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 September 30, 2000
----------------------
or
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number: 333-56217.
ISG Resources, Inc.
(Exact name of registrant as specified in its charter)
Utah 87-0327982
--------------------------------- -------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
136 East South Temple, Suite 1300, Salt Lake City, Utah 84111
-----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(801) 236-9700
-----------------------
(Registrant's telephone number, including area code)
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) [ X ] Yes [ ] No, and (2) has been
subject to such filing requirements for the past 90 days [ X ] Yes [ ] No.
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. As of October 31,
2000 :
Classes of Common Stock Number of shares outstanding
-------------------------------------- ------------------------------
Common Stock, no par value 100
<PAGE>
ISG Resources, Inc.
------------
INDEX TO FORM 10-Q
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements Page
-------------------- ----
Unaudited Condensed Consolidated Balance Sheets --
September 30, 2000 and December 31, 1999 ....................... 1
Unaudited Condensed Consolidated Statements of
Operations and Comprehensive Income --
Three months ended September 30, 2000 and 1999 and
Nine months ended September 30, 2000 and 1999 .................. 2
Unaudited Condensed Consolidated Statements of Cash Flows --
Nine months ended September 30, 2000 and 1999.................... 4
Notes to Unaudited Condensed Consolidated Financial Statements ... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ................... 12
---------------------------------------------
Item 3. Quantitative and Qualitative Disclosure about Market Risk
-----------------------------------------------------------
There have been no significant changes since the annual report Form
10-K filed for the year ended December 31, 1999.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ............................... 18
--------------------------------
ii
<PAGE>
<TABLE>
<CAPTION>
ISG Resources, Inc. and Subsidiaries
Unaudited Condensed Consolidated Balance Sheets
September 30, December 31,
2000 1999
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ - $ -
Accounts receivable:
Trade, net of allowance for doubtful accounts of
$391,000 and $329,000, respectively 33,538,069 21,167,616
Retainage 138,416 176,000
Other 815,197 502,058
Deferred tax asset 253,906 316,161
Inventories 6,856,620 4,055,425
Other current assets 918,117 829,661
Total current assets 42,520,325 27,046,921
Property, plant and equipment, net of accumulated depreciation of
$11,664,402 and $7,893,374, respectively 36,676,051 33,584,188
Intangible assets, net 169,275,136 153,952,547
Debt issuance costs, net 4,661,426 4,826,010
Other assets 1,500,419 1,052,845
Total assets $ 254,633,357 $ 220,462,511
-------------------------------------------------------------------=================================================
Liabilities and shareholders' equity Current liabilities:
Accounts payable $ 17,311,347 $10,409,583
Accrued liabilities:
Payroll 1,769,646 1,288,732
Interest 4,725,498 2,190,471
Other 971,475 1,828,537
Income taxes payable 1,514,777 1,705,678
Other current liabilities 527,727 652,119
-----------------------------------------------
Total current liabilities 26,820,470 18,075,120
Long-term debt 155,000,000 133,500,000
Deferred tax liability 37,377,539 39,158,249
Payable to Industrial Services Group 643,983 643,983
Other liabilities 1,582,088 1,923,355
Shareholders' equity:
Common stock, no par value; 100 shares authorized, issued and
outstanding 34,745,050 25,000,050
Cumulative foreign currency translation adjustment (2,135) -
Retained earnings (deficit) (1,533,638) 2,161,754
-----------------------------------------------
Total shareholders' equity 33,209,277 27,161,804
-----------------------------------------------
Total liabilities and shareholders' equity $ 254,633,357 $ 220,462,511
===============================================
See accompanying notes.
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
ISG Resources, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Operations and
Comprehensive Income
Three Months
Ended September 30,
------------------------------------------
2000 1999
------------------------------------------
Revenues:
<S> <C> <C>
Product revenues $ 47,201,000 $ 38,608,195
Service revenues 9,381,100 10,286,648
------------------------------------------
56,582,100 48,894,843
Costs and expenses:
Cost of product revenues, excluding depreciation 35,143,989 24,795,355
Cost of service revenues, excluding depreciation 6,325,765 7,761,827
Depreciation and amortization 4,156,198 3,174,575
Selling, general and administrative expenses 5,648,770 4,741,251
New product development 551,187 566,575
------------------------------------------
51,825,909 41,039,583
------------------------------------------
Operating income 4,756,191 7,855,260
Interest income 13,174 11,762
Interest expense (4,086,488) (3,419,021)
Other income and expense 229,038 32,249
------------------------------------------
Income before income taxes 911,915 4,480,250
Income tax expense (619,594) (2,044,376)
------------------------------------------
Net income 292,321 2,435,874
Other comprehensive income, net of tax:
Foreign currency translation adjustment 3,477 -
------------------------------------------
Comprehensive income $ 295,798 $ 2,435,874
==========================================
See accompanying notes.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
ISG Resources, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Operations and
Comprehensive Income
Nine Months
Ended September 30,
------------------------------------------
2000 1999
------------------------------------------
Revenues:
<S> <C> <C>
Product revenues $ 110,698,790 $ 91,079,134
Service revenues 25,094,077 27,384,259
------------------------------------------
135,792,867 118,463,393
Costs and expenses:
Cost of product revenues, excluding depreciation 81,759,997 60,908,108
Cost of service revenues, excluding depreciation 17,428,495 19,980,978
Depreciation and amortization 11,022,296 9,269,686
Selling, general and administrative expenses 17,185,498 14,524,123
New product development 1,628,308 1,409,474
------------------------------------------
129,024,594 106,092,369
------------------------------------------
Operating income 6,768,273 12,371,024
Interest income 34,748 32,940
Interest expense (11,487,575) (9,940,393)
Other income and expense 434,640 27,150
------------------------------------------
Income before income taxes (4,249,914) 2,490,721
Income tax benefit (expense) 554,522 (1,579,541)
------------------------------------------
Net income (loss) (3,695,392) 911,180
Other comprehensive loss, net of tax:
Foreign currency translation adjustment (2,135)
------------------------------------------
Comprehensive income (loss) $ (3,697,527) $ 911,180
==========================================
</TABLE>
See accompanying notes.
3
<PAGE>
<TABLE>
<CAPTION>
ISG Resources, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
Nine Months
Ended September 30,
2000 1999
Operating activities
<S> <C> <C>
Net income (loss) $ (3,695,392) $ 911,180
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 11,022,296 9,269,686
Amortization of debt issuance costs 594,696 522,665
Loss on sale of fixed assets 58,134 28,213
Deferred income taxes (1,625,295) (1,020,378)
Changes in operating assets and liabilities:
Receivables (9,047,214) (11,233,394)
Inventories (925,203) (958,643)
Other current and non-current assets (466,261) (527,182)
Accounts payable 6,179,407 4,028,939
Accrued expenses 1,302,128 6,608,387
Other current and non-current liabilities (2,065,398) (290,883)
Net cash provided by operating activities 1,331,898 7,338,590
Investing activities
Purchases of property, plant and equipment (5,492,898) (6,842,100)
Proceeds on sale of property, plant and equipment 517,970 147,326
Acquisitions of businesses, net of cash acquired (26,050,281) (23,112,502)
Purchase of intangible assets (1,119,441) (696,165)
Net cash used in investing activities (32,144,650) (30,503,441)
Financing activities
Cash contributions from shareholder 9,745,000 -0-
Proceeds from long-term debt 147,000,000 83,500,000
Payments on notes payable and long-term debt (125,500,000) (60,000,000)
Debt issuance costs incurred (430,113) (335,149)
Net cash provided by financing activities 30,814,887 23,164,851
Effect of exchange rate changes on cash (2,135) -
Net decrease in cash and cash equivalents - -
Cash and cash equivalents at beginning of period - -
Cash and cash equivalents at end of period $ - $ -
====================================
Cash paid for interest $ 8,349,101 $ 6,850,903
====================================
Cash paid (received) for income taxes $ 1,209,892 $( 689,716)
-------------------------------------------------------------------------====================================
</TABLE>
See accompanying notes
4
<PAGE>
ISG RESOURCES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
ISG Resources, Inc., a Utah corporation (the "Company"), is a wholly owned
subsidiary of Industrial Services Group, Inc. ("ISG"). ISG was formed in
September 1997 and acquired the stock of JTM Industries, Inc. ("JTM") on October
14, 1997. In 1998, JTM acquired the stock of Pozzolanic Resources, Inc.
("Pozzolanic"), Power Plant Aggregates of Iowa, Inc. ("PPA"), Michigan Ash Sales
Company d.b.a. U.S. Ash Company, together with two affiliated companies, U.S.
Stabilization, Inc. and Flo Fil Company, Inc. (collectively, "U.S. Ash"), and
Fly Ash Products, Inc. ("Fly Ash Products") (collectively, the "1998
Acquisitions"). Effective January 1, 1999, JTM, Pozzolanic, PPA, U.S. Ash, Fly
Ash Products and their wholly owned subsidiaries merged with and into the
Company. Pneumatic Trucking, Inc. ("Pneumatic"), a wholly owned subsidiary of
Michigan Ash Sales Company, was not merged into ISG Resources, Inc. Therefore,
Pneumatic became a wholly owned subsidiary of the Company.
In 1999, the Company acquired the stock of Best Masonry & Tool Supply ("Best"),
Mineral Specialties, Inc. ("Specialties"), Irvine Fly Ash, Inc. ("Irvine"),
Lewis W. Osborne, Inc. ("Osborne"), United Terrazzo Supply Co., Inc.
("Terrazzo"), and Magna Wall, Inc. ("Magna Wall") and sold all of the
outstanding stock of Pneumatic.
On March 2, 2000, the Company acquired directly and indirectly through ISG
Manufactured Products, Inc., a newly formed wholly-owned subsidiary of the
Company, all of the partnership interest of Don's Building Supply L.L.P.
("Don's") for approximately $5.9 million in cash. Don's is engaged in the retail
and wholesale distribution of construction materials to residential and
commercial contractors primarily in the State of Texas.
The purchase price of Don's was allocated based on estimated fair values of
assets and liabilities at the date of acquisition. Goodwill resulting from the
difference between the purchase price plus acquisition costs and the net assets
acquired totaled approximately $4.3 million and is being amortized on a
straight-line basis over 20 years.
On May 31, 2000, the Company completed the acquisition of all outstanding stock
of Palestine Concrete Tile Company, Inc. and certain associated real property
(collectively, "Palestine") for approximately $18.5 million in cash.
Additionally, the Company paid off outstanding debt of Palestine for
approximately $1.0 million. Palestine is a Texas corporation primarily engaged
in the manufacture and distribution of concrete block. The Company financed the
acquisition of Palestine by obtaining a $15,000,000 increase in the Secured
Credit Facility on May 26, 2000 and receiving an equity contribution of
$9,745,000 from ISG on April 19, 2000.
The purchase price of Palestine was allocated based on estimated fair values of
assets and liabilities at the date of acquisition. Goodwill resulting from the
difference between the purchase price plus acquisition costs and the net assets
acquired totaled approximately $14.9 million, and is being amortized on a
straight-line basis over 20 years.
On September 15, 2000, the Company acquired certain fixed and intangible assets
from Hanson Aggregates West, Inc. ("Hanson"). Hanson is a subsidiary of Hanson
PLC, a leading international building materials company with operations in North
America and Europe. The Company negotiated a purchase price of $2.1 million in
cash for equipment and other fixed assets, as well as contracts with three Texas
and Louisiana power plants. ISG will utilize the assets purchased to provide
materials management services under the utility contracts acquired in the asset
acquisition.
5
<PAGE>
The following pro forma combined financial information reflects operations as if
the acquisition of Don's, Palestine, and Hanson and the related financing
transactions had occurred as of January 1, 1999. The pro forma combined
financial information is presented for illustrative purposes only, does not
purport to be indicative of the Company's results of operations as of the date
hereof and is not necessarily indicative of what the Company's actual results of
operations would have been had the acquisition and the financing transactions
been consummated on such date.
Three Months Ended September 30,
2000 1999
------------------ --------------------
Revenues $ 58,942 $ 58,378
Net income $ 587 $ 2,972
Nine Months Ended September 30,
2000 1999
------------------ --------------------
Revenues $ 151,359 $ 145,040
Net income (loss) $ (1,392) $ 2,167
These financial statements reflect the consolidated financial position and
results of operations of the Company and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements reflect all adjustments, consisting of normal recurring
adjustments, necessary to present fairly the financial position, results of
operations and cash flows of the Company, for the respective periods presented.
The results of operations for the three and nine-month periods ended September
30, 2000 are not necessarily indicative of the results which may be expected for
any other interim period or for the year as a whole.
The preparation of financial statements, in conformity with generally accepted
accounting principles, 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.
Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting principles
have been condensed or omitted. The accompanying unaudited interim condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes in the Company's Form 10-K for the
fiscal year ended December 31, 1999.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin (SAB) 101, Revenue Recognition in Financial Statements. The effective
date of SAB 101 is the fourth quarter of fiscal years beginning after December
15, 1999. This SAB clarifies proper methods of revenue recognition given certain
circumstances surrounding sales transactions. The Company continues to evaluate
the impact of SAB 101, but believes it is in compliance with the provisions of
the SAB and accordingly, does not expect SAB 101 to have a material effect on
its financial statements.
In 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which was
subsequently amended by SFAS No. 137 "Accounting for Derivative Financial
Instruments and Hedging Activities - Deferral of the Effective Date of SFAS No.
133" and SFAS No. 138 "Accounting for Certain Derivative Instruments and Certain
Hedging Activities." SFAS No. 133 establishes accounting and reporting standards
requiring that every derivative instrument, including certain derivative
instruments embedded in other contracts, be recorded in the balance sheet as
either an asset or liability measured at its fair value. The statement also
requires that changes in the derivative's fair value be recognized in earnings
unless specific hedge accounting criteria are met. SFAS No. 133, as amended by
SFAS No. 137 and SFAS No. 138, is effective for all fiscal quarters beginning
after June 15, 2000. The Company has adopted SFAS No. 133 in the third quarter.
The adoption of SFAS No. 133 did not have a material impact on the Company's
financial condition or results of operations.
6
<PAGE>
The consolidated balance sheet at December 31, 1999 was derived from audited
consolidated financial statements, but does not include all disclosures required
under generally accepted accounting principles. Certain amounts have been
reclassified to conform to the September 30, 2000 presentation.
2. Description of Business
The Company operates two principal business segments: coal combustion product
(CCP) management and building materials manufacturing and distribution. The CCP
division purchases, removes and sells fly ash and other by-products of coal
combustion to producers and consumers of building materials and construction
related products throughout the United States and parts of Canada. The building
materials division manufactures and distributes masonry construction materials
to residential and commercial contractors primarily in Texas, California,
Georgia and Florida.
3. Property, Plant and Equipment
Property, plant and equipment amounts are carried at cost. Costs assigned to
property, plant and equipment of acquired businesses are based on estimated fair
values at the date of acquisition. Depreciation of plant and equipment is
calculated using the straight-line method over the estimated useful lives of the
assets. Expenditures related to construction in progress are included in
property, plant and equipment. Costs incurred which materially increase values,
change capacities or extend useful lives are capitalized in property, plant and
equipment. Routine maintenance and repairs are charged against current operation
expense. Upon sale or retirement, the costs and related accumulated depreciation
are eliminated from property, plant and equipment and any resulting gain or loss
is included in income.
In accordance with the Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS 121),
certain long-lived assets and certain identifiable intangibles, including
goodwill, to be held and used by the Company, are periodically reviewed by the
Company for impairment whenever events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable, and an estimate of
future undiscounted cash flows is less than the carrying amount of the asset.
Accordingly, when indicators of impairment are present, the Company adjusts the
net book value of the underlying asset if the sum of the expected undiscounted
future cash flows is less than book value.
In January 2000, the Company capitalized to property, plant and equipment,
certain costs associated with the construction of a carbon ash burnout unit. The
unit was to be used for the separation of carbon from fly ash and in the
continuing research and development efforts related to the improvement of the
carbon separation technology.
During the third quarter 2000, the Company determined that the technology being
tested by the carbon ash burnout unit was no longer commercially viable.
Furthermore, the Company decided to pursue a different technology to eliminate
the effects of high carbon content. Consequently, the Company determined that
the carbon ash burnout unit would no longer be utilized for its intended
purpose. Thus, in accordance with SFAS 121, the Company determined that an
impairment loss existed. However, certain components of the unit will be
utilized in the CCP division and the remaining components of the unit will be
abandoned and sold. The approximate fair value of the components to be used in
the CCP division and the amount estimated to be received for the remaining unit
when sold is $100,000.
The company measured the impairment loss to be the amount that the carrying
value exceeded the estimated fair value of the asset. An impairment loss of
approximately $0.4 million is recognized in operating income and is included in
the aggregate total for depreciation and amortization in the Company's unaudited
consolidated statements of operations and comprehensive income.
7
<PAGE>
4. New Product Development Costs
New product development costs consist of scientific research and development and
market development expenditures. Expenditures of $1,628,309 and $551,187 for the
nine months and quarter ended September 30, 2000, respectively, were made for
research and development activities covering basic scientific research and the
application of scientific advances to the development of new and improved
products and processes. Expenditures of $1,409,474 and $566,575 for the nine
months and quarter ended September 30, 1999, respectively, were made for market
development activities related to promising new and improved products and
processes identified during research and development activities. The Company
expenses all new product development costs as they are incurred.
5. Inventories
Inventories are valued at lower of cost (computed on the average, first-in,
first-out method), or net realizable value. Inventories consist of:
September 30, December 31,
2000 1999
-------------------- ---------------------
Raw Materials $ 1,066,091 $ 234,073
Finished Goods 5,790,529 3,821,352
-------------------- ---------------------
$6,856,620 $ 4,055,425
==================== =====================
6. Intangible Assets
Intangible assets consist of the following:
September 30, December 31,
2000 1999
--------------------- -----------------
Goodwill $ 83,610,925 $64,313,512
Contracts 99,999,788 98,522,146
Patents and licenses 3,787,431 2,787,431
Assembled work force 2,815,233 2,700,233
--------------------- -----------------
190,213,377 168,323,322
Less accumulated amortization (20,938,241) (14,370,775)
--------------------- -----------------
$ 169,275,136 $153,952,547
===================== =================
Amortization is provided over the estimated period of benefit, using the
straight-line method, ranging from 8 to 25 years.
7. Long-term Debt
Long-term debt consists of the following:
September 30, December 31,
2000 1999
---------------- ----------------
10% Senior Subordinated Notes due 2008 $100,000,000 $ 100,000,000
Secured Credit Facility 55,000,000 33,500,000
---------------- ----------------
$155,000,000 $ 133,500,000
================ ================
8
<PAGE>
The Company financed the 1998 and 1999 Acquisitions through the issuance of
$100.0 million of 10% Senior Subordinated Notes due 2008 and borrowings on its
Secured Credit Facility (as subsequently amended and restated). The Company
financed the acquisition of Palestine by obtaining a $15,000,000 increase in the
Secured Credit Facility on May 26, 2000 (discussed below). Operating and capital
expenditures have been financed primarily through cash flow from operations and
borrowings under the Secured Credit Facility.
On May 26, 2000, the Secured Credit Facility was amended and restated to, among
other things, increase the borrowings available to the Company from $50.0
million to $65.0 million.
This increase in the funds available to the Company was accomplished through the
addition of a Tranche B feature, pursuant to which two of the existing lenders,
Bank of America, N.A. and Zions First National Bank (the "Tranche B Lenders")
agreed to provide the additional $15.0 million in funding. No amount is
available pursuant to the Tranche B revolving loans unless all amounts under the
Tranche A (existing) revolving loans have been borrowed in full and are
outstanding. Under the amended and restated Secured Credit Facility, at the
option of the Company, both the Tranche A Revolving Loans and the Tranche B
Revolving Loans may be maintained as Eurodollar Loans or Base Rate Loans.
Eurodollar loans will bear interest at a per annum rate equal to the rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1 percent)
determined by the Administrative Agent to be equal to the quotient by dividing
(a) Interbank Offered Rate for such Eurodollar Loan for such Interest Period by
(b) 1 minus the Reserve Requirement for such Eurodollar Loan for such Interest
Period, and by then adding thereto the applicable LIBOR margin (which is a
percentage ranging from 1.75% to 2.50%, depending primarily upon the Company's
Leverage Ratio). All capitalized terms are defined in the Secured Credit
Facility.
Base Rate Loans will bear interest at a per annum rate equal to the rate which
is the higher of (a) the Federal Funds rate for such day plus one-half of one
percent (0.5%) and (b) the Prime rate for such day and by then adding thereto
the applicable ABR Margin (which is a percentage ranging from 0.50% to 1.25%
depending primarily upon the Company's Leverage Ratio). Any change in the Base
Rate due to a change in the Federal Funds Rate or to the Prime Rate shall be
effective on the effective date of such change. All capitalized terms are as
defined in the Secured Credit Facility.
The Company will also pay certain fees with respect to any unused portion of the
amended and restated Secured Credit Facility.
The amended and restated Secured Credit Facility maintains the term of the
original Secured Credit Facility obtained on March 4, 1998, is guaranteed by
ISG, existing, and future subsidiaries of the Company (the "Guarantors"), and is
secured by a first priority security interest in all of the capital stock of the
Company and all of the capital stock of each of the Guarantors, as well as
certain present and future assets and properties of the Company and any domestic
subsidiaries.
On August 8, 2000, the amended and restated secured credit agreement dated May
26, 2000 was amended in order to modify certain debt covenants contained in the
credit agreement. Primarily, a minimum consolidated Earnings Before Interest
Expense, Income Tax Expense, Depreciation Expense, and Amortization Expense
(EBITDA) debt covenant was added. The minimum consolidated EBITDA covenant
requires the Company to maintain a minimum EBITDA amount for every fiscal
quarter through June 30, 2003 at minimum levels set forth in the agreement.
The amended and restated Secured Credit Facility continues to require the
Company to not exceed a maximum leverage ratio, or drop below a minimum interest
coverage ratio, a minimum consolidated EBITDA level, and to comply with certain
other financial and non-financial covenants, as defined in the agreement.
At September 30, 2000, $10.0 million was unused and available under the Secured
Credit Facility.
9
<PAGE>
8. Reportable Segments
As discussed in note 2, the Company operates in two reportable segments: the CCP
division and the building materials division. The CCP division consists
primarily of three operating units that manage and market CCPs in North America.
The building materials division consists of six legal entities, Best, Osborne,
Terrazzo, Magna Wall, Don's, and Palestine. The Company's two reportable
segments are managed separately based on fundamental differences in their
operations.
The Company evaluates performance based on profit or loss from operations before
depreciation, amortization, income taxes and interest expense (EBITDA). The
Company derives a majority of its revenues from CCP sales and the chief
operating decision makers rely on EBITDA to assess the performance of the
segments and make decisions about resources to be allocated to the segments.
Accordingly, EBITDA is included in the information reported below. Certain
expenses are maintained at the Company's corporate headquarters and are not
allocated to the segments. Such expenses primarily include interest expense,
corporate overhead costs, certain non-recurring gains and losses and intangible
asset amortization. Inter-segment sales, which historically have not been
material, are generally accounted for at cost and are eliminated in
consolidation.
The building materials division includes financial data for Best only for the
three and nine months ended September 30, 1999, as Osborne, Terrazzo, Magna
Wall, Don's and Palestine were acquired subsequent to the third quarter of 1999.
The building materials division includes financial data for Don's and Palestine
for the three and nine months ended September 30, 2000 from their respective
acquisition dates. The CCP division includes financial data for the Hanson
acquisition from September 15, 2000 through September 30, 2000. Amounts included
in the "Other" column include financial information for the Company's corporate,
R&D and other administrative business units.
Information about reportable segments, and reconciliation of such information to
the consolidated totals as of and for the three and nine months ended September
30, 2000 and September 30, 1999, is as follows:
<TABLE>
<CAPTION>
Building
CCP Materials Other Consolidated
Total
---------------- ---------------- ----------------- -------------------
Three months ended 9/30/00:
<S> <C> <C> <C> <C>
Revenue $42,376,943 $14,071,204 $ 133,953 $ 56,582,100
EBITDA 9,822,088 2,022,906 (2,690,393) 9,154,601
Total Assets 57,142,521 48,140,650 149,350,186 254,633,357
Expenditures for PP&E 387,539 439,916 122,483 949,938
Three months ended 9/30/99:
Revenue $43,571,882 $ 5,284,869 $ 38,092 $ 48,894,843
EBITDA 12,077,289 730,946 (1,734,389) 11,073,846
Total Assets 56,941,995 17,642,612 153,022,457 227,607,064
Expenditures for PP&E 1,490,947 113,951 241,089 1,845,987
</TABLE>
<TABLE>
<CAPTION>
Building
CCP Materials Other Consolidated
Total
---------------- ---------------- ----------------- -------------------
Nine months ended 9/30/00:
<S> <C> <C> <C> <C>
Revenue $103,429,165 $ 32,034,375 $ 329,327 $135,792,867
EBITDA 22,600,842 4,317,149 (8,658,034) 18,259,957
Total Assets 57,142,521 48,140,650 149,350,186 254,633,357
Expenditures for PP&E 3,781,141 1,322,738 389,019 5,492,898
Nine months ended 9/30/99:
Revenue $102,406,799 $ 15,386,775 $ 669,819 $118,463,393
EBITDA 25,313,047 2,432,421 (6,044,668) 21,700,800
Total Assets 56,941,995 17,642,612 153,022,457 227,607,064
Expenditures for PP&E 6,033,868 227,902 580,330 6,842,100
</TABLE>
10
<PAGE>
9. Subsequent Events
On February 24, 1999, the Company entered into an option agreement to acquire
the stock of Tatum Industries, Inc. (Tatum). As part of that agreement, the
Company agreed to loan Tatum approximately $50,000 per month for operating
expenses and loan servicing. Tatum's note to the Company accrues interest at 8%
and is payable on demand.
On September 30, 2000, the principal balance of the note approximately $1.1
million. Additionally, the Company leased Tatum's building and equipment and the
Company incurred approximately $0.1 million of leasehold improvements to the
property.
On October 27, 2000, the Company advised Tatum that the Company was terminating
the option agreement; however, the Company continues to lease the building and
equipment under a month-to-month lease.
On November 13, 2000, the Company advised Tatum that the note to the Company
will be due and payable on January 14, 2001. Currently, Tatum is reviewing
alternatives to facilitate repayment of the note, one of which is the potential
sale of Tatum to a third party. Because the Company has not determined at this
point, due to the recent demand notification, that it is probable that Tatum
will be unable to repay the note, no write offs or allowances have been recorded
within the accompanying financial statements. However, if Tatum is unable to
find alternative sources of financing, the Company may be required to write off
or reserve against all or a portion of the note receivable balance. To the
extent that the Company terminates its lease in the future, the leasehold
improvements also will be required to be written off.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the Unaudited Condensed
Consolidated Financial Statements and Notes thereto included elsewhere herein.
General
ISG Resources, Inc. (the "Company") is the leading manager and marketer of coal
combustion products ("CCPs") throughout North America. The Company generates
revenues from marketing products to its customers and providing materials
management, engineering and construction services to its clients. The Company's
strategic objectives include the maintenance and expansion of long-term
contractual relationships, the increase in product sales and applications
through cross-marketing and further technological advances and the pursuit of
strategic acquisitions.
In 1999, the Company acquired the stock of Best Masonry & Tool Supply ("Best"),
Mineral Specialties, Inc. ("Specialties"), Irvine Fly Ash, Inc. ("Irvine"),
Lewis W. Osborne, Inc. ("Osborne"), United Terrazzo Supply Co., Inc.
("Terrazzo"), and Magna Wall, Inc. ("Magna Wall") and sold all of the
outstanding stock of Pneumatic.
On March 2, 2000, the Company acquired directly and indirectly through ISG
Manufactured Products, Inc., a newly formed wholly-owned subsidiary of the
Company, all of the partnership interest of Don's Building Supply L.L.P. (Don's)
for approximately $5.9 million in cash.
On May 31, 2000, the Company completed the acquisition of all outstanding stock
of Palestine Concrete Tile Company, Inc. and certain associated real property
(collectively, "Palestine") for approximately $18.5 million in cash.
Additionally, the Company paid off outstanding debt of Palestine of
approximately $1.0 million. Palestine is a Texas corporation primarily engaged
in the manufacture and distribution of concrete block. The Company financed the
acquisition of Palestine by obtaining a $15,000,000 increase in the Secured
Credit Facility on May 26, 2000 and receiving an equity contribution of
$9,745,000 from its parent, Industrial Services Group, Inc. ("ISG") on April 19,
2000.
On September 15, 2000, the Company acquired certain fixed and intangible assets
from Hanson Aggregates West, Inc. ("Hanson"). Hanson is a subsidiary of Hanson
PLC, a leading international building materials company with operations in North
America and Europe. The Company negotiated a purchase price of $2.1 million in
cash for equipment and other fixed assets, as well as contracts with three Texas
and Louisiana power plants. ISG will utilize the assets purchased to provide
materials management services for the utility contracts acquired in the asset
acquisition.
The Palestine and Don's acquisitions (the "2000 Acquisitions"), as well as the
acquisitions of Best, Mineral Specialties, Irvine, Osborne, Terrazzo, and Magna
Wall (the "1999 Acquisitions"), were accounted for under the purchase method of
accounting and, accordingly, the results of operations of the respective
companies have been included in the consolidated financial statements since the
respective acquisition dates. In addition, the results of operations related to
the three Hanson utility contracts have been included in the consolidated
results of operations since the respective asset acquisition date. Accordingly,
the financial condition and results of operations of the Company after the
Acquisitions are not directly comparable to the historical financial condition
and results of operations.
The Company's revenues are subject to a pattern of seasonal fluctuation,
concurrent with the construction industry. Because certain of the Company's
products are used as raw materials in other products, the amount of revenue
generated during the year generally depends upon a number of factors, including
the level of road and other construction using concrete, weather conditions
affecting the level of construction, general economic conditions, and other
factors beyond the Company's control.
12
<PAGE>
Results of Operations
Three Months Ended September 30, 2000 compared to Three Months Ended September
30, 1999
Revenues. Revenues were $56.6 million in the third quarter of 2000, representing
an increase of $7.7 million or 15.7%, as compared to revenues of $48.9 million
in the third quarter of 1999. Product revenues increased to $47.2 million in the
third quarter of 2000 from $38.6 million in the third quarter of 1999,
representing an increase of $8.6 million or 22.3%. Service revenues decreased to
$9.4 million in the third quarter of 2000 from $10.3 million in the third
quarter of 1999, representing a decrease of $.9 million or 8.7%. The increase in
product revenues in the third quarter of 2000 is due primarily to the 1999 and
2000 Acquisitions. The decrease in service revenues in the third quarter of 2000
is due primarily to a decrease in revenues generated from construction projects
due to the conclusion of several of those projects in 1999 or early 2000.
Cost of Product Revenues, Excluding Depreciation. Cost of product revenues,
excluding depreciation, was $35.1 million in the third quarter of 2000,
representing an increase of $10.3 million or 41.5% , as compared to cost of
product revenues, excluding depreciation, of $24.8 million in the third quarter
of 1999. This increase is due primarily to two factors: 1) the inclusion of cost
of product revenues of the 1999 and 2000 Acquisitions since their respective
dates of acquisition; and 2) the increased cost of material in the CCP division.
As a percentage of product revenues, cost of product revenues, excluding
depreciation, increased to 74.4% in the third quarter of 2000 from 64.2% in the
third quarter of 1999. This increase was primarily due to lower margins on
product revenues derived from the 1999 and 2000 Acquisitions and lower margins
in the CCP division due to the increase in the cost of materials.
Cost of Service Revenues, Excluding Depreciation. Cost of service revenues,
excluding depreciation, was $6.3 million in the third quarter of 2000,
representing a decrease of $1.5 million or 19.2%, as compared to cost of service
revenues, excluding depreciation, of $7.8 million in the third quarter of 1999.
This decrease reflects the fact that service revenues decreased in the third
quarter of 2000 as compared to the third quarter of 1999 and the cost of
providing those services also decreased. Furthermore, many of the projects that
generated lower margins were concluded in 1999. As a percentage of service
revenues, cost of service revenues, excluding depreciation, decreased to 67.4%
in the third quarter of 2000 from 75.7% in the third quarter of 1999.
Depreciation and Amortization. Depreciation and amortization was $4.2 million in
the third quarter of 2000, representing an increase of $1.0 million or 31.3%, as
compared to depreciation and amortization of $3.2 million in the third quarter
of 1999. This increase resulted primarily from the depreciation of fixed assets
and amortization of goodwill and other intangible assets recorded as a result of
the 1999 and 2000 Acquisitions.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") were $5.7 million in the third quarter of 2000,
representing an increase of $1.0 million or 21.3%, as compared to SG&A expenses
of $4.7 million in the third quarter of 1999. This increase in SG&A expenses
reflects incremental SG&A costs resulting from the operation of the 1999 and
2000 Acquisitions as well as an increase in sales and marketing efforts.
New Product Development. New product development costs consist of scientific
research and development and market development expenditures. Expenditures for
scientific research and development during the third quarter of 2000 decreased
slightly to $0.4 million as compared to expenditures of $0.5 million during the
third quarter of 1999. Expenditures of $0.1 million were made for market
development during the third quarter of 2000 compared to $0.1 million in the
third quarter of 1999. Continuing expenditures for new product development costs
demonstrates the Company's commitment to developing and marketing value added
products that utilize CCPs and related materials.
13
<PAGE>
Interest Expense. Interest expense increased to $4.1 million in the third
quarter of 2000 from $3.4 million in the third quarter of 1999, primarily as a
result of an increase in outstanding indebtedness and an increase in interest
rates.
Income Taxes. Income tax expense was $0.6 million in the third quarter of 2000,
representing a decrease of $1.4 million or 70%, as compared to income tax
expense of $2.0 million in the third quarter of 1999. This decrease reflects the
decrease in taxable income in the third quarter of 2000. Taxable income is
calculated considering non-deductible amortization expense related to most of
the Company's acquisitions.
Net Income. As a result of the factors discussed above, net income decreased to
$0.3 million in the third quarter of 2000 from $2.4 million in the third quarter
of 1999.
Nine Months Ended September 30, 2000 compared to Nine Months Ended September 30,
1999
Revenues. Revenues were $135.8 million in the first nine months of 2000,
representing an increase of $17.3 million or 14.6%, as compared to revenues of
$118.5 million in the first nine months of 1999. Product revenues increased to
$110.7 million in the first nine months of 2000 from $91.1 million in the first
nine months of 1999, representing an increase of $19.6 million or 21.5%. Service
revenues decreased to $25.1 million in the first nine months of 2000 from $27.4
million in the first nine months of 1999, representing a decrease of $2.3
million or 8.4%. The increase in product revenues in the first nine months of
2000 is due primarily to the addition of product revenues derived from the 1999
and 2000 Acquisitions. The decrease in service revenues reflects a decrease in
revenue generated from construction projects due to the conclusion of several of
these projects in 1999 and early 2000.
Cost of Product Revenues, Excluding Depreciation. Cost of product revenues,
excluding depreciation, was $81.8 million in the first nine months of 2000,
representing an increase of $20.9 million or 34.3% , as compared to cost of
product revenues, excluding depreciation, of $60.9 million in the first nine
months of 1999. This increase is due primarily to two factors: 1) the inclusion
of cost of product revenues of the 1999 and 2000 Acquisitions since their
respective dates of acquisition; and 2) the increased cost of material in the
CCP division. As a percentage of product revenues, cost of product revenues,
excluding depreciation, increased to 73.9% in the first nine months of 2000 from
66.8% in the first nine months of 1999. This increase was primarily due to lower
margins on product revenues derived from the 1999 and 2000 Acquisitions and
lower margins in the CCP division due to the increase in the cost of materials.
Cost of Service Revenues, Excluding Depreciation. Cost of service revenues,
excluding depreciation, was $17.4 million in the first nine months of 2000,
representing a decrease of $2.6 million or 13%, as compared to cost of service
revenues, excluding depreciation, of $20.0 million in the first nine months of
1999. This decrease reflects the fact that service revenues decreased in the
first nine months of 2000 as compared to the same period in 1999 and the cost of
providing those services also decreased. Furthermore, many of the projects that
generated lower margins were concluded in 1999. As a percentage of service
revenues, cost of service revenues, excluding depreciation, decreased to 69.5%
in the first nine months of 2000 as compared to 73.0% in the first nine months
of 1999.
Depreciation and Amortization. Depreciation and amortization was $11.0 million
in the first nine months of 2000, representing an increase of $1.7 million or
18.3%, as compared to depreciation and amortization of $9.3 million in the first
nine months of 1999. This increase resulted primarily from the depreciation of
fixed assets and amortization of goodwill and other intangible assets recorded
as a result of the 1999 and 2000 Acquisitions.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") were $17.2 million in the first nine months of
2000, representing an increase of $2.7 million or 18.6%, as compared to SG&A
expenses of $14.5 million in the first nine months of 1999. This increase in
SG&A expenses reflects incremental SG&A costs resulting from the operation of
the 1999 and 2000 Acquisitions as well as an increase in sales and marketing
efforts.
14
<PAGE>
New Product Development. New product development costs consist of scientific
research and development and market development expenditures. Expenditures of
$1.3 million were made for scientific research and development during the first
nine months of 2000 compared to expenditures of $1.1 million during the first
nine months of 1999. Expenditures of $0.3 million were made for market
development during the first nine months of 2000 compared to expenditures of
$0.3 million during the first nine months of 1999. The increase in new product
development costs demonstrates the Company's commitment to developing and
marketing value added products that utilize CCPs and related materials.
Interest Expense. Interest expense increased to $11.5 million in the first nine
months of 2000 from $9.9 million in the first nine months of 1999, primarily as
a result of an increase in outstanding indebtedness and an increase in interest
rates.
Income Taxes. Income tax benefit was $.6 million in the first nine months of
2000, as compared to income tax expense of $1.6 million in the first nine months
of 1999. This change reflects the decrease in taxable income in the nine months
of 2000, primarily resulting from increased interest expense as well as
decreasing product margins. Taxable income is calculated considering
non-deductible amortization expense related to most of the Company's
acquisitions.
Net Income (loss). As a result of the factors discussed above, the net loss was
$3.7 million in the first nine months of 2000 as compared to net income of $0.9
million in the first nine months of 1999.
Property, Plant and Equipment
Property, plant and equipment amounts are carried at cost. Costs assigned to
property, plant and equipment of acquired businesses are based on estimated fair
values at the date of acquisition. Depreciation of plant and equipment is
calculated using the straight-line method over the estimated useful lives of the
assets. Expenditures related to construction in progress are included in
property, plant and equipment. Costs incurred which materially increase values,
change capacities or extend useful lives are capitalized in property, plant and
equipment. Routine maintenance and repairs are charged against current operation
expense. Upon sale or retirement, the costs and related accumulated depreciation
are eliminated from property, plant and equipment and any resulting gain or loss
is included in income.
In accordance with the Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS 121),
certain long-lived assets and certain identifiable intangibles, including
goodwill, to be held and used by the Company, are periodically reviewed by the
Company for impairment whenever events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable, and an estimate of
future undiscounted cash flows is less than the carrying amount of the asset.
Accordingly, when indicators of impairment are present, the Company adjusts the
net book value of the underlying asset if the sum of the expected undiscounted
future cash flows is less than book value.
In January 2000, the Company capitalized to property, plant and equipment,
certain costs associated with the construction of a carbon ash burnout unit. The
unit was to be used for the separation of carbon from fly ash and in the
continuing research and development efforts related to the improvement of the
carbon separation technology.
During the third quarter 2000, the Company determined that the technology being
tested by the carbon ash burnout unit was no longer commercially viable.
Furthermore, the Company decided to pursue a different technology to eliminate
the effects of high carbon content. Consequently, the Company determined that
the carbon ash burnout unit would no longer be utilized for its intended
purpose. Thus, in accordance with SFAS 121, the Company determined that an
impairment loss existed. However, certain components of the unit will be
utilized in the CCP division and the remaining components of the unit will be
abandoned and sold. The approximate fair value of the components to be used in
the CCP division and the amount estimated to be received for the remaining unit
when sold is $100,000.
15
<PAGE>
The company measured the impairment loss to be the amount that the carrying
value exceeded the estimated fair value of the asset. An impairment loss of
approximately $0.4 million is recognized in operating income and is included in
the aggregate total for depreciation and amortization in the Company's unaudited
consolidated statements of operations and comprehensive income.
Liquidity and Capital Resources
The Company financed the 1998 and 1999 Acquisitions through the issuance of
$100.0 million of 10% Senior Subordinated Notes due 2008 and borrowings on its
Secured Credit Facility (as subsequently amended and restated). The Company
financed the acquisition of Palestine by obtaining a $15,000,000 increase in the
Secured Credit Facility on May 26, 2000 (discussed below). Operating and capital
expenditures have been financed primarily through cash flow from operations and
borrowings under the Secured Credit Facility.
The Secured Credit Facility has been amended a number of times. Most recently,
on May 26, 2000, the Secured Credit Facility was amended and restated to, among
other things, increase the borrowings available to the Company from $50.0
million to $65.0 million.
This increase in the funds available to the Company was accomplished through the
addition of a Tranche B feature, pursuant to which two of the existing lenders,
Bank of America, N.A. and Zions First National Bank (the "Tranche B Lenders")
agreed to provide the additional $15.0 million in funding. No amount is
available pursuant to the Tranche B revolving loans unless all amounts under the
Tranche A (existing) revolving loans have been borrowed in full and are
outstanding. Under the amended and restated Secured Credit Facility, at the
option of the Company, both the Tranche A Revolving Loans and the Tranche B
Revolving Loans may be maintained as Eurodollar Loans or Base Rate Loans.
Eurodollar loans will bear interest at a per annum rate equal to the rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1 percent)
determined by the Administrative Agent to be equal to the quotient by dividing
(a) Interbank Offered Rate for such Eurodollar Loan for such Interest Period by
(b) 1 minus the Reserve Requirement for such Eurodollar Loan for such Interest
Period, and by then adding thereto the applicable LIBOR margin (which is a
percentage ranging from 1.75% to 2.50%, depending primarily upon the Company's
Leverage Ratio). All capitalized terms are defined in the Secured Credit
Facility.
Base Rate Loans will bear interest at a per annum rate equal to the rate which
is the higher of (a) the Federal Funds rate for such day plus one-half of one
percent (0.5%) and (b) the Prime rate for such day and by then adding thereto
the applicable ABR Margin (which is a percentage ranging from 0.50% to 1.25%
depending primarily upon the Company's Leverage Ratio). Any change in the Base
Rate due to a change in the Federal Funds Rate or to the Prime Rate shall be
effective on the effective date of such change. All capitalized terms are as
defined in the Secured Credit Facility.
The Company will also pay certain fees with respect to any unused portion of the
amended and restated Secured Credit Facility.
The amended and restated Secured Credit Facility maintains the term of the
original Secured Credit Facility obtained on March 4, 1998, and is guaranteed by
ISG and existing future subsidiaries of the Company (the "Guarantors"), and is
secured by a first priority security interest in all of the capital stock of the
Company and all of the capital stock of each of the Guarantors, as well as
certain present and future assets and properties of the Company and any domestic
subsidiaries.
On August 8, 2000, the amended and restated secured credit agreement dated May
26, 2000 was amended in order to modify certain debt covenants contained in the
credit agreement. Primarily, a minimum consolidated Earnings Before Interest
Expense, Income Tax Expense, Depreciation Expense, and Amortization Expense
(EBITDA) debt covenant was added. The minimum consolidated EBITDA covenant
requires the Company to maintain a minimum EBITDA amount as of the last day of
every fiscal quarter through June 30, 2003 at minimum levels set forth in the
agreement.
16
<PAGE>
The amended and restated Secured Credit Facility continues to require the
Company to not exceed a maximum leverage ratio, or drop below a minimum interest
coverage ratio, a minimum consolidated EBITDA level, and to comply with certain
other financial and non-financial covenants, as defined in the agreement.
At September 30, 2000, the Company had no cash and cash equivalents and $10.0
million in availability under the Secured Credit Facility. In addition, the
Company had working capital of approximately $15.7 million, an increase of $6.7
million from December 31, 1999. The Company intends to make capital expenditures
over the next several years principally to construct storage, loading and
processing facilities for CCPs and to replace certain existing capital
equipment. During the nine months ended September 30, 2000, capital expenditures
amounted to approximately $5.1 million. Capital expenditures made in the
ordinary course of business will be funded by cash flow from operations and
borrowings under the Secured Credit Facility.
The Company anticipates that its principal use of cash will be for working
capital requirements, debt service requirements and capital expenditures. Based
upon current and anticipated levels of operations, the Company believes that its
cash flow from operations, together with amounts available under the Secured
Credit Facility, will be adequate to meet its anticipated requirements for
working capital, capital expenditures and interest payments for the next several
years. There can be no assurance, however, that cash flow from operations will
be sufficient to service the Company's debt and the Company may be required to
refinance all or a portion of its existing debt or to obtain additional
financing. These increased borrowings may result in higher interest payments.
There can be no assurance that any such refinancing would be possible or that
any additional financing could be obtained. The inability to obtain additional
financing could have a material adverse effect on the Company.
Subsequent Events
On February 24, 1999, the Company entered into an option agreement to acquire
the stock of Tatum Industries, Inc. (Tatum). As part of that agreement, the
Company agreed to loan Tatum approximately $50,000 per month for operating
expenses and loan servicing. Tatum's note to the Company accrues interest at 8%
and is payable on demand.
On September 30, 2000, the principal balance of the note approximately $1.1
million. Additionally, the Company leased Tatum's building and equipment and the
Company incurred approximately $0.1 million of leasehold improvements to the
property.
On October 27, 2000, the Company advised Tatum that the Company was terminating
the option agreement; however, the Company continues to lease the building and
equipment under a month-to-month lease.
On November 13, 2000, the Company advised Tatum that the note to the Company
will be due and payable on January 14, 2001. Currently, Tatum is reviewing
alternatives to facilitate repayment of the note, one of which is the potential
sale of Tatum to a third party. Because the Company has not determined at this
point, due to the recent demand notification, that it is probable that Tatum
will be unable to repay the note, no write offs or allowances have been recorded
within the accompanying financial statements. However, if Tatum is unable to
find alternative sources of financing, the Company may be required to write off
or reserve against all or a portion of the note receivable balance. To the
extent that the Company terminates its lease in the future, the leasehold
improvements also will be required to be written off.
17
<PAGE>
ISG Resources, Inc.
-------------
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Item Exhibit
No. Item Title No.
--- ----------------------------------------- ---
(2) Plan of acquisition, reorganization,
arrangement, liquidation or succession:
Not Applicable
(3) Articles of Incorporation and By-Laws:
Not Applicable
(4) Instruments defining the rights of
security holders, including indentures:
Not Applicable
(10) Material Contracts: Not Applicable
(11) Statement regarding computation of per
share earnings is not required because the relevant
computations can be clearly determined from the material
contained in the Financial Statements included herein.
18
<PAGE>
(15) Letter re unaudited interim financial
information: Not Applicable
(18) Letter re change in accounting
principles: Not Applicable
(19) Report furnished to security holders:
Not Applicable
(22) Published report regarding matters
submitted to vote of security holders:
Not Applicable
(23) Consents of expert and counsel:
Not Applicable
(24) Power of attorney: Not Applicable
(27) Financial Data Schedule 27
(99) Additional Exhibits: First Amendment to
Credit Agreement dated August 8, 2000
(b) Reports on Form 8-K
A report on Form 8-K was filed by Registrant on September 29,
2000 with respect to an Asset Purchase Agreement with Hanson Aggregates
West, Inc.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 14, 2000 ISG RESOURCES, INC.
/s/ J. I. Everest, II
------------------------------
J. I. Everest, II
Chief Financial Officer and Treasurer
(As both a duly authorized officer
of the Company and as principal
financial officer of the Company)
20
