Exhibit 99.1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Schultz Company:
In our opinion, the accompanying consolidated balance sheet and the related
statements of operations, of cash flows and of changes in stockholders'
equity present fairly, in all material respects, the financial position of
the Schultz Company and its subsidiary at September 30, 2001, and the results
of its operations and its cash flows for the year then ended in conformity
with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
June 25, 2002
SCHULTZ COMPANY
BALANCE SHEETS
MARCH 31,
2002 SEPTEMBER 30,
(UNAUDITED) 2001
--------------- ---------------
ASSETS
Current assets:
Cash and cash equivalents $ 2,428 $ 202,073
Accounts receivable (less allowance for doubtful accounts
of $592,630 at September 30, 2001 and $572,924 at
March 31, 2002) 23,934,220 6,667,321
Inventories 15,518,974 9,795,957
Prepaid expenses 896,198 664,898
Deferred income tax 294,500 221,700
--------------- ---------------
Total current assets 40,646,320 17,551,949
Equipment and leasehold improvements 3,493,546 3,461,082
Deferred income tax - 147,600
Due from related party 346,656 977,480
Other assets $ 438,088 506,967
--------------- ---------------
Total assets 44,924,610 $ 22,645,078
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and capital lease obligations $ 297,283 $ 213,885
Accounts payable 16,801,784 7,652,451
Accrued expenses 5,202,037 1,822,975
--------------- ---------------
Total current liabilities 22,301,104 9,689,311
Long-term debt 14,538,434 7,381,309
Capital lease obligations 92,241 23,042
Deferred income tax 85,600 -
Due to related party 428,119 1,018,722
--------------- ---------------
Total liabilities 37,445,498 18,112,384
Stockholders' equity:
Common stock, authorized 500 shares; $100 par value:
issued and outstanding 40 shares 4,000 4,000
Additional paid-in capital 976,855 976,855
Retained earnings 6,698,257 3,751,839
Treasury stock (9.85 shares at cost) (200,000) (200,000)
--------------- ---------------
Total stockholders' equity 7,479,112 4,532,694
--------------- ---------------
Total liabilities and stockholders' equity $ 44,924,610 $ 22,645,078
=============== ===============
See accompanying notes to financial statements.
SCHULTZ COMPANY
STATEMENTS OF OPERATIONS
FOR THE SIX
MONTHS ENDED YEAR ENDED
MARCH 31, 2002 SEPTEMBER
(UNAUDITED) 2001
-------------- -------------
Sales before promotion expense $ 48,684,930 $ 92,963,034
Promotion expense 759,796 1,767,704
-------------- ------------
Net sales 47,925,134 91,195,330
-------------- ------------
Operating costs and expenses:
Cost of goods sold 35,252,009 73,612,779
Selling, general and administrative expenses 7,763,761 13,670,864
-------------- ------------
Total operating costs and expenses 43,015,770 87,283,643
-------------- ------------
Operating income 4,909,364 3,911,687
Interest expense 290,065 817,215
-------------- ------------
Income before provision for income taxes 4,619,299 3,094,472
Income tax expense 1,672,881 1,294,416
-------------- ------------
Net income $ 2,946,418 $ 1,800,056
============== ============
See accompanying notes to financial statements.
SCHULTZ COMPANY
STATEMENTS OF CASH FLOWS
FOR THE
SIX MONTHS
ENDED YEAR ENDED
MARCH 31, 2002 SEPTEMBER
(UNAUDITED) 2001
-------------- -----------
Cash flows from operating activities:
Net income $ 2,946,418 $ 1,800,056
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 610,368 1,126,344
Loss on disposal of equipment 11 2,184
Amortization of deferred financing fees 21,228 25,326
Deferred income tax expense (benefit) 160,400 (87,300)
Changes in assets and liabilities:
(Increase) in accounts receivable (17,266,899) (872,006)
(Increase) in inventories (5,723,017) (2,062,457)
(Increase) in prepaid expenses (231,300) (231,760)
(Increase) in other assets (334,431) (106,750)
Increase in accounts payable and accrued expenses 12,528,396 880,281
------------ -----------
Net cash provided by operating activities (7,288,826) 473,918
Investing activities:
Purchases of equipment and leasehold improvements (609,208) (1,465,122)
------------ -----------
Net cash used for investing activities (609,208) (1,465,122)
Financing activities:
Debt issuance costs (353) (25,000)
Borrowing on revolving line-of-credit 7,405,549 1,722,444
Repayment of long-term debt (93,500) (502,243)
Repayment of capital lease obligations (35,611) (64,202)
Advances on note receivable 422,304 (5,821)
------------ -----------
Net cash provided by financing activities 7,698,389 1,125,178
Net increase in cash and cash equivalents (199,645) 133,974
Cash and cash equivalents - beginning of period 202,073 68,099
------------ -----------
Cash and cash equivalents - end of period $ 2,428 $ 202,073
============ ===========
Supplemental disclosure of cash flow information:
Interest paid $ 305,450 $ 895,000
Income taxes paid $ - $ 144,000
Noncash financing activity:
Execution of capital lease $ 33,635 $ 20,278
See accompanying notes to financial statements.
SCHULTZ COMPANY
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Class A voting
common stock Additional Treasury stock Total
-------------------- paid-in Retained ----------------- stockholders'
Shares Amount capital earnings Shares Amount equity
------ ------ ---------- ----------- ------ --------- ------------
Balance at September 30, 2000 40 $ 4,000 $ 976,855 $ 1,951,783 9.85 $(200,000) $ 2,732,638
Net income 1,800,056 1,800,056
------ ------- --------- ----------- ---- --------- -----------
Balance at September 30, 2001 40 4,000 976,855 3,751,839 9.85 (200,000) 4,532,694
Net income (unaudited) 2,946,418 2,946,418
------ ------- --------- ----------- ---- --------- -----------
Balance at March 31, 2002
(unaudited) 40 $ 4,000 $ 976,855 $ 6,698,257 9.85 $(200,000) $ 7,479,112
====== ======= ========= =========== ==== ========= ===========
See accompanying notes to financial statements.
SCHULTZ COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Schultz company & subsidiary (the "Company") manufactures horticultural
products and specialty items, particularly for the indoor houseplant care
segment of the market. The Company also distributes charcoal, potting soil
and soil conditioners. The Company distributes its products mainly to retail
outlets and nurseries throughout the United States and Canada.
BASIS OF PRESENTATION OF INTERIM PERIOD FINANCIAL STATEMENTS
The accompanying unaudited interim financial statements have been prepared in
accordance with Article 10 of Regulation S-X and do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments considered necessary for a fair presentation have been
included. Operating results for the interim period ended March 31, 2002 are
not necessarily indicative of the results for any other period or for the
full year. These statements should be read in conjunction with the financial
statements and notes thereto for Schultz Company for the year ended September
30, 2001.
ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
CONSOLIDATION POLICY
The consolidated financial statements of the Company include its
wholly-owned subsidiary, Ground Zero, Inc. d/b/a American Charcoal, Inc. All
material intercompany transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investment instruments purchased
with an original maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market, with cost being
determined using the first-in, first-out method. Cost includes raw materials,
direct labor and overhead. Provision for potentially obsolete or slow-moving
finished goods and raw materials are made based on management's analysis of
inventory levels and future sales forecasts.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Expenditures for equipment and leasehold improvements and those that
substantially increase the useful lives of equipment are capitalized.
Maintenance, repairs and minor renewals are expensed as incurred. When equipment
is retired or otherwise disposed of, the related cost and accumulated
depreciation are removed from the accounts and gains or losses on the
dispositions are reflected in earnings. Depreciation is computed on the
straight-line basis by charges to costs or expenses at rates based on the
estimated useful lives of the assets. Machinery and equipment are depreciated
over periods ranging from three to twelve years. Office furniture and equipment
are depreciated over periods ranging from five to ten years. Automobiles and
trucks are depreciated over periods ranging from three to seven years. Leasehold
improvements are amortized over periods ranging from five to fifteen years.
Property under capital lease is amortized over the term of the lease.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company continually evaluates whether events and circumstances have
occurred that indicate the remaining useful lives of equipment and leasehold
improvements may warrant revision or that the remaining balance of equipment
and leasehold improvements may not be recoverable. The measurement of
possible impairment is based on the ability to recover the balance of the
equipment and leasehold improvements from expected future operating cash
flows. In the opinion of management, no such impairment existed as of
September 30, 2001.
1
SCHULTZ COMPANY
NOTES TO FINANCIAL STATEMENTS
INTANGIBLES
Intangibles are included in other assets and represent the cost of
intangible assets acquired and are amortized over a period up to 5 years. The
Company continually evaluates whether later events and circumstances have
occurred that indicate the remaining useful life of an intangible asset may
warrant revision or that the remaining balance of an intangible asset may not
be recoverable. The measurement of possible impairment is based on the
ability to recover the balance of intangible assets from expected future
operating cash flows. In the opinion of management, no such impairment
existed as of September 30, 2001.
PROMOTION EXPENSE
The Company advertises and promotes its products through national and
regional media. Products are also advertised and promoted through cooperative
programs with retailers. The Company expenses advertising and promotion costs
as incurred.
REVENUE RECOGNITION
The Company recognizes revenue in accordance with the shipping terms
applicable to each sale. Sales are net of discounts and allowances.
COMPREHENSIVE INCOME
Comprehensive income is defined as the total of net income and all other
non-owner changes in equity. The Company has no other items that affect
comprehensive income other than net income.
INCOME TAXES
The Company accounts for income taxes under the asset and liability
method. Under this method, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial reporting basis and the tax basis of the Company's assets and
liabilities at enacted tax rates expected to be in effect when such amounts are
recovered or settled.
EARNINGS PER SHARE
In accordance with generally accepted accounting principles, earnings per
share information is not presented since the Company does not have publicly
traded common stock.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Emerging Issues Task Force (EITF) issued EITF 00-25. This issue addresses
when consideration from a vendor to a retailer (a) in connection with the
retailer's purchase of the vendor's products or (b) to promote sales of the
vendor's products by the retailer should be classified in the vendor's income
statement as a reduction of revenue. The Company has adopted EITF 00-25 for
the year ended September 30, 2001. The Company has reclassified all trade and
co-op promotional expense in the Statements of Operations to net sales.
2
SCHULTZ COMPANY
NOTES TO FINANCIAL STATEMENTS
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In July 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible
Assets". SFAS 142 eliminates the amortization of goodwill and instead
requires goodwill to be tested for impairment annually. Also, intangible
assets are required to be amortized over their useful lives and reviewed for
impairment in accordance with SFAS 144, as discussed in the following
paragraph. Under SFAS 142, if the intangible asset has an indefinite useful
life, it is not amortized until its life is determined to be finite. The
Company is required to adopt SFAS 142 no later than fiscal year 2003. The
Company does not believe that SFAS 142 will have a material impact on the
financial statements.
In August 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 144 (SFAS 144), "Accounting for the
Impairment or Disposal of Long-Lived Assets." This Statement addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. This Statement supersedes FASB Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and
the accounting and reporting provisions of APB Opinion No. 30, Reporting the
Results of Operations -- Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, for the disposal of a segment of a business (as previously defined
in that Opinion). This Statement also amends ARB No. 51, Consolidated Financial
Statements, to eliminate the exception to consolidation for a subsidiary for
which control is likely to be temporary. The Company does not believe that
SFAS 144 will have a material impact on the financial statements. The
provisions of this statement are effective for financial statements issued
for fiscal years beginning after December 15, 2001 or fiscal year 2003 for
the Company.
3
SCHULTZ COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 2-INVENTORIES
Inventories are as follows:
Unaudited
March 31, September 30,
2002 2001
------------- -------------
Raw materials $ 8,142,236 $ 6,627,145
Finished goods 7,990,880 3,526,372
Allowance for obsolete and
slow-moving inventory (614,142) (357,560)
------------- ------------
Total inventories $15,518,974 $ 9,795,957
============= ============
NOTE 3-EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are as follows:
Unaudited
March 31, September 30,
2002 2001
------------ -------------
Machinery and equipment $5,182,955 $ 4,664,541
Office furniture and equipment 2,659,570 2,746,781
Automobiles and trucks 127,991 57,991
Leasehold improvements 99,029 95,347
------------ -------------
8,069,545 7,564,660
Accumulated depreciation (4,575,999) (4,103,578)
------------ -------------
$3,493,546 $ 3,461,082
============ =============
Depreciation expense was $1,116,607 in 2001 and $610,366 for the
unaudited six month period ending March 31, 2002. Included in machinery and
equipment is equipment under capital lease obligations with a cost of
$314,430 and accumulated depreciation of $143,073 at September 30, 2001. See
note 11 for a summary of capital lease obligations. The net book value of
assets under capital lease obligations is $193,895 at March 31, 2002.
4
SCHULTZ COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 4-OTHER ASSETS
Other assets are as follows:
Unaudited
March 31, September 30,
2002 2001
------------ -------------
Intangibles $ 207,375 $ 190,156
Accumulated amortization (149,080) (140,603)
------------ -------------
58,295 49,553
------------ -------------
Deferred financing fees 192,000 192,000
Accumulated amortization (147,425) (134,674)
------------ -------------
44,575 57,326
------------ -------------
Cash surrender value of life insurance, net
of loans of $18,600 284,218 284,217
Investment securities held to maturity 51,000 51,000
Other assets - 64,871
------------ -------------
Total other assets $ 438,088 $ 506,967
============ =============
See note 9 for a discussion of transactions with related parties.
NOTE 5-ACCRUED EXPENSES
Accrued expenses are as follows:
Unaudited
March 31, September 30,
2002 2001
----------- -------------
Advertising and promotional $ 777,764 $ 262,054
Accrued income taxes 1,065,353 533,104
Cash Overdraft 2,161,039 0
Other 613,326 472,424
Compensation Related Accruals 584,555 555,393
----------- -------------
Total accrued expenses $5,202,037 $1,822,975
=========== =============
5
SCHULTZ COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 6-LONG-TERM DEBT AND CREDIT FACILITIES
Long-term debt is comprised of the following:
Unaudited
March 31,
2002 2001
----------- ----------
Long-term Debt:
Term loan A $ 388,058 $ 165,750
Term loan B 328,125 371,875
Term loan C 11,295 13,372
Revolving credit facility 14,108,239 6,973,023
----------- ----------
14,835,717 7,524,020
Less portion due within one year (297,283) (142,711)
----------- ----------
Total long-term debt net of current portion $14,538,434 $7,381,309
=========== ==========
The Long-term debt provided by LaSalle Bank, consists of a $25,000,000
revolving credit facility (the "revolving credit facility"), a $255,000 term
loan facility ("Term Loan A"); and a $525,000 term loan facility ("Term Loan
B"). The revolving credit facility matures in December 2003, Term Loan A matures
in December 2002, and Term Loan B matures in December 2004. The revolving credit
facility is subject to a clean-down period during which the aggregate amount
outstanding under the revolving credit facility shall not exceed $17,250,000 for
the months of July through January in each calendar year.
The principal amount of Term Loan A is to be repaid in twenty-two
consecutive monthly installments commencing January 22, 2000 with a final
payment due December 10, 2002. The principal amount of Term Loan B is to be
repaid in sixty consecutive monthly installments commencing January 22, 1999
with a final installment due December 22, 2004.
The LaSalle long-term debt and revolving credit agreement contains
restrictive affirmative, negative and financial covenants. Affirmative and
negative covenants put restrictions on levels of investments, indebtedness,
insurance and capital expenditures. Financial covenants require the maintenance
of certain financial ratios at defined levels. The revolving line-of-credit is
subject to a borrowing calculation based upon eligible accounts receivable and
inventory, with a cap of $4,000,000 on inventory. The agreement also places a
cap on fixed asset additions and a restriction on the payment of dividends.
Availability on the revolving line-of-credit at September 30, 2001, was
$888,224.
Effective September 30, 2001, a waiver was obtained for non-compliance
with certain financial covenants. The Company is in compliance with all
financial covenants at March 31, 2002
Substantially all of the properties and assets of the Company secure the
obligations under the long-term debt agreements.
There were no compensating balance requirements for the $25,000,000
Revolving Credit Facility at September 30, 2001.
The carrying amount of the Company's obligations under long-term debt
approximates fair value because the interest rates are based on floating
interest rates identified by reference to market rates. Actual interest rates at
September 30, 2001, were 7.25% on Term Loans A and B, and 6.75% on the revolving
credit facility.
6
SCHULTZ COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 6-LONG-TERM DEBT AND CREDIT FACILITIES (CONTINUED)
Aggregate maturities under the long-term debt are as follows:
September 30,
2001
-------------
2002 $ 142,711
2003 339,935
2004 7,028,624
2005 12,750
2006 -
Thereafter -
----------
$7,524,020
==========
NOTE 7-INCOME TAXES
Income tax expense is as follows for the year ended:
2001
-----------
Current:
Federal $1,293,073
State and local 88,643
----------
Total current 1,381,716
----------
Deferred:
Federal (76,400)
State and local (10,900)
----------
Total deferred (87,300)
----------
Total income tax expense $1,294,416
==========
7
SCHULTZ COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 7- INCOME TAXES (CONTINUED)
Income tax expense attributable to the income before the provision for
income taxes differed from the amounts computed by applying the U.S. Federal
income tax rate of 35% to the income before the provision for income taxes by
the following amounts:
2001
-----------
Computed "expected" tax expense (benefit) $1,083,065
Tax effect of:
Non-deductible meals & entertainment expenses 17,099
Other non-deductible accruals 116,509
State and local taxes 77,743
-----------
Total income tax expense $1,294,416
===========
Deferred income taxes are as follows for the year ended:
2001
-----------
Deferred tax assets:
Inventories $ 32,400
Deferred compensation 69,300
Other accruals, net 527,500
-----------
Gross deferred tax assets 629,200
-----------
Valuation allowance -
-----------
Total deferred tax assets 629,200
-----------
Deferred tax liabilities:
Equipment and leasehold improvements (259,900)
-----------
Net deferred tax assets $ 369,300
===========
Deferred income tax assets and liabilities are reflected in the balance
sheet are as follows:
2001
-----------
Deferred income tax, current $ 221,700
Deferred income tax, non current 147,600
-----------
$ 369,300
===========
8
SCHULTZ COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 8-DEFERRED COMPENSATION PLANS
The Company has a 401(k) savings plan, which covers substantially all
of its employees with six months or more of continuous service. The 401(k)
Plan allows participants to defer a portion of eligible compensation on a
tax-deferred basis. The plan provides for the Company to match 50% of each
employee's voluntary contribution up to 10% of gross earnings. The Company's
matching contribution amounted to $121,492 for 2001 and $54,848 for the
unaudited six months ended March 31, 2002.
NOTE 9-TRANSACTIONS WITH RELATED PARTIES
Other liabilities represent accrued royalty fees due to the current
Chairman Emeritus of the Company, the owner of the formula's and processes
utilized in the production of the Company's products. The royalty agreement
established an annual royalty fee of two percent of gross sales in each year
gross sales exceed $1,000,000. The term of the agreement includes the
lifetime of the Chairman Emeritus and continues for ten years after his
death. Payment of the royalty fees is subordinate to the long-term debt and
revolving credit agreement. The Chairman Emeritus waived his right to the
royalty fees and related interest for the year ended September 30, 2001. This
amount was settled in fiscal year 2002.
Included in other assets are notes and interest receivable from the
majority stockholders' of the Company. The notes are due on demand and accrue
interest at five percent. The notes and interest receivable have been
classified as long-term as the Company does not intend to request payment
during 2002. The receivable from related party was $977,480 and $346,656 at
September 2001 and March 31, 2002 (unaudited), respectively.
NOTE 10-CONCENTRATION OF CREDIT RISKS, EXPOSURES AND FINANCIAL INSTRUMENTS
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of trade accounts receivable.
The Company is heavily dependent on three customers for a substantial majority
of its sales. These three customers accounted for approximately 63% of net sales
for 2001. At September 30, 2001, accounts receivable from these three customers
were 60% of total accounts receivable.
The Company performs ongoing credit evaluations of its customers'
financial conditions and generally does not require collateral from its
customers. The Company maintains allowances for potential credit losses, and
such losses have generally been within management's expectations.
The Company does utilize various commodity and specialty chemicals in its
production process. The Company does not use derivative commodity instruments to
hedge its exposures to changes in commodity prices.
The carrying value of cash and short-term financial instruments
approximates fair value due to the short maturity of those instruments.
9
SCHULTZ COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 11-COMMITMENTS
The Company is obligated under various operating leases for its
operating facility, use of warehouse and office space, autos, and equipment.
The leases expire at various dates through January 31, 2015. Aggregate rent
expense amounted to $1,060,703 for 2001 and $756,501 for the unaudited six
month period ended March 31, 2002.
The following is a summary of future minimum payments under the operating
and capital leases described above that have initial or remaining noncancelable
lease terms in excess of one year at September 30, 2001.
OPERATING LEASES CAPITAL LEASES
---------------------- --------------
TOTAL
-----
Year Ended September 30,
2002 $ 1,046,656 $ 79,061 $ 1,125,717
2003 982,618 20,564 1,003,182
2004 918,341 4,182 922,523
2005 915,382 - 915,382
2006 935,000 - 935,000
Thereafter 8,181,250 - 8,181,250
----------- -------- -----------
Total minimum lease payments $12,979,247 103,807 $13,083,054
=========== ===========
Less amount representing interest (9,591)
--------
Present value of net minimum lease payments $ 94,216
========
NOTE 12-CONTINGENCIES
The Company is involved in litigation and arbitration proceedings in the
normal course of business that assert product liability and other claims. The
Company is contesting all such claims. When it appears probable in management's
judgment that the Company will incur monetary damages or other costs in
connection with such claims and proceedings, and such costs can be reasonably
estimated, appropriate liabilities are recorded in the financial statements and
charges are made against earnings.
Management believes the possibility of a material adverse effect on the
Company's consolidated financial position, results of operations and cash flows
from the claims and proceedings described above is remote.
NOTE 13 - SHIPPING AND HANDLING COST
Shipping and handling costs are included in the selling, general and
administrative expense line item on the Company's Statement of Operations.
The amount included is $1,159,827 for 2001 and $479,914 for unaudited six
month period ended March 31, 2002 and represents internal freight and
distribution cost. The remaining shipping and handling cost, which includes
out-bound freight and product cost are included in the cost of goods sold.
10
SCHULTZ COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 14 - SUBSEQUENT EVENT
On May 9, 2002 the Company merged with United Industries Corporation, a
leading manufacturer and marketer of value-oriented products for the consumer
lawn and garden care and insect control markets in the United States.
The purchase price of the merger was approximately $47,000,000. As a
part of the merger, United Industries Corporation paid off the Company's
$20,565,791 credit facility with LaSalle Bank.
11