1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 8-K/A-1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: December 30, 1997
------------------------------------
(Date of the earliest event reported)
Home Products International, Inc.
---------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-17237 36-4147027
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(State or other jurisdiction of (Commission I.R.S. Employer
Incorporation or organization) File Number) Identification No.
4501 West 47th Street Chicago, IL 60632
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (773) 890-1010
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Unless the context otherwise requires, references to (i) the "Company",
and "HPI", are to Home Products International, Inc., a Delaware corporation,
and its wholly owned subsidiaries, including Seymour, (ii) "Seymour" includes
both Seymour Sales Corporation, and its wholly owned subsidiary, Seymour
Housewares Corporation (including Seymour S.A. de C.V, a wholly owned
subsidiary of Seymour Housewares Corporation), and (iii) the "Seymour
Acquisition" is to the acquisition by the Company of all of the outstanding
capital stock of Seymour, effective December 30, 1997.
On December 30, 1997 pursuant to the Amended and Restated Agreement, (the
"Purchase Agreement") among Seymour and Seymour's majority shareholder, an
acquisition subsidiary of the Company was merged with and into Seymour Sales
Corporation, then Seymour Sales Corporation was merged into Seymour Housewares
Corporation, thereby Seymour Housewares Corporation became a wholly owned
direct subsidiary of the Company. Seymour, originally founded in 1942, is a
leading designer, manufacture, and marketer of consumer laundry care products,
including ironing boards, ironing board pads and covers, and numerous related
laundry care accessories.
Subsequent to December 30, 1997 certain modifications have been made to
the Purchase Agreement, as filed with the Company's Form 8-K dated January 13,
1998. The definition of "Escrowed Shares" in Section 1 - "Definitions", has
been modified to reflect 328,000 shares. Section 2.5 - "Merger Consideration"
was modified to reflect an additional cash payment in the amount of $.567
million and a reduction in the total number of HPI common shares issued as
consideration to 1,320,700.
The Company acquired Seymour for a total consideration of $100.7 million,
consisting of $16.4 million in cash, $14.3 million in HPI common stock
(1,320,700 shares), and the assumption of approximately $70.0 million of
Seymour debt.
The Company has entered into a credit agreement with General Electric
Capital Corporation, ("GECC") dated as of December 30, 1997, ("the 12/30/97
Credit Agreement") which provides (i) a six year revolving credit facility
providing up to $20.0 million of borrowings, subject to a borrowing base
limitation, and including a letter of credit subfacility of up to $15.0 million
(ii) a six year $50.0 million senior term loan ("Term Loan A"), and (iii) an
eight year $60.0 million senior term loan, ("Term Loan B"); (Term Loan A and B
collectively are referred to herein as the "Term Loans"). Proceeds of the
Term Loans were combined with the proceeds of a $10.0 million senior
subordinated equity bridge note (the "12/30/97 Senior Subordinated Note") to
finance the Seymour Acquisition.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
a) Financial statements of business acquired.
Seymour Sales Corporation, and its wholly owned subsidiary, Seymour
Housewares Corporation.
The following audited financial statements are filed herewith:
SEYMOUR SALES CORPORATION and SUBSIDIARIES - AS OF AND FOR THE YEARS ENDED
JUNE 30, 1997 AND 1996:
Report of Ernst & Young LLP
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Changes in Stockholder's Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
SEYMOUR SALES CORPORATION and SUBSIDIARIES - AS OF AND FOR THE YEARS ENDED
JUNE 30, 1996 AND 1995:
Report of Ernst & Young LLP
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Changes in Stockholder's Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
The following unaudited financial statements are filed herewith:
SEYMOUR SALES CORPORATION and SUBSIDIARIES - INTERIM FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet as of December 27, 1997
Condensed Consolidated Statements of Operations for the Six
Months Ended December 27, 1997 and December 28, 1996
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended December 27, 1997 and December 28, 1996
Notes to the Condensed Consolidated Financial Statements
b) Pro forma financial information.
The following unaudited pro forma financial statements are filed herewith:
HOME PRODUCTS INTERNATIONAL, INC :-
Unaudited Pro Forma Condensed Combined Balance Sheet as of December
27, 1997
Unaudited Pro Forma Condensed Combined Statement of Operations for the
fifty-two weeks ended December 27, 1997
Notes to the Unaudited Pro Forma Condensed Combined Financial
Statements
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Seymour Sales Corporation and Subsidiaries
Consolidated Financial Statements
Years ended June 30, 1997 and 1996
CONTENTS
Report of Independent Auditors............................................ 1
Audited Consolidated Financial Statements
Consolidated Balance Sheets............................................... 2
Consolidated Statements of Operations..................................... 4
Consolidated Statements of Changes in Stockholders' Equity................ 5
Consolidated Statements of Cash Flows..................................... 6
Notes to Consolidated Financial Statements................................ 7
5
Report of Independent Auditors
Board of Directors
Seymour Sales Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of Seymour Sales
Corporation and subsidiaries as of June 30, 1997 and 1996, and the related
consolidated statements of operations, changes in stockholders' 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Seymour Sales Corporation and subsidiaries at June 30, 1997 and 1996, and the
consolidated results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
August 15, 1997, except for Note 9
as to which the date is August 25, 1997
and Note 10, as to which the date is
December 30, 1997
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Seymour Sales Corporation and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
JUNE 30
1997 1996
-------------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,529 $ 713
Accounts receivable, net (Note 2) 15,897 16,762
Income taxes recoverable 346 346
Inventories (Note 3) 14,160 14,747
Prepaid pension cost (Note 6) 448 -
Prepaid expenses and sundry 450 623
-------------------
Total current assets 32,830 33,191
Property and equipment (Note 4) 12,512 14,868
Prepaid pension cost (Note 6) - 674
Intangible assets, less accumulated amortization
(1997 - $17,701; 1996 - $13,055):
Goodwill 48,127 49,554
Non-compete 6,481 9,086
Other 3,238 3,950
-------------------
57,846 62,590
-------------------
Total assets $103,188 $111,323
===================
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JUNE 30
1997 1996
------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,303 $ 5,806
Other liabilities and accrued expenses 4,377 4,558
Current maturity of long-term debt (Note 5) 4,488 571
State and local taxes 434 584
Deferred income taxes (Note 7) 158 68
------------------------
Total current liabilities 16,760 11,587
Long-term debt (Note 5) 71,813 83,201
Postretirement benefit plan (Note 6) 2,969 2,640
Deferred income taxes (Note 7) 2,881 3,045
Stockholders' equity (Note 8):
Common Stock, $.0001 par value:
Authorized shares - 750,000
Issued shares - 153,608 in 1997 and 1996 - -
Preferred Stock, $1 par value
Authorized shares - 24,000
Issued shares - 19,762 in 1997 and 1996 20 20
Common Stock warrants 400 400
Additional paid-in capital 26,168 26,168
Retained earnings (deficit) (17,615) (15,596)
------------------------
8,973 10,992
Less shares in treasury, at cost:
Common Stock - 1,132 in 1997 and 819 in 1996
Preferred Stock - 130 in 1997 and 89 in 1996 (208) (142)
------------------------
Total stockholders' equity 8,765 10,850
------------------------
Total liabilities and stockholders' equity $103,188 $111,323
========================
See accompanying notes.
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Seymour Sales Corporation and Subsidiaries
Consolidated Statements of Operations
(Dollars in thousands)
YEARS ENDED JUNE 30
1997 1996
---------------------
Sales (Note 1) $ 98,274 $ 105,532
Cost of products sold 68,756 79,845
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Gross profit 29,518 25,687
Operating expenses:
Marketing and selling 13,326 14,775
General and administrative 5,312 6,775
Research and development 275 407
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18,913 21,957
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Operating income 10,605 3,730
Other expenses:
Interest, net 7,923 8,384
Amortization of intangible assets 4,385 4,414
Other 57 223
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12,365 13,021
---------------------
Loss before income taxes (1,760) (9,291)
Income taxes (Note 7) 259 2,597
---------------------
Net loss $ (2,019) $ (11,888)
=====================
See accompanying notes.
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Seymour Sales Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
Years ended June 30, 1997 and 1996
(Dollars in thousands)
COMMON ADDITIONAL RETAINED
COMMON PREFERRED STOCK PAID-IN EARNINGS TREASURY
STOCK STOCK WARRANTS CAPITAL (DEFICIT) STOCK TOTAL
---------------------------------------------------------------------------------
Balance at June 30, 1995 $ - $ 20 $ 400 $ 26,137 $ (3,708) $ (20) $22,829
Stock issued - - - 31 - - 31
Purchase for treasury - - - - - (122) (122)
Net loss - - - - (11,888) - (11,888)
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Balance at June 30, 1996 - 20 400 26,168 (15,596) (142) 10,850
Purchase for treasury - - - - - (66) (66)
Net loss - - - - (2,019) - (2,019)
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Balance at June 30, 1997 $ - $ 20 $ 400 $ 26,168 $ (17,615) $(208) $ 8,765
=================================================================================
See accompanying notes.
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Seymour Sales Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
YEARS ENDED JUNE 30
1997 1996
----------------------
OPERATING ACTIVITIES
Net loss $(2,019) $(11,888)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation of property and equipment 3,517 3,262
Amortization of intangible assets 4,385 4,414
Deferred income taxes (74) 2,422
Benefit applied to reduce goodwill 101 101
Non-cash interest expense 306 357
Changes in operating assets and liabilities:
Accounts receivable 865 3,052
Inventories 587 3,216
Prepaid expenses and sundry 173 79
Prepaid pension cost 226 114
Accounts payable and accrued liabilities 1,317 (2,896)
Other current assets and liabilities (150) 512
Postretirement benefit plan 329 250
----------------------
Net cash provided by operating activities 9,563 2,995
INVESTING ACTIVITIES
Purchases of property and equipment, net (1,161) (2,595)
Other (10) (127)
----------------------
Net cash used in investing activities (1,171) (2,722)
FINANCING ACTIVITIES
Purchase of treasury stock (66) (122)
Proceeds from sale of Common and Preferred Stock - 31
Principal borrowing (repayment) on revolving credit note, net (6,960) 850
Principal payment on other long-term debt (550) (1,000)
Proceeds from long-term debt - 48
----------------------
Net cash used in financing activities (7,576) (193)
----------------------
Increase in cash and cash equivalents 816 80
Cash and cash equivalents at beginning of year 713 633
----------------------
Cash and cash equivalents at end of year $ 1,529 $ 713
======================
See accompanying notes.
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Seymour Sales Corporation and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
The consolidated financial statements include the accounts of Seymour Sales
Corporation (SSC), its wholly owned subsidiary, Seymour Housewares Corporation
(SHC), and Seymour, S.A. de C.V., a wholly owned subsidiary of SHC,
(collectively referred to as "the Company"). All significant intercompany
balances and transactions have been eliminated. SSC is owned by Chase Capital
Partners, members of management of the Company and others.
The Company designs, manufactures and markets a broad range of ironing boards,
ironing board covers and pads, laundry accessories, juvenile gates and tote
carts. The Company's customers are principally located throughout North
America. Two of the Company's customers accounted for approximately 18% and
14%, respectively, of gross sales for the year ended June 30, 1997.
CASH AND CASH EQUIVALENTS
All highly liquid investments with a maturity of three months or less at the
date of purchase are considered to be cash equivalents.
FINANCIAL INSTRUMENTS
The Company's financial instruments generally consist of cash and cash
equivalents, trade and other receivables, accounts payable and long-term debt.
The fair value of the Company's fixed rate debt was estimated using discounted
cash flow analyses based upon the Company's current incremental borrowing
rates. The carrying amounts of these financial instruments approximated their
fair value at June 30, 1997 and 1996.
INVENTORIES
Inventories are stated at the lower of cost, determined utilizing the first-in,
first-out (FIFO) method, or market.
A reserve is maintained for obsolete inventory and shrinkage of inventory. This
reserve is reviewed on a periodic basis during the year and at year end and is
adjusted, if necessary, based upon historical experience, known problems and
management's judgment. Actual write-offs of obsolete products are charged
against the reserve as identified.
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Seymour Sales Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is calculated by the
straight-line, half-year convention method at rates based upon the estimated
useful lives of the assets as follows:
Buildings 25 years
Building improvements 10 years
Machinery and equipment 5 years
All costs of major improvements to existing facilities or equipment are
capitalized. The cost of repairs and maintenance to an existing asset that does
not improve or extend the life of that respective asset is expensed as
incurred.
INTANGIBLES
Goodwill is being amortized over 40 years and organization costs are being
amortized over 5 years using the straight-line method. Debt issuance costs and
noncompete agreements are being amortized over the lives of the agreements
(ranging from 5-10 years) using the straight-line method.
The carrying amount of goodwill is reviewed if facts and circumstances suggest
that it may be impaired. If this review indicates that goodwill will not be
recoverable, as determined based on the estimated undiscounted cash flows of
the entity acquired over the remaining amortization period, the carrying amount
of the goodwill is reduced by the estimated shortfall of cash flows. In
addition, the Company assesses long-lived assets for impairment under Statement
of Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. Under those
rules, goodwill associated with assets acquired in a purchase business
combination is included in impairment evaluations when events or circumstances
exist that indicate the carrying amount of those assets may not be recoverable.
SALES
Sales are presented in the income statement net of allowances for returns, cash
discounts and freight out. Gross sales were $101,700,000 and $109,609,000 for
the years ended June 30,1997 and 1996, respectively.
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Seymour Sales Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING
The Company expenses the production costs of advertising as incurred except for
cooperative advertising where costs are expensed at the same time the related
revenue is recognized. For the years ended June 30, 1997 and 1996, advertising
expense totaled $3,042,000 and $3,819,000, respectively.
INCOME TAXES
The Company provides for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," ("FAS 109"). FAS
109 requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax bases of assets and liabilities. These deferred
taxes are measured by applying the provisions of tax laws in effect at the
balance sheet date.
SHC joins with SSC in the filing of a consolidated federal income tax return.
Substantially all current and deferred income tax expenses are allocated to SHC
and subsidiary as the primary operating entities.
STOCK BASED COMPENSATION
The Company accounts for its stock compensation arrangements under requirements
prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees. In 1997, the Company adopted the disclosure provisions of
Financial Accounting Standards Board Statement No. 123, Accounting for Stock
Based Compensation. The Company has granted no new stock options or awards
after July 1, 1995.
USE OF ESTIMATES
The preparation of consolidated financial statements requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates.
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Seymour Sales Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. ACCOUNTS RECEIVABLE
A summary of accounts receivable at June 30 follows:
(Dollars in thousands)
1997 1996
------------------------
Trade accounts recievable $ 19,937 $ 20,477
Less allowances:
Doubtful accounts (1,059) (1,026)
Discounts and returns (629) (571)
Advertising (2,352) (2,118)
------------------------
$ 15,897 $ 16,762
========================
The Company performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral for amounts outstanding.
3. INVENTORIES
A summary of inventories at June 30 follows:
(Dollars in thousands)
1997 1996
--------------------
Raw materials $ 4,113 $ 5,507
Work-in-process 3,308 4,791
Finished goods 8,370 6,428
--------------------
15,791 16,726
Less allowance for obsolescence and shrinkage (1,631) (1,979)
--------------------
$14,160 $14,747
====================
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Seymour Sales Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. PROPERTY AND EQUIPMENT
A summary of property and equipment at June 30 follows:
(Dollars in thousands)
1997 1996
---------------------
Land $ 878 $ 878
Buildings and improvements 6,613 6,551
Machinery and equipment 15,584 15,199
Capital leases 358 362
Construction in progress 462 -
---------------------
23,895 22,990
Less allowances for depreciation and
amortization (11,383) (8,122)
---------------------
$ 12,512 $14,868
=====================
5. LONG-TERM DEBT
Long-term debt at June 30 consisted of the following:
(Dollars in thousands)
1997 1996
--------------------
Revolving Credit Note $ 6,390 $13,350
Senior Term Note 51,000 51,000
Senior Subordinated Note 19,000 19,000
Capital leases 164 234
Other - 480
--------------------
76,554 84,064
Less unamortized discount (253) (292)
--------------------
76,301 83,772
Less current portion (4,488) (571)
--------------------
$71,813 $83,201
====================
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Seymour Sales Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. LONG-TERM DEBT (CONTINUED)
The Company has a Revolving Credit Note with its principal lenders, Jackson
National Life Insurance Company, individually and as successor by merger to
Jackson National Life Insurance Company of Michigan (collectively referred to
as "JNL") which matures December 31, 2002. Under this Note, borrowings can be
made once per week up to a maximum outstanding of $14.0 million, further
limited to a percentage of eligible receivables and inventory. Interest is
based on the lesser of (A) the three-month LIBOR (adjusted for any required
reserve percentages) plus 3.0% or (B) a major bank prime lending rate plus
1.5%. Additionally, a commitment fee of .5% is paid on the unused revolver
balance along with a 2% guarantee fee for the open letter of credit balance.
The interest rate was 8.7% at June 30, 1997. Interest is payable monthly.
The Senior Term Note is held by JNL. This Note bears a variable interest rate
based on the lower of the following: (A) the three-month LIBOR (adjusted for
any required reserve percentages) plus 3.25% or (B) a major bank prime lending
rate plus 1.75%. The interest rate was 9.0% at June 30, 1997. Interest is
payable monthly. Required principal payments are $4.4 million beginning on June
30, 1998 and every six months thereafter through December 31, 1999. The
required payment beginning on June 30, 2000 is $4.9 million every 6 months
through December 31, 2001 followed by $6.9 million on June 30, 2002 and
December 31, 2002. The Senior Term Note has a provision for optional
prepayments and for mandatory excess cash flow prepayment. Certain optional
prepayments result in a penalty. There is no mandatory excess cash flow
prepayment for the period ended June 30, 1997.
The Senior Subordinated Note, held by JNL, has a fixed interest rate of 12%
payable semi-annually in June and December. This Note has a maturity of
December 31, 2004. The Note may be prepaid, in part or in whole, with penalty
after December 31, 1996. The prepayment penalty in 1998 is 9% (unless certain
criteria are met in which case the penalty is 4%) of the principal amount
prepaid and decreases each year thereafter. JNL also holds warrants to purchase
shares of common stock of SSC, as part of the Subordinated Note.
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Seymour Sales Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. LONG-TERM DEBT (CONTINUED)
The Revolving Credit Note, the Senior Term Note and the Senior Subordinated
Note are collateralized by substantially all of SHC's assets and pledged stock
of SSC. In addition, the debt agreements require maintenance of certain debt
service ratios, limit additional borrowings, and require compliance with
various other restrictive covenants. Modifications to certain of these
covenants were made with agreements dated as of November 1, 1996.
Maturities of long-term debt are as follows: 1998, $4.5 million; 1999, $8.8
million; 2000, $9.3 million; 2001, $9.8 million; and 2002, $11.8 million; and
thereafter, $32.4 million.
The Company paid interest of $7,732,000 and $8,088,000 for the years ended June
30, 1997 and 1996, respectively.
6. EMPLOYEE BENEFIT PLANS
PENSION PLAN
SHC has a defined benefit pension plan covering all of its employees working at
its facilities in Seymour, Indiana. Plan benefits are based on years of service
and earnings. Plan assets consist of equity securities, as well as government,
corporate and other fixed-income obligations. SHC's policy is to fund the Plan
based on tax funding requirements.
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Seymour Sales Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. EMPLOYEE BENEFIT PLANS (CONTINUED)
The funded status and amounts recognized in the consolidated balance sheets for
the Plan at June 30, 1997 and 1996, were as follows:
(Dollars in thousands)
1997 1996
------------------
Actuarial present value of benefit obligations:
Vested benefits $ 7,052 $ 5,424
==================
Accumulated benefit obligation $ 7,052 $ 5,588
==================
Projected benefit obligation $ 7,052 $ 8,312
Plan assets at fair value 7,052 7,002
------------------
Funded status - (1,310)
Unrecognized net loss 448 1,984
------------------
Prepaid pension cost $ 448 $ 674
==================
Net pension cost included the following components:
(Dollars in thousands)
1997 1996
--------------
Service cost $ 120 $ 485
Interest cost on projected benefit obligation 522 557
Actual return on plan assets (276) (657)
Net amortization and deferral (140) 269
--------------
Net periodic pension cost $ 226 $ 654
==============
The assumptions used in determining the pension expense and obligations were as
follows:
1997 1996
----------
Rate of compensation increase 4.5% 4.5%
Weighted-average discount rate 7.0% 7.5%
Long-term rate of return on assets 7.0% 7.5%
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Seymour Sales Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. EMPLOYEE BENEFIT PLANS (CONTINUED)
The Pension Plan Administrative Committee on August 7, 1996, resolved that the
Pension Plan be frozen (resulting in no additional accumulation of benefits
under the plan) effective September 30, 1996, and the Plan was terminated as of
November 15, 1996. Accumulated benefits aggregating approximately $7,052,000
were fully vested for the eligible participants and assets of the Plan of
$7,052,000 were utilized to purchase investments that earn approximately 6%
interest to satisfy the pension obligation. Termination of the Pension Plan
was approved by the Internal Revenue Service on July 21, 1997. Distribution of
assets is expected to occur by October 1997. Anticipated expense related to
the Plan for 1998 is expected to total $448,000, consisting entirely of
settlement loss.
RETIREMENT SAVINGS PLAN
SHC has established a 401(k) savings plan named the "Seymour Housewares
Corporation Savings Plan" (Savings Plan) effective as of January 7, 1993. All
SHC employees who have completed certain minimum service requirements are
eligible to participate in the Savings Plan. Participants may defer specified
percentages of their compensation which the Company will match based upon a
specified formula. The Savings Plan provides for participant elective
investment of the deferred amounts in several funds. Company contributions
charged to expense were $341,000 and $332,000 for the years ended June 30, 1997
and 1996, respectively.
Effective September 29, 1996, the Company amended its Savings Plan to provide
an additional discretionary employer profit-sharing contribution equal to 3% of
eligible compensation. For the year ended June 30, 1997, profit sharing
expense was $347,000.
POSTRETIREMENT BENEFIT PLAN
SHC also sponsors a defined benefit plan that provides postretirement medical
benefits and life insurance to full-time employees at the Seymour, Indiana
facilities who have worked 10 years, attained age 55 while in service with the
Company, and participated in the Company's health care plan for at least one
year immediately preceding leaving the Company. The Plan is contributory, with
retiree contributions adjusted annually, and contains other cost-sharing
features such as deductibles and coinsurance. The accounting for the Plan
anticipates future cost-sharing changes to the written Plan that are consistent
with the Company's expressed intent to increase the retiree contribution
annually for the expected general inflation rate for that year. In addition,
the Plan provides that the Company's share of benefit costs is limited to 150%
of the 1991 benefit cost level. The
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Seymour Sales Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. EMPLOYEE BENEFIT PLANS (CONTINUED)
Company's policy is to fund the cost of medical benefits and life insurance in
amounts determined at the discretion of management.
The following table presents the Plan's funded status reconciled with amounts
recognized in the Company's consolidated statement of financial position.
(Dollars in thousands)
JUNE 30
1997 1996
-----------------
Accumulated postretirement benefit obligation:
Retirees $ 808 $ 983
Fully eligible active plan participants 301 302
Other active plan participants 1,314 1,456
-----------------
Accumulated postretirement benefit obligation
in excess of plan assets 2,423 2,741
Unrecognized net gain (loss) 546 (101)
-----------------
Accrued postretirement benefit cost $ 2,969 $ 2,640
=================
Net periodic postretirement benefit cost includes the following components:
(Dollars in thousands)
1997 1996
---------------
Service cost $ 164 $ 133
Interest cost 203 165
---------------
Net periodic postretirement benefit cost $ 367 $ 298
===============
The weighted-average annual assumed rate of increase in the per capita cost of
covered benefits (i.e., health care cost trend rate) is 14 percent and 15
percent for 1997 and 1996, respectively, and is assumed to decrease gradually
(the assumed rate for 1998 is 13 percent) to 4 percent for 2003 and remain at
that level thereafter. Increasing the assumed health care cost trend rates by
one percentage point each year would not have a material effect on the
accumulated postretirement benefit obligation or the aggregate of the service
and interest cost components of net periodic postretirement benefit cost.
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21
Seymour Sales Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. EMPLOYEE BENEFIT PLANS (CONTINUED)
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5 percent at both June 30, 1997 and
1996.
7. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets as of June 30 are as
follows:
(Dollars in thousands)
1997 1996
-------------------
Deferred tax liabilities:
Intangibles $ 2,730 $ 2,665
Prepaid pension 152 229
Depreciation 151 151
Other, net 6 68
-------------------
Total deferred tax liabilities 3,039 3,113
Deferred tax assets:
Net operating loss carryforwards 3,640 3,111
Alternative minimum tax credit carryforwards 50 50
Depreciation 523 317
Health claims incurred but not reported 149 203
Postretirement benefit obligation 1,009 896
Vacation pay 169 172
Allowances related to receivables 984 1,053
Allowances related to inventories 382 366
Other, net 399 321
-------------------
7,305 6,489
Valuation allowance for deferred tax assets (7,305) (6,489)
-------------------
Total deferred tax assets - -
-------------------
Net deferred tax liabilities $(3,039) $(3,113)
===================
At June 30, 1997, the Company has net operating loss carryforwards of
$10,706,000 for income tax purposes that expire in 2010, 2011 and 2012, and
alternative minimum tax credit carryforwards of $50,000 which may be carried
forward indefinitely.
17
22
Seymour Sales Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. INCOME TAXES (CONTINUED)
Significant components of the provision for income taxes for the years ended
June 30 are as follows:
(Dollars in thousands)
1997 1996
----------------
Current:
Federal $ - $ (222)
State 102 282
Foreign 130 14
----------------
Total current 232 74
Deferred federal:
Change in valuation allowance 816 5,451
Other (890) (3,029)
----------------
Total deferred federal (74) 2,422
Benefit applied to reduce goodwill 101 101
----------------
$ 259 $ 2,597
================
The effect of state income taxes, the increase in the valuation allowance and
the benefit of excess tax-deductible goodwill amortization applied to reduce
goodwill are the only significant reconciling differences between income tax
expense for the periods and the amount of income tax expense that would result
from applying the U.S. statutory rate to pretax income.
A deferred tax asset was established as a result of an acquisition in a
previous year. For financial reporting purposes, a valuation allowance of
$643,000 was recognized as of the acquisition date to offset this deferred tax
asset. When realized, the tax benefit for this item will be applied to reduce
goodwill related to the acquisition.
An income tax refund of approximately $223,000 was received in 1996.
18
23
Seymour Sales Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. STOCKHOLDERS' EQUITY
Common stock consists of the following:
Shares
------------------
Class Authorized Issued
----- ---------- ------
A 250,000 142,008
B 250,000 --
C 250,000 11,600
The three classes of common stock are identical in all respects except voting
rights. Holders of Class A Common are entitled to one vote per share on all
matters submitted to stockholders for a vote; Class B holders receive
one-quarter vote per share, except on certain critical issues (for which they
receive one vote per share); and Class C holders have no voting rights. For the
most part, any share of common stock may be converted into one share of common
stock of either of the other classes of common stock.
Preferred stock consists of the following:
Shares
------------------
Class Authorized Issued
----- ---------- ------
A 4,000 2,372
B 20,000 17,390
The preferred stock has no voting rights and entitles the holder to receive
dividends at the rate of 15% (Class A) or 13 1/4% (Class B) of liquidation
value ($1,000 per share), payable in cash or additional shares of preferred
stock. Dividends are payable only when declared, and any unpaid dividends
accumulate and are compounded quarterly. No dividends were declared in the
years ended June 30, 1997 or June 30, 1996. Cumulative preferred dividends in
arrears were $8,379,000 and $4,877,000 as of June 30, 1997 and 1996,
respectively. The preferred stock is redeemable at the option of SSC at any
time.
In connection with the issuance of the Senior Subordinated Note, the lender
received warrants to purchase approximately 31,500 shares of Class B common
stock of SSC at any time through December 9, 2004 at a price of $.0033 per
share. A portion of the proceeds of the Note issuance ($400,000) was assigned
to the warrants, representing their estimated fair value at December 9, 1994.
19
24
Seymour Sales Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. STOCKHOLDERS' EQUITY (CONTINUED)
In connection with the formation of SSC, options to acquire approximately 7,987
shares of Class A common stock were granted to certain members of management.
One-third of the options vest and become exercisable monthly over various
periods ending June 30, 1999. Another third of the options vest and become
exercisable over a five year period based on achievement of prescribed annual
operating cash flow targets. The cash flow target for one of the four periods
subsequent to January 7, 1993 was achieved. The final third vests and becomes
exercisable if, and when, the cumulative return on investment to SSC's
principal shareholder exceeds a specific threshold. As options vest, they
become exercisable at $.01 per share. None of the vested options to acquire
4,833 shares of common stock had been exercised at June 30, 1997.
Compensation expense attributable to the options that vest over time has been
measured by the difference between the fair value of the underlying shares at
January 7, 1993 and the exercise price. This expense is being recognized
ratably over the various periods ending June 30, 1999. Compensation expense
with respect to the other groups of options will be recognized, if earned, in
the periods that the related targets are met. The amount recognized as
compensation expense for the years ended June 30, 1997 and 1996, totaled
$57,000 and $39,000, respectively.
9. SUBSEQUENT EVENT - CONSOLIDATION
Subsequent to year-end, management recommended to the Board of Directors, and
announced to the Company's employees, a plan to consolidate certain production
operations during the year ended June 30, 1998. If enacted, one-time costs
associated with this consolidation are estimated to range from $800,000 to
$1,000,000. Management expects that future annual savings from this
consolidation will exceed the one-time costs.
10. SUBSEQUENT EVENT - SALE OF THE COMPANY
On December 30, 1997, the stockholders of the Company entered into an agreement
with Home Products International, Inc., a Delaware Corporation, ("HPI"),
whereby HPI acquired all of the capital stock of the Company. Total
consideration for the acquisition was $100,700,000 consisting of $16,400,000 in
cash, $14,300,000 in stock (1,320,700 shares of HPI common stock), and the
assumption of $70,000,000 of the Company's debt. HPI's common stock is publicly
traded on the NASDAQ National Market(sm), under the ticker symbol HPII.
20
25
Seymour Sales Corporation and Subsidiaries
Consolidated Financial Statements
Years ended June 30, 1996 and 1995
CONTENTS
Report of Independent Auditors............................................ 1
Audited Consolidated Financial Statements
Consolidated Balance Sheets............................................... 2
Consolidated Statements of Operations..................................... 4
Consolidated Statements of Changes in Stockholders' Equity................ 5
Consolidated Statements of Cash Flows..................................... 6
Notes to Consolidated Financial Statements................................ 7
26
Report of Independent Auditors
Board of Directors
Seymour Sales Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of Seymour Sales
Corporation and subsidiaries as of June 30, 1996 and 1995, and the related
consolidated statements of operations, changes in stockholders' 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Seymour Sales Corporation and subsidiaries at June 30, 1996 and 1995, and the
consolidated results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
/s/Ernst & Young LLP
----------------------------------
August 19, 1996, except for Note 6
as to which the date is November 1, 1996
1
27
Seymour Sales Corporation and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
JUNE 30
1996 1995
--------------------
ASSETS
Current assets:
Cash and cash equivalents $ 713 $ 633
Accounts receivable, net (Note 3) 16,762 19,814
Income taxes recoverable (Note 8) 346 594
Inventories (Note 4) 14,747 17,963
Prepaid expenses and sundry 623 702
Deferred income taxes (Note 8) - 1,303
--------------------
Total current assets 33,191 41,009
Property and equipment (Note 5) 14,868 15,535
Prepaid pension cost (Note 7) 674 788
Intangible assets, less accumulated amortization
(1996 - $12,241; 1995 - $7,827):
Goodwill 49,554 50,867
Non-compete 9,086 11,708
Other 2,677 3,112
--------------------
61,317 65,687
Debt issuance costs, less accumulated amortization 1,273 1,561
of (1996 - $814; 1995 - %552)
--------------------
Total assets $111,323 $124,580
====================
2
28
JUNE 30
1996 1995
----------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,806 $ 8,840
Other liabilities and accrued expenses 4,558 4,420
Current maturity of long-term debt (Note 6) 571 975
State and local taxes 584 321
Deferred income taxes 68 -
----------------------
Total current liabilities 11,587 14,556
Long-term debt (Note 6) 83,201 82,804
Postretirement benefit plan (Note 7) 2,640 2,390
Deferred income taxes (Note 8) 3,045 1,994
Other long-term liabilities - 7
Stockholders' equity (Note 9):
Common Stock, $.0001 par value:
Authorized shares - 750,000
Issued shares - 153,608 in 1996 and 154,333 in 1995 - -
Preferred Stock, $1 par value
Authorized shares - 24,000
Issued shares - 19,763 in 1996 and 19,740 in 1995 20 20
Common Stock warrants 400 400
Additional paid-in capital 26,168 26,137
Retained earnings (deficit) (15,596) (3,708)
----------------------
10,992 22,849
Less shares in treasury, at cost:
Common Stock - 819 in 1996 and 313 in 1995
Preferred Stock - 77 in 1996 and 5 in 1995 (142) (20)
----------------------
Total stockholders' equity 10,850 22,829
----------------------
Total liabilities and stockholders' equity $111,323 $124,580
======================
See accompanying notes.
3
29
Seymour Sales Corporation and Subsidiaries
Consolidated Statements of Operations
(Dollars in thousands)
YEARS ENDED JUNE 30
1996 1995
-----------------------
Sales $105,532 $92,554
Cost of products sold (Note 1) 79,845 67,288
-----------------------
Gross profit 25,687 25,266
Operating expenses:
Marketing and selling 14,775 12,479
General and administrative 6,775 4,958
Research and development 407 435
-----------------------
21,957 17,872
-----------------------
Operating income 3,730 7,394
Other (income) expenses:
Interest, net 8,384 7,394
Amortization of intangible assets 4,414 3,657
Other 223 (125)
-----------------------
13,021 10,926
-----------------------
Loss before income taxes (9,291) (3,532)
Income taxes (Note 8) 2,597 (1,122)
-----------------------
Net loss $(11,888) $(2,410)
=======================
See accompanying notes.
4
30
Seymour Sales Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
Years ended June 30, 1996 and 1995
(Dollars in thousands)
COMMON ADDITIONAL RETAINED
COMMON PREFERRED STOCK PAID-IN EARNINGS TREASURY
STOCK STOCK WARRANTS CAPITAL (DEFICIT) STOCK TOTAL
---------------------------------------------------------------------------------
Balance at June 30, 1994 $ - $ 2 $ 255 $ 5,963 $ (1,298) $ (12) $ 4,910
Conversion of Junior
Subordinated Notes - 18 - 17,334 - - 17,352
Stock issued - - 145 2,840 - - 2,985
Purchase for treasury - - - - - (8) (8)
Net loss - - - - (2,410) - (2,410)
---------------------------------------------------------------------------------
Balance at June 30, 1995 - 20 400 26,137 (3,708) (20) 22,829
Stock issued - - - 31 - - 31
Purchase for treasury - - - - - (122) (122)
Net loss - - - - (11,888) - (11,888)
---------------------------------------------------------------------------------
Balance at June 30, 1996 $ - $ 20 $ 400 $26,168 $ (15,596) $ (142) $ 10,850
=================================================================================
See accompanying notes.
5
31
Seymour Sales Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
YEARS ENDED JUNE 30
1996 1995
-----------------------
OPERATING ACTIVITIES
Net loss $(11,888) $(2,410)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation of property and equipment 3,262 2,542
Amortization of intangible assets 4,414 3,657
Deferred income taxes 2,422 (885)
Benefit applied to reduce goodwill 101 60
Non-cash interest expense 357 1,194
Changes in operating assets and liabilities net of effects
from purchase of Magla:
Accounts receivable 3,052 (5,099)
Inventories 3,216 (5,975)
Prepaid expenses and sundry 79 31
Prepaid pension cost 114 430
Accounts payable and accrued liabilities (2,896) 3,380
Other current assets and liabilities 512 (626)
Postretirement benefit plan 250 203
-----------------------
Net cash provided by (used in) operating activities 2,995 (3,498)
INVESTING ACTIVITIES
Net cash paid for acquired business - (42,841)
Purchases of property and equipment, net (2,595) (1,124)
Other (127) 397
-----------------------
Net cash used in investing activities (2,722) (43,568)
FINANCING ACTIVITIES
Purchase of treasury stock (122) (8)
Proceeds from sale of Common and Preferred Stock 31 2,611
Principal borrowing on revolving credit note, net 850 10,500
Principal payment on other long-term debt (1,000) (838)
Proceeds from long-term debt 48 35,827
Debt issuance costs - (1,022)
-----------------------
Net cash provided by (used in) financing activities (193) 47,070
-----------------------
Increase in cash and cash equivalents 80 4
Cash and cash equivalents at beginning of year 633 629
-----------------------
Cash and cash equivalents at end of year $ 713 $ 633
=======================
See accompanying notes.
6
32
Seymour Sales Corporation and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
The consolidated financial statements include the accounts of Seymour Sales
Corporation (SSC), its wholly owned subsidiary, Seymour Housewares Corporation
(SHC), and Seymour, S.A. de C.V., a wholly owned subsidiary of SHC,
(collectively referred to as "the Company"). All significant intercompany
balances and transactions have been eliminated. SSC is owned by Chase Capital
Partners, members of management of the Company and others.
The Company designs, manufactures and markets a broad range of ironing boards,
ironing board covers and pads, laundry accessories, juvenile gates and tote
carts. The Company's customers are principally located throughout North
America, without significant concentration in any one region or any one
customer.
CASH AND CASH EQUIVALENTS
All highly liquid investments with a maturity of three months or less at the
date of purchase are considered to be cash equivalents.
FINANCIAL INSTRUMENTS
The Company's financial instruments generally consist of cash and cash
equivalents, trade and other receivables, accounts payable and long-term debt.
The fair value of the Company's fixed rate debt was estimated using discounted
cash flow analyses based upon the Company's current incremental borrowing
rates. The carrying amounts of these financial instruments approximated their
fair value at June 30, 1996 and 1995.
INVENTORIES
Inventories are stated at the lower of cost, determined utilizing the first-in,
first-out (FIFO) method, or market.
In December 1994, as part of the allocation of the acquisition purchase price
(see Note 2), the Company wrote up the inventory acquired from original cost to
the fair value in accordance with applicable accounting principles. This write
up of inventory ($498,000) was charged to cost of goods sold in its entirety
during the year ended June 30, 1995.
A reserve is maintained for obsolete inventory and shrinkage of inventory. This
reserve is reviewed on a periodic basis during the year and at year end and is
adjusted, if necessary, based upon historical experience, known problems and
management's judgment. Actual write-offs of obsolete products are charged
against the reserve as identified.
7
33
Seymour Sales Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is calculated by the
straight-line, half-year convention method at rates based upon the estimated
useful lives of the assets as follows:
Buildings 25 years
Building improvements 10 years
Machinery and equipment 5 years
All costs of major improvements to existing facilities or equipment are
capitalized. The cost of repairs and maintenance to an existing asset that does
not improve or extend the life of that respective asset is expensed as
incurred.
INTANGIBLES
Goodwill is being amortized over 40 years and organization costs are being
amortized over 5 years using the straight-line method. Debt issuance costs and
noncompete agreements are being amortized over the lives of the agreements
(ranging from 5-10 years) using the straight-line method.
The carrying amount of goodwill is reviewed if facts and circumstances suggest
that it may be impaired. If this review indicates that goodwill will not be
recoverable, as determined based on the estimated undiscounted cash flows of
the entity acquired over the remaining amortization period, the carrying amount
of the goodwill is reduced by the estimated shortfall of cash flows. In
addition, the Company assesses long-lived assets for impairment under Statement
of Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. Under those
rules, goodwill associated with assets acquired in a purchase business
combination is included in impairment evaluations when events or circumstances
exist that indicate the carrying amount of those assets may not be recoverable.
SALES
Sales are presented in the income statement net of allowances for returns, cash
discounts and freight out. Gross sales were $109,605,000 and $96,638,000 for
the years ended June 30,1996 and 1995, respectively.
8
34
Seymour Sales Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING
The Company expenses the production costs of advertising as incurred except for
cooperative advertising where costs are expensed at the same time the related
revenue is recognized. For the years ended June 30, 1996 and 1995, advertising
expense totaled $3,819,000 and $4,000,000, respectively.
INCOME TAXES
The Company provides for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," ("FAS 109"). FAS
109 requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax bases of assets and liabilities. These deferred
taxes are measured by applying the provisions of tax laws in effect at the
balance sheet date.
USE OF ESTIMATES
The preparation of consolidated financial statements requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates.
RECLASSIFICATION
Certain amounts in the 1995 financial statements have been reclassified to
conform to the 1996 presentation.
9
35
Seymour Sales Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. ACQUISITIONS
In December 1994, SHC acquired the assets of Magla Products' (Magla) laundry
products business and certain of its affiliates. Concurrently, 100% of the
stock of Seymour, S.A. de C.V., formerly Magla Productos de Mexico, was
acquired. The total purchase price was approximately $45,357,000 and consisted
of cash ($42,841,000), 9,302 shares of common stock in SSC valued at $230,000,
an earnout provision with guaranteed minimum payments, payable in 1995 through
1998, and related transaction costs. If payments in excess of the guaranteed
minimum are required pursuant to the earnout provision, they will be accounted
for as additional goodwill at the time of payment. The Company modified
existing long-term debt agreements to obtain funding for this acquisition (see
Note 6). Pursuant to this acquisition, certain stockholders of SSC infused
capital into the Company through the purchase of additional shares of Common
and Preferred Stock.
The acquisition has been accounted for using the purchase method of accounting,
and the net assets and results of operations are included in the consolidated
financial statements from the acquisition date forward.
In June 1995, SHC acquired specific assets of Magla Metal Productos de Mexico,
S.A. de C.V. of Monterey, Mexico, a manufacturer of ironing boards for
$450,000. The acquisition was financed through the Company's working capital
and was accounted for using the purchase method of accounting, resulting in a
cost in excess of net assets acquired of $342,000.
36
Seymour Sales Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. ACCOUNTS RECEIVABLE
A summary of accounts receivable at June 30 follows:
(Dollars in thousands)
1996 1995
--------------------
Trade accounts receivable $20,477 $24,066
Other receivables - 39
Less allowances:
Doubtful accounts (1,026) (712)
Discounts and returns (571) (600)
Advertising (2,118) (2,979)
--------------------
$16,762 $19,814
====================
The Company performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral for amounts outstanding.
4. INVENTORIES
A summary of inventories at June 30 follows:
(Dollars in thousands)
1996 1995
--------------------
Raw materials $ 5,507 $ 8,603
Work-in-process 4,791 3,021
Finished goods 6,428 7,083
--------------------
16,726 18,707
Less allowance for obsolescence and shrinkage (1,979) (744)
--------------------
$14,747 $17,963
====================
37
Seymour Sales Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. PROPERTY AND EQUIPMENT
A summary of property and equipment at June 30 follows:
(Dollars in thousands)
1996 1995
--------------------
Land $ 878 $ 878
Buildings and improvements 6,551 6,207
Machinery and equipment 15,199 13,295
Capital leases 362 261
--------------------
22,990 20,641
Less allowances for depreciation and
amortization (8,122) (5,106)
--------------------
$14,868 $15,535
====================
6. LONG-TERM DEBT
In connection with the acquisition of Magla (see Note 2), the Company modified
its long-term debt agreements to provide increased borrowings. Details of the
revised amounts and terms are discussed below. Long-term debt at June 30
consisted of the following:
(Dollars in thousands)
1996 1995
--------------------
Revolving Credit Note $13,350 $12,500
Senior Term Note 51,000 51,000
Senior Subordinated Note 19,000 19,000
Capital leases 234 187
Other 480 1,424
--------------------
84,064 84,111
Less unamortized discount (292) (332)
--------------------
83,772 83,779
Less current portion (571) (975)
--------------------
$83,201 $82,804
====================
38
Seymour Sales Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. LONG-TERM DEBT (CONTINUED)
The Company has a Revolving Credit Note with its principal lenders, Jackson
National Life Insurance Company, individually and as successor by merger to
Jackson National Life Insurance Company of Michigan (collectively referred to
as "JNL") which matures December 31, 2002. Under this Note, borrowings can be
made once per week up to a maximum outstanding of $14.0 million, further
limited to a percentage of eligible receivables and inventory. Interest is
based on the lesser of (A) the three-month LIBOR (adjusted for any required
reserve percentages) plus 3.0% or (B) a major bank prime lending rate plus
1.5%. Additionally, a commitment fee of .5% is paid on the unused revolver
balance along with a 2% guarantee fee for the open letter of credit balance.
The interest rate was 8.4% at June 30, 1996. Interest is payable monthly.
The Senior Term Note is held by JNL. This Note bears a variable interest rate
based on the lower of the following: (A) the three-month LIBOR (adjusted for
any required reserve percentages) plus 3.25% or (B) a major bank prime lending
rate plus 1.75%. The interest rate was 8.7% at June 30, 1996. Interest is
payable monthly. Required principal payments are $4.4 million beginning on June
30, 1998 and every six months thereafter through December 31, 1999. The
required payment beginning on June 30, 2000 is $4.9 million every 6 months
through December 31, 2001 followed by $6.9 million on June 30, 2002 and
December 31, 2002. The Senior Term Note has a provision for optional
prepayments and for mandatory excess cash flow prepayment. Certain optional
prepayments result in a penalty. There is no mandatory excess cash flow
prepayment for the period ended June 30, 1996.
The Senior Subordinated Note, held by JNL, has a fixed interest rate of 12%
payable semi-annually in June and December. This Note has a maturity of
December 31, 2004. The Note may be prepaid, in part or in whole, with penalty
after December 31, 1996. The prepayment penalty in 1997 is 9% (unless certain
criteria are met in which case the penalty is 4%) of the principal amount
prepaid and decreases each year thereafter. JNL also holds warrants to purchase
shares of common stock of SSC, as part of the Subordinated Note.
13
39
Seymour Sales Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. LONG-TERM DEBT (CONTINUED)
The Revolving Credit Note, the Senior Term Note and the Senior Subordinated
Note are collateralized by substantially all of SHC's assets and pledged stock
of SSC. In addition, the debt agreements require maintenance of certain debt
service ratios, limit additional borrowings, and require compliance with
various other restrictive covenants. Modifications to certain of these
covenants were made with agreements dated as of November 1, 1996.
Maturities of long-term debt and capital leases are as follows: 1997, $.6
million; 1998, $4.5 million; 1999, $8.8 million; 2000, $9.3 million; and 2001,
$9.8 million.
The Company paid interest of $8,088,000 and $6,200,000 for the years ended June
30, 1996 and 1995, respectively.
7. EMPLOYEE BENEFIT PLANS
PENSION PLAN
SHC has a defined benefit pension plan covering all of its employees working at
its facilities in Seymour, Indiana. Plan benefits are based on years of service
and earnings. Plan assets consist of equity securities, as well as government,
corporate and other fixed-income obligations. SHC's policy is to fund the Plan
based on tax funding requirements.
14
40
Seymour Sales Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
The funded status and amounts recognized in the consolidated balance sheets for
the Plan at June 30, 1996 and 1995, were as follows:
(Dollars in thousands)
1996 1995
------------------
Actuarial present value of benefit obligations:
Vested benefits $ 5,424 $ 4,491
==================
Accumulated benefit obligation $ 5,588 $ 4,673
==================
Projected benefit obligation $ 8,312 $ 7,434
Plan assets at fair value 7,002 6,320
------------------
Funded status (1,310) (1,114)
Unrecognized net loss 1,984 1,902
------------------
Prepaid pension cost $ 674 $ 788
==================
Net pension cost included the following components:
(Dollars in thousands)
1996 1995
--------------
Service cost $ 485 $ 386
Interest cost on projected benefit obligation 557 419
Actual return on plan assets (657) (690)
Net amortization and deferral 269 316
--------------
Net periodic pension cost $ 654 $ 431
==============
The assumptions used in determining the pension expense and obligations were as
follows:
1997 1996
----------
Rate of compensation increase 4.5% 4.5%
Weighted-average discount rate 7.5% 7.5%
Long-term rate of return on assets 7.5% 7.0%
41
Seymour Sales Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
The Pension Plan Administrative Committee on August 7, 1996, resolved that the
Pension Plan be frozen (resulting in no additional accumulation of benefits
under the plan) effective September 30, 1996, and terminated as of October 31,
1996. Accumulated benefits aggregating approximately $6,964,000 will be fully
vested for the eligible participants and assets of the Plan of $6,933,000 will
be utilized to purchase investments that earn approximately 6% interest to
satisfy the pension obligation. It is anticipated that assets will be
distributed to participants upon approval by the Internal Revenue Service which
is projected by October 1997. Anticipated expense related to the Plan for 1997
is expected to total $674,000, consisting of net periodic pension expense of
$224,000 and a settlement loss of $450,000.
MATCHING SAVINGS PLAN
SHC has established a 401(k) savings plan named the "Seymour Housewares
Corporation Savings Plan" (Savings Plan) effective as of January 7, 1993. All
SHC employees who have completed certain minimum service requirements are
eligible to participate in the Savings Plan. Participants may defer specified
percentages of their compensation which the Company will match based upon a
specified formula. The Savings Plan provides for participant elective
investment of the deferred amounts in several funds. Company contributions
charged to expense were $332,000 and $293,000 for the years ended June 30, 1996
and 1995, respectively.
POSTRETIREMENT BENEFIT PLAN
SHC also sponsors a defined benefit plan that provides postretirement medical
benefits and life insurance to full-time employees at the Seymour, Indiana
facilities who have worked 10 years, attained age 55 while in service with the
Company, and participated in the Company's health care plan for at least one
year immediately preceding leaving the Company. The Plan is contributory, with
retiree contributions adjusted annually, and contains other cost-sharing
features such as deductibles and coinsurance. The accounting for the Plan
anticipates future cost-sharing changes to the written Plan that are consistent
with the Company's expressed intent to increase the retiree contribution
annually for the expected general inflation rate for that year. In addition,
the Plan provides that the Company's share of benefit costs is limited to 150%
of the 1991 benefit cost level. The Company's policy is to fund the cost of
medical benefits and life insurance in amounts determined at the discretion of
management.
42
Seymour Sales Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table presents the Plan's funded status reconciled with amounts
recognized in the Company's consolidated statement of financial position.
(Dollars in thousands)
JUNE 30
1996 1995
------------------
Accumulated postretirement benefit obligation:
Retirees $ 983 $ 778
Fully eligible active plan participants 302 262
Other active plan participants 1,456 1,178
------------------
Accumulated postretirement benefit obligation
in excess of plan assets 2,741 2,218
Unrecognized net gain (loss) (101) 172
------------------
Accrued postretirement benefit cost $2,640 $2,390
==================
Net periodic postretirement benefit cost includes the following components:
(Dollars in thousands)
1996 1995
-------------
Service cost $133 $116
Interest cost 165 151
-------------
Net periodic postretirement benefit cost $298 $267
=============
The weighted-average annual assumed rate of increase in the per capita cost of
covered benefits (i.e., health care cost trend rate) is 15 percent and 16
percent for 1996 and 1995, respectively, and is assumed to decrease gradually
to 4 percent for 2002 and remain at that level thereafter. Increasing the
assumed health care cost trend rates by one percentage point each year would
not have a material effect on the accumulated postretirement benefit obligation
or the aggregate of the service and interest cost components of net periodic
postretirement benefit cost.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5 percent at both June 30, 1996 and
1995.
17
43
Seymour Sales Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets as of June 30 are as
follows:
(Dollars in thousands)
1996 1995
-------------------
Deferred tax liabilities:
Intangibles $ 2,665 $ 2,724
Prepaid pension 229 453
Depreciation 151 24
Other, net 68 73
-------------------
Total deferred tax liabilities 3,113 3,274
Deferred tax assets:
Net operating loss carryforwards 3,111 459
Alternative minimum tax credit carryforwards 50 303
Depreciation 317 -
Health claims incurred but not reported 203 197
Postretirement benefit obligation 896 813
Vacation pay 172 171
Allowances related to receivables 1,419 1,049
Other, net 321 629
-------------------
6,489 3,621
Valuation allowance for deferred tax assets (6,489) (1,038)
-------------------
Total deferred tax assets - 2,583
-------------------
Net deferred tax liabilities $(3,113) $ (691)
===================
At June 30, 1996, the Company has net operating loss carryforwards of
$9,150,000 for income tax purposes that expire in 2010 and 2011, and
alternative minimum tax credit carryforwards of $50,000 which may be carried
forward indefinitely.
18
44
Seymour Sales Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. INCOME TAXES (CONTINUED)
Significant components of the provision for income taxes for the years ended
June 30 are as follows:
(Dollars in thousands)
1996 1995
--------------------
Current:
Federal $ (222) $ (227)
State 282 (153)
Foreign 14 83
--------------------
Total current 74 (297)
Deferred federal:
Change in valuation allowance 5,451 70
Other (3,029) (955)
--------------------
Total deferred federal 2,422 (885)
Benefit applied to reduce goodwill 101 60
--------------------
$ 2,597 $(1,122)
====================
The effect of state income taxes, the increase in the valuation allowance and
the benefit of excess tax-deductible goodwill amortization applied to reduce
goodwill are the only significant reconciling differences between income tax
expense for the periods and the amount of income tax expense that would result
from applying the U.S. statutory rate to pretax income.
A deferred tax asset was established as a result of an acquisition in a
previous year. For financial reporting purposes, a valuation allowance of
$643,000 was recognized as of the acquisition date to offset this deferred tax
asset. When realized, the tax benefit for this item will be applied to reduce
goodwill related to the acquisition.
Income tax refunds received in 1996 were approximately $223,000 while income
taxes paid for 1995 were approximately $350,000.
45
Seymour Sales Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. STOCKHOLDERS' EQUITY
Common stock consists of the following:
Shares
------------------
Class Authorized Issued
----- ---------- ------
A 250,000 142,008
B 250,000 --
C 250,000 11,600
The three classes of common stock are identical in all respects except voting
rights. Holders of Class A Common are entitled to one vote per share on all
matters submitted to stockholders for a vote; Class B holders receive
one-quarter vote per share, except on certain critical issues (for which they
receive one vote per share); and Class C holders have no voting rights. For the
most part, any share of common stock may be converted into one share of common
stock of either of the other classes of common stock.
Preferred stock consists of the following:
Shares
------------------
Class Authorized Issued
----- ---------- ------
A 4,000 2,357
B 20,000 17,316
The preferred stock has no voting rights and entitles the holder to receive
dividends at the rate of 15% (Class A) or 13 1/4% (Class B) of liquidation
value ($1,000 per share), payable in cash or additional shares of preferred
stock. Dividends are payable only when declared, and any unpaid dividends
accumulate and are compounded quarterly. No dividends were declared in the
years ended June 30, 1996 or June 30, 1995. Cumulative preferred dividends in
arrears were $4,877,000 and $1,825,000 as of June 30, 1996 and 1995,
respectively. The preferred stock is redeemable at the option of SSC at any
time.
In connection with the issuance of the Senior Subordinated Note, the lender
received warrants to purchase approximately 31,500 shares of Class B common
stock of SSC at any time through December 9, 2004 at a price of $.0033 per
share. A portion of the proceeds of the Note issuance ($400,000) was assigned
to the warrants, representing their estimated fair value at December 9, 1994,
the effective date of the debt modification (see Note 6).
46
Seymour Sales Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. STOCKHOLDERS' EQUITY (CONTINUED)
In connection with the formation of SSC, options to acquire approximately
17,650 shares of Class A common stock were granted to certain members of
management. One-third of the options vest and become exercisable monthly over a
60-month period beginning on January 7, 1993. Another third of the options vest
and become exercisable over a five year period based on achievement of
prescribed annual operating cash flow targets. The cash flow target for one of
the four periods subsequent to January 7, 1993 was achieved. The final third
vests and becomes exercisable if, and when, the cumulative return on investment
to SSC's principal shareholder exceeds a specific threshold. As options vest,
they become exercisable at $.01 per share. None of the vested options to
acquire 4,533 shares of common stock had been exercised at June 30, 1996.
Compensation expense attributable to the options that vest over time has been
measured by the difference between the fair value of the underlying shares at
January 7, 1993 and the exercise price. This expense is being recognized
ratably over the 60-month period. Compensation expense with respect to the
other groups of options will be recognized, if earned, in the periods that the
related targets are met. The amount recognized as compensation expense for the
years ended June 30, 1996 and 1995, totaled $39,000 and $44,000, respectively.
10. RELATED PARTY TRANSACTIONS
During the year ended June 30, 1995, specific assets of Magla Metal Productos
de Mexico, S. A. de C.V. (Magla Metals) were acquired (see Note 2). Magla
Metals is an affiliate of Herbert Glatt, a director of the Company.
21
47
SEYMOUR SALES CORPORATION and SUBSIDIARIES
INTERIM FINANCIAL STATEMENTS - UNAUDITED
CONTENTS
Condensed Consolidated Balance Sheet as of December 27, 1997............... 2
Condensed Consolidated Statements of Operations for the Six Months Ended
December 27, 1997 and December 28, 1996.................................. 3
Condensed Consolidated Statements of Cash Flows for the Six Months Ended
December 27, 1997 and December 28, 1996................................. 4
Notes to Interim Financial Statements...................................... 5
48
SEYMOUR SALES CORPORATION AND SUBSIDIARIES.
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS)
AS OF
DECEMBER 27,
ASSETS 1997
----
Current assets:
Cash and cash equivalents........................ $ 1,696
Accounts receivable, net......................... 12,386
Inventories, net................................. 11,598
Prepaid expenses and other current assets........ 333
--------
Total current assets........................... 26,013
Property, plant and equipment, net................. 12,121
Intangible and other assets........................ 55,676
--------
TOTAL ASSETS....................................... $ 93,810
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations...... $ 87
Accounts payable................................. 5,032
Accrued liabilities.............................. 11,267
--------
Total current liabilities...................... 16,386
--------
Long-term obligations - net of current maturities 69,916
Other long-term obligations........................ 6,270
Stockholders' equity
Common Stock..................................... -
Preferred Stock.................................. 20
Additional paid-in capital....................... 26,568
Retained earnings................................ (25,102)
Common Stock held in treasury - at cost.......... (248)
--------
Total stockholders' equity..................... 1,238
--------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......... $ 93,810
========
The accompanying notes are an integral part of the financial statements.
2
49
SEYMOUR SALES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 27, 1997 AND DECEMBER 28, 1996
(UNAUDITED)
(IN THOUSANDS)
Six Six
Months Ended Months Ended
December 27, December 28,
1997 1996
---- ----
Net sales................... $41,771 $43,203
Cost of goods sold.......... 32,862 32,665
------- -------
Gross profit.............. 8,909 10,538
Operating expenses.......... 9,480 4,350
------- -------
Operating (loss) profit... (571) 1,188
Interest (expense).......... (3,708) (4,047)
Other income (expense)...... (3,150) 32
------- -------
>Loss before income taxes (7,429) (2,827)
Income tax expense.......... 58 56
------- -------
Net loss.................... $(7,487) $(2,883)
======= =======
The accompanying notes are an integral part of the financial statements.
3
50
SEYMOUR SALES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Six Six
Months Months
Ended Ended
December 27, December 28,
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.......................................... $(7,487) $(2,883)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization................... 4,129 4,089
Changes in assets and liabilities:
Decrease in accounts receivable............... 3,511 4,984
Decrease in inventories....................... 2,563 2,981
Decrease in prepaids and other assets......... 2,620 2,420
Increase (decrease) in accounts payable and
accrued liabilities......................... 4,029 (1,559)
Other operating activities, net................. (1,303) (1,862)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES........... 8,062 8,170
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net......................... (1,556) (310)
------- -------
NET CASH USED FOR INVESTING ACTIVITIES.............. (1,556) (310)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in debt.................................. (6,339) (6,927)
------- -------
NET CASH USED FOR FINANCING ACTIVITIES............. (6,339) (6,927)
------- -------
Net increase in cash and cash
equivalents..................................... 167 933
Cash and cash equivalents at beginning of year.... 1,529 713
------- -------
Cash and cash equivalents at end of year.......... $ 1,696 $ 1,646
======= =======
The accompanying notes are an integral part of the financial statements.
4
51
SEYMOUR SALES CORPORATION AND SUBSIDIARIES
NOTES TO THE INTERIM FINANCIAL STATEMENTS
(IN THOUSANDS)
NOTE 1. Unless the context otherwise requires, the reference to the "Company",
is to Seymour Sales Corporation, its wholly owned subsidiary, Seymour
Housewares Corporation, and Seymour S.A. de C.V., a wholly owned subsidiary of
Seymour Housewares Corporation. All significant intercompany balances and
transactions have been eliminated.
The Company designs, manufactures, and markets a broad range of ironing boards,
ironing board covers and pads, laundry accessories, juvenile gates and tote
carts.
The unaudited condensed consolidated interim financial statements included
herein as of December 27, 1997 and for the six months ended December 27, 1997
and December 28, 1996 reflect, in the opinion of the Company, all adjustments
(which include only normal recurring accruals) necessary for the fair
presentation of the financial position, the results of operations, and cash
flows. The results of the interim periods are not necessarily indicative of
results to be expected for the full year.
NOTE 2. Inventories are stated at the lower of cost, determined using the
first-in, first-out (FIFO) method, or market. A reserve is maintained for
obsolete inventory and shrinkage of inventory. This reserve is reviewed on a
periodic basis during the year and at year end is adjusted, if necessary, based
upon historical experience, known problems and management's judgment. Actual
write-offs of obsolete products are charged against the reserve as identified.
NOTE 3. Within the six month interim period ended December 27, 1997, in
connection with the termination of the Company's defined benefit plan, (the
plan was terminated in November 1996, and the termination was approved by the
Internal Revenue Service on July 21, 1997), the Company recorded a charge to
Other Expense of approximately $550. Distribution of the plan assets to the
participants was completed in December 1997. Also included within the six
month interim period ended December 27, 1997, the Company recorded a charge to
Other Expense, of approximately $2,600, related to consolidation and disposal
of certain manufacturing facilities.
NOTE 4. Effective July 1, 1997 the Company changed its method of computing
depreciation expense, from a "half-year" convention to a "month placed in
service" convention. The effect of this change was to increase 1997
depreciation expense by $233.
NOTE 5. Subsequent Event. On December 30, 1997, the stockholders of the
Company entered into an agreement with Home Products International, Inc., a
Delaware Corporation, ("HPI"), whereby HPI acquired acquire all of the capital
stock of the Company. Total consideration for the acquisition was $100,700
consisting of $16,400 in cash, $14,300 in stock (1,320,700 shares of HPI common
stock), and the assumption of $70,000 of the Company's debt. HPI's common
stock is publicly traded on the NASDAQ National Marketsm, under the ticker
symbol, HPII.
52
HOME PRODUCTS INTERNATIONAL, INC
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
CONTENTS
Unaudited Pro Forma Condensed Combined Balance Sheet as of
December 27, 1997..................................................... 2
Unaudited Pro Form Condensed Combined Statement of Operations for
the fifty-two weeks ended December 27, 1997........................... 3
Notes to Unaudited Pro Forma Condensed Combined Financial Statements.... 4
53
HOME PRODUCTS INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
HPI SEYMOUR Company
Historical Historical Total
December 27, December 27, Pro Forma December 27,
1997 1997 Adjustments 1997
---- ---- ----------- ----
ASSETS
Current assets:
Cash and cash equivalents.................. $ 583 $ 1,696 $ 512 (c) $ 2,791
Accounts receivable, net................... 20,882 12,386 - 33,268
Inventories, net........................... 12,797 11,598 - 24,395
Prepaid expenses and other current assets.. 428 333 25 (t) 786
------- -------- -------- --------
Total current assets..................... 34,690 26,013 537 61,240
Property, plant and equipment, net........... 28,380 12,121 40,051
Deferred tax asset........................... 1,966 - - 1,966
Intangible and other assets.................. 34,307 55,676 31,348 (a) 120,797
------- -------- --------
(534) (b)
--------
TOTAL ASSETS................................. $99,343 $ 93,810 $ 31,351 $224,504
======= ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations $ 3,850 $ 87 $ 2,650 (d) $ 6,587
Accounts payable........................... 9,663 5,032 - 14,696
Accrued liabilities........................ 12,913 11,267 (1,195) (u) 23,246
261
------- -------- -------- --------
Total current liabilities................ 26,426 16,386 1,716 44,529
------- -------- -------- --------
Long-term obligations - net of current
maturities 30,700 69,916 18,393 (f) 119,009
Other long-term liabilities.................. - 6,270 - 6,270
Stockholders' equity
Common Stock............................... 67 - 13 (g) 80
Additional paid-in capital................. 33,957 26,340 14,267 (g) 48,223
(26,340) (h)
Retained earnings.......................... 8,616 (25,102) 25,102 (h) 6,816
Common Stock held in treasury - at cost.... (264) - (1,800) (u) (264)
Currency translation adjustments........... (159) - (159)
------- -------- -------- --------
Total stockholders' equity............... 42,216 1,238 11,242 56,696
------- -------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY... $99,343 $ 93,810 $ 31,351 $224,504
======= ======== ======== ========
The accompanying notes are an integral part of the financial statements.
2
54
HOME PRODUCTS INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HPI SEYMOUR
Historical Historical Pro Forma Company Total
December 27, 1997 December 27, 1997 Adjustments December 27, 1997
----------------- ----------------- ----------- -----------------
Net sales................................ $129,324 $92,963 $ $222,287
Cost of goods sold....................... 88,888 69,121 (221) (i) 157,788
-------- ------- ------- --------
Gross profit........................ 40,436 23,842 221 64,499
Operating Expenses....................... 27,688 19,316 (1,300) (j) 46,567
-------- ------- --------
875 (m)
(12) (i)
-------
Operating profit.................... 12,748 4,526 658 17,932
Interest (expense)....................... (5,152) (7,584) (533) (k) (13,269)
Other income (expense)................... 70 (550) (n) (3,282)
-------- (2,600) (o) ------- --------
(202) (p)
-------
Earnings (loss) before income taxes
and extraordinary items 7,666 (6,410) 125 1,381
Income tax expense (benefit) before
change in valuation allowance.......... 3,489 260 (3,197) (l) 552
Change in Valuation Allowance............ (3,143) - - (3,143)
-------- ------- ------- --------
Total income tax expense (benefit) 346 260 (3,197) (2,591)
Earnings (loss) before extraordinary item 7,320 (6,670) 3,322 3,972
Extraordinary item, net of tax - - 1,800 (u) 1,800
-------- ------- ------- --------
Net earnings (loss)...................... $ 7,320 $(6,670) $ 1,522 $ 2,172
======== ======= ======= ========
Net earnings per common share - Basic.... $ 1.35 (q) $ 0.32 (r)
======== ========
Net earnings per common share - Dilute... $ 1.29 (q) $ 0.31 (s)
======== ========
The accompanying notes are an integral part of the financial statements.
3
55
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS)
The accompanying Unaudited Pro Forma Condensed Combined Balance Sheet as
of December 27, 1997 gives effect to the Seymour Acquisition and the related
financing as if each had occurred on December 27, 1997. The Unaudited Pro
Forma Condensed Combined Statement of Operations for fiscal 1997 gives effect
to the Seymour Acquisition and the related financing as if each occurred on
December 29, 1996.
The pro forma data does not purport to represent what the Company's actual
results of operations or financial position would have been had such
transactions occurred on such dates. The pro forma statement of operations
also does not purport to project the results of operations of the Company for
the current year or for any other period.
Pro forma adjustments relating to the Seymour Acquisition and the related
financing are as follows:
(a) Reflects the Seymour Acquisition for a total purchase price of $100,700
consisting of $16,400 in cash, $14,300 in HPI common stock (1,320,700
shares), and the assumption of approximately $70,000 of Seymour's debt.
The Seymour Acquisition was accounted for as a purchase, and therefore, the
purchase price will be allocated to the assets and liabilities assumed
based upon their fair values. Certain transaction fees and expenses
totaling $1,600 that were incurred in connection with the Seymour
Acquisition are included in the excess of purchase price over the fair
value of net assets acquired (goodwill). The preliminary pro forma
calculation of the excess of the purchase price over the net fair value of
assets acquired is $35,000, which will be amortized over forty years.
(b) Deferred financing fees paid at closing in connection with the Seymour
Acquisition were $2,461, and will be amortized over the weighted average
life of the Term Loans and the 12/30/97 Senior Subordinated Note.
Additionally, as a result of obtaining the 12/30/97 Credit Agreement
entered into in connection with the Seymour Acquisition the Company was
required to write-off deferred financing fees related to prior debt
agreements, which totaled $2,995.
(c) Reflects the cash flows in connection with the Seymour Acquisition and
the related financing (as shown in the table below) through the receipt of
(i) $110.0 million of proceeds from the Term Loans, and (ii) $10.0 million
of proceeds from the 12/30/97 Senior Subordinated Note. The Company also
entered into a revolving line of credit facility in connection with the
financing agreement related to the Seymour Acquisition; however, none of
the available funds were required to be utilized in connection with the
Seymour Acquisition.
(in thousands)
--------------
Proceeds from the Term Loans............................. $110,000
Proceeds from the 12/30/97 Senior Subordinated Note...... 10,000
Cash portion of Seymour purchase price................... (16,400)
Payment of transaction fees and expenses................. (2,323)
Repayment of Seymour long-term debt...................... (70,000)
Payment of accrued interest on Seymour long-term debt.... (1,547)
Refinance of HPI debt.................................... (29,218)
--------
Excess cash at time of closing........................... $ 512
========
56
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -
(CONTINUED)
(IN THOUSANDS)
(d) Adjusts the current portion of long-term debt to reflect the financing
entered into as a part of the Seymour Acquisition.
(e) Represents accruals established for financing fees and expenses incurred
as of the date of the Seymour Acquisition, but not paid as of such date.
(f) Reflects additional debt incurred in connection with the Seymour
Acquisition. A total of $5,600 of the Term Loans were classified as
current.
(g) Reflects the issuance of 1,320,700 shares of HPI common stock at a value
of $10.81 per share (as calculated per the acquisition agreement) to the
Seymour stockholders as partial consideration for the Seymour Acquisition.
(h) Reflects the elimination of Seymour's equity accounts.
(i) Subsequent to June 30, 1997 Seymour changed its accounting method for the
calculation of depreciation of fixed assets. Prior to the change, Seymour
used a half-year convention in the first year of the asset's life, and
then changed methods to calculate depreciation based upon the month the
asset was first placed in service. HPI's policy for depreciation is to
use the half-year convention for all asset's first year in service. To
adjust Seymour's historical statements to properly reflect HPI's
accounting method, depreciation expense charged to Cost of Goods Sold
must be reduced by $221, and Operating Expenses must be reduced by $12.
Additionally, Seymour charged a full year of amortization expense within
the six month period ended December 27, 1997 on certain intangible assets
with one year remaining on their useful life as of June 30, 1997. The
impact of this was $115 recorded to operating expense.
(j) As a result of certain inherent synergies created upon the Seymour
Acquisition, the Company was able to consolidate Seymour's sales,
marketing, and R&D functions with those of existing HPI companies, and
therefore terminated ten Seymour employees. The elimination of overlapping
functions was one of the many direct catalysts to the Seymour Acquisition.
The termination of the ten Seymour employees occurred within one month of
the Seymour Acquisition. The wages and benefits paid to these employees in
the comparable period in 1997 was $1,300. Had the Seymour Acquisition
taken place on December 29, 1996 Seymour would have realized $1,300 less in
Operating Expenses related to the wages and benefits associated with these
terminated employees.
(k) The weighted average interest rate on HPI's preacquisition debt was
approximately 1.5% lower than the weighted average interest rate on
Seymour's preacquisition debt. This resulted a savings of $1,125 when
HPI's interest rates were applied to Seymour's preacquisition debt
balances. Additional savings were obtained as a result of lower weighted
average interest rates obtained by HPI in the 12/30/97 credit agreement in
connection with the Seymour Acquisition, and coupled with the elimination
of deferred financing fees on Seymour's debt, a savings of $421 was
realized. The savings were offset by interest expense on the additional
debt required to finance the Seymour Acquisition in the amount of $2,079.
($1,125 + $421 - $2,079 = $(533))
(l) The pro forma income tax expense (benefit), prior to change in the
valuation allowance, is computed by applying an estimated combined federal
and state statutory rate of 40%, the Company's estimated future affective
tax rate.
(m) Reflects increased goodwill amortization expenses recorded as a result
of the Seymour Acquisition. Goodwill will be amortized over forty years.
(n) This amount represents the write off of a prepaid pension asset that was
eliminated upon the termination of Seymour's defined benefit pension plan.
5
57
HOME PRODUCTS INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -
(CONTINUED)
(IN THOUSANDS)
(o) This amount represents expenses estimated to be incurred in connection
with Seymour's plans to consolidate and dispose of certain manufacturing
operations. These plans provide for the consolidation of operating
facilities from five operating facilities to three.
(p) No single item within in this balance was significant.
(q) Weighted average shares outstanding used in the calculation of Net
earnings per common share - Basic were 5,436. Weighted average shares
outstanding used in the calculation of Net earnings per common share -
Diluted were 5,682.
(r) Weighted average shares outstanding used in the calculation of net
earnings per common share - Diluted reflect the shares issued in connection
with the Seymour Acquisition of 1,321. As such the number of shares used in
the calculation of Net earnings per common share - Diluted was 6,757.
(s) Weighted average shares outstanding used in the calculation of net
earnings per common share - Duluted reflect the shares issued in connection
with the Seymour Acquisition of 1,321. As such the number of shares used in
the calculation of Net earnings per common share - Diluted was 7,003.
(t) Amount represents payment of the annual maintenance fee associated with
the 12/30/97 Credit Agreement.
(u) As a result of obtaining the 12/30/97 Credit Agreement entered into in
connection with the Seymour Acquisition the Company was required to
write-off deferred financing fees related to prior debt agreements. The
$1,800 recorded is net of $1,195 of tax benefit. Additionally, taxes
payable (within accrued liabilities ) was reduced $1,195 as well. Net
earning per common share - basic is $0.59 before extraordinary item and
net earnings per common share - diluted is $0.57 before extraordinary item.
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.
Home Products International, Inc.
By: /s/ James E. Winslow
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James E. Winslow
Executive Vice President and
Chief Financial Officer
Dated: March 16, 1998