom's accounts
payable and accrued liabilities incurred as of January 31, 1994. The
purchase price for ProCom's net assets, exclusive of working capital
purchased, totalled approximately $6,700, subject to post-closing
adjustments. The purchase price was financed through the Company's
amended credit arrangement with Chemical Bank and was recorded in the
pro forma consolidated condensed balance sheet as senior long-term
debt.
Elkhart Plant
ProCom's operation located in Elkhart, Indiana was shut-down
during December, 1993. As such, this plant was not included in the
net assets purchased by the Company. Therefore, the sales and
related costs and expenses generated by this operation were adjusted
out of the results of the pro forma consolidated condensed statements
of operations for the fiscal year ended October 30, 1993 and for the
thirteen weeks ended January 29, 1994.
Rubber Products
Sales and related costs and expenses of manufactured rubber
products, produced by ProCom, were included in ProCom's historical
amounts in the pro forma consolidated condensed statements of
operations for the fiscal year ended October 30, 1993 and the
thirteen weeks ended January 29, 1994. These amounts have also been
adjusted out of the pro forma consolidated condensed statements of
operations, since this product line was not included in the net
assets purchased by the Company.
<PAGE>
SPARTECH CORPORATION
NOTES TO PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in Thousands)
Selling and Administrative Expenses
Prior to the acquisition, ProCom maintained a centralized
corporate office designed to fully support its operations.
Subsequent to acquisition, the Company merged or eliminated several
of the office functions, thereby reducing salary and overhead
expenses. In addition, the former owner resigned as of the
acquisition date. The pro forma consolidated condensed statement of
operations for the fiscal year ended October 30, 1993 and for the
thirteen weeks ending January 29, 1994 reflect reductions in selling
and administrative expenses related to these items of $350 and $90.
Depreciation and Amortization
The pro forma consolidated condensed statement of operations for
the fiscal year ended October 30, 1993 and for the thirteen weeks
ended January 29, 1994 reflect an increase in depreciation resulting
from the write-up of property, plant and equipment to its estimated
fair market value. The statements also include additional
amortization expense incurred from the Goodwill purchased with this
acquisition. The increase in depreciation and amortization total
approximately $64 and $16 for the fiscal year ended October 30, 1993
and for the thirteen weeks ended January 29, 1994, respectively.
Interest Expense
The pro forma consolidated condensed statement of operations for
the fiscal year ended October 30, 1993 reflects additional interest
expense of $100 related to the debt incurred to finance the
acquisition. However, no such adjustment was needed for the pro
forma consolidated condensed statement of operations for the thirteen
weeks ended January 29, 1994, since the Company's borrowing rates
were approximately 1 1/2% lower during this period as compared to the
rates incurred during fiscal year 1993.
Income Taxes
No provision for Federal income taxes was recognized for the
fiscal year ended October 30, 1993 and for the thirteen weeks ended
January 29, 1994 due to the Company's existing operating loss
carryforwards.
