<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) October 30, 1998
SHOREWOOD PACKAGING CORPORATION
(Exact name of registrant as specified in charter)
Delaware 0-15007 11-2742734
---------------------------- ---------------- ------------------------
(State or other jurisdiction of (Commission File No.) (IRS Employer
incorporation) Identification Number)
277 Park Avenue, New York, New York 10172
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 371-1500
Not Applicable
- -------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Queens Group, Inc. and Affiliates
(i) Report of Goldstein Golub Kessler LLP, Independent Auditors
(ii) Combined Balance Sheets as of December 28, 1997 and December 29,
1996
(iii) Combined Statements of Income For the Years Ended December 28, 1997
and December 29, 1996
(iv) Combined Statement of Owners' Equity For the Years Ended December
28, 1997 and December 29, 1996
(v) Combined Statements of Cash Flows For the Years Ended December 28,
1997 and December 29, 1996
(vi) Notes To Combined Financial Statements for the Years Ended December
28, 1997 and December 29, 1996
(vii) Unaudited Combined Balance Sheet as of September 27, 1998
(viii) Unaudited Combined Statement of Income For the 39 Weeks Ended
September 27, 1998
(ix) Unaudited Combined Statement of Cash Flows For the 39 Weeks Ended
September 27, 1998
(x) Notes To Unaudited Combined Financial Statements For the 39 Weeks
Ended September 27, 1998
(b) Pro Forma Financial Information
(i) Introduction To Unaudited Pro Forma Condensed Combined Financial
Information
(ii) Unaudited Pro Forma Condensed Combined Statement of Earnings For the
26 Weeks Ended October 31, 1998
(iii) Unaudited Pro Forma Condensed Combined Statement of Earnings For
the 52 Weeks Ended May 2, 1998
(iv) Notes To Unaudited Pro Forma Condensed Combined Statements of
Earnings
(c) Exhibits
23.1 Consent of Goldstein Golub Kessler LLP
<PAGE> 3
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Queens Group, Inc.
We have audited the accompanying combined balance sheets of Queens Group, Inc.
and Affiliates as of December 28, 1997 and December 29, 1996 and the related
combined statements of income, owners' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of Queens Group, Inc.
and Affiliates as of December 28, 1997 and December 29, 1996, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
/S/ GOLDSTEIN GOLUB KESSLER LLP
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
March 12, 1998
<PAGE> 4
QUEENS GROUP, INC. AND AFFILIATES
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 29,
1997 1996
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $10,790,000 $ 8,098,000
Accounts receivable - net of allowance for doubtful accounts
of $450,000 and $392,000, respectively 13,015,000 17,352,000
Inventories 6,379,000 6,942,000
Prepaid expenses and other current assets 786,000 636,000
- ----------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 30,970,000 33,028,000
Property, Plant and Equipment - at cost, less accumulated
depreciation and amortization of $41,201,000 and
$43,167,000, respectively 47,688,000 41,228,000
Other Assets 271,000 484,000
- ----------------------------------------------------------------------------------------------------
TOTAL ASSETS $78,929,000 $74,740,000
====================================================================================================
LIABILITIES AND OWNERS' EQUITY
Current Liabilities:
Accounts payable $ 5,598,000 $ 7,086,000
Current maturities of long-term debt 5,973,000 6,223,000
Accrued expenses and other current liabilities 7,800,000 6,650,000
Accrued distribution payable 266,000 236,000
- ----------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 19,637,000 20,195,000
Long-term Debt, net of current maturities 18,134,000 14,089,000
Other Liabilities 148,000
- ----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 37,771,000 34,432,000
Owners' Equity 41,158,000 40,308,000
- ----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND OWNERS' EQUITY $78,929,000 $74,740,000
====================================================================================================
</TABLE>
See Notes to Combined Financial Statements
2
<PAGE> 5
QUEENS GROUP, INC. AND AFFILIATES
COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
=============================================================================================
YEAR ENDED DECEMBER 28, DECEMBER 29,
1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $148,560,000 $145,201,000
Cost of goods sold 113,364,000 107,859,000
Gross profit 35,196,000 37,342,000
Selling, general and administrative expenses (28,478,000) (29,228,000)
Interest expense (1,337,000) (1,399,000)
Miscellaneous income 1,375,000 1,477,000
- ---------------------------------------------------------------------------------------------
Income before provision for income taxes 6,756,000 8,192,000
Provision for income taxes 131,000 272,000
- ---------------------------------------------------------------------------------------------
Net income $ 6,625,000 $ 7,920,000
=============================================================================================
</TABLE>
See Notes to Combined Financial Statements
3
<PAGE> 6
QUEENS GROUP, INC. AND AFFILIATES
STATEMENT OF OWNERS' EQUITY
<TABLE>
<CAPTION>
===================================================================================================================================
YEARS ENDED DECEMBER 28, 1997 AND DECEMBER 29, 1996
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED TREASURY PARTNERS' OWNERS'
STOCK CAPITAL EARNINGS STOCK CAPITAL EQUITY
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $ 240,000 $ 20,000 $38,659,000 $ (501,000) $ 1,215,000 $39,633,000
Net income 5,682,000 2,238,000 7,920,000
Distributions and withdrawals (20,000) (3,547,000) (1,964,000) (5,531,000)
Purchase of treasury stock (1,714,000) (1,714,000)
Merger of Printing Group (55,000) 55,000 (2,165,000) 2,165,000
Retirement of treasury stock (50,000) 50,000
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 29, 1996 165,000 75,000 38,579,000 - 0 - 1,489,000 40,308,000
Net income 3,916,000 2,709,000 6,625,000
Distributions and withdrawals (3,133,000) (2,908,000) (6,041,000)
Contributions 150,000 127,000 277,000
Addition of Queens Group -
Weaverville, Inc. to Printing
Group 157,000 234,000 (402,000) (11,000)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 28, 1997 $322,000 $225,000 $39,596,000 $ (402,000) $ 1,417,000 $41,158,000
===================================================================================================================================
</TABLE>
See Notes to Combined Financial Statements
4
<PAGE> 7
QUEENS GROUP, INC. AND AFFILIATES
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
======================================================================================================================
YEAR ENDED DECEMBER 28, DECEMBER 29,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,625,000 $ 7,920,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Addition of Queens Group - Weaverville, Inc. to Printing Group (11,000)
Depreciation and amortization 6,901,000 6,297,000
Gain (loss) on sale of property and equipment 20,000 (79,000)
Changes in operating assets and liabilities:
Decrease in accounts receivable 4,337,000 3,149,000
Decrease in inventories 563,000 783,000
(Increase) decrease in prepaid expenses and other current
assets (150,000) 400,000
Decrease (increase) in other assets 192,000 (70,000)
Decrease in accounts payable (1,488,000) (846,000)
Increase (decrease) in accrued expenses and other current
liabilities 1,150,000 (180,000)
(Decrease) increase in other liabilities (148,000) 9,000
- ----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 17,991,000 17,383,000
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activity - purchase of
property and equipment, net (13,360,000) (5,659,000)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from long-term borrowings 10,678,000 935,000
Repayments of long-term borrowings (6,883,000) (5,455,000)
Distributions and withdrawals (6,011,000) (6,381,000)
Capital contributions 277,000
Purchase of treasury stock (465,000)
- ----------------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (1,939,000) (11,366,000)
- ----------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 2,692,000 358,000
Cash and cash equivalents at beginning of year 8,098,000 7,740,000
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 10,790,000 $ 8,098,000
======================================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 1,232,000 1,365,000
======================================================================================================================
Income taxes $ 151,000 375,000
======================================================================================================================
SUPPLEMENTAL SCHEDULE OF OPERATING, INVESTING AND
FINANCING ACTIVITIES:
Notes payable issued in connection with purchase of treasury stock $ 1,249,000
======================================================================================================================
</TABLE>
See Notes to Combined Financial Statements
5
<PAGE> 8
QUEENS GROUP, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 28, 1997
1. SUMMARY OF SIGNIFICANT The combined financial statements include the
ACCOUNTING POLICIES AND accounts of Queens Group, Inc. and Queens Group -
PRINCIPAL BUSINESS Weaverville, Inc. (collectively the "Printing
ACTIVITY: Group") and the accounts of Allmond Realty Co.,
Talmadge Realty Co., Belmont Realty Co., Barwood
Associates, Barnett Leasing Company, Talmadge
Leasing Company, Weaverville Realty Company, LLC
and Mount Holly Enterprises, Inc. (collectively
the "Leasing Group"). The Printing Group and the
Leasing Group are collectively referred to as the
"Company." These entities are related through
substantially similar ownership. All material
intercompany accounts and transactions have been
eliminated in the combined financial statements.
Queens Group - Weaverville, Inc. ("QGWI"),
formerly known as Queens Group - New York, Inc.,
was an inactive company prior to August 1997. At
that time QGWI purchased certain assets, commenced
operations and became part of the Printing Group.
The accounts of QGWI were transferred into the
Printing Group at their historical basis as
ownership was substantially similar to that of the
Company.
The combined financial statements for 1996 include
the accounts of Queens Group - Indiana, Inc.,
Queens Group - Kentucky, Inc. and Queens Group -
New Jersey, Inc. which were each merged into
Queens Group, Inc. on December 29, 1996.
The Printing Group reports on a 52/53-week fiscal
year ending on the Sunday nearest to December 31.
The Leasing Group reports on a calendar year
ending on December 31. Both groups are reflected
in the combined financial statements of the
Company. There would be no material changes to the
financial position, results of operations or cash
flows of the Leasing Group if its year were
reflected in the same manner as the Printing
Group.
The Printing Group is in the business of
commercial printing and manufacturing high quality
packaging for the multimedia, entertainment,
pharmaceutical and general consumer products
industries.
The Leasing Group is in the business of leasing
real property and equipment, substantially all of
which is leased to the Printing Group.
The entities in the Leasing Group are organized as
partnerships (the "Partnerships"), except Mount
Holly Enterprises, Inc. which is organized as a
corporation, and Weaverville Realty Company, LLC
which is organized as a limited liability company.
These combined financial statements have been
prepared in conformity with generally accepted
accounting principles which require the use of
estimates by management.
Sales revenue for the Printing Group is recognized
on the date the merchandise is shipped.
Inventories are stated at the lower of cost,
determined by the first-in, first-out method, or
market. Components of inventories include
materials, labor and overhead costs.
Depreciation and amortization of property, plant
and equipment is being provided for by
straight-line and accelerated methods over the
estimated useful lives of the assets.
<PAGE> 9
QUEENS GROUP, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 28, 1997
Deferred bond and mortgage costs capitalized as
part of the financing of real estate owned are
amortized over the life of the related bond or
mortgage and are included in other assets in the
accompanying combined financial statements.
The stockholders of the Company have consented
that the corporations be treated as small business
corporations ("S Corporations") for federal income
tax purposes and, where available, state income
tax purposes under the applicable sections of the
Internal Revenue Code (the "Code") and state tax
regulations. In addition, the Partnerships and
Limited Liability Company are not responsible for
payment of income taxes. Accordingly, there is no
provision for federal taxes on the Partnerships,
Limited Liability Company or the S Corporations
("Flow-through Entities") as such earnings will
flow through directly to the Company's partners,
members and stockholders. Certain of the states
for which the Company has elected S Corporation
status impose income taxes on S Corporations at
reduced rates. The provision for income taxes
represents current state and local income taxes to
which the Company is subject.
Since it is the Company's intention to make
distributions to fund the owners' income tax
obligations arising from the flow-through of its
earnings, distributions made subsequent to
year-end related to the prior year's earnings are
accrued as distributions payable as of year-end.
The Company considers all highly liquid
investments with original maturities of three
months or less to be cash equivalents.
The Company maintains cash with major banks in
deposit accounts which, at times, may exceed
federally insured limits. The Company has not
experienced any losses on these deposits. Excess
cash may be invested in money market funds or
other short-term, income-producing securities.
Management does not believe that any recently
issued, but not yet effective, accounting
standards if currently adopted would have a
material effect on the accompanying combined
financial statements.
2. INVENTORIES: Inventories consist of the following:
<TABLE>
<CAPTION>
December 28, December 29,
1997 1996
----------------------------------------------------------------------------------------
<S> <C> <C>
Work-in-process $1,550,000 $1,640,000
Paper 1,753,000 2,004,000
Finished goods 1,936,000 2,120,000
Inks, glues, plates and supplies 1,140,000 1,178,000
----------------------------------------------------------------------------------------
$6,379,000 $6,942,000
========================================================================================
</TABLE>
<PAGE> 10
QUEENS GROUP, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 28, 1997
3. PROPERTY, PLANT AND Property, plant and equipment, at cost, consists
EQUIPMENT: of the following:
<TABLE>
<CAPTION>
December 28, December 29, Depreciation
1997 1996 Period
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Equipment $58,897,000 $55,971,000 5 to 12 years
Buildings 9,214,000 8,183,000 25 to 40 years
Leasehold improvements 10,652,000 9,447,000 10 to 25-1/2 years
Furniture and fixtures 4,105,000 3,623,000 5 to 10 years
Telephone and computer
equipment 3,223,000 3,419,000 3 to 7 years
Automobiles and trucks 987,000 929,000 4 years
Land 1,417,000 1,236,000
Equipment not yet placed
in service 394,000 1,587,000
------------------------------------------------------------------------------------------
88,889,000 84,395,000
Less accumulated depre-
ciation and amortization 41,201,000 43,167,000
------------------------------------------------------------------------------------------
$47,688,000 $41,228,000
==========================================================================================
</TABLE>
Substantially all of the Company's property, plant
and equipment is pledged as collateral for
long-term debt.
4. ACCRUED EXPENSES AND Accrued expenses and other current liabilities
OTHER CURRENT consist of the following:
LIABILITIES:
<TABLE>
<CAPTION>
December 28, December 29,
1997 1998
----------------------------------------------------------------------------------------
<S> <C> <C>
Accrued wages $2,101,000 $1,407,000
Accrued vacation and sick pay 1,576,000 1,977,000
Accrued commissions 1,112,000 1,230,000
Other (all amounts are less than 5%
of current liabilities) 3,011,000 2,036,000
----------------------------------------------------------------------------------------
$7,800,000 $6,650,000
========================================================================================
</TABLE>
<PAGE> 11
QUEENS GROUP, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 28, 1997
5. LONG-TERM DEBT: Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 28, December 29,
1997 1996
----------------------------------------------------------------------------------------
<S> <C> <C>
Printing Group equipment term loans $15,345,000 $10,667,000
Leasing Group equipment term loans 33,000 875,000
Real estate loans and mortgages payable 3,553,000 2,632,000
Industrial Revenue Bond notes payable 4,200,000 4,800,000
Notes payable - former stockholder 937,000 1,249,000
Other 39,000 89,000
----------------------------------------------------------------------------------------
24,107,000 20,312,000
Less current maturities 5,973,000 6,223,000
----------------------------------------------------------------------------------------
LONG-TERM DEBT, NET OF CURRENT MATURITIES $18,134,000 $14,089,000
========================================================================================
</TABLE>
The Printing Group has a standby equipment line
with a bank in the amount of $25,000,000, of which
$9,655,000 is available at December 28, 1997.
Borrowings under the equipment line bear interest
at rates ranging from .65% to 1.00% (subject to
maintaining certain financial ratios) above LIBOR
and are due at various dates through 2002. These
loans are collateralized by substantially all of
the Printing Group's equipment. The Printing Group
also has a $2,000,000 revolving line, all of which
is available at December 28, 1997. The credit
agreement under which these lines are provided
contains certain financial covenants and places
limitations on capital expenditures.
The Leasing Group has various mortgage notes and
loans payable. These borrowings bear interest at
rates ranging from fixed rates of 5.1% to 8.25%
per annum, and variable rates based on LIBOR or
the bank's prime lending rate. Final installments
are due at various dates through October 2004. The
mortgages are collateralized by land and
buildings.
The Leasing Group has Industrial Revenue Bond
Notes ("IRBs") outstanding collateralized by a
letter of credit, which in turn is collateralized
by a security interest in land, building and
equipment. Interest on the IRBs is payable at a
floating rate. The weighted-average interest rate
for 1997 (excluding other debt-related costs such
as letter of credit fees) was 3.89%. The final
installment is due on May 1, 2004.
Notes payable - former stockholder bear interest
at the rate of 7% per annum and are payable in
quarterly installments through 2001. The notes are
subordinated to the Printing Group's equipment
term loans.
<PAGE> 12
QUEENS GROUP, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 28, 1997
Aggregate maturities of long-term debt at December
28, 1997 are as follows:
Year ending (Sunday nearest to) December 31,
<TABLE>
<S> <C>
1998 $ 5,973,000
1999 5,911,000
2000 4,511,000
2001 2,928,000
2002 2,814,000
Thereafter 1,970,000
----------------------------------------------------------------------------------------
$24,107,000
========================================================================================
</TABLE>
Most of the interest rates adjust with changes in
LIBOR, therefore, the fair value of the Company's
long-term debt is equal to the carrying amount.
6. STOCKHOLDERS' At December 28, 1997, the
EQUITY: Company's authorized, issued and outstanding
common stock consists of the following:
<TABLE>
<S> <C>
Queens Group, Inc. - no par value; authorized 100
shares, issued and outstanding 17.502 shares $ 78,000
Queens Group - Weaverville, Inc. - no par value;
authorized 300 shares, issued and outstanding 33 shares 157,000
Mount Holly Enterprises, Inc. - no par value; authorized
100,000 shares, issued and outstanding 840 shares 87,000
----------------------------------------------------------------------------------------
$322,000
========================================================================================
</TABLE>
In 1996, the Company purchased 100% of the
interest of a former stockholder in certain
entities included in the Printing Group for
$1,714,000. The purchase price consisted of cash
in the amount of $465,000 and subordinated notes
payable aggregating $1,249,000.
On December 29, 1996, the corporate entities
Queens Group - Indiana, Inc., Queens Group -
Kentucky, Inc. and Queens Group - New Jersey, Inc.
were merged into Queens Group, Inc. The combined
financial statements reflect this transaction as a
recapitalization of the Printing Group's
stockholders' equity.
<PAGE> 13
QUEENS GROUP, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 28, 1997
7. INCOME TAXES: The difference between income taxes computed at
the statutory federal rate of 34% and the
provision for income taxes relates to the
following:
<TABLE>
<CAPTION>
Year ended December 28, December 29,
1997 1996
----------------------------------------------------------------------------------------------------
Percent of Percent of
Pretax Pretax
Amount Income Amount Income
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Provision at federal statutory rates $ 2,300,000 34 % $ 2,800,000 34 %
Flow-through Entities income
attributable to partners, members
and stockholders (2,300,000) (34) (2,800,000) (34)
State income taxes 131,000 2 272,000 3
----------------------------------------------------------------------------------------------------
$ 131,000 2 % $ 272,000 3 %
====================================================================================================
</TABLE>
8. RELATED PARTY The Printing Group incurred freight charges from
TRANSACTIONS: an entity related by virtue of common control
aggregating $2,500,000 and $2,100,000 during the
years ended December 28, 1997 and December 29,
1996, respectively. The Printing Group billed this
entity $2,130,000 and $2,403,000 for commissions
and use of facilities and reimbursement of
personnel costs during the years ended December
28, 1997 and December 29, 1996, respectively. The
amounts due from this entity at December 28, 1997
and December 29, 1996 are $235,000 and $930,000,
respectively, and are included in accounts
receivable.
9. EMPLOYEE BENEFITS The Printing Group has a qualified noncontributory
PLANS: profit-sharing plan covering eligible salaried
employees. Contributions are at the discretion of
the board of directors. Contributions charged to
operations amounted to $355,000 and $501,000 for
the years ended December 28, 1997 and December 29,
1996, respectively.
The Printing Group has instituted a 401(k) savings
plan which covers all eligible salaried employees.
The officers of the Printing Group serve as
trustees of both the profit-sharing plan and the
401(k) savings plan.
Certain of the Printing Group employees are
covered by union-sponsored, collectively bargained
multiemployer pension plans. Contributions to the
multiemployer plans amounted to $240,000 and
$209,000 for the years ended December 28, 1997 and
December 29, 1996, respectively. Information
pertaining to the unfunded vested benefits and net
assets of the plan is not available to the
Company.
10. MAJOR During the years ended December 28, 1997 and
CUSTOMER: December 29, 1996, sales to one customer accounted
for approximately 12% and 10%, respectively, of
net sales. This customer comprised approximately
23% and 15% of the Company's accounts receivable
at December 28, 1997 and December 29, 1996,
respectively.
<PAGE> 14
QUEENS GROUP, INC. AND AFFILIATES
COMBINED FINANCIAL STATEMENTS
FOR THE 39 WEEKS ENDED SEPTEMBER 27, 1998
<PAGE> 15
QUEENS GROUP, INC. AND AFFILIATES
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 27,
1998
(UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C>
Current Assets:
Cash and cash equivalents (Note 2) $ 4,799,000
Accounts receivable - net 20,932,000
Inventories (Notes 2 and 3) 6,227,000
Prepaid expenses and other current assets 1,022,000
- --------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 32,980,000
Property, Plant and Equipment - net (Note 2) 44,293,000
Other Assets 172,000
- --------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $77,445,000
==========================================================================================================================
LIABILITIES AND OWNERS' EQUITY
Current Liabilities:
Accounts payable $ 6,973,000
Current maturities of long-term debt 5,786,000
Accrued expenses and other current liabilities 7,854,000
Accrued distribution payable 232,000
- --------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 20,845,000
Long-term Debt, net of current maturities 13,111,000
TOTAL LIABILITIES 34,305,000
Owners' Equity 43,489,000
- --------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND OWNERS' EQUITY $77,445,000
==========================================================================================================================
</TABLE>
See Notes to Combined Financial Statements
<PAGE> 16
QUEENS GROUP, INC. AND AFFILIATES
COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
FOR THE 39 WEEKS ENDED SEPTEMBER 27,
1998
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net sales $113,910,000
Cost of goods sold 89,598,000
- -------------------------------------------------------------------------------------------------------------------------
Gross profit 24,312,000
Selling, general and administrative expenses (19,777,000)
Interest expense (1,194,000)
Miscellaneous income 1,408,000
- -------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 4,749,000
Provision for income taxes 92,000
- -------------------------------------------------------------------------------------------------------------------------
Net income $ 4,657,000
=========================================================================================================================
</TABLE>
See Notes to Combined Financial Statements
<PAGE> 17
QUEENS GROUP, INC. AND AFFILIATES
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
================================================================================================================
FOR THE 39 WEEKS ENDED SEPTEMBER 27,
1998
(UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
Cash flows from operating activities:
Net income $ 4,657,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 5,497,000
Changes in operating assets and
liabilities:
Increase in accounts receivable (7,917,000)
Decrease in inventories 152,000
Increase in prepaid expenses and other current assets (236,000)
Decrease in other assets 99,000
Increase in accounts payable 1,375,000
Increase in accrued expenses and other current liabilities 20,000
- ----------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,647,000
- ----------------------------------------------------------------------------------------------------------------
Cash flows from investing activity - purchase of
property and equipment, net (2,102,000)
- ----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Repayments from long-term borrowings (5,210,000)
Distributions and withdrawals (4,656,000)
Capital contributions 2,400,000
Purchase of treasury stock (70,000)
- ----------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (7,536,000)
- ----------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (5,991,000)
Cash and cash equivalents at beginning of period 10,790,000
- ----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 4,799,000
================================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,194,000
================================================================================================================
</TABLE>
See Notes to Combined Financial Statements
<PAGE> 18
QUEENS GROUP, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE 39 WEEKS ENDED SEPTEMBER 27, 1998 (UNAUDITED)
1. GENERAL: The unaudited interim financial information
reflects all adjustments (consisting only of
normal recurring accruals) which management
considers necessary for a fair presentation of the
results of operations for such periods and is
subject to year-end adjustments. Certain footnote
disclosures normally included in financial
statements prepared in accordance with generally
accepted accounting principles have been condensed
or omitted from the unaudited interim financial
information as permitted by rules and regulations
of the Securities and Exchange Commission.
Management believes that the disclosures made are
adequate to make the information presented not
misleading. The results for the interim period are
not necessarily indicative of results for the full
year. It is suggested that these financial
statements be read in conjunction with Queens
Group, Inc. and Affiliates audited financial
statements and notes thereto for the years ended
December 28, 1997 and December 29, 1996.
2. SUMMARY OF The combined financial statement includes the
SIGNIFICANT accounts of Queens Group, Inc. and Queens Group -
ACCOUNTING Weaverville, Inc. (collectively the "Printing
POLICIES AND Group") and the accounts of Allmond Realty Co.,
PRINCIPAL BUSINESS Talmadge Realty Co., Belmont Realty Co., Barwood
ACTIVITY: Associates, Talmadge Leasing Company, Weaverville
Realty Company, LLC and Mount Holly Enterprises,
Inc. (collectively the "Leasing Group"). The
Printing Group and the Leasing Group are
collectively referred to as the "Company". These
entities are related through substantially similar
ownership. All material intercompany accounts and
transactions have been eliminated in the combined
balance sheet.
The Printing Group is in the business of
commercial printing and manufacturing high quality
packaging for the multimedia, entertainment,
pharmaceutical and general consumer products
industries.
The Leasing Group is in the business of leasing
real property and equipment, substantially all of
which is leased to the Printing Group.
The entities in the Leasing Group are organized as
partnerships (the "Partnerships"), except Mount
Holly Enterprises, Inc., which is organized as a
corporation, and Weaverville Realty Company, LLC,
which is organized as a limited liability company.
<PAGE> 19
QUEENS GROUP, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE 39 WEEKS ENDED SEPTEMBER 27, 1998 (UNAUDITED)
The Company considers all highly liquid
investments with original maturities of three
months or less to be cash equivalents.
The Company maintains cash deposits with major
banks. The Company has not experienced any losses
on these deposits. Excess cash may be invested in
money market funds or other short-term,
income-producing securities.
Inventories are stated at the lower of cost,
determined by the first-in, first-out method, or
market. Components of inventories include
materials, labor and overhead costs.
Depreciation and amortization of property, plant
and equipment is being provided for by
straight-line and accelerated methods over the
estimated useful lives of the assets.
Deferred bond and mortgage costs capitalized as
part of the financing of real estate owned are
amortized over the life of the related bond or
mortgage and are included in other assets in the
accompanying combined balance sheet.
The Company periodically evaluates the possible
impairment of property, plant and equipment by
comparing the estimated future undiscounted cash
flows from the assets to the net carrying value
of the related asset.
The stockholders of the Company have consented
that the corporations be treated as small
business corporations ("S Corporations") for
federal income tax purposes and, where available,
state income tax purposes under the applicable
sections of the Internal Revenue Code (the
"Code") and state tax regulations. In addition,
the Partnerships and Limited Liability Company
are not responsible for payment of income taxes.
Accordingly, there is no provision for federal
taxes on the Partnerships, Limited Liability
Company or the S Corporations as such earnings
will flow through directly to the Company's
partners, members and stockholders. Certain of
the states for which the Company has elected S
Corporation status impose income taxes on S
Corporations at reduced rates. The liability for
income taxes represents current state and local
income taxes to which the Company is subject.
<PAGE> 20
QUEENS GROUP, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE 39 WEEKS ENDED SEPTEMBER 27, 1998 (UNAUDITED)
Since it is the Company's intention to make
distributions to fund the owners' income tax
obligations arising from the flow-through of its
earnings, distributions made subsequent to
September 27, 1998 related to earnings prior to
September 27, 1998 are accrued as distributions
payable.
Derivative financial instruments are used by the
Company in the management of its interest rate
exposures and are accounted for on the accrual
basis.
The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make estimates
and assumptions that affect the reported amounts
of assets and liabilities and disclosure of
contingent assets and liabilities at the date of
the financial statements, and the reported
amounts of revenues and expenses during the
reporting period. Actual results could differ
from those estimates.
3. INVENTORIES: Inventories consist of the following:
<TABLE>
<CAPTION>
September 27,
1998
------------------------------------------------------
<S> <C>
Work-in-process $ 1,649,000
Paper 1,235,000
Finished goods 2,300,000
Inks, glues, plates and supplies 1,043,000
------------------------------------------------------
$ 6,227,000
======================================================
</TABLE>
4. COMMITMENTS The Company is subject to various federal, state
AND and local laws and regulations governing
CONTINGENCIES: environmental matters, including the use,
discharge and disposal of hazardous materials. The
Company recently became aware of potential
environmental matters at its Indiana facility and
has engaged an independent consultant to assist
management in evaluating the potential liabilities
related to these matters. These matters include
soil and groundwater contamination. The estimated
range of reasonably possible costs of further
investigation and remediation is between $55,000
and $585,000.
<PAGE> 21
QUEENS GROUP, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE 39 WEEKS ENDED SEPTEMBER 27, 1998 (UNAUDITED)
5. SUBSEQUENT EVENTS: On October 30, 1998, Shorewood Packaging
Corporation ("Shorewood") purchased substantially
all of the assets and assumed substantially all of
the liabilities of the Company for a purchase
price of $129.5 million comprised of approximately
$113.7 million in cash including the assumption of
debt, and 1.0 million shares of Shorewood common
stock. Simultaneously with the closing of the
transaction, Shorewood repaid substantially all
the outstanding debt of the Company, approximating
$19.0 million.
<PAGE> 22
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined statements of earnings give
pro forma effect to the completion of the acquisition of the printing and
packaging business and substantially all the assets of Queens Group, Inc.
("Queens") and certain entities affiliated with Queens, as if it had occurred at
May 4, 1997. Queens was acquired effective September 28, 1998 and is therefore
included in the Company's unaudited consolidated balance sheet as of October 31,
1998 included in the Company's Quarterly Report on Form 10-Q, filed on December
15, 1998. Thus, a pro forma balance sheet has been omitted from the pro forma
presentation. This pro forma information should be read in conjunction with the
historical financial statements of Shorewood Packaging Corporation ("Shorewood"
or the "Company") included in its Annual Report on Form 10-K for the 52 weeks
ended May 2, 1998 and in its Quarterly Report on Form 10-Q for the 26 weeks
ended October 31, 1998, and the historical financial statements of Queens
appearing elsewhere herein.
The pro forma adjustments reflecting the consummation of the acquisition on the
purchase method of accounting are based on available financial information and
certain estimates and assumptions set forth in the notes to the Unaudited Pro
Forma Condensed Combined Statements of Earnings.
The following unaudited pro forma condensed combined statements of earnings are
presented for illustration purposes only and are not necessarily indicative of
the future results of operations of the combined businesses or the results of
operations of the combined businesses had the acquisition occurred on May 4,
1997. For purposes of preparing its consolidated financial statements, Shorewood
will establish a new basis for Queens' assets and liabilities based upon the
fair values thereof and Queens' purchase price thereof, including the costs of
the acquisition. The Unaudited Pro Forma Condensed Combined Statements of
Earnings reflect Shorewood's best estimates; however, the actual results of
operations may differ from the pro forma amounts.
<PAGE> 23
SHOREWOOD PACKAGING CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
FOR THE 26 WEEKS ENDED OCTOBER 31, 1998
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
SHOREWOOD QUEENS (a)
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C>
Net Sales $ 260,737 $ 65,503 $ - $ 326,240
----------- ----------- --------- -----------
Costs and Expenses:
Cost of Sales 200,207 50,489 155 (b) 250,851
Selling, General and Administrative 28,903 10,522 985 (c) 39,242
----------- ----------- --------- -----------
(1,168)(b)
Earnings from Operations 31,627 4,492 (1,140) 36,147
Other Income, net 859 939 (939)(d) 859
Interest Expense (5,091) (622) (2,462)(e) (8,175)
----------- ----------- --------- -----------
Earnings Before Provision for Income Taxes,
Extraordinary Item and Cumulative Effect of
a Change in Accounting Principle 27,395 4,809 (4,541) 28,831
Provision for Income Taxes 10,685 93 466 (f) 11,244
----------- ----------- --------- -----------
Earnings Before Extraordinary Item and
Cumulative Effect of a Change in Accounting
Principle $ 16,710 $ 4,716 $ (5,007) $ 17,587
=========== =========== ========= ==========
EARNINGS PER SHARE INFORMATION:
BASIC:
Earnings Before Extraordinary Item and
Cumulative of a Change in Accounting
Principle $ .63 $ .64
=========== ===========
DILUTED:
Earnings Before Extraordinary Item and
Cumulative of a Change in Accounting
Principle $ .62 $ .63
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 26,473 808 (g) 27,281
=========== ========= ===========
Diluted 27,097 808 (g) 27,905
=========== ========= ===========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined statements of
earnings.
<PAGE> 24
SHOREWOOD PACKAGING CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
FOR THE 52 WEEKS ENDED MAY 2, 1998
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
SHOREWOOD QUEENS (h)
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C>
Net Sales $ 415,386 $ 150,896 $ - $ 566,282
----------- ----------- ---------- -----------
Costs and Expenses:
Cost of Sales 319,728 115,773 371 (b) 435,872
Selling, General and Administrative 46,410 23,313 2,430 (c) 69,350
----------- ----------- ---------- -----------
(2,803)(b)
Earnings from Operations 49,248 11,810 (2,801) 61,060
Other Income, net 743 1,367 (1,367)(d) 743
Interest Expense (7,649) (1,462) (6,155)(e) (15,266)
----------- ----------- ---------- ----------
Earnings Before Provision for Income Taxes 42,342 11,715 (10,323) 46,537
Provision for Income Taxes 16,047 226 1,365 (f) 17,638
----------- ----------- ---------- -----------
Net Earnings $ 26,295 $ 11,489 $ (11,688) $ 28,899
=========== =========== ========== ===========
EARNINGS PER SHARE INFORMATION:
BASIC:
Net Earnings $ .97 $ 1.03
=========== ===========
DILUTED:
Net Earnings $ .95 $ 1.01
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 27,057 1,000 (g) 28,057
=========== ========== ===========
Diluted 27,723 1,000 (g) 28,723
=========== ========== ===========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined statements of
earnings.
<PAGE> 25
SHOREWOOD PACKAGING CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(Dollar amounts in thousands)
(a) Represents the historical financial statements of Queens for the 21 weeks
ended September 27, 1998. The historical results of Queens from September
28, 1998 through October 31, 1998 are included within the historical
results of Shorewood.
(b) Represents an adjustment to the historical salary expense of Queens
relating to new contracts entered into with certain executives as part of
the business combination, and certain reclassifications in order to conform
the Queens financial statement classifications to the Company's.
(c) Represents the amortization of goodwill calculated as of May 4, 1997.
Goodwill is being amortized over an estimated useful life of 40 years.
Goodwill and the related amortization expense are subject to possible
adjustment resulting from the completion of the final purchase price
adjustments and appraisals.
(d) Represents the elimination of historical other income of a Queens
affiliated entity that was not acquired.
(e) Represents the interest expense on the borrowings used to fund the Queens
acquisition at an interest rate of 6.5%.
(f) Queens consisted of "S" corporations prior to the consummation of the
acquisition. This adjustment reflects the net increase in the provision for
income taxes assuming (i) Queens was a "C" corporation and (ii) the
increase in net expenses described in notes (b), (c), (d) and (e) above.
(g) Represents the weighted average shares issued in connection with the
acquisition.
(h) Represents the historical financial statements of Queens for the 52 weeks
ended May 3, 1998.
<PAGE> 26
SIGNATURES
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
SHOREWOOD PACKAGING CORPORATION
By: /s/ William H. Hogan
William H. Hogan
Vice President -
Finance and Corporate Controller
Date: January 13, 1999
<PAGE> 1
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in Registration Statements Nos.
33-16409, 33-38259 and 33-78614 of Shorewood Packaging Corporation each on Form
S-8 and to the incorporation by reference in Registration Statement No. 333-3671
of Shorewood Packaging Corporation on Form S-3 of our report dated March 12,
1998 on the combined financial statements of Queens Group, Inc. and Affiliates
as of December 28, 1997 and December 29, 1996 and for the years then ended.
s/s Goldstein Golub Kessler LLP
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
January 12, 1998
