SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
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): AUGUST 11, 1997
CHS ELECTRONICS, INC.
------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
FLORIDA
(STATE OR OTHER JURISDICTION OF INCORPORATION)
0-24244 87-0435376
(COMMISSION FILE NUMBER) (IRS EMPLOYER IDENTIFICATION NO.)
2153 N.W. 86TH AVENUE
MIAMI, FLORIDA 33122
- -------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (305) 716-8273
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On October 3, 1997, CHS Electronics, Inc. (the "Company"), a Florida
corporation, completed, for approximately $120 million, the acquisition of
Santech Micro Group ASA ("Santech") pursuant to which it acquired 97.4% of
Santech, a distributor with operations in Norway, Sweden and Denmark. In
addition to distributing the microcomputer products of the same vendors as other
subsidiaries of the Company, Santech distributes telecommunications products and
both distributes and provides consulting services for desktop publishing
solutions. Santech's principal customers are public and private businesses and
approximately 15% of its sales are through the Internet.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) SANTECH MICRO GROUP ASA CONSOLIDATED.
Audit Report for 1996 F-1
Balance Sheet F-2
Profit and Loss Account F-3
Indirect Model - Cash Flow Statement F-4
Notes to Consolidated Financial Statements F-5
(b) PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION.
Basis of Presentation F-18
Pro Forma Condensed Consolidated Balance Sheet F-19
Pro Forma Condensed Consolidated Statements of Earnings F-20
Notes to Pro Forma Condensed Consolidated Financial Statements F-22
(c) Exhibits
10.1 Offer Document - Santech Micro Group ASA.*
* Incorporated by reference to Exhibit 10.1 of the Company's Current Report on
Form 8-K filed with the Commission on October 16, 1997.
<PAGE>
To the Annual General Meeting
Santech Micro Group ASA
Audit Report for 1996 (Translation from Norwegian)
We have audited the consolidated financial statements for Santech Micro Group
ASA for 1996, showing a loss for the year of NOK 71.800.000 for the group. The
financial statements, consisting of the Board of Directors' report, profit and
loss account, balance sheet, cash flow statement, notes and consolidated
financial statements, have been presented by the company's Board of Directors
and its managing director.
Our responsibility is to examine the company's financial statements, the
accounts and accounting records and other related matters.
We have performed the audit in accordance with the relevant laws, regulations
and generally accepted auditing standards. We have performed the audit
procedures which we have considered necessary in order to confirm that the
annual report and accounts do not contain material errors or misstatements. We
have examined on a sample basis the evidence supporting the accounting items and
assessed the accounting principles applied, the estimates made by management and
the overall financial statements' content and presentation. To the extent it is
required by generally accepted auditing standards we have reviewed the company's
management routines and internal control. The Board's proposed disposition of
the net loss is in accordance with the requirements of the Joint Stock
Companies' Act.
In our opinion the financial statements are prepared in accordance with the
Joint Stock Companies' Act and present fairly the financial position of the
company and the group at December 31, 1996 and the result of the operations in
the accounting year in compliance with generally accepted accounting principles.
Oslo, April 21, 1997, except as to the information presented in Note 20, for
which the date is October 22, 1997
COOPERS & LYBRAND ANS
Jorgen O. Kjorsvik
Statsautorisert revisor
(State Authorized Public Accountant)
COOPERS
& LYBRAND
F-1
<PAGE>
SANTECH MICRO GROUP CONSOLIDATED
BALANCE SHEET NOTE 1996
TNOK
ASSETS
CURRENT ASSETS
CASH AND BANK
DEPOSITS 4 60,896
ACCOUNTS
RECEIVABLE 5 607,834
OTHER CURRENT 75,443
RECEIVABLES
INVENTORY 6 361,428
TOTAL CURRENT ASSETS 1,105,601
FIXED ASSETS
MACHINERY, 7 41,131
VEHICLES AND
FURNITURE
BUILDINGS 7 17,837
LAND 7 700
GOODWILL 8 36,855
OTHER LONG-TERM 257
RECEIVABLES
TOTAL FIXED 96,780
ASSETS
TOTAL ASSETS 1,202,381
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
ACCOUNTS
PAYABLE 449,370
BANK OVERDRAFT 9 240,114
OTHER SHORT-TERM 10 88,197
LIABILITIES
TOTAL CURRENT 777,681
LIABILITIES
LONG-TERM
LIABILITIES
MORTGAGE AND 12,17 64,672
LONG-TERM BANK DEBT
OTHER LONG-TERM 15 8,798
LIABILITIES
TOTAL LONG-TERM 73,470
LIABILITIES
SANTECH MICRO GROUP CONSOLIDATED
SHAREHOLDERS'
EQUITY
SHARE CAPITAL 13 11,063
GENERAL
RESERVES 13 340,167
TOTAL
SHAREHOLDERS' 351,230
EQUITY
TOTAL LIABILITIES
AND 1,202,381
SHAREHOLDERS'
EQUITY
F-2
<PAGE>
SANTECH MICRO GROUP CONSOLIDATED
PROFIT AND LOSS ACCOUNT
NOTE 1996
TNOK
OPERATING INCOME 2,3 4,655,591
COST OF GOODS
SOLD 4,315,688
SALARIES, WAGES AND 15 196,282
SOCIAL
SECURITY COSTS
OTHER OPERATING 128,461
EXPENSES
DEPRECIATION OF 2,8 25,135
GOODWILL
DEPRECIATION OF
FIXED ASSETS 2,7 21,755
BAD DEBTS AND 5 24,279
PROVISIONS FOR
BAD DEBTS
TOTAL OPERATING 2 4,711,600
EXPENSES
OPERATING PROFIT (LOSS) (56,009)
FINANCIAL
INCOME AND
EXPENSES
FOREIGN
EXCHANGE GAIN 584
OTHER FINANCIAL
INCOME 16,902
OTHER FINANCIAL
COST (29,546)
CONSOLIDATION
EFFECT ON (745)
FOREIGN EXCHANGE
NET FINANCIAL
COST (12,805)
PROFIT (LOSS) BEFORE
TAXES (68,814)
TAXES 14 2,986
PROFIT (LOSS) FOR THE
YEAR (71,800)
F-3
<PAGE>
SANTECH MICRO GROUP CONSOLIDATED
INDIRECT MODEL - CASH FLOW STATEMENT
1996
TNOK
PROFIT (LOSS) BEFORE TAXES (68,814)
PAYABLE TAXES FOR THE PERIOD (25,249)
PROFIT (LOSS) ON SALES OF STOCK (15,232)
PROFIT ON SALES OF FIXES ASSETS 8,475
ORDINARY DEPRECIATION 46,890
CHANGE IN EXCESS VALUE OF
BUILDING (4,294)
WRITE-DOWNS ON FIXED ASSETS 792
CHANGE IN STOCKS 111,513
CHANGE IN ACCOUNTS
RECEIVABLE FROM CUSTOMERS 198,486
CHANGE IN ACCOUNTS PAYABLE
TO SUPPLIERS (204,797)
DIFFERENCE BETWEEN
RETIREMENT COSTS AND
PAYMENTS/DEPOSITS UNDER THE
RETIREMENT BENEFIT SCHEME 530
CHANGE IN OTHER ACCRUALS (197,055)
EFFECT OF CURRENCY ADJUSTMENTS (4,311)
NET CASH FLOW FROM OPERATING (153,066)
ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES:
DEPOSITS FROM SALES OF FIXED ASSETS 6,029
PAYMENTS FOR PURCHASES OF FIXED ASSETS (85,523)
DEPOSITS FROM SALES OF SHARES 28,749
PAYMENTS FOR PURCHASES OF SHARES (51,508)
NET CASH FLOW FROM INVESTING (102,253)
ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES:
DEPOSITS FROM NEW LONG-TERM LOANS 24,314
NET CHANGE IN OVERDRAFT FACILITY 127,379
INTEREST PAID (29,546)
DEPOSITS OF NEW EQUITY 4,394
NET CASH FLOW FROM FINANCING 126,541
ACTIVITIES
NET CHANGE IN CASH AND CASH (128,778)
EQUIVALENTS
CASH BALANCES AT THE BEGINNING OF THE 189,674
YEAR
CASH BALANCES AT THE END OF THE YEAR 60,896
NOT USED OVERDRAFT FACILITY 111,886
F-4
<PAGE>
SANTECH MICRO GROUP CONSOLIDATED
ACCOUNTING PRINCIPLES
GENERAL
The merger of Santech ASA and Micro Software ASA was registered in the accounts
as at 1 January 1996. The name of the merged company is Santech Micro Group ASA.
The group accounts show the total financial results and financial position for
the parent company with its ownership shares in other companies seen as one
financial unit. The annual accounts of the group are presented in conformity
with Norwegian legislation and generally accepted accounting principles in
Norway. All numbers are presented in NOK 1,000.
CONSOLIDATION PRINCIPLES
The group accounts comprise the parent company Santech Micro Group ASA, and all
companies in which the parent company directly or indirectly holds more than 50
percent of the voting shares, or a position to exercise considerable influence,
see note 1. Companies which have been acquired or sold during the year have been
consolidated from the date of acquisition or until the date of sale.
The group accounts have been prepared in accordance with the acquisition method
for acquired subsidiaries. The acquisition method implies that any excess or
negative value compared to book value as the time of the acquisition are
identified and depreciated over their expected economic life in the group
accounts. Excess value which may not be attributed to specific assets is
capitalised as goodwill and amortised over a period of 5-10 years. In cases
where the economic life of the goodwill is expected to be more than 5 years, the
depreciation rate has been set lower than 20 percent. All other internal
transactions, receivables and liabilities between the companies have been
eliminated. Unrealised gains in stocks etc. resulting from internal deliveries
have been eliminated in the group stocks.
Profit and loss accounts for foreign subsidiaries are translated into Norwegian
Kroner (NOK) using the average exchange rates for the year. For the balance
sheets, the year-end exchange rates have been used. Currency differences are
taken directly to group reserves.
CLASSIFICATION
Assets which are intended for long-term ownership or use and receivables falling
due more than one year after registration have been entered as fixed assets.
Other assets are registered as current assets. Debts falling due more than one
year after registration have been classified as long-term liabilities. Other
debts are registered as current liabilities. First year instalments on long-term
debts are included in long-term liabilities. The amount has been specified in
Note 11.
RECOGNITION OF INCOME AND COSTS
Transactions are entered in the accounts at their values at the time of the
transaction. All income items are taken to income and all cost items charged
against income. Income items are taken to income as they are earned. Costs are
matched against income and are registered in the profit and loss account
according to the same principle.
F-5
<PAGE>
SANTECH MICRO GROUP CONSOLIDATED
Cash discounts related to sales are offset against operating income, whereas
cash discounts related to purchases are offset against consumption of purchased
goods.
TRANSACTIONS IN FOREIGN CURRENCY
Transactions in foreign currencies are translated to Norwegian Kroner at the
exchange rate prevailing at the time of the transaction. Cash, bank deposits and
short-term receivables denominated in foreign currency have been translated to
the reporting currency using the year-end exchange rate. Hedged foreign currency
positions are booked at the hedged exchange rate.
CURRENT ASSETS
Current assets are stated at the lower of acquisition cost as defined by the
first-in-first-out principle and realisable value. Accounts receivable from
customers and other receivables are valued at nominal value less provisions for
bad debts. Provisions for bad debts are assessed on the basis of an individual
consideration of the different receivables. Stocks are valued at the lower of
acquisition cost as defined by the FIFO principle and net realisable value.
FIXED ASSETS
Fixed assets are stated at the lower of acquisition cost and
realisable value. Amortisable assets have been valued at historical cost less
accumulated depreciation. Amortisable assets with an acquisition cost exceeding
NOK 15,000 are activated. Improvements and upgrading are activated, whereas
direct maintenance is charged against income. Ordinary depreciation is provided
on a straight line basis at rates calculated to write off the assets over its
expected economic life. The depreciation costs are included in the operating
costs in the profit and loss account. Profits or losses on disposal of fixed
assets are included in ordinary operating income or costs.
RETIREMENT BENEFIT COST AND RETIREMENT BENEFIT LIABILITIES
In parts of the group, the employees are included in a collective retirement
benefit scheme which is hedged through an insurance agreement in a life
assurance company. The arrangement includes 90 employees. As from 1 January
1997, all employees will be included in the scheme.
In the accounts, the retirement schemes are treated in
accordance with the preliminary Norwegian standard for pension costs. According
to this standard, the retirement schemes should be treated as benefit plans.
Calculations of retirement benefit liabilities and the retirement cost for the
year have been made by an actuary, based on the best possible estimate.
The retirement benefit cost of the year has been included in the item Salaries,
wages and social security costs in the profit and loss account, see note 15.
TAXES
Taxes are charged in the accounts as they occur, i.e. the tax expense is
related to the profit before taxes in the accounts. The tax expense consists of
payable tax (tax on this year's income liable to tax) and changes in (net)
deferred tax. Deferred tax in the balance sheet is calculated on the basis of
preliminary differences between tax and book values. Deferred taxes and deferred
tax assets occur due to the fact that tax and book profits may differ. As at 31
December 1996, the group has net negative preliminary differences between tax
and book value. According to legislation, the appurtenant deferred tax asset may
not be activated in the balance sheet as an asset.
F-6
<PAGE>
SANTECH MICRO GROUP CONSOLIDATED
NOTES TO THE ACCOUNTS
NOTE 1 SHARES IN SUBSIDIARIES AND UNITS IN GENERAL PARTNERSHIPS
The group accounts for 1996 comprise the following companies:
<TABLE>
<CAPTION>
PARENT
COMPANY
- -------
BOOK
VALUE AS
SANTECH OWNER- NUMBER NOMINAL SHARE AT 31
MICRO GROUP SHIP OF SHARES VALUE CAPITAL DEC. 1996
ASA SHARE
- ----------- ------- ---------- -------- ------- ----------
(NOK (NOK
1,000) 1,000)
<S> <C> <C> <C> <C> <C>
SUBSIDIARIES
NORWAY
BATAVIA AS 100 % 200 1,000 200 0
EAGLE 100 % 75 1,000 75 728
TECHNOLOGY AS
MICRO PARTS 100 % 50 1,000 50 50
EXPRESS AS
MICRO 100 % 50 1,000 50 50
TECHNOLOGY
GROUP AS
MICROLINE AS 100 % 2,140 1,000 2,140 29,843
MULTIUM AS 100 % 300 1,000 300 300
SANTECH 100 % 15,000 1,000 15,000 15,653
MICRO GROUP
NORWAY AS
SANTECH 100 % 40,000 100 4,000 4,000
NORGE AS
SOFTWARE 100 % 500 100 50 50
PLUS AS
UPGRADE 100 % 50 1,000 50 50
CENTER AS
F-7
<PAGE>
VESTFOLD 100 % 107,100 10 1,071 33,000
INDUSTRI
DATA AS
FINLAND (FIM
1,000)
SANTECH 100 % 120 125 15 21
MICRO GROUP
FINLAND OY
SWEDEN (SEK
1,000)
MICRO 100 % 150,000 100 15,000 1,175
SOFTWARE
SWEDEN AB
SANTECH 100 % 300,000 100 30,000 43,274
SWEDEN AS
WIN.HLP AB 100 % 1,000 100 100 99
DENMARK (DKK
1,000)
INTERFACE 100 % 5,000 100 500 1,508
TRADING A/S
MICRO 100 % 5,000 100 500 509
SOFTWARE A/S
SANTECH 100 % 8,000 1,000 8,000 11,212
MICRO GROUP
DENMARK A/S
SANTECH 100 % 500 1,000 500 569
MICRO GROUP
INTERNATIONAL
A/S
SUM 142,090
TNOK
(TOTAL
NOK
1,000)
UNITS IN
NORWEGIAN
GENERAL
PARTNERSHIPS:
KULLER0D 1 100 % 8,442
ANS
</TABLE>
F-8
<PAGE>
The unit is owned by Santech Norge AS (90 percent) and Santech Micro Group ASA
(10 percent). The unit is included in the group according to the gross method
(full consolidation). There is excess value related to the building, based on
acquisition cost at the time of the purchase of the unit, i.e. 30 June 1995. The
excess value has been included in the book value of buildings and will be
written off at the same rate as in the company accounts.
Book value as at 7,694
1 January
Our share of this 748
year's profit
Book value as at 8,442
31 December
Depreciation on 124
excess value this
year
Excess value by 4,294
the close of the
year
NOTE 2 INFORMATION ABOUT AREAS OF ACTIVITY
The group's activities in Denmark and Sweden are run as separate legal units.
The distribution of accounting figures per geographical activity area reflects
this.
<TABLE>
<CAPTION>
NORWAY SWEDEN DENMARK GROUP
<S> <C> <C> <C> <C>
OPERATING 2,060,443 1,929,084 666,064 4,655,591
INCOME
OPERATING 2,074,523 1,928,814 661,372 4,664,709
COSTS
EXCLUSIVE OF
ORDINARY
DEPRECIATION
ORDINARY
DEPRECIATION
INCLUSIVE OF
DEPRECIATION
OF GOODWILL 41,464 4,660 767 46,981
OPERATING (55,544) (4,390) 3,925 (56,009)
PROFIT (LOSS)
TOTAL ASSETS 590,799 469,218 142,365 1,202,381
</TABLE>
NOTE 3 OPERATING INCOME
1996
SALES 4,640,359
GAINS ON DISPOSAL OF SHARES 15,233
OPERATING INCOME 4,655,592
NOTE 4 BANK DEPOSITS
NOK 3,502,000 of the bank deposits are blocked due to tax withholding
liabilities. This applies to the Norwegian companies.
F-9
<PAGE>
NOTE 5 ACCOUNTS RECEIVABLE
1996
NOMINAL VALUE OF ACCOUNTS 620,464
RECEIVABLE AS AT 31 DECEMBER
PROVISIONS FOR BAD DEBTS 12,630
BOOK VALUE AS AT 31 DECEMBER 607,834
BOOK VALUE OF BAD DEBTS 1996:
ACTUAL LOSSES 1996 24,195
PREVIOUSLY WRITTEN OFF RECEIVABLES RECOVERED (1,025)
CHANGES IN PROVISIONS 1,109
TOTAL 24,279
Other receivables are booked at nominal value, which is considered to be the
lower of cost price and realisable value.
NOTE 6 STOCKS
The stocks consist of commodities. Cost price value has been written to
realisable value due to unsaleable goods.
F-10
<PAGE>
<TABLE>
<CAPTION>
NOTE 7 FIXED ASSETS
BUILDINGS VEHICLES MACHINERY LAND TOTAL
AND
FURNITURE
<S> <C> <C> <C> <C> <C>
COST PRICE 15,221 1,617 47,545 700 65,083
31 DECEMBER
1995
ADDITION 13,515 13,515
THROUGH
MERGER OF
ACTIVITIES
ACQUISITIONS 910 148 27,602 28,660
IN 1996
DISPOSALS 115 19,806 19,921
IN 1996
EXCESS 4,294 4,294
VALUE
BUILDING
WRITE DOWN 792 792
OF BUILDING
COST PRICE 19,633 1,650 68,856 700 90,839
31 DECEMBER
1996
ACCUMULATED 646 603 13,583 14,832
DEPRECIATION
31 DECEMBER
1995
THIS YEAR'S 1,150 257 20,348 21,755
DEPRECIATION
REVERSED 86 5,330 5,416
DEPRECIATION
ON DISPOSALS
ACCUMULATED 1,796 774 28,601 31,171
DEPRECIATION
31 DECEMBER
1996
BOOK VALUE 17,837 876 40,255 700 59,668
31 DECEMBER
1996
DEPRECIATION 2 % 20 % 15-33 %
RATES
</TABLE>
INVESTMENTS
AND SALES
OF FIXED
ASSETS THE
LAST 5
YEARS:
1992 1993 1994 1995 1996
INVESTMENTS 1,475 7,195 18,339 39,537 42,408
SALES 158 213 1,370 164 6,029
NOTE 8 GOODWILL 1996
COST PRICE 31 DECEMBER 1995 18,604
ACQUISITION 1996 43,348
COST PRICE 31 DECEMBER 1996 61,952
THIS YEAR'S DEPRECIATION 25,135
WRITE-DOWNS 0
F-11
<PAGE>
CURRENCY DIFFERENCES 38
BOOK VALUE 31 DECEMBER 1996 36,855
NOTE 9 MAXIMUM OVERDRAFT LIMIT
As at 31 December, the group has a maximum overdraft limit of TNOK 382.000.
NOTE 10 OTHER SHORT-TERM LIABILITIES
1996
PAYABLE TAX WITHHOLDINGS, HOLIDAY PAY, 55,764
EMPLOYMENT FEE ETC.
PAYABLE TAXES 4,354
MISCELLANEOUS OTHER SHORT-TERM LIABILITIES 28,079
88,197
NOTE 11 MORTGAGE DEBT
Long-term debts include the first year instalment of NOK 12,287.
NOTE 12 OTHER LONG-TERM LIABILITIES
1996
PENSION LIABILITIES 2,484
DEFERRED TAX 6,314
8,798
NOTE 13 EQUITY
The parent company's share capital of NOK 11,063,498.75 consists of 44,253,995
shares with a par value of NOK 0.25 each.
CHANGES IN THE PARENT COMPANY'S EQUITY 1996
EQUITY 31 DECEMBER 1995 422,909
CAPITAL INCREASE 4,394
PROFIT FOR THE YEAR (71,800)
CURRENCY DIFFERENCES (4,273)
EQUITY AS AT 31 DECEMBER 1996 351,230
F-12
<PAGE>
NOTE 14 TAXES
TAX EXPENSE FOR THE YEAR: 1996
PAYABLE INCOME TAX 3,536
CHANGE IN DEFERRED TAX (426)
TAXES FROM PREVIOUS YEARS (124)
THIS YEAR'S TAX EXPENSE IN THE PROFIT AND 2,986
LOSS ACCOUNT
NORWAY SWEDEN DENMARK GROUP
TAX EXPENSE 1,405 (180) 1,761 2,986
PER COUNTRY IN
1996
Preliminary differences as at 31 December related to:
CHANGE 31 DEC 1996
CURRENT ASSETS/SHORT-TERM 4,660 (4,514)
LIABILITIES
FIXED ASSETS/LONG-TERM 14,459 (9,982)
LIABILITIES
OTHER DIFFERENCES (600) 16,018
LOSSES FROM PREVIOUS YEARS 25,971 (25,971)
(NORWAY)
TOTAL PRELIMINARY DIFFERENCES 44,490 (24,449)
OF WHICH CANNOT BE NETTED 48,370
BASIS DEFERRED TAX 23,921
DEFERRED TAX BALANCE SHEET 6,698
DEFERRED TAX HAS BEEN CALCULATED AS 28 PERCENT OF PRELIMINARY DIFFERENCES.
F-13
<PAGE>
NOTE 15 RETIREMENT BENEFIT COSTS AND RETIREMENT BENEFIT LIABILITIES
The retirement cost of the period has 1996
been calculated as follows:
NET PRESENT VALUE OF BENEFIT EARNED 1,230
DURING THE PERIOD
INTEREST ON PROJECTED BENEFIT 445
LIABILITY
GROSS RETIREMENT COSTS 1,675
ESTIMATED RETURN ON RETIREMENT FUNDS 372
NET RETIREMENT COSTS 1,303
PROVISIONS FOR EMPLOYEE FEES 184
NET RETIREMENT COSTS INCL. EMPLOYEE 1,487
FEES
INCLUSION OF RETIREMENT BENEFIT 740
LIABILITIES AT 1 JANUARY
RETIREMENT BENEFIT COSTS FOR THE 2,227
YEAR, INCL. EMPLOYEE FEES
RETIREMENT LIABILITIES/FUNDS IN THE
BALANCE SHEET HAS BEEN CALCULATED AS
FOLLOWS:
GROSS RETIREMENT BENEFIT LIABILITIES 6,362
AS AT 1 JANUARY
RETIREMENT BENEFIT COSTS 1,675
GROSS RETIREMENT BENEFIT LIABILITIES 8,037
AS AT 31 DECEMBER
RETIREMENT FUNDS AS AT 1 JANUARY 3,795
PAYMENTS AND DEPOSITS AND ESTIMATED 2,094
RETURN ON FUNDS
RETIREMENT FUNDS AS AT 31 DECEMBER 5,889
NET RETIREMENT BENEFIT LIABILITIES 2,148
INCURRED EMPLOYMENT FEE 336
NET RETIREMENT BENEFIT LIABILITIES 2,484
AND ACCRUED EMPLOYEE FEE
ECONOMIC ASSUMPTIONS ON WHICH THE
CALCULATIONS ARE BASED:
RATE OF DISCOUNT 7.00 %
EXPECTED RATE OF RETURN 8.00 %
EXPECTED INCREASE IN SALARIES 3.30 %
EXPECTED INCREASE IN RETIREMENT 3.30 %
BENEFITS
EXPECTED INCREASE IN BASIS AMOUNT (G) 3.30 %
EXPECTED VOLUNTARY RESIGNATIONS 2 % BEFORE 40 YEAR
0 % AFTER 40 YEAR
F-14
<PAGE>
NOTE 16 LEASING AGREEMENTS
All leasing agreements are treated as operating leasing. As at 31 December 1996,
the amount is insignificant.
NOTE 17 SECURED DEBTS
BOOK DEBTS SECURED BY PLEDGES ON ASSETS: 1996
OVERDRAFT FACILITY 240,114
FACTORING 284,458
MORTGAGE DEBT 32,447
TOTAL 557,019
BOOK VALUE OF ASSETS WHICH ARE PLEDGED AS
SECURITY FOR THIS DEBT:
STOCKS 361,428
ACCOUNTS RECEIVABLE 607,834
BUILDINGS 17,837
TOTAL 987,099
Santech Micro Group ASA is guarantor for the subsidiary Micro Software Sweden AB
(SEK 15,000,000). Batavia is guarantor for the overdraft facility of NOK
5,000,000 in the subsidiary Multium AS.
As a partner in Kuller0d 1 ANS, Santech Norway AS is jointly and severally
liable with Santech Micro group ASA for the total debts in the partnership, i.e.
NOK 11,680,708. The majority of this debt has been pledged in the partnership's
building which has a book value of NOK 10,286,952.
In connection with leasing agreements, Santech Micro Group Denmark AS has
provided bank guarantees for the fulfilment of these contracts, totalling DKK
370,717 as at 31 December 1996.
NOTE 18 GUARANTEES
The parent company has provided the following guarantees to the other
contracting parties of the subsidiaries:
Norwegian Kroner 79 million
Danish Kroner 42 million
Swedish Kroner 90 million
US Dollar 4.5 million
F-15
<PAGE>
Note 19 Foreign exchange rates
On consolidation, the following exchange rates have been used in the translation
of the subsidiaries' accounts:
SEK DKK
AVERAGE RATES OF EXCHANGE 0.99728 1.117127
31 DECEMBER 1995-
31 DECEMBER 1996
CLOSING RATE OF EXCHANGE 0.9397 1.0865
31 DECEMBER 1996
NOTE 20 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES
The consolidated financial statements of Santech Micro ASA and Subsidiaries
(referred to herein as the "Group" or the "Company")are prepared in accordance
with generally accepted accounting principles in Norway (Norwegian GAAP), which
differ in certain respects from accounting principles in the United States (US
GAAP). A brief description of certain differences between Norwegian GAAP and US
GAAP for the Group are discussed below. This information is not intended to
provide a comprehensive listing of such differences specifically related to
Santech Micro Group, but rather a brief discussion of certain potential
differences.
PENSIONS
In accordance with Norwegian GAAP, the Company adopted a new pension standard in
1994 similar to the corresponding standard under US GAAP. Under this new
standard, pensions are accounted for on an accrual basis using specific
actuarial methodologies with amounts reflected in the profit and loss accounts
systematically over the working lives of the employees covered by such plans.
The effect of implementing this new standard amounted to NOK 2.5 million, which
was charged directly to equity in January 1994.
The implementation effect under US GAAP would have been amortised beginning in
1989 over the average remaining service period of the employees. For 1996,
management believes that there were no material differences between the
accounting policy applied by the Company and US GAAP on pensions.
DEFERRED INCOME TAXES
Consistent with Norwegian GAAP, the Company records a net long-term deferred tax
liability, if the net total of deferred tax liabilities and assets results in a
net deferred tax liability. Deferred tax assets resulting from temporary
differences in financial and tax reporting are only recognised by the Company to
the extent that deferred tax liabilities have been recognised.
Under US GAAP, deferred income taxes are recognised using the liability method.
Under this method, deferred tax liabilities and assets are determined on the
basis of temporary differences between the financial statement and tax bases of
assets and liabilities using enacted tax rates. Deferred tax assets are
recognised and reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realised. For 1996, management believes that there were
no material differences between the accounting policy applied by the Company and
US GAAP on deferred income taxes.
FOREIGN CURRENCY POSITIONS
The Company applying Norwegian GAAP has recorded hedged foreign currency
positions at the hedged exchange rate.
Under US GAAP, foreign currency positions are translated at the period end
exchange rate. For 1996, management believes that there were no material
differences between
F-16
<PAGE>
the accounting policy applied by the Company and US GAAP on foreign currency
positions.
CLASSIFICATIONS
Complying with Norwegian GAAP, the Company includes in long-term debt all
liabilities which mature more than one year from origination. As a result, NOK
12.287 million in liabilities maturing in 1997 were included in long-term debt
as of December 31, 1996. For US GAAP purposes, such amounts which mature within
one year from the balance sheet date are presented separately as short-term debt
or current portion of long-term debt.
F-17
<PAGE>
CHS ELECTRONICS, INC.
PRO FORMA CONDENSED CONSLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following Pro Forma Condensed Consolidated Balance Sheet as of June
30, 1997 and the Pro Forma Condensed Consolidated Statements of Earnings for the
year ended December 31, 1996 and the six months ended June 30, 1997 give effect
to the acquisition by the Company of Frank & Walter Computer GmbH ("F&W"),
effective January 1, 1997, the acquisition of Karma International S. A.
("Karma"), effective August 1, 1997, and the acquisition of Santech Micro Group
ASA ("Santech"), effective October 1, 1997. These acquisitions have been
accounted for using the purchase method of accounting. The Pro Forma Condensed
Consolidated Balance Sheet as of June 30, 1997 is presented as if the
acquisitions of Karma and Santech (the F&W acquisition is already reflected in
such balance sheet) had taken place on June 30, 1997. The Pro Forma Condensed
Consolidated Statements of Earnings for the year ended December 31, 1996 and for
the six months ended June 30, 1997 present the pro forma results assuming the
acquisitions occurred January 1, 1996. A list of the companies included in each
period is shown below.
COMPANIES INCLUDED IN ACQUIRED COMPANIES COLUMN
IN THE PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- ------------------
F&W Karma
Karma Santech
Santech
The Pro Forma Condensed Financial Statements have been prepared based
upon the historical financial statements of the Company and the acquired
subsidiaries for the periods stated above. Such pro forma statements may not be
indicative of the results that would have occurred if the acquisitions had been
consummated on the indicated dates, or of the operating results that may be
achieved by the combined companies in the future. The Pro Forma Statements
should be read in conjunction with the Company's Financial Statements and the
notes thereto.
F-18
<PAGE>
<TABLE>
<CAPTION>
CHS ELECTRONICS, INC.
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
CHS ACQUIRED PRO FORMA
HISTORIAL COMPANIES ADJUSTMENTS COMBINED
---------- --------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash $ 12,795 $ 23,183 $ (123,769) (a) $ 35,978
(74,000) (a)
74,000 (b)
123,769 (b)
Accounts receivable, net 345,002 99,854 444,856
Inventories 310,919 148,280 459,199
Other current assets 43,303 14,126 57,429
------------------------------------------- -----------
Total current assets 712,019 285,443 - 997,462
Property and equipment, net 42,918 12,959 55,877
Costs in excess of assets acquired, net 90,156 4,424 195,663 (c) 290,243
Other assets 7,023 7,788 266,569 (a) 14,811
(266,569)(c)
------------------------------------------- -----------
$ 852,116 $ 310,614 $ 195,663 (e) $ 1,358,393
=========================================== ===========
LIABILITIES
Current Liabilities:
Notes payable $ 160,004 $ 40,850 $ - $ 200,854
Accounts payable 401,467 173,561 575,028
Accrued liabilities 48,582 14,074 62,656
Amounts due to sellers under
acquisition agreements 32,536 - 32,536
Income taxes payable 5,994 1,003 6,997
Deferred taxes - 1,094 1,094
------------------------------------------- -----------
Total current liabilities 648,583 230,582 - 879,165
Long term debt 60,194 8,937 - 69,131
Minority interest 5,038 89 5,127
Other liabilities - 100 100
Shareholders' Equity:
Common stock 22 12,312 5 (a) 37
10 (b)
(12,312) (c)
Additional paid-in capital 120,724 - 68,795 (a) 387,278
197,759 (b)
Retained earnings 29,835 58,478 (58,478) (c) 29,835
Legal reserve 315 (315) (c) -
Translation adjustment (12,280) (199) 199 (c) (12,280)
------------------------------------------- -----------
Total shareholders' equity 138,301 70,906 195,663 404,870
------------------------------------------- -----------
$ 852,116 $ 310,614 $ 195,663 $ 1,358,393
=========================================== ===========
</TABLE>
F-19
<PAGE>
<TABLE>
<CAPTION>
CHS ELECTRONICS, INC.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
ACQUIRED PRO FORMA
CHS COMPANIES ADJUSTMENTS COMBINED
---------- --------- ----------- --------
<S> <C> <C> <C> <C>
Net sales $ 1,855,540 $ 2,104,603 (40,852) (d) $ 3,919,291
Cost of sales 1,724,432 1,974,678 (40,852) (d) 3,658,258
------------------------------------------- -----------
Gross profit 131,108 129,925 - 261,033
Operating expenses 102,235 111,551 11,632 (e) 225,419
------------------------------------------- -----------
Operating income 28,873 18,374 (11,632) 35,615
Interest expense (income) 8,513 5,114 13,627
------------------------------------------- -----------
Earnings before income taxes and
minority interest 20,360 13,259 (11,632) 21,987
Provision for income taxes 6,086 5,739 11,825
------------------------------------------- -----------
Earnings before minority interest 14,274 7,520 (11,632) 10,162
Minority interest 2,108 48 2,156
------------------------------------------- -----------
Net earnings $ 12,166 $ 7,472 $ (11,632) $ 8,006
=========================================== ===========
Weighted average number of
common shares outstanding 16,657,029 17,884,644 33,541,673
Net earnings per share $ 0.78 $ 0.24
</TABLE>
F-20
<PAGE>
<TABLE>
<CAPTION>
CHS ELECTRONICS, INC.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF EARNINGS
SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS)
ACQUIRED PRO FORMA
CHS COMPANIES ADJUSTMENTS COMBINED
---------- --------- ----------- --------
<S> <C> <C> <C> <C>
Net sales $ 1,824,058 $ 750,412 $ 2,574,470
Cost of sales 1,691,423 711,962 2,403,385
------------------------------------------- -----------
Gross profit 132,635 38,450 - 171,085
Operating expenses 100,683 38,142 5,126 (e) 143,951
------------------------------------------- -----------
Operating income 31,952 308 (5,126) 27,134
Interest expense (income) 11,067 (1,863) 9,204
------------------------------------------- -----------
Earnings before income taxes and
minority interest 20,885 2,170 (5,126) 17,930
Provision for income taxes 6,790 1,024 7,814
------------------------------------------- -----------
Earnings before minority interest 14,095 1,146 (5,126) 10,116
Minority interest 983 (50) 933
------------------------------------------- -----------
Net earnings $ 13,112 $ 1,196 $ (5,126) $ 9,183
=========================================== ===========
Weighted average number of
common shares outstanding 23,203,428 14,584,644 37,788,072
Net earnings per share $ 0.57 $ 0.24
</TABLE>
F-21
<PAGE>
CHS ELECTRONICS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
a) On October 3, 1997, the Company acquired 97.4% of outstanding stock of
Santech Micro Group ASA ("Santech"), a distributor with operations in
Norway, Sweden and Denmark. Pursuant to Norwegian laws, the Company is
making an offer for the remaining 2.6% of Santech on terms commensurate, on
a pro rata basis, with its initial purchase of the 97.4% interest of
Santech and expects to ultimately achieve 100% ownership. For purposes of
the Pro Forma Condensed Balance Sheet as of June 30, 1997, the purchase
price of 100% of Santech is recorded at $123,769,000. This price is based
on the price paid for the 97.4% interest in Santech at the purchase price
of 20.50 Norwegian Kroners per share, converted into U.S. dollars at the
exchange rate on June 30, 1997.
In August 1997, the Company consummated an agreement to purchase 100% of
the stock of Karma International S.A. ("Karma") for $74 million in cash and
$86 million in shares of unregistered common stock of the Company. Karma is
engaged principally in the distribution of computer components in 18
countries in Europe, the Middle East and Asia. For purposes of the Pro
Forma Condensed Balance Sheet as of June 30, 1997, the purchase price of
Karma is recorded at $142,800,000. This price consists of the $74 million
cash component added to the discounted value of the unregistered shares to
be delivered. The discount used was 20%, based on the large size and the
restricted nature of the block of shares. Based on the agreement, the
Company delivered 4,813,432 shares.
In December 1996 the Company signed an agreement to purchase 100% of the
stock of Frank & Walter Computer GmbH ("F&W") for 3,300,000 shares of
unregistered common stock. F&W is a distributor of computers and computer
products located in Germany. The shares used in the F&W transaction are
already recorded in the June 30, 1997 historical balance sheet.
All these transactions have been accounted for under the purchase method of
accounting.
b) To record the issuance and sale of 9,771,211 shares of common stock of the
Company at an assumed price of $21.16 per share (net proceeds at $20.24 per
share) to raise the cash consideration to be paid in connection with the
acquisitions of Karma and Santech. In July 1997, the Company issued
19,500,000 shares of common stock at $21.26 per share.
c) To eliminate the investment account and to record goodwill of $115,665,000
for Karma and $79,997,000 for Santech. For purposes of the Pro Forma
Condensed Balance Sheet as of June 30, 1997, the goodwill for Karma was
computed by subtracting from the $142,800,000 estimated purchase price, the
fair value of net assets acquired as of June 30, 1997 of $27,135,000 and
the goodwill for Santech was computed by subtracting from the estimated
purchase price of $123,769,000, the fair value of net assets acquired as of
June 30, 1997 of $43,772,000.
d) To eliminate intercompany sales between the Company and F&W.
e) To record amortization of goodwill over a period of 20 years. Amortization
was provided for F&W, Karma and Santech based on goodwill of $27,618,000,
$120,697,000, and $84,326,000, respectively, for the period of time each
company was added to the Pro Forma Condensed Statements of Earnings. For
purposes of the Pro Forma Condensed Statements of Earnings for the year
ended December 31, 1996 and for the six months ended June 30, 1997, the
goodwill of Karma and Santech was computed based on the difference between
the estimated purchase price on the closing date of $142,800,000 and
$128,098,000, respectively, and the estimated fair value of net assets
acquired as of the effective date of the of the transaction.
F-22
<PAGE>
f) All share and per share amounts reflect a 3 for 2 stock split effectuated
on September 1997.
g) Details of the Acquired Companies column in the accompanying Balance Sheet
is as follows (in thousands):
Karma Santech Total
------------------------------------
ASSETS
Current Assets:
Cash $ 13,367 $ 9,816 $ - $ 23,183
Accounts receivable, net 44,370 55,484 99,854
Inventories 107,254 41,026 148,280
Other current assets 11,440 2,686 14,126
------------------------------------
Total current assets 176,431 109,013 - 285,444
Property and equipment, net 4,882 8,077 12,959
Costs in excess of assets, acquired, net - 4,424 4,424
Other assets 7,788 - 7,788
------------------------------------
$189,101 $121,514 $ - $310,615
====================================
LIABILITIES
Current Liabilities:
Notes payable $ 15,044 $ 25,806 $ - $ 40,850
Accounts payable 138,552 35,009 173,561
Accrued liabilities 6,062 8,012 14,074
Amounts due to sellers under
acquisition agreements - - -
Income taxes payable 1,003 - 1,003
Deferred taxes 1,094 - 1,094
------------------------------------
Total current liabilities 161,755 68,827 $ - 230,582
Long term debt 23 8,914 8,937
Minority interest 89 - 89
Other liabilities 100 - 100
Shareholders' Equity:
Common stock 10,803 1,509 12,312
Additional paid-in capital - - -
Retained earnings 16,215 42,263 58,478
Legal reserve 315 - 315
Translation adjustment (199) - (199)
------------------------------------
Total shareholders' equity 27,134 43,772 - 70,906
------------------------------------
$189,101 $121,514 $ - $310,615
====================================
F-23
<PAGE>
h) Details of the Acquired Companies column in the accompanying Statement of
Earnings for the year ended December 31, 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
F&W KARMA SANTECH TOTAL
----------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $686,115 $700,203 $718,285 $2,104,603
Cost of sales 638,318 668,397 668,029 1,974,678
----------------------------------------------------------
Gross profit 47,797 31,806 50,256 129,925
Operating expenses 36,890 13,287 61,308 111,551
==========================================================
Operating income 10,907 18,519 (11,052) 18,374
Interest expense (income) 4,591 924 (401) 5,114
----------------------------------------------------------
Earnings before income taxes and minority interest 6,316 17,595 (10,652) 13,259
Provision for income taxes 2,807 2,470 462 5,739
----------------------------------------------------------
Earnings (loss) before minority interest 3,509 15,125 (11,114) 7,520
Minority interest - 48 - 48
----------------------------------------------------------
Net earnings (loss) $3,509 $15,077 $(11,114) $7,472
==========================================================
</TABLE>
i) Details of the Acquired Companies column in the accompanying Statement of
Earnings for the six months ended June 30, 1997 as follows (in thousands):
<TABLE>
<CAPTION>
KARMA SANTECH TOTAL
--------------------------------------------
<S> <C> <C> <C>
Net sales $458,316 $292,096 $750,412
Cost of sales 437,314 274,648 711,962
--------------------------------------------
Gross profit 21,002 17,448 38,450
Operating expenses 16,802 21,340 38,142
--------------------------------------------
Operating income 4,200 (3,892) 308
Interest expense (income) (2,770) 907 (1,863)
--------------------------------------------
Earnings before income taxes and minority interest 6,970 (4,800) 2,170
Provision for income taxes 1,024 - 1,024
--------------------------------------------
Earnings (loss) before minority interest 5,946 (4,800) 1,146
Minority interest (50) - (50)
--------------------------------------------
Net earnings (loss) $5,996 $ (4,800) $1,196
============================================
</TABLE>
F-24
