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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 MARCH 31, 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 March 31, 1996, the Registrant had 3,855,085 shares of common stock, par
value $.01, outstanding.
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TABLE OF CONTENTS
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PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1996 (Unaudited)
and December 31, 1995 2
Consolidated Statements of Operations (Unaudited)
Three Months Ended March 31, 1996 and 1995 4
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 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
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURE 15
</TABLE>
1
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REUNION INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31,
1996 1995
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<S> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 246 $ 529
Accounts Receivable, Less Allowance
for Doubtful Accounts of $440 and $315,
respectively 8,171 4,792
Inventories 4,294 2,560
Customer Tooling-in-process 650 855
Prepaid Expenses and Other Current Assets 1,338 1,389
------- -------
Total Current Assets 14,699 10,125
------- -------
Property, Plant and Equipment--Net 26,600 20,224
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OTHER ASSETS
Net Assets of Discontinued Oil 10,334 11,590
and Gas Operations
Goodwill 8,961 4,591
Investment in Joint Venture 2,135 2,129
Assets Held for Sale 2,207 2,185
Other 1,365 1,091
------- -------
25,002 21,586
------- -------
$66,301 $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>
MARCH 31 DECEMBER 31,
1996 1995
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<S> <C> <C>
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current Portion of Long-Term Debt $ 5,503 $ 4,279
Accounts Payable 5,779 3,376
Advances From Customers 1,749 1,574
Other Current Liabilities 5,097 2,886
------- -------
Total Current Liabilities 18,128 12,115
Long-Term Debt 9,473 3,132
Long-Term Debt - Related Parties 5,852 4,815
Other Liabilities 2,137 619
------- -------
Total Liabilities 35,590 20,681
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common Stock ($.01 par value; 8,000 authorized;
4,112 issued; and 3,855 outstanding) 40 40
Additional Paid-in Capital 31,037 31,037
Retained Earnings (Since January 1, 1989) 1,432 1,975
Less Treasury Shares, at cost (257 shares) (1,798) (1,798)
------- -------
Total Shareholders' Equity 30,711 31,254
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$66,301 $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
MARCH 31,
------------------------
1996 1995
------------------------
<S> <C> <C>
OPERATING REVENUE
Plastic Products $13,952 $ -
------- -------
13,952 0
OPERATING COSTS AND EXPENSES
Plastic Products - Cost of Sales 11,766 -
Agriculture - Operating Costs 75 2
Selling, General and Administrative 2,082 435
------- -------
13,923 437
------- -------
OPERATING PROFIT (LOSS) 29 (437)
------- -------
OTHER INCOME AND (EXPENSE)
Interest Expense (595) (61)
Gain on Sale of Mineral Properties - 133
Other, Including Interest Income 28 (7)
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(567) 65
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LOSS FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES (538) (372)
INCOME TAX EXPENSE (4) -
------- -------
LOSS FROM CONTINUING OPERATIONS (542) (372)
LOSS FROM DISCONTINUED
OIL AND GAS OPERATIONS - (3,877)
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NET LOSS $ (542) $(4,249)
======= =======
NET LOSS PER COMMON SHARE AND
COMMON SHARE EQUIVALENT --
PRIMARY AND FULLY DILUTED
LOSS FROM CONTINUING OPERATIONS $ (.14) $ (.10)
LOSS FROM DISCONTINUED OPERATIONS - (1.02)
------- -------
NET LOSS $ (.14) $ (1.12)
======= =======
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
AND COMMON SHARE EQUIVALENTS OUTSTANDING 3,855 3,805
======= =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
4
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REUNION INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------------
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (542) $(4,249)
Adjustments to Reconcile Net Loss to Net Cash
Provided By Operating Activities
Impairment of Oil and Gas Properties - 3,858
Depreciation, Depletion and Amortization 477 624
Other - (192)
--------- -------
(65) 41
Changes in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable 38 1,016
(Increase) Decrease in Other Current Assets 476 (93)
Increase (Decrease) in Current Liabilities 809 (1,041)
Other (205) (22)
--------- -------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,053 (99)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Rostone Net of Cash Acquired (118) -
Change in Net Assets of Discontinued Operations 1,256 -
Exploration and Development of Oil and Gas Properties - (755)
Investment In and Advances to The Juliana Preserve (6) (294)
Other Capital Expenditures (296) (19)
Other - (16)
--------- -------
NET CASH PROVIDED BY (USED IN) INVESTIGATING ACTIVITIES 836 (1,084)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) in Revolver Borrowings 3,612 -
Proceeds from Issuance of Debt Obligations 500 -
Payments of Debt Obligations (6,284) (70)
Proceeds From Exercise of Common Stock Options - 21
--------- -------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (2,172) (49)
DECREASE IN CASH AND CASH EQUIVALENTS 283 (1,232)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 529 9,225
--------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 246 $ 7,993
========= =======
</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 5) 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 March 31, 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 MARCH 31, 1996
The Consolidated Balance Sheet at March 31, 1996, and the Consolidated
Statements of Operations and Cash Flows for the three months ended March 31,
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 months
ended March 31, 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.
6
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REUNION INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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, 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:
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
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. 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 months ended
March 31, 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:
7
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REUNION INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1996 1995
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<S> <C> <C>
Revenues $16,278 $15,474
Income From Operations $ 141 $ 471
Net Loss $ (498) $(3,927)
Earnings per Common Share and
Per Common Share Equivalent $ (0.13) $ (1.03)
</TABLE>
NOTE 4. INVENTORIES
Inventories, principally for ORC's plastic products business, at March 31,
1996 consisted of the following:
<TABLE>
<CAPTION>
March 31, 1996
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<S> <C>
Raw Materials $2,122
Work-in-process 1,404
Finished Goods 768
------
Total $4,294
======
</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 exist costs of $175 relating to the remaining
terms 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 $379 in severance and related benefits costs in
connection with five employees terminated in January 1996. The office closure
should be completed during the second quarter of 1996, and the Company expects
to pay the balance of the severance and exit cost accruals as follows:
approximately $698 during the remainder of 1996 and $213 thereafter. One
employee has elected a deferred payment over two years at approximately $14 per
month, but may elect to be paid the remaining amount at any time.
NOTE 6. SUBSEQUENT EVENTS
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 carry forwards will continue
to be available to offset future taxable income by decreasing the likelihood of
an "ownership change" for federal income tax purposes.
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 Tribo Petroleum Corporation for a total price of approximately
$11,375. The purchase price is to be paid $9,675 in cash at closing, subject to
adjustment for cash
8
<PAGE>
REUNION INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
advances from REC prior to the closing, and a $1,700 6-month note with interest
at 12%. The transaction is subject to financing and to the satisfaction of
customary closing conditions. On May 14, 1996, the Company was informed that
the purchaser has obtained financing approval from its bank to fund the cash
portion of the purchase price.
9
<PAGE>
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 has engaged an investment bank specializing in oil and
gas transactions to assist in the sale of the oil and gas operations. On April
2, 1996, the Company entered into an agreement to sell Reunion Energy Company
("REC") its wholly owned subsidiary, including substantially all of Rec's oil
and gas assets, to Tribo Petroleum Corporation for a total price of
approximately $11.4 million. The purchase price is to be paid by $9.7 million in
cash at the closing, subject to adjustment for cash advances from REC prior to
the closing, and a $1.7 million 6-month note with interest at 12%. The
transaction is subject to financing and to the satisfaction of customary closing
conditions, and is expected to close in the second quarter of 1996. Upon
completion of this transaction, the Company will have substantially completed
the disposal of its discontinued oil and gas operations.
The Company recognized a net loss of $0.5 million for the three months ended
March 31, 1996 compared to a net loss of $4.2 million for the three months
ended March 31,1995. 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
The Company recognized a loss from continuing operations of $0.5 million for
the three months ended March 31, 1996 compared to a loss of $0.4 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 $10.9 million and $0.6 million, respectively for the first three months of
1996, including the two months results of Rostone subsequent to the acquisition
in February 1996.
On a pro forma basis, as if the Oneida and Rostone acquisitions had occurred
as of January 1, 1995, revenues increased $0.8 million to $16.3 million for the
three months ended March 31, 1996 from $15.5 million in the three months ended
March 31, 1995. This 5.2% increase in revenues is attributable primarily to
improved sales of thermoplastic products plastic products. Tooling sales
incresed $0.4 million to $1.8 million for the three months ended March 31, 1996
compared to $1.4 million in the prior year period due to increased demand
throughout the segment. Plastic Products Segment backlog totaled $ 16.3
million at March 31, 1996. This compares to backlog, on a proforma basis of
$18.0 million at December 31, 1995 and $16.8 million at March 31, 1995.
On a pro forma basis, cost of sales totaled $13.7 million, or 84.0% of net
sales, for the three months ended March 31, 1996 compared to $13.0 million, or
83.9% of net sales for the three months ended March 31, 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 increase in sales, gross margins on
a pro forma basis improved to $2.6 million, or 16.0% of net sales, from $2.4
million, or 16.1% of net sales, in 1995.
10
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REUNION INDUSTRIES, INC. AND SUBSIDIARIES
Selling, general and administrative expenses were $1.7 million on a pro forma
basis for the three months ended March 31, 1996, $0.2 million greater than in
the three months ended March 31, 1995. The increase resluts from increased
commisions and advertising expense, related to increased sales, as well as
increased payroll and related costs. Operating income on a pro forma basis was
$0.9 million, or 5.5% of net sales, for the three months ended March 31, 1996
compared to $0.9 million, or 5.8% 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
$0.6 million for the three months ended March 31, 1996 compared to $0.4 million
for the three months ended March 31, 1995. The expenses for the three months
ended March 31, 1996 included occupancy and office costs for both the Company's
previous headquarters in Houston, Texas, (expected to be closed in the second
quarter of 1996) and its new headquarters in Stamford, CT.
OTHER INCOME AND (EXPENSE): Interest expense was $0.6 million for the three
months ended March 31, 1996 compared to $0.1 million for the three months ended
March 31, 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
approximately $0.8 million for the three months ended March 31, 1996 and $0.7
million for the three months ended March 31, 1995. The Company recognized gains
of $0.1 million for the three months ended March 31, 1995 on the sales of
certain mineral properties.
11
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REUNION INDUSTRIES, INC. AND SUBSIDIARIES
DISCONTINUED OPERATIONS
The Company discontinued its U. S. oil and gas operations during the year
ended December 31, 1995 and entered into an agreement on April 2, 1996 to sell
these operations. Results of discontinued operations for the three months ended
March 31, 1996 were approximately breakeven on revenues of $1.3 million. The
Company recognized a loss from discontinued operations of $3.9 million for the
three months ended March 31, 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 $3.8 million
during the three months ended March 31, 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 $1.3 million for the three months
ended March 31, 1995.
.
LIQUIDITY AND CAPITAL RESOURCES
SUMMARY OF 1996 ACTIVITIES
Cash and cash equivalents totaled $0.2 million at March 31, 1996. During
the three months ended March 31, 1996, cash decreased $0.3 million, with $1.1
million provided by operations, $0.08 million provided by investing activities,
and $2.2 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 $ 0.3 million during the
three months ended March 31, 1996. The Company's discontinued oil and gas assets
generated funds of $ 1.3 million.
FINANCING ACTIVITIES: Principal payments reduced long-term obligations by
$ 6.3 million in the three months ended March 31, 1996. Proceeds from new
borrowings totaled $ 4.1 million.
OPERATING ACTIVITIES: Net cash provided by operating activities was $ 1.1
million in the three months ended March 31, 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
$1.2 million for the remainder of 1996. Approximately $0.7 million of severance
and exit costs related to the closure of the Company's administrative,
office, accrued in 1995 are expected to be paid during the remainder of 1996.
Debt service requirements for Reunion's debt, excluding ORC, total $0.2 million.
The Company's source of funds for these requirements and for future
acquisitions, other than from additional borrowings, are from permitted payments
by ORC and from cash generated by the operations or sale of the discontinued oil
and gas operations and other assets held for sale. Until the oil and gas assets
are sold, as discussed below, these assets are expected to generate sufficient
cash flow to fund the Company's corporate cash requirements during 1996.
12
<PAGE>
REUNION INDUSTRIES, INC. AND SUBSIDIARIES
ORC's credit facility with Congress Financial Corporation ("Congress") limits
payments to Reunion by ORC. 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 April 2, 1996, the Company entered into an agreement to sell REC, including
substantially all of its oil and gas assets, for a total price of approximately
$11.4 million. The purchase price is to be paid by $9.7 million in cash at the
closing, subject to adjustment for cash advances from REC prior to the closing,
and a $1.7 million 6-month note with interest at 12%. The transaction is
subject to financing and to the satisfaction of customary closing conditions,
and is expected to close in the second quarter of 1996. 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 second quarter of 1996, and is
pursuing the sale or farmout of its mineral interests in Utah. To the extent
that any of these transactions are accomplished, the Company has agreed with
certain affiliates that the debt owed them by ORC and Reunion, respectively,
totaling $4.8 million plus accrued interest, will be repaid from the proceeds.
Although there can be no assurances that any or all of these transactions will
be completed, management believes that the Company will have sufficient
resources to meet its corporate obligations as they become due.
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
remainder of 1996.
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 remainder of 1996.
13
<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 March 31, 1996, the Company filed the following
report on Form 8-K:
Report Date Item Reported
--------------- -------------
January 16, 1996 Item 5. Other Events. To report that Bargo
Energy Company announced it did not intend to
complete the acquisition of the Company's oil and
gas assets. The Company announced it intends to
pursue the sale of the oil and gas assets.
February 2, 1996 Item 2. Acquisition or Disposition of Assets. To
report the purchase of all preferred stock and
common stock of Rostone Corporation from CGI
Investment Corp.
14
<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: May 15, 1996
15
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 246
<SECURITIES> 0
<RECEIVABLES> 8,611
<ALLOWANCES> 440
<INVENTORY> 4,294
<CURRENT-ASSETS> 14,699
<PP&E> 28,609
<DEPRECIATION> 2,009
<TOTAL-ASSETS> 66,301
<CURRENT-LIABILITIES> 0
<BONDS> 9,473
0
0
<COMMON> 40
<OTHER-SE> 30,671
<TOTAL-LIABILITY-AND-EQUITY> 66,301
<SALES> 13,952
<TOTAL-REVENUES> 13,952
<CGS> 11,841
<TOTAL-COSTS> 11,841
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 595
<INCOME-PRETAX> (538)
<INCOME-TAX> 4
<INCOME-CONTINUING> (542)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (542)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
</TABLE>
