<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
- --------------------------------------------------------------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1993 COMMISSION FILE NUMBER 0-18112
MOMENTUM CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 91-1464018
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
KOLL CENTER BELLEVUE--SUITE 1900 500 108TH AVE. N.E. 98004
- ----------------------------------------------------- -----
BELLEVUE, WA 98004 (Zip Code)
-------------------
(Address of Principal Executive Offices)
</TABLE>
(206) 450-6550
Registrant's Telephone Number
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
Title of Each Class Name of Each Exchange on Which Registered
- ------------------- -----------------------------------------
<S> <C>
None N/A
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock $1.00 Par Value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (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 90 days.
YES ( X ) NO ( )
--- ---
As of March 24, 1993 the aggregate market value of the voting stock held by
nonaffiliates was approximately $30.8 million.
As of March 24, 1993 there were 3,433,860 shares of common stock issued and
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The definitive Proxy Statement to be filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934 (Item 10-Directors Only, and Items 11, 12 and
13 of Part III).
<PAGE> 2
PART I.
ITEM I. BUSINESS
A. FORMATION
Momentum Corporation, previously Momentum Distribution Inc., (Momentum/the
Company) was incorporated in Delaware on October 26, 1989 as a subsidiary of
VWR Corporation, a publicly traded company on the NASDAQ National Market
System. It was incorporated for the purpose of carrying out the spin-off of
VWR Corporation's non-laboratory distribution businesses, Momentum Graphics
Inc. (the Graphics Group) and VWR Textiles & Supplies Inc (the Textiles Group),
into a separate, independent, publicly held corporation. This spin-off was
accomplished on March 1, 1990, with the VWR Corporation shareholders receiving
one share of Momentum common stock for each five shares of VWR Corporation
common stock held.
Effective September 1, 1993, the Company's name was changed from Momentum
Distribution Inc. to Momentum Corporation.
B. CURRENT YEAR DEVELOPMENTS
In the second quarter of 1993, the Company reorganized the Graphics Group's
sales and marketing function. The objective of this reorganization was to
replace the traditional sales approach with a team of sales and technical
specialists. Due to the rapid technological changes occurring in the printing
and publishing industry, this team concept is designed to provide significant
added value to the customer.
In September, 1993, the Company sold its Textiles Group, composed of VWR
Textiles & Supplies Inc. and Momentum Textiles Inc. The gain on the sales was
$6.1 million, with net proceeds in excess of $20 million. The objective of
these sales was to concentrate the resources and synergies of the Company on
the Graphics business and to pursue the opportunities in electronic prepress
systems and pressroom consumables. The financial results of the Textiles Group
are reported as discontinued operations in the financial statements.
C. FUTURE DEVELOPMENTS
Momentum Graphics Inc. was merged into Momentum Corporation at the beginning of
1994.
In February, 1994, the Company signed an agreement in principle to acquire the
assets of T.K. Gray, Inc.(Gray). Gray, based in Minnesota, is a regional
distributor of photographic and graphic arts supplies and equipment, with
sales in excess of $40 million. The acquisition is subject to the execution of
a definitive agreement and satisfactory completion of due diligence
investigations. The purchase is expected to close in April, 1994.
In March, 1994, the Company signed an agreement in principle to form a
new holding company and combine with Phillips & Jacobs, Incorporated (P&J), a
national distributor of photographic and graphic arts supplies and equipment,
with sales in excess of $160 million. P&J common stock is traded on the NASDAQ
National Market System and is headquartered in Pennsauken, N.J. Under the
agreement, each share of P&J common stock will be exchanged for one share of
the new company. Each share of Momentum common stock will be exchanged for .71
shares of the new company. The combination is subject to the execution of a
definitive agreement, the approval of the stockholders of both companies,
satisfactory completion of due diligence investigations by both parties,
receipt of customary regulatory approvals, and satisfaction of certain other
standard conditions. The transaction is anticipated to close during the summer
of 1994.
D. GENERAL
Momentum is a major national distributor of a broad line of photographic and
graphic arts supplies and equipment. Products include supply items such as
photographic film and papers, paste-up supplies, and printing plates and
equipment ranging from traditional processors to advanced electronic prepress
systems. Principal customers include commercial and in-plant printers,
photographers, color separators, typesetters, and other users of electronic
imaging.
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<PAGE> 3
Momentum competes with numerous regional and local distributors as well as with
manufacturers who sell direct to end-users. On a national basis, Momentum is
one of the five largest distributors of such products in the United States.
Momentum maintains an outside sales team, including technical specialists, to
provide product information and technical support to its customers. Customers
generally place orders by telephone, telefax, or through a local computer
terminal. Most orders are shipped from available stock in local or central
warehouses or directly from the manufacturer via Company trucks or (more
frequently) by common carrier.
Momentum does not manage or conduct significant research activities relating
to the development of new products, although the Company does work with
customers and suppliers to improve products. Momentum owns several trademarks
and tradenames, none of which are considered material to current operations.
No one customer accounts for ten percent or more of the revenues. The Company
does not exhibit significant seasonality. Foreign sales or income is not
material.
Momentum employed 230 employees at December 31, 1993, with less than 1% of the
employees represented by unions.
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE POSITION HELD
NAME AGE LAST FIVE YEARS SINCE
---- --- ------------------- -------------
<S> <C> <C> <C>
Richard E. Engebrecht 67 Chairman of Registrant December, 1992-
Chairman Present
Chairman, President 1990-1992
Chief Executive Officer of Registrant
President and Chief Executive Officer 1986-1992
VWR Corporation
John H. Goddard, Jr. 46 President, Chief Executive Officer December, 1992-
President, of Registrant Present
Chief Executive Officer President of Registrant 1992
Senior Vice President of Registrant 1990-1992
Vice President of Registrant 1990
President, Momentum Graphics Inc. 1990-1994
President, VWR Graphics 1987-1990
Division of VWR Scientific Inc.
Patsy R. Turnipseed 59 Senior Vice President December, 1990-
Senior Vice President Chief Financial Officer of Registrant Present
Chief Financial Officer Vice President Treasurer and Corporate 1990
Secretary of Registrant
Vice President Treasurer and Corporate 1986-1990
Secretary, VWR Corporation
Barry C. Maulding 48 Vice President Administration, August, 1993-
Vice President, Administration General Counsel, and Corporate Present
General Counsel, Secretary of Registrant
Corporate Secretary General Counsel, Director of Administration and November, 1992-
Corporate Secretary of Registrant 1993
General Counsel and 1991-1992
Corporate Secretary of Registrant
Director - Legal Services, Corporate Secretary 1986-1990
Univar Corporation
</TABLE>
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<PAGE> 4
ITEM 2. PROPERTIES
Momentum's executive offices, which are leased, are located at Koll Center
Bellevue, Suite 1900, 500 108th Avenue N.E. Bellevue, Washington 98004.
Principal properties are summarized as follows:
<TABLE>
<CAPTION>
Square Lease
Location Leased/Owned Footage Expires
- -------- ------------ ------- -------
<S> <C> <C> <C>
Atlanta, GA (Norcross) Leased 14,400 1/31/95
Boston, MA (Hingham) Leased 11,600 7/31/94
Chicago, IL (Itasca) Leased 49,600 7/31/00
Cincinnati, OH Leased 10,900 10/31/96
Dallas, TX Leased 5,600 3/31/95
Detroit, MI (Troy) Leased 8,000 4/30/96
Kansas City, MO Leased 9,000 12/31/95
Los Angeles, CA (Cerritos) Leased 11,800 8/31/02
Miami, FL Owned 17,600 --
Milwaukee, WI Leased 2,000 4/30/95
New Orleans, LA (Harahan) Owned 14,400 --
Pennsauken, NJ Leased 14,300 5/31/95
Portland, OR Leased 7,800 9/30/95
St. Louis, MO Owned 22,900 --
Seattle, WA (Tukwila) Owned 20,000 --
S. San Francisco CA Leased 10,000 3/15/96
</TABLE>
Momentum believes that its facilities are well suited to its business needs and
are adequate to accommodate its current business and expected growth for the
next two years. It is not anticipated there will be any difficulty in
acquiring and/or leasing additional facilities as and when needed.
ITEM 3. LEGAL PROCEEDINGS
Momentum is involved in various contractual, personal injury and general
liability cases and claims which are considered normal to its business. In the
opinion of Management, these claims, when finally concluded, will not have a
material adverse impact on the consolidated financial position of the Company.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth quarter
of the year.
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PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The common stock of Momentum is traded on the Over-The-Counter NASDAQ National
Market System under the symbol: MMDI. The number of common shareholders of
record as of March 24, 1994, was 1,502.
The prices below reflect closing prices for Momentum as reported by NASDAQ for
the years ended December 31:
<TABLE>
<CAPTION>
1993 1992
------------------- ------------------
Quarter High Low High Low
------- ---- --- ---- ---
<S> <C> <C> <C> <C>
First quarter 8.75 6.75 5.88 3.75
Second quarter 9.00 7.88 6.38 5.38
Third quarter 8.50 7.50 8.50 5.75
Fourth quarter 9.00 7.50 7.50 6.00
</TABLE>
(Prices have been adjusted to reflect the three-for-one stock split
in July, 1992)
No cash dividends have been declared since incorporation.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Ten Months
Years ended December 31, Ended
--------------------------------------------- December 31,
(Thousands of dollars, except per share data) 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS
Sales of graphic supplies & equipment $116,788 $112,022 $97,339 $94,835 $114,906
Gross margin 22,542 21,903 19,056 19,934 14,170
Gross margin percent 19.3% 19.6% 19.6% 21.0% 12.3%
Loss from continuing operations (3,060) (1,286) (2,479) (2,727) (10,533)
Percent of sales (2.6)% (1.1)% (2.5)% (2.9)% (9.2)%
Income from discontinued operations (1) 7,424 2,238 1,300 1,415 1,316
Net income (loss) 4,364 952 (1,179) (1,312) (9,217)
Loss per share from continuing operations (2) (0.84) (0.37) (0.72) (0.82)
Net income (loss) per share (2) 1.20 0.27 (0.34) (0.39)
BALANCE SHEET
Working capital 26,558 26,875 18,861 19,888 23,515
Property and equipment, net 7,140 7,317 7,578 6,706 5,619
Total assets 52,430 51,616 50,311 51,803 58,711
Long-term obligations 1,793 8,066 10,453 9,847 14,024
Shareholders' equity 33,949 29,708 28,576 29,362 30,000
Book value per share (2) 9.62 8.45 8.33 8.62
(1) Income from discontinued operations for 1993 includes the gain on the sales of the discontinued operations of
$6,146,000.
(2) Per share data is not provided for periods prior to the spin-off from VWR Corporation.
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
In September 1993, the Company sold its Textiles Group composed of VWR Textiles
& Supplies Inc. and Momentum Textiles Inc. The financial statements have been
restated to report the Textiles Group as discontinued operations. Accordingly,
the following discussion and analysis is for the continuing operations.
Two subsequent events, when completed, will have a significant impact
on the future of the Company, and accordingly, the applicability of the current
results to future periods. As described under Part I, Item I, Business, the
Company has signed two agreements in principle, one to buy the assets of T.K.
Gray, Inc., a regional distributor of photographic and graphic arts supplies
and equipment, with sales in excess of $40 million, and a second to combine
with Phillips & Jacobs, Incorporated, a national distributor of photographic
and graphic arts supplies and equipment, with sales in excess of $160 million.
Due to the significance of these transactions, the analysis of 1993 and
applicability of 1993 to subsequent periods may be of limited value.
COMPARISON OF 1993 TO 1992
Sales in 1993 were $116.8 million or 4% greater than 1992. Sales were
hampered by an 8% decrease in sales on the west coast, which was strongly
impacted by the weak California economy and a contraction in demand for
reprographic and professional photographic products in the defense industry.
Sales excluding the west coast locations increased by almost 9% for the year.
This gain is primarily attributable to strong sales growth of
electronic-prepress systems. The gross margin percentage decreased from 19.6%
to 19.3%, primarily due to competitive price pressure and changes in product
mix.
Selling and administrative expenses increased 8% between years. This increase,
which was higher than the sales growth, was primarily due to increased sales
and marketing expenses. During the year, the Company replaced the traditional
sales structure with a team of sales and technical specialists, which will
better meet customer requirements as the graphics industry goes through the
current period of rapid technological changes. This restructuring resulted in
increased fixed costs, but with an ongoing decrease in variable costs. Thus,
in the future, as the Company's sales volume increases, the incremental sales
and marketing expenses should increase at a slower rate.
In 1993, the Company incurred $2.4 million in restructure and other
charges. One million was incurred for the restructure of the sales and
marketing function as discussed above. These costs were primarily for employee
severance and relocation costs. In addition, computer equipment of $.8 million
was written-off as a result of the Company's decision to replace this equipment
with new more efficient and cost effective equipment. The balance of the
charge, $.6 million, represents salaries and benefits applicable to positions
which have been eliminated as a result of the divestiture of the Textiles
Group. Similar charges for 1992 amount to $.6 million for salaries and
benefits applicable to positions which have been eliminated as a result of the
divestiture of the Textiles Group. The full benefit of the restructure and
other charges will not occur until 1994.
Interest expense decreased $144,000 or 26% in 1993. This decrease was
primarily due to the repayment of the Company's revolving debt with the
proceeds from the sales of the Textiles Group.
The effective tax rate for both 1993 and 1992 approximated the statutory
federal rate of 34%.
COMPARISON OF 1992 TO 1991
Sales increased 15% in 1992 to $112 million. This growth was primarily the
result of increased penetration in the market. The gross margin percentage
remained constant between years at 19.6%.
Selling and administrative expenses increased 5%. Due to the significant sales
growth and relationship of fixed to variable expenses selling and
administrative expenses as a percent of sales decreased from 22.4% to 20.4%.
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<PAGE> 7
Interest expense decreased $131,000 or 19% in 1992. This decrease was
primarily due to a reduction of interest rates charged under the revolving
credit agreements.
Restructure and other charges of $.6 million in 1992 and 1991
represent salaries and benefits applicable to positions which have been
eliminated as a result of the divestiture of the Textiles Group.
The effective tax rate for both years approximated the statutory federal rate
of 34%.
FINANCIAL CONDITION AND LIQUIDITY
The Company had negative cash flow from operations of approximately $1.6
million in 1993 which was primarily due to an increase in income
taxes receivable which will be recovered in 1994 as refunds.
Investing activities consisted of $17.1 million in cash proceeds from the sale
of the discontinued operations offset by additions to property and equipment
and other assets of $3.1 million.
Financing activities resulted in a net cash outflow of $7 million. This was
primarily the result of using funds from the sales of the discontinued
operations to pay off the outstanding balances under the Company's revolving
credit agreements.
The Company's primary source of debt financing is two revolving credit
agreements, with a total commitment of $17.5 million, subject to certain
covenant restrictions. Both agreements expire in January, 1995. At December
31, 1993, there was no outstanding debt under these agreements.
At December 31, 1993, the Company had over $6 million in short-term
investments. These funds combined with available bank financing and payments
from outstanding notes receivable will be adequate to fund on-going operations
and the expansion of these operations both internally and through acquisitions.
During inflationary times, the Company's prices generally rise in tandem with
costs. Operating results partially provide for the effects of inflation by
using LIFO inventory accounting, so that the cost of sales generally reflects
the most recent cost of the inventory sold. Asset values are based upon
historical costs that do not necessarily represent either replacement costs or
result in charges to operations based on replacement costs; however, since the
Company is not capital intensive, it is the Company's opinion that charging
operations for replacement costs of long-lived assets would not significantly
reduce income from operations.
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<PAGE> 8
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MOMENTUM CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
(Thousands of dollars, except per share data) 1993 1992 1991
- ---------------------------------------------------------------------------------------
(Restated) (Restated)
<S> <C> <C> <C>
SALES OF GRAPHICS SUPPLIES & EQUIPMENT $116,788 $112,022 $97,339
Cost of sales 94,246 90,119 78,283
- ---------------------------------------------------------------------------------------
GROSS MARGIN 22,542 21,903 19,056
SELLING AND ADMINISTRATIVE EXPENSES
Graphics supplies & equipment 22,466 20,700 19,832
Corporate staff 2,124 2,161 2,006
RESTRUCTURE AND OTHER CHARGES 2,382 619 553
- ---------------------------------------------------------------------------------------
LOSS FROM OPERATIONS (4,430) (1,577) (3,335)
Interest expense (402) (546) (677)
Other income-net 208 205 328
- ---------------------------------------------------------------------------------------
LOSS BEFORE INCOME TAX BENEFIT (4,624) (1,918) (3,684)
Income tax benefit 1,564 632 1,205
- ---------------------------------------------------------------------------------------
LOSS FROM CONTINUING OPERATIONS (3,060) (1,286) (2,479)
DISCONTINUED OPERATIONS:
Operating results, net 1,278 2,238 1,300
Gain on sales, net 6,146
- ---------------------------------------------------------------------------------------
INCOME FROM DISCONTINUED OPERATIONS 7,424 2,238 1,300
- ---------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 4,364 $ 952 $(1,179)
=======================================================================================
INCOME (LOSS) PER SHARE:
LOSS FROM CONTINUING OPERATIONS $ (0.84) $ (0.37) $ (0.72)
DISCONTINUED OPERATIONS:
Operating results, net 0.35 0.64 0.38
Gain on sales, net 1.69
- ---------------------------------------------------------------------------------------
INCOME FROM DISCONTINUED OPERATIONS 2.04 0.64 0.38
- ---------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 1.20 $ 0.27 $ (0.34)
=======================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE> 9
MOMENTUM CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
--------------------
(Thousands of dollars) 1993 1992
- ---------------------------------------------------------------------------
ASSETS (Restated)
<S> <C> <C>
CURRENT ASSETS
Short-term investments $ 6,123 $ ---
Trade receivables, less reserves of $374 and $451 12,935 13,165
Current notes receivable 3,529 167
Income taxes receivable 2,537 1,178
Other receivables 1,840 1,653
Inventories 14,179 11,138
Net current assets of discontinued operations 9,457
Other 1,051 2,190
- ---------------------------------------------------------------------------
TOTAL CURRENT ASSETS 42,194 38,948
PROPERTY AND EQUIPMENT, NET 7,140 7,317
NET NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS 3,555
OTHER ASSETS 3,096 1,796
- ---------------------------------------------------------------------------
$52,430 $51,616
===========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank checks outstanding less cash in bank $ 1,925 $ 1,259
Accounts payable 8,454 7,581
Accrued liabilities 5,083 3,073
Current portion of long-term obligations 174 160
- ---------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 15,636 12,073
LONG-TERM OBLIGATIONS 1,793 8,066
DEFERRED ITEMS 1,052 1,769
SHAREHOLDERS' EQUITY
Preferred stock, $1 par value
1,000,000 shares authorized, none issued
Common stock, $1 par value,
5,000,000 shares authorized, 3,558,903
and 3,434,334 issued 3,559 3,434
Additional paid-in capital 29,274 28,589
Retained earnings (deficit) 2,825 (1,539)
Treasury shares, at cost, 101,393 shares (795)
Unamortized restricted stock awards (301) (48)
Note receivable from ESOP (613) (728)
- ---------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 33,949 29,708
- ---------------------------------------------------------------------------
$52,430 $51,616
===========================================================================
</TABLE>
See Notes to Consolidated Financial Statements
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MOMENTUM CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
(Thousands of dollars) 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES (Restated) (Restated)
<S> <C> <C> <C>
Loss from continuing operations $ (3,060) $ (1,286) $ (2,479)
Adjustments to reconcile loss from continuing
operations to cash provided (used) by operating activities:
Depreciation and amortization 2,460 1,165 932
ESOP shares allocated 115 80 265
Change in assets and liabilities:
Receivables (1,316) 922 2,280
Inventories (3,041) (928) 140
Other current assets 1,139 (876) 255
Accounts payable 873 1,714 (1,253)
Accrued liabilities 2,010 479 (252)
Deferred items (717) 236 334
- ----------------------------------------------------------------------------------------------------------
(1,537) 1,506 222
Income from discontinued operations 7,424 2,238 1,300
Gain on sale of discontinued operations (6,146)
Adjustments to reconcile income from discontinued
operations to cash provided (used) by operating activities (1,337) (2,035) 873
- ----------------------------------------------------------------------------------------------------------
CASH PROVIDED (USED) BY OPERATING ACTIVITIES (1,596) 1,709 2,395
INVESTING ACTIVITIES
Additions to property and equipment (1,739) (758) (1,662)
Proceeds from sale of discontinued
operations, net of notes receivable 17,133
Net (additions) reductions of other assets (1,366) 1,284 (1,249)
- ----------------------------------------------------------------------------------------------------------
CASH PROVIDED (USED) BY INVESTING ACTIVITIES 14,028 526 (2,911)
FINANCING ACTIVITIES
Proceeds from long-term obligations 56,500 72,500 89,353
Repayment of long-term obligations (62,759) (74,955) (88,843)
Purchase of treasury shares (802)
Proceeds from exercise of stock options 46 46
Proceeds from issuance of stock 40 20 6
- ----------------------------------------------------------------------------------------------------------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES (6,975) (2,435) 562
- ----------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,457 (200) 46
Cash and cash equivalents at beginning of year (1,259) (1,059) (1,105)
- ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 4,198 $ (1,259) $ (1,059)
==========================================================================================================
Supplemental disclosures of cash flow information
Cash paid (received) during the period for
Interest $ 470 $ 791 $ 879
Income taxes 5,296 176 (777)
==========================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
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MOMENTUM CORPORATION AND SUBSIDIARY
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Unamortized Note
Common Additional Retained Restricted Receivable
Stock Paid-in Earnings Treasury Stock From
(Thousands of dollars) ($1 Par value) Capital (Deficit) Shares Awards ESOP Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1991
(1,135,771 shares) $ 1,136 $ 30,764 $ (1,312) $ ---- $(153) $(1,073) $29,362
Net loss (1,179) (1,179)
Restricted stock awards
(3,000 shares) 3 48 25 76
ESOP activity 265 265
Exercise of stock options
(3,817 shares) 4 42 46
Issuance of stock
(424 shares) 6 6
- -------------------------------------------------------------------------------------------------------------------
Balance December 31, 1991
(1,143,012 shares) 1,143 30,860 (2,491) (128) (808) 28,576
Net income 952 952
Restricted stock awards 80 80
ESOP activity 80 80
Issuance of stock
(1,766 shares) 2 18 20
Additional shares issued in
three-for-one stock split
(2,289,556 shares) 2,289 (2,289)
- -------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1992
(3,434,334 SHARES) 3,434 28,589 (1,539) (48) (728) 29,708
NET INCOME 4,364 4,364
PURCHASE TREASURY SHARES (802) (802)
RESTRICTED STOCK AWARDS
(107,190 SHARES) 107 617 7 (253) 478
ESOP ACTIVITY 115 115
EXERCISE OF STOCK OPTIONS
(11,951 SHARES) 12 34 46
ISSUANCE OF STOCK
(5,428 SHARES) 6 34 40
- -------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1993
(3,558,903 SHARES) $ 3,559 $29,274 $ 2,825 $(795) $(301) $ (613) $33,949
===================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE> 12
MOMENTUM CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Momentum Corporation (the Company/Momentum) and its wholly owned subsidiary,
Momentum Graphics Inc. Material intercompany balances and
transactions have been eliminated.
DISCONTINUED OPERATIONS
The consolidated financial statements for 1992 and prior have been restated to
show the Textiles Group, VWR Textiles & Supplies Inc. and Momentum Textiles
Inc., as discontinued operations. As further described in the following Notes
to Consolidated Financial Statements, this group was sold in September, 1993.
CASH AND CASH EQUIVALENTS
For purposes of the cash flow statement, the Company considers investments
which have an original maturity of three months or less to be cash equivalents.
In addition, the Company's cash management system operates so that a cash
overdraft for uncleared checks exists in the disbursing account. To the extent
the outstanding balance for uncleared checks exceeds the cash balances, the net
balance is reported as a current liability on the balance sheet and is included
as cash and cash equivalents on the cash flow statement.
SHORT-TERM INVESTMENTS
The Company invests idle funds in short-term investments, with maturities of
three months or less. The Company records these investments at cost which
approximates market. All investments are in investment grade commercial paper.
CAPITALIZATION, DEPRECIATION AND AMORTIZATION
Property and equipment are recorded at cost. Expenditures for maintenance and
repairs are expensed as incurred. Depreciation is computed using the
straight-line method for financial reporting purposes and, generally, using
accelerated methods for income tax purposes.
Capital leases are included under property and equipment with the corresponding
amortization included in depreciation. The related financial obligations under
the capital leases are included in long-term obligations.
INCOME (LOSS) PER SHARE
Income (loss) per share is based on the weighted average number of shares and
dilutive common share equivalents outstanding during the year. Common stock
equivalents related to stock options have not been considered in computing the
loss per share for 1991 as the effect is antidilutive. The weighted average
number of shares outstanding were 3,629,089, 3,492,568, and 3,422,310 for the
years ended December 31, 1993, 1992 and 1991, respectively. Shares outstanding
include shares held by the Momentum Employee Stock Ownership Plan.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk, as defined by Financial Accounting Standards
Board Statement No. 105, are primarily accounts receivable. Concentrations of
credit risk with respect to the receivables are limited due to the large number
of customers in the Company's customer base, and their dispersion across
different industries and geographic areas. The Company maintains an allowance
for losses based upon the expected collectibility of all accounts receivable.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with current year
presentation.
Page 12
<PAGE> 13
INVENTORIES
Inventories consist primarily of purchased goods for sale. Substantially all
of the Company's inventories are valued at lower of cost or market using the
last-in, first-out (LIFO) method of accounting. Inventories at current costs
exceed those reported under the LIFO method by approximately $2.2 million at
December 31, 1993 and $2.4 million at December 31, 1992.
PROPERTY AND EQUIPMENT
Net property and equipment at December 31 consisted of:
<TABLE>
<CAPTION>
(Thousands of dollars)
1993 1992
- -----------------------------------------------------------------------------
(Restated)
<S> <C> <C>
Land $ 243 $ 243
Buildings and equipment 7,676 6,452
Leased property under capital lease 2,750 2,750
Computer system software 3,788 3,788
- -----------------------------------------------------------------------------
14,457 13,233
Less accumulated depreciation and amortization (7,317) (5,916)
- -----------------------------------------------------------------------------
Net property and equipment $ 7,140 $ 7,317
=============================================================================
</TABLE>
Page 13
<PAGE> 14
LONG-TERM OBLIGATIONS AND REVOLVING CREDIT AGREEMENTS
The long-term obligations of the Company at December 31 consisted of:
<TABLE>
<CAPTION>
(Thousands of dollars) 1993 1992
- ------------------------------------------------------------------------------
(Restated)
<S> <C> <C>
Revolving credit agreements $ --- $6,100
Capitalized lease obligation, 8.38% payable in
installments through 2002 1,866 2,011
Other miscellaneous notes 101 115
- ------------------------------------------------------------------------------
1,967 8,226
Less current portion (174) (160)
- ------------------------------------------------------------------------------
Net long-term obligations $1,793 $8,066
==============================================================================
</TABLE>
Maturities of long-term obligations for each of the five years beginning
January 1, 1994 are as follows:
<TABLE>
<CAPTION>
Capitalized Other
Lease Long-term
(Thousands of dollars) Obligations Obligations
- ------------------------------------------------------------------------------
<S> <C> <C>
1994 $ 308 $ 17
1995 308 18
1996 308 20
1997 308 22
1998 308 24
Thereafter 1,076
- ------------------------------------------------------------------------------
2,616 101
Less imputed interest on capitalized lease (750)
- ------------------------------------------------------------------------------
$1,866 $ 101
==============================================================================
</TABLE>
The Company has two unsecured revolving credit agreements, with a total
commitment of $17.5 million. Under the terms of these agreements, the Company
can borrow under several options including rates tied to prime, certificate of
deposit, and LIBOR. The approximate weighted average interest rates were 5.0%,
5.8% and 7.3% for 1993, 1992, and 1991, respectively. One of the revolving
credit agreements provides for conversion of up to $5 million of the line into
term loans with a maximum term period extending to March, 1997. Among other
provisions, the revolving credit agreements include various limitations on
working capital, tangible net worth, current ratio, debt to equity and cash
flow to interest expense. Under the most restrictive of these terms, none of
the Company's shareholders' equity would have been available for cash dividends
in 1993.
Under the terms of a March, 1990 agreement with the Company's former parent
company, VWR Corporation (VWR), VWR is obligated through February, 1995 to make
available to the Company an unsecured subordinated revolving line of credit of
approximately $5 million. At December 31, 1993, the Company had no outstanding
debt under this agreement.
Under terms of its insurance policies and claims handling agreements, the
Company is required to maintain certain standby letters of credit. At December
31, 1993 these totaled approximately $1,500,000.
Page 14
<PAGE> 15
INCOME TAXES
Income tax benefit for the years ended December 31 consisted of:
<TABLE>
<CAPTION>
(Thousands of dollars) 1993 1992 1991
- -------------------------------------------------------------------------------
Current: (Restated) (Restated)
<S> <C> <C> <C>
Federal $(1,421) $(645) $(1,420)
State (60) (40) (30)
- -------------------------------------------------------------------------------
(1,481) (685) (1,450)
Deferred:
Federal (79) 43 195
State (4) 10 50
- -------------------------------------------------------------------------------
(83) 53 245
- --------------------------------------------------------------------------------
Total income tax benefit $(1,564) $(632) $(1,205)
================================================================================
</TABLE>
Reconciliation of the statutory Federal tax benefit to the actual tax benefit
for the years ended December 31 consisted of:
<TABLE>
<CAPTION>
(Thousands of dollars) 1993 1992 1991
- --------------------------------------------------------------------------------
(Restated) (Restated)
<S> <C> <C> <C>
Statutory rate 34% 34% 34%
Statutory expense (benefit) $(1,572) $(652) $(1,253)
State tax expense and other 8 20 48
- --------------------------------------------------------------------------------
Total income tax benefit $(1,564) $(632) $(1,205)
================================================================================
</TABLE>
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 deferred tax assets and liability at December 31,
consisted of:
(Thousands of dollars) 1993 1992
- --------------------------------------------------------------------------------
<TABLE> (Restated)
<S> <C> <C>
Deferred tax assets
Inventory adjustments $ 273 $ 241
Bad debt reserve 135 175
Insurance reserve accruals 87 134
Federal alternative minimum tax credit carryforward 255
Federal net operating loss carryforward 159
State net operating loss carryforward 87
Other 359 432
- --------------------------------------------------------------------------------
Total deferred tax assets 854 1,483
- --------------------------------------------------------------------------------
Deferred tax liability
Tax depreciation in excess of financial 617 854
- --------------------------------------------------------------------------------
Net deferred tax assets $ 237 $ 629
================================================================================
</TABLE>
Page 15
<PAGE> 16
PENSION AND OTHER EMPLOYEE BENEFITS
PENSION PLANS
The Company has a defined benefit pension plan (the Plan/pension plan) covering
substantially all employees. Pension benefits are based on years of credited
service and highest five consecutive years average compensation. Contributions
to the Plan are based on funding standards established by the Employee
Retirement Income Security Act of 1974 (ERISA).
The Plan's funded status and the amounts recognized in the Company's
consolidated balance sheet at December 31 were:
<TABLE>
<CAPTION>
(Thousands of dollars) 1993 1993
- ------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of plan benefit obligations
Vested $13,945 $11,001
Non-vested 111 115
- ------------------------------------------------------------------------------
Accumulated benefit obligation 14,056 11,116
Effect of future salary increases 1,360 1,617
- ------------------------------------------------------------------------------
Projected benefit obligation 15,416 12,733
Plan assets at fair value 14,280 12,216
- ------------------------------------------------------------------------------
Projected benefit obligation in excess of plan assets (1,136) (517)
Unrecognized net transition obligation 85 201
Unrecognized prior service cost (72) (170)
Unrecognized actuarial loss 2,664 1,206
- ------------------------------------------------------------------------------
Net pension asset $ 1,541 $ 720
==============================================================================
</TABLE>
The assets of the Plan consist predominantly of undivided interests in several
funds structured to duplicate the performance of various stock and bond
indexes. The net pension asset is included in other current assets and other
assets.
The assumptions used for computing the net pension asset were:
<TABLE>
<S> <C> <C>
Discount rate 7.5% 8.75%
Rate of increase in compensation levels 5.0% 5.0 %
</TABLE>
Net pension expense for the years ended December 31 included the following
components:
<TABLE>
<CAPTION>
(Thousands of dollars) 1993 1992 1991
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost of benefits earned during the year $ 485 $ 476 $ 426
Interest cost on projected benefit obligation 1,119 1,013 961
Actual return on plan assets (1,490) (753) (1,970)
Net amortization and deferral 308 (385) 1,096
- ------------------------------------------------------------------------------
Net Pension expense $ 422 $ 351 $ 513
==============================================================================
</TABLE>
Net pension expense includes pension expense applicable to discontinued
operations of approximately $123,000, $88,000, and $117,000 for 1993, 1992,
and 1991, respectively.
In calculating the net pension expense, an expected long-term rate of return on
plan assets of 10% was used for 1993, 1992, and 1991.
The Company maintains a supplemental pension plan for certain senior officers.
Expenses for this plan were $34,000, none, and $18,000 for 1993, 1992, and
1991, respectively.
Page 16
<PAGE> 17
RESTRICTED STOCK AWARDS
Under the Company's 1989 Long-term Incentive Stock Plan, the Company provides
for grants of restricted Company common stock to directors, officers and
managers. The vesting periods on the stock range from two to four years. The
fair market value of the stock at the date of grant establishes the
compensation amount which is amortized to operations over the restricted
period. During 1993, 107,190 shares were granted at a fair market value of
$731,000. At December 31, 1993, the unamortized balance of the restricted stock
awards was approximately $301,000, as shown in the shareholders' equity section
of the consolidated balance sheets.
STOCK OPTIONS
Under stock option plans (vesting over one to ten years), options have been
granted to certain officers and managers to purchase common stock of the
Company at its fair market value at the date of grant. Changes in options
outstanding for the three years ended December 31, 1993 are:
<TABLE>
<CAPTION>
Shares Average Price
- -------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at January 1, 1991 153,222 $4.75
Exercised (11,451) 4.03
Cancelled (2,775) 4.67
- -------------------------------------------------------------------------------
Outstanding at December 31, 1991 138,996 4.81
- -------------------------------------------------------------------------------
Granted 108,000 4.50
- -------------------------------------------------------------------------------
Outstanding at December 31, 1992 246,996 4.68
- -------------------------------------------------------------------------------
Granted 47,073 6.75
Exercised (11,951) 3.84
Cancelled (86,913) 4.47
- -------------------------------------------------------------------------------
Outstanding at December 31, 1993 195,205 $5.32
===============================================================================
</TABLE>
Options exercisable at December 31, 1993, were 74,302.
Under the Company's 1989 Long-term Incentive Stock Plan, approximately 223,000
shares of the Company's common stock has been reserved for issuance under
various stock option and award plans.
MOMENTUM MONEY-MAKER 401(K) RETIREMENT PLAN
The Momentum Money-Maker 401(k) Retirement Plan (Money-Maker) is a voluntary
savings plan available to all employees covered under the Company pension plan.
Company matching contributions, if any, are determined by the Board of
Directors based on the historical performance of the Company.
The Company's expense for the Money-Maker was approximately $35,000, $56,000
and $122,000 for 1993, 1992, and 1991, respectively.
MOMENTUM EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
The ESOP was established in 1990 as a means to provide employees with increased
ownership in the Company. All full time employees with one year of service are
eligible to participate. Total shares to be allocated to the employees for
each year is determined by the Board of Directors based on the performance of
the Company, with a minimum contribution each year of 30 shares to each
employee.
The Company's expense for the ESOP, based on the shares allocated or to be
allocated to the employees' accounts, was approximately $40,000, $37,000 and
$47,000 in 1993, 1992, and 1991 respectively.
The ESOP held 103,591 unallocated shares of the Company's common stock at
December 31, 1993, including 6,770 shares earned in 1993 but not allocated
until 1994.
The ESOP acquired the Company's common stock by issuing a note to the Company.
The balance of the note is shown as a reduction of shareholders' equity on the
consolidated balance sheets. The repayment of the note and the accompanying
interest is made by a contribution in the form of a forgiveness of the debt by
the Company as the shares are allocated to the employees' accounts.
Page 17
<PAGE> 18
LEASES
The Company leases various facilities and equipment under non-cancellable lease
arrangements. The major leases are for terms of three to ten years. Renewal
and purchase options are available on certain of these leases. Future minimum
lease payments as of December 31, 1993 under non-cancellable operating leases,
having initial lease terms of more than one year are:
<TABLE>
<CAPTION>
Years Ending December 31,
(Thousands of dollars)
- -------------------------
<S> <C>
1994 $ 934
1995 720
1996 485
1997 268
1998 164
Thereafter 277
------
2,848
Less sublease income (128)
------
Total minimum lease payments $2,720
======
</TABLE>
Rent expense, net of non-cancellable sublease rentals, was approximately $1.1,
$1.6 and $1.6 million for 1993, 1992, and 1991, respectively.
RESTRUCTURE AND OTHER CHARGES
The Company incurred restructure and other charges of $2,382,000, $619,000 and
$553,000 for 1993, 1992 and 1991, respectively. For 1993, the expense includes
(a) $1 million for the restructuring of the sales and marketing function, which
is composed predominantly of employee severance and relocation costs; (b)
$800,000 for the write-off of computer hardware; and (c) $582,000 for employee
salaries and benefits applicable to positions which have been eliminated as a
result of the divestiture of the Textiles Group. For 1992 and 1991, the
expense represents the portion of the salaries and benefits applicable to
positions which have been eliminated as a result of the divestiture of the
Textiles Group.
DISCONTINUED OPERATIONS
In September 1993, the Company sold its Textiles Group composed of VWR Textiles
& Supplies Inc. and Momentum Textiles Inc. The net proceeds on the sales were
$20.5 million, including $3.4 million in short-term notes receivable. The
consolidated financial statements show the Textiles Group as discontinued
operations.
Net sales of the Textiles Group were $60,511,000 for the period ended September
30, 1993 and $82,300,000 and $68,102,000 for the years 1992 and 1991,
respectively. Interest expense, which included interest on debt assumed by the
buyers and an allocation of interest on other debt based on the average net
assets of the discontinued operations to the consolidated net assets, was
$238,000, $356,000, and $198,000 for 1993, 1992, and 1991, respectively.
Income tax expense for discontinued operations was $841,000 for the period
ended September 30, 1993 and $1,439,000 and $799,000 for the years 1992 and
1991, respectively. Income tax expense on the gain on the sales was
$3,913,000.
Page 18
<PAGE> 19
SUBSEQUENT EVENTS
ACQUISITION
On February 17, 1994, the Company signed an agreement in principle to acquire
the assets of T.K. Gray, Inc. (Gray), a regional distributor of photographic
and graphic arts supplies and equipment, for a purchase price in excess of $14
million, predominantly in cash. The acquisition, which is expected to be
accounted for as a purchase, is subject to the execution of a definitive
agreement, receipt of customary regulatory approval, and satisfactory
completion of due diligence investigations. Completion of the acquisition is
anticipated in April, 1994.
COMBINATION
On March 17, 1994, the Company signed an agreement in principle to form
a new holding company and combine, in a tax-free reorganization, with Phillips
& Jacobs, Incorporated (P&J), a national distributor of photographic and
graphic arts supplies and equipment. P&J common stock is traded on the NASDAQ
National Market System and is headquartered in Pennsauken, N.J.
Under the agreement, each share of outstanding P & J common stock
will be exchanged for one share of the new company. Each share of Momentum
common stock will be exchanged for .71 shares of the new company.
The combination is subject to the execution of a definitive agreement, the
approval of the stockholders of both Momentum and P&J, satisfactory completion
of due diligence investigations by both parties, receipt of customary
regulatory approvals, and satisfaction of certain other standard conditions.
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
(Thousands of dollars First Second Third Fourth
except per share data) Quarter Quarter Quarter Quarter Total
---------------------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993
Sales $ 30,003 $ 30,142 $ 28,256 $ 28,387 $116,788
Gross margin 5,713 5,938 5,533 5,358 22,542
Loss from continuing operations (450) (1,009) (937) (664) (3,060)
Income from discontinued operations (1) 628 584 6,212 7,424
Net income (loss) 178 (425) 5,275 (664) 4,364
Income (loss) per share:
Continuing operations (2) (0.12) (0.28) (0.26) (0.19) (0.84)
Discontinued operations (1) 0.17 0.16 1.71 2.04
Net income (loss) (2) $ 0.05 $ (0.12) $ 1.45 $ (0.19) $ 1.20
YEAR ENDED DECEMBER 31, 1992 (RESTATED)
Sales $ 26,879 $ 28,072 $ 28,489 $ 28,582 $112,022
Gross margin 5,358 5,504 5,369 5,672 21,903
Loss from continuing operations (362) (297) (289) (338) (1,286)
Income from discontinued operations 451 451 671 665 2,238
Net income 89 154 382 327 952
Income (loss) per share:
Continuing operations (0.10) (0.09) (0.08) (0.10) (0.37)
Discontinued operations 0.13 0.13 0.19 0.19 .64
Net income (loss) $ 0.03 $ 0.04 $ 0.11 $ 0.09 $ 0.27
</TABLE>
(1) Income from discontinued operations for the third quarter
of 1993 includes the gain on the sales of the discontinued
operations of $6,146,000 ($1.69 per share).
(2) Due to changes in the outstanding shares during the year,
the sum of the quarterly income (losses) per share for 1993
will not equal the loss per share for the year.
Page 19
<PAGE> 20
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Momentum Corporation
We have audited the accompanying consolidated balance sheets of Momentum
Corporation and subsidiary as of December 31, 1993 and 1992, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1993. Our audits also
included the financial statement schedules listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Momentum Corporation and subsidiary at December 31, 1993 and 1992, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1993, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
BY (SIGNATURE)
ERNST & YOUNG
Seattle, Washington
March 8, 1994 (except for the subsequent event note regarding
combination, as to which the date is March 17, 1994)
Page 20
<PAGE> 21
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference from the definitive proxy statement to be filed with
the Securities and Exchange Commission by April 30, 1994, except information
regarding executive officers which appears under Part I.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the Registrants' definitive proxy statement to
be filed with the Securities and Exchange Commission by April 30, 1994.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the Registrants' definitive proxy statement to
be filed with the Securities and Exchange Commission by April 30, 1994.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the Registrants' definitive proxy statement to
be filed with the Securities and Exchange Commission by April 30, 1994.
Page 21
<PAGE> 22
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
(a)(1) Financial Statements
The following financial statements have been included as part of
this report:
Form 10-K
Page
----
Consolidated Statements of Operations 8
Consolidated Balance Sheets 9
Consodated Statements of Cash Flows 10
Consolidated Statements of Shareholders' Equity 11
Notes to Consolidated Financial Statements 12
Report of Independent Auditors 20
(2) Financial Statement Schedule
(a) The following financial statement schedules are submitted herewith:
-Schedule I Marketable Securities - Other Investments
-Schedule VIII Valuation of Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable, and therefore have been omitted.
(b) Reports on Form 8-K
No Forms 8-K were filed for the Registrant during the fourth
quarter covered by this report.
(c) Exhibits
The required exhibits are included at the back of this Form 10-K
and are described in the Exhibit Index immediately preceding the
first exhibit.
Page 22
<PAGE> 23
MOMENTUM CORPORATION AND SUBSIDIARY
SCHEDULE I -- MARKETABLE SECURITIES
<TABLE>
<CAPTION>
Carried on
Market Consolidated
Description (Thousands of dollars) Par Cost Value Balance Sheet
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fred Meyer Inc. Commercial Paper
(maturity 1/3/94) $ 704 $ 702 $ 702 $ 702
Fred Meyer Inc. Commercial Paper
(maturity 1/10/94) $5,442 $5,421 $5,421 5,421
</TABLE>
SCHEDULE VIII -- VALUATION OF QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance Charged Balance
at to Costs at
Beginning and end
Description (Thousands of dollars) of Year Expenses Deductions (1) Year
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowances for Losses (Deducted from Trade Receivables) for:
YEAR ENDED DECEMBER 31, 1993 $ 451 $ 195 $ 272 374
====== ====== ====== ======
Year Ended December 31, 1992 361 300 210 451
====== ====== ====== ======
Year Ended December 31, 1991 730 401 770 361
====== ====== ====== ======
</TABLE>
(1) Uncollectible accounts written-off, net of recoveries
Page 23
<PAGE> 24
MOMENTUM CORPORATION AND SUBSIDIARY
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MOMENTUM CORPORATION AND SUBSIDIARY
Date March 29, 1994 BY (SIGNATURE)
John H. Goddard, Jr.
President
Chief Executive Officer
(principal executive officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on the behalf of the
registrant and in the capacities and on the dates indicated.
Date March 29, 1994 BY (SIGNATURE)
Patsy R. Turnipseed
Senior Vice President
Chief Financial Officer
(principal financial and accounting officer)
DIRECTORS
Richard E. Engebrecht }
John C. Dimmer }
John H. Goddard }
Jerrold B. Harris }
Gary MacLeod } BY (SIGNATURE}
Andrew V. Smith } Patsy R. Turnipseed
William K. Street } Attorney in fact
James H. Wiborg } Power of Attorney
dated February 22, 1994
Date: March 29, 1994
Page 24
<PAGE> 25
EXHIBIT INDEX
EXHIBIT NUMBER AND DESCRIPTION
<TABLE>
Exhibits identified in parenthesis below, on file with the Securities and
Exchange Commission, are incorporated herein by reference as exhibits hereto.
<S> <C>
(2.1) Form of Agreement and Plan of Distribution executed by and between Registrant and VWR Corporation (filed with General
Form for Registration of Securities on Form 10 filed November 13, 1989 and including Amendment #1 on Form 8 filed
December 6, 1989; Amendment #2 on Form 8 filed January 19, 1990; Amendment #3 on Form 8 filed February 9, 1990; and
Amendment #4 on Form 8 filed March 2, 1990)
(2.2) Asset Purchase Agreement, dated April 1, 1992, for the purchase of substantially all of the assets of Petco Inc.
(filed as exhibit 2(i) to Form 8-K dated April 15, 1992, File No. 0-18112)
(2.3) Stock Purchase Agreement, dated September 1, 1993, for the sale of the stock of VWR Textiles & Supplies Inc., a
wholly-owned subsidiary, to Hanes Companies (filed as exhibit 2 to Form 8-K dated September 15, 1993, File No. 0-18112)
(2.4) Stock Acquisition Agreement, dated September 30, 1993, for the sale of the stock of Momentum Textiles Inc., a wholly-owned
subsidiary, to Textile Acquisition Inc.(filed as exhibit 2 to Form 8-K dated October 15, 1993, File No. 0-18112)
(3.2) Bylaws as amended June 4, 1991 (filed as exhibit 3.2 to Form 10-K, File No. 0-18112, dated March 29, 1992)
(3.3) Restated Certificate of Incorporation (filed as exhibit 3.3 to Form 10-K, File No. 0-18112, dated March 28, 1991)
(3.4) Amendment of Articles of Incorporation For Change in Registrants Name (filed as exhibit 3 to Form 10-Q, File No. 0-18112,
dated November 15, 1993)
(10.1) Agreement and Plan of Distribution (see Exhibit 2.1)
(10.2) Momentum Distribution Inc. Money-Maker Investment and Stock Ownership Plan as amended through March 1, 1992 (filed as
exhibit 10.2 to Form 10-K, File No. 0-18112, dated March 29, 1992) *
(10.3) Momentum Distribution Inc. 1989 Employees' Stock Purchase Plan (filed with Registration Statement on Form S-8, File No.
33-34392)*
(10.4) Momentum Distribution Inc. 1989 Long-term Incentive Stock Plan as amended June 4, 1991 (filed with Registration Statement
on Form S-8, File No. 33-43920)*
(10.5) Momentum Distribution Inc. Retirement Plan as amended through March 1, 1992 (filed as exhibit 10.5 to Form 10-K, File
No. 0-18112, dated March 29, 1992)*
(10.6) Momentum Distribution Inc. Supplemental Benefits Plan effective January 1, 1990 (filed as exhibit 10.6 to Form 10-K,
File No. 0-18112, dated March 28, 1991)*
(10.7) Momentum Distribution Inc. Executive Bonus Plan, dated March 1, 1990 (filed as exhibit 10.7 to Form 10-K,
File No. 0-18112, dated March 28, 1991)*
(10.8) Consulting Services Agreement between Momentum Distribution Inc. and Mr. James H. Wiborg dated January 1, 1990 (filed as
exhibit 10.8 to Form 10-K, File No. 0-18112, dated March 28, 1991)*
(10.9) Amended and Restated Agreement relating to compensation in the event of a change in control of Momentum Distribution Inc.
between Momentum Distribution Inc. and Richard E. Engebrecht, Patsy R. Turnipseed, John H.Goddard, Jr., Sanford L. Van
Dyke and John B. Wilkinson, effective February 26, 1990 (filed as exhibit 10.9 to Form 10-K, File No. 0-18112, dated
March 28, 1991)*
(10.10) Amendment to Exhibit 10.8, Consulting Services Agreement (filed as exhibit 10.10 to Form 10-K, File No. 0-18112, dated
March 29, 1992)*
(10.12) Momentum Distribution Inc. Revised and Restated Employee Stock Ownership Plan and Trust effective January 1, 1992 (filed
as exhibit 10.12 to Form 10-K, File No. 0-18112, dated March 30, 1993)*
(10.13) Restated Momentum Distribution Inc. Supplemental Benefits Plan, effective April 22, 1991 (filed as exhibit 10.13 to Form
10-K, File No. 0-18112, dated March 30, 1993)*
(10.14) Amendment to Exhibit 10.9, Amended and Restated Agreement relating to compensation in the event of a change in control
of Momentum Distribution Inc. between Momentum Distribution Inc. and John H.Goddard, Jr., Sanford L. Van Dyke, Patsy R.
Turnipseed, and John B. Wilkinson, executed December 11, 1992 (filed as exhibit 10.14 to Form 10-K, File No. 0-18112,
dated March 30, 1993)*
(10.15) Amendment to Exhibit 10.5, Momentum Distribution Inc. Retirement Plan, effective January 1, 1992 (filed as exhibit 10.15
to Form 10-K, File No. 0-18112, dated March 30, 1993)*
(10.16) Momentum Money-Maker 401(k) Retirement Plan and Trust as Amended and Restated January 1, 1992 (filed as exhibit 10.16 to
Form 10-K, File No. 0-18112, dated March 30, 1993)*
(10.17) Momentum Graphics Bonus Plan, effective January 1, 1992 (filed as exhibit 10.17 to Form 10-K, File No. 0-18112, dated
March 30, 1993)*
Page 25
</TABLE>
<PAGE> 26
<TABLE>
<S> <C>
(10.18) Momentum Textiles Profit Sharing Plan, effective January 1, 1992
(filed as exhibit 10.18 to Form 10-K, File No. 0-18112, dated
March 30, 1993)*
(10.19) Employment Agreement between Momentum Distribution Inc. and
Mr. Richard E. Engebrecht dated December 9, 1992 (filed as exhibit
10.19 to Form 10-K, File No. 0-18112, dated March 30, 1993)*
10.20 1993 Momentum Corporation 1993 Executive Incentive Plan*
11 Computation of Per Share Income (Loss)
21 Parents and Subsidiary of the Registrant
23 Consent of Independent Auditors
24 Power of Attorney
99 Undertakings
</TABLE>
* Management contracts and/or compensatory plans, contracts or
arrangements in which a director and/or an executive officer
participates.
Page 26
<PAGE> 1
EXHIBIT 10.20
MOMENTUM CORPORATION
1993 EXECUTIVE INCENTIVE PLAN
1. EFFECTIVE DATE. The effective date of the Momentum Corporation
Executive Incentive Plan ("Plan") is January 1, 1993.
2. PURPOSES. The purposes of this Plan are (a) to attract and retain in
the employ of Momentum Corporation (the "Company") persons of outstanding
competence who are or will be primarily responsible for the management, growth
and success of the business; (b) to provide greater incentive for such persons
to exert their best efforts on behalf of the Company; and (c) to further the
identity of interests of such persons with those of the Company's stockholders
generally by encouraging them to acquire stock ownership in the Company.
3. PARTICIPANTS. The participants in this Plan shall be selected
officers and key employees of the Company as designated from time-to-time by
the Compensation Committee of the Board of Directors of the Company (the
"Compensation Committee").
4. ADMINISTRATION. The Plan shall be administered by the Vice President,
Administration or such other officer of the Company as the CEO of the Company
shall designate. Questions of interpretation shall be decided by a committee
consisting of the Company's CEO, CFO and General Counsel. Any question that
they choose not to answer due to a substantial conflict of interest or for any
other reason shall be referred to the Compensation Committee. Any decision by
the Compensation Committee shall be final and binding.
5. STRUCTURE OF PLAN. The Plan shall consist of a cash short-term
incentive component and an equity-based long-term incentive component, the
latter with 3-year performance periods and based on stock options to create
equity ownership. All stock options shall be granted under the Company's 1989
Long-Term Incentive Stock Plan or its successor. The performance targets shall
be set by the Compensation Committee and shall be linked to strategic business
goals and key milestones which benefit all stockholders of the Company.
6. SHORT-TERM INCENTIVE OPPORTUNITY. Participants designated by the
Board shall have an annual short-term incentive target equal to a designated
percentage of the midpoint of their individual salary grade. Target
percentages in the Executive Bonus Plan are no longer applicable and specific
percentage targets shall be set by the Compensation Committee for each
individual participant. This short-term incentive opportunity shall be made
pursuant to the Company's existing Executive Bonus Plan but with the folllowing
modifications:
<PAGE> 2
<TABLE>
<CAPTION>
% of Success % of Salary Grade
Ratio Achieved Paid Out
-------------- --------
<S> <C> <C>
Maximum Payout 130% 150%
Target Payout 100% 100%
Threshold Payout 60% 25%
</TABLE>
All payouts will be in cash only.
7. LONG-TERM INCENTIVE OPPORTUNITY. Designated participants shall have
3-year targets established equal to a percentage of the midpoint of their
salary grade multiplied by three. Seventy-five percent (75%) of the target
payout for this long-term incentive shall be based on to the projected gain on
the stock options granted or to be granted hereunder and twenty-five percent
(25%) shall be payable in cash from the performance unit plan.
The primary function of the cash component (performance unit plan) is
to help pay the income tax on any option gains. The performance unit plan is
based upon achieving at least 6% annual, internal growth in revenues with a
target payout at 10% annual growth. The affect of any acquisition on revenue
growth shall be disregarded. The performance unit plan is described in MCG
pages numbered 19-21 attached as Exhibit A and the payout formula is the same
as the short-term incentive formula in paragraph 6 above unless set otherwise
by the Compensation Committee.
The terms of the stock options will be set by the Compensation
Committee, but generally they will be nonqualified options with a 10-year
duration and which will vest (become exercisable) at the end of the applicable
3-year period (i.e. January 1, 1996 in the case of the first grants).
For each 3-year period, forty percent (40%) of the stock options to be
potentially granted (at target) shall be granted at the beginning of the 3-year
period, with additional options to be granted at the end of the first, second
and third years. The granting of additional options at year end shall be
dependent on the book value of the Company's stock increasing 13.3% or more
from the beginning of the year to the end of the year. This methodology is set
out on MCG pages numbered 15-18 attached as Exhibit B.
8. MISCELLANEOUS. No participation or award hereunder will be construed
to be a contract for continued employment and each officer of the Company
serves at the pleasure of the Board of Directors.
9. AMENDMENTS. The Board of Directors reserves the right to modify this
Plan from time to time or to repeal the Plan entirely, or to direct the
discontinuance of granting awards either temporarily or permanently; provided,
however, that no modification of this Plan shall operate to annul, without the
consent of the optionee, a stock option already granted hereunder.
Dated as of the 26th day of August, 1993.
MOMENTUM CORPORATION
By ________________________________
President
Attest:
___________________________________
Corporate Secretary
<PAGE> 1
EXHIBIT 11
COMPUTATION OF PER SHARE INCOME (LOSS)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
(Thousands of dollars, except per share data) 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PRIMARY
Average shares outstanding 3,540 3,433 3,422
Net effect of dilutive stock options-
based on the treasury stock method using average
market price 89 60
-----------------------------------
Total 3,629 3,493 3,422
-----------------------------------
Loss from continuing operations $ (3,060) $ (1,286) $ (2,479)
-----------------------------------
Per share amount $ (0.84) $ (0.37) $ (0.72)
===================================
Income from operating results of discontinued operations $ 1,278 $ 2,238 $1,300
-----------------------------------
Per share amount $ 0.35 $ 0.64 $ 0.38
===================================
Gain on sale of discontinued operations $ 6,146 $ -- $ --
-----------------------------------
Per share amount $ 1.69 $ -- $ --
===================================
Net income (loss) $ 4,364 $ 952 $ (1,179)
-----------------------------------
Per share amount $ 1.20 $ 0.27 $ 0.34
===================================
</TABLE>
Page 27
<PAGE> 1
EXHIBIT 21
PARENTS & SUBSIDIARIES OF THE REGISTRANT
There is no parent of the registrant.
Wholly owned subsidiaries are:
Momentum Graphics Inc.
VWR Textiles & Supplies Inc. (Through date of sale, September 1, 1993)
Momentum Textiles Inc. (Through date of sale, September 30, 1993)
Page 28
<PAGE> 1
EXHIBIT 23
CONSENT OF ERNST & YOUNG INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-34391) pertaining to the Momentum Corporation Money-Maker
Investment and Stock Ownership Plan dated April 13, 1990, (Form S-8 No.
33-34392) pertaining to the Momentum Distribution Inc. 1989 Employees' Stock
Purchase Plan dated April 16, 1990, and (Forms S-8 No.'s 33-34393 and 33-43920)
pertaining to the Momentum Distribution Inc. 1989 Long-term Incentive Stock
Plan dated April 16, 1992 and June 4, 1991 of our report dated March 8, 1994
(Except for the subsequent event note regarding combination, as to which the
date is March 17, 1994), with respect to the consolidated financial statements
and schedules of Momentum Corporation included in the Annual Report (Form 10-K)
for the year ended December 31, 1993.
BY (SIGNATURE)
ERNST & YOUNG
Seattle, Washington
March 25 1994
Page 29
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Patsy R. Turnipseed their attorney-in-fact, for them
in any and all capacities, to sign the Annual Report on Form 10-K of Momentum
Corporation for the year ended December 31, 1993, and to file same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact, or her substitute or substitutes, may do or cause to be
done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
-----------------------------------------------------------------------
<S> <C> <C>
BY (SIGNATURE) Richard E. Engebrecht Director February 22, 1994
BY (SIGNATURE) John C. Dimmer Director February 22, 1994
BY (SIGNATURE) John H. Goddard, Jr. Director February 22, 1994
BY (SIGNATURE) Jerrold B. Harris Director February 22, 1994
BY (SIGNATURE) Gary MacLeod Director February 22, 1994
BY (SIGNATURE) Andrew V. Smith Director February 22, 1994
BY (SIGNATURE) William K. Street Director February 22, 1994
BY (SIGNATURE) James H. Wiborg Director February 22, 1994
</TABLE>
Page 30
<PAGE> 1
EXHIBIT 99
TO BE INCORPORATED BY REFERENCE INTO FORM S-8
REGISTRATION STATEMENTS NO. 33-34391, 33-34392, 33-34393 AND 33-43920.
UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represents a fundamental change in the information set
forth in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement; Provided, however, that paragraphs (a)(1)(i)
and (a)(1)(ii) do not apply if the registration statement is on
Form S-3 or Form S-8 and the information required to be included in
a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to section 13 or
section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Filings incorporating subsequent Exchange Act documents by reference.
The undersigned registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to section 13(a) or
section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(f) Employee plans on Form S-8.
(1) The undersigned registrant hereby undertakes to deliver or cause
to be delivered with the prospectus to each employee to whom the
prospectus is sent or given a copy of the registrant's annual report
to stockholders for its last fiscal year, unless such employee
otherwise has received a copy of such report, in which case the
registrant shall state in the prospectus that it will promptly
furnish, without charge, a copy of such report on written request of
the employee. If the last fiscal year of the registrant has ended
within 120 days prior to the use of the prospectus, the annual report
of the registrant for the preceding fiscal year may be so delivered,
but within such 120 days period the annual report for the last fiscal
year will be furnished to each such employee.
(2) The undersigned registrant hereby undertakes to transmit or cause
to be transmitted to all employees participating in the plan who do
not otherwise receive such material as stockholders of the
registrant, at the time and in the manner such material is sent to
its stockholders, copies of all reports, proxy
statements and other communications distributed to its stockholders
generally.
(3) Where interests in a plan are registered herewith, the undersigned
registrant and plan hereby undertake to transmit or cause to be
transmitted promptly, without charge, to any participant in the plan
who makes a written request, a copy of the then latest annual report
of the plan filed pursuant to section 15(d) of the Securities
Exchange Act of 1934 (Form 11-K). If such report is filed as part of
the registrant's annual report on Form 10-K, that entire report
(excluding exhibits) shall be delivered upon written request. If
such report is filed as part of the registrant's annual report to
stockholders delivered pursuant to paragraph (1) or (2) of this
undertaking, additional delivery shall not be required.
Page 31
<PAGE> 2
(i) Acceleration of effectiveness.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other that the payment by the registrant of
expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
Page 32
