UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarter ended: MARCH 31, 1996
Commission File Number: 0-18050
EAGLE PACIFIC INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
MINNESOTA 41-1642846
(State of Incorporation) (IRS Employer ID No.)
2430 METROPOLITAN CENTRE
333 S. SEVENTH STREET
MINNEAPOLIS, MINNESOTA 55402
(Address of principal executive offices)
Registrant's telephone number, including area code:
(612) 371-9650
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes __X__ No ____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of April 26, 1996: 4,152,940 shares of Common Stock, $.01 par
value per share.
EAGLE PACIFIC INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
- -------------------------------------------------------------------------------
PAGE
PART 1 - FINANCIAL INFORMATION
Item 1 - Consolidated Condensed Balance Sheets - March 31, 1996
and December 31, 1995 (Unaudited) 2
Consolidated Condensed Statements of Operations - Three
Months Ended March 31, 1996 and 1995 (Unaudited) 3
Consolidated Condensed Statements of Cash Flows - Three
Months Ended March 31, 1996 and 1995 (Unaudited) 4
Notes to Consolidated Condensed Financial Statements (Unaudited) 5
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II - OTHER INFORMATION 8
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
EAGLE PACIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
MARCH 31, 1996 AND DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ -- $ 303,043
Restricted cash -- 500,000
Accounts receivable, less allowance for doubtful accounts and
sale discounts of $283,100 and $157,900, respectively 12,465,222 6,322,387
Inventories 7,368,297 8,174,957
Other 193,196 153,118
------------ ------------
Total current assets 20,026,715 15,453,505
PROPERTY AND EQUIPMENT, net 9,860,305 9,354,748
OTHER ASSETS:
Prepaid interest 2,759,530 2,907,880
Goodwill, less accumulated amortization of $193,184 and
$172,092, respectively 3,181,539 3,202,631
Other 1,036,269 999,018
------------ ------------
6,977,338 7,109,529
------------ ------------
$ 36,864,358 $ 31,917,782
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 7,465,692 $ 5,521,505
Accounts payable 7,623,280 5,252,683
Accrued liabilities 1,261,393 1,209,321
Current maturities of long-term debt 3,085,055 3,019,064
------------ ------------
Total current liabilities 19,435,420 15,002,573
LONG-TERM DEBT, less current maturities 4,828,607 5,356,762
SUBORDINATED DEBT 6,445,250 6,386,750
OTHER LONG-TERM LIABILITIES 653,164 596,622
STOCKHOLDERS' EQUITY (Note 8):
Series A preferred stock, 7% cumulative dividend; convertible;
$2 liquidation preference; no par value; authorized 2,000,000 shares;
issued and outstanding 1,383,500 shares 2,767,000 2,767,000
Undesignated stock, par value $.01 per share; authorized 18,000,000
shares, none issued and outstanding
Common stock, par value $.01 per share; authorized 30,000,000 shares;
issued and outstanding 4,152,940 shares 41,529 41,529
Additional paid-in capital 32,757,381 32,757,381
Unearned compensation on stock options (178,404) (204,232)
Accumulated deficit (29,885,589) (30,786,603)
------------ ------------
Total stockholders' equity 5,501,917 4,575,075
------------ ------------
$ 36,864,358 $ 31,917,782
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
EAGLE PACIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
- --------------------------------------------------------------------------------
1996 1995
NET SALES $ 15,942,013 $ 9,111,720
COST OF GOODS SOLD 11,785,538 7,132,228
------------ -----------
Gross profit 4,156,475 1,979,492
OPERATING EXPENSES:
Selling expenses 1,687,324 991,122
General and administrative expenses 730,470 562,114
------------ -----------
2,417,794 1,553,236
OPERATING INCOME 1,738,681 426,251
NON-OPERATING EXPENSE (772,244) (579,123)
------------ -----------
INCOME (LOSS) BEFORE INCOME TAXES 966,437 (152,867)
INCOME TAX (EXPENSE) BENEFIT (17,000) 10,000
------------ -----------
NET INCOME (LOSS) 949,437 (142,867)
PREFERRED STOCK DIVIDENDS (48,423) (48,423)
------------ -----------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK $ 901,014 $ (191,290)
============ ===========
NET INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING:
Primary $ .17 $ (.05)
============ ===========
Fully diluted $ .14 $ (.05)
============ ===========
AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING:
Primary 5,606,190 3,632,119
Fully diluted 6,989,690 3,632,119
See accompanying notes to consolidated condensed financial statements.
EAGLE PACIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 949,437 $ (142,867)
Adjustments to reconcile net income (loss) to net cash
used by operating activities:
Minority interest 37,369 (7,443)
Depreciation and amortization 401,368 223,512
Loan discount amortization 113,007 103,986
Prepaid interest amortization 148,350 156,195
Change in operating assets and liabilities (2,953,583) (4,577,365)
Other (7,485) --
----------- -----------
Net cash used in operating activities (1,311,537) (4,243,982)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (827,582) (110,049)
Proceeds from restricted cash 500,000 --
----------- -----------
Net cash used in investing activities (327,582) (110,049)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under note payable, net 1,944,187 4,579,093
Proceeds from long-term debt 29,950 --
Repayment of long-term debt (589,638) (220,389)
Issuance of common stock -- 43,750
Payment of preferred stock dividend (48,423) (48,423)
----------- -----------
Net cash provided by financing activities 1,336,076 4,354,031
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (303,043) --
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 303,043 --
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ -- $ --
=========== ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
EAGLE PACIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
1. PRESENTATION
In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of
only normal recurring accruals) necessary to present fairly the
financial position of Eagle Pacific Industries, Inc. and subsidiaries
at March 31, 1996 and the results of its operations for the three month
periods ended March 31, 1996 and 1995 and its cash flows for the three
month periods ended March 31, 1996 and 1995. Certain information and
footnote disclosures normally included in consolidated financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. Although the
Company's management believes that the disclosures are adequate to make
the information presented not misleading, it is suggested that these
consolidated condensed financial statements be read in conjunction with
the consolidated financial statements of the Company included with its
annual report on Form 10-K for the year ended December 31, 1995.
2. ACQUISITION OF PACIFIC PLASTICS, INC.
On July 10, 1995, the Company acquired all of the outstanding common
stock of Pacific Plastics, Inc. (Pacific). The following unaudited pro
forma condensed combined statements of operations reflect the combined
operations of the Company and Pacific during the three months ended
March 31, 1995 as if the acquisition had occurred at the beginning of
1995. The unaudited pro forma condensed combined statements of
operations may not necessarily reflect the actual results of operations
of the Company which would have resulted had the acquisition occurred
as of the dates presented. The unaudited pro forma information is not
necessarily indicative of future results of operations for the combined
companies.
THREE MONTHS ENDED
MARCH 31, 1995
--------------
Revenues $17,639,000
Gross profit 3,280,000
Net income 93,000
Net income applicable to common stock 45,000
Net income per common share $ .01
3. INVENTORY
MARCH 31, DECEMBER 31,
1996 1995
----------- -----------
Raw materials $ 1,902,067 $ 2,485,546
Finished goods 5,466,230 5,689,411
----------- -----------
$ 7,368,297 $ 8,174,957
=========== ===========
4. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION AND NON-CASH FINANCING
ACTIVITIES
A summary of supplemental cash flow information and non-cash financing
activities for the three months ended March 31, is as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Interest paid, including prepaid interest to fix
the contingent interest $ 292,981 $1,837,667
Issuance of notes payable in connection with the
agreement to fix the contingent interest -- 1,985,325
Issuance of common stock in connection with the
agreement to fix the contingent interest -- 642,600
Value of warrants issued in connection with the
agreement to fix the contingent interest -- 6,000
</TABLE>
5. SUBSEQUENT EVENTS
The Company entered into an agreement whereby it will receive state and
federal governmental financing assistance in the form of a low-interest
loan of $260,000 and a performance-based grant of $240,000 for the
purchase of equipment in Hastings, Nebraska relating to a plant
expansion. In addition, the Company has received approval from city
officials for a performance-based grant of $220,000, however the formal
agreement has not yet been signed. The Company is also in the process
of restructuring it's credit facilities. The restructuring will consist
of $1,500,000 of new common equity which was completed on May 8, 1996,
the partial buy-back of the Eagle minority interest, and the
consolidation of Eagle and Pacific's revolving credit loans and term
notes.
Item 2 - Management's Discussion and Analysis
INTRODUCTION:
On July 10, 1995, the Company acquired all of the outstanding common stock of
Pacific Plastics, Inc. (Pacific). Pacific, and its wholly-owned subsidiary,
Arrow Pacific Plastics, Inc., extrude polyvinyl chloride pipe and polyethylene
tubing products which are marketed primarily in the Northwestern United States.
As Pacific was not acquired by the Company until July 1995, the Company's
operating results are not comparable with prior years.
RESULTS OF OPERATIONS:
Three months ended March 31, 1996 compared to 1995:
NET SALES - Net sales for the three months ended March 31, 1996, were
$15,942,000, an increase of $6,830,000 over net sales of $9,112,000 for the
three months ended March 31, 1995. The increase in sales is due to the
acquisition of Pacific and increased volume as selling prices are significantly
lower than a year ago. 1996 net sales decreased $1,697,000, when compared to
1995 pro forma net sales of $17,639,000. The decrease is entirely due to lower
selling prices as pounds sold during the first quarter of 1996 are higher than
the first quarter, 1995 pro forma results.
GROSS PROFIT - Gross profit as a percentage of net sales was 26.1% for the three
months ended March 31, 1996, compared to 21.7% and 18.6% for the three months
ended March 31, 1995 and the same period pro forma results, respectively. The
increase in the gross profit is primarily due to the stabilization of polyvinyl
chloride (PVC) and polyethylene (PE) raw material prices during the first
quarter of 1996 and reductions in manufacturing costs per pound due to the
increase in pounds produced and shipped.
OPERATING EXPENSES - Total operating expenses for the three months ended March
31, 1996 were $2,418,000, compared to $1,553,000 for the three months ended
March 31, 1995. The increase in operating expenses is primarily due to the
acquisition of Pacific. The first quarter 1996 operating expenses were
consistent with the same period 1995 pro forma operating expenses of $2,405,000.
INTEREST EXPENSE - Interest expense increased to $749,000 during the three
months ended March 31, 1996, compared to $587,000 for the same period in 1995.
The increase in interest expense is primarily due to higher levels of borrowings
primarily related to the Pacific acquisition. Pro forma 1995 interest expense
was $780,000. The decrease in 1996 interest expense compared to 1995 pro forma
interest expense is due to lower borrowings on the revolving credit loans due to
lower accounts receivable and inventory levels compared to 1995 pro forma
accounts receivable and inventories.
INCOME TAXES - The income tax provisions for the three months ended March 31,
1996 and 1995, were calculated based upon management's estimate of the annual
effective rates. The effective income tax rate for fiscal 1996 is lower than the
statutory rate as a result of a decrease in the deferred income tax valuation
primarily due to utilizing federal net operating loss carryforwards to offset
current federal taxable income. The effective income tax rate for fiscal 1995 is
lower than the statutory rate because the Company's net operating losses could
not be carried back and realization of any benefits from the 1995 loss was
uncertain.
NET INCOME (LOSS) - The Company has net income of $949,000 for the three months
ended March 31, 1996, compared to the net loss of $143,000 and net income of
$93,000 for the three months ended March 31, 1995, and the same period pro forma
results, respectively. The improved profitability is primarily attributable to
higher gross profit margins.
LIQUIDITY AND CAPITAL RESOURCES:
Working capital at March 31, 1996, was $591,000, an increase of $140,000 from
working capital of $451,000 at December 31, 1995. The increase in working
capital is primarily due to the first quarter 1996 profits. Accounts receivable
is significantly higher at March 31, 1996 compared to December 31, 1995 due to
the Company's Spring dating program. The Spring dating program offers extended
terms to selected customers during the winter months in order to keep the
Company's plants operating at or near capacity.
Net cash flows used by operating activities were $1,312,000 and $4,244,000 for
the three months ended March 31, 1996 and 1995, respectively. The improved
operating cashflows is primarily due to increased profits and smaller net
changes in operating assets and liabilities.
Net cash flows used in investing activities totaled $328,000 and $110,000 for
the three months ended March 31, 1996 and 1995, respectively. The increase is
primarily due to higher capital expenditures related to the plant expansion at
Eagle.
Net cash flows provided by financing activities total $1,336,000 and $4,354,000
for the three months ended March 31, 1996 and 1995, respectively. The primary
sources of cash were additional borrowings on the Company's line of credit,
which were partially offset by payments on long-term debt.
The Company has commitments for capital expenditures at Eagle related to
expanding its plant to increase capacity. The plant expansion will cost
approximately $1.3 million of which $1,123,000 has already been expended through
March 31, 1996. The Company is planning to fund the expansion through Eagle's
revolving line of credit, debt financing, and the sale of Company securities.
INFLATION:
The Company does not believe that inflation has had a significant impact on the
results of its operations.
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings
None
ITEM 2 - Changes in Securities
None
ITEM 3 - Defaults Upon Senior Securities
None
ITEM 4 - Submission of Matter to a Vote of Security Holders
None
ITEM 5 - Other Information
None
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits. See "Exhibit Index" immediately following the signature
page of this form 10-Q.
(b) Reports on Form 8-K. None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
EAGLE PACIFIC INDUSTRIES, INC.
By /s/ William H. Spell
William H. Spell
President
By /s/ Patrick M. Mertens
Patrick M. Mertens
Chief Financial Officer
Dated: May 9, 1996
EXHIBIT INDEX
Exhibit Description
Number
11 Earnings Per Share Schedule
27 Financial Data Schedule
EXHIBIT 11. Earnings Per Share Schedule
Calculation of net income used under the modified treasury stock method:
Primary
Net income applicable to common stock $ 901,014
Assumed interest expense reduction 59,549
----------
$ 960,563
==========
Weighted average shares outstanding 4,152,940
Common stock equivalents 1,453,250
----------
5,606,190
==========
Net income per share $ .17
==========
Fully diluted
Net income applicable to common stock $ 901,014
Preferred stock dividends assumed not paid 48,423
Assumed interest expense reduction 54,431
----------
$1,003,868
==========
Weighted average shares outstanding 4,152,940
Common stock equivalents 1,453,250
Assumed conversion of preferred stock 1,383,500
----------
6,989,690
==========
Net income per share $ .14
==========
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 12,748,322
<ALLOWANCES> 283,100
<INVENTORY> 7,368,297
<CURRENT-ASSETS> 20,026,715
<PP&E> 12,137,343
<DEPRECIATION> 2,277,038
<TOTAL-ASSETS> 36,864,358
<CURRENT-LIABILITIES> 16,350,365
<BONDS> 14,358,912
2,767,000
0
<COMMON> 41,529
<OTHER-SE> 2,693,388
<TOTAL-LIABILITY-AND-EQUITY> 36,864,358
<SALES> 15,942,013
<TOTAL-REVENUES> 15,942,013
<CGS> 11,785,538
<TOTAL-COSTS> 11,785,538
<OTHER-EXPENSES> 2,243,771
<LOSS-PROVISION> 174,023
<INTEREST-EXPENSE> 749,308
<INCOME-PRETAX> 966,437
<INCOME-TAX> 17,000
<INCOME-CONTINUING> 949,437
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 949,437
<EPS-PRIMARY> .17
<EPS-DILUTED> .14
</TABLE>
