<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): July 1, 1999
-------------------------------
Commission File Number 000-23353
----------------------------------------------------------
Denali Incorporated
- --------------------------------------------------------------------------------
(Exact Name of Registrant in its Charter)
Delaware 76-0454641
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation of Organization)
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)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On July 1, 1999, Denali Incorporated ("Denali") completed its tender
offer for the publicly held shares of Welna N.V. ("Welna"), a Dutch company
listed on the Official Market of the Amsterdam Stock Exchange. The tender offer
commenced in April 1999 pursuant to the terms of an Offer Document by and
between Welna and Denali. Denali purchased 99.8% of the outstanding stock of
Welna for approximately $42.3 million, or 37 Euros per share and assumed
approximately $15 million in debt, net of cash acquired, for a total purchase
price of approximately $57.2 million. The transaction was funded through an
$11.1 million borrowing under Denali's $35 million acquisition line of credit
with Canadian Imperial Bank of Commerce, ING (U.S.) Capital LLC, CIBC Inc., Key
Corporate Capital Inc. and Bank of Oklahoma, N.A. and Southwest Bank of Texas,
N.A., $15 million through a private placement of senior subordinated notes and
warrants, $4.5 million from a private placement of 489,189 shares of Denali
common stock, and approximately $11.7 million borrowed under a Dutch senior
credit facility with ABN AMRO Bank N.V. and ING Bank N.V. The warrants issued in
conjunction with the subordinated notes enable the holders to purchase up to
534,873 common shares at $7.54 per share.
Welna currently operates through two major divisions. Welna
Kunststoffen designs, manufactures and installs all forms of fiberglass
reinforced plastic pipe systems, vessels and other related equipment requiring
high levels of corrosion resistance. Welna Handel is a distribution operation
that specializes in high quality products and engineered systems for power
generation, water treatment and paper and chemical processing industries. Welna
markets its products through its subsidiaries in the Netherlands, Germany,
United Kingdom, Belgium, Sweden, France, Poland, and Thailand.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired
Auditor's Report
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Profit and Loss Accounts for the Years Ended
December 31, 1998, 1997 and 1996
Consolidated Cash Flow Statements for the Years Ended
December 31, 1998, 1997 and 1996
Notes to the Consolidated Financial Statements
Consolidated Balance Sheet as of March 31, 1999 (Unaudited)
Consolidated Profit and Loss Accounts for the Three Months
Ended March 31, 1999 and 1998 (Unaudited)
Consolidated Cash Flow Statements for the Three Months
Ended March 31, 1999 and 1998 (Unaudited)
Notes to Consolidated Financial Statements (Unaudited)
(b) Pro Forma Financial Information
Pro Forma Condensed Consolidated Balance Sheet (Unaudited) as
of March 27, 1999
Pro Forma Condensed Consolidated Statement of Operations
(Unaudited) for the Nine Months Ended March 27, 1999
Pro Forma Condensed Consolidated Statement of Operations
(Unaudited) for the Twelve Months Ended June 27, 1998
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements
2
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(c) Exhibits
10.59* Offer Document by Denali Incorporated to
shareholders of Welna, N.V.
23.1 Consent of Deloitte and Touche
- --------------
* Previously filed
3
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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: September 14, 1999 /s/ R. KEVIN ANDREWS
--------------------------
R. Kevin Andrews
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
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AUDITOR'S REPORT
INTRODUCTION
We have audited the financial statements of Welna N.V., Enschede, for the year
1998. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
SCOPE
We conducted our audit in accordance with auditing standards generally accepted
in the Netherlands. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
OPINION
In our opinion, the financial statements present fairly, in all material
respects, the financial position of the company at 31 December 1998 and of the
results for the year then ended in accordance with accounting principles
generally accepted in the Netherlands and comply with the financial reporting
requirements included in Part 9, Book 2 of the Netherlands Civil Code.
Enschede, 16 March 1999
DELOITTE & TOUCHE
CHARTERED ACCOUNTANTS
5
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WELNA N.V.
CONSOLIDATED BALANCE SHEETS
(In thousands of Dutch guilders)
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
FIXED ASSETS
INTANGIBLE FIXED ASSETS 90 89
TANGIBLE FIXED ASSETS
Land and buildings 29,342 20,907
Machines and installations 5,583 4,846
Other fixed assets 3,849 3,617
---------- ----------
38,774 29,370
FINANCIAL FIXED ASSETS
Investments 298 2,716
Receivables 315 0
---------- ----------
613 2,716
CURRENT ASSETS
INVENTORIES 23,757 18,870
RECEIVABLES
Trade accounts receivable 32,492 26,755
Other accounts receivable 3,846 2,700
Accrued income 245 142
---------- ----------
36,583 29,597
CASH AND CASH EQUIVALENTS 4,213 3,808
---------- ----------
TOTAL ASSETS 104,030 84,450
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE> 7
WELNA N.V.
CONSOLIDATED BALANCE SHEETS
(In thousands of Dutch guilders)
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
GROUP EQUITY
Stockholders' equity 31,634 35,355
Minority interests 1,004 650
------------ ------------
32,638 36,005
PROVISIONS
Deferred tax liabilities 2,944 3,077
Pension liabilities 4,093 2,248
Warranty and other liabilities 1,877 1,006
------------ ------------
8,914 6,331
LONG-TERM LIABILITIES 7,251 4,555
CURRENT LIABILITIES
Liabilities to credit institutions 20,588 12,450
Liabilities to suppliers 9,364 8,922
Taxes and social security contributions 4,825 3,063
Other liabilities 18,387 11,340
Accrued expenses 2,063 1,784
------------ ------------
55,227 37,559
------------ ------------
TOTAL EQUITY, PROVISIONS AND LIABILITIES 104,030 84,450
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
7
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WELNA N.V.
CONSOLIDATED PROFIT AND LOSS ACCOUNTS
(In thousands of Dutch guilders)
<TABLE>
<CAPTION>
Year-ended December 31,
------------------------------------------
1998 1997 1996
------------------------------------------
<S> <C> <C> <C>
Net revenues 152,400 127,021 103,571
Adjustment for work in progress 448 (2,145) 3,988
---------- ---------- ----------
TOTAL OPERATING INCOME 152,848 124,876 107,559
Raw materials, auxiliaries,
trading articles and direct costs 74,025 66,875 54,998
---------- ---------- ----------
ADDED VALUE 78,823 58,001 52,561
Wages and salaries 35,072 25,881 23,115
Social security contributions 8,125 5,279 4,527
Depreciation 4,004 3,135 2,758
Other operating costs 19,092 14,073 12,834
---------- ---------- ----------
Total operating costs 66,293 48,368 43,234
---------- ---------- ----------
OPERATING RESULT 12,530 9,633 9,327
Share in the result of non-consolidated
subsidiaries 35 708 10
Interest received 936 727 681
Interest paid (2,352) (1,689) (1,345)
---------- ---------- ----------
Financial result (1,381) (254) (654)
---------- ---------- ----------
RESULT OF ORDINARY OPERATIONS
BEFORE TAXATION 11,149 9,379 8,673
Corporate income tax 3,501 2,950 3,494
---------- ---------- ----------
RESULT OF OPERATIONS 7,648 6,429 5,179
AFTER TAXATION
Minority interests 298 120 617
---------- ---------- ----------
RESULT AFTER TAXATION 7,350 6,309 4,562
========== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
8
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WELNA N.V.
CASH FLOW STATEMENT
(In thousands of Dutch guilders)
<TABLE>
<CAPTION>
Year-ended December 31,
------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOW FROM OPERATIONAL ACTIVITIES
OPERATING RESULT 12,530 9,633 9,327
ADJUSTMENTS FOR:
Depreciation/amortization of tangible and intangible
assets 3,998 3,138 2,762
Change in provisions 2,583 (946) 1,111
Change in inventory (4,887) (4,584) 286
Change in receivables (6,986) (2,420) (954)
Increase liabilities to suppliers 442 2,308 (761)
Change in other liabilities and accrued expenses 5,549 3,229 3,015
---------- ---------- ----------
699 725 5,459
CASH FLOW FROM OPERATIONAL ACTIVITIES 13,229 10,358 14,786
Interest received 936 727 681
Share in the results of non-consolidated subsidiaries 35 708 10
Interest paid (2,352) (1,689) (1,345)
Taxes paid (1,739) (1,107) (3,360)
---------- ---------- ----------
CASH FLOW FROM OPERATIONAL ACTIVITIES 10,109 8,997 10,772
CASH FLOW FROM INVESTMENT ACTIVITIES
Investments in tangible fixed assets (7,101) (5,076) (3,468)
Disposal of tangible fixed assets 415 261 940
Investments in subsidiaries (15,586) (9,081) (465)
Disposal of subsidiaries 154 0 0
---------- ---------- ----------
CASH FLOW FROM INVESTMENT ACTIVITIES (22,118) (13,896) (2,993)
CASH FLOW FROM FINANCING ACTIVITIES
Loans taken out 0 1,035 5,000
Purchase and sale of own stock (729) 934 (922)
Issue of shares 18 1,050 0
Loans taken out/repaid 2,105 (1,003) (2,462)
Increase in current bank liability 8,138 4,181 (3,628)
Dividends paid (625) (1,475) (1,355)
---------- ---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES 8,907 4,722 (3,367)
DIFFERENCES IN EXCHANGE RATES, CONSOLIDATION
EFFECTS AND OTHER NON-CASH BASED CHANGES 3,507 (2,911) (1,002)
---------- ---------- ----------
CHANGE IN CASH AND CASH EQUIVALENTS 405 (3,088) 3,410
========== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
9
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WELNA N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
GENERAL
o In January 1998, Welna N.V. ("the Company") acquired a 100% interest in
Huerner Umwelttechnik GmbH in Frankfurt am Main.
o In February 1998, Welna France S.A. acquired 100% of the shares in
S.O.V.A.P.S.A., a company established in La Roche sur Yon.
o Subsequently, in April 1998, the Company took a 25% interest in the
German company Rhineland Kunstoff GmbH.
o At the end of 1998, the interest in Garlway Holdings Ltd. was increased
by 19% to 62%. Garlway is fully consolidated, so that 100% of the
revenues will accrue to Welna and no separate dividend will be
distributed. A firm agreement has been entered into with regard to the
acquisition of the remaining 38%.
o During the financial year, a 65% interest was acquired in Gimex
Technische Keramiek B.V. in Geldermalsen. The remaining shares will be
acquired in 2002.
CONSOLIDATION PRINCIPLES
The consolidated financial statements include the financial data of Welna N.V.
and all group companies in which the Company exercises decisive control. The
assets, liabilities, and results of the consolidated companies will be totally
included.
Minority interests in group equity and the group result is listed separately.
The list of subsidiaries is included in additional information.
VALUATION PRINCIPLES AND PRINCIPLES FOR THE DETERMINATION OF RESULTS
The valuation principles and principles for the determination of results are
unchanged from the previous year. Unless otherwise stated, assets and
liabilities are stated at face value.
1. FOREIGN CURRENCY
Assets and liabilities in foreign currencies are included on the basis
of the exchange rates applicable at financial year-end. Any exchange
rate differences are taken to the result. The foreign companies and
their results have also been recalculated on the basis of the exchange
rates applicable at the balance sheet date. The exchange rate
differences are taken to equity. Up to 1998, countries with high rates
of inflation included the figures for tangible fixed assets and
depreciation on the basis of a fixed guilder value. At present, these
values are fixed at the situation applicable at the end of 1997.
10
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WELNA N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
2. TANGIBLE FIXED ASSETS
Land and buildings are valued at the historical cost less straight-line
depreciation based on economic lifetime of the assets concerned. The
book value on the basis of current value is provided separately. This
value was last determined in 1997, based on the land and buildings
present in that year.
Machines and installations and other fixed capital assets are valued at
historical cost less straight-line depreciation based on economic
lifetime of these assets.
3. FINANCIAL FIXED ASSETS
Participating interests in group companies and in other companies are
valued at net asset value. Goodwill, paid for with the purchase or with
the increase in participation, is debited to capital stockholders'
equity.
4. INVENTORIES
Raw materials, auxiliaries and trading goods are valued at the lower of
the purchase price, determined by the so-called FIFO method, and market
value. Any provisions deemed necessary are deducted.
Work in progress is valued at full absorption cost plus a margin for
profit, depending on the stage of production. The value of such work is
reduced by any anticipated losses associated with it.
5. RECEIVABLES
The receivables are valued at face value, less a bad debt provision.
6. STATUTORY RESERVE
The statutory reserve is formed for retained earnings which the Company
cannot use for the payment of dividends, and for capitalized intangible
fixed assets.
7. PROVISIONS
The past-service pension commitments are calculated by the actuarial
method, based on a proportional part method and a calculated interest
of 4% (1997: 5%). This provision also includes a provision for
voluntary early retirement. This has been calculated for employees who
may opt for early retirement in accordance with the collective labor
agreement, as well as for those employees with whom such an agreement
has been made.
The provision for deferred tax liabilities arises from the difference
between the valuation for financial reporting and for tax purposes of
primarily tangible fixed assets, work in progress, early retirement and
past-service provisions.
Active deferrals are included in the balance subject to realizability.
The provision for warranty liabilities is related to deliveries. It is
determined on the basis of expectations and related to revenues. Other
liabilities are related to anticipated claims and determined
individually.
11
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WELNA N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
8. NET REVENUES
Net revenues are computed as the revenues from goods and services
supplied to third parties, excluding value added tax and less
discounts.
9. RAW MATERIALS AND AUXILIARIES, TRADING GOODS AND DIRECT COSTS
These operating expenses are included in the profit and loss accounts
on the basis of historical costs.
10. DEPRECIATION
The level of depreciation is determined on the basis of estimated
economic lifetime of the assets concerned. Straight-line depreciation
is calculated using the following percentages:
Buildings 3%
Machines and installations 10% and 20%
Other fixed capital assets 10%, 25%, 30%, and 33-1/3%
11. TAXATION
Corporate income tax is calculated on the basis of the result before
corporate income tax, taking the fiscal regulations into account.
12. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN DUTCH GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
The audited consolidated financial statements of Welna N.V. have been
prepared and are presented in accordance with Dutch generally accepted
accounting principles (GAAP) which differ from United States GAAP. The
principal differences, as they relate to the consolidated net income
and the consolidated equity of Welna N.V. and its subsidiaries, are
summarized below:
(In thousands of Dutch guilders)
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1998 1997
-------- --------
<S> <C> <C>
Consolidated net income as reported in Dutch GAAP 7,350 6,309
Adjustments to conform to US GAAP:
Income allocated to minority interest (A) (601) 0
Goodwill (B) (434) (288)
-------- --------
Consolidated net income in accordance with US GAAP 6,315 6,021
======== ========
</TABLE>
12
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<TABLE>
<CAPTION>
(In thousands of Dutch guilders) December 31,
--------------------
1998 1997
------- -------
<S> <C> <C>
Consolidated stockholders' equity under Dutch GAAP 32,638 36,005
Adjustments to conform to US GAAP:
Minority interest (A) (1,605) (650)
Goodwill (B) 17,864 10,610
------- -------
Consolidated net income in accordance with US GAAP 48,897 45,965
======= =======
</TABLE>
NOTES TO DUTCH GAAP TO US GAAP RECONCILIATION:
(A) Minority Interests - Under Dutch GAAP, minority interests are
classified as a separate component of equity. Under US GAAP, minority
interests are not classified as equity. Also, under Dutch GAAP, net
income was not allocated to minority interest in earnings (result of
third party participation) for certain operations that had minority
interest. Under US GAAP, net income is allocated to minority interest
in earnings.
(B) Goodwill - In accordance with Dutch GAAP, the difference between the
purchase price and fair value of net assets acquired as part of a
business combination (goodwill) may be charged directly to
stockholders' equity. Under US GAAP, goodwill must be capitalized and
amortized through the income statement over its useful life not to
exceed 40 years. Management determined the useful life of goodwill to
be 40 years.
NOTES TO THE CONSOLIDATED BALANCE SHEET
1. INTANGIBLE FIXED ASSETS
The intangible fixed assets consist of capitalized research costs and
land duties. The item is made up as follows:
Book value as of December 31, 1997 89
Contribution of new subsidiary 19
Investments this year 18
Depreciation in 1998 (36)
---
Book value as of December 31, 1998 90
===
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WELNA N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
2. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
Land and Machines and Other tangible
(In thousands of Dutch guilders) buildings installations fixed assets Total
------------ ------------- -------------- ------------
<S> <C> <C> <C> <C>
At cost as of 12.31.1997 27,805 15,927 13,557 57,289
Accumulated depreciation 6,898 11,081 9,940 27,919
------------ ------------ ------------ ------------
BOOK VALUE AS OF 12.31.1997 20,907 4,846 3,617 29,370
CHANGES IN 1998:
Investments 3,138 1,636 2,309 7,083
Book value of disposals 0 (209) (206) (415)
Book value of contribution of new
subsidiaries and exchange differences 6,180 503 15 6,698
Depreciation 1998 (883) (1,193) (1,886) (3,962)
------------ ------------ ------------ ------------
BALANCE OF CHANGES IN 1998 8,435 737 232 9,404
Purchase value as of 12.31.1998 38,376 20,894 15,147 74,417
Accumulated depreciation 9,034 15,311 11,298 35,643
------------ ------------ ------------ ------------
BOOK VALUE AS OF 12.31.1998 29,342 5,583 3,849 38,774
BOOK VALUE ON THE BASIS OF
REPLACEMENT VALUE 43,511 5,583 3,849 52,943
</TABLE>
3. FINANCIAL FIXED ASSETS
Investments:
This concerns the following non-consolidated subsidiaries:
50% in Welna Andren Plastteknik A.B. in Gothenburg (Sweden)
40% in K.T.D. Vertriebsgesellschaft G.m.b.H. in Eschborn (Germany)
40% in Plast-Tec Austria G.m.b.H. in Krems. (Austria)
25% in Rhineland Kunststoff G.m.b.H. in Gradschaft. (Germany)
The development of this account is as follows:
Situation as of December 31, 1997 2,716
Capital payment 70
Result for financial year 1998 61
Exchange changes (1)
Dividend received (64)
Included in the consolidation (2,484)
------
Situation as of December 31, 1998 298
======
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4. INVENTORIES
This item is broken down as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
(In thousands of Dutch guilders)
<S> <C> <C>
Raw materials and auxiliaries 8,499 5,211
Work in progress 9,904 9,729
Trading goods 5,354 3,930
----------- -----------
23,757 18,870
=========== ===========
</TABLE>
Figures representing work in progress have been reduced by advance
payments of NLG 4,916 (1997: 4,853).
5. CASH AND CASH EQUIVALENTS
Cash and cash equivalents are freely available.
6. STOCKHOLDERS' EQUITY
For an explanation of the composition and changes in stockholders'
equity, please refer to the notes to the corporate financial
statements.
7. PROVISIONS
The post represents warranty and other liabilities broken down as
follows:
December 31, December 31,
1998 1997
------------ ------------
(In thousands of Dutch guilders)
Warranty liabilities 1,370 963
Expected claims 507 43
----------- -----------
1,877 1,006
=========== ===========
It is anticipated that NLG 1,500 of the warranty and other liabilities
can be seen as long-term.
8. LONG-TERM LIABILITIES
For the acquisition of the legal title to the remaining stock in
Garlway Holdings Ltd. (38%), there is a tax liability at April 2000 of
GBP 1.4 million. At the current rate of exchange, this amounts to NLG
4.4 million.
In 1996, a loan of NLG 5 million with a term of five years was obtained
from the ABN-AMRO Bank. The loan is being repaid in semi-annual
installments of NLG 0.5 million. Interest is determined every three
months on the basis of the NLG Aibor rates. The maximum interest rate
is fixed at 5.5%. At the end of 1998, the remaining liability amounted
to NLG 3 million. The installment to be paid in the coming financial
year will amount to NLG 1 million.
For financing the buildings for KTD-Plasticon in Dinslaken, a mortgage
loan was obtained from Sparkasse in Dinslaken for a total of DEM 2,866,
the remaining amount now being DEM 206. The portion repayable in 1999
is DEM 107. The average rate of interest is 6.64%.
No other collateral has been furnished.
15
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9. CONTINGENT LIABILITIES AND SECURITIES
Warranties in an amount of NLG 26.8 million (1997: NLG 14.3 million)
have been given at the risk and expense of several operating companies.
For the acquisition of the remaining 35% interest in Gimex B.V.,
commitments have been entered into up to 2002. The exact amount
involved will depend on future profits.
NOTES TO THE CONSOLIDATED PROFIT AND LOSS ACCOUNT
1. NET REVENUES
The total sum of net revenues invoiced and changes in work in progress
can be subdivided as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------------- -------------------------
NLG % NLG %
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
The Netherlands 58,162 38 50,338 40
EU (excl. Netherlands) 76,443 50 48,717 39
Others 18,243 12 25,821 21
---------- --------- --------- ---------
Total 152,848 100 124,876 100
========== ========= ========= =========
</TABLE>
2. SOCIAL SECURITY CONTRIBUTIONS
The pension charges (including early retirement) amounted to NLG 1,537
(1997: NLG 1,095). The pension and early retirement provisions are
mainly related to the Dutch corporations.
The percentage used for the calculation of past service commitments
covered by the group pension contracts was set at 4% for 1998 (1997:
5%).
3. DIVISION OF PERSONNEL
The average number of employees working during the year, including
temporary workers, calculated on the basis of whole years, was as
follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Production 498 382
Other 251 204
----------- -----------
Total 749 586
=========== ===========
</TABLE>
4. DEPRECIATION/AMORTIZATION
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Intangible fixed assets 36 70
Tangible fixed assets 3,968 3,068
Change in investment subsidy 0 (3)
----------- -----------
Total 4,004 3,135
=========== ===========
</TABLE>
On the basis of current value, depreciation/amortization amounts to NLG
5,069 (1997: NLG 4,156).
16
<PAGE> 17
5. SHARE IN THE RESULT OF NON-CONSOLIDATED SUBSIDIARIES
The share in the result was 35 (1997: 858). Since an additional
subsidiary was consolidated in 1998, the share for 1998 was
substantially lower.
6. REMUNERATION OF SUPERVISORY DIRECTORS
In 1998 there were three supervisory directors. A total of NLG 55.0
(1997: NLG 53.6) of remuneration was taken to the result.
7. CORPORATE PROFIT AND LOSS ACCOUNT
Use has been made of Article 402, title 9 Book 2 of the Netherlands
Civil Code to simplify the formulation of the corporate profit and loss
account.
17
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CORPORATE BALANCE SHEET AS OF DECEMBER 31, 1998
After the proposed distribution of profits (in thousands of guilders)
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
FIXED ASSETS
Tangible fixed assets
Other fixed capital assets 28 40
FINANCIAL FIXED ASSETS
Investments in group companies 25,248 27,273
Receivables from group companies 13,065 12,774
Other receivables 353 0
------------ ------------
38,666 40,047
CURRENT ASSETS
Receivables 622 1,184
------------ ------------
39,316 41,271
============ ============
STOCKHOLDERS' EQUITY
Issued capital 1,037 1,019
Paid-in surplus 413 1,806
Statutory reserve 141 2,870
Other reserves 30,043 29,660
------------ ------------
31,634 35,355
PROVISIONS
Deferred tax liabilities 73 7
Pension liabilities 655 481
------------ ------------
728 488
LONG-TERM LIABILITIES 2,000 3,000
CURRENT LIABILITIES
Liabilities to credit institutions 1,187 262
Liabilities to suppliers 92 90
Other liabilities 3,675 2,076
------------ ------------
4,954 2,428
39,316 41,271
============ ============
</TABLE>
18
<PAGE> 19
CORPORATE PROFIT AND LOSS ACCOUNT FOR THE YEAR 1998
<TABLE>
<CAPTION>
(In thousands of guilders) 1998 1997
------ ------
<S> <C> <C>
Results of subsidiaries after taxation 7,836 6,340
Corporate result after taxation (486) (31)
------ ------
Result after taxation 7,350 6,309
====== ======
</TABLE>
NOTES TO THE CORPORATE FINANCIAL STATEMENTS FOR THE YEAR 1998
(In thousands of guilders)
1. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
Other fixed
capital assets
--------------
<S> <C>
At cost as of 12.31.1997 126
Accumulated depreciation (86)
------------
Book value 40
============
Changes in 1998
Investments 5
Depreciation (42)
Other movements in cost and depreciation 41
At cost as of 12.31.1998 90
Depreciation (62)
-----------
Book value at 12.31.1998 28
===========
2. FINANCIAL FIXED ASSETS
Investments in Group Companies
Situation as of December 31, 1997 27,273
Changes in 1998:
Result of investments 7,836
Value impairment of investments (7,688)
Exchange differences (269)
Sale of investments (154)
Dividends (1,750)
------------
(2,025)
------------
Balance as of December 31, 1998 25,248
============
Receivables from Group Companies
Situation as of December 31, 1997 12,774
Movements in 1998 291
------------
Situation as of December 31, 1998 13,065
============
</TABLE>
The receivables from group companies mainly concern current accounts
receivable for which interest is charged.
19
<PAGE> 20
3. ISSUED CAPITAL
The authorized share capital consists of 2,000,000 common and 2,000,000
preference shares. The issued share capital consists of 1,037,122
common shares of NLG 1 par value each. No preference shares have been
issued.
Starting in 1995, the Supervisory Board offered the Members of the
Board of Management and a number of senior managers the opportunity to
take common stock options. The following options exist:
<TABLE>
<CAPTION>
Year of Number of Period to
Grant certificates Exercise Price Maturity
------- ------------ -------------- ----------
NLG Euros
<S> <C> <C> <C> <C>
1996 20,000 47.54 21.57 13-12-2001
1997 20,550 64.80 29.40 21-12-2002
1998 20,742 54.38 24.68 31-12-2001
</TABLE>
The exercise price is based on the stock market price of the shares
averaged over the five days prior to the option being granted.
For the purposes of exercising the personnel option plan, the
corporation purchased 11,000 shares in its own capital.
4. PAID-IN SURPLUS
<TABLE>
<S> <C>
Situation as of December 31, 1997 1,806
Employed for the payment of stock dividends (1,393)
------
Situation as of December 31, 1998 413
======
</TABLE>
There is no fiscal claim on this paid-in surplus.
5. STATUTORY RESERVE
<TABLE>
<S> <C>
Situation as of December 31, 1997 2,870
To other reserves 2,729
------
Situation as of December 31, 1998 141
======
</TABLE>
For NLG 51, this refers to the free reserves of minority interests, as
well as a reserve of NLG 90 for the book value of the intangible fixed
assets.
6. OTHER RESERVES
<TABLE>
<S> <C>
Situation as of December 31, 1997 29,660
Result after tax in 1998 7,350
Dividends (2,286)
From statutory reserve 2,729
Goodwill in subsidiaries (7,688)
Exchange differences (270)
Dividend settlement for 1997 1,277
Purchase of own shares for option plan (729)
--------
Situation as of December 31, 1998 30,043
========
</TABLE>
20
<PAGE> 21
7. CONTINGENT LIABILITIES
The Company has agreed to stand surety for subsidiary companies for
bank loans totaling NLG 10.7 million (1997: NLG 10.7 million).
ABN-AMRO Bank N.V. has issued warranties at the risk and expense of the
Company up to a limit of SEK 1,570 (NLG 365).
With the exception of Woodcap B.V. and Comat B.V., the Company has
assumed joint and several liability for its Dutch wholly-owned
subsidiaries, in accordance with Article 403(1)(f), Book 2, Netherlands
Civil Code.
Enschede, March 16, 1999
THE BOARD OF MANAGEMENT: THE SUPERVISORY BOARD:
Ing. H.A. Kroes Mr. Drs. B. Elfring
Drs. J.M.M.A. Siers Dr. Ir. C.P. Heijwegen
Dhr. J.L. Drijver
21
<PAGE> 22
WELNA N.V.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands of Dutch guilders)
March 31,
1999
----------
<S> <C>
FIXED ASSETS
TANGIBLE FIXED ASSETS
Land and buildings 29,151
Machines and installations 5,286
Other fixed assets 4,313
----------
38,750
FINANCIAL FIXED ASSETS
Investments 276
Receivables 132
----------
408
CURRENT ASSETS
INVENTORIES 24,766
RECEIVABLES
Trade accounts receivable 31,606
Other receivables 2,877
Accrued income 357
----------
34,840
CASH AND CASH EQUIVALENTS 9,284
----------
TOTAL ASSETS 108,048
==========
</TABLE>
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
22
<PAGE> 23
WELNA N.V.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands of Dutch guilders)
March 31,
1999
----------
<S> <C>
GROUP EQUITY
Stockholders' equity 32,098
Minority interests 660
----------
32,758
PROVISIONS
Deferred tax liabilities 2,917
Pension liabilities 4,097
Warranties and other liabilities 2,239
----------
9,253
LONG-TERM LIABILITIES 7,122
CURRENT LIABILITIES
Liabilities to credit institutions 32,140
Liabilities to suppliers 12,831
Taxes and social security contributions 2,453
Other liabilities 10,504
Accrued expenses 987
----------
58,915
----------
TOTAL LIABILITIES AND CAPITAL 108,048
==========
</TABLE>
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
23
<PAGE> 24
WELNA N.V.
CONSOLIDATED PROFIT AND LOSS ACCOUNTS
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands of Dutch guilders)
Three Months ended March 31,
----------------------------
1999 1998
---------- ----------
<S> <C> <C>
Net revenues 28,907 28,976
Adjustment for work in progress 6,026 6,307
---------- ----------
TOTAL OPERATING INCOME 34,933 35,283
Raw materials, auxiliaries,
trading articles and direct costs 16,868 17,925
---------- ----------
ADDED VALUE 18,065 17,358
Wages and salaries 12,366 10,870
Depreciation 1,032 919
Other operating costs 3,487 3,705
---------- ----------
Total operating costs 16,885 15,494
---------- ----------
OPERATING RESULT 1,180 1,864
Share in the result of non-consolidated
subsidiaries 52 285
Interest received 134 60
Interest paid (443) (321)
Other 40 0
---------- ----------
Financial result (217) 24
RESULT OF ORDINARY OPERATIONS BEFORE TAXATION 963 1,888
Corporate income tax 411 647
---------- ----------
RESULT OF ORDINARY OPERATIONS AFTER TAXATION 552 1,241
Result of minority interests 88 5
---------- ----------
RESULT AFTER TAXATION 464 1,236
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
24
<PAGE> 25
WELNA N.V.
CASH FLOW STATEMENT
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months ended March 31,
--------------------------------
(In thousands of Dutch guilders) 1999 1998
---------- ----------
<S> <C> <C>
CASH FLOW FROM OPERATIONAL ACTIVITIES
OPERATING RESULT 1,180 1,864
ADJUSTMENTS FOR:
Depreciation/amortization of tangible and intangible fixed assets 1,032 919
Change in provisions 339 1,482
Change in inventory (1,009) (7,426)
Change in receivables 1,743 (10,759)
Increase in liabilities to suppliers 3,467 4,254
Change in other liabilities and accrued expenses (8,959) 7,646
---------- ----------
(3,387) (3,884)
CASH FLOW FROM BUSINESS OPERATIONS (2,207) (2,020)
Interest received 134 60
Share in the result of non-consolidated subsidiaries 52 285
Interest paid (443) (321)
Taxes paid (2,783) (1,445)
---------- ----------
(3,040) (1,421)
---------- ----------
CASH FLOW FROM OPERATIONAL ACTIVITIES (5,247) (3,441)
CASH FLOW FROM INVESTMENT ACTIVITIES
Investments in tangible fixed assets (918) (4,802)
Disposals of tangible fixed assets 0 0
Investments in subsidiaries 0 (6,048)
Disposals of subsidiaries 154 0
---------- ----------
CASH FLOW FROM INVESTMENT ACTIVITIES (764) (10,850)
CASH FLOW FROM FINANCING ACTIVITIES
Loans taken out 0 0
Purchase and sale of own stock (25) (760)
Issue of stock 0 0
Loans taken out/redeemed (129) (285)
Increase in current bank loan 11,553 19,962
Dividends paid 0 0
---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES 11,399 18,917
EXCHANGE DIFFERENCES, CONSOLIDATION INFLUENCES AND OTHER NON-CASH BASED
CHANGES (317) 4,488
---------- ----------
CHANGES IN CASH AND CASH EQUIVALENTS 5,071 9,114
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
25
<PAGE> 26
WELNA N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
GENERAL
The consolidated financial statements of Welna N.V. and its wholly-owned
subsidiaries (the "Company") included herein have been prepared without audit.
Accordingly, certain information and footnote disclosures normally included in
financial statements are prepared in accordance with Dutch generally accepted
accounting principles. In the opinion of management, the consolidated financial
statements reflect all elimination entries and adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of the interim periods.
The results of operations for the interim periods are not necessarily indicative
of the results of operations to be expected for the full year. These
consolidated financial statements should be read in conjunction with the audited
financial statements.
CONSOLIDATION PRINCIPLES
The consolidated financial statements include the financial data of Welna N.V.
and all group companies in which the Company exercises decisive control. The
assets, liabilities, and results of the consolidated companies will be totally
included.
The interests of third parties in the group assets are listed separately.
VALUATION PRINCIPLES AND PRINCIPLES FOR THE DETERMINATION OF RESULTS
The valuation principles and principles for the determination of results are
unchanged from previous year. Unless otherwise stated, assets and liabilities
are stated at face value.
SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN DUTCH GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The unaudited consolidated financial statements of Welna N.V. have been prepared
and are presented in accordance with Dutch generally accepted accounting
principles (GAAP) which differ from United States GAAP. The principal
differences as they relate to the consolidated net income and the consolidated
equity of Welna N.V. and its subsidiaries are summarized below:
<TABLE>
<CAPTION>
Three Months Ended
(In thousands of Dutch guilders) March 31,
------------------
1999 1998
------ ------
<S> <C> <C>
Consolidated net income as reported in Dutch GAAP 464 1,236
Adjustments to conform to US GAAP:
Income allocated to minority interest (A) 62 --
Goodwill (B) (108) (108)
------ ------
Consolidated net income in accordance with US GAAP 418 1,128
====== ======
</TABLE>
26
<PAGE> 27
<TABLE>
<CAPTION>
Three Months Ended
(In thousands of Dutch guilders) March 31,
--------------------
1999 1998
------- -------
<S> <C> <C>
Consolidated stockholders' equity as reported in Dutch
GAAP 32,758 30,573
Adjustments to conform to US GAAP:
Minority interest (A) (1,199) 144
Goodwill (B) 17,756 16,313
------- -------
Consolidated net income in accordance with US GAAP 49,315 47,030
======= =======
</TABLE>
NOTES TO DUTCH GAAP TO US GAAP RECONCILIATION:
(A) Minority Interests - Under Dutch GAAP, minority interests are classified as
a separate component of equity. Under US GAAP minority interests are not
classified as equity. Also, under Dutch GAAP, net income was not allocated
to minority interest in earnings (result of third party participation) for
certain operations that had minority interest. Under US GAAP, net income is
allocated to minority interest in earnings.
(B) Goodwill - In accordance with Dutch GAAP, the difference between the
purchase price and fair value of net assets acquired as part of a business
combination (goodwill) may be charged directly to stockholders' equity.
Under US GAAP, goodwill must be capitalized and amortized through the
income statement over its useful life not to exceed 40 years. Management
determined the useful life of goodwill to be 40 years.
27
<PAGE> 28
DENALI INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 27, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
---------------------------
Denali
Incorporated Welna(1) Adjustments Pro Forma
------------ ---------- ----------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash $ 107 $ 4,560 $ 68(g) $ 4,735
Accounts receivable, net 24,219 15,525 -- 39,744
Inventories 15,665 12,166 -- 27,831
Prepaid expenses 2,085 1,589 (356)(e) 3,318
Deferred tax assets 1,293 -- -- 1,293
---------- ---------- ---------- ----------
Total current assets 43,369 33,840 (288) 76,921
Property, plant and equipment, net 21,917 19,034 6,332(c) 47,283
Assets held for sale 449 -- -- 449
Notes receivable 178 -- -- 178
Goodwill, net 25,835 7,800 14,175(b) 47,810
Deferred tax assets 1,947 -- -- 1,947
Other assets 2,768 200 1,056(f) 4,024
---------- ---------- ---------- ----------
Total assets $ 96,463 $ 60,874 $ 21,275 $ 178,612
========== ========== ========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 13,323 $ 6,303 $ -- $ 19,626
Accrued liabilities 10,025 6,192 934(d) 17,151
Notes payable -- 15,788 -- 15,788
Income tax payable 48 403 -- 451
Current maturities of long-term debt 2,000 253 -- 2,253
---------- ---------- ---------- ----------
Total current liabilities 25,396 28,939 934 55,269
Long-term debt, less current maturities 38,160 1,327 36,116(a) 75,603
Other long-term liabilities 728 3,112 1,733(a) 5,573
Minority interest -- 1,574 -- 1,574
Deferred tax liability -- 1,434 2,470(c) 3,904
Commitments and contingencies
Stockholders' equity:
Common stock 49 509 (504)(b) 54
Additional paid-in capital 30,295 203 4,302(b) 34,800
Retained earnings 1,835 23,776 (23,776)(b) 1,835
---------- ---------- ---------- ----------
Total stockholders' equity 32,179 24,488 (19,978) 36,689
---------- ---------- ---------- ----------
Total liabilities and stockholders' equity $ 96,463 $ 60,874 $ 21,275 $ 178,612
========== ========== ========== ==========
</TABLE>
(1) Unaudited balance sheet as of March 31, 1999. Amounts have been
presented in accordance with US GAAP.
SEE NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
28
<PAGE> 29
DENALI INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
NINE MONTHS ENDED MARCH 27, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
------------------------------------------
Denali
Incorporated Belco (1) Welna (2) Adjustments Pro Forma
------------ ---------- --------- ------------ ---------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net revenues $ 110,216 $ 6,562 $ 51,026 $ -- $ 167,804
Cost of revenues 82,649 4,912 34,860 202(h)
(18)(i) 122,605
--------- --------- --------- --------- ---------
Gross profit 27,567 1,650 16,166 (184) 45,199
SG&A expense 20,571 554 12,578 330(j)
95(h) 34,128
Non-recurring compensation expense 682 -- -- -- 682
--------- --------- --------- --------- ---------
Operating income 6,314 1,096 3,588 (609) 10,389
Interest expense 2,210 -- 765 2,793(k)
510(l) 6,278
Interest income (35) -- (297) -- (332)
Other income, net (173) 3 (17) -- (187)
Minority interest in earnings -- -- 336 -- 336
--------- --------- --------- --------- ---------
Income before income taxes 4,312 1,093 2,801 (3,912) 4,294
Provision for income taxes 1,635 415 1,041 (1,681)(m) 1,410
--------- --------- --------- --------- ---------
Net income before extraordinary item 2,677 678 1,760 (2,231) 2,884
Extraordinary loss on early extinguishment of
debt, net of income tax (281) -- -- -- (281)
--------- --------- --------- --------- ---------
Net income $ 2,396 $ 678 $ 1,760 $ (2,231) $ 2,603
Net income per common share, - basic:
Income before extraordinary item $ .55 $ .53
Extraordinary item (.06) (.05)
--------- ---------
Net income per common share $ .49 $ .48
========= =========
Net income per common share, - assuming dilution:
Income before extraordinary item $ .55 $ .52
Extraordinary item (.06) (.05)
--------- ---------
Net income per common share $ .49 $ .47
========= =========
Number of shares used to compute net income per share:
Basic 4,867 533(n) 5,400
========= ========= =========
Diluted 4,869 713(o) 5,582
========= ========= =========
</TABLE>
(1) Reflects results for unaudited results from operations for the period
July 1, 1998 to February 3, 1999, the date of the acquisition by the
Company. Belco's results of operations subsequent to February 3, 1999
are reflected in the Denali Incorporated historical results.
(2) Reflects consolidated results for Welna's unaudited results of
operations for the period July 1, 1998 to March 31, 1999 (unaudited).
Results have been presented in accordance with US GAAP.
SEE NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
29
<PAGE> 30
DENALI INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED JUNE 27, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Denali Prior
Incorporated(1) Acquisitions(2) Welna(3) Adjustments Pro Forma
--------------- --------------- --------- ----------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net revenues $ 99,897 $ 32,570 $ 74,156 $ -- $ 206,623
Cost of revenues 77,273 25,549 54,838 295(p) 157,955
--------- --------- --------- --------- ---------
Gross profit 22,624 7,021 19,318 (295) 48,668
SG&A expense 17,843 7,251 14,270 354(q)
127(p) 39,845
Non-recurring compensation charge 2,312 -- -- -- 2,312
--------- --------- --------- --------- ---------
Operating income (loss) 2,469 (230) 5,048 (776) 6,511
Interest expense 1,614 2,630 1,103 3,329(r)
680(l) 9,356
Interest income (118) (100) (403) -- (621)
Other (income) expense, net (489) 1,094 (360) -- 245
Minority interest in earnings -- -- 33 -- 33
--------- --------- --------- --------- ---------
Income (loss) before income
taxes 1,462 (3,854) 4,675 (4,785) (2,502)
Provision for income taxes 1,352 (2,261) 1,454 (1,728)(m) (1,183)
--------- --------- --------- --------- ---------
Net income (loss) before extraordinary item 110 (1,593) 3,221 (3,057) (1,319)
Extraordinary item on early extinguishment of debt,
net of income tax 219 219
--------- ---------
Net income (loss) 329
(1,100)
Dividends on Series A Preferred Stock (30) (30)
--------- ---------
Net income (loss) attributable to common stock $ 299 $ (1,130)
========= =========
Net income (loss) per common share, basic and
Assuming dilution: $ 0.02 $ (.31)
Extraordinary item 0.06 .05
--------- ---------
Net income (loss) per common share $ 0.08 $ (.26)
========= =========
Number of shares used to compute
net income (loss) per share:
Basic 3,736 44 489(s) 4,269
========= ========= ====== =========
Diluted 3,875 44 769(o) 4,688
========= ========= ====== =========
</TABLE>
(1) Reflects the historical results of Denali Incorporated for fiscal 1998.
(2) As reported in the Denali Incorporated Form 8-K/A filed on April 19,
1999, amounts reflect the unaudited results from operations of
companies acquired in fiscal 1998 and 1999 and related pro forma
adjustments from the beginning of the fiscal year through the date of
acquisition. These amounts include the following acquisitions:
LaValley's and SEFCO's operations for the period from July 1, 1997 to
October 31, 1997, CC&E's operations for the period from July 1, 1997 to
May 8, 1998, Fibercast's operations for the period from July 1, 1997 to
June 5, 1998, and Belco's operations for the period from July 1, 1997
to June 30, 1998. The results of operations subsequent to the
acquisition dates are reflected in the Denali Incorporated historical
results.
(3) Reflects results of Welna's operations for the period from July 1, 1997
to June 30, 1998 (unaudited).
SEE NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
30
<PAGE> 31
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 27, 1999. 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 Form 10-K filed with the Securities and Exchange Commission
on September 15, 1998 and Quarterly Report on Form 10-Q for the
quarterly period ended March 27, 1999 previously filed with the SEC.
2. EARNINGS (LOSS) PER SHARE
Pro forma earnings (loss) per share were computed by dividing net
income (or loss) applicable to common stock by the weighted average
number of shares of common stock and common stock equivalents
outstanding during the period. 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 or warrants based on the
average price of the common stock during the period.
3. ACQUISITIONS
In February 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/RPS, Inc., a leading North American field constructor of
fiberglass-reinforced plastic products. The purchase price totaled $1.6
million in cash. The sellers 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.
31
<PAGE> 32
DENALI INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
In June 1998, the Company purchased 100 percent of the outstanding
stock of 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.
In February 1999, the Company purchased 100 percent of the outstanding
stock of Belco Manufacturing Company, Inc. for approximately $4.7
million in cash (net of cash and cash equivalents acquired), a $1.5
million seller note and $500,000 in Denali Incorporated stock (44,417
shares) for a total of approximately $6.7 million. In addition, the
Company acquired certain assets and assumed certain liabilities of S.
Jones Limited Partnership, an affiliate of Belco for approximately $.4
million in cash (net of cash acquired). Financial information of Belco
Manufacturing Company, Inc. and S. Jones Limited Partnership has been
presented on a combined basis due to common ownership and control
(collectively called "Belco").
On July 1, 1999, the Company completed its tender offer for the
publicly held shares of Welna N.V. ("Welna"), a Dutch company listed on
the Official Market of the Amsterdam Stock Exchange. The tender offer
commenced in April 1999 pursuant to the terms of the Offer Document
("the Offer") by and between Welna and Denali. Denali purchased 99.8%
of the outstanding stock of Welna for approximately $42.3 million, or
Euro 37 per share and assumed $15 million in debt, net of cash
acquired, for a total purchase price of approximately $57.3 million.
The transaction was funded through an $11.1 million borrowing under
Denali's $35 million US senior credit facility, $15 million through the
issuance of senior subordinated notes with detachable warrants, $4.5
million from 489,189 common shares issued through a private equity
placement, and approximately $11.7 borrowed under a Dutch senior credit
facility. The warrants issued in conjunction with the subordinated
notes enable the holders to purchase up to 534,870 common shares at
$7.54 per share.
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 historical 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 Welna described in Note 3 as if it had occurred as
of March 27, 1999 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 Welna and the borrowings under
the Company's US and Dutch senior credit facilities and the
issuance of senior subordinated notes to fund the acquisition
and the related valuation of the detachable warrants issued in
connection with the senior subordinated notes.
(b) To reflect, in connection with the acquisition of Welna, the
purchase price allocation by the Company including the
issuance of 489,189 shares of common stock through a private
equity placement.
(c) To reflect, in connection with the acquisition of Welna, an
adjustment to fair market value of assets purchased and the
related deferred taxes.
(d) To accrue cost associated with the acquisition, primarily
transaction costs of the purchase.
(e) To reclass debt costs paid by Denali prior to the date of
close relating to the financing of Welna.
32
<PAGE> 33
(f) To reflect the debt costs associated with the financing of the
Welna acquisition.
(g) To reflect the net cash adjustment of the transaction. This
adjustment consists of approximately $1.6 million received
from the exercise of stock options prior to the close of the
acquisition and approximately $1.6 million paid subsequent to
the date of close for an additional 3.8% of the outstanding
common shares of Welna.
(h) To reflect the change in depreciation expense resulting from
the purchase accounting of the acquisitions of Belco and Welna
and the purchase of fixed assets from the shareholders of
Belco as a condition of purchase that were previously leased
by Belco from the shareholder. (see (i)).
(i) To reduce expenses for certain lease expenses incurred by
seller for assets to be purchased by the Company (see (h)).
(j) To reflect amortization of goodwill related to the purchases
of Belco and Welna, which is being amortized on a
straight-line basis over 40 years.
(k) To reflect interest expense on the borrowings to fund the
purchases of Belco and Welna in excess of historical interest
expense.
(l) To reflect the amortization of the debt costs, which relate to
the financing of Welna.
(m) To adjust income taxes to the Company's effective rate for the
periods presented.
(n) To reflect the 533,606 shares of Denali Incorporated common
stock as part of the acquisition of Belco and Welna.
(o) To reflect the diluted effect of the detachable warrants
issued with the subordinated notes.
(p) To reflect the change in depreciation expense resulting from
the purchase accounting adjustments to fair market value of
assets purchased.
(q) To reflect amortization of goodwill related to the purchase of
Welna, which is being amortized on a straight-line basis over
40 years.
(r) To reflect interest expense on the borrowings to fund the
purchase of Welna in excess of historical interest expense.
(s) To reflect the issuance of 489,189 shares of Denali
Incorporated common stock as part of the acquisition of Welna.
33
<PAGE> 34
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------- ----------------------
<S> <C>
10.59* Offer Document by Denali Incorporated to the shareholders of Welna, N.V.
23.1 Consent of Deloitte and Touche
</TABLE>
- --------------
* Previously filed
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-51783) pertaining to the Denali Incorporated 1997 Incentive Stock
Option Plan of our report dated March 16, 1999, with respect to the consolidated
financial statements of Welna N.V. for the three years ended December 31, 1998
included in the current report on Form 8-K/A of Denali Incorporated.
Deloitte & Touche
Enschede, Netherlands
September 14, 1999
