|
|
|
|
|
|
|
|
|
|
|
|
|
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 17, 1996
JP Foodservice, Inc.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 0-24954 52-1634568
- -------------------------------- ------------ ------------------
(State or other jurisdiction of (Commission (IRS Employer
incorporation) File Number) Identification No.)
</TABLE>
<TABLE>
<S> <C>
9830 Patuxent Woods Drive, Columbia, Maryland 21046
- --------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: 410-312-7100
<PAGE> 2
ITEM 5. OTHER EVENTS.
JP Foodservice, Inc. (the "Company") hereby incorporates by reference
the information contained in Exhibit 99.1 of this Form 8-K. The Company has
filed a registration statement on Form S-3 with the Securities and Exchange
Commission to register shares of Common Stock, $.01 par value, in connection
with a public offering by the Company. This Form 8-K is being filed for the
purpose of identifying the event referenced in Exhibit 99.1 and incorporating
the financial statements filed herewith by reference into such registration
statement.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Exhibit
- ----------- -------
<S> <C>
Exhibit 99.1 -- Press Release
Exhibit 99.2 -- Arrow Paper and Supply Co., Inc. and Affiliate
Combined Financial Statements December 29, 1995
(with Independent Auditors Report thereon) and Arrow
Paper and Supply Co., Inc. and Affiliate Combined Balance
Sheet at March 29, 1996 (unaudited) and the Combined
Statement of Income for the Three months ended March 29,
1996 (unaudited)
</TABLE>
-2-
<PAGE> 3
SIGNATURE
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, thereunto duly authorized.
JP FOODSERVICE, INC.
By: /s/ Lewis Hay, III
-------------------------
Lewis Hay, III
Senior Vice President and
Chief Financial Officer
Date: July 18, 1996
-3-
<PAGE> 1
JP FOODSERVICE, INC. ANNOUNCES AGREEMENT FOR ACQUISITION OF ARROW PAPER SUPPLY
AND FOOD CO.
COLUMBIA, Md., July 17 /PRNewswire/ -- JP Foodservice, Inc. ("JP") (Nasdaq:
JPFS) today announced that it had entered into a definitive agreement to
purchase Arrow Paper Supply and Food Co. ("Arrow"). Arrow, based in Norwich,
Connecticut, is a broadline foodservice distributor serving the New
England, New York, New Jersey and Pennsylvania markets, distributing over 6,000
products to a diverse customer base. Arrow achieved net sales of $74.6 million
in its fiscal year ended December 29, 1995, and has reported average revenue
growth in excess of 15% over the last three years. In November 1995, Arrow was
awarded a contract from the State of Connecticut that is expected to generate
$18 million of annual revenues.
In discussing the proposed acquisition, Jim Miller, Chairman, President
and Chief Executive Officer of JP Foodservice, said: "We are very enthusiastic
about the addition of Arrow into JP's existing distribution network. The
acquisition of Arrow increases JP's presence in the New England marketplace,
as well as positions the Company for further penetration into southern
Connecticut, Westchester County and New York City."
JP's agreement with Arrow provides for the purchase of certain assets,
including Arrow's distribution facility, and assumption of certain liabilities
and consideration of $29.6 million, approximately $1.7 million of which is in
the form of JP stock with the remainder in cash. The proposed acquisition is
subject to a number of customary conditions and is expected to close before
the end of August. The acquisition will be treated as a purchase for
accounting purposes. JP management anticipates that the Arrow acquisition will
be accretive to JP's earnings per share.
JP is a leading distributor of food and related products to restaurants and
other institutional foodservice establishments in the Mid-Atlantic, Midwestern
and Northeastern regions of the United States. JP has also recently announced
expansion into the Las Vegas, Nevada market with its pending acquisition of
Valley Industries, Inc. JP markets and distributes approximately 28,000
national, private label and signature brand items to over 23,000 foodservice
customers, including restaurants, hotels, healthcare facilities, cafeterias and
schools and employs over 2,500 foodservice professionals. JP's diverse customer
base encompasses both independent and chain businesses, including Perkins
Family Restaurants, Subway, Compass Group and Ruby Tuesday restaurants.
-0- 7/17/96
/CONTACT: Lewis Hay, III, Chief Financial Officer of JP
Foodservice,
Inc., 410-312-7100/
(JPFS)
<PAGE> 1
EXHIBIT 99.2
ARROW PAPER AND SUPPLY CO., INC., AND AFFILIATE
DECEMBER 29, 1995
<PAGE> 2
ARROW PAPER AND SUPPLY CO., INC., AND AFFILIATE
CONTENTS
Report of Independent Accountants 1
Combined Balance Sheet - December 29, 1995 2
Combined Statement of Income and Retained Earnings and
Members' Equity for the Year Ended December 29, 1995 3
Combined Statement of Cash Flows for the Year Ended
December 29, 1995 4
Notes to Combined Financial Statements 5-12
<PAGE> 3
Arrow Paper and Supply Co., Inc.
SGD Associates Limited Liability Company
Norwich, Connecticut
Report of Independent Accountants
We have audited the accompanying combined balance sheet of Arrow Paper and
Supply Co., Inc., and Affiliate as of December 29, 1995, and the related
combined statements of income and retained earnings and members' equity and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Arrow Paper and
Supply Co., Inc., and Affiliate as of December 29, 1995, and the combined
results of their operations and their cash flows for the year then ended, in
conformity with generally accepted accounting principles.
/s/ BLUM SHAPIRO & COMPANY, P.C.
West Hartford, Connecticut
July 15, 1996
<PAGE> 4
ARROW PAPER AND SUPPLY CO., INC., AND AFFILIATE
COMBINED BALANCE SHEET
DECEMBER 29, 1995
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash $ 222,623
Accounts receivable, net of allowance for doubtful accounts of $70,145 6,871,462
Loans receivable - related parties 358,421
Inventory 6,971,823
Prepaid taxes and expenses 164,191
Deferred income taxes 80,438
----------------
Total current assets 14,668,958
----------------
PROPERTY AND EQUIPMENT, Net 6,570,444
----------------
OTHER ASSETS
Loan receivable - related party 74,964
Investment in land - Franklin, Connecticut 215,009
Investment in life insurance contracts 11,166
Intangible assets, net of accumulated amortization of $12,001 273,279
----------------
Total other assets 574,418
----------------
TOTAL ASSETS $ 21,813,820
================
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' AND MEMBERS' EQUITY
<S> <C>
CURRENT LIABILITIES
Current portion of notes payable $ 1 ,985,295
Accounts payable 5,904,005
Accrued taxes and expenses 596,921
----------------
Total current liabilities 8,486,221
OTHER LIABILITIES
Notes payable, less current portion 10,940,297
Loans payable - related parties 1,750,624
Deferred income taxes 27,045
----------------
Total liabilities 21,204,187
STOCKHOLDERS' AND MEMBERS' EQUITY
Common stock 25
Paid-in capital 49,975
Retained earnings and members' equity 559,633
----------------
Total stockholders' and members' equity 609,633
----------------
TOTAL LIABILITIES AND STOCKHOLDERS' AND MEMBERS' EQUITY $ 21,813,820
================
</TABLE>
The accompanying notes are an integral part of the combined financial statements
-2-
<PAGE> 5
ARROW PAPER AND SUPPLY CO., INC., AND AFFILIATE
COMBINED STATEMENT OF INCOME AND RETAINED EARNINGS AND MEMBERS' EQUITY
FOR THE YEAR ENDED DECEMBER 29, 1995
<TABLE>
<CAPTION>
AMOUNT
-----------
<S> <C>
NET SALES $74,589,683
-----------
COST OF SALES
Inventory - beginning of year 4,683,173
Purchases, net of discounts 62,545,481
-----------
67,228,654
Less inventory - end of year 6,971,823
-----------
Total cost of sales 60,256,831
-----------
GROSS MARGIN ON SALES 14,332,852
-----------
OPERATING EXPENSES
Salaries - stockholders 1,960,593
Selling 1,626,549
Delivery 3,239,563
Warehouse 1,999,225
Occupancy 658,398
General and administrative 3,271,951
-----------
Total operating expenses 12,756,279
-----------
INCOME FROM OPERATIONS 1,576,573
OTHER EXPENSE, Net (914,947)
-----------
INCOME BEFORE STATE INCOME TAXES 661,626
PROVISION FOR STATE INCOME TAXES 9,047
-----------
NET INCOME 652,579
-----------
RETAINED EARNINGS AND MEMBERS' EQUITY - Beginning of Year, as Previously Reported 392,950
PRIOR PERIOD ADJUSTMENTS (380,603)
-----------
RETAINED EARNINGS AND MEMBERS' EQUITY - Beginning of Year, as Restated 12,347
-----------
DISTRIBUTIONS (105,293)
-----------
RETAINED EARNINGS AND MEMBERS' EQUITY - End of Year $ 559,633
===========
</TABLE>
The accompanying notes are an integral part of the combined financial statements
-3-
<PAGE> 6
ARROW PAPER AND SUPPLY CO., INC., AND AFFILIATE
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 29, 1995
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 652,579
Adjustments to reconcile net income to net cash used in
operating activities:
Bad debt expense 104,395
Depreciation and amortization 669,404
Deferred income tax expense 14,389
(Increase) decrease in operating assets:
Accounts receivable (2,154,010)
Inventory (2,288,650)
Prepaid taxes and expenses (14,826)
Increase (decrease) in operating liabilities:
Accounts payable 1,929,866
Accrued taxes and expenses (75,511)
-----------------
Net cash used in operating activities (1,162,364)
-----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (2,625,081)
Proceeds from sale of property and equipment 30,480
Advances on loans receivable - related parties (430,295)
Payments on loans receivable - related parties 162,614
Payments for start-up costs (178,797)
Proceeds of life insurance contracts 24,011
Investment in life insurance contracts (2,107)
-----------------
Net cash used in investing activities (3,019,175)
-----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of notes payable 19,073,568
Payments on notes payable (15,523,793)
Payments for financing costs (106,483)
Proceeds of loans payable - related parties 1,303,391
Payments on loans payable - related parties (1,293,080)
Distributions to members (105,293)
-----------------
Net cash provided by financing activities 3,348,310
-----------------
NET DECREASE IN CASH (833,229)
CASH - Beginning of Year 1,055,852
-----------------
CASH - End of Year $ 222,623
=================
</TABLE>
The accompanying notes are an integral part of the combined financial
statements
-4-
<PAGE> 7
ARROW PAPER AND SUPPLY CO., INC., AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION - The financial statements are presented
on a combined basis to include Arrow Paper and Supply Co.,
Inc. ("Arrow") and SGD Associates Limited Liability Company
("SGD")(collectively referred to as the "Company"). All
significant intercompany transactions and balances have been
eliminated in combination.
In accordance with its articles of organization, the latest
date on which SGD is to dissolve is December 31, 2044.
NATURE OF BUSINESS - The Company is a full line food service
distributor of paper supplies and food products to retail,
institutional and chain customers throughout New England, New
York, New Jersey and Pennsylvania. The Company generally does
not require collateral in providing credit.
The Company also warehouses and transports products for the
U.S. Department of Agriculture. Revenue for these services,
net of warehouse and delivery costs, are included in net
sales.
YEAR-END - Arrow has elected a 52-53 week accounting period.
Under this reporting period, the fiscal year ends on the
Friday closest to December 31. The fiscal year-end for 1995
was December 29, 1995, and for combined financial statement
purposes the Company has reported on this basis. SGD normally
has a December 31 year-end.
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions. Those
estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets
and liabilities, and the reported amounts of revenues and
expenses. Actual results could differ from those estimates.
CASH - The Company maintains its cash in bank deposit accounts
which, at times, may exceed federally insured limits. The
Company has not experienced any losses in such accounts. The
Company believes it is not exposed to any significant credit
risk on cash.
FINANCIAL INSTRUMENTS - All of the Company's financial
instruments are held for nontrading purposes. The Company
estimates that the carrying amounts of its financial
instruments approximate their fair values at December 29,
1995. The carrying amounts of cash approximate fair value
because of the short maturity of those instruments. The
carrying amounts of loans receivable - related parties
approximate fair value because the Company estimates it would
earn similar returns on those amounts. The carrying amounts of
notes payable and loans payable - related parties approximate
fair value because the Company estimates that it would borrow
these amounts on similar terms.
INVENTORY - Inventory is valued at the lower of cost or market.
Cost is determined on the first-in, first-out method and is
recorded net of applicable purchase and payment discounts.
PROPERTY AND EQUIPMENT - Property and equipment are carried at
cost, including capitalized interest for property constructed
for the Company's own use. Major renewals and betterments are
charged to the property accounts, while replacements,
maintenance and repairs that do not improve or extend the life
of the respective assets are expensed currently.
-5-
<PAGE> 8
The Company follows the policy of providing for depreciation
and amortization of property and equipment by charging against
earnings amounts sufficient to amortize the cost of property
and equipment over their estimated useful lives as follows:
<TABLE>
<S> <C>
Delivery vehicles 5 years
Automobiles 5 years
Warehouse equipment 5-10 years
Office equipment 5-10 years
Buildings and improvements 10-40 years
</TABLE>
Depreciation and amortization expense are computed using
straight-line methods. Depreciation and amortization expense
for the year ended December 29, 1995 was $657,403
Land - Investment in land is carried at cost.
Intangible Assets - Intangible assets consisting of start-up
costs for new lines of business and financing costs are being
amortized on a straight-line basis over 18 to 36 months.
Profit-Sharing Plan - The Company maintains a multiemployer,
defined contribution employee savings 401(k) plan that covers
substantially all employees subject to minimum age and service
qualifications. The plan allows participants to defer a portion
of their compensation to the plan and the Company has agreed
to provide certain matching contributions, subject to certain
limitations. Employer contributions totaled $24,208 for 1995.
Lease Agreements - Annual rentals pertaining to real estate,
delivery vehicles and automobile leases which convey merely
the right to use property are charged to current operations.
Income Taxes - Income tax expense includes state taxes
currently payable and deferred taxes. The Company provides for
deferred taxes on temporary differences arising from assets
and liabilities whose bases are different for financial
reporting and income tax purposes. These differences relate
primarily to different depreciation methods used for financial
reporting and income tax purposes, inventory costs capitalized
for income tax purposes but expensed for financial reporting
purposes, and expenses reported in different periods for
financial reporting and income tax purposes.
Arrow has elected, by consent of its stockholders, to be taxed
under the provisions of Subchapter S of the Internal Revenue
Code. Under these provisions, Arrow does not pay federal
corporate income taxes on its taxable income. Instead, the
stockholders are liable for individual federal income taxes on
their respective shares of Arrow's taxable income. Arrow will
continue to be taxed at the corporate level for state income
tax purposes in Connecticut and Massachusetts.
As a limited liability company, SGD is treated as a
partnership for federal and state income tax purposes. Under
this treatment, SGD does not pay federal or state corporate
income taxes on its taxable income. Instead, the members are
liable for individual federal and state income taxes on their
respective shares of SGD's taxable income. Thus, no income
taxes are provided for in the accompanying financial
statements for SGD.
Reclassifications - Certain classifications in the current
year's financial statements differ from the presentations made
in the financial statements of previous years.
-6-
<PAGE> 9
Note 2 - PROPERTY AND EQUIPMENT:
Property and equipment at December 29, 1995 consisted of the
following:
<TABLE>
<S> <C>
Land $ 794,389
Buildings and improvements 3,297,437
Delivery vehicles 1,488,187
Office equipment 1,306,208
Warehouse equipment 949,732
Automobiles 116,931
----------
7,952,884
Less accumulated depreciation and amortization 3,787,586
----------
4,165,298
Construction in progress 2,405,146
----------
Net Property and Equipment $6,570,444
==========
</TABLE>
Note 3 - NOTES PAYABLE:
Notes payable as of December 29, 1995 consisted of the following:
<TABLE>
<S> <C>
Note payable - bank - $500,000 bridge loan, interest payable
monthly at the bank's base rate plus 1%, with an expected
maturity on December 20, 1996. $ 500,000
Note payable - bank - $1,000,000 equipment loan note, payable
in monthly payments of interest only at 1/2% over the bank's
base rate through the conversion date on May 31, 1996,
thereafter monthly principal payments of 1/36 plus interest at
1/2% over the bank's base rate, maturing on May 31, 1999. 610,000
Note payable - bank - $10,000,000 revolving loan note, interest
payable monthly at the bank's base rate plus 1/2%, maturing
on May 31, 1997. 7,800,000
Note payable - bank - $1,600,000 promissory note, secured by a
mortgage on real property, payable in monthly installments of
$6,667 plus interest at the bank's base rate plus 1.75%,
maturing on November 20, 1996. 1,301,559
Note payable - bank - $584,000 commercial loan note, secured
by a mortgage on real property, interest payable monthly at
the bank's base rate plus 1.25%, maturing on December 1, 1999.
The Company is currently making monthly principal payments of
approximately $24,600 per year. 449,000
Note payable - bank - $5,500,000 construction loan note,
secured by a mortgage on real property, payable in monthly
installments of interest only at the bank's base rate plus 1%
through the expected conversion date of December 20, 1996,
thereafter, in monthly installments of $21,812 plus interest
at the bank's base rate plus 1% or a five-year fixed rate
based on the bank's cost of funds plus 2.75%, as elected by
the Company, maturing on December 20, 2006. 1,621,857
</TABLE>
-7-
<PAGE> 10
<TABLE>
<S> <C>
Note payable - Connecticut Development Authority - $850,000 permanent mortgage
note, secured by a mortgage on real property, payable in monthly installments of $6,863
including interest at 6.694%, maturing on January 3, 2007. 643,176
-----------
12,925,592
Less current portion 1,985,295
-----------
Total Notes Payable $10,940,297
===========
</TABLE>
Expected maturities of notes payable for the next five years are as
follows at December 29, 1995:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31
-----------------------
<S> <C>
1996 $1,985,295
1997 8,332,999
1998 535,990
1999 771,176
2000 314,671
</TABLE>
The bridge loan, equipment loan and revolving loan are subject to a
commercial term and revolving loan agreement. The agreement contains
various financial covenants related to liquidity, net worth and debt
coverage. The covenants also contain restrictions on distributions,
capital expenditures, borrowing and other items. In addition, certain
borrowings are subject to termination fees. The notes are secured by
substantially all assets of the Company. Borrowings under the
revolving loan are subject to certain percentages of eligible accounts
receivable and inventory. The maturity of the bridge loan is the
earlier of December 20, 1996 or the closing and funding of certain
financing arrangements of SGD for the construction of facilities for
the Company.
As of and for the year ended December 29, 1995, the Company did not
meet certain covenants in the commercial term and revolving loan
agreement noted above. These covenants were waived by the bank.
The construction loan is subject to a construction loan agreement and
secured by substantially all assets of the Company. Borrowings under
the agreement are subject to requisitions for the construction and
equipping of certain warehouse and distributions facilities being
constructed by the Company. The agreement contains various covenants
and restrictions on construction and other items. Borrowings are
subject to termination fees and the Company is required to make a
mandatory prepayment of principal sufficient to reduce the principal
balance of the loan to $5,200,000 on or before the conversion date.
The conversion date is the earlier of December 20, 1996 or the final
construction advance along with the closing and funding of certain
financing arrangements. An additional institution has entered into
a participation agreement for a portion of the debt.
All of the above notes are personally guaranteed by the stockholders
and members of the Company. For the year ended December 29, 1995,
interest expense on the above notes totaled $894,310.
Note 4 - INCOME TAXES:
The Company's deferred state tax assets and liabilities consisted of
the following at December 29, 1995:
<TABLE>
<S> <C>
Deferred tax assets:
Gross $80,438
Valuation allowance -
-------
Net Deferred Tax Assets $80,438
=======
Deferred Tax Liabilities $27,045
=======
</TABLE>
-8-
<PAGE> 11
The components of state income tax expense (benefit) were as follows
for the year ended December 29, 1995:
<TABLE>
<S> <C>
Current:
Taxes payable $ 49,084
Tax credits (54,426)
--------
Net current tax benefit (5,342)
Deferred 14,389
--------
Provision for State Income Taxes $ 9,047
========
</TABLE>
Note 5 - COMMON STOCK:
Arrow's common stock includes voting and nonvoting shares. Common
stock consisted of the following at December 29, 1995:
<TABLE>
<CAPTION>
VOTING NONVOTING
------ ---------
<S> <C> <C>
Par value $ .01 $ .01
Authorized shares 500 2,000
Issued shares 500 2,000
Outstanding shares 500 2,000
</TABLE>
Note 6 - RELATED PARTY TRANSACTIONS:
The Company had various transactions with entities that are related by
common and family ownership and with officers of the Company as
described below.
Loan receivable - related party consists of advances, net of
repayments, including interest at 10% from Target Data Systems, Inc.,
totaling $74,964 at December 29, 1995. Interest income totaled $5,634
for 1995. The balance is not expected to be called within the current
operating cycle. In addition, expense reimbursements of $123,584 due
from the entity are included in current loans receivable.
Due from Arrow Paper Party Stores, Inc., represents trade advances,
net of repayments, totaling $112,586 at December 29, 1995, and is
included in current loans receivable.
Due form Arrow Paper Equipment Rental and Sales, Inc., represents
trade advances, net of repayments, totaling $12,030 at December 29,
1995, and is included in current loans receivable.
Due from Janet's Parties, LLC, represents trade advances, net of
repayments, totaling $13,514 at December 29, 1995, and is included in
current loans receivable.
Due from employees represents advances, net of repayments, totaling
$96,707. The loans have various repayment schedules and bear interest
at rates to 10%.
Loans payable - related parties consisted of the following:
<TABLE>
<S> <C>
Donald Daren $ 919,565
Steven Daren 669,597
Selma Daren 83,000
Other related entities 78,462
----------
$1,750,624
==========
</TABLE>
-9-
<PAGE> 12
The loans payable to related parties consist primarily of promissory
notes to officers of the Company. The notes are due May 31, 1997 with
interest payable in monthly installments at 10%. The promissory
notes are unsecured and are subordinated to the bank debt as of
December 29, 1995. Interest expense to related parties for the year
ended December 29, 1995 is as follows:
<TABLE>
<S> <C>
Donald Daren $ 67,015
Steven Daren 71,647
Selma Daren 8,323
Other related entities 13,652
--------
$160,637
========
</TABLE>
The Company paid $42,000 during the year ended December 29, 1995 to
JGW Realty #2 for rent on vacant space previously occupied by its
former retail office supply division. The lease was to expire in June
2013; however, the property was sold in May 1996. Payments during 1995
were applied to accrued expenses related to the disposal of the former
division.
Note 7 - COMMITMENTS AND CONTINGENCIES:
CONSTRUCTION - The Company is currently in the process of constructing
and equipping new warehouse and distribution facilities. Amounts for
construction in progress are included in property and equipment in the
balance sheet. Arrow 1995 Construction LLC, a related party, is
acting as general contractor for the project. Contracts for design and
construction of the project currently total approximately $5,870,000.
FINANCING:
CONNECTICUT DEVELOPMENT AUTHORITY - The Company has commitments from
the Connecticut Development Authority for direct loans totaling
$1,020,000. These commitments expire on September 3, 1996. The
commitments are for a machinery and equipment loan not to exceed
$500,000 and a real estate loan not to exceed $520,000. Loan proceeds
are for the construction and equipping of the new warehouse and
distribution facilities.
The machinery and equipment loan will be a ten-year loan with interest
only for the first two years, such interest to be accrued and
capitalized. The loan plus the capitalized interest will be amortized
over the remaining eight years in equal installments. Interest will be
at the one-year LIBOR rate minus 1% for years one and two, the one-
year LIBOR rate for year three, and the one-year LIBOR rate plus 1%
for years four through ten.
The real estate loan will be a 20-year loan with interest at 6%. The
first two years will be interest only, such interest to be accrued and
capitalized. The loan plus the accrued interest will be amortized over
the remaining 18 years in equal installments.
The loans will be secured by the machinery and equipment purchased and
real property. They will include penalties for relocation outside of
Connecticut and will be personally guaranteed by the stockholders and
members of the Company.
CONNECTICUT BUSINESS DEVELOPMENT CORP. - The U.S. Small Business
Administration has authorized a guarantee of a debenture in the amount
of $1,000,000 to the Connecticut Business Development Corp. for loans
to the Company. The guarantee commitment expires in February 1997. The
debenture shall have a 20-year term with interest and principal to be
paid over the life of the debenture and interest to be determined at
the time of issuance. The debenture will be secured by real property
and be personally guaranteed by the stockholders and members of the
Company. Proceeds are for the construction of the new warehouse and
distribution facilities.
-10-
<PAGE> 13
EMPLOYMENT AGREEMENT - The Company has an employment agreement with
one of its employees calling for base compensation and benefits,
bonuses and required payments in the event of termination of
employment. Termination payments are based on increases in the fair
market value of the Company.
GUARANTEES - The Company has guaranteed related party lease payments
of approximately $540,000.
LEASES:
DELIVERY EQUIPMENT - The Company leases delivery equipment under
agreements accounted for as operating leases. The delivery equipment
leases expire at various dates through December 2002.
TAFTVILLE WAREHOUSE - The Company rented a warehouse from an unrelated
entity. Rent expense was $22,720 for the year ended December 29, 1995.
The lease was on a tenant-at-will basis and had no defined term.
SOUTH WINDSOR WAREHOUSE - The Company leases a warehouse from an
unrelated entity. Rent expense was $48,000 for the year ended December
29, 1995. The lease expired in February 1996. The Company has agreed
to continue the lease on a tenant-at-will basis.
WETHERSFIELD WAREHOUSE - The Company leases a warehouse from an
unrelated entity. Rent expense was $72,658 for the year ended December
29, 1995. The lease expires in August 1996.
Future minimum lease payments, excluding the variable portions
attributable to refrigeration unit usage, mileage charges, and
escalations based on changes in the Consumer Price Index, are as
follows:
<TABLE>
<CAPTION>
DELIVERY
YEAR ENDING DECEMBER 31 REAL ESTATE EQUIPMENT
----------------------- ----------- ---------
<S> <C> <C>
1996 $153,320 $691,322
1997 - 691,322
1998 - 691,322
1999 - 691,322
2000 - 319,839
</TABLE>
The Company is responsible for maintenance, real estate taxes and
security in addition to lease payments for the South Windsor and
Wethersfield warehouses.
Note 8 - CASH FLOWS:
ADDITIONAL CASH FLOW INFORMATION:
<TABLE>
<S> <C>
Cash paid during the year for:
Interest, net of capitalized interest of $62,793 $1,023,209
Income taxes 456
</TABLE>
Note 9 - PRIOR PERIOD ADJUSTMENTS:
The financial statements have been adjusted to record accrued
compensated absences and accrued bonuses for the year ended December
1994. The effect of the correction was to reduce retained earnings at
the beginning of the year by $168,302, net of income taxes of $21,334.
-11-
<PAGE> 14
The financial statements have been adjusted to record inventory costs
at December 31, 1994 net of applicable purchase and payment discounts.
The effect of the correction was to reduce retained earnings at the
beginning of the year by $121,842, net of income taxes of $15,445.
The financial statements have been adjusted to record accrued expenses
at December 31, 1994 related to the disposal of V.W. Wilcox Company, a
former division of the Company, that discontinued operations in
February 1994. The effect of the correction was to reduce retained
earnings at the beginning of the year by $90,459, net of income taxes
of $11,467.
Note 10 - SUBSEQUENT EVENTS:
DISTRIBUTIONS AND LOANS PAYABLE - During January 1996, the Company
paid $400,000 in distributions to its stockholders. Also in January
1996, the stockholders loaned the Company a total of $629,500.
SALE OF COMPANY - During 1996, the Company entered into substantive
negotiations to sell its business. While the Company has signed a
letter of intent, no final agreements have been reached.
-12-
<PAGE> 15
ARROW PAPER AND SUPPLY CO., INC. AND AFFILIATE
COMBINED BALANCE SHEET
MARCH 29, 1996
(UNAUDITED)
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS
Cash $ 7,479
Accounts receivable, net of allowance for doubtful accounts of $75,860 7,522,085
Loans receivable - related parties 304,805
Loans receivable 12,513
Inventory 7,433,110
Prepaid taxes and expenses 181,055
Deferred income taxes 73,768
-----------------
Total current assets 15,534,815
-----------------
PROPERTY AND EQUIPMENT, Net 7,794,277
-----------------
OTHER ASSETS
Loan receivable - related party 92,703
Investment in land - Franklin, Connecticut 215,009
Investment in life insurance contracts 10,695
Intangible assets, net of accumulated amortization of $26,016 244,670
-----------------
Total other assets 563,077
-----------------
TOTAL ASSETS $ 23,892,169
=================
LIABILITIES AND STOCKHOLDERS' AND MEMBERS' EQUITY
CURRENT LIABILITIES
Cash overdraft $ 1,263,443
Current portion of notes payable 793,328
Accounts payable 4,763,975
Accrued taxes and expenses 1,404,310
-----------------
Total current liabilities 8,225,056
OTHER LIABILITIES
Notes payable, less current portion 13,518,065
Loans payable - related parties 1,957,697
Deferred income taxes 27,045
-----------------
Total liabilities 23,727,863
-----------------
STOCKHOLDERS' AND MEMBERS' EQUITY
Common stock 50,000
Retained earnings and members' equity 114,306
-----------------
Total stockholders' and member' equity 164,306
-----------------
TOTAL LIABILITIES AND STOCKHOLDERS' AND MEMBERS' EQUITY $ 23,892,169
=================
</TABLE>
<PAGE> 16
ARROW PAPER AND SUPPLY CO., INC. AND AFFILIATE
COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 29, 1996
(UNAUDITED)
<TABLE>
<S> <C>
NET SALES $ 20,396,683
-----------------
COST OF SALES
Inventory - beginning of year 6,971,823
Purchases, net of discounts 17,114,746
-----------------
24,086,569
Less inventory - end of year 7,433,110
-----------------
Total cost of sales 16,653,459
-----------------
GROSS MARGIN ON SALES 3,743,224
-----------------
OPERATING EXPENSES
Salaries - stockholders 295,481
Selling 555,499
Delivery 927,230
Warehouse 559,525
Occupancy 202,728
General and administrative 963,721
-----------------
Total operating expenses 3,504,184
-----------------
INCOME FROM OPERATIONS 239,040
OTHER EXPENSE, Net (186,573)
-----------------
INCOME (LOSS) BEFORE STATE INCOME TAXES 52,467
PROVISION FOR STATE INCOME TAXES 2,750
-----------------
NET INCOME $ 49,717
=================
</TABLE>
<PAGE> 17
ARROW PAPER AND SUPPLY CO., INC. AND AFFILIATE
COMBINED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 29, 1996
(UNAUDITED)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 49,717
Adjustments to reconcile net income to net cash used in
operating activities:
Bad debt expense 82,500
Depreciation and amortization 248,540
Deferred income tax expense 6,670
(Increase) decrease in operating assets:
Accounts receivable (733,122)
Inventory (461,287)
Prepaid taxes and expenses (16,864)
Increase (decrease) in operating liabilities:
Cash overdraft 1,263,443
Accounts payable (1,140,030)
Accrued taxes and expenses 807,389
-------------------
Net cash used in operating activities 106,956
-------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (1,443,764)
Payments on loans receivable - related parties 23,364
Proceeds of life insurance contracts 471
-------------------
Net cash used in investing activities (1,419,929)
-------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances on lines of credit 1,485,801
Payments on lines of credit (100,000)
Stockholders' and members' withdrawals (495,045)
Advances on loans payable - related parties 207,073
-------------------
Net cash provided by financing activities 1,097,829
-------------------
NET DECREASE IN CASH (215,144)
CASH - Beginning of Year 222,623
-------------------
CASH - End of Year $ 7,479
===================
</TABLE>
<PAGE> 18
ARROW PAPER & SUPPLY CO., INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The Combined Financial Statements of Arrow Paper & Supply Co., Inc.and
Affiliate (the "Company") at March 29, 1996 and for the three months ended
March 29, 1996 included herein are unaudited, but include all adjustments
(consisting only of normal recurring entries) which the Company's management
believes to be necessary for the fair presentation of the financial position,
results of operations and cash flows of the Company at and for the period
presented.
NOTE 2 - CONTINGENCIES
From time to time, the Company is involved in litigation and proceedings
arising out of the ordinary course of business. There are no pending material
legal proceedings or environmental investigations to which the Company is a
party or to which the property of the Company is subject at this time.
|
|