Filed Pursuant to Rule 424(b)3
File Number - 333-03233
PROSPECTUS
3,372,328 Shares
LEGGETT & PLATT, INCORPORATED
COMMON STOCK
(AND PREFERRED STOCK PURCHASE RIGHTS ATTACHED TO THE COMMON STOCK)
The shares of Common Stock, $.01 par value, (the "Common Stock") of Leggett
& Platt, Incorporated, a Missouri corporation (the "Company") offered hereby
(the "Shares") are being sold for the account of and by the persons named under
the caption "Selling Shareholders." The Selling Shareholders have advised the
Company that these Shares may be sold from time to time in transactions on the
New York Stock Exchange or Pacific Stock Exchange or in negotiated transactions,
in each case at prices satisfactory to the Seller. (See "Plan of Distribution.")
The Company will receive no part of the proceeds from the sale of the
Shares. The Selling Shareholders will pay all applicable stock transfer taxes,
transfer fees and brokerage commissions, and related fees and expenses, but the
Company will bear the cost of preparing the Registration Statement and
Prospectus and all filing, legal and accounting fees incurred in connection with
registration of the Shares under the federal securities laws.
The Common Stock is listed on the New York Stock Exchange and Pacific Stock
Exchange (symbol: LEG). On May 10, 1996 the average of the high and low
prices of the Common Stock on the New York Stock Exchange, Composite
Transactions was $27.25 per share.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
No dealer, salesperson or other person has been authorized to give any
information or to make any representations not contained or incorporated by
reference in this Prospectus and, if given or made, such other information or
representation must not be relied upon as having been authorized by the Company,
any Selling Shareholder or any other person. Neither the delivery of this
Prospectus nor any sale made herein shall, under the circumstances, create any
implication that there has been no change in the affairs of the Company since
the date hereof. This Prospectus does not constitute an offer to sell or
solicitation of an offer to buy the securities offered hereby to any person or
by anyone in any jurisdiction in which such offer or solicitation may not
lawfully be made.
The date of this Prospectus is May 13, 1996
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements, and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the offices of
the Commission at Room 1024, 450 Fifth Street, NW, Washington, D.C. 20549 and at
the Commission's Regional Offices at Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511; 75 Park Place, 14th
Floor, New York, New York 10007; and 5757 Wilshire Blvd., Suite 500 East, Los
Angeles, California 90036-3648. Copies of such material can also be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, NW,
Washington, D.C. 20549 at prescribed rates. Reports, proxy statements and other
information concerning the Company can be inspected and copied at the offices of
the New York Stock Exchange at 20 Broad Street, New York, New York and at the
office of the Pacific Stock Exchange Incorporated, Listings Department, 115
Sansone Street, Suite 1104, San Francisco, California 94104. This Prospectus
does not contain all the information set forth in the Registration Statement
filed by the Company with respect to the offering made hereby. Copies of such
Registration Statement are available from the Commission.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents have been previously filed by the Company with the
Commission and are incorporated by reference into this Prospectus:
(1) Annual Report on Form 10-K for the year ended December 31, 1995.
(2) Quarterly Report on Form 10-Q for the quarter ended March 31, 1996.
(3) Current Report on Form 8-K dated May 6, 1996.
(4) The description of the Company's common stock contained in Form 8-A
dated June 5, 1979, including any amendments or reports filed for the
purpose of updating such description.
(5) The description of the Company's Preferred Stock Purchase Rights
contained in Form 8-A dated February 15, 1989, including any amendments
or reports filed for the purpose of updating such description.
All reports and definitive proxy statements filed by the Company pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
of this Prospectus and prior to the termination of the offering to be made
hereunder shall be deemed to be incorporated by reference into this Prospectus
and to be a part hereof from the date of filing such documents, except that in
no event shall any information included in any such document in response to item
402(i), (k) or (l) of Regulation S-K be deemed to constitute a part of this
Prospectus.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon written or oral
request of such person, a copy of any or all of the documents incorporated
herein or in the Registration Statement by reference (other than exhibits to
such documents unless such exhibits are specifically incorporated by reference
in such documents). All requests for such information should be directed to the
Company's executive offices at No. 1 Leggett Road, Carthage, Missouri 64836,
Attention: Investor Relations, (417) 358-8131.
2
THE COMPANY
The Company was incorporated in 1901 as the successor to a partnership
formed in 1883 at Carthage, Missouri. That partnership was a pioneer in the
manufacture and sale of steel coil bedsprings. The Company's principal executive
offices are located at No. 1--Leggett Road, Carthage, Missouri 64836, telephone
(417) 358-8131. Unless otherwise indicated the term "Company" includes Leggett &
Platt, Incorporated and its majority-owned subsidiaries.
The Company is a manufacturer. It makes a variety of engineered products
which are sold to several thousand customers. The Company's products include a
broad line of components that are primarily sold to companies which manufacture
finished furniture and bedding. Components are items used by furnishings
manufacturers to construct their finished products. Examples of components
manufactured by the Company include innerspring and boxspring units for
mattresses and boxsprings; foam, textile, fiber and other cushioning materials
for bedding and furniture; springs and seating suspensions for furniture; steel
mechanisms for reclining chairs, sleeper sofas and other types of motion
furniture; chair controls, aluminum, steel and plastic bases for office
furniture; non-fashion fabrics and other furniture supplies.
The Company also makes some finished furnishings products. Examples include
bed frames, daybeds, bunk beds, headboards, electric beds, carpet underlay,
metal and wire displays, shelving and commercial fixtures. These finished
products are sold to manufacturers that also buy the Company's components or to
wholesalers, retailers and others.
Outside the furnishings area, the Company produces and sells a number of
components and other products used in many different home, industrial and
commercial applications. These products require manufacturing technologies
similar to those used in making furnishings products and also include certain
raw materials which the Company makes for its own use. Examples of these
diversified products include industrial wire, steel tubing, aluminum ingot,
aluminum die cast products, automotive seat suspension systems, industrial
fabrics, mechanical springs, machinery and parts for manufacturing equipment,
foam products, and injection molded plastic products.
The Company's products are made primarily from steel rod, wire and other
types of steel, textile fibers, woven and non-woven fabrics, aluminum, wood,
foam chemicals and plastics. Some of these raw materials such as steel wire,
steel tubing, aluminum ingot, shredded textile fibers and cut-to-size dimension
lumber are manufactured by the Company.
The Company has approximately 70 major manufacturing facilities in North
America located in 32 states in the United States and Canada. In addition the
Company has approximately 100 additional facilities used in assembly,
warehousing, sales, administration or research and development. There are
approximately 16,600 Company employees.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Shares by the Selling Shareholders.
SELLING SHAREHOLDERS
The following information has been provided to the Company by the persons
listed below as the Selling Shareholders (the "Selling Shareholders") including
the number of shares of the Common Stock to be beneficially owned by each
Selling Shareholder as of the closing date of the Merger (defined below) and the
number of shares of the Common Stock being offered for the account of such
Selling Shareholder pursuant to this Prospectus.
Shares to Be Owned
Name of Beneficially Owned Shares Offered After Completion of
Selling Shareholders Prior to Offering Hereby This Offering
- -------------------- ------------------ -------------- -------------
KP Holdings, L.P.*(1) 1,618,379 1,618,379 0
UBS Capital LLC* 754,196 754,196 0
3
Alice L. Walton* 314,248 78,494 235,754
James F. Keenan* 217,051 217,051 0
Jo Helen Keenan Riggs 116,476 116,476 0
Sarah K. Keenan Jourard 116,476 116,476 0
JTK Trust 131,512 131,512 0
Elizabeth Hayley Keenan
Trust* 79,850 79,850 0
Susan G. Keenan 108,274 108,274 0
Nicholas Gregory Keenan
Trust* 51,599 51,599 0
Barry G. Keenan Trust* 2,356 2,356 0
Susan S. Carter 27,496 27,496 0
Karyn P. Keenan 4,085 4,085 0
Karyn P. Keenan Income
Trust* 9,003 9,003 0
Richard T. Smith 7,274 7,274 0
George Spellings 16,010 16,010 0
Charles Thomas 33,797 33,797 0
Each of the Selling Shareholders will receive the Shares offered hereby in
connection with the merger (the "Merger") of L&P Acquisition Company-7, a
wholly-owned subsidiary of the Company, into Pace Holdings, Inc., a Delaware
corporation ("Holdings"). As a result of this transaction, Holdings will become
a wholly-owned subsidiary of the Company.
None of the Selling Shareholders has held any position or office or
otherwise had a material relationship with the Company within the past three
years.
(1) KP Holdings, L.P. may in the future distribute the shares offered
hereby to partners of K.P. Holdings, L.P., K.P. Partners, L.P., K.P. Group, L.P.
and family members and affiliates of such partners. In such event such persons
shall be Selling Shareholders.
PLAN OF DISTRIBUTION
The Shares may be sold from time to time by the Selling Shareholders or
their pledgees, distributees or donees. Such sales may be made on one or more
exchanges or in negotiated transactions not on an exchange at prices and on
terms then prevailing or at prices related to the then current market price or
at negotiated prices. The Shares may be sold by one or more of the following:
(a) a block trade in which the broker or dealer so engaged will attempt to sell
the Shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction; and (b) ordinary brokerage transactions
and transactions in which the broker solicits purchasers. In effecting sales,
brokers or dealers may arrange for other brokers or dealers to participate.
Brokers or dealers will receive commissions or discounts in amounts to be
negotiated immediately prior to the sale which amounts will not be greater than
that normally paid in connection with ordinary trading transactions.
The Shares may also be publicly offered through agents, underwriters or
dealers. In such event the Selling Stockholders may enter into agreements with
respect to any such offering. Such underwriters, dealers or agents may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Selling Stockholders and any such underwriters, dealers or agents that
participate in the distribution of Shares may be deemed to be underwriters, and
any profit on the sale of the Shares by them and any discounts, commissions or
concessions received by them may be deemed to be underwriting discounts and
commissions, under the Securities Act of 1933.
In order to comply with the securities laws of certain states, sales of the
Shares to the public in such states may be made only through broker-dealers who
are registered or licensed in such states. Sales of the Shares must also be made
by the Selling Stockholders in compliance with other applicable state securities
laws and regulations.
In addition, any securities covered by this Prospectus which qualify for
sale pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to
this Prospectus.
Those Selling Shareholders indicated by an asterisk have agreed not to sell
or otherwise dispose of their shares of Common Stock until financial results
covering at least 30 days combined Company and Holdings operations have been
publicly reported.
4
CAPITAL STOCK
The Company's authorized capital stock consists of 300,000,000 shares of
Common Stock, $.01 par value, 1,000,000 shares of Series A Junior Participating
Preferred Stock and 99,000,000 shares of Preferred Stock without par value. As
of April 23, 1996, there were 84,223,499 shares of Common Stock and no
shares of preferred stock outstanding.
A description of the Common Stock is contained in the Company's
Registration Statement on Form 8-A, dated June 5, 1979, including any amendments
or reports filed for the purpose of updating such description, which is
incorporated by reference. A description of the Preferred Stock Purchase Rights
is contained in the Company's Registration Statement on Form 8-A, dated February
15, 1989, including any amendments or reports filed for the purpose of updating
such description, which is also incorporated by reference.
RECENT DEVELOPMENTS
The Company has signed an agreement to acquire Pace Holdings, Inc. together
with its operating subsidiary Pace Industries, Inc. ("Pace"). Pace,
headquartered in Fayetteville, Arkansas, is a manufacturer of a broad range of
engineered aluminum die cast components with 1995 sales of about $200 million.
To acquire Pace, the Company expects to issue approximately 5.2 million shares
of Common Stock, $.01 par value. In addition, Pace is expected to have
outstanding debt of approximately $200 million at closing.
Current estimates of earnings indicate that in 1997, the acquisition should
enhance the Company's earnings by about $.10 per share. Pace is presently
projected to enhance the Company's 1996 earnings per share by $.03, before $.38
in non-recurring charges and one-time expenses of the acquisition. The Company's
long-term debt to total capitalization ratio will increase to approximately 31
percent following the acquisition.
LEGAL OPINIONS
Ernest C. Jett, Assistant General Counsel of the Company, has rendered an
opinion concerning the validity of the Shares and certain other legal matters.
Mr. Jett is a full-time employee of the Company. On April 3, 1996, Mr.
Jett beneficially owned 43,302 shares of Common Stock and held options to
purchase an additional 20,489 shares of Common Stock.
EXPERTS
The financial statements incorporated in this Prospectus by reference to
the Annual Report on Form 10-K for the year ended December 31, 1995, have been
so incorporated in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The consolidated balance sheet of Pace Holdings, Inc. and Subsidiary as of
June 30, 1995 and 1994, and the related consolidated statements of income,
stockholder's equity and cash flows for the year ended June 30, 1995 and the six
months ended June 30, 1994, have been examined by Coopers & Lybrand L.L.P.,
independent public accountants, as set forth in their report which has been
included herein. Such financial statements are included in reliance upon such
report and upon the authority of such firm as experts in accounting and
auditing.
REQUIRED FINANCIAL INFORMATION
Pro forma financial information reflecting the combination of Pace
Holdings, Inc. with the Company is set out on pages F-1 through F-4.
The consolidated balance sheet of Pace Holdings, Inc. and Subsidiary as of
June 30, 1995 and 1994, and the related consolidated statements of income,
stockholder's equity and cash flows for the year ended June 30, 1995 and six
months ended June 30, 1994 are set out on pages F-5 through F-19. The combined
condensed balance sheet of Pace Holdings, Inc. and Subsidiary as of December 31,
1995 and June 30, 1995 and the combined condensed statements of operations and
cash flows for the six months ended December 31, 1995 and 1994 are set out on
page F-20 through F-24.
5
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
AND PACE HOLDINGS, INC. AND SUBSIDIARY
PRO FORMA CONDENSED COMBINED BALANCE SHEET
DECEMBER 31, 1995
(UNAUDITED)
(Amounts in Millions)
The following pro forma condensed combined balance sheet combines balance sheets
of Leggett & Platt, Incorporated and Subsidiaries (Leggett) and Pace Holdings,
Inc. and Subsidiary (Pace) at December 31, 1995, under the assumptions set forth
in the accompanying notes. The pro forma condensed combined balance sheet should
be read in conjunction with the separate financial statements and notes thereto
of Leggett and Pace incorporated by reference or included in this report. The
pro forma condensed combined balance sheet is not necessarily indicative of the
financial position of the combined companies as it may be in the future.
Historical Pro Forma Adjustments
----------------- ------------------------
Note Pro Forma
ASSETS Leggett Pace Amount Reference Combined
-------- ------ ------ ------------------ ---------
Current Assets
Cash and cash equivalents $ 6.7 $ 1.4 $ $ 8.1
Receivables 254.2 43.0 297.2
Inventories 276.8 64.9 (2.8) (6) 338.9
Other current assets 34.2 3.9 38.1
-------- ------ ------ --------
Total current assets 571.9 113.2 (2.8) 682.3
Property, Plant and Equipment - at cost 808.4 67.2 875.6
Less accumulated depreciation and amortization 356.6 8.3 364.9
-------- ------ ------ --------
Net property, plant and equipment 451.8 58.9 0.0 510.7
Other Assets
Investments in and advances to associated companies 8.1 0.0 9.9 (3) 8.1
(9.9) (4)
Goodwill, net 133.6 75.4 209.0
Sundry 52.9 9.5 (4.4) (7) 58.0
-------- ------ ------ --------
TOTAL ASSETS $1,218.3 $257.0 $ (7.2) $1,468.1
======== ====== ====== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts and notes payable $ 90.4 $ 39.0 $ $ 129.4
Accrued expenses and other liabilities 136.4 9.3 145.7
-------- ------ ------ --------
Total current liabilities 226.8 48.3 0.0 275.1
Long-Term Debt 191.9 188.9 27.2 (5)(8) 408.0
Deferred Income Taxes and Other Liabilities 65.5 7.9 (10.2) (9) 63.2
Minority Interest in Subsidiary 0.0 2.0 2.0
Shareholders' Equity
Common stock 0.8 0.0 0.1 (3) 0.9
Additional contributed capital 155.0 9.0 (7.6) (3)-(5) 156.4
Retained earnings 598.0 0.9 (16.7) (3)(4)(6)-(9) 582.2
Cumulative translation adjustment (5.0) 0.0 (5.0)
Less treasury stock (14.7) 0.0 (14.7)
-------- ------ ------ --------
Total shareholders' equity 734.1 9.9 (24.2) 719.8
-------- ------ ------ --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,218.3 $257.0 $ (7.2) $1,468.1
======== ====== ====== ========
F-1
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
AND
PACE HOLDINGS, INC. AND SUBSIDIARY
PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
TWELVE MONTHS ENDED DECEMBER 31, 1995
(UNAUDITED)
(Amounts in Millions, except per share)
The following pro forma condensed combined statement of earnings combines the
operations of Leggett & Platt, Incorporated and Subsidiaries (Leggett) and Pace
Holdings, Inc. and Subsidiary (Pace) for the twelve months ended December 31,
1995. This statement has been prepared under the assumptions set forth in the
accompanying notes. This statement should be read in conjunction with the
separate financial statements and notes thereto of Leggett and Pace incorporated
by reference or included in this report. The pro forma condensed combined
statement of earnings is not necessarily indicative of the results of operations
of the combined companies as they may be in the future or as they might have
been had the acquisition been effective January 1, 1995.
Historical Pro Forma Adjustments
------------------- ---------------------
Note Pro Forma
Leggett Pace Amount Reference Combined
--------- -------- ------- ---------- ---------
Net sales $2,059.3 $198.6 $ $2,257.9
Costs, expenses and other
Cost of goods sold 1,568.3 158.0 2.6 (6) 1,728.9
Selling, distribution, administrative and other, net 258.8 19.0 277.8
Interest expense 11.5 20.7 (5.9) (7)(8) 26.3
-------- ------ ----- --------
Total costs, expenses and other 1,838.6 197.7 (3.3) 2,033.0
-------- ------ ----- --------
Earnings before income taxes 220.7 0.9 3.3 224.9
Income taxes 85.8 1.1 1.3 (9) 88.2
-------- ------ ----- --------
Net Earnings $ 134.9 $ (0.2) $ 2.0 $ 136.7
======== ====== ===== ========
Net Earnings Per Share $ 1.59 $ 1.52
Average common and common equivalent shares outstanding 84.9 90.1
F-2
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
AND
PACE HOLDINGS, INC. AND SUBSIDIARY
PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
TWELVE MONTHS ENDED DECEMBER 31, 1994
(UNAUDITED)
(Amounts in Millions, except per share)
The following pro forma condensed combined statement of earnings combines the
operations of Leggett & Platt, Incorporated and Subsidiaries (Leggett) and Pace
Holdings, Inc. and Subsidiary (Pace) for the twelve months ended December 31,
1994. This statement has been prepared under the assumptions set forth in the
accompanying notes. This statement should be read in conjunction with the
separate financial statements and notes thereto of Leggett and Pace incorporated
by reference or included in this report. The pro forma condensed combined
statement of earnings is not necessarily indicative of the results of operations
of the combined companies as they may be in the future or as they might have
been had the acquisition been effective January 1, 1994.
Historical Pro Forma Adjustments
------------------- ---------------------
Note Pro Forma
Leggett Pace Amount Reference Combined
--------- -------- ------- ---------- ---------
Net sales $1,858.1 $151.4 $ $2,009.5
Costs, expenses and other
Cost of goods sold 1,429.1 116.1 1.3 (6) 1,546.5
Selling, distribution, administrative and other, net 229.7 15.7 245.4
Interest expense 9.8 17.3 (7.3) (7)(8) 19.8
-------- ------ ----- --------
Total costs, expenses and other 1,668.6 149.1 (6.0) 1,811.7
-------- ------ ----- --------
Earnings before income taxes 189.5 2.3 6.0 197.8
Income taxes 74.1 1.2 2.3 (9) 77.6
-------- ------ ----- --------
Net Earnings $ 115.4 $ 1.1 $ 3.7 $ 120.2
======== ====== ===== ========
Net Earnings Per Share $ 1.39 $ 1.36
Average common and common equivalent shares outstanding 83.1 88.3
F-3
LEGGETT & PLATT, INCORPORATED AND SUBSIDIARIES
AND
PACE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in Millions, except share data)
Note 1: The proposed acquisition assumes Leggett & Platt, Incorporated
(Leggett) will acquire all of the outstanding voting common shares of
Pace Holdings, Inc. (Holdings) in exchange for approximately 5.2
million shares of Leggett's common stock in a transaction accounted for
as a pooling of interests. The pro forma condensed combined balance
sheet presents the acquisition of Pace Holdings, Inc. and Subsidiary
(Pace) as if it had occurred on December 31, 1995, while the pro forma
condensed combined statements of earnings for the twelve months ended
December 31, 1995 and 1994 present the acquisition as if it had
occurred on January 1 of each year. Only two years are presented for
the statement of earnings due to Holdings' leveraged buyout of Pace
Industries, Inc. in December, 1993.
Note 2: Pace has previously had a June 30 fiscal year end. The pro forma
condensed combined financial statements were prepared by restating
Pace's operating results to Leggett's December 31 fiscal year end.
Such presentation aligns comparable fiscal (calendar) quarters for Pace
and Leggett, and provides a basis for future comparability of combined
results. Pace's operating results are seasonal, with significant sales
and operating profits occurring in the first two calendar quarters of
the year.
Note 3: To record shares issued by Leggett for Holdings' voting common shares.
Note 4: To eliminate Leggett's investment in Holdings.
Note 5: To reflect the exercise of put options under change in control
provisions by holders of Holdings' non-voting stock.
Note 6: To adjust inventories to LIFO cost method to conform Pace's accounting
policies to those of Leggett.
Note 7: To eliminate debt issuance fees and related amortization.
Note 8: To reduce interest expense on debt which would have been retired
through the issuance of new debt with lower interest rates and to
recognize additional borrowing for merger related expenditures.
Note 9: To record the tax benefit on the items in Notes 6, 7 and 8.
Note 10: If the Merger is consummated, Leggett will incur up to $45 in
nonrecurring merger costs relating to debt restructuring, transaction
fees, the exercise of stock options and other contractual obligations.
These costs will be charged to the combined results of operations
during the current year and are not reflected in the pro forma
statements of earnings.
F-4
PACE HOLDINGS, INC.
AND SUBSIDIARY
CONTENTS
Financial Statements--June 30, 1995 and 1994--Audited Page
----
Report of Independent Accountants..................................... F-6
Consolidated Balance Sheet............................................ F-7
Consolidated Statement of Income...................................... F-8
Consolidated Statement of Stockholders' Equity........................ F-9
Consolidated Statement of Cash Flows........................... F-10--F-11
Notes to Consolidated Financial Statements..................... F-12--F-19
Financial Statements--December 31, 1995--Unaudited
Consolidated Condensed Balance Sheet................................. F-20
Consolidated Condensed Statement of Operations....................... F-21
Consolidated Condensed Statement of Cash Flows....................... F-22
Notes to Consolidated Condensed Financial Statements........... F-23--F-24
F-5
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
Pace Holdings, Inc.
Fayetteville, Arkansas
We have audited the accompanying consolidated balance sheet of Pace
Holdings, Inc. and Subsidiary as of June 30, 1995 and 1994, and the related
consolidated statements of income, stockholders' equity and cash flows for the
year ended June 30, 1995 and the six months ended June 30, 1994. 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 audits 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 accompanying consolidated financial statements referred
to above present fairly, in all material respects, the consolidated financial
position of Pace Holdings, Inc. and Subsidiary as of June 30, 1995 and 1994 and
the consolidated results of their operations and their cash flows for the year
ended June 30, 1995 and the six months ended June 30, 1994, in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the Company
retroactively changed its method of accounting for inventories in 1995.
/s/ Coopers & Lybrand L.L.P.
- ----------------------------
COOPERS & LYBRAND L.L.P
Tulsa, Oklahoma
August 23, 1995
F-6
PACE HOLDINGS, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands Except Shares and Par Value)
June 30, June 30,
1995 1994
-------- --------
ASSETS
------
Current assets:
Cash and cash equivalents $ 254 $ 473
Accounts and notes receivable, net 42,016 37,058
Inventories 25,429 16,748
Other current assets 357 144
---------- ----------
Total current assets 68,056 54,423
Property, plant and equipment:
Less accumulated depreciation and amortization
of $5,894 in 1995 and $1,890 in 1994 48,148 41,292
Excess of investment over net assets acquired 70,374 72,941
Other assets 10,915 15,098
---------- ----------
Total assets $ 197,493 $ 183,754
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current maturities of long-term debt $ 671 $ 336
Accounts payable 25,850 17,350
Accrued liabilities 7,062 7,202
---------- ----------
Total current liabilities 33,583 24,888
---------- ----------
Long-term debt 129,129 125,754
---------- ----------
Subordinated notes 20,000 20,000
---------- ----------
Other long-term obligations 1,374 1,082
---------- ----------
Deferred income taxes 7,950 8,565
---------- ----------
Commitments and contingencies (Notes 8 and 10)
Minority interest in subsidiary 2,041 1,136
---------- ----------
Stockholders' equity:
Common stock, $.01 par value, 1,000,000 shares
authorized, 300,000 shares issued and outstanding 3 3
Paid-in capital 29,997 29,997
Carryover basis adjustment attributable to the continuing
management stockholders (Note 2) (31,079) (31,079)
Retained earnings 4,495 3,408
---------- ----------
Total stockholders' equity 3,416 2,329
---------- ----------
Total liabilities and stockholders' equity $ 197,493 $ 183,754
========== ==========
The accompanying notes are an integral
part of the financial statements.
F-7
PACE HOLDINGS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(Dollars in Thousands)
Year Six Months
Ended Ended
June 30, June 30,
1995 1994
---------- -----------
Net sales $ 184,421 $ 90,989
Cost of sales 145,462 68,019
---------- -----------
Gross profit 38,959 22,970
---------- -----------
Selling, general and administrative expenses 10,699 4,813
Amortization of intangibles 5,974 2,897
---------- -----------
16,673 7,710
---------- -----------
Operating income 22,286 15,260
Other income (expense):
Interest and financing costs (19,032) (8,735)
Other income and expense, net (126) (31)
---------- -----------
Income before income taxes and minority interest 3,128 6,494
Provision for income taxes (2,100) (3,086)
---------- -----------
Income before minority interest 1,028 3,408
Minority interest in loss of consolidated subsidiary 59 -
---------- -----------
Net income $ 1,087 $ 3,408
========== ===========
The accompanying notes are an integral
part of the financial statements.
F-8
PACE HOLDINGS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
Common Paid-in Retained
Stock Capital Earnings Total
------ -------- -------- --------
Issuance of stock - December, 1993 $ 3 $ 29,997 $ - $ 30,000
Carryover basis adjustment attributable to the
continuing management stockholders (Notes 1 and 2) - (31,079) - (31,079)
Net income - - 3,408 3,408
------ -------- -------- --------
Balance - June 30, 1994 3 (1,802) 3,408 2,329
Net income - - 1,087 1,087
------ -------- -------- --------
Balance - June 30, 1995 $ 3 $ (1,082) $ 4,495 $ 3,416
====== ======== ======== ========
The accompanying notes are an integral
part of the financial statements.
F-9
PACE HOLDINGS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
Year Six Months
Ended Ended
June 30, June 30,
1995 1995
--------- -----------
Cash flows from operating activities:
Net income $ 1,087 $ 3,408
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation 4,056 1,891
Amortization 6,768 3,266
Loss on sale of property, plant and equipment 15 6
Minority interest in loss of consolidated
subsidiary (59) --
Deferred income taxes 33 958
Change in assets and liabilities:
Accounts and notes receivable (4,761) (19,937)
Inventories (8,883) 14,938
Other current assets (214) 467
Other assets 59 (1,397)
Accounts payable 8,500 109
Accrued liabilities 47 2,932
--------- ---------
Net cash provided by operating activities 6,648 6,641
--------- ---------
Cash flows from investing activities:
Business acquisition, net of cash acquired (Note 2) -- (26,866)
Purchase of property, plant and equipment (10,363) (3,222)
Proceeds from sale of property, plant and equipment 123 220
Additions to other assets (1,245) --
Collection of notes receivable 847 3
--------- ---------
Net cash used by investing activities (10,638) (29,865)
--------- ---------
Cash flows from financing activities:
Proceeds from long-term debt 4,360 5,610
Payments of long-term debt (714) (149)
Payments of other long-term obligations (140) --
Payment of deferred loan fees (58) --
Proceeds from minority interest 323 1,136
Issuance of common stock -- 17,100
--------- ---------
Net cash provided by financing activities 3,771 23,697
--------- ---------
The accompanying notes are an integral
part of the financial statements.
F-10
PACE HOLDINGS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS - (Continued)
(Dollars in Thousands)
Year Six Months
Ended Ended
June 30, June 30,
1995 1994
-------- ----------
Net increase (decrease) in cash and cash equivalents (219) 473
Cash and cash equivalents - beginning 473 -
------- --------
Cash and cash equivalents - ending $ 254 $ 473
======= ========
Supplementary disclosure of cash flow information:
Cash paid during the period for:
Income taxes $ 2,575 $ 3
Interest, net 18,195 7,534
Non-cash investing and financing activities:
Equipment acquired by assumption of debt $ 46 $ -
Property and equipment contributed by minority interest owner 641 -
The Company issued 129,000 shares of common stock, valued at
$12,900, and $20,000 of Subordinated notes in exchange for Pace
Industries, Inc. common stock in conjunction with the acquisition
discussed in Note 2
Non-cash aspects of the acquisition:
Liabilities assumed - 159,624
The accompanying notes are an integral
part of the financial statements.
F-11
PACE HOLDINGS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - Pace Holdings, Inc. ("Holdings") was formed in
September, 1993, by an investment group to acquire a controlling interest in
Pace Industries, Inc. On December 10, 1993, Holdings acquired a 100% ownership
interest in Pace Industries, Inc. and its Subsidiary ("Pace"). For accounting
purposes this transaction was recorded as of December 31, 1993 (see note 2). The
consolidated financial statements include the financial position and results of
operations of Holdings and Pace (collectively the "Company").
CASH EQUIVALENTS - The Company considers all highly liquid investments
with maturities of three months or less, at date of purchase, to be cash
equivalents.
INVENTORIES - Inventories are stated at the lower of cost or market.
Effective in the second quarter of fiscal year 1995, the Company retroactively
changed its method of determining the cost of the metal component of its
inventory from the last-in, first-out ("LIFO") method to the first-in, first-out
("FIFO") method. A significant portion of the Company's metal inventory during
the year is specifically matched to customer purchase commitments for such metal
and charged to cost of sales when the product is shipped and the revenue is
recognized. The remaining inventory not committed to a specific customer is
valued at FIFO cost. Management believes that the valuation of all of its
inventories under the FIFO method and specific commitment method will more
appropriately reflect its financial condition and results of operations. The
change in the method of valuing inventories was applied retroactively and
comparative amounts for prior periods have been restated. The retroactive
effect on the prior period was to increase the carryover basis adjustment
attributable to the continuing management stockholders by $1,217 and to increase
net income by $77 for the six months ended June 30, 1994.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated at
cost. Depreciation and amortization are computed primarily by the
straight-line method in amounts sufficient to depreciate and amortize the cost
of such assets over their estimated useful lives. Upon the sale, retirement, or
other disposition, the cost and accumulated depreciation and amortization are
removed from the respective accounts and any resulting gain or loss is reflected
in results of operations.
DEFERRED DEBT ISSUE COSTS - At June 30, 1995 and 1994, unamortized loan
cost totaling $4,558 and $5,268 respectively, are included in other assets. The
costs were incurred in connection with obtaining certain loans and are being
amortized over the term of the related debt agreements.
NON-COMPETE AGREEMENTS - Non-compete agreements are being amortized over
their contractual lives of three years. At June 30, 1995 and 1994, non-compete
amounts of $5,013 and $8,354 are included in other assets. Amortization
expense of $3,342 is included in the year ended June 30, 1995, and $1,671 in the
six months ended June 30, 1994.
EXCESS OF INVESTMENT OVER NET ASSETS ACQUIRED - With respect to businesses
purchased by the Company, the excess purchase price over the estimated fair
value of the net assets acquired is amortized on the straight line basis over
the expected benefit period of thirty years (see note 2). Amortization expense
was $2,484 for the year ended June 30, 1995 and $1,226 in the six months ended
June 30, 1994. The excess of investment over net assets acquired is evaluated
annually for impairment based on estimated undiscounted cash flows of the
acquired entities and reduced to net realizable value if necessary. No such
impairment has been recorded as of June 30, 1995.
F-12
PACE HOLDINGS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in Thousands)
INCOME TAXES - The Company utilizes the asset and liability approach for
financial accounting and reporting for income taxes, as set forth in SFAS 109:
Accounting for Income Taxes. Under SFAS 109, deferred income taxes are recorded
to reflect the expected tax consequences in future years of differences between
the tax basis of assets and liabilities and their financial reporting amounts
at each year-end.
RECLASSIFICATIONS - Certain reclassifications have been made to the 1994
balances to conform to the 1995 presentations.
2. ACQUISITION
On November 5, 1993, Holdings entered into an agreement and plan of merger
by and among Pace and Pace Acquisition, Inc., a wholly-owned subsidiary of
Holdings ("Pace Acquisition"), whereby Pace Acquisition was merged with and into
Pace on December 10, 1993, with Pace being the surviving corporation (the
"Merger") and pursuant to which an investor group acquired 57% of the
outstanding common stock of Holdings, the current management group and former
stockholders of Pace acquired 43% of the outstanding common stock of Holdings
and Pace became a wholly-owned subsidiary of Holdings. In addition to the
Merger, the acquisition included the issuance by Pace Acquisition, the
obligations of which were assumed by Pace, of $115.0 million aggregate principal
amount of 10 5/8% Senior Notes and the concurrent refinancing of the existing
long-term debt.
The acquisition of all of the outstanding common stock of Pace by Holdings
was accounted for as a purchase in accordance with the consensus reached by the
Emerging Issues Task Force ("EITF") of the Financial Accounting Standards Board
in Issue No. 88-16 "Basis in Leveraged Buyout Transactions." The EITF requires
the carryover of predecessor basis for leveraged buyout transactions in which
certain stockholders, as defined, of the acquired business continue as
stockholders of the purchaser, if a change in control, as defined, has occurred.
As a result of the application of this EITF, the Company recorded a charge to
stockholders' equity of $31.1 million which represents the difference between
the purchase price paid to certain continuing management stockholders
(stockholders of Holdings) and the book value of the continuing management
stockholders' investment in the Company. The remaining purchase price was
allocated to the assets and liabilities based upon their estimated fair value
with the excess purchase price over net assets acquired representing goodwill.
The acquisition and refinancing was consummated on December 10, 1993 and for
accounting purposes, was recorded as of December 31, 1993.
3. INVENTORIES
June 30, June 30,
Inventories consist of: 1995 1994
-------- --------
Finished goods $ 8,811 $ 5,540
Work in progress 4,199 3,709
Raw materials 6,364 2,984
Supplies 6,055 4,515
-------- --------
$ 25,429 $ 16,748
======== ========
F-13
PACE HOLDINGS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS)
4. PROPERTY, PLANT AND EQUIPMENT
June 30, June 30,
1995 1994
------- -------
Property, plant and equipment consist of:
Land and improvements $ 4,238 $ 4,003
Plant and warehouse facilities 11,333 10,733
Plant equipment 31,548 25,608
Office equipment 994 622
Vehicles 175 161
Idle facilities 1,380 1,507
Construction in progress 4,374 548
-------- --------
54,042 43,182
Less accumulated depreciation and amortization (5,894) (1,890)
-------- --------
$ 48,148 $ 41,292
======== ========
The Company leases certain equipment under capital lease agreements
expiring in 1996 through 2000. The following amounts related to
capitalized lease obligations are included in property, plant and
equipment in the consolidated balance sheet.
Plant equipment $ 1,057 $ 1,089
Less accumulated amortization (151) (57)
-------- --------
Net plant equipment $ 906 $ 1,032
======== ========
5. FINANCING ARRANGEMENTS AND LONG-TERM DEBT
June 30, June 30,
1995 1994
------- -------
Long-term debt consists of:
Pace Industries, Inc.:
Senior Notes, unsecured, interest at 10.625%, payable semi-annually on
June 1 and December 1, principal due December 10, 2002. $115,000 $115,000
Revolving credit line, payable to a bank ("Credit Facility"), due December
10, 1998, (total available $35,000,000), interest payable quarterly at prime
plus 1.25% or LIBOR plus 2.50% (8.375% at June 30, 1995),
collateralized by accounts receivable and inventory. 9,713 10,000
Various notes and capitalized lease/purchase obligations, collateralized
by certain equipment, payable in monthly installments, with interest
at 3.83% to 12.46% through February, 2000. 800 1,090
Pace Industries of Mexico L.L.C. and Subsidiary ("Pace Mexico"):
Note payable to a financial institution, with interest at 9.0%, collateralized
by certain equipment, payable in monthly installments based on a five year
amortization, balance due July 10, 1996. 1,383 --
F-14
PACE HOLDINGS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in Thousands)
Note payable to a financial institution, with interest at 9.0%, collateralized
by accounts receivable, payable July 10, 1996. 700 ---
Note payable to a financial institution, with interest at LIBOR plus 3.75%
(9.8% at June 30, 1995), collateralized by certain equipment, payable in
quarterly installments based on a five year amortization, balance due
March, 1998. 2,160 ---
Various notes and capitalized lease/purchase obligations, collateralized by
certain equipment, payable in monthly installments over five years, with
interest at 9.0% to 15.5%. 44 ---
-------- --------
129,800 126,090
Less current maturities (671) (336)
-------- --------
$129,129 $125,754
======== ========
Pace's Senior Notes, the Credit Facility and Pace Mexico's notes payable
contain restrictive covenants which, among other things, require Pace and/or
Pace Mexico to maintain minimum amounts of net worth and working capital in
addition to other financial ratios. The agreements also limit capital
expenditures, investments, new indebtedness, liens and payments of cash
dividends.
Future minimum lease payments due under capital leases as of June 30,
1995 are as follows:
Fiscal year ended June 30,
1996 $ 230
1997 158
1998 139
1999 107
2000 71
------
Total minimum obligations 705
Less amount representing interest (105)
------
Present value of future net minimum lease payments $ 600
======
Current maturities of long-term debt over the next five years are $671 in
1996, $2,472 in 1997, $1,658 in 1988, $104 in 1999, $9,789 in 2000 and $115,106
thereafter.
Based on the borrowing rates currently available to the Company for bank
borrowings, industrial revenue bonds and various other notes, with similar terms
and average maturities, the Company believes that the carrying amount of these
long-term debts approximate face value. The fair value of the 10.625% Senior
Notes due 2002, based on the quoted market value, approximates $108 million at
June 30, 1995.
6. SUBORDINATED NOTES
In connection with the acquisition, Holdings issued notes to certain
stockholders of the Company (the "Subordinated Notes") in an aggregate principal
amount of $20.0 million. The Subordinated Notes bear interest at a rate of
12.25%, payable quarterly, and will mature in December, 2003. Except for
certain circumstances, the Subordinated Notes may not be redeemed prior to
December 10, 2003. The Company believes that the fair value of the Subordinated
Notes approximates their carrying value.
F-15
PACE HOLDINGS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in Thousands)
Upon the occurrence of an event of default, the holders of 66 2/3% in
principal amount of the Subordinated Notes may elect, as their sole remedy, to
convert such outstanding Subordinated Notes into Holdings common stock.
7. INCOME TAXES
Income tax expense is summarized as follows:
Six Months
Ended
June 30, June 30,
1995 1994
-------- ----------
Current $ 2,067 $2,048
Deferred 33 1,038
------- ------
$ 2,100 $3,086
======= ======
Total income tax expense differs from the amount computed by multiplying
income before income taxes by the U.S. federal income tax statutory rate. The
reasons for the difference are as follows:
Computed expected tax expense $ 1,064 $2,211
Amortization of goodwill 845 417
State taxes 217 378
Other (26) 80
------- ------
Actual tax expense $ 2,100 $3,086
======= ======
Deferred income taxes are comprised of the
following at June 30, 1995 and 1994:
Depreciation and amortization $ 7,357 $7,241
Debt pre-payment penalty 1,526 1,561
Non-Compete agreements (1,564) (521)
Accrued liabilities 688 300
Other (57) (16)
------- ------
$ 7,950 $8,565
======= ======
Deferred income taxes were reduced by $648 in 1995 to adjust certain prior
year estimates related to the acquisition discussed in Note 2.
F-16
PACE HOLDINGS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in Thousands)
8. COMMITMENTS
Upon consummation of the acquisition (Note 2) certain stockholders executed
put option agreements with Holdings requiring the repurchase of Holdings common
stock by Holdings in certain circumstances (the "Put Rights"). The Put Rights
allow the put holders, upon six months written notice, to cause Holdings to
purchase on the fifth, sixth, seventh, eighth, ninth or tenth anniversary of
said put agreements, shares of Holdings common stock at a price of five hundred
dollars per share.
In connection with the consummation of the acquisition (Note 2) the Company
adopted an employee stock option/bonus plan to grant options under certain
defined conditions, for up to 30,000 shares of common stock at an exercise price
of $.01 per share. The options would vest and be exercisable if certain
predetermined future equity values are attained. The difference between the fair
value of the common stock to be issued and the exercise price will be recorded
as compensation when it is probable that the criteria for exercise will be met
and will be amortized over the vesting period.
The Company leases certain land, buildings, transportation equipment,
manufacturing equipment, office equipment and other items under noncancellable
operating lease arrangements which expire through 2001, including certain leases
from related parties. Total rental expense was $3,246 for the year ended June
30, 1995 and $1,588 for the six months ended June 30, 1994, including contingent
rentals of $535 and $298, respectively. Contingent rentals are based upon
incremental cost on a per mile basis for the transportation equipment.
Future minimum rental commitments under noncancellable operating leases are
as follows:
Related
Party Other Total
-------- ------- -------
Fiscal year ended June 30,
1996 $ 50 $ 2,121 $ 2,171
1997 50 1,932 1,982
1998 33 1,445 1,478
1999 -- 987 987
2000 -- 895 895
Thereafter -- 1,062 1,062
-------- ------- -------
$ 133 $ 8,442 $ 8,575
======== ======= =======
9. RELATED PARTIES
The Company leases certain office space from a corporation controlled by a
stockholder of Holdings. Rent expense under this lease was $126 for the year
ended June 30, 1995 and $62 during the six months ended June 30, 1994,
respectively.
An affiliate of the Company performs verti-cast die casting operations on
contract, similar to a sub-contractor, for the Company using raw materials
provided by the Company. At June 30, 1995 and 1994, the Company had net
accounts payable to the affiliated company of $103 and $88, respectively.
Billings to the Company for services provided by the affiliated company were
$10,501 and $4,440 during the year ended June 30, 1995 and six months ended June
30, 1994, respectively. The company currently subleases a portion of the Monroe
City Division facility to the affiliated company. Rental income was $332 and
$161 during the year ended June 30, 1995 and six months ended June 30, 1994,
respectively.
In connection with the acquisition, the Company paid certain stockholders
and related parties $4,203 for legal and consulting fees.
F-17
PACE HOLDINGS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in Thousands)
The Company and a corporation (the "Consultant") owned by a director of the
Company and Holdings entered into an agreement (the "Consulting Agreement"),
whereby the Consultant shall make available to the Company certain qualified
individuals to render advice to facilitate the operations of the Company. The
Consulting Agreement expires ten years after the date of the first payment made
under the agreement. The Company is required to pay the Consultant for all
services rendered pursuant to the Consulting Agreement at a rate of $100 per
month. The Company paid $1,200 and $600 to the Consultant during the fiscal year
ended June 30, 1995, and the six months ended June 30, 1994, respectively. In
addition, a corporation controlled by a director of the Company and Holdings
received $75 for management consulting services during the fiscal year ended
June 30, 1995.
As part of the acquisition during the six months ended June 30, 1994, a
director and certain members of management of the Company and Holdings received
non-compete payments totaling $10,025.
10. CONTINGENCIES
In connection with the acquisition of Universal Die Casting, Inc.
("Universal") assets by Precision Industries, Inc. ("Precision"), an entity
subsequently acquired by the Company during fiscal 1990, the National Labor
Relations Board ("NLRB") filed a complaint based on an unfair labor charge filed
by the union representing the former employees of Universal. The complaint
alleges that the Company refused to hire former employees of Universal because
they were union members and refused to bargain with the union. It seeks back pay
and benefits, together with interest thereon, from October 18, 1988, and
reinstatement on behalf of 81 individuals. In May 1993, the administrative law
judge, in a recommended order, rendered a decision against the Company. The
recommended order would require the Company to offer immediate and full
reinstatement of 61 employees and make such employees whole for any loss of
earnings and other benefits suffered as a result of the alleged discrimination
against them. However, under applicable law, such damages would generally be
reduced by the amount of mitigation, if any, by such individuals, including
salary and benefits earned by such individuals since October 18, 1988. The
Company filed an appeal to the full NLRB in Washington and exceptions to the
administrative law judge's recommended order which are still pending. There were
also 23 complaints filed with the Equal Employment Opportunity Commission
("EEOC") claiming individuals were denied employment due to age, race or sex.
The claims were seeking reinstatement and damages of up to $4.0 million. Most of
these individuals were also covered by the NLRB proceedings. In July 1993,
counsel for the EEOC offered to conciliate the charges, assuming the Company
agreed to certain procedural changes in pre-employment screening and requested
relief in the form of employment offers for only nine of the above claimants.
During August 1994, the matter was resolved with no monetary damages or back pay
asserted against the Company. During August 1994, the Company began
implementation of a plan to offer employment to certain of these individuals,
which offers, in the event there was an unfavorable outcome to the Company
regarding this matter, would toll the accrual of any further back pay and
benefits. The Company and special litigation counsel have concluded that it is
only reasonably possible that there could be an adverse outcome with respect to
these proceedings. The Company believes its hiring practices were objective and
complied with all labor laws, that the individuals were denied employment for
legitimate reasons, and that it intends to vigorously defend its actions in
court and on appeal.
On May 23, 1994, TRW Inc., an Ohio corporation ("TRW") filed a complaint
styled as TRW Inc. v. Pace Industries, Inc. and Pace Industries Cast-Tech
Division, Inc., No. 94CV71983DT, in United States District Court in the Eastern
District of the State of Michigan alleging that the Company breached supply
contracts between the parties in 1991 and 1992 and seeking compensatory damages
of $4.7 million and punitive damages of $10.0 million. On November 2, 1994, the
Company filed an answer and counterclaim to the TRW complaint
F-18
PACE HOLDINGS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in Thousands)
denying the allegations in the TRW complaint and claiming compensatory damages
approximating $12 million relating to: (i) the nonpayment of invoices for parts
ordered and accepted by TRW; (ii) the nonpayment by TRW for parts ordered, but
not accepted and (iii) the breach of certain promises and misrepresentations by
TRW regarding assets and tooling purchased by the Company for the purpose of
manufacturing and supplying parts requested by TRW. On August 2, 1995, TRW filed
an amended complaint alleging essentially the same breach of contract claims for
the $4.7 million of compensatory damages, although the $10 million claim for
punitive damages was removed from the litigation in the amended complaint by
TRW. The Company intends to vigorously pursue the counterclaim against TRW,
while defending the allegations in the TRW amended complaint, which the Company
believes are without merit. The Company and its counsel have concluded that it
is only reasonably possible that there could be an adverse outcome with respect
to the TRW litigation. A rescheduled trial date, of March 5, 1996, has been set
with respect to this litigation and discovery is currently in process.
In addition to the litigation referred to above, the Company is involved in
litigation incidental to its business. Such other litigation is not considered
by management to be significant. The Company maintains a self-insurance program
for employee health care and workers' compensation cost. Self-insurance costs
are accrued based upon the aggregate of the liability for reported outstanding
claims and an estimated liability for claims incurred but not yet reported.
11. MAJOR CUSTOMERS
The Company had sales to three customers, which exceeded 10% of total
sales. Sales to one customer were $41,547 and $25,656 for the year ended June
30, 1995, and the six months ended June 30, 1994, respectively. Sales to another
customer were approximately $28,995 and $10,039 for these periods. Sales to
another customer were approximately $20,239 and $12,714 for these periods.
12. CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade and note receivables
with a variety of national customers. Such credit risk is considered by
management to be limited due to the Company's broad customer base. The Company
performs ongoing credit evaluations of its customers' financial condition and
generally requires no collateral.
F-19
PACE HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEET
(Dollars in Thousands Except Shares and Par Value)
(Unaudited)
ASSETS December 31, June 30,
1995 1995
----------- --------
Current assets:
Cash and cash equivalents $ 1,437 $ 254
Accounts and notes receivable, net 43,011 42,016
Inventories 64,876 25,429
Other current assets 3,892 357
-------- --------
Total current assets 113,216 68,056
-------- --------
Property, plant and equipment:
Less accumulated depreciation and amortization of $8,263 at
December 31, 1995 and $5,894 at June 30, 1995 58,857 48,148
Excess of investment over net assets acquired 75,411 70,374
Other assets 9,565 10,915
-------- --------
Total assets $257,049 $197,493
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 3,448 $ 671
Accounts payable 38,963 25,850
Accrued liabilities 5,940 7,062
-------- --------
Total current liabilities 48,351 33,583
-------- --------
Long-term debt 168,959 129,129
-------- --------
Subordinated notes 20,000 20,000
-------- --------
Other long-term obligations 1,338 1,374
-------- --------
Deferred income taxes 6,540 7,950
-------- --------
Commitments and contingencies (Note 4)
Minority interest in subsidiary 1,952 2,041
-------- --------
Stockholders' equity:
Common Stock, par value $.01 per share:
Class A, voting, 1,000,000 shares authorized,
300,000 shares issued and outstanding 3 3
Class B, non-voting, 30,000 shares authorized,
18,329 shares issued and outstanding - -
Additional paid-in capital 40,094 29,997
Carryover basis adjustment attributable to the continuing
management stockholders (31,079) (31,079)
Retained earnings 891 4,495
-------- --------
Total stockholders' equity 9,909 3,416
-------- --------
Total liabilities and stockholders' equity $257,049 $197,493
======== ========
See accompanying notes to consolidated condensed financial statements.
F-20
PACE HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
Six Months Ended
December 31,
--------------------
1995 1994
-------- --------
Net sales $ 74,534 $ 60,362
Cost of sales 60,832 48,287
-------- --------
Gross profit 13,702 12,075
Selling, general and administrative expenses 7,100 4,927
Amortization of intangibles 3,116 2,932
-------- --------
Operating income 3,486 4,216
Other income (expense):
Interest expense (10,204) (8,561)
Other income 38 (54)
-------- --------
Loss before income taxes (6,680) (4,399)
Income tax benefit 2,987 1,928
-------- --------
Loss before minority interest (3,693) (2,471)
Minority interest in
loss of consolidated subsidiary 89 201
-------- --------
Net loss $ (3,604) $ (2,270)
======== ========
See accompanying notes to consolidated condensed financial statements.
F-21
PACE HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Six Months Ended
December 31,
-------------------------
1995 1994
--------- ---------
Cash flows from operating activities:
Net loss $ (3,604) $ (2,270)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation 2,372 1,882
Amortization 3,570 3,313
Loss on sale of property, plant and equipment -- 4
Minority interest in loss (income) of
consolidated subsidiary (89) 201
Deferred income taxes (1,409) (708)
Change in assets and liabilities:
Accounts and notes receivable 492 6,135
Inventories (37,757) (23,990)
Other current assets (3,536) (680)
Other assets (368) 80
Accounts payable 12,929 11,679
Accrued liabilities (2,455) (3,385)
--------- ---------
Net cash provided by (used in) operating activities (29,855) (7,739)
--------- ---------
Cash flows from investing activities:
Purchase of property, plant and equipment (7,874) (5,381)
Proceeds from sale of equipment -- 111
Acquisition of business 86 --
Payment of deferred cost -- (1,359)
Collection of notes receivable 227 177
--------- ---------
Net cash provided by (used in) investing activities (7,561) (6,452)
--------- ---------
Cash flows from financing activities:
Proceeds from long-term debt 39,398 13,775
Payments of long-term debt (488) (220)
Payments of other long-term obligations (36) --
Payment of deferred loan fees (275) --
Proceeds from minority interest -- 487
--------- ---------
Net cash provided by (used in) financing activities 38,599 14,042
--------- ---------
Net increase (decrease) in cash and cash equivalents 1,183 (149)
Cash and cash equivalents--beginning 254 473
--------- ---------
Cash and cash equivalents--ending $ 1,437 $ 324
========= =========
Supplementary disclosure of cash flow information:
Cash paid during the period for:
Income taxes $ 1,919 $ 1,626
Interest 9,774 8,144
Non-cash investing and financing activities:
Equipment acquired by issuance of note payable 1,500 --
Business acquired by issuance of stock 10,097 --
See accompanying notes to consolidated condensed
financial statements.
F-22
PACE HOLDINGS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
NOTE 1. GENERAL
In the opinion of management, the accompanying consolidated condensed
financial statements contain all adjustments (adjustments are of a normal
recurring nature) necessary to present fairly the consolidated financial
position of Pace Holdings, Inc. and Subsidiary (the "Company") as of December
31, 1995 and June 30, 1995, and the consolidated results of operations for the
six month periods ended December 31, 1995 and 1994 and the consolidated cash
flows for the six month periods ended December 31, 1995 and 1994. Results of
operations for the six months ended December 31, 1995, are not necessarily
indicative of results which will be achieved for the full fiscal year.
NOTE 2. INVENTORIES
The components of inventory are as follows:
December 31, June 30,
1995 1995
------------ ---------
Finished Goods $ 32,616 $ 8,811
Work-In-Process 6,905 4,199
Raw Materials 18,326 6,364
Supplies 7,029 6,055
------------ ---------
$ 64,876 $ 25,429
============ =========
NOTE 3. RELATED PARTIES
The Company has provided administrative, marketing and distribution
functions to an affiliated company at the Company's cost. The affiliated company
had performed verti-cast die casting operations, similar to a subcontractor,
using raw materials provided by the Company pursuant to a supply agreement
between the Company and the affiliated company. Billings to the Company for
services provided by the affiliated company were $4.3 million and $4.9 million
during the six months ended December 31, 1995 and 1994, respectively. Effective
December 1, 1995, the Company has discontinued this relationship.
NOTE 4. CONTINGENCIES
In connection with the acquisition of Universal Die Casting, Inc.
("Universal") assets by Precision Industries, Inc. ("Precision"), and entity
subsequently acquired by the Company during fiscal 1990, the National Labor
Relations Board ("NLRB") filed a complaint based on an unfair labor charge filed
by the union representing the former employees of Universal. The complaint
alleges that the Company refused to hire former employees of Universal because
they were union members and refused to bargain with the union. It seeks back pay
and benefits, together with interest thereon, from October 18, 1988, and
reinstatement on behalf of 81 individuals. In May 1993, the administrative law
judge in a recommended order, rendered a decision against the Company. The
recommended order would require the Company
F-23
to recognize and bargain with the union and to offer immediate and full
reinstatement of 61 employees and make such employees whole for any loss of
earnings and other benefits suffered as a result of the alleged discrimination
against them. However, under applicable law, such damages would generally be
reduced by the amount of mitigation, if any, by such individuals, including
salary and benefits earned by such individuals since October 18, 1988. The
Company filed an appeal to the full NLRB in Washington and exceptions to the
administrative law judge's recommended order. On January 3, 1996, the NLRB
rendered its decision on the Company's appeal by affirming the administrative
law judge's decision and recommended order against the Company. The Company
intends to appeal the NLRB's decision to the Eighth Circuit Court of Appeals in
St. Louis, Missouri and to contest individual backpay specifications in NLRB
compliance proceedings, if necessary. During August 1994, the Company began
implementation of a plan to offer employment to certain of these individuals,
which offers, in the event there was an unfavorable outcome to the Company
regarding this matter, would toll the accrual of any further back pay and
benefits. The Company believes its hiring practices were objective and complied
with all labor laws and that the individuals were denied employment for
legitimate reasons. The Company and special litigation counsel have concluded
that it is only reasonably possible that there could be an adverse outcome with
respect to these proceedings.
On May 23, 1994, TRW Inc., an Ohio corporation ("TRW") filed a complaint
styled as TRW Inc. v. Pace Industries, Inc. and Pace Industries Cast-Tech
Division, Inc., No. 94CV71983DT, in United States District Court in the Eastern
District of the State of Michigan alleging that the Company breached supply
contracts between the parties in 1991 and 1992 and seeking compensatory damages
of $4.7 million and punitive damages of $10 million. On November 2, 1994, the
Company filed an answer and counterclaim to the TRW complaint denying the
allegations in the TRW complaint and claiming compensatory damages approximating
$12 million relating to: (i) the nonpayment of invoices for parts ordered and
accepted by TRW; (ii) the nonpayment by TRW for parts ordered, but not accepted
and (iii) the breach of certain promises and misrepresentations by TRW regarding
assets and tooling purchased by the Company for the purpose of manufacturing and
supplying parts requested by TRW. On August 2, 1995, TRW filed an amended
complaint alleging essentially the same breach of contract claims for the $4.7
million of compensatory damages and an unspecified amount of exemplary damages,
although the $10 million claim for punitive damages was removed from the
litigation in the amended complaint by TRW. The Company intends to vigorously
pursue the counterclaim against TRW, while defending the allegations in the TRW
amended complaint, which the Company believes are without merit. The Company and
its counsel have concluded that it is only reasonably possible that there could
be an adverse outcome with respect to the TRW litigation. A rescheduled trial
date, of June 18, 1996, has been set with respect to this litigation and
discovery is currently in process.
NOTE 5. INCOME TAXES
The effective tax rate differs from the statutory rate primarily due to
amortization of goodwill which is not deductible for tax purposes. The effective
tax rate was calculated based on projected taxable income for the full fiscal
year and the anticipated changes in the deferred tax assets and deferred tax
liabilities.
NOTE 6. CLASS B COMMON STOCK
The Company has issued 18,329 shares of Class B Common Stock that can be
put to the Company on specific dates beginning in January of 1996, giving the
Class B Shareholders the right to sell shares of the Class B Common Stock to the
Company at contractually specified prices. The put options with a contractual
value of $10,097 were recorded as Class B Common Stock and paid-in capital in
the amount that the Company would be obligated to pay if all the put options
were exercised.
F-24
============================================
TABLE OF CONTENTS
Page
----
Available Information................... 2
Incorporation of Certain Information
by Reference.......................... 2
The Company............................. 3
Use of Proceeds......................... 3
Selling Shareholders.................... 3
Plan of Distribution.................... 4
Capital Stock........................... 5
Recent Developments..................... 5
Legal Opinions.......................... 5
Experts................................. 5
Required Financial Information.......... 5
============================================
============================================
LEGGETT & PLATT, INCORPORATED
3,372,328 Shares
Common Stock
$.01 Par Value
(and Preferred Stock Purchase Rights
attached to the Common Stock)
---------------------
PROSPECTUS
---------------------
May 13, 1996
============================================
