SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A (No.1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
Date of Report - September 23, 1995
Eagle Pacific Industries, Inc.
(Exact name of registrant as specified in its charter)
Minnesota 0-18050 41-1642846
(State or other Jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
2430 Metropolitan Centre
333 South Seventh Street
Minneapolis, Minnesota 55402
(Address of principal executive offices and zip code)
(612) 371-9650
(Registrant's telephone number, including area code)
Black Hawk Holdings, Inc.
(Former name or former address, if changed since last report)
(___ Sequentially Numbered Pages) (Exhibit Index on Page ___)
ITEM 7. Financial Statements; Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Business Acquired (Pacific Plastics, Inc.).
Independent Auditors' Report of Deloitte & Touche LLP ............ F-1
Report of Independent Certified Public Accountants of Bashar Johnson &
Company, P.C. .................................................... F-2
Consolidated Balance Sheets as of June 30, 1995 and 1994 ......... F-3
Consolidated Statements of Income for the years ended June 30, 1995
and 1994 ......................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended
June 30, 1995 and 1994 ........................................... F-5
Consolidated Statements of cash flows for the years ended June 30,
1995 and 1994 .................................................... F-6
Notes to Consolidated Financial Statements ....................... F-7
(b) Pro Forma Financial Information (unaudited)
Eagle Pacific Industries, Inc.
(Formerly Black Hawk Holdings,Inc.)
and
Pacific Plastics, Inc.
The following pro forma financial statements included herewith combine the
balance sheet of Eagle Pacific Industries,Inc. and subsidiaries ("Eagle") with
that of Pacific Plastics, Inc. and subsidiary ("Pacific") as of June 30, 1995,
and the respective pro forma statements of operations for the six months ended
June 30, 1995 and the twelve months ended December 31, 1994, using the purchase
method of accounting to reflect the acquisition of all Pacific's common stock by
Eagle which occurred on July 10, 1995, as if in the case of the pro forma
balance sheet, the acquisition has occurred at June 30, 1995 and, in the case of
the pro forma statements of operations, the acquisition had occurred at the
beginning of each period presented. The pro forma statements of operations are
not necessarily indicative of the combined results of operations as they may be
in the future, or as they might have been for periods indicated had the
acquisition been effective at the beginning of each period presented.
Introduction .................................. F-12
Unaudited Pro Forma Condensed Combined Balance Sheet as
of June 30, 1995 ............................ F-13
Unaudited Pro Forma Condensed Combined Statements of
Operations for the year ended December 31, 1994 and the six
months ended June 30, 1995 .................. F-15
(c) Exhibits
2.0 Stock Purchase Agreement dated July 6, 1995.
10.1 Business Loan Agreement for Revolving Loan and Term Loan dated July 10,
1995 between Bank of America Oregon and Pacific Plastics, Inc. and
Arrow Pacific Plastics, Inc.
10.2 Form of Agreement by and among Black Hawk Holdings, Inc., Pacific
Plastics, Inc., Pacific Acquisition Corp., Loyal Sorensen and Jarred
Thompson.
10.3 Form of Acknowledgement of Closing by and among Black Hawk Holdings,
Inc., Pacific Plastics, Inc., Loyal Sorensen and Jarred Thompson.
10.4 Security Agreement dated July 10, 1995 between Pacific Plastics, Inc.
and Bank of America Oregon.
10.5 Security Agreement dated July 10, 1995 between Arrow Pacific Plastics,
Inc. and Bank of America Oregon.
10.6 Continuing Guaranty dated July 10, 1995 of Registrant in favor of Bank
of America Oregon.
10.7 Tax Sharing Agreement between Registrant and Pacific Plastics, Inc.
dated July 10, 1995.
10.8 Management Services Agreement between Registrant and Pacific Plastics,
Inc. dated July 10, 1995.
10.9 Management Services Agreement between Eagle Plastics, Inc. and Pacific
Plastics, Inc. dated July 10, 1995.
10.10 Employment Agreement between Pacific Plastics, Inc. and Loyal Sorensen
dated July 10, 1995.
10.11 Employment Agreement between Jarred Thompson and Pacific Plastics, Inc.
dated July 10, 1995.
10.12 Noncompetition Agreement between Jarred Thompson and Pacific Plastics,
Inc. dated July 10, 1995.
10.13 Noncompetition Agreement between Loyal Sorensen and Pacific Plastics,
Inc. dated July 10, 1995.
10.14 Promissory Note and Stock Pledge Agreement dated July 10, 1995 between
Arrow Pacific Plastics, Inc., former shareholders, Registrant and
Pacific Plastics, Inc.
10.15 Registration Rights Agreement dated July 10, 1995 between Black Hawk
Holdings, Inc. and Loyal Sorensen, Zelda Sorensen, Jarred Thompson and
Sharron Thompson.
10.16 Stock Option Agreement dated July 10, 1995 by and between Registrant
and Loyal Sorensen.
10.17 Stock Option Agreement dated July 10, 1995 by and between Registrant
and Jarred Thompson.
21.0 The subsidiaries of Registrant are Eagle Plastics, Inc., Black Hawk
Financial Corp., Liberty Food Distributors, and Pacific Plastics, Inc.
Arrow Pacific Plastics, Inc. is a subsidiary of Pacific Plastics, Inc.
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 duly authorized.
DATED: September 23, 1995 EAGLE PACIFIC INDUSTRIES, INC.
/s/ William H. Spell
William H. Spell, President
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<CAPTION>
Exhibits
to
Form 8-K
of
Eagle Pacific Industries, Inc.
Page Number
In
Sequential
Numbering of
all Pages
Exhibit Including
Number Exhibit Index
<S> <C> <C>
2.0 Stock Purchase Agreement dated July 6, 1995. *
10.1 Business Loan Agreement for Revolving Loan and Term Loan dated July 10, 1995 between Bank of America *
Oregon and Pacific Plastics, Inc. and Arrow Pacific Plastics, Inc.
10.2 Form of Agreement by and among Black Hawk Holdings, Inc., Pacific Plastics, Inc., Pacific Acquisition *
Corp., Loyal Sorensen and Jarred Thompson
10.3 Form of Acknowledgement of Closing by and among Black Hawk Holdings, Inc., Pacific Plastics, Inc., *
Loyal Sorensen and Jarred Thompson
10.4 Security Agreement dated July 10, 1995 between Pacific Plastics, Inc. and Bank of America Oregon. *
10.5 Security Agreement dated July 10, 1995 between Arrow Pacific Plastics, Inc. and Bank of America Oregon. *
10.6 Continuing Guaranty dated July 10, 1995 of Registrant in favor of Bank of America Oregon. *
10.7 Tax Sharing Agreement between Registrant and Pacific Plastics, Inc. dated July 10, 1995. *
10.8 Management Services Agreement between Registrant and Pacific Plastics, Inc. dated July 10, 1995. *
10.9 Management Services Agreement between Eagle Plastics, Inc. and Pacific Plastics, Inc. dated July 10, *
1995
10.10 Employment Agreement between Pacific Plastics, Inc. and Loyal Sorensen dated July 10, 1995. *
10.11 Employment Agreement between Jarred Thompson and Pacific Plastics, Inc. dated July 10, 1995. *
10.12 Noncompetition Agreement between Jarred Thompson and Pacific Plastics, Inc. dated July 10, 1995. *
10.13 Noncompetition Agreement between Loyal Sorensen and Pacific Plastics, Inc. dated July 10, 1995. *
10.14 Promissory Note and Stock Pledge Agreement dated July 10, 1995 between Arrow Pacific Plastics, Inc., *
former shareholders, Registrant and Pacific Plastics, Inc.
10.15 Registration Rights Agreement dated July 10, 1995 between Black Hawk Holdings, Inc. and Loyal Sorensen, *
Zelda Sorensen, Jarred Thompson and Sharron Thompson.
10.16 Stock Option Agreement dated July 10, 1995 by and between Registrant and Loyal Sorenson. *
10.17 Stock Option Agreement dated July 10, 1995 by and between Registrant and Jarred Thompson. *
21.0 The subsidiaries of Registrant are Eagle Plastics, Inc., Black Hawk Financial Corp., Liberty Food
Distributors, and Pacific Plastics, Inc. Arrow Pacific Plastics, Inc. is a subsidiary of Pacific
Plastic, Inc.
</TABLE>
* Previously Filed
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Pacific Plastics, Inc.
Beaverton, Oregon
We have audited the accompanying consolidated balance sheet of Pacific Plastics,
Inc. and subsidiary (the Company) as of June 30, 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
year then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Pacific Plastics, Inc. and
subsidiary as of June 30, 1995, and the consolidated results of their operations
and their cash flows for the year then ended, in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
August 25, 1995
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Pacific Plastics, Inc.
Beaverton, Oregon
We have audited the accompanying consolidated balance sheet of Pacific Plastics,
Inc. and Subsidiary as of June 30, 1994, and the related consolidated statements
of income, stockholders' equity and cash flows for the year then ended. These
financial statements are the responsiblity of the Company's management. Our
responsiblity is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
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 by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Pacific
Plastics, Inc. and Subsidiary as of June 30, 1994, and the consolidated results
of its oeprations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ Bashar, Johnson & Company, P.C.
Beaverton, Oregon
September 13, 1994
PACIFIC PLASTICS, INC. AND SUBSIDIARY
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CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND 1994
1995 1994
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash $ 9,730 $ 14,863
Accounts receivable, less allowance for doubtful
accounts and sales discounts of $130,000
and $30,000, respectively 4,343,724 3,862,770
Other receivables (Note 3) 266,333 88,022
Inventories (Note 4) 7,174,294 4,833,336
Prepaid expenses and other 62,447 36,933
Deferred income taxes (Note 10) 100,000 74,000
Total current assets 11,956,528 8,909,924
PROPERTY AND EQUIPMENT, net (Note 5) 2,583,793 2,450,434
OTHER RECEIVABLES (Note 3) 110,512 134,304
$14,650,833 $11,494,662
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to bank (Note 6) $ 2,195,000 $ 34,000
Current portion of long-term debt (Note 8) 203,129 108,726
Accounts payable 5,109,241 4,139,153
Accrued liabilities (Note 7) 693,357 1,270,562
Total current liabilities 8,200,727 5,552,441
LONG-TERM BORROWINGS (Note 8) 816,016 427,711
DEFERRED INCOME TAXES (Note 10) 200,000 194,000
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY:
Preferred stock, $1,000 par value;
authorized 200 shares, none issued and outstanding
Common stock, $10 par value; authorized 1,000 shares;
360 shares issued and outstanding 3,600 3,600
Additional paid-in capital 1,097,627 1,097,627
Retained earnings 5,402,363 4,870,783
6,503,590 5,972,010
Less common stock reacquired - at cost: 294 and
257 shares, respectively 1,069,500 651,500
5,434,090 5,320,510
$14,650,833 $11,494,662
</TABLE>
See notes to consolidated financial statements.
PACIFIC PLASTICS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 1995 AND 1994
1995 1994
<S> <C> <C>
NET SALES $ 32,206,560 $ 26,972,515
COST OF GOODS SOLD 27,250,355 22,132,922
Gross profit 4,956,205 4,839,593
OPERATING EXPENSES:
Selling 2,524,175 2,461,053
General and administrative 1,390,888 1,383,720
3,915,063 3,844,773
Operating income 1,041,142 994,820
OTHER INCOME (EXPENSE):
Interest income 35,262 123,748
Interest expense (213,572) (125,292)
Other income 38,748 53,963
(139,562) 52,419
INCOME BEFORE INCOME TAXES 901,580 1,047,239
INCOME TAXES (Note 10) 370,000 358,057
NET INCOME $ 531,580 $ 689,182
</TABLE>
See notes to consolidated financial statements.
PACIFIC PLASTICS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1995 AND 1994
ADDITIONAL TOTAL
COMMON STOCK PAID-IN RETAINED TREASURY STOCK STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT EQUITY
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1993 360 $ 3,600 $ 1,097,627 $4,881,601 257 $ (651,500) $5,331,328
Dividends paid (700,000) (700,000)
Net income 689,182 689,182
BALANCE AT JUNE 30, 1994 360 3,600 1,097,627 4,870,783 257 (651,500) 5,320,510
Purchase of treasury shares 37 (418,000) (418,000)
Net income 531,580 531,580
BALANCE AT JUNE 30, 1995 360 $ 3,600 $ 1,097,627 $5,402,363 294 $(1,069,500) $5,434,090
</TABLE>
See notes to consolidated financial statements.
PACIFIC PLASTICS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1995 AND 1994 (NOTE 11)
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 531,580 $ 689,182
Adjustment to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation 515,303 475,113
Deferred income tax benefit (20,000) (41,809)
Loss on sale of equipment (11,091)
Changes in operating assets and liabilities:
Accounts receivable (480,954) 251,305
Inventories (2,340,958) (333,201)
Prepaid expenses and other (25,514) (18,011)
Accounts payable 970,088 700,846
Accrued liabilities (577,205) 552,616
Net cash (used in) provided by
operating activities (1,427,660) 2,264,950
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (648,662) (667,494)
Proceeds from sales of property and equipment 15,000
Advances on stockholder's note receivable (203,086)
Payments received on other receivables 48,567 9,082
Net cash used in investing activities (803,181) (643,412)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds (repayments) under notes payable 2,161,000 (1,449,000)
Proceeds from long-term debt 640,000 87,778
Payments on long-term debt (157,292) (267,422)
Payment for purchase of treasury stock (418,000)
Net cash provided by financing activities 2,225,708 (1,628,644)
DECREASE IN CASH (5,133) (7,106)
CASH AT BEGINNING OF YEAR 14,863 21,969
CASH AT END OF YEAR $ 9,730 $ 14,863
</TABLE>
See notes to consolidated financial statements.
PACIFIC PLASTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1995 AND 1994
1. SALE OF THE COMPANY
Effective July 10, 1995, the Company's stockholders entered into a stock
purchase agreement with Eagle Pacific Industries, Inc. (formerly Black
Hawk Holdings, Inc.) to sell all of the outstanding common stock of
Pacific Plastics, Inc. The purchase price paid to the stockholders was
$6,750,000 consisting of $4,350,000 in cash, $1,700,000 in the form of a
note to the selling stockholders and 262,210 shares of common stock of
Eagle Pacific Industries, Inc. valued at $700,000. In addition, two
stockholders received $750,000 in cash for a five year covenant not to
compete.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activity - Pacific Plastics, Inc. and subsidiary (the Company)
manufactures plastic pipe.
Principles of Consolidation - The consolidated financial statements
include the accounts of Pacific Plastics, Inc. and its wholly-owned
subsidiary, Arrow Pacific Plastics, Inc. All significant intercompany
accounts and transactions have been eliminated.
Inventories - Inventories are stated at the lower of cost or market.
Cost is determined using the last-in, first-out (LIFO) method for the
resin and polyethylene portion of raw materials and manufactured
finished goods. Cost is determined using the first-in, first-out (FIFO)
method for all other components of inventory.
Property and Equipment - Property and equipment are stated at cost and
are depreciated over the estimated useful life of each asset.
Maintenance, minor repairs and gains or losses from dispositions of
property and equipment are reflected in operations when incurred.
Income Taxes - The Company utilizes the asset and liability method of
accounting for income taxes as set forth in Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.
Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and income tax basis of
assets and liabilities that will result in taxable or deductible amounts
in the future based on enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized. Income tax expense is
the tax payable or refundable for the year plus or minus the change
during the year in deferred tax assets and liabilities.
Reclassifications - Certain reclassifications have been made to the
fiscal 1994 consolidated financial statements to conform to the fiscal
1995 presentation. Such reclassification had no effect on net income or
stockholders' equity as previously reported.
3. OTHER RECEIVABLES
Other receivables at June 30 consist of the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Notes receivable and advances to employees $151,547 $190,845
Note receivable from stockholder 203,086
Notes receivable from others 22,212 31,481
376,845 222,326
Less current portion of notes and advances receivable 266,333 88,022
$110,512 $134,304
</TABLE>
The employee receivables are payable from employees' payroll
withholdings. Long-term notes receivable bear interest at 10% at June
30, 1995.
4. INVENTORIES
Major classes of inventories at June 30 were as follows:
1995 1994
Finished goods $4,212,885 $2,379,084
Raw materials 2,499,963 2,153,405
Supplies 461,446 300,847
$7,174,294 $4,833,336
If inventory values were stated at current costs (determined by the FIFO
method) rather than at LIFO, inventories would have been higher by
$2,050,000 and $874,000 at June 30, 1995 and 1994, respectively, and net
income would have been $1,176,000 and $287,000 higher for the years
ended June 30 1995 and 1994, respectively.
5. PROPERTY AND EQUIPMENT
The following is a summary of the major classes of property and
equipment:
Useful Life 1995 1994
Land $ 341,460 $ 341,460
Buildings 7 - 39 years 1,052,959 886,665
Machinery and equipment 3 - 7 years 4,196,279 3,900,350
Transportation equipment 3 - 5 years 559,068 504,003
Furniture and fixtures 3 - 7 years 278,710 256,563
6,428,476 5,889,041
Less accumulated depreciation 3,844,683 3,438,607
$2,583,793 $2,450,434
6. NOTE PAYABLE TO BANK
During fiscal 1995, the Company entered into a revolving line of credit
agreement providing up to $3.5 million in financing secured by accounts
receivable and inventory. At June 30, 1995, approximately $1.3 million
was unused under this credit facility. The term of the agreement expires
December 1, 1995. Interest on borrowings is set at the bank's reference
rate, as defined, (prime) plus .25% (9% at June 30, 1995) with a 1/8
percent unused line fee. Up to $1 million of borrowings may be converted
to an interest rate based on LIBOR plus .2% for up to 90 days. At June
30, 1994, the Company had a $2.5 million line of credit. Interest on
borrowings were at the prime rate plus .625% (7.875% at June 30, 1994).
7. ACCRUED LIABILITIES
Accrued liabilities at June 30 consists of the following:
1995 1994
Payroll and payroll taxes $ 513,204 $ 901,904
Pension plan 150,000 150,000
Income taxes 207,552
Other 30,153 11,106
$ 693,357 $1,270,562
The Company has a defined contribution profit sharing plan to cover all
eligible employees. To be eligible to participate in the plan, an
employee must be at least twenty-one years of age and must have
completed twenty-four months of service, as defined in the plan. Vesting
is full and immediate upon participation in the plan. The Company
contributed $150,000 to the plan in 1995 and 1994.
8. LONG-TERM DEBT
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1995 1994
<S> <C> <C>
Long-term debt at June 30 consists of the following:
9.38% financing agreement payable to a bank in monthly installments of
$13,404, including interest; due December, 1996; collateralized
by equipment $ 591,434
7.5% financing agreement payable to a bank in monthly installments
of $7,452, including interest; due April, 1999; collateralized
by equipment 297,165 $ 361,652
9% note payable to an individual in monthly installments
of $2,027, including interest; due July, 2001; collateralized by land 113,593 127,027
7.937% note payable to a financial institution in monthly installments
of $829, including interest; due March, 1997; collateralized by
equipment 16,953
Other, paid in 1995 47,758
1,019,145 536,437
Less current portion 203,129 108,726
$ 816,016 $ 427,711
</TABLE>
At June 30, 1995, maturities of long-term debt for the years ending June
30 are as follows:
1996 $ 203,129
1997 219,784
1998 230,906
1999 236,924
2000 103,422
Thereafter 24,980
$ 1,019,145
9. COMMITMENTS
The Company conducts a portion of its operations in a leased facility
under an operating lease expiring December 31, 1997. At the end of the
lease term, the lease is renewable at the then fair rental value for two
additional successive terms of four years each. At June 30, 1995, the
minimum rental payments under the operating lease are as follows:
Year ending June 30,
1996 $ 68,454
1997 68,454
1998 34,227
Total minimum payments required $ 171,135
Rent expense for the leased facility was approximately $75,000 and
$64,000 for the years ended June 30, 1995 and 1994, respectively.
10. INCOME TAXES
The provisions for income taxes for the years ended June 30 consist of
the following:
1995 1994
Current:
Federal $320,000 $334,964
State 70,000 64,902
390,000 399,866
Deferred - primarily federal (20,000) (41,809)
$370,000 $358,057
Reconciliations of the expected federal statutory income tax rate with
the provisions for income taxes for the years ended June 30 are as
follows:
1995 1994
Statutory rate 34.0% 34.0%
State income tax, net of federal benefit 5.1 3.7
Other 1.9 (3.5)
41.0% 34.2%
Temporary differences comprising the net deferred taxes shown on the
balance sheets at June 30 are as follows:
1995 1994
Current:
Allowance for doubtful accounts
and sales discounts $ 49,000 $ 11,428
Inventories 10,000 5,625
Accrued liabilities 41,000 56,947
$ 100,000 $ 74,000
Noncurrent - Excess of tax over
book deprecation $(200,000) $(194,000)
11. CASH FLOWS
During the year ended June 30, 1994, the Company declared dividends to a
stockholder in the amount of $700,000 which was used to satisfy trade
receivables from the stockholder. The Company also refinanced debt with
a bank in the amount of $284,115 through the bank's leasing affiliate
during 1994.
Cash provided by operating activities includes the following cash
payments for interest and income taxes for the years ended June 30:
1995 1994
Interest paid $213,572 $134,623
Income taxes paid 615,948 254,272
12. RELATED PARTY TRANSACTIONS:
The following is a summary of transactions with a stockholder as of and
for the year ended June 30, 1994:
Trade accounts receivable $ 26,028
Sales 309,173
Interest income 92,612
Rent expense on two machines owned in
whole or in part by a stockholder;
rent is based on production 68,346
Dividends declared and applied against
trade receivables in arrears 700,000
Purchase of two machines owned in whole
or in part by a stockholder 100,000
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Introduction:
On July 10, 1995, Eagle Pacific Industries, Inc. (Eagle) acquired all of the
outstanding common stock of Pacific Plastics, Inc. (Pacific) for $6,750,000
consisting of $4,350,000 in cash, $1,700,000 in the form of a note payable, and
262,210 shares of Eagle's common stock valued at $700,000. In addition, $750,000
was paid to two previous stockholders of Pacific in exchange for their agreement
not to compete with Eagle for five years. Pacific extrudes and sells polyvinyl
chloride pipe and polyethylene tubing products which are marketed primarily in
the Northwestern United States. These products are used for water irrigation and
pressure pipe, fiber optic lines, sewer and drain pipe and electronic and
telephone duct.
Eagle financed the cash portion of the purchase and non-compete agreements from
borrowings by Pacific of $2,984,000 and $1,916,000 under a new revolving credit
line (Revolver) and term loan (Term Loan), respectively. Additional proceeds of
$2,195,000 from the Revolver were used to repay Pacific's existing line of
credit. The Revolver requires interest to be paid monthly at the bank's
reference rate, as defined, plus .5%. The revolver expires December 31, 1996.
The Term Loan is due on June 1, 2000, with interest payable monthly at the
bank's reference rate, as defined, plus .75%. Principal payments on the Term
Loan are due quarterly in the amount of $87,500 for the first 12 quarters
starting September 1, 1995, and $212,500 for 8 quarters starting September 1,
1998. Both the Revolver and the Term Loan are subject to a loan agreement
containing standard covenants, representations and warranties, are secured by
all of the assets of Pacific and its subsidiary, except real property, and are
guaranteed by Eagle.
The $1,700,000 note payable requires Pacific to make 36 monthly payments of
principal and interest at a fixed rate of 9% per annum or aggregate payments of
$54,059 per month. The note payable is secured by the stock of Pacific acquired
by Eagle and is guaranteed by Eagle.
The following unaudited pro forma condensed combined financial statements give
effect to the Pacific acquisition, issuance 262,210 shares of common stock, and
the raising of approximately $8,795,000 of debt.
The unaudited pro forma condensed combined financial statements have been
prepared on the basis of assumptions described in the notes to the unaudited pro
forma condensed combined financial statements and include assumptions relating
to the allocation of the consideration paid for Pacific to the assets and
liabilities of Pacific based on estimates of their respective fair values, in
part based on appraisals. The acquisition has been accounted for using the
purchase method of accounting.
The unaudited pro forma condensed combined financial information is not
necessarily indicative of actual results that would have been achieved had the
acquisition closed on the dates assumed in the unaudited pro forma condensed
combined financial statements that follow.
The unaudited pro forma condensed combined financial statements should be read
in conjunction with the respective historical financial statements of Eagle, not
included in this Form 8-K, and Pacific, appearing elsewhere in this Form 8-K,
and the notes to the pro forma condensed combined financial statements.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
The unaudited pro forma condensed combined balance sheet as of June 30, 1995 has
been prepared by combining the unaudited balance sheet of Eagle as of June 30,
1995 with the audited balance sheet of Pacific as of June 30, 1995, adjusted to
give effect to the acquisition of all the outstanding common stock of Pacific,
issuance of 262,210 shares of Eagle's common stock, and the raising of
approximately $8,795,000 of debt as if these transactions had occurred on June
30, 1995. The debt consists of a $5,179,000 revolving credit line, $1,916,000
term loan and a $1,700,000 note payable to the sellers. The unaudited pro forma
condensed combined balance sheet may not necessarily reflect the actual
financial position of the Company which would have resulted had the purchase of
Pacific, the issuance of 262,210 shares of Eagle's common stock, and the raising
of approximately $8,795,000 of debt occurred as of the date presented.
<TABLE>
<CAPTION>
JUNE 30, 1995
PRO FORMA PRO FORMA
EAGLE PACIFIC ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
Cash $ 9,730 $ 7,095,000 (A)
(2,195,000) (B)
(4,896,914) (C) $ 12,816
Restricted cash $ 500,000 500,000
Accounts receivable 6,076,754 4,343,724 10,420,478
Note receivable from stockholder 203,086 (203,086) (C) -
Inventories 4,683,567 7,174,294 2,050,000 (C) 13,907,861
Prepaid expenses and other 63,187 125,694 188,881
Deferred income taxes 100,000 (100,000) (C) -
11,323,508 11,956,528 1,750,000 25,030,036
Property and equipment, net 6,426,685 2,583,793 4,254,907 (C)
(4,008,191) (D) 9,257,194
Other assets:
Prepaid interest 3,204,580 3,204,580
Goodwill, net 3,252,389 3,252,389
Non-compete agreements 750,000 (C)
(440,000) (D) 310,000
Deferred financing costs 535,913 70,000 (A) 605,913
Cash value of life insurance 207,463 207,463
Other 100,000 110,512 210,512
$ 25,050,538 $ 14,650,833 $ 2,376,716 $ 42,078,087
</TABLE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET (CONTINUED)
JUNE 30, 1995
PRO FORMA PRO FORMA
EAGLE PACIFIC ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
Notes payable $ 5,717,430 $ 2,195,000 $ 5,249,000 (A)
(2,195,000) (B) $ 10,966,430
Current portion of long-
term debt 910,478 203,129 350,000 (A)
132,032 (C) 1,595,639
Accounts payable 2,811,815 5,109,241 375,000 (C) 8,296,056
Accrued liabilities 445,183 693,357 1,138,540
Deferred income taxes 72,310 (C) 72,310
9,884,906 8,200,727 3,983,342 22,068,975
Long-term debt 3,693,286 816,016 1,566,000 (A)
1,567,968 (C) 7,643,270
Subordinated debt 6,269,750 6,269,750
Minority interest 486,859 486,859
Deferred income taxes 200,000 (6,504) (C) 193,496
Other long-term liabilities 220,251 220,251
Negative goodwill 4,448,191 (C)
(4,448,191) (D) -
Stockholders' equity:
Preferred stock 2,767,000 2,767,000
Common stock 38,182 3,600 (1,820) (C) 39,962
Additional paid-in capital 31,951,979 1,097,627 (399,407) (C) 32,650,199
Unearned compensation on
on stock options (255,290) (255,290)
(Accumulated deficit) retained
earnings (30,006,385) 5,402,363 (5,402,363) (C) (30,006,385)
4,495,486 6,503,590 (5,803,590) 5,195,486
Treasury stock (1,069,500) 1,069,500 (C) -
4,495,486 5,434,090 (4,734,090) 5,195,486
$ 25,050,538 $ 14,650,833 $ 2,376,716 $ 42,078,087
</TABLE>
(A) To reflect borrowings of $5,249,000 from the revolving credit line and
$1,916,000 from the term loan to finance the acquisition, the repayment of
Pacific's existing revolving credit line and the payment of financing
costs.
(B) To record repayment of Pacific's existing revolving credit line.
(C) To record the purchase of all the outstanding common stock of Pacific for
$6,750,000 consisting of $4,350,000 in cash, $1,700,000 in the form of a
note payable and 262,210 shares of Eagle's common stock valued at $700,000;
acquisition related costs of $375,000; the payment of $750,000 to two
stockholders for a five year covenant not to compete; the write-up of
inventory and property and equipment to estimated fair market value of
$9,224,000 and $6,839,000, respectively; deferred taxes relating to the
write-up of inventory and property and equipment; elimination of federal
deferred taxes that would be offset by a reduction in Eagle's valuation
allowance relating to the federal net operating loss carryforward; the
retirement of Pacific's treasury stock; and the collection of the note
receivable from stockholder.
(D) To allocate negative goodwill to property and equipment and to the value
assigned to non-compete agreements.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
The unaudited pro forma condensed combined statement of operations for the year
ended December 31, 1994 has been prepared by combining the statement of
operations of Eagle for the year ended December 31, 1994 with the statement of
operations of Pacific for the year ended December 31, 1994 adjusted to give
effect to the acquisition of all the outstanding common stock of Pacific, the
issuance of 262,210 shares of Eagle's common stock, and the raising of
approximately $8,795,000 of debt as if these transactions had occurred on
January 1, 1994. The unaudited pro forma condensed combined statement of
operations for the six months ended June 30, 1995 has been prepared by combining
the unaudited statement of operations of Eagle for the six months ended June 30,
1995 with the statement of operations of Pacific for the six months ended June
30, 1995 adjusted to give effect to the above-mentioned transactions as if they
had occurred on January 1, 1995. The unaudited pro forma statements of
operations may not necessarily reflect the actual results of operations of the
Company which would have resulted had the purchase of Pacific, the issuance of
262,210 shares of Eagle's common stock and the raising of approximately
$8,795,000 of debt occurred as of the dates presented. The unaudited pro forma
statements of operations are not necessarily indicative of future results of the
combined companies.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
PRO FORMA PRO FORMA
EAGLE PACIFIC ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
Sales $ 34,076,224 $ 30,029,755 $ 64,105,979
Cost of goods sold 24,467,365 23,484,804 $ 50,000 (A) 48,002,169
Gross profit 9,608,859 6,544,951 (50,000) 16,103,810
Operating expenses 5,702,515 3,445,517 62,000 (B) 9,210,032
Operating income 3,906,344 3,099,434 (112,000) 6,893,778
Other (expense) income, net (2,315,910) 107,156 (513,000) (C) (2,721,754)
Income before income taxes 1,590,434 3,206,590 (625,000) 4,172,024
Income tax expense 190,000 1,320,000 (1,090,000) (D) 420,000
Net income 1,400,434 1,886,590 465,000 3,752,024
Preferred stock dividends (193,289) (193,289)
Net income applicable
to common stock $ 1,207,145 $ 1,886,590 $ 465,000 $ 3,558,735
Net income per common and
common equivalent share $.27 $.75
Average number of common and
common equivalent shares
outstanding 4,507,321 262,210 (E) 4,769,531
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1995
PRO FORMA PRO FORMA
EAGLE PACIFIC ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
Sales $ 18,276,738 $ 18,164,667 $ 36,441,405
Cost of goods sold 14,160,663 15,228,924 $ 25,000 (A) 29,414,587
Gross profit 4,116,075 2,935,743 (25,000) 7,026,818
Operating expenses 3,057,077 2,344,262 31,000 (B) 5,432,339
Operating income 1,058,998 591,481 (56,000) 1,594,479
Other expense net 1,253,048 132,313 309,000 (C) 1,694,361
(Loss) income before income taxes (194,050) 459,168 (365,000) (99,882)
Income tax benefit (expense) 12,600 (188,600) 186,000 (D) 10,000
Net (loss) income (181,450) 270,568 (179,000) (89,882)
Preferred stock dividends (96,845) (96,845)
Net (loss) income applicable to
common stock $ (278,295) $ 270,568 $ (179,000) $ (186,727)
Net loss per common and
common equivalent share $(.07) $ (.05)
Average number of common and
common equivalent shares
outstanding 3,726,987 262,210 (E) 3,989,197
</TABLE>
(A) To depreciate the increase in the estimated fair value of the acquired
property and equipment over their estimated useful life of five years.
(B) To amortize value assigned to the non-compete agreements over their
estimated useful life of five years.
(C) To record additional interest expense for the debt used to fund the
purchase price and the amortization of deferred financing costs as follows:
<TABLE>
<CAPTION>
Weighted Interest Expense Weighted Interest Expense
Average for the Year Ended Average for the Six Months
Interest Rate December 31, 1994 Interest Rate Ended June 30, 1995
<S> <C> <C> <C> <C>
Revolving credit line 7.65% $233,000 9.42% $143,000
Term loan 7.85% 138,000 9.66% 89,000
Sellers' debt 9.00% 132,000 9.90% 72,000
Amortization of deferred
financing costs 10,000 5,000
$513,000 $309,000
</TABLE>
(D) To eliminate the federal income tax expense recorded by Pacific. Eagle has
a federal income tax net operating loss carryforward of approximately $44
million at December 31, 1994. The deferred tax asset relating to federal
net operating loss has been reduced to zero by a valuation allowance.
(E) To record the issuance of 262,210 shares of Eagle's common stock issued in
connection with the purchase of Pacific.
