FORM 8-K/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT TO APPLICATION OR REPORT
Filed pursuant to Section 12, 13 and 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
ACR GROUP, INC.
AMENDMENT NO. 1
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K dated
January 24, 1997, as set forth in the pages attached hereto:
Item 7. Financial Statements and Exhibits
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
ACR GROUP, INC.
Date: April 9, 1997 By: /s/ ANTHONY R. MARESCA
----------------- -----------------------------
Anthony R. Maresca
Senior Vice President and
Chief Financial Officer
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(A) Financial Statements of Business Acquired:
1. Independent Auditors' Report of Ernst & Young for the years
ended December 31, 1996 and 1995.
2. Combined Balance Sheets of Lifetime Filter Manufacturing Ltd.
LLC and Lifetime Filter, Inc. as of December 31, 1996 and 1995.
3. Combined Statements of Income of Lifetime Filter Manufacturing
Ltd. LLC and Lifetime Filter, Inc. for the years ended December
31, 1996 and 1995.
4. Combined Statements of Changes in Owner's Equity of Lifetime
Filter Manufacturing Ltd. LLC and Lifetime Filter, Inc. for the
years ended December 31, 1996 and 1995.
5. Combined Statements of Cash Flows of Lifetime Filter Manufacturing
Ltd. LLC and Lifetime Filter, Inc. for the years ended December
31, 1996 and 1995.
6. Notes to Combined Financial Statements of Lifetime Filter
Manufacturing Ltd. LLC and Lifetime Filter, Inc.
(B) Pro Forma Financial Information:
1. ACR Group, Inc. and Lifetime Filter, Inc. Unaudited Pro Forma
Consolidated Financial Information.
(a) Unaudited Pro Forma Consolidated Balance Sheet of ACR Group,
Inc. and Lifetime Filter, Inc. as of November 30, 1996.
(b) Unaudited Pro Forma Consolidated Statement of Income of ACR
Group, Inc. and Lifetime Filter, Inc. for the nine-month
period from March 1, 1996 to November 30, 1996.
(c) Unaudited Pro Forma Consolidated Statement of Income of ACR
Group, Inc. and Lifetime Filter, Inc. for the year ended
February 28, 1996.
(d) Notes to Unaudited Pro Forma Consolidated Financial
Information.
[LETTERHEAD]
Report of Independent Auditors
Board of Directors and Stockholders
Lifetime Filter Manufacturing Ltd. LLC and
Lifetime Filter, Inc.
We have audited the accompanying combined balance sheets of Lifetime Filter
Manufacturing Ltd. LLC and Lifetime Filter, Inc. (collectively referred to as
the "Company"), as of December 31, 1996 and 1995, and the related combined
statements of income, changes in owners' equity, and cash flows for the years
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the 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 combined financial position of Lifetime Filter
Manufacturing Ltd. LLC and Lifetime Filter, Inc., at December 31, 1996 and
1995, and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
-----------------------------------
Ernst & Young LLP
March 14, 1997
1
Ernst & Young LLP is a member of Ernst & Young International, Ltd.
Lifetime Filter Manufacturing Ltd. LLC and Lifetime Filter, Inc.
Combined Balance Sheets
December 31
1996 1995
---------------------
ASSETS
Current assets:
Cash $ 417,647 $ 139,833
Accounts receivable - trade, net of allowance for
doubtful accounts of $25,000 in 1996 and $8,000
in 1995 155,715 141,680
Inventory 59,217 42,884
Receivable from owner 50,763 20,200
Other current assets 9,123 -
--------- ---------
Total current assets 692,465 344,597
Property and equipment:
Land 40,000 40,000
Building and building improvements 166,289 162,253
Manufacturing equipment 118,871 86,905
Other equipment 71,159 58,761
--------- ---------
396,319 347,919
Accumulated depreciation (150,453) (121,653)
--------- ---------
Net property and equipment 245,866 226,266
--------- ---------
Total assets $ 938,331 $ 570,863
--------- ---------
--------- ---------
LIABILITIES AND OWNER'S EQUITY
Current liabilities:
Accounts payable $ 26,429 $ 23,532
Note payable to bank 4,775 3,178
Accrued expenses 35,728 11,678
--------- ---------
Total current liabilities 66,932 38,388
Owner's equity:
Common stock, $1 par value, authorized
and outstanding shares - 1,000 1,000 1,000
Retained earnings 870,399 531,475
--------- ---------
Total owner's equity 871,399 532,475
--------- ---------
Total liabilities and owner's equity $ 938,331 $ 570,863
--------- ---------
--------- ---------
SEE ACCOMPANYING NOTES.
2
LIFETIME FILTER MANUFACTURING LTD. LLC AND LIFETIME FILTER, INC.
COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31
1996 1995
-----------------------
Sales $2,282,411 $1,380,202
Cost of goods sold 939,798 620,402
-----------------------
1,342,613 759,800
General and administrative expenses 706,636 576,708
-----------------------
Operating income 635,977 183,092
Interest (income) expense, net (4,501) 924
-----------------------
(4,501) 924
-----------------------
Income before state income taxes 640,478 182,168
Provision for state income taxes 28,647 6,347
-----------------------
Net income $ 611,831 $ 175,821
-----------------------
-----------------------
SEE ACCOMPANYING NOTES.
3
LIFETIME FILTER MANUFACTURING LTD. LLC AND LIFETIME FILTER, INC.
COMBINED STATEMENTS OF CHANGES IN OWNER'S EQUITY
NUMBER OF TOTAL
SHARES COMMON RETAINED OWNER'S
OUTSTANDING STOCK EARNINGS EQUITY
----------------------------------------------
Balances at December 31, 1994 1,000 $1,000 $ 388,852 $ 389,852
Net income -- -- 175,821 175,821
Distributions to owner -- -- (33,198) (33,198)
----------------------------------------------
Balances at December 31, 1995 1,000 1,000 531,475 532,475
Net income -- -- 611,831 611,831
Distributions to owner -- -- (272,907) (272,907)
----------------------------------------------
Balances at December 31, 1996 1,000 $1,000 $ 870,399 $ 871,399
----------------------------------------------
----------------------------------------------
SEE ACCOMPANYING NOTES.
4
Lifetime Filter Manufacturing Ltd. LLC and Lifetime Filter, Inc.
Combined Statements of Cash Flows
YEAR ENDED DECEMBER 31
1996 1995
-----------------------
OPERATING ACTIVITIES
Net income $ 611,831 $ 175,821
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 28,800 22,767
Bad debt expense 17,216 11,581
Gain on sale of assets - (1,381)
Changes in operating assets and liabilities:
Accounts receivable (31,251) (14,374)
Inventory (16,333) (32,196)
Receivable from owner (30,563) (19,685)
Accounts payable and accrued expenses 26,947 23,292
Other assets (9,123) -
--------- ---------
Net cash provided by operating activities 597,524 165,825
INVESTING ACTIVITIES
Purchases of property and equipment (48,400) (11,978)
Proceeds from disposition of property and equipment - 13,500
--------- ---------
Net cash (used in) provided by investing activities (48,400) 1,522
FINANCING ACTIVITIES
Proceeds from notes payable to bank 13,840 -
Payments on note payable to bank (12,243) (40,909)
Distributions to owner (272,907) (33,198)
--------- ---------
Net cash used in financing activities (271,310) (74,107)
--------- ---------
Net increase in cash 277,814 93,240
Cash at beginning of year 139,833 46,593
--------- ---------
Cash at end of year $ 417,647 $ 139,833
--------- ---------
--------- ---------
SEE ACCOMPANYING NOTES.
5
Lifetime Filter Manufacturing Ltd. LLC and Lifetime Filter, Inc.
Notes to Combined Financial Statements
December 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
The accompanying financial statements combine the accounts of Lifetime Filter
Manufacturing Ltd. LLC with the accounts of its affiliate, Lifetime Filter,
Inc. (collectively referred to as the "Company"). Lifetime Filter
Manufacturing Ltd. LLC is a Texas corporation engaged in the manufacturing,
marketing, and sales of electrostatic filters, Lifetime Filter, Inc., is a
Texas corporation which owns land, a building, and equipment, which it leases
to Lifetime Filter Manufacturing Ltd. LLC. Because the companies have common
ownership, the accompanying financial statements are presented on a combined
basis. Intercompany transactions and balances have been eliminated.
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 at the balance
sheet dates and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, other accounts receivable, and accounts payable
approximate fair values due to the short-term maturities of these instruments.
INVENTORIES
Inventories are stated at cost, applied on the first-in, first-out ("FIFO")
method, which is not in excess of market. Finished goods were $24,774 and
$18,681 and raw materials were $34,443 and $24,203 at December 31, 1996 and
1995, respectively.
6
Lifetime Filter Manufacturing Ltd. LLC and Lifetime Filter, Inc.
Notes to Combined Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation expense is recorded
over the estimated useful lives of the assets. The straight-line and declining-
balance methods are used by the Company in providing depreciation for
financial reporting purposes. The cost of repairs and maintenance is expensed
as incurred. The estimated useful lives of assets are as follows:
Buildings and building improvements 31.5 years
Distribution equipment 5 years
Office equipment 5-7 years
Manufacturing equipment 5-7 years
INCOME TAXES
Lifetime Filter Manufacturing Ltd. is a limited liability corporation and
Lifetime Filter, Inc., is an S corporation under the rules and regulations of
the Internal Revenue Service. For both of these companies, earnings for
federal income tax purposes are included in the tax returns of the individual
owner. Accordingly, no federal income taxes have been recognized in the
accompanying combined financial statements.
CONCENTRATION OF CREDIT RISK
Financial instruments that could potentially subject the Company to
concentrations of credit risk are accounts receivable. The Company continuously
evaluates the credit-worthiness of its customers' financial conditions and
generally does not require collateral. The Company maintains reserves for
potential credit losses and, in the past, such losses have been within
management's expectations.
7
Lifetime Filter Manufacturing Ltd. LLC and Lifetime Filter, Inc.
Notes to Combined Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
The Company recognizes revenue from product sales at the time of shipment.
2. NOTES PAYABLE
The Company entered into a note agreement with a bank in December 1991 for
$127,500 with an interest rate of 9.5% and monthly payments due beginning in
February 1992 for four years. Final payment was made in January 1996.
The Company entered into a note agreement with a bank in April 1996 for $13,840
with an interest rate of the bank's base rate (9.25% at December 31, 1996) + 1%
and monthly payments beginning in May 1996 for one year. In January 1997, the
note was paid in full early.
3. SUBSEQUENT EVENT
Effective January 1, 1997, Lifetime Filter, Inc., purchased substantially all of
the net assets of Lifetime Filter Manufacturing Ltd. LLC and contemporaneously,
ACR Group, Inc. purchased all of the issued and outstanding capital stock of
Lifetime Filter, Inc. The accompanying financial statements present the
historical information of the Company and do not give effect to these
transactions.
8
ACR GROUP, INC. AND
LIFETIME FILTER, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Effective as of January 1, 1997, ACR Group, Inc., a Texas corporation
(the "Company"), acquired all of the issued and outstanding capital stock of
Lifetime Filter, Inc., a Texas corporation ("LFI") and, contemporaneously
therewith, LFI acquired substantially all of the assets, and assumed
substantially all of the liabilities, of O'Leary Family Partnership, Ltd., a
Texas limited partnership ("OFP"), pursuant to a Purchase Agreement. OFP had
acquired substantially all of the assets, and assumed substantially all of
the liabilities, of Lifetime Filter Manufacturing, Ltd. ("LFM") on December
31, 1996. A copy of the Purchase Agreement is filed as an exhibit to the
Company's Current Report on Form 8-K dated January 24, 1997, File No.
0-12490, and reference is made to such Agreement for details of the terms of
the acquisition.
The accompanying unaudited pro forma consolidated financial information
("Pro Formas") includes (i) a pro forma consolidated balance sheet as of
November 30, 1996, assuming that the acquisition of LFI was completed as of
such date, and (ii) pro forma consolidated statements of income for the year
ended February 29, 1996 and for the nine-month period ended November 30,
1996, assuming that the acquisition of LFI was completed as of March 1, 1995.
The Pro Formas are derived from (a) the Company's audited historical
consolidated financial statements for the fiscal years ended February 29,
1996, February 28, 1995 and 1994, which are included in the Company's Annual
Report on Form 10-K for the year ended February 29, 1996, (b) the Company's
unaudited financial statements for the nine-month period ended November 30,
1996, which are included in the Company's Quarterly Report on Form 10-Q for
the quarterly period ended November 30, 1996, and (c) audited historical
combined financial statements of LFI and LFM for the years ended December 31,
1996 and 1995, which are included with this report.
The Pro Formas should be read in conjunction with the related notes
thereto and the historical financial statements of the Company and the
historical combined financial statements of LFI and LFM referred to above.
The Pro Formas are not necessarily indicative of either the results that
actually would have been reported had the acquisition of LFI been completed
on the dates indicated, or of future operations. The effects of the
acquisition will be reflected in the Company's results of operations from the
effective date of the acquisition.
ACR GROUP, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
NOVEMBER 30, 1996
(unaudited)
Lifetime
ACR Group, Filter, Pro Forma Pro Forma
Inc. Inc. Adjustments Combined
------------ -------- ----------- ------------
Current assets:
Cash $ 262,075 $417,647 $ $ 679,722
Accounts receivable, net 9,927,999 155,715 10,083,714
Inventory 10,765,929 59,217 10,825,146
Prepaid expenses and other 133,677 59,886 193,563
Deferred income taxes 136,000 136,000
------------ -------- ---------- ------------
Total current assets 21,225,680 692,465 21,918,145
------------ -------- ---------- ------------
Property and equipment, net of
accumulated depreciation 2,820,737 245,866 367,134 (A) 3,433,737
Deferred income taxes 544,000 544,000
Goodwill, net of accumulated
amortization 1,433,601 1,275,467 (A) 2,709,068
Other assets 293,312 293,312
------------ -------- ---------- ------------
Total assets $ 26,317,330 $938,331 $1,642,601 $ 28,898,262
------------ -------- ---------- ------------
------------ -------- ---------- ------------
Current liabilities:
Current maturities of
long-term debt $ 1,081,103 $ 4,775 $ 388,887 (A) $ 1,474,765
Accounts payable 7,872,970 26,429 7,899,399
Accrued expenses and
other liabilities 1,184,372 35,728 1,220,100
------------ -------- ---------- ------------
Total current liabilities 10,138,445 66,932 388,887 10,594,264
------------ -------- ---------- ------------
Long-term debt, less
current maturities 9,124,484 2,125,113 (A) 11,249,597
------------ -------- ---------- ------------
Total liabilities 19,262,929 66,932 2,514,000 21,843,861
------------ -------- ---------- ------------
Shareholders' equity
Common stock 103,716 1,000 (1,000)(A) 103,716
Additional paid-in capital 41,550,770 41,550,770
Accumulated deficit (34,600,085) 870,399 (870,399)(A) (34,600,085)
------------ -------- ---------- ------------
Total shareholders' equity 7,054,401 871,399 (871,399) 7,054,401
------------ -------- ---------- ------------
$ 26,317,330 $938,331 $1,642,601 $ 28,898,262
------------ -------- ---------- ------------
------------ -------- ---------- ------------
See Notes to Unaudited Pro Forma Consolidated Financial Information.
ACR GROUP, INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED FEBRUARY 29, 1996
(unaudited)
Lifetime
ACR Group, Filter, Pro Forma Pro Forma
Inc. Inc. Adjustments Combined
------------ ---------- ------------- ------------
Sales $ 56,500,253 $1,380,202 $ $ 57,880,455
Cost of sales 45,779,447 620,402 18,322 (B) 46,418,171
------------ ---------- --------- ------------
Gross profit 10,720,806 759,800 (18,322) 11,462,284
Selling, general and
administrative
expenses (10,082,119) (576,708) (31,887)(C) (10,690,714)
Other operating income 126,027 126,027
------------ ---------- --------- ------------
Operating income 764,714 183,092 (50,209) 897,597
Interest expense, net (644,767) (924) (229,161)(D) (874,852)
Other non-operating
income 78,863 78,863
------------ ---------- --------- ------------
Income before taxes 198,810 182,168 (279,370) 101,608
Provision for income
taxes (15,044) (6,347) 3,928 (E) (17,463)
------------ ---------- --------- ------------
Net income $ 183,766 $ 175,821 $(275,442) $ 84,145
------------ ---------- --------- ------------
------------ ---------- --------- ------------
Average outstanding
common and equivalent
shares 10,513,485 10,513,485
------------ ------------
------------ ------------
Earnings per share $ 0.02 $ 0.01
------------ ------------
------------ ------------
See Notes to Unaudited Pro Forma Consolidated Financial Information.
ACR GROUP, INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE-MONTH PERIOD ENDED NOVEMBER 30, 1996
(unaudited)
Lifetime
ACR Group, Filter, Pro Forma Pro Forma
Inc. Inc. Adjustments Combined
------------ ---------- ------------- ------------
Sales $ 62,911,596 $1,872,082 $ $ 64,783,678
Cost of sales 50,792,694 777,859 13,741 (B) 51,584,294
------------ ---------- --------- ------------
Gross profit 12,118,902 1,094,223 (13,741) 13,199,384
Selling, general and
administrative
expenses (10,569,431) (557,387) (23,915)(C) (11,150,733)
Other operating income 337,941 337,941
------------ ---------- --------- ------------
Operating income 1,887,412 536,836 (37,656) 2,386,592
Interest expense, net (675,073) 3,329 (148,263)(D) (820,007)
Other non-operating
income 96,359 96,359
------------ ---------- --------- ------------
Income before taxes 1,308,698 540,165 (185,919) 1,662,944
Provision for income
taxes (45,509) (21,485) (7,134)(E) (74,128)
------------ ---------- --------- ------------
Net income $ 1,263,189 $ 518,680 $(193,053) $ 1,588,816
------------ ---------- --------- ------------
------------ ---------- --------- ------------
Average outstanding
common and equivalent
shares 10,957,049 10,957,049
------------ ------------
------------ ------------
Earnings per share $ 0.12 $ 0.14
------------ ------------
------------ ------------
See Notes to Unaudited Pro Forma Consolidated Financial Information.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION
Pro forma adjustments relating to the accompanying pro forma consolidated
financial statements of ACR Group, Inc. have been made using the purchase
method of accounting and are based on the following assumptions:
(1) The Company borrowed funds for the cash portion of the purchase price
and for transaction costs from St. James Capital Partners, L.P. under
a note which bears interest at 10% per annum and has an initial
maturity date of one year from the date of issuance ("St. James
Note"). The Company will exercise its exclusive option to extend the
maturity for one additional year. In addition, LFI issued a note to
the O'Leary Family Partnership, Ltd., the selling shareholder ("OFP
Note"), in the amount of $1,166,622. The OFP Note bears interest at 1%
above the prime rate and is payable in quarterly installments, plus
interest, over three years.
(2) The excess of the purchase price of LFI over the fair value of the net
tangible assets of LFI is recorded as goodwill. Goodwill is amortized
based on an amortization period of forty years.
(3) The Company has previously unbenefitted net operating loss
carryforwards which are sufficient to benefit the incremental taxable
income associated with the acquisition and, accordingly, income taxes
are provided principally for state income taxes.
The following notes describe the pro forma adjustments reflecting in the
accompanying pro forma financial statements.
(A) To record the excess of fair value over net book value of assets
acquired, the debt incurred and the goodwill recorded in connection
with the acquisition of LFI, and the effect on equity of the acquired
entity in accordance with the principles of purchase accounting.
(B) To record depreciation on the excess of fair value over net book value
of assets acquired.
(C) To record amortization of goodwill relating to the acquisition of LFI.
(D) To record interest expense on the St. James Note and the OFP Note.
(E) To record the income tax effects of (i) the net income recognized
by LFI for the periods presented, and (ii) the pro forma adjustments
relating to the LFI acquisition.