SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities and Exchange Act of 1934
Date of Report (Date of earliest event reported) March 2, 2000
-------------
ISG RESOURCES, INC.
----------------------------
(Exact name of registrant as specified in its charter)
Utah 87-0327982
---- ----------
(State or Other (Commission (IRS Employer
Jurisdiction of File Number) Identification No.)
Incorporation)
136 East South Temple, Suite 1300, Salt Lake City, Utah 84111
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 236-9700
--------------
<PAGE>
Item 2. Acquisition or Disposition of Assets
On March 2, 2000, ISG Resources, Inc. (ISG), and ISG Manufactured
Products, Inc., a wholly-owned subsidiary of ISG, acquired a Texas registered
limited liability partnership known as Don's Building Supply L.L.P. (Don's)
f/k/a Don's Building Supply, Inc. Don's is engaged in the retail and wholesale
distribution of masonry construction materials to residential and commercial
contractors.
ISG has accounted for this acquisition under the purchase method of
accounting. ISG established through negotiation and subsequent adjustment a
purchase price of $5,400,000 in cash for the entire partnership interest held by
Charlie A. Meador, Stephen D. Smith, Victoria L. Smith, Deanna R. Smith, Charlie
E. Meador and Blake A. Meador, individuals residing in the state of Texas. The
purchase price is subject to further adjustment based upon certain factors as
specified within the purchase agreement. A copy of the purchase agreement is
attached.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired. The audited financial
statements of Don's Building Supply L.L.P. as of December 31, 1999 and 1998 and
for the years ended December 31, 1999, 1998 and 1997 are attached hereto
beginning at page F-1.
(b) Pro Forma Financial Information. The unaudited pro forma financial
information for the three months ended March 31, 2000 and the year ended
December 31, 1999 set forth below is presented as if the acquisition of Don's
occurred on January 1, 1999. This information is presented for illustrative
purposes only and is not necessarily indicative of what the Company's financial
position or results of operations would have been had the acquisition of Don's
occurred on that date. This information reflects all adjustments, consisting of
normal recurring accruals, which in the opinion of management are necessary for
a presentation of results for the respective periods in accordance with
generally accepted accounting principles.
The purchase price of the acquisition was allocated based on estimated
fair values at the date of acquisition. Goodwill resulting from this acquisition
is being amortized on a straight-line basis over 20 years.
<PAGE>
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Three Months Ended March 31, 2000
(Dollars in thousands)
<TABLE>
<CAPTION>
ISG Don's
Resources Pre-Acquisition Pro Forma
Historical Historical Combined Adjustments Combined
<S> <C> <C> <C> <C> <C>
Sales $32,518 $ 830 $33,348 $ 33,348
Cost of sales, excluding depreciation 24,737 633 25,370 25,370
Depreciation and amortization 3,287 9 3,296 47 a 3,343
New product development 612 - 612 612
Selling, general and administrative 4,801 105 4,906 4,906
Income (loss) from operations (919) 83 (836) (883)
Interest income 8 4 12 12
Interest expense (3,539) - (3,539) (135) b (3,674)
Other income, net 41 - 41 41
Income (loss) before income taxes (4,409) 87 (4,322) (4,504)
Income tax benefit 1,249 - 1,249 17 c 1,266
Net income (loss) $ (3,160) $ 87 $ (3,073) $ (3,238)
========================================= ===========
</TABLE>
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
ISG
Resources Don's Pro Forma
Historical Historical Combined Adjustments Combined
<S> <C> <C> <C> <C> <C>
Sales $156,205 $ 6,137 $162,342 $162,342
Cost of sales, excluding depreciation 108,664 4,680 113,344 113,344
Depreciation and amortization 13,091 53 13,144 189 a 13,333
New product development 2,166 - 2,166 2,166
Selling, general and administrative 18,962 430 19,392 19,392
Income from operations 13,322 974 14,296 14,107
Interest income 44 8 52 52
Interest expense (13,392) (20) (13,412) (486) b (13,898)
Other income, net 312 1 313 313
Income before income taxes 286 963 1,249 574
Income tax expense (648) - (648) (167) c (815)
Net income (loss) $ (362) $ 963 $ 601 $ (241)
- -----------------------------------------=========================================-----------------=========
</TABLE>
(a) Reflects amortization of goodwill recorded upon acquisition.
(b) Reflects an increase in interest expense resulting from borrowings under
the Secured Credit Facility occurring concurrently with the acquisition
of Don's.
(c) Reflects the income tax effect of the pro forma adjustments, net of
income tax expense recorded for Don's, a partnership which previously has
not recorded income taxes.
<PAGE>
(c) Exhibits.
(i) The Purchase Agreement was filed as an exhibit to the
Company's 8-K filed on March 17, 2000.
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.
ISG RESOURCES, INC.
--------------------
(registrant)
May 16, 2000 BY: /s/ R. Steve Creamer
- ------------ ------------------------
(Date) R. STEVE CREAMER,
CHIEF EXECUTIVE OFFICER
<PAGE>
Don's Building Supply, LLP
Financial Statements
Years ended December 31, 1999, 1998 and 1997
Contents
Report of Independent Auditors .......................................... F-2
Audited Financial Statements
Balance Sheets .......................................................... F-3
Statements of Income and Equity.......................................... F-5
Statements of Cash Flows ................................................ F-6
Notes to Financial Statements ........................................... F-7
F-1
<PAGE>
Report of Independent Auditors
Partners
Don's Building Supply, LLP
We have audited the accompanying balance sheets of Don's Building Supply, LLP
(the "Company") as of December 31, 1999 and 1998, and the related statements of
income and equity and cash flows for each of the three years in the period ended
December 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Don's Building Supply, LLP at
December 31, 1999 and 1998, and the results of its operations and its cash flows
for the each of the three years in the period ended December 31, 1999 in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
April 7, 2000
Salt Lake City, Utah
F-2
<PAGE>
Don's Building Supply, LLP
Balance Sheets
December 31
1999 1998
------------- -----------
Assets
Current assets:
Cash $ 356,129 $ 380,519
Accounts receivable (net of allowance for
doubtful accounts of $22,000 at December
31, 1999 and $19,000 at December 31, 1998) 722,283 589,635
Inventories 393,735 361,580
Note receivable from related party 25,000 -
Prepaid expenses and other current assets 24,330 19,057
---------------------------
Total current assets 1,521,477 1,350,791
Property, plant, and equipment
Land 99,060 69,060
Buildings 578,782 458,800
Machinery and equipment 141,867 141,867
Transportation equipment 142,162 159,560
Furniture and fixtures 42,959 37,641
---------------------------
1,004,830 866,928
Accumulated depreciation 362,233 363,289
---------------------------
642,597 503,639
Restricted cash 100,000 -
Other assets 2,318 130
---------------------------
Total assets $2,266,392 $1,854,560
===========================
F-3
<PAGE>
December 31
1999 1998
-------------- ---------------
Liabilities and equity
Current liabilities:
Trade accounts payable $366,915 $ 260,024
Accrued compensation - 52,000
Accrued expenses 16,593 17,292
Current portion of long-term debt 28,125 -
Current portion of capital lease obligation - 13,480
Current portion of note payable
to former partner 100,000 100,000
------------------------------
Total current liabilities 511,633 442,796
Long-term debt 125,266 -
Note payable to former partner 100,000 200,000
Commitments and contingencies
Equity 1,529,493 1,211,764
-------------- ---------------
Total liabilities and equity $2,266,392 $1,854,560
============== ===============
See accompanying notes.
F-4
<PAGE>
Don's Building Supply, LLP
Statements of Income and Equity
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
------------------- ------------------- -------------------
<S> <C> <C> <C>
Revenues $6,137,234 $5,097,645 $5,447,951
Costs and expenses:
Cost of goods sold 4,707,559 3,918,367 4,216,227
Selling, general and administrative 455,773 397,187 435,552
------------------- ------------------- -------------------
5,163,332 4,315,554 4,651,779
------------------- ------------------- -------------------
973,902 782,091 796,172
Other income (expense):
Interest expense (20,244) (26,089) (25,596)
Interest income 7,889 4,545 4,622
Other 1,182 1,891 1,839
------------------- ------------------- -------------------
(11,173) (19,653) (19,135)
------------------- ------------------- -------------------
Net income 962,729 762,438 777,037
Distributions (645,000) (628,640) (431,000)
Purchase of partner's interest - (480,000) -
Beginning equity 1,211,764 1,557,966 1,211,929
------------------- ------------------- -------------------
Ending equity $1,529,493 $1,211,764 $1,557,966
=================== =================== ===================
See accompanying notes.
</TABLE>
F-5
<PAGE>
Don's Building Supply, LLP
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
--------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 962,729 $ 762,438 $ 777,037
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 52,702 55,298 62,678
Changes in operating assets and liabilities:
Accounts receivable (132,648) 62,026 (146,707)
Inventories (32,155) (26,538) 695
Prepaid expenses and other assets (7,461) 413 3,354
Trade accounts payable 106,891 70,423 36,928
Accrued compensation (52,000) 34,000 (22,000)
Accrued expenses (699) 486 (294)
--------------------------------------------------
Net cash provided by operating activities 897,359 958,546 711,691
Cash flows from investing activities
Issuance of note receivable to a related party (25,000) - -
Change in restricted cash (100,000) - -
Purchases of property, plant and equipment (28,016) - (12,325)
---------------------------------------------------
Net cash used in investing activities (153,016) - (12,325)
Cash flows from financing activities
Payments of long-term debt (10,253) (169,641) (127,732)
Payments on capital leases (13,480) (12,325) -
Payments on note to former partner (100,000) (100,000)
Distributions (645,000) (628,640) (431,000)
Purchase of withdrawing partner's interest - (80,000) -
--------------------------------------------------
Net cash used in financing activities (768,733) (990,606) (558,732)
--------------------------------------------------
Net (decrease) increase in cash (24,390) (32,060) 140,634
Cash at beginning of year 380,519 412,579 271,945
--------------------------------------------------
Cash at end of year $ 356,129 $ 380,519 $ 412,579
==================================================
Cash paid during the year for interest $ 20,244 $ 26,089 $ 25,596
==================================================
See accompanying notes.
</TABLE>
F-6
<PAGE>
Don's Building Supply, LLP
Notes to Financial Statements
December 31, 1999
1. Organization
The Company is primarily engaged in the retail and wholesale distribution of
masonry construction materials to residential and commercial contractors from
its Texas location. These products include lath, plaster, stucco and a synthetic
product. Additionally, the Company manufactures certain dry mix products.
Prior to December 31, 1998, the Company was incorporated as an S-Corporation.
Effective December 31, 1998, the Company registered with the state of Texas to
become a limited liability partnership.
2. Significant Accounting Policies
Revenue Recognition
Revenues are recognized when materials are shipped to customers or sold
over-the-counter in the Company's store.
Concentration of Risk
The Company generally maintains its cash balances at financial institutions
located in Texas. Accounts at these institutions are insured by the Federal
Deposit Insurance Corporation up to $100,000 each. At December 31, 1999 and
1998, the Company's uninsured cash balances totaled $256,000 and $181,000,
respectively.
Generally, the Company does not require collateral or other security to support
trade accounts receivable. The Company's five largest customers accounted for
approximately 50% of the revenues in 1999, 42% in 1998 and 30% in 1997. Three of
these customers each accounted for greater than 10% of the Company's sales in
1999, and one of these customers accounted for greater than 10% of the Company's
sales in 1998 and 1997. Historically, the Company has not had significant
uncollectable accounts.
The Company purchases the majority of its raw materials from a few suppliers. In
1999, 1998 and 1997, respectively, cost of goods sold associated with the
purchase of raw materials from the five largest suppliers totaled approximately
$2,607,000, $2,035,000 and $2,158,000.
F-7
<PAGE>
Don's Building Supply, LLP
Notes to Financial Statements (continued)
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three
months or less to be cash equivalents.
Restricted Cash
In conjunction with the Company's conversion from an S-Corporation to a limited
liability partnership, the state of Texas required that the Company deposit
$100,000 in a trust. The trust is deemed to be irrevocable unless and until one
of the following conditions is met: (1) the assets of the trust are depleted,
(2) the maintenance of the trust is no longer necessary for the partners to be
afforded liability protections under the laws of the state of Texas, or (3) the
Company has ceased operations and maintenance of the trust is no longer
necessary for the protection of potential creditors.
Inventories
Inventories are primarily valued at the lower of cost or market. Cost is
determined by the first-in, first-out (FIFO) method. Manufactured finished goods
inventory is valued at the cost of production.
Property, Plant and Equipment
Property, plant, and equipment are recorded at cost. Major renewals and
improvements are capitalized, while maintenance and repairs are expensed when
incurred. Depreciation is computed using accelerated and straight-line methods
at rates adequate to recover costs over the assets' useful lives which range
from three to thirty-one years.
As required by Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," management evaluates the carrying value of all long-lived assets to
determine recoverability when indicators of impairment are present based
generally on an analysis of undiscounted cash flows. Management believes no
material impairment in the value of long-lived assets exists at December 31,
1999.
Income Taxes
Prior to 1998, the Company had elected to be taxed as an S-Corporation for
federal and state income tax purposes. Subsequent to 1998 as part of the
Company's conversion to a limited liability partnership, the Company, as
permitted under Texas state law, elected to continue to be taxed as an
S-Corporation for federal income tax purposes. Under S-Corporation rules,
substantially all of the Company's income tax liabilities are imposed on the
stockholders. Accordingly, no federal or state income taxes are recorded.
F-8
<PAGE>
Don's Building Supply, LLP
Notes to Financial Statements (continued)
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.
3. Inventories
Inventories at December 31 comprised the following:
1999 1998
------------------- -----------------
Raw Materials $ 16,469 $ 15,124
Finished Goods 377,266 346,456
------------------- -----------------
$393,735 $361,580
=================== =================
4. Long-Term Debt
In 1999, the Company executed a note for approximately $136,000 for the purchase
of land and a building, plus cash of approximately $18,000. The amount
outstanding under this note as of December 31, 1999 is $127,307. Monthly
principal payments total $1,137 through April 1, 2009. The note bears interest
at 7.75% and is secured by the property with a net book value of $151,845 at
December 31, 1999.
In 1999, the Company executed a note for the purchase of certain equipment for
approximately $27,000. The amount outstanding under this note as of December 31,
1999 is $26,085. Monthly principal and interest payments total approximately
$1,134 through October 1, 2001. The note bears interest at 9% and is secured by
the equipment with a net book value of $21,850 at December 31, 1999.
In 1998, the Company entered into a note with a former shareholder for the
repurchase of his stock. The amount outstanding under this note as of December
31, 1999 and 1998 is $200,000 and $300,000, respectively. The note bears
interest at 5%. Principal payments of $25,000 per quarter are to be made under
the terms of this note through December 31, 2001. This note was paid off in
connection with the sale of the Company discussed in Note 9.
Principal payments of these notes for the next five years are as follows:
2000--$128,125; 2001--$125,240; 2002 to 2004--$13,640 in each year;
thereafter--$59,106.
F-9
<PAGE>
Don's Building Supply, LLP
Notes to Financial Statements (continued)
5. Capital Lease
In 1998, the Company entered into a capital lease for certain equipment. At
December 31, 1998, payments totaling $14,147 remained under this agreement,
$13,480 of which related to the principal portion. Remaining payments were made
through December 1999. Gross cost of the equipment recorded under this capital
lease was $25,805 with accumulated amortization of $5,161 and $10,322 at
December 31, 1998 and 1999, respectively. Amortization expense associated with
capital leases is included with depreciation expense.
6. Related Party Transactions
The Company serves as a distributor for a related company and holds certain of
its inventory on consignment. As of December 31, 1999, the Company had a note
receivable from this company of $25,000 which was subsequently repaid.
The Company paid a related company approximately $38,000 in 1999 and $22,000 in
1998 and 1997 for products.
7. Profit-Sharing Plan
The Company maintains a profit sharing plan for substantially all of its
employees. Company contributions under the plan are at the discretion of the
Board of Directors. Contribution expense related to this plan in 1999, 1998 and
1997 totaled $30,000.
8. Purchase of a Withdrawing Shareholder's Interest
In 1998, the Company repurchased 40 shares of the outstanding stock from a
shareholder for $480,000. This amount was determined to be the fair value of the
stock through a valuation performed by an independent party. This amount is
treated as a reduction in equity as this stock is deemed to be constructively
retired. The Company paid $80,000 in cash and issued a note payable to the
former shareholder for $400,000.
9. Subsequent Events
In January 2000, the Company settled an outstanding lawsuit for $26,500. This
amount was accrued by the Company at December 31, 1999 and is included in
accounts payable in the accompanying balance sheet.
On March 2, 2000, the outstanding stock of the Company was acquired by ISG
Resources, Inc. for $6,000,000 in cash. The purchase price is expected to
increase or decrease within sixty days of the closing date based on 1999 EBITDA,
as defined within the purchase agreement, and working capital as of February 29,
2000.
F-10
