FORM 8-K/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: July 7, 1998
Commission File Number 1-13123
METALS USA, INC.
(Exact name of Registrant as Specified in its Charter)
DELAWARE 76-0533626
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
THREE RIVERWAY, SUITE 600 77056
HOUSTON, TEXAS (Zip Code)
(Address of Principal Executive
Offices)
Registrant's telephone number, including area code: (713) 965-0990
------------------------
================================================================================
<PAGE>
METALS USA, INC.
FORM 8-K/A
Any capitalized terms used but not specifically defined herein have the
same meaning given to them in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 and the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1998.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On July 10, 1998, Metals USA, Inc. (the "Company") filed a Current Report
on Form 8-K (under Item 2), dated July 7, 1998, with the Securities and Exchange
Commission (the "Commission") relating to the acquisition of Intsel Southwest
Limited Partnership ("Intsel") from Philip Services Corp. In this Current Report
on Form 8-K/A, the Company is providing the audited financial statements and pro
forma financial information required by the rules and regulations of the
Commission.
Intsel is a leading distributor of heavy carbon steel products with
approximately 185 employees. Intsel sells to a broad and diversified customer
base throughout the southwestern and southeastern regions of the United States.
Intsel is headquartered in Houston, Texas, with additional distribution
facilities in Dallas and San Antonio, Texas; Birmingham, Alabama; Tulsa,
Oklahoma; and Lafayette, Louisiana.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS
(A) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
The financial statements of Intsel are included herein as indicated in the
Index to Financial Statements.
(B) PRO FORMA FINANCIAL INFORMATION
Pro forma financial information reflecting this acquisition is included
herein as indicated in the Index to Financial Statements.
(C) EXHIBITS:
10.0 Agreement and Plan of Merger dated June 24, 1998, by and among
Metals USA, Inc., Philip Metals (USA) Inc., Philip Services Corp.
and Philip Enterprises Inc., incorporated by reference to the
Company's Form 8-K dated July 7, 1998, filed July 10, 1998.
23.1 Consent of Arthur Andersen LLP
99.0 Supplemental Consolidated Financial Statements of Metals USA, Inc.
and Subsidiaries, incorporated by reference to the Company's
Registration Statement on Form S-4 (No. 333-50449), filed July 21,
1998.
1
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
-----
METALS USA, INC. UNAUDITED PRO FORMA
Basis of Presentation..................................... F-2
Unaudited Pro Forma Balance Sheet......................... F-3
Unaudited Pro Forma Statement of Operations
for the twelve months ended
December 31, 1997........................................ F-4
Unaudited Pro Forma Statement of Operations
for the six months ended June 30, 1998................... F-5
Notes to Unaudited Pro Forma Financial Statements......... F-6
INTSEL SOUTHWEST LIMITED PARTNERSHIP
Report of Independent Public Accountants.................. F-9
Balance Sheets............................................ F-10
Statements of Income...................................... F-11
Statements of Partners' Capital........................... F-12
Statements of Cash Flows.................................. F-13
Notes to Financial Statements............................. F-14
F-1
<PAGE>
METALS USA, INC.
BASIS OF PRESENTATION
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma financial statements give effect to the
acquisitions by Metals USA, Inc. ("Metals USA") of the outstanding capital stock
of Affiliated, Interstate, Texas Aluminum/Cornerstone, Queensboro, Southern
Alloy, Uni-Steel, Service Systems and Williams (together, the "Founding
Companies") and the outstanding stock of Federal Bronze, Harvey, Jeffreys,
Meier, Wayne, Royal, RJ Fabricating, Independent, Pacific, Metalmart, Mark
Metals, Western, National, Sierra, Concord, Industrial, Levinson, Fullerton,
Faitoute, Krohn, Steel Manufacturing, Wilkof, Forest, LaserPro, ABS, Valley,
Flagg, Geneva, Professional and Intsel (together, the "Subsequent Acquisitions"
and together with the Founding Companies, the "Acquired Companies"). The
Founding Companies acquisitions occurred concurrently with the consummation of
Metals USA's initial public offering of 5,900,000 shares of its Common Stock on
July 11, 1997, and were accounted for using the "purchase" method of accounting.
On August 12, 1997, the Company sold 885,000 of its common stock pursuant to an
over allotment option with the underwriters. The sale by the Company of the
6,785,000 shares of its Common Stock, together with the Founding Companies
acquisitions, is hereinafter referred to as the "IPO". During the third and
fourth quarters of 1997, acquisitions were completed which included Federal
Bronze, Harvey, Jeffreys, Meier, Wayne, Royal and RJ Fabricating, with all
except Jeffreys and Wayne accounted for using the "purchase" method of
accounting. During the first and second quarters of 1998, Metals USA completed
acquisitions which included Independent, Pacific, Metalmart, Mark Metals,
Western, National, Sierra, Concord, Industrial, Levinson, Fullerton, Faitoute,
Steel Manufacturing, Wilkof, Forest, LaserPro, ABS, Valley, Flagg and Geneva,
which were all accounted for using the "purchase" method of accounting. In
addition, Metals USA completed the acquisition of Krohn in May 1998, which was
accounted for using the "pooling-of-interests" method of accounting. During July
1998, Metals USA completed the acquisitions of Professional and Intsel, which
were accounted for using the "purchase" method of accounting.
The unaudited pro forma balance sheet gives effect to the acquisitions of
Professional and Intsel as if they had occurred on June 30, 1998. The unaudited
pro forma statements of operations give effect to the IPO, the acquisition of
the Founding Companies, the Subsequent Acquisitions and the issuance of the
$200,000,000 aggregate principal amount of 8 5/8% Senior Subordinated Notes due
2008 (the "Notes"), as if they had occurred on January 1, 1997.
Metals USA has preliminarily analyzed the savings that it expects to be
realized from reductions in salaries and certain benefits to the owners and
reductions in lease cost resulting from renegotiations of certain leases. To the
extent the owners of the Acquired Companies have agreed prospectively to
reductions in salary, bonuses and benefits and the reduction in lease cost has
been confirmed by lease agreements, these reductions have been reflected in the
pro forma statements of operations. In addition, the Company has a five-year
revolving credit facility of $300.0 million (as amended, the "Credit Facility").
Based on terms of the Credit Facility, the Company believes that its interest
expense will be reduced with respect to borrowings made under revolving credit
loans. This reduction in interest expense has been reflected in the pro forma
statements of operations, offset by increased interest expense with respect to
the Notes. It is anticipated that other potential cost savings will be realized
which will be offset by costs related to Metals USA's new corporate management
and by the costs associated with being a public company. However, because these
factors cannot be accurately quantified at this time, they have not been
included in the pro forma financial information of Metals USA.
The pro forma adjustments are based on estimates, available information and
certain assumptions and may be revised as additional information becomes
available. The pro forma financial data do not purport to represent what Metals
USA's financial position or results of operations would actually have been if
such transactions had in fact occurred on those dates and are not necessarily
representative of Metals USA's financial position or results of operations of
Metals USA for any future period. Since the Acquired Companies were not under
common control or management, historical combined results may not be comparable
to, or indicative of, future performance. The unaudited pro forma financial
statements should be read in conjunction with the other financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 ("Form 10-K") and the Company's Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 1998 ("Form 10-Q").
Any capitalized terms used but not specifically defined herein have the same
meaning given to them in the Form 10-K and the Form 10-Q.
F-2
<PAGE>
METALS USA, INC.
UNAUDITED PRO FORMA BALANCE SHEET
JUNE 30, 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
PURCHASE PRO FORMA
CONSOLIDATED ACQUISITIONS ADJUSTMENTS PRO FORMA
------------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Cash................................. $ 19.7 $ .1 $-- $ 19.8
Accounts receivable, net............. 188.2 20.9 -- 209.1
Inventories.......................... 275.4 38.6 -- 314.0
Prepaid expenses and other........... 8.8 .3 -- 9.1
------------- ------------ ----------- ---------
Total current assets............ 492.1 59.9 -- 552.0
Property and equipment, net.......... 134.9 11.2 -- 146.1
Goodwill, net........................ 212.0 -- 47.8 259.8
Other assets, net.................... 21.8 .4 -- 22.2
------------- ------------ ----------- ---------
Total assets.................... $ 860.8 $ 71.5 $ 47.8 $ 980.1
============= ============ =========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable..................... $ 104.1 $ 11.5 $-- $ 115.6
Accrued liabilities.................. 29.2 4.1 -- 33.3
Current portion of long-term debt.... 7.9 3.6 (3.6) 7.9
Income taxes payable................. 2.2 .2 -- 2.4
------------- ------------ ----------- ---------
Total current liabilities....... 143.4 19.4 (3.6) 159.2
Long-term debt, less current
portion............................ 387.8 .2 101.0 489.0
Deferred income tax liability........ 8.1 .1 -- 8.2
Other long-term liabilities.......... 8.4 .2 -- 8.6
------------- ------------ ----------- ---------
Total liabilities............... 547.7 19.9 97.4 665.0
------------- ------------ ----------- ---------
Stockholders' equity:
Preferred stock.................... -- -- -- --
Common stock....................... .4 -- -- .4
Additional paid-in capital......... 251.7 9.1 (7.1) 253.7
Unearned compensation.............. (1.5) -- -- (1.5)
Retained earnings.................. 62.5 42.8 (42.8) 62.5
Treasury stock..................... -- (.3) .3 --
------------- ------------ ----------- ---------
Total stockholders' equity...... 313.1 51.6 (49.6) 315.1
------------- ------------ ----------- ---------
Total liabilities and stockholders'
equity............................. $ 860.8 $ 71.5 $ 47.8 $ 980.1
============= ============ =========== =========
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
F-3
<PAGE>
METALS USA, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 1997
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SUPPLEMENTAL PURCHASE PRO FORMA
CONSOLIDATED ACQUISITIONS ADJUSTMENTS PRO FORMA
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net sales............................... $ 537.6 $1,063.9 $ 1.1 $ 1,602.6
Operating costs and expenses:
Cost of sales...................... 414.9 826.7 1.3 1,242.9
Operating and delivery............. 53.7 89.8 (2.0) 141.5
Selling, general and
administrative................... 41.1 86.1 (19.9) 107.3
Depreciation and amortization...... 5.6 8.4 5.2 19.2
------------ ------------ ----------- -----------
Operating income........................ 22.3 52.9 16.5 91.7
Other (income) expense:
Interest expense................... 5.0 11.6 16.9 33.5
Other (income) expense, net........ (.5) (2.6) 1.0 (2.1)
------------ ------------ ----------- -----------
Income before income taxes.............. 17.8 43.9 (1.4) 60.3
Provision for income taxes.............. 10.3 6.6 9.4 26.3
------------ ------------ ----------- -----------
Net income.............................. $ 7.5 $ 37.3 $ (10.8) $ 34.0
============ ============ =========== ===========
Earnings per share...................... $ .90
Earnings per share -- assuming
dilution.............................. $ .89
Number of common shares used in the per
share calculations:
Earnings per share................. 37.9
Earnings per share -- assuming
dilution......................... 38.2
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
F-4
<PAGE>
METALS USA, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PURCHASE PRO FORMA
CONSOLIDATED ACQUISITIONS ADJUSTMENTS PRO FORMA
------------ ------------ ----------- ---------
<S> <C> <C> <C> <C>
Net sales............................... $655.7 $258.8 $-- $ 914.5
Operating costs and expenses:
Cost of sales...................... 503.9 197.0 .1 701.0
Operating and delivery............. 60.2 19.4 (.3) 79.3
Selling, general and
administrative................... 42.8 16.6 (1.4) 58.0
Depreciation and amortization...... 6.7 2.0 1.3 10.0
------------ ------------ ----------- ---------
Operating income........................ 42.1 23.8 .3 66.2
Other (income) expense:
Interest expense................... 11.0 1.8 5.8 18.6
Other (income) expense, net........ (1.7) (.8) 1.0 (1.5)
------------ ------------ ----------- ---------
Income before income taxes.............. 32.8 22.8 (6.5) 49.1
Provision for income taxes.............. 13.4 2.4 4.0 19.8
------------ ------------ ----------- ---------
Net income.............................. $ 19.4 $ 20.4 $ (10.5) $ 29.3
============ ============ =========== =========
Earnings per share...................... $ .77
Earnings per share -- assuming
dilution.............................. $ .76
Number of common shares used in the per
share calculations:
Earnings per share................. 38.0
Earnings per share -- assuming
dilution......................... 38.6
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
F-5
<PAGE>
METALS USA, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(IN MILLIONS, EXCEPT SHARE AMOUNTS)
1. GENERAL:
Metals USA, Inc. ("Metals USA") was founded to become a leading national
value-added metals processor/service center, to manufacture higher-value
components from processed metals and to pursue actively the consolidation of the
highly-fragmented metals processing industry. Prior to the IPO, Metals USA had
conducted no operations. Metals USA acquired the Founding Companies concurrently
with the consummation of the IPO, with the Subsequent Acquisitions occurring
from September 26, 1997 through July 31, 1998.
During the second quarter of 1998, the Company completed an acquisition
accounted for as a "pooling-of-interests" transaction. Accordingly, the
Company's historical consolidated financial statements have been restated to
reflect the results of operations, cash flows and financial position of the
acquired entity as if the acquisition occurred on January 1, 1995. The restated
financial statements are labeled as "Supplemental" and are contained in the
Company's Registration Statement on Form S-4 (No. 333-50449), filed with the
Securities and Exchange Commission on July 21, 1998.
The pro forma balance sheet reflects the consolidated financial position of
Metals USA ("Consolidated" column). The "Purchase Acquisitions" column gives
effect to the acquisitions of Professional and Intsel as if they had occurred on
June 30, 1998.
The pro forma statement of operations for the twelve months ended December
31, 1997 reflects the supplemental consolidated results of operations of Metals
USA as restated for the effects of the business combinations with Jeffreys,
Wayne and Krohn accounted for using the "pooling-of-interests" method of
accounting ("Supplemental Consolidated" column). The pro forma statement of
operations for the six months ended June 30, 1998 reflects the consolidated
results of operations of Metals USA ("Consolidated" column). The "Purchase
Acquisitions" column reflects the pre-acquisition results of operations of the
companies acquired using the "purchase" method of accounting.
2. ACQUISITION OF COMPANIES:
Concurrently with and as a condition to the consummation of the IPO, Metals
USA acquired all of the outstanding capital stock of the Founding Companies.
These acquisitions were accounted for using the purchase method of accounting.
During the third and fourth quarters of 1997, acquisitions were completed which
included Federal Bronze, Harvey, Jeffreys, Meier, Wayne, Royal and RJ
Fabricating, with all except Jeffreys and Wayne being accounted for using the
"purchase" method of accounting. During the first and second quarters of 1998,
acquisitions were completed which included Independent, Pacific, Metalmart, Mark
Metals, Western, National, Sierra, Concord, Industrial, Levinson, Fullerton,
Faitoute, Steel Manufacturing, Wilkof, Forest, LaserPro, ABS, Valley, Flagg and
Geneva, which were all accounted for using the "purchase" method of accounting.
In addition, the acquisition of Krohn was completed in May 1998 and was
accounted for using the "pooling-of-interests" method of accounting. During July
1998, Metals USA completed the acquisitions of Professional and Intsel, which
were accounted for using the "purchase" method of accounting.
The aggregate consideration paid by Metals USA for the Acquired Companies
consisted of approximately $262.9 in cash, 26,416,825 shares of Common Stock,
$3.7 million of notes plus the assumption of approximately $234.3 of
indebtedness. The consideration paid by Metals USA for each of the Acquired
Companies was determined by negotiation between representatives of each Acquired
Company and was based primarily upon the pro forma adjusted net income of each
Acquired Company.
3. UNAUDITED PRO FORMA BALANCE SHEET ADJUSTMENTS AND OFFERING TRANSACTIONS:
The pro forma adjustments in the unaudited pro forma balance sheet give
effect to the acquisitions completed subsequent to June 30, 1998 comprised of
(i) the issuance of 142,061 shares of Common Stock and $97.4 of debt incurred
for the cash portion of the consideration exchanged for the common stock of the
companies acquired and (ii) the estimated excess of purchase price paid over
fair value of assets acquired of $47.8 reflected as additional goodwill.
F-6
<PAGE>
METALS USA, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AMOUNTS)
4. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS ADJUSTMENTS:
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997:
(a) Reflects the reduction in certain related party rental and lease
expenses which has been agreed to prospectively.
(b) Reflects the $11.0 reduction in salaries, bonuses and benefits to
the owners of the Acquired Companies to which they have agreed
prospectively and the reversal of the $6.0 non-cash compensation
charge related to the issuance of 400,000 shares of common stock
to management of and consultants to the Company offset by a $.3
charge for recurring salary expenses of management.
(c) Reflects the amortization of goodwill to be recorded as a result
of the IPO and Subsequent Acquisitions over a 40-year estimated
life plus additional depreciation expense due to the allocation of
a portion of the purchase price to property and equipment.
(d) Reflects the assumed reductions in interest expense of $1.5 due to
refinancing of the outstanding indebtedness in conjunction with
the IPO and Subsequent Acquisitions, offset by an assumed increase
in interest expense of $12.9 due to financing the Subsequent
Acquisitions.
(e) Reflects the pre-acquisition results of operations for Cornerstone
Aluminum (acquired February 1997) as if the acquisition was
completed as of January 1, 1997.
(f) Reflects a $.7 charge eliminating the gains recorded as historical
LIFO adjustments to cost of sales. These adjustments result from
the restatement of base year LIFO costs to the appropriate
replacement costs as if the acquisitions occurred on January 1,
1997. Other adjustments reflect certain other nonrecurring
expenses with respect to the Subsequent Acquisitions.
(g) Reflects the incremental interest expense of $4.6 and amortization
of deferred financing costs of $.8 incurred as a result of the
issuance of the Notes and the Credit Facility and the repayment of
outstanding indebtedness of the Company.
(h) Reflects the incremental provision for federal and state income
taxes for all entities being combined and other statements of
operations adjustments.
The following table summarizes unaudited pro forma statements of operations
adjustments:
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E) (F) (G) (H)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
--- --------- --------- --------- --- --------- --------- ---------
Net sales............................ $ -- $ -- $ -- $ -- $ .4 $ .7 $ -- $ --
Operating costs and expenses:
Cost of sales.................... -- -- -- -- .3 1.0 -- --
Operating and delivery........... (1.5) -- -- -- -- (.5) -- --
Selling, general and
administrative................. (.3) (16.7) -- -- .1 (3.0) -- --
Depreciation and amortization.... .4 -- 4.7 -- -- .1 -- --
--- --------- --------- --------- --- --------- --------- ---------
Operating income..................... 1.4 16.7 (4.7) -- -- 3.1 -- --
Other (income) expense:
Interest (income) expense........ .1 -- -- 11.4 -- -- 5.4 --
Other (income) expense........... .1 -- -- -- -- .9 -- --
--- --------- --------- --------- --- --------- --------- ---------
Income before income taxes........... 1.2 16.7 (4.7) (11.4) -- 2.2 (5.4) --
Provision for income taxes........... -- -- -- -- -- -- -- 9.4
--- --------- --------- --------- --- --------- --------- ---------
Net income........................... $ 1.2 $ 16.7 $ (4.7) $ (11.4) $ -- $ 2.2 $ (5.4) $ (9.4)
=== ========= ========= ========= === ========= ========= =========
</TABLE>
PRO FORMA
ADJUSTMENTS
-----------
Net sales............................ $ 1.1
Operating costs and expenses:
Cost of sales.................... 1.3
Operating and delivery........... (2.0)
Selling, general and
administrative................. (19.9)
Depreciation and amortization.... 5.2
-----------
Operating income..................... 16.5
Other (income) expense:
Interest (income) expense........ 16.9
Other (income) expense........... 1.0
-----------
Income before income taxes........... (1.4)
Provision for income taxes........... 9.4
-----------
Net income........................... $ (10.8)
===========
F-7
<PAGE>
METALS USA, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AMOUNTS)
FOR THE SIX MONTHS ENDED JUNE 30, 1998:
(a) Reflects the reduction in certain related party rental and lease
expenses which has been agreed to prospectively.
(b) Reflects the $.8 reduction in salaries, bonuses and benefits to
the owners of the Acquired Companies to which they have agreed
prospectively.
(c) Reflects the amortization of goodwill to be recorded as a result
of the Subsequent Acquisitions over a 40-year estimated life plus
additional depreciation expense due to the allocation of a portion
of the purchase price to property and equipment.
(d) Reflects the assumed reductions in interest expense of $.3 due to
refinancing of the outstanding indebtedness in conjunction with
the Subsequent Acquisitions, offset by an assumed increase in
interest expense of $5.4 due to financing the Subsequent
Acquisitions.
(e) Reflects a $.1 charge eliminating the gains recorded as historical
LIFO adjustments to cost of sales. These adjustments result from
the restatement of base year LIFO costs to the appropriate
replacement costs as if the acquisitions occurred on January 1,
1997. Other adjustments reflect certain other nonrecurring
expenses with respect to the Subsequent Acquisitions.
(f) Reflects the incremental interest expense of $.6 and amortization
of deferred financing costs of $.1 incurred as a result of the
issuance of the Notes and the Credit Facility and the repayment of
outstanding indebtedness of the Company.
(g) Reflects the incremental provision for federal and state income
taxes for all entities being combined and other statements of
operations adjustments.
The following table summarizes unaudited pro forma statements of operations
adjustments:
<TABLE>
<CAPTION>
PRO FORMA
(A) (B) (C) (D) (E) (F) (G) ADJUSTMENTS
--- --------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Operating costs and expenses:
Cost of sales.................... -- -- -- -- .1 -- -- .1
Operating and delivery........... (.3) -- -- -- -- -- -- (.3)
Selling, general and
administrative................. (.1) (.8) -- -- (.5) -- -- (1.4)
Depreciation and amortization.... .1 -- 1.2 -- -- -- -- 1.3
--- --------- --------- --------- --------- --------- --------- -----------
Operating income..................... .3 .8 (1.2) -- .4 -- -- .3
Other (income) expense:
Interest (income) expense........ -- -- -- 5.1 -- .7 -- 5.8
Other (income) expense........... -- -- -- -- 1.0 -- -- 1.0
--- --------- --------- --------- --------- --------- --------- -----------
Income before income taxes........... .3 .8 (1.2) (5.1) (.6) (.7) -- (6.5)
Provision for income taxes........... -- -- -- -- -- -- 4.0 4.0
--- --------- --------- --------- --------- --------- --------- -----------
Net income........................... $ .3 $ .8 $ (1.2) $ (5.1) $ (.6) $ (.7) $ (4.0) $ (10.5)
=== ========= ========= ========= ========= ========= ========= ===========
</TABLE>
F-8
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Intsel Southwest Limited Partnership:
We have audited the accompanying balance sheet of Intsel Southwest Limited
Partnership, a Connecticut limited partnership, as of December 31, 1997, and the
related statements of income, partners' capital and cash flows for the year then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 audit provides 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 Intsel Southwest Limited
Partnership as of December 31, 1997, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
August 24, 1998
F-9
<PAGE>
INTSEL SOUTHWEST LIMITED PARTNERSHIP
(A CONNECTICUT LIMITED PARTNERSHIP)
BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31, JUNE 30,
1997 1998
------------ ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 2,240 $ --
Accounts receivable............. 15,820 16,384
Inventories, net................ 32,198 34,009
Prepaid expenses and other
current assets................. 50 116
------------ ------------
Total current assets....... 50,308 50,509
PROPERTY AND EQUIPMENT, net.......... 9,931 10,169
OTHER ASSETS......................... 750 650
GOODWILL, net........................ 26,166 25,828
------------ ------------
Total assets............... $ 87,155 $ 87,156
============ ============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities.................... $ 13,282 $ 11,195
------------ ------------
Total current liabilities 13,282 11,195
DUE TO AFFILIATE..................... 36,000 36,000
OTHER LIABILITIES.................... 60 84
------------ ------------
Total liabilities.......... 49,342 47,279
------------ ------------
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL.................... 37,813 39,877
------------ ------------
Total liabilities and
partners' capital....... $ 87,155 $ 87,156
============ ============
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
INTSEL SOUTHWEST LIMITED PARTNERSHIP
(A CONNECTICUT LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED JUNE 30,
DECEMBER 31, ----------------------------
1997 1997 1998
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
NET SALES............................ $138,643 $62,167 $88,005
OPERATING COSTS AND EXPENSES:
Cost of sales...................... 115,234 52,964 68,011
Operating and delivery............. 4,340 2,019 2,566
Selling, general and
administrative.................. 6,646 2,816 4,371
Depreciation and amortization...... 1,589 754 876
------------ ----------- -----------
OPERATING INCOME..................... 10,834 3,614 12,181
OTHER (INCOME) EXPENSE:
Interest expense................... 2,934 1,443 1,423
Other income, net.................. (999) (80) (306)
------------ ----------- -----------
1,935 1,363 1,117
------------ ----------- -----------
NET INCOME........................... $ 8,899 $ 2,251 $11,064
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
INTSEL SOUTHWEST LIMITED PARTNERSHIP
(A CONNECTICUT LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
(IN THOUSANDS)
TOTAL
GENERAL LIMITED PARTNERS'
PARTNER PARTNER CAPITAL
-------- -------- ----------
PERCENTAGE INTEREST.................. 1% 99% 100%
BALANCE, December 31, 1996........... $ 289 $ 28,625 $ 28,914
Net income...................... 89 8,810 8,899
-------- -------- ----------
BALANCE, December 31, 1997........... 378 37,435 37,813
Net income (unaudited).......... 111 10,953 11,064
Distributions (unaudited)....... (90) (8,910) (9,000)
-------- -------- ----------
BALANCE, June 30, 1998 (unaudited)... $ 399 $ 39,478 $ 39,877
======== ======== ==========
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
INTSEL SOUTHWEST LIMITED PARTNERSHIP
(A CONNECTICUT LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED JUNE 30,
DECEMBER 31, ----------------------------
1997 1997 1998
------------ ------------ ------------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income......................... $ 8,899 $ 2,251 $ 11,064
Adjustments to reconcile net income
to net cash provided by (used
in) operating activities --
Depreciation and amortization... 1,589 754 876
Provision for bad debts......... 113 22 106
Changes in operating assets and
liabilities --
Increase in accounts
receivable................. (5,803) (3,629) (670)
Decrease (increase) in
inventories................ 1,019 (2,058) (1,811)
Decrease (increase) in prepaid
expenses and other current
assets..................... 15 17 (66)
Increase (decrease) in
accounts payable and
accrued liabilities........ (1,784) 1,594 (2,087)
Increase in other
liabilities................ 61 64 24
------------ ------------ ------------
Net cash provided by (used
in) operating
activities.............. 4,109 (985) 7,436
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and
equipment..................... (2,880) (1,837) (676)
------------ ------------ ------------
Net cash used in investing
activities.............. (2,880) (1,837) (676)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt with related
party (Note 6).................. 12,200 9,200 --
Payments on debt with related party
(Note 6)........................ (12,200) (7,200) --
Distributions to partners.......... -- -- (9,000)
------------ ------------ ------------
Net cash provided by (used
in) financing
activities.............. -- 2,000 (9,000)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 1,229 (822) (2,240)
CASH AND CASH EQUIVALENTS, beginning
of period.......................... 1,011 1,011 2,240
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of
period............................. $ 2,240 $ 189 $ --
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for --
Interest........................ $ 3,024 $ 1,836 $ 1,547
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE>
INTSEL SOUTHWEST LIMITED PARTNERSHIP
(A CONNECTICUT LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
1. BASIS OF PRESENTATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES:
The accompanying financial statements include the accounts of Intsel
Southwest Limited Partnership (the Partnership), a Connecticut limited
partnership. Intsel GP, Inc. (GP), a Delaware corporation, has a 1 percent
interest in Intsel as a general partner, and Intsel LP, Inc. (LP), a Delaware
corporation, has a 99 percent partnership interest in Intsel as the sole limited
partner.
The Partnership is a distributor of structural steel including beams,
angles, channels, sheet, bar and plate with operations in Houston, San Antonio
and Dallas, Texas; Birmingham, Alabama; Lafayette, Louisiana; and Tulsa,
Oklahoma. The Partnership markets its products primarily in the Southwest and
Southeast regions of the United States.
In July 1998, the stockholders of GP and LP entered into a definitive
merger agreement with Metals USA, Inc. (Metals USA), to acquire all of the
issued and outstanding capital stock of the Partnership's partners GP and LP and
thereby acquiring 100% of the partnership interests. See Note 7.
USE OF ESTIMATES
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS
Cash equivalents consist of highly liquid money market instruments which
have original maturity dates of three months or less.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the average cost method.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, net of accumulated depreciation.
Depreciation is computed utilizing the straight-line method at rates based upon
the estimated useful lives of the various classes of assets.
GOODWILL AND OTHER ASSETS
Goodwill represents the excess of the consideration paid over the fair
market value of assets acquired and is being amortized on a straight-line basis
over a 40-year period. Other assets includes a covenant not to compete, which is
being amortized on a straight-line basis over a five-year period.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The value of long-term debt is estimated based on interest rates for the
same or similar debt offered to the partnership having the same or similar
remaining maturities and collateral requirements. The carrying amount of
long-term debt approximates fair value as of December 31, 1997.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Partnership to
concentrations of credit risk consist principally of cash deposits in excess of
federally insured amounts of $100,000 and trade account receivables. The
Partnership places its cash with several financial institutions, limiting the
amount of credit
F-14
<PAGE>
INTSEL SOUTHWEST LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
exposure to any one financial institution. Concentrations of credit risk with
respect to trade accounts receivable are within the Southwest and Southeast
regions of the United States. Credit is extended once appropriate credit history
and references have been obtained by management. Adjustments to the allowance
for doubtful accounts are made periodically (as circumstances warrant) based
upon the expected collectibility of all such accounts. The Partnership
periodically reviews the credit history of its customers and generally does not
require collateral for the extension of credit.
INCOME TAXES
No provision for income taxes has been recorded by the Partnership because
such taxes are liabilities of the partners and depend upon their respective tax
situations. Further, partners' capital accounts reflected in the accompanying
financial statements differ from amounts reported in the Partnership's federal
income tax returns because of the differences between accounting methods for
financial and tax reporting purposes.
2. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following:
DECEMBER 31, JUNE 30,
1997 1998
------------- -----------
(UNAUDITED)
Trade accounts receivable............ $15,915 $16,752
Other................................ 241 74
------------- -----------
16,156 16,826
Less -- Allowance for doubtful
accounts........................... (336) (442)
------------- -----------
Total...................... $15,820 $16,384
============= ===========
Inventories consist of the following:
DECEMBER 31, JUNE 30,
1997 1998
------------- -----------
(UNAUDITED)
Structural steel..................... $19,302 $22,401
Plate and sheet steel................ 10,017 7,597
Pipe and tubing...................... 3,539 3,023
Merchant bars........................ 598 608
Other................................ 260 1,760
------------- -----------
33,716 35,389
Less -- Reserve for obsolete
inventory.......................... (1,518) (1,380)
------------- -----------
Total...................... $32,198 $34,009
============= ===========
F-15
<PAGE>
INTSEL SOUTHWEST LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
Property and equipment consists of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31, JUNE 30,
USEFUL LIVES 1997 1998
------------- ------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Land................................. -- $ 1,732 $ 1,732
Buildings and improvements........... 3-20 years 6,726 6,941
Machinery and equipment.............. 3-10 years 2,105 2,511
Office equipment and furniture....... 2-7 years 196 251
Construction in progress............. -- 120 120
------------- -----------
10,879 11,555
Less -- Accumulated depreciation..... (948) (1,386)
------------- -----------
Total...................... $ 9,931 $10,169
============= ===========
Other assets consist of the following:
DECEMBER 31, JUNE 30,
1997 1998
------------ ------------
(UNAUDITED)
Noncompete agreement................. $1,000 $1,000
Less -- Accumulated amortization..... (250) (350)
------------ ------------
Total...................... $ 750 $ 650
============ ============
Goodwill consists of the following:
DECEMBER 31, JUNE 30,
1997 1998
------------ ------------
(UNAUDITED)
Goodwill............................. $ 27,008 $ 27,008
Less -- Accumulated amortization..... (842) (1,180)
------------ ------------
Total...................... $ 26,166 $ 25,828
============ ============
Accounts payable and accrued liabilities consist of the following:
DECEMBER 31, JUNE 30,
1997 1998
------------ ------------
(UNAUDITED)
Bank overdraft....................... $ -- $ 690
Accounts payable..................... 10,277 6,204
Accrued postretirement benefit....... 752 710
Accrued salaries and bonuses......... 608 1,858
Accrued ad valorem tax............... 606 363
Accrued outbound freight............. 477 385
Accrued pension...................... 340 149
Accrued insurance.................... 222 836
------------ ------------
$ 13,282 $ 11,195
============ ============
</TABLE>
F-16
<PAGE>
INTSEL SOUTHWEST LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
3. DUE TO AFFILIATE:
Due to affiliate consists of a $36,000 unsecured note payable to Phencorp
International Finance Inc. (Phencorp), which was an affiliate of the Partnership
(see Note 6). The note bears interest at LIBOR plus 2 percent. As of December
31, 1997, the effective interest rate was 7.78 percent. Interest payments are
made on a monthly basis. The stated maturity of the principal balance is
December 20, 2001.
4. EMPLOYEE BENEFIT PLANS:
The Partnership maintains a 401(k) plan (the Plan) which allows eligible
employees to contribute up to 15 percent of pretax compensation up to a maximum
of $10 and provides for employer matching of up to 50 percent of each eligible
employee's contributions up to an annual maximum employer contribution of $3 per
employee. The Plan also provides for a discretionary contribution of up to 5
percent of eligible employees' total annual compensation. An employee is
considered eligible on the first day of the month following twelve months of
service during which the employee has completed a minimum of 1,000 hours of
service. Matching contributions of $172 and discretionary contributions of $340
have been charged to operations during the year ended December 31, 1997.
The Partnership provides certain healthcare and life insurance benefits to
retired employees. Many of the employees who retire from the Partnership are
eligible for these benefits. The Intsel Postretirement Plan (the Postretirement
Plan) provides postretirement healthcare and life insurance benefits to
retirees, their spouses and their dependents.
The following table sets forth the Postretirement Plan's unfunded status
reconciled with the amount shown on the Partnership's balance sheet at December
31, 1997:
Accumulated postretirement benefit
obligation --
Retirees........................ $ 1
Actives......................... 751
Plan assets at fair value............ --
---------
Accumulated postretirement benefit
obligation in excess of plan
assets............................. $ 752
=========
Postretirement benefit expense of $40 was recognized in the statement of
operations for the year ended December 31, 1997.
The healthcare and life insurance cost trend rate assumption can have a
significant effect on the amounts reported. For measurement purposes, the
Postretirement Plan assumes a 9 percent annual rate of increase in the per
capita cost of covered healthcare and life insurance benefits for 1997. The
Postretirement Plan was assumed to gradually decrease to 5 percent by 2001 and
to remain at that level thereafter. An increase of one percentage point in the
healthcare cost trend rate would increase the aggregate postretirement benefits
expense by $8.
The discount rate used in determining the accumulated postretirement
benefit obligation for 1997 was 8 percent.
F-17
<PAGE>
INTSEL SOUTHWEST LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
5. COMMITMENTS AND CONTINGENCIES:
The Partnership had operating lease commitments with terms of twelve months
or more as of December 31, 1997 as follows:
1998................................. $ 591
1999................................. 425
2000................................. 171
2001................................. 97
2002................................. 13
---------
$ 1,297
=========
Rent expense for the year ended December 31, 1997, was $551.
The Partnership has a commitment to use $607 worth of distribution services
to be provided by a certain vendor over three years.
6. RELATED-PARTY TRANSACTIONS:
During 1997, the Partnership borrowed and repaid a total of $12,200 at
interest rates ranging from 7.25 to 7.75 percent from Philip Environmental
(Delaware) (Phillip-Delaware), which was an affiliate of the Partnership and
recorded interest expense of $287 related to those borrowings. Additionally, the
Partnership had debt outstanding of $36,000 as of December 31, 1997, with
Phencorp (See Note 3). During 1997, the Partnership recorded interest expense of
$2,737 related to the debt with Phencorp.
Philip-Canada allocates a portion of its insurance premiums to the
Partnership and other related entities. Included in the statement of operations
for the year ended December 31, 1997, is $219 of insurance expense that was
allocated by Philip-Canada. Included in accrued insurance as of December 31,
1997, is $182 payable to Philip-Canada.
7. SUBSEQUENT EVENT (UNAUDITED):
On July 7, 1998, Metals USA purchased all of the issued and outstanding
equity securities of GP and LP, thereby acquiring all of the equity interests of
the Partnership through a cash purchase in connection with a definitive merger
agreement. Metals USA did not assume certain liabilities presented herein,
including the $36,000 of debt payable to Phencorp.
F-18
<PAGE>
METALS USA, INC.
FORM 8-K/A
SIGNATURES
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, who has signed this report on behalf of
the Registrant.
METALS USA, INC.
Date: September 17, 1998 By: /s/TERRY L. FREEMAN
Terry L. Freeman
Vice President, Corporate Controller
and Chief Accounting Officer
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report included in this Form 8-K, into the Company's previously filed
Form S-4 Registration Statement File No. 333-50449.
ARTHUR ANDERSEN LLP
Houston, Texas
September 16, 1998
