Securities and Exchange Commission
Washington, D.C. 20549
Form 8-K/A
Amendment No. 1 to Current Report
Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): February 28, 1997
JOTAN, INC.
(Exact Name of Registrant as Specified in its Charter)
Florida 0-24188
(State or Other Jurisdiction (Commission File Number)
of Incorporation)
59-3181162
(IRS Employee Identification No.)
118 West Adams Street, Suite 900, Jacksonville, Florida 32202
(Address of Principal Executive Offices) (Zip Code)
904-355-2592
(Registrant's Telephone Number, Including Area Code)
<PAGE>
On March 17, 1997, the Company filed a Current Report on Form 8-K dated
February 28, 1997 with the Securities and Exchange Commission (the Commission)
which described the Company's acquisition of all of the issued and outstanding
shares of stock of Southland Holding Company (Southland). That report
indicated that the financial statements required by Rule 3-05 of Regulation S-
X and the pro forma financial information required by Article 11 of Regulation
S-X would be filed by the Company in an amendment to its report on Form 8-K.
This Form 8-K/A files such financial statements.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Business Acquired.
Report of Independent Certified Public Accountants ..................... 1
Consolidated Balance Sheets as of April 30, 1996 and 1995 .............. 2
Consolidated Statements of Operations for the years ended April 30,
1996,1995 and 1994 .................................................. 4
Consolidated Statements of Retained Earnings for the years ended
April 30, 1996, 1995 and 1994 ....................................... 5
Consolidated Statements of Cash Flows for the years ended April 30,1996,
1995 and 1994 ....................................................... 6
Notes to Consolidated Financial Statements ............................. 8
Condensed Consolidated Balance Sheet as of February 28, 1997 (unaudited) 17
Condensed Consolidated Statement of Operations for the Ten Months Ended
February 28, 1997 (unaudited) ....................................... 18
Condensed Consolidated Statement of Cash Flows for the Ten Months Ended
February 28, 1997 (unaudited) ....................................... 19
Notes to Condensed Consolidated Financial Statements ................... 20
(b) Pro Forma Financial Information.
Unaudited Pro Forma Condensed Combined Financial Information ........... 22
Unaudited Pro Forma Condensed Combined Balance Sheet
as of December 31, 1996 ............................................. 24
Unaudited Pro Forma Condensed Combined Statement of Operations
for the Year Ended December 31, 1996 ............................... 26
Notes to Unaudited Pro Forma Condensed Combined Financial Information .. 27
<PAGE>
Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: May 14, 1997 JOTAN, Inc.
By:___________________________
Jerry Callahan
President and Chief
Operating Officer
By:___________________________
David Freedman
Vice President and
Chief Financial Officer
<PAGE>
Report of Independent Certified Public Accountants
The Board of Directors and Shareholders
Southland Holding Company, Inc.
We have audited the accompanying consolidated balance sheets of Southland
Holding Company, Inc. and subsidiaries (the Company) as of April 30, 1996 and
1995, and the related consolidated statements of operations, retained earnings
and cash flows for each of the three years in the period ended April 30, 1996.
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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Southland Holding Company, Inc. and subsidiaries at April 30, 1996 and
1995, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended April 30, 1996, in conformity
with generally accepted accounting principles.
Jacksonville, Florida
October 18, 1996, except as to the first paragraph
of Note 9 as to which the date is December 4, 1996
and as to the second paragraph of Note 9 as to
which the date is December 13, 1996
<PAGE>
Southland Holding Company, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
April 30
1996 1995
___________________________
<S> <C> <C>
Assets
Current assets:
Cash $ 1,392,608 $ 1,720,645
Accounts receivable (net of allowance of
$359,383 in 1996 and $403,828 in 1995) 7,447,253 7,357,733
Inventory 6,695,258 6,672,417
Deferred income taxes 333,400 322,696
Prepaid expenses and other 149,174 205,841
Notes receivable 72,177 737,455
Due from employees 65,694 57,265
___________________________
Total current assets 16,155,564 17,074,052
Property and equipment:
Land 886,597 701,738
Buildings and leasehold improvements 4,565,541 4,757,946
Furniture, fixtures and equipment 1,462,076 1,633,883
___________________________
6,914,214 7,093,567
Accumulated depreciation and amortization (3,142,025) (3,031,490)
___________________________
3,772,189 4,062,077
Other assets:
Non-compete agreement 441,397 675,433
Deferred income taxes 27,285 16,527
Cash surrender value of life insurance 233,042 231,190
Deposits and other 95,167 104,596
___________________________
796,891 1,027,746
___________________________
Total assets $20,724,644 $22,163,875
===========================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Southland Holding Company, Inc. and Subsidiaries
Consolidated Balance Sheets
(continued)
<TABLE>
<CAPTION>
April 30
1996 1995
___________________________
<S> <C> <C>
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 6,090,224 $ 6,161,454
Accrued liabilities 1,764,778 1,567,417
Income taxes 2,158,409 1,609,349
Note payable -- bank - 650,000
Notes payable -- shareholders 900,000 3,000,000
Current portion of long-term debt and capital
leases 487,881 468,161
___________________________
Total current liabilities 11,401,292 13,456,381
Capital lease obligations 2,945,678 3,093,698
Long-term debt 735,316 1,110,340
Deferred revenue 230,040 304,111
Minority interest 1,045,980 857,968
Shareholders' equity:
Common stock, $1.00 par value, authorized
10,000,000 shares, 1,324,480 shares issued
and outstanding in 1996 and 1995 1,324,480 1,324,480
Retained earnings 4,969,474 3,944,513
Less treasury stock at cost (504,967 shares in
1996 and 1995) (1,927,616) (1,927,616)
___________________________
Total shareholders' equity 4,366,338 3,341,377
___________________________
Total liabilities and shareholders' equity $20,724,644 $22,163,875
===========================
</TABLE>
<PAGE>
Southland Holding Company, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years ended April 30
1996 1995 1994
_____________________________________
<S> <C> <C> <C>
Sales $62,520,932 $53,343,450 $48,828,364
Cost of sales 44,804,814 36,419,742 32,682,837
_____________________________________
17,716,118 16,923,708 16,145,527
Operating expenses:
General and administrative 4,918,330 6,814,385 6,189,785
Selling 3,550,842 2,773,481 2,944,244
Delivery 3,789,797 3,439,924 3,439,336
Warehouse and factory 2,886,622 2,707,456 2,568,201
_____________________________________
15,145,591 15,735,246 15,141,566
_____________________________________
Operating income 2,570,527 1,188,462 1,003,961
Other income (expense):
Interest expense (752,706) (767,114) (597,546)
Management fees 576,440 616,726 511,652
Interest income 50,862 48,042 16,021
Other (341,418) (201,632) (110,847)
_____________________________________
(466,822) (303,978) (180,720)
_____________________________________
Income before income taxes and
minority interest 2,103,705 884,484 823,241
Provision for income taxes 890,832 558,160 978,357
_____________________________________
Income (loss) before minority
interest 1,212,873 326,324 (155,116)
Minority interest 187,912 46,685 60,606
_____________________________________
Net income (loss) $ 1,024,961 $ 279,639 $ (215,722)
=====================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Southland Holding Company, Inc. and Subsidiaries
Consolidated Statements of Retained Earnings
<TABLE>
<CAPTION>
Years ended April 30
1996 1995 1994
_____________________________________
<S> <C> <C> <C>
Retained earnings, beginning of year $ 3,944,513 $ 3,692,205 $ 3,928,148
Net income (loss) 1,024,961 279,639 (215,722)
Dividends - (27,331) (20,221)
_____________________________________
Retained earnings, end of year $ 4,969,474 $ 3,944,513 $ 3,692,205
=====================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Southland Holding Company, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended April 30
1996 1995 1994
_____________________________________
<S> <C> <C> <C>
Operating activities
Net income (loss) $ 1,024,961 $ 279,639 $ (215,722)
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operations:
Amortization of non-compete agreement 234,036 231,023 172,212
Depreciation and amortization 300,479 315,356 274,412
Provision for bad debts (44,445) 28,254 (99,019)
Deferred income taxes (benefit) (21,462) (56,342) 11,365
Income applicable to minority interests 187,912 46,685 60,606
Loss on disposal of property and
equipment 28,073 - -
Other - (10,031) 4,183
Changes in operating assets and
liabilities:
Accounts receivable (45,075) (1,015,111) (1,204,880)
Inventory (22,841) (2,085,443) (552,404)
Other assets 57,667 (131,593) (12,691)
Accounts payable (71,230) 303,902 1,812,164
Accrued liabilities 197,361 259,882 (176,054)
Income taxes 549,060 265,356 461,093
Deferred revenue (74,071) 136,872 167,239
_____________________________________
Net cash provided by (used in)
operating activities 2,300,425 (1,431,551) 702,504
Investing activities
Purchases of property and equipment (72,933) (369,347) (209,427)
Proceeds from sale of property and
equipment 34,369 - -
Payments on notes receivable 665,278 170,074 (413,901)
Cash surrender value of life insurance (1,852) (58,150) (59,104)
_____________________________________
Net cash provided by (used in)
investing activities 624,862 (257,423) (682,432)
</TABLE>
<PAGE>
Southland Holding Company, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
Years ended April 30
1996 1995 1994
_____________________________________
<S> <C> <C> <C>
Financing activities
Cash dividends paid - (27,331) (20,221)
Note payable - bank, net (650,000) 650,000 (221,153)
Payments on long-term debt (368,048) (301,123) (293,974)
Borrowings from notes payable-
shareholders - 3,000,000 -
Payments on notes payable-shareholders (2,100,000) (723,228) (141,772)
Payments under capital leases (135,276) (88,856) (79,519)
_____________________________________
Net cash provided by (used in)
financing activities (3,253,324) 2,509,462 (756,639)
_____________________________________
Net increase (decrease) in cash (328,037) 820,488 (736,567)
Cash at beginning of year 1,720,645 900,157 1,636,724
_____________________________________
Cash at end of year $ 1,392,608 $ 1,720,645 $ 900,157
=====================================
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest $ 333,493 $ 156,926 $ 163,020
=====================================
Income taxes $ 848,541 $ 397,714 $ 320,000
=====================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Southland Holding Company, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
April 30, 1996
1. Business and Organization
Southland Holding Company, Inc. and subsidiaries (the Company) is engaged in
the sale of boxes and packaging materials to customers located primarily on
the East Coast of the United States. The Company's subsidiaries and ownership
percentages appear below:
<TABLE>
<CAPTION>
Ownership
Percentage
____________
<S> <C>
Southland Container Inc. of Maryland 84%
Southland Container Inc. of New Jersey, Inc. 90%
Southland Container Inc. of Georgia 95%
Southland Container Inc. of New York 90%
Southland Production Stamping 100%
Southland Packaging Inc. (California) 83%
</TABLE>
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
the subsidiaries listed in Note 1. All significant intercompany accounts and
transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
<PAGE>
Southland Holding Company, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Concentrations of Credit Risk
The Company sells products to a diversified group of customers, primarily
businesses, and extends credit terms based on an evaluation of each customer's
financial condition. The trade receivables are not collateralized. Exposure to
losses on receivables is principally dependent on each customer's financial
condition. The Company monitors its exposure for credit losses and maintains
allowances for anticipated losses.
Fair Value of Financial Instruments
The Company's financial instruments consist of cash, accounts receivable,
notes receivable, accounts payable, notes payable to bank and shareholders and
long-term debt. The carrying value of these financial instruments approximates
their fair value at April 30, 1996.
Inventory
Inventory is stated at the lower of cost or market; cost is determined
principally by the average cost method.
Property and Equipment
Property and equipment is recorded at cost. Depreciation and amortization is
provided on the straight-line and declining-balance methods over the estimated
useful lives or lease terms of the respective assets. The estimated useful
lives are as follows:
Buildings 30 years
Leasehold improvements Lease terms
Furniture, fixtures and equipment 2-10 years
Capitalized leases 20 years
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes. SFAS No.
109 requires income taxes to be recognized using the liability method.
Specifically deferred tax assets and liabilities are determined based on
estimated future tax effects attributable to temporary differences between the
amount of assets and liabilities recognized for financial reporting and income
tax purposes.
<PAGE>
Southland Holding Company, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Impact of Recently Issued Accounting Standards
In 1995, the Financial Accounting Standards Board released SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of which requires recognition of impairment of long-lived
assets in the event the net book value of such assets exceeds the future
undiscounted cash flows attributable to such assets. SFAS No. 121 is effective
for fiscal years beginning after December 15, 1995. Adoption of SFAS No. 121
is not expected to have a material impact on the Company's financial position
or results of operations.
3. Debt
Long-term Debt
Long-term debt consisted of the following:
<TABLE>
1996 1995
_________________________
<S> <C> <C>
Note payable to former shareholder for repurchase
of Company stock; original principal of $942,093
which is due and payable in 40 equal quarterly
installments of $23,552 plus interest at the
prime rate published by Citicorp N.A. (8.5% at
1996 and 1995), commencing July 16, 1992 with
final payment due July 16, 2002; collateralized
by 273,171 shares of common stock of the Company. $ 565,256 $ 659,465
Non-compete agreement with former shareholder and
officer of the Company valued at $1,299,133
which represents the present value, discounted
at 9%, of payments totaling $1,704,000 to be
paid in monthly amounts of $23,666 commencing
April 1992 with final payment due March 1998,
less unamortized discount (1996--$46,070; 1995--
$102,175) 498,262 726,156
Other 46,811 92,756
_________________________
1,110,329 1,478,377
Less debt due within one year 375,013 368,037
_________________________
$ 735,316 $ 1,110,340
=========================
</TABLE>
<PAGE>
Southland Holding Company, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. Debt (continued)
Long-term debt maturities by year are as follows:
<TABLE>
Year ended April 30
-------------------
<S> <C>
1997 $ 409,740
1998 373,782
1999 94,209
2000 94,209
2001 94,209
Thereafter 94,209
____________
1,160,358
Less unamortized discount 50,029
____________
$1,110,329
============
</TABLE>
Note Payable to Bank
The Company had a revolving credit note with a financial institution for a
maximum of $1,000,000, which matured on August 1, 1996, at a fluctuating
interest rate as determined by the financial institution (8.25% and 9.0% at
1996 and 1995, respectively). The revolving credit note was collateralized by
273,171 shares of common stock of the Company. The Company had $-0- and
$650,000 outstanding at April 30, 1996 and 1995, respectively.
In August 1996, the Company renewed the $1,000,000 revolving credit note until
August 1997 and borrowed $750,000. The terms of the arrangement require
compliance with certain financial covenants including minimum tangible net
worth, debt to tangible net worth ratio and current ratio.
Notes Payable to Shareholders
The Company has unsecured notes payable to three shareholders and officers of
the Company in the amount of $900,000 and $3,000,000 at April 30, 1996 and
1995, respectively. Interest is payable monthly at 10%. The principal balance
is payable in full on March 23, 1997.
<PAGE>
Southland Holding Company, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Obligations Under Capital Leases
The Company has capital lease agreements for land and buildings as follows:
<TABLE>
<CAPTION>
April 30
1996 1995
__________________________
<S> <C> <C>
Capitalized cost $3,650,871 $3,650,871
Accumulated amortization (989,627) (842,163)
__________________________
Total $2,661,244 $2,808,708
==========================
</TABLE>
Amortization expense on assets capitalized under capital lease obligations is
included in depreciation and amortization. The lease agreements are secured by
the leased property.
Future minimum lease payments under capital leases for the following fiscal
years, together with the present value of the net minimum lease payments as of
April 30, 1996, are:
<TABLE>
<S> <C>
1997 $ 459,461
1998 459,461
1999 459,461
2000 459,461
2001 459,461
Thereafter 3,660,769
____________
Total minimum lease payments 5,958,074
Less amount representing interest (2,899,528)
____________
Present value of net lease payments 3,058,546
Less current maturities (112,868)
____________
Capital lease obligations $2,945,678
============
</TABLE>
<PAGE>
Southland Holding Company, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Income Taxes
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
__________________________________
<S> <C> <C> <C>
Federal:
Current $690,702 $519,955 $885,906
Deferred (22,448) (42,039) 7,130
State:
Current 210,889 94,547 81,086
Deferred 11,689 (14,303) 4,235
__________________________________
Total $890,832 $558,160 $978,357
==================================
</TABLE>
The provision for income taxes differs from the amount computed by applying
the statutory rate to pre-tax income as follows:
<TABLE>
<CAPTION>
1996 1995 1994
_______________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Income tax provision
at the U.S. federal
statutory rate $715,260 34.0% $300,725 34.0% $279,902 34.0%
State tax, net of
federal benefit 146,901 7.0 52,961 6.0 56,313 6.8
Officers life
insurance 630 0.0 19,771 2.2 44,695 5.4
Reserves and other 28,041 1.3 184,703 20.9 597,447 72.5
_______________________________________________________
Total $890,832 42.3% $558,160 63.1% $978,357 118.7%
=======================================================
</TABLE>
The Internal Revenue Service has examined the Company's Federal tax returns
through 1989 and the tax years have been closed through 1993. The Company
believes it has adequately provided for income taxes that may become payable
with respect to open tax years, which is included in income taxes payable on
the accompanying balance sheets.
<PAGE>
Southland Holding Company, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Income Taxes (continued)
The components of the Company's deferred tax assets and liabilities as of
April 30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
_______________________
<S> <C> <C>
Deferred tax assets:
Capitalized leases $156,934 $152,120
Inventory valuation 146,077 156,500
Allowance for doubtful accounts 99,861 159,512
Accrued liabilities 79,000 -
Other 8,018 6,684
_______________________
489,890 474,816
Deferred tax liabilities:
Property and equipment 129,205 135,593
_______________________
Net deferred tax assets $360,685 $339,223
=======================
</TABLE>
6. Related Party Transactions
The following transactions occurred between the Company and other affiliates:
The Company is the primary leasee of a 85,000 square foot warehouse
located in Baltimore, Maryland. The landlord is Southland Maryland
Properties (A Texas Partnership) composed principally of the major
shareholders of the Company. The term of the lease is for 20 years
commencing in 1986. Rents paid to the partnership during the year ended
April 1996, 1995, and 1994 were $297,500, $297,500 and $304,583,
respectively.
The Company is the primary leasee of a 50,000 square foot warehouse
located in Orlando, Florida. The landlord is Southland Florida
Properties (A Texas Partnership) composed principally of the major
shareholders of the Company. The term of the lease is for 20 years
commencing in 1993. Rents paid to the partnership during the year ended
April 30, 1996, 1995, and 1994 were $216,000, $183,000 and $180,000,
respectively.
The Company provides certain management, administrative and consulting
services to Southland Container Inc., Southland Paper Company and
Southland Container of Louisiana (Affiliates). The owners of the Company
are also the owners of the Affiliates. During the years ended April 30,
1996, 1995 and 1994 management fees of $576,440, $616,726 and $511,652,
respectively, were collected.
<PAGE>
Southland Holding Company, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Related Party Transactions (continued)
The Company provided financing to Southland Maryland Properties and
Southland Florida Properties. The amounts receivable from these
affiliates as of April 30, 1996 and 1995 were $30,000 and $737,863,
respectively, and are included in notes receivable. The Company receives
interest on the outstanding balances at the current prime rate.
7. Operating Leases
The Company leases warehouses, office facilities, and equipment under
operating leases expiring at various dates through 2014. The leases have
renewal options ranging from 1 to 15 years. Rent expense under these leases,
including contingent rents, was $1,929,306, $1,366,087 and $1,317,420 for the
years ended April 30, 1996, 1995 and 1994, respectively.
At April 30, 1996, future minimum lease payments for the next five years and
thereafter under all operating leases were as follows:
<TABLE>
<CAPTION>
Year ended April 30
-------------------
<S> <C>
1997 $ 618,566
1998 477,751
1999 450,070
2000 277,625
2001 182,694
Subsequent years 305,430
_____________
$ 2,312,136
=============
</TABLE>
8. Employment Agreements
During 1996, the Company entered into 5-year employment agreements with six
employees of the Company, five of which are minority shareholders. The
agreements provide a fixed annual salary, bonuses and auto allowance. These
agreements automatically extend for successive one-year terms unless notice is
given sixty days prior to the end of the term.
<PAGE>
Southland Holding Company, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. Subsequent Events
During December 1996, the Company settled an outstanding lawsuit with a former
major customer and has accrued $318,000 relating to the settlement amount and
professional fees which is included in accrued liabilities in the accompanying
balance sheet.
On December 13, 1996, the majority shareholders of the Company signed an
agreement to sell their stock in the Company to another entity. The sale is
expected to be finalized in early 1997.
<PAGE
Southland Holding Company, Inc. and Subsidiaries
Unaudited Condensed Consolidated Balance Sheet
February 28, 1997
<TABLE>
<S> <C>
Assets
Current assets:
Cash $ 296,848
Accounts receivable, net 5,967,581
Inventories, net 5,789,881
Other 517,889
_____________
Total current assets 12,572,199
Property and equipment, net 3,624,138
Other assets 820,802
_____________
Total assets $17,017,139
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 3,278,692
Accrued liabilities 1,834,847
Income taxes 1,653,650
Note payable -- bank 700,000
Current portion of capital leases 91,397
Other 922,121
_____________
Total current liabilities 8,480,707
Capital lease obligations 2,941,426
Deferred revenue 122,486
Minority interest 1,106,182
Shareholders' equity:
Capital stock 1,324,480
Retained earnings 4,969,474
Less treasury stock (1,927,616)
_____________
Total shareholders' equity 4,366,338
_____________
Total liabilities and shareholders' equity $17,017,139
=============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE>
Southland Holding Company, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statement of Operations
Ten Months ended February 28, 1997
<TABLE>
<S> <C>
Sales $50,765,969
Cost of sales 34,863,958
_____________
15,902,011
Operating expenses 15,160,024
_____________
Operating income 741,987
Other income (expense), net (333,026)
_____________
Income before income taxes and minority interest 408,961
Income taxes 172,990
_____________
Income before minority interest 235,971
Minority interest 36,576
_____________
Net income $ 199,395
=============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE>
Southland Holding Company, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statement of Cash Flows
Ten Months ended February 28, 1997
<TABLE>
<S> <C>
Cash flows from operating activities
Net income $ 199,395
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation and amortization expense 410,504
Provision for bad debts 406,957
Income applicable to minority interests 60,202
Changes in operating assets and liabilities:
Accounts receivable 1,072,715
Inventory 905,377
Other current assets 102,556
Accounts payable (2,811,532)
Accrued expenses (129,326)
Income taxes (504,759)
Deferred revenue (107,554)
Other assets 75,778
______________
Net cash used in operating activities (319,687)
______________
Cash flows from investing activities
Purchases of property and equipment (68,677)
______________
Net cash used in investing activities (68,677)
______________
Cash flows from financing activities
Borrowings on notes payable-bank 700,000
Payments on notes payable-shareholders (900,000)
Payments under capital leases (507,396)
______________
Net cash used in financing activities (707,396)
______________
Net decrease in cash (1,095,760)
Cash at beginning of period 1,392,608
______________
Cash at end of period $ 296,848
==============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE>
Southland Holding Company, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
February 28, 1997
Description of Business
Southland Holding Company, Inc. and subsidiaries (the Company) is engaged in
the sale of boxes and packaging materials to customers located primarily on
the East Coast of the United States. The Company's subsidiaries and ownership
percentages appear below:
<TABLE>
<CAPTION>
Ownership
Percentage
____________
<S> <C>
Southland Container Inc. of Maryland 84%
Southland Container Inc. of New Jersey, Inc. 90%
Southland Container Inc. of Georgia 95%
Southland Container Inc. of New York 90%
Southland Production Stamping 100%
Southland Packaging Inc. (California) 83%
</TABLE>
Basis of Presentation
The accompanying financial statements are unaudited and, in the opinion of
management reflect all adjustments necessary for a fair presentation of the
financial position and results of operations for the period presented. All
such adjustments are of a normal and recurring nature. The results of
operations for the period presented are not necessarily indicative of the
results to be expected for the entire year.
The financial statements at February 28, 1997 and for the ten months then
ended reflect the consolidated accounts of the Company and its subsidiaries.
All intercompany transactions and accounts have been eliminated. Certain
information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted.
Note Payable to Bank
The Company had a revolving credit note with a financial institution for
a maximum of $1,000,000, which matured on August 1, 1996, at a fluctuating
interest rate as determined by the financial institution. The revolving credit
note was collateralized by 273,171 shares of common stock of the Company.
<PAGE>
Southland Holding Company, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited) (continued)
In August 1996, the Company renewed the $1,000,000 revolving credit note
until August 1997 and borrowed $700,000. The terms of the arrangement require
compliance with certain financial covenants including minimum tangible net
worth, debt to tangible net worth ratio and current ratio.
<PAGE>
Jotan, Inc.
Unaudited Pro Forma Condensed Combined Financial Statements
On March 4, 1997, JOTAN, Inc. (the Company), a Florida corporation, completed
the acquisition of all of the issued and outstanding shares of stock of
Southland Holding Company (Southland) with an effective date of February 28,
1997, as reported in the Company's Form 8-K filed on March 17, 1997. The
aggregate purchase price was approximately $49.3 million, including $11.5
million of assumed liabilities, which is subject to adjustment based on the
post-closing audit. In connection with the acquisition, Jotan purchased all of
the minority interest of Southland's subsidiaries for approximately $1.1
million and also paid non-competition fees to the shareholders of Southland in
the aggregate amount of approximately $6.6 million, which are included in the
aggregate purchase price of $49.3 million.
In order to finance the Southland acquisition and to fund future expansion,
the Company signed an agreement on February 28, 1997 with Rice Partner II LP
(Rice) to provide $9 million of senior subordinated debt and acquire $10
million of redeemable preferred stock. In connection with this transaction, F-
Southland, LLC, a North Carolina limited liability company, and FF-Southland
Limited Partnership, a North Carolina limited partnership will purchase an
aggregate amount of $2 million of such senior subordinated debt and $2 million
of such senior redeemable preferred stock in lieu of Rice.
In addition, the Company signed an agreement with Banque Paribas on February
28, 1997 to obtain up to $12 million in a senior revolving facility and $27
million in senior term/acquisition credit facilities. As part of the Banque
Paribas financing agreement, the Company terminated its long-term financing
arrangement with CIT and paid off other long-term credit facilities. Amounts
outstanding on the CIT and other credit facilities totaled approximately $2.9
million at February 28, 1997. In connection with the Southland acquisition,
the Company borrowed $16.1 million, net of fees, and $2.3 million on the
senior term facility and the senior revolving loan, respectively.
The accompanying unaudited pro forma condensed combined financial statements
present the condensed historical financial statements of the Company and
Southland, pro forma adjustments and the pro forma results under the purchase
method of accounting. The historical financial information of the Company was
prepared from audited financial statements previously filed with the
Commission. The historical financial information for Southland was prepared
from the unaudited books and records of Southland for the twelve months ended
February 28, 1997.
The unaudited pro forma condensed combined balance sheet is based upon the
historical financial position of the Company at December 31, 1996 and
Southland at February 28, 1997, and reflects pro forma acquisition adjustments
as if the acquisition had occurred on December 31, 1996. The unaudited pro
forma condensed combined statement of operations for the year ended
December 31, 1996 is based upon the historical statement of operations of the
Company for its year ended December 31, 1996 and the historical statement of
income of Southland for the twelve months ended February 28, 1997. The
unaudited pro forma condensed combined statement
<PAGE>
Jotan, Inc.
Unaudited Pro Forma Condensed Combined Financial Statements
(continued)
of operations for the year ended December 31, 1996 gives effect to the
acquisition as though it had occurred on January 1, 1996.
The unaudited pro forma condensed combined financial statements should be read
in connection with the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1996. The pro forma information does not purport to be
indicative of the results that would have occurred if the acquisition had been
consummated on the dates indicated, nor of the results that may be obtained in
the future.
<PAGE>
JOTAN, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
<TABLE>
<CAPTION>
December 31, February 28,
1996 1997
JOTAN (as Southland Pro Forma Pro Forma
reported) Holdings, Inc. Adjustments Combined
________________________________________________________________
<S> <C> <C> <C> <C>
Assets
Current assets:
$(2,544,914) (2)
Cash $ 1,403,214 $ 296,848 1,000,000 (7) $ 155,148
Accounts receivable 1,553,224 5,967,581 - 7,520,805
Inventories 1,181,642 5,789,881 - 6,971,523
Other 323,949 517,889 - 841,838
________________________________________________________________
Total current assets 4,462,029 12,572,199 (1,544,914) 15,489,314
1,000,000 (7)
(1,000,000) (7)
Property and
equipment, net 838,754 3,624,138 445,000 (1)(7) 4,907,892
Capitalized
acquisition costs 660,296 - (660,296) (2) -
Noncompete - - 6,600,000 (1) 6,600,000
Excess of purchase price
over fair value of
net assets acquired - - 25,262,114 (1) 25,262,114
Other assets 36,979 820,802 - 857,781
________________________________________________________________
Total assets $ 5,998,058 $17,017,139 $30,101,904 $53,117,101
================================================================
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
<PAGE>
JOTAN, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet (continued)
<TABLE>
<CAPTION>
December 31, February 28,
1996 1997
JOTAN (as Southland Pro Forma Pro Forma
stockholders' equity reported) Holdings, Inc. Adjustments Combined
_______________________________________________________________
<S> <C> <C> <C> <C>
Liabilities and
stockholders' equity
Current liabilities:
Accounts payable $ 1,525,941 $ 3,278,692 - $ 4,804,633
Accrued expenses 221,557 1,834,847 325,303 (1) 2,381,707
Income taxes - 1,653,650 - 1,653,650
Current portion of
long-term debt,
notes payable and
capital leases 1,716,332 791,397 (2,398,166) (2) 109,563
Other - 922,121 - 922,121
______________________________________________________________
Total current
liabilities 3,463,830 8,480,707 (2,072,863) 9,871,674
Capital lease obligations - 2,941,426 1,000,000 (7) 3,941,426
Deferred revenue - 122,486 - 122,486
Senior Revolving loan - - 2,330,884 (2) 2,330,884
Notes payable, less
current maturities 506,097 - (506,097) (2) -
Senior term loans - - 16,122,500 (2) 16,122,500
Senior subordinated debt - - 8,710,000 (2) 8,710,000
Minority interest - 1,106,182 (1,106,182) (1) -
Redeemable preferred stock - - 9,340,000 (2) 9,340,000
Stockholders' equity:
Convertible preferred
stock 12,658 - - 12,658
Common stock 56,794 - - 56,794
Capital stock - 1,324,480 (1,324,480) (1) -
Additional paid-in capital 3,963,983 - 650,000 (2) 4,613,983
Retained earnings (deficit) (2,005,304) 4,969,474 (4,969,474) (1) (2,005,304)
Less treasury stock - (1,927,616) 1,927,616 (1) -
_______________________________________________________________
Total stockholders' equity 2,028,131 4,366,338 (3,716,338) (1) 2,678,131
_______________________________________________________________
Total liabilities and
stockholders' equity $ 5,998,058 $17,017,139 $30,101,904 $53,117,101
===============================================================
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
<PAGE>
JOTAN, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
Year ended December 31, 1996
<TABLE>
<CAPTION>
JOTAN (as Southland Pro Forma Pro Forma
reported) Holdings, Inc. Adjustments Combined
_______________________________________________________________
<S> <C> <C> <C> <C>
Sales $11,659,754 $60,399,969 $ - $72,059,723
Cost of sales 8,758,248 41,606,958 - 50,365,206
_______________________________________________________________
2,901,506 18,793,011 - 21,694,517
Amortization of goodwill
and noncompete agreements - 232,531 3,004,141 (3) 3,236,672
69,282 (7)
Other operating expenses 2,519,506 17,738,327 (2,850,156) (6) 17,476,959
_______________________________________________________________
Operating income (loss) 382,000 822,153 (223,267) 980,886
(18,750) (2)
(148,768) (7)
Other income (expense), net (208,342) (311,026) (2,895,813) (4) (3,582,699)
_______________________________________________________________
Income (loss) before income
taxes and minority interest 173,658 511,127 (3,286,598) (2,601,813)
Income (loss) taxes - 216,206 (216,206) (5) -
_______________________________________________________________
Income (loss) before
minority interest 173,658 294,921 (3,070,392) (2,601,813)
Minority interest - 45,713 (45,713) (8) -
_______________________________________________________________
Net income (loss) 173,658 $ 249,208 $(3,024,679) (2,601,813)
=============================
Amount attributable to
preferred stock - (9) 882,500
____________ ____________
Net income (loss)
attributable to common
shareholders $173,658 $(3,484,313)
============ ============
Net income (loss) per share $.03 $(.61)
============ ============
Average shares outstanding 5,704,991 5,704,991
============ ============
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
<PAGE>
JOTAN, Inc.
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
1. Represents adjustments to record the preliminary assigned values of
Southland Holdings, Inc.'s acquired assets and liabilities and to
allocate the excess of the purchase price over the fair value of the net
assets acquired (goodwill). The final purchase price is subject to
adjustment as provided in the agreement. The allocations are subject to
revision after more detailed analysis and evaluations are completed.
Cash purchase price $37,779,634
Liabilities assumed 11,544,619
_____________
49,324,253
Net book value of assets acquired (17,017,139)
Noncompete agreement (6,600,000)
Excess of fair value over the net book value of
property, plant and equipment (445,000)
_____________
Excess of purchase price over the fair value of net
assets acquired $25,262,114
=============
2. To reflect $37 million increase in borrowings to provide the cash paid
for the acquisition and amounts used to retire debt of $2.9 million
outstanding at the acquisition date. Also, includes $650,000 attributable
to warrants issued in connection with the financing, at a minimal exercise
price. The warrants give the holders the right to acquire 63.5% of the
common stock outstanding on a fully diluted basis.
3. To reflect amortization of goodwill and noncompete based upon the
preliminary estimated fair value of the net assets resulting from the
purchase. Such amount assigned to the noncompete is being amortized over
an average life of five years and the amount assigned to goodwill is
being amortized over an estimated life of 15 years. The life assigned to
goodwill is subject to revision after more detailed analysis and
evaluations are completed.
4. To reflect interest expense as a result of the $37 million increase in
borrowings to provide the cash paid for the acquisition and to retire
debt of $2.9 million outstanding at the acquisition date.
5. To reflect the pro forma effects on income taxes due to the pro forma
depreciation, amortization and interest expense adjustments. The pro
forma amortization of the excess of purchase price over fair value of
assets acquired is assumed to be nondeductible for income tax purposes.
6. To reflect the elimination of certain operating expenses, primarily
salaries and benefits, which are duplicative and will not be incurred
subsequent to the acquisition.
7. To reflect proceeds of $1 million received on the sale of real property at
the closing date. This property was subsequently leased back and is being
reflected as a capital lease.
<PAGE>
JOTAN, Inc.
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
(Continued)
8. To reflect the elimination of minority interest of Southland as all
amounts were purchased in connection with the acquisition.
9. Includes 8% dividend and accretion of discount on mandatorily
redeemable preferred stock.
