<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): February 3, 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
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 Auditors
Combined Balance Sheet as of September 30, 1998
Combined Statement of Operations and Equity for the Year Ended
September 30, 1998
Combined Statement of Cash Flows for the Year Ended September
30, 1998
Notes to Combined Financial Statements
Combined Balance Sheet as of December 31, 1998 (Unaudited)
Combined Statement of Operations for the Three Months Ended
December 31, 1998 and 1997 (Unaudited)
Combined Statement of Cash Flows for the Three Months Ended
December 31, 1998 and 1997 (Unaudited)
Notes to (Unaudited) Combined Financial Statements
(b) Pro Forma Financial Information
Pro Forma Condensed Consolidated Balance Sheet (Unaudited) as
of December 26, 1998
Pro Forma Condensed Consolidated Statement of Operations
(Unaudited) for the Six Months Ended December 26, 1998
Pro Forma Condensed Consolidated Statement of Operations
(Unaudited) for the Year Ended June 28, 1998
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements
(c) Exhibits
10.41* Stock Purchase Agreement dated February 3, 1999 by
and between Steve Jones, Belco Manufacturing Company,
Inc. and Containment Solutions, Inc.
10.42* Asset Purchase Agreement dated February 3, 1999 by
and between Tiger Trucking LLC, S. Jones Limited
Partnership and Containment Solutions, Inc.
23.1 Consent of Ernst & Young 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: April 19, 1999 /s/ R. KEVIN ANDREWS
--------------------------------
R. Kevin Andrews
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
3
<PAGE> 4
REPORT OF INDEPENDENT AUDITORS
Board of Directors of Belco Manufacturing Company Inc. and
Partners of S. Jones Limited Partnership
We have audited the accompanying combined balance sheet as of September 30,
1998, of the Companies listed in Note 1, and the related combined statements of
operations and equity and the statement of cash flows for the year 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position at September 30, 1998, of
the companies listed in Note 1, and the combined results of their operations and
cash flows for the year then ended in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Houston, Texas
April 6, 1999
4
<PAGE> 5
BELCO MANUFACTURING COMPANY, INC. AND S. JONES LIMITED PARTNERSHIP
COMBINED BALANCE SHEET
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 673,121
Short-term investments 405,151
Accounts receivable, net of allowance of $60,000 897,295
Inventory 646,506
Prepaid expenses 1,989
Deferred tax asset 47,896
----------
Total current assets 2,671,958
Property and equipment, net 1,008,003
----------
Total assets $3,679,961
==========
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 201,978
Income tax payable 326,832
Accrued bonuses 175,000
Other accrued liabilities 248,051
----------
Total current liabilities 951,861
Deferred tax liability 56,804
Commitments
Stockholder's and partners' equity:
Common stock, $1 par value;
15,042 shares authorized, issued, and outstanding 15,042
Retained and accumulated earnings 2,656,254
----------
Total stockholder's and partners' equity 2,671,296
----------
Total liabilities and equity $3,679,961
==========
</TABLE>
SEE ACCOMPANYING NOTES TO COMBINED FINANCIAL STATEMENTS.
5
<PAGE> 6
BELCO MANUFACTURING COMPANY, INC. AND S. JONES LIMITED PARTNERSHIP
COMBINED STATEMENT OF OPERATIONS AND EQUITY
YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<S> <C>
Net sales $ 7,840,112
Cost of sales 6,316,552
-----------
Gross profit 1,523,560
Selling, general and administrative expenses 1,000,099
Depreciation expense 239,745
-----------
Income from operations 283,716
Other income (expense):
Interest income 41,404
Other (17,731)
-----------
Other income, net 23,673
Income before income taxes 307,389
Income tax expense 318,285
-----------
Net loss (10,896)
Retained and accumulated earnings at September 30, 1997 2,852,191
Partnership distributions (185,041)
-----------
Retained and accumulated earnings at September 30, 1998 $ 2,656,254
===========
</TABLE>
SEE ACCOMPANYING NOTES TO COMBINED FINANCIAL STATEMENTS.
6
<PAGE> 7
BELCO MANUFACTURING COMPANY, INC. AND S. JONES LIMITED PARTNERSHIP
COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss $ (10,896)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation 239,745
Deferred tax (51,517)
Changes in assets and liabilities:
Accounts receivable 111,092
Inventory (226,490)
Prepaid expenses (1,989)
Accounts payable (39,807)
Income taxes payable 286,447
Accrued expenses 290,166
Other accrued liabilities (63,639)
-----------
Net cash provided by operating activities 533,112
Cash flows from investing activities:
Purchase of property and equipment (352,588)
Proceeds from sale of property and equipment 9,786
Purchase of short-term investments (405,151)
-----------
Net cash used in investing activities (747,953)
Cash flows from financing activities:
Distributions to partners (185,041)
-----------
Net cash used in financing activities (185,041)
-----------
Net decrease in cash and cash equivalents (399,882)
Cash and cash equivalents, beginning of period 1,073,003
-----------
Cash and cash equivalents, end of period $ 673,121
===========
Supplemental cash flow information:
Income taxes paid $ 43,239
===========
</TABLE>
SEE ACCOMPANYING NOTES TO COMBINED FINANCIAL STATEMENTS.
7
<PAGE> 8
BELCO MANUFACTURING COMPANY, INC. AND S. JONES LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BACKGROUND
The accompanying combined financial statements include the accounts of
Belco Manufacturing Company, Inc. and its subsidiaries SJ Inc. and S.
Jones Inc. and the accounts of S. Jones Limited Partnership
(collectively referred to herein as the "Company" or "Belco"). Belco
Manufacturing Company, Inc. and S. Jones Limited Partnership have been
combined because of common ownership and management and all partnership
activity has been reflected in retained and accumulated earnings. All
intercompany accounts and transactions have been eliminated.
BUSINESS
Belco is a manufacturer of engineered fiberglass-reinforced plastic
tanks, vessels, and piping systems, and their products are primarily
sold into the water/wastewater, oil and gas, food processing, and
semi-conductor industries where corrosion-resistant products are
needed.
CASH EQUIVALENTS
For purposes of the combined statement 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
Revenue is recognized when products are shipped and title passes to the
customer.
INVENTORIES
Inventories are determined using actual cost or a standard cost method
based on a first-in, first-out ("FIFO") basis. Inventory is stated at
the lower of cost or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed by
the straight-line method using rates based on the estimated useful
lives of the related assets. Estimated useful lives used for
depreciation purposes are as follows:
Leasehold improvements 10 years
Machinery and equipment 5-7 years
Vehicles 5-7 years
PRODUCT WARRANTY
The Company generally warrants its products against manufacturing
defects for a period of 18 months from the date of shipment. The
company records an accrual for warranty expense based on historical
experience.
8
<PAGE> 9
BELCO MANUFACTURING COMPANY, INC. AND S. JONES LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MARKETABLE SECURITIES
The Company accounts for marketable securities in accordance with SFAS
No. 115, Accounting for Certain Investments in Debt and Equity
Securities. At September 30, 1998 all of the Company's investments in
marketable securities are classified as available for sale, and as a
result, are reported at fair value.
At September 30, 1998 the Company's marketable securities consisted of
common stock. For the year ended September 30, 1998, the fair value
approximately equaled the cost and there were no unrealized or realized
gains or losses.
CONCENTRATION OF CREDIT RISK
Financial instruments that could possibly subject the Company to
concentrations of credit risk are accounts receivable. The Company
periodically evaluates the creditworthiness of its customers and
generally does not require collateral. The Company's customer base
consists of major commercial organizations and independent
sub-contractors located primarily in Texas. No customer accounted for
10% or more of revenues for the year ended September 30, 1998.
INCOME TAXES
Belco Manufacturing Co., Inc. has elected to be taxed as a C
Corporation for income tax purposes. The Company follows the liability
method of accounting for income taxes. Under this method, deferred
income tax assets and liabilities are determined based on differences
between financial statement and income tax bases of assets and
liabilities using enacted rates in effect for the year in which the
differences are expected to reverse. S. Jones Limited Partnership is a
partnership for income tax reporting purposes and earnings are taxable
to the individuals; therefore, there is no provision related to the
partnership.
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.
2. INVENTORIES
Inventories consist of the following at September 30, 1998:
Raw materials $320,928
Work in process 173,878
Finished goods 151,700
--------
$646,506
========
9
<PAGE> 10
BELCO MANUFACTURING COMPANY, INC. AND S. JONES LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at September 30, 1998:
Furniture and equipment $ 1,275,686
Vehicles 416,502
Leasehold improvements 52,216
-----------
$ 1,744,404
Accumulated depreciation (736,401)
-----------
Property and equipment, net $ 1,008,003
===========
4. INCOME TAXES
The Components of the income tax expense for the year ended September
30, 1998 are as follows:
Current:
Federal $ 331,330
State 38,472
---------
$ 369,802
Deferred:
Federal (46,133)
State (5,384)
---------
$ (51,517)
---------
Total $ 318,285
=========
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred tax assets
are as follows at September 30, 1998:
Deferred tax assets:
Allowance for bad debts $ 29,354
Accrued expenses 18,542
--------
Total deferred tax assets 47,896
Deferred tax liability:
Depreciation expense (56,804)
--------
Total deferred tax liability (56,804)
--------
Net deferred tax liability $ (8,908)
========
10
<PAGE> 11
BELCO MANUFACTURING COMPANY, INC. AND S. JONES LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
4. INCOME TAXES (CONTINUED)
The income tax provision reconciled to tax computed at the statutory
federal rate:
Tax at federal statutory rate of 34% $ 104,512
State income taxes net of federal benefit 25,570
Effect of loss related to the partnership 191,345
Tax exempt interest (3,947)
Other 805
---------
Total income tax provision $ 318,285
=========
5. RELATED PARTY TRANSACTIONS
The Company leases land and a building under an operating lease from
the former stockholder of Belco Manufacturing Co., Inc. The current
lease is a ten year lease, maturing on December 31, 2008, with monthly
rent payments of $17,400. During 1998, the Company incurred rent
expense of $248,770 for this lease.
6. SUBSEQUENT EVENT
In February 1999, Containment Solutions Inc. (CSI), a subsidiary of
Denali Incorporated, purchased all of the outstanding stock of Belco
Manufacturing Co., Inc. for approximately $6.7 million, comprised of
$4.7 million in cash, a $1.5 million note to the seller, and 44,417
shares of Denali Incorporated common stock with a fair value of
$500,000. In addition, CSI acquired certain assets and assumed certain
liabilities of S. Jones Limited Partnership, an affiliate of Belco for
approximately $400,000 in cash. As a part of this transaction, CSI
will continue to lease the land and building from the former
stockholder of Belco Manufacturing Co. Inc.
7. YEAR 2000 ISSUE (UNAUDITED)
The Company has completed its efforts to modify its information
technology to be ready for the year 2000. To mitigate the effect of
outside influences and other dependencies relative to the year 2000,
the Company has contacted significant third parties whose success in
addressing their own Year 2000 issue will impact the company's
initiative. To the extent these third parties would be unable to
transact business in the year 2000 and thereafter, it could adversely
affect the Company's operations.
11
<PAGE> 12
BELCO MANUFACTURING COMPANY, INC. AND S. JONES LIMITED PARTNERSHIP
COMBINED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
December 31,
1998
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $1,010,637
Short-term investments 405,151
Accounts receivable, net of allowance of $60,000 1,017,099
Inventories 490,017
Prepaid expenses 1,989
Deferred tax assets 47,896
----------
Total current assets 2,972,789
Property and equipment, net 915,650
----------
Total assets $3,888,439
==========
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 98,657
Accrued liabilities 362,147
Income tax payable 375,000
----------
Total current liabilities 835,804
Deferred tax liability 56,804
Commitments and contingencies
Stockholder's and partners' equity:
Common stock 15,042
Retained and accumulated earnings 2,980,789
----------
Total stockholder's and partners' equity 2,995,831
----------
Total liabilities and stockholder's equity $3,888,439
==========
</TABLE>
See accompanying notes.
12
<PAGE> 13
BELCO MANUFACTURING COMPANY, INC. AND S. JONES LIMITED PARTNERSHIP
COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
--------------------------------
December 31, December 31,
1998 1997
-------------- --------------
<S> <C> <C>
Net sales $ 2,789,384 $ 1,387,122
Cost of sales 2,055,789 1,457,120
-------------- --------------
Gross profit (loss) 733,595 (69,998)
Selling, general and administrative expenses 208,447 321,076
-------------- --------------
Operating income (loss) 525,148 (391,074)
Interest income (14,262) (10,691)
Other income, net (41,406) --
-------------- --------------
Income (loss) before income taxes 580,816 (380,383)
Income tax (benefit) expense 221,000 (391,794)
-------------- --------------
Net income $ 359,816 $ 11,411
============== ==============
</TABLE>
See accompanying notes.
13
<PAGE> 14
BELCO MANUFACTURING COMPANY, INC. AND S. JONES LIMITED PARTNERSHIP
COMBINED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
--------------------------
December 31, December 31,
1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 359,816 $ 11,411
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 101,061 82,681
Deferred tax -- (60,694)
Changes in operating assets and liabilities:
Accounts receivable (119,804) 198,842
Inventories 156,489 (184,874)
Other assets -- (72,313)
Accounts payable (103,321) 61,118
Accrued liabilities (60,904) (95,213)
Income tax receivable/payable 48,168 (40,385)
----------- -----------
Net cash provided by (used in) operating activities 381,505 (99,427)
INVESTING ACTIVITIES:
Purchases of property and equipment (8,708) (125,000)
----------- -----------
Net cash used in investing activities (8,708) (125,000)
FINANCING ACTIVITIES:
Distributions to partners (35,281) --
----------- -----------
Net cash used in financing activities (35,281) --
----------- -----------
Increase (decrease) in cash and cash equivalents 337,516 (224,427)
Cash and cash equivalents at beginning of period 673,121 1,073,003
----------- -----------
Cash and cash equivalents at end of period $ 1,010,637 $ 848,576
=========== ===========
</TABLE>
See accompanying notes.
14
<PAGE> 15
BELCO MANUFACTURING COMPANY, INC. AND S. JONES LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 1998
(UNAUDITED)
1. GENERAL
The accompanying combined financial statements include the accounts of
Belco Manufacturing Company, Inc. and its subsidiaries SJ Inc. and S.
Jones Inc. and the accounts of S. Jones Limited Partnership (collectively
referred to herein as the "Company" or "Belco"). Belco Manufacturing
Company, Inc. and S. Jones Limited Partnership have been combined because
of common ownership and management. All partnership activity is reflected
in retained and accumulated earnings. All intercompany accounts and
transactions have been eliminated.
The combined financial statements of Belco included herein have been
prepared without audit pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, certain information and
footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
omitted. The Company believes that the presentations and disclosures
herein are adequate to make the information not misleading. In the
opinion of management, the combined financial statements reflect all
elimination entries and adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of the interim periods.
The combined results of operations for the interim periods are not
necessarily indicative of the combined results of operations to be
expected for the full year. These combined financial statements should be
read in conjunction with the Company's audited consolidated financial
statements and notes included elsewhere within this Form 8-K/A filed by
Denali Incorporated.
2. INCOME TAXES
Belco Manufacturing Co., Inc. has elected to be taxed as a C Corporation
for income tax purposes. The Company follows the liability method of
accounting for income taxes. Under this method, deferred income tax
assets and liabilities are determined based on differences between
financial statement and income tax bases of assets and liabilities using
enacted rates in effect for the year in which the differences are
expected to reverse. S. Jones Limited Partnership is a partnership for
income tax reporting purposes and earnings are taxable to the individual;
therefore, there is no provision related to the partnership. The
Company's interim provisions for income taxes were computed using the C
Corporation's effective tax rate for the year multiplied by its
respective earnings. The tax provision for income taxes differs from the
U.S. statutory rate of 34% due primarily to earnings or losses of the
partnership.
15
<PAGE> 16
DENALI INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 26, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
-------------------------
Denali
Incorporated Belco(1) Adjustments Pro Forma
------------ ---------- ----------- ----------
(In thousands)
Assets
<S> <C> <C> <C> <C>
Current assets:
Cash $ 158 $ 1,011 $ -- $ 1,169
Investment in equity securities -- 405 -- 405
Accounts receivable, net 27,592 1,017 -- 28,609
Inventories 12,579 490 -- 13,069
Income tax receivable 24 -- (24)(d) --
Prepaid expenses 1,465 2 -- 1,467
Deferred tax assets 1,293 47 -- 1,340
---------- ---------- ---------- ----------
Total current assets 43,111 2,972 (24) 46,059
Property, plant and equipment, net 20,824 916 284 (c) 22,024
Assets held for sale 449 -- -- 449
Notes receivable 178 -- -- 178
Goodwill, net 20,905 -- 5,111 (b) 26,016
Deferred tax assets 1,947 -- (57)(d) 1,890
Other assets 1,529 -- -- 1,529
---------- ---------- ---------- ----------
Total assets $ 88,943 $ 3,888 $ 5,314 $ 98,145
========== ========== ========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 15,660 $ 99 $ -- $ 15,759
Accrued liabilities 8,176 362 104 (b)
225 (a) 8,867
Income tax payable -- 375 (24)(d) 351
Payable to affiliates -- -- -- --
Current maturities of long-term debt 1,442 -- -- 1,442
---------- ---------- ---------- ----------
Total current liabilities 25,278 836 305 26,419
Long-term debt, less current maturities 31,396 -- 7,561 (a) 38,957
Other long-term liabilities 785 -- -- 785
Deferred tax liability -- 57 (57)(d) --
Commitments and contingencies
Stockholders' equity:
Common stock 49 15 (15)(b) 49
Additional paid-in capital 29,795 -- 500 (b) 30,295
Retained earnings 1,640 2,980 (2,980)(b) 1,640
---------- ---------- ---------- ----------
Total stockholders' equity 31,484 2,995 (2,495) 31,984
---------- ---------- ---------- ----------
Total liabilities and stockholders' equity $ 88,943 $ 3,888 $ 5,314 $ 98,145
========== ========== ========== ==========
</TABLE>
(1) Unaudited balance sheet as of December 31, 1998.
SEE NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
16
<PAGE> 17
DENALI INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
SIX MONTHS ENDED DECEMBER 26, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
----------------------------
Denali
Incorporated Belco(1) Adjustments Pro Forma
------------ ------------ ------------ ------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales $ 73,888 $ 5,670 $ -- $ 79,558
Cost of sales 54,982 4,205 (20)(e) --
(18)(f) 59,149
------------ ------------ ------------ ------------
Gross profit 18,906 1,465 38 20,409
SG&A expense 13,506 504 64(h) 14,074
Non-recurring
compensation expense 682 -- -- 682
------------ ------------ ------------ ------------
Operating income 4,718 961 (26) 5,653
Interest expense 1,285 -- 297(i) 1,582
Interest income (12) -- -- (12)
Other income, net (107) (21) -- (128)
------------ ------------ ------------ ------------
Income before income taxes 3,552 982 (323) 4,211
Provision for income taxes 1,351 634 (385)(j) 1,600
------------ ------------ ------------ ------------
Net income $ 2,201 $ 348 $ 62 $ 2,611
============ ============ ============ ============
Net income per common share,
basic and diluted $ 0.45 $ 0.53
============ ============
Number of shares used to
compute net income per share:
Basic 4,841 44(k) 4,885
============ ============ ============
Diluted 4,845 44(k) 4,889
============ ============ ============
</TABLE>
(1) Reflects combined results for Belco's operations for the period July 1, 1998
to December 31, 1998 (unaudited).
SEE NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
17
<PAGE> 18
DENALI INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED JUNE 27, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
------------------------------------------------------
Denali
Incorporated LaValley(1) SEFCO(1) CC&E(2)
------------ ----------- --------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales $ 99,897 $ 2,952 $ 3,080 $ 2,429
Cost of sales 77,273 2,362 2,070 2,007
--------- --------- --------- ---------
Gross profit 22,624 590 1,010 422
SG&A expense 17,843 410 638 496
Non-recurring comp. charge 2,312 -- -- --
--------- --------- --------- ---------
Operating income (loss) 2,469 180 372 (74)
Interest expense 1,614 46 -- --
Interest income (118) -- (17) --
Other (income) expense, net (489) (38) (4) 469
--------- --------- --------- ---------
Income (loss) before income
taxes 1,462 172 393 (543)
Provision for income taxes 1,352 65 178 1
--------- --------- --------- ---------
Net income (loss) 110 107 215 (544)
Extraordinary item on early
extinguishment of debt, net
of income tax 219
---------
Net income (loss) 329
Dividends on Series A Preferred
Stock (30)
---------
Net income (loss) attributable to
common stock $ 299
=========
Net income (loss) per common
share before extraordinary item $ 0.02
Extraordinary item 0.06
---------
Net income (loss) per common
share $ 0.08
=========
Number of shares used to compute
net income (loss) per share:
Basic 3,736
=========
Diluted 3,875
=========
<CAPTION>
Historical
-------------------------
Adjust-
Fibercast(3) Belco(4) ment ProForma
------------ --------- --------- ---------
(In thousands, except
per share amounts)
<S> <C> <C> <C> <C>
Net sales $ 17,032 $ 7,077 $ -- $ 132,467
Cost of sales 13,413 5,990 (190)(e)
(103)(f) 102,822
--------- --------- --------- ---------
Gross profit 3,619 1,087 293 29,645
SG&A expense 4,803 749 (245)(g)
497 (h)
(97)(e) 25,094
Non-recurring comp. charge -- -- -- 2,312
--------- --------- --------- ---------
Operating income (loss) (1,184) 338 138 2,239
Interest expense 353 -- 2,231 (i) 4,244
Interest income (100) -- 17 (218)
Other (income) expense, net 604 63 -- 605
--------- --------- --------- ---------
Income (loss) before income
taxes (2,041) 275 (2,110) (2,392)
Provision for income taxes -- 275 (2,780)(j) (909)
--------- --------- --------- ---------
Net income (loss) (2,041) -- 670 (1,483)
Extraordinary item on early
extinguishment of debt, net
of income tax 219
---------
Net income (loss) (1,264)
Dividends on Series A Preferred
Stock (30)
---------
Net income (loss) attributable to
common stock $ (1,294)
=========
Net income (loss) per common
share before extraordinary item $ (0.40)
Extraordinary item 0.06
---------
Net income (loss) per common
share $ (0.34)
=========
Number of shares used to compute
net income (loss) per share:
Basic 44(k) 3,780
========= =========
Diluted 44(k) 3,919
========= =========
</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 of CC&E's operations for the period from July 1, 1997
to May 8, 1998 (unaudited), the date of acquisition by the Company.
CC&E's results of operations subsequent to May 8, 1998 are reflected in
the Denali Incorporated historical results.
(3) Reflects results of Fibercast's operations for the period from July 1,
1997 to June 5, 1998 (unaudited), the date of acquisition by the
Company. Fibercast's results of operations subsequent to June 5, 1998
are reflected in the Denali Incorporated historical results.
(4) Reflects combined results of Belco's operations for the period from
July 1, 1997 to June 30, 1998 (unaudited).
SEE NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
18
<PAGE> 19
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
December 26, 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 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 December 26, 1998, 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 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.
19
<PAGE> 20
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").
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 Belco described in Note 3 as if it had occurred as
of December 26, 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 Belco and the borrowings under
the Company's senior credit agreement to fund this acquisition
and to accrue other cost associated with the acquisition.
(b) To reflect, in connection with the acquisition of Belco, the
purchase price allocation by the Company which includes the
issuance of 44,417 shares of common stock with a value of
$500,000 to the seller of Belco.
(c) To reflect, in connection with the acquisition of Belco, an
adjustment to fair market value of assets purchased.
(d) To net tax accounts.
(e) To reflect the change in depreciation expense resulting from
the purchase accounting of the acquisitions of LaValley, CC&E,
Fibercast and Belco and the purchase of fixed assets from the
shareholders of SEFCO and Belco as a condition of the purchase
that were previously leased by SEFCO from the shareholder (see
(f)).
(f) To reduce expenses for certain lease expenses incurred by
seller for assets to be purchased by the Company (see (e)).
(g) 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.
(h) To reflect amortization of goodwill related to the purchases
of LaValley, SEFCO, CC&E, Fibercast and Belco, which is being
amortized on a straight-line basis over 40 years.
(i) To reflect interest expense on the borrowings to fund the
purchases of Ershigs, LaValley, SEFCO, CC&E, Fibercast and
Belco in excess of historical interest expense.
(j) To adjust income taxes to the Company's effective rate for the
periods presented.
(k) Reflects 44,417 shares of common stock of Denali Incorporated
issued as part of the purchase of Belco.
20
<PAGE> 21
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------- ----------------------
<S> <C>
10.41* Stock Purchase Agreement dated February 3, 1999 by and between
Steve Jones, Belco Manufacturing Company, Inc. and Containment
Solutions, Inc.
10.42* Asset Purchase Agreement dated February 3, 1999 by and between
Tiger Trucking LLC, S. Jones Limited Partnership and
Containment Solutions, Inc.
23.1 Consent of Ernst & Young LLP
</TABLE>
- --------------
* Previously filed
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to 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 April 6, 1999 with respect to the combined financial
statements of Belco Manufacturing Company, Inc. and S. Jones Limited
Partnership, included in the Current Report on Form 8-K/A of Denali
Incorporated.
ERNST & YOUNG LLP
Houston, Texas
April 19, 1999
