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): MARCH 20, 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 1 of 4 Pages
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On March 20, 1997, CHS Electronics, Inc. (the "Company") completed its
acquisition of the operations of Frank & Walter Computer GmbH ("F&W"), the
fourth largest computer distributor in Germany, for 2.2 million unregistered
shares of the Company's common stock. The Company intends to combine the
operations of F&W, a privately held company based in Brunschwaig, which had 1996
sales of $686 million, with its operation in Germany, which had 1996 sales
(including the sales on a pro forma basis of the German operations recently
acquired from Merisel, Inc.) of $606 million. Carsten Frank, the founder of F&W,
will also become a Company executive vice president responsible for Europe.
F&W has approximately 10,000 active dealers and is one of the largest
distributors of Western Digital and Seagate products in the world. F&W has
approximately 400 employees and operates principally within Germany, and is
focused on distribution to smaller dealers in central Germany. The Company's
German operations have approximately 350 employees and 4,600 active dealers in
Germany, and are focused on distribution to medium and large resellers in the
north and south of the country.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
The audited financial statements of F&W for the year ended
December 31, 1996 are attached hereto as Attachment 7(a) and are incorporated
herein by this reference.
(b) PRO FORMA FINANCIAL INFORMATION.
The unaudited pro forma condensed consolidated financial
statements of CHS Electronics, Inc. for the year ended December 31, 1996 are
attached hereto as Attachment 7(b) and are incorporated herein by this
reference.
(c) EXHIBITS.
10.1 Stock Exchange Agreement dated December 19, 1996 between CHS
Electronics, Inc. and Frank & Walter Computer GmbH (incorporated by reference to
Exhibit 10.37 of CHS Electronics, Inc.'s Form 10-K as filed with the Commission
on March 31, 1997)
10.2 Agreement dated January 1, 1997 by and between Carsten Frank and
CHS Electronics, Inc.
Page 2 of 4 Pages
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholder of
Frank & Walter Computer GmbH
We have audited the accompanying consolidated balance sheet of
Frank & Walter Computer GmbH and its subsidiaries (the "Company") as of December
31, 1996, and the related consolidated statements of operations, changes in
shareholder's equity, and cash flows for the year then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards applicable in the United States. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provides 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 Frank & Walter Computer GmbH and its subsidiaries as of December 31,
1996, and the consolidated results of their operations and their cash flows for
the year then ended in conformity with generally accepted accounting principles
applicable in the United States.
Moore Stephens, P.C. Societats-Treuhand GmbH
New York, New York Hannover, Germany
February 25, 1997, except as to February 25, 1997, except as to
Notes 17 and 18 for which the Notes 17 and 18 for which the
date is March 20, 1997 date is March 20, 1997
F-1
<PAGE>
<TABLE>
<CAPTION>
FRANK & WALTER COMPUTER GMBH AND SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996.
(IN UNITED STATES DOLLARS)
- --------------------------------------------------------------------------------------
<S> <C>
ASSETS:
CURRENT ASSETS:
Cash and Cash Equivalents $ 2,775,371
Accounts Receivable: Trade, Less Allowance for Doubtful
Accounts of $4,370,378 33,242,364
Accounts Receivable: MC DOS GmbH, Less Allowance for Doubtful
Accounts of $126,535 4,722,805
Inventories, Net of Obsolescence Allowance 43,048,136
Prepaid Expenses and Other Current Assets 16,780,830
Deferred Tax Asset 369,860
----------------
TOTAL CURRENT ASSETS 100,939,366
----------------
PROPERTY, PLANT AND EQUIPMENT:
Land 312,109
Building and Improvements 8,015,996
Equipment 5,028,211
Capitalized Software Costs 668,264
----------------
Total - At Cost 14,024,580
Less: Accumulated Depreciation and Amortization 6,519,135
----------------
PROPERTY, PLANT AND EQUIPMENT - NET 7,505,445
----------------
OTHER ASSETS:
Other Assets 81,899
Cost in Excess of Assets Acquired, Net 658,023
Loan Receivable 846,033
Loan Receivable - Affiliate 113,769
Temporary Investment - MC DOS GmbH 3,168,259
----------------
TOTAL OTHER ASSETS 4,867,983
----------------
TOTAL ASSETS $ 113,312,794
================
</TABLE>
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
F-2
<PAGE>
FRANK & WALTER COMPUTER GMBH AND SUBSIDIARY COMPANIES
- -------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996.
(IN UNITED STATES DOLLARS)
- -------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDER'S EQUITY:
CURRENT LIABILITIES:
Accounts Payable, Trade $ 67,750,741
Current Portion of Long-Term Debt 28,599,368
Income and Other Taxes Payable 1,264,210
Accrued Expenses 4,106,944
----------------
TOTAL CURRENT LIABILITIES 101,721,263
----------------
LONG-TERM DEBT 2,830,010
----------------
COMMITMENTS AND CONTINGENCIES --
----------------
MINORITY INTEREST 19,036
----------------
SHAREHOLDER'S EQUITY:
Capital Shares 10,914,879
Receivable from Shareholder (473,319)
Retained Deficit (2,031,164)
Cumulative Foreign Currency Translation Adjustment 332,089
----------------
TOTAL SHAREHOLDER'S EQUITY 8,742,485
----------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 113,312,794
================
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
F-3
<PAGE>
FRANK & WALTER COMPUTER GMBH AND SUBSIDIARY COMPANIES
- -----------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1996.
(IN UNITED STATES DOLLARS)
- -----------------------------------------------------------------------------
NET SALES [INCLUDING SALES TO AFFILIATES OF $51,066,000] $ 686,115,345
COST OF GOODS SOLD 638,317,737
----------------
GROSS PROFIT 47,797,608
OPERATING EXPENSES:
Selling, General and Administrative Expenses 34,900,274
Provision for Doubtful Accounts 2,454,507
----------------
TOTAL OPERATING EXPENSES 37,354,781
----------------
OPERATING INCOME 10,442,827
----------------
OTHER INCOME (EXPENSE):
Interest Income 660,961
Interest (Expense) (5,349,262)
Interest Income from Shareholder 97,144
Other Income 1,466,406
Other (Expenses) (1,002,011)
----------------
OTHER (EXPENSE) - NET (4,126,762)
----------------
INCOME BEFORE INCOME TAXES 6,316,065
INCOME TAX EXPENSE 2,807,034
----------------
NET INCOME $ 3,509,031
================
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
FRANK & WALTER COMPUTER GMBH AND SUBSIDIARY COMPANIES
- -----------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY FOR THE YEAR
ENDED DECEMBER 31, 1996.
(IN UNITED STATES DOLLARS)
- -----------------------------------------------------------------------------------------------------------------------------------
CUMULATIVE
CAPITAL FOREIGN
SHARES RECEIVABLE CURRENCY TOTAL
CAPITAL SUBSCRIPTION FROM RETAINED TRANSLATION SHAREHOLDER'S
SHARES RECEIVABLE SHAREHOLDER DEFICIT ADJUSTMENT EQUITY
------- ------------ ----------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1996 $ 4,622,238 $ (609,050) $ -- $ (4,113,199) $ (185,971) $ (285,982)
Contribution to Capital -- 609,050 -- -- -- 609,050
Issuance of Capital Shares 6,292,641 -- -- -- -- 6,292,641
Dividends -- -- -- (1,426,996) -- (1,426,996)
Foreign Currency
Translation Adjustment -- -- -- -- 518,060 518,060
Receivable from Shareholder -- -- (473,319) -- -- (473,319)
Net Income -- -- -- 3,509,031 -- 3,509,031
------------- ------------- -------------- ------------- ------------- -------------
BALANCE AT DECEMBER 31,
1996 $ 10,914,879 $ -- $ (473,319) $ (2,031,164) $ 332,089 $ 8,742,485
============= ============= ============== ============= ============= =============
</TABLE>
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
F-5
<PAGE>
FRANK & WALTER COMPUTER GMBH AND SUBSIDIARY COMPANIES
- ------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED
DECEMBER 31, 1996.
(IN UNITED STATES DOLLARS)
- ------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 3,509,031
----------------
Adjustments to Reconcile Net Income to Net
Cash Used in Operating Activities:
Depreciation and Amortization 1,437,118
Provision for Doubtful Accounts 2,454,507
Provision for Inventory Obsolescence 1,160,070
Other (8,728)
Interest Income - Shareholder (97,145)
Deferred Taxes 2,612,286
Changes in Assets and Liabilities:
(Increase) Decrease in:
Accounts Receivable, Trade (7,712,643)
Inventories 28,659,738
Prepaid Expenses and Other Current Assets (10,559,025)
Increase (Decrease) in:
Accounts Payable, Trade (30,289,243)
Income Taxes Payable 1,020,171
Other Current Liabilities (334,193)
Accrued Expenses (953,998)
----------------
Total Adjustments (12,611,085)
----------------
NET CASH USED IN OPERATING ACTIVITIES (9,102,054)
----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Equipment, Improvements and Software (1,071,259)
Proceeds from Disposal of Equipment 4,515
Purchase of Other Assets (11,971)
Loans to Shareholder (2,722,738)
Other Loans (92,017)
----------------
NET CASH USED IN INVESTING ACTIVITIES (3,893,470)
----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of Cash Dividends (383,507)
Proceeds from Notes Payable 3,779,263
Payments on Notes Payable (361,649)
Issuance of Capital Shares 6,292,641
Contribution of Capital 609,050
----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 9,935,798
----------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (282,375)
----------------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS-FORWARD $ (3,342,101)
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
F-6
<PAGE>
FRANK & WALTER COMPUTER GMBH AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED
DECEMBER 31, 1996.
(IN UNITED STATES DOLLARS)
- ---------------------------------------------------------------------------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS - FORWARDED $ (3,342,101)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF YEAR 6,117,472
----------------
CASH AND CASH EQUIVALENTS AT THE END OF YEAR $ 2,775,371
================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 5,103,227
Income Taxes $ 1,585,695
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Temporary Investment - MC DOS GmbH $ 3,168,259
Dividend Applied to Shareholder Loan $ 1,043,489
Other Amounts Applied to Shareholder Loan $ 75,515
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
F-7
<PAGE>
FRANK & WALTER COMPUTER GMBH AND SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
(1) ORGANIZATION AND NATURE OF OPERATIONS
Frank & Walter Computer GmbH and its subsidiaries (collectively "the Company")
was established under the laws of the Federal Republic of Germany on January 28,
1987, as a Gesellschaft mit beschrankter Haftung ("GmbH"). The Company operates
from a facility which it owns in Braunschwieg, Germany. The Company is a
distributor of computer equipment, related parts, printers and other
accessories. The products are sold, principally to resellers, in Germany.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of Frank and Walter Computer GmbH ("F&W") and its subsidiaries,
wholly-owned and majority owned. All significant intercompany accounts and
transactions have been eliminated in consolidation. At December 31, 1996, the
subsidiary companies include Morse Handels and Produktions GmbH, M&M Marketing
and Media, GmbH, and Success Management Software, GmbH of which F&W owned 100%,
80%, and 60%, respectively.
FOREIGN CURRENCY TRANSLATION - The functional currency for the Company's
operations is the German Deutschmark. Assets and liabilities denominated in
German Deutschmarks have been translated into United States ("U.S.") dollars at
the exchange rate in effect at the end of the year. Operating results have been
translated into U.S. dollars at the average exchange rate during the year.
Equity transactions denominated in Deutschmarks have been translated into U.S.
dollars using the effective rate of exchange at the date of the transaction. The
aggregate effect of translating the consolidated financial statements is
included as a separate component of shareholder's equity entitled cumulative
foreign currency translation adjustment.
CASH AND CASH EQUIVALENTS - Cash equivalents are comprised of certain highly
liquid investments with a maturity of three months or less when purchased.
INVENTORIES - Inventories, consisting primarily of finished products, are stated
at the lower of cost or market. Cost is determined principally by current
replacement cost, which approximates the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION - Depreciation and amortization
are provided for in amounts sufficient to relate the cost of depreciable assets
to operations over their estimated service lives. Leasehold improvements are
amortized over the lives of respective leases or the service lives of the
improvements, whichever is shorter. The straight-line method of depreciation is
followed for financial reporting purposes. Depreciation expense for the year
ended December 31, 1996 was $1,212,851. The useful lives are as follows:
Building and Improvements 25 Years
Equipment 3 - 10 Years
Capitalized Software Costs 3 - 4 Years
Expenditures for renewals and improvements that significantly add to productive
capacity or extend the useful life of an asset are capitalized. The costs of
software used in business operations are capitalized and amortized over their
expected useful lives. Expenditures for maintenance and repairs are charged to
operations when incurred. When assets are sold or retired, the cost of the asset
and the related accumulated depreciation are removed from the accounts and any
gain or loss is recognized at such time.
REVENUE RECOGNITION - The Company recognizes sales upon shipment, as there is no
significant post-sale obligation and collectibilty is reasonably assured. Vendor
rebates, discounts and cooperative advertising are recognized when earned.
EARNINGS PER SHARE - Earnings per share is not presented, as the amounts would
not be meaningful, as the Company has only one shareholder.
F-8
<PAGE>
FRANK & WALTER COMPUTER GMBH AND SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
(3) ADVERTISING COSTS
Advertising costs are charged to operations when incurred. Advertising expense
for the year ended December 31, 1996 was $6,685,559 and is included in operating
expenses.
(4) INCOME TAXES
The Company utilizes the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes". Under the asset and
liability method specified by SFAS 109, deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax bases
of assets and liabilities as measured by the current enacted tax rates which are
expected to be in effect when these differences reverse. Deferred tax expense is
the result of changes in deferred tax assets and liabilities.
(5) COST IN EXCESS OF ASSETS ACQUIRED, NET
The cost in excess of net assets acquired (Goodwill) in 1991 ($1,754,728) is
being amortized to operations over an eight year period on a straight-line
basis. The Company evaluates its goodwill in accordance with SFAS No. 121 to
determine potential impairment by comparing the carrying value to undiscounted
future cash flows of the related assets. The Company adjusts the carrying value
of a subsidiary's goodwill if an impairment is indicated. Accumulated
amortization was $1,096,705 at December 31, 1996. Amortization expense amounted
to $224,267 for the year ended December 31, 1996 and is included in operating
expenses.
(6) CONCENTRATION OF CREDIT RISK
The Company's customer base consists principally of resellers located throughout
Germany and no individual customer accounts for more than 10% of sales.
The Company provides trade credit to its customers in the normal course of
business. Prior to extending credit, the customer's financial history is
analyzed and, if appropriate, forms of guarantees are obtained. The Company's
collection history generally has been in accordance with the terms provided to
its customers. It also makes provisions for estimated credit losses at the time
of sale. All sales are made with reservation of ownership in favor of the seller
until payment is received.
Certain receivables were sold, without recourse, to a factoring bank. Those
guaranteed amounts approximated 63% of net trade receivables at December 31,
1996. By arrangement with the factoring bank, sales to customers are guaranteed
to the extent of their credit limit as established by the bank.
The factor remits 90% of guaranteed amounts the day after the receivables are
sold to the factor. Amounts due from factor are included in accounts receivable.
The Company holds cash accounts at several German banking institutions. Certain
German banks have created a guaranteed fund for deposit accounts. All of the
Company's deposits are insured under terms of the fund.
(7) USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates.
F-9
<PAGE>
FRANK & WALTER COMPUTER GMBH AND SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
(7) USE OF ESTIMATES (CONTINUED)
SIGNIFICANT ESTIMATES - INVENTORY SUBJECT TO RAPID TECHNOLOGICAL OBSOLESCENCE -
Included in the accompanying balance sheet is inventory of computer electronics
and related parts at a carrying value of $43,048,136, net of an allowance of
$5,142,000, at December 31, 1996, which represents management's estimate of its
net realizable value. Such value is based on forecasts for sales of
microcomputer and related parts and accessories in the ensuing years. The
computer industry is characterized by rapid technological advancement and
change. Should demand for microcomputer and related parts and accessories prove
to be significantly less than anticipated, the ultimate realizable value of such
products could be substantially less than the amount shown in the balance sheet.
(8) OTHER CURRENT ASSETS
Other current assets include advances on purchase contracts to CHS Finance S.A.,
a subsidiary of CHS Electronics, Inc. ("CHS") in the amount of approximately
$8,774,000 at December 31, 1996.
(9) FOREIGN CURRENCY EXCHANGE CONTRACTS - FOREIGN CURRENCY FLUCTUATIONS
Net gains due to foreign currency fluctuations and hedging transactions
approximated $607,787 in 1996 and are included in the statement of operations as
part of operating expenses.
(10) LONG-TERM DEBT
The Company's long-term debt at December 31, 1996 consisted of the following:
<TABLE>
<S> <C>
IBM Deutschland Kreditbank GmbH, Due October 1997 $ 4,431
Deutsche Genossenschaftsbank, Hypothenkenbank Hamburg and Hannover,
Due December 1998, April 2001 and December 2006, Respectively 3,179,455
Fixed Eurocredits:
Nordeutsche Landesbank, Braunschweig 3,899,396
Deutsche Genossenschaftsbank, Hannover 6,174,043
Vereinsbank International, Luxembourg 1,624,748
Short-Term Borrowings:
Berliner Bank 10,533,069
Vereins-und Westbank, Hannover 2,244,089
Norddeutsche Landesbank, Braunschweig 1,859,274
Deutsche Verkehrs Bank AG 1,249,750
Deutsche Genossenschaftsbank, Hannover 661,123
--------------
Total 31,429,378
Less: Current Maturities 28,599,368
--------------
NET LONG-TERM DEBT $ 2,830,010
==============
</TABLE>
The loans from Deutsche Genossenschaftsbank and Hypothenkenbank, Hamburg and
Hannover, bear interest ranging from 5.75% to 7.2% per year. Principal payments
are due in installments ranging from two equal annual installments to four
installments of increasing amounts to the respective maturity dates.
The fixed eurocredit loans bear interest ranging from 4.3% to 5.8% per year. All
of the loans are due in full during 1997.
The short-term borrowings bear interest ranging from 7.25% to 9.5% per year. The
short-term borrowings are all due in full during 1997.
F-10
<PAGE>
FRANK & WALTER COMPUTER GMBH AND SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
(10) LONG-TERM DEBT (CONTINUED)
The long-term debt is collateralized by registered charges, or liens, on
company-owned real property located in Braunschweig, Germany. The sum of the
registered charges was approximately $13,804,000 at December 31, 1996. These
charges also cover the short-term borrowings. Other collateral includes
inventories and trade receivables not covered by the factoring agreement [See
Note 6].
Certain debt is insured by assigned life insurance claims of Carsten Frank (sole
shareholder) of approximately $2,665,000 and a guarantee of approximately
$650,000 by Mr. Frank (See Note 14C).
Four credit lending banking institutions have provided a pool, whereby each bank
has granted a limit of $6,174,000 totaling $24,696,000.
Scheduled maturities of debt are as follows:
YEAR ENDING
DECEMBER 31,
- ------------
1997 $ 28,599,368
1998 719,758
1999 279,625
2000 293,122
2001 392,147
Thereafter 1,145,358
----------------
TOTAL $ 31,429,378
================
The weighted average interest rates on short-term borrowings outstanding at
December 31, 1996 was 7.2%.
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has adopted SFAS No. 107, Disclosures of Information About Financial
Instruments which requires disclosing fair value to the extent practicable for
financial instruments which are recognized or unrecognized in the balance sheet.
For certain financial instruments, including cash and cash equivalents, trade
receivables and payables, and short-term debt, the carrying amount approximated
fair value because of the near term maturities of such obligations. The carrying
value of long-term receivables approximates their fair value. The fair value of
long-term debt is based on current rates at which the Company could borrow funds
with similar remaining maturities. It was estimated that the carrying amount of
long-term debt approximates its fair value.
(12) INCOME TAXES
The components of income tax expense are:
Current:
German Federal Tax $ 73,375
Local German Trade Tax 121,373
--------------
Total Current 194,748
--------------
Deferred:
German Federal Tax 1,787,848
Local German Trade Tax 824,438
--------------
Total Deferred 2,612,286
--------------
TOTAL $ 2,807,034
==============
F-11
<PAGE>
FRANK & WALTER COMPUTER GMBH AND SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
(12) INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below:
Deferred Tax Assets:
Other Current Assets $ 109,818
Inventory Differences 260,042
---------------
Gross Deferred Tax Assets 369,860
Deferred Tax Asset Valuation Allowance --
---------------
Total Deferred Tax Assets 369,860
Deferred Tax Liabilities --
---------------
NET DEFERRED TAX ASSET $ 369,860
===============
This amount is classified in the balance sheet as a current asset.
The Company pays both federal taxes and local trade taxes on income in Germany.
Tax returns are subject to review by the German finance authorities for all
years ended after December 31, 1990. The effective tax rate approximates the
German federal statutory rate.
(13) COMMITMENTS AND CONTINGENCIES
(A) LEASE OBLIGATIONS - The Company leases equipment, offices, sales and
warehouse space under non-cancelable operating leases. The following is a
schedule by years of the minimum rental commitments remaining on leased property
and equipment:
YEAR ENDING
DECEMBER 31, VEHICLES EQUIPMENT BUILDINGS TOTAL
------------ -------- --------- --------- -----
1997 $195,525 $322,726 $198,290 $716,541
1998 101,874 316,292 190,870 609,036
1999 20,003 294,849 144,077 458,929
2000 -- 282,808 112,398 395,206
2001 -- -- 113,753 113,753
Subsequent Years -- -- -- --
Total rental expense was $1,328,870 for the year ended December 31, 1996.
(B) PRODUCT WARRANTIES - The Company sells the majority of its products to
resellers along with unconditional repair or replacement warranties for one
year. Preparation of the Company's financial statements in conformity with
generally accepted accounting principles, requires the use of management's
estimates. Accordingly, there is a provision of $324,950 for estimated warranty
claims in the accompanying statements of operations, in cost of goods sold. The
nature of this estimate, however, is such that variances to actual results are
generally immaterial.
(C) LITIGATION -In the normal course of its business, the Company is exposed to
asserted and unasserted claims. In the opinion of management, the resolution of
these matters is not expected to have a material adverse effect on the Company's
financial position, results of operations or cash flows.
F-12
<PAGE>
FRANK & WALTER COMPUTER GMBH AND SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
(14) TRANSACTIONS WITH RELATED PARTIES
(A) RECEIVABLE FROM SHAREHOLDER - At December 31, 1996, the sole shareholder,
Mr. Carsten Frank, was indebted to the Company. The balance of net advances made
by the Company to Mr. Frank was $473,319 at that date. Such amount has been
charged to shareholder's equity. Interest, at an annual rate of 10%, has been
accrued on outstanding amounts. Interest income recognized during the year ended
December 31, 1996 was $97,144.
(B) TRANSACTIONS - Mr. Frank is a 100% shareholder in BEMI GmbH, a German
company which has been from time to time engaged to supply marketing support to
the Company. Expenses for these services included in the statement of operations
for the year ended December 31, 1996 were approximately $408,000.
The Company purchased a 50% interest in MC DOS GmbH, a computer distributor, and
Bartels, Kather und Frank ("BKF"), a real estate partnership, on April 19, 1996,
from Mr. Frank. Purchase price of approximately $3,200,000 was utilized to
reduce amounts due from Mr. Frank (See Note 14A). The purchase transaction has
been recorded at Mr. Frank's historical carryover basis, and is shown in the
balance sheet at December 31, 1996, as Temporary Investment - MC DOS GmbH. On
October 29, 1996, the Company entered into an agreement to sell it's 50%
interest for approximately $3,200,000, effective January 1, 1997. However,
payment will not be received until March 31, 1998. Interest will accrue on the
outstanding balance, until paid, at 2% above the German Federal Reserve rate
(See Note 18B).
The Company delivers computers and parts at cost plus an additional charge of
1.5% to MC DOS GmbH. Sales to MC DOS GmbH, included in the statement of
operations for the year ended December 31, 1996 approximated $38,271,000. In
addition, the Company delivers computers and parts with the same terms to MC DOS
Netherlands, a company owned 60% by MC DOS GmbH. Sales to this company included
in the statement of operations for the year ended December 31, 1996 approximated
$12,795,000.
Mr. Frank is a director of Lung Electronics (HK) Limited of Hong Kong ("Lung").
Lung identifies potential suppliers, establishes business relations with
suppliers, is a representative of the Company, and enforces warranty claims for
the Company. Lung charges a fee of 10% on the goods the Company obtains through
Lung. Expense to the Company for these services was approximately $12,323,000 at
December 31, 1996. Additionally, the Company receives commissions from Lung
which approximated $3,984,000 for 1996. The Company also incurs a monthly
expense of approximately $40,000 for office space and office expenses provided
by Lung. As of December 31, 1996, the Company was indebted to Lung in the amount
of $4,139,000.
Carsten Frank Organisationsberatung for Industrie and Handel is a marketing firm
owned by Carsten Frank, which supplies marketing services to the Company.
Expense for these services, included in the statement of operations for the year
ended December 31, 1996 was approximately $20,000.
(C) GUARANTEE BY SHAREHOLDER - Mr. Frank has personally guaranteed approximately
$650,000 of the Company's debt payable (See Note 10). Certain lenders have been
assigned life insurance policies by the Company on the life of Mr. Frank in
connection with the debt payable.
F-13
<PAGE>
FRANK & WALTER COMPUTER GMBH AND SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
(15) SHAREHOLDER'S EQUITY
The Company is a German limited company entered in the Register of Companies at
the Braunschweig Local Court under the number HRB 2417.
On May 3, 1996, the Company's shareholder paid the balance of the subscription
receivable of $609,050.
On September 18, 1996, the Company issued capital shares in exchange for a
contribution to capital of $6,292,641.
On October 18, 1996, the Company declared and paid dividends of $1,426,996.
The nominal capital of the Company at December 31, 1996, is $10,914,879. The
nominal capital is divided into eleven shares held by Carsten Frank.
(16) NEW AUTHORITATIVE PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." SFAS No. 125
is effective for transfers and servicing of financial assets and extinguishment
of liabilities occurring after December 31, 1996. Earlier application is not
allowed. The provisions of SFAS No. 125 must be applied prospectively;
retroactive application is prohibited. Because the Company sells its receivables
without recourse, adoption of SFAS No. 125 on January 1, 1997 is not expected to
have an impact on the Company.
The FASB has issued SFAS No. 128, "Earnings per Share," and SFAS No. 129,
"Disclosure of Information about Capital Structure," in February 1997.
SFAS No. 128 simplifies the earnings per share ("EPS") calculations required by
Accounting Principles Board ("APB") Opinion No. 15, and related interpretations,
by replacing the presentation of primary EPS with a presentation of basic EPS.
SFAS No. 128 requires dual presentation of basic and diluted EPS by entities
with complex capital structures. Basic EPS includes no dilution and is computed
by dividing income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution of securities that could share in the earnings of an entity,
similar to the fully diluted EPS of APB Opinion No. 15. SFAS No. 128 is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods; earlier application is not permitted. When
adopted, SFAS No. 128 will require restatement of all prior-period EPS data
presented. Since the Company was sold (See Note 18) effective January 1, 1997,
SFAS No. 128 will have no future impact on the Company.
SFAS No. 129 does not change any previous disclosure requirements, but rather
consolidates existing disclosure requirements for ease of retrieval.
(17) EQUITY EARNINGS IN INVESTEE
As discussed in Note 14B, the Company acquired a 50% interest in MC DOS GmbH and
BKF for approximately $3,200,000. The Company sold its investment on March 8,
1997, effective January 1, 1997, for the same amount. The equity earnings of the
Company's 50% interest in MC DOS GmbH and BKF during 1996 were not recognized,
as to do so would have increased the basis of the investments resulting in a
loss on its subsequent sale (See Note 18B).
F-14
<PAGE>
FRANK & WALTER COMPUTER GMBH AND SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
(18) SUBSEQUENT EVENTS
(A) SALE OF THE COMPANY - On March 20, 1997, Mr. Frank completed the sale of the
Company's operations to CHS Electronics, Inc. for 2.2 million unregistered
shares of CHS Electronics, Inc.'s common stock. CHS Electronics, Inc. is a
publicly traded U.S. based international distributor of computer equipment,
peripherals and software.
(B) SALE OF TEMPORARY INVESTMENT - MC DOS GMBH - The sale, of the 50% interest
in MC DOS GmbH and BKF, was ratified on March 8, 1997. As the sales price is
equal to the purchase price paid, the Company will recognize no gain or loss as
a result of the transaction (See Notes 14B and 17).
. . . . . . . . . . . . . . .
F-15
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholder of
Frank & Walter Computer GmbH
Our report on the financial statements of Frank & Walter
Computer GmbH and its subsidiaries is referenced on page F-1 and included in
this Form 8K/A. In connection with our audits of such financial statements, we
have also audited the related financial statement schedule listed on page S-2 of
this Form 8K/A.
In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as a
whole, presents fairly, in all material respects, the information required to be
included therein.
Moore Stephens, P.C. Societats-Treuhand GmbH
New York, New York Hannover, Germany
February 25, 1997, except as to February 25, 1997, except as to
Notes 17 and 18 for which the Notes 17 and 18 for which the
date is March 20, 1997 date is March 20, 1997
S-1
<PAGE>
<TABLE>
<CAPTION>
FRANK & WALTER COMPUTER GMBH AND SUBSIDIARY COMPANIES
- -------------------------------------------------------------------------------------------------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
- -------------------------------------------------------------------------------------------------------------------------
BALANCE
BEGINNING TRANSLATION AT END OF
OF PERIOD ADDITIONS DEDUCTIONS ADJUSTMENT PERIOD
--------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL TRADE RECEIVABLES:
Year Ended December 31, 1996 2,942,587 2,454,507 668,902 (231,279) 4,496,913
ALLOWANCE FOR OBSOLETE OR SLOW-MOVING
INVENTORY:
Year Ended December 31, 1996 9,870,664 1,160,070 5,330,631 (558,103) 5,142,000
</TABLE>
S-2
<PAGE>
CHS Electronics, Inc.
Pro Forma Condensed Consolidated Financial Statements (Unaudited)
The following Pro Forma Condensed Consolidated Statement of Earnings
for the year ended December 31,1996 gives effect to the acquisition by the
Company of Frank & Walter GmbH (F&W), effective as of January 1,1997. The
acquisition has been accounted for using the purchase method of accounting. The
Pro Forma Condensed Consolidated Statement of Earnings present the proforma
earnings results assuming the acquisition occurred on January 1,1996. The Pro
Forma Condensed Consolidated Balance Sheet includes the acquisition as if it
occurred on December 31, 1996.
The Unaudited Pro Forma Condensed Consolidated Financial Statements
have been prepared based upon the historical financial statements of the Company
and F&W 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 financial
statements should be read in conjunction with the financial statements and
related notes of the Company.
<PAGE>
CHS Electronics, Inc.
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
a. In December 1996 the Company signed an agreement to purchase 100% of the
stock of Frank & Walter, GmbH (F&W) for 2,200,000 shares of unregistered
common stock. F&W is a distributor of computers and computer peripherals
located in Germany. This acquisition has been accounted for under purchase
accounting. For purposes of the pro forma balance sheet, the purchase price
of F&W was derived by multiplying the indicated value of 2,200,000 shares
by the average of the closing market prices for the 5 days around the date
the agreement was signed and announced ($17.48), less a discount of 30%
based on the restricted nature of the shares and the size of the block of
shares, resulting in a purchase price of $26.9 million.
Therefore the acquisition entry is (in thousands) :
(dr.) (cr.)
Investment 26,919
Equity 26,919
b. To eliminate the investment account and record goodwill of $27,600,000. The
net assets of Frank & Walter were adjusted to fair market value based on
preliminary information of such values.
c. To eliminate intercompany sales and receivables and payables between Frank
& Walter and companies within CHS Electronics, Inc.
d. To record amortization of goodwill over a period of 20 years.
<PAGE>
<TABLE>
<CAPTION>
CHS ELECTRONICS, INC.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
DECEMBER 31, 1996
(IN 000'S)
CHS FRANK & PRO FORMA CHS
HISTORICAL WALTER GMBH ADJUSTMENTS PRO FORMA
---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash $35,137 $2,775 $37,912
Accounts receivable-net 343,339 37,965 (7,227) (c) 374,077
Inventories 321,770 43,048 364,818
Deferred tax asset - 370 370
Other current assets 39,374 16,781 $(8,774) (b) 47,381
------------------------------------------------------------
Total current assets 739,620 100,939 (16,001) 824,558
Property and equipment-net 30,947 7,505 38,452
Costs in excess of assets
acquired-net 78,780 27,600 (b) 106,380
Other assets 12,602 4,868 26,919 (a) 16,821
(27,568) (b)
------------------------------------------------------------
861,949 113,312 10,950 986,211
============================================================
LIABILITIES
Current liabilities:
Bank notes payable $155,932 $28,599 $184,531
Accounts payable 452,569 67,751 (7,227) (c) 513,093
Accrued liabilities 44,873 4,107 48,980
Amounts due to sellers under
acquisiton agreements 49,200 49,200
Income taxes payable 5,120 1,264 6,384
Deferred taxes 420 420
------------------------------------------------------------
Total current liabilities 708,114 101,721 (7,227) 802,608
Long term debt 45,327 2,830 48,157
Minority interest 3,975 19 3,994
Stockholders' equity:
Common stock 12 10,915 $2 (a) 14
(10,915) (b)
Additional paid-in capital 92,850 - 26,917 (a) 119,767
Retained earnings 16,724 (2,031) 2,031 (b) 16,724
Cumulative foreign currency
translation adjustment (5,053) 331 (331) (b) (5,053)
Receivable from stockholder (473) 473 (b) -
------------------------------------------------------------
Total stockholders' equity 104,533 8,742 18,177 131,452
------------------------------------------------------------
861,949 113,312 10,950 986,211
============================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CHS ELECTRONICS, INC.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31,1996
(IN $000)
CHS FRANK & PRO FORMA CHS
HISTORICAL WALTER GMBH ADJUSTMENTS PRO FORMA
---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales $1,855,540 $686,115 $(40,852) (c) $2,500,803
Cost of sales 1,724,432 638,318 (40,852) (c) 2,321,898
---------------------------------------- ----------
Gross profit 131,108 47,797 178,905
Operating expenses 102,235 36,890 1,380 (d) 140,505
---------------------------------------- ----------
Operating income 28,873 10,907 (1,380) 38,400
Interest expense (income) 8,513 4,591 13,104
---------------------------------------- ----------
Earnings before income tax 20,360 25,296
6,316 (1,380)
and minority interest
Provision for income tax 6,086 2,807 8,893
---------------------------------------- ----------
Earnings before minority interest 14,274 3,509 (1,380) 16,403
Minority interest 2,108 2,108
---------------------------------------- ----------
Net earnings $ 12,166 $ 3,509 $(1,380) $ 14,295
========================================= ===========
Weighted average number of 10,438,000 2,200,000 12,638,000
common shares outstanding
Net earnings per share $1.16 $1.13
</TABLE>
<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.
CHS ELECTRONICS, INC.
Date: May 14, 1997 By: /S/ CRAIG TOLL
-------------------------------------
Craig Toll
Chief Financial Officer and Treasurer
Page 3 of 4 Pages
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.2 Agreement dated January 1, 1997 by and between Carsten Frank and
CHS Electronics, Inc.
Page 4 of 4 Pages
AGREEMENT
THIS AGREEMENT, is entered into as of the 1st day of January, 1997, by
and between Carsten Frank ("Frank") abd CHS Electronics, Inc. ("CHS").
A. RECITALS. Pursuant to a Stock Exchange Agreement dated December 19,
1996 (the "Agreement"), CHS agreed to acquire 100% of the capital stock of Frank
& Walter Computer GmbH ("F&W"). The Agreement provides that from and after
January 1, 1997, the profits and losses of F&W shall inure to the benefit or
detriment of CHS. The Agreement also provides CHS certain control rights over
the activities of F&W from and after December 19, 1997. The parties wish to
supplement the control rights of CHS through this agreement.
B. AGREEMENT. For valuable consideration, the parties agree as follows:
1. From and after January 1, 1997, and until the Closing (as
defined in the Agreement):
(a) CHS shall have the right to maintain a representative at
F&W's offices, which representative (the "CHS Representative") shall exercise
substantially the same authority as F&W's chief financial officer;
(b) All significant corporate actions and decisions of F&W
shall be made only after consultation between Claudio Osorio, CHS's chief
exectuvie officer, and Frank;
(c) The CHS Representative shall have full access to all
books, records, accounts, vendors, suppliers, creditors and customers of F&W;
(d) All payments to significant suppliers of F&W shall be
made through CHS Finance, a subsidiary of CHS; and
(e) The 1997 business plan for F&W shall be subject to
review and approval by CHS.
2. The foregoing control rights are not intended to release
Frank from his representations, warranties or covenants under the Agreement.
3. Each party agrees to take such further action as may be
reasonably requested by the other party to carry out the foregoing covenants.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this agreement in
counterparts.
/S/ CARSTEN FRANK
----------------------------
CARSTEN FRANK
CHS ELECTRONICS, INC.
By: /S/ CLAUDIO OSORIO
---------------------------
Claudio Osorio, President
-2-
