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: JUNE 30, 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 July 26, 1996: 6,331,690 shares of Common Stock, $.01 par
value per share.
EAGLE PACIFIC INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Consolidated Condensed Balance Sheets - June 30, 1996
and December 31, 1995 (Unaudited) 3
Consolidated Condensed Statements of Operations - Three
and Six Months Ended June 30, 1996 and 1995 (Unaudited) 4
Consolidated Condensed Statements of Cash Flows - Six
Months Ended June 30, 1996 and 1995 (Unaudited) 5
Notes to Consolidated Condensed Financial Statements (Unaudited) 6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II - OTHER INFORMATION 9
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
EAGLE PACIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
JUNE 30, 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 $201,200 and $157,900, respectively 9,745,964 6,322,387
Inventories 6,864,456 8,174,957
Other 292,758 153,118
------------ ------------
Total current assets 16,903,178 15,453,505
PROPERTY AND EQUIPMENT, net 10,463,458 9,354,748
OTHER ASSETS:
Prepaid interest 1,566,708 2,907,880
Goodwill, less accumulated amortization of $214,275 and
$172,092, respectively 3,623,530 3,202,631
Other 960,002 999,018
------------ ------------
6,150,240 7,109,529
------------ ------------
$ 33,516,876 $ 31,917,782
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 7,510,250 $ 5,521,505
Accounts payable 3,763,946 5,252,683
Accrued liabilities 1,370,967 1,209,321
Current maturities of long-term debt 1,916,648 3,019,064
------------ ------------
Total current liabilities 14,561,811 15,002,573
------------ ------------
LONG-TERM DEBT, less current maturities 8,020,409 5,356,762
SUBORDINATED DEBT 3,902,250 6,386,750
OTHER LONG-TERM LIABILITIES 375,867 596,622
STOCKHOLDERS' EQUITY:
Series A preferred stock, 7% cumulative dividend; convertible;
$2 liquidation preference, no par value; authorized 2,000,000 shares;
issued and outstanding 50,000 and 1,383,500 shares, respectively 100,000 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 6,365,975 and 4,152,940 shares, respectively 63,660 41,529
Additional paid-in capital 36,908,188 32,757,381
Unearned compensation on stock options (151,912) (204,232)
Accumulated deficit (30,263,397) (30,786,603)
------------ ------------
Total stockholders' equity 6,656,539 4,575,075
------------ ------------
$ 33,516,876 $ 31,917,782
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
EAGLE PACIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 18,174,787 $ 9,165,018 $ 34,116,800 $ 18,276,738
COST OF GOODS SOLD 13,337,957 7,028,435 25,123,495 14,160,663
------------ ------------ ------------ ------------
Gross profit 4,836,830 2,136,583 8,993,305 4,116,075
OPERATING EXPENSES:
Selling expenses 1,934,666 1,005,759 3,621,990 1,996,881
General and administrative expenses 677,118 498,082 1,407,588 1,060,196
------------ ------------ ------------ ------------
2,611,784 1,503,841 5,029,578 3,057,077
------------ ------------ ------------ ------------
OPERATING INCOME 2,225,046 632,742 3,963,727 1,058,998
NON-OPERATING EXPENSE 747,580 673,925 1,519,824 1,253,048
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY LOSS 1,477,466 (41,183) 2,443,903 (194,050)
INCOME TAX (EXPENSE) BENEFIT (96,000) 2,600 (113,000) 12,600
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS 1,381,466 (38,583) 2,330,903 (181,450)
EXTRAORDINARY LOSS ON DEBT PREPAYMENTS,
less income tax benefit of $90,000 1,718,854 -- 1,718,854 --
------------ ------------ ------------ ------------
NET INCOME (LOSS) (337,388) (38,583) 612,049 (181,450)
PREFERRED STOCK DIVIDENDS (40,421) (48,422) (88,844) (96,845)
------------ ------------ ------------ ------------
NET INCOME (LOSS) APPLICABLE TO
COMMON STOCK $ (377,809) $ (87,005) $ 523,205 $ (278,295)
============ ============ ============ ============
NET INCOME (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE:
Primary
Income (loss) before extraordinary loss $ .28 $ (.02) $ .41 $ (.07)
============ ============ ============ ============
Extraordinary loss on debt prepayments (.36) -- (.31) --
------------ ------------ ------------ ------------
Net income (loss) $ (.08) $ (.02) $ .10 $ (.07)
============ ============ ============ ============
Fully diluted
Income (loss) before extraordinary loss $ .22 $ (.02) $ .33 $ (.07)
============ ============ ============ ============
Extraordinary loss on debt prepayments (.28) -- (.24) --
------------ ------------ ------------ ------------
Net income (loss) $ (.06) $ (.02) $ .09 $ (.07)
============ ============ ============ ============
AVERAGE COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING
Primary 4,756,652 3,818,230 5,610,425 3,726,987
============ ============ ============ ============
Fully diluted 6,062,710 3,818,230 7,180,615 3,726,987
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
EAGLE PACIFIC PLASTICS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ 612,049 $ (181,450)
Adjustments necessary to reconcile net income (loss)
to net cash used in operating activities:
Extraordinary loss on debt prepayments 1,718,853 --
Minority interest 90,389 (10,215)
Depreciation and amortization 791,608 504,596
Loan discount amortization 189,819 233,275
Prepaid interest amortization 257,140 304,545
Change in operating assets and liabilities (3,489,806) (2,263,494)
Other 7,150 (19,191)
----------- -----------
Net cash provided by (used in) operating activities 177,202 (1,431,934)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,779,280) (190,356)
Purchase of minority interest (519,749) --
Proceeds from restricted cash 500,000 --
Proceeds from sale of property and equipment 16,285 --
----------- -----------
Net cash used in investing activities (1,782,744) (190,356)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 1,422,500 43,750
Proceeds from exercise of stock options 24,063 --
Payment of preferred stock dividend (88,844) (96,845)
Proceeds from long-term debt 8,029,950 --
Repayment of long-term debt (9,528,778) (444,568)
Payment for prepaid interest -- (1,500,000)
Payment for debt issuance costs (545,137) --
Net borrowings under note payable 1,988,745 3,619,953
----------- -----------
Net cash provided by financing activities 1,302,499 1,622,290
----------- -----------
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
THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
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 June 30, 1996 and the results of its operations for the six and
three month periods ended June 30, 1996 and 1995 and its cash flows for
the six month periods ended June 30, 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-KSB 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 six and three months
ended June 30, 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 SIX MONTHS ENDED
JUNE 30, 1995 JUNE 30, 1995
------------------ ----------------
Revenues $18,802,000 $36,441,000
Gross profit 3,747,000 7,027,000
Net loss (183,000) (90,000)
Net loss applicable to common stock (232,000) (187,000)
Net loss per common share $ (.06) $ (.05)
3. INVENTORY
JUNE 30, DECEMBER 31,
1996 1995
------------ -----------
Raw materials $ 2,287,476 $ 2,485,546
Finished goods 4,576,980 5,689,411
------------ -----------
$ 6,864,456 $ 8,174,957
------------ -----------
4. STOCKHOLDERS' EQUITY
The Company's preferred shareholders' converted 1,333,500 shares of
preferred stock in exchange for 1,524,035 shares of common stock during
the second quarter of fiscal 1996.
During the second quarter of fiscal 1996, the Company issued 600,000,
19,000, 1,524,035, and 70,000 shares of common stock for a new private
equity offering, the acquisition of additional shares of Eagle
Plastics, Inc. stock, the conversion of 1,333,500 shares of preferred
stock, and the exercise of stock options, respectively.
5. 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 six months ended June 30, is as follows:
<TABLE>
<CAPTION>
1996 1995
------------ ----------
<S> <C> <C>
Interest paid, including prepaid interest to fix the
contingent interest $ 959,725 $2,243,288
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
Issuance of common stock in exchange for Preferred stock 2,667,000 --
Issuance of common stock in exchange for Eagle stock 59,375 --
</TABLE>
6. FINANCIAL RESTRUCTURING
In May 1996, the Company repurchased $3.0 million of it's subordinated
debt which generated an extraordinary loss of $1,718,854, net of income
taxes. The Company issued a three year warrant to purchase 215,000
shares of the Company's common stock in consideration for the
subordinated debt repurchase. In conjunction with the repurchase, the
Company obtained $1.5 million of new common equity, an additional $3.4
million of term notes, and the Company repurchased approximately
one-half of the Eagle minority interest. The additional term notes were
obtained through a bank refinancing which consolidated the Eagle and
Pacific term notes and revolving credit loans into a $8.0 million term
note and a $16.5 million revolving credit loan.
7. PERFORMANCE-BASED GRANT
The Company finalized an agreement whereby it will receive a
performance-based grant relating to a plant expansion of $220,000 from
the city of Hastings, Nebraska.
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:
NET SALES - Net sales for the three months ended June 30, 1996, were
$18,175,000, an increase of $9,010,000 over net sales of $9,165,000 for the
three months ended June 30, 1995. Net sales for the six months ended June 30,
1996, were $34,117,000, an increase of $15,840,000 over net sales of $18,277,000
for the six months ended June 30, 1995. The increase in sales is due to the
acquisition of Pacific as selling prices are significantly lower than the same
periods a year ago. Net sales for 1996 decreased $627,000 and $2,324,000, when
compared to the three and six months 1995 pro forma net sales. The decrease is
entirely due to lower selling prices as pounds sold during the first six months
of 1996 are approximately 10% higher than the six months, 1995 pro forma
results.
GROSS PROFIT - Gross profit as a percentage of net sales was 26.6% and 26.4% for
the three and six months ended June 30, 1996, respectively, compared to 23.3%
and 22.5% for the three and six months ended June 30, 1995, 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 half
of 1996 and reductions in manufacturing costs per pound, due to increases in
pounds produced and shipped.
OPERATING EXPENSES - Total operating expenses for the three and six months ended
June 30, 1996 increased $1,108,000 and $1,973,000, respectively, compared to the
same periods in 1995. The increase in operating expenses is primarily due to the
acquisition of Pacific. Operating expenses decreased $415,000 and $402,000 for
the three and six months ended June 30, 1996, respectively, compared to the same
periods 1995 pro forma operating expenses. The decreases are primarily due to
salary and wage savings from consolidation of administrative staff after the
Pacific acquisition.
INTEREST EXPENSE - Interest expense decreased $7,000 and increased $155,000
during the three and six months ended June 30, 1996, compared to the same
periods in 1995. Interest expense decreased $226,000 and $256,000 during the
three and six months ended June 30, 1996, compared to the same periods 1995 pro
forma results. The decrease in the second quarter as well as the decrease in the
three and six month pro forma results is due to the financial restructuring in
the second quarter of 1996, lower borrowings on the revolving credit loans and
lower interest rates. The six month increase in interest is due to the Pacific
acquisition and is partially offset by the financial restructuring, lower
borrowings on the revolving credit loans and lower interest rates.
INCOME TAXES - The income tax provisions for the three and six months ended June
30, 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 incurred a net loss of $337,000 and net income
of $612,000 for the three and six months ended June 30, 1996, respectively,
compared to a net loss of $38,000 and $181,000 for same periods in 1995. The
Company had a pro forma net loss of $232,000 and $187,000 for the three and six
month periods ended June 30, 1995. The 1996 results include a $1,719,000
one-time extraordinary loss on debt prepayments. The improved profitability is
primarily attributable to the recent stabilization of the plastic resin market,
which contributed to higher gross profit margins, and a decline in operating
expenses as a percent of sales.
LIQUIDITY AND CAPITAL RESOURCES:
Working capital at June 30, 1996, was $2,341,000, an increase of $1,890,000 from
working capital of $451,000 at December 31, 1995. The increase in working
capital is primarily due to a reduction in the current maturities of long-term
debt as a result of the financial restructuring. Accounts receivable is
significantly higher at June 30, 1996 compared to December 31, 1995 due to
higher sales and 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 provided by operating activities was $177,000 compared to net
cash flows used in operating activities of $1,432,000 for the six months ended
June 30, 1996 and 1995, respectively. The improved operating cashflows is
primarily due to increased profits prior to the extraordinary loss, partially
offset by a decrease in operating assets.
Net cash flows used in investing activities totaled $1,783,000 and $190,000 for
the six months ended June 30, 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 $1,303,000 and $1,622,000
for the six months ended June 30, 1996 and 1995, respectively. The primary
sources of cash were additional borrowings on the Company's line of credit,
proceeds from long-term debt, and issuance of common stock which were partially
offset by payments on long-term debt.
The Company believes that the funds to be generated from its operations,
together with funds available under its $16.5 million line of credit will be
sufficient to satisfy its liquidity and capital resource requirements for the
next twelve months.
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: August 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 under the modified treasury stock method:
<TABLE>
<CAPTION>
THREE SIX
MONTHS MONTHS
<S> <C> <C>
Primary
Average common stock outstanding 4,756,652 4,454,782
Common stock equivalents 1,155,643
----------- -----------
4,756,652 5,610,425
=========== ===========
Net (loss) income applicable to common stock $ (377,809) $ 523,205
Assumed interest expense reduction -- 62,759
----------- -----------
$ (377,809) $ 585,964
=========== ===========
Net (loss) income per share $ (.08) $ .10
=========== ===========
Fully diluted
Average common stock outstanding 6,012,710 5,844,840
Preferred stock 50,000 50,000
Common stock equivalents -- 1,285,775
----------- -----------
6,062,710 7,180,615
=========== ===========
Net (loss) income applicable to common stock $ (377,809) $ 523,205
Preferred stock dividends 40,421 88,844
Assumed interest expense reduction -- --
----------- -----------
$ (337,388) $ 612,049
=========== ===========
Net (loss) income per share $ (.06) $ .09
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 9,947,164
<ALLOWANCES> 201,200
<INVENTORY> 6,864,456
<CURRENT-ASSETS> 16,903,178
<PP&E> 12,933,169
<DEPRECIATION> 2,469,711
<TOTAL-ASSETS> 33,516,876
<CURRENT-LIABILITIES> 14,561,811
<BONDS> 13,839,307
100,000
0
<COMMON> 63,660
<OTHER-SE> 6,492,879
<TOTAL-LIABILITY-AND-EQUITY> 33,516,876
<SALES> 34,116,800
<TOTAL-REVENUES> 34,116,800
<CGS> 25,123,495
<TOTAL-COSTS> 25,123,495
<OTHER-EXPENSES> 5,053,633
<LOSS-PROVISION> (24,055)
<INTEREST-EXPENSE> 1,437,592
<INCOME-PRETAX> 2,443,903
<INCOME-TAX> 113,000
<INCOME-CONTINUING> 2,330,903
<DISCONTINUED> 0
<EXTRAORDINARY> (1,718,854)
<CHANGES> 0
<NET-INCOME> 612,049
<EPS-PRIMARY> .10
<EPS-DILUTED> .09
</TABLE>
