SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 4, 1995
--------------
NBI, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-9403 84-0645110
- --------------------------------------------------------------------------------
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
Incorporation)
1880 Industrial Circle, Suite F, Longmont, Colorado 80501
----------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (303) 684-2700
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Not Applicable
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(Former name or former address, if changed since last report)
ITEM 7. FINANCIAL STATEMENTS AND PROFORMA FINANCIAL INFORMATION
a.) Financial Statements of Business Acquired
Page
---------------
Belle Vernon Motel Corporation
Audited Annual Financial Statements as of December 31, 1994
and for the two years then ended................................. 3 - 13
Interim financial statements as of June 30, 1995
and for the six months then ended............................... 14 - 17
L.E. Smith Glass Company
Audited Annual Financial Statements as of March 31, 1995
and for the year then ended...................................... 18 - 29
Audited Annual Financial Statements as of March 31, 1994
and for the two years then ended................................. 30 - 44
Interim financial statements as of June 30, 1995 and for the
three months then ended.......................................... 45 - 48
b.) Proforma Financial Information
Introduction........................................................ 49
Proforma Balance Sheet at June 30, 1995, as if Belle Vernon
Motel Corporation and L.E. Smith Glass Company were
acquired on June 30, 1995......................................... 50
Proforma Statement of Operations for the year ended June 30, 1995,
as if Belle Vernon Motel Corporation and L.E. Smith Glass
Company were acquired as of the first day of the period
presented, July 1, 1994.......................................... 51
Explanatory Notes to the Proforma Balance Sheet and Statement
of Operations.................................................... 52
2
BELLE VERNON MOTEL CORPORATION
AUDITED FINANCIAL STATEMENTS
YEARS ENDED
JUNE 30, 1995 AND 1994
3
September 14, 1995
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of Belle Vernon Motel Corporation
We have audited the accompanying balance sheets of Belle Vernon Motel
Corporation (a Pennsylvania corporation) as of December 31, 1994 and 1993, and
the related statements of income, retained earnings 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 financial position of Belle Vernon Motel
Corporation as of December 31, 1994 and 1993, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ BULOW, HOTTLE & CO.
4
BELLE VERNON MOTEL CORPORATION
BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
ASSETS
1994 1993
----------- ----------
CURRENT ASSETS
Cash $1,098,934 $ 952,018
Accounts receivable (Note 3) 55,200 45,719
Inventories 25,699 26,070
Prepaid expenses 7,522 88,539
---------- ----------
Total current assets 1,187,355 1,112,346
PROPERTY, PLANT AND EQUIPMENT, AT COST,
LESS ACCUMULATED DEPRECIATION (Note 4) 539,766 662,307
OTHER ASSETS
Franchise fee, net of amortization 7,000 8,000
---------- ----------
$ 1,734,121 $ 1,782,653
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 96,097 $ 101,236
Accrued payroll and related taxes 24,637 63,676
Accrued pension (Note 6) 8,029 4,776
Deposits (Note 9) 10,000 -
----------- -----------
Total liabilities 138,763 169,688
SHAREHOLDERS' EQUITY
Common shares, $1 stated value
Authorized 100,000 shares, Issued
41,250 shares, Outstanding 34,515 41,250 41,250
Additional paid in capital 446,175 446,175
Retained earnings (Note 7) 1,184,153 1,201,760
Less Treasury stock - 6,735 shares,
at cost (76,220) (76,220)
---------- ----------
Total shareholders' equity 1,595,358 1,612,965
---------- ----------
$ 1,734,121 $ 1,782,653
=========== ===========
The accompanying notes are an integral part of the financial statements.
5
BELLE VERNON MOTEL CORPORATION
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
1994 1993
------------ ------------
REVENUES
Room rentals (Note 2) $1,286,500 $1,232,703
Restaurant sales 437,782 442,776
Lounge sales 82,767 83,738
Miscellaneous 10,008 10,388
---------- ----------
Total revenues 1,817,057 1,769,605
---------- ----------
COSTS AND EXPENSES
Cost of merchandise sold 209,268 196,695
Payroll, related taxes and benefits 545,785 570,538
Depreciation 138,313 138,762
Interest expense - 3,073
Utilities 78,564 72,429
Franchise and related expenses (Note 10) 94,337 91,250
Insurance 115,820 113,306
Advertising and promotion 52,622 48,811
Maintenance and repair 58,243 46,164
Supplies 68,713 58,938
Taxes and licenses 56,665 56,176
General and administrative 98,939 92,267
Ground lease expense (Note 8) 43,796 42,242
Pension expense (Note 6) 13,436 11,343
---------- ----------
Total costs and expenses 1,574,501 1,541,994
---------- ----------
INCOME FROM OPERATIONS 242,556 227,611
OTHER INCOME
Interest income 24,586 21,477
---------- ----------
INCOME BEFORE INCOME TAXES 267,142 249,088
PROVISION FOR INCOME TAXES - -
---------- ----------
NET INCOME 267,142 249,088
RETAINED EARNINGS, BEGINNING OF YEAR 1,201,760 1,239,147
SHAREHOLDERS' WITHDRAWALS (284,749) (286,475)
---------- ----------
RETAINED EARNINGS, END OF YEAR $1,184,153 $1,201,760
========== ==========
EARNINGS PER COMMON SHARE $ 7.74 $ 7.22
========== ==========
The accompanying notes are an integral part of the financial statements.
6
BELLE VERNON MOTEL CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
1994 1993
------------ ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 267,142 $ 249,088
Adjustments to reconcile net income to
net cash provided by operations
Depreciation and amortization 139,313 139,762
(Increase) decrease in:
Accounts receivable (9,481) 5,273
Inventories 371 (2,243)
Prepaid expenses 81,017 (78,302)
Increase (decrease) in:
Accounts payable and accrued
expenses (5,139) (22,379)
Accrued payroll and related taxes (39,039) (7,862)
Accrued pension 3,253 4,776
---------- ---------
Net cash provided by operating
activities 437,437 288,113
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment
and net cash used by investing
activities (15,772) (15,260)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital lease reduction -- (3,610)
Shareholders' withdrawals (284,749) (286,475)
Deposits 10,000 --
---------- ---------
Net cash used by financing activities (274,749) (290,085)
---------- ---------
NET INCREASE (DECREASE) IN CASH 146,916 (17,232)
CASH, BEGINNING OF YEAR 952,018 969,250
---------- ---------
CASH, END OF YEAR $1,098,934 $ 952,018
========== =========
The accompanying notes are an integral part of the financial statements.
7
BELLE VERNON MOTEL CORPORATION
STATEMENTS OF CASH FLOWS (CONT'D)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION
1994 1993
----------- ---------
1. Cash and cash equivalents consist of:
Petty cash and change funds $ 4,142 $ 2,076
Checking accounts 154,782 100,381
Savings and liquid deposit accounts 940,010 849,561
---------- --------
$1,098,934 $952,018
========== ========
The Company considers all short-term investments with a maturity
of three months or less to be cash equivalents.
2. Interest paid $ -- $ 3,073
========== ========
3. Income taxes paid $ -- $ --
========== ========
The accompanying notes are an integral part of the financial statements.
8
BELLE VERNON MOTEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
NOTE 1 - ORGANIZATION
Belle Vernon Motel Corporation was organized under the
laws of the Commonwealth of Pennsylvania on March 24, 1969 to engage
in any business permitted under the laws of the Commonwealth.
The Company is currently operating a Holiday Inn Motel in
Rostraver Township, Westmoreland County, Pennsylvania under a
license from Holiday Inns, Inc. (Note 10). During 1993 and 1994,
all of the outstanding common shares were owned by two shareholders
(Note 12).
NOTE 2 - DISCLOSURE OF ACCOUNTING POLICIES
The Company elected by unanimous consent of its
shareholders to be taxed under the provisions of Chapter S of the
Internal Revenue Code effective January 1, 1992. Under those
provisions, the Company does not pay federal or state corporate
income taxes on its taxable income. Instead, the stockholders are
liable for individual federal and state income taxes on their
respective shares of the Company's taxable income (Note 12).
Depreciation and amortization are provided for by the use
of the straight-line method over the estimated useful life of the
assets (Note 4).
Inventory is stated at cost using the first-in, first-out
valuation method.
The Company had one lease which was recorded as a capital
lease in accordance with generally accepted accounting principles.
Under this method of accounting, the leased property was recorded as
an asset and the related rental payments were recorded as
obligations (Notes 4 and 5). The lease expired in 1993. At the end
of the lease term, the Company purchased the property for $1.
Interest included in this lease was being charged against income
ratably over the term of the lease.
Room rentals are recorded net of sales commissions and
credit card fees. For 1994 and 1993, these amounts were $55,068 and
$52,572, respectively.
NOTE 3 - ACCOUNTS RECEIVABLE
December 31,
----------------
1994 1993
------- -------
Trade $54,052 $44,957
Interest income 1,148 615
Miscellaneous - 147
------- -------
$55,200 $45,719
======= =======
9
BELLE VERNON MOTEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT, AT
COST, LESS ACCUMULATED DEPRECIATION
December 31,
------------------------
1994 1993
----------- -----------
Building and improvements $1,430,432 $1,429,316
Furniture and fixtures 827,604 820,868
Property acquired under capital
leases 59,898 59,898
---------- ----------
2,317,934 2,310,082
Less accumulated depreciation 1,778,168 1,647,775
---------- ----------
$ 539,766 $ 662,307
========== ==========
Buildings and improvements are depreciated over estimated
useful lives ranging from eight years to forty years. The estimated
useful lives of furniture and fixtures range from four years to ten
years and property acquired under capital leases is depreciated over
an estimated useful life of five years.
NOTE 5 - CAPITAL LEASE PAYMENTS
The following is a schedule of payments under capital
leases.
December 31,
1993
-----------
Total capital lease payments in 1993 $ 9,263
Lease amount representing
maintenance (2,580)
----------
Net lease payments 6,683
Less amount representing interest (3,073)
-----------
1993 portion of net minimum lease
payments $ 3,610
===========
10
BELLE VERNON MOTEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
NOTE 6 - PENSION EXPENSE
Effective December 1, 1992, pursuant to a collective
bargaining agreement with U.F.C.W. Local #23, the Company
contributes to a pension fund on behalf of eligible employees.
Contributions amounted to $6,047 for 1994 and $6,757 for 1993 in
accordance with the union contract.
In 1993, the Company established a qualified
profit-sharing plan for employees who are not covered under the
collective bargaining agreement. The board of directors annually
determines the contribution to the plan. The amount of pension
expense was $7,389 for 1994 and $4,586 for 1993.
NOTE 7 - RETAINED EARNINGS
The following is a schedule of the retained earnings of
the Company as of December 31, 1994 and 1993:
December 31,
------------------------
1994 1993
----------- ----------
Current S corporation
Accumulated adjustments account $187,300 $ 136,180
Previous S corporation
Retained earnings 53,524 53,524
Other retained earnings 943,329 1,012,056
----------- -----------
$ 1,184,153 $ 1,201,760
=========== ===========
NOTE 8 - LEASE COMMITMENT
The Corporation has a 55-year lease on a parcel of land on
which the motel is situated. At the expiration date of May 11,
2024, the Corporation has the option to renew this lease for an
additional 25 years.
The Corporation is obligated to pay annual rental in an
amount equal to 3% of the yearly gross revenue derived from motel
rentals and 1% of the gross revenues derived from related facilities
subject to a minimum annual rental of $8,000. For the years ended
December 31, 1994 and 1993, ground lease expense was $43,796 and
$42,242, respectively.
11
BELLE VERNON MOTEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
NOTE 9 - DEPOSITS
On December 17, 1994, the Corporation entered into an
agreement to sell all of the Corporation's operating assets in 1995.
The Corporation received a $10,000 non-refundable deposit for the
sale. This was recorded as a current liability at December 31,
1994. In 1995, the purchaser withdrew the offer and the agreement
was voided. The Corporation recorded the $10,000 deposit as income
in 1995.
NOTE 10 - LICENSE AGREEMENT
A license agreement between Belle Vernon Motel Corporation
and Holiday Inns, Inc. exists under which the Corporation operates a
motel under the Holiday Inn name. The license agreement includes
the rights to use the Holiday Inn and Holidex trademarks. The
Corporation currently pays 4% room royalties, 1.5% marketing
royalties, 1% reservation contributions, $6.12 per room charge and
other miscellaneous charges. For the years ending December 31, 1994
and 1993, these charges amounted to $94,337 and $91,250,
respectively. The license expires March 12, 1999 subject to certain
other voluntary and involuntary termination and renewal provisions.
NOTE 11 - CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the
Company to concentration of credit risk consist principally of
temporary cash investments and trade receivables.
The Company places its temporary cash investments
($1,094,792 and $949,942 at December 31, 1994 and 1993,
respectively) with two regional financial institutions. The risk of
loss due to trade receivables is low due to the fact that the
majority of the Company's trade receivables are with large, major
credit card companies.
Belle Vernon Motel Corporation is located in the Belle
Vernon, Pennsylvania area at the intersection of Routes 51 and 70
and anything that might adversely affect the economy of this region
could also adversely affect these financial statements.
12
BELLE VERNON MOTEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
NOTE 12 - SUBSEQUENT EVENTS
On February 15, 1995, Belle Vernon Motel Corporation
entered into a voluntary Consent Assessment of Civil Penalty with
the Commonwealth of Pennsylvania, Department of Environmental
Resources for failure to properly operate and maintain its sewage
treatment plant under the Clean Streams Law. Repairs have been
undertaken in 1995 to correct the deficiencies and comply with the
law.
On August 4, 1995, all of the shareholders of Belle Vernon
Motel Corporation sold their stock to NBI, Inc. This sale of 100
percent of the outstanding shares resulted in the termination of
Belle Vernon Motel Corporation's election to be taxed under the
provisions of Chapter S of the Internal Revenue Code, effective
August 3, 1995.
Due to the purchase of 100 percent of the outstanding
shares by NBI, Inc., the franchise license agreement between the
Corporation and Holiday Inns, Inc. was required to be transferred.
As part of the transfer, NBI, Inc. is required by the Holiday Inns,
Inc. Property Improvement Program to undertake certain repairs and
renovations to the property.
13
BELLE VERNON MOTEL CORPORATION
INTERIM FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED
JUNE 30, 1995
14
BELLE VERNON MOTEL CORPORATION
CONSOLIDATED BALANCE SHEET
(Amounts in thousands)
(Unaudited)
June 30,
1995
------------
ASSETS
------
Current assets:
Cash and cash equivalents $1,154
Accounts receivable, net 57
Inventories 25
Other current assets 30
------
Total current assets 1,266
Property and equipment, net 513
Other assets 7
------
$1,786
======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable 44
Accrued liabilities 60
------
Total current liabilities 104
Stockholders' equity:
Common stock 41
Capital in excess of par value 446
Retained earnings 1,271
------
1,758
Less treasury stock, at cost (76)
------
Total stockholders' equity 1,682
------
$1,786
======
15
BELLE VERNON MOTEL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands)
(Unaudited)
Six Months Ended
June 30,
1995 1994
------- -------
Revenues:
Room rental and related $ 573 $ 595
Food and beverage sales 255 232
----- -----
828 827
Costs and expenses:
Direct costs of room rental and related 346 346
Direct costs of food and beverage 264 237
General, administrative and indirect expenses 150 169
----- -----
760 752
----- -----
Income from operations 68 75
Other income (expense):
Interest income 19 10
----- -----
Income before income taxes 87 85
Income tax expense -- --
----- -----
Net income $ 87 $ 85
===== =====
16
BELLE VERNON MOTEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Six Months Ended
June 30,
1995 1994
--------- -------
Cash flows from operating activities:
Net income $ 87 $ 85
Adjustments to reconcile net income to net cash
flow provided by operating activities:
Depreciation and amortization 34 69
Changes in assets - decrease (increase):
Accounts receivable (2) 2
Inventory -- 3
Other current assets (22) 25
Changes in liabilities - (decrease) increase:
Accounts payable and accrued liabilities (35) (48)
------ -----
Net cash flow provided by operating activities 62 136
------ -----
Cash flows from investing activities:
Shareholder distribution -- (138)
Purchases of property and equipment (7) (15)
------ -----
Net cash flow used in investing activities (7) (153)
------ -----
Net increase (decrease) in cash and cash equivalents 55 (17)
Cash and cash equivalents at beginning of period 1,099 952
------ -----
Cash and cash equivalents at end of period $1,154 $ 935
====== =====
Supplemental disclosures of cash flow information:
Interest paid $ -- $ --
====== =====
Income taxes paid $ -- $ --
====== =====
17
L. E. SMITH GLASS COMPANY
MOUNT PLEASANT, PENNSYLVANIA
AUDIT REPORT
MARCH 31, 1995
18
L. E. Smith Glass Company
MARCH 31, 1995
Page
Number
------
Independent Auditors' Report 20
Balance Sheet 21
Statement of Income 22
Statement of Retained Earnings 23
Statement of Cash Flows 24
Notes to Financial Statements 25-29
19
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
and Stockholders of
L. E. Smith Glass Company
We have audited the accompanying balance sheet of L. E. Smith Glass Company (a
corporation) as of March 31, 1995, and the related statements of income,
retained earnings, and cash flows for the year 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 audit.
Except as discussed in the following paragraph, we conducted our audit 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
audit provides a reasonable basis for our opinion.
Because consolidated tax returns for the affiliated groups to which L. E. Smith
Glass Company was a member have not been filed for the year ended March 31,
1994, we were unable to satisfy ourselves about the net operating loss
carryforward available, if any, by means of other auditing procedures.
In our opinion, except for the effects of such adjustments, if any, as might
have been determined to be necessary had we been able to satisfy ourselves about
the availability of net operating loss carryforwards, the financial statements
referred to in the first paragraph present fairly, in all material respects, the
financial position of L. E. Smith Glass Company as of March 31, 1995, and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is actively considering
the possibility of disposition of all of its operations. Although the Company
believes that, in the aggregate, it will recover significantly more than the
carrying values of such assets, the ultimate proceeds from any such dispositions
cannot presently be determined. In addition, as discussed in Note 3 to the
financial statements, as of March 31, 1995, the Company was in default under
certain covenants of its credit agreement with its principal bank. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include adjustments that might
result from the outcome of these uncertainties.
There is currently a federal grand jury investigation of the individuals who
formerly controlled Pittsburgh Food & Beverage Company, Inc., the parent
company. The outcome of this investigation is not known, and the
investigation's effect on the financial statements, if any, cannot presently be
determined. Accordingly, the financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ S.R. Snodgrass, A.C.
Beaver Falls, PA
June 2, 1995
20
L. E. Smith Glass Company
BALANCE SHEET
March 31,
1995
-----------
ASSETS
CURRENT ASSETS
Cash $ 14,296
Trade accounts receivable, less allowance of $31,283 1,353,066
Inventories 1,706,427
Other current assets 62,014
-----------
Total current assets 3,135,803
-----------
PROPERTY, PLANT AND EQUIPMENT
Land and buildings 153,806
Machinery and equipment 2,054,842
Office furniture and equipment 111,427
Construction-in-progress 33,594
-----------
2,353,669
Less accumulated depreciation (1,365,215)
-----------
Net property, plant and equipment 988,454
-----------
Total assets $ 4,124,257
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Checks issued in excess of cash in bank $ 60,594
Note payable 1,315,734
Accounts payable 525,805
Accrued payroll and related taxes 275,078
Other accrued liabilities 905,012
Current maturity of long-term debt 447,412
----------
Total current liabilities 3,529,635
LONG-TERM DEBT 528,181
EXCESS OF IDENTIFIABLE NET ASSETS ACQUIRED OVER PURCHASE PRICE,
net of accumulated amortization of $308,722 436,909
----------
Total liabilities 4,494,725
----------
STOCKHOLDERS' EQUITY (DEFICIT)
Retained earnings (deficit) ( 470,468)
Paid-in capital 18,980
Common stock - $1 par, 150,000 shares authorized,
81,020 issued and outstanding 81,020
----------
Total stockholders' equity (deficit) ( 370,468)
----------
Total liabilities and stockholders' equity $4,124,257
==========
The accompanying notes are an integral part of this financial statement.
21
L. E. Smith Glass Company
STATEMENT OF INCOME
Year Ended
March 31,
1995
----------
NET SALES $8,157,104
COST OF SALES 5,545,536
----------
Gross profit 2,611,568
SELLING AND ADMINISTRATIVE EXPENSES 1,721,014
----------
Income from operations 890,554
INTEREST EXPENSE 213,939
OTHER INCOME 20,007
----------
Income before income taxes and extraordinary item 696,622
PROVISION FOR INCOME TAXES 100,000
----------
Income before extraordinary item 596,622
EXTRAORDINARY ITEM (no income tax benefit applied) (Note 9) (1,210,820)
-----------
Net income (loss) $( 614,198)
===========
The accompanying notes are an integral part of this financial statement.
22
L. E. Smith Glass Company
STATEMENT OF RETAINED EARNINGS
Year Ended
March 31,
1995
----------
Retained earnings - beginning of year:
As previously reported $ 616,320
Prior-period adjustment - error in failure to properly
accrue expenses related to workers' compensation
claims and insurance premiums (Note 8) (472,590)
---------
Retained earnings - beginning of year, as restated 143,730
Net income (loss) (614,198)
---------
Retained earnings (deficit) - end of year $(470,468)
=========
The accompanying notes are an integral part of this financial statement.
23
L. E. Smith Glass Company
STATEMENT OF CASH FLOWS
Year
Ended
March 31,
1995
---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(614,198)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 226,039
Amortization of excess of identifiable net assets acquired
over purchase price (38,400)
Provision for losses on receivables 36,000
Deferred income tax 100,000
Change in operating assets and liabilities:
Decrease (increase) in:
Trade accounts receivable (265,159)
Inventories (155,997)
Other current assets 49,212
Due from affiliate 964,238
Increase (decrease) in:
Checks issued in excess of cash in bank 60,594
Accounts payable (32,470)
Accrued payroll and related taxes 14,960
Accrued income taxes (59,883)
Other accrued liabilities (19,258)
---------
Net cash provided by operating activities 265,678
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (324,869)
---------
Net cash used for investing activities (324,869)
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings on line of credit 247,182
Proceed from long-term debt 175,791
Payments on long-term debt (341,315)
Dividends paid (15,000)
---------
Net cash provided by financing activities 66,658
---------
Net increase in cash 7,467
CASH, BEGINNING OF YEAR 6,829
---------
CASH, END OF YEAR $ 14,296
=========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest expense $ 209,401
Income taxes 48,210
The accompanying notes are an integral part of this financial statement.
24
L. E. Smith Glass Company
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies followed by the Company
in the preparation of the accompanying financial statements is as
follows:
Method of Accounting
--------------------
The financial statements have been prepared using the accrual basis of
accounting in accordance with generally accepted accounting principles.
Accounts Receivable - Trade
---------------------------
Provision for losses on trade accounts receivable is made in amounts
required to maintain an adequate allowance to cover anticipated bad
debts. Accounts receivable are charged against the allowance when it is
determined by the Company that payment will not be received. Any
subsequent receipts are credited to the allowance. At year end, the
allowance is adjusted by management based on review of the accounts
receivable.
Inventories
-----------
Inventories are stated at the lower of cost or market, with cost
determined on the first-in, first-out (FIFO) basis.
Property, Plant and Equipment
-----------------------------
Property, plant and equipment are recorded at acquisition cost and are
depreciated over the estimated useful lives of the related assets using
the straight-line method for financial reporting purposes and
accelerated methods for tax purposes. Betterments and improvements that
extend the useful life of an asset are capitalized. Maintenance and
repairs are charged to expense as incurred. When depreciable assets are
retired or otherwise disposed, the cost and related accumulated
depreciation are eliminated from the accounts and the resulting gain or
loss is reflected in the income statement.
Income Taxes
------------
Deferred tax assets and liabilities are determined based on the
temporary differences between the financial statement and tax basis of
assets and liabilities using the enacted tax rates in effect for the
year in which the differences are expected to reverse. The principal
item resulting in the difference is depreciation. Income tax expense
includes federal and state taxes currently payable and deferred taxes
arising from temporary differences.
25
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Excess of Identifiable Net Asset Acquired Over Purchase Price
-------------------------------------------------------------
The Company was acquired by L. E. Smith Holding Company in December 1986
in a transaction accounted for as a purchase. In accordance with the
provisions of Accounting Principles Board Opinion No. 16, the excess of
identifiable net assets acquired over the purchase price has been
reflected as a reduction of the cost of property acquired in December,
1986 to zero is reported on the accompanying balance sheet as "excess of
identifiable net assets over purchase price" and is being amortized
using the straight-line method over 20 years.
NOTE 2 - INVENTORIES
Inventories at March 31 consist of:
1995
-----------
Raw materials $ 38,120
Packaging materials 169,066
Purchased parts 220,044
Finished goods 1,279,197
-----------
$ 1,706,427
===========
NOTE 3 - NOTE PAYABLE
The Company has a note payable to a bank under a $1,500,000 revolving
credit note that provides for interest at the bank's prime rate plus 2
1/2%. The bank has first security interest on all accounts receivable,
inventories, equipment and all personal property. The note is subject to
a Credit Agreement dated September 2, 1993. The balance of the note at
March 31, 1995, is $1,315,734. The Credit Agreement contains covenants
requiring maintenance of minimum current ratio and maximum leverage
ratio, and prohibiting certain activities of the Company which include
creation of debt or liens, sale of assets, loans or investments,
dividends or distribution, and mergers or acquisitions. The Company's
noncompliance with certain covenants constituted an event of default at
March 31, 1995. On September 2, 1993, the Company entered into another
agreement with its' principal bank to borrow $500,000 under a term loan
agreement. These two loans are cross collateralized (see Note 4 - Long-
Term Debt).
26
NOTE 4 - LONG-TERM DEBT
Long-term debt at March 31, 1995, consists of the following:
Promissory note, Libbey Glass, Inc. dated September 2, 1993,
bearing interest at prime. Principal is payable in monthly
installments of $20,000 April through July, $30,000 August
through November and $10,000 December through March. The
entire principal and all accrued and unpaid interest is due
and payable on or before August 31, 1996. The note is
secured by all inventory and receivables and is subordinated
to all bank debt incurred pursuant to the Credit Agreement
dated September 2, 1993. $347,413
Note payable to bank under a $500,000 term note agreement
bearing interest at 8.75%. The note is payable in monthly
installments of $8,333. The note is collateralized by
accounts receivable, inventories, and certain property
subject to the Credit Agreement dated September 2, 1993
(see Note 3). As of March 31, 1995, the full amount of
principal had not yet been drawn. 416,667
Promissory note, Frick Hospital, dated May 24, 1995, with
no stated interest. The note relates to the Company's
obligations to Frick Hospital for payments of employee
health insurance claims and is to be repaid in monthly
installments of $9,444. 170,000
Installment obligation payable in monthly installments of
$790, including interest at 8.5% through November, 1998,
collateralized by a vehicle. 29,195
Installment obligation payable in monthly installments of
$535, including interest at 8.25% through May, 1997,
collateralized by a vehicle. 12,318
--------
975,593
Less current maturities of long-term debt 447,412
--------
Long-term debt, net of current portion $528,181
========
Principal maturities of long-term debt are as follows:
Year ending March 31,
1996 $447,412
1997 296,986
1998 109,152
1999 105,376
2000 16,667
--------
$975,593
========
27
NOTE 5 - INCOME TAXES
Prior to September 1, 1993, the Company was a wholly-owned subsidiary of
L. E. Smith Holding Company, Inc. and was part of an affiliated group
that filed a consolidated federal income tax return. As of March 31,
1993, the group had a federal net operating loss carryforward of
approximately $3,500,000, expiring between 2002 and 2008. Approximately
$1,500,000 of the net operating loss carryforward was attributable to
the Company. On September 1, 1993, the Company was acquired by
Pittsburgh Food & Beverage Company, Inc. in a transaction accounted for
as a purchase. As of June 2, 1995, the required short period returns for
the two periods ended within the March 31, 1994, fiscal year had not yet
been filed, resulting in uncertainty regarding the net operating loss
carryforward, if any, attributable to the Company and available for
carryforward at March 31, 1995.
Current income taxes have not been provided on income before
extraordinary item, nor has any income tax benefit been applied to the
extraordinary item or prior period adjustment due to the scope
limitation resulting from the uncertainty of any available net operating
loss carryover arising from the consolidated income tax returns of the
affiliated groups which have not been filed for the prior year.
The tax provision consists of an elimination of the beginning deferred
tax asset of $100,000 reflected at March 31, 1994, due to uncertainty of
the components of the net deferred tax asset and the Company's ability
to generate future taxable income sufficient to realize the deferred tax
asset.
Due to the uncertainty of the components of the beginning and ending
deferred tax assets and liabilities, no deferred tax assets or
liabilities have been reflected. However, a valuation allowance would be
provided for any resulting deferred tax asset due to uncertainty of the
Company's ability to generate future taxable income.
NOTE 6 - EMPLOYEE BENEFIT PLANS
The Company has contributory savings and retirement plans for
substantially all of its employees. An employee may elect to contribute
an amount up to 15% of compensation during each plan year. The Company
contributes an amount as determined by the Board of Directors. No
liability exists for any future contributions except as may subsequently
be determined by the Board of Directors. The expenses for these plans
amounted to $43,458 for the year ended March 31, 1995.
NOTE 7 - MAJOR CUSTOMERS
Sales to two major customers were approximately $2,130,747 for the year
ended March 31, 1995, representing 27% of the total sales for the year.
At March 31, 1995, amounts due from those customers included in trade
accounts receivable, were $396,041 and $47,505, respectively.
28
NOTE 8 - PRIOR PERIOD ADJUSTMENT (WORKMENS COMPENSATION INSURANCE)
It was determined that retained earnings needed to be restated at March
31, 1995, for the financial statements to be in conformity with
generally accepted accounting principles. The changes are due to the
failure to properly accrue expenses related to workers compensation
claims and insurance premiums. The Company was without workers
compensation insurance from March 31, 1992 to January 1, 1994. Included
in the $472,590 prior period adjustment is $270,109 of costs associated
with the period of non-coverage. The balance was due to an insurance
company's audit adjustment for covered periods prior to March 31, 1992.
Management is unable to determine how much of this adjustment was
related to the net income of the immediately preceding period. No income
tax benefit has been provided (see Note 5).
NOTE 9 - RELATED PARTY TRANSACTIONS
The Company enters into numerous transactions with a group of entities
affiliated through common ownership and management. A summary of the
intercompany charges against the current year's income and the increase
in the amount due from affiliates that were paid during the year ended
March 31, 1995, are as follows:
Management fees $ 89,340
Legal expenses 50,000
Computer services 39,654
General expenses 31,665
Donations 18,000
Lease expenses 17,625
Travel expenses 7,505
Telephone expenses 5,562
Increase in amount due from affiliates 246,582
The total intercompany receivable of $1,210,820 has been deemed to be
worthless by management at March 31, 1995, and is shown as an
extraordinary item on the income statement. No income tax benefit has
been provided (see Note 5).
29
L.E. SMITH GLASS COMPANY
Financial Statements
Years Ended
March 31, 1994 and 1993
30
L.E. SMITH GLASS COMPANY
Financial Statements
Years Ended
March 31, 1994 and 1993
Page:
INDEPENDENT AUDITOR'S REPORT 32
FINANCIAL STATEMENTS:
Balance Sheets 33-34
Statements of Earnings and Retained Earnings 35
Statements of Cash Flows 36-37
Notes to Financial Statements 38-44
31
INDEPENDENT AUDITOR'S REPORT
Board of Directors
L.E. Smith Glass Company
Mt. Pleasant, Pennsylvania
We have audited the accompanying balance sheets of L.E. Smith Glass Company as
of March 31, 1994 and 1993 and the related statements of earnings and retained
earnings 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 financial position of L.E. Smith Glass Company as of
March 31, 1994 and 1993 and the results of its operations and its cash flows for
the years then ended in conformity with generally accepted accounting
principles.
/s/ Damratoski & Company
Damratoski & Company
Certified Public Accounts
June 29, 1994
32
L.E. SMITH GLASS COMPANY
Balance Sheets
March 31
-----------------------
1994 1993
-----------------------
ASSETS
Current Assets:
Cash and cash equivalents (Note B) $ 6,829 $ 3,577
Accounts receivable (less allowance for
doubtful accounts of $30,000 in 1994
and $36,000 in 1993) (Note B) 1,123,907 855,030
Inventories (Notes B and C) 1,550,429 1,524,638
Prepaid expenses and other current assets 111,226 58,834
---------- ----------
Total Current Assets 2,792,391 2,442,079
---------- ----------
Property and Equipment (Note B, D, and G):
Land and buildings 84,052 84,052
Machinery and equipment 1,253,774 1,210,015
Office furniture and equipment 111,427 64,164
Construction-in-progress 594,147 193,913
---------- ----------
2,043,400 1,552,144
Less accumulated depreciation 1,153,776 1,026,702
889,624 525,442
---------- ----------
Other Assets:
Due from affiliates (Notes B and I) 964,239 1,538,511
Deferred income taxes (Note F) 100,000 -
---------- ----------
1,064,239 1,538,511
--------- ----------
$4,746,254 $4,506,032
========== ==========
See Notes to Financial Statements.
33
March 31
-----------------------
1994 1993
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Note payable (Note D) $1,068,552 $ 486,669
Trade accounts payable (Note E) 558,276 797,475
Accrued payroll and related withholdings 260,117 242,058
Accrued expenses (Note J) 621,681 555,372
Dividends payable 15,000 -
Income taxes payable (Note B and F) 59,883 45,847
Current portion of long-term debt (Note G) 319,982 808,019
---------- ----------
Total Current Liabilities 2,903,491 2,935,440
---------- ----------
Long-Term Debt (less current portion) 651,134 7,444
(Note G) ---------- ----------
Excess of Identifiable Net Assets Acquired
Over Purchase Price, net of accumulated
amortization of $270,322 in 1994 and
$233,022 in 1993 (Note B) 475,309 512,609
---------- ----------
Stockholders' Equity:
Common stock, $1 par, 150,000 shares
authorized, 81,020 issued and
outstanding 81,020 81,020
Paid-in capital 18,980 18,980
Retained earnings 616,320 950,539
---------- ----------
716,320 1,050,539
---------- ----------
$4,746,254 $4,506,032
========== ==========
34
L.E. SMITH GLASS COMPANY
Statements of Earnings
and Retained Earnings
Year Ended March 31
------------------------
1994 1993
----------- -----------
Net Sales $7,310,953 $6,620,685
Cost of Goods Sold 4,916,342 4,619,975
---------- ----------
Gross Profit 2,394,611 2,000,710
---------- ----------
Selling, General and Administrative
Expenses 1,680,229 1,370,324
---------- ----------
Operating Income 714,382 630,386
---------- ----------
Other Income (Expense):
Interest expense (188,873) (96,633)
Other income 13,793 16,634
---------- ----------
(175,080) (79,999)
---------- ----------
Earnings Before Taxes on Income 539,302 550,387
Taxes on Income (Notes B and F) 163,000 65,000
---------- ----------
Net Earnings Before Change in
Accounting Principle 376,302 485,387
Cumulative Effect of Change in
Accounting Principle (Note B and J) 105,000 --
---------- ----------
Net Earnings 481,302 485,387
Retained Earnings, beginning of year 950,539 465,152
Dividends declared (815,521) --
---------- ----------
Retained Earnings, end of year $ 616,320 $ 950,539
========== ==========
See Notes to Financial Statements.
35
L.E. SMITH GLASS COMPANY
Statements of Cash Flows
Year Ended March 31
--------------------------
1994 1993
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
Cash flows from operating activities:
Cash received from customers $ 6,998,818 $ 6,553,664
Cash paid to suppliers and employees (6,539,300) (5,876,609)
Interest paid (166,873) (96,633)
Income taxes paid (43,964) 19,153
Other cash received 13,793 16,634
----------- -----------
Net cash provided by operating
activities 262,474 616,209
----------- -----------
Cash flows from investing activities:
Capital expenditures (491,256) (96,829)
Advances to affiliates - net (448,707) (339,307)
----------- -----------
Net cash used by investing activities (939,963) (436,136)
----------- -----------
Cash flows from financing activities:
Net short-term borrowings 581,883 --
Long-term borrowings 376,259 --
Debt reduction:
Short-term -- (172,949)
Long-term (142,401) (4,982)
Dividends paid (135,000) --
----------- -----------
Net cash provided (used) by financing
activities 680,741 (177,931)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,252 2,142
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR 3,577 1,435
----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR 6,829 3,577
=========== ===========
See Notes to Financial Statements.
36
Year Ended March 31
----------------------
1994 1993
---------- ----------
RECONCILIATION OF NET EARNINGS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net earnings $ 481,302 $ 485,387
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation 127,074 168,378
Provision for bad debts 300,716 46,000
Purchase discounts applied to debt
repayment (78,205) (168,326)
Amortization of excess of identifiable
net assets acquired over purchase (37,300) (37,300)
price
(Increase) decrease in:
Accounts receivable (312,135) (113,021)
Inventories (25,791) (61,695)
Prepaid expenses and other current
assets (52,392) (38,603)
Increase (decrease) in:
Trade accounts payable (239,199) 140,369
Accrued payroll and related
withholdings 18,059 20,256
Accrued expenses 66,309 128,917
Income taxes payable 14,036 45,847
--------- ---------
Net cash provided by operating
activities $ 262,474 $ 616,209
========= =========
SUPPLEMENTARY SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Due from affiliates was decreased by $665,521 through a dividend distribution to
the parent company.
37
L.E. SMITH GLASS COMPANY
Notes to Financial Statements
Years Ended
March 31, 1994 and 1993
A. ORGANIZATION
L.E. Smith Glass Company, a wholly-owned subsidiary of Pittsburgh Food &
Beverage Company, Inc., engages in the design and manufacture of handmade
glassware for wholesale and retail sale and lighting products for the lamp and
lighting industry. The Company was acquired by Pittsburgh Food & Beverage
Company, Inc. on September 1, 1993 in a transaction accounted for as a purchase.
Prior to September 1, 1993, the Company was a wholly-owned subsidiary of L.E.
Smith Holding Company.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist in
understanding these financial statements. The financial statements and notes are
representations of management, who is responsible for their integrity and
objectivity. The accounting policies used conform to generally accepted
accounting principles and have been consistently applied in the preparation of
the financial statements.
Method of Accounting. The financial statements have been prepared using the
accrual basis of accounting in accordance with generally accepted accounting
principles.
Cash and Cash Equivalents. For purposes of the statements of cash flows, the
Company considers all investment instruments purchased with a maturity of three
months or less to be cash equivalents.
Inventories. Inventories are stated at the lower of cost or market, with cost
determined on the first-in, first-out (FIFO) basis.
Property and Equipment. Property and equipment are recorded at acquisition cost
and are depreciated over the estimated useful lives of the related assets using
the straight-line method for financial reporting purposes. Construction-in-
progress includes monies expended on projects which upon completion will be
placed in service. Management believes there has been no diminution in value of
these projects and, according, no depreciation or realization reserves have been
recorded.
Income Taxes. The Company has adopted SFAS 109, Accounting for Income Taxes, to
account for deferred income taxes.
38
L.E. SMITH GLASS COMPANY
Notes to Financial Statements
Years Ended
March 31, 1994 and 1993
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Deferred taxes are computed based on the tax liability or benefit in future
years of the reversal of temporary differences in the recognition of income or
deduction of expenses between financial and tax reporting purposes. The
principal items resulting in the difference is depreciation. The net difference
between tax expense and taxes currently payable is reflected in the balance
sheet as deferred taxes. Deferred tax assets and/or liabilities are classified
as current and noncurrent based on the classification of the related asset or
liability for financial reporting purposes, or based on the expected reversal
date for deferred taxes that are not related to an asset or liability.
Excess of Identifiable Net Asset Acquired Over Purchase Price. The Company was
acquired by L.E. Smith Holding Company in December 1986 in a transaction
accounted for as a purchase. In accordance with the provisions of Accounting
Principles Board Opinion No. 16, the excess of identifiable net assets acquired
over the purchase price has been reflected as a reduction of the cost of
property. The amount remaining after reduction of the cost of property acquired
in December, 1986 to zero is reported on the accompanying balance sheet as
"excess of identifiable net assets acquired over purchase price" and is being
amortized using the straight-line method over 20 years.
Statement Reclassifications. Certain amounts have been reclassified in the March
31, 1993 balance sheet to conform with the March 31, 1994 presentation.
C. INVENTORIES
Inventories at March 31 consist of the following:
1994 1993
---------- ----------
Raw materials $ 39,621 $ 40,266
Packaging materials 146,315 167,384
Purchased parts 171,646 191,475
Finished goods 1,192,847 1,125,513
---------- ----------
$1,550,429 $1,524,638
========== ==========
39
L.E. SMITH GLASS COMPANY
Notes to Financial Statements
Years Ended
March 31, 1994 and 1993
D. NOTE PAYABLE
The Company has a note payable to a bank under a $1,500,000 Revolving Credit
Note that provides for interest at the bank's prime rate plus 2 1/2%. The bank
has first security interest on all accounts receivable, inventories, equipment
and all personal property. The note is subject to a Credit Agreement dated
September 2, 1993.
The Credit Agreement contains covenants requiring maintenance of minimum current
ratio and maximum leverage ratio, and prohibiting certain activities of the
Company which include creation of debt or liens, sale of assets, loans or
investments, dividends or distribution, and mergers or acquisitions.
The Company's noncompliance with certain covenants constituted an event of
default at March 31, 1994, which the Company cured subsequent to year end by
obtaining a waiver from the bank as of March 31, 1994, and until the end of the
next fiscal year.
E. ACCOUNTS PAYABLE
Accounts payable consist of the following:
1994 1993
--------- ---------
Trade accounts payable $379,848 $676,441
Bank overdrafts 178,428 121,034
-------- --------
$558,276 $797,475
======== ========
F. INCOME TAXES
Effective April 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes". The cumulative effect of the
change in accounting for income taxes for prior years is included in the
statement of earnings for the year ended March 31, 1994.
The provision for income taxes for years ended March 31, 1994 and 1993, consists
of the following:
40
L.E. Smith Glass Company
Notes to Financial Statements
Years Ended
March 31, 1994 and 1993
F. INCOME TAXES (CONTINUED)
1994 1993
-------- ---------
Current provision
Federal $198,000 $ 160,000
State 58,000 65,000
Utilization of net operating loss
carryforward (98,000) (160,000)
-------- ---------
Total current portion 158,000 65,000
Deferred income taxes (benefits)
Federal 5,000 --
-------- ---------
5,000 --
-------- ---------
Total tax provision $163,000 $ 65,000
======== =========
The deferred tax asset is primarily related to depreciation as of March 31,
1994.
G. LONG-TERM DEBT
Long-term debt consists of the following:
Promissory note, Libbey Glass, Inc. dated
September 2, 1993, bearing interest at
prime. Principal is payable in monthly
installments of $20,000 April through
July, $30,000 August through November and
$10,000 December through March. The
entire principal and all accrued and unpaid
interest is due and payable on or
before August 31, 1996. The note is secured
by all inventory and receivables and
is subordinated to all bank debt incurred
pursuant to the Credit Agreement dated
September 2, 1993. $587,413 $ --
41
L.E. SMITH GLASS COMPANY
Notes to Financial Statements
Years Ended
March 31, 1994 and 1993
G. LONG-TERM DEBT (CONTINUED)
Note payable to a previous owner discounted to
its present value using the Company's effective
borrowing rate at the date the note was executed
assuming repayments of $125,000 per year with a
final lump-sum of $1,089,198 originally due
December 23, 1991. The Company repaid the note
by granting purchase discount in annual amounts
subject to a maximum annual repayment of $250,000.
This note was refinanced September 2, 1993 by
the promissory note detailed above. -- 803,037
Note payable to bank under a $500,000 term note
agreement bearing interest at 8.75%. The note is
payable in monthly installments of $8,333 beginning
July 1, 1994. The note is collateralized by
accounts receivable, inventories, and certain property
subject to the Credit Agreement dated September 2, 1993
(See Note D). As of March 31, 1994, the full amount of
principal has not yet been drawn. 376,259 --
Installment obligation payable in monthly installments
of $514,including interest at 11% through September, 1995,
collateralized by a vehicle with a net book value of
$9,950 on March 31, 1994. 7,444 12,426
------------------
971,116 815,463
Less current maturities of long-term debt 319,982 808,019
------------------
$651,134 $ 7,444
==================
42
L.E. SMITH GLASS COMPANY
Notes of Financial Statements
Years Ended
March 31, 1994 and 1993
G. LONG-TERM DEBT (CONTINUED)
Principal maturities of long-term debt are as follows:
Year Ending March 31
1995 $ 319,982
1996 342,462
1997 207,413
1998 100,000
1999 1,259
----------
$ 971,116
==========
H. EMPLOYEE BENEFIT PLANS
The Company has contributory savings and retirement plans for substantially all
of its employees. An employee may elect to contribute an amount up to 15% of
compensation during each plan year. The Company contributes an amount as
determined by the Board of Directors. No liability exists for any future
contributions except as many subsequently be determined by the Board of
Directors. The expenses for these plans amounted to $40,500 and $37,000 in 1994
and 1993, respectively.
I. TRANSACTIONS WITH AFFILIATED ENTITIES
The Company enters into numerous transactions with a group of entities
affiliated through common ownership and management. A summary of transactions
with affiliated entities for the years ended March 31, 1994 and 1993, is as
follows:
The Company incurs general and administrative expenses on behalf of the group of
affiliated entities and then allocates these charges. Allocated general and
administrative expenses typically include charges for payroll, legal and
accounting fees, contract services and travel. Expenses are allocated among the
affiliated entities based on the specific identification of charges and the use
of judgmental percentages developed by management to reflect the proportional
share of expense attributable to the respective affiliated entity. Net charges
to affiliated entities for the year ended March 31, 1994, approximated $250,000
and were recorded as
43
L.E. SMITH GLASS COMPANY
Notes to Financial Statements
Years Ended
March 31, 1994 and 1993
I. TRANSACTIONS WITH AFFILIATED ENTITIES (CONTINUED)
an increase in the due from affiliated entities account balance and a reduction
in general and administrative expenses in the accompanying statement of earnings
and retained earnings.
The Company is included in the centralized cash management program of a group of
affiliated entities. As part of the centralized cash management program, cash
transfers and payments made on behalf of affiliated entities frequently occur
between members of the affiliated group of companies. For the year ended March
31, 1994 and 1993, cash management transfers to affiliated entities approximated
$627,000 and cash management transfers from affiliated entities approximated
$439,200.
In connection with the above transactions, a net amount receivable of $964,239
and $1,538,511 was due to the Company at March 31, 1994 and 1993, respectively.
All affiliated entity indebtedness has been guaranteed by Michael P. Carlow and
Frank V. Carlow.
J. CONTINGENCY
During the year ended March 31, 1992, the Company initiated a self-funded health
insurance plan. The plan provides medical and dental benefits to employees
identical to those contained in the fully insured plan the Company had
previously carried. The plan is administrated by an affiliated company.
Based on claims filed with the administrator, the Company has recorded a
liability for unpaid claims of approximately $524,000 at March 31, 1994 and
$382,000 at March 31, 1993. Company management and the plan administrator are
not aware of any material unreported claims to be recognized as of the balance
sheet date.
The Company has not been able to obtain an umbrella insurance policy for major
medical claims against the plan since it is not being administrated by a third-
party.
44
L.E. SMITH GLASS COMPANY
Interim Financial Statements
Six Months Ended
June 30, 1995
45
L.E. SMITH GLASS CO.
BALANCE SHEET
(UNAUDITED)
ASSETS
JUNE 30, 1995
-------------
CURRENT ASSETS
CASH $ 5,228
TRADE ACCOUNTS RECEIVABLE, NET 1,338,509
INVENTORIES 1,908,393
OTHER CURRENT ASSETS 95,496
-----------
TOTAL CURRENT ASSETS 3,347,626
-----------
PROPERTY, PLANT AND EQUIPMENT
LAND AND BUILDINGS 153,806
MACHINERY & EQUIPMENT 2,054,842
OFFICE FURNITURE AND EQUIPMENT 114,844
CONSTRUCTION-IN-PROGRESS 65,683
-----------
2,389,175
LESS ACCUMULATED DEPRECIATION (1,425,215)
-----------
NET PROPERTY, PLANT AND EQUIPMENT 963,960
-----------
TOTAL ASSETS $ 4,311,586
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
CHECKS ISSUED IN EXCESS OF CASH IN BANK $ 32,599
NOTE PAYABLE 1,270,492
ACCOUNTS PAYABLE 329,257
ACCRUED PAYROLL AND RELATED TAXES 254,419
OTHER ACCRUED LIABILITIES 939,245
CURRENT MATURITY OF LONG TERM DEBT 447,412
-----------
TOTAL CURRENT LIABILITIES 3,273,424
LONG-TERM DEBT 430,324
EXCESS OF INDENTIFIABLE NET ASSETS ACQUIRED OVER
PURCHASE PRICE, NET OF ACCUMULATED AMORTIZATION 436,909
-----------
TOTAL LIABILITIES 4,140,657
-----------
STOCKHOLDERS' EQUITY (DEFICIT)
RETAINED EARNINGS (DEFICIT) (470,468)
PAID-IN CAPITAL 18,980
COMMON STOCK 81,020
PROFIT OF THE YEAR 541,397
-----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 170,929
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,311,586
===========
46
L.E. SMITH GLASS CO.
STATEMENT OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30,
----------- -----------
1995 1994
----------- -----------
NET SALES $ 2,812,350 $ 1,857,866
COST OF SALES 1,873,560 1,325,652
----------- -----------
GROSS PROFIT 938,790 520,688
SELLING AND ADMINISTRATIVE EXPENSES 342,383 414,859
----------- -----------
INCOME FROM OPERATIONS 596,407 105,829
INTEREST EXPENSE 56,134 36,900
OTHER INCOME 1,124 5,925
----------- -----------
INCOME BEFORE INCOME TAXES 541,397 74,854
PROVISION FOR INCOME TAXES -- --
----------- -----------
NET INCOME $ 541,397 $ 74,854
=========== ===========
47
L.E. SMITH GLASS CO.
STATEMENT OF CASH FLOW
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30,
------------ ------------
1995 1994
------------ ------------
CASH FLOW FROM OPERATING ACTIVITIES
NET INCOME (LOSS) $ 541,397 $ 74,853
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
DEPRECIATION 60,000 58,800
PROVISION FOR LOSSES ON RECEIVABLE 9,000 9,000
AMORTIZATION OF EXCESS OF IDENTIFIABLE
NET ASSETS ACQUIRED OVER PURCHASE PRICE -- (9,600)
CHANGE IN OPERATING ASSETS AND LIABILITIES:
DECREASE (INCREASE) IN:
TRADE ACCOUNTS RECEIVABLE 5,557 (947)
INVENTORIES (201,966) 10,004
OTHER CURRENT ASSETS (33,482) (89,230)
INCREASE (DECREASE) IN:
ACCOUNTS PAYABLE (224,543) 37,975
ACCRUED PAYROLL AND RELATED TAXES (20,659) (39,362)
OTHER ACCRUED LIABILITIES 34,233 38,219
------------ ------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 169,537 89,712
------------ ------------
CASH FLOW FROM INVESTING ACTIVITIES
PURCHASE OF PROPERTY, PLANT AND EQUIPMENT (35,506) (115,355)
------------ ------------
NET CASH USED FOR INVESTING ACTIVITIES (35,506) (115,355)
------------ ------------
CASH FLOW FROM FINANCING ACTIVITIES
NET BORROWING ON LINE OF CREDIT (45,242) 16,847
PROCEED FROM LONG TERM DEBT -- 131,093
PAYMENT ON LONG TERM DEBT (97,857) (60,000)
------------ ------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES (143,099) 87,940
------------ ------------
NET DECREASE IN CASH (9,068) 62,297
CASH BEGINNING OF THE PERIOD 14,296 6,828
------------ ------------
CASH END OF THE PERIOD $ 5,228 $ 69,125
============ ============
48
NBI, INC.
PROFORMA FINANCIAL STATEMENTS
The following unaudited proforma combined balance sheet and combined statement
of operations give effect to the acquisitions of the Belle Vernon Motel
Corporation and L.E. Smith Glass Company, described in Item 2 or this Form 8-K.
The proforma information is based on historical financial statements of NBI,
Inc. and the acquired companies, giving effect to the transactions under the
purchase method of accounting and adjustments described in the accompanying
explanatory notes to the unaudited proforma statements. The June 30, 1995
unaudited proforma combined balance sheet gives effect to the acquisitions as if
such acquisitions had occurred on June 30, 1995. The unaudited proforma
statement of operations for the year ended June 30, 1995, gives effect to the
acquisitions as if such acquisitions had occurred on July 1, 1994, the first day
of the period presented.
The proforma information has been prepared by the management of the Registrant
based upon financial statements of the Registrant, Belle Vernon Motel
Corporation, and L.E. Smith Company. Belle Vernon Motel Corporation's year-end
was previously December 31, of which the audited financial statements for the
year ended December 31, 1994 are contained elsewhere herein. Management has
compiled financial statements as of June 30, 1995, and for the year then ended,
to correspond with the Registrant's fiscal year-end and has used those
statements for the purposes of these proforma financial statements. The proforma
financial statements use L.E. Smith Glass Company's financial statements as of
March 31, 1995 and for the year then ended, as it is within 90 days of the
Registrant's year-end.
These proforma statements may not be indicative of the results that actually
would have occurred if the acquisitions had occurred on July 1, 1994 or June 30,
1995. The proforma financial statements should be read in conjunction with the
financial statements and related notes of the Registrant, Belle Vernon Motel
Corporation, and L.E. Smith Glass Company contained elsewhere herein.
49
NBI, INC.
PROFORMA BALANCE SHEET
Year Ended June 30,1995
(Amounts in Thousands) (Unaudited)
L.E. Smith Belle Vernon Proforma
Historical Glass Motel Proforma Combined
NBI, Inc. Company Corporation Adjustments NBI, Inc.
----------- ----------- ------------- ------------ ----------
ASSETS
Current assets:
Cash and cash equivalents $ 1,931 $ 14 $1,154 $ (14) A $ 2,088
(997) C
Trading securities 4,324 -- -- (721) C 1,173
(2,430) G
Accounts receivable, net 371 1,353 57 (27) A 1,785
31 B
Inventories 196 1,707 25 40 B 1,968
Other current assets 391 62 30 (19) A 464
------- ------ ------ ---------- -------
Total current assets 7,213 3,136 1,266 (4,137) 7,478
Property and equipment, net 55 988 513 2,574 B 3,944
(934) D
1,887 F
(1,139) D
Other assets 289 -- 7 110 H 507
60 I
41 J
------- ------ ------ ---------- -------
$ 7,557 $4,124 $1,786 $(1,538) $11,929
======= ====== ====== ========== =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of income taxes $ 2,457 $ -- $ -- $ -- $ 2,457
Short-term borrowings and current
portion of notes payable 925 1,763 -- -- 2,688
Accounts payable 384 586 44 -- 1,014
Accrued liabilities 544 1,180 60 110 H 1,995
60 I
41 J
---------
Total current liabilities 4,310 3,529 104 211 8,154
Long-term income taxes 3,811 -- -- -- 3,811
Notes payable and other long-term debt 56 528 -- -- 584
Long-term postemployment
disability benefits 234 -- -- -- 234
------- ------ ------ --------- -------
Total liabilities 8,411 4,057 104 211 12,783
------- ------ ------ --------- -------
Excess of identifiable net assets
acquired over purchase price -- 437 -- (437) A --
Stockholders' equity (deficit):
Common stock 100 81 41 (81) A 100
(41) E
Capital in excess of par value 5,769 19 446 (19) A 5,769
(446) E
Retained earnings (deficit) (5,517) (470) 1,271 470 A (5,517)
(1,271) E
Foreign currency translation 311 -- -- -- 311
------- ------ ------ ---------- -------
663 (370) 1,758 (1,388) 663
Less treasury stock at cost (1,517) -- (76) 76 E (1,517)
------- ------ ------ ---------- -------
Total stockholders' equity (deficit) (854) (370) 1,682 (1,312) (854)
------- ------ ------ ---------- -------
$ 7,557 $4,124 $1,786 $(1,538) $11,929
======= ====== ====== ========== =======
See Accompanying Explanatory Notes
50
NBI, INC.
PROFORMA STATEMENT OF OPERATIONS
Year Ended June 30, 1995
(Amounts in Thousands) (Unaudited)
L.E. Smith Belle Vernon Proforma
Historical Glass Motel Proforma Combined
NBI, Inc. Company Corporation Adjustments NBI, Inc.
----------- ----------- ------------ ------------ ----------
Revenue:
Sales $ 1,856 $8,157 $ -- $ -- $10,013
Service revenue 994 -- -- -- 994
Room rental and related revenue -- -- 1,275 -- 1,275
Food and beverage revenue -- -- 543 -- 543
------- ------ ------------ ----------- -------
2,850 8,157 1,818 -- 12,825
------- ------ ------------ ----------- -------
Cost and expenses:
Cost of sales 1,377 5,545 -- 38 L 7,084
124 N
Cost of service 754 -- -- -- 754
Direct expenses - room rental and related -- -- 731 -- 731
Direct expenses - food and beverage -- -- 536 -- 536
Product development and engineering 278 -- -- 278
General, administrative and 2,583 1,721 315 34 K 4,602
indirect expenses 2 M
7 N
(60) O
------- ------ ------------ ----------- -------
4,992 7,266 1,582 145 13,985
------- ------ ------------ ----------- -------
Income (loss) from operations (2,142) 891 236 (145) (1,160)
------- ------ ------------ ----------- -------
Other income (expense):
Interest income 194 -- 33 -- 227
Net gain on investments and
other income 2,462 20 -- -- 2,482
Interest expense (741) (214) (955)
------- ------ ------------ ----------- -------
1,915 (194) 33 -- 1,754
------- ------ ------------ ----------- -------
Net income (loss) before income taxes,
minority interest, cumulative effect of
change in accounting method, and
extraordinary item (227) 697 269 (145) 594
Income tax expense -- (100) -- -- (100)
Minority interest 15 -- -- -- 15
------- ------ ------------ ----------- -------
Net income (loss) before cumulative
effect change in accounting method
and extraordinary item $ (212) $ 597 $ 269 $ (145) $ 509
======= ====== ============ =========== =======
Income (loss) per common share:
Net income (loss) from operations
before income taxes $ (0.03) $ 0.06
Income tax expense -- (0.01)
------- -------
Net income (loss) before cumulative
effect of change in method and
extraordinary item $ (0.03) $ 0.05
======= =======
Weighted average number of common
and common equivalent shares
outstanding 6,743 6,743
======= =======
See Accompanying Explanatory Notes
51
NBI, INC.
EXPLANATORY NOTES TO PROFORMA INFORMATION
JUNE 30, 1995
(A) Elimination of assets, liabilities and equity not acquired as a part of the
L.E. Smith Glass Company acquisition.
(B) Adjustment to fair market value of assets purchased in the L.E. Smith Glass
Company acquisition.
(C) Cash outlay for L.E. Smith acquisition, a portion of which was paid through
the sale of trading securities.
(D) Reduction of long-term assets for the excess of net identifiable assets over
the purchase price.
(E) Elimination of existing equity accounts related to the acquisition of the
Belle Vernon Motel Corporation stock.
(F) Adjustment to fair market value of assets purchased in the Belle Vernon
Motel acquisition.
(G) Cash outlay for Belle Vernon Motel acquisition, paid through the sale of
trading securities.
(H) Accrual of estimated acquisition costs incurred related to the L.E. Smith
Glass Company acquisition, consisting of legal, auditing and appraisal fees.
(I) Accrual of estimated acquisition costs incurred related to the Belle Vernon
Motel acquisition, consisting of legal, auditing and appraisal fees.
(J) Accrual of initial franchise fees related to transfer of Holiday Inn
franchise to Registrant from seller of Belle Vernon Motel Corporation.
(K) Annual amortization of acquisition costs, using a five year amortization
period and straight-line method.
(L) Reversal of amortization income related to the existing excess of
identifiable assets over purchase price included in L.E. Smith's historical
financial statements.
(M) Annual amortization of initial franchise fee incurred upon acquisition of
Belle Vernon, using a 20 year life and straight-line method.
(N) Adjustment to historical depreciation expense for the new carrying value of
the property, plant and equipment for L.E. Smith Glass Company.
(O) Adjustment to historical depreciation expense for the new carrying value of
the property, plant and equipment for Belle Vernon Motel Corporation.
52
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NBI, INC.
Dated: October 2, 1995 By: /s/ Marjorie A. Cogan
---------------------
Marjorie A. Cogan
As a duly authorized officer
Corporate Controller, Secretary
(Principal Financial and Accounting Officer)
53