<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 8-K/A
(AMENDMENT NO. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) MAY 5, 1995
POLYPHASE CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA
(State or other jurisdiction of incorporation)
1-9083 23-2708876
(Commission File Number) (IRS Employer Identification No.)
16885 DALLAS PARKWAY, DALLAS, TEXAS 75248
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (214) 732-0010
<PAGE>
The following financial statements are filed as part of this Form 8-K/A:
Item 7. Financial Statements and Pro Forma Financial Information
<TABLE>
<CAPTION>
Page Number
-------------
<S> <C>
(a) Financial Statements of IBM Foods, Inc.
Report of Ernst & Young LLP,
Independent Auditors F-1
Balance Sheet as of September 25, 1994 F-2
Statements of Income and Retained Earnings for the Year
ended September 25, 1994, the Four Months ended
September 26, 1993 and the Year Ended May 30, 1993 F-3
Statements of Cash Flows For the Year
ended September 25, 1994, the Four Months ended
September 26, 1993 and the Year ended May 30, 1993 F-4
Notes to Financial Statements F-5
(b) Pro Forma Consolidated Financial Information of
Polyphase Corporation (Unaudited)
Introduction to Pro Forma Consolidated F-12
Financial Information
Pro Forma Consolidated Balance Sheet
as of March 31, 1995 F-13
Pro Forma Consolidated Statement of Operations
for the Year Ended September 30, 1994 F-15
Pro Forma Consolidated Statement of Operations
for the Six Months Ended March 31,1995 F-16
Notes to Pro Forma Consolidated Financial Information F-17
(c) Exhibits
The following exhibits have been furnished in accordance with Item 601 of
Regulation S-K:
*1. Loan and Security Agreement, dated May 5, 1995, among FINOVA Capital
Corporation and Overhill Farms, Inc.
*2. Secured Promissory Note in principal amount of $2,000,000, dated May
5, 1995.
*3. Secured Promissory Note in principal amount of $4,000,000, dated May
5, 1995.
*4. Intercreditor and Subordination Agreement, dated May 5, 1995, among
FINOVA Capital Corporation, Rice Partners II, L.P., and Overhill
Farms, Inc.
*5. Note Purchase Agreement, dated May 5, 1995, among Rice Partners II,
L.P. and Overhill Farms, Inc.
*6. Warrant Purchase Agreement, dated May 5, 1995, among Rice Partners II,
L.P., Polyphase Corporation and Overhill Farms, Inc.
*7. Warrant, dated May 5, 1995.
*8. Shareholder Agreement, dated May 5, 1995, among Rice Partners II,
L.P., Polyphase Corporation and Overhill Farms, Inc.
*9. Senior Subordinated Note in principal amount of $13,000,000, dated May
5, 1995.
*10. Asset Purchase Agreement, dated May 5, 1995, among IBM Foods, Inc. and
Overhill Farms, Inc., and acknowledged by Polyphase Corporation and
Maurice H. Gettleman.
*11. Nonrecourse Continuing Corporate Guaranty, dated May 5, 1995, by
Polyphase Corporation.
- -----------------
* Previously filed.
</TABLE>
2
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
POLYPHASE CORPORATION
By /s/ Paul A. Tanner
-----------------------------
Paul A. Tanner, President and
Chief Executive Officer
Dated: July 18, 1995
3
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Shareholders
IBM Foods, Inc.
We have audited the accompanying balance sheet of IBM Foods, Inc., as of
September 25, 1994, and the related statements of income and retained earnings,
and cash flows for the year ended September 25, 1994, the four months ended
September 26, 1993, and the year ended May 30, 1993. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 IBM Foods, Inc., at September
25, 1994, and the results of its operations and its cash flows for the year
ended September 25, 1994, the four months ended September 26, 1993, and the year
ended May 30, 1993, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
June 29, 1995
F-1
<PAGE>
IBM Foods, Inc.
Balance Sheet
September 25, 1994
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 24,027,403
Accounts receivable, primarily trade,
less allowance for doubtful accounts
of $5,000 6,796,575
Inventories (Note 3) 10,495,780
Prepaid expenses and deposits 668,620
------------
Total current assets 41,988,378
Property, plant and equipment, at cost:
Land and buildings 641,138
Fixture and equipment 14,135,930
Leasehold improvements 2,597,374
Automotive equipment 435,524
------------
17,809,966
Less accumulated depreciation and
amortization (11,269,567)
------------
6,540,399
Other assets 1,734,905
------------
Total assets $ 50,263,682
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, primarily trade $ 2,064,654
Accrued liabilities and other (Note 4) 2,248,994
------------
Total current liabilities 4,313,648
Deferred compensation (Note 5) 345,545
Commitments (Note 6)
Shareholders' equity:
Common stock, no par value
Authorized shares -- 500,000
Issued and outstanding shares -- 196,320 1,501,519
Additional paid-in capital 1,535,190
Retained earnings 42,567,780
------------
Total shareholders' equity 45,604,489
------------
Total liabilities and shareholders'
equity $ 50,263,682
============
</TABLE>
See accompanying notes.
F-2
<PAGE>
IBM Foods, Inc.
Statements of Income and Retained Earnings
<TABLE>
<CAPTION>
FOUR MONTHS
YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 25, SEPTEMBER 26, MAY 30,
1994 1993 1993
-----------------------------------------------
<S> <C> <C> <C>
Net sales $99,534,629 $37,216,811 $117,508,914
Cost of sales 84,967,688 31,095,731 99,573,131
-----------------------------------------------
Gross profit 14,566,941 6,121,080 17,935,783
Selling, general and administrative
expenses 8,411,890 3,200,020 9,653,335
-----------------------------------------------
Income from operations 6,155,051 2,921,060 8,282,448
Other income 632,920 170,876 369,699
-----------------------------------------------
Income before provision for income taxes 6,787,971 3,091,936 8,652,147
Provision for income taxes (Note 7) 45,353 253,204 3,472,797
-----------------------------------------------
Net income 6,742,618 2,838,732 5,179,350
Retained earnings, beginning of period 39,532,162 37,308,430 32,129,080
Dividends declared on common stock (3,707,000) (615,000) --
-----------------------------------------------
Retained earnings, end of period $42,567,780 $39,532,162 $ 37,308,430
===============================================
Earnings per common share $34.35 $14.46 $26.38
===============================================
Average number of common
shares outstanding 196,320 196,320 196,320
===============================================
</TABLE>
See accompanying notes
F-3
<PAGE>
IBM Foods, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
FOUR MONTHS
YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 25, SEPTEMBER 26, MAY 30,
1994 1993 1993
------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 6,742,618 $ 2,838,732 $ 5,179,350
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 1,693,310 584,011 1,791,385
Loss on disposal of property and
equipment 60,830 3,321 27,592
Provision for deferred income taxes -- 341,704 494,095
Provision for deferred compensation -- 37,671 94,775
Changes in operating assets and
liabilities:
Accounts receivable 220,866 (1,020,492) (85,450)
Inventories 473,686 (652,998) 1,478,838
Prepaid expenses and deposits 180,067 902,225 (402,981)
Other assets (716,798) (149,135) (1,428)
Accounts payable (697,780) 25,167 416,555
Accrued liabilities and other (421,382) (1,542,023) (1,970,598)
-----------------------------------------------
Net cash provided by operating activities 7,535,417 1,368,183 7,022,133
INVESTING ACTIVITIES
Additions to property, plant and equipment (505,849) (1,070,635) (757,193)
Premiums paid on life insurance
policies representing an increase in
cash surrender value (182,587) (33,888) (139,031)
-----------------------------------------------
Net cash used in investing activities (688,436) (1,104,523) (896,224)
FINANCING ACTIVITIES
Dividends paid (3,707,000) (615,000) --
-----------------------------------------------
Net cash used in financing activities (3,707,000) (615,000) --
Net increase (decrease) in cash and
cash equivalents 3,139,981 (351,340) 6,125,909
Cash and cash equivalents at beginning
of period 20,887,422 21,238,762 15,112,853
-----------------------------------------------
Cash and cash equivalents at end of
period $24,027,403 $20,887,422 $21,238,762
===============================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid for income taxes $ 892,093 $ 126,340 $ 3,770,000
===============================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
IBM Foods, Inc.
Notes to Financial Statements
September 25, 1994
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT CUSTOMERS
IBM Foods, Inc. (the Company) is a food processor that produces high quality
entrees, plated meals, soups, sauces and poultry, meat and fish specialties
primarily for customers in the airline, weight loss and restaurant chain
industries in the United States.
Significant customers accounted for the following percentages of the Company's
sales:
<TABLE>
<CAPTION>
FOUR MONTHS
YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 25, SEPTEMBER 26, MAY 30,
1994 1993 1993
---------------------------------------------
<S> <C> <C> <C>
Jenny Craig, Inc. 34.9% 42.2% 44.1%
American Airlines, Inc. 14.2% 16.6% 12.6%
</TABLE>
No other customer accounted for sales of 10% or more in the periods presented.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR
Effective May 31, 1993, the Company elected to change its fiscal year from the
last Sunday in May to the last Sunday in September. The fiscal years ended
September 25, 1994, and May 30, 1993, are both 52-week periods. The transitional
period ended September 26, 1993, is a 17-week period.
CONCENTRATIONS OF CREDIT RISK
The Company's financial instruments that are exposed to concentrations of credit
risk consist primarily of demand deposits, cash equivalents, and trade
receivables. Demand deposits usually exceed the amount of insurance provided by
the Federal Deposit Insurance Corporation. Cash equivalents are invested in
securities backed by the United States Government. The Company performs ongoing
credit evaluations of its customers' financial condition and, generally,
requires no collateral from its customers.
F-5
<PAGE>
IBM Foods, Inc.
Notes to Financial Statements--(continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Sales are recognized when products are shipped. The Company provides for
estimated returns and allowances at the time of sale.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, demand deposits, and short-term
investments with original maturities of three months or less. The amount
reported in the balance sheet approximates fair value.
INVENTORIES
Inventories, which include material, labor, and manufacturing overhead, are
stated at the lower of standard cost, which approximates the first-in, first-out
method or market.
PROPERTY, PLANT, AND EQUIPMENT
The cost of property, plant, and equipment is depreciated over the estimated
useful lives of the related assets, which range from 3 to 8 years. Leasehold
improvements are amortized over the lesser of the term of the related lease or
the estimated useful lives of the assets. Depreciation is generally computed on
the straight-line method.
Expenditures for maintenance and repairs are charged against income. Betterments
and major renewals are capitalized. Costs and related accumulated depreciation
of properties sold or otherwise retired are eliminated from the accounts and
gains or losses on disposals are included in other income.
F-6
<PAGE>
IBM Foods, Inc.
Notes to Financial Statements--(continued)
3. INVENTORIES
Inventories at September 25, 1994, consist of the following:
<TABLE>
<S> <C>
Raw ingredients $ 3,207,798
Processed poultry and commodities 499,800
Finished product 6,692,539
Packaging 698,023
Obsolescence reserve (602,380)
-----------
$10,495,780
===========
</TABLE>
4. ACCRUED LIABILITIES AND OTHER
Accrued liabilities and other at September 25, 1994, consist of the following:
<TABLE>
<S> <C>
Compensation $1,312,493
Retirement plan contribution 347,059
Taxes other than income 210,648
Other 378,794
----------
$2,248,994
==========
</TABLE>
5. EMPLOYEE BENEFIT PLANS
The Company sponsors a profit-sharing plan covering substantially all employees
who are not covered by a collective bargaining agreement. Contributions to the
plan may be in the form of cash or the capital stock of the Company. The amount
of the annual contributions are determined at the discretion of the Board of
Directors. The cost of the plan charged to operations, consisting only of cash
contributions, was $347,059, $247,666 and $727,763 for the year ended September
25, 1994, the four months ended September 26, 1993, and the year ended May 30,
1993, respectively.
The Company maintains a deferred compensation plan for a key employee. It
provides for deferred compensation totaling $1.74 million to take effect on the
employee's death, termination, retirement or total disability as set forth in
the plan. Such compensation is being accrued over the employee's estimated
period of active employment from the time the contract was entered into so that
on the anticipated date of retirement the then present
F-7
<PAGE>
IBM Foods, Inc.
Notes to Financial Statements--(continued)
5. EMPLOYEE BENEFIT PLANS (CONTINUED)
value (discounted at 8.5%) of the deferred payments, which are to be made over a
fifteen-year period, will be fully accrued.
The cost of the plan charged to operations was $-0-, $37,671 and $94,775 for the
year ended September 25, 1994, the four months ended September 26, 1993, and the
year ended May 30, 1993, respectively.
Refer to Note 8 for discussion of a subsequent event which affected the period
over which the deferred compensation could be accrued.
6. LEASES
The Company leases substantially all of its facilities under operating leases
expiring in the period from January 31, 1996, to July 31, 1999. The leases
provide for renewal options for periods through 1999 to 2003 at substantially
the same terms as the current leases.
The leases include a lease, providing for minimum annual payments of $144,000,
in which the Company's principal shareholder has a substantial interest.
Minimum future rental payments under noncancelable operating leases having
remaining terms in excess of one year as of September 25, 1994, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER
- ---------------------
<S> <C>
1995 $ 778,002
1996 778,002
1997 492,180
1998 415,050
1999 235,875
Thereafter --
----------
Total minimum future lease payments $2,669,109
==========
</TABLE>
F-8
<PAGE>
IBM Foods, Inc.
Notes to Financial Statements--(continued)
6. LEASES (CONTINUED)
Total rental expenses under all operating leases was $862,750, $275,391 and
$928,976 for the year ended September 25, 1994, the four months ended September
26, 1993, and the year ended May 30, 1993.
7. PROVISION FOR FEDERAL INCOME TAXES
Effective June 1, 1993, the shareholders of the Company elected to be taxed as
an "S Corporation" for both Federal and State Income Tax purposes. Pursuant to
such election substantially all income taxes on the Company's earnings are the
obligation of the Company's shareholders with the exception of certain minimal
California state income taxes which will continue to be assessed against the
Company. Additionally, the Company is contingently liable for certain net built-
in gains recognized during a 10-year period from the disposition of assets held
by the Company on the date of its "S Corporation" election. Refer to Note 8 for
discussion of a subsequent event which triggered the built-in gains tax.
The elements of the income tax provision are summarized as follows:
<TABLE>
<CAPTION>
FOUR MONTHS
YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 25, SEPTEMBER 26, MAY 30,
1994 1993 1993
------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ -- $ -- $2,272,799
State 45,353 (88,500) 705,903
------------------------------------------
Total current 45,353 (88,500) 2,978,702
------------------------------------------
Deferred:
Federal -- 341,704 395,602
State -- -- 98,493
------------------------------------------
Total deferred -- 341,704 494,095
------------------------------------------
Total income tax provision $45,353 $253,204 $3,472,797
==========================================
</TABLE>
F-9
<PAGE>
IBM Foods, Inc.
Notes to Financial Statements--(continued)
7. PROVISION FOR FEDERAL INCOME TAXES (CONTINUED)
The deferred tax provision for the four months ended September 26, 1993,
reflects the write-off of the Company's net deferred tax assets at the date the
Company converted to an "S Corporation." Deferred state taxes have not been
provided for periods subsequent to May 30, 1993, as the amounts are not
material.
For the year ended May 30, 1993, the deferred tax provisions were computed in
accordance with Accounting Principles Board Opinion No. 11 and represent the
effect of timing differences between financial and income tax reporting. The
deferred income tax provisions attributable to timing differences for the year
ended May 30, 1993, are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED
MAY 30,
1993
-----------
<S> <C>
Depreciation $(19,354)
Deferred compensation (40,048)
Accounts receivable allowances 62,748
Inventory valuation (12,823)
Other accruals 503,572
--------
Total $494,095
========
</TABLE>
The difference between the provision for income taxes at the federal income tax
statutory rate and the Company's effective income tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 30, 1993
----------------------------------
PERCENT OF
AMOUNT PRETAX INCOME
----------------------------------
<S> <C> <C>
Federal income taxes computed by
applying the statutory rate $2,941,730 34.0%
State income taxes, net of federal tax
benefit 529,729 6.1
Other 1,338 --
----------------------------------
Total provision for income taxes $3,472,797 40.1%
==================================
</TABLE>
F-10
<PAGE>
IBM Foods, Inc.
Notes to Financial Statements--(continued)
8. SUBSEQUENT EVENTS
On May 5, 1995, the Company sold substantially all of its operating assets,
excluding cash and cash equivalents, to Polyphase Corporation (Polyphase) for
approximately $30 million and Polyphase assumed substantially all liabilities of
the Company except for the Company's obligations under its profit sharing and
deferred compensation plans.
As a result of the sale of substantially all assets of the Company, the built-in
gains tax referred to in Note 7 will be assessed against the Company and is
estimated to total $4.2 million and will be reflected in the Company's income
tax provisions for the period ended May 5, 1995.
On October 4, 1994, the Company amended its deferred compensation plan referred
to in Note 5 to provide for a lump sum benefit of $1.7 million, which replaced
the previous provision for a fifteen year payout. Furthermore, the Company added
provisions to the deferred compensation plan whereby the full lump sum benefit
would be payable, in addition to an amount approximating the key employee's
annual compensation, if the Company sold substantially all of its business and
assets to a third party. Accordingly, effective with the sale of the Company on
May 5, 1995, the Company will record a charge of $1.9 million to accrue for the
full expected benefits to be paid under the deferred compensation plan.
F-11
<PAGE>
POLYPHASE CORPORATION
INTRODUCTION TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
The accompanying Pro Forma Consolidated Balance Sheet as of March 31, 1995
and Pro Forma Statements of Operations for the year ended September 30, 1994 and
for the six months ended March 31, 1995 present the pro forma financial position
and the pro forma results of operations of Polyphase Corporation and
Subsidiaries ("Polyphase") and Overhill Farms, Inc. ("Overhill"). Overhill was
formed by Polyphase to acquire substantially all the operating assets of IBM
Foods, Inc., which was completed as of May 5, 1995 and has been accounted for as
a purchase in accordance with Accounting Principles Board Opinion No. 16 ("APB
16"). The pro forma adjustments in the accompanying pro forma financial
statements also reflect the acquisition as a purchase under APB 16.
The financial information for the year ended September 30, 1994 also
includes the pro forma results of the acquisition of Texas Timberjack, Inc.
("Timberjack") which was completed June 24, 1994, the details of which were
presented in Amendment No.2 to Form 8-K/A dated June 24, 1994. Accordingly, the
pro forma effect of the Timberjack acquisition on fiscal 1994 is presented in
summary form only. Timberjack's assets and operations have been included in the
Company's consolidated financial statements since the date of its acquisition.
The pro forma consolidated statements include all material adjustments
necessary to present the pro forma financial position and results of operations
of the combined entities assuming that the acquisitions described above had been
consummated as of March 31, 1995 for purposes of the pro forma consolidated
balance sheet; and as of October 1, 1993 for purposes of the pro forma
consolidated statements of operations. The pro forma information does not
purport to be indicative of the financial position or results of operations that
may be obtained in the future or as they might have been had they actually been
combined as of or for the above periods.
The pro forma information has been prepared by Polyphase management and all
calculations have been made by Polyphase management based on assumptions deemed
appropriate by management. Certain of these assumptions are set forth under the
Notes to Pro Forma Consolidated Financial Information.
The pro forma financial information should be read in conjunction with the
Company's historical financial statements and notes thereto and the historical
financial statements and notes thereto for the businesses acquired.
F-12
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma Adjustments (1)
----------------------------
Polyphase Assets
Corporation IBM and Liabilities Pro
and Foods, Retained by Other Forma
Subsidiaries Inc. Seller Adjustments Consolidated
------------- ----------- --------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 275,929 $28,929,177 $(28,929,177) $ 275,929
Accounts receivable, trade 3,592,177 7,579,017 (379,661) 10,791,533
Sales contracts, current 4,574,628 4,574,628
Notes receivable 2,464,997 2,464,997
Related party receivable 784,548 784,548
Inventories 12,777,470 10,138,880 511,101(2) 23,427,451
Prepaids and other 491,272 1,080,758 (195,406) 1,376,624
----------- ----------- -----------
Total Current Assets 24,961,021 47,727,832 43,695,710
----------- ----------- -----------
Property and equipment, net 3,721,310 5,950,484 (396,565) 417,000(2) 9,692,229
Other Assets:
Notes receivable 654,904 654,904
Sales contracts 2,573,228 2,573,228
Restricted cash 589,989 589,989
Goodwill, net 9,151,723 10,284,623(2) 19,436,346
Other intangibles 1,284,458 1,019,000(2) 2,303,458
Other assets 1,082,331 1,741,920 (1,700,319) 1,123,932
----------- ----------- -----------
Total Other Assets 15,336,633 1,741,920 26,681,857
----------- ----------- -----------
Total Assets $44,018,964 $55,420,236 $80,069,796
=========== =========== ===========
</TABLE>
F-13
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET (CONTINUED)
AS OF MARCH 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma Adjustments (1)
--------------------------
Polyphase Assets
Corporation IBM and Liabilities Pro
and Foods, Retained by Other Forma
Subsidiaries Inc. Seller Adjustments Consolidated
------------- ---------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities:
Notes payable $16,038,085 $8,854,031(2) $
1,008,000(3) 25,900,116
Accounts payable 3,306,897 2,808,790 6,115,687
Accrued expenses and other 2,294,544 3,365,677 (1,977,666) 3,682,555
Current maturities
of long-term debt 737,491 1,149,000(2) 1,886,491
----------- ----------- -----------
Total Current Liabilities 22,377,017 6,174,467 37,584,849
----------- ----------- -----------
Long Term Liabilities:
Deferred federal income tax 200,000 200,000
Reserve for credit
guarantees and other 711,874 711,874
Long term debt 5,059,421 4,851,000(2) 9,910,421
Subordinated debt 12,550,000(2) 12,550,000
----------- ----------- -----------
Total Liabilities 28,348,312 6,174,467 60,957,144
----------- ----------- -----------
Redeemable common stock
purchase warrants of subsidiary 450,000(2) 450,000
Stockholder's Equity:
Preferred stock 1,000 1,000
Common stock 119,991 1,501,519 (1,501,519) 119,991
Paid-in capital 21,743,415 1,535,190 (1,535,190) 21,743,415
Notes receivable (2,992,000) 2,992,000(3) --
Retained earnings (3,201,754) 46,209,060 (46,209,060) (3,201,754)
----------- ----------- -----------
Total Stockholders Equity 15,670,652 49,245,769 18,662,652
----------- ----------- -----------
Total Liabilities and
Stockholders Equity $44,018,964 $55,420,236 $80,069,796
=========== =========== ===========
</TABLE>
F-14
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
--------------- --------------- ----------- ------------ ------------
Pro Forma
Polyphase Polyphase
Corporation Corporation IBM Pro Pro
and and Foods, Forma Forma
Subsidiaries(1) Subsidiaries(1) Inc.(1) Adjustments(1) Consolidated
--------------- --------------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales $24,970,404 $50,735,329 $99,534,629 $ -- $150,269,958
Cost of sales 19,970,235 40,878,411 84,967,688 -- 125,846,099
----------- ----------- ----------- ----------- ------------
Gross profit 5,000,169 9,856,918 14,566,941 -- 24,423,859
Selling, general and
administrative expenses 4,644,787 8,720,331 8,411,890 168,000 (4) 17,300,221
----------- ----------- ----------- ----------- ------------
Operating income 355,382 1,136,587 6,155,051 (168,000) 7,123,638
Other income (expense)
Non-recurring charge-grant
of stock options (1,400,000) (1,400,000) -- -- (1,400,000)
Interest expense (447,987) (1,874,719) -- (3,656,000)(5) (5,530,719)
Interest income and other 125,730 1,221,285 632,920 (632,000)(6) 1,222,205
----------- ----------- ----------- ----------- ------------
Total other income
(expense) (1,722,257) (2,053,434) (632,920) (4,288,000) (5,708,514)
----------- ----------- ----------- ----------- ------------
Earnings (loss) before
income taxes, extraordinary
item, cumulative effect
of accounting change
and warrant accretion (1,366,875) (916,847) 6,787,971 (4,456,000) 1,415,124
Income taxes 17,000 17,000 45,353 564,000 (7) 626,353
----------- ----------- ----------- ----------- ------------
Income before accretion of
common stock purchase
warrants of subsidiary (1,383,875) (933,847) 6,742,618 (5,020,000) 788,771
Accretion of common stock
purchase warrants of
subsidiary -- -- -- (290,000)(2) (290,000)
----------- ----------- ----------- ----------- ------------
Income (loss) before
extraordinary item and
cumulative effect of
accounting change $(1,383,875) $ (933,847) $ 6,742,618 $(5,310,000) $ 498,771
=========== =========== =========== =========== ============
Income (loss) per share
before extraordinary item
and cumulative effect of
accounting change $ (.28) $ (.19) $ .06(8)
=========== =========== ============
Weighted average common
shares outstanding 4,881,454 4,881,454 7,818,602(8)
=========== =========== ============
</TABLE>
F-15
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
Polyphase
Corporation IBM Pro Pro
and Foods Forma Forma
Subsidiaries Inc. Adjustments Consolidated
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales $26,442,576 $50,409,147 $ -- $76,851,723
Cost of sales 20,343,395 42,708,099 -- 63,051,494
----------- ----------- ----------- -----------
Gross profit 6,099,181 7,701,048 -- 13,800,229
Selling, general and
administrative expenses 4,216,055 4,282,720 75,000 (4) 8,573,775
----------- ----------- ----------- -----------
Operating income 1,883,126 3,418,328 (75,000) 5,226,454
Other income (expense)
Interest expense (1,075,525) -- (1,657,000)(5) (2,732,525)
Interest income and other 416,727 (504,378) (504,000)(6) (417,105)
----------- ----------- ----------- -----------
Total other income (expense) (658,798) (504,378) (2,161,000) (2,315,420)
----------- ----------- ----------- -----------
Earnings (loss) before
income taxes and warrant
accretion 1,224,328 3,922,706 (2,236,000) 2,911,034
Income taxes 45,000 -- 752,000 (7) 797,000
----------- ----------- ----------- -----------
Income before accretion of
common stock purchase
warrants of subsidiary 1,179,328 3,922,706 (2,988,000) 2,114,034
Accretion of common
stock purchase warrants
of subsidiary -- -- (246,000)(2) (246,000)
----------- ----------- ----------- -----------
Net income (loss) $ 1,179,328 $ 3,922,706 $(3,234,000) $ 1,868,034
=========== =========== =========== ===========
Income (loss) per share $ .10 $ .15
=========== ===========
Weighted average common
shares outstanding 12,361,287 12,361,287
=========== ===========
</TABLE>
F-16
<PAGE>
POLYPHASE CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA FINANCIAL INFORMATION
(UNAUDITED)
(1) Effective May 5, 1995, Polyphase Corporation (the Company), through its
newly-formed subsidiary Overhill Farms, Inc. (Overhill), purchased
substantially all the operating assets of IBM Foods, Inc. (IBM). In
consideration for the acquisition, Overhill agreed to a cash purchase price
equal to the net book value of the assets acquired, plus $9.5 million, less
certain liabilities to be assumed.
The basis of presentation of the accompanying pro forma balance sheet is as
if the acquisition occurred as of March 31, 1995, using the book values of
IBM's assets and liabilities as of March 26, 1995. In such pro forma balance
sheet, a pro forma entry was made to the recorded amounts for IBM to adjust
such amounts to exclude certain assets and liabilities that were to be
retained by the Seller (IBM). Additional pro forma adjustments (as explained
below) have been separately presented to reflect the purchase transaction as
of the balance sheet date.
The pro forma statement of operations for the year ended September 30, 1994
presents the Company's historical results of operations for such fiscal year
in Column A. The pro forma results of operations in Column B reflect the pro
forma results for such fiscal year assuming the completion of the Company's
acquisition of Texas Timberjack, Inc. (Timberjack), which was actually
completed June 24, 1994, as of the beginning of such fiscal year. The pro
forma adjustments applied in arriving at such amounts are explained in
detail in the Company's Form 8-K/A (Amendment No. 2) dated June 24, 1994
which is incorporated herein by reference. To such pro forma results are
added the historical results of operations of IBM for its fiscal year ended
September 25, 1994 (Column C), The pro forma adjustments (Column D) reflect
the adjustments necessary to reflect the acquisition of IBM assuming it had
been consummated on October 1, 1993.
The pro forma statement of operations for the six months ended March 31,
1995 includes the historical accounts of the Company and its subsidiaries
(including Timberjack for the entire period) combined with the operations of
IBM for the 26 weeks ended March 26, 1995.
F-17
<PAGE>
(2) To reflect the purchase of IBM assuming an acquisition date of March 31,
1995:
<TABLE>
<CAPTION>
Financing provided:
<S> <C> <C>
Revolving line of credit $ 8,854,031
Term loans 6,000,000
Subordinated debt 12,550,000
Redeemable warrant 450,000
-----------
Total financing $27,854,031
Cash paid by the Company (See note 3) 4,000,000
-----------
Total purchase price 31,854,031
-----------
</TABLE>
To allocate the purchase price to the fair value of net assets acquired:
<TABLE>
<S> <C>
Book value of IBM net assets acquired at
March 26, 1995 19,622,307
Adjustments to book value:
Inventories 511,101
Property and equipment 417,000
Costs of financing 1,019,000
-----------
Fair value of net assets acquired 21,569,408
-----------
Goodwill $10,284,623
===========
</TABLE>
The warrant issued in connection with the subordinated debt provides that
the warrant holders may purchase shares of the Company's Overhill subsidiary
(representing 22.5% of its common stock) at any time for a period of ten
years for a nominal exercise price of $100. The warrant holders also have
the option to "put" the warrants to the Company any time after the warrant's
fifth anniversary at a "put" price based upon various fair market value
estimates. The initial undiscounted "put" value of the warrants was
determined to be 22.5% of the book value of Overhill at the date of
acquisition which was $900,000. This value was discounted at a rate of
13.95% resulting in a discounted value of $450,000 which was recorded as a
debt discount. The initial value recorded for the warrant is subject to
periodic charges for accretion based upon changes in the estimated value of
the warrant which are expected to approximate 22.5% of the earnings of the
subsidiary.
(3) Upon closing of the purchase, the Pyrenees Group, a related party to the
Company, paid $ 4,000,000 to IBM on the Company's behalf. Of this amount
$2,992,000 represented repayment of obligations of Pyrenees to the Company,
with the remaining $ 1,008,000 representing a temporary advance by Pyrenees
to the Company.
(4) For purposes of goodwill amortization the Company determines the period to
be benefited by using qualitative measuring factors such as competition,
demand and obsolescence, as well as legal, regulatory and contractual
provisions. In addition, the Company evaluates the existence of goodwill
impairment on the basis of whether the goodwill is fully recoverable from
projected, undiscounted cash flows of the related business unit. Based upon
the above policies, the Company has determined that a 20-year amortization
period is appropriate for the goodwill related to the IBM acquisition and
has reflected $514,000 of goodwill amortization for the year ended September
30, 1994 and $257,000 for the six months ended March 31, 1995.
F-18
<PAGE>
Additionally, pro forma adjustments to selling, general and administrative
expenses reflect the elimination of IBM's profit sharing plan expenses of
$346,000 for the year ended September 30, 1994 and $182,000 for the six
months ended March 31, 1995. IBM's profit sharing obligations were not
assumed by the Company.
(5) Reflects the interest expense and amortization of debt discount and costs of
financing related to the debt incurred in connection with the purchase of
the IBM net assets. Interest expense on variable rate debt has been
calculated using the base rate in effect at the date of the acquisition
(9%). Pro forma reductions of the revolving line of credit during the year
and 6-month periods were considered in the computation of interest expense.
Debt discount is being amortized over the term of the subordinated debt
using the interest method. Refer to the initial filing of Form 8-K dated May
5, 1995 for a description of the terms of the debt issued in connection with
the acquisition.
(6) Reflects the elimination of interest income generated by IBM cash
investments.
(7) Adjustments to income tax expense reflect federal and state income taxes at
40% of the incremental pre tax earnings provided by IBM and the effect of
pro forma utilization of net operating loss carryforwards for both the year
ended September 30, 1994 and for the six months ended March 31, 1995.
(8) Pro forma income per share before extraordinary item and cumulative effect
of accounting change for the year ended September 30, 1994 was determined by
dividing pro forma income before extraordinary item and cumulative effect of
accounting change by the pro forma weighted average common shares
outstanding for the period (historical average shares and common stock
equivalents). Common stock options, as well as convertible preferred stock,
are common stock equivalents and have been included in the computation of
pro forma income per share before extraordinary item and cumulative effect
of accounting change, since their effect, based on the average market price
of the Common Stock for the periods presented, is dilutive. Such common
stock equivalents had been omitted from the Company's historical per share
operating results since their effect would have been antidilutive. Primary
and fully diluted income per share are essentially the same for all periods
presented.
F-19
