<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO
_____________
COMMISSION FILE NUMBER 1-7726
REUNION INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-1439715
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
62 SOUTHFIELD AVENUE
ONE STAMFORD LANDING SUITE 208
STAMFORD, CT 06902
(Address of principal executive offices)
(203) 324-8858
(Registrant's telephone number, including area code)
REUNION RESOURCES COMPANY
2801 POST OAK BOULEVARD, SUITE 400, HOUSTON, TX 77056
(Former name, former address and former fiscal year if changed)
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 .
_____ ______
As of June 30, 1996, the Registrant had 3,855,100 shares
of common stock, par value $.01, outstanding.
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TABLE OF CONTENTS
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PAGE
PART I. FINANCIAL INFORMATION ----
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1996 (Unaudited)
and December 31, 1995 2
Consolidated Statements of Operations (Unaudited)
Three Months and six months Ended June 30, 1996 and 1995 4
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 1996 and 1995 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
</TABLE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURE 16
1
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PART I - FINANCIAL INFORMATION
ITEM: 1. FINANCIAL STATEMENTS
REUNION INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 2,185 $ 529
Accounts Receivable, Less Allowance for
Doubtful Accounts of $460 and $315, respectively 6,859 4,792
Inventories 4,213 2,560
Customer Tooling-in-Process 625 855
Note Receivable from Sale of Oil & Gas Operations 2,200 -
Insurance Claim Receivable 1,613 -
Prepaid Expenses and Other Current Assets 1,285 1,389
----------- ----------
Total Current Assets 18,980 10,125
----------- ----------
Property, Plant and Equipment--Net 26,461 20,224
----------- ----------
OTHER ASSETS
Net Assets of Discontinued Oil and Gas Operations 348 11,590
Goodwill 8,762 4,591
Investment in Joint Venture 2,135 2,129
Assets Held for Sale 2,199 2,185
Other 1,404 1,091
----------- ----------
14,848 21,586
----------- ----------
$ 60,289 $ 51,935
=========== ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
2
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REUNION INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current Portion of Long-Term Debt $ 4,963 $ 4,279
Account Payable 5,093 3,376
Advances From Customers 1,635 1,574
Other Current Liabilities 4,322 2,886
---------- ----------
Total Current Liabilities 16,013 12,115
Long-Term Debt 8,990 3,132
Long-Term Debt - Related Parties 1,098 4,815
Other Liabilities 2,212 619
---------- ----------
Total Liabilities 28,313 20,681
---------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common Stock ($.01 par value; 20,000 authorized;
6/30/96 - 3,855 issued and outstanding
12/31/95 - 4,112 issued; and 3,855 outstanding) 38 40
Additional Paid-in Capital 29,242 31,037
Retained Earnings (Since January 1, 1989) 2,696 1,975
Less Treasury Shares, at cost (257 shares) -- (1,798)
---------- ----------
Total Shareholders' Equity 31,976 31,254
---------- ----------
$ 60,289 $ 51,935
========== ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
3
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REUNION INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION> Three Months Ended Six Months Ended
June 30, June 30,
------------------------- ------------------------
1996 1995 1996 1995
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING REVENUE
Plastic Products $ 14,292 $ - $ 28,244 $ -
--------- -------- --------- ---------
14,292 0 28,244 0
OPERATING COSTS AND EXPENSES
Plastic Products - Cost of Sales 11,735 - 23,501 -
Agriculture - Operating Costs 77 67 152 69
Selling, General and Administrative 1,882 983 3,964 1,418
--------- -------- --------- ---------
13,694 1,050 27,617 1,487
--------- -------- --------- ---------
OPERATING PROFIT (LOSS) 598 (1,050) 627 (1,487)
--------- -------- --------- ---------
OTHER INCOME AND (EXPENSE)
Interest Expense (634) (60) (1,229) (121)
Other, Including Interest Income 97 (11) 125 115
-------- -------- --------- ---------
(537) (71) (1,104) (6)
-------- -------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES 61 (1,121) (477) (1,493)
INCOME TAX EXPENSE (46) - (50) -
-------- -------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS 15 (1,121) (527) (1,493)
INCOME (LOSS) FROM DISCONTINUED OIL AND GAS OPERATIONS 1,248 (1,772) 1,248 (5,649)
-------- -------- --------- ---------
NET INCOME (LOSS) $ 1,263 $ (2,893) $ 721 $ (7,142)
======== ======== ========= =========
NET INCOME (LOSS) PER COMMON SHARE AND
COMMON SHARE EQUIVALENT -- PRIMARY AND FULLY DILUTED
INCOME (LOSS) FROM CONTINUING OPERATIONS $ - $ (.30) $ (.14) $ (.39)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS .33 (.46) .33 (1.48)
-------- -------- --------- ---------
NET INCOME (LOSS) $ .33 $ (.76) $ .19 $ (1.87)
======== ======== ========= =========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
AND COMMON SHARE EQUIVALENTS OUTSTANDING 3,855 3,824 3,855 3,815
======== ======== ========= =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
4
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 721 $ (7,142)
Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided By Operating Activities
Impairment of Oil and Gas Properties - 5,515
Depreciation, Depletion and Amortization 1,143 1,245
Extension of Warrants to Purchase Common Stock 478
Other - (192)
--------- --------
1,864 (96)
Changes in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable 1,350 986
(Increase) Decrease in Other Current Assets (978) (173)
Increase in Current Liabilities (766) (148)
Other (212) (12)
--------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,258 557
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Rostone Net of Cash Acquired (118) -
Sale of Discontinued Operations 9,042 -
Exploration and Development of Oil and Gas Properties - (1,933)
Investment In and Advances to The Juliana Preserve (6) (619)
Other Capital Expenditures (571) (19)
Other - (7)
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 8,347 (2,578)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) in Revolver Borrowings 3,111 -
Proceeds from Issuance of Debt Obligations 500 -
Payments of Debt Obligations (11,560) (123)
Proceeds From Exercise of Common Stock Options - 73
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (7,949) (50)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,656 (2,071)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 529 9,225
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,185 $ 7,154
======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
5
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REUNION INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1. CONSOLIDATED FINANCIAL STATEMENTS
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Reunion
Industries, Inc. ("RII") (the successor by merger effective April 19, 1996 to
Reunion Resources Company, see Note 6) and its majority owned subsidiaries. As
used herein, the term "Company" refers to RII, its predecessors and its
subsidiaries, unless the context indicates otherwise. All intercompany
transactions and accounts are eliminated in consolidation. The consolidated
financial statements for June 30, 1996 include the financial statements of
Rostone Corporation which was acquired by the Company on February 2, 1996 (See
Note 2 - Business Acquisitions).
FINANCIAL STATEMENTS AT JUNE 30, 1996
The Consolidated Balance Sheet at June 30, 1996, and the Consolidated
Statements of Operations and Cash Flows for the three and six months ended June
30, 1996 and 1995 included herein are unaudited; however, in the opinion of
management of the Company, they reflect all adjustments necessary to present
fairly the results for the interim periods. Such results are not necessarily
indicative of results to be expected for the year. The Consolidated Balance
Sheet at December 31, 1995 has been derived from the audited financial
statements at that date. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
EARNINGS PER SHARE
Earnings per Common Share and Common Share Equivalent are computed based on
the weighted average number of common and common equivalent shares outstanding
during each period. Common equivalent shares include shares issuable upon
exercise of the Company's stock options and warrants. For the three and six
months ended June 30, 1996 and 1995, common equivalent shares relating to
options and warrants to purchase common stock were not included in the weighted
average number of shares because their effect would have been anti-dilutive.
NOTE 2. BUSINESS ACQUISITIONS
ROSTONE
On February 2, 1996, the Company acquired Rostone Corporation ("Rostone")
which was merged with and into the Company's subsidiary, Oneida Molded Plastics
Corp. ("Oneida"). The surviving corporation changed its name to Oneida Rostone
Corp. ("ORC"). The purchase price payable to the stockholders of Rostone is an
amount up to $4,001 as follows: (i) $1 in 1996, (ii) up to $2,000 in 1997 if
Rostone achieves specified levels of earnings before interest and taxes (as
provided in the merger agreement ) for 1996 and (iii) up to $2,000 in 1998 if
Rostone achieves specified levels of earnings before interest and taxes for
1997. In addition, the Company incurred approximately $435 in acquisition
related costs.
The Rostone acquisition is being accounted for using the purchase method,
with the purchase price of $436, including acquisition costs, allocated to the
assets acquired and liabilities assumed based upon their respective estimated
fair values at the date of acquisition. The excess of purchase price over the
net assets acquired ("Goodwill" approximately $4,535) is being amortized on a
straight-line basis over 15 years. Any additional consideration paid in future
years will increase Goodwill and will be amortized on the same basis. The
estimated fair values of assets and liabilities acquired in the Rostone
acquisition are summarized as follows:
6
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REUNION INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
Cash $ 318
Accounts Receivable 3,417
Inventories 1,887
Other Current Assets 67
Property, Plant and Equipment 6,445
Other Assets 43
Goodwill 4,535
Accounts Payable and Other Current Liabilities (3,980)
Long-term Debt (10,774)
Other liabilities (1,522)
--------
Total $ 436
</TABLE>
The Company is in the process of obtaining certain evaluations, estimates,
appraisals and actuarial and other studies for the purposes of determining
certain values, and may revise certain of the estimated values set forth above.
The results of Rostone's operations are included in the consolidated financial
statements from the date of acquisition, February 2, 1996.
ONEIDA
On September 14, 1995, the Company acquired all of the outstanding
preferred and common stock of Oneida from a subsidiary of Chatwins Group, Inc.
("Chatwins"), a related party. The acquisition was accounted for as a purchase
and the results of Oneida's operations are included in the Company's
consolidated financial statements from the date of the acquisition, September
14, 1995.
PRO FORMA RESULTS
The following pro forma results of operations for the three and six months
ended June 30, 1996 and 1995 have been prepared assuming the acquisitions of
Rostone and of Oneida had occurred as of January 1, 1995. These pro forma
results are not necessarily indicative of the results of future operations or of
results that would have occurred had the acquisitions been consummated as of
January 1, 1995.
<TABLE>
<CAPTION> THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -----------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues $ 14,292 $ 16,715 $ 30,570 $ 32,185
Income(Loss) From Operations $ 557 $ 276 $ 698 $ 747
Net Income (Loss) $ 1,157 $ (2,181) $ 659 $ (6,108)
Earnings per Common Share and
Per Common Share Equivalent $ 0.30 $ (0.57) $ 0.17 $ (1.60)
</TABLE>
7
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REUNION INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 3. SALE OF REUNION ENERGY COMPANY
On April 2, 1996, the Company entered into an agreement to sell its
subsidiary Reunion Energy Company ("REC"), including substantially all of its
oil and gas assets, to Tri-Union Development Corp ("Tri-Union") a subsidiary of
Tribo Petroleum Corporation for a total price of approximately $11,375. On May
24, 1996 the Company completed the sale of REC for proceeds of $8,000 cash and a
$2.200 six month note bearing interest at 12%. The purchase price paid for REC's
stock reflected adjustments for intercompany cash transfers by REC to Reunion
and certain expenditures by REC between January 1 and the May 24, 1996 closing
date.
The Company used $5,000 of the aggregate $8,000 cash paid by Tri-Union to
pay related party indebtedness. This included $3,600 owed by ORC to Chatwins
Group, Inc., ("CGI") a 38% shareholder of Reunion, and approximately $1,300 owed
by Reunion to Charles E. Bradley, Sr., Reunion's President and Chief Executive
Officer. Mr. Bradley is the Chairman of the Board and the majority shareholder
of CGI.
NOTE 4. INVENTORIES
Inventories, principally for ORC's plastic products business, consisted of the
following:
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995
------------- -----------------
<S> <C> <C>
Raw Materials $ 2,052 $ 1,307
Work-in-process 1,357 1,036
Finished Goods 804 217
---------- ----------
Total $ 4,213 $ 2,560
========== ==========
</TABLE>
NOTE 5. SEVERANCE AND EXIT COSTS
During the year ended December 31, 1995, the Company recorded a provision
for severance and related benefit costs of $1,115 relating to 26 employees to be
terminated and a provision for exit costs of $175 relating to the remaining term
of its Houston office lease. These costs were recorded in connection with the
Company's closing of its Houston administrative office and relocating its
corporate headquarters to Connecticut. During the three months ended March 31,
1996, the Company paid $384 in severance and related benefits costs in
connection with employees terminated in January 1996. The office closure was
completed during the second quarter of 1996 and the Company wrote off
approximately $86 of surplus furniture and fixtures. During the three months
ended June 30, 1996, the Company paid $197 in severance and related benefit
costs in connection with employees terminated in May, 1996. As a result of the
final terms agreed upon with the purchaser of REC, certain provisions recorded
in 1995 were reversed during 1996 resulting in an offset to SG&A expense of
$276. The Company expects to pay the remaining balance of the severance and exit
cost accruals as follows: approximately $88 during the remainder of 1996 and
$179 in 1997.
8
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REUNION INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 6. MERGER
On April 19, 1996, Reunion Resources Company was merged with and into RII
upon approval by shareholders of a merger agreement dated November 14, 1995.
RII's certificate of incorporation, which survives the merger, authorizes the
issuance of 20,000 shares of common stock, par value $.01 per share, and 10,000
shares of "blank check" preferred stock, par value $.01 per share, and includes
certain capital stock transfer restrictions which are intended to help assure
that the Company's substantial net operating loss carryforwards will continue to
be available to offset future taxable income by decreasing the likelihood of an
"ownership change" for federal income tax purposes.
NOTE 7. CONTINGENCIES
In early 1996, the State of California Franchise Tax Board initiated an
audit of the Company's franchise tax returns for the years 1991, 1992 and 1993.
In May 1996, the auditor informed the Company that adjustments totaling $716
would be proposed. The Company has not received a formal notice of assessment
from the taxing authority, but has been advised that one will be sent during the
third quarter of 1996 and expects that the assessment will be made for
approximately the amounts proposed. Of this amount $645 results from the
auditor's conclusion that income from gain on sales of certain Canadian assets
in 1991 should be reclassified from nonbusiness to business income. The Company
believes its classification of such income was correct, and intends to appeal
any assessment of tax. If the Company's positions prevail on this issue,
management believes that the amounts due would not exceed amounts previously
paid or provided. No additional accruals have been made for any amounts that may
be due if the Company does not prevail because the outcome cannot be determined.
The Company has recorded a provision for $85 in the three and six months ended
June 30, 1996 for certain other adjustments proposed.
In connection with the sale of REC the company retained certain properties
in Louisiana because of litigation concerning environmental matters. The Company
has recorded an accrual for $307 concerning the estimated costs to remediate the
site based on plans and estimates developed by the environmental consultants
hired by the Company. Owners of a portion of the property have objected to the
Company's proposed cleanup methodology and have filed suit to require additional
procedures. The Company is contesting the litigation, and believes the proposed
clean up methodology is well within accepted industry practice for remediation
efforts of a similar nature. No accrual has been made for any additional costs
of possible alternative clean up methods because the nature and dollar amount of
such alternative cannot presently be determined.
9
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REUNION INDUSTRIES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
On September 14, 1995, the Company acquired Oneida, which manufactures
precision plastic products and provides engineered plastics services. As a
result of the Oneida acquisition, the Company's principal operations are in the
plastic products industry. On February 2, 1996, the Company completed the
Rostone acquisition which added new customers and products to the plastic
products segment. The Company is considering additional acquisitions to increase
its customer base and expand its product offerings and service capabilities in
the plastics industry. In addition, the Company may consider acquisitions in
other industries. The Company is also engaged in real estate development and
wine grape agricultural operations in Napa County, California.
In November 1995, the Company's Board of Directors resolved to pursue the
sale of the Company's oil and gas assets and to discontinue the Company's oil
and gas operations. The Company engaged an investment bank specializing in oil
and gas transactions to assist in the sale of the oil and gas operations. On May
24, 1996, the Company sold REC , its wholly owned subsidiary, including
substantially all of REC's oil and gas assets, to Tri-Union for a total price of
approximately $11.4 million. The purchase price was paid by $8.0 million in cash
at the closing , as adjusted for cash advances from REC prior to the closing,
and a $2.2 million 6-month note with interest at 12%. Upon completion of this
transaction, the Company has substantially discontinued oil and gas operations.
The Company recognized net income of $1.3 million and $0.7 million.
respectively, for the three months and six months ended June 30, 1996 compared
to a net loss of $2.9 million and $7.1 million for the three months and six
months ended June 30, 1995. The following discussion of Results of Continuing
Operations describes the Company's continuing operations in plastic products and
agriculture separately from discontinued operations.
RESULTS OF CONTINUING OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996
The Company recognized break-even results from continuing operations for
the three months ended June 30, 1996 compared to a loss of $1.1 million in 1995.
The 1996 results include the plastic products segment, which the Company entered
in September 1995.
PLASTIC PRODUCTS SEGMENT: The Oneida acquisition on September 14, 1995
represented the Company's entry into a new operating segment, plastic
products. The Rostone acquisition in February 1996 increased operations in this
segment. Revenues and operating profit of the plastic products segment were
$14.3 million and $0.9 million, respectively, for the three months ended June
30, 1996.
On a pro forma basis, as if the Oneida and Rostone acquisitions had
occurred as of January 1, 1995, revenues decreased $ 2.4 million to $14.3
million for the three months ended June 30, 1996 from $16.7 million in the three
months ended June 30, 1995. This 14% decrease in revenues is attributable
primarily to decreased sales of thermoplastic products due to departures of
select parts programs and customer delays in bringing scheduled new parts
programs into production. Tooling sales decreased $0.3 million to $1.7 million
for the three months ended June 30, 1996. Plastic products segment backlog
totaled $ 16.8 million at June 30, 1996. This compares to backlog, on a pro
forma basis, of $18.0 million at December 31, 1995 and $17.5 million at June 30,
1995.
On a pro forma basis, cost of sales totaled $11.8 million, or 82.5% of net
sales, for the three months ended June 30, 1996 compared to, On a pro forma
basis, $13.8 million, or 82.6% of net sales for the three months ended June 30,
1995. The segment continued to benefit from participation in reduced rate
electricity programs and from reductions in direct labor resulting from improved
efficiency. These factors were offset by higher material content as a percentage
of sales due to the change in sales mix. As a result of the decrease in sales,
gross margins on a pro forma basis, declined to $2.5 million, or 17.5% of net
sales, from $2.9 million, or 17.3% of net sales, in 1995.
10
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REUNION INDUSTRIES, INC. AND SUBSIDIARIES
Selling, general and administrative expenses were $1.6 million on a pro
forma basis for the three months ended June 30, 1996, equal to expenses for the
three months ended June 30, 1995. Operating income on a pro forma basis, was
$0.9 million, or 6.3% of net sales, for the three months ended June 30, 1996
compared to $1.3 million, or 7.8% of net sales, for the comparable prior year
period.
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSE: Corporate general and
administrative expenses, consisting primarily of executive and administrative
salaries and benefits, professional fees and other public company costs, totaled
$ 0.3 million for the three months ended June 30, 1996 compared to $ 1.0 million
for the three months ended June 30, 1995. The expenses for the three months
ended June 30, 1996 included occupancy and office costs for both the Company's
previous headquarters in Houston, Texas, closed in the May 1996, and its new
headquarters in Stamford, Connecticut, and are net of $0.3 million in reversals
of certain charges for office closing and severance accrued in 1995. The
expenses for the three months ended June 30, 1995 include a $0.5 million charge
related to the extension of the exercise period for certain warrants.
OTHER INCOME AND (EXPENSE): Interest expense was $0.6 million for the three
months ended June 30, 1996 compared to $0.1 million for the three months ended
June 30, 1995 as a result of interest on Oneida debt subsequent to the Oneida
acquisition in September 1995. On a pro forma basis, as if the Oneida and
Rostone acquisitions had occurred as of January 1, 1995, interest expense
was $0.6 million for the three months ended June 30, 1995.
SIX MONTHS ENDED JUNE 30, 1996
The Company recognized a loss from continuing operations of $0.5 million
for the six months ended June 30, 1996 compared to a loss of $1.5 million in the
first sixth months of 1995. The 1996 results include the plastic products
segment, which the Company entered in September 1995.
PLASTIC PRODUCTS SEGMENT: The Oneida acquisition on September 14, 1995
represented the Company's entry into a new operating segment, plastic products.
The Rostone acquisition in February 1996 increased operations in this segment.
Revenues and operating profit of the plastic products segment were $28.2 million
and $1.7 million, respectively for first six months ended June 30, 1996.
On a pro forma basis, as if the Oneida and Rostone acquisitions had
occurred as of January 1, 1995, revenues decreased $ 1.6 million to $30.6
million for the six months ended June 30, 1996 from $32.2 million in the six
months ended June 30, 1995. This 5% decrease in revenues is attributable
primarily to decreased sales of plastic products due to departures of select
parts programs and customer delays in bringing scheduled new parts programs into
production. Tooling sales increased $0.2 million to $3.5 million for the six
months ended June 30, 1996 compared to $3.3 million in the prior year period due
to increased demand throughout the segment. Plastic products segment backlog
totaled $16.8 million at June 30, 1996. This compares to backlog, on a pro forma
basis, of $18.0 million at December 31, 1995 and $ 17.5 million at June 30,
1995.
Cost of sales totaled $25.5 million, or 83.3% of net sales, for the six
months ended June 30, 1996 compared to, on a pro forma basis $28.8 million, or
83.2% of net sales for the six months ended June 30, 1995. The segment continued
to benefit from participation in reduced rate electricity programs and from
reductions in direct labor resulting from improved efficiency. These factors
were offset by higher material content as a percentage of sales due to the
change in sales mix. As a result of the decrease in sales, gross margins
declined to $5.1 million, or 16.7% of net sales, from on a pro forma basis $5.4
million, or 16.8% of net sales, in 1995.
11
<PAGE>
REUNION INDUSTRIES, INC. AND SUBSIDIARIES
Selling, general and administrative expenses were $3.3 million, on a pro
forma basis, for the six months ended June 30, 1996, $0.2 million greater than
in the six months ended June 30, 1995. This increase results primarily from
increased payroll and benefit related costs. Operating income was $1.8 million,
or 5.9% of net sales, for the six months ended June 30, 1996 compared to on a
pro forma basis $2.2 million, or 6.8% of net sales, for the comparable prior
year period.
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSE: Corporate general and
administrative expenses, consisting primarily of executive and administrative
salaries and benefits, professional fees and other public company costs, totaled
$0.9 million for the six months ended June 30, 1996 compared to $ 1.4 million
for the six months ended June 30, 1995. The expenses for the six months ended
June 30, 1996 included occupancy and office costs for both the Company's
previous headquarters in Houston, Texas, closed in May 1996, and its new
headquarters in Stamford, Connecticut and are net of $0.3 million in reversals
of certain charges for office closing and severance accrued in 1995. The
expenses for the six months ended June 30, 1995 include a $0.5 million charge
related to the extension of the exercise period for certain warrants.
OTHER INCOME AND (EXPENSE): Interest expense was $1.2 million for the six
months ended June 30, 1996 compared to $0.1 million for the six months ended
June 30, 1995 as a result of interest on Oneida debt subsequent to the Oneida
acquisition in September 1995. On a pro forma basis, as if the Oneida and
Rostone acquisitions had occurred as of January 1, 1995, interest expense was
$1.2 million for the six months ended June 30, 1995.
DISCONTINUED OPERATIONS
The Company discontinued its U. S. oil and gas operations during the year
ended December 31, 1995. A provision was recorded during the year ended December
31, 1995 to record estimated results of operations through date of disposition
and the estimated loss on disposal. On May 24, 1996, the Company completed the
transactions contemplated by the April 2nd, 1996 agreement for proceeds of $8.0
million cash and a $2.2 million note due November 25, 1996. The Company retained
certain Louisiana oil and gas properties because of litigation concerning
environmental contamination.
THREE MONTHS ENDED JUNE 30, 1996
An additional loss from discontinued operations of $0.4 million was recorded in
the three months ended June 30, 1996 reflecting the purchase price adjustment
resulting from the retention of the Louisiana properties and a $0.1 million
provision for taxes resulting from the California tax audit discussed below.
This loss was offset by a $1.6 million gain from an insurance reimbursement,
resulting in net income from discontinued operations of $1.2 million for the
three months ended June 30, 1996. The Company recognized a loss from
discontinued operations of $1.8 million for the three months ended June 30,
1995. The Company followed the full cost method of accounting for oil and gas
properties and, as a result of substantial decreases in prices received for
natural gas, recognized impairment losses of $1.7 million during the three
months ended June 30, 1995 to reduce the carrying value of the investment in oil
and gas properties to the "full cost ceiling." Before these valuation charges,
the Company realized a loss from the discontinued oil and gas operations of
$0.1 million on revenues of $1.5 million for the three months ended June 30,
1995.
12
<PAGE>
REUNION INDUSTRIES, INC. AND SUBSIDIARIES
SIX MONTHS ENDED JUNE 30, 1996
Results of discontinued operations for the six months ended June 30, 1996 were
approximately break even on revenues of $2.1 million. An additional loss from
discontinued operations of $0.4 million was recorded in the three months ended
June 30, 1996 reflecting the purchase price adjustment resulting from the
retention of the Louisiana properties and an $0.1 million provision for taxes
resulting from the California tax audit discussed below. This loss was offset
by a $1.6 million gain from an insurance reimbursement, resulting in net income
from discontinued operations of $1.2 million for the six months ended June 30,
1996. The Company recognized a loss from discontinued operations of $5.6
million for the six months ended June 30, 1995. The Company followed the full
cost method of accounting for oil and gas properties and, as a result of
substantial decreases in prices received for natural gas, recognized impairment
losses of $5.5 million during the six months ended June 30, 1995 to reduce the
carrying value of the investment in oil and gas properties to the "full cost
ceiling." Before these valuation charges, the Company realized a loss from the
discontinued oil and gas operations of $ 0.1 million on revenues of $2.8
million for the six months ended June 30, 1995
LIQUIDITY AND CAPITAL RESOURCES
SUMMARY OF 1996 ACTIVITIES
Cash and cash equivalents totaled $2.2 million at June 30, 1996. During the
six months ended June 30, 1996, cash increased $1.6 million, with $1.3 million
provided by operations, $8.3 million provided by investing activities, and $ 7.9
million used in financing activities.
INVESTING ACTIVITIES: As described above, the Company completed the Rostone
acquisition in February, 1996. The purchase price for the acquisition, including
acquisition costs, totaled $0.4 million which was funded from the Company's cash
balances. Capital expenditures were $ 0.6 million. Discontinued operations,
including the sale of REC as discussed below generated cash of approximately
$9.0 million. This included $8.0 million cash at closing in addition an
additional $1.0 million, net of transaction costs, transferred to the Company
during the year.
FINANCING ACTIVITIES: Principal payments reduced long-term obligations by $
6.8 million in the six months ended June 30, 1996. In addition the Company used
proceeds from the sale of REC as discussed below to pay $4.8 million in related
party indebtedness. Proceeds from new borrowings totaled $ 3.7 million.
OPERATING ACTIVITIES: Net cash provided by operating activities was $ 1.3
million in the six months ended June 30, 1996.
FACTORS AFFECTING FUTURE LIQUIDITY
Because of various restrictions included in the Company's loan
arrangements, management must separately consider liquidity and financing for
corporate requirements, for ORC and for the Juliana Preserve.
CORPORATE: Management estimates that corporate expenses, including
salaries and benefits, professional fees and other public company costs, will
approximate $ 1.0 million for the remainder of 1996. Approximately $0.1 million
of severance and exit costs related to the closure of the Company's Houston
administrative office, accrued in 1995, are expected to be paid during the
remainder of 1996. The Company's source of funds for these requirements and for
future acquisitions, other than from additional borrowings, are from payments by
ORC permitted under a secured credit facility as described below and from cash
generated by operations or proceeds from the sale of discontinued oil and gas
operations and other assets held for sale.
ORC's credit facility with Congress Financial Corporation ("Congress")
limits payments to Reunion by ORC.
13
<PAGE>
REUNION INDUSTRIES, INC. AND SUBSIDIARIES
If certain levels of availability (as defined in the loan agreements) are
maintained, ORC is permitted to pay Reunion management fees of up to $0.3
million per year and tax sharing payments of up to 50% of the tax savings
realized by ORC because of Reunion's net operating loss carryovers. There can be
no assurances that ORC will be able to maintain the required levels of
availability and be permitted to make the management fee and tax sharing fee
payments to Reunion. In any event, the maximum amount of such payments is not
expected to be sufficient for Reunion's corporate operating and debt service
requirements.
On May 24, 1996 the Company completed the sale of REC for proceeds of $8.0
million in cash as adjusted for certain cash transfers from REC from January 1,
1996 through the May 24 closing, and a $2.2 million six month note bearing
interest at 12%. Pursuant to the agreement Tri-Union acquired all of the issued
and outstanding capital stock of REC. In addition, the Company has a contract
for the sale of certain real estate in Texas for $2.0 million, which is expected
to close during the third quarter of 1996, and is pursuing the sale or farmout
of its mineral interests in Utah. Pursuant to existing agreements, the Company
used $5.0 million of the aggregate $8.0 million cash paid by Tri-Union to pay
related party indebtedness. This included $3.6 million owed by CGI a 38%
shareholder of Reunion, and approximately $1.3 million owed by Reunion to
Charles E. Bradley, Sr., Reunion's President and Chief Executive Officer. Mr.
Bradley is the Chairman of the Board and the majority shareholder of CGI.
As a result of the above transactions, management believes that the
Company will have sufficient resources to meet its corporate obligations as they
become due over the next twelve months.
ORC: On February 2, 1996, in connection with the Rostone acquisition, ORC
entered into a new credit facility with Congress. The new credit facility
provides for maximum borrowings of $16.0 million under a term loan in the
original amount of $6.6 million and revolving loans based on the eligible
balances of accounts receivable and inventory. Management believes that ORC'S
cash flow from operations, together with this credit facility and permitted
levels of capital and operating leases, will be sufficient for ORC'S operating
requirements, including capital expenditures and debt service, during the next
twelve months.
THE JULIANA PRESERVE: In January 1995, the Juliana Preserve entered into
the Development and Marketing Agreement with Juliana Pacific, Inc. to develop
the Juliana Preserve into a master-planned estate-oriented residential community
encompassing the entire vineyard. The joint venture agreement contemplates that
development costs associated with the project will be financed solely from the
assets of the joint venture, including the sale of such assets, or by
development financing. In October 1995, the joint venture entered into a loan
agreement with Washington Federal Savings, the parent of Freedom Vineyards, to
provide $3.0 million of development financing for this project. Based on plans
and projections prepared by Juliana Pacific and approved by the joint venture
partners, and on projections of farming costs and capital requirements for the
1996 crop year, the Company believes that it will not be required to commit any
additional resources to the Juliana Preserve for either development or farming
activities during the next twelve months.
CONTINGENCIES AND UNCERTAINTIES
In early 1996, the State of California Franchise Tax Board initiated an
audit of the Company's franchise tax returns for the years 1991, 1992 and 1993.
In May 1996, the auditor informed the Company that adjustments totaling $0.7
million would be proposed. The Company has not received a formal notice of
assessment from the taxing authority, but has been advised that one will be sent
during the third quarter of 1996 and expects that the assessment will be made
for approximately the amounts proposed. Of this amount $0.6 million results from
the auditor's conclusion that income from gain on sales of certain Canadian
assets in 1991 should be reclassified from nonbusiness to business income. The
Company believes its classification of such income was correct, and intends to
appeal any assessment of tax. If the Company's positions prevail on this issue,
management believes that the amounts due would not exceed amounts previously
paid or provided. No additional accruals have been made for any amounts that may
be due if the Company does not prevail because the outcome cannot be determined.
The Company has recorded a provision for $0.1 million in the three and six
months ended June 30, 1996 for certain other adjustments proposed.
In connection with the sale of REC the company retained certain properties
in Louisiana because of litigation concerning environmental matters. The Company
has recorded an accrual for $0.3 million concerning the estimated costs to
remediate the site based on plans and estimates developed by the environmental
consultants hired by the Company. Owners of a portion of the property have
objected to the Company's proposed cleanup methodology and have filed suit to
require additional procedures. The Company is contesting this litigation, and
believes the proposed clean up methodology is well within accepted industry
practice for remediation efforts of a similar nature. No accrual has been made
for any additional costs of possible alternative clean up methods because the
nature and dollar amount of such alternative cannot presently be determined. The
Company expects to pay the $0.3 million of accrued costs to remediate the site
over the next twelve months.
14
<PAGE>
REUNION INDUSTRIES, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBIT
27 Financial Data Schedule
(B) CURRENT REPORTS ON FORM 8-K
During the quarter ended June 30, 1996, the Company filed the
following reports on Form 8-K:
Report Date Item Reported
----------- -------------
April 2, 1996 Item 5. Other Events. To report the execution of
a stock purchase agreement between Reunion
Resources Company and Tribo Petroleum Corporation
for the sale of the capital stock of Reunion
Energy Company, Reunion's wholly owned subsidiary
engaged in oil and gas operations.
April 12, 1996 Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits. To file by amendment
the required financial statements and exhibits
concerning the Company's acquisition of Rostone
Corporation previously reported on February 2,
1996.
April 19, 1996 Item 5. Other Events To report the merger of
Reunion Resources Company with and into its wholly
owned subsidiary Reunion Industries, Inc. pursuant
to a merger agreement dated November 14, 1995.
May 24, 1996 Item 2. Acquisition or Disposition of Assets To
report the closing of the transaction pursuant to
a stock purchase agreement dated April 2, 1996 for
the sale of the Company's Reunion Energy Corp
subsidiary.
15
<PAGE>
REUNION INDUSTRIES, INC. AND SUBSIDIARIES
SIGNATURE
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 thereunto duly authorized.
REUNION INDUSTRIES, INC.
(Registrant)
By /s/ Richard L. Evans
---------------------
Richard L. Evans
Executive Vice President and Chief Financial
Officer (Principal Financial and Accounting
Officer)
Date: August 14, 1996
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REUNION
INDUSTRIES FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,185
<SECURITIES> 0
<RECEIVABLES> 7,319
<ALLOWANCES> 460
<INVENTORY> 4,213
<CURRENT-ASSETS> 18,980
<PP&E> 28,886
<DEPRECIATION> 2,425
<TOTAL-ASSETS> 60,289
<CURRENT-LIABILITIES> 16,013
<BONDS> 10,088
0
0
<COMMON> 38
<OTHER-SE> 31,938
<TOTAL-LIABILITY-AND-EQUITY> 60,289
<SALES> 28,244
<TOTAL-REVENUES> 28,244
<CGS> 11,812
<TOTAL-COSTS> 11,812
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<INTEREST-EXPENSE> 1,229
<INCOME-PRETAX> (477)
<INCOME-TAX> 50
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<EXTRAORDINARY> 0
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<NET-INCOME> 721
<EPS-PRIMARY> (19)
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