<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
December 2, 1999 (September 21, 1999)
-------------------------------------
Date of report (Date of earliest event reported)
THE SOURCE INFORMATION MANAGEMENT COMPANY
-----------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Missouri
--------
(State or Other Jurisdiction of Incorporation)
0-26238 43-1710906
------- ----------
(Commission File Number) (IRS Employer Identification No.)
11644 Lilburn Park Road, St. Louis, Missouri 63146
-------------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(314) 995-9040
--------------
(Registrant's Telephone Number, Including Area Code)
N/A
---
(Former Name or Former Address, if Changed Since Last Report)
<PAGE> 2
THE SOURCE INFORMATION MANAGEMENT COMPANY
FORM 8-K/A
The information contained in this report includes statements regarding matters
which are not historical facts (including statements regarding the plans,
beliefs or expectations of The Source Information Management Company) which are
forward-looking statements within the meaning of the federal securities laws.
When used in this report, the words "believes", "anticipates", "intends",
"expects" and similar expressions are intended to identify forward-looking
statements. Because such forward-looking statements involve certain risks and
uncertainties, the Company's actual results and the timing of certain events
could differ materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to the Company's
dependence on the marketing and distribution strategies of publishers and other
vendors; the Company's ability to access check-out area information; risks
associated with the Company's Advance Pay Program, including problems collecting
incentive payments from publishers; demand for display racks; the Company's
ability to successfully implement its growth strategy; competition; the
Company's ability to effectively manage its expansion and integrate acquired
businesses; and general economic and business conditions nationally, in the
Company's markets and its industry. Investors are also directed to consider
other risks and uncertainties discussed in other reports previously and
subsequently filed by the Company with the Securities and Exchange Commission.
Readers are cautioned not to place undue reliance on forward-looking statements,
which speak only as of the date hereof. The Company undertakes no obligation to
publicly release the results of any revisions to those forward-looking
statements which may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
The Source Information Management Company (Registrant) hereby files Amendment
No. 1 to its Form 8-K filed on October 6, 1999 relating to the acquisition by
its subsidiary, Source-Huck Store Fixture Company, of the assets of Huck Store
Fixture Company and its subsidiary.
Item 7: Financial Statements and Exhibits.
Attached hereto are the audited balance sheets of Huck Store Fixture
Company as of November 7, 1998 and November 8, 1997 and the related statements
of income, retained earnings and cash flows for the years then ended. Also
attached is unaudited pro forma condensed financial information, which includes
the unaudited pro forma balance sheet as of July 31, 1999; unaudited pro forma
statement of operations for the six months ended July 31, 1999; and unaudited
pro forma statement of operations for the year ended January 31, 1999.
(a) Financial Statements of Business Acquired
(i) Independent Auditors Report.
(ii) Balance Sheets of Huck Store Fixture Company as of November
7, 1998 and November 8, 1997.
(iii) Statements of Income of Huck Store Fixture Company for the
years ended November 7, 1998 and November 8, 1997.
(iv) Statements of Retained Earnings of Huck Store Fixture
Company for the years ended November 7, 1998 and November 8,
1997.
(v) Statements of Cash Flows of Huck Store Fixture Company for
the years ended November 7, 1998 and November 8, 1997.
(b) Pro Forma Financial Information
(i) Unaudited Pro Forma Balance Sheet as of July 31, 1999.
(ii) Unaudited Pro Forma Statement of Operations for the six
months ended July 31, 1999.
(iii) Unaudited Pro Forma Statement of Operations for the year
ended January 31, 1999.
(c) Exhibits
23 Consent of McGladrey & Pullen, LLP
<PAGE> 3
HUCK STORE FIXTURE COMPANY
CONSOLIDATED FINANCIAL REPORT
NOVEMBER 7, 1998
<PAGE> 4
CONTENTS
- --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT
- --------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated balance sheets
Consolidated statements of income
Consolidated statements of retained earnings
Consolidated statements of cash flows Notes to consolidated financial
statements
- --------------------------------------------------------------------------------
<PAGE> 5
INDEPENDENT AUDITOR'S REPORT
To the Director of the Board
Huck Store Fixture Company and Subsidiary
Quincy, Illinois
We have audited the accompanying consolidated balance sheets of Huck Store
Fixture Company and subsidiary as of November 7, 1998 and November 8, 1997, and
the related consolidated statements of income, retained earnings and cash flows
for the years 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Huck Store Fixture
Company and subsidiary as of November 7, 1998 and November 8, 1997, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
McGLADREY & PULLEN, LLP
Springfield, Illinois
December 23 , 1998, except for
Note 11 as to which the date
is September 27, 1999
<PAGE> 6
HUCK STORE FIXTURE COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
November 7, 1998 and November 8, 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 461,720 $ 281,501
Receivables:
Trade 6,058,861 2,025,696
Related parties 614,987 37,021
Inventories 2,562,591 1,547,153
Prepaid expenses 75,897 43,643
-------------------------------
Total current assets 9,774,056 3,935,014
-------------------------------
PROPERTY, PLANT AND EQUIPMENT
Land 434,480 20,000
Buildings 2,665,079 573,155
Equipment 1,361,158 533,407
-------------------------------
4,460,717 1,126,562
Less accumulated depreciation 328,677 155,102
-------------------------------
4,132,040 971,460
-------------------------------
OTHER ASSETS
Financing costs, net of accumulated amortization
1998 $22,700; 1997 $4,637 221,203 45,933
Organization costs, net of accumulated amortization 1998 $13,421;
1997 $8,823 10,232 13,235
-------------------------------
231,435 59,168
-------------------------------
$ 14,137,531 $ 4,965,642
===============================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable, bank $ 2,569,996 $ -
Current maturities on long-term debt 498,883 170,169
Accounts payable 1,476,078 121,349
Accrued liabilities 492,221 262,047
Income taxes payable 47,700 10,000
-------------------------------
Total current liabilities 5,084,878 563,565
-------------------------------
LONG-TERM DEBT, less current maturities 4,215,265 2,184,788
-------------------------------
CONTINGENCY (Note 9)
STOCKHOLDERS' EQUITY
Common stock, no par value; authorized 100,000 shares; issued and outstanding
10,000 shares 205,000 205,000
Retained earnings 4,632,388 2,012,289
-------------------------------
4,837,388 2,217,289
-------------------------------
$ 14,137,531 $ 4,965,642
===============================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 7
HUCK STORE FIXTURE COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years Ended November 7, 1998 and November 8, 1997
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 18,878,253 $ 12,228,085
Cost of goods sold 12,807,609 9,243,350
---------------------------------
Gross profit 6,070,644 2,984,735
---------------------------------
Other operating revenue 103,175 70,331
---------------------------------
Operating expenses 2,205,329 1,355,033
---------------------------------
Operating income 3,968,490 1,700,033
---------------------------------
Financing income (expense):
Interest income 12,787 4,556
Interest (expense) (380,056) (261,681)
---------------------------------
(367,269) (257,125)
---------------------------------
Income before income taxes 3,601,221 1,442,908
Provision for income taxes 63,039 23,128
---------------------------------
Net income $ 3,538,182 $ 1,419,780
=================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 8
HUCK STORE FIXTURE COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Years Ended November 7, 1998 and November 8, 1997
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance, beginning $ 2,012,289 $ 1,121,875
Net income 3,538,182 1,419,780
Cash dividends on common stock (918,083) (529,366)
---------------------------------
Balance, ending $ 4,632,388 $ 2,012,289
=================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 9
HUCK STORE FIXTURE COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended November 7, 1998 and November 8, 1997
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,538,182 $ 1,419,780
Adjustments to reconcile net income to net cash (used in) provided by operating
activities:
Amortization 22,661 8,134
Depreciation 173,575 87,743
Changes in working capital components:
(Increase) decrease in:
Receivables (4,033,165) (375,182)
Inventories (1,015,438) (375,780)
Prepaid expenses and other (33,849) 2,157
Increase (decrease) in:
Accounts payable 1,354,729 (349,771)
Accrued expenses 230,174 65,472
Income taxes payable 37,700 (29,000)
------------------------------
Net cash provided by operating activities 274,569 453,553
------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (3,443,115) (356,598)
Proceeds from sale of equipment 108,960 104,625
Advances to affiliates (910,886)
Repayments received from affiliates 332,920
------------------------------
Net cash (used in) investing activities (3,912,121) (251,973)
------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings 4,500,000 1,000,000
Proceeds from long-term borrowings 5,338,765 750,000
Principal payments on short-term borrowings (1,930,004) (1,000,000)
Principal payments on long-term borrowings (2,979,574) (143,572)
Payment of debt issue costs (193,333)
Cash dividends paid (918,083) (529,366)
------------------------------
Net cash provided by financing activities 3,817,771 77,062
------------------------------
Net increase in cash 180,219 278,642
Cash:
Beginning 281,501 2,859
------------------------------
Ending $ 461,720 $ 281,501
==============================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 374,814 $ 253,510
Income taxes 25,339 52,128
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 10
HUCK STORE FIXTURE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business: The Company and its wholly owned subsidiary manufacture
various wooden store fixtures primarily for customers in the retail industry.
A summary of the Company's significant accounting policies follows:
Principles of consolidation: The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary, Huck Store Fixture
Company of Nevada. All material intercompany accounts and transactions are
eliminated in consolidation.
Huck Store Fixture Company of Nevada was incorporated on March 27, 1998 and
commenced operations in May 1998. In connection with the startup of this
Company, the Company purchased certain real property in Nevada and financed this
transaction through the issuance of variable rate industrial revenue bonds as
described in Note 6.
Use of estimates in preparation of financial statements: In preparing the
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fiscal year: The Company uses a 52-53 week fiscal year. The period from November
9, 1997 through November 7, 1998 contained 52 weeks and the period from November
3, 1996 through November 8, 1997 contained 53 weeks.
Inventories: Inventories are stated at the lower of cost (first-in, first-out
method) or market. Work-in-process and finished goods include material, labor
and allocated overhead.
Property and equipment: Property and equipment are stated at cost. Major
expenditures which substantially increase useful lives are capitalized.
Maintenance and ordinary repairs are expensed as incurred. Depreciation is
computed using the straight-line method over the following estimated useful
lives.
Years
-----
Buildings 25 - 27
Equipment 5 - 7
Financing costs: The costs related to obtaining the Company's current notes
payable and long-term debt are being amortized over the terms of the notes,
using the interest method. Amortization of financing costs is included in
interest expense in the Statement of Income.
Organization costs: The costs incurred in establishing the Company as a legal
entity are being amortized over five years, using the straight-line method.
<PAGE> 11
HUCK STORE FIXTURE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. INCOME TAX MATTERS
The Company, with the consent of its stockholders, has elected to be taxed under
applicable sections of the federal and some state income tax laws which provide
that in lieu of corporation income taxes, the stockholders separately account
for their pro rata share of the Company's items of income, deductions, losses
and credits (commonly referred to as an S corporation). As a result of this
election, these financial statements include no provision for corporation income
taxes, except for state income taxes of certain states.
As of November 8, 1998, the Company's reported net assets exceeded their tax
bases by approximately $160,000.
Also, no provision has been made for any amounts which may be advanced or paid
as dividends to the Company's stockholders to assist them in paying their
personal income taxes on the income of the Company.
NOTE 3. INVENTORIES
<TABLE>
<CAPTION>
Inventories as of November 7, 1998 and November 8, 1997 consisted of the following components:
1998 1997
-------------------------------
<S> <C> <C>
Raw materials $ 1,198,806 $ 725,744
Work-in-process 458,789 243,158
Finished goods 904,996 578,251
-------------------------------
$ 2,562,591 $ 1,547,153
===============================
</TABLE>
NOTE 4. RELATED PARTY TRANSACTIONS
The Company and Prock Operations, Inc. (Prock) are related through common
ownership. The Company had sales of $525,459 and $89,049 to Prock and the
Company had purchases of $232,572 and $947,869 from Prock during the years ended
November 7, 1998 and November 8, 1997, respectively. In the opinion of
management these transactions were executed under terms similar to those with
unrelated parties. The Company had a net receivable of $398,329 and $37,021 due
from Prock as of November 7, 1998 and November 8, 1997, respectively.
HSFCA, LTD., a Limited-Liability Company, was chartered June 11, 1998 and
commenced operations shortly thereafter. HSFCA, LTD., and the Company are
related through common ownership. The Company purchased services from HSFCA
during the year ended November 7, 1998 which amounted to approximately $19,000.
The Company had a net receivable of $210,330 due from HSFCA, LTD., as of
November 7, 1998.
<PAGE> 12
HUCK STORE FIXTURE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5. PLEDGED ASSETS, CURRENT NOTES PAYABLE AND LONG-TERM DEBT
The Company's current note payable as of November 7, 1998, consisted of the
following:
The Company has $4.5 million line of credit under a loan agreement with a
financial institution which had an outstanding balance of $2,569,996 as of
November 7, 1998. The line of credit agreement is a two-year commitment expiring
on May 15, 2000 with interest at the published national prime rate minus .5% (an
effective rate of 7.5% at November 7, 1998). This line of credit arrangement is
collateralized by the Company's equipment, inventory and accounts receivable.
The agreement contains certain financial covenants, typical to such agreements,
relating to tangible net worth, debt service and debt to equity restrictions.
<TABLE>
<CAPTION>
Long-term debt as of November 7, 1998 and November 8, 1997, consisted of the following:
1998 1997
-------------------------------
<S> <C> <C>
Note payable, Bank, due in monthly installments of $1,550 including interest at
8.375%, remaining balance due September 1999, collateralized by certain
real property with a carrying value of $315,756. $ 145,095 $ 151,108
Note payable, City of Quincy, Illinois, due in monthly installments of $4,828,
including interest at 3%, remaining balance due October 2005, collateralized
by equipment, inventory, accounts receivable and certain real property. 365,392 411,612
Note payable, finance company, due in monthly installments of $9,273, including
interest at the national prime rate plus 2.25% (an effective rate of 10.11%
at November 7, 1998), remaining balance due June 2015, collateralized by
certain real property with a carrying value of $200,012. 861,034 879,257
Note payable, Illinois Development Finance Authority, due in monthly
installments of $3,097 including interest at the national prime rate
adjusted on April 1 of each year (an effective rate of 8.5% at November 7,
1998), remaining balance due April 2006, collateralized by certain real
property with a carrying value of $208,194 and is personally guaranteed by
the Company's principal stockholder. 203,864 222,867
-------------------------------
Subtotal $ 1,575,385 $ 1,664,844
</TABLE>
<PAGE> 13
HUCK STORE FIXTURE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NOTE 5. PLEDGED ASSETS, CURRENT NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
1998 1997
-------------------------------
<S> <C> <C>
Subtotal from previous page $ 1,575,385 $ 1,664,844
Note payable, Bank, due in monthly installments of $12,900 including interest at
the national prime rate plus 2.75% over prime, remaining balance due
October 15, 1999, collateralized by the Company's equipment, inventory and
accounts receivable and certain real property. - 690,113
Note payable, bank, due in monthly installments of $7,958 including interest at
the national prime rate minus .5% (an effective rate of 7.5% at November 7,
1998), remaining balance due May 2003, collateralized by equipment,
receivables and inventory. 363,763 -
Note payable, State of Nevada, pursuant to the indenture for the issuance of
variable rate demand industrial development revenue bonds, Huck Store
Fixture Company of Nevada Project Series 1998A, interest is payable monthly
and accrues at the VRDN rate, an effective rate of 3.3% as of November 7,
1998. The financing agreement requires annual principal payments of $200,000
beginning on August 1, 1999 through August 1, 2010 and annual principal
payments of $125,000 beginning on August 1, 2011 until August 1, 2013. The
industrial revenue bond financing agreement also requires that the Company
fund its annual principal amount due on August 1 of each year by
transferring an equal monthly amount into a separate trust account. Company
management expect to begin funding this requirement in January 1999. The
agreement also contains certain financial covenants typical to such
agreements including maximum debt to equity ratios and limitations on
acquiring certain investments and incurrence of certain debt. The indenture
is collateralized by a letter of credit from Nations Bank, N.A., which
amounted to $2,806,932 as of November 7, 1998. The letter of credit is
collateralized by real property located in Nevada with a carrying value of
$2,481,228 and also by equipment, receivables and inventory in both Illinois
and Nevada.
2,775,000 -
-------------------------------
4,714,148 2,354,957
Less current maturities 498,883 170,169
-------------------------------
LONG-TERM PORTION $ 4,215,265 $ 2,184,788
===============================
</TABLE>
<PAGE> 14
HUCK STORE FIXTURE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5. PLEDGED ASSETS, CURRENT NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
Aggregate maturities required on long-term debt as of November 7, 1998, are due
in future years as follows:
<TABLE>
<CAPTION>
For years ending November: Amount
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
1999 $ 498,883
2000 369,954
2001 382,070
2002 394,804
2003 368,263
Later years 2,700,174
---------------
$ 4,714,148
===============
</TABLE>
NOTE 6. TRANSACTIONS WITH MAJOR CUSTOMERS
Sales to customers aggregating to 10% or more of overall Company sales for the
years ended November 7, 1998 and November 8, 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------------
<S> <C> <C>
Customer A 54 % 52 %
Customer B 30 26
Customer C 1 11
Accounts receivable from these major customers as of November 7, 1998 and November 8, 1997 consisted of the
following:
1998 1997
------------------------------
<S> <C> <C>
Customer A $ 2,686,000 $ 907,000
Customer B 2,889,000 696,000
Customer C - 181,000
</TABLE>
NOTE 7. CONCENTRATION OF CREDIT RISK
The Company maintains cash with a financial institution in amounts which, at
times, may be in excess of the FDIC insurance limit. The Company has not
experienced losses in such accounts and believes it is not exposed to any
significant credit risk with respect to cash.
NOTE 8. RESTRICTED CASH
The Company's cash accounts include $438,924 of proceeds remaining from the
issuance of the variable rate industrial revenue bonds. The bond indenture
financing agreement requires that these funds can only be used for certain
building and equipment improvements acquired for Huck Store Fixture Company of
Nevada.
<PAGE> 15
HUCK STORE FIXTURE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9. CONTINGENCY
In May 1997, a complaint was filed with the National Labor Relations Board
(NLRB) by the Mid-Central Illinois District Counsel of Carpenters, affiliated
with the United Brotherhood of Carpenters and Joiners of America AFL-CIO (Union)
alleging unfair labor practices under the National Labor Relations Act. The
Company is vigorously defending against these claims and contests and denies the
allegations. Management has estimated that the Company's possible exposure to
liability is approximately $155,000 in the event of an unfavorable outcome.
NOTE 10. LEASE COMMITMENTS AND TOTAL RENT EXPENSE
The Company leases property, vehicles and equipment under operating leases
expiring in 2002.
The total minimum rental commitment as of November 7, 1998 under the leases
mentioned above is due as follows:
<TABLE>
<CAPTION>
During the year ending November: Amount
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
1999 $ 206,342
2000 217,842
2001 201,519
2002 18,726
----------------
$ 644,429
================
</TABLE>
The total rent expense included in the statements of income for the years ended
November 7, 1998 and November 8, 1997 was $97,379 and $23,895, respectively.
NOTE 11. SUBSEQUENT EVENTS
On September 21, 1999, the Company sold substantially all of its assets to a
wholly owned subsidiary of The Source Information Management Company (Source), a
publicly traded company. The purchase price will be equal to four times the
average of the Company's earnings before interest, income taxes, depreciation
and amortization (EBITDA) for fiscal years ending November 1998 and 1999 less
approximately $6.8 million of debt assumed, and immediately paid off, by Source.
The Company will also be entitled to an earnout payment in the amount (if any)
by which four times the average of the Company's EBITDA for its fiscal years
ending in November 1999 and 2000 exceeds four times its average for its years
ending in November 1998 and 1999. Both the purchase price and the earnout will
be paid 70% in cash and 30% in Source common shares, with shares valued for such
purposes at $11.375 per share.
The above acquisition included the Company's letter of intent to acquire the
assets of Arrowood, Inc. That acquisition closed on September 27, 1999 for a
purchase price of approximately $939,000 in cash and a note from Source for
$200,000.
<PAGE> 16
Unaudited Pro Forma Condensed Financial Information
On September 21, 1999, The Source Information Management Company (Source)
acquired substantially all the assets and assumed certain liabilities of Huck
Store Fixture Company (Huck). The purchase price of Huck will be equal to four
times the average of Huck's earnings before interest, depreciation and
amortization (EBITDA) for fiscal years 1998 and 1999 (ending in November) less
approximately $6.8 million of debt assumed, and immediately paid off, by Source.
Source paid a portion of the purchase price, consisting of $3 million cash and
100,000 shares of common stock with a market value of $1,290,000 (based on the
market price quoted on NASDAQ over the few days before and after the agreement
was reached and announced), at closing. The acquisition has been accounted for
under the purchase method of accounting.
The Pro Forma Condensed Combined Financial Information (i) gives effect to the
transaction, (ii) gives effect, in the Statement of Operations for the year
ended January 31, 1999, to (a) the acquisition in January 1999, of all the
outstanding stock of U.S. Marketing Services, Inc. (US Marketing), the holding
company of Brand Manufacturing (Brand) and T.C.E. Corporation (TCE) for stock
with a market value of $26,282,000, and (b) the acquisition in February 1999, of
substantially all the assets and certain assumed liabilities of MYCO, Inc.
(MYCO) and RY, Inc. (RY) for $12,000,000 and 134,615 shares of common stock with
a market value of $875,000 (based on the closing price quoted on NASDAQ on
November 18, 1998), and (iii) includes the adjustments described in the notes
hereto.
The Pro Forma Condensed Combined Balance Sheet as of July 31, 1999 was prepared
as if the Huck transaction occurred on July 31, 1999, combining the balance
sheets of Source at July 31, 1999 with that of Huck at August 7, 1999.
The Pro Forma Condensed Combined Statements of Operations give effect to the
above transaction as if it had occurred at the beginning of the earliest period
presented.
<TABLE>
<CAPTION>
Six Months Ended July 31, 1999
- ----------------------------------------------------------- ---------------------------------------------------------
<S> <C>
Source February 1, 1999 through July 31, 1999
Huck November 8, 1998 through May 8, 1999
- ----------------------------------------------------------- ---------------------------------------------------------
Year Ended January 31, 1999
- ----------------------------------------------------------- ---------------------------------------------------------
Source February 1, 1998 through January 31, 1999
Combined US Marketing, Brand and TCE February 1, 1998 through January 6, 1999 (period prior
to acquisition by Source) (restated to conform with
Source's year end)
Combined MYCO and RY January 1, 1998 through December 31, 1998 November 9,
Huck 1997 through November 7, 1998
- ----------------------------------------------------------- ---------------------------------------------------------
</TABLE>
The combined results of US Marketing, Brand and TCE include the results of Brand
and TCE for the period prior to acquisition by US Marketing.
The Pro Forma Condensed Combined Financial Information is unaudited and not
necessarily indicative of the consolidated results which actually would have
occurred if the above transaction would have been consummated at the beginning
of the periods presented, nor does it purport to present the future financial
position and results of operations for future periods. The Pro Forma Condensed
Consolidated Financial Information gives effect to the acquisition and is based
upon estimated allocations of the purchase price and includes all adjustments
described in the notes thereto.
<PAGE> 17
UNAUDITED PRO FORMA BALANCE SHEET
AS OF JULY 31, 1999
(Dollars in Thousands)
<TABLE>
<CAPTION>
Historical Pro Forma
Source Huck Adjustments Pro Forma
- --------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT
<S> <C> <C> <C> <C> <C>
Cash $ 2,897 $ 1,568 $ (2,897) (1) $ 1,568
Trade receivables, net of allowance 44,484 1,505 45,989
Notes receivable - officers 174 - 174
Inventories 3,425 7,111 318 (2) 10,854
Other current assets 1,018 889 1,907
-------------------------------------------------------------
TOTAL CURRENT ASSETS 51,998 11,073 (2,579) 60,492
-------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 11,776 4,899 3,286 (2) 19,961
-------------------------------------------------------------
OTHER ASSETS
Notes receivable - officers 801 - 801
Goodwill, net of accumulated amortization 44,537 - 6,458 (2) 50,995
Other 2,076 225 (218) (3) 2,083
------------------------------------------------------------
TOTAL OTHER ASSETS 47,414 225 6,240 53,879
------------------------------------------------------------
$ 111,188 $ 16,197 $ 6,947 $ 134,332
============================================================
</TABLE>
<PAGE> 18
UNAUDITED PRO FORMA BALANCE SHEET
AS OF JULY 31, 1999
(Dollars in Thousands)
<TABLE>
<CAPTION>
Historical Pro Forma
Source Huck Adjustments Pro Forma
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Checks issued against future deposits $ 447 $ - $ $ 447
Accounts payable and accrued expenses 4,784 1,859 6,643
Income taxes payable 816 2 (2) (3) 816
Due to retailers 4,766 - 4,766
Deferred income taxes 683 - 683
Current maturities of long-term debt 375 4,655 5,030
-------------------------------------------------------------
TOTAL CURRENT LIABILITIES 11,871 6,516 (2) 18,385
LONG-TERM DEBT, less current maturities 3,983 3,898 7,635 (4) 15,516
-------------------------------------------------------------
DEFERRED INCOME TAXES
398 - 398
-------------------------------------------------------------
TOTAL LIABILITIES 16,252 10,414 7,633 34,299
-------------------------------------------------------------
STOCKHOLDERS' EQUITY Contributed capital:
Common stock 205 (201) (5)
167 171
Additional paid-in capital 85,289 - 5,093 (6) 90,382
-------------------------------------------------------------
Total contributed capital 85,456 205 4,892 90,553
Other comprehensive income
(69) - (69)
Retained earnings
9,590 5,578 (5,578) (7) 9,590
-------------------------------------------------------------
Total contributed capital and retained 94,977 5,783 (686) 100,074
earnings
Less treasury stock
(41) - (41)
-------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 94,936 5,783 (686) 100,033
-------------------------------------------------------------
$ 111,188 $ 16,197 $ 6,947 $ 134,332
=============================================================
</TABLE>
<PAGE> 19
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
(Dollars in Thousands)
<TABLE>
<S> <C>
(1) To record decrease in cash used to finance acquisition of Huck $ (2,897)
(2) To reflect the acquisition of Huck and the allocation of purchase price on
the basis of the fair value of assets acquired and liabilities assumed.
The components of the purchase price and its allocation are as follows:
Cash paid, including direct costs of $50 $ 10,532
Value of Source common stock issued 5,097
Allocation of purchase price:
Cash (1,568)
Trade receivables (1,505)
Inventories (historical cost) (7,111)
Increase inventory to estimated selling price less cost of disposal and (318)
reasonable profit for selling effort of Source
Property, plant and equipment (4,899)
Increase property, plant and equipment to fair value (3,286)
Other assets (896)
Accounts payable and accrued expenses 1,859
Debt 8,553
-------------
Cost in excess of net assets acquired $ 6,458
-------------
(3) To eliminate assets and liabilities not assumed by Source:
Prepaid loan fees and organization costs $ (218)
Income tax payable $ (2)
(4) To record increase in long-term debt to finance acquisition of Huck $ 7,635
(5) To record:
(i) the par value of common stock issued $ 4
(ii) the elimination of the historical common stock balance of Huck (205)
-------------
$ (201)
-------------
(6) To record the excess of the market value over the par value of the common stock $ 5,093
issued
(7) To record the elimination of the historical retained earnings balance of Huck $ (5,578)
</TABLE>
<PAGE> 20
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR SIX MONTHS ENDED JULY 31, 1999
(Dollars in Thousands)
<TABLE>
<CAPTION>
Historical Pro Forma
Source Huck Adjustments Pro Forma
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $ 32,464 $ 8,377 $ $ 40,841
Cost of revenues 18,730 5,540 31 (1) 24,301
-------------------------------------------------------------
Gross profit 13,734 2,837 - 16,540
Selling, general and administrative expense 6,454 1,063 161 (2) 7,678
-------------------------------------------------------------
Operating income (loss)
7,280 1,774 (192) 8,862
-------------------------------------------------------------
Other income (expense)
Interest income 42 6 48
Interest expense (696) (223) (294) (3) (1,213)
Other 174 38 212
-------------------------------------------------------------
Total other income (expense) (480) (179) (294) (953)
-------------------------------------------------------------
Income (loss) before income taxes 6,800 1,595 (486) 7,909
Income tax expense (benefit) 2,977 15 290 (4) 3,282
-------------------------------------------------------------
Net income (loss) $ 3,823 $ 1,580 $ (776) 4,627
-------------------------------------------------------------
Earnings per share
Basic $ 0.28
$ 0.33
Diluted $ 0.25
$ 0.29
Weighted average number of shares outstanding
Basic 13,622 395 (5) 14,017
Diluted 15,315 395 (5) 15,710
</TABLE>
<PAGE> 21
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(Dollars in Thousands)
<TABLE>
<CAPTION>
The Pro Forma Combined Statements of Operations reflect the adjustments for the
acquisitions as of February 1, 1999.
<S> <C> <C>
(1) To record additional depreciation expense associated with the increase in $ 31
the carrying value of property, plant and equipment to fair value
(2) To record amortization of goodwill arising from the acquisition (20 year $ 161
estimated life)
(3) To record additional interest expense at 7.7% related to financing the $ (294)
acquisition of Huck
(4) To adjust income tax expense $ 290
(5) To reflect issuance of common stock 395
</TABLE>
<PAGE> 22
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR YEAR ENDED JANUARY 31, 1999
(Dollars in Thousands)
<TABLE>
<CAPTION>
US Marketing Combined
Historical Brand and MYCO Pro Forma
Source TCE and RY Huck Adjustments Pro Forma
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues $ 21,100 $ 11,901 $ 20,349 $ 18,981 $ (610) (1) $ 71,721
Cost of revenues 11,268 6,889 14,759 12,808 62 (2) 45,786
-----------------------------------------------------------------------------------------------
Gross profit 9,832 5,012 5,590 6,173 (672) 25,935
Selling, general and
administrative expense 2,949 6,567 6,239 2,205 (1,122) (1)(3) 16,838
-----------------------------------------------------------------------------------------------
Operating income (loss) 6,883 (1,555) (649) 3,968 450 9,097
-----------------------------------------------------------------------------------------------
Other income (expense)
Interest income 29 64 10 13 - 116
Interest expense (331) (917) (349) (380) (715) (4) (2,692)
Other (47) (22) (97) 430 (5) 264
-----------------------------------------------------------------------------------------------
Total other income
(expense) (349) (875) (436) (367) (285) (2,312)
-----------------------------------------------------------------------------------------------
Minority interest - (421) - - 421 (6) -
-----------------------------------------------------------------------------------------------
Income (loss) before 6,534 (2,851) (1,085) 3,601 586 6,785
income taxes
Income tax expense
(benefit) 2,667 189 (15) 63 14 (7) 2,918
-----------------------------------------------------------------------------------------------
Net income (loss) $ 3,867 (3,040) (1,070) $ 3,538 $ 572 3,867
-----------------------------------------------------------------------------------------------
Earnings per share
Basic $ 0.42 $ 0.30
Diluted $ 0.40 $ 0.29
Weighted average number of shares outstanding
Basic 9,132 3,804 (8) 12,936
Diluted 9,776 3,706 (8) 13,482
</TABLE>
<PAGE> 23
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
(Dollars in Thousands)
The Pro Forma Combined Statements of Operations reflect the adjustments for the
acquisitions as of February 1, 1998.
<TABLE>
<CAPTION>
US Marketing, MYCO and
Brand and TCE RY Huck Total
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(1) To eliminate intercompany revenue and expense $ - $ 610 $ - $ 610
(2) To record additional depreciation expense associated $ - $ - $ 62 $ 62
with the increase in the carrying value of property,
plant and equipment to fair value
(3) To reflect:
(i) portion of compensation expense for executive
officers on the basis of pre- and post
acquisition arrangements as if they were
effective February 1, 1998 $ (663) $ (1,439) $ - $ (2,102)
(ii) amortization of goodwill arising from the
acquisitions, (estimated life 20 years) 712 555 323 1,590
-------------------------------------------------------------
$ 49 $ (884) $ 323 $ (512)
-------------------------------------------------------------
(4) To reflect:
(i) elimination of interest expense related to US
Marketing for the period prior to acquisition $ 913 $ - $ - $ 913
(ii) additional interest expense at 8.5% related to
financing the acquisition of MYCO and Ry - (994) - (994)
(iii)additional interest expense at 8.3% related to
financing the acquisition of Huck - - (634) (634)
-------------------------------------------------------------
$ 913 $ (994) $ (634) $ (715)
-------------------------------------------------------------
(5) To reflect the elimination of the amortization of
the deferred loan costs $ 430 $ - $ - $ 430
(6) To reflect the elimination of minority interest $ 421 $ - $ - $ 421
(7) To adjust tax expense $ (630) $ (404) $ 1,048 $ 14
(8) To reflect issuance of common stock: Basic 3,274 135 395 3,804
Diluted 3,176 135 395 3,706
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 24
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.
THE SOURCE INFORMATION
MANAGEMENT COMPANY
Date: December 2, 1999 By: /s/ W. Brian Rodgers
-----------------------------------------
W. Brian Rodgers, Chief Financial Officer
<PAGE> 1
EXHIBIT 23
CONSENT OF McGLADREY & PULLEN, LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-16039) pertaining to The Source Company Stock Award Plan and The
Source Company 1995 Incentive Stock Option Plan of our report dated December 23,
1998, except as to Note 11 as to which the date is September 27, 1999, with
respect to the financial statements of Huck Store Fixture Company and Subsidiary
included in the Form 8-K filed by The Source Information Management Company on
December 2, 1999.
McGLADREY & PULLEN, LLP
Springfield, Illinois
December 2, 1999
