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) May 31, 2000
ISG RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Utah 87-0327982
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(State or Other (Commission (IRS Employer
Jurisdiction of File Number) Identification No.)
Incorporation)
136 East South Temple, Suite 1300, Salt Lake City, Utah 84111
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(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 May 31, 2000, ISG Resources, Inc. ("ISG") acquired all of the
outstanding stock of Palestine Concrete Tile Company ("Palestine"), as well as
certain land and buildings used by Palestine in the conduct of its business.
Palestine is a Texas corporation primarily engaged in the manufacture and
distribution of concrete block.
ISG has accounted for the acquisition of Palestine under the purchase
method of accounting. ISG established through negotiation a purchase price of
$18,600,000 in cash for all of the outstanding stock of Palestine held by Dale &
Brenda, Ltd. and Dan & Dorenda, Ltd. (collectively, the "Family Limited
Partnerships"). The purchase price is subject to further adjustment based upon
certain factors as specified within the purchase agreement. ISG also established
through negotiation a purchase price of $400,000 for the land and buildings held
by the Daniel Andrew Smith Family Trust and the Dale Wayne Smith Family Trust
(collectively, the "Family Trusts").
ISG financed the acquisition of Palestine by obtaining a $15,000,000
increase in the Secured Credit Facility on May 26, 2000 and receiving an equity
contribution of $10,000,000 from its parent, Industrial Services Group, Inc., on
April 19, 2000.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired. The audited financial
statements of Palestine, 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 for the year ended
December 31, 1999 set forth below is presented as if the acquisition of
Palestine 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 Palestine 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 Statement of Operations
For the Three Months Ended March 31, 2000
(Dollars in thousands)
<TABLE>
<CAPTION>
ISG Palestine Pre- Pro Forma
Resources Acquisition -------------------------------
Historical Historical Combined Adjustments Combined
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $ 32,518 $ 4,940 $37,458 $ $ 37,458
Cost of sales, excluding depreciation 24,737 3,135 27,872 (275) a 27,597
Depreciation and amortization 3,287 131 3,418 207 b 3,625
New product development 612 - 612 612
Selling, general and administrative 4,801 502 5,303 5,303
------------------------------------------------------------- ------------
Income (loss) from operations (919) 1,172 253 68 321
Interest income 8 4 12 12
Interest expense (3,539) (17) (3,556) (475) d (4,031)
Other income, net 41 - 41 41
------------------------------------------------------------- ------------
Income (loss) before income taxes (4,409) 1,159 (3,250) (407) (3,657)
Income tax benefit (expense) 1,249 (425) 824 70 e 894
------------------------------------------------------------ ------------
Net income (loss) $(3,160) $ 734 $(2,426) $(337) $ (2,763)
============================================================= ============
</TABLE>
Unaudited Pro Forma Condensed Statement of Operations
For the Year Ended December 31, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
ISG Pro Forma
Resources Palestine -------------------------------
Historical Historical Combined Adjustments Combined
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $156,205 $ 19,372 $175,577 $ $175,577
Cost of sales, excluding depreciation 108,664 14,640 123,304 (1,100) a 122,204
Depreciation and amortization 13,091 555 13,646 828 b 14,474
New product development 2,166 - 2,166 2,166
Selling, general and administrative 18,962 3,403 22,365 (1,200) c 21,165
------------------------------------------------------------- ------------
Income (loss) from operations 13,322 774 14,096 1,472 15,568
Interest income 44 8 52 52
Interest expense (13,392) (94) (13,486) (1,710) d (15,196)
Other income, net 312 36 348 348
------------------------------------------------------------- ------------
Income (loss) before income taxes 286 724 1,010 (238) 772
Income tax benefit (expense) (648) (264) (912) (207) e (1,119)
------------------------------------------------------------- -------------
Net income (loss) $ (362) $ 460 $ 98 $ (445) $ (347)
============================================================= =============
</TABLE>
(a) Reflects adjustments for profit mark-up on raw materials purchased from
related companies
(b) Reflects amortization of goodwill recorded upon acquisition
(c) Reflects adjustments to market value for management fees and salary paid to
former owners and elimination of former owners' profit sharing contribution
(d) Reflects an increase in interest expense resulting from borrowing under the
Secured Credit Facility occurring concurrently with the acquisition of Palestine
(e) Reflects the income tax effect of the pro forma adjustments
<PAGE>
(c) Exhibits. The following documents are being filed as exhibits to this
report:
(i) The Purchase Agreement dated April 30, 2000 and the Amendment to
the Stock Purchase Agreement dated May 16, 2000 were filed as
exhibits to the Company's 8-K filed on June 15, 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)
July 27, 2000 BY: /s/
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(Date) R STEVE CREAMER,
CHIEF EXECUTIVE OFFICER
<PAGE>
Palestine Concrete Tile Company
Combined Financial Statements
Years Ended December 31, 1999, 1998 and 1997
Contents
Report of Independent Auditors ........................................... F-2
Audited Combined Financial Statements
Combined Balance Sheets .................................................. F-3
Combined Statements of Income and Retained Earnings....................... F-5
Combined Statements of Cash Flows ........................................ F-6
Notes to Combined Financial Statements ................................... F-7
F-1
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholders
Palestine Concrete Tile Company
We have audited the accompanying combined balance sheets of Palestine Concrete
Tile Company (the Company) as of December 31, 1999 and 1998 and the related
combined statements of income and retained earnings 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 combined financial position of Palestine Concrete
Tile Company at December 31, 1999 and 1998, and the combined results of its
operations and its cash flows for 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
February 18, 2000,
except for Note 1, as to which
the date is May 31, 2000.
F-2
<PAGE>
Palestine Concrete Tile Company
Combined Balance Sheets
December 31
1999 1998
---------------------------------
Assets
Current assets:
Cash and cash equivalents $ 307,937 $ 451
Accounts receivable (net of allowance
for doubtful accounts of
$94,000 in 1999 and 1998) 2,522,353 2,342,484
Inventories 1,038,970 876,118
Prepaid expenses 84,815 63,312
Deferred income tax 107,001 77,311
---------------------------------
Total current assets 4,061,076 3,359,676
Property, plant and equipment:
Land, buildings and leasehold improvements 594,347 574,031
Plant equipment 3,272,586 3,120,832
Vehicles 1,309,059 1,384,659
Office furniture and fixtures 73,301 91,239
---------------------------------
5,249,293 5,170,761
Accumulated depreciation 3,735,776 3,621,839
---------------------------------
1,513,517 1,548,922
---------------------------------
Total assets $5,574,593 $4,908,598
=================================
F-3
<PAGE>
Palestine Concrete Tile Company
Combined Balance Sheets (continued)
December 31
1999 1998
-----------------------
Liabilities and shareholders' equity
Current liabilities:
Trade accounts payable $ 387,472 $ 382,083
Accrued compensation 429,452 267,319
Accrued expenses 162,000 90,000
Income tax payable 453,034 181,095
Payable to related parties 725,851 528,926
Current portion of capital lease payable 65,409 59,896
Current portion of notes payable to related parties 252,600 237,868
Current portion of note payable 28,393 -
-----------------------
Total current liabilities 2,504,211 1,747,187
Notes payable to related parties, less current maturities 859,532 1,112,132
Note payable, less current maturities 126,113 -
Capital lease payable, less current maturities 9,117 74,526
Commitments
Shareholders' equity:
Common stock:
Palestine Concrete Tile Company, $10 par value;
10,000 shares authorized;
1,000 shares issued and outstanding 10,000 10,000
Retained earnings 2,065,620 1,964,753
-----------------------
Total shareholders' equity 2,075,620 1,974,753
-----------------------
Total liabilities and shareholders' equity $5,574,593 $4,908,598
=======================
See accompanying notes.
F-4
<PAGE>
Palestine Concrete Tile Company
Combined Statements of Income and Retained Earnings
<TABLE>
<CAPTION>
Year Ended December 31
1999 1998 1997
------------------------------------------------------
<S> <C> <C> <C>
Revenues $19,372,383 $16,296,464 $13,013,766
Costs and expenses:
Cost of goods sold 15,127,688 13,915,705 10,444,616
Selling, general and administrative 3,470,438 2,077,645 1,695,631
------------------------------------------------------
774,257 303,114 873,519
Interest income 7,487 4,321 6,025
Interest expense (93,827) (93,751) (40,815)
Other income 36,477 14,681 31,564
------------------------------------------------------
Income before income taxes 724,394 228,365 870,293
Income taxes:
Current 293,217 114,366 322,047
Deferred (29,690) (28,941) (19,491)
------------------------------------------------------
263,527 85,425 302,556
------------------------------------------------------
Net income 460,867 142,940 567,737
Retained earnings at beginning of year 1,964,753 2,301,813 2,094,076
Distributions (360,000) (480,000) (360,000)
------------------------------------------------------
Retained earnings at end of year $2,065,620 $ 1,964,753 $2,301,813
======================================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
Palestine Concrete Tile Company
Combined Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31
1999 1998 1997
-----------------------------------------------------
Operating activities
<S> <C> <C> <C>
Net income $ 460,867 $142,940 $ 567,737
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation 555,425 599,540 398,198
Gain on disposal of assets (32,078) (6,551) -
Deferred income taxes (29,690) (28,941) (19,491)
Changes in operating assets and liabilities:
Accounts receivable (179,869) (224,196) (738,942)
Inventories (162,852) (95,543) (137,899)
Prepaid expenses and other assets (21,503) 11,182 (12,408)
Income tax payable 271,939 (72,259) 93,274
Trade accounts payable and other accruals 239,522 (318,670) 534,463
Payable to related parties 196,925 (309,843) 505,536
-----------------------------------------------------
Net cash provided by (used in) operating activities 1,298,686 (302,341) 1,190,468
Investing activities
Purchases of property, plant and equipment (384,741) (250,408) (282,462)
Purchase of certain assets of a company - - (950,000)
Proceeds from disposal of property, plant and equipment 58,115 - -
Net change in short-term investments - - 44,012
-----------------------------------------------------
Net cash used in investing activities (326,626) (250,408) (1,188,450)
Financing activities
Distributions (360,000) (480,000) (360,000)
Payments on note payable (6,810) - -
Receipt of (payments on) notes payable to related parties (237,868) 350,000 1,000,000
Payments on capital leases (59,896) (54,190) (49,030)
-----------------------------------------------------
Net cash (used in) provided by financing activities (664,574) (184,190) 590,970
-----------------------------------------------------
Net increase (decrease) in cash and cash equivalents 307,486 (736,939) 592,988
Cash and cash equivalents at beginning of year 451 737,390 144,402
-----------------------------------------------------
Cash and cash equivalents at end of year $ 307,937 $ 451 $ 737,390
=====================================================
Supplemental disclosures of cash flow information
Cash paid for income taxes $ 21,278 $186,625 $ 228,774
Equipment purchased with a note payable 161,316 - -
</TABLE>
See accompanying notes.
F-6
<PAGE>
Palestine Concrete Tile Company
Notes to Combined Financial Statements
December 31, 1999
1. Description of the Business and Significant Accounting Policies
Palestine Concrete Tile Company (the Company) is a Texas corporation involved
primarily in the business of manufacturing and selling concrete block. Customers
of the Company consist of construction-related companies located primarily in
the state of Texas.
On April 30, 2000, with an amendment dated May 16, 2000, an agreement was signed
to sell all the outstanding stock of the Company to an unrelated third party
effective May 31, 2000. Additionally, this agreement calls for the sale of the
land and the buildings utilized by the Company in the conduct of its business.
Such property is owned by a separate trust with the Company paying to the trust
for use of the property.
The accompanying combined financial statements include the accounts of the
Company and the land and buildings to be sold by the trust under the terms of
the agreement, since these constitute the entire business operations to be sold.
Depreciation on the buildings has been provided as if owned by the Company for
purposes of presentation.
Revenue Recognition
Revenues are recognized when goods are shipped to customers or provided to
customers at the Company's facilities.
Cash and Cash Equivalents
Cash equivalents are highly liquid investments with maturities of three months
or less when purchased.
Inventories
Inventories are primarily valued at the lower of cost or market. Cost is
determined by the first-in, first-out (FIFO) method. Inventories consist
primarily of concrete block and other concrete products, raw materials used to
manufacture the blocks and concrete product, and other construction supplies.
Inventory of manufactured finished goods is valued at the average cost of
production.
F-7
<PAGE>
Palestine Concrete Tile Company
Notes to Combined Financial Statements (continued)
1. Description of the Business and Significant Accounting Policies (continued)
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Major renewals and
improvements are capitalized, while maintenance and repairs are expensed as
incurred. Depreciation is computed using accelerated and straight-line methods
at rates adequate to recover costs over the assets' useful lives. Estimated
useful lives are generally 3 to 7 years for vehicles, machinery and equipment,
and furniture and fixtures, and 15 to 39 years for buildings and improvements.
As required by Statement of Financial Accounting Standards (SFAS) 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
The Company accounts for income taxes, using the provisions of SFAS No. 109,
"Accounting for Income Taxes." Deferred income taxes result primarily from
temporary differences between the financial statement bases and tax bases of
assets and liabilities using enacted tax rates.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
2. Long-Term Debt
At December 31, 1999, the Company has a note payable to a bank collateralized by
certain equipment, with a net book value of $107,544, and cash accounts held by
the bank. The interest rate on this note is 6.90%. Principal payments for this
note for the next five years are as follows: 2000 - $28,393; 2001 - $30,475;
2002 - $32,677; 2003 - $35,037; and 2004 - $27,924.
F-8
<PAGE>
Palestine Concrete Tile Company
Notes to Combined Financial Statements (continued)
3. Inventories
Inventories at December 31 are composed of the following:
1999 1998
------------------------------------
Raw materials $ 184,230 $127,920
Finished goods 854,740 748,198
------------------------------------
$1,038,970 $876,118
====================================
4. Income Taxes
Reconciliation of income tax expense at the U.S. statutory rate to the Company's
tax expense is as follows:
Year ended December 31
1999 1998 1997
----------------------------------------------
34% of income before income tax $246,294 $77,644 $295,900
Permanent differences 17,233 7,781 6,656
----------------------------------------------
$263,527 $85,425 $302,556
==============================================
The major components of the deferred tax assets as of December 31 are as
follows:
1999 1998
-------------------------
Deferred tax assets:
Allowance for doubtful accounts $ 31,960 $31,960
Accruals not currently deductible for tax purposes 75,041 45,351
-------------------------
$107,001 $77,311
=========================
5. Leases
The Company has entered into certain operating lease agreements for equipment.
All such leases are cancelable with proper written notice, generally 60 days.
The Company has also entered into an operating lease agreement with a third
party for certain real estate. Subsequent to October 15, 2000, the Company may
terminate this agreement with proper written notice, which is required one year
before termination. The commitment under this agreement for 2000 is $30,000.
Rent expense under this agreement was $30,000 in 1999, $15,000 in 1998 and
$2,500 in 1997.
F-9
<PAGE>
Palestine Concrete Tile Company
Notes to Combined Financial Statements (continued)
5. Leases (continued)
The Company has entered into certain capital lease agreements for equipment.
Future minimum lease payments required under the capital leases are as follows:
2000 $69,912
2001 9,260
-----------------
Total minimum lease payments 79,172
Amounts representing interest (4,646)
-----------------
Capital lease obligations $74,526
=================
Property and equipment include the following amounts recorded under capital
leases at December 31:
1999 1998
--------------------------------
Equipment $279,148 $279,148
Accumulated depreciation (245,068) (214,300)
--------------------------------
$ 34,080 $ 64,848
================================
6. Related-Party Transactions
The Company purchases raw materials from two related parties. In 1999, 1998 and
1997, raw materials totaling approximately $6,055,000, $5,706,000 and
$4,412,000, respectively, were purchased from these parties which in turn
purchase these materials from one supplier. At December 31, 1999 and 1998,
$423,000 and $476,000, respectively, were owed to these parties for these raw
materials and are included in payables to related parties on the accompanying
combined balance sheets.
The Company pays management fees to these parties. Amounts charged to expense in
1999, 1998 and 1997 totaled $1,200,000, $50,000 and $400,000, respectively. At
December 31, 1999 and 1998, $300,000 and $50,000, respectively, were owed to
these parties for management fees and are included in payables to related
parties on the accompanying combined balance sheets.
Periodically, the Company borrows money from these parties. Amounts owed,
included in notes payable to related parties on the accompanying combined
balance sheets, were $1,112,132 and $1,350,000 at December 31, 1999 and 1998,
respectively. These notes are due in full in December 2003 with maturities over
the next four years as follows: 2000 - $252,600, 2001 - $268,847, 2002 -
$286,140 and 2003 - $304,545. Interest expense,
F-10
<PAGE>
Palestine Concrete Tile Company
Notes to Combined Financial Statements (continued)
6. Related-Party Transactions (continued)
accruing at 6.25%, recorded in 1999, 1998 and 1997 totaled $80,245, $77,236 and
$19,140, respectively. Interest payable at December 31, 1999 and 1998 totaled
$3,000 and is included in payables to related parties on the accompanying
combined balance sheets.
Due to the relationship among the parties to these transactions, the amounts
paid by the Company may not have been the same if similar activities had been
undertaken with unrelated parties.
7. Concentration of Risk
The Company generally maintains its cash balances at two financial institutions
in Texas. Accounts at these institutions are insured by the Federal Deposit
Insurance Corporation for up to $100,000. At December 31, 1999 and 1998, the
Company's uninsured cash balances totaled $204,000 and $0, respectively. At
December 31, 1999, the Company had three money market accounts for which minimum
balances of $50,000 were required.
Generally, the Company does not require collateral or other security to support
trade accounts receivable. The Company's five largest customers accounted for
approximately 20% of its revenues in 1999, 1998 and 1997. Historically, the
Company has not had significant uncollectable accounts.
