<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
Date of Report (Date of earliest event reported): June 5, 1998
------------------------------
Commission File Number 000-23353
--------------------------------------------------------
Denali Incorporated
- -------------------------------------------------------------------------------
(Exact Name of Registrant in its Charter)
Delaware 76-0454641
- -------------------------------------------------------------------------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation of Organization) Identification No.)
1360 Post Oak Blvd., Suite 2250, Houston, Texas 77056
- -------------------------------------------------------------------------------
(Address of Principal Executive Officers) (Zip Code)
713-627-0933
- -------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
1
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired
Report of Independent Public Accountants
Balance Sheets as of March 31, 1998 (Unaudited), December 31, 1997,
1996 and 1995
Statements of Operations and Retained Earnings for the Three Months
Ended March 31, 1998 and 1997 (Unaudited) and the Years Ended December
31, 1997, 1996 and 1995
Statements of Cash Flow for the Three Months Ended March 31, 1998 and
1997 (Unaudited) and the Years Ended December 31, 1997, 1996 and 1995
Notes to Financial Statements
(b) Pro Forma Financial Information
Pro Forma Condensed Consolidated Balance Sheet (Unaudited) as of March
28, 1998
Pro Forma Condensed Consolidated Statement of Operations (Unaudited)
for the Nine Months Ended March 28, 1998
Pro Forma Condensed Consolidated Statement of Operations (Unaudited)
for the Year Ended June 28, 1997
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements
(c) Exhibits
10.1* Stock Purchase Agreement dated May 11, 1998 by and between
William I. Koch, Joan Granlund, Richard P. Callahan, as
Custodian for Wyatt I. Koch, under the Florida Uniform Transfer
to Minors Act, Richard A. Bird, Fibercast Company and Denali
Incorporated
23.1 Consent of Arthur Andersen LLP
- --------------
* Previously filed
2
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DENALI INCORPORATED
-------------------
(Registrant)
Date: August 13, 1998 /s/ R. KEVIN ANDREWS
-------------------------------------
R. Kevin Andrews
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
3
<PAGE> 4
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
of Fibercast Company:
We have audited the accompanying balance sheets of Fibercast Company (a Delaware
corporation) as of December 31, 1997, 1996 and 1995, and the related statements
of operations and retained earnings and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Fibercast Company as of
December 31, 1997, 1996 and 1995, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Tulsa, Oklahoma
January 23, 1998 (except with
respect to the matter discussed
in Note 8, as to which the date
is July 16, 1998)
4
<PAGE> 5
FIBERCAST COMPANY
BALANCE SHEETS
MARCH 31, 1998, DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
December 31,
March 31, -------------------------------------------
1998 1997 1996 1995
----------- ----------- ----------- -----------
ASSETS (unaudited)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ -- $ -- $ 681,930 $ 2,048,427
Accounts receivable, net 2,458,009 3,020,976 3,014,096 2,302,285
Inventories, net 2,394,584 2,358,945 2,967,968 3,048,270
Prepaid expenses 151,895 111,781 249,431 176,014
----------- ----------- ----------- -----------
Total current assets 5,004,488 5,491,702 6,913,425 7,574,996
----------- ----------- ----------- -----------
Property, plant and equipment 10,455,161 10,402,622 9,697,194 8,671,395
Less accumulated depreciation 5,905,432 5,649,442 4,823,270 3,939,344
----------- ----------- ----------- -----------
Net property, plant and equipment 4,549,729 4,753,180 4,873,924 4,732,051
----------- ----------- ----------- -----------
$ 9,554,217 $10,244,882 $11,787,349 $12,307,047
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Accounts payable $ 1,579,207 $ 1,134,326 $ 1,057,504 $ 1,147,555
Accrued bonuses -- 9,000 116,007 253,245
Accrued commissions 40,179 38,945 150,572 39,465
Accrued warranty expense 88,711 88,711 178,142 313,593
Deferred revenue -- -- -- 448,248
Other accrued liabilities 128,338 255,120 284,555 330,130
Payable to affiliate 128,991 32,532 -- 50,000
Current maturities of long-term debt 1,361,000 750,000 750,000 --
----------- ----------- ----------- -----------
Total current liabilities 3,326,426 2,308,634 2,536,780 2,582,236
----------- ----------- ----------- -----------
Long-term debt, less current maturities 2,500,000 3,500,000 4,250,000 --
Commitments and contingencies
Stockholders' investment:
Common stock, no par value, 1,000 shares authorized,
issued and outstanding 100 100 100 100
Additional paid-in capital 2,886,449 2,886,449 2,886,449 2,886,449
Retained earnings 841,242 1,549,699 2,114,020 6,838,262
----------- ----------- ----------- -----------
Total stockholders' investment 3,727,791 4,436,248 5,000,569 9,724,811
----------- ----------- ----------- -----------
$ 9,554,217 $10,244,882 $11,787,349 $12,307,047
=========== =========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE BALANCE SHEETS.
5
<PAGE> 6
FIBERCAST COMPANY
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997, AND
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
-------------------------------- ---------------------------------------------------
1998 1997 1997 1996 1995
------------- ------------- ------------- ------------- -------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net sales $ 3,970,468 $ 6,337,983 $ 22,222,226 $ 22,068,698 $ 19,601,078
Cost of sales 3,306,417 4,747,393 16,646,504 15,797,130 13,375,008
------------- ------------- ------------- ------------- -------------
Gross profit 664,051 1,590,590 5,575,722 6,271,568 6,226,070
Selling expenses 668,553 709,637 2,923,333 2,244,622 1,967,715
General and administrative expenses 361,957 393,302 1,627,924 1,239,648 1,043,610
Research and development expenses 149,937 85,315 583,469 541,876 317,238
------------- ------------- ------------- ------------- -------------
Income (loss) from operations (516,396) 402,336 440,996 2,245,422 2,897,507
------------- ------------- ------------- ------------- -------------
Other income (expense):
Royalty income -- -- -- 263,194 551,919
Interest, net (21,369) (83,955) (347,744) (312,377) 161,802
Management fees (170,929) (109,918) (644,651) (699,098) (543,820)
Miscellaneous 237 173 (12,922) (41,383) (5,675)
------------- ------------- ------------- ------------- -------------
(192,061) (193,700) (1,005,317) (789,664) 164,226
------------- ------------- ------------- ------------- -------------
Net income (loss) (708,457) 208,636 (564,321) 1,455,758 3,061,733
Retained earnings, beginning of period 1,549,699 2,114,020 2,114,020 6,838,262 7,776,529
Distributions to stockholders -- -- -- (6,180,000) (4,000,000)
------------- ------------- ------------- ------------- -------------
Retained earnings, end of period $ 841,242 $ 2,322,656 $ 1,549,699 $ 2,114,020 $ 6,838,262
============= ============= ============= ============= =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
6
<PAGE> 7
FIBERCAST COMPANY
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997, AND
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
-------------------------- -------------------------------------------
1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (708,457) $ 208,636 $ (564,321) $ 1,455,758 $ 3,061,733
Adjustments to reconcile net income (loss) to net
cash provided by operating activities-
Depreciation 255,990 262,500 972,878 899,734 818,271
Net loss on disposal of assets -- -- 22,070 -- 8,118
Change in assets and liabilities-
Accounts receivable 562,967 (701,955) (6,880) (711,811) 233,947
Inventories (35,639) (390,135) 609,023 80,302 432,385
Prepaid expenses (40,114) (90,544) 137,650 (73,417) 17,127
Accounts payable 444,881 336,863 76,822 (90,051) 537,998
Accrued bonuses (9,000) (90,795) (107,007) (137,238) 10,245
Accrued commissions 1,234 84,669 (111,627) 111,107 (25,596)
Accrued warranty expense -- (38,426) (89,431) (135,451) 142,291
Deferred revenue -- -- -- (448,248) 448,248
Other accrued liabilities (126,782) (82,466) (29,435) (45,575) 134,014
Payable to affiliate 96,459 50,711 32,532 (50,000) 29,803
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) operating
activities 441,539 (450,942) 942,274 855,110 5,848,584
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (52,539) (225,702) (874,204) (1,041,607) (498,752)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Borrowings on long-term debt 361,000 795,000 -- 5,000,000 --
Payments on long-term debt (750,000) (750,000) (750,000) -- --
Distributions to stockholders -- -- -- (6,180,000) (4,585,000)
----------- ----------- ----------- ----------- -----------
Net cash (used in) provided by
financing activities (389,000) 45,000 (750,000) (1,180,000) (4,585,000)
----------- ----------- ----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents -- (631,644) (681,930) (1,366,497) 764,832
Cash and cash equivalents, beginning of period -- 681,930 681,930 2,048,427 1,283,595
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents, end of period $ -- $ 50,286 $ -- $ 681,930 $ 2,048,427
=========== =========== =========== =========== ===========
Supplemental cash flow information:
Interest paid $ 94,403 $ 121,629 $ 415,922 $ 368,229 $ --
=========== =========== =========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
7
<PAGE> 8
FIBERCAST COMPANY
NOTES TO FINANCIAL STATEMENTS
(All references to activity or amounts subsequent to January 23, 1998 are
unaudited events and are subsequent to the date of the Report of Independent
Public Accountants, except with respect to the matter discussed in Note 8, as to
which the date is July 16, 1998)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS - Fibercast Company (the Company), a Delaware corporation,
manufactures and markets thermoset composite material products and
fiberglass reinforced plastic products for use in a variety of
industries worldwide including, but not limited to, chemical
processing, electrical power generation and waste water treatment. In
1997, 1996 and 1995, approximately 29%, 26% and 27%, respectively, of
the Company's sales were to three customers.
The unaudited financial information furnished herewith reflects all
adjustments of a normal recurring nature which are, in the opinion of
management, necessary for a fair statement of the results of operations
for the interim periods.
CASH EQUIVALENTS - For purposes of the statements of cash flows, the
Company considers all highly liquid investments with a maturity of
three months or less that are purchased for investment to be cash
equivalents.
REVENUE RECOGNITION - Revenues are recognized when title passes to the
customer, when products are shipped.
INVENTORIES - Inventories are stated at the lower of standard cost,
which approximates the lower of first-in, first-out cost (FIFO), or
market, net of a reserve for excess and obsolete inventory.
PROPERTY, PLANT AND EQUIPMENT - Depreciation of property, plant and
equipment is computed using the straight-line method based on the
estimated useful lives of the assets ranging from 3 to 25 years.
Expenditures for maintenance and repairs are charged to expense as
incurred, whereas major improvements are capitalized.
PRODUCT WARRANTY - The Company generally warrants its products against
manufacturing defects for a period of 12 months from the date of
shipment.
RESEARCH AND DEVELOPMENT - The Company expenses all research and
development costs as incurred.
INCOME TAXES - The Company has elected to be taxed as an S Corporation
for income tax reporting purposes. As an S Corporation, earnings of the
Company are taxable to the stockholders. Accordingly, the financial
statements do not reflect a provision for income taxes.
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
8
<PAGE> 9
FIBERCAST COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
December 31,
March 31, -------------------------------------------------
1998 1997 1996 1995
----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Trade accounts receivable $ 2,551,042 $ 3,116,653 $ 3,177,762 $ 2,374,149
Reserve for doubtful trade accounts (93,033) (95,677) (163,666) (71,864)
----------- ----------- ----------- -----------
$ 2,458,009 $ 3,020,976 $ 3,014,096 $ 2,302,285
=========== =========== =========== ===========
</TABLE>
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
March 31, -------------------------------------------------
1998 1997 1996 1995
----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Raw materials $ 1,011,980 $ 986,500 $ 1,190,901 $ 1,424,723
Work in process 25,405 115,069 84,133 24,453
Finished goods 1,436,582 1,335,829 1,851,881 1,999,480
----------- ----------- ----------- -----------
2,473,967 2,437,398 3,126,915 3,448,656
Reserve for excess and
obsolete inventory (79,383) (78,453) (158,947) (400,386)
----------- ----------- ----------- -----------
$ 2,394,584 $ 2,358,945 $ 2,967,968 $ 3,048,270
=========== =========== =========== ===========
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
March 31, -------------------------------------------------
1998 1997 1996 1995
----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Land $ 166,921 $ 166,921 $ 166,921 $ 166,921
Buildings and improvements 1,541,774 1,541,774 1,493,415 1,400,722
Machinery and equipment 8,225,608 8,215,762 7,570,250 6,873,070
Construction in process 329,713 289,553 284,153 140,755
Furniture and fixtures 191,145 188,612 182,455 89,927
----------- ----------- ----------- -----------
$10,455,161 $10,402,622 $ 9,697,194 $ 8,671,395
=========== =========== =========== ===========
</TABLE>
9
<PAGE> 10
FIBERCAST COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
March 31, -----------------------------
1998 1997 1996
------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
Bank note, payable in escalating yearly installments,
including interest at Chase prime plus .5% (9.00%
at March 31, 1998) through February 2001,
collateralized by accounts receivable, inventory
and real estate $ 3,500,000 $ 4,250,000 $ 5,000,000
Revolving credit facility 361,000 -- --
------------ ------------ ------------
3,861,000 4,250,000 5,000,000
Less current maturities (1,361,000) (750,000) (750,000)
------------ ------------ ------------
$ 2,500,000 $ 3,500,000 $ 4,250,000
============ ============ ============
</TABLE>
The Company has a revolving credit facility in the amount of
$1,000,000.
The Bank note specifies certain financial and operating restrictions on
the Company of which the Company was in compliance with or had obtained
waivers for at March 31, 1998.
Maturities for long-term debt for each of the four years ending
December 31 are as follows:
<TABLE>
<S> <C>
1998 $ 750,000
1999 1,000,000
2000 1,250,000
2001 1,250,000
-----------
$ 4,250,000
===========
</TABLE>
6. RELATED PARTY TRANSACTIONS
Payable to affiliate and management fee expense represent management
fees payable and paid to the Company's parent company (prior to the
event discussed in Note 8) for administrative services performed for
the Company.
Royalty income represents amounts paid to the Company by a manufacturer
for use of the Company's technology to produce products for use by the
manufacturer through 1996.
7. FIBERCAST RETIREMENT PLAN
The Company sponsors a defined contribution benefit plan (the Plan)
covering substantially all of its employees. The Company makes
discretionary contributions to the Plan based on a percentage of
employee contributions adjusted for employee years of service. Company
contributions totaled $91,811 in 1997, $92,762 in 1996 and $85,000 in
1995.
10
<PAGE> 11
FIBERCAST COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
8. SUBSEQUENT EVENT
In June 1998, Denali Incorporated (Denali) purchased all of the issued
and outstanding common stock of the Company. In conjunction with the
purchase, the Company converted to a C Corporation. The purchase price
was $18,000,000, subject to certain adjustments. Concurrent with the
purchase, the revolving credit facility was paid off and the bank note
was assumed by Denali.
11
<PAGE> 12
DENALI INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
AS OF MARCH 28, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Historical
------------------------------------
Denali
Incorporated CC&E(1) Fibercast(1) Adjustments Pro Forma
------------ ---- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash $ 369 $ 150 $ -- $ (35)(a) $ 484
Investment in equity securities 310 11 -- -- 321
Accounts receivable, net 15,161 414 2,458 -- 18,033
Inventories 8,057 -- 2,395 -- 10,452
Income tax receivable 111 -- -- -- 111
Prepaid expenses 1,819 61 151 (69)(b) 1,962
Deferred tax assets 769 -- -- -- 769
-------- -------- ------ -------- --------
Total current assets 26,596 636 5,004 (104) 32,132
Property, plant and equipment, net 12,637 384 4,550 1,971 (c) 19,542
Assets held for sale 699 -- -- -- 699
Notes receivable 178 -- -- -- 178
Goodwill, net 5,714 -- -- 14,814 (b) 20,528
Deferred tax assets 1,530 -- -- -- 1,530
Other assets 1,264 10 -- -- 1,274
-------- -------- ------ -------- --------
Total assets $ 48,618 $ 1,030 $9,554 $ 16,681 $ 75,883
======== ======== ====== ======== ========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable $ 9,049 $ 216 $1,579 $ -- $ 10,844
Accrued liabilities 4,472 328 257 894 (c) 5,951
Payable to affiliates -- 12,765 129 (12,894)(b) --
Current maturities of long-term debt 740 -- 1,361 -- 2,101
-------- -------- ------ -------- --------
Total current liabilities 14,261 13,309 3,326 (12,000) 18,896
Long-term debt, less current maturities 6,421 -- 2,500 20,130 (a) 29,051
Other long-term liabilities 616 -- -- -- 616
Commitments and contingencies
Stockholders' equity (deficit):
Common stock 48 1 1 (2)(b) 48
Additional paid-in capital 29,193 196 2,886 (3,082)(b) 29,193
Retained deficit (1,921) (12,476) 841 11,635 (b) (1,921)
-------- -------- ------ -------- --------
Total stockholders' equity (deficit) 27,320 (12,279) 3,728 8,551 27,320
-------- -------- ------ -------- --------
Total liabilities and stockholders' equity $ 48,618 $ 1,030 $9,554 $ 16,681 $ 75,883
======== ======== ====== ======== ========
</TABLE>
(1) Unaudited balance sheet as of March 31, 1998.
SEE NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
12
<PAGE> 13
DENALI INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
(UNAUDITED)
NINE MONTHS ENDED MARCH 28, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Historical
-------------------------------------------------------------------
Denali
Incorporated LaValley(1) SEFCO(1) CC&E(2) Fibercast(3) Adjustments Pro Forma
------------ -------- ----- ---- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 68,480 $ 2,952 $ 3,080 $ 2,098 $ 14,245 $ -- $ 90,855
Cost of sales 53,634 2,362 2,070 1,754 11,072 (107)(f)
(67)(g) 70,718
-------- -------- -------- -------- -------- -------- --------
Gross profit 14,846 590 1,010 344 3,173 174 20,137
SG&A expense 12,218 410 638 450 3,875 (245)(h)
310 (i)
(79)(f) 17,577
Non-recurring
compensation expense 2,312 -- -- -- -- -- 2,312
-------- -------- -------- -------- -------- -------- --------
Operating income (loss) 316 180 372 (106) (702) 188 248
Interest expense 1,302 46 -- -- 291 1,396(j) 3,035
Interest income (105) -- (17) -- (100) 17 (205)
Other (income) expense, net (278) (38) (4) 469 492 -- 641
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes (603) 172 393 (575) (1,385) (1,225) (3,223)
Provision (benefit) for
income taxes 647 65 178 1 -- (1,237)(k) (346)
-------- -------- -------- -------- -------- -------- --------
Net income (loss) before
extraordinary item (1,250) 107 215 (576) (1,385) 12 (2,877)
Extraordinary income on
early extinguishment of
debt, net of income tax 219 219
-------- --------
Net loss (1,031) (2,658)
Dividends on Series A
Preferred Stock (30) (30)
-------- --------
Net loss attributable to
common stock $ (1,061) $ (2,688)
======== ========
Net loss per common share:
Loss before extraordinary item $ (0.38) $ (0.87)
Extraordinary item 0.07 0.07
-------- --------
Net loss per common share $ (0.31) $ (0.80)
======== ========
Number of shares used to
compute net loss per share 3,374 3,374
======== ========
</TABLE>
(1) Reflects results of LaValley's and SEFCO's operations for the period
from July 1, 1997 to October 31, 1997 (unaudited), the date of
acquisition by the Company. LaValley's and SEFCO's results of
operations subsequent to October 31, 1997 are reflected in the Denali
Incorporated historical results.
(2) Reflects results for CC&E's operations for the period from July 1, 1997
to March 31, 1998 (unaudited).
(3) Reflects results for Fibercast's operations for the period from July 1,
1997 to March 31, 1998 (unaudited).
SEE NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
13
<PAGE> 14
DENALI INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
(UNAUDITED)
TWELVE MONTHS ENDED JUNE 28, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Historical
------------------------------------------------------------------
Denali
Incorporated Ershigs(1) LaValley(2) SEFCO(3) CC&E(4) Fibercast(5) Adjustments Pro Forma
------------ ------- -------- ----- ---- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 71,101 $ 15,918 $ 7,877 $ 10,032 $ 2,675 $ 22,788 $ -- $ 130,391
Cost of sales 57,268 14,889 6,353 7,602 2,966 16,881 (162)(d)
(146)(e)
(114)(f)
(206)(g) 105,331
--------- --------- -------- ---------- --------- -------- --------- -----------
Gross profit (loss) 13,833 1,029 1,524 2,430 (291) 5,907 628 25,060
SG&A expense 11,874 3,184 1,157 1,485 849 4,480 162 (d)
(17)(e)
(103)(f)
(480)(h)
461 (i) 23,052
--------- --------- -------- ---------- --------- -------- --------- -----------
Operating income (loss) 1,959 (2,155) 367 945 (1,140) 1,427 605 2,008
Interest expense 2,058 329 174 -- 526 430 2,237 (j) 5,754
Interest income (111) -- -- (45) -- (137) 45 (248)
Other (income) expense, net (598) 47 23 (16) 3,445 652 -- 3,553
--------- --------- -------- ---------- --------- -------- --------- -----------
Income (loss) before income
taxes 610 (2,531) 170 1,006 (5,111) 482 (1,677) (7,051)
Provision (benefit) for income
taxes 293 (962) 79 362 -- -- (2,592)(k) (2,820)
--------- --------- -------- ---------- -------- -------- --------- -----------
Net income (loss) 317 (1,569) 91 644 (5,111) 482 915 (4,231)
Dividends on Series A Preferred
Stock (120) (120)
--------- -----------
Net income (loss) attributable
to common stock $ 197 $ (4,351)
========= ===========
Net income (loss) per common
share $ 0.09 $ (1.98)
========= ===========
Number of shares used to
compute net income (loss)
per share 2,198 2,198
========= ===========
</TABLE>
(1) Reflects results of Ershigs' operations for the period from July 1,
1996 to February 27, 1997 (unaudited), the date of its acquisition by
the Company. Ershigs' results of operations subsequent to February 27,
1997 are reflected in the Denali Incorporated historical results.
(2) Reflects results of LaValley's operations for the period from August
23, 1996 to August 16, 1997.
(3) Reflects results of SEFCO's operations for the period from July 1, 1996
to June 28, 1997 (unaudited).
(4) Reflects results of CC&E's operations for the period from July 1, 1996
to June 30, 1997 (unaudited).
(5) Reflects results of Fibercast's operations for the period from July 1,
1996 to June 30, 1997 (unaudited).
SEE NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
14
<PAGE> 15
DENALI INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited pro forma condensed consolidated financial
statements (the "Pro Forma Financial Statements") are based on
adjustments to the historical consolidated financial statements of
Denali Incorporated (the "Company") to give effect to the acquisitions
described in Note 3 (the "Acquisitions"). The pro forma condensed
consolidated balance sheet assumes the Acquisitions were closed on
March 28, 1998. The pro forma condensed consolidated statement of
operations assumes all Acquisitions described in Note 3 were
consummated as of the beginning of the periods presented. The pro forma
condensed consolidated statements of operations are not necessarily
indicative of results that would have occurred had the Acquisitions
been consummated as of the beginning of the periods presented or that
might be attained in the future. Certain information normally included
in the financial statements prepared in accordance with generally
accepted accounting principles has been condensed or omitted pursuant
to the rules and regulations of the Securities and Exchange Commission
("SEC"). The Pro Forma Financial Statements should be read in
conjunction with the historical consolidated financial statements of
the Company, the historical financial statements of the entities
acquired in the Acquisitions and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included in the
Company's Prospectus dated November 20, 1997 and Quarterly Report on
Form 10-Q for the quarterly period ended March 28, 1998, previously
filed with the SEC.
2. EARNINGS PER SHARE
Pro forma earnings per share were computed by dividing net income (or
loss) applicable to common stock by the weighted average number of
shares of common stock, common stock equivalents outstanding during the
period and the dilutive effect of common stock equivalents issued
within one year prior to the Offering. The number of shares of common
stock and common stock equivalents has been retroactively adjusted for
the 1715-for-1 stock split. Common stock equivalents consisted of the
number of shares issuable on exercise of the outstanding stock options
less the number of shares that could have been purchased with the
proceeds from the exercise of the options based on the average price of
the common stock during the period. The dilutive effect of common stock
issued within one year prior to the Offering for the periods prior to
issuance was determined in the same manner except that the Offering
price of $13 per share was used for the repurchase price.
3. ACQUISITIONS
The acquisitions by the Company have been accounted for as purchases
and, accordingly, the results of operations of the acquired companies
have been included in the consolidated results of operations of the
Company from the date of acquisition.
15
<PAGE> 16
DENALI INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
On February 28, 1997, the Company acquired Ershigs, Inc. ("Ershigs"), a
manufacturer of engineered fiberglass reinforced plastic ("FRP"). The
$6.1 million purchase price consisted of $5.0 million cash, $1.0
million in a note payable and acquisition costs of approximately
$80,000.
In October 1997, the Company acquired SEFCO, Inc. ("SEFCO"), for
approximately $4.9 million in net cash and acquisition costs of
approximately $100,000. SEFCO is a manufacturer of engineered
field-erected aboveground steel tanks.
In October 1997, the Company acquired LaValley Construction, Inc.
("LaValley") for approximately $3.9 million in cash and acquisition
costs of approximately $100,000. LaValley manufactures engineered FRP
products.
In May 1998, the Company purchased 100 percent of the outstanding stock
of CC&E, a leading North American field constructor of
fiberglass-reinforced plastic products. The purchase price totaled $1.6
million in cash. Reinforced Plastic Systems may also receive contingent
payments of up to $400,000 based on an increase in the level of
bookings as defined in the purchase agreement.
In June 1998, the Company purchased 100 percent of the outstanding
stock of Fibercast from William I. Koch, Joan Granlund, Richard P.
Callahan, as Custodian for Wyatt I. Koch, under the Florida Uniform
Transfer to Minors Act, Richard A. Bird, and Fibercast Company for a
cash purchase price of $17.5 million. In addition, Denali paid down
$1.1 million of bank and seller debt and assumed $3.5 million of bank
debt.
The acquisitions by the Company have been accounted for as purchases
and, accordingly, the results of operations of the acquired companies
have been included in the consolidated results of operations of the
Company from the date of acquisition. Payments of any contingent
consideration as described above will increase the amount of goodwill
related to such acquisition.
4. ADJUSTMENTS OF HISTORICAL FINANCIAL STATEMENTS
The following pro forma adjustments have been made to the historical
condensed consolidated balance sheet of the Company to give effect to
the acquisition of CC&E and Fibercast described in Note 3 as if it had
occurred as of March 28, 1998 and to the historical condensed
statements of operations as if all the acquisitions described in Note 3
were consummated as of the beginning of the periods presented:
(a) To reflect the acquisition of CC&E and Fibercast and the
borrowings under the Company's senior credit agreement to fund
these acquisitions, net of cash acquired at CC&E.
(b) To reflect, in connection with the acquisition of CC&E and
Fibercast, the purchase price allocation and the elimination
of assets not acquired or liabilities not assumed by the
Company.
(c) To reflect, in connection with the acquisition of CC&E and
Fibercast, the estimated fair market value of assets purchased
and liabilities assumed.
(d) To reclass certain expenses to conform with the presentation
used by the Company.
16
<PAGE> 17
DENALI INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(e) To reflect lower depreciation expense resulting from the
write-down of fixed assets as part of purchase accounting for
the acquisition of Ershigs.
(f) To reflect the change in depreciation expense resulting from
the purchase accounting step-up of the acquisitions of
LaValley, CC&E and Fibercast and the purchase of fixed assets
from the shareholder of SEFCO as a condition of the purchase
that were previously leased by SEFCO from the shareholder (see
(g)).
(g) To reduce expenses for certain lease expenses incurred by
seller for assets to be purchased by the Company (see (f)).
(h) To reduce expenses including the difference between
compensation and benefits of certain sellers prior to
consummation of the acquisitions and their compensation and
benefits following the acquisitions as stipulated in the
respective employment agreements with the Company.
(i) To reflect amortization of goodwill related to the purchases
of LaValley, SEFCO, CC&E and Fibercast, which is being
amortized on a straight-line basis over 40 years.
(j) To reflect interest expense on the borrowings to fund the
purchases of Ershigs, LaValley, SEFCO, CC&E and Fibercast in
excess of historical interest expense.
(k) To reflect the change in income taxes related to pro forma
adjustments.
17
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------- ----------------------
<S> <C>
10.1* Stock Purchase Agreement dated May 11, 1998 by and between
William I. Koch, Joan Granlund, Richard P. Callahan, as Custodian
for Wyatt I. Koch, under the Florida Uniform Transfer to Minors
Act, Richard A. Bird, Fibercast Company and Denali Incorporated
23.1 Consent of Arthur Andersen LLP
</TABLE>
- --------------
* Previously filed
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in the Registration Statement (Form S-8 No. 333-51783) of our
report dated January 23, 1998 and July 16, 1998 included in this Form 8-K/A of
Denali Incorporated. It should be noted that we have not audited any financial
statements of Fibercast Company subsequent to December 31, 1997, or performed
any audit procedures subsequent to the dates of our report.
ARTHUR ANDERSEN LLP
Tulsa, Oklahoma
August 11, 1998
