SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 11-K
ANNUAL REPORT PURSUANT TO SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 2001
Commission File Number
0-12490
A. Full title of the plan and the address of the plan, if different from that
of the issuer named below:
ACR GROUP, INC. 401(K) PLAN
B. Name of issuer of securities held pursuant to the plan and the address of
its principal executive office:
ACR GROUP, INC.
3200 WILCREST DRIVE, SUITE 440
HOUSTON, TEXAS 77042-6039
ACR Group, Inc. 401(k) Plan
Financial Statements and Supplemental Schedule
Year ended December 31, 2001
Contents
Report of Independent Auditors 1
Audited Financial Statements
Statements of Net Assets Available for Benefits 2
Statement of Changes in Net Assets Available for Benefits 3
Notes to Financial Statements 4
Supplemental Schedule
Schedule H Line 4(i) - Schedule of Assets (Held At End of Year) 10
Report of Independent Auditors
Plan Administrator
ACR Group, Inc. 401(k) Plan
We have audited the accompanying statements of net assets available for benefits
of the ACR Group, Inc. 401(k) Plan as of December 31, 2001 and 2000, and the
related statement of changes in net assets available for benefits for the year
ended December 31, 2001. These financial statements are the responsibility of
the Plan's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan at
December 31, 2001 and 2000, and changes in its net assets available for benefits
for the year ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States.
Our audits were performed for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedule of assets
(held at end of year) as of December 31, 2001 is presented for purposes of
additional analysis and is not a required part of the financial statements but
is supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. This supplemental schedule is the responsibility of the
Plan's management. The supplemental schedule has been subjected to the auditing
procedures applied in our audits of the financial statements and, in our
opinion, is fairly stated in all material respects in relation to the financial
statements taken as a whole.
/s/ Ernst & Young LLP
Houston, Texas
May 22, 2002
1
ACR Group, Inc. 401(k) Plan
Statements of Net Assets Available for Benefits
December 31
2001 2000
------------------------
Assets
Receivables:
Employer contributions $ 19,952 $ 17,367
Participant contributions 45,923 41,989
Sales pending - 43,693
Accrued income - 1,557
----------------------
Total receivables 65,875 104,606
Investments 3,472,015 2,855,226
----------------------
Total assets 3,537,890 2,959,832
Liabilities
Corrective distributions (16,490) -
----------------------
Total liabilities (16,490) -
----------------------
Net assets available for benefits $3,521,400 $2,959,832
======================
See accompanying notes.
2
ACR Group, Inc. 401(k) Plan
Statement of Changes in Net Assets Available for Benefits
Year ended December 31, 2001
Additions:
Employer contributions $ 264,582
Participant contributions 708,284
Participant rollovers 60,554
Investment income 31,446
----------
Total additions 1,064,866
Deductions:
Benefits paid to participants 209,793
Corrective distributions 16,490
Net depreciation in fair value of investments 276,856
Administrative expenses 159
----------
Total deductions 503,298
----------
Net increase 561,568
Net assets available for benefits at:
Beginning of year 2,959,832
----------
End of year $3,521,400
==========
See accompanying notes.
3
ACR Group, Inc. 401(k) Plan
Notes to Financial Statements
December 31, 2001
1. Description of Plan
General
The ACR Group, Inc. 401(k) Plan (the "Plan") is a defined contribution profit
sharing plan covering all eligible employees of ACR Group, Inc. and its
participating employers (collectively, the "Company"). The Plan was adopted
effective March 1, 1991 and is subject to the provisions of the Employee
Retirement Income Security Act of 1974 ("ERISA").
The following description of the Plan provides only general information.
Participants should refer to the Summary Plan Description for a more complete
description of the Plan's provisions, a copy of which is available from the
Company.
Effective January 1, 2001, the Plan's trustee and recordkeeper changed from A.G.
Edwards Trust Company and Texas Pension Consultants to Allfirst Trust Company,
N.A. and Hartford Life Insurance Company, respectively.
Effective May 8, 2001, the ACR Stock Fund was frozen. No new contributions may
be invested in this fund option by participants, and participants are currently
restricted from transferring their prior investment out of this fund.
Effective August 13, 2001, an officer of the Company became trustee of the Plan.
Eligibility
Each salaried or hourly employee of the Company who has completed at least six
months of service and is at least 19 years of age is eligible to participate in
the Plan.
Contributions
Participants may contribute, with certain limitations, up to 16% of their
eligible annual compensation on a pretax basis. Qualified rollover contributions
are also accepted by the Plan at the discretion of the Company.
The Company may determine annually what percent of the first 6% of a
participant's pretax contributions will be matched. For the 2001 plan year, the
Company elected to match 50% of 6% of a participant's compensation. Also, at its
sole discretion, the Company may elect to make an additional contribution to the
Plan from time to time. No additional contribution was made for 2001.
4
ACR Group, Inc. 401(k) Plan
Notes to Financial Statements (continued)
1. Description of Plan (continued)
All participant contributions and employer matching contribution accounts are
participant-directed.
Administrative Expenses
Certain administrative expenses of the Plan are paid by the Company.
Vesting
Participants are immediately 100% vested in their contributions plus earnings
thereon.
Vesting in the Company contributions portion of their account plus actual
earnings thereon is based on years of credited service at 25% per year with 100%
vesting after four years. Participants also become 100% vested upon death,
disability, or the attainment of normal retirement age 65. Forfeitures of
account balances by participants not fully vested are used to reduce future
employer contributions.
Benefit Payments
To meet certain financial hardships as defined by the Internal Revenue Service
("IRS"), participants may make withdrawals from the portion of their accounts
attributable to employee pretax contributions and the vested employer
contributions. Distributions of a participant's accrued benefits are also made
upon termination of employment, total and permanent disability, or death.
Participants with $5,000 or less nonforfeitable interest in their accounts will
receive a lump-sum distribution as soon as practicable after separation from
service. Participants with more than $5,000 of nonforfeitable interest in their
accounts may receive either annuity payments or a lump-sum distribution upon the
participant's request, but no later than the participant's normal retirement
age.
Plan Termination
Although there is no current intention to do so, the Company has the right to
discontinue its contributions at any time and to terminate the Plan subject to
the provisions of ERISA. In the event the Plan is terminated, participants will
become 100% vested in their accounts.
5
ACR Group, Inc. 401(k) Plan
Notes to Financial Statements (continued)
2. Summary of Accounting Policies
Basis of Accounting
The financial statements have been prepared on the accrual basis of accounting
in accordance with accounting principles generally accepted in the United
States. Benefits are recorded when paid.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
that affect the amounts reported in the financial statements and accompanying
notes and supplemental schedule. Actual results could differ from those
estimates.
Investment Valuation and Income Recognition
The common stock is stated at fair value based on quoted market prices obtained
from national securities exchanges. The investments in the pooled separate
accounts are stated at fair value as determined by the issuer based on quoted
market values of the underlying investments.
Short-term investments are stated at cost which approximates fair value. The
fixed income account is stated at contract value. Purchases and sales of
securities are recorded on a trade-date basis. Interest income is recorded on
the accrual basis. Dividends are recorded on the ex-dividend date.
Risk and Uncertainties
The Plan provides for various investments in common stock, short-term
investments, pooled separate accounts, and an investment contract. Investment
securities, in general, are exposed to various risks, such as interest rate,
credit, and overall market volatility risk. Due to the level of risk associated
with certain investment securities, it is reasonably possible that changes in
the values of investment securities will occur in the near term and that such
changes could materially affect the amounts reported in the statement of net
assets available for benefits and participant account balances.
6
ACR Group, Inc. 401(k) Plan
Notes to Financial Statements (continued)
3. Investments
Individual investments that represent 5% or more of the Plan's net assets are as
follows:
December 31
2001 2000
-------------------------
ACR Group, Inc. common stock $102,367 $ 205,834
Prime Obligations Fund - 2,649,392
Hartford Life Insurance pooled separate accounts:
American Century Income & Growth Fund 208,497 -
American Century Ultra Fund 178,137 -
Franklin Small Mid Cap Growth Fund 419,836 -
Dividend & Growth Fund 429,368 -
Bond Fund 280,045 -
Small Midcap Fund 529,807 -
Janus Balanced Fund 316,590 -
Janus Twenty Fund 447,020 -
Hartford Life Insurance Fixed Income Account 254,830 -
During 2001, the Plan's investments (including investments bought, sold, and
held during the year) depreciated in fair value as follows:
Common stock $143,531
Pooled separate accounts 133,325
--------
$276,856
========
Effective January 1, 2001, the Plan entered into a group annuity contract with
Hartford Life Insurance Company ("Hartford") which includes a fixed income
account. The crediting interest rate may be changed from time to time by
Hartford. However, it is guaranteed for the first three contract years at 6.15%
in 2001, 5.65% for 2002, and 5.15% for 2003. The crediting interest rate was
6.15% at December 31, 2001. The average yield for 2001 was 6.56%.
7
ACR Group, Inc. 401(k) Plan
Notes to Financial Statements (continued)
4. Income Tax Status
The Plan has received an opinion letter from the IRS dated September 4, 2001,
stating that the written form of the underlying volume submitter plan document
is qualified under Section 401(a) of the Internal Revenue Code ("IRC"), and that
under certain conditions, employers adopting this form of the Plan will be
considered to have a plan qualified under the IRC. The Company believes those
circumstances have been met, and that the operation of the Plan is in compliance
with the plan document and the IRC and, therefore, believes that the Plan is
qualified and the related trust is exempt from taxation under Section 501(a) of
the IRC.
5. Subsequent Events
Effective January 1, 2002, the Plan was amended and restated to incorporate
certain statutory changes, remove the 16% limit on participant pre-tax
contributions, and change certain administrative procedures.
8
Supplemental Schedule
9
ACR Group, Inc. 401(k) Plan
Schedule H Line 4(i) - Schedule of Assets (Held At End of Year)
December 31, 2001
EIN: 74-2008473 PN: 001
Identity of
Issue, Borrower, Lessor or Description of Current
Similar Party Investment Value
-----------------------------------------------------------=--------------------
*Charles Schwab Schwab Money Market Fund $ 45,741
*ACR Group, Inc. 292,477 Shares of Common Stock 102,367
*Hartford Life Insurance American Century Income & Growth Fund 208,497
*Hartford Life Insurance American Century Ultra Fund 178,137
*Hartford Life Insurance Fixed Income Account 254,830
*Hartford Life Insurance Franklin Small Mid Cap Growth Fund 419,836
*Hartford Life Insurance Fidelity VIP Overseas Fund 90,929
*Hartford Life Insurance Bond Fund 280,045
*Hartford Life Insurance Dividend & Growth Fund 429,368
*Hartford Life Insurance Small Midcap Fund 529,807
*Hartford Life Insurance Money Market Fund 168,848
*Hartford Life Insurance Janus Balanced Fund 316,590
*Hartford Life Insurance Janus Twenty Fund 447,020
----------
$3,472,015
==========
*Party-in-interest
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the trustees have duly caused this annual report to be signed on its behalf by
the undersigned hereunto duly authorized.
ACR Group, Inc. 401(k) Plan
Date: July 1, 2002 /s / A. Stephen Trevino
-----------------------
Secretary
11