<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
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 or 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)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
As of October 31, 2000, the number of shares of common stock outstanding was
6,258,914.
<PAGE> 2
DENALI INCORPORATED
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2000
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets............................................................. 1
Consolidated Statements of Operations................................................... 2
Consolidated Statements of Cash Flows................................................... 3
Notes to Consolidated Financial Statements.............................................. 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................... 12
Item 3. Quantitative and Qualitative Disclosure About Market Risk............................... 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................................... 24
Item 2. Changes in Securities and Use of Proceeds............................................... 24
Item 3. Defaults Upon Senior Securities......................................................... 24
Item 4. Submission of Matters to a Vote of Security Holders..................................... 24
Item 5. Other Information....................................................................... 24
Item 6. Exhibits and Reports on Form 8-K........................................................ 25
Signatures................................................................................................ 26
Index to Exhibits......................................................................................... 27
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DENALI INCORPORATED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 1, September 30,
2000 2000
--------- -------------
(Note) (Unaudited)
(In thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 2,940 $ 3,750
Accounts receivable, net of allowances of
$1,675,000 at July 1, 2000 and
$1,701,000 at September 30, 2000 40,435 41,317
Inventories 23,304 21,890
Income tax receivable 1,717 1,715
Prepaid expenses 2,171 1,744
Other receivables 3,509 2,321
--------- -------------
Total current assets 74,076 72,737
Property, plant and equipment, net 39,647 37,158
Goodwill, net 54,685 50,961
Other assets 3,191 2,882
Assets held for sale 1,594 1,594
--------- -------------
Total assets $ 173,193 $ 165,332
========= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 20,839 $ 19,388
Accrued liabilities 13,517 11,804
Lines of credit 21,361 18,735
Current maturities of long-term debt 13,871 15,064
Long-term debt in technical default 61,217 61,579
Related party subordinated debt in technical default 4,077 4,096
--------- -------------
Total current liabilities 134,882 130,666
Long-term debt, less current maturities 3,894 3,605
Accrued pension costs 1,350 1,976
Minority interest 595 676
Deferred taxes 1,846 1,716
Other long-term liabilities 3,260 1,983
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value
Authorized shares - 30,000,000
Issued and outstanding shares -6,258,914 at
September 30, 2000 and 5,558,914 at July 1, 2000 55 62
Additional paid-in capital 35,640 37,033
Other accumulated comprehensive loss (2,232) (4,306)
Retained earnings (deficit) (6,097) (8,079)
--------- -------------
Total stockholders' equity 27,366 24,710
--------- -------------
Total liabilities and stockholders' equity $ 173,193 $ 165,332
========= =============
</TABLE>
See accompanying notes.
Note: The balance sheet at July 1, 2000 has been derived from the audited
financial statements at that date, but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
1
<PAGE> 4
DENALI INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
-----------------------------
October 2, September 30,
1999 2000
------------ -------------
(Unaudited)
(In thousands, except per share amounts)
<S> <C> <C>
Net revenues $ 48,366 $ 51,384
Cost of revenues 36,000 40,090
----------- -----------
Gross profit 12,366 11,294
Selling, general and administrative expenses 9,204 9,414
Impairment of long-lived assets -- 1,038
Restructuring charges 1,400 --
----------- -----------
Operating income 1,762 842
Interest expense 2,114 2,774
Interest income (125) (18)
Other (income) expense, net (973) (201)
----------- -----------
Income (loss) before income taxes and
minority interest 746 (1,713)
Income tax (benefit) expense (59) 278
----------- -----------
Net income (loss) before minority interest 805 (1,991)
Minority interest 71 (9)
----------- -----------
Net income (loss) $ 734 $ (1,982)
=========== ===========
Net income (loss) per common share - basic
and diluted $ 0.14 $ (0.33)
=========== ==========
Comprehensive income (loss):
Net income (loss) $ 734 $ (1,982)
Currency translation adjustments 1,121 (2,074)
----------- -----------
Comprehensive income (loss) $ 1,855 $ (4,056)
=========== ===========
</TABLE>
See accompanying notes.
2
<PAGE> 5
DENALI INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
---------------------------
October 2, September 30,
1999 2000
---------- -------------
(Unaudited)
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 734 $ (1,982)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 1,174 1,194
Amortization 518 485
Deferred tax 493 (7)
Impairment of long-lived assets -- 1,038
Put warrant valuation adjustment (909) (139)
Provision for losses on accounts receivable 22 --
Gain on disposal of property, plant and equipment and
assets held for sale (280) (37)
Changes in operating assets and liabilities:
Accounts receivable (5,386) (2,170)
Inventories 791 680
Prepaid expenses 3,068 423
Other receivables -- 985
Other assets and liabilities (181) 342
Accounts payable (4,621) (926)
Accrued liabilities (1,226) (1,332)
Income tax receivable/payable (1,406) 16
---------- -------------
Net cash used in operating activities (7,209) (1,430)
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (1,100) --
Purchases of property, plant and equipment (1,637) (335)
Proceeds from sale of property, plant and equipment and
assets held for sale 660 98
---------- -------------
Net cash used in investing activities (2,077) (237)
FINANCING ACTIVITIES:
Proceeds from common stock issuance -- 1,400
Net repayments under short-term lines of credit -- (429)
Net borrowings under revolving lines of credit 8,390 2,165
Net borrowings (repayments) on term notes and other long-term debt 1,448 (434)
---------- -------------
Net cash provided by financing activities 9,838 2,702
Effect of exchange rate changes on cash 59 (225)
---------- -------------
Increase in cash 611 810
Cash at beginning of period 1,824 2,940
---------- -------------
Cash at end of period $ 2,435 $ 3,750
========== =============
</TABLE>
See accompanying notes.
3
<PAGE> 6
DENALI INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
The consolidated financial statements of Denali Incorporated and its
majority and wholly-owned subsidiaries (the "Company") included herein have been
prepared without audit pursuant to the rules and regulations of the Securities
and Exchange Commission (the "SEC"). 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
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
Company's audited consolidated financial statements and notes included in the
Company's Form 10-K filed with the Securities and Exchange Commission on October
13, 2000.
2. MANAGEMENT'S PLAN AND PROPOSED DEBT RESTRUCTURING
The Company's unaudited consolidated financial statements for the three
months ended September 30, 2000 have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. The Company incurred a net loss of $9.7
million for the twelve months ended July 1, 2000 and incurred a net loss of $2.0
million for the three months ended September 30, 2000. For the twelve months
ended July 1, 2000 and the three months ended September 30, 2000, the Company
had cash deficits from operations of $3.2 million and $1.4 million,
respectively. The Company also had negative working capital of $61 million and
$58 million and debt in default (See Note 11) at July 1, 2000 and September 30,
2000, respectively. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. The accompanying unaudited consolidated
financial statements do not include any adjustments that may result from the
outcome of this uncertainty.
During fiscal 2000, the Company experienced a greater than expected
downturn in its underground storage tank market. Additionally, in Europe,
capital spending in the petrochemical and chemical processing industry declined
significantly resulting in a decrease in the demand for the Company's products
in those markets. As a result, the Company has experienced recent operating
losses. In response to the downturn in its operations, the Company implemented a
plan in which it reorganized each of its business segments resulting in the
closure of a manufacturing facility in the United States and two manufacturing
facilities in The Netherlands as well as the consolidation of several
administrative functions (See Note 3). The reorganization plan was implemented
in an effort to better match Company resources with current demand levels.
During its fiscal 2001 second quarter, the Company is pursuing further
restructuring initiatives in its European operations in response to continuing
over-capacity in its Plasticon Europe business segment. A tentative proposal has
been submitted to union officials and the local workers council to close
Plasticon Europe's manufacturing facility in Heerenveen, The Netherlands.
Additional reductions in personnel have been proposed for Plasticon Europe's
manufacturing facility in Dinslaken, Germany. If the planned restructuring
initiatives for both locations are implemented, approximately 40 manufacturing
positions, or 7% of the total European operations headcount, will be eliminated
and the Company will record a restructuring provision of approximately $2.7
million for the three months ended December 30, 2000.
4
<PAGE> 7
In July 2000, the Company signed a letter of intent with William Blair
Mezzanine Capital Fund III, L.P. ("Blair"), under which Blair proposes to invest
$23 million in the Company, comprised of $18 million of 12% Senior Subordinated
Notes due 2008, 5,000 shares of 8% Senior Cumulative Redeemable Preferred Stock,
$1,000 liquidation preference per share, and warrants to purchase up to
3,880,645 shares of Denali common stock with an exercise price of $2.26 per
share (the "Blair Transaction"). Due to the decline in the market price of its
common stock, the Company has proposed that the exercise price of the warrants
be lowered to $0.50 per share.
As originally proposed as part of the Blair Transaction, the holders of the
Subordinated Notes would exchange their notes for a new class of subordinated
notes (the "Replacement Notes") paying 12% interest in two components - 10% in
cash interest and 2% in payment-in-kind ("PIK") interest. Because of the
developments with the Company's European Credit Facility discussed in Note 11,
the Company has proposed modifying the terms of the proposed exchange. Instead
of issuing Replacement Notes, the Company proposes to exchange 15,000 shares of
12% Junior Cumulative Redeemable Preferred Stock, $1,000 liquidation preference
per share, (the "Junior Preferred Stock") for the Subordinated Notes. Dividends
on the Junior Preferred Stock would cumulate if not paid. The Company would also
issue warrants to purchase up to 534,873 shares of its common stock with a
proposed exercise price of $0.50 per share in exchange for a like number of
currently outstanding common stock purchase warrants with an exercise price of
$7.54 per share.
As part of the proposed Blair Transaction, the Company and the Domestic
Senior Lenders reached an agreement in principle for a waiver of default and
amendment to the Domestic Credit Facility. The agreement in principle would
involve applying $20.85 million in net proceeds from the Blair Transaction to
reduce borrowings under the term loan by $10.91 million and revolving credit
facility by $9.94 million. Outstanding borrowings, after repayments, under the
acquisition and term loans would be consolidated into a new term loan (the "New
Term Loan") of $21.64 million. The Domestic Senior Lenders would grant a
two-year moratorium on scheduled principal payments for the New Term Loan.
Proposed scheduled principal payments would be $1 million in 2002 and $20.64
million in 2003. The revolving credit facility commitment would revert from the
existing commitment of $27 million to $25 million and availability under the
facility would be an amount not to exceed $10 million.
Because of the developments with respect to the European Credit Facility
discussed in Note 11, the Company has proposed a modification to its agreement
in principle with the Domestic Senior Lenders that would permit a portion of the
$20.85 million in proceeds from the Blair Transaction originally reserved for
principal reductions on the Domestic Credit Facility to instead be reserved for
principal reductions on the European Credit Facility. The Company has further
proposed to dedicate a portion of its domestic cash flow toward debt service on
the European Credit Facility. The Domestic Senior Lenders have not agreed to
these proposed modifications and the Company can give no assurances it will be
able to successfully negotiate and ultimately complete the arrangement as
proposed.
Consummation of the proposed investment is subject to certain conditions,
including satisfactory completion of due diligence by Blair and the approval by
the Company's Domestic Senior Lenders and the holders of the Subordinated Notes.
As of November 10, 2000, the Company had $3.1 million of availability under
the Domestic Credit Facility and has been meeting its operating cash flow needs.
Management expects to generate additional cash flow by improving the management
of its working capital and is exploring raising additional cash from the sale of
non-strategic assets.
There can be no assurance that the Company will be able to successfully
complete the Blair Transaction, the proposed restructuring of its credit
facilities or secure alternative financing or capital. If the Company is unable
to complete these transactions or otherwise raise additional capital and
increase its liquidity, the Company may not be able to continue to operate as a
going concern.
5
<PAGE> 8
3. RESTRUCTURING OF OPERATIONS
The following is an analysis of the restructuring reserves and cash
outlays from July 1, 2000 to September 30, 2000:
<TABLE>
<CAPTION>
Employee Disposal
(In thousands) Separations Costs Other Total
----------- ----------- ----------- --------
<S> <C> <C> <C> <C>
Restructuring charges:
Balance at July 1, 2000 $ 1,227 $ 116 $ -- $ 1,343
Fiscal 2001 charges -- -- -- --
Fiscal 2001 cash outlays (792) (116) -- (908)
Currency translation 96 -- -- 96
----------- ----------- ----------- --------
Balance at September 30, 2000 $ 531 $ -- $ -- $ 531
=========== =========== =========== ========
</TABLE>
The Company made cash payments totaling $792,000 to 17 employees whose
services were terminated and $116,000 for disposal costs during the first three
months of fiscal 2001. The cash payments made related to restructuring reserves
recognized in fiscal 2000. The Company expects to make cash payments at least
equal to the remaining amount reserved during fiscal year 2001.
4. RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." The
staff accounting bulletin is effective no later than the Company's second
quarter of fiscal year 2001. The Company is in the process of determining the
impact that adoption will have on its consolidated financial statements.
5. INVENTORIES
Inventories are summarized below (in thousands):
<TABLE>
<CAPTION>
July 1, September 30,
2000 2000
----------- -------------
<S> <C> <C>
Finished goods $ 8,620 $ 9,185
Raw materials 8,568 8,854
Work in process 6,116 3,851
----------- -------------
$ 23,304 $ 21,890
=========== =============
</TABLE>
6. PER SHARE INFORMATION
The following table sets forth the weighted average shares outstanding
for the computation of basic and diluted earnings per share:
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
October 2, September 30,
1999 2000
---------- -------------
(Share data in thousands)
<S> <C> <C>
Weighted average common shares outstanding 5,432 6,039
Dilutive securities - employee stock options -- --
---------- -------------
Weighted average common shares outstanding
assuming full dilution 5,432 6,039
========== =============
</TABLE>
Options to purchase 492,055 and 409,274 shares of common stock and
warrants to purchase 534,873 shares of common stock were outstanding as of
October 2, 1999 and September 30, 2000, respectively, but were not included in
the computation of diluted earnings per share because their assumed exercise
would have been anti-dilutive to earnings per share.
6
<PAGE> 9
7. FOREIGN CURRENCY TRANSLATION
The Company's foreign subsidiaries use the local currency as their
functional currency. Financial statements of these subsidiaries are translated
into U.S. dollars using the exchange rate at the balance sheet dates for assets
and liabilities and a weighted average exchange rate for each period for
revenues, expenses, gains and losses and cash flows. The impact of currency
fluctuations is recorded as comprehensive loss. For the three months ended
September 30, 2000, the Company had a foreign currency translation loss of $2.1
million which is recorded as comprehensive loss and is classified as a separate
component of stockholders' equity. As of September 30, 2000, the Company had
other accumulated comprehensive loss of $4.3 million related to a cumulative
foreign currency translation loss.
8. INCOME TAXES
The Company's provision for income taxes differs from the U.S. statutory
rate of 34% due to valuation allowances recorded in fiscal 2001 on tax assets,
state taxes, non-deductible goodwill amortization, a non-taxable warrant
valuation adjustment and other permanent differences.
9. IMPAIRMENT OF LONG-LIVED ASSETS
At September 30, 2000, the Company determined that the carrying amount of
certain assets held for use exceeded an estimate of their fair value.
Accordingly, the Company recorded an impairment loss of $1.0 million to reduce
the carrying value of goodwill related to B.V. van Delden, a wholly-owned
subsidiary that was acquired by Welna N.V. in May 1997, to net realizable value.
10. DERIVATIVES AND HEDGING ACTIVITIES
Effective July 2, 2000, the Company adopted Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities, and its amendment Statements 137 and 138 ("SFAS 133"). The statement
establishes accounting and reporting standards for derivative instruments
embedded in other contracts and for hedging activities. All derivatives, whether
designated in hedging relationships or not, are required to be recorded on the
balance sheet at fair value. If the derivative is designated as a fair value
hedge, the changes in the fair value of the derivative and the hedged item
attributable to the hedged risk are recognized in earnings. If the derivative is
designated as a cash flow hedge, the effective portions of changes in the fair
value of the derivative are recorded in other comprehensive income and are
recognized in the statement of operations when the hedged item affects earnings.
Ineffective portions of changes in the fair value of cash flow hedges are
recognized in earnings.
The Company uses derivative instruments to manage interest rate risks
related to a portion of its long-term European borrowings. The Company uses
fixed interest rate option agreements, designated as a cash flow hedges, to
hedge a portion of the Company's floating rate borrowings in Europe which mature
in 2001 and 2005.
The amount of this derivative and hedging activity is not material to the
financial position and results of operations of the Company. Due to the
immaterial amount of this activity, the effect of adopting SFAS 133 on the
Company's results of operations and financial position was immaterial.
7
<PAGE> 10
11. LONG-TERM DEBT
DOMESTIC CREDIT FACILITY
The Company has a $59.55 million senior credit facility (the "Domestic
Credit Facility") with a group of lenders led by CIBC World Markets Group (the
"Domestic Senior Lenders") consisting of a $17.25 million term loan facility, a
$15.3 million acquisition loan facility and a $27 million revolving credit
facility that expires on January 12, 2004. At September 30, 2000, the Company
had $56.5 million in borrowings outstanding under this facility. The Domestic
Credit Facility includes covenants requiring the maintenance of financial
conditions including domestic maximum leverage, consolidated maximum leverage,
domestic maximum senior leverage, consolidated maximum senior leverage, domestic
minimum interest coverage, consolidated minimum interest coverage, domestic
minimum fixed charge coverage and consolidated minimum fixed charge coverage
ratios. Beginning with the calendar quarter ended December 31, 1999 and each
calendar quarter thereafter, the Company was not in compliance with these
covenants.
On June 30 and September 30, 2000, the Company failed to make required
principal payments of $750,000 (a total of $1,500,000) on the term loan portion
of the Domestic Credit Facility. On September 30, 2000, the Company did not make
a required principal payment of $765,000 due on the acquisition loan portion of
the facility. The Company and the Domestic Senior Lenders executed a forbearance
agreement and subsequent extensions whereby unpaid principal installments due
have been deferred until November 30, 2000 (the "Forbearance Period"). During
the Forbearance Period, the borrowings under the Domestic Credit Facility bear
default interest at 2% in addition to the base rate plus applicable margin.
Among the conditions of the forbearance agreement, the Company agreed to defer
interest payments due to the holders of its Subordinated Notes and obtained an
agreement from the noteholders to waive any default resulting solely from its
failure to make such payments from June 30 to December 31, 2000. Although the
Domestic Senior Lenders have not expressed their intent to accelerate the
maturity of these borrowings, they retain the right to do so. Upon consummation
of the proposed Blair Transaction discussed in Note 2, the Company will use the
net proceeds obtained to reduce its borrowings under the Domestic Credit
Facility.
Without completion of the proposed recapitalization, the Company does not
anticipate that it will be in compliance with the financial covenants of its
credit agreement during the remainder of fiscal 2001. The Company has not
requested and has not received waivers for these covenant violations from the
Domestic Senior Lenders and, as a result, has classified these obligations as
current liabilities in the accompanying consolidated balance sheets as of July
1, 2000 and September 30, 2000.
SENIOR SUBORDINATED NOTES
On July 1, 1999, the Company issued $15 million, or $13.3 million net of
discount, in senior subordinated notes ("Subordinated Notes") bearing interest
at 12% and maturing in 2006. Of the total Subordinated Notes issued, $4,002,000
were sold to certain directors of the Company. These amounts are classified
separately as related party subordinated debt on the Company's consolidated
balance sheet for the periods ended July 1 and September 30, 2000.
The note and warrant purchase agreement related to the Company's
Subordinated Notes contains financial covenants for the maintenance of domestic
maximum leverage ratios, domestic maximum senior leverage ratios, minimum
domestic interest coverage and minimum domestic fixed charge ratios. As of the
calendar quarter ending December 31, 1999 and each calendar quarter thereafter,
the Company did not comply with these covenants. As part of its forbearance
agreement with its Domestic Senior Lenders, the Company did not make scheduled
interest payments of approximately $450,000 on the Subordinated Notes that were
due on June 30 and September 30, 2000 (approximately $900,000 in total) and
further agreed to make no payments to holders of the Subordinated Notes through
the Forbearance Period.
8
<PAGE> 11
The Company has sought, but has not obtained an agreement from the
Subordinated Note holders, to waive the default resulting from the Company's
non-compliance with the financial covenants contained in the note and warrant
purchase agreement. The holders of the Subordinated Notes agreed to waive any
default resulting solely from the non-payment of interest due for the period
from June 30 to December 31, 2000. The Company continues to be in default of the
financial covenants contained in the note and warrant purchase agreement.
Although the note holders have not expressed their intent to accelerate the
maturity of these borrowings, they retain the right to do so. Because of the
foregoing, the Company has classified these obligations as current liabilities
in the accompanying consolidated balance sheets as of July 1 and September 30,
2000.
In connection with its recapitalization as originally proposed, the
Company would exchange Replacement Notes for the existing Subordinated Notes.
The Replacement Notes would have paid interest at 12%, but 2% of such interest
will be in the form of payment-in-kind ("PIK") interest whereby the Company
would have issued Replacement Notes with a principal amount equal to the amount
of PIK interest. The maturity date of the Replacement Notes would have been
extended to December 31, 2008. However, due to the developments related to the
European Credit Facility discussed below, the Company has proposed a
modification to the proposed exchange. Instead of issuing Replacement Notes, the
Company proposes to exchange 15,000 shares of 12% Junior Cumulative Redeemable
Preferred Stock, $1,000 liquidation preference per share, (the "Junior Preferred
Stock") for the Subordinated Notes. Dividends on the Junior Preferred Stock
would cumulate if not paid.
The Subordinated Notes were issued with detachable warrants that enable the
holder to purchase up to 534,873 common shares at $7.54 per share. The warrants
are exercisable immediately and expire in 2006. The warrants or warrant shares
also feature a put option. The put option allows the holder to put up to 1/3 of
the warrants or warrant shares each year at fair market value beginning in year
five and expiring in year ten. At the date of issuance, the fair value of the
warrants was $1,733,000 based on the Black-Scholes valuation model. The fair
value of the warrants was recorded as a liability and a corresponding amount was
recorded as a discount on the Subordinated Notes. The discount is being
amortized over the seven-year term of the Subordinated Notes as additional
interest expense. During the three months ended September 30, 2000, the Company
adjusted the fair value of the warrant put option from $348,000 at July 1, 2000
to $209,000 and recorded a gain of $139,000 as other income in the statement of
operations. If the Blair transaction is completed as currently proposed, new
warrants with an exercise price of $0.50 per share will be issued in exchange
for the currently outstanding warrants.
EUROPEAN CREDIT FACILITY
The Company has a senior credit facility ("European Credit Facility") with
ABN-AMRO and ING Bank (the "European Senior Lenders") with a principal balance
of NLG 22.5 million, or approximately $9 million, outstanding as of September
30, 2000. The facility is secured by substantially all of Welna's assets.
The agreement for the European Credit Facility stipulates financial
covenants requiring the Company's European operations to maintain specified
levels of tangible net worth, maximum leverage ratio, and minimum interest
coverage and debt service coverage ratios. Beginning on July 1, 2000 and
subsequent thereto, the Company was not in compliance with these covenants. The
Company requested but did not receive a waiver of its violations of the
financial covenants of the credit agreement. On October 1, 2000, the Company did
not make a NLG 625,000 ($249,322) principal payment due on that date. The
Company has held negotiations with the European Senior Lenders to amend the
terms and conditions of the facility but as of November 13, 2000, has not
reached an agreement for such an amendment. Among the alternatives being
considered are using a portion of the proceeds from the Blair Transaction to
reduce the amount of principal outstanding on the European Credit Facility and
dedicating a portion of the Company's domestic cash flow toward debt service on
the facility. Any such amendment would require changes to the agreement in
principle that the Company has with its Domestic Senior Lenders. Because the
European Senior Lenders have the right to accelerate the maturity of these
borrowings, the outstanding amount for this obligation is classified as current
liabilities in the consolidated balance sheets as of July 1 and September 30,
2000.
9
<PAGE> 12
EUROPEAN FIVE YEAR TERM LOAN
In June 1999, as part of a NLG 40 million ($15.9 million) credit facility
granted by ABN-AMRO, the Company assumed an existing NLG 5 million, five year
term loan with an outstanding principal balance of NLG 2,500,000 ($1,161,000 at
July 3, 1999). The loan is payable in NLG 500,000 ($199,458) semi-annual
installments with the final payment due on September 1, 2001.
The credit agreement for the loan contains a covenant specifying a minimum
level of tangible net worth to be maintained by the Company's European
operations. At July 1, 2000, the Company was not in compliance with this
covenant. The Company has requested, but as of November 13, 2000, has not
received a waiver for this covenant violation from the lender. On September 1,
2000, the Company failed to make a required NLG 500,000 ($199,458) principal
payment. Because the lender has the right to accelerate the maturity of these
borrowings, this obligation is classified as current liabilities in the
consolidated balance sheets as of July 1 and September 30, 2000.
12. STOCKHOLDERS' EQUITY
COMMON STOCK
In August 2000, the Company completed a private placement of 700,000 shares
of common stock at $2.00 per share to two of its founding directors.
WARRANTS TO ACQUIRE COMMON STOCK
As discussed in Note 11, the Company issued warrants to purchase 534,873
common shares at $7.54 per share in connection with the issuance of the
Subordinated Notes.
In connection with an amendment to the Domestic Credit Facility on
February 24, 2000, the Company issued warrants to its Domestic Senior Lenders
entitling them to the right to purchase up to 1,000,000 shares at a price of
$0.01 per share. Beginning on July 31, 2000, and until December 31, 2000, a
portion of the warrants are exercisable on the last day of each month in which
the required equity financing stipulated in the amendment has not been obtained.
The warrants are exercisable on the following schedule:
<TABLE>
<CAPTION>
Number of
Month Ended Warrants Exercisable
----------- --------------------
<S> <C>
July 31, 2000 250,000
August 31, 2000 250,000
September 30, 2000 200,000
October 31, 2000 100,000
November 30, 2000 100,000
December 31, 2000 100,000
----------
Total 1,000,000
==========
</TABLE>
As discussed in Note 11, the Domestic Senior Lenders executed a
forbearance agreement and subsequent extensions wherein they agreed to defer
their right to exercise their warrants to purchase the Company's common stock
for the periods ended July 31 through November 30, 2000. The Domestic Senior
Lenders further agreed to surrender their warrants at the time the proposed
Blair Transaction is consummated. Due to the contingency as to the ultimate
exercisability of the warrants, no value has been recorded to the warrants at
the date of grant. The Company will recognize a charge for the fair value of the
warrants upon resolution of the contingent terms if the warrants become
exercisable.
10
<PAGE> 13
13. COMMITMENTS AND CONTINGENCIES
The Company utilizes fiberglass, resin and steel as the primary raw
materials in its production processes. Fiberglass is occasionally in short
supply and subject to price fluctuations in response to market demands. The
Company entered into a supply agreement with a major supplier, which required
two of the Company's subsidiaries, Containment Solutions and Ershigs, to
purchase at least 90% of their fiberglass requirements from the supplier. The
contract expired on December 31, 1998. Effective January 1, 1999, the contract
was modified to obtain more favorable pricing levels based on certain minimum
volume purchases for the calendar years ended December 31, 1999 and 2000. In
addition, the Company continues to negotiate with other vendors to ensure a
continued supply of fiberglass to meet the Company's production needs. The
Company is also a significant purchaser of resin and steel. The Company does not
depend upon any single supplier or source for steel or resin requirements.
The Company has not encountered any significant difficulty to date in
obtaining raw materials in sufficient quantities to support its operations at
current or expected near-term future levels. However, any disruption in raw
material supply or abrupt increases in raw material prices could have an adverse
effect on the Company's operations.
The Company and its subsidiaries are, from time to time, subject to various
lawsuits and claims and other actions arising out of the normal course of
business. The Company is also subject to contingencies pursuant to environmental
laws and regulations that in the future may require the Company to take action
to correct the effects on the environment of prior manufacturing and waste
disposal practices. Accrued environmental liabilities at September 30, 2000 were
$363,000 and, in management's opinion, such accruals are appropriate based on
existing facts and circumstances. Under more adverse circumstances, however,
this potential liability could be higher. Current year expenditures were not
material.
While the effect on future results of the items noted above is not subject
to reasonable estimation because considerable uncertainty exists, in the opinion
of management, the ultimate liabilities resulting from such claims will not
materially affect the consolidated financial position, results of operations or
cash flows of the Company.
14. SEGMENT DATA
The following is a summary of the industry segment data for the three months
ended October 2, 1999 and September 30, 2000 (in thousands):
<TABLE>
<CAPTION>
Net Revenues Operating Income
------------ ----------------
<S> <C> <C>
Three months ended October 2, 1999:
Containment Solutions $ 16,721 $ 1,195
Plasticon Fluid Systems 16,495 1,041
Plasticon Europe 9,149 (632)
Hanwel Europe 6,001 733
Corporate -- (575)
------------ -----------
Consolidated $ 48,366 $ 1,762
============ ===========
Three months ended September 30, 2000:
Containment Solutions $ 15,811 $ 1,019
Plasticon Fluid Systems 19,626 980
Plasticon Europe 10,375 (236)
Hanwel Europe 5,572 (337)
Corporate -- (584)
------------ -----------
Consolidated $ 51,384 $ 842
============ ===========
</TABLE>
11
<PAGE> 14
Operating income reconciles to income before taxes as shown on the
consolidated statements of operations as follows (in thousands):
<TABLE>
<CAPTION>
October 2, 1999 September 30, 2000
--------------- ------------------
<S> <C> <C>
Total segment operating income $ 1,762 $ 842
Interest expense 2,114 2,774
Interest income (125) (18)
Other income, net (973) (201)
----------- -----------
Income before income taxes $ 746 $ (1,713)
=========== ===========
</TABLE>
15. SEASONALITY
The Company's operating results are affected by the annual construction
season slowdown resulting from winter weather especially in the period December
through March. The underground fiberglass tank products are especially impacted
during the winter months. The Company believes that the effects of seasonality
will be less severe in the future, as the Company continues to expand and
diversify its product offerings.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Denali Incorporated is a provider of products and services for handling
critical fluids, which are liquids, liquid mixtures, and slurries that are
economically valuable or potentially hazardous to the environment. The Company
is a manufacturer of fiberglass-composite underground storage tanks; steel
aboveground storage tanks; and engineered fiberglass-reinforced
plastic-composite products for corrosion-resistant applications.
Since inception in 1994, the Company has acquired twelve businesses. Due to
the magnitude of these acquisitions and the integration of the acquired
operations with the Company's existing businesses, results of operations for
prior periods are not necessarily comparable with or indicative of current or
future periods. Each of the acquisitions has been accounted for under the
purchase method of accounting. Accordingly, the acquired businesses have been
included in the Company's results of operations from the date of acquisition.
The Company operates in four business segments described as follows:
Containment Products Group - "Containment Solutions"
The Company was formed in December 1994 to acquire certain assets and assume
certain liabilities of the fiberglass composite UST business of Owens Corning,
including five manufacturing facilities. The Company closed two of the
manufacturing facilities and significantly restructured the operations of this
business at the time of purchase.
In October 1995, the Company acquired certain assets and assumed certain
liabilities of Hoover Containment, Inc. ("Hoover"), a manufacturer of steel
rectangular ASTs. The addition of the steel rectangular AST product line enabled
the Company to offer a broader line of containment products and to expand its
customer base.
Engineered Products Group - "Plasticon Fluid Systems"
In February 1997, the Company acquired Ershigs, Inc. ("Ershigs"), a
manufacturer of engineered FRP products, as the first of the Company's
Engineered Products Group. The acquisition was made in order to diversify the
Company's end- use markets for FRP products.
12
<PAGE> 15
In October 1997, the Company acquired SEFCO Inc. ("SEFCO"), a manufacturer
of engineered field-erected aboveground steel tanks, and also acquired
GL&V/LaValley Industries, Inc. ("LaValley") (subsequently named "Ershigs
Biloxi"), a manufacturer of engineered FRP products.
In May 1998, the Company acquired CC&E, a leading North American field
constructor of fiberglass-reinforced plastic products and integrated the
operations into Ershigs.
In June 1998, the Company acquired Fibercast Company, a leading manufacturer
of fiberglass-reinforced plastic piping systems specializing in highly corrosive
environments. Certain selling, general and administrative functions have been
combined with Ershigs for purposes of efficiency.
In November 1998, the Company acquired Plasti-Fab, Inc., a leading provider
of fiberglass-reinforced gates, flumes and metering stations to the water and
wastewater industries.
In February 1999, the Company acquired Belco Manufacturing Company, Inc. and
certain assets and assumed certain liabilities of S. Jones Limited Partnership
(collectively "Belco"). Belco manufactures engineered fiberglass-reinforced
plastic tanks, vessels and piping systems. Belco's products are sold primarily
into the water/wastewater and oil and gas industries where corrosion-resistant
products are needed.
In September 1999, the Company acquired 67.5% of the issued and outstanding
stock of Manantial Chile S.A. ("Manantial"), a company that designs, equips,
installs and commissions industrial and municipal water and wastewater treatment
plants and systems.
Belco, Fibercast, Ershigs, SEFCO, Plasti-Fab and Manantial form the
Company's Engineered Products Group known as Plasticon Fluid Systems.
Plasticon Europe
On July 1, 1999, the Company acquired Welna, N.V., a company which operates
through two divisions, Plasticon Europe and Hanwel Europe. Plasticon Europe
designs, manufactures, and installs all forms of FRP pipe systems, vessels and
other related equipment requiring high levels of corrosion resistance. Plasticon
Europe's principal manufacturing locations are in The Netherlands, Poland, the
United Kingdom, France and Germany.
Hanwel Europe
Hanwel Europe is a distribution operation that specializes in high quality
products and engineered systems for power generation, water treatment, and paper
and chemical processing industries.
In November 1999, Welna, N.V. acquired HP Valves Oldenzaal B.V., a
manufacturer of medium and high-pressure valves.
RESULTS OF OPERATIONS
Our results of operations are affected by the level of economic activity in
the industries served by our customers, which in turn may be affected by other
factors, including the level of economic activity in the U.S. and foreign
markets they serve. The principal industries served by our clients are the
petroleum, petrochemical, chemical, water, wastewater, microelectronics,
pharmaceutical, and power generation industries. An economic slowdown in these
industries could result in a decrease in demand for our products and services,
which could adversely affect our operating results.
This section should be read in conjunction with our consolidated financial
statements included elsewhere.
13
<PAGE> 16
The following table sets forth certain operating statement information for
each of the Company's business segments for each of the periods presented.
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------
October 2, September 30,
1999 2000
----------- -------------
<S> <C> <C>
Net revenues:
Containment Solutions............................ $ 16,721 $ 15,811
Plasticon Fluid Systems.......................... 16,495 19,626
Plasticon Europe................................. 9,149 10,375
Hanwel Europe.................................... 6,001 5,572
--------- ---------
Total net revenues............................. $ 48,366 $ 51,384
========= =========
Cost of revenues:
Containment Solutions............................ $ 12,509 $ 12,443
Plasticon Fluid Systems.......................... 12,793 15,737
Plasticon Europe................................. 6,778 8,184
Hanwel Europe.................................... 3,920 3,726
--------- ---------
Total cost of revenues......................... $ 36,000 $ 40,090
========= =========
SG&A:
Containment Solutions............................ $ 2,571 $ 2,349
Plasticon Fluid Systems.......................... 2,661 2,909
Plasticon Europe................................. 2,103 2,427
Hanwel Europe.................................... 1,349 1,145
Corporate........................................ 575 584
--------- ---------
Total SG&A $ 9,204 $ 9,414
========= =========
Impairments of long-lived assets:
Containment Solutions............................ $ -- $ --
Plasticon Fluid Systems.......................... -- --
Plasticon Europe................................. -- --
Hanwel Europe.................................... -- 1,038
Corporate........................................ -- --
--------- ---------
Total impairments.............................. $ -- $ 1,038
========= =========
Restructuring:
Containment Solutions............................ $ 500 $ --
Plasticon Fluid Systems.......................... -- --
Plasticon Europe................................. 900 --
Hanwel Europe.................................... -- --
Other............................................ -- --
Corporate........................................ -- --
--------- ---------
Total restructuring............................ $ 1,400 $ --
========= =========
Operating income (loss):
Containment Solutions............................ $ 1,195 $ 1,019
Plasticon Fluid Systems.......................... 1,041 980
Plasticon Europe................................. (632) (236)
Hanwel Europe.................................... 733 (337)
Corporate........................................ (575) (584)
--------- ---------
Total operating income ........................ $ 1,762 $ 842
========= =========
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH THREE MONTHS ENDED OCTOBER
2, 1999
The Company's results of operations for fiscal 2001 were not
significantly affected by the inclusion of acquired companies. The results for
Manantial and HP Valves were included for the period from the dates of their
acquisition, September 1999 and November 1999, respectively.
14
<PAGE> 17
Net Revenues. Consolidated net revenues for the three months ended
September 30, 2000 were $51.4 million compared to $48.4 million for the three
months ended October 2, 1999, an increase of $3.0 million, or 6%. The increase
in net revenues is due to higher net revenues for Plasticon Fluid Systems and
Plasticon Europe of $3.1 million and $1.2 million, respectively. Lower net
revenues for Containment Solutions and Hanwel Europe offset the increases in net
revenues by $0.9 million and $0.4 million, respectively.
Net revenues for the three months ended September 30, 2000 would have
been $2.5 million higher if foreign currency denominated net revenues (primarily
Plasticon Europe and Hanwel Europe) were translated at the exchange rate used
for the three months ended October 2, 1999. The reduction in the U.S. dollar
value of foreign net revenues in the first quarter of fiscal 2001 is a result of
the weakening of the exchange rate between the Dutch guilder, the functional
currency of Plasticon Europe and Hanwel Europe, and the U.S. dollar.
Net revenues for Containment Solutions declined to $15.8 million for the
three months ended September 30, 2000 compared with $16.7 million for the three
months ended October 2, 1999, a decrease of $0.9 million, or 5%. The decrease in
net revenues is due to pricing pressures resulting from increased competition in
Containment Solutions' steel tank product line.
Plasticon Fluid Systems' net revenues rose $3.1 million, or 19%, for the
three months ended September 30, 2000 compared with the three months ended
October 2, 1999. The increase is primarily attributable to $2.5 million and $0.4
million in higher net revenues for Ershigs and SEFCO. Ershigs benefited from
increased activity on behalf of its customers in the power generation and
process industries. SEFCO had an increased level of activity related to its
municipal water and wastewater customers. In fiscal 2000, SEFCO refocused its
business to concentrate on the municipal markets and experienced greater success
in securing new projects in those markets.
For the three months ended September 30, 2000, Plasticon Europe's net
revenues increased by $1.2 million, or 13%, to $10.4 million compared with $9.1
million in net revenues for the three months ended October 2, 1999. If Plasticon
Europe's net revenues, all of which were denominated in foreign currency, were
translated at the exchange rate used for the three months ended October 2, 1999
the increase would have been $1.6 million higher. Capital expenditures made by
Plasticon Europe's customers in the chemical and petrochemical industries have
increased, resulting in increased revenue for Plasticon Europe.
Net revenues of Hanwel Europe for the three months ended September 30,
2000 were $5.6 million, $0.4 million, or 7% lower than the three-month period
ended October 2, 1999. The decrease is due to the effects of a stronger U.S.
dollar. If Hanwel Europe's net revenues were translated at the exchange rate
used for the three months ended October 2, 1999, net revenues would have
actually increased $0.9 million, or 15%.
Cost of Revenues. Consolidated cost of revenues rose $4.1 million, or
11%, for the three months ended September 30, 2000 compared with the three
months ended October 2, 1999. Higher cost of revenues for Plasticon Fluid
Systems and Plasticon Europe account for $2.9 million and $1.4 million of the
increase, respectively. These increases were offset by a $0.2 million decrease
for Hanwel Europe.
Consolidated gross margin decreased by $1.0 million. Consolidated gross
margin as a percentage of net revenues declined to 22% for the three months
ended September 30, 2000 compared with 26% for the three months ended October 2,
1999, a decrease of 15%. Decreases in gross margins for Containment Solutions
and Hanwel Europe were $0.8 million and $0.2 million, respectively.
Cost of revenues for Containment Solutions decreased by $0.1 million,
or 1%, for the three months ended September 30, 2000 compared with the three
months ended October 2, 1999. The decrease is attributable to the decrease in
revenues noted above. Gross margin declined by $0.8 million. As a percentage of
net revenues, Containment Solutions' gross margin decreased 16% to 21% for the
three months ended September 30, 2000 compared with 25% for the three months
ended October 2, 1999. The decrease in margins is mainly due to pricing
pressures resulting from increased competition in the steel tank product line.
15
<PAGE> 18
Plasticon Fluid Systems' cost of revenues increased by $2.9 million, or
23%, for the three months ended September 30, 2000 compared with the three
months ended October 2, 1999. Higher levels of activity at Ershigs and SEFCO
accounted for $2.7 million and $0.2 million of the increase, respectively.
Plasticon Fluid Systems' gross margin increased $0.2 million. As a percentage of
net revenues, Plasticon Fluid System's gross margin fell 12% to 20% for the
three months ended September 30, 2000 compared with 22% for the three months
ended October 2, 1999.
The increase in Ershigs' cost of revenues is due to higher activity for
its power generation and process industry customers. However, due to cost
overruns associated with unsatisfactory performance on these contracts, the
increase in Ershigs cost of revenues exceeded the increase in its net revenues,
contributing to the overall decline in Plasticon Fluid System's gross margin.
Plasticon Europe's cost of revenues increased by $1.4 million, or 21%,
for the three months ended September 30, 2000 compared with the three months
ended October 2, 1999. The increase is attributable to higher net revenues from
an increase in activity. Gross margin for the three months ended September 30,
2000 declined by $0.2 million when compared with the three months ended October
2, 1999. Gross margin as a percentage of net revenues decreased by 19% to 21%
for the three months ended September 30, 2000 compared with 26% for the three
months ended October 2, 1999. The decreases are due to a mix of lower margin
jobs in the first quarter of fiscal 2001 when compared to the same period in
fiscal 2000.
Hanwel Europe's cost of revenues decreased slightly by $0.2 million, or
5%, to $3.7 million for the three months ended September 30, 2000 compared with
$3.9 million for the three months ended October 2, 1999. The decrease is due to
the effect of foreign currency translation noted above.
Impairment of long-lived assets. For the three months ended September 30,
2000, Hanwel Europe recorded an impairment loss of $1.0 million to reduce the
carrying value of the goodwill related to B.V. van Delden, an electronic
components distributor acquired in May 1997, to an amount equal to its estimated
net realizable value.
Restructuring. The following is an analysis of the restructuring reserves
and cash outlays from July 1, 2000 to September 30, 2000:
<TABLE>
<CAPTION>
Employee Disposal
(In thousands) Separations Costs Other Total
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Restructuring charges:
Balance at July 1, 2000 $ 1,227 $ 116 $ -- $ 1,343
Fiscal 2001 charges -- -- -- --
Fiscal 2001 cash outlays (792) (116) -- (908)
Currency translation 96 -- -- 96
----------- ----------- ----------- ---------
Balance at September 30, 2000 $ 531 $ -- $ -- $ 531
=========== =========== =========== =========
</TABLE>
The Company made cash payments totaling $792,000 to 17 employees whose
services were terminated and $116,000 for disposal costs during the first three
months of fiscal 2001. The cash payments made related to restructuring reserves
recognized in fiscal 2000. The Company expects to disburse the remaining amount
reserved during fiscal year 2001.
Interest Expense. Consolidated interest expense increased by $0.7
million, or 33%, to $2.8 million for the three months ended September 30, 2000
compared with $2.1 million for the three months ended October 2, 1999. The
increase is due to higher debt levels and interest rates.
Other Income, Net. Other Income, on a consolidated basis, decreased by
$0.8 million for the three months ended September 30, 2000 compared with the
three-month period ended October 2, 1999. The decrease is primarily due to the
effect of recognizing a lower amount in income for the revaluation of the
Company's put option liability for the warrants issued to the holders of its
Subordinated Notes.
16
<PAGE> 19
Net Income. Due to the factors noted above, net income decreased by $2.7
million to a net loss of $2.0 million for the three month period ended September
30, 2000 compared with net income of $0.7 million for the three month period
ended October 2, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Beginning in fiscal 2000, the Company experienced a greater than expected
downturn in its underground storage tank market. Additionally, in Europe,
capital spending in the petrochemical and chemical processing industry declined
significantly resulting in a decrease in the demand for the Company's products
in those markets. Consequently, the Company has experienced recent operating
losses and significantly decreased cash flows from operations, and the Company's
liquidity has reached extremely low levels. The Company has had to borrow under
its bank facilities to cover its operating losses. In addition, these operating
losses have resulted in the Company breaching the financial covenants in most of
its credit facilities as well as defaulting on interest and principal payments
on certain facilities (See more detailed discussion of credit facilities and
related defaults below).
During the twelve months ended July 1, 2000, the Company implemented a
reorganization plan in an effort to better match its resources with existing
demand levels. During its fiscal 2001 second quarter, the Company is pursuing
further restructuring initiatives in its European operations in response to
continuing over-capacity in its Plasticon Europe business segment. A tentative
proposal has been submitted to union officials and the local workers council to
close Plasticon Europe's manufacturing facility in Heerenveen, The Netherlands.
Additional reductions in personnel have been proposed for Plasticon Europe's
manufacturing facility in Dinslaken, Germany. If the planned restructuring
initiatives for both locations are implemented, approximately 40 manufacturing
positions, or 7% of the total European operations headcount, will be eliminated
and the Company will record a restructuring provision of approximately $2.7
million for the three months ended December 30, 2000. The planned restructuring
would have no effect on future revenues as production would be moved to one of
Plasticon Europe's remaining facilities. The Company estimates that annual
reductions of manufacturing costs will be $1.5 million.
In August 2000, the Company completed a private placement of 700,000 shares
of common stock at $2.00 per share to two of its founding directors.
The Company is currently pursuing a private placement of equity and debt to
raise additional capital and increase its liquidity. This transaction is
described in more detail below under the section Blair Transaction.
As of November 10, 2000, the Company had $3.1 million of availability under
its Domestic Credit Facility and has been meeting its recent operating cash flow
needs. Management expects to generate additional cash flow by improving the
management of its working capital and is exploring raising additional cash from
the sale of non-strategic assets.
At September 30, 2000, the Company had $3.7 million in cash. Included in
the $3.7 million in cash at September 30, 2000 is $1.3 million in cash of a
90%-owned European subsidiary that is prohibited from making loans or advances
to the Company. Additionally, $1.4 million in cash is held by several
wholly-owned European subsidiaries that are subject to credit agreements with
foreign banks that restrict payments of loans or advances to the Company by
those subsidiaries.
There can be no assurance that the Company will be able to successfully
complete the Blair Transaction (see discussion below), the proposed
restructuring of its credit facilities or secure alternative financing or
capital. If the Company is unable to complete these transactions or otherwise
raise additional capital and increase its liquidity, the Company may not be able
to continue to operate as a going concern.
17
<PAGE> 20
CASH FLOW
The net cash provided by (used in) operating, investing and financing
activities for the three months ended October 2, 1999 and September 30, 2000 is
as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
October 2, September 30,
1999 2000
---------- -------------
<S> <C> <C>
Cash provided by (used in):
Operating activities $ (7,209) $ (1,430)
Investing activities (2,077) (237)
Financing activities 9,838 2,702
</TABLE>
Net cash used in operating activities decreased by $5.8 million for the
three months ended September 30, 2000 compared with the three months ended
October 2, 1999. The increase is primarily due to the effect of improved working
capital management.
Net cash used in investing activities decreased $1.8 million for the three
months ended September 30, 2000 compared with the three months ended October 2,
1999 due to a lower level of acquisition activity and lower capital
expenditures. Capital expenditures totaled $0.3 million for the three months
ended September 30, 2000 compared with $1.6 million for the three months ended
October 2, 1999.
Cash flows provided by financing activities decreased approximately $7.1
million for the three months ended September 30, 2000 compared with the three
months ended October 2, 1999 due to a decrease in net borrowings of $8.5
million. The decrease in net borrowings was offset by an increase in proceeds
from the issuance of common stock of $1.4 million. The net borrowings incurred
during the three months ended September 30, 2000 were used for working capital
needs.
WORKING CAPITAL
At September 30, 2000, the Company had negative working capital of $57.7
million compared to $60.8 million in negative working capital at July 1, 2000,
an increase of $3.1 million. The increase was primarily due to the use of $1.4
million in proceeds from issuance of common stock to bolster the Company's
liquidity and improved management of working capital.
PRINCIPAL DEBT INSTRUMENTS
At September 30, 2000, the Company had total borrowings of $103.1 million
outstanding under its principal credit facilities and debt instruments. The
Company is in default under the terms of its Domestic Credit Facility,
Subordinated Notes and European Credit Facility.
In May 2000, the Company signed a letter of intent with William Blair
Mezzanine Capital Partners III, L.P. ("Blair") for the purpose of refinancing
its long-term obligations (the "Blair Transaction"). The Company entered into a
revised letter of intent with Blair in July 2000. See below for a separate
discussion of the Blair Transaction.
DOMESTIC CREDIT FACILITY
The Company has a $59.55 million domestic senior credit facility (the
"Domestic Credit Facility") with a group of banks led by CIBC World Markets (the
"Domestic Senior Lenders") that expires on January 12, 2004. The Domestic Credit
Facility is comprised of $17.25 million of term loans, $15.3 million of
acquisition loans, and a revolving credit facility of $27.0 million. At
September 30, 2000, the Company had $56.5 million in borrowings outstanding
under this facility.
18
<PAGE> 21
The credit agreement covering the Domestic Credit Facility contains
covenants requiring the maintenance of financial conditions including domestic
maximum leverage, consolidated maximum leverage, domestic maximum senior
leverage, consolidated maximum senior leverage, domestic minimum interest
coverage, consolidated minimum interest coverage, domestic minimum fixed charge
coverage and consolidated minimum fixed charge coverage ratios. The Company was
not in compliance with these covenants beginning with the calendar quarter ended
December 31, 1999 and each calendar quarter thereafter. The Company was unable
to meet the conditions necessary to obtain a waiver for the covenant violations
that occurred in the calendar quarter ended December 31, 1999 and did not seek
waivers for the reporting dates of March 31, June 30 and September 30, 2000. On
June 30 and September 30, 2000, the Company did not make required principal
payments of $750,000 (a total of $1,500,000) on the term loan portion of the
Domestic Credit Facility. On September 30, 2000, the Company did not make a
required principal payment of $765,000 on the acquisition loan portion of the
Domestic Credit Facility. As of September 30, 2000, the Company is in violation
of the credit agreement covering the Domestic Credit Facility and although the
Domestic Senior Lenders have not expressed their intention to do so, they have
the right to accelerate the maturity of this obligation. Consequently, the
Company has classified the total amount outstanding under the Domestic Credit
Facility as current liabilities in the accompanying balance sheet.
The Company and its Domestic Senior Lenders executed a forbearance
agreement and subsequent extensions whereby unpaid principal installments due
were deferred until November 30, 2000 (the "Forbearance Period"). During the
Forbearance Period, the borrowings under the Domestic Credit Facility will bear
default interest at 2% in addition to the base rate plus applicable margin. In
connection with the forbearance agreement, the Company agreed to defer interest
payments due to the holders of the Subordinated Notes and obtained an agreement
from the noteholders to waive any default resulting solely from its failure to
make such payments from June 30 to December 31, 2000.
Although the Domestic Senior Lenders have not expressed their intent to
accelerate the maturity of these borrowings, they retain the right to do so.
Upon consummation of the proposed Blair Transaction discussed in Note 2, the
Company will use the net proceeds obtained to reduce its borrowings under the
Domestic Credit Facility.
As part of the Blair Transaction discussed below, the Company is negotiating
a waiver of default and amendment to the Domestic Credit Facility. An agreement
in principle has been reached with the Domestic Senior Lenders as follows:
Principal Reductions
$20.85 million of the proceeds from the Blair Transaction will be
applied to reduce the outstanding borrowings under the Domestic Credit
Facility as follows:
o the outstanding borrowings under the existing term loans will be
reduced from $17.25 million to $6.7 million, or $10.55 million; and
o the amount outstanding under the revolving credit facility will be
reduced from $24.0 million to $13.7 million, or $10.3 million.
New Term Loan
The existing term loan and acquisition facilities will be consolidated
into a new $21.64 million term loan (the "New Term Loan"). The Domestic
Senior Lenders will grant a two-year moratorium on scheduled principal
payments for the New Term Loan. Proposed scheduled principal payments
will be $1 million in 2002 and $20.64 million in 2003.
Revolving Credit Facility
The revolving credit facility commitment will revert from the current
$27 million commitment to $25 million. Simultaneous with the closing of
the Blair Transaction, availability under the revolving credit facility
will be $10 million. Any excess funds above the $10 million of
availability will be applied to reduce the amount outstanding under the
New Term Loan.
19
<PAGE> 22
Asset Dispositions
All proceeds received by the Company from asset dispositions will be
applied to reduce the principal balance outstanding under the New Term
Loan.
Revised Pricing Grid and Financial Covenants
From the effective date of the amendment until September 30, 2002, the
existing pricing grid for base rate and LIBOR loans will no longer be
in effect and all borrowings will bear interest at a rate of LIBOR plus
3.50%. A proposed pricing grid, tied to levels of domestic maximum
leverage ratios, will be reinstated on September 30, 2002.
The financial covenants for domestic total leverage, domestic senior
leverage and domestic fixed charge ratios will be modified setting
forth quarterly ratios from December 31, 2000 to September 30, 2003.
Additionally, the Company's ability to transfer cash to its
non-domestic operations will be restricted.
Because of the developments with respect to the European Credit Facility
discussed below, the Company has proposed a modification to its agreement in
principle with the Domestic Senior Lenders that would permit a portion of the
$20.85 million in proceeds from the Blair Transaction originally reserved for
principal reductions on the Domestic Credit Facility to instead be reserved for
principal reductions on the European Credit Facility. The Company has further
proposed to dedicate a portion of its domestic cash flow toward debt service on
the European Credit Facility.
The Domestic Senior Lenders have not agreed to these proposed modifications
and the Company can give no assurances it will be able to successfully negotiate
and ultimately complete the arrangement as proposed.
EUROPEAN SENIOR CREDIT FACILITY
The Company has a senior credit facility (the "European Credit Facility")
with ABN-AMRO and ING Bank. The European Credit Facility totals 25 million Dutch
guilders ("NLG") ($10.0 million) and is composed of two term loans. Term Loan A
provides for borrowings of NLG 15 million ($6.0 million) with quarterly payments
of NLG 625,000 ($249,322) beginning October 1, 1999. Term Loan B provides for
borrowings of NLG 10 million ($4.0 million) with principal due at the date of
maturity, August 1, 2001. As of September 30, 2000, the Company had outstanding
indebtedness under the European Credit Facility of NLG 22.5 million, or
approximately $9 million. The facility is secured by substantially all of
Welna's assets.
The credit agreement covering the European Credit Facility stipulates
financial covenants requiring Welna to maintain specified levels of tangible net
worth and specified maximum leverage, minimum interest coverage and minimum debt
service coverage ratios. As of July 1, 2000 and subsequent thereto, the Company
was not in compliance with these covenants.
The Company requested, but did not receive, a waiver for the covenant
violations that occurred on July 1, 2000. The Company has not requested a waiver
for the September 30, 2000 reporting date. On October 1, 2000, the Company did
not make a required principal payment of NLG 625,000 ($249,322) due on Term Loan
A. On October 1, 2000, the Company failed to make interest payments of NLG
270,000 ($108,000) and NLG 238,000 ($95,000) due on Term Loans A and B,
respectively. Because the European Senior Lenders have the right to accelerate
the maturity of these borrowings, the Company has classified these obligations
as current liabilities in the accompanying consolidated balance sheets as of
July 1 and September 30, 2000.
20
<PAGE> 23
The Company has held negotiations with the European Senior Lenders to amend
the terms and conditions of the European Credit Facility, but as of November 13,
2000, has not reached an agreement for such an amendment. Among the alternatives
currently being considered are using a portion of the proceeds from the Blair
Transaction to reduce the amount of principal outstanding on the European Credit
Facility and dedicating a portion of the Company's domestic cash flow toward
debt service on the facility. Any such amendment would require changes to the
agreement in principle that the Company has with its Domestic Senior Lenders.
12% SENIOR SUBORDINATED NOTES
The Company has $15.0 million face value, or $13.6 million net of discount
(of which $4.1 million is to certain directors of the Company and is classified
separately as related party subordinated debt on the balance sheet), in 12%
senior subordinated notes (the "Subordinated Notes") outstanding. The
Subordinated Notes have a maturity date of June 30, 2006. Interest is payable
each calendar quarter.
The note and warrant purchase agreement contains financial covenants for
the maintenance of specified domestic maximum leverage, domestic maximum senior
leverage, minimum domestic interest coverage and minimum domestic fixed charge
ratios. Due to lower than expected operating results as of the calendar quarter
ending December 31, 1999 and each calendar quarter thereafter, the Company was
not in compliance with these covenants. The Company did not make scheduled
interest payments due on June 30 and September 30, 2000 on the Subordinated
Notes of approximately $450,000 ($900,000 in total).
The Company requested, but did not receive, a waiver of default from the
holders of the Subordinated Notes for the covenant violations that occurred at
the end of the December 31, 1999 calendar quarter. The Company has not requested
waivers from the Subordinated Note holders for covenant violations for the
calendar quarters ending March 31, June 30 and September 30, 2000. The Company
has received executed waivers of default, and associated extensions, related
solely to its failure to make required interest payments for the periods ending
June 30 through December 31, 2000. Because of the foregoing, the Company has
classified these obligations as current liabilities in the accompanying
consolidated balance sheets as of July 1 and September 30, 2000.
As originally proposed as part of the Blair Transaction discussed below,
the holders of the Subordinated Notes would exchange their notes for a new class
of subordinated notes (the "Replacement Notes") paying 12% interest in two
components - 10% in cash interest and 2% in payment-in-kind ("PIK") interest.
Because of the developments with European Credit Facility noted above, the
Company has proposed modifying the terms of the proposed exchange. Instead of
issuing Replacement Notes, the Company proposes to exchange 15,000 shares of 12
% Junior Cumulative Redeemable Preferred Stock, $1,000 liquidation preference
per share, (the "Junior Preferred Stock") for the Subordinated Notes. Dividends
on the Junior Preferred Stock would cumulate if not paid.
The Company has no agreement with the note holders to refinance its
obligations under the Subordinated Notes as currently proposed and can provide
no assurance that it can successfully complete the transaction as set forth.
SHORT-TERM BORROWINGS
EUROPEAN SHORT-TERM CREDIT FACILITIES
The Company has $23.1 million in commitments under the short-term credit
facilities described below. At September 30, 2000, the Company had $18.7 million
in borrowings outstanding under these facilities.
The Company has a NLG 25 million ($10.0 million) working capital facility
with ABN-AMRO. The Company had approximately NLG 18.0 million, or $7.2 million,
outstanding under the working capital facility at September 30, 2000. The unused
portion of this facility is NLG 7.0 million, or $2.8 million.
21
<PAGE> 24
The credit agreement for the loan contains a covenant specifying a minimum
level of tangible net worth to be maintained by the Company's European
operations. At June 30 and September 30, 2000, the Company was not in compliance
with this covenant. The Company has requested, but as of November 10, 2000, has
not received a waiver for this covenant violation from the lender. The lender
has the right to cancel the working capital facility immediately and demand
repayment of the amount outstanding. Although the lender has not canceled the
working capital facility, the lender retains the right to do so.
The Company has an NLG 5 million ($2.0 million) working capital facility
with ING Bank. The Company had approximately NLG 5.0 million, or $2.0 million,
outstanding under the facility at September 30, 2000.
The agreement for the credit facility stipulates financial covenants
requiring the Company's European operations to maintain a specified level of
minimum tangible net worth and minimum consolidated interest coverage ratio. At
June 30 and September 30, 2000, the Company was not in compliance with these
covenants. The Company has requested, but as of November 10, 2000, has not
received a waiver for these covenant violations. The lender has the right to
cancel the working capital facility immediately and demand repayment of the
amount outstanding. Although the lender has not canceled the working capital
facility, the lender retains the right to do so.
The Company has a short-term loan of NLG 10 million ($4.0 million) from
ABN-AMRO. At September 30, 2000, the outstanding principal amount of the loan
was NLG 10 million ($4.0 million).
The Company also has separate working capital facilities for their
subsidiaries in Germany, Poland and France. These facilities provide for
borrowings up to DM 14.58 million ($6.6 million), SEK 2.1 million ($0.3
million), and FFR 2.0 million ($0.2 million). As of September 30, 2000, the
Company has approximately $5.5 million outstanding under these facilities. The
unused portion of these facilities is approximately $1.6 million. These
facilities are due on demand.
BLAIR TRANSACTION
In May 2000, the Company signed a letter of intent with William Blair
Mezzanine Capital Fund III, L.P., under which Blair proposed to invest
$28,000,000 in the Company through a combination of subordinated debt,
convertible subordinated debt, and common stock. However, the Company's results
of operations during the fiscal fourth quarter 2000 did not meet Blair's
expectations, and Blair withdrew its original investment proposal in late June
2000. In July 2000, the Company and Blair entered into a revised letter of
intent under which Blair proposes to invest $23,000,000 in the Company,
comprised of $18,000,000 of 12% Senior Subordinated Notes due 2008, 5,000 shares
of 8% Senior Cumulative Redeemable Preferred Stock, $1,000 liquidation
preference per share, and warrants to purchase up to 3,880,645 shares of Denali
common stock with an exercise price of $2.26 per share. Due to the decline in
the market price of its common stock, the Company has proposed that the exercise
price of the warrants be lowered to $0.50 per share.
Also as part of the transaction as originally proposed, the Company would
issue $15,000,000 in principal amount of its 12% Senior Subordinated Notes due
2008 to the holders of the Company's currently outstanding Subordinated Notes in
exchange for all $15,000,000 in principal amount of the Company's currently
outstanding subordinated debt, and would issue warrants to purchase up to
534,873 shares of its common stock with an exercise price of $2.26 per share to
these holders in exchange for a like number of currently outstanding common
stock purchase warrants with an exercise price of $7.54 per share.
Due to developments with the European Credit Facility, the Company has
modified its proposal to refinance the Subordinated Notes. The Company now
proposes to exchange 15,000 shares of 12% Junior Cumulative Redeemable
Preferred Stock, $1,000 liquidation preference per share, (the "Junior Preferred
Stock") for the Subordinated Notes. Dividends on the Junior Preferred Stock
would cumulate if not paid. The exercise price of the new warrants to be issued
in exchange for the warrants currently outstanding would be lowered to $0.50 per
share.
22
<PAGE> 25
There can be no assurance that the Company will be able to successfully
complete these transactions. If the Company is unable to complete these
transactions or otherwise raise additional capital and increase its liquidity,
the Company may be unable to continue to operate as a going concern.
EURO CONVERSION
On January 1, 1999, 11 of the 15 member countries of the European Union
adopted the Euro as their common legal currency and established fixed conversion
rates between their existing sovereign currencies and the Euro. The Company is
currently evaluating issues raised by the introduction and initial
implementation of the Euro on January 1, 2002. The Company does not expect costs
of system modifications to be material, nor does it expect the introduction and
use of the Euro to materially and adversely affect its financial condition or
results of operations. The Company will continue to evaluate the impact of the
Euro introduction.
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
This Form 10-Q contains certain forward-looking statements as such term
is defined in the Private Securities Litigation Reform Act of 1995 and
information relating to the Company and its subsidiaries that are based on the
beliefs of the Company's management, as well as assumptions made by and
information currently available to the Company's management. When used in this
report, the words, "anticipate", "believe", "estimate", "expect" and "intend"
and words or phrases of similar import, as they relate to the Company or its
subsidiaries or Company management, are intended to identify forward-looking
statements. Such statements reflect the current risks, uncertainties and
assumptions related to certain factors including, without limitations,
competitive factors, general economic conditions, customer relations,
relationships with vendors, the interest rate environment, governmental
regulation and supervision, seasonality, distribution networks, product
introductions and acceptance, technological change, changes in industry
practices, the ability to consumate the Blair Transaction, onetime events and
other factors described herein. Based upon changing conditions, should any one
or more of these risks or uncertainties materialize, or should any underlying
assumptions prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated, expected or intended.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risk, including adverse changes in
commodity prices, interest rates and foreign currency exchange rates. Refer to
the Company's Form 10-K for the fiscal year ended July 1, 2000 for a detailed
discussion of these risks.
23
<PAGE> 26
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On August 4, 2000, the Company issued and sold 700,000 shares of its
common stock in a private transaction exempt from the registration provisions of
the Securities Act pursuant to Section 4(2) thereof as a transaction not
involving a public offering. These shares were issued to one director and five
entities controlled by or affiliated with two directors of the Company for a
cash price of $2.00 per share, for an aggregate offering price of $1,400,000.
The Company paid no underwriter discounts or commissions. Specifically, Cockrell
Investment Partners, L.P., Cockrell Equity Partners, L.P., Thomas D. Simmons,
Jr., Simmons Family Trust, Thomas Dudley Simmons, Jr. Marital Trust and Simmons
1987 Basket Trust acquired 532,200, 67,800, 33,333, 33,333, 16,667, and 16,667
shares, respectively. Mr. Ernest Cockrell, a director of the Company, is 35.3%
owner and the Chairman of the general partner of Cockrell Investment Partners,
L.P. and is 35.4% owner and the Chairman of the general partner of Cockrell
Equity Partners, L.P. Mr. Thomas Simmons, a director of the Company, is
Co-Trustee of the Simmons Family Trust, Trustee of the Thomas Dudley Simmons,
Jr. Marital Trust, and manager of the Simmons 1987 Basket Trust. These
purchasers were the only offerees in these transactions, and no public
solicitation was made. All offerees were provided access to relevant information
regarding the Company, and the share certificates issued to each of them contain
a restrictive legend prohibiting transfer of the shares in violation of federal
securities laws.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As of September 30, 2000, the Company was in default on the Total
Leverage Ratio, Maximum Senior Leverage Ratio, Total Minimum Interest Coverage,
Minimum Fixed Charge Coverage, Maximum Domestic Leverage Ratio, Maximum Senior
Domestic Leverage Ratio, Minimum Domestic Interest Coverage and Minimum Domestic
Fixed Charge Coverage covenants with both its U.S. senior credit facility and
senior subordinated note holders.
Beginning on July 1, 2000 and subsequent thereto, the Company was not
in compliance with the minimum tangible net worth, maximum leverage ratio and
minimum interest coverage and debt service coverage ratio covenants in the
agreement governing the senior European credit facility with ABN-AMRO and ING
Bank. On October 1, 2000, the Company's wholly owned subsidiary Denali Welna
Europe B.V. failed to make a scheduled principal payment of NLG 625,000
($249,322) on the senior European credit facility with ABN-AMRO and ING Bank.
Also on October 1, 2000, the Company failed to make interest payments of NLG
270,000 ($108,000) and NLG 238,000 ($95,000) due on Term Loans A and B,
respectively. The total arrearage on this indebtedness as of the date of this
report is NLG 1,133,000 ($452,322).
At July 1, 2000, the Company was not in compliance with the minimum
tangible net worth covenant in the agreement governing the European five year
term loan with ABN-AMRO. On September 1, 2000, the Company's wholly owned
subsidiary Welna N.V. failed to make a scheduled principal payment of NLG
500,000 ($199,458) on the European five year term loan with ABN-AMRO. The total
arrearage on this indebtedness as of the date of this report is NLG 500,000
($199,458).
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
Not applicable
24
<PAGE> 27
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. Exhibits
10.67 Third Forbearance Extension Agreement among Denali
Incorporated, Canadian Imperial Bank of Commerce, as
administrative agent, and ING (U.S.) Capital LLC, as
documentation agent, dated November 6, 2000
27 Financial Data Schedule
B. Reports on Form 8-K
None
25
<PAGE> 28
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: November 17, 2000 /s/ R. KEVIN ANDREWS
------------------------------------
R. Kevin Andrews
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
26
<PAGE> 29
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.67 Third Forbearance Extension Agreement among Denali Incorporated,
Canadian Imperial Bank of Commerce, as administrative agent, and ING
(U.S.) Capital LLC, as documentation agent, dated November 6, 2000
27 Financial Data Schedule
</TABLE>
27
