SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(AMENDMENT NO.1)
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): September 20, 1999
Eagle Pacific Industries, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Minnesota
(State or Other Jurisdiction of Incorporation)
0-18050 41-1642846
(Commission File Number) (I.R.S. Employer Identification Number)
333 South Seventh Street, Suite 2430
Minneapolis, Minnesota 55402
(Address of Principal Executive Offices) (Zip Code)
(612) 305-0339
(Registrant's Telephone Number, Including Area Code)
--------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
Item 2. Acquisition or Disposition of Assets
This Current Report on Form 8-K/A amends the Current Report of Eagle
Pacific Industries, Inc. ("Eagle") on Form 8-K file on October 4 1999 to
incorporate Item 7(a) and (b), the Financial Statement of the Business Acquired
and Pro Forma Financial Information.
On September 20, 1999, Eagle completed its acquisition of Pacific
Western Extruded Plastics Company ("PWPipe") from Mitsubishi Chemical America,
Inc. and Mitsubishi Plastics, Inc. (the "Sellers"). Eagle purchased all the
outstanding capital stock of PWPipe pursuant to a Stock Purchase Agreement dated
September 16, 1999 by and among Eagle, Mitsubishi Chemical America, Inc. and
Mitsubishi Plastics, Inc. The total consideration Eagle paid to the Sellers for
the PWPipe common stock was approximately $76.9 million, which is subject to
certain balance sheet adjustments to be determined. Immediately following
Eagle's acquisition of all the outstanding shares of PWPipe, Eagle merged PWPipe
into Eagle pursuant to a Plan of Merger.
The PWPipe operation is based in Eugene, Oregon. PWPipe produces plastic pipe
primarily for four distinct markets in the Western United States: waterworks,
irrigation, plumbing and electrical. Within these markets, PWPipe's PVC pipe and
related PVC products are used in a diverse range of applications, including
municipal water distribution, sewers, agriculture and turf irrigation, plumbing,
and electrical conduit. PWPipe's products range from 1/2 inch to 24 inch in
diameter and are sold under the PWPipe brand name or under one of PWPipe's
specialized product lines: PWRIB, COExcel, TwinSeal or Steamline. PWPipe markets
its products through salaried sales representatives and independent
representatives. Its customers include more than 500 pipe distributors in the
U.S., Canada and Mexico. PWPipe has six manufacturing facilities that consume
approximately 400 million pounds of PVC resin annually. PWPipe facilities are
located in Eugene, Oregon; Sunnyside, Washington; Tacoma, Washington; Visalia,
California; Cameron Park, California; and Perris, California.
The Stock Purchase Agreement dated September 16, 1999 by and among
Eagle, Mitsubishi Chemical America, Inc. and Mitsubishi Plastics, Inc. was filed
with the Current Report on Form 8-K on October 4, 1999 as Exhibit 2.1 and is
incorporated herein by reference.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
A. Financial statements of businesses acquired.
1
<PAGE>
Independent Auditors' Report
Board of Directors
Pacific Western Extruded Plastics Company
We have audited the accompanying balance sheets of Pacific Western Extruded
Plastics Company as of December 27, 1998, December 28, 1997, and December 29,
1996, and the related statements of income, shareholders' equity, and cash flows
for each of the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pacific Western Extruded
Plastics Company as of December 27, 1998, December 28, 1997, and December 29,
1996, and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
February 5, 1999
2
<PAGE>
Pacific Western Extruded Plastics Company
Balance Sheets
<TABLE>
<CAPTION>
December 27, 1998 December 28, 1997 December 29, 1996
-----------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 933 $ 1,173 $ 850
Accounts receivable, net of allowance for doubtful
accounts of $300, $325, and $200, respectively 12,169 11,316 10,709
Inventories 24,801 31,416 34,250
Prepaid expenses and other current assets 582 351 269
-----------------------------------------------------------
Total current assets 38,485 44,256 46,078
Property, equipment, and leasehold improvements 57,933 54,078 47,228
Less accumulated depreciation (15,946) (10,725) (5,583)
-----------------------------------------------------------
41,987 43,353 41,645
Other assets 87 89 1,140
-----------------------------------------------------------
Total assets $ 80,559 $ 87,698 $ 88,863
===========================================================
Liabilities and shareholder's equity
Current liabilities:
Accounts payable $ 3,070 $ 2,674 $ 2,769
Accrued liabilities 13,010 11,022 9,331
Intercompany payable 1,332 - -
-----------------------------------------------------------
Total current liabilities 17,412 13,696 12,100
Deferred income taxes 414 - -
Intercompany payable 27,970 46,334 47,984
-----------------------------------------------------------
Total liabilities 45,796 60,030 60,084
Shareholder's equity:
Additional paid in capital 32,000 32,000 32,000
Retained earnings (deficit) 2,763 (4,332) (3,221)
-----------------------------------------------------------
Total shareholder's equity 34,763 27,668 28,779
===========================================================
Total liabilities and shareholder's equity $ 80,559 $ 87,698 $ 88,863
===========================================================
</TABLE>
See accompanying notes.
3
<PAGE>
Pacific Western Extruded Plastics Company
Statements of Operations
<TABLE>
<CAPTION>
Year ended December Year ended December Year ended December
27, 1998 28, 1997 29, 1996
------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Net sales $ 180,028 $ 188,642 $ 185,441
Cost of goods sold 140,664 160,866 157,819
------------------------------------------------------------------
Gross margin 39,364 27,776 27,622
Operating expenses:
Distribution 13,579 13,447 13,374
Administration and general 7,354 6,039 6,069
Sales 3,476 3,896 3,515
Advertising and marketing 3,137 2,648 2,691
Research and development 4 16 13
------------------------------------------------------------------
Total 27,550 26,046 25,662
------------------------------------------------------------------
Operating profit 11,814 1,730 1,960
Other income (expense):
Other income 94 629 4
Other expense - primarily interest (3,067) (3,470) (3,659)
------------------------------------------------------------------
(2,973) (2,841) (3,655)
------------------------------------------------------------------
Income (loss) before income taxes 8,841 (1,111) (1,695)
Provision for income taxes 1,746 - (1)
------------------------------------------------------------------
Net income (loss) $ 7,095 $ (1,111) $ (1,696)
==================================================================
</TABLE>
See accompanying notes.
4
<PAGE>
Pacific Western Extruded Plastics Company
Statements of Shareholder's Equity
<TABLE>
<CAPTION>
Additional Retained
Paid In Earnings
Capital (Deficit) Total
------------------ ------------------ -------------------
(In Thousands)
<S> <C> <C> <C>
Balance at January 1, 1996
(accumulated from September 29,
1995 to December 31, 1995) $ 32,000 $ (1,525) $ 30,475
Net loss - (1,696) (1,696)
------------------ ------------------ -------------------
Balance at December 29, 1996 32,000 (3,221) 28,779
Net loss - (1,111) (1,111)
------------------ ------------------ -------------------
Balance at December 28, 1997 32,000 (4,332) 27,668
Net income - 7,095 7,095
================== ================== ===================
Balance at December 27, 1998 $ 32,000 $ 2,763 $ 34,763
================== ================== ===================
</TABLE>
See accompanying notes.
5
<PAGE>
Pacific Western Extruded Plastics Company
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended Year ended Year ended
December 27, December 28, December 28,
1998 1997 1996
-----------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Operating activities
Net income (loss) $ 7,095 $ (1,111) $ (1,696)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 5,796 5,233 4,477
Change in inventory reserves (351) (71) 422
Change in bad debt provision (25) 125 50
Loss on disposal of plant, property and equipment 539 156 232
Deferred income taxes 414 - -
Changes in operating assets and liabilities:
Accounts receivable (828) (732) (818)
Inventories 6,966 2,905 (2,811)
Prepaid expenses and other current assets (231) (82) 63
Deferred expenses and other assets 2 1,051 (1,026)
Intercompany accounts (2,277) (2,618) 3,789
Accounts payable 396 (95) (2,144)
Accrued liabilities 1,988 1,691 1,617
Intercompany payable 1,332 - -
----------------------------------------------
Net cash provided by operating activities 20,816 6,452 2,155
Investing activities
Proceeds from sale of property, plant, and equipment 200 13 69
Purchases of property, plant, and equipment (5,169) (7,110) (5,470)
----------------------------------------------
Net cash used in investing activities (4,969) (7,097) (5,401)
Financing activities
Net (principal payments) borrowings on
intercompany loans (16,087) 968 2,585
----------------------------------------------
Net cash provided by financing activities (16,087) 968 2,585
Net decrease (increase) in cash and cash equivalents (240) 323 (661)
Cash and cash equivalents at beginning of year 1,173 850 1,511
----------------------------------------------
Cash and cash equivalents at end of year $ 933 $ 1,173 $ 850
==============================================
Supplemental cash flow information
Income taxes paid - - -
Interest paid $ 2,702 $ 3,270 $ 2,807
See accompanying notes.
</TABLE>
6
<PAGE>
1. Accounting Policies
Organization
Pacific Western Extruded Plastics Company (the "Company"), a Delaware
Corporation, was incorporated on September 29, 1995 when Mitsubishi Chemical
America, Inc. ("MCA") acquired a wholly owned subsidiary of Simpson Investment
Company. The purchase price paid was approximately $85,000 and the net book
value of the assets acquired totaled $61,000. The excess of purchase price over
the book value of the assets acquired (approximately $24,000) was allocated to
the assets of the Company at that date. There was no goodwill on acquisition.
The retained earnings have accumulated since September 29, 1995.
The Company is engaged in the manufacture of PVC pipes used primarily for
irrigation and in the construction industry. The Company's principal raw
material used in production is PVC (Polyvinyl Chloride) which is subject to
significant market price fluctuations.
Cash and Cash Equivalents
The Company considers all investments with maturities of less than 90 days when
purchased to be cash equivalents.
Inventories
The inventories are stated at the lower of cost, determined primarily on a
last-in, first-out ("LIFO") basis, or market. Cost includes materials, labor,
and manufacturing overhead.
7
<PAGE>
1. Accounting Policies (continued)
Inventories (continued)
Inventories consist of the following:
<TABLE>
<CAPTION>
December 27, 1998 December 28, 1997 December 29, 1996
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Raw materials $ 4,358 $ 4,611 $ 5,727
Packaging materials and supplies 3,251 3,045 3,064
Finished goods 17,192 24,111 25,881
-------------------- -------------------- --------------------
24,801 31,767 34,672
Inventory LIFO Reserve - (351) (422)
-------------------- -------------------- --------------------
$ 24,801 $ 31,416 $ 34,250
==================== ==================== ====================
</TABLE>
Property, Equipment, and Leasehold Improvements
Property, equipment, and leasehold improvements are stated at cost. Depreciation
is computed using the straight-line method over the estimated useful lives of
the assets, which range from 3 to 30 years. Property, equipment, and leasehold
improvements consist of the following:
<TABLE>
<CAPTION>
December 27, 1998 December 28, 1997 December 29, 1996
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Machinery and equipment $ 33,033 $ 29,301 $ 27,307
Building 12,292 12,003 10,323
Construction in progress 5,907 6,962 4,263
Land 4,335 4,335 4,335
Furniture and fittings 2,164 1,391 914
Leasehold improvements 202 86 86
-------------------- -------------------- --------------------
$ 57,933 $ 54,078 $ 47,228
==================== ==================== ====================
</TABLE>
8
<PAGE>
1. Accounting Policies (continued)
Income Taxes
The Company computes income taxes in accordance with Financial Accounting
Standards Board Statement 109, "Accounting for Income Taxes."
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Accounts Receivable
The Company sells its products primarily to distributors throughout the western
United States. The Company performs ongoing credit evaluations of its customers
and generally does not require collateral. Allowances are maintained for
potential credit losses and such losses to date have been within management's
expectations.
2. Income Taxes
The Company's provision for the year ended December 27, 1998 is as follows:
Current:
Federal $ 1,195
State 137
-------------------
Total current payable 1,332
-------------------
Deferred:
Benefit of NOLs (1,596)
Federal 1,869
State 141
-------------------
Total deferred tax 414
-------------------
Tax provision $ 1,746
===================
9
<PAGE>
2. Income Taxes (continued)
The Company files separate state income tax returns. For federal income tax
purposes, the Company's tax return is included with the parent company's
consolidated federal income tax return and any taxes due thereon are payable to
MCA. To the extent the parent company utilizes the Company's federal net
operation loss carryforwards from actual book operations MCA reimburses the
Company for the benefit received.
Deferred tax assets and liabilities are determined based on differences between
financial reporting and tax basis of assets and liabilities, and are measured
using the effective tax rates and regulations that will be in effect when the
differences are expected to reverse. Significant components of the Company's
deferred tax assets and liabilities as of December 31, 1995 through 1998 are as
follows:
<TABLE>
<CAPTION>
1998 1997 1996 1995
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Deferred Tax Assets (DTA)
Net Operating Loss Carryforwards $ 4,922 $ 6,518 $ 4,565 $ 1,430
Accrued Expenses & Reserves 768 617 509 444
---------------------------------------------------------------
Total DTA 5,690 7,135 5,074 1,874
Less Valuation Allowance - (1,572) (1,185) (562)
---------------------------------------------------------------
Net DTA 5,690 5,563 3,889 1,312
Deferred Tax Liabilities (DTL)
Inventory Reserves (848) (685) (103) 330
Depreciation (5,256) (4,878) (3,786) (1,642)
---------------------------------------------------------------
Total DTL (6,104) (5,563) (3,889) (1,312)
NET DTA/(DTL) $ (414) $ - $ - $ -
===============================================================
</TABLE>
As of December 31, 1998, the Company has federal and state net operating loss
carryforwards of approximately $13 million and $10 million, respectively. The
net operating loss carryforwards may expire in the years 2000 through 2018, if
not utilized.
10
<PAGE>
2. Income Taxes (continued)
Utilization of the net operating losses may be subject to an annual limitation
due to any ownership change limitations provided by the Internal Revenue Code of
1986 and similar state provisions. The annual limitation may result in the
expiration of net operating losses before utilization.
3. Employee Benefit Plan
The Company is covered by the MCA 401(k) defined contribution plan and is
available to all employees working at least 20 hours per week. The Company was
required to contribute a basic 2 1/2% of the participant's salary plus a
supplementary 1% for 1998. Also, the Company was required to contribute 50% of
the first 6% of the participants' salary deferral. During the years ended
December 27, 1998, December 28, 1997, and December 29, 1996, the Company's
expense under the plan was $1,688, $1,240 and, $1,472, respectively.
4. Transactions with Related Parties
On takeover, the Company's parent, MCA advanced $44,235 to the Company. The
balance on this loan was $27,960, $44,057, and $43,089 at December 28, 1998,
December 29, 1997, and December 31, 1996 respectively. The balance on this loan
changes as a result of daily cash activity with MCA.
MCA also makes monthly payments on behalf of the Company for insurance and other
costs. The Company was also charged a management fee of $200 by MCA in 1998,
1997, and 1996.
Interest was charged on intercompany payables at approximately 6% in 1998, 1997,
and 1996. In 1997, MCA charged a 3% annual penalty fee for those months in which
the intercompany loan payable exceeded the planned level set by MCA.
11
<PAGE>
5. Pending Litigation
At December 31, 1998, there are various lawsuits pending against the Company.
The Company does not expect that the eventual outcome of the pending lawsuits
will have a material adverse effect on its financial position, results of
operations, or cash flows.
6. Leases
The future minimum annual rental commitments under noncancelable property
operating leases at December 27, 1998 were:
1999 $ 220
2000 141
2001 148
2002 155
Thereafter 334
------------------
Total $ 998
==================
Rent expense associated with operating leases totaled approximately $425, $358,
and $362 in 1998, 1997, and 1996, respectively.
7. Year 2000 Issue (unaudited)
The Company has developed a plan to modify its information technology to be
ready for the year 2000 which included replacing its order management system
during 1998. The Company is currently investigating all other systems and is
examining the potential impact to the Company from significant vendors and
outside service providers. The Company does not expect this project to have a
significant effect on operations.
While it is not possible to predict with certainty the cost of this work, based
on management's current estimates the Company believes that the cost to the
Company will not be material.
12
<PAGE>
PACIFIC WESTERN EXTRUDED PLASTICS COMPANY
CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
PRESENTATION
In the opinion of management, the accompanying unaudited condensed
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position of PWPipe
at August 29, 1999, and the results of its operations for the eight month
periods ended August 29, 1999 and August 30, 1998, and its cash flows for the
eight month periods ended August 29, 1999 and August 30, 1998. Certain
information and footnote disclosures normally included in 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 PWPipe's management believes that the disclosures
are adequate to make information presented not misleading, it is suggested that
these condensed financial statements be read in conjunction with the audited
statements of PWPipe and unaudited pro forma combined statements of income
included in this report on Form 8-K.
On September 20, 1999 PWPipe completed the acquisition by Eagle Pacific
Industries, Inc. for an estimated purchase price of $76.9 million, subject
to certain balance sheet adjustments to be determined.
PACIFIC WESTERN EXTRUDED PLASTICS COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
EIGHT MONTHS
ENDED
August 29, 1999 August 30, 1998
-------------------------------- ------------------------------
<S> <C> <C>
NET SALES $136,448 $124,620
COST OF GOODS SOLD 101,197 98,837
------- ------
Gross profit 35,251 25,783
OPERATING EXPENSES:
Selling expenses 14,500 13,245
General and administrative expenses 6,305 4,537
----- -----
20,805 17,782
------ ------
OPERATING INCOME 14,446 8,001
NON-OPERATING EXPENSES:
Interest expense 1,128 2,057
Other expense (income) 46 (95)
Management fee 132 135
--- ---
1,306 2,097
----- -----
INCOME BEFORE INCOME TAXES 13,140 5,904
INCOME TAX (EXPENSE) (525) (1,180)
--------------- ----------------
NET INCOME $12,615 4,724
======= =====
</TABLE>
13
<PAGE>
PACIFIC WESTERN EXTRUDED PLASTICS COMPANY
CONDENSED BALANCE SHEET (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
ASSETS
August 29, 1999 August 30, 1998
--------------- ---------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $1,833 $1,013
Accounts receivable, less allowance for doubtful
accounts and sales discounts 22,575 18,153
Inventories 16,868 22,020
Other 3,243 3,832
----- -----
Total current assets 44,519 45,018
PROPERTY AND EQUIPMENT, NET 41,277 42,320
OTHER ASSETS 84 87
------------------------------- -------------------------------
$85,880 $87,425
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $1,856 $2,434
Accrued liabilities 20,806 13,511
------ ------
Total current liabilities $22,662 15,945
LONG TERM LIABILITIES - OTHER 414 -
INTERCOMPANY LOAN 18,103 39,088
STOCKHOLDERS' EQUITY:
Additional paid in capital 32,000 32,000
Retained earnings 12,701 392
------ -----
Total stockholders' equity 44,701 32,392
------ ------
$85,880 $87,425
======= =======
</TABLE>
14
<PAGE>
PACIFIC WESTERN EXTRUDED PLASTICS COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Eight months ending August 29, 1999 and August 30, 1998
(In thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $12,615 $4,724
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss (gain) on sale of fixed assets 50 (15)
Depreciation and amortization 4,172 3,855
Changes in operating assets and liabilities 1,453 1,329
----- ---
Net cash provided by investing activities 18,290 9,893
------ -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (3,557) (2,932)
Proceeds from sale of equipment 45 125
----------- ----------
Net cash used in financing activities (3,512) (2,807)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings/payments in intercompany loan (11,199) (7,246)
Payment of stock dividend (2,679) -
------- -----------
Net cash used in financing activities (13,878) (7,246)
-------- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS $900 ($160)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 933 1,173
----- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,833 $1,013
====== ======
</TABLE>
15
<PAGE>
B. Pro forma financial information.
The required pro forma balance sheet information as of September 30,
1999 is incorporated herein by reference to the Quarterly Report on Form 10-Q
for the Quarterly Period Ended September 30, 1999 (SEC filing number 0-18050 and
filing date of November 12, 1999).
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
The accompanying unaudited pro forma combined statements of income give effect
to Eagle's acquisition of Pacific Western Extruded Plastics Company ("PWPipe"),
using the purchase method of accounting. The unaudited pro forma combined
statements of income are derived from and should be read in conjunction with
Eagle's historical financial statements provided in Eagle's most recent reports
on Form 10-K and Form 10-Q, and PWPipe's historical financial statements which
are included in this Form 8-K, and notes hereto. The unaudited pro forma
combined statements of income combine Eagle's historical condensed statements of
income for fiscal year 1998 and the unaudited nine-month period ended September
30, 1999 with the corresponding PWPipe historical statements of income for
fiscal year 1998 and the eight month period ended August 30, 1999, respectively.
The pro forma combined statements of income do not reflect any anticipated cost
savings from the PWPipe acquisition, or any synergies that are anticipated to
result from the acquisition, and there can be no assurance that any such cost
savings or synergies will occur. The pro forma statements of income give pro
forma effect as if the acquisition had occurred in January 1, 1998. The pro
forma adjustments have been applied to the financial information derived from
the financial statements of Eagle and PWPipe to account for the acquisition as a
purchase; accordingly, assets acquired and liabilities assumed have been
recorded at their estimated initial fair values which are subject to further
refinement in the fourth quarter of fiscal 1999, as described in the following
paragraph.
16
<PAGE>
The unaudited pro forma combined statements of income have been prepared based
upon assumptions deemed appropriate for the fair presentation of the financial
statements. The allocation of the purchase price to the assets acquired,
including the value of property, plant and equipment and liabilities assumed has
been estimated on a preliminary basis. The final allocation will be determined
after certain procedures to be performed after the closing of the merger are
completed and once appraisals and other analyses are finalized. The final
allocation could be different from the preliminary allocation based on these
final appraisals and analyses; however, management of Eagle does not expect the
final adjustments to differ materially.
Included in the unaudited historical and pro forma year end 1998 and interim
1999 net income and earnings per share information are certain nonrecurring
charges associated with the acquisition of PWPipe and with a merger transaction
terminated earlier in fiscal 1999. These nonrecurring items reduce net income by
approximately $3.3 million and $2.8 million in 1998 and 1999, respectively.
Absent these nonrecurring charges pro forma basic and diluted earnings per share
for the year ended December 31, 1998 and nine months ended September 30, 1999
would be $.28 and $.21 and $1.96 and $1.48 respectively.
The unaudited pro forma information is presented for illustrative purposes only
and is not necessarily indicative of the operating results or financial position
that would have occurred if the merger had been consummated at the beginning of
the periods presented, nor is it necessarily indicative of future operating
results or financial position.
17
<PAGE>
EAGLE PACIFIC INDUSTRIES, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
Year Ended December 31, 1998
(In Thousands, Except per Share Data and Notes)
<TABLE>
<CAPTION>
Historical
-------------------------------------
Eagle PWPipe Pro Forma Pro Forma
Adjustments Combined
Company
---------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Net Sales $74,007 $180,028 - $254,035
Cost of goods sold 57,688 140,664 $4,302 a 202,654
---------------- ---------------- ----------------- ----------------
Gross profit 16,319 39,364 (4,302) 51,381
Selling, general and 12,110 27,550 293 b 39,953
administrative expenses
---------------- ---------------- ----------------- ----------------
Operating income 4,209 11,814 (4,595) 11,428
Other expense (income)
Interest expense 2,350 2,702 6,154 c 11,206
Other expense (84) 271 - 187
---------------- ---------------- ----------------- ----------------
Income before income taxes and 1,943 8,841 (10,749) 35
extraordinary loss
Income tax expense 154 1,746 1,886 d 14
Extraordinary loss on debt 656 - (656) e -
prepayments
---------------- ---------------- ----------------- ----------------
Net income (loss) 1,133 7,095 (8,207) 21
Preferred stock dividends 803 - (803) f -
---------------- ---------------- ----------------- ----------------
Net income (loss) applicable to $330 $7,095 $(7,404) $21
common stock
================ ================ ================= ================
Net income per common share:
Basic net income $---
Diluted net income $---
Average number of common shares
outstanding
Basic 7,218
Diluted 9,523
See accompanying notes to unaudited pro forma combined statements of income.
</TABLE>
18
<PAGE>
EAGLE PACIFIC INDUSTRIES, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
Nine Months Ended September 30, 1999
(In Thousands, Except per Share Data and Notes)
<TABLE>
<CAPTION>
Historical
-------------------------------------
Eagle PWPipe Pro Forma Pro Forma
Adjustments Combined
Company
---------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Net Sales $70,997 $149,299 - $220,296
Cost of goods sold 51,210 110,555 $(6,808) a 154,957
---------------- ---------------- ----------------- ----------------
Gross profit 19,787 38,744 6,808 65,339
Selling, general and 10,553 22,339 79 b 32,972
administrative expenses
---------------- ---------------- ----------------- ----------------
Operating income 9,234 16,405 6,729 32,367
Other expense (income)
Interest expense 1,391 1,311 5,959 c 8,661
Other expense 2,631 228 (175) g 2,684
---------------- ---------------- ----------------- ----------------
Income before income taxes and 5,212 14,866 945 21,023
extraordinary loss
Income tax (benefit) expense (3,729) - 12,138 d 8,409
---------------- ---------------- ----------------- ----------------
Net income (loss) 8,941 14,866 (11,193) 12,614
Preferred stock dividends 582 - (582) f -
---------------- ---------------- ----------------- ----------------
Net income (loss) applicable to $8,359 $14,866 $(10,611) $12,614
common stock
================ ================ ================= ================
Net income per common share:
Basic net income $1.73
Diluted net income $1.31
Average number of common shares
outstanding
Basic 7,302
Diluted 9,651
See accompanying notes to unaudited pro forma combined statements of income
</TABLE>
19
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
(a) The following represents pro forma adjustments associated with acquired
PWPipe inventory:
<TABLE>
<CAPTION>
Year Ended Nine Months
December 31, Ended
1998 September 30,
1999
---------------- ----------------
<S> <C> <C>
Conforming PWPipe LIFO to Eagle's FIFO accounting $970 $(3,476)
policy
Fair market value purchase accounting adjustment, to 3,332 (3,332)
record in earliest pro forma period
---------------- ----------------
$4,302 $(6,808)
================ ================
</TABLE>
(b) To record additional depreciation expense related to the value assigned to
acquired PWPipe property, plant and equipment, as if the acquisition
occurred on January 1, 1998.
(c) To adjust interest expense to reflect changes in long-term debt as a result
of the acquisition and corporate refinancing, as summarized below:
<TABLE>
<CAPTION>
Pro Forma Interest Change
---------------------------------------------
New Debt Structure Average Average Year Ended Nine Months
Floating Debt December 31, Ended
Interest 1998 September 30,
Rate 1999
------------- ------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Senior subordinated debt 14.00% $32.5 $4.6 $3.4
Term Note A 8.15 35.0 2.9 2.1
Term Note B 8.65 15.0 1.3 1.0
Revolving credit facility 7.90 25.0 2.4 2.2
-------------------- --------------------
Pro forma interest expense 11.2 8.7
Less:
Historical Eagle interest (2.3) (1.4)
expense
Historical PWPipe interest (2.7) (1.3)
expense
-------------------- --------------------
Net pro forma interest expense $6.2 $6.0
adjustment
==================== ====================
</TABLE>
20
<PAGE>
The change in interest expense reflects changes in long-term borrowings and
their rates based on a month libor of 5.40%. Average rate for the periods
were 5.56% for the year ending December 31, 1998 and 5.10% for the nine
month period ending September 30, 1999 or a weighted average rate of 5.4%.
The Company estimated that an increase or decrease in interest rates of
1/8% on its floating rate debt structure summarized would increase or
decrease annual interest expense by approximately $85,000. The Company
anticipated entering into interest rate caps and swaps with respect to a
portion of the floating rate debt to mitigate the effect of interest rate
fluctuations.
(d) Pro forma income tax adjustments necessary, assuming a combined pro forma
financial reporting effective statutory income tax rate of 40% for the year
ended December 31, 1998 and nine months ended September 30, 1999.
(e) To eliminate Eagle's extraordinary loss on debt prepayments occurring in
1998. Elimination is necessary to present pro forma continuing operating
results only.
(f) To eliminate the Eagle's payment of preferred stock dividends assuming the
recapitalization occurred on January 1, 1998.
(g) To eliminate non-recurring bonuses directly related to the acquisition of
PWPipe.
C. Exhibits.
The following is filed herewith. The exhibit number corresponds with
Item 601(b) of Regulation S-K.
Exhibit No. Description
2.1* Stock Purchase Agreement dated September 16, 1999 by and among Eagle,
Mitsubishi Chemical America, Inc. and Mitsubishi Plastics, Inc.
2.2* Plan of Merger between Eagle and Pacific Western Extruded Plastics
Company dated September 20, 1999.
10.1* Second Amended and Restated Loan and Security Agreement dated September
20, 1999 by and among Eagle, Fleet Capital Corporation, as Agent, and
certain Lenders.
10.2* Securities Purchase Agreement dated as of September 20, 1999 by and
among Eagle and certain investors listed therein.
21
<PAGE>
10.3* Registration Rights Agreement dated as of September 20, 1999 among
Eagle and certain investors listed in the Securities Purchase
Agreement.
10.4* Warrant Agreement dated as of September 20, 1999 among Eagle and
certain investors listed in the Securities Purchase Agreement.
10.5* Form of Restricted Stock Agreement between Eagle and certain officers
of Eagle.
10.6* Form of Promissory Note between Eagle and certain officers and
directors of Eagle.
10.7* Employment Agreement dated September 16, 1999 between Eagle and William
H. Spell.
10.8* Employment Agreement dated September 16, 1999 between Eagle and Roger
Robb.
10.9* Employment Agreement dated September 16, 1999 between Eagle and Keith
Steinbruck.
10.10* Employment Agreement dated September 16, 1999 between Eagle and Larry
Fleming.
10.11* Employment Agreement dated September 16, 1999 between Eagle and Jack
Cobb.
10.12* Employment Agreement dated September 16, 1999 between Eagle and Neil
Chinn.
* Previously Filed as an Exhibit to Eagle's Current Report on Form 8-K
for an event dated September 20, 1999 and incorporated herein by
reference.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Eagle has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
Eagle Pacific Industries, Inc.
Date: November 12, 1999 By /s/ Roger Robb
Roger Robb, Chief Financial Officer
23
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
EXHIBIT INDEX
to
FORM 8-K
Eagle Pacific Industries, Inc.
Exhibit No. Description
2.1* Stock Purchase Agreement dated September 16, 1999 by and among Eagle,
Mitsubishi Chemical America, Inc. and Mitsubishi Plastics, Inc.
2.2* Plan of Merger between Eagle and Pacific Western Extruded Plastics
Company dated September 20, 1999.
10.1* Second Amended and Restated Loan and Security Agreement dated September
20, 1999 by and among Eagle, Fleet Capital Corporation, as Agent, and
certain Lenders.
10.2* Securities Purchase Agreement dated as of September 20, 1999 by and
among Eagle and certain investors listed therein.
10.3* Registration Rights Agreement dated as of September 20, 1999 among
Eagle and certain investors listed in the Securities Purchase
Agreement.
10.4* Warrant Agreement dated as of September 20, 1999 among Eagle and
certain investors listed in the Securities Purchase Agreement.
10.5* Form of Restricted Stock Agreement between Eagle and certain officers
of Eagle.
10.6* Form of Promissory Note between Eagle and certain officers and
directors of Eagle.
10.7* Employment Agreement dated September 16, 1999 between Eagle and William
H. Spell.
24
<PAGE>
10.8* Employment Agreement dated September 16, 1999 between Eagle and Roger
Robb.
10.9* Employment Agreement dated September 16, 1999 between Eagle and Keith
Steinbruck.
10.10* Employment Agreement dated September 16, 1999 between Eagle and Larry
Fleming.
10.11* Employment Agreement dated September 16, 1999 between Eagle and Jack
Cobb.
10.12* Employment Agreement dated September 16, 1999 between Eagle and Neil
Chinn.
* Previously Filed as an Exhibit to Eagle's Current Report on Form 8-K
for an event dated September 20, 1999 and incorporated herein by
reference.
25
