SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934)
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934)
For the transition period from _________ to _________
Commission File Number: 0-19942
ERO, Inc.
(Exact name of registrant as specified in its charter)
Delaware 36-3573286
(State or other jurisdiction of incorporation (I.R.S. Employer Identification
or organization) Number)
585 Slawin Court, Mount Prospect, Illinois 60056-2183
(Adress of principal executive offices, including zip code)
(847) 803-9200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
Title of class
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes X No__
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 3, 1997 was $53,007,084.
On March 3, 1997, there were 10,266,300 shares of the registrant's Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part II of this Annual Report on Form 10-K incorporates by reference
information (to the extent specific sections are referred to herein) from
the Registrant's Annual Report to Stockholders for the year ended December
31, 1996 (the "1996 Annual Report"). Part III of this Annual Report on
Form 10-K incorporates by reference information (to the extent specific
sections are referred to herein) from the Registrant's Proxy Statement for
its annual meeting of stockholders to be held April 17, 1997 (the "1997
Proxy Statement").
ERO, INC.
1996 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
Item 1. Business................................................
Item 2. Properties..............................................
Item 3. Legal Proceedings.......................................
Item 4. Submission of Matters to a Vote of Security Holders.....
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.....................................
Item 6. Selected Financial Data.................................
Item 7. Management's Discussion and Analysis of Financial
Conditions and Results of Operations....................
Item 8. Financial Statements and Supplementary Data.............
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................
PART III
Item 10. Directors and Executive Officers of the Registrant.......
Item 11. Executive Compensation...................................
Item 12. Security Ownership of Certain Beneficial Owners and
Management...............................................
Item 13. Certain Relationships and Related Transactions...........
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.................................................
PART I
Item 1. Business
General
ERO, Inc. ("ERO" or the "Company") is a leading designer, manufacturer, importer
and marketer of licensed and branded Children's Leisure Products. ERO's
major product areas are grouped into four business units: ERO Industries, Inc.
("ERO Industries"), which consists of Slumber Shoppe and water sports; Amav
Industries, Inc. ("Amav"), which consists of children's activities, arts and
crafts; Impact, Inc. ("Impact"), which consists of back-to-school products;
and Priss Prints, Inc. ("Priss Prints"), which consists of children's room
decor products. The Company's products are sold to all major mass merchants
and big box retailers such as toy stores, office superstores, home improvement
centers and specialty craft stores.
ERO is a Delaware corporation which was organized in February 1988 by certain
members of ERO's management, Golder, Thoma, Cressey Fund III, Limited
Partnership and other investors to acquire ERO Industries, Inc. Prior to
such acquisition, ERO Industries was publicly owned and its common stock was
traded on the American Stock Exchange.
Business Strategy
The Company's primary objective is to increase shareholder value.
Its strategies to accomplish that goal include: pursuing the business of
Children's Leisure Products, concentrating on those activities where the
Company can achieve a significant competitive advantage, penetrating multiple
departments of mass merchants and other efficient retailers, offering
superior customer service, and pursuing growth through strategic acquisitions
that complement its strategy.
The environment for selling children's products has changed dramatically
during the last two decades. Five retailers now account for approximately
54% of toy sales in America, while the number of mediums companies must
invest in to build a viable brand has grown with new television networks,
cable television and videos. The course ERO has chosen to navigate in this
environment is to "rent" great brands where the Company thinks a brand is
essential, while developing the rest of its product lines to provide excellent
value to the consumer with superior margin and inventory turn performance
for the retailer.
In categories such as slumber, back-to-school, and children's room decor,
where the brand is essential, ERO has acquired broad portfolios of licenses
of the most highly promoted and advertised characters to give the Company a
competitive edge. And in large activity toys and craft kits, where function
is at least as important as brand, the Company has combined great engineering,
capital intensity and vertical integration to put more value in its products,
at substantially lower costs, in order to create a competitive advantage.
ERO also attempts to reduce the risks associated with retailer concentration
by servicing multiple departments of the major retailers. In addition to the
toy department, the Company sells Children's Leisure Products to the sporting
goods, home improvement, stationery, domestics and juvenile departments.
Acquisitions
The Company made no acquisitions during the year ended December 31, 1996.
Recent prior year acquisitions include the 1995 purchase of Amav Industries
Ltd., manufacturers of children's arts, crafts and activities, the 1994
purchase of Impact International, Inc. and Impact Designs, Ltd., marketers
of licensed school supplies, and the 1994 purchase of a Canadian manufacturer
and distributor of licensed products.
Products
ERO Industries
Slumber Shoppe includes: slumber bags, a lightweight indoor sleeping bag for
slumber parties and children's nap times; carrying cases, which are large
enough to fit the slumber bags, along with pajamas, toothbrushes and other
items a child might need for a "sleepover"; play tents for indoor use; and
children's furniture, including foam and bean bag chairs. All of these
products feature popular licensed characters, such as Mickey's Stuff for
Kids, Barbie, Pooh and Batman and Robin . For the years ended December 31,
1996, 1995 and 1994, Slumber Shoppe accounted for 30%, 40% and 48% of ERO's
net sales, respectively.
The water sports category includes a full range of personal flotation devices
and other swim and pool products, including masks, fins, snorkels and goggles
marketed under the Coral brand name. ERO's primary focus within this area is
on children's water activities. The Company is the premier supplier of U.S.
Coast Guard approved children's flotation products. For the years ended
December 31, 1996, 1995 and 1994, water sports products accounted for 10%,
11% and 13% of ERO's net sales, respectively.
Both Slumber Shoppe and water sports products are sold to sporting goods
buyers and toy buyers at major retailers. ERO's domestic manufacturing
operations produce both slumber bags and flotation devices. The balance of
the line is imported from contract suppliers in China, Taiwan, Italy and
Indonesia.
Amav
Amav is a fully integrated manufacturer of children's products sold under the
Amav brand name. Amav's products are grouped in two categories: arts and
crafts, including craft kits; and activities, including game tables, easels
and play kitchens. Amav manufactures over 90% of its products in an 800,000
square foot production facility in Montreal, Canada.
The acquisition of Amav in 1995 added a strong non-licensed line to ERO's
existing mix of businesses. In addition, Amav added immediate growth
potential with a compounded annual growth rate of more than 40% over the
last six years. Amav has achieved a high level of success with its new
product introductions and, due to the universal appeal of its products, is
ERO's most promising vehicle for international growth.
For the years ended December 31, 1996, 1995 and 1994, Amav's products accounted
for 42%, 19% and 0% of ERO's net sales, respectively.
Impact
Impact's products include a broad line of fashionable school supplies, including
back packs, book bags, lunch kits, luggage, fanny packs and locker bags, and
stationery products such as portfolios, binders, study kits, pencils, and theme
books. Impact leverages its licensing and graphic strengths across all of these
products, providing children with full sets of items featuring the characters
they love. Because of the age group Impact targets, its revenues are typically
derived from licensing events, such as Batman and Robin and Jurassic Park:The
Lost World, rather than classic licenses. For the years ended December 31,
1996, 1995 and 1994, Impact's products accounted for 9%, 20% and 26% of ERO's
net sales, respectively.
Priss Prints
Priss Prints' product line includes character-licensed stick-on and peel-off
wall decorations for children's rooms. Priss' products are very popular with
mothers of toddlers since they can decorate a room with the child's favorite
theme in minutes. Its most popular licenses are classics such as 101
Dalmatians, Disney Babies and Pooh. For the years ended December 31, 1996,
1995 and 1994, Priss Prints products accounted for 8%, 7% and 6% of ERO's net
sales, respectively.
Licenses and Licensing
An important element in ERO's marketing strategy is the ability to differentiate
its products and stimulate sales by using various popular characters and well-
known brand names on its products. Accordingly, ERO emphasizes the acquisition
and maintenance of a broad portfolio of character licenses. Rather than
attempting to select a few licenses with speculative appeal, ERO maintains
multiple licenses in several categories, including classics (Mickey's Stuff
for Kids, Barbie, Pooh and 101 Dalmatians) and contemporary (such as Disney's
Hercules, Jurassic Park:The Lost World and Batman and Robin). ERO's brand
names include Coral, Priss Prints and Amav. Sales tend to be concentrated in
a limited number of character licenses in each year, although the revenue
generated by any particular license varies year-to-year. For the years ended
December 31, 1996, 1995 and 1994, the five licenses with the highest sales in
each year accounted for approximately 30%, 49% and 65% of ERO's net sales,
respectively.
ERO's license agreements are typically for two years requiring payments of
approximately 10-12% of licensed product revenues. In some cases, ERO's
renewal terms are based upon meeting specified sales levels, while in other
cases they are based on informal understandings or arrangements. License
agreements typically are subject to termination by the licensor upon failure
of the licensee to meet various performance standards.
For the year ended December 31, 1996, royalties paid to licensors represented
approximately 7% of ERO's consolidated net sales. Under the terms of certain
license agreements, ERO is required to pay minimum guaranteed fees to the
licensor over the life of the agreement. The guaranteed license fees payable
by ERO have not been significant because ERO's annual percentage royalties
have generally exceeded its contractual minimum requirements for its licenses.
International
The section labeled "Note 11 - Geographic Information" which appears on page
20 in the 1996 annual report is incorporated herein by reference.
For the years ended December 31, 1996, 1995, and 1994, ERO's sales to
customers located outside the United States totaled $21.3 million, $11.3
million and $8.7 million, respectively.
Manufacturing and Supply
ERO currently produces slumber bags, personal flotation devices, juvenile
furniture and children's room decor in its Georgia manufacturing plant.
ERO's activities, arts and crafts products are produced in its Quebec and
New York manufacturing facilities. The remainder of the Company's products
are purchased from manufacturers located in the United States, the People's
Republic of China, Taiwan, Italy and Indonesia. In 1996, ERO manufactured
approximately 75% of sales in its own facilities. The Company believes that
this has a positive impact on its ability to meet its customers needs for
rapid response delivery with a minimum of inventory levels. In addition,
because ERO's slumber products and water sports products are produced during
different times of the year, ERO is able to level production costs in all of
its plants during the year and, consequently, is able to minimize higher
costs usually associated with seasonal facilities. ERO believes that raw
materials and labor necessary to produce its products are readily available.
Competition
ERO operates in a highly competitive environment, with many other companies
seeking to license characters and sell children's products to mass
merchandisers. Some of these companies are larger and have greater financial
resources than ERO. ERO believes that it is the largest marketer of products
included in ERO Industries' Slumber Shoppe product group. ERO is one of a
number of companies competing for markets with respect to products in its
water sports, Impact, Priss Prints and Amav lines. In addition, ERO competes
with many others for licenses to use popular characters.
Competitive factors in the market for ERO's products include characters
licensed, cost, product design and quality, new product innovation and
inventiveness of marketing and distribution approaches. Competitive factors
in the market for character licenses include royalty levels, breadth of
product lines, timely royalty reporting and payment, artistic applications
and compliance with licensors' guidelines.
Employees
As of December 31, 1996, ERO had 1,195 employees. ERO believes that its
future success will depend in part on its ability to continue to recruit,
retain and motivate qualified employees. None of ERO's employees are
represented by a labor union. ERO has not experienced any work stoppages
and considers its relations with its employees to be good.
Environmental
ERO believes that its operations currently comply in all material respects
with applicable federal, state and local environmental laws and regulations.
ERO does not anticipate any significant expenditures in order to continue to
comply with such laws and regulations.
Significant Concentration of Customers
A significant level of the Company's net sales is generated from approximately
five retail companies that serve national markets. Sales to the Company's top
five customers aggregated approximately 56%, 60% and 61% of net sales for the
years ended December 31, 1996, 1995 and 1994, respectively. Three of the
Company's customers, Toys "R" Us, Wal-Mart and Target each accounted for over
10% of the Company's net sales during 1996, 1995 and 1994, aggregating
approximately 46%, 49% and 52% of net sales, respectively.
Backlog
Because the vast majority of ERO's sales are made in response to customer
orders and satisfied relatively promptly, ERO's backlog is not significant.
Item 2. Properties
The following table provides certain information regarding the Company's
principal facilities:
Date
Approximate Constructed,
Square Type of Acquired or
Location Footage Interest Description of Use First Occupied
Saint Laurent, Quebec* 800,000 Owned Amav Sales, Administration,
Manufacturing and Distribution 1995
Hazlehurst, Georgia** 230,000 Owned ERO Industries and Impact Manufacturing
Manufacturing and Distribution 1947
Plattsburgh, New York*** 80,000 Owned Amav Manufacturing and Distribution 1995
Mount Prospect, Illinois 38,000 Leased ERO and ERO Industries Corporate Office 1992
Hazlehurst, Georgia 27,000 Leased Priss Prints Distribution 1986
Boca Raton, Florida 5,000 Leased Impact Sales and Marketing 1994
Dallas, Texas 4,000 Leased Priss Prints Sales and Marketing 1995
*This property is subject to a hypothecary claim of first rank in favor of
Amav Industries Ltd. and a hypothecary claim of second rank in favor of The
First National Bank of Chicago, as agent for the lenders under a credit
agreement.
**This property is subject to a deed of trust in favor of The
First National Bank of Chicago, as agent for the lenders under a credit
agreement.
***This property is subject to security agreements in favor of the lenders
to the Company.
The Company believes that its properties and equipment are in good condition
and that it has sufficient capacity to meet its current manufacturing and
distribution needs.
Item 3. Legal Proceedings
The Company is currently involved in several lawsuits arising in the ordinary
course of business. The Company maintains product liability insurance and
does not believe that the outcome of any such lawsuits will have a material
adverse effect on the Company's financial condition. Although historically
the Company has not been required to pay any material liability claims, there
can be no assurance that the Company will not incur claims which are in
excess of its insurance.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted during the fourth quarter of the year ended
December 31, 1996.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The sections labeled "Note 12 - Quarterly Financial Data" and "Stockholder
Information" which appear on pages 20 and 24, respectively, in the 1996
Annual Report are incorporated herein by reference. The Company has not
paid cash dividends historically, and does not intend to do so in the
foreseeable future.
Item 6. Selected Financial Data
The section labeled "Five-Year Financial Summary" which appears on page 22
in the 1996 Annual Report is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Conditions and
Results of Operations
The section labeled "Management's Discussion and Analysis of Financial
Conditions and Results of Operations" which appears on pages 7 and 8 in the
1996 Annual Report is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements, notes thereto and Report of
Independent Accountants thereon which appear on pages 9 through 21 in
the 1996 Annual Report are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
(a) Directors of the Registrant.
The section labeled "Election of Directors" which appears in the 1997 Proxy
Statement is incorporated herein by reference.
(b) Executive Officers of the Registrant.
The following table sets forth certain information concerning the Company's
executive officers:
Name Age Position
D. Richard Ryan, Jr 57 Chairman, President and Chief Executive Officer
Thomas M. Gasner 51 Executive Vice President of Operations
Mark D. Renfree 39 Senior Vice President of Finance and Chief Financial
Officer
D. Richard Ryan, Jr., 57, joined the Company in 1993, was elected to the
Board of Directors in 1994 and currently serves as Chairman, President and
Chief Executive Officer. Prior to joining the Company, Mr. Ryan was President
and Chief Executive Officer of Dansk International Designs, Ltd. from November
of 1985 through August of 1991, President and Chief Executive Officer of
Marley Holdings, Inc. from 1981 through 1985 and President of General
Housewares Corp.'s Cookware Group from 1974 through 1981.
Thomas M. Gasner, 51, joined the Company in 1981 and currently serves as
Executive Vice President of Operations where his responsibilities include
production, inventory control and purchasing. Mr. Gasner has been a member
of the Board of Directors since 1988.
Mark D. Renfree, 39, joined the Company in 1997 and currently serves as the
Company's Senior Vice President of Finance and Chief Financial Officer where
his responsibilities include financial planning, treasury, accounting, credit,
human resources, management information systems, insurance and negotiating
and monitoring the Company's borrowing facilities. Prior to joining the
Company, Mr. Renfree served as Senior Vice President of Finance and Chief
Financial Officer of Premier Health Alliance from 1995 through 1996 and
Senior Vice President of Finance and Administration and Chief Financial
Officer of ProGroup from 1992 through 1994.
Item 11. Executive Compensation
The section labeled "Executive Compensation" which appears in the 1997 Proxy
Statement is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The section labeled "Security Ownership" which appears in the 1997 Proxy
Statement is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
None.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents Filed as Part of this Report
(1) Financial Statements
The following financial statements contained on pages 9 through 21 in the
1996 Annual Report are incorporated herein by reference:
Report of Independent Accountants
Consolidated Income Statements for the Years Ended December 31, 1996,
1995 and 1994
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
(2) Financial Statement Schedule
Schedule VIII - Valuation and Qualifying Accounts and Reserves
All other schedules have been omitted because they are not applicable or are
not required, or because the required information has been included in the
Consolidated Financial Statements or Notes thereto.
(3) Exhibits
(1) 3.1 Restated Certificate of Incorporation of the Company
(1) 3.2 By-laws of the Company
(1) 4.1 Form of certificate representing shares of Common Stock of the
Company
(1) 10.1 Voting Agreement, dated July 15, 1988, as amended February 27,
1992, among the Company, GTC Fund III, certain other investors
and certain senior managers of the Company ("Senior Management")
(1) 10.2 Registration Agreement, dated July 15, 1988, among the Company,
GTC Fund III, certain other investors and Senior Management
(1) 10.3 Form of Senior Management Agreement, dated July 15, 1988, as
amended April 1, 1991 and February 26, 1992, between the Company
and Senior Management
(1) 10.4 1992 Key Employee Stock Option Plan
(1) 10.5 1992 Directors' Stock Option Plan
(2) 10.6 Lease Agreement, dated May 26, 1992, between Opus North Company
and ERO Industries, Inc.
(2) 10.7 Amendment to Voting Agreement, dated as of April 1, 1992, among
the Company, GTC Fund III and Senior Management
(3) 10.8 Employment Agreement, effective January 1, 1994, between Impact,
Inc. and Kenneth Litvack
(3) 10.9 Lease, dated November 30, 1993, between Hazlehurst Main Street,
Inc. and ERO Industries, Inc.
(3) 10.10 Lease, dated September 27, 1990, between Compson Group, Ltd.
and Impact International, Inc., First Addendum to the Lease,
effective July 1, 1991, Second Addendum to the Lease, dated
August 24, 1993 and Assignment of the Lease, dated February 11,
1994, by Impact International, Inc. to and in favor of Impact,
Inc.
(3) 10.11 The Third Restatement of ERO Industries, Inc. Retirement Income
Plan (401(k))
(4) 10.12 Second Amended and Restated Credit Agreement dated as of
December 14,1995, among ERO Industries, Inc., the financial
institutions party thereto and The First National Bank of Chicago,
as agent
(4) 10.13 Asset Purchase Agreement, dated October 19, 1995, among Amav
Industries Ltd., Avi Sochaczevski, Amos Sochaczevski, as seller,
ERO Industries, Inc., ERO NY Acquisition, Inc. and ERO Canada
Acquisition, Ltd., as buyer
(5) 10.14 Lease, dated September 15, 1995 between CleveTrust Realty Investors
and Priss Prints, Inc.
(5) 10.15 Employment Agreement, dated December 14, 1995, between Amav
Industries, Ltd. (formerly ERO Canada Acquisition, Ltd.) and
Avi Sochaczevski
(5) 10.16 Employment Agreement, dated December 14, 1995, between Amav
Industries, Ltd. (formerly ERO Canada Acquisition, Ltd.) and
Amos Sochaczevski
10.17 1997 ERO, Inc. Incentive Compensation Plan
10.18 1997 ERO Industries, Inc. Incentive Compensation Plan
10.19 1997 ERO Industries, Inc. Sales Incentive Compensation Plan
10.20 1997 Priss Prints, Inc. Incentive Compensation Plan
10.21 1997 Impact, Inc. Incentive Compensation Plan
10.22 1997 ERO Canada, Inc. Incentive Compensation Plan
10.23 Second Amendment to the Third Restatement of ERO Industries,
Inc. Retirement Income Plan (401(k))
10.24 ERO, Inc. Nonqualified Deferred Compensation Plan dated
January 27, 1997
10.25 Amendment Number One, dated March 31, 1996, Amendment Number Two,
dated June 28, 1996 and Amendment Number Three, dated March 3,
1997, to the Second Amended and Restated Credit Agreement,
dated as of December 14, 1995, among ERO Industries, Inc., the
financial institutions party thereto and The First National Bank
of Chicago, as agent
10.26 Employment Agreement dated April 3, 1996 between ERO Industries,
Inc. and Barry J. Ryan
13.1 Annual Report to Stockholders for the year ended December 31,
1996
(6) 21.1 Subsidiaries of the Company
27.1 Financial Data Schedule
___________
(1) Incorporated by reference to the respective exhibit to the Company's
Registration Statement on Form S-1 (File No. 33-46102).
(2) Incorporated by reference to the respective exhibit to the
Company's Report on Form 10-K (File No. 0-19942) for the fiscal
year ended December 31, 1992.
(3) Incorporated by reference to the respective exhibit to the
Company's Report on Form 10-K (File No. 0-19942) for the fiscal
year ended December 31, 1993.
(4) Incorporated by reference to the respective exhibit to the
Company's Current Report on Form 8-K (File No. 0-19942), regarding
the acquisition of Amav Industries Ltd., dated December 18, 1995
and filed on December 29, 1995.
(5) Incorporated by reference to the respective exhibit to the Company's
Report on Form 10-K (File No. 0-19942) for the fiscal year ended
December 31, 1995.
(6) Incorporated by reference to the section labeled "Operating
Subsidiaries" which appears on page 23 in the Company's 1996
Annual Report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the fourth quarter of
1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
ERO, Inc.
By: /s/Mark D. Renfree
Date: March 28, 1997 Mark D. Renfree
Senior Vice President of Finance and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on behalf of the Registrant and in the capacities and
on the date set forth above.
Signature Capacity
/s/ D. Richard Ryan, Jr. Chairman of the Board, President and Chief
D. Richard Ryan, Jr. Executive Officer (principal executive officer)
/s/ Thomas M. Gasner Executive Vice President of Operations and Director
Thomas M. Gasner
/s/ Mark D. Renfree Senior Vice President of Finance
Mark D. Renfree (principal financial and accounting officer)
/s/ Robert J. Lipsig Director
Robert J. Lipsig
/s/ Arthur S. Nicholas Director
Arthur S. Nicholas
/s/ Bruce V. Rauner Director
Bruce V. Rauner
/s/ Lee M. Mitchell Director
Lee M. Mitchell
Report of Independent Accountants on Financial Statement Schedule
To the Board of Directors and
Stockholders of ERO, Inc.
Our audits of the consolidated financial statements referred to in our report
dated February 7, 1997 appearing on page 21 of the 1996 Annual Report to
Shareholders of ERO, Inc. (which report and consolidated financial statements
are incorporated by reference in this Annual Report on Form 10-K) also
included an audit of the Financial Statement Schedule listed in Item 14(a)
of this Form 10-K. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
/s/Price Waterhouse LLP
Chicago, Illinois
February 7, 1997
ERO, Inc.
Schedule VIII
Valuation and Qualifying Accounts and Reserves
For the Years Ended December 31, 1996, 1995, and 1994
Additions Deletions
------------------------ --------------------------
Foreign
Balance at Charged to Charged Currency Balance
Description of Allowances Beginning Costs and to Other Translation at End
and Reserves of Year Expenses Accounts Write-offs Adjustment of Year
- ---------------------------------- ------------ ---------- ---------- ----------- ----------- -----------
1996
Allowance for doubtful accounts $ 1,038,000 $ 770,000 $(559,000)(1) $ (920,000) $ (42,000) $ 287,000
Accumulated amortization
of deferred charges 1,127,000 945,000 -- (1,510,000)(3) -- 562,000
Accumulated amortization
of intangible assets 11,569,000 2,450,000 -- -- (45,000) 13,974,000
1995
Allowance for doubtful acccounts $ 241,000 $ 343,000 $ 723,000 (2) $ (269,000) -- $ 1,038,000
Accumulated amortization
of deferred charges 1,248,000 529,000 -- (650,000)(3) -- 1,127,000
Accumulated amortization
of intangible assets 9,861,000 1,708,000 -- -- -- 11,569,000
1994
Allowance for doubtful accounts $ 81,000 $ 460,000 -- $ (300,000) -- $ 241,000
Accumulated amortization
of deferred charges 632,000 616,000 -- -- -- 1,248,000
Accumulated amortization
of intangible assets 8,293,000 1,568,000 -- -- -- 9,861,000
(1) Represents correction of prior year reserve established on the opening balance sheet pursuant to the Amav Industries Ltd.
acquisition.
(2) Represents reserve established on the opening balance sheet pursuant to the Amav Industries Ltd. acquisition.
(3) Represents the removal of fully amortized items from the accounts.