SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended September 30, 1996 Commission File Number 33-24317
JORDAN INDUSTRIES, INC.
(Exact name of registrant as specified in charter)
Illinois 36-3598114
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ArborLake Centre, Suite 550 60015
1751 Lake Cook Road, (Zip Code)
Deerfield, Illinois
(Address of Principal Executive Offices)
Registrant's telephone number, including Area Code:
(847) 945-5591
Former name, former address and former fiscal year, if changed since last
report: Not applicable.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (12) months (or for such shorter period that
the registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past ninety (90) days.
Yes X No
The aggregate market value of voting stock held by non-affiliates of the
Registrant is not determinable as such shares were privately placed and there is
currently no public market for such shares.
The number of shares outstanding of Registrant's Common Stock as of
November 14, 1996: 93,501.0004
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PAGE 2
FORM 10-Q QUARTERLY REPORT
JORDAN INDUSTRIES, INC.
INDEX
Part I. Page No.
Financial Information
Condensed Consolidated Balance Sheets
at September 30, 1996 and December 31, 1995 3
Condensed Consolidated Statements of Operations
for the Third Quarter and Nine Months Ended
September 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1996
and 1995 5
Notes to Condensed Consolidated Financial
Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Part II.
Other Information 18
Signatures 19
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PAGE 3
JORDAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(ALL DOLLAR AMOUNTS IN THOUSANDS)
September 30, December 31,
1996 1995
(unaudited) (audited)
ASSETS
Current Assets:
Cash and cash equivalents $ 18,563 $ 41,253
Accounts receivable - net 84,386 72,324
Inventories 113,888 84,259
Prepaid expenses and other current
assets 9,977 7,566
Total Current Assets 226,814 205,402
Property, plant and equipment - net 113,720 91,422
Investments in and advances to affiliates 14,222 23,087
Goodwill - net 254,798 180,315
Other assets 51,777 32,158
Total Assets $661,331 $532,384
LIABILITIES AND NET CAPITAL DEFICIENCY
Current Liabilities:
Notes payable - line of credit $108,012 $ 16,239
Accounts payable 43,813 49,086
Accrued liabilities 34,298 26,867
Advance deposits 1,601 1,830
Current portion of long-term debt 15,595 11,705
Total Current Liabilities 203,319 105,727
Long-term debt 534,127 497,977
Other non-current liabilities 13,836 3,159
Net Capital Deficiency:
Common stock 1 1
Additional paid-in capital 2,972 2,972
Accumulated deficit (92,924) (77,452)
Total Net Capital Deficiency (89,951) (74,479)
Total Liabilities and Net Capital
Deficiency $661,331 $532,384
See accompanying notes to condensed consolidated financial statements.
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PAGE 4
JORDAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
NINE MONTHS ENDED
THIRD QUARTER SEPTEMBER 30,
1996 1995 1996 1995
Net sales $158,099 $123,708 $425,319 $343,310
Cost of sales, excluding
depreciation 97,231 78,280 261,284 214,657
Selling, general and administra-
tive expenses 38,801 29,538 103,545 85,345
Depreciation 4,991 3,132 13,651 8,937
Amortization of goodwill and other
intangibles 3,216 1,865 8,372 5,425
Stock appreciation rights expense 9,022 150 9,322 250
Loss on acquisition of affiliated
company 4,488 - 4,488 -
Management fees and other 1,233 584 3,337 1,785
Operating (loss) income (883) 10,159 21,320 26,911
Other (income) and expenses:
Interest expense 16,312 11,656 45,288 32,911
Interest income (651) (1,188) (1,995) (2,059)
Total other (income) expenses 15,661 10,468 43,293 30,852
Loss before income taxes
and minority interest (16,544) (309) (21,973) (3,941)
(Benefit from) provision for income
taxes (6,102) 423 (4,858) 506
Loss before minority interest (10,442) (732) (17,115) (4,447)
Minority interest (498) 50 (1,584) (850)
Net loss $ (9,944) $ (782)$(15,531)$ (3,597)
See accompanying notes to condensed consolidated financial statements.
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PAGE 5
JORDAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
Cash flows from operating activities:
Net loss $ (15,531) $(3,597)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 24,549 15,505
Benefit from deferred income taxes (5,593) (388)
Loss on acquisition of affiliated company 4,488 -
Minority interest (1,584) (850)
Non-cash interest 8,876 7,918
Changes in operating assets and
liabilities net of effects from
acquisitions:
Increase in current assets (4,329) (29,712)
Decrease in current liabilities (12,564) (12,969)
Increase in non-current assets (2,664) (5,070)
Increase in non-current liabilities 2,093 -
Net cash used in operating activities (2,259) (29,163)
Cash flows from investing activities:
Capital expenditures (12,466) (8,102)
Notes receivable from affiliates (5,263) (16,032)
Acquisition of subsidiaries (120,680)(102,125)
Cash acquired in purchase of subsidiaries 4,853 -
Acquisitions of minority interests and other (306) (6,076)
Investment in Fannie May Holdings - (1,722)
Proceeds from asset sale - 732
Net cash used in investing activities (133,862)(133,325)
Cash flows from financing activities:
Repayment of long-term debt (11,961) (1,726)
Proceeds from revolving credit facilities, net 93,999 18,215
Proceeds from debt issuance - MK Holdings, Inc. 20,000 72,500
Proceeds from debt issuance - SPL Holdings, Inc. 13,000 33,000
Deferred financing costs (1,559) (2,134)
Other (48) 340
Net cash provided by financing activities 113,431 120,195
Net decrease in cash and cash equivalents (22,690) (42,293)
Cash and cash equivalents at beginning of period 41,253 56,386
Cash and cash equivalents at end of period $ 18,563 $14,093
Cash paid during the period for:
Interest $ 42,055 $29,929
Income taxes, net $ 2,648 $ 1,224
Non-cash investing and financing activities:
Capital leases $ 4,582 $ 9,563
Seller notes issued in acquisitions $ 3,000 $ -
See accompanying notes to condensed consolidated financial statements.
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PAGE 6
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
A. Organization
The unaudited condensed consolidated financial statements, which reflect all
adjustments that management believes necessary to present fairly the results
of interim operations, should be read in conjunction with the Notes to the
Consolidated Financial Statements (including the Summary of Significant
Accounting Policies) included in the Company's audited consolidated financial
statements for the year ended December 31, 1995, which are included in the
Company's Annual Report filed on Form 10-K for such year (the "1995 10-K").
Results of operations for the interim periods are not necessarily indicative
of annual results of operations.
B. Inventories
Inventories are summarized as follows:
September 30, December 31,
1996 1995
Raw materials $ 27,016 $24,251
Work in process 13,991 5,968
Finished goods 72,881 54,040
$113,888 $84,259
C. Notes receivable from affiliates and investment in affiliate
On July 29, 1996, the Company acquired the stock of Cape Craftsmen, Inc.
("Cape Craftsmen") in exchange for $12,128 of notes receivable from Cape
Craftsmen. Since the Company and Cape Craftsmen have common ownership, the
net assets of Cape Craftsmen were recorded at the historical basis, $7,640,
and resulted in a loss of $4,488.
On May 15, 1995, the Company purchased $7,500 aggregate principal amount of
Subordinated Notes and 75.6133 shares of Junior Class A PIK Preferred Stock
of Fannie May Holdings, Inc. ("Fannie May") at face value for $9,071.
The Company also acquired 151.28 shares of Common Stock of Fannie May
(representing 15.1% of the outstanding Common Stock of Fannie May on a fully
diluted basis) for $151. These shares of Fannie May Common Stock were
purchased from the John W. Jordan II Revocable Trust. On June 28, 1995, the
Company purchased from The First National Bank of Chicago $7,000 aggregate
principal amount of participation in term loans of Archibald Candy
Corporation, a wholly owned subsidiary of Fannie May, for $7,000, and agreed
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PAGE 7
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
to purchase up to an additional $3,000 aggregate principal amount of such
participation, depending upon the financial performance of Fannie May. The
additional $3,000 obligation is secured by a pledge from the Company with a
$3,000 certificate of deposit purchased by the Company.
Fannie May's Chief Executive Officer is Mr. Quinn, and its stockholders
include Mr. Jordan, Mr. Quinn, Mr. Zalaznick, and Mr. Boucher, who are
directors and stockholders of the Company, as well as other partners,
principals and associates of The Jordan Company, who are also stockholders
of the Company. Fannie May, which is also known as "Fannie May Candies", is
a manufacturer and marketer of kitchen-fresh, high-end boxed chocolates
through its 375 company-owned retail stores and through specialty sales
channels. Its products are marketed under both the "Fannie May Candy" and
"Fanny Farmer Candy" names.
On July 29, 1996, Mr. Jordan purchased $2,000 of the Fannie May Subordinated
Notes from the Company at face value plus accrued interest.
D. Accounting for Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes, and the amounts used for income tax purposes.
Significant components of the Company's deferred tax liabilities and assets
as of September 30, 1996 and December 31, 1995 are as follows:
September 30, December 31,
1996 1995
Deferred tax liabilities
Tax over book depreciation $ 8,149 $ 7,368
Other 2,046 1,447
Total deferred tax liabilities 10,195 8,815
Deferred tax assets
NOL carryforwards 24,642 20,060
Accreted interest on discount debentures 11,127 8,187
Other 1,833 2,774
Total deferred tax assets 37,602 31,021
Valuation allowance for deferred
tax assets (21,074) (21,466)
Net deferred tax assets 16,528 9,555
Net deferred tax assets $(6,333) $ (740)
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PAGE 8
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
E. Acquisition of subsidiaries
On January 23, 1996, the Company purchased the net assets of Johnson
Components, Inc. ("Johnson"), a manufacturer of RF coaxial connectors and
electronic hardware. The purchase price of $16,500, including costs incurred
directly related to the transaction, was allocated to working capital of
$1,634, property, plant and equipment of $3,330, and non-compete agreements
of $1,050, and resulted in an excess purchase price over net identifiable
assets of $10,486. The acquisition was financed with cash.
On March 8, 1996, Merkle-Korff, owned by a non-restricted subsidiary, M-K
Group, Inc., acquired the net assets of Barber-Colman Motors ("Colman
Motor Products", formerly "Barber-Colman"), a division of Barber-Colman
Company, which was wholly-owned by Siebe, plc. This division consisted of
Colman OEM and Colman Motor Products, wholly-owned subsidiaries of Barber-
Colman Company, and the motors division of Barber-Colman Company,
collectively, Colman Motor Products ("CMP"). CMP is a vertically integrated
manufacturer of sub fractional horsepower AC/DC motors and gear motors with
applications in such products as vending machines, copiers, printers, ATM
machines, currency changers, X-ray machines, peristaltic pumps, HVAC
actuators, and other products.
The purchase price of $21,700, which included costs incurred directly related
to the transaction, was allocated to working capital of $5,111, property,
plant and equipment of $6,541, non-compete agreements of $1,000, and resulted
in an excess purchase price over net identifiable assets of $9,048. The
acquisition was financed with $21,700 of new and existing credit facilities.
M-K Holdings, Inc. is 87.6% owned by the Company and 12.4% owned by
affiliates of the Company, including partners and affiliates of the Jordan
Company, including Mr. Jordan, Mr. Quinn, Mr. Zalaznick, and Mr. Boucher.
On May 1, 1996, the Company through its non-restricted subsidiary, SPL
Holdings, Inc., acquired the net assets of Seaboard Folding Box Corporation
("Seaboard"), a manufacturer of printed folding cartons and boxes, insert
packaging, and blister pack cards.
The purchase price of $27,500, including costs incurred directly related to
the transaction, was allocated to working capital of $6,465, property, plant
and equipment of $5,455, non-compete agreements of $1,000, and resulted in
an excess purchase price over net identifiable assets of $14,580. The
acquisition was financed with cash of $2,000 from the Company, a $1,500
subordinated seller note, a new $13,000 term loan, and $11,000 from the
existing SPL Holdings, Inc. revolving credit facility.
SPL Holdings, Inc. is 83.3% owned by the Company and 16.7% owned by certain
affiliates of the Company, including partners and affiliates of The Jordan
Company, including Mr. Jordan, Mr. Quinn, Mr. Zalaznick, and Mr. Boucher.
<PAGE>
PAGE 9
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
On June 25, 1996, the Company purchased the stock of Diversified Wire and
Cable, Inc. ("Diversified"), a provider and value added re-seller of wire,
cable and custom cable assemblies.
The purchase price of $22,950, including costs incurred directly related to
the transaction, was allocated to working capital of $2,738, property, plant
and equipment of $500, non-compete agreements of $500, and resulted in an
excess purchase price over net identifiable assets of $19,212. The
acquisition was financed with cash and a $1,500 subordinated seller note.
The purchase price includes a contingent purchase price payment of $3,200
over the next four years if certain levels of EBIT (as defined) are achieved.
Immediately after Diversified was purchased by the Company, the seller
acquired a 12.5% interest in Diversified.
On August 1, 1996, the Company purchased the net assets of Viewsonics, Inc.
and Shanghai Viewsonics Electric Co., Ltd. ("Viewsonics"), a designer and
manufacturer of cable TV electronic network components and electronic
security components.
The purchase price of $20,000, including costs incurred directly related to
the transaction was allocated to working capital of $2,568, property, plant
and equipment of $130, non-compete agreements of $30, and resulted in an
excess purchase price over net identifiable assets of $17,272. The
acquisition was financed with cash. The purchase price includes a contingent
purchase price payment of $5,000 over the next two years if certain levels
of EBIT (as defined) are achieved.
On August 5, 1996, the Company purchased the stock of Vitelec Electronics,
Limited ("Vitelec"), a United Kingdom based importer, packager, and master
distributor of over 400 RF connectors sold to commercial and consumer
electronic markets.
The purchase price of $15,500, including costs incurred directly related to
the transaction was allocated to working capital of $1,488, property, plant
and equipment of $1,053, and resulted in an excess purchase price over net
identifiable assets of $12,959. The acquisition was financed with cash. The
purchase price includes a contingent purchase price payment of $1,500 payable
in years five through ten if certain levels of EBIT (as defined) are
achieved.
On September 20, 1996, the Company, through its wholly-owned subsidiary Bond
Holdings, Inc., purchased 80% of the outstanding common stock of Bond
Technologies, Inc. ("Bond"). The remaining 20% ownership has been retained
by the sellers. Bond designs, engineers and manufactures custom electronic
cables and connectors for high technology, computer related and
telecommunication customers.
The purchase price of $8,629, which included costs incurred directly related
to the transaction, was allocated to working capital of $2,099, property,
plant and equipment of $902, non compete agreements of $800, other assets of
$553, a minority interest and debt assumed of $264, and resulted in an excess
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PAGE 10
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
purchase price over net identifiable assets of $4,539. The purchase price
includes $700 of cash held in escrow which will be paid to the sellers at a
pre-determined date if certain levels of EBIT (as defined) are achieved. The
acquisition was financed with cash.
On November 8, 1996, the Company purchased the net assets of Paw Print
Mailing List Services, Inc. ("Paw Print"), a value-added provider of direct
mail services.
The purchase price of $12,250, including costs incurred directly related to
the transaction, has not been allocated at this time. The acquisition was
financed with cash and a $2,500 Subordinated Seller Note.
Unaudited pro forma information with respect to the Company as if the 1996
acquisitions had occurred on January 1, 1996 and 1995 is as follows:
Nine months Nine months
ended September ended September
30, 1996 30, 1995
(unaudited)
Net sales $476,823 $481,967
Net (loss) income before
extraordinary items (10,756) 4,957
Net (loss) income (10,756) 4,957
F. Revolving Credit Facility
On July 31, 1996, the Company amended and restated its revolving credit
facility with the First National Bank of Boston and other banks, increasing
the facility amount from $50,000 to $85,000. The facility, which matures on
June 29, 1999, will be used for working capital and acquisitions over the
term of the loan.
G. Motors and Gears Refinancing
On November 7, 1996, Motors and Gears, Inc. ("Motors and Gears", formerly
"M-K Group, Inc.") completed its offering of $175,000 aggregate principal
amount of Series A Senior Notes due 2006. The Senior Notes were priced at
par to yield 10 3/4% per annum.
Motors and Gears is a "non-restricted" subsidiary of the Company and
indirectly owns Merkle-Korff Industries, Inc. and Colman Motor Products,
which are also "non-restricted" subsidiaries of the Company. In connection
with the issuance of the Senior Notes, Motors and Gears acquired the
businesses and net assets of the Company's restricted subsidiaries, Imperial
Electric Company, Scott Motors Company and Gear Research, Inc. for $75,000
in cash, the assumption of and/or refinancing of approximately $5,100 in
liabilities and a contingent earnout agreement.
<PAGE>
PAGE 11
JORDAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Motors and Gears used the proceeds of the issuance of the Senior Notes to:
(i) fund the cash portion of the purchase price payable by Motors and Gears
in connection with its acquisition of the businesses and net assets of
Imperial Electric Company, Scott Motors Company and Gear Research, Inc. from
the Company and (ii) repay certain indebtedness under Merkle-Korff's existing
credit agreement. In connection with the issuance of the Senior Notes,
Merkle-Korff refinanced its existing credit facility and certain subsidiaries
of Motors and Gears entered into a new revolving credit facility providing
for revolving loans of up to $75,000.
The Company applied the net proceeds received from Motors and Gears to repay
senior indebtedness.
H. Stock Appreciation Rights
In connection with the acquisitions of AIM and Cambridge, the seller was
granted stock appreciation rights. The formula used to value these rights
is calculated by taking a multiple of average cash flow for the year in which
the rights are exercised and the year preceding the year of exercise less the
amounts of notes payable to the Company multiplied by a certain percentage.
This percentage was increased from 10% to 20% during 1995. The seller passed
away during the third quarter of 1996. It is anticipated that the seller's
estate will exercise these rights. Assuming that the estate exercises the
rights at December 31, 1996, the total amount owed under this agreement will
be approximately $6,200. The amount accrued by AIM through September 30,
1996, was $1,200 resulting in an additional $5,000 charge to AIM. Payment
of this agreement is due in the first quarter of 1997.
In October 1996, the Company entered into an agreement whereby the President
and Chief Executive Officer of Imperial was granted Stock Appreciation Rights
related to 10% of the appreciation of Imperial and other Imperial
subsidiaries from January 1, 1988, the date of acquisition, to the present.
The President and Chief Executive Officer exercised his rights in the third
quarter of 1996. The amount owed under this agreement is $3,900. The
exercise of this agreement resulted in a $3,900 charge to the Company. The
payment obligations related to this agreement are as follows: one-third or
$1,300 was paid in October 1996, the remaining two-thirds, or $2,600, is to
be paid in six equal, semi-annual installments payable on each October 1 and
April 1 commencing on April 1, 1997, all to be paid by the Company.
<PAGE>
PAGE 12
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in the 1995 10-K, the financial statements and the related notes
thereto which are included elsewhere in this quarterly report.
Results of Operations (Dollar Amounts in Thousands)
Summarized below are the net sales, operating income and operating margins
(as defined) for each of the Company's business segments for the third
quarter and nine months ended September 30, 1996 and 1995. Acquisitions are
included from the date of acquisition. This discussion reviews the foregoing
segment data and certain of the consolidated financial data for the Company.
NINE MONTHS ENDED
THIRD QUARTER SEPTEMBER 30,
1996 1995 1996 1995
Net Sales:
Specialty Printing and Labeling $ 29,476 $ 24,688 $ 75,155 $ 64,641
Motors and Gears 30,575 11,152 90,153 30,641
Telecommunications Products 39,144 27,434 90,733 71,570
Welcome Home 20,654 23,000 51,873 53,134
Consumer and Industrial Products 38,250 37,434 117,405 123,324
Total $158,099 $123,708 $425,319 $343,310
Operating Income (a):
Specialty Printing and Labeling $ 1,878 $ 1,954 $ 3,926 $ 4,431
Motors and Gears 6,883 2,640 20,694 7,446
Telecommunications Products 966 4,731 10,912 12,798
Welcome Home (1,757) (110) (6,672) (3,535)
Consumer and Industrial Products 5,375 4,643 15,797 17,278
Total $ 13,345 $13,858 $44,657 $ 38,418
Operating Margins (b):
Specialty Printing and Labeling 6.4% 7.9% 5.2% 6.9%
Motors and Gears 22.5 23.7 23.0 24.3
Telecommunications Products 2.5 17.2 12.0 17.9
Welcome Home (8.5) (.5) (12.9) (6.7)
Consumer and Industrial Products 14.1 12.4 13.5 14.0
Total 8.4 11.2 10.5 11.2
(a) Before corporate overhead of $5,868, the write-off of $4,488 in notes
receivable resulting from the Cape Craftsmen acquisition, and the
charge of $3,872 for Imperial's SARA expense in the third quarter of
1996 and corporate overhead of $3,699 in the third quarter of 1995.
Before corporate overhead of $14,977 and the other charges discussed
above for the nine months of 1996, and corporate overhead of $11,507
for the nine months ended September 30, 1995. The telecommunications
products operating income includes the AIM SARA expense of $5,200 and
$5,500 in the third quarter and nine months ended September 30, 1996,
respectively, and $200 and $300 in the third quarter and nine months
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PAGE 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ended September 30, 1995, respectively.
(b) Operating margin is operating income divided by net sales.
Consolidated Results: (See Condensed Consolidated Statements of Operations.)
Operating income decreased $5.6 million or 20.8% for the first nine months
due primarily to an increase in SARA expenses, $9.1 million, and a loss
resulting from the acquisition of Cape Craftsmen, $4.5 million. Excluding
these charges, operating income would have increased $8.0 million or 29.7%
as compared to the prior year. Partially offsetting the decrease in
operating income are increases in operating income stemming from the
acquisitions of Merkle-Korff and Colman Motors in the Motors and Gears Group,
Johnson Components, Diversified, Viewsonics and Vitelec in the
Telecommunications Products Group, and Seaboard in the Specialty Printing and
Labeling Group. Nine month interest expense increased from $32.9 million to
$45.3 million due to higher debt levels from the acquisitions. Nine month
interest income decreased from $2.1 million to $2.0 million. The Company
incurred a net loss of $15.5 million in the first nine months of 1996 as
compared to a net loss of $3.6 million for the same period in 1995. The
increase in the net loss is primarily due to increased interest expense
coupled with the decline in operating income, as noted above.
Specialty Printing and Labeling. As of September 30, 1996, the Specialty
Printing and Labeling group consisted of SPAI, Valmark, Pamco and Seaboard.
For the third quarter and first nine months of 1996, net sales increased $4.8
million or 19.4% and $10.5 million or 16.3%, respectively, over the same
periods in 1995. The increase in sales was primarily due to the acquisition
of Seaboard on May 1, 1996. For the quarter, Seaboard sales of $6.5 million
and increased sales of calendars and ad specialties at SPAI, $.4 million,
were partially offset by decreased sales of shielding devices at Valmark,
$2.0 million. For the nine months ended September 30, 1996, Seaboard sales
of $11.3 million were supplemented by increased sales of outside ad
specialties at SPAI, $.5 million. These sales increases were partially
offset by decreased sales of shielding devices at Valmark, $1.3 million.
For the third quarter and first nine months of 1996, operating income
decreased $.1 million or 3.9% and $.5 million or 11.4%, respectively, over
the same periods of 1995. Operating margins decreased from 7.9% to 6.4% in
the third quarter and from 6.9% to 5.2% in the first nine months over the
same periods in the prior year. The decrease in operating income for the
quarter was due to decreases at Valmark, $.9 million, and Pamco, $.3 million,
both of which were partially offset by the purchase of Seaboard, which
contributed $1.1 million of operating income. For the first nine months, the
decrease was due to decreases at SPAI, $.7 million, Valmark, $1.1 million,
and Pamco, $.6 million, partially offset by the addition of Seaboard, $1.9
million. Operating income and operating margins decreased due to increased
medical insurance costs at SPAI plus lower sales and increased selling
expenses at Valmark and Pamco.
Motors and Gears. As of September 30, 1996, the Motors and Gears group
consisted of Imperial, Scott, Gear, Merkle-Korff, and Colman Motor Products.
<PAGE>
PAGE 14
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the third quarter and first nine months of 1996, net sales increased
$19.4 million or 174.2% and $59.5 million or 194.2%, respectively, over the
same periods last year. The increase in sales was driven by the acquisition
of Merkle-Korff in 1995 which added additional sales of $14.3 million and
$43.5 million in the third quarter and first nine months of 1996,
respectively. Sales also increased due to the purchase of Colman Motor
Products in early 1996, which contributed $5.6 million and $13.1 million in
net sales for the third quarter and the first nine months of 1996,
respectively. Further contributing to the third quarter sales increase was
increased gear sales at Gear, $.2 million, coupled with increased sales of
motors at Scott, $.1 million. Partially offsetting these sales increases
were decreased sales of permanent magnet and elevator motors at Imperial, $.2
million, and $.3 million, respectively. Imperial increased capacity in two
plants in the third quarter of 1995. This allowed Imperial to reduce its
backlog and improve lead times, resulting in higher than historical sales
levels. In addition to the acquisitions in 1995 and 1996, net sales for the
nine months ended September 30, 1996, increased due to higher sales of
permanent magnet motors at Imperial, $3.1 million. The nine month sales
increases were partially offset by decreased sales of gears at Gear, $.4
million.
For the third quarter and first nine months of 1996, operating income
increased $4.2 million or 160.7% and $13.2 million or 177.9%, respectively,
over the same periods last year. Operating margins decreased from 23.7% to
22.5% for the quarter and from 24.3% to 23.0% for the first nine months,
respectively. The increase in operating income for the third quarter was
driven by the acquisitions of Merkle-Korff and Colman Motor Products, which
contributed an additional $3.8 million and $.7 million, respectively, over
the same periods last year. Partially offsetting the third quarter operating
income gains was decreased operating income at Imperial, $.3 million. The
decrease was due to the added capacity described above. As in the third
quarter, the increase in operating income for the nine months ended
September 30, 1996, was due to the Merkle-Korff and Barber-Colman
acquisitions, which contributed $11.2 million and $1.5 million, respectively,
over the same period in 1995. Also in the nine month period, operating
income increased at Imperial and Scott, $.4 million and $.3 million,
respectively, partially offset by a decrease at Gear, $.2 million. Operating
margins decreased primarily due to increased amortization expense associated
with the Merkle-Korff and Colman Motor Products acquisitions.
Telecommunication Products. As of September 30, 1996, the Telecommunications
Products group consisted of Dura-Line, AIM, Cambridge, Johnson, Diversified,
Viewsonics, Vitelec, and Bond.
For the third quarter and first nine months of 1996, net sales increased
$11.7 million or 42.7% and $19.2 million or 26.8%, respectively, over the
same periods last year. The third quarter sales increase was due to
additional sales from the following acquisitions: Johnson Components, $4.1
million, Diversified, $7.3 million, Viewsonics, $2.1 million, and Vitelec,
$.9 million. Partially offsetting the increased sales were decreased
connector sales at Cambridge, $.4 million, and decreased sales of Innerduct
at Dura-Line, $2.4 million. Similar to the quarter, for the nine months
ended September 30, 1996, the increase in sales was primarily due to
acquisitions. Contributing to the sales increase were Johnson Components,
$12.4 million, Diversified, $7.3 million, Viewsonics, $2.2 million, and
Vitelec, $.9 million. In addition, sales of connectors and components
<PAGE>
PAGE 15
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
increased at AIM, $.5 million. These increases were partially offset by
decreased connector sales at Cambridge, $.8 million, and decreased Innerduct
and other conduit sales at Dura-Line, $3.0 million and $.3 million,
respectively.
For the third quarter and first nine months of 1996, operating income
decreased $3.8 million or 79.6% and $1.9 million or 14.7%, respectively, over
the same periods last year. Operating margins decreased from 17.2% to 2.5%
and 17.9% to 12.0% for the quarter and nine month period respectively. For
the quarter, the decrease in operating income was attributable to a decrease
at AIM, $4.8 million (discussed below), and a decrease at Dura-Line, $1.0
million. These decreases were partially offset by the acquisitions of
Johnson Components, $.5 million, Diversified, $.6 million, Viewsonics, $.7
million, and Vitelec, $.2 million. Similar to the quarter, the decrease in
operating income for the nine months ended September 30, 1996, was driven by
decreases at AIM, $4.6 million (discussed below), and Dura-Line, $.9 million.
These decreases were partially offset by additions to operating income as a
result of the following acquisitions: Johnson Components, $2.1 million,
Diversified, $.6 million, Viewsonics, $.7 million, and Vitelec, $.2 million.
The decrease in operating income at AIM is due to compensation expense
related to a stock appreciation rights plan ("SARA") (See footnote H). For
the quarter and nine months ended September 30, 1996, the SARA expense
increased $5.0 million and $5.2 million, respectively, as compared to the
same periods in the prior year. Excluding AIM's SARA expense, operating
income for the group would have increased $1.2 million or 26.1% for the third
quarter and $3.3 million or 25.9% for the nine month period.
In addition to the effect of AIM's SARA expense, the decline in the group's
operating margin for the quarter and nine month period is partially
attributable to the acquisition of Diversified, which operates at a lower
margin as compared to the other companies in the group. In addition, Dura-
Line's margin decreased slightly in the three month period due to the lower
sales volume. If AIM's SARA expense were excluded from operating results,
operating margins would have decreased from 17.8% to 15.6% for the quarter
and would have improved from 18.2% to 18.3% for the nine month period.
Welcome Home. For the third quarter and first nine months of 1996, Welcome
Home's net sales decreased $2.3 million or 10.2% and $1.3 million or 2.4%,
respectively, over the same periods last year. This is primarily the result
of lower levels of traffic in outlet malls where approximately 91% of Welcome
Home's stores are located. Operating loss increased $1.6 million and $3.1
million for the third quarter and first nine months, respectively. As
compared to the same periods in the prior year, operating margins decreased
from (.5%) to (8.5%) for the third quarter and (6.7%) to (12.9%) for the nine
months ended September 30, 1996, respectively. The increase in operating
loss and lower operating margin are primarily due to the decrease in sales
volume and expenses associated with the strategic initiatives the Company has
implemented to improve results in the future.
Consumer and Industrial Products. As of September 30, 1996, the Consumer and
Industrial Products group consisted of DACCO, Sate-Lite, Riverside, Parsons,
Hudson, Beemak, and Cape Craftsmen.
For the third quarter of 1996, net sales increased $.8 million or 2.2% over
the same period last year. For the nine months ended September 30, 1996, net
sales decreased $5.9 million or 4.8% over the same period last year.
<PAGE>
PAGE 16
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Contributing to the third quarter sales increase were increased sales of
rebuilt converters and soft parts at DACCO, $1.1 million and $.2 million,
respectively, increased sales of bibles and accessories at Riverside, $.2
million, increased lock sales at Hudson, $.2 million, and the acquisition of
Cape Craftsmen which contributed $.6 million to the group's net sales in the
third quarter. Partially offsetting these increases were decreased bicycle
and other reflector sales at Sate-Lite, $.4 million, and lower contract
distribution sales at Riverside, $1.1 million. Driving the nine month sales
decrease were lower scrap sales at DACCO, $1.0 million, decreased bicycle and
truck reflector sales at Sate-Lite, $.9 million, lower bibles, books and
contract distribution services sales at Riverside, $6.1 million, decreased
lock sales at Hudson, $1.0 million, and lower pog sales at Beemak, $2.5
million. Partially offsetting these decreases were increased sales of
rebuilt converters and other rebuilt parts at DACCO, $4.8 million, an
additional $.6 million of net sales due to the acquisition of Cape Craftsmen,
and increased sales of titanium hot formed parts at Parsons, $.1 million.
For the third quarter of 1996, operating income increased $.7 million or
15.8% over the same period last year. For the nine month period ended
September 30, 1996, operating income decreased $1.5 million or 8.6% over the
same period last year. Operating margins increased from 12.4% to 14.1% for
the quarter, but fell from 14.0% to 13.5% for the nine month period. The
improvement in operating income and operating margin during the third quarter
was primarily due to DACCO, which experienced increased sales of $1.3 million
or 9.8% over the same quarter last year. The decrease in operating income
and operating margin for the nine month period is primarily due to lower
sales at Sate-Lite, Riverside, Hudson, and Beemak.
Liquidity and Capital Resources. The Company had $23.5 million of working
capital at September 30, 1996, compared to $99.7 million at the end of 1995.
The decrease in working capital was due to lower cash balances, higher notes
payable, higher accrued liabilities, and higher current portion of long-term
debt, partially offset by higher accounts receivable, higher inventory,
higher prepaid expenses, lower accounts payable and lower advance deposits.
The Company's net cash used in operating activities for the nine months ended
September 30, 1996 decreased $26.9 million versus the same period in 1995.
This decrease was due to higher depreciation and amortization expense, $9.0
million, the write-off of the Cape Craftsmen note receivable in 1996, $4.5
million, higher non-cash interest, $1.0 million, a lower increase in current
assets, $25.4 million, a lower increase in non-current assets, $2.4 million,
and a higher increase in non-current liabilities, $2.1 million. Partially
offsetting these changes are a higher net loss, $11.9 million, and a higher
benefit from deferred income taxes, $5.2 million.
The net cash used in investing activities for the nine months ended September
30, 1996, increased $.5 million versus the same period in 1995. This
increase was due to higher capital expenditures of $4.4 million, and higher
acquisition of subsidiaries, $18.5 million. These increases were partially
offset by lower notes receivable from affiliates, $10.8 million, higher cash
balances acquired in the purchase of subsidiaries, $4.9 million, lower
acquisitions of minority interests and other, $5.8 million, and lower
investment in Fannie May Holdings, $1.7 million.
<PAGE>
PAGE 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The net cash provided by financing activities for the nine months ended
September 30, 1996, decreased $6.8 million versus the same period in 1995.
This decrease was due to higher debt payments of $10.2 million and lower
proceeds from the issuance of debt at both MK Holdings and SPL Holdings,
$52.5 million and $20 million, respectively. These decreases were partially
offset by higher net proceeds from revolving credit facilities, $75.8 million
and lower payments of deferred financing costs, $.6 million.
Management believes that the Company's cash on hand and anticipated funds
from operations will be sufficient to cover its working capital, capital
expenditures, debt service requirements and other fixed charge obligations
for at least the next 12 months.
<PAGE>
PAGE 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
27. EDGAR Financial Data Schedule
99. (a) Audited balance sheet of Paw Print Mailing
List Services, Inc. as of December 31, 1995,
and the related statements of income and
retained earnings and cash flows for the year
ended December 31, 1995.
(b) Audited combined balance sheet of Viewsonics,
Inc. and Shanghai Viewsonics Electronic Co.,
Ltd. as of December 31, 1995 and the related
statements of income, stockholders' equity,
and cash flows for the year ended December 31,
1995.
(c) Audited balance sheets of Diversified Wire &
Cable, Inc. as of September 30, 1995, 1994 and
1993, and the related statements of income and
changes in stockholders' equity and cash flows
for the years then ended.
(d) Audited balance sheet of Vitelec Electronics
Limited as of December 31, 1995, and the
related statement of income for the year ended
December 31, 1995.
(e) Audited balance sheet of Seaboard Folding Box
Corporation and affiliates as of December 31,
1995 and 1994, and the related combined
statements of income, stockholders' equity and
cash flows for the years then ended.
<PAGE>
PAGE 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JORDAN INDUSTRIES, INC.
November 14, 1996 By: /S/ Thomas C. Spielberger
-------------------------------
Thomas C. Spielberger
Vice President, Controller
and Principal Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 18,563
<SECURITIES> 0
<RECEIVABLES> 86,183
<ALLOWANCES> (1,797)
<INVENTORY> 113,888
<CURRENT-ASSETS> 226,814
<PP&E> 202,220
<DEPRECIATION> (88,500)
<TOTAL-ASSETS> 661,331
<CURRENT-LIABILITIES> 203,319
<BONDS> 382,981
0
0
<COMMON> 1
<OTHER-SE> (89,951)
<TOTAL-LIABILITY-AND-EQUITY> 661,331
<SALES> 425,319
<TOTAL-REVENUES> 425,319
<CGS> 261,284
<TOTAL-COSTS> 261,284
<OTHER-EXPENSES> 142,715
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45,288
<INCOME-PRETAX> (21,973)
<INCOME-TAX> 4,858
<INCOME-CONTINUING> (15,531)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,531)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
PAW PRINT MAILING LIST SERVICES, INC.
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITOR'S REPORT
YEAR ENDED DECEMBER 31, 1995
PAW PRINT MAILING LIST SERVICES, INC.
Year Ended December 31, 1995
C O N T E N T S
Reference Page
Independent Auditor's Report 1
Balance Sheet Exhibit A 2
Statement of Income
and Retained Earnings Exhibit B 3
Statement of Cash Flows Exhibit C 4
Notes to Financial Statements 5-8
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Paw Print Mailing List Services, Inc.
Elk Grove Village, Illinois
We have audited the accompanying balance sheet of PAW PRINT MAILING LIST
SERVICES, INC. as of December 31, 1995, and the related statements of income and
retained earnings and cash flows for the year 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position for PAW PRINT MAILING LIST
SERVICES, INC. as of December 31, 1995, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Blackman Kallick Bartelstein, LLP
February 21, 1996
Exhibit A
PAW PRINT MAILING LIST SERVICES, INC.
Balance Sheet
December 31, 1995
ASSETS
Current Assets
Cash and cash equivalents (Note 3) $1,326,082
Receivables
Customers (Net of allowance for doubtful
accounts of $5,000) (Note 9) 1,118,525
Other 5,265
Prepaid expenses and deposits 174,238
Total Current Assets 2,624,110
Property and Equipment, at Cost (Net of
accumulated depreciation and
amortization) (Note 4) 391,576
$3,015,686
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 44,561
Customer deposits and postage advances 230,083
Accrued expenses
Salaries, wages and other compensation 90,301
Other expenses and taxes 20,824
Total Current Liabilities 385,769
Stockholders' Equity
Common stock
Class B (Voting) - No par value; authorized-
1,000 shares; issued - 150 shares 1,000
Class C (Nonvoting) - No par value; authorized-
1,000 shares; issued - no shares -
Retained earnings (Exhibit B) 2,628,917
Total Stockholders' Equity 2,629,917
$3,015,686
The accompanying notes are an integral part of the financial statements.
<PAGE>
Exhibit B
PAW PRINT MAILING LIST SERVICES, INC.
Statement of Income and Retained Earnings
Year Ended December 31, 1995
% of Net
Amount Revenue
Net Revenue (Note 9) $9,047,678 100.00%
Expenses (Income)
Cost of sales 5,817,131 64.29
Operating expenses 1,376,268 15.21
Interest income (54,693) (.60)
Total Expenses, Net 7,138,706 78.90
Income before Income Taxes 1,908,972 21.10
Income Taxes (Note 5) 23,790 .26
Net Income 1,885,182 20.84%
Retained Earnings,
Beginning of Year 1,593,300
Less Dividends Declared (849,565)
Retained Earnings,
End of Year (Exhibit A) $2,628,917
The accompanying notes are an integral part on the financial statements.
<PAGE>
Exhibit C
PAW PRINT MAILING LIST SERVICES, INC.
Statement of Cash Flows
Year Ended December 31, 1995
Cash Flows from Operating Activities
Net income $1,885,182
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation and amortization 120,324
Increase in
Receivables (232,358)
Prepaid expenses and deposits (20,744)
Increase in
Accounts payable 13,556
Customer deposits and postage advances (20,617)
Accrued expenses 54,050
Total Adjustments (85,789)
Net Cash Provided by Operating Activities 1,799,393
Net Cash Used in Investing Activities-
Capital expenditures (297,008)
Net Cash Used in Financing Activities-
Payment of dividends (849,565)
Net Increase in Cash and Cash Equivalents 652,820
Cash and Cash Equivalents, Beginning of Year 673,262
Cash and Cash Equivalents, End of Year $1,326,082
The accompanying notes are an integral part of the financial statements.
<PAGE>
PAW PRINT MAILING LIST SERVICES, INC.
Notes to Financial Statements
Year Ended December 31, 1995
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
For purposes of the statement of cash flows, the company considers all time
deposits purchased with a maturity of three months or less and investments in
a repurchase agreement to be cash equivalents. The investments are valued at
cost, plus accrued interest, which approximates fair market value.
Property and Equipment
The company's policy is to depreciate or amortize property and equipment over
the estimated useful lives of the assets as indicated in the following
tabulation by use of the straight-line and accelerated methods used for tax
purposes. Leasehold improvements are amortized over the terms of the lease or
their useful lives, if shorter.
Years Method
Machinery and equipment 5 - 7 Declining balance
Leasehold improvements 3 Straight-line
Employee Benefit Plan
The company sponsors a profit-sharing plan for all employees who are eligible
based upon age and length of service. The plan provides for contributions in
such amounts as the board of directors may determine. The company funds
profit-sharing costs accrued.
Management Estimates
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.
Financial Instruments
The carrying values of the company's financial instruments approximate their
fair values.
<PAGE>
PAW PRINT MAILING LIST SERVICES, INC.
Notes to Financial Statements
Year Ended December 31, 1995
NOTE 2-INDUSTRY OPERATIONS
The company is primarily engaged in the business of providing direct marketing
services to companies. Services provided include mailing services, data
processing, fulfillment, data base management, printing/addressing and
cartage. The company grants credit to its customers, who are located
primarily in the Chicagoland area, under normal trade terms without security.
NOTE 3-CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of the following:
Checks issued in excess of
funds on deposit $ (43,943)
Time deposits 221,561
Repurchase agreement 1,148,464
$1,326,082
A repurchase agreement is a money market instrument in which the company
purchases securities, currently U.S. Treasury bills, from its bank, who agrees
to buy back the securities at an agreed-upon date, generally the following
business day.
The company maintains its cash and cash equivalents in bank deposit accounts
which, at times, may exceed federally insured limits. The company has not
experienced any losses in such accounts. The company believes it is not
exposed to any significant credit risk on cash and cash equivalents.
NOTE 4-PROPERTY AND EQUIPMENT
Machinery and equipment $ 691,171
Leasehold improvements 34,299
725,470
Accumulated depreciation
and amortization (333,894)
$ 391,576
<PAGE>
PAW PRINT MAILING LIST SERVICES, INC.
Notes to Financial Statements
Year Ended December 31, 1995
NOTE 5-INCOME TAXES
The company has elected to be taxed as an S corporation under provisions of
the Internal Revenue Code. Accordingly, the accompanying financial statements
do not reflect income taxes, except for state replacement tax.
NOTE 6-EMPLOYEE BENEFIT PLAN
The company made a discretionary profit-sharing contribution of $20,298 for
the year ended December 31, 1995.
NOTE 7-OPERATING LEASES
The company has entered into leases for its office and production facilities
and company vehicles. Total rental expense for all operating leases, except
those with terms of one month or less that were not renewed, was $111,045 for
1995.
The following is a schedule by year of future minimum rental payments required
under operating leases that have initial or remaining noncancelable lease
terms in excess of one year, as of December 31, 1995:
Year Ending December 31:
1996 $ 152,604
1997 150,657
1998 58,523
$ 361,784
NOTE 8-RELATED PARTY
The company is related to another entity through common ownership and
management. During 1995, the related party provided management services to
the company, net of salary reimbursements, of approximately $50,000.
<PAGE>
PAW PRINT MAILING LIST SERVICES, INC.
Notes to Financial Statements
Year Ended December 31, 1995
NOTE 9-TRANSACTIONS WITH MAJOR CUSTOMER
For the year ended December 31, 1995, sales to a major customer amounted to
more than 10% of net revenue. The gross amount of the revenue was
approximately $1,784,000, which includes billings of $854,000 for postage
costs, for 1995. The receivable balance for the major customer was $38,203 as
of December 31, 1995.
Combined Financial Statements
and Additional Information
Viewsonics, Inc. and
Shanghai Viewsonics Electronic Co., Ltd.
Year ended December 31, 1995
with Report of Independent Auditors
<PAGE>
Viewsonics, Inc. and
Shanghai Viewsonics Electronic Co., Ltd.
Combined Financial Statements
and Additional Information
Year ended December 31, 1995
Contents
Report of Independent Auditors 1
Combined Financial Statements
Combined Balance Sheet 2
Combined Statement of Income 3
Combined Statement of Stockholder's Equity 4
Combined Statement of Cash Flows 5
Notes to Combined Financial Statements 6
Additional Information
Combining Balance Sheet 12
Combining Statement of Income 13
<PAGE>
Combined Financial Statements
Viewsonics, Inc. and
Shanghai Viewsonics Electronic Co., Ltd.
Year ended December 31, 1995
with Report of Independent Auditors
<PAGE>
Viewsonics, Inc. and
Shanghai Viewsonics Electronic Co., Ltd.
Combined Financial Statements
Year ended December 31, 1995
Contents
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . 1
Combined Financial Statements
Combined Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . 2
Combined Statement of Income . . . . . . . . . . . . . . . . . . . . . 3
Combined Statement of Stockholder's Equity . . . . . . . . . . . . . . 4
Combined Statement of Cash Flows . . . . . . . . . . . . . . . . . . . 5
Notes to Combined Financial Statements . . . . . . . . . . . . . . . . 6
<PAGE>
Report of Independent Auditors
The Boards of Directors
Viewsonics, Inc. and
Shanghai Viewsonics Electronic Co., Ltd.
We have audited the accompanying combined balance sheet of Viewsonics, Inc. and
Shanghai Viewsonics Electronic Co., Ltd. as of December 31, 1995, and the
related combined statements of income, stockholder's equity, and cash flows for
the year then ended. These financial statements are the responsibility of the
Companies' management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Viewsonics, Inc. and
Shanghai Viewsonics Electronic Co., Ltd. at December 31, 1995, and the combined
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
----------------------
April 10, 1996
<PAGE>
Viewsonics, Inc. and
Shanghai Viewsonics Electronic Co., Ltd.
Combined Balance Sheet
December 31
1995
Assets
Current assets:
Cash $ 484,884
Accounts receivable, less allowance of $9,161 1,218,410
Accounts receivable from related entity 75,305
Inventories 2,567,198
Other current assets 18,051
Total current assets 4,363,848
Property, equipment, and leasehold improvements - Net 456,666
Other assets 12,516
$4,833,030
Liabilities and stockholder's equity
Current liabilities:
Accounts payable $ 442,938
Accrued expenses 398,259
Total current liabilities 841,197
Stockholder's equity:
Common stock 501
Additional paid-in capital 614,499
Retained earnings 3,372,658
Foreign currency translation adjustment 4,175
Total stockholder's equity 3,991,833
$4,833,030
See accompanying notes.
<PAGE>
Viewsonics, Inc. and
Shanghai Viewsonics Electronic Co., Ltd.
Combined Statement of Income
Year ended
December 31
1995
Net sales $10,997,478
Cost of sales 4,867,307
Gross profit 6,130,171
Selling, general, and administrative expenses 2,974,998
Operating income 3,155,173
Interest income 48,938
Net income $ 3,204,111
See accompanying notes.
Viewsonics, Inc. and
Shanghai Viewsonics Electronic Co., Ltd.
Combined Statement of Stockholder's Equity
Year ended December 31, 1995
Foreign
Additional Currency
Common Paid-in Retained Translation Stockhold.
Stock Capital Earnings Adjustment Equity
Balance at December 31,
1994 $501 $304,499 $4,069,643 $4,849 $4,379,492
Capital Contribution - 310,000 - - 310,000
Cash dividends paid - - (3,901,096) - (3,901,096)
Foreign currency
translation adjustment - - - (674) (674)
Net income - - 3,204,111 - 3,204,111
Balance at December 31,
1995 $501 $614,499 $3,372,658 $4,175 $3,991,833
See accompanying notes.
<PAGE>
Viewsonics, Inc. and
Shanghai Viewsonics Electronic Co., Ltd.
Combined Statement of Cash Flows
Year Ended
December 31, 1995
Cash flow from operating activities
Net income $3,204,111
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 148,387
Provision for bad debts 4,711
Changes in operating assets and liabilities:
Accounts receivable (251,571)
Accounts receivable from related entity ( 75,305)
Inventories (989,526)
Other current assets ( 9,460)
Other assets 5,687
Accounts payable 106,596
Accrued expense 204,491
Net cash provided by operating activities $2,348,121
Cash flows from investing activities
Purchases of property, equipment, and leashold
improvements (184,716)
Net cash used for investing activitities (184,716)
Cash flows from financing activities
Captial contribution 310,000
Dividends paid (3,901,096)
Net cash used for financing activities (3,591,096)
Effect of exchange rate changes on cash ( 674)
Decrease in cash (1,428,365)
Cash at beginning of period 1,913,240
Cash at end of period $ 484,884
See accompaning notes
<PAGE>
Viewsonics, Inc. and
Shanghai Viewsonics Electronic Co., Ltd.
Notes to Combined Financial Statements
December 31, 1995
1. Summary of Significant Accounting Policies
Description of Business
Viewsonics, Inc. (VSI) and Shanghai Viewsonics Electronic Co., Ltd. (SVECL),
collectively referred to as the "Companies," are commonly controlled. VSI
designs, manufactures, and markets branded cable television electronic network
component and security electronic network component products primarily to
customers located throughout the United States.
VSI is economically dependent on SVECL an affiliate located in Shanghai, China,
which sells 100% of its production to VSI. Although there are a limited number
of manufacturers of the products currently purchased from SVECL, VSI management
believes that other suppliers could provide similar products. However, the time
required to locate and qualify other suppliers, and the nature of their terms
(which would likely not be comparable to those currently in place) could cause
a delay in filling orders and may be financially disruptive to VSI.
2. Significant Accounting Policies
Basis of Combination
The combined financial statements include the accounts of VSI and SVECL.
Significant intercompany accounts and transactions have been eliminated in the
combined financial statements.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined by
the first in, first out (FIFO) method.
<PAGE>
2. Significant Accounting Policies (continued)
Property, Equipment, and Leasehold Improvements
Property and equipment are stated at cost, less accumulated depreciation.
Provisions for depreciation of property and equipment are determined using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are stated at cost, less accumulated amortization. Leasehold
improvements are amortized on a straight-line basis over the shorter of the
lease term or the life of the respective asset.
Research and Development Cost
Research and development costs related to both present and future products are
expensed as incurred.
Advertising Costs
Advertising costs are expensed as incurred.
Income Taxes
VSI is taxed as an S corporation under applicable provisions of the Internal
Revenue Code and, therefore, is generally not liable for federal and certain
state income taxes, as the income of VSI is included in the taxable income of
its stockholder.
SVECL is governed by the Income Tax Law of the People's Republic of China (the
PRC) concerning Enterprises with Foreign Investment and Foreign Enterprises
and various local income tax laws of the PRC (the FIE Income Tax Laws).
Pursuant to the FIE Income Tax Laws, the income of SVECL is fully exempted
from income tax for two years commencing from the first profitable year of
operations, followed by a 50% exemption for the next three years, after which
the income of SVECL will be taxable at a rate which is currently 27%.
No income tax provision has been recorded, as SVECL incurred a loss for the
year ended December 31, 1995 and has incurred losses since its inception.
<PAGE>
2. Significant Accounting Policies (continued)
Financial Instruments
Cash and trade receivables may subject the Companies to credit risk. VSI
holds cash at highly rated financial institutions which are federally insured
up to prescribed limits. Cash balances may exceed the federally insured limits
at any given time.
During 1995, VSI's two largest customers accounted for approximately 27% of
sales. These same customers accounted for approximately 36% of VSI's
December 31, 1995 accounts receivable. VSI closely monitors the credit quality
of its customers and maintains an allowance for potential credit losses which,
historically, have been within the range of management's expectations.
Foreign Currency Translation
The accounts of SVECL are translated into U.S. dollars from the functional local
currency in accordance with Statement of Financial Accounting Standards (SFAS)
No. 52.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
3. Inventories
Inventories consist of the following as of December 31, 1995:
Raw materials $ 371,929
Work in process 77,971
Finished goods 2,857,513
Inventory obsolescence reserve (740,215)
$2,567,198
<PAGE>
4. Property, Equipment, and Leasehold Improvements
Property, equipment, and leasehold improvements consist of the following as of
December 31, 1995:
Equipment $698,984
Furniture and fixtures 127,506
Vehicles 51,176
Leasehold improvements 51,102
928,768
Less: Accumulated depreciation and
amortization 472,102
$456,666
5. Stockholder's Equity
Common Stock and Additional Paid-in Capital
VSI
Common stock; $1 par value; 1,000 shares
authorized; 501 shares issued and
outstanding $ 501
Additional paid-in capital 4,499
SVECL
Additonal paid-in captial (registered capital) 610,000
$615,000
SVECL was registered on August 16, 1993 under the Laws of the PRC on enterprises
operated exclusively with foreign capital. The tenure of the Company is for a
period of 30 years.
The registered capital of the Company is $610,000. Since SVECL is a "Limited
Liability Company" under PRC Law, it does not issue stock of any class.
<PAGE>
5. Stockholder's Equity (continued)
Retained Earnings
As stipulated in the relevant regulations applicable to wholly foreign-owned
investment enterprises established in PRC, SVECL is required to appropriate 10%
of its profit after tax, after offsetting accumulated deficit, determined in
accordance with the PRC's accounting principles and financial regulations, to
the general reserve fund until such reserve reaches 50% of the registered
capital of SVECL. The general reserve fund would not be available for
distribution as dividends.
SVECL has not generated any profit as of December 31, 1995 and, accordingly,
there were no profit distributions or appropriations to the general reserve
fund.
6. Commitments
The Companies lease manufacturing, office, and storage facilities and certain
equipment under noncancelable operating leases expiring in various years through
2000. The leases require the Companies to pay real estate taxes and maintenance
costs.
Commitments for future minimum payments under noncancelable leases are as
follows as of December 31, 1995:
1996 $260,692
1997 262,774
1998 356,066
1999 11,193
2000 1,106
Rental expense for the year ended December 31, 1995 was approximately $239,000.
7. Foreign Currency
In April 1995, the National Foreign Exchange Training Center is Shanghai (the
exchange center) commenced operations. Enterprises operating in the PRC can
enter into exchange transactions at the exchange center through the Bank of
China or other authorized institutions. Payments for imported materials are
subject to the availability of foreign currency, which depends on the foreign
currency denominated earnings of the enterprises, or must be arranged through
the exchange center. Approval for exchange at the exchange center is granted
to enterprises in the PRC for valid reasons such as purchases of imported
materials and remittance of earnings. While conversion of Renminbi into United
States dollars or other foreign currencies can generally be effected at the
exchange center, there is no guarantee that it can be effected at all times.
SVECL has not had and does not believe it will have any difficulty in exchanging
its currency (Renminbi) for U.S. dollars at the rate of exchange quoted by the
People's Bank of China.
<PAGE>
DIVERSIFIED WIRE & CABLE, INC.
FINANCIAL STATEMENTS
AND AUDITORS' REPORT
WITH SUPPLEMENTARY INFORMATION
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
<PAGE>
DIVERSIFIED WIRE & CABLE, INC.
CONTENTS
AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Income 3
Statements of Changes in Stockholders' Equity 4
Statements of Cash Flows 5
Notes to Financial Statements 7
AUDITORS' REPORT ON SUPPLEMENTARY INFORMATION 11
SUPPLEMENTARY INFORMATION
Financial Summary 12
Schedules of Operating Expenses 13
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Diversified Wire & Cable, Inc.
Troy, Michigan
We have audited the accompanying balance sheets of Diversified Wire & Cable,
Inc. As of September 30, 1995, 1994 and 1993, and the related statements of
income and changes in stockholders' 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standard 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 audit provides 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 Diversified Wire & Cable,
Inc. as of September 30, 1995, 1994 and 1993, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ MELLEN, SMITH & PIVOZ, P.C.
-------------------------------
March 23, 1996
<PAGE>
DIVERSIFIED WIRE & CABLE, INC.
BALANCE SHEETS
ASSETS
SEPTEMBER 30
1995 1994 1993
CURRENT ASSETS
Cash and money market $ 420,698 $ 137,297 $ 48,630
Accounts receivable - Trade (Less
Allowance for doubtful accounts of
$25,000 in 1995, $50,000 in 1994 and
$37,000 in 1993)
(Note 2) 3,353,281 1,814,852 1,904,348
Current portion of note receivable
- Employee (Note 8) 19,640 17,848 ---
Inventory (Notes 1, 2 and 3) 1,783,598 1,577,551 747,935
Prepaid expenses 33,070 28,920 9,803
Corporate taxes recoverable (Note 1) --- --- 59,568
Total Current Assets 5,610,287 3,576,468 2,770,284
PROPERTY AND EQUIPMENT (Notes 1, 2 and 3)
Furniture, fixtures and equipment 518,941 404,764 330,911
Transportation equipment 281,508 181,814 157,309
Leasehold improvements 87,300 25,144 12,563
887,749 611,722 500,783
Less - Accumulated depreciation 451,065 366,890 295,745
Net property and equipment 436,684 244,832 205,038
OTHER ASSETS
Long-term portion of note receivable
- Employee (Note 8) 12,461 26,684 ---
Deposits 23,933 16,677 12,225
Closing costs (Net of amortization)
(Note 1) 8,333 13,333 ---
Total other assets 44,727 56,694 12,225
Total assets $6,091,698 $3,877,994 $2,987,547
See auditors' report and notes to financial statements.
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
SEPTEMBER 30
1995 1994 1993
CURRENT LIABILITIES
Short-term debt (Note 2) $2,365,443 $ 820,443 $ 775,000
Current portion of long-term debt
(Note 3) 68,795 240,855 61,863
Accounts payable 1,881,641 1,984,502 1,108,741
Accrued payroll 247,724 186,572 139,037
Accrued and withheld payroll taxes 105,286 15,743 136,780
Corporate taxes payable 278,608 283,868 19,500
Sales tax payable 30,113 25,244 19,020
Total liabilities 4,977,610 3,557,227 2,259,941
LONG-TERM LIABILITIES
Long-term debt - Net of current portion
(Note 3) 77,402 264,151 50,277
Notes payable - Officers (Note 5) 1,276 2,696 18,988
Total long-term liabilities 78,678 266,847 69,265
Total liabilities 5,056,288 3,824,074 2,329,206
STOCKHOLDERS' EQUITY (Notes 9 and 10)
Common stock - $1 par value
Authorized - 50,000 shares
Issued and Outstanding - 24,604 shares in
1993 24,605 24,605 32,105
Additional paid-in capital 372,500 372,500 15,395
Retained earnings (deficit) 638,305 ( 343,185) 610,841
Total stockholders' equity 1,035,410 53,920 658,341
Total liabilities and
Stockholders' equity $6,091,698 $3,877,994 $2,987,547
<PAGE>
DIVERSIFIED WIRE & CABLE, INC.
STATEMENTS OF INCOME
YEAR ENDED SEPTEMBER 30,
1995 1994 1993
PERCENT PERCENT PERCENT
OF OF OF
AMOUNT SALES AMOUNT SALES AMOUNT SALES
SALES $25,167,605 100.0 $17,057,119 100.0 $13,784,785 100.0
COST OF GOODS SOLD 17,338,618 68.9 11,645,756 68.3 9,183,254 66.6
GROSS PROFIT 7,828,987 31.1 5,411,363 31.7 4,601,531 33.4
OPERATING EXPENSES 6,178,747 24.5 4,475,342 26.2 4,515,553 32.8
OPERATING INCOME 1,650,240 6.6 93,021 5.5 85,978 .6
OTHER INCOME (EXPENSE)
Interest income 7,303 -- 2,638 -- 284 --
Interest expense (155,329) ( .6) (71,952) (.4) (36,404) (.3)
Gain (Loss) on disposal
of fixed assets 1,776 -- ( 9,128) (.1) ( 4,605) --
TOTAL OTHER INCOME
(EXPENSE) (146,25) ( .6) (78,442) (.5) (40,725) (.3)
INCOME BEFORE PROVISION
FOR INCOME TAX 1,503,990 6.0 857,579 5.0 45,253 .3
PROVISION FOR INCOME
TAX 522,500 2.1 337,000 2.0 17,000 .1
NET INCOME $ 981,490 3.9 $ 520,579 3.0 $ 28,253 .2
See auditors' report and notes to financial statements.
<PAGE>
DIVERSIFIED WIRE & CABLE, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
RETAINED
COMMON PAID IN EARNINGS
STOCK CAPITAL (DEFICIT) TOTAL
BEGINNING STOCKHOLDERS' EQUITY
- October 1, 1992 $ 32,105 $ 15,395 $ 582,588 $ 630,088
ADD: Net income for the year
ended September 30, 1993 --- --- 28,253 28,253
ENDING STOCKHOLDERS EQUITY
- September 30, 1993 32,105 15,395 610,841 658,341
LESS: Stock redemption (Note 9) (10,000) (15,395) (1,474,605) (1,500,000)
ADD: Stock issuance (Note 10) 2,500 372,500 --- 375,000
ADD: Net income for the year
ended September 30, 1994 --- --- 520,579 520,579
ENDING STOCKHOLDERS EQUITY
- September 30, 1994 24,605 372,500 (343,185) 53,920
ADD: Net income for the year
ended September 30, 1995 --- --- 981,490 981,490
ENDING STOCKHOLDERS EQUITY
- September 30, 1995 $ 24,605 $372,500 $ 638,305 $1,035,410
See auditors' report and notes to financial statements.
<PAGE>
DIVERSIFIED WIRE & CABLE, INC.
STATEMENTS OF CASH FLOWS
YEAR ENDED SEPTEMBER 30,
1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 981,490 $ 520,579 $ 28,253
Adjustments to reconcile net income to
net cash provided by OPERATING activities:
Depreciation and amortization 101,835 96,459 81,077
Recognition of bad debt 16,179 45,785 51,272
(Gain) Loss on disposal of fixed asset (1,776) 9,128 4,605
(Increase) Decrease in:
Accounts receivable (1,554,608) 43,711 (328,741)
Inventory (206,047) (829,616) (258,407)
Prepaid expenses (4,150) (19,117) (770)
Corporate taxes recoverable --- 59,568 ( 17,568)
Increase (Decrease) in:
Accounts payable (102,861) 875,761 208,348
Accrued expenses 150,695 (73,502) 173,659
Corporate taxes payable (5,260) 264,368 (1,500)
Sales tax payable 4,869 6,224 6,900
Net cash provided (used) by
OPERATING activities ( 619,634) 999,348 (52,872)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ( 291,910) ( 99,602) (128,946)
Payment of security deposits ( 7,256) ( 4,452) (795)
(Increase) Decrease in note receivable
- Employee 12,430 ( 44,532) ---
Proceeds from sale of fixed asset 5,000 --- 36,500
Net cash (used) by investing activities ( 281,736) ( 148,586) (93,241)
(Continued)
See auditors' report and notes to financial statements.
<PAGE>
DIVERSIFIED WIRE & CABLE, INC.
STATEMENTS OF CASH FLOWS
(CONTINUED)
YEAR ENDED SEPTEMBER 30,
1995 1994 1993
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term debt - Net $1,545,000 $ 45,443 $ 125,000
Proceeds from long-term debt 94,636 525,487 86,236
Payments on long-term debt ( 453,445) ( 176,733) ( 68,934)
Payment of closing costs --- ( 15,000) ---
Decrease in notes payable - Officers ( 1,420) ( 16,292) ( 37,012)
Issuance of capital stock --- 375,000 ---
Redemption of capital stock --- (1,500,000) ---
Net cash provided (used) by
financing activities 1,184,771 ( 762,095) 105,290
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 283,401 88,667 (40,823)
CASH AND CASH EQUIVALENTS -
Beginning of year 137,297 48,630 89,453
CASH AND CASH EQUIVALENTS - End of Year $ 420,698 $ 137,297 $ 48,630
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the year for:
Interest $ 148,634 $ 63,534 $ 36,404
Income taxes $ 554,066 $ 50,000 $ 35,000
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING TRANSACTIONS
Long-term debt incurred for the acquisition
of fixed assets $ --- $ 67,551 $ 55,031
Debt retired in consideration of
sale of fixed asset $ --- $ 23,439 $ ---
See auditors' report and notes to financial statements.
<PAGE>
DIVERSIFIED WIRE & CABLE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed in the
preparation of these financial statements. Nature of Operations - The Company
is engages in the acquisition and sale of electrical and electronic wiring and
cable throughout the United States of America. The Company began
operations on February 2, 1988.
Inventory Valuation - Inventory is valued at the lower of cost (first-in,
first-out) or market. Manufacturing and goods available for sale inventory
consisted of the following:
1995 1994 1993
Goods available for sale $1,778,542 $1,577,551 $ 747,935
Work-in-process 1,081 --- ---
Raw materials 3,975 --- ---
$1,783,598 $1,577,551 $ 747,935
Property and Equi pment - Property and equipment are recorded at cost.
Depreciation is computed primarily using an accelerated method. Amortization
of closing costs is computed on a straight-line basis over three years.
Depreciation and amortization expense amounted to $101,835, $96,459 and $81,077
for the years ended September 30, 1995, 1994 and 1993, respectively.
Income Taxes - The provision for income tax is based upon pre-tax accounting
income as adjusted for certain expenses which are not deductible for income
purposes.
Cash and Cash Equivalents - For purposes of the statement of cash flows, the
Company considers all highly liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
See auditors' report.
<PAGE>
DIVERSIFIED WIRE & CABLE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
NOTE 2 - SHORT-TERM DEBT
The Company has available a revolving credit line up to $3,000,000, with
Comerica Bank. Outstanding debt under the line of credit amounted to
$2,365,443, $820,443 and $775,000 for the years ended September 30, 1995, 1994
and 1993, respectively and is payable on demand. Interest on outstanding
indebtedness is payable at a rate of one-half percent over the bank's prime
rate. The debt is secured by accounts receivable, inventory and equipment.
NOTE 3 - LONG-TERM DEBT
SEPTEMBER 30
1995 1994 1993
Notes payable - Comerica Bank, payable
in monthly installments currently
totaling $7,068, including interest
rates ranging from 6.75% to 9.92%.
Secured by equipment. $ 146,197 $ 88,434 $ 47,018
Notes repaid at September 30, 1995 --- 416,572 65,122
146,197 505,006 112,140
Less current portion 68,795 240,855 61,863
Long-term portion $ 77,402 $ 264,151 $ 50,277
The aggregate maturities of long-term debt are as follows for the years ending
September 30:
1996 $ 68,795
1997 55,199
1998 22,203
$146,197
See auditors' report.
<PAGE>
DIVERSIFIED WIRE & CABLE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
NOTE 4 - COMMITMENTS AND CONTINGENT LIABILITIES
The Company conducts its operations from facilities that are leased under non-
cancelable OPERATING leases expiring in April, 1999 and August, 1998. There
is an option to renew the first lease for an additional three years. Included
in the financial statements is rent expense of $141,467, $101,341 and $57,000
for the years ended September 30, 1995, 1994 and 1993, respectively.
The future minimum rental payments required under the above OPERATING leases
for the years ending September 30, are as follows:
1996 $244,140
1997 $244,140
1998 $234,444
1999 $ 63,893
At September 30, 1995, the Company is the guarantor of a loan in the amount of
$301,761 for a shareholder.
NOTE 5 - NOTES PAYABLE - OFFICERS
Notes payable - Officers are unsecured loans with repayment terms undefined.
Interest accrues at 10% per annum and is paid annually. These notes are
subordinated to the Comerica Bank line of credit (see Note 2).
NOTE 6 - RETIREMENT PLAN
The Company has adopted a plan under Internal Revenue Code Section 401(k)
which allows an employee to elect to defer a portion of his compensation.
This plan covers substantially all employees.
NOTE 7 - CONCENTRATION OF CREDIT RISK
The Company places its cash deposits primarily with one financial institution.
From time to time the amount on deposit at that institution exceeds the
maximum federally insured amount.
NOTE 8 - NOTE RECEIVABLE - EMPLOYEE
The note receivable represents a loan to an employee with interest accrued at
7% per annum on the unpaid balance. The outstanding balances at September 30,
1995, 1994, and 1993 were $32,101, $44,532 and $0, respectively, with monthly
payments of $1,637. The note is secured by the employee's residence.
See auditors' report.
<PAGE>
DIVERSIFIED WIRE & CABLE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
NOTE 9 - STOCK REDEMPTION
On June 9, 1994, the Company redeemed 10,000 shares of stock from a retiring
stockholder.
NOTE 10 - STOCK ISSUANCE
Effective June 9, 1994 the Company issued 2,500 shares of stock for $375,000.
NOTE 11 - LETTERS OF CREDIT
At September 30, 1995, the Company had outstanding a $41,500 letter of credit
to secure the Company's potential liability under it's self insured medical
plan.
VITELEC ELECTRONICS LIMITED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST DECEMBER 1995
IN COMPLIANCE WITH U.S. GAAP
ROBERTS REDMAN MEAD
Certified Accountants
Registered Auditors
ALTON
<PAGE>
VITELEC ELECTRONICS LIMITED
INDEX TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31ST DECEMBER 1995
US GAAP SPECIAL EDITION
Page No.
1 Directors' Report
2 Statement of Directors' responsibilities
3 Auditors' report to the Members
4 Profit and Loss Account
5 Balance Sheet
6 Cash Flow statement
7 Notes to Cash Flow Statements
8-13 Notes to the Financial Statements
For Management purposes only
14 Detailed Profit & Loss Account
COMPANY INFORMATION
Registered in England on 8th September 1986
Company Number 2053373
Registered Office: Vitelec Works
Station Road
Bordon
Hampshire GU35 OLG
<PAGE>
VITELEC ELECTRONICS LIMITED
DIRECTORS' REPORT
FOR THE YEAR ENDED 31ST DECEMBER 1995
The directors present herewith their annual report together with the audited
financial statements of the company for the year ended 31st December 1995.
RESULTS AND DIVIDENDS
The profit for the year after taxation was 800,833.
A dividend of 75,000 (1994 75,000) was paid during the year.
REVIEW OF THE BUSINESS
The company's principal activity during the year was that of general and
electrical engineers, manufacturers, designers, assemblers and importers &
exporters of electrical products.
The results for the year and financial position of the Company are as shown in
the annexed financial statements.
DIRECTORS AND THEIR INTERESTS
The directors of the company during the year and their interests in the share
capital of the company at the beginning and end of the year were as follows:
Number of shares
31st December 1995 31st December 1994
J Young 75,000 75,000
Mrs D Young 15,000 15,000
H J Wells 0 0
Mr Wells has a non-beneficial interest in 10,000 shares held by Chatham Ltd
FIXED ASSETS
The movements in fixed assets during the year are set out in note 8 to the
accounts.
MARKET VALUE OF LAND & BUILDINGS
In the opinion of the Directors the market value of land & buildings is in
excess of book value. Details have been made available to the shareholders.
AUDITORS
It is proposed that the company's present auditors, Messrs Roberts Redman Mead,
be reappointed as auditors to the company to hold office for the ensuing year.
BY ORDER OF THE BOARD
MRS. D M YOUNG
Secretary
29th January 1996
<PAGE>
VITELEC ELECTRONICS LIMITED
STATEMENT OF DIRECTORS' RESPONSIBILITIES
Company law requires the directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
company and of the profit or loss of the company for that period.
In preparing those financial statements, the directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgments and estimates that are reasonable and prudent;
- prepare the financial statements on the going concern basis unless it
is inappropriate to presume that the company will continue in
business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company and to enable them to ensure that the financial statements comply with
the Companies Act 1985. They are also responsible for safeguarding the assets
of the company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
<PAGE>
AUDITORS' REPORT TO THE SHAREHOLDERS OF
VITELEC ELECTRONICS LIMITED
US GAAP EDITION
We have audited this special edition of the financial statements on pages 4 to
10 which have been amended for US GAAP and which have been prepared under the
historical cost convention and the accounting policies set out on page 8.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described on page 2 the company's directors are responsible for the
preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements.
It also includes an assessment of the significant estimates and judgments made
by the directors in the preparation of the financial statements, and of whether
the accounting policies are appropriate to the company's circumstances
consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the state
of the company's affairs at 31st December 1995 and of its results for the year
then ended and have been properly prepared in accordance with the provisions of
the Companies Act 1985 applicable to medium and small companies.
/s/ ROBERTS REDMAN MEAD
ROBERTS REDMAN MEAD
Certified Accountants
Registered Auditors
4 Lenten Street
Alton
Hampshire GU34 1HG.
Date: 20th June 1996
<PAGE>
VITELEC ELECTRONICS LIMITED
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31ST DECEMBER 1995
(all amounts in British Pounds)
Notes 1995 1994
TURNOVER 2 4,472,275 3,084,444
COST OF SALES 2,195,746 1,396,059
GROSS PROFIT 2,276,529 1,688,385
ADMINISTRATION COSTS 1,145,919 679,908
OPERATING PROFIT 3/4 1,130,610 1,008,477
Interest receivable 5 56,012 56,012 22,593 22,593
PROFIT ON ORDINARY
ACTIVITIES BEFORE TAXATION 1,186,622 1,031,070
Tax on ordinary activities 6 385,789 347,673
PROFIT FOR THE YEAR 800,833 683,397
Dividends 7 75,000 75,000
RETAINED PROFIT FOR
THE YEAR 725,833 608,397
Retained profit
brought forward 1,487,587 879,190
RETAINED PROFIT
CARRIED FORWARD 2,213,420 1,487,587
CONTINUING OPERATIONS
None of the company's activities were acquired or discontinued during the above
two financial years.
FRS3 PRIMARY STATEMENT OF RECOGNIZED GAINS AND LOSSES MADE DURING THE YEAR
The Company made no recognized gains or losses in 1995 or in 1994 other than the
profit/(loss) for the year.
<PAGE>
VITELEC ELECTRONICS LIMITED
BALANCE SHEET
AS AT 31ST DECEMBER 1995
(all amounts in British Pounds)
1995 1994
Notes
FIXED ASSETS
Tangible assets 8 493,294 520,325
CURRENT ASSETS
Stocks 9 472,859 565,257
Debtors 10 1,011,952 935,694
Cash at bank and in hand 1,639,383 687,448
3,124,194 2,188,399
CREDITORS - amounts falling
due within one year 11 (996,081) (807,971)
NET CURRENT ASSETS 2,128,113 1,380,428
ASSETS LESS CURRENT
LIABILITIES 2,621,407 1,900,753
Provisions for liabilities
and charges 12 (7,897) (13,076)
NET ASSETS 2,613,510 1,887,677
Financed by:
CAPITAL AND RESERVES
Called up share capital 13 100,000 100,000
Share premium 14 300,090 300,090
Profit and loss account 15 2,213,420 1,487,587
2,613,510 1,887,677
Approved by the Board of Directors on 29th January 1996
/S/ J YOUNG
J YOUNG
/S/ H J WELLS
H J WELLS
<PAGE>
VITELEC ELECTRONICS LIMITED
CASH FLOW STATEMENT
FOR THE YEAR ENDED 31ST DECEMBER 1995
(all amounts in British Pounds)
1995 1994
OPERATING ACTIVITIES
Cash received from customers 4,372,239 3,461,521
Cash paid to suppliers (2,451,306) (2,832,159)
Cash paid for salaries and wages (543,602) (298,320)
Net cash inflow from operating activities 1,377,331 331,042
RETURNS ON INVESTMENTS & SERVICING OF FINANCE
Interest received 56,012 22,593
Interest paid - -
Dividends paid (75,000) (75,000)
Net cash outflow from returns on investments (18,988) (52,407)
and servicing of finance
TAXATION
UK Corporation tax paid (333,924) (146,964)
INVESTING ACTIVITIES
Sale of fixed assets 12,290 5,000
Acquisition of fixed assets (84,774) (88,872)
Net cash outflow from investing activities (72,484) (83,872)
Net cash inflow before financing 951,935 47,799
FINANCING
Issue of share capital - 400,000
Net cash inflow from financing - 400,000
Increase in cash and cash equivalents 951,935 447,799
<PAGE>
VITELEC ELECTRONICS LIMITED
NOTES TO THE CASH FLOW STATEMENT
FOR THE YEAR ENDED 31ST DECEMBER 1995
(all amounts in British Pounds)
1995 1994
1. RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM
OPERATING ACTIVITIES
Operating profit 1,130,610 1,008,477
Depreciation charges 95,708 44,057
Profit on sale of tangible fixed assets 3,226 1,105
Increase/decrease in stock 92,398 (411,473)
Increase/decrease in debtors (76,258) (513,521)
Increase/decrease in creditors 131,647 202,397
Net cash inflow from operating activities 1,377,331 331,042
2. ANALYSIS OF CHANGES IN CASH AND CASH EQUIVALENTS DURING THE YEAR
At 1st January 1995 687,448 239,649
Net cash inflow 951,935 447,799
At 31st December 1995 1,639,383 687,448
3. ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS AS SHOWN IN THE
BALANCE SHEET
Change
1995 1994 in year
Cash at bank and in hand 1,639,383 687,448 951,935
<PAGE>
VITELEC ELECTRONICS LIMITED
NOTES TO THE ACCOUNTS
1. ACCOUNTING POLICIES
1.1 This special edition of the financial statements complies with US GAAP.
1.2 Accounting conventions
The financial statements have been prepared in accordance with the
Companies Act 1985 as amended and with applicable Accounting Standards.
1.3 Turnover
This represents the invoiced amounts of goods sold and services provided,
excluding value added tax.
1.4 Depreciation of tangible assets
Provision is made for depreciation on all tangible assets, other than
freehold land, at rates calculated to write-off the cost of each asset over
its expected useful life as follows:
Freehold buildings: 4% per annum on cost
Leasehold buildings: evenly over the term of the lease
Office equipment: 25% on the reducing balance
Plant and machinery: 25% on the reducing balance
Motor vehicles: 25% on the reducing balance
1.5 Stocks
Stock and work in progress are valued at the lower of cost and net
realizable value, after making due allowance for obsolete and slow moving
items.
1.6 Research and development
Expenditure on research and development is written off as incurred.
1.7 Deferred taxation
Full provision is made in accordance with US GAAP.
1.8 Foreign currencies.
Transactions in foreign currencies are recorded at the rate of exchange at
the time of the transaction.
Assets and liabilities denominated in foreign currencies are translated at
the rate of exchange ruling at the balance sheet date.
All exchange differences are taken to the profit and loss account in the
year in which they arise.
<PAGE>
VITELEC ELECTRONICS LIMITED
NOTES TO THE ACCOUNTS - Continued
2. TURNOVER
An analysis of turnover by geographical market is given below:
1995 1994
------ ------
United Kingdom 3,569,080 2,360,647
European Economic Community 519,811 377,083
Rest of the world 383,384 346,714
4,472,275 3,084,444
3. OPERATING PROFIT 1995 1994
======= ========
This is stated after charging (crediting)
Staff costs (see note 4) 591,806 309,266
Auditors' remuneration 4,800 3,000
Depreciation 95,708 44,057
Adjustment on disposal of fixed assets 3,226 1,105
4. EMPLOYEE INFORMATION 1995 1994
====== ======
4.1 Staff costs:
Wages and salaries 484,232 256,183
Social security costs 48,535 25,235
Other pension costs 6,000 6,000
591,806 309,266
4.2 The average weekly number of employees
during the year was made up as follows: No. No.
Office and management 17 8
Packaging and Assembly 4 3
21 11
4.3 Directors remuneration 80,000 46,667
<PAGE>
VITELEC ELECTRONICS LIMITED
NOTES TO THE ACCOUNTS - Continued
1995 1994
======== ========
4.4 Directors' emoluments:
Fees and salaries 80,000 46,667
Pension contributions 6,000 6,000
86,000 52,667
Further details, excluding pension
contributions: Chairman (also Highest
paid director) 80,000 46,667
5. INTEREST RECEIVABLE 1995 1994
====== ========
Bank interest 56,012 22,593
6. TAXATION 1995 1994
====== ========
6.1 The tax charge on the Profit on
ordinary activities for the year was
as follows:
U.K. corporation tax at 32% (1994-32%) 400,274 343,230
Deferred taxation (5,179) 8,848
395,095 352,078
Taxation (over)/under provided in previous years:
Corporation tax (9,306) (4,405)
385,789 347,673
6.2 The company is a close company within the terms
of section 414 of the Income and Corporation
Taxes Act 1988
7. DIVIDENDS 1995 1994
==== ====
Interim dividend paid:
75p per share. 75,000 75,000
<PAGE>
VITELEC ELECTRONICS LIMITED
NOTES TO THE ACCOUNTS - CONTINUED
(ALL AMOUNTS IN BRITISH POUNDS)
8. TANGIBLE FIXED ASSETS
Plant
Land & Office and Motor
buildings equipment equipment vehicles Total
Cost:
At 1st January 1995 329,001 233,584 17,890 96,722 677,197
Additions - 30,133 4,501 50,140 84,774
Disposals (10,000) - - (35,609) (45,609)
At 31st December 1995 319,001 263,717 22,391 111,253 716,362
Depreciation:
At 1st January 1995 29,790 78,235 11,780 39,957 159,762
Charge for year 8,707 59,455 2,652 22,585 93,399
Disposals (3,096) - - (26,997) (30,093)
At 31st December 1995 35,401 137,690 14,432 35,545 223,068
Net book value at
31st December 1995 283,600 126,027 7,959 75,708 493,294
Net book value at
31st December 1994 299,211 155,349 6,110 56,765 517,435
1995 1994
==== ====
The net book values of land and building comprises:
Freehold 283,600 291,875
Short leasehold - 7,336
1995 1994
9. STOCKS ====== ======
The amounts attributable to th
different categories are as follows:
Finished goods 472,859 565,257
472,859 565,257
10. DEBTORS
Trade debtors 988,759 888,723
Social security and other taxes - 31,157
Prepayments 23,193 15,814
1,011,952 935,694
<PAGE>
VITELEC ELECTRONICS LIMITED
NOTES TO THE ACCOUNTS - CONTINUED
(ALL AMOUNTS IN BRITISH POUNDS)
11. CREDITORS - AMOUNTS FALLING DUE
WITHIN ONE YEAR 1995 1994
Trade creditors 383,933 389,036
Corporation tax 400,274 343,230
Other taxes and social security costs 64,348 16,144
Directors' current accounts 67,500 -
Other creditors 33,747 13,242
Accruals 46,279 46,319
------- -------
996,081 807,971
12. DEFERRED TAXATION
Movements on the provision for deferred taxation are:
At 1st January 1995 13,076
Transferred from profit and loss account 5,179
At 31st December 1995 7,897
13. SHARE CAPITAL
Allotted, Issued
Authorized and fully paid
1995 1994
==== ====
100,000 Ordinary shares of 1 POUND each 200,000 100,000 100,000
14. SHARE PREMIUM ACCOUNT 1995 1994
==== ======
Balance as at 1st January 1995 300,090 -
Premium on issue of 10 ordinary shares - 399,990
Bonus issue on ordinary shares - (99,900)
At 31st December 1995 300,090 300,090
<PAGE>
VITELEC ELECTRONICS LIMITED
NOTES TO THE ACCOUNTS - CONTINUED
15. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS FUNDS
1995 1994
Profit / (loss) for the year after
taxation 800,833 683,397
Dividends paid & proposed (75,000) (75,000)
Transfer (to) / from reserves - -
725,833 608,397
Opening shareholders' funds 1,887,677 1,279,280
Closing shareholders' funds 2,613,510 1,887,677
16. COMMITMENTS AND CONTINGENT LIABILITIES
CAPITAL COMMITMENTS
The company has contracted to spend approximately 185,000 on a new
building due to be completed in March 1996.
CONTINGENT LIABILITIES
There are contingent liabilities at 31st December 1995 in respect of the
following:
Customs & Excise guarantee 60,000 BRITISH POUNDS
<PAGE>
VITELEC ELECTRONICS LIMITED
DETAILED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST DECEMBER 1995
(ALL AMOUNTS IN BRITISH POUNDS)
1995 1994
SALES 4,472,275 3,084,444
COST OF SALES
Opening stocks & WIP 565,257 153,784
Purchases 1,899,396 1,684,972
Duty 68,059 36,966
Freight 128,872 73,568
Packaging 7,021 12,026
2,668,605 1,961,316
Less: Closing stocks & WIP (472,859) (565,257)
(2,195,746) (1,396,059)
GROSS PROFIT 2,276,529 1,688,385
ADMINISTRATIVE EXPENSES
Rent 33,790 8,000
Rates 21,772 12,221
French office 10,128 -
Insurance 8,192 3,937
Light and heat 10,243 2,167
Staff cost & agency fees 11,328 16,502
Repairs and maintenance 13,913 24,337
Computer maintenance 3,250 -
Wages and salaries 505,806 256,599
Directors' remuneration 80,000 46,667
Directors' pension scheme 6,000 6,000
Printing, postage & stationar 39,415 19,218
Advertising 30,812 27,080
Promotion & Exhibitions 97,085 52,044
Catalogue 430 39,847
Telephone 39,259 16,482
Motor running expenses 27,184 16,520
Traveling expenses 41,443 14,794
Entertaining 9,862 10,672
Accountancy 2,265 3,750
Audit fees 4,800 3,000
Legal & professional fees 12,606 8,535
Training 5,234 900
Bank charges 5,806 6,049
Bad and doubtful debts 8,948 22,813
Office cleaning 6,752 4,754
Sundry expenses 8,392 11,858
VAT fines and surcharges 2,270 -
Depreciation:
Freehold property 8,275 9,477
Short leasehold property 432 432
Office equipment 59,464 16,434
Plant and equipment 2,652 2,036
Motor vehicles 24,885 15,678
Loss on disposal of
fixed assets 3,226 1,105
--------- ---------
TOTAL OVERHEAD EXPENSES 1,145,919 679,908
----------- --------
TRADING PROFIT 1,130,610 1,008,477
=========== =========
SEABOARD FOLDING BOX CORP. AND AFFILIATES
COMBINED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND 1994
TABLE OF CONTENTS
Page
Independent Auditors' Report...............................................1
Combined Financial Statements:
Combined Balance Sheets.............................................. 2
Combined Statements of Income........................................ 3
Combined Statements of Stockholder's Equity.......................... 4
Combined Statements of Cash Flow................................... 5-6
Notes to Combined Financial Statements.................................. 7-10
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of
Seaboard Folding Box Corp. and Affiliates:
We have audited the accompanying combined balance sheets of Seaboard Folding Box
Corp. (a Massachusetts corporation) and affiliates as of December 31, 1995 and
1994, and the related combined statements of income, stockholder's equity, and
cash flows for the years then ended. These combined financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these combined 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 combined financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the combined 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 Seaboard Folding Box
Corp. and affiliates as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
\s\ Canby, Maloney & Co., Inc.
February 15, 1996.
<PAGE>
SEABOARD FOLDING BOX CORP. AND AFFILIATES
COMBINED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
1995 1994
CURRENT ASSETS:
Cash and cash equivalents $2,293,600 $1,449,883
Accounts receivable, net of allowance
for doubtful accounts of $189,358
in 1995 and $127,154 in 1994 3,090,644 2,376,683
Inventories 3,359,008 2,535,521
Other current assets 17,744 20,053
Total current assets 8,760,996 6,382,140
PROPERTY AND EQUIPMENT, at cost:
Land 510,780 510,780
Buildings 2,494,220 2,494,220
Building improvements 503,089 493,697
Furniture and fixtures 89,425 85,544
Machinery and equipment 5,972,723 5,888,338
Motor vehicles 416,865 393,306
Tooling 690,522 582,522
10,677,624 10,448,407
Less - Accumulated depreciation
and amortization 5,426,099 4,689,099
5,251,525 5,759,308
OTHER ASSETS:
Deposits 10,088 10,088
Other assets 35,000 -
45,088 10,088
$14,057,609 $12,151,536
The accompanying notes are an integral part of these combined financial
statements.
<PAGE>
LIABILITIES AND STOCKHOLDER'S EQUITY
1995 1994
CURRENT LIABILITIES:
Demand note payable to a bank $ - $ 700,000
Accounts payable 816,543 919,002
Accrued expenses and payroll
tax withholdings 2,111,721 1,521,420
Accrued state income taxes 181,571 118,105
Due to officer 385,000 385,000
Total current liabilities 3,494,835 3,643,527
DEFERRED STATE INCOME TAXES 30,000 30,000
STOCKHOLDER'S EQUITY:
Common stock, no par value - Seaboard
Folding Box Corp., authorized, issued
and outstanding - 200 shares 200,000 200,000
Common stock, no par value - A&R Sales, Inc.,
authorized, issued and outstanding -
1,000 shares 1,000 1,000
Common stock, no par value - Seaboard Holding
Corp., authorized 200 shares, issued and
outstanding - 10 shares 1,000 -
Additional paid-in capital 200,000 200,000
Retained earnings 10,130,774 8,077,009
10,532,774 8,478,009
$14,057,609 $12,151,536
<PAGE>
SEABOARD FOLDING BOX CORP. AND AFFILIATES
COMBINED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
NET SALES $16,079,710 $15,561,044
COST OF SALES 9,319,217 9,405,511
Gross profit 6,760,493 6,155,533
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 3,080,521 3,162,741
Income from operations 3,679,972 2,992,792
OTHER INCOME (EXPENSE):
Interest expense (10,636) (31,902)
Interest income 42,550 31,406
Sublease rental income - 43,455
31,914 42,959
Income before provision for state
income taxes 3,711,886 3,035,751
PROVISION FOR STATE INCOME TAXES 113,000 82,000
Net income $3,598,886 $2,953,751
<PAGE>
SEABOARD FOLDING BOX CORP. AND AFFILIATES
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
Common Stock
Number of Additional
Shares Paid-In Retained
Issued Amount Capital Earnings
BALANCE, December 31, 1993 1,200 $201,000 $200,000 $6,436,258
Distributions to
stockholder - - - (1,313,000)
Net income - - - 2,953,751
BALANCE, December 31, 1994 1,200 201,000 200,000 8,077,009
Issuance of common stock
in Seaboard Holding Corp. 10 1,000 - -
Distribution to
stockholder - - - (1,545,121)
Net income - - - 3,598,886
BALANCE, December 31, 1995 1,210 $202,000 $200,000 $10,130,774
<PAGE>
SEABOARD FOLDING BOX CORP. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
OPERATING ACTIVITIES:
Collections from customers $15,287,749 $15,580,612
Interest income collected 42,550 31,406
Sublease rental income collected - 43,455
Payment of operating expenses (11,918,074) (11,381,550)
Payment of interest (10,636) (32,914)
Payment of state income taxes (49,534) (42,690)
Net cash provided by operating
activities 3,352,055 4,198,319
INVESTING ACTIVITIES:
Purchase of property and equipment (229,217) (2,234,638)
Increase in other assets (35,000) -
Net cash used for investing activities (264,217) (2,234,638)
FINANCING ACTIVITIES:
Net proceeds from (payments of) demand
note payable to a bank (700,000) 700,000
Payment of long-term debt - (1,086,217)
Distributions to stockholder (1,545,121) (1,313,000)
Sale of common stock 1,000 -
Net cash used for financing activities (2,244,121) (1,699,217)
Net increase in cash and cash equivalents 843,717 264,464
Cash and cash equivalents, beginning of year 1,449,883 1,185,419
Cash and equivalents, end of year $2,293,600 $1,449,883
<PAGE>
SEABOARD FOLDING BOX CORP. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
(continued)
Reconciliation of Net Income to Net Cash
Provided by Operating Activities
1995 1994
Net Income $3,598,886 $2,953,751
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 737,000 747,958
(Increase) decrease in:
Accounts receivable (713,961) 242,568
Inventories (823,487) (247,094)
Other current assets 2,309 3,409
Increase (decrease) in:
Accounts payable (102,459) 114,270
Accrued expenses and payroll
tax withholdings 590,301 344,147
Accrued state income taxes 63,466 39,310
Net cash provided by operating
activities $3,352,055 $4,198,319
<PAGE>
SEABOARD FOLDING BOX CORP. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(1) Summary of Significant Accounting Policies
Seaboard Folding Box Corp. and its affiliates, A&R Sales, Inc. and Seaboard
Holding Corp. (the Company), are engaged in the manufacture and sale of
cardboard boxes. The accompanying combined financial statements reflect the
application of certain accounting policies as described in this note. Other
policies and practices are covered in the remaining notes.
(a) Principles of Combination
The accompanying combined financial statements of Seaboard Folding Box Corp.,
A&R Sales, Inc. (a Florida Corporation) and Seaboard Holding Corp. (a New York
Corporation), have been prepared on a combined basis, as all of the entities are
under common ownership and control. Seaboard Holding Corp. was incorporated in
March, 1995. All material transactions and accounts among the three entities
have been eliminated in combination.
(b) Cash Equivalents
The Company considers commercial paper purchased with an original maturity of
three months or less to be a cash equivalent.
(c) Inventories
Inventories, which include material, labor, and manufacturing overhead are
stated at the lower of cost (first-in, first-out) or market, and consist of the
following:
1995 1994
Raw materials $1,191,431 $1,188,169
Work-in-progress 396,220 207,816
Finished goods 1,771,357 1,139,536
$3,359,008 $2,535,521
(d) Depreciation and Amortization
The Company provides for depreciation and amortization by charges to income in
amounts estimated to recover the cost of its property and equipment over their
estimated useful lives, using the straight-line method as follows:
Asset Classification Estimated Useful Life
Buildings 25-39 Years
Building improvements 10 Years
Furniture and fixtures 5-10 Years
Machinery and equipment 10 Years
Motor vehicles 3-5 Years
Tooling 3 Years
(e) Estimates
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 combined financial
statements and the reported amounts of revenues and expenses during the
reporting period. Significant estimates used in preparing these financial
statements include those assumed in calculating the allowance for doubtful
accounts, the allowance for obsolete inventory and the costing of certain
inventory components. It is at least reasonably possible that the estimates used
will change within the next year.
(2) Demand Note Payable to a Bank
The demand note payable to a bank represents borrowings under a working capital
line of credit agreement with a bank. The Company may borrow sums under this
agreement provided that the principal amount outstanding at any time does not
exceed $2,000,000. Borrowings under the agreement bear interest at the bank's
prime interest rate (8.5% at December 31, 1995) and are collateralized by
substantially all of the assets of the Company. The agreement, among other
things, requires the Company to maintain certain financial ratios, as defined,
and restricts the amount of distributions to be paid to the stockholder.
(3) Sales to Significant Customers
Two customers accounted for 22% of net sales during the year ended December 31,
1995. One customer accounted for 16% of net sales during the year ended
December 31, 1994.
(4) Income Taxes
The Company's stockholder has elected to have the Company's income taxed as an
S Corporation under the provisions of the Internal Revenue Code and various
state tax codes, thereby consenting to include the Company's income in the
individual tax return of the stockholder. As a result, the Company is not
subject to federal income taxes.
The provision for state income taxes in the accompanying statements of income
results from taxable income generated in certain states in which the S
corporation provisions differ from the Internal Revenue Code.
The Company accounts for income taxes according to SFAS No. 109, "Accounting for
Income Taxes," which requires an asset and liability approach to financial
accounting and reporting for income taxes. The difference between the financial
statement and tax bases of assets and liabilities is determined annually.
Deferred income tax assets and liabilities are computed for those differences
that have future tax consequences using the currently enacted tax laws and rates
that apply to the periods in which they are expected to affect taxable income.
Income tax expense is the current tax payable or refundable for the period plus
or minus the net change in the deferred tax assets and liabilities.
The deferred state tax liability included in the accompanying combined financial
statements results principally from differences in depreciation methods used for
financial and tax reporting purposes.
The components of state income tax expense is as follows:
1995 1994
Current $113,000 $82,000
(5) Employee Benefit Plans
The Company has a non-contributory, defined benefit pension plan covering all
eligible union employees. The plan calls for benefits to be paid to eligible
union employees at retirement based upon years of service with the Company. The
Company's funding policy is to contribute annually an amount needed to be
consistent with the plan's objectives. Pension expense for the years ended
December 31, 1995 and 1994, was $41,137 and $14,395, respectively.
During the year ended December 31, 1995, the Company decided to terminate this
pension plan. At December 31, 1995, the estimated payout of all plan benefits
exceeds the net assets available for benefit. The total cost to terminate the
pension plan, including the estimated payout of all plan benefits, is
approximately $30,000, which is included in accrued expenses at December 31,
1995.
The Company also has a profit sharing plan covering all eligible non-union
employees. Contributions are made annually at the discretion of the Company's
directors. There were no contributions for the years ended December 31, 1995
and 1994, respectively.
<PAGE>
(6) Concentration of Credit Risk
The Company extends credit on an unsecured basis to customers in a broad range
of industries located primarily in the eastern region of the United States.
Also, the Company has a cash account with a bank that has deposits in excess of
federally insured limits.
(7) Letter of Credit
The Company has two letter of credit agreements with a bank for $200,000 as of
December 31, 1995. The letters of credit are collateralized by cash on deposit
with the bank.
(8) Due to Officer
The amount due to officer in the combined balance sheet is due on demand and
noninterest bearing.
(9) Subsequent Events
(a) Acquisition of Majestic Packaging Co., Inc.
Subsequent to December 31, 1995, Seaboard Holding Corp. purchased the operating
assets of Majestic Packaging Co., Inc. (seller) for approximately $2,300,000.
For a period of five years after the closing, Seaboard Holding Corp. will pay
the seller commissions on sales as defined in the purchase and sale agreement.
Seaboard Holding Corp. also entered into lease agreements for two facilities.
Seaboard Folding Box Corp. has guaranteed the payment and performance of all
terms and conditions of the purchase and sale agreement.
(b) Sale of the Company's Assets
Subsequent to December 31, 1995, the Company entered into a purchase and sale
agreement to sell substantially all of its assets. The final closing of the
sale is subject to various provisions in the agreement, and as of date of
issuance of these financial statements, had not occurred.
