<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): August 9, 1996
(August 5,1996)
RECYCLING INDUSTRIES, INC.
--------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Colorado 0-20179 84-1103445
- --------------------------------------------------------------------------------
(STATE OR OTHER (COMMISSION (I.R.S. EMPLOYER
JURISDICTION FILE NUMBER) IDENTIFICATION NO.)
OF INCORPORATION)
384 Inverness Drive South, Suite 211
Englewood, Colorado 80112
--------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
Registrant's telephone number, including area code: (303) 790-7372
Not Applicable
----------------------------------------------------------------
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT.)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
------------------------------------
On August 5, 1996, Recycling Industries of Iowa, Inc., a wholly-owned
subsidiary of the Registrant, acquired from Wesley J. Weissman all of the
issued and outstanding capital stock of Weissman Industries, Inc., ("Weissman"),
a privately held metals recycler with operations in Waterloo, Iowa. Weissman's
primary markets are midwestern steel mills.
The assets owned by Weissman consist of a heavy-duty automovite shredder,
heavy equipment, tools and rolling stock used in the business of recycling
ferrous and non-ferrous metal.
The total purchase price for Weissman was $12.4 million including $1.5
million paid in the form of 363,636 shares of the Registrant's common stock.
The $10.9 million cash portion of the purchase price was funded as follows:
approximately $5.2 million from the proceeds of the Registrant's public offering
which closed on July 23, 1996; $3.5 million from long term debt obtained from
Coast Business Credit, a division of Southern Pacific Thrift and Loan ("Coast")
secured by the equipment of Weissman; approximately $1.7 million of revolving
credit borrowings obtained from Coast; and $500,000 from the Company's cash
reserves. The purchase price was determined through arms' length negotiations
and based upon an independent appraisal.
The Registrant will continue the metals recycling operations of Weissman.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
(a) Financial Statements of Business Acquired.
-----------------------------------------
1. Audited financial statements of Weissman Industries, Inc.,
incorporated by reference to pages F-72 through F-83 of the
Registrant's Registration Statement on Form S-1, Commission file No.
333-4574. Pages F-72 through F-83 are filed herewith as Exhibit 99.1.
(b) Pro-Forma Financial Information.
-------------------------------
1. Unaudited pro forma consolidated financial statements for Recycling
Industries, Inc. and subsidiaries, incorporated by reference to pages
F-3 through F-13 of the Registrant's Registration Statement on Form S-
1, Commission file No. 333-4574. Pages F-3 through F-13 are filed
herewith as Exhibit 99.2.
-2-
<PAGE>
(c) Exhibit
-------
Number Description
------- -----------
2.1 Stock Purchase Agreement dated July 1, 1996 by and between
Wesley J. Weissman, Recycling Industries, Inc. and Recycling
Industries of Iowa, Inc., incorporated by reference as
Exhibit 12.12.1 to the Registrant's Registration Statement
on Form S-1, Commission File No. 333-4574.
23.1 Consent of AJ. Robbins, P.C.*
99.1 Audited financial statements of Weissman Industries, Inc.*
99.2 Unaudited pro forma consolidated financial statements for
Recycling Industries, Inc. and subsidiaries .*
* Filed herewith.
-3-
<PAGE>
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 hereunto duly authorized.
RECYCLING INDUSTRIES, INC.
Date: August 9, 1996 By /s/ Thomas J. Wiens
---------------------------------
Thomas J. Wiens, Chairman and CEO
-4-
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use of our
report dated:
REPORT DATE: FINANCIAL STATEMENTS OF:
----------- -----------------------
April 21, 1996 Weissman Iron and Metal,
a Division of Weissman Industries, Inc.
to be included in or made part of this form 8-K.
AJ. ROBBINS, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
AND CONSULTANTS
DENVER, COLORADO
AUGUST 9, 1996
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors Weissman Industries, Inc. Waterloo, Iowa
We have audited the accompanying balance sheets of Weissman Iron and Metal,
a Division of Weissman Industries, Inc. (the Division), as of December 31,
1995 and 1994 and the related statements of operations, changes in division
equity and cash flows for each of the years in the three year period ended
December 31, 1995. These financial statements are the responsibility of the
Division's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Weissman Iron and Metal, a
Division of Weissman Industries Inc. as of December 31, 1995 and 1994 and the
results of their operations and their cash flows for each of the years in the
three year period ended December 31, 1995 in conformity with generally
accepted accounting principles.
AJ. Robbins, PC. Certified Public
Accountants and Consultants
Denver, Colorado
April 21, 1996
F-72
<PAGE>
WEISSMAN IRON AND METAL
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1995 1994 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash........................................ $ 9,000 $ 8,000 $ 9,000
Trade accounts receivable................... 1,527,000 1,579,000 2,170,000
Other receivables........................... 1,000 46,000 --
Inventories................................. 1,327,000 1,031,000 765,000
Prepaid expenses............................ 10,000 53,000 10,000
---------- ---------- ----------
Total Current Assets.................... 2,874,000 2,717,000 2,954,000
PROPERTY, PLANT AND EQUIPMENT, net............ 5,452,000 5,140,000 5,400,000
---------- ---------- ----------
$8,326,000 $7,857,000 $8,354,000
========== ========== ==========
LIABILITIES AND DIVISION EQUITY
CURRENT LIABILITIES:
Bank overdraft.............................. $ 39,000 $ 5,000 $ 115,000
Trade accounts payable...................... 983,000 612,000 1,200,000
Trade accounts payable, related party....... -- 21,000 --
Accrued liabilities:
Payroll and related taxes................. 246,000 245,000 145,000
Pension termination costs................. 27,000 -- 27,000
Environmental cleanup costs............... 30,000 -- 30,000
Sales and property taxes.................. 40,000 33,000 --
Other..................................... 31,000 20,000 --
---------- ---------- ----------
Total Current Liabilities............... 1,396,000 936,000 1,517,000
COMMITMENTS AND CONTINGENCIES:
DIVISION EQUITY............................... 6,930,000 6,921,000 6,837,000
---------- ---------- ----------
$8,326,000 $7,857,000 $8,354,000
========== ========== ==========
</TABLE>
See accompanying Notes to Financial Statements
F-73
<PAGE>
WEISSMAN IRON AND METAL
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 AND THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1995 (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------- -----------------------
1995 1994 1993 1996 1995
----------- ----------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Sales................. $16,207,000 $12,959,000 $9,378,000 $3,896,000 $3,941,000
Brokerage............. 2,956,000 1,352,000 241,000 1,192,000 446,000
Other................. 1,000 11,000 11,000 25,000 1,000
----------- ----------- ---------- ---------- ----------
Total Revenues...... 19,164,000 14,322,000 9,630,000 5,113,000 4,388,000
----------- ----------- ---------- ---------- ----------
COST OF SALES AND
EXPENSES:
Cost of sales......... 12,235,000 9,075,000 7,456,000 3,047,000 2,753,000
Cost of brokerage..... 2,894,000 1,348,000 237,000 1,158,000 436,000
Personnel............. 654,000 564,000 396,000 108,000 114,000
Professional
services............. 17,000 26,000 22,000 7,000 3,000
Other, general and
administrative....... 305,000 270,000 282,000 62,000 90,000
Depreciation and
amortization
expense.............. 7,000 7,000 7,000 2,000 2,000
Environmental cleanup
costs................ 30,000 -- -- -- --
Loss on disposal of
equipment............ -- -- -- 7,000 --
----------- ----------- ---------- ---------- ----------
Total Cost of Sales
and Expenses....... 16,142,000 11,290,000 8,400,000 4,391,000 3,398,000
----------- ----------- ---------- ---------- ----------
NET INCOME.............. $ 3,022,000 $ 3,032,000 $1,230,000 $ 722,000 $ 990,000
=========== =========== ========== ========== ==========
</TABLE>
See accompanying Notes to Financial Statements
F-74
<PAGE>
WEISSMAN IRON AND METAL
STATEMENT OF CHANGES IN DIVISION EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND THE THREE MONTHS ENDED
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<S> <C>
Balance, December 31, 1992......................................... $ 5,818,000
Net income......................................................... 1,230,000
Unrecognized pension costs......................................... (64,000)
Distributions to related parties, net.............................. (635,000)
-----------
Balance, December 31, 1993......................................... 6,349,000
Net income......................................................... 3,032,000
Recognized pension costs........................................... 64,000
Distributions to related parties, net.............................. (2,524,000)
-----------
Balance, December 31, 1994......................................... 6,921,000
Net income......................................................... 3,022,000
Unrecognized pension costs......................................... (47,000)
Distributions to related parties, net.............................. (2,966,000)
-----------
Balance, December 31, 1995......................................... 6,930,000
Net income (unaudited)............................................. 722,000
Distributions to related parties, net (unaudited).................. (815,000)
-----------
Balance, March 31, 1996 (unaudited)................................ $ 6,837,000
===========
</TABLE>
See accompanying Notes to Financial Statements
F-75
<PAGE>
WEISSMAN IRON AND METAL
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1995 (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ -----------------------
1995 1994 1993 1996 1995
----------- ----------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS (TO) FROM
OPERATING ACTIVITIES:
Net income............ $ 3,022,000 $ 3,032,000 $1,230,000 $ 722,000 $ 990,000
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization....... 312,000 261,000 220,000 148,000 78,000
Loss on disposal of
equipment.......... 20,000 6,000 2,000 7,000 --
Changes in:
Trade accounts
receivable........ 52,000 (464,000) (618,000) (643,000) (405,000)
Other receivables.. (21,000) 30,000 (2,000) 1,000 (22,000)
Prepaid expenses... 67,000 (5,000) (2,000) -- (21,000)
Inventories........ (296,000) (66,000) (16,000) 562,000 (236,000)
Trade accounts
payable........... 371,000 156,000 243,000 217,000 206,000
Accrued
liabilities....... 66,000 47,000 106,000 (172,000) (119,000)
Bank overdraft..... 34,000 5,000 -- 76,000 (5,000)
Environmental
cleanup costs..... 30,000 -- -- -- --
----------- ----------- ---------- --------- ---------
Net Cash Provided
by Operating
Activities....... 3,657,000 3,002,000 1,163,000 918,000 466,000
----------- ----------- ---------- --------- ---------
CASH FLOWS (TO) FROM
INVESTING ACTIVITIES:
Purchase of property
and equipment........ (644,000) (648,000) (424,000) (103,000) --
Proceeds from sale of
property and
equipment............ -- -- -- -- 9,000
----------- ----------- ---------- --------- ---------
Net Cash Provided
(Used) by
Investing
Activities....... (644,000) (648,000) (424,000) (103,000) 9,000
----------- ----------- ---------- --------- ---------
CASH FLOWS (TO) FROM
FINANCING ACTIVITIES:
Unrecognized pension
costs................ (47,000) 64,000 (64,000) -- --
Distributions to
related parties...... (2,965,000) (2,525,000) (635,000) (815,000) (455,000)
----------- ----------- ---------- --------- ---------
Net Cash (Used) by
Financing
Activities....... (3,012,000) (2,461,000) (699,000) (815,000) (455,000)
----------- ----------- ---------- --------- ---------
NET INCREASE (DECREASE)
IN CASH............... 1,000 (107,000) 40,000 -- 20,000
CASH, beginning of
period................ 8,000 115,000 75,000 9,000 8,000
----------- ----------- ---------- --------- ---------
CASH, end of period.... $ 9,000 $ 8,000 $ 115,000 $ 9,000 $ 28,000
=========== =========== ========== ========= =========
CASH PAID FOR
INTEREST.............. $ -- $ -- $ 1,000 $ -- $ --
=========== =========== ========== ========= =========
</TABLE>
See accompanying Notes to Financial Statements
F-76
<PAGE>
WEISSMAN IRON AND METAL
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Activity
Weissman Industries, Inc. was incorporated in January 1975 in the State of
Iowa. Weissman Iron and Metal, a division of Weissman Industries, Inc.
(Weissman) operates in the metals recycling industry (purchasing, processing,
selling and brokering ferrous and non-ferrous metals) with its operations
located in Waterloo, Iowa. Weissman operates one of three heavy duty
automotive shredders in Iowa. Processed scrap is sold to steel mill customers
located in or around Waterloo, Iowa.
Agreement to Sell Weissman
The stockholders of Weissman Industries, Inc. have signed an agreement with
Recycling Industries, Inc. (RII) to sell the business of Weissman to RII,
through the sale of all the outstanding stock of Weissman Industries, Inc.
Prior to the sale of stock to RII, Weissman Industries, Inc. sold its other
operating divisions to unrelated entities. Since the other operations were
previously sold to unrelated entities, are not being acquired by RII and do
not effect Weissman, they are not included in the financial statements of
Weissman.
Both RII and Weissman Industries, Inc. have agreed to jointly elect section
338(h)(10) treatment under the Internal Revenue Code so that the sale of
Weissman will be treated as an asset sale for federal and state income tax
purposes.
The assets to be sold consist of a heavy duty automotive shredder, metal
shearing equipment, Coreco aluminum furnace, heavy equipment, tools and
rolling stock, real property, buildings, inventories and accounts receivable
used in the business of recycling ferrous and non-ferrous metals.
The sale price for Weissman is $12,400,000 and is allocated as follows:
<TABLE>
<S> <C>
Trade accounts receivable..................................... $ 1,600,000
Inventories................................................... 900,000
Buildings and improvements.................................... 3,000,000
Automotive shredder........................................... 3,000,000
Heavy equipment............................................... 1,900,000
Equipment and rolling stock................................... 1,200,000
Land.......................................................... 800,000
-----------
Total purchase price........................................ $12,400,000
===========
</TABLE>
Basis of Presentation
The accompanying financial statements include only the assets, liabilities,
equity and operations of the metals recycling division of Weissman Industries,
Inc. that is expected to be acquired by RII through a stock purchase agreement
upon the closing of a public offering of RII common stock.
Unaudited Interim Financial Statements
In the opinion of management, the unaudited interim financial statements for
the three month periods ended March 31, 1996 and 1995 are presented on a basis
consistent with the audited annual financial statements and reflect all
adjustments, consisting only of normal recurring accruals, necessary for fair
presentation of the results of such periods. The results of operations for the
interim period ended March 31, 1996 are not necessarily indicative of the
results to be expected for the year ended December 31, 1996.
F-77
<PAGE>
WEISSMAN IRON AND METAL
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Concentration of Credit Risk
Concentrations of credit risk with respect to trade receivables exist due to
large balances with a few customers. At December 31, 1995 and 1994, and March
31, 1996 (unaudited) accounts receivable balances for three major customers
were $1,216,000, $967,000 and $1,477,000, or 80%, 61% and 69%, respectively,
of the total accounts receivable balance. Ongoing credit evaluations of
customers' financial condition are performed and, generally, no collateral is
required. Weissman does not maintain reserves for potential losses since such
past losses, in the aggregate, have not been significant; therefore, the
allowance for doubtful accounts receivable is zero at December 31, 1995 and
1994, and at March 31, 1996 (unaudited). Customers are located in the upper
Midwest region of the United States (in or around Waterloo, Iowa).
Inventories
Inventories consist primarily of ferrous and non-ferrous scrap metal.
Inventory costs for finished goods include material, labor and plant overhead.
Inventory is stated at lower of cost (first-in, first-out) or market.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation and
amortization expense is provided on a straight-line basis using estimated
useful lives of 5 to 20 years for equipment and 40 years for building and
improvements. Depreciation and amortization expense of property, plant and
equipment was $312,000, $261,000, $220,000, $148,000 and $78,000 for the years
ended December 31, 1995, 1994 and 1993, and for the three months ended March
31, 1996 and 1995 (unaudited), respectively. Maintenance and repairs are
charged to expense as incurred and expenditures for major improvements are
capitalized. When assets are retired or otherwise disposed of, the property
accounts are relieved of costs and accumulated depreciation and any resulting
gain or loss is credited or charged to operations.
Environmental Expenditures
Environmental expenditures that relate to current operations are capitalized
if the costs improve the Weissman property as compared to the condition of the
property when originally constructed or acquired or if the costs prevent
environmental contamination from future operations. Expenditures that relate
to an existing condition caused by past operations, and which do not
contribute to current or future revenue generation, are expensed. Liabilities
are recorded when environmental assessments are made or remedial efforts are
probable and the costs can be reasonably estimated. These amounts are
generally accrued upon the completion of feasibility studies or the settlement
of claims, but in no event later than Weissman's commitment to a plan of
action.
Use of Estimates in the Preparation of Financial Statements
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 revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Fair Value of Financial Statements
The carrying amounts of cash, accounts receivable, accounts payable, and
accrued expenses approximate fair value because of the short maturity of these
items.
Income Taxes
Effective December 30, 1988, Weissman Industries, Inc. and its stockholders
elected under the Internal Revenue Code to be an S-corporation for tax
purposes. In lieu of corporate income taxes, the stockholders of an
F-78
<PAGE>
WEISSMAN IRON AND METAL
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
S-corporation are taxed on their proportionate share of taxable income.
Accordingly, no provision or liability for federal income taxes has been
included in these financial statements.
Upon completion of the sale of Weissman Industries, Inc. to RII, the tax
status of the Weissman Industries, Inc. will change from an S-corporation to a
taxable entity. Due to the tax effect of the sale there will be no significant
differences between financial statement and tax basis of assets and
liabilities and therefore the sale will not generate a deferred tax asset or
liability.
Cash
For purposes of reporting cash flows, Weissman considers all funds with
maturities of three months or less to be cash equivalents.
NOTE 2--INVENTORIES
Inventories consist of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1995 1994 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials............................ $ 544,000 $ 526,000 $352,000
Finished goods........................... 783,000 505,000 413,000
---------- ---------- --------
$1,327,000 $1,031,000 $765,000
========== ========== ========
</TABLE>
Included in inventory is $165,000, $108,000 and $84,000 of indirect costs at
December 31, 1995 and 1994, and March 31, 1996 (unaudited), respectively.
NOTE 3--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1995 1994 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Land............................... $ 153,000 $ 153,000 $ 153,000
Building and improvements.......... 2,983,000 2,970,000 2,983,000
Heavy machinery and equipment...... 4,602,000 4,289,000 4,648,000
Roads and railroad tracks.......... 184,000 178,000 184,000
Transportation equipment........... 863,000 757,000 863,000
Office equipment................... 58,000 58,000 58,000
----------- ----------- -----------
Total............................ 8,843,000 8,405,000 8,889,000
Less accumulated depreciation.... (3,391,000) (3,265,000) (3,489,000)
----------- ----------- -----------
$ 5,452,000 $ 5,140,000 $ 5,400,000
=========== =========== ===========
</TABLE>
F-79
<PAGE>
WEISSMAN IRON AND METAL
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--ECONOMIC DEPENDENCY
Weissman is economically dependent on three major customers for sales as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- -----------------------
1995 1994 1993 1996 1995
------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Customer A................... 38% 32% 28% 45% 32%
Customer B................... 19% 22% 12% 5% 18%
Customer C................... 14% 16% 29% 15% 13%
</TABLE>
Weissman also purchased inventory from two of these customers as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- -----------------------
1995 1994 1993 1996 1995
------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Customer A................... 5% 6% 9% 4% 7%
Customer B................... 20% 19% 15% 34% 18%
</TABLE>
NOTE 5--COMMITMENTS AND CONTINGENCIES
Environmental Liabilities
In November 1993, Weissman Industries, Inc. received a notice from the US
Environmental Protection Agency (EPA) that it may be a potentially responsible
party (PRP), along with hundreds of others, with regard to a recycling site in
Alabama which received a shipment of material from Weissman. Under the law, a
PRP may be ordered to perform response actions, may be liable for costs
incurred and may be required to pay damages for injury.
In October, 1995 the EPA notified Weissman Industries, Inc. that since
Weissman had a lower volumetric ranking, EPA intends to offer a de minimus
settlement to Weissman Industries, Inc. after completing negotiations with
larger ranking PRPs. Weissman has recorded an accrual in the amount of $30,000
for a de minimus settlement allowance.
The assessment of the required response and remedial costs associated with
the clean up is extremely complex. Among the variables that management must
assess are imprecise engineering estimates, continually evolving governmental
standards, potential recoveries from insurance coverage and laws which impose
joint and several liability.
Self Funded Employee Health Care Plan
Weissman maintains and self funds a health care plan for all full time
employees after 90 days of employment. A third party administrator is employed
to control costs. The maximum specific costs are covered by a reinsurance
provider.
Loan Guarantee
Weissman's trade receivables and inventories are collateral for a line of
credit with a maximum of $1,000,000 maintained by Weissman Industries, Inc.
There was $-0-, $775,000 and $-0- outstanding under this line of credit as of
December 31, 1995 and 1994, and March 31, 1996 (unaudited), respectively.
F-80
<PAGE>
WEISSMAN IRON AND METAL
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Union Contract
Substantially all of the labor force that works in the recycling operations
in the yard are members of the International Union of United Automobile,
Aerospace and Agricultural Implement Workers of America and work under a
collective bargaining agreement which expires November 30, 1996. Management
has not yet commenced negotiations, however, in the past have successfully
negotiated contract renewals.
Turnings and Borings Contract
On September 1, 1991, Weissman entered into a service agreement with a
significant customer to process the customer's turnings and borings for a term
of seven years for a range of $13 to $22 per ton based on the product plus
approximately $4,000 per month for reimbursement of equipment costs.
NOTE 6--RELATED PARTY TRANSACTIONS
In addition to transactions with related parties discussed throughout the
notes to the financial statements, the following related party transactions
have taken place.
Weissman purchases raw material inventory, sells miscellaneous services and
pays certain expenses to a related division of Weissman Industries, Inc. This
related division was sold to third parties in February 1995. The related party
transactions were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- -----------------------
1995 1994 1993 1996 1995
---------- ---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Purchase of inventory... $ 31,000 $168,000 $ 99,000 $ -- $31,000
Management fee charge... $180,000 $180,000 $180,000 $45,000 $45,000
Sales of services, net.. $ 19,000 $205,000 $168,000 $ -- $14,000
</TABLE>
The purchase of the raw material approximates the cost paid to other large
bulk suppliers of Weissman. Costs charged are based upon actual amounts paid
by Weissman.
The balances due from the other divisions are shown as distributions from
Division Equity.
NOTE 7--RETIREMENT PLAN
Weissman Industries, Inc. has a defined benefit plan (the Plan) covering
substantially all of its employees. The Plan provides for payment of
retirement benefits commencing between the ages of 55 and 65. After meeting
certain qualifications, an employee acquires a vested right to future
benefits. The benefits payable under the Plan are generally determined on the
basis of an employee's length of service and earnings. Annual contributions to
the Plan are sufficient to satisfy legal funding requirements.
Benefits under the Plan were frozen on October 31, 1995 and effective
December 30, 1995 the Plan was terminated. Upon receipt of a favorable
Internal Revenue Service determination letter and approval from Pension
Guaranty Trust the assets will be distributed to the participants. The
termination was approved by the union. The accrued loss due to curtailment at
the termination date was $47,000.
Upon adoption of Financial Accounting Standard Number 87 (FAS 87) Employers'
Accounting for Pensions in 1989, the fair value of Plan assets exceeded
projected benefit liability by $83,000. This initial net asset is being
amortized over 9.4 years.
Plan assets consist of a Group Annuity Contract with Principal Financial
Group.
F-81
<PAGE>
WEISSMAN IRON AND METAL
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Weissman pension activity consists of approximately 43% of the total Plan.
The following disclosures are for Weissman:
In accordance with FAS 87, Weissman was required to record an additional
minimum pension liability at December 31, 1995 and 1993, and March 31, 1996
(unaudited). This amount represents the excess of the accumulated benefit
obligations over the fair value of Plan assets and accrued pension
liabilities. The liabilities have been offset by intangible assets to the
extent possible. Because the asset recognized may not exceed the amount of
unrecognized prior service cost, the balance of the liability at the end of
each period is reported as a separate reduction to Division Equity.
Amounts are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1995 1994 1993 1996
------- ----- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Intangible assets.......................... $ -- $ -- $ 4,000 $ --
Reduction to Division Equity............... 47,000 -- 64,000 47,000
------- ----- ------- -------
Additional minimum liability............... $47,000 $ -- $68,000 $47,000
======= ===== ======= =======
</TABLE>
The net periodic pension cost is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------- -----------------------
1995 1994 1993 1996 1995
-------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Service costs--benefits
earned during the
period................. $ 21,000 $ 25,000 $ 18,000 $ -- $ 5,000
Interest cost on
projected benefit
obligation............. 19,000 18,000 15,000 -- 5,000
Actual return on
assets................. (84,000) 15,000 (23,000) -- (21,000)
Net amortization and
deferral............... 60,000 (33,000) 3,000 -- 15,000
-------- -------- -------- ----- --------
Net periodic pension
cost............... $ 16,000 $ 25,000 $ 13,000 $ -- $ 4,000
======== ======== ======== ===== ========
</TABLE>
Assumptions used in the accounting were:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- -----------------------
1995 1994 1993 1996 1995
------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Discount rate.............. 6.25% 7.25% 5.75% -- 6.25%
Rate of increase in
compensation levels....... 5.26% 5.36% 6.00% -- 5.26%
Expected long-term rate of
return on assets.......... 7.75% 7.75% 7.75% -- 7.75%
</TABLE>
F-82
<PAGE>
WEISSMAN IRON AND METAL
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
The following table sets forth the plan's funded status and amounts
recognized in Weissman's balance sheet for its pension plan at:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31,
1995 1994 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrual present value of benefit
obligation:
Vested benefit obligation............. $ 358,000 $ 237,000 $ 358,000
========== ========== =========
Accumulated benefit obligation....... $ 358,000 $ 244,000 $ 358,000
========== ========== =========
Projected benefit obligation......... $(358,000) $(268,000) $(358,000)
Plan assets at fair value............ 330,000 263,000 330,000
---------- ---------- ---------
Projected benefit obligation in
excess of plan assets............... (28,000) (5,000) (28,000)
Items not yet recognized in earnings:
Unrecognized net loss............... 63,000 52,000 63,000
Unrecognized (net asset) at January
1, 1989............................ (15,000) (22,000) (15,000)
Unrecognized prior service cost..... -- 3,000 --
Contributions made prior to year
end................................ -- 6,000 --
Loss on curtailment................. (47,000) -- (47,000)
---------- ---------- ---------
Pension (liability) asset recognized
in the balance sheet............... $ (27,000) $ 34,000 $ (27,000)
========== ========== =========
</TABLE>
F-83
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
EXPLANATORY HEADNOTE
INTRODUCTION
The following unaudited pro forma condensed consolidated financial
statements give effect to the acquisitions by Recycling Industries, Inc. (the
Company) of the entities detailed below and are based on the estimates and
assumptions set forth herein and in the notes to such statements. This pro
forma information has been prepared utilizing the historical financial
statements and notes thereto, which are incorporated by reference herein. The
pro forma financial data does not purport to be indicative of the results
which actually would have been obtained had the acquisitions been effected on
the dates indicated or the results which may be obtained in the future.
The pro forma consolidated balance sheet assumes the acquisitions were
consummated at March 31, 1996. The pro forma consolidated statement of
operations for the year ended September 30, 1995 includes the operating
results of the Company for such period and the operating results of Anglo,
Mid-America and Weissman for the 12 months ended December 31, 1995. The pro
forma consolidated statement of operations for the six months ended March 31,
1996 includes the operating results of the Company, Anglo, Mid-America and
Weissman for such period. The operating results of Anglo, Mid-America and
Weissman for the three months beginning October 1, 1995 and ending December
31, 1995 have been included in the pro forma consolidated statement of
operations for both the year ended September 30, 1995 and the six months ended
March 31, 1996.
Anglo Metal, Inc. dba Anglo Iron & Metal
On December 11, 1995, the Company acquired substantially all of the assets
and the business of Anglo Metal, Inc. dba Anglo Iron & Metal (Anglo). The
assets acquired from Anglo consisted of a heavy duty automotive shredder,
inventories, metals shearing equipment, balers, heavy equipment, tools and
rolling stock used in the business of recycling ferrous and non-ferrous
metals. The Company also purchased from Anglo certain real property, buildings
and leasehold improvements used in the business of recycling ferrous and non-
ferrous metals.
The purchase price for Anglo was $6,065,000 comprised of: $2,079,000 in
cash; a $1,865,000 note which is to be paid in ten equal monthly installments
of $186,500 beginning in February 1996; a $446,000 secured promissory note
payable in 60 consecutive monthly installments of $9,000; a $750,000 unsecured
note payable in 72 equal consecutive monthly installments of $10,400; and
227,693 shares of the Company's common stock (Common Stock) valued at
$925,000.
Of the cash paid at the closing of the acquisition, $1,800,000 was obtained
through a sale-leaseback transaction with Ally Capital Corporation,
collateralized by all of Anglo's machinery and equipment, accounts receivable
and inventories, which has been recorded as a capital lease. The terms of the
sale-leaseback provide for 60 consecutive monthly lease payments of $41,000
with a bargain purchase option at the end of the lease term. The lease
contains numerous covenants for maintaining certain financial ratios and
earnings levels. The remaining $279,000 paid at closing was obtained from the
operating cash reserves and working capital of the Company.
F-3
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION--(CONTINUED)
EXPLANATORY HEADNOTE
The purchase price for Anglo has been allocated as follows:
<TABLE>
<S> <C>
Equipment under capital lease................................. $ 1,800,000
Contract to purchase land and buildings....................... 70,000
Covenant not to compete....................................... 1,000,000
Inventories................................................... 1,365,000
Purchase price in excess of net assets acquired............... 1,830,000
-----------
Total purchase price........................................ 6,065,000
Notes payable................................................. (3,061,000)
Common Stock.................................................. (925,000)
-----------
Cash paid at closing........................................ 2,079,000
Capital lease obligation.................................... (1,800,000)
-----------
Cash from operating capital................................. $ 279,000
===========
</TABLE>
Mid-America Shredding, Inc.
On April 15, 1996, the Company acquired the assets and the business of Mid-
America Shredding, Inc. (Mid-America). The assets acquired from Mid-America
consisted of real property, buildings, inventories, a heavy duty automotive
shredder, a wire chopping plant, heavy equipment and tools used in the
business of recycling ferrous and non-ferrous metals.
The purchase price for Mid-America was $1,925,000, comprised of $660,000 in
cash, a $55,000 note payable in eight equal monthly installments of $6,900,
and the assumption of Mid-America's outstanding bank debt of $1,210,000.
The purchase price for Mid-America has been allocated as follows:
<TABLE>
<S> <C>
Inventory..................................................... $ 55,000
Land.......................................................... 310,000
Buildings and improvements.................................... 560,000
Machinery and equipment....................................... 1,000,000
-----------
Total purchase price........................................ 1,925,000
Notes payable............................................... (1,265,000)
-----------
Cash paid at closing........................................ $ 660,000
===========
</TABLE>
Weissman Iron and Metal, a Division of Weissman Industries, Inc.
The Company has reached an agreement with the stockholders of Weissman
Industries, Inc. to acquire the business of Weissman Iron and Metal, a
division of Weissman Industries, Inc. (Weissman), through the purchase of all
of the outstanding common stock of Weissman.
The assets of Weissman consist of a heavy duty automotive shredder, metal
shearing equipment, a Coreco aluminum furnace, heavy equipment, tools and
rolling stock, real property and buildings, inventories and accounts
receivable used in the business of recycling ferrous and non-ferrous metals.
F-4
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION--(CONCLUDED)
EXPLANATORY HEADNOTE
The purchase price for Weissman is anticipated to be allocated as follows:
<TABLE>
<S> <C>
Accounts receivable........................................... $ 1,600,000
Inventories................................................... 900,000
Buildings and improvements.................................... 3,000,000
Automotive shredder........................................... 1,500,000
Heavy equipment............................................... 3,400,000
Equipment and rolling stock................................... 1,200,000
Land.......................................................... 800,000
-----------
Total purchase price.......................................... 12,400,000
Notes payable................................................. (5,700,000)
Common stock.................................................. (1,500,000)
-----------
Cash to be paid at closing.................................... $ 5,200,000
===========
</TABLE>
The $5,700,000 notes payable will be secured by the assets of Weissman.
$3,500,000 of such notes will be payable in 60 monthly installments of
$75,000, including interest. The balance of $2,200,000 is pursuant to a
revolving credit facility bearing interest at prime plus 2.25%. The Company
has received a non-binding commitment from a commercial lender with respect to
a $10,000,000 facility that includes such notes payable.
F-5
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
RECYCLING ANGLO ANGLO
INDUSTRIES, INC. IRON & METAL IRON & METAL
SEPTEMBER 30, DECEMBER 31, PRO FORMA
1995 1995 ADJUSTMENTS
---------------- ------------ ------------
<S> <C> <C> <C>
REVENUES:
Sales......................... $13,812,000 $15,116,000 $ --
Brokerage..................... -- 216,000 --
Other income.................. 41,000 7,000 --
----------- ----------- ---------
13,853,000 15,339,000 --
----------- ----------- ---------
COST AND EXPENSES:
Cost of sales................. 10,869,000 13,739,000 (198,000)(7)
-- -- 12,000 (3)
Cost of brokerage............. -- 181,000 --
Management fees............... -- -- --
Personnel..................... 744,000 414,000 --
Professional services......... 527,000 66,000 --
Travel........................ 39,000 -- --
Occupancy..................... 83,000 -- --
Depreciation and
amortization................. 258,000 11,000 66,000 (3)
-- -- 167,000 (11)
Interest...................... 407,000 133,000 91,000 (9)
Environmental remediation
costs........................ -- -- --
Bad debt expense.............. 151,000 -- --
Other general and
administrative............... 477,000 336,000 (328,000)(5)
----------- ----------- ---------
13,555,000 14,880,000 (190,000)
----------- ----------- ---------
INCOME (LOSS) BEFORE INCOME
TAXES.......................... 298,000 459,000 190,000
INCOME TAXES (BENEFIT).......... (711,000) 140,000 (64,000)(8)
----------- ----------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS, NET OF INCOME
TAXES.......................... $ 1,009,000 $ 319,000 $ 254,000
=========== =========== =========
NET INCOME (LOSS) AFTER
EXTRAORDINARY ITEM AND INCOME
TAXES.......................... $ 1,815,000 $ 319,000 $ 254,000
=========== =========== =========
INCOME PER SHARE:
Income from continuing
operations, net of income
taxes........................ $ .17
===========
Net income after extraordinary
item and income taxes........ $ .30
===========
Weighted average number of
common shares outstanding.... 6,099,694
===========
</TABLE>
See accompanying Headnote and Notes to Pro Forma Consolidated Financial
Statements
F-6
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS--(CONTINUED)
FOR THE YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
MID-AMERICA MID-AMERICA WEISSMAN WEISSMAN CONSOLIDATED
SHREDDING SHREDDING IRON & METAL IRON & METAL PRO FORMA
DECEMBER 31, PRO FORMA DECEMBER 31, PRO FORMA SEPTEMBER 30,
1995 ADJUSTMENTS 1995 ADJUSTMENTS 1995
------------ ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Sales................. $3,866,000 $ -- $16,207,000 $ -- $49,001,000
Brokerage............. -- -- 2,956,000 -- 3,172,000
Other income.......... -- -- 1,000 -- 49,000
---------- -------- ----------- --------- -----------
3,866,000 -- 19,164,000 -- 52,222,000
---------- -------- ----------- --------- -----------
COST AND EXPENSES:
Cost of sales......... 3,587,000 (86,000)(3) 12,235,000 160,000 (3) 40,138,000
-- -- -- (180,000)(5) --
Cost of brokerage..... -- -- 2,894,000 -- 3,075,000
Management fees....... -- -- 180,000 (180,000)(5) --
Personnel............. 247,000 -- 654,000 -- 2,059,000
Professional
services............. 6,000 -- 17,000 -- 616,000
Travel................ 1,000 -- -- -- 40,000
Occupancy............. -- -- -- -- 83,000
Depreciation and
amortization......... -- -- 7,000 -- 509,000
-- -- -- -- --
Interest.............. 125,000 -- -- 598,000 (9) 1,354,000
Environmental
remediation costs.... -- -- 30,000 (30,000)(7) --
Bad debt expense...... -- -- -- -- 151,000
Other general and
administrative....... 23,000 -- 124,000 (74,000)(5) 558,000
---------- -------- ----------- --------- -----------
3,989,000 (86,000) 16,141,000 294,000 48,583,000
---------- -------- ----------- --------- -----------
INCOME (LOSS) BEFORE
INCOME TAXES........... (123,000) 86,000 3,023,000 (294,000) 3,639,000
INCOME TAXES (BENEFIT).. -- (10,000) -- 307,000 (338,000)
---------- -------- ----------- --------- -----------
INCOME (LOSS) FROM
CONTINUING OPERATIONS,
NET OF INCOME TAXES.... $ (123,000) $ 96,000 $ 3,023,000 $(601,000) $ 3,977,000
========== ======== =========== ========= ===========
NET INCOME (LOSS) AFTER
EXTRAORDINARY ITEM AND
INCOME TAXES........... $ (123,000) $ 96,000 $ 3,023,000 $(601,000) $ 4,783,000
========== ======== =========== ========= ===========
INCOME PER SHARE:
Income from continuing
operations, net of
income taxes......... $ .59
===========
Net income after
extraordinary item
and income taxes..... $ .71
===========
Weighted average
number of common
shares outstanding... 6,691,024
===========
</TABLE>
See accompanying Headnote and Notes to Pro Forma Consolidated Financial
Statements
F-7
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
<TABLE>
<CAPTION>
RECYCLING MID-AMERICA MID-AMERICA WEISSMAN WEISSMAN USE OF CONSOLIDATED
INDUSTRIES, INC. SHREDDING SHREDDING IRON & METAL IRON & METAL PROCEEDS PRO FORMA
MARCH 31, MARCH 31, PRO FORMA MARCH 31, PRO FORMA FROM MARCH 31,
1996 1996 ADJUSTMENTS 1996 ADJUSTMENTS OFFERING(12) 1996
---------------- ----------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.................. $ 1,240,000 $ 18,000 $ (18,000)(4) $ 9,000 $ (9,000)(4) $1,128,000 $ 2,368,000
Trade accounts
receivable, net...... 2,149,000 109,000 (109,000)(4) 2,170,000 (570,000)(2) -- 3,749,000
Accounts receivable,
related parties...... 95,000 -- -- -- -- -- 95,000
Inventories........... 2,076,000 34,000 21,000 (2) 765,000 135,000 (2) -- 3,031,000
Prepaid expenses...... 353,000 -- -- 10,000 (10,000)(4) -- 353,000
Other current assets.. 216,000 -- -- -- -- -- 216,000
Deferred income
taxes................ 500,000 -- -- -- -- -- 500,000
----------- ---------- ----------- ---------- ---------- ---------- -----------
Total current
assets.............. 6,629,000 161,000 (106,000) 2,954,000 (454,000) 1,128,000 10,312,000
PROPERTY, PLANT AND
EQUIPMENT, net........ 8,421,000 2,823,000 (953,000)(2) 5,400,000 4,500,000 (2) -- 20,191,000
DEFERRED INCOME TAXES,
net................... 741,000 -- -- -- -- -- 741,000
OTHER ASSETS, net...... 4,147,000 -- -- -- -- -- 4,147,000
----------- ---------- ----------- ---------- ---------- ---------- -----------
$19,938,000 $2,984,000 $(1,059,000) $8,354,000 $4,046,000 $1,128,000 $35,391,000
=========== ========== =========== ========== ========== ========== ===========
</TABLE>
See accompanying Headnote and Notes to Pro Forma Consolidated Financial
Statements
F-8
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET--(CONTINUED)
MARCH 31, 1996
<TABLE>
<CAPTION>
RECYCLING MID-AMERICA MID-AMERICA WEISSMAN WEISSMAN USE OF CONSOLIDATED
INDUSTRIES, INC. SHREDDING SHREDDING IRON & METAL IRON & METAL PROCEEDS PRO FORMA
MARCH 31, MARCH 31, PRO FORMA MARCH 31, PRO FORMA FROM MARCH 31,
1996 1996 ADJUSTMENTS 1996 ADJUSTMENTS OFFERING(12) 1996
---------------- ----------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Bank overdraft........ $ -- $ -- $ -- $ 115,000 $ (115,000)(4) $ -- $ --
Notes payable......... -- 1,210,000 (1,155,000)(2) -- 2,200,000 (2) -- 2,255,000
Notes payable--related
party................ 1,927,000 -- -- -- -- -- 1,927,000
Trade accounts
payable.............. 1,235,000 129,000 (129,000)(4) 1,200,000 (1,200,000)(4) -- 1,235,000
Trade accounts
payable--related
parties.............. 140,000 143,000 (143,000)(4) -- -- -- 140,000
Accrued liabilities:
Interest.............. 30,000 -- -- -- -- -- 30,000
Payroll and other..... 267,000 16,000 (16,000)(4) 172,000 (172,000)(4) -- 267,000
Income taxes payable.. 86,000 -- -- -- -- -- 86,000
Due to factor, related
party................ 137,000 -- -- -- -- -- 137,000
Environmental
remediation
liabilities.......... -- -- -- 30,000 (30,000)(4) -- --
Current portion of
long-term debt....... 94,000 21,000 (21,000)(4) -- 562,000 (2) -- 902,000
-- -- 246,000 (2) -- -- -- --
Current portion of
long-term debt,
related parties...... 2,294,000 -- -- -- -- -- 2,294,000
Current portion of
obligation under
capital lease........ 314,000 -- -- -- -- -- 314,000
----------- ----------- ----------- ---------- ---------- ----------- -----------
Total Current
Liabilities......... 6,524,000 1,519,000 (1,218,000) 1,517,000 1,245,000 -- 9,587,000
----------- ----------- ----------- ---------- ---------- ----------- -----------
LONG-TERM DEBT:
Long-term debt, net of
current portion...... 124,000 2,000 (2,000)(4) -- 2,938,000 (2) -- 4,026,000
-- -- 964,000 (2) -- -- -- --
Long-term debt--
related parties, net
of current portion... 945,000 -- -- -- -- -- 945,000
Obligation under
capital lease, net of
current portion...... 1,452,000 -- -- -- -- -- 1,452,000
Purchase price
obligation........... -- -- 660,000 (2) -- 5,200,000 (2) (5,200,000) 660,000
----------- ----------- ----------- ---------- ---------- ----------- -----------
Total Long-Term
Debt................ 2,521,000 2,000 1,622,000 -- 8,138,000 (5,200,000) 7,083,000
----------- ----------- ----------- ---------- ---------- ----------- -----------
Total Liabilities.... 9,045,000 1,521,000 404,000 1,517,000 9,383,000 (5,200,000) 16,670,000
----------- ----------- ----------- ---------- ---------- ----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock,
Series A............. 1,312,000 -- -- -- -- (1,312,000) --
Common stock.......... 10,000 -- -- -- -- 4,000 14,000
Additional paid-in
capital.............. 17,909,000 3,055,000 (3,055,000)(2) -- 1,500,000 (2) 7,636,000 27,045,000
Retained earnings
(deficit)............ (8,338,000) (1,592,000) 1,592,000 6,837,000 (6,837,000)(2) -- (8,338,000)
----------- ----------- ----------- ---------- ---------- ----------- -----------
Total Stockholders'
Equity.............. 10,893,000 1,463,000 (1,463,000) 6,837,000 (5,337,000) 6,328,000 18,721,000
----------- ----------- ----------- ---------- ---------- ----------- -----------
$19,938,000 $ 2,984,000 $(1,059,000) $8,354,000 $4,046,000 $ 1,128,000 $35,391,000
=========== =========== =========== ========== ========== =========== ===========
</TABLE>
See accompanying Headnote and Notes to Pro Forma Consolidated Financial
Statements
F-9
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
RECYCLING ANGLO ANGLO MID-AMERICA MID-AMERICA
INDUSTRIES, INC. IRON & METAL IRON & METAL SHREDDING SHREDDING
MARCH 31, MARCH 31, PRO FORMA MARCH 31, PRO FORMA
1996 1996 ADJUSTMENTS 1996 ADJUSTMENTS
---------------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Sales................. $10,735,000 $7,240,000 $(4,433,000)(6) $1,170,000 $ --
Brokerage............. -- -- -- -- --
Other income.......... 28,000 28,000 (27,000)(6) -- --
----------- ---------- ----------- ---------- --------
10,763,000 7,268,000 (4,460,000) 1,170,000 --
----------- ---------- ----------- ---------- --------
COST AND EXPENSES:
Cost of sales......... 9,352,000 5,923,000 8,000 (3) 1,228,000 (39,000)(3)
-- -- (3,646,000)(6) -- --
-- -- (100,000)(7) -- --
Cost of brokerage..... -- -- -- -- --
Personnel............. 862,000 317,000 (225,000)(6) 60,000 --
Professional
services............. 264,000 30,000 -- 6,000 --
Travel................ 60,000 3,000 (3,000)(6) -- --
Occupancy............. 28,000 -- -- -- --
Depreciation and
amortization......... 101,000 20,000 32,000 (3) -- --
-- -- 42,000 (11) -- --
-- -- (20,000)(6) -- --
Interest.............. 245,000 109,000 (54,000)(6) 67,000 --
Management fee........ -- -- -- -- --
Other general and
administrative....... 238,000 193,000 (164,000)(5) 9,000 --
-- -- (75,000)(6) -- --
----------- ---------- ----------- ---------- --------
11,150,000 6,595,000 (4,205,000) 1,370,000 (39,000)
----------- ---------- ----------- ---------- --------
INCOME (LOSS) BEFORE
INCOME TAXES........... (387,000) 673,000 (255,000) (200,000) 39,000
INCOME TAXES (BENEFIT).. (437,000) 229,000 (87,000)(8) -- (63,000)(8)
----------- ---------- ----------- ---------- --------
INCOME (LOSS) FROM
CONTINUING OPERATIONS,
NET OF INCOME TAXES.... $ 50,000 $ 444,000 $ (168,000) $ (200,000) $102,000
=========== ========== =========== ========== ========
NET INCOME (LOSS) AFTER
EXTRAORDINARY ITEM AND
INCOME TAXES........... $ 98,000 $ 444,000 $ (168,000) $ (200,000) $102,000
=========== ========== =========== ========== ========
INCOME PER SHARE:
Income from continuing
operations, net of
income taxes......... $ .01
===========
Net income after
extraordinary item
and income taxes..... $ .01
===========
Weighted average
number of common
shares outstanding... 9,773,913
===========
</TABLE>
See accompanying Headnote and Notes to Pro Forma Consolidated Financial
Statements
F-10
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS--(CONTINUED)
FOR THE SIX MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
WEISSMAN WEISSMAN USE OF CONSOLIDATED
IRON & METAL IRON & METAL PROCEEDS PRO FORMA
MARCH 31, PRO FORMA FROM MARCH 31,
1996 ADJUSTMENTS OFFERING 1996
------------ ------------ -------- ------------
<S> <C> <C> <C> <C>
REVENUES:
Sales.................... $ 7,881,000 $ -- $-- $22,593,000
Brokerage................ 2,476,000 -- -- 2,476,000
Other income............. 26,000 -- -- 55,000
----------- --------- ---- -----------
10,383,000 -- -- 25,124,000
----------- --------- ---- -----------
COST AND EXPENSES:
Cost of sales............ 5,858,000 80,000 (3) -- 18,574,000
-- (90,000)(5) --
Cost of brokerage........ 2,411,000 -- -- 2,411,000
Personnel................ 301,000 -- -- 1,315,000
Professional services.... 15,000 -- -- 315,000
Travel................... -- -- -- 60,000
Occupancy................ -- -- -- 28,000
Depreciation and
amortization............ 4,000 -- -- 179,000
Interest................. -- 299,000 (9) -- 666,000
Management fee........... 45,000 (45,000)(5) -- --
Other general and
administrative.......... 151,000 (36,000)(5) -- 316,000
----------- --------- ---- -----------
8,785,000 208,000 -- 23,864,000
----------- --------- ---- -----------
INCOME (LOSS) BEFORE INCOME
TAXES..................... 1,598,000 (208,000) -- 1,260,000
INCOME TAXES (BENEFIT)..... -- 473,000 -- 115,000
----------- --------- ---- -----------
INCOME (LOSS) FROM
CONTINUING OPERATIONS, NET
OF INCOME TAXES........... $ 1,598,000 $(681,000) $-- $ 1,145,000
=========== ========= ==== ===========
NET INCOME (LOSS) AFTER
EXTRAORDINARY ITEM AND
INCOME TAXES.............. $ 1,598,000 $(681,000) $-- $ 1,193,000
=========== ========= ==== ===========
INCOME PER SHARE:
Income from continuing
operations, net of
income taxes............ $ .11
===========
Net income after
extraordinary item and
income taxes............ $ .12
===========
Weighted average number
of common shares
outstanding............. 10,227,134
===========
</TABLE>
See accompanying Headnote and Notes to Pro Forma Consolidated Financial
Statements
F-11
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--PRO FORMA ADJUSTMENTS
The adjustments relating to the pro forma consolidated statements of
operations are computed assuming the acquisitions of Anglo, Mid-America and
Weissman were consummated at the beginning of the applicable periods
presented. The adjustments relating to the pro forma consolidated balance
sheet are computed assuming the acquisitions of Mid-America and Weissman were
consummated at March 31, 1996 for the March 31, 1996 balance sheet.
NOTE 2--ACQUISITION OF SUBSIDIARIES
Mid-America
Reflects the acquisition of equipment, inventory, land and buildings for
assumption of debt and cash. The acquisition of Mid-America is recorded using
the purchase method.
Weissman
Reflects the acquisition of accounts receivable, inventory, buildings,
equipment and land for notes payable, common stock and cash. The acquisition
of Weissman is recorded using the purchase method.
NOTE 3--ADDITIONAL DEPRECIATION AND AMORTIZATION
Anglo and Weissman
Reflects additional depreciation of property and equipment due to the
increased cost of the assets acquired. Reflects amortization of goodwill using
the straight line method over 20 years for Anglo.
Mid-America
Adjusts depreciation of property and equipment due to the allocated cost of
the assets acquired.
NOTE 4--UNACQUIRED ASSETS AND LIABILITIES
Mid-America
Removes assets and liabilities that were not acquired or assumed by the
Company.
Weissman
Removes prepaid pension costs, accrued pension liabilities and other
liabilities not acquired or assumed in the acquisition.
NOTE 5--NON-RECURRING EXPENSES
Removes non-recurring expenses paid to former officers and stockholders of
the acquired businesses for salaries and benefits that will not be incurred in
the future under the terms of the acquisition agreements.
NOTE 6--DUPLICATE TRANSACTIONS FOR ANGLO
Removes 110 days of operations for Anglo subsequent to the acquisition,
which are included in the historical operations of the Company for the six
months ended March 31, 1996. The assets and liabilities of Anglo are included
in the Company's consolidated balance sheet at March 31, 1996.
F-12
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--NON-RECURRING REMEDIATION EXPENSES
Anglo
Removes non-recurring equipment costs, outside labor costs, direct labor
costs and landfill costs incurred for remediation costs in compliance with the
terms of the sale agreement.
Weissman
Removes estimated remediation costs in compliance with the terms of the sale
agreement that will not be incurred in the future.
NOTE 8--PROVISION FOR INCOME TAXES
Records provision for income taxes on the acquired operations including
recognition of benefit from utilization of net operating loss carryforward and
affects of alternative minimum income taxes.
NOTE 9--INTEREST EXPENSE
Reflects interest expense for notes payable used to finance the acquisition
of Weissman (interest at prime plus 2.25%; 10.5% at March 31, 1996) and Anglo
(interest at 14%).
NOTE 10--WEIGHTED AVERAGE SHARES OUTSTANDING
On a pro forma basis, weighted average shares are adjusted to reflect the
227,693 shares of Common Stock issued in the acquisition of Anglo and 363,637
shares of common stock issued in the acquisition of Weissman. Such adjustments
are assumed to be outstanding for the entire period for all periods presented.
NOTE 11--NON-COMPETE AND CONSULTING AGREEMENT
Reflects amortization of the non-compete and consulting agreement with the
president of Anglo over a six year term using the straight line method.
NOTE 12--USE OF PROCEEDS FROM PUBLIC OFFERING
Reflects estimated use of approximately $14,388,000 of net proceeds from the
public offering for: cash purchase price of Weissman $5,200,000; repurchase of
1,380,585 shares of the Company's common stock for $5,660,000; and to redeem
all of the Company's outstanding Series A convertible preferred stock and
120,000 shares of the Company's common stock issued in connection with the
acquisition of its Nevada facility for $2,400,000. The remaining $1,128,000
will be used for working capital and has been presented as cash in the pro
forma balance sheet.
F-13
