<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Dat of Report (Date of earliest event reported) April 15, 1994
-------------------------------
MOMENTUM CORPORATION
- - - ------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 0-18112 91-1464018
- - - ------------------------------------------------------------------------------
(State of Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
Koll Center Bellevue - Suite 1900 500 108th Ave. N.E. Bellevue WA 98004
- - - ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (206) 450-6550
---------------------------
- - - ------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
Item 7(a) Financial Statements of Business Acquired
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
T. K. Gray, Inc.
Minneapolis, Minnesota
We have audited the accompanying balance sheets of T. K. Gray, Inc. as of
December 31, 1993 and 1992, and the related statements of income, retained
earnings (deficit), and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of T. K. Gray, Inc. as of
December 31, 1993 and 1992, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
BY (SIGNATURE)
McGladrey & Pullen
St. Paul, Minnesota
February 18, 1994
INDEPENDENT AUDITOR'S REPORT
Stockholders and Board of Directors
T.K. Gray, Inc.
We have audited the statements of income and retained earnings (deficit) and
of cash flows for the year ended December 31, 1991. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our 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 audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of T.K. Gray,
Inc.for the year ended December 31, 1991 in conformity with generally accepted
accounting principles.
BY (SIGNATURE)
Deloitte & Touche
February 28, 1992
<PAGE>
T. K. GRAY, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
Years Ended December 31, 1993 1992 1991
- - - ------------------------------------------------------------------------------------------------
INCOME
<S> <C> <C> <C>
Sales $ 44,519,162 $ 41,866,165 $ 40,944,819
Cost of sales 36,675,476 34,427,096 33,659,194
------------- ------------- -------------
Gross profit 7,843,686 7,439,069 7,285,625
------------- ------------- -------------
Expenses
Selling 3,159,101 3,034,094 2,819,910
Administrative and general 2,766,890 2,287,494 2,291,111
Depreciation and amortization 794,874 1,445,450 1,490,228
Interest 509,219 811,415 1,151,090
------------- ------------- -------------
Total expenses 7,230,084 7,578,453 7,752,339
------------- ------------- -------------
Income (loss) before tax benefit 613,602 (139,384) (466,714)
Income tax benefit (Note 5) 114,000
------------- ------------- -------------
Net income (loss) $ 613,602 $ (139,384) $ (352,714)
============= ============= =============
RETAINED EARNINGS (DEFICIT)
Balance (deficit), Beginning $ (376,774) $ (237,390) $ 115,324
Net income (loss) 613,602 (139,384) (352,714)
------------- ------------- -------------
Balance (Deficit), Ending $ 236,828 $ (376,774) $ (237,390)
============= ============= =============
</TABLE>
See Notes to Financial Statements.
<PAGE>
T. K. GRAY, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31, 1993 1992 1991
- - - ------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net Income (loss) $ 613,602 $ (139,384) $ (352,714)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation 75,181 111,842 122,744
Amortization 719,694 1,333,608 1,367,484
Gain on sale of equipment (5,926) --- ---
(Increase) decrease in deferred interest --- (166,018) 140,040
Changes in operating assets & liabilities:
(Increase) decrease in trade receivable (113,817) (161,834) 821,171
(Increase) decrease in inventories 857,717 (613,284) 1,408,272
(Increase) decrease in prepaid expenses 20,318 51,021 (80,567)
Increase (decrease) in trade accounts
payable and accrued expenses (162,774) 353,020 (650,151)
Increase (decrease) in current
income taxes payable --- 37,585 (249,500)
Decrease in long-term income taxes payable (218,330) (184,585) (84,000)
------------- ------------- -------------
Net cash provided by operating activities 1,785,665 621,971 2,442,779
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment and leasehold improvements (2,715) (28,193) (114,657)
Proceeds on sale of equipment 9,310 --- ---
------------- ------------- -------------
Net cash provided by (used in) investing
activities 6,595 (28,193) (114,657)
------------ ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net advances (payments) on revolving line (246,260) 1,998,512 (2,426,178)
Principal payments on capital lease obligations --- (55,706) (36,778)
Principal payments on long-term debt (1,100,000) (3,403,584) ---
Proceeds from long-term debt --- 1,100,000 ---
Distributions to stockholders (446,000) (233,000) ---
------------ ------------ -------------
Net cash used in financing activities (1,792,260) (593,778) (2,462,956)
------------ ------------ -------------
Change in cash and cash equivalents --- --- (134,834)
CASH AND CASH EQUIVALENTS
Beginning --- --- 134,834
------------ ------------ -------------
Ending $ --- $ --- $ ---
============ ============ =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for (receipts from):
Interest $ 543,112 $ 807,462 $ 1,041,889
Income taxes 10,000 154,391 373,600
Income tax refunds (3,651) (10,210) (153,936)
</TABLE>
See Notes to Financial Statements.
<PAGE>
T. K. GRAY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1993 1992
- - - -------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current Assets
Trade receivables, less allowance for
doubtful accounts of $100,000 and
$75,000, respectively (Note 2) $ 5,156,798 $ 5,042,981
Inventories (Note 2) 4,875,527 5,733,244
Prepaid expenses 29,530 49,848
------------- -------------
Total current assets 10,061,855 10,826,073
------------- -------------
Equipment and Leasehold Improvements,
at cost (Note 2)
Equipment and furniture 405,756 414,709
Leasehold improvements 100,008 100,008
------------- -------------
505,764 514,717
Less accumulated depreciation & amortization 332,697 265,800
------------- -------------
173,067 248,917
------------- -------------
Intangible Assets
Noncompete agreements --- 3,279,215
Debt issuance costs 367,300 378,300
Customer list 156,215 156,215
------------- -------------
523,515 3,813,730
Less accumulated amortization 282,179 2,852,700
------------- -------------
241,336 961,030
------------- -------------
$ 10,476,258 $ 12,036,020
============= =============
</TABLE>
<PAGE>
T. K. GRAY, INC.
BALANCE SHEETS - Continued
<TABLE>
<CAPTION>
December 31, 1993 1992
- - - --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities
Current maturities of long-term debt $ --- $ 660,000
Trade accounts payable 2,996,809 3,050,398
Salaries, wages and other related accruals 163,964 168,994
Property, sales, and payroll taxes,
including amounts withheld from
employees 135,649 164,946
Accrued profit sharing (Note 4) --- 50,000
Other accrued expenses 21,795 46,653
Income taxes payable (Note 5) 185,085 185,085
------------- -------------
Total current liabilities 3,503,302 4,326,076
------------- -------------
Long-Term Debt, less current maturities
(Notes 2 and 6) 6,030,043 6,716,303
------------- -------------
Long-Term Income Taxes Payable (Note 5) 185,085 403,415
------------- -------------
Commitments and Contingencies (Note 3)
Stockholders' Equity (Note 3)
Class A voting common stock, par value $1
per share; authorized 100,000 shares;
issued 48,000 shares 48,000 48,000
Class B nonvoting common stock, par value $1
per share; authorized 100,000 shares;
issued 48,000 shares 48,000 48,000
Additional paid-in capital (Note 5) 425,000 871,000
Retained earnings (deficit) 236,828 (376,774)
------------- -------------
757,828 590,226
------------- -------------
$ 10,476,258 $ 12,036,020
============= =============
</TABLE>
See Notes to Financial Statements.
<PAGE>
T. K. GRAY, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies
Nature of business: T. K. Gray, Inc. (the Company) distributes supplies and
equipment and provides service support to the printing and printed circuit
board industries principally in Minnesota. In addition, the Company
manufactures and sells printing blankets to the printing industry and is a
distributor of electronic publishing industry supplies and equipment. The
Company establishes credit with its customer on an individual basis.
Inventories: Nonequipment inventories (86 percent of total inventories) are
stated at last-in, first-out method (LIFO) cost which does not exceed market.
The remaining equipment inventories are valued at the lower of first-in,
first-out (FIFO) cost or market. The lower of cost or market is determined on
a pooled basis. If the FIFO method had been used for all inventories, the
Company's inventories would have been $184,601 and $153,342 higher at December
31, 1993 and 1992, respectively.
Depreciation and amortization: Equipment and furniture are depreciated over
estimated useful lives of five to thirteen years using straight-line and
accelerated methods. Leasehold improvements are amortized over the lesser of
the useful lives of the assets or the term of the building lease.
Intangible assets: Noncompete agreements were amortized over three to four
years. Debt issuance costs are being amortized over the life of the loan
(five years). The customer list is being amortized over 13 years. All
amortization is on the straight-line method.
Note 2. Debt Facilities
Debt outstanding includes the following at December 31:
1993 1992
- - - --------------------------------------------------------------------------
Revolving credit facility borrowings $6,030,043 $6,276,303
Senior term loan, paid in 1993 --- 1,100,000
---------- ----------
6,030,043 7,376,303
Less current maturities 660,000
---------- ----------
$6,030,043 $6,716,303
========== ==========
The Company has a revolving credit facility with a bank, which matures October
19, 1995. Collateral pledged for amounts advanced under the line of credit
consists of inventories, accounts receivable and equipment. Borrowings are
limited to the lesser of $7,250,000 or a percentage of eligible accounts
receivable and inventories, less $500,000. The Company is required to
maintain a collateral account with the bank, wherein, all funds deposited are
used to pay down the line with one-day availability. At December 31, 1993 and
1992, the Company had checks outstanding in excess of cash balances of
$249,687 and $224,500, respectively. These amounts are included as part of
the revolving credit facility borrowings. At December 31, 1993, the Company
had available for borrowing $920,929, before deducting the $500,000 minimum
available balance and checks outstanding. Interest on the credit facility is
paid monthly in arrears, at the then current base rate plus 1.75 percent (7.75
percent at December 31, 1993 and 1992, respectively) and the Company is
required to pay an annual fee of 0.375 percent of the unused funds.
<PAGE>
The credit agreement with the bank contains provisions which, among other
things, limit the ability of the Company to acquire or merge with other
companies, borrow additional funds, sell or purchase fixed assets, pay
dividends, or repurchase its capital stock. The Company must also maintain
certain net worth levels and meet periodic ratios of fixed charge coverage,
interest coverage, current ratios and cash generation. As of December 31,
1993, the Company was in compliance and had obtained a waiver of these
covenants.
Note 3. Commitments and Contingencies
Leases: The Company currently leases approximately 38,000 square feet of
office and warehouse facilities through June 1998. Terms of the lease require
minimum annual rentals of $170,100 plus real estate taxes and other occupancy
expenses. The Company has the option to renew the lease for an additional
five years and also has an agreement to lease an additional 12,190 square feet
of office and warehouse space through March 31, 1995.
In addition, the Company leases transportation equipment under noncancelable
operating leases.
Approximate minimum annual rentals are as follows:
Years ending December 31:
1994 $227,600
1995 182,200
1996 170,100
1997 170,100
1998 85,000
Total rent expense was $234,048, $230,569 and $221,018 for the years ended
December 31, 1993, 1992 and 1991, respectively.
Employment and stock repurchase agreements: The stockholders have entered
into five-year employment agreements which include three-year noncompete
agreements after termination. They have also entered into stock purchase
agreements which first allow the other stockholders and then the Company the
right of first refusal regarding stock transfers or sales after January 1,
1996. After that time, or when the aggregate outstanding balance of the
Company's term debt is less than the available borrowings under the revolving
credit facility, the stockholders may require the Company to purchase their
shares at fair market value but, in the event of death, at no less than the
face amount of insurance carried on the stockholder's life. Fair market value
is to be determined by mutual agreement between the seller and the buyer or by
independent appraisal. Terms require that 20 percent of the price be paid
upon transfer of shares with the remainder to be paid in up to five equal
annual installments.
Note 4. Benefit Plan
The Company has a profit sharing/savings plan which meets the requirements of
Internal Revenue Code Section 401(k). All employees with at least six months
of service are eligible to participate in the plan and may contribute up to 10
percent of their earnings. The Company matches 50 percent of the first six
percent of the employee contributions and may make additional contributions as
determined by the Board of Directors. The total nondiscretionary expense
relating to this plan was $98,748, $98,396 and $94,972 for the years ended
December 31, 1993, 1992, and 1991, respectively. In addition, the Company
made discretionary contributions of none, $50,000 and $36,400 for the years
ended December 31, 1993, 1992, and 1991, respectively.
<PAGE>
Note 5. Income Taxes
The Company has elected to be taxed under sections of the federal and state
income tax laws which provide that, in lieu of corporation income taxes, the
stockholders separately account for the Company's items of income, deductions,
losses and credits (S Corporation). Prior to January 1, 1992, income taxes
were payable at the corporate level ('C' Corporation), and income taxes were
computed for financial statement purposes in accordance with Accounting
Principles Board Opinion No. 11. Therefore, the statements of income
subsequent to 1991 do not include any provision or benefit for corporate
income taxes. Periodic distributions are made to the Company's stockholders
to enable them to pay the income taxes applicable to the Company's income
reportable on their individual income tax returns. Cash distributions of
$446,000 and $233,000 were made to the shareholders in 1993 and 1992,
respectively, from additional paid-in capital.
As an S Corporation, the Company is liable for the tax associated with the
recapture of prior years' LIFO benefits which is to be paid over a four-year
period, which began with the year ended December 31, 1992. Income taxes
payable related to this obligation was recorded in 1990 in connection with the
acquisition of the Company by Gray Acquisition Co. and the original request to
the Internal Revenue Service (IRS) to be treated as an S Corporation effective
January 1, 1991. This election was not granted by the IRS. However, the
Company filed a similar election effective January 1, 1992 for which no IRS
permission was required. Because of the S election no other income taxes are
reflected on the balance sheet at December 31, 1993.
The income tax benefit in 1991 consisted of the following:
Federal:
Current $ 27,000
Deferred 55,000
State:
Current 3,000
Deferred 29,000
-----------
$ 114,000
===========
The income tax benefit reconciles to the statutory combined federal and state
income tax rates for the year ended December 31, 1991 as follows:
Benefit at statutory rate $ 189,000
Unprovided prepaid taxes related to
inventory, depreciation and
amortization adjustments due
to S election (173,500)
Unprovided deferred taxes related to
inventory, accrued expenses, and
LIFO reserve adjustments due to
S election 85,500
Adjustment of prior period provision 24,000
Other (11,000)
-----------
$ 114,000
===========
Note 6. Subsequent Event
On January 27, 1994, the Company signed a letter of intent to sell
substantially all assets of the Company to Momentum Corporation. Momentum
will assume all liabilities including existing leases, but excluding the
revolving credit facility which shall be retained and discharged by the
Company from sale proceeds.
<PAGE>
Item 7(b) Pro forma financial information
The following unaudited pro forma condensed balance sheet as of December 31,
1993 gives effect to the acquisition of certain assets and liabilities of T.K.
Gray, Inc.(Gray) as if the purchase had been consummated on December 31, 1993.
The unaudited pro forma condensed statement of operations for the twelve
months ended December 31, 1993 gives effect to the combination as if the
purchase had been consummated at the beginning of such period. These
unaudited pro forma financial statements have been prepared based on Momentum
Corporation and subsidiary's (Momentum) financial statements and the financial
statements of Gray included under Item 7(a) above. The unaudited pro forma
financial statements are not necessarily indicative of the results that
actually would have occurred if the combination had taken place during such
periods or which may be attained in the future.
<PAGE>
MOMENTUM CORPORATION AND SUBSIDIARY
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
December 31, 1993
<TABLE>
<CAPTION>
As Reported Pro Forma
------------------------ -----------------------------
Momentum T.K. Gray, Adjustments
(Thousands of dollars) Corporation Inc. (Note 1) Combined
- - - --------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C>
Current Assets
Short-term investments $ 6,123 $ (6,123) (A)
Receivables 20,841 $ 5,156 $ 25,997
Inventories 14,179 4,876 185 (B) 19,240
Other 1,051 30 1,081
---------------------------------------------------------
Total Current Assets 42,194 10,062 (5,938) 46,318
Property and Equipment, net 7,140 173 7,313
Other Assets 3,096 241 8,563 (C)
(129) (D) 11,771
---------------------------------------------------------
$ 52,430 $ 10,476 $ 2,496 $ 65,402
=========================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Bank checks outstanding less cash in bank $ 1,925 $ 1,925
Accounts payable and accrued liabilities 13,537 $ 3,503 17,040
Current portion of long-term obligations 174 174
---------------------------------------------------------
Total Current Liabilities 15,636 3,503 19,139
Long-term Obligations 1,793 6,215 $ (6,030) (D)
9,284 (A) 11,262
Deferred Items 1,052 1,052
Shareholders' Equity
Common Stock 3,559 96 (96) (E) 3,559
Additional paid-in capital 29,274 425 (425) (E) 29,274
Retained earnings 2,825 237 (237) (E) 2,825
Treasury stock at cost (795) (795)
Unamortized restricted stock awards (301) (301)
Note receivable from ESOP (613) (613)
---------------------------------------------------------
Total Shareholders' Equity 33,949 758 (758) 33,949
---------------------------------------------------------
$ 52,430 $ 10,476 $ 2,496 $ 65,402
=========================================================
</TABLE>
See Notes to Unaudited Pro forma Financial statements.
<PAGE>
MOMENTUM CORPORATION AND SUBSIDIARY
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
December 31, 1993
<TABLE>
<CAPTION>
As Reported Pro Forma
-------------------------- ----------------------------
Momentum T.K. Gray, Adjustments
(Thousands of dollars, except per share data) Corporation Inc. (Note 2) Combined
- - - --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 116,788 $ 44,519 $ 161,307
Cost of sales 94,246 36,675 130,921
-------------------------------------------------------
Gross Margin 22,542 7,844 30,386
Selling and administrative expenses 24,590 6,721 $ (421) (A) 30,890
Restructure and other charges 2,382 2,382
-------------------------------------------------------
Income (Loss) From Operations (4,430) 1,123 421 (2,886)
Interest expense (402) (509) (222) (B) (1,133)
Other income-net 208 208
-------------------------------------------------------
Income (Loss) Before Income Tax Benefit (4,624) 614 199 (3,811)
Income tax benefit (expense) 1,564 (325) (C) 1,239
------------------------------------------------------
Income (Loss) From Continuing Operations $ (3,060) $ 614 $ (126) $ (2,572)
======================================================
Average Shares Outstanding (thousands) 3,629 3,629
Loss Per Share From Continuing Operations $ (0.84) $ (0.71)
======================================================
</TABLE>
See Notes to Unaudited Pro forma Financial statements.
<PAGE>
MOMENTUM CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
NOTE 1 PRO FORMA CONDENSED BALANCE SHEET - PRO FORMA ADJUSTMENTS
(A) To record purchase price of acquisition:
(Thousands of dollars)
------------------------------------------------------------------
With proceeds from redemption of short-term investments $ 6,123
With financing from revolving credit agreements 9,284
---------
$ 15,407
=========
(B) Increase Gray inventory, historically recorded under LIFO method, to
estimated fair market value.
(C) Record purchase price in excess of net tangible assets acquired
(goodwill) of $8,554,000 and covenant not to compete with prior owners of
$9,000. (Note, the goodwill on the date of acquisition was approximately
$9.4 million due to a decrease in net tangible assets between December
31, 1993 and the acquisition date.)
(D) Eliminate assets and liabilities not acquired.
(E) Eliminate Gray shareholders' equity.
NOTE 2 PRO FORMA CONDENSED STATEMENT OF OPERATIONS - PRO FORMA ADJUSTMENTS
(A) Adjust selling and administrative expenses to:
(Thousands of dollars)
------------------------------------------------------------------
Eliminate amortization of assets not acquired $ (706)
Add amortization of goodwill and non-compete
agreements as a result of the acquisition 542
Adjust officer compensation to amounts per
current employment agreements with Momentum (187)
Eliminate Gray corporate professional fees
not incurred as a division of Momentum (70)
---------
$ (421)
=========
(B) Adjust interest expense to:
(Thousands of dollars)
------------------------------------------------------------------
Eliminate Gray interest expense $ 509
Add interest expense on borrowings
to finance acquisition (731)
---------
$ (222)
=========
(C) Record tax provision on Gray's pro forma income as though Gray were a
member of Momentum's consolidated group.
<PAGE>
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 hereunto duly authorized.
(REGISTRANT) MOMENTUM CORPORATION
BY (SIGNATURE)
(NAME AND TITLE) PATSY R. TURNIPSEED
Senior Vice President
Chief Financial Officer
(principal financial and accounting officer)
Date June 14, 1994
