-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P6K9IBTqJvq1+8sSmaOX2BuBmK53O7PtfaL5oqfeM3OUAR562+oIDQvEqO7oMAhx QxDl4eTFIHrtRry/A7JTrA== 0000950134-96-002967.txt : 19960629 0000950134-96-002967.hdr.sgml : 19960629 ACCESSION NUMBER: 0000950134-96-002967 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960401 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960617 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORWOOD PROMOTIONAL PRODUCTS INC CENTRAL INDEX KEY: 0000902793 STANDARD INDUSTRIAL CLASSIFICATION: 2300 IRS NUMBER: 742553074 STATE OF INCORPORATION: TX FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-21800 FILM NUMBER: 96582158 BUSINESS ADDRESS: STREET 1: 70 NE LOOP 410 SUITE 295 STREET 2: THE RENAISSANCE PLAZA CITY: SAN ANTONIO STATE: TX ZIP: 78216 BUSINESS PHONE: 2102277629 8-K/A 1 AMENDMENT TO FORM 8-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC. 20549 ----------------- FORM 8-K/A Amendment No. 1 CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) April 1, 1996 -------------------- NORWOOD PROMOTIONAL PRODUCTS, INC. - - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) STATE OF TEXAS 0-21800 74-2553074 ----------------------------- ----------- -------------------- (State or other jurisdiction (Commission (IRS. Employer of incorporation) file no.) identification no. 70 N. E. LOOP 410 #295 SAN ANTONIO, TEXAS 78216 - - -------------------------------------------------------------------------------- (Address of principal executive offices) Registrant's telephone number, including area code (210) 341-9440 ------------------ 2 As reported in the Registrant's Current Report on Form 8-K dated April 15, 1995, the Registrant completed on April 1, 1995, its acquisition of the assets of Alpha Products Business. ("Seller"). The consideration paid for Seller's acquired assets was $6.7 million cash, which was drawn under the Company's existing debt facilities, plus the assumption of certain operating liabilities. As indicated in the previously filed Form 8-K, the audited financial statement and pro forma financial information requirements of Item 7 were to be filed by amendment. With this Amendment No. 1 on Form 8-K/A, Item 7 of the Registrant's Current Report on Form 8-K dated April 15, 1995 is hereby restated and amended to correctly state the information required under Items 7(a) and 7(b). Item 7 - Financial Statements, Pro Forma Financial Information and Exhibits. (a) Financial Statements of Businesses Acquired The Registrant's acquisition of the assets of Alpha Products Business included the following business units - 1. Assets of Alpha Products Business (i) The following items are incorporated herein by reference as Exhibit 1 hereto: 1. The audited financial statements as of March 31, 1996 and April 30, 1995 together with Report of Independent Public Accountants. 3 (b) Pro Forma Financial Information Page Set forth on the following pages are the Pro Forma Condensed Consolidated Statements of Income of the Registrant, required to be set forth in the Registrant's Current Report on Form 8-K dated April 15 1995, which Report describes the acquisition of Alpha Products, Inc. by the Registrant and is amended by this Form 8-K/A. The Pro Forma Condensed Consolidated Balance Sheet of the Registrant as of September 2, 1995 presents the financial position of the registrant as if the registrant had acquired Alpha Products Business as of March 2, 1996. Such balance sheet combines, with appropriate adjustments, the Registrant's unaudited Condensed Balance Sheet as of September 2, 1995 and Alpha Product Business's Condensed Balance sheet as of March 31, 1996. The acquisition will be accounted for as a purchase and the results of operations of Alpha Products Business will be included in the Registrant's Consolidated Statement of Income beginning April 1, 1996. 5 The Pro Forma Condensed Consolidated Statement of Income for the six month period ended March 2, 1996 presents the results of operations for that period as if the Registrant had acquired TEE-OFF Enterprises, Inc., Ocean Specialty Products, Inc. and Alpha Products Business as of September 3, 1995, the beginning of fiscal 1996. Such Pro Forma Condensed Consolidated Statement of Income combines, with appropriate adjustments, the Registrant's unaudited results of operations for the six month period ended March 2, 1996 with Alpha Products Business's unaudited results of operations for the six months ended February 29, 1995. 7 The Pro Forma Consolidated Statement of Income for the fiscal year ended September 2, 1995 presents the results of operations of the Registrant for such year as if the Registrant had acquired The Bob Allen Companies, Inc., Designer Plastics, Inc., BTS Group, Inc., Ocean Specialty Manufacturing Corporation, TEE-OFF Enterprises, Inc. and Alpha Products Business as of September 4, 1994, the beginning of fiscal 1995. Such Pro Forma Condensed Consolidated Statement of Income combines, with appropriate adjustments, the Registrant's results of operations for its fiscal year ended September 2, 1995, and Alpha Products Business's unaudited results of operations for the twelve months ended August 31, 1995. 9 The Pro Forma financial statements have been prepared on the basis of preliminary assumptions and estimates which are subject to change. The pro forma financial statements may not be indicative of the results that actually would have been achieved if the acquisition of Alpha Products Business had been effected on the dates indicated or which may be achieved in the future. The pro forma financial statements should be read in conjunction with the Consolidated Financial Statements of the Registrant, and the separate audited financial statements for Alpha Products Business. (c) Exhibits 1. The audited financial statements as of March 31, 1996 and April 30, 1995 together with Report of Independent Auditors' Report. 4 PRO FORMA CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 2, 1995 (IN THOUSANDS, EXCEPT SHARE AMOUNTS) (UNAUDITED)
PRO FORMA PRO FORMA NORWOOD OCEAN ADJUSTMENTS NORWOOD TEE-OFF ADJUSTMENTS (A) (B) INC. (DECR). PRO FORMA (C) INC. (DECR). ------- ------ ----------- --------- ------ ----------- ASSETS Current Assets: Cash and cash equivalents $2,174 ($95) $94 (j) $2,173 $865 ($415)(j) Accounts receivable 17,001 1,074 (143)(j) 17,932 567 Other receivables 492 0 492 0 Inventories 23,913 733 79 (j) 24,725 1,125 Prepaid expenses and other assets 1,916 73 (21)(j) 1,968 47 ------- ------ ----------- --------- ------ ----------- Total current assets 45,496 1,785 9 47,290 2,604 (415) Property, plant and equipment, net 12,090 942 (290)(e) 12,742 338 272 (e) Deferred taxes 249 (39) 39 (j) 249 0 0 Goodwill 30,443 0 1,459 (f) 31,902 0 5,446 (f) Other assets 6,581 99 909 (f) 7,589 0 1,000 (f) ------- ------ ----------- --------- ------ ----------- Total assets $94,859 $2,787 $2,126 $99,772 $2,942 $6,303 ======= ====== =========== ========= ====== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Trade accounts payable $5,803 $1,131 $91 (g) $7,025 $1,535 ($5)(g) Accrued liabilities 4,246 147 49 (g) 4,442 628 (562)(g) Income taxes payable 866 (58) 58 (k) 866 0 Current maturities of long-term debt 3,232 0 3,232 0 Current portion of lease obligation 266 0 266 0 ------- ------ ----------- --------- ------ ----------- Total current liabilities 14,413 1,220 198 15,831 2,163 (567) Long term debt 59,210 1,562 1,933 (h) 62,705 0 7,649 (h) Capital lease obligation 202 0 202 Shareholders' equity: Common stock 19,617 2 (2)(i) 19,617 1 (1)(i) Additional paid-in-capital 369 0 369 5 (5)(i) Treasury stock (8) 0 (8) Retained Earnings 1,310 3 (3)(i) 1,310 773 (773)(i) ------- ------ ----------- --------- ------ ----------- 21,288 5 (5) 21,288 779 (779) Less receivables for prch. of common stock 254 254 ------- ------ ----------- --------- ------ ----------- Total shareholders' equity 21,034 5 (5) 21,034 779 (779) ------- ------ ----------- --------- ------ ----------- Total liabilities and shareholders' equity $94,859 $2,787 $2,126 $99,772 $2,942 $6,303 ======= ====== =========== ========= ====== =========== PRO FORMA NORWOOD ALPHA ADJUSTMENTS NORWOOD PRO FORMA (D) INC. (DECR). PRO FORMA --------- ------- ------------ --------- ASSETS Current Assets: Cash and cash equivalents $2,623 $0 $0 $2,623 Accounts receivable 18,499 2,017 20,516 Other receivables 492 0 492 Inventories 25,850 3,017 28,867 Prepaid expenses and other assets 2,015 176 2,191 --------- ------- ------------ --------- Total current assets 49,479 5,210 0 54,689 Property, plant and equipment, net 13,352 5,734 (951)(e) 18,135 Deferred taxes 249 0 0 249 Goodwill 37,348 0 0 37,348 Other assets 8,589 0 0 8,589 --------- ------- ------------ --------- Total assets $109,017 $10,944 ($951) $119,010 ========= ======= =========== ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Trade accounts payable $8,555 $1,435 $0 $9,990 Accrued liabilities 4,508 263 150 (g) 4,921 Income taxes payable 866 0 866 Current maturities of long-term debt 3,232 349 3,581 Current portion of lease obligation 266 264 530 --------- ------- ------------ --------- Total current liabilities 17,427 2,311 150 19,888 Long term debt 70,354 356 6,675 (h) 77,385 Capital lease obligation 202 501 703 Shareholders' equity: Common stock 19,617 7,776 (7,776)(i) 19,617 Additional paid-in-capital 369 0 369 Treasury stock (8) 0 (8) Retained Earnings 1,310 0 1,310 --------- ------- ------------ --------- 21,288 7,776 (7,776) 21,288 Less receivables for prch. of common stock 254 254 --------- ------- ------------ --------- Total shareholders' equity 21,034 7,776 (7,776) 21,034 --------- ------- ------------ --------- Total liabilities and shareholders' equity $109,017 $10,944 ($951) $119,010 ========= ======= =========== =========
See notes on following page 5 NORWOOD PROMOTIONAL PRODUCTS, INC. NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 2, 1995 (a) Represents the Registrant's consolidated financial position as reported in Form 10-K as of September 2, 1995 (b) Represents Ocean Manufacturing Corporation's balance sheet as of November 20, 1995. (c) Represents TEE-OFF Enterprises Inc.'s balance sheet as of January 23, 1996. (d) Represents Alpha Product's Business balance sheet as of March 31, 1996. (e) To adjust fixed assets to their estimated fair value or decrease for negative goodwill. (f) To record non-compete and excess of purchase price paid over estimated fair value of assets acquired. (g) To record accrual of acquisition related costs offset by liabilities retained by seller. (h) Funds used to acquire Ocean Specialty Manufacturing Corporation, TEE-OFF Enterprises, Inc. and Alpha Products Business and to pay certain acquisition related costs assumed to have been provided from borrowings under the Registrant's credit facilities or through issuance of promissory notes to former shareholders'. (i) Represents the elimination of Ocean Specialty Manufacturing Corporation, TEE-OFF Enterprises Inc.'s and Alpha Products Business's stockholders' equity. (j) Represents assets retained by selling shareholders'. (k) Represents retained tax liabilities or retained payables of selling shareholders'. 6 PRO FORMA CONSOLIDATED STATEMENTS OF INCOME YEAR TO DATE SECOND QUARTER ENDED MARCH 2, 1996 (IN THOUSANDS, EXCEPT SHARE AMOUNTS) (UNAUDITED)
PRO FORMA TEE- ACQUISITION FOR THE NORWOOD OCEAN(A) OFF(B) ALPHA (C) ADJUSTMENTS ACQUISITIONS --------- ---------- --------- ---------- ----------- ------------- Sales $63,454 $1,836 $2,573 $9,373 $77,236 Cost of sales 44,369 1,437 2,076 8,455 (571)(d) 55,766 -------- --------- -------- --------- --------- ---------- Gross profit 19,085 399 497 918 571 21,470 Operating expenses: Selling 4,890 65 61 832 (124)(d) 5,724 Sales administration 2,689 38 30 429 3,186 General and administrative 5,600 291 228 494 (224)(d) 6,389 Amortization 1,562 0 212 (e) 1,774 -------- --------- -------- --------- --------- ---------- Total operating expenses 14,741 394 319 1,755 (136) 17,073 Income from operations 4,344 5 178 (837) 707 4,397 Interest expense 1,869 53 0 68 442 (f) 2,432 -------- --------- -------- --------- --------- ---------- Income before income taxes 2,475 (48) 178 (905) 265 1,965 Provision for income taxes 1,030 (20) 0 0 (211)(g) 799 -------- --------- -------- --------- --------- ---------- Net Income $1,445 ($28) $178 ($905) $476 1,166 ======== ========= ======== ========= ========= ========== Net income per common share: Primary shares $0.33 $0.27 ======== ========= Fully diluted shares $0.33 $0.27 ======== ========= Weighted average common shares and equivalents: Primary shares 4,383 4,383 ======== ========= Fully diluted shares 4,383 4,383 ======== =========
See notes on following page 7 NORWOOD PROMOTIONAL PRODUCTS, INC. NOTES TO PRO FORMA CONSOLIDATED INCOME STATEMENT FOR THE SECOND QUARTER ENDED MARCH 2, 1996 (a) Key acquired the assets of Ocean Specialty Manufacturing Corporation on November 20, 1995. (b) ArtMold acquired the assets of TEE-OFF Enterprises, Inc. on January 23, 1996. (c) Radio Cap Company, Inc. acquired the assets of Alpha Products, Inc. on April 1, 1996. (d) Reflects estimated cost savings in salaries and wages and a bonus, all of which were directly attributable to the Ocean and TEE-OFF Acquisitions, depreciation expense savings due to the establishment of fair values of net fixed assets below historical costs, rent reductions and reduction of corporate allocations from the former parent to Alpha Products, Inc., as follows: Cost of sales: Depreciation $327 Rent reduction 115 Corporate allocation 129 ----- $571 ===== Selling expenses: Corporate allocation $105 Salaries wages and other 19 ----- $124 ===== General and administrative: Salaries and wages $ 96 Depreciation 66 Corporate allocation 32 Other 30 ----- $224 =====
(e) Reflects the amortization of the excess of purchase price paid over estimated fair value of assets acquired and the amortization of various non-compete agreements entered into in connection with the acquisitions. The excess of purchase price paid over estimated fair value of assets acquired is amortized over 15 years, the non-compete agreements in connection with the Ocean and TEE-OFF acquisitions are amortized over the ten year term of the respective agreements. (f) Adjusts interest expense for the financing of the acquisition of Ocean, TEE-OFF and Alpha at the Company's effective borrowing rate of 7.5% per annum. (g) Reflects income tax effect for the pro forma adjustments. 8 PRO FORMA CONSOLIDATED STATEMENTS OF INCOME FOR THE FISCAL YEAR ENDED SEPTEMBER 2, 1995 (IN THOUSANDS, EXCEPT SHARE AMOUNTS) (UNAUDITED)
PRO FORMA BOB DESIGNER TEE- ACQUISITION FOR THE NORWOOD ALLEN(A) LINE(B) OCEAN(C) BTS(D) OFF (E) ALPHA(F) ADJUSTMENTS ACQUISITIONS -------- ------- --------- --------- -------- ---------- --------- ----------- ------------ Sales $103,860 $7,949 $5,379 $7,327 $7,346 $9,079 $19,610 $160,550 Cost of sales 70,963 4,875 3,481 5,737 4,796 7,174 17,106 (2,049)(g) 112,083 -------- ------ -------- -------- ------- --------- -------- -------- -------- Gross profit 32,897 3,074 1,898 1,590 2,550 1,905 2,504 2,049 48,467 Operating expenses: Selling 7,459 918 377 272 863 151 2,560 (146)(g) 12,454 Sales administration 3,831 473 296 139 253 78 1,318 6,388 General and administrative 9,037 1,498 1,140 1,334 1,151 477 2,418 (2,583)(g) 14,472 Amortization 2,119 0 0 0 0 1,690 (h) 3,809 -------- ------ -------- -------- ------- --------- -------- -------- -------- Total operating expenses 22,446 2,889 1,813 1,745 2,267 706 6,296 (1,039) 37,123 Income from operations 10,451 185 85 (155) 283 1,199 (3,792) 3,088 11,344 Interest expense 3,619 132 85 194 211 6 729 1,612 (i) 6,588 -------- ------ -------- -------- ------- --------- -------- -------- -------- Income before income taxes 6,832 53 0 (349) 72 1,193 (4,521) 1,476 4,756 Provision for income taxes 2,800 0 3 16 24 0 0 (890)(j) 1,953 -------- ------ -------- -------- ------- --------- -------- -------- -------- Net Income $4,032 $53 ($3) ($365) $48 $1,193 ($4,521) $2,366 $2,803 ======== ====== ======== ======== ======= ========= ======== ======== ======== Net income per common share: Primary shares $1.11 $0.77 ======== ======== Fully diluted shares $1.10 $0.76 ======== ======== Weighted average common shares and equivalents: Primary shares 3,636 3,636 ======== ======== Fully diluted shares 3,668 3,668 ======== ========
See notes on following page 9 NORWOOD PROMOTIONAL PRODUCTS, INC. NOTES TO PRO FORMA CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED SEPTEMBER 2, 1995 (a) Air-Tex acquired the assets of The Bob Allen Companies, Inc. on March 1, 1995. (b) Air-Tex acquired the assets of Designer Plastics, Inc. on June 9, 1995. (c) Key acquired the assets of Ocean Specialty Manufacturing Corporation on November 20, 1995. (d) Barlow acquired the assets of BTS Group on July 28, 1995. (e) ArtMold acquired the assets of TEE-OFF Enterprises, Inc. on January 23, 1996. (f) Radio Cap Company, Inc. acquired the assets of Alpha Products, Inc. on April 1, 1996. (g) Reflects estimated cost savings in salaries and wages and a bonus, all of which were directly attributable to the Bob Allen, Designer Line, BTS, Ocean and TEE-OFF acquisitions, depreciation expense savings due to the establishment of fair values of net fixed assets below historical costs, cost savings from expenses directly related to a certain joint venture, (which was not included in the BTS acquisition), rent reductions, closing costs related to the purchase of Alpha Products by the former owner and reduction of corporate allocations from the former parent to Alpha Products, Inc., as follows: Cost of sales: Depreciation $ 1,495 Rent reduction 278 Corporate allocation 276 ------- $ 2,049 ======= Selling expenses: Corporate allocation $ 129 Salaries wages and other 17 ------- $ 146 ======= General and administrative: Salaries and wages $ 1,028 Bonus 1,014 Depreciation 183 Corporate allocation (380) Closing costs 523 Other 215 ------- $ 2,583 =======
(h) Reflects the amortization of the excess of purchase price paid over estimated fair value of assets acquired and the amortization of various non-compete agreements entered into in connection with the acquisitions. The excess of purchase price paid over estimated fair value of assets acquired is amortized over 15 years, the non-compete agreements in connection with the Ocean and TEE-OFF acquisitions are amortized over the ten year term of the respective agreements. (i) Adjusts interest expense for the financing of the acquisition of Ocean, TEE-OFF and Alpha at the Company's effective borrowing rate of 7.5% per annum. (j) Reflects income tax effect for the pro forma adjustments. 10 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Date: June 14, 1996 By: /s/ J. Max Waits ----------------- J. Max Waits Secretary 11 Norwood Promotional Products, Inc. Form 8-K EXHIBIT INDEX Sequentially Numbered Exhibit No. Description of Exhibit Page - - ----------- ---------------------- ------------ 99.1 The audited financial statements as of March 31, 1996 and April 30, 1995 together with Report of Independent Auditors' Report. 15 EX-99.1 2 AUDITED FINANCIAL STATEMENTS 1 EXHIBIT 99.1 ARTHUR ANDERSEN LLP ALPHA PRODUCTS BUSINESS FINANCIAL STATEMENTS AS OF MARCH 31, 1996 AND APRIL 30, 1995 TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 2 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholder of Alpha Products, Inc. We have audited the accompanying statements of acquired assets and assumed liabilities (see note 1) of ALPHA PRODUCTS BUSINESS, as of March 31, 1996 and April 30, 1995, and the related statements of revenues and expenses before income taxes and cash flows for the eleven months ended March 31, 1996 and the four months, sixteen days ended April 30, 1995. These financial statements are the responsibility of the Alpha Products Business' management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the acquired assets and assumed liabilities of the Alpha Products Business as of March 31, 1996 and April 30, 1995, and its revenues and expenses before income taxes and its cash flows for the eleven months ended March 31, 1996 and the four months, sixteen days ended April 30, 1995, in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN LLP ARTHUR ANDERSEN LLP Nashville, Tennessee April 26, 1996 3 ALPHA PRODUCTS BUSINESS STATEMENTS OF ACQUIRED ASSETS AND ASSUMED LIABILITIES
MARCH 31, APRIL 30, ASSETS 1996 1995 - - ------------------------------------------------- ----------- ----------- CURRENT ASSETS: Accounts receivable, less allowances of $158,043 and $186,958, respectively $ 2,016,774 $ 3,377,178 Inventories, net 3,016,646 3,905,065 Prepaids and other current assets 176,203 200,644 ----------- ----------- Total current assets 5,209,623 7,482,887 ----------- ----------- PROPERTY AND EQUIPMENT, AT COST: Leasehold improvements 278,249 275,071 Machinery and equipment 2,486,235 2,486,225 Furniture and fixtures 566,553 566,553 Computer Equipment 905,498 814,779 Molds 3,243,070 2,839,096 ----------- ----------- 7,479,605 6,981,724 Less accumulated depreciation and amortization (1,745,370) (513,499) ----------- ----------- Net property and equipment 5,734,235 6,468,225 ----------- ----------- Total assets $10,943,858 $13,951,112 =========== =========== LIABILITIES - - ------------------------------------------------- CURRENT LIABILITIES: Accounts payable $ 1,434,892 $ 2,019,694 Accrued liabilities 263,080 402,669 Current portion of capital lease obligations 264,062 246,110 Current portion of long-term debt 349,393 877,113 ----------- ----------- Total current liabilities 2,311,427 3,545,586 ----------- ----------- CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 501,011 760,019 LONG-TERM DEBT, NET OF CURRENT PORTION 355,811 552,544 INVESTMENT BY ALPHA PRODUCTS, INC. 7,775,609 9,092,963 ----------- ----------- Total liabilities and investment by Alpha Products, Inc. $10,943,858 $13,951,112 =========== ===========
The accompanying notes are an integral part of these financial statements. 4 ALPHA PRODUCTS BUSINESS STATEMENTS OF REVENUES AND EXPENSES BEFORE INCOME TAXES
FOR THE FOUR FOR THE ELEVEN MONTHS, SIXTEEN MONTHS ENDED DAYS ENDED MARCH 31, 1996 APRIL 30, 1995 -------------- --------------- NET REVENUES $16,193,392 $ 6,263,787 COST OF GOODS SOLD 14,433,613 5,825,320 ----------- ----------- Gross profit 1,759,779 438,467 ----------- ----------- OPERATING EXPENSES: Selling 2,140,617 861,846 General and administrative 1,190,951 704,858 Warehouse and shipping 530,889 192,448 ----------- ----------- 3,862,457 1,759,152 ----------- ----------- Loss from operations (2,102,678) (1,320,685) OTHER EXPENSES, NET (97,024) (66,099) ----------- ----------- NET LOSS BEFORE INCOME TAXES $(2,199,702) $(1,386,784) =========== ===========
The accompanying notes are an integral part of these financial statements. 5 ALPHA PRODUCTS BUSINESS STATEMENTS OF CASH FLOWS
FOR THE FOUR FOR THE ELEVEN MONTHS, SIXTEEN MONTHS ENDED DAYS ENDED MARCH 31, 1996 APRIL 30, 1995 -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss before income taxes $(2,199,702) $ (1,386,784) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 1,231,871 513,499 Change in assets and liabilities: (Increase) decrease in accounts receivable 1,360,404 (3,362,946) (Increase) decrease in inventories 888,419 (1,905,065) (Increase) decrease in prepaid expenses and other assets 24,441 (42,778) Decrease in accounts payable (584,802) (9,506,893) Decrease in accrued liabilities (139,589) (299,197) ----------- ------------ Net cash provided by (used in) operating activities 581,042 (15,990,164) ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (575,958) (336,195) Proceeds from disposal of property and equipment 78,076 - ----------- ------------ Net cash used in investing activities (497,882) (336,195) ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term debt (965,509) (350,265) Investment by Alpha 815,527 16,978,926 ----------- ------------ Net cash provided by financing activities (149,982) 16,628,661 ----------- ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (66,822) 302,302 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR $ 314,008 $ 11,706 ----------- ------------ CASH AND CASH EQUIVALENTS, END OF YEAR 247,186 314,008 LESS: CASH, NOT ACQUIRED BY RADIO CAP COMPANY, INC. (247,186) (314,008) ----------- ------------ CASH, PER STATEMENT OF ACQUIRED ASSETS AND ASSUMED LIABILITIES $ - $ - =========== ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest $ 143,785 $ 83,577 =========== ============
The accompanying notes are an integral part of these financial statements. 6 ALPHA PRODUCTS BUSINESS NOTES TO FINANCIAL STATEMENTS MARCH 31, 1996 AND APRIL 30, 1995 1. ORGANIZATION The accompanying financial statements include the Alpha Products Business ("the Business") assets acquired and liabilities assumed by Radio Cap Company, Inc., a subsidiary of Norwood Promotional Products, Inc., in a purchase transaction, as more fully described in Note 8. The Business includes certain assets and liabilities of Alpha Products, Inc. (a Georgia corporation), a wholly-owned subsidiary of Aladdin Industries, Incorporated ("Aladdin"). Aladdin acquired the assets and liabilities of Alpha Products, Inc. in a purchase transaction in December 1994. The Business principally sells various types of beverage containers, (i.e. coffee mugs, sports bottles, and other uninsulated mugs) that are screen printed with insignias and logos of customers and events. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INVENTORIES As shown in Note 3, the Business's inventories are valued at lower of cost (first-in, first-out (FIFO) basis) or market. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Additions and improvements are capitalized. Maintenance and general repairs are expensed as incurred. Depreciation is included in cost of revenues and general and administrative expense in the statements of revenues and expenses before income taxes and is computed using the straight line method based on estimated useful lives as follows:
YEARS ------------ Leasehold improvements 10 Machinery and equipment 7 Furniture and fixtures 7 Computer equipment 3 Molds 5
7 - 2 - INCOME TAXES Taxes related to the Business are included in the consolidated tax return of Aladdin. The accompanying statements of revenues and expenses for the eleven months and four months, sixteen days ended March 31, 1996 and April 30, 1995 are presented before income taxes. Accordingly, no provision or allocation for taxes on income has been provided in these statements. REVENUE RECOGNITION Revenues are recognized at the time product is shipped. MANAGEMENT'S USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the 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. 3. INVENTORIES Inventories consist of the following:
MARCH 31, 1996 APRIL 30, 1995 -------------- -------------- Raw materials $ 2,439,188 $ 2,941,852 Finished goods 577,458 963,213 -------------- -------------- $ 3,016,646 $ 3,905,065 ============== ==============
Raw materials consist primarily of unprinted mugs, cups, sports bottles, and various lids and straws. Finished goods are primarily screen printed and thermal-labeled mugs and cups. 8 - 3 - 4. LONG-TERM DEBT Long-term debt obligations at March 31, 1996 and April 30, 1995 consist of the following:
1996 1995 --------- --------- Note payable to GE Capital, secured by machinery and equipment; fixed interest rate of 8.77%, principal and interest payable in 60 monthly installments beginning March 1, 1994. $ 303,281 $ 376,848 Note payable to GE Capital, secured by machinery and equipment; fixed interest rate of 8.77%, principal and interest payable in 60 monthly installments beginning February 1, 1994. 175,377 219,095 Note payable to GE Capital, secured by machinery and equipment; variable interest rate equal to the published monthly average "Commercial Paper Rate"(5.39% at March 31, 1996) plus 4.05% (9.44% at March 31, 1996). Term of note is 60 months with principal and interest installments payable monthly beginning September 1, 1992. 100,296 165,193 Note payable to HCFS Business Equipment Corporation, secured by machinery and equipment; variable interest rate as established by the "Corporate Base Rate" of First National Bank of Chicago plus two percent (10.75% at March 31, 1996). Term of note is 48 months with principal and interest installments payable monthly beginning July 1, 1992. 27,500 256,667 Equipment note payable to Williams Industries, Inc., secured by certain molds; amortized and payable at a rate of $.03 per mug produced. 96,014 360,139 All other 2,736 51,715 --------- --------- 705,204 1,429,657 Less current portion (349,393) (877,113) --------- --------- Total long-term debt $ 355,811 $ 552,544 ========= =========
9 - 4 - 5. COMMITMENTS AND CONTINGENCIES The Business has various capital lease agreements for the leasing of equipment and machinery. The interest rates on the capital leases vary from approximately 8% to 15% as of March 31, 1996. The asset values of the capital leased equipment are included in property and equipment. The net book value of assets under capital lease obligations totaled approximately $1,060,000 and $1,215,000 as of March 31, 1996 and April 30, 1995, respectively. Future minimum lease payments under the non-cancelable leases at March 31, 1996 are as follows:
CAPITAL OPERATING LEASES LEASES --------- ---------- 1997 $ 319,055 $ 742,578 1998 299,981 715,389 1999 243,633 701,825 2000 1,587 675,042 2001 - 664,440 Thereafter - 1,827,210 --------- ---------- Total minimum lease payments 864,256 $5,326,484 ========== Less amount representing interest (99,183) --------- Present value of future minimum lease payments 765,073 Less current portion (264,062) --------- $ 501,011 =========
Rent expense for all operating leases totaled approximately $692,000 and $267,000 for the eleven months ended March 31, 1996 and the four months, sixteen days, ended April 30, 1995, respectively. 6. FAIR VALUE OF FINANCIAL INSTRUMENTS As required by Financial Accounting Standards No. 107 "Disclosures About Fair Value of Financial Instruments", the Business has evaluated the fair values of all financial instruments held using available market information. As of March 31, 1996 and April 30, 1995, the carrying amounts for cash, accounts receivable, and accounts payable are reasonable estimates of their fair values due to their short-term nature. The carrying amounts for notes payable are also reasonable estimates of their fair value, as the effective interest rates on the notes approximate currently available financing rates. 10 -5- 7. RELATED PARTY TRANSACTIONS During the eleven month and the four month, sixteen day periods ended March 31, 1996 and April 30, 1995, respectively, the Business had significant transactions with its indirect parent entity, Aladdin Industries, Inc. The transactions included the sale of product to Aladdin at an approximate thirty percent mark-up, which totaled approximately $2.6 million for the eleven months ended March 31, 1996. 8. EVENTS SUBSEQUENT TO MARCH 31, 1996 Effective April 1, 1996, the Alpha Products Business was sold to Radio Cap Company, Inc., a subsidiary of Norwood Promotional Productions, Inc. by Alpha Products, Inc. -----END PRIVACY-ENHANCED MESSAGE-----