<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):February 2, 1998
ERC INDUSTRIES, INC.
--------------------
(Exact name of registrant as specified in its charter)
Delaware
--------
(State or other jurisdiction of incorporation)
0-14439 76-0382879
------- ----------
(Commission File Number) (I.R.S. Employer Identification No.)
1441 Park Ten Boulevard, Houston, Texas 77084
---------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code (281) 398-8901
--------------
Not Applicable
--------------
(Former name or former address, if changed since last report)
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF THE BUSINESS ACQUIRED
The audited historical balance sheet of Bompet, C.A. as of
December 31, 1997 and 1996, audited statement of income and
unappropriated retained earnings (deficit) for the years ended
December 31, 1997 and 1996 and the statement of cash flows for the
years ended December 31, 1997 and 1996 are set forth as ATTACHMENT A
and are incorporated herein by reference.
(b) PRO FORMA FINANCIAL INFORMATION
Pro forma financial information for the business acquired subsequent
to December 31, 1997 is set forth as ATTACHMENT B and are incorporated
herein by reference.
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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 hereunto duly authorized.
ERC Industries, Inc.
By: /s/ James E. Klima
-------------------------------------
James E. Klima
Vice President & Chief Financial Officer
DATE: April 20, 1998
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ATTACHMENT A
March 3, 1998
To the Shareholders of
Bompet, C.A.
In our opinion, based upon our audits, the accompanying balance sheet and the
related statement of income and unappropriated retained earnings (deficit) and
cash flows present fairly, in all material respects, the financial position of
Bompet, C.A. at December 31, 1997 and 1996, in conformity with generally
accepted accounting principles in the United States of America. 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 of these statements in accordance with
auditing standards generally accepted in the United States of America which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
ESPINEIRA, SHELDON Y ASOCIADOS
Price Waterhouse
German Santaella R.
CPC 10952
4
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BOMPET, C.A.
(Subsidiary of Inversiones Western, C.A.)
BALANCE SHEET
(In United States dollars)
December 31,
--------------
1997 1996
---- ----
Assets
------
Current assets:
Cash 80,007 343,139
Accounts receivable -
Trade, mainly from state-owned petroleum
companies, net of allowance for doubtful
accounts of some US$5,000 2,504,217 1,436,658
Employees and other 52,003 13,865
Inventories (Note 5) 1,986,337 1,421,761
--------- ---------
Total current assets 4,622,564 3,215,423
Account receivable shareholder and
related companies (Note 4) - 1,249,752
Fixed asset, net (Note 6) 556,077 470,326
Other assets 14,520 14,891
--------- ---------
5,193,161 4,950,392
========= =========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Loans (Note 7) 607,833 524,659
Accounts payable -
Trade 873,819 1,024,702
Dividend payable 515,617 -
Account payable shareholder and related
companies (Note 4) 564,279 -
Accruals and other 782,372 296,686
--------- ---------
Total current liabilities 3,343,920 1,846,047
Accrued for employee termination benefits 260,277 172,495
--------- ---------
Total liabilities 3,604,197 2,018,542
--------- ---------
Shareholders' equity (Note 8):
Capital stock 1,887,075 1,887,075
Legal reserve 105,581 105,581
Unappropriated retained earnings (deficit) (403,692) 939,194
--------- ---------
Total shareholders' equity 1,588,964 2,931,850
--------- ---------
5,193,161 4,950,392
========= =========
The accompanying notes are an integral part
of the financial statements
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BOMPET, C.A.
STATEMENT OF INCOME AND UNAPPROPRIATED
RETAINED EARNINGS (DEFICIT)
(In United States dollars)
December 31,
--------------
1997 1996
---- ----
Income:
Net sales and services 9,806,537 6,216,813
--------- ---------
Costs and expenses (Note 6):
Cost of sales and services 6,447,305 3,903,091
Administrative and general expenses 1,327,019 655,305
Selling expenses 102,591 87,017
Interest 162,428 45,761
Net (gain) loss on disposal of fixed assets (13,114) 136,397
Other expenses - 188,126
Write off of investment in subsidiaries - 4,384,072
Translation adjustment 192,817 181,957
--------- ---------
8,219,046 9,581,726
--------- ---------
Income (loss) before taxes 1,587,491 (3,364,913)
Income tax (Note 9):
Current (451,448) (103,014)
--------- ---------
Net income (loss) 1,136,043 (3,467,927)
Unappropriated retained earnings
(deficit):
At beginning of year 939,194 4,472,023
Dividends declared (Note 8) (2,478,929) -
Appropriated to legal reserve - (64,902)
--------- ---------
At end of year (403,692) 939,194
========= =========
The accompanying notes are an integral part
of the financial statements
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BOMPET, C.A.
STATEMENT OF CASH FLOWS
(In United States dollars)
Years ended
December 31,
-----------
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) 1,136,043 (3,467,927)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities -
Depreciation 131,428 233,300
Accrual for employee termination benefits 154,084 106,845
Translation adjustment 192,817 181,957
Net changes in operating assets and
liabilities -
Accounts receivable, net of the
translation adjustment (130,298) (1,734,199)
Inventories (564,576) (419,041)
Prepaid expenses and other assets 371 42,671
Write off of investment in subsidiaries - 4,384,072
Accounts payable, accruals and other 980,618 825,830
Payment of employee termination benefits (66,302) (119,324)
--------- ---------
Net cash provided by operating
activities 1,834,185 34,184
NET CASH USED IN INVESTING ACTIVITIES:
Additions to fixed assets, net (217,179) (109,399)
--------- ---------
NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES:
Net increase in loans 83,174 400,710
Dividends paid (1,963,312) -
--------- ---------
(1,880,138) 400,710
CASH AND CASH EQUIVALENTS:
Increase (decrease) for the year (263,132) 325,495
At beginning of the year 343,139 17,644
--------- ---------
At end of the year 80,007 343,139
========= =========
The accompanying notes are an integral part
of the financial statements
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BOMPET, C.A.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 1 - INCORPORATION AND ACTIVITIES:
The Company was incorporated in December 1974 and, together with its main
subsidiaries, is engaged in the manufacture and trade of gate valves, for oil
and gas production and processing, it also renders services for the installation
and maintenance of this equipment. During 1996 the Company wrote off its
investments in subsidiaries and recorded a loss of $4,384,072. The Company was a
wholly owned subsidiary of Inversiones Western, C.A. prior to its sale to ERC
Industries, Inc. (see Note 8).
NOTE 2 - TRANSLATION INTO U.S. DOLLARS:
The Company must maintain its financial records in Venezuelan bolivars ("Bs") in
accordance with Venezuelan generally accepted accounting principles ("Venezuelan
GAAP") and issue consolidated financial statements and pay dividends on this
basis.
a) Basis of presentation and remeasurement into U.S. dollars -
For international reporting purposes Bompet, C.A. has elected to present its
financial statements in accordance with United States generally accepted
accounting principles ("U.S. GAAP").
The accompanying financial statements include certain adjustments to the
historical bolivar financial statements to conform the accounting policies to
U.S. GAAP. The remeasurement of the historical bolivar financial statements
into U.S. dollars has been conducted in accordance with Statement of Financial
Accounting Standards ("SFAS") N[degrees] 52 "Foreign Currency Translation" as
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applicable to an entity operating in a hyperinflationary environment. The
historical bolivar accounts have been remeasured into U.S. dollars as follows:
Accounts Exchange rate
-------- -------------
Balance sheet:
Current assets, except inventories Year-end
Liabilities Year-end
Inventories Historical
Fixed assets Historical
Shareholders' equity Historical
Income and expenses Historical
Foreign exchange gains and losses arise mainly from the effect of exchange rate
fluctuations on net monetary items denominated in bolivars, and are included in
the statement of income for the year.
NOTE 3 - SIGNIFICANT ACCOUNTING PRINCIPLES IN USE:
a) Inventories -
Inventories are valued at the lower of average cost or market value.
b) Fixed assets -
The fixed assets are recorded at historical cost. Additions, renovations and
improvements are recorded as part of the cost of the fixed assets. Depreciation
is calculated based on the straight-line method over the estimated useful lives
of the assets.
c) Accrual for employee termination benefits -
The Company accrues its liability for termination benefits, which are a vested
right of workers, based on the provisions of the Venezuelan Labor Law.
In June 1997 the new Reform of the Venezuelan Labor Law was approved. The new
system provides each employee with a transfer compensation equivalent to
employee termination benefits at December 31, 1996, the calculation of which is
to be made from
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specific bases. The Company's management assessed and recorded the effects
resulting from the approval of this new Law, along with the provisions of the
Reformed law and the Company's policies.
NOTE 4 - TRANSACTIONS AND ACCOUNTS WITH THE SHAREHOLDER AND RELATED COMPANIES:
At December 31, a summary of the account with the shareholder and related
companies is presented below:
1997 1996
---- ----
(In United States dollars)
Account Receivable Shareholder and
Related Companies
-----------------
Inversiones Western, C.A. - 1,249,752
------- ---------
- 1,249,752
======= =========
Account Payable Shareholder and
Related Companies
-----------------
Transporte Susi, S.R.L. 83,173 -
Inversiones Western, C.A. 481,106 -
------- ---------
564,279 -
======= =========
The account payable to Inversiones Western, C.A. is mainly related to an amount
ceded by purchase commissions to a related company, and the account payable to
Transporte Susi, S.R.L. correspond to rent of vehicle during 1997.
The account receivable from Inversiones Western, C.A., is mainly related to
collections made during 1996 by that company from the Company's clients.
Prior to acquisition (see Note 8) the Company forms part of a group of related
companies and has significant accounts and transactions with companies of this
Group. The main transactions carried out are summarized below:
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1997 1996
---- ----
(In United States dollars)
Charges (credits):
Net inventory (sales) purchases (5,992) 2,044
Administrative services (364,560) (262,682)
Amount ceded (276,206) (136,693)
NOTE 5 - INVENTORIES:
Inventories December 31, comprise the following:
1997 1996
---- ----
(In United States dollars)
Finished products, mainly equipment
for the oil industry 972,723 513,871
Components and parts for production 673,144 261,457
Inventory in transit 67,682 85,272
Products in process 272,788 400,669
Spare parts and supplies - 160,492
--------- ---------
1,986,337 1,421,761
========= =========
NOTE 6 - FIXED ASSET:
Fixed asset at December 31, comprises the following:
1997 1996
---- ----
(In United States dollars)
Machinery 1,696,567 1,525,488
Buildings and installations 443,861 259,630
Equipment and tools 258,530 231,735
Furniture and office equipment 151,805 151,400
Vehicles 66,790 56,677
2,617,553 2,224,930
Accumulated depreciation (2,108,787) (1,889,245)
--------- ---------
508,766 335,685
Land 20,469 20,469
Constructions in progress 26,842 114,172
--------- ---------
556,077 470,326
========= =========
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Depreciation in 1997 of some US$131,000 (some US$233,300 in 1996) was mainly
recorded in the cost of sales and services. At December 31, 1997 some
US$1,910,000 of the fixed assets are fully depreciated.
At December 31, 1996 land and some buildings were mortgaged. These mortgages
were released during 1997 when the outstanding debt was replaced with loans from
local banks. (see Note 7).
In January 1998, Bompet, C.A. sold part of its lands, buildings installations
and vehicles to the shareholder of Inversiones Western, C.A. for the
cancellation of $161,000 of account payable to shareholder and related
companies. The net book value of the sold assets was some US$109,000.
NOTE 7 - LOANS:
At December 31, 1997 the Company has loans from locals banks guaranteed by the
shareholder of Inversiones Western, C.A. repayable in January and February 1998
and bearing annual interest among 20% (27% at December 31, 1996). During 1997
these loans from local banks were utilized to retire all other loans
outstanding.
NOTE 8 - SHAREHOLDER'S EQUITY:
Capital stock -
At December 31, 1997 and 1996, subscribed and paid-in capital stock is
represented by 500,000 shares of US$3.77 par value each, wholly owned by
Inversiones Western, C.A. In February 1998 Inversiones Western, C.A. sold 100%
of their shares shares of the Company to ERC Industries, Inc. for a sales price
of US $2.6 million. In addition, ERC Industries, Inc. will pay up to a maximum
of $3.4 million in the event that the Company's earnings exceed certain
thresholds during 1998, 1999 and 2000.
In the general and ordinary shareholders' meeting of December 1997, was
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agreed to decree and pay dividends in cash of some Bs 1.250.000.000
(approximately $2,478,929) charged to unappropriated retained earnings (deficit)
at December 31, 1996 and upon interim gains related with the eleven months
period ended at November 30, 1997, determined in historical bolivars.
NOTE 9 - TAXES:
Income tax -
The income Tax Law provides for an regular inflation adjustment for tax
purposes. The Law also establishes that the new value resulting from its
updating is to be depreciated over the remaining useful lives of the fixed
assets.
Business assets tax -
This tax is complementary to income tax and is determined as 1% of the simple
yearly average of inflation-adjusted non-monetary assets and monetary assets
less any devaluation due to inflation. Business assets tax is due when it
results in an amount higher than the income tax.
Deferred income tax -
U.S. GAAP, as defined under SFAS No. 109,Accounting for Income Taxes, requires
that deferred income taxes be determined based on the difference between the
financial reporting and tax bases of assets and liabilities. Any temporary
differences between the financial reporting and tax bases of the Company's
assets and liabilities are not material and accordingly no provision has been
recorded for deferred income taxes. The difference between the tax provision
recorded for financial reporting purposes and the Venezuelan statutory rate is
primarily due to permanent differences resulting from the inflation adjustment
discussed above.
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ATTACHMENT B
ERC Industries, Inc.
Pro Forma Condensed Consolidated Financial Statements
On February 2, 1998, the Company completed the acquisition ("Acquisition") of
all the issued and outstanding capital stock of Bompet, C.A. ("Bompet"), a
Venezuelan Company. In connection with the transaction, the Company paid the
sole stockholder of Bompet, Inversiones Western, C.A., a purchase price of $2.6
million. In addition, the Company will pay up to a maximum of $3.4 million in
the event that Bompet's earnings exceed certain thresholds during 1998, 1999 and
2000. The Company intends to account for the transaction as a purchase.
The accompanying pro forma condensed consolidated balance sheet and income
statement have been prepared in accordance with the requirements of Article 11
of Regulation S-X promulgated by the Securities and Exchange Commission ("SEC").
These statements are presented for informational purposes only and are not
indicative of the results of future operations, nor the results of historical
operations had the acquisition occurred as of the assumed dates.
The accompanying pro forma condensed consolidated balance sheet as of December
31, 1997 has been prepared as if the Acquisition were consumated as of that
date. The accompanying pro forma condensed consolidated income statement has
been prepared assuming that the Acquisition of Bompet, C.A. had occurred on
January 1, 1997 . Pursuant to the SEC's regulations, permitted pro forma
adjustments include only the effects of events directly attributable to a
transaction that are factually supportable and are expected to have a
continuing impact, and should be read in conjunction with the historical
consolidated
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financial statements included ERC Industries, Inc.'s annual report on Form 10-K
for the year ended December 31, 1997 and the Bompet audited financial statements
as of December 31, 1997 and 1996 and for the years then ended included herein in
item 7 (a).
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ERC INDUSTRIES, INC.
PROFORMA CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PAR VALUE AMOUNTS)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
BUSINESS
ACQUIRED AFTER
DECEMBER
31, 1997 PRO FORMA
HISTORICAL (NOTE 1) ADJUSTMENTS PROFORMA
---------- -------- ----------- ---------
ASSETS
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ - $ 80 $ 80
Accounts receivable, net 18,689 2,556 21,245
Inventory 25,081 1,986 27,067
Prepaid expenses and other current assets 229 - 229
Deferred tax asset 2,520 - 2,520
-------- ------- ------- --------
Total current assets 46,519 4,622 - 51,141
Property, plant and equipment, net 7,743 556 $ (109)(a) 8,220
30 (b)
Other assets 1,634 15 1,649
Deferred tax asset-non current 170 - 170
Excess cost over net assets acquired, net 4,317 - 1,090 (c) 5,407
-------- ------- ------- --------
Total assets $ 60,383 $ 5,193 $ 1,011 $ 66,587
======== ======= ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Long-term debt and capital leases due within one year $ 8,156 $ 608 $ 2,600 (d) $ 11,364
Accounts payable 13,465 874 564 (e) 14,903
Dividend payable - 516 (516)(f) -
Account payable shareholder and related companies - 564 (564)(e) -
Other accrued liabilities 2,883 782 516 (f) 4,181
-------- ------- ------- --------
Total current liabilities 24,504 3,344 2,600 30,448
-------- ------- ------- --------
Long-term debt 3,977 260 4,237
Commitments and contingencies - - -
Shareholders' equity:
Preferred stock, par value $1; authorized and
unissued - 10,000,000 shares - - -
Common stock, par value $0.01; authorized -
30,000,000 shares; 2,498,272 and 21,248,272
issued and outstanding as of December 31, 1997
and 1996, respectively 275 1,887 (1,887) (g) 275
Additional paid-in capital 24,842 106 (106) (g) 24,842
Retained earnings from January 10, 1989 6,776 (404) 404 (g) 6,776
Translation adjustment 9 - 9
-------- ------- ------- --------
Total shareholders' equity 31,902 1,589 (1,589) (g) 31,902
-------- ------- ------- --------
Total liabilities and shareholders' equity $ 60,383 $ 5,193 $ 1,011 $ 66,587
======== ======= ======= ========
Note 1 Reflects the historical combined balance sheet for Bompet, C.A. as of December 31, 1997.
</TABLE>
See notes to pro forma condensed consolidated financial statements.
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ERC INDUSTRIES, INC.
PROFORMA CONDENSED CONSOLIDATED INCOME STATEMENT
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
BUSINESS
ACQUIRED AFTER
DECEMBER
31, 1997 PRO FORMA
HISTORICAL (NOTE 1) ADJUSTMENTS PROFORMA
---------- -------- ----------- --------
<S> <C> <C> <C> <C>
Revenues $80,845 $ 9,807 $90,652
Cost of goods sold 61,780 6,447 68,227
-------- ------- ------- -------
Gross profit 19,065 3,360 - 22,425
Selling, general and administrative expenses 15,458 1,430 109 (h) 16,764
132 (i)
(365)(j)
-------- ------- ------- -------
Operating income (loss) 3,607 1,930 124 5,661
-------- ------- ------- -------
Other (income) expense:
Interest expense 989 163 195 (k) 1,347
Other, net - 180 180
-------- ------- ------- -------
989 343 195 1,527
-------- ------- ------- -------
Income (loss) before provision 2,618 1,587 (71) 4,134
(benefit) for income taxes
Provision (benefit) for income taxes 1,394 451 14 (l) 1,859
-------- ------- ------- -------
Net income (loss) $ 1,224 $ 1,136 $ (85) $ 2,275
======= ======= ======= =======
Basic net income (loss) per share $ 0.05 $ 0.10
======= =======
Weighted average number of shares outstanding 23,217 23,217
======= =======
Note 1 Reflects the historical combined statement of operations for Bompet, C.A. for the 12 months ended December 31, 1997.
</TABLE>
See notes to pro forma condensed consolidated financial statements.
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ERC INDUSTRIES, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited pro forma condensed consolidated financial
statements (the "Pro Forma Financial Statements") for ERC Industries, Inc. (the
"Company") have been prepared based upon certain pro forma adjustments to the
historical consolidated financial statements of the Company set forth in its
previously filed Annual Report on Form 10-K for the year ended December 31,
1997.
The Pro Forma Financial Statements are based on certain assumptions and
preliminary estimates which are subject to change. The Pro Forma Financial
Statements do not purport to be indicative of the results which would actually
have been obtained had the acquisition been completed on the date indicated or
which may be obtained in the future.
The pro forma adjustments which have been made to the accompanying Pro Forma
Financial Statements are described below:
(a) Reflects the net book value of the land and buildings specifically
excluded in the share purchase agreement.
(b) Reflects the purchase price allocation of the business acquired.
(c) Reflects the excess of the purchase price over the estimated fair value
of the tangible assets acquired.
(d) Reflects the debt incurred in connection with the financing of the
acquisition.
(e) Reflects the reclassification of Bompet related party payables to
accounts payable.
(f) Reflects the reclassification of Bompet dividends payable to accrued
liabilities.
(g) Reflects the elimination of the equity of the business acquired.
(h) Reflects one period of the amortization of excess cost over net assets
acquired related to the acquisition over a 10 year period on a
straight-line basis.
(i) Reflects the rental expense for the land and buildings that will be
leased from the former owner of Bompet. (see Note (a)).
(j) Reflects the effect of the administrative services fee charged by
Bompet's former owner that will not be incurred by the Company.
(k) Reflects the interest cost for the financing of the purchase price of
the acquisition through the Company's credit facility.
(l) Reflects income tax effect of the above pro forma adjustments excluding
nondeductible goodwill amortization.
18
