SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): June 20, 1997
(April 7, 1997)
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.)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On April 7, 1997, Recycling Industries of Georgia, Inc., a wholly-owned
subsidiary of the Registrant ("RIGI"), acquired substantially all of the assets
and the business of Addlestone Recycling, Corp., ("ARC"), a privately held
metals recycler with operations in Metter, Georgia. ARC's markets are steel
mills and foundries in the Southeast.
The assets acquired from ARC consist of heavy equipment, tools and rolling
stock used in the business of recycling ferrous and non-ferrous metals. The
Registrant also purchased from ARC certain real property, buildings and
leasehold improvements used in the metals recycling business.
The total purchase price for ARC was $5.7 million including $0.5 million
paid in the form of 10,000 shares of Registrant's Series D Convertible Preferred
Stock. The $5.2 million cash portion of the purchase price was funded from long
term debt obtained from a financial institution. The purchase price was
determined through arm's length negotiations and based upon an independent
appraisal.
The Company has reached a definitive agreement to purchase substantially all
the assets of Addlestone International Corporation ("AIC"), a privately held
metals recycler with operations in Georgetown, South Carolina. AIC's markets
are steel mills and foundries in the Southeast.
The total purchase price for AIC is $6 million plus unprocessed inventory
payable at closing. Included in the purchase price is $0.5 million or 10,000
shares of Series E Convertible stock. The $5.5 million cash portion of the
purchase price will be funded from long term debt obtained from a financial
institution. The purchase price was determined through arm's length
negotiations and based upon an independent appraisal.
The Registrant will continue the metals recycling operations of ARC and AIC.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
1. Audited combined financial statements of ARC and AIC.
(b) PRO FORMA FINANCIAL INFORMATION.
1. Pro forma consolidated financial statements for Recycling Industries,
Inc. and Subsidiaries.
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: June 20, 1997 By /s/ THOMAS J. WIENS
--------------------------------
Thomas J. Wiens, Chairman and
CEO
Addlestone Recycling Corporation and
Addlestone International Corporation
Combined Financial Statements
As of December 31, 1996 and 1995
and for the Years Ended December 31, 1996, 1995 and 1994
TABLE OF CONTENTS
PAGE
-----
Report of Independent Certified Public Accountants 3
Combined Balance Sheets 4
Combined Statements of Income 5
Combined Statements of Stockholders' Equity 6
Combined Statements of Cash Flows 7
Summary of Accounting Policies 8 - 9
Notes to Combined Financial Statements 10 - 16
Report of Independent Certified Public Accountants
To the Board of Directors
Addlestone Recycling Corporation
Addlestone International Corporation
Charleston, South Carolina
We have audited the accompanying combined balance sheets of Addlestone
Recycling Corporation and Addlestone International Corporation (the Companies)
as of December 31, 1996 and 1995 and the related combined statements of income,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Companies' 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
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Addlestone
Recycling Corporation and Addlestone International Corporation as of December
31, 1996 and 1995, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
BDO Seidman, LLP
Denver, Colorado
May 9, 1997
ADDLESTONE RECYCLING CORPORATION
AND ADDLESTONE INTERNATIONAL CORPORATION
Combined Balance Sheets
December 31, 1996 1995
- ---------------------------------------------------------------
Assets (Note 5)
Current assets:
Cash and cash equivalents $ 108,000 $ 40,000
Accounts receivable:
Trade 2,994,000 2,111,000
Related party (Note 4) - 118,000
Interest and other 37,000 15,000
Inventories (Note 1) 9,553,000 5,389,000
Prepaid expenses 173,000 176,000
Notes receivable:
Other (Note 3) 101,000 144,000
Related party (Note 4) - 1,369,000
- ---------------------------------------------------------------
Total current assets 12,966,000 9,362,000
- ---------------------------------------------------------------
Property and equipment, net (Note 2) 4,490,000 4,945,000
- ---------------------------------------------------------------
Other assets:
Notes receivable (Note 3) 395,000 138,000
Deposits and other, net 2,000 125,000
- ---------------------------------------------------------------
Total other assets 397,000 263,000
- ---------------------------------------------------------------
$17,853,000 $14,570,000
- ---------------------------------------------------------------
- ---------------------------------------------------------------
See accompanying summary of accounting policies and
notes to combined financial statements.
ADDLESTONE RECYCLING CORPORATION
AND ADDLESTONE INTERNATIONAL CORPORATION
Combined Balance Sheets
December 31, 1996 1995
- ---------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Trade accounts payable $ 380,000 $ 294,000
Accrued payroll and other expenses 298,000 264,000
Notes payable:
Related parties (Note 4) 1,338,000 923,000
Other (Note 5) 1,621,000 1,260,000
- ---------------------------------------------------------------
Total current liabilities 3,637,000 2,741,000
Notes payable (Note 5) - 100,000
- ---------------------------------------------------------------
Total liabilities 3,637,000 2,841,000
- ---------------------------------------------------------------
Commitments and contingencies (Notes 7 and 9)
Stockholders' equity:
Preferred stock, $.10 par value
50,000 shares
authorized, none issued - -
Common stock, $.01 par value
1,000 shares authorized,
161 shares issued and outstanding - -
Common stock, $.10 par value
100,000 shares authorized,
10,000 shares issued and outstanding 1,000 1,000
Additional paid-in capital 244,000 244,000
Retained earnings 13,971,000 11,484,000
- ---------------------------------------------------------------
Total stockholders' equity 14,216,000 11,729,000
- ---------------------------------------------------------------
$ 17,853,000 $14,570,000
- ---------------------------------------------------------------
- ---------------------------------------------------------------
See accompanying summary of accounting policies and
notes to combined financial statements.
ADDLESTONE RECYCLING CORPORATION
AND ADDLESTONE INTERNATIONAL CORPORATION
Combined Statements of Income
<TABLE>
Years Ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Sales (Notes 4 and 6) $27,536,000 $16,972,000 $22,067,000
Other income 267,000 587,000 1,163,000
- --------------------------------------------------------------------------------
Total Revenues 27,803,000 17,559,000 23,320,000
- --------------------------------------------------------------------------------
Costs and expenses:
Cost of sales (Note 6) 23,093,000 14,243,000 18,225,000
Personnel 663,000 617,000 548,000
Professional services 111,000 78,000 89,000
Travel 18,000 14,000 35,000
Depreciation and amortization 46,000 50,000 1,000
Interest 252,000 174,000 361,000
Other general and administrative 1,126,000 863,000 1,207,000
- --------------------------------------------------------------------------------
Total costs and expenses 25,309,000 16,039,000 20,466,000
- --------------------------------------------------------------------------------
Net income $ 2,494,000 $ 1,520,000 $ 2,764,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and
notes to combined financial statements.
ADDLESTONE RECYCLING CORPORATION
AND ADDLESTONE INTERNATIONAL CORPORATION
Combined Statements of Stockholders' Equity
<TABLE>
Common Stock
-------------------------------
Years Ended Additional Total
December 31, 1994, Preferred Stock $.01 Par Value $.10 Par Value Paid-in Retained Stockholders'
1995 and 1996 Shares Amount Shares Amount Shares Amount Capital Earnings Equity
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 - $ - 100 $ - 10,000 $1,000 $183,000 $7,647,000 $7,831,000
Issuance of common stock - - 61 - - - 61,000 - 61,000
Dividends - - - - - - - (220,000) (220,000)
Net income - - - - - - - 2,764,000 2,764,000
- -----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 - - 161 - 10,000 1,000 244,000 10,191,000 10,436,000
Dividends - - - - - - - (227,000) (227,000)
Net income - - - - - - - 1,520,000 1,520,000
- -----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 - - 161 - 10,000 1,000 244,000 11,484,000 11,729,000
Dividends - - - - - - - (7,000) (7,000)
Net income - - - - - - - 2,494,000 2,494,000
- -----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 - $ - 161 $ - 10,000 $1,000 $244,000 $13,971,000 $14,216,000
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to combined
financial statements.
ADDLESTONE RECYCLING CORPORATION
AND ADDLESTONE INTERNATIONAL CORPORATION
Combined Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
Years Ended December 31, 1996 1995 1994
- -------------------------------------------------------------------------------
Operating activities:
Net income $2,494,000 $1,520,000 $2,764,000
Adjustment to reconcile
net income to net cash
provided by (used in)
operating activities:
Depreciation and amortization 836,000 995,000 942,000
Gain) loss on sale of
property and equipment (77,000) 8,000 (307,000)
Gain on sale of land and
improvements (29,000) - (82,000)
Changes in operating assets
and liabilities:
Accounts receivable (787,000) (84,000) 4,843,000
Inventories (4,164,000) (2,597,000) 998,000
Prepaid expenses 3,000 214,000 (66,000)
Accounts payable and
accrued expenses 120,000 (615,000) (2,370,000)
- -------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities (1,604,000) (559,000) 6,722,000
- -------------------------------------------------------------------------------
Investing activities:
Property and equipment
purchases (458,000) (967,000) (2,742,000)
Deposits and other - (1,000) -
Proceeds from sale of property
and equipment 155,000 346,000 98,000
Proceeds from sale of land
and improvements 151,000 - 48,000
Net (advances) collections on
note receivable related party 1,369,000 1,995,000 (205,000)
Collections on notes receivable 138,000 485,000 571,000
Loans made (352,000) - -
- -------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities 1,003,000 1,858,000 (2,230,000)
- -------------------------------------------------------------------------------
Financing activities:
Dividends paid (7,000) (377,000) (70,000)
Advances on lines-of-credit 10,158,000 20,797,000 30,561,000
Payments on lines-of-credit (9,057,000) (19,939,000) (37,311,000)
Payments on loans (1,425,000) (2,745,000) (1,080,000)
Proceeds from issuance of
common stock - - 61,000
Proceeds from loans 1,000,000 - 4,000,000
- -------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 669,000 (2,264,000) (3,839,000)
- -------------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents 68,000 (965,000) 653,000
Cash and cash equivalents,
beginning of year 40,000 1,005,000 352,000
- -------------------------------------------------------------------------------
Cash and cash equivalents,
end of year $ 108,000 $ 40,000 $1,005,000
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
See accompanying summary of accounting policies and
notes to combined financial statements.
BUSINESS
Addlestone Recycling Corporation ("ARC") is a Delaware corporation
formed in 1993; Addlestone International Corporation ("AIC") is a
Delaware corporation formed in 1973 (the "Companies"). The Companies
operate metals recycling facilities in Georgia and South Carolina providing
wholesale sales primarily to southeastern steel mills and markets.
COMBINATION
The combined financial statements include the accounts of ARC and AIC
which are under common control through majority ownership. All material
intercompany accounts and transactions are eliminated.
REVERSE STOCK SPLIT
Effective August 1, 1994, ARC completed a one-for-ten reverse stock split
of its $.01 par value common stock. All share amounts have been
retroactively restated to reflect this reverse split.
USE OF ESTIMATES
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
year. Actual results could differ from those estimates.
CONCENTRATIONS OF CREDIT RISK
The Companies' financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and accounts receivable.
The Companies maintain its cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Companies have not experienced
any losses in such accounts.
Concentrations of credit risk with respect to trade receivables exist due to
large balances with a few customers. At December 31, 1996, accounts
receivable balances from three customers were $1,147,000, $718,000 and
$441,000 or 38%, 24%, and 15%, of the total accounts receivable balance.
At December 31, 1995, accounts receivable balances from two customers
were $767,000 and $723,000 or 36% and 34% of total accounts receivable.
Ongoing credit evaluations of customers' financial conditions are performed
and, generally, no collateral is required. No allowance for uncollectible
accounts has been recorded at December 31, 1996 and 1995 based on prior
years experience and management's analysis of possible bad debts.
INVENTORIES
Inventories consist primarily of ferrous scrap metals. Inventories costs
include material, labor and plant overhead. Inventories are stated at the
lower of average cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided
using straight-line and accelerated methods over the estimated useful lives
ranging from 5 to 15 years. Depreciation expense of property and
equipment was $835,000, $994,000 and $941,000 for the years ended
December 31, 1996, 1995 and 1994. 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.
INCOME TAXES
The Companies, with the consent of their stockholders, have elected under the
Internal Revenue Code to be S-corporations. In lieu of corporate income taxes,
the stockholders are taxed on their proportional share of the Companies;
taxable income. Therefore, no provision or liability for income taxes is
included in the financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheets for cash, accounts
receivable and accounts payable, and accrued liabilities approximate fair
value because of the immediate or short-term maturity of these financial
instruments. The fair value of the notes receivable and notes payable were
estimated based on market values of financial instruments with similar terms.
Management believes that the fair value of the notes receivable and notes
payable approximate their carrying value.
REVENUE RECOGNITION
Sales are recorded in the period materials are shipped.
CASH AND CASH EQUIVALENTS
For purpose of the statement of cash flows, the Companies consider all
highly liquid debt instruments purchased with an initial maturity of three
months or less to be cash equivalents.
ADDLESTONE RECYCLING CORPORATION
AND Addlestone INTERNATIONAL CORPORATION
Notes to Combined Financial Statements
1. Inventories Inventories consisted of the following:
December 31, 1996 1995
----------------------------------------------------------
Raw materials $ 187,000 $ 462,000
Finished goods 9,366,000 4,927,000
----------------------------------------------------------
$9,553,000 $5,389,000
----------------------------------------------------------
----------------------------------------------------------
2. Property and
Equipment Property and equipment consisted of the following:
December 31, 1996 1995
----------------------------------------------------------
Land $ 197,000 $ 197,000
Building and improvements 852,000 875,000
Heavy machinery and equipment 2,177,000 2,088,000
Automotive shredders 6,491,000 6,538,000
Transportation equipment 201,000 180,000
Office equipment 182,000 183,000
----------------------------------------------------------
Total 10,100,000 10,061,000
Less accumulated depreciation 5,610,000 5,116,000
----------------------------------------------------------
$4,490,000 $4,945,000
----------------------------------------------------------
----------------------------------------------------------
3. Notes
Receivable The notes receivable primarily originated from the sale of
property and equipment and bear interest at 8% to 11%. The
notes mature at various dates and are collateralized by
land, various equipment and a partnership interest.
4. Related Party
Transactions
and Balances Accounts receivable - related party
-----------------------------------
At December 31, 1995 amounts totaling $118,000 were due
from Addlestone & Company, Inc., an affiliate controlled by
the Companies' principal stockholder.
Notes receivable - related party
--------------------------------
In 1995 AIC had extended credit to Addlestone & Company,
Inc., an affiliate controlled by the Companies' principal
stockholder, pursuant to a $5,500,000 line-of-credit
agreement, which was terminated in 1996. At December 31,
1995 $1,369,000 was due under the agreement.
Notes payable - related parties consisted of the following:
-----------------------------------------------------------
December 31, 1996 1995
----------------------------------------------------------
Note payable to the principal
stockholder due on demand with
interest at a bank's prime rate
(8.25% at December 31, 1996);
unsecured. $ 750,000 $ 525,000
Note payable to 5705 Highway
Avenue Corporation; pursuant
to a $2,000,000 line-of-credit,
the note is unsecured and due
thirty days after demand with
interest at a bank's prime rate
(8.25% at December 31, 1996). 338,000 398,000
Note payable to the principal
stockholder due on demand with
interest at a bank's prime rate
(8.25% at December 31, 1996);
unsecured. 250,000 -
----------------------------------------------------------
$ 1,338,000 $ 923,000
----------------------------------------------------------
----------------------------------------------------------
AIC leases office space from its stockholder under an
agreement expiring January 31, 1999 at $3,000 per month.
The lease may be canceled by providing 90 days written
notice.
In addition to the balances and transactions discussed
above, the financial statements include the following
transactions with affiliated companies controlled by the
Companies' principal stockholder:
December 31, 1996 1995 1994
---------------------------------------------------------
Sales $ - $ 12,322,000 $16,073,000
Management fee income - 187,000 344,000
Interest income 5,000 192,000 317,000
Interest expense 109,000 42,000 62,000
5. Notes Payable Notes payable consisted of the following:
December 31, 1996 1995
----------------------------------------------------------
Note payable to a bank, pursuant
to a $5,000,000 line of credit,
interest payable monthly at the
bank's prime rate (8.25% at
December 31, 1996); collateralized
by substantially all of the assets
of the Companies and guaranteed
by the principal stockholder;
due June 15, 1997. $ 1,621,000 $ 460,000
Note payable to a bank payable in
quarterly installments of $200,000
plus interest equal to the three
month London Inter-bank Offer Rate
plus 1.75%; collateralized by
substantially all of the assets of
the Companies and guaranteed by
the principal stockholder. - 900,000
----------------------------------------------------------
1,621,000 1,360,000
Less current portion 1,621,000 1,260,000
----------------------------------------------------------
Long-term portion $ - $ 100,000
6. Major
Customers
and Vendors Non-affiliated customers which comprised more than 10% of
the Companies' sales are as follows:
December 31, 1996 1995 1994
----------------------------------------------------------
A 27% - -
B 20% - -
C 19% - -
D - 12% -
During 1994 one vendor accounted for $5,411,000 or 30% of
total purchases. During 1996 and 1995 no vendors accounted
for more than 10% of total purchases.
7. Commitments
and
Contingencies Environmental Liabilities
-------------------------
In connection with the recycling and processing of metals,
the Companies may come in contact with "hazardous
materials" as that term is defined under various
environmental laws. Although the Companies screen for
"hazardous materials" in their raw materials, certain items
processed may inadvertently contain such materials, which
could result in contamination of the waste by-products and
premises. At this time the Companies believe that they are
in substantial compliance with all applicable environmental
laws. Due to the nature of the Companies' operations,
changes in the environmental laws or inadvertent improper
disposal of a hazardous material may result in a violation
of such laws subjecting the Companies to fines and
responsibility for costs attributable to remediation.
AIC has been notified of potential liability pursuant to
Section 107(a) of the Comprehensive Environmental Response,
Compensation, and Liability Act. On June 15, 1993, 5705
Highway Avenue Corporation formerly Tri-State Recycling
Corporation ("Tri-State") purchased real property which
had previously been owned by a former wholly owned
subsidiary of AIC. In connection with Tri-State's
purchase of the property, AIC executed a $2,000,000
limited unconditional guaranty on behalf of the affiliate.
As part of the guaranty, AIC obtained a $760,000 standby
letter of credit. The guaranty and letter of credit
specifically relate to indemnity obligations pursuant to
its purchase of the property, and include a potentially
significant environmental liability. Management believes
that amounts disbursed by AIC on behalf of Tri-State in
connection with the guaranty will be recouped by AIC when
the Tri-State property is sold. Although the outcome of
this matter cannot be predicted with certainty, management
believes that the disposition of this matter will not have
a material adverse effect on the financial position,
results of operations or cash flows of the Companies.
In 1992 AIC was notified that it had sold material to two
customers who improperly disposed of certain waste by-
products of the related material. AIC has been named as a
potentially liable party in the clean up of the waste by-
products. The financial statements include an estimated
environmental cleanup liability of approximately $244,000
and $176,000 at December 31, 1996 and 1995 related to these
matters.
Letter of Credit
----------------
At December 31, 1996 and 1995, AIC had a $50,000
outstanding letter of credit issued in connection with a
vendor arrangement.
Operating Lease
---------------
ARC leases equipment under a non-cancelable operating lease
expiring February, 2000.
Approximate future minimum lease payments are as follows:
Years Ending December 31,
-------------------------------------------------------
1997 $ 3,000
1998 3,000
1999 3,000
2000 1,000
-------------------------------------------------------
$ 10,000
Rent expense for non-cancelable operating leases for 1996,
1995, and 1994 was $3,000, $0 and $0.
Profit Sharing Plan
-------------------
AIC provides a defined contribution profit sharing plan
covering substantially all of its employees. The plan
provides for salary reduction contributions by
participating employees, and requires the Company to
make matching contributions up to 3% of a participant's
compensation.
AIC's contributions to the plan for the years ended
December 31, 1996, 1995 and 1994 were $17,000, $16,000 and
$16,000.
8. Supplemental Supplemental information to the statements of cash flows
Cash Flow and noncash investing and financing activities are as
Information follows:
Years Ended December 31, 1996 1995 1994
----------------------------------------------------------
Cash paid for interest $ 243,000 $189,000 $357,000
Note receivable issued
in connection with
the sale of equipment - - 264,000
Dividends declared and
accrued - - 150,000
Note receivable issued
in connection with
the sale of land and
improvements - - 235,000
9. Subsequent On April 7, 1997, the stockholders of ARC sold all of the
Events property and equipment and unprocessed inventory used in
its metals recycling operations to Recycling Industries,
Inc. ("RII") for $5,500,000 plus an amount equal to the
value of the unprocessed inventory at closing and is
payable as follows: $5,000,000 plus an amount equal to
the value of the unprocessed inventory in cash at closing
and $500,000 in RII Convertible Preferred Stock. The
Convertible Preferred Stock shall have a stated value of
$500,000 and shall be converted to RII Common Stock (the
"Conversion Shares") two years from closing at the then
market price. The Conversion Shares shall provide for
dividends on a cumulative basis at the per annum rate of
8%, payable quarterly.
On April 8, 1997, the stockholder of AIC signed an
agreement with Recycling Industries, Inc. ("RII") to sell
all of the property and equipment and unprocessed inventory
used in its metals recycling operations. The sales price
shall be $6,000,000 plus an amount equal to the value of
the unprocessed inventory at closing and is payable as
follows: $5,500,000 plus an amount equal to the value of
the unprocessed inventory in cash at closing and $500,000
in RII Convertible Preferred Stock. The Convertible
Preferred Stock shall have a stated value of $500,000 and
shall be converted to RII Common Stock (the "Conversion
Shares") two years from closing at the then market price.
The Conversion Shares shall provide for dividends on a
cumulative basis at the per annum rate of 8%, payable
quarterly. Closing of the sale will occur no later than
June 30, 1997, provided all terms of the sales agreement
have been met.
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, 1997. The pro forma consolidated statement of
earnings for the year ended September 30,1996 includes the operating results
of the Company, Recycling Industries of Texas, Inc., Mid-America Shredding and
Weissman Iron and Metal for such period and the operating results of ARC and
AIC for the 12 months ended December 31, 1996. The pro forma consolidated
statement of earnings for the six months ended March 31, 1997 includes the
operating results of the Company, ARC and AIC for such period. The operating
results of ARC and AIC for the three months beginning October 1, 1996 and ending
December 31, 1996 have been included in the pro forma consolidated statement of
earnings for both the year ended September 30, 1996 and the six months ended
March 31, 1997.
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS
March 31, 1997
(Thousands of Dollars)
ASSETS
<TABLE>
ADDLESTONE
RECYCLING RECYCLING CORP &
INDUSTRIES, INC ADDLESTONE CONSOLIDATED
& SUBSIDIARIES INTERNATIONAL CORP PRO FORMA PRO FORMA
MARCH 31, 1997 MARCH 31, 1997 ADJUSTMENTS MARCH 31, 1997
---------------- ---------------- -------------- ---------------
<S>
CURRENT ASSETS <C> <C> <C> <C>
Cash $ 527 $ 287 $ (287) (3)$ 527
Accounts receivable, net 5,588 4,991 (4,991) (3) 5,588
Accounts receivable, related party 86 - - 86
Inventories 2,456 5,955 (5,743) (3) 2,668
Deferred income taxes 510 - 510
Prepaid expenses and deposits 335 84 (84) (3) 335
---------------- ---------------- -------------- ---------------
Total Current Assets 9,502 11,317 (11,105) 9,714
---------------- ---------------- -------------- ---------------
PROPERTY, PLANT AND EQUIPMENT, net 20,455 4,311 7,189 (2) 31,955
---------------- ---------------- -------------- ---------------
OTHER ASSETS
Deferred income taxes 585 - - 585
Other assets, net of amortization 5,040 452 (452) (3) 5,040
---------------- ---------------- -------------- ---------------
Total Other Assets 5,625 452 (452) 5,625
---------------- ---------------- -------------- ---------------
TOTAL ASSETS $ 35,582 $ 16,080 $ (4,368) $ 47,294
---------------- ---------------- -------------- ---------------
---------------- ---------------- -------------- ---------------
</TABLE>
See accompanying Introduction and Notes to Pro Forma Consolidated
Financial Statements.
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS
March 31, 1997
(Thousands of Dollars)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
ADDLESTONE
RECYCLING RECYCLING CORP &
INDUSTRIES, INC ADDLESTONE CONSOLIDATED
& SUBSIDIARIES INTERNATIONAL CORP PRO FORMA PRO FORMA
MARCH 31, 1997 MARCH 31, 1997 ADJUSTMENTS MARCH 31, 1997
<S> ----------------- ------------------ ------------- ---------------
CURRENT LIABILITIES <C> <C> <C> <C>
Current maturities of long-term debt $ 3,092 $ - $ 2,300 (2) $ 5,392
Current maturities of long-term debt,
related parties 1,293 335 (335)(3) 1,293
Accounts payable 2,688 581 (581)(3) 2,688
Other current liabilities 412 315 (315)(3) 412
----------------- ------------------ ------------- ---------------
Total Current Liabilities 7,485 1,231 1,069 9,785
----------------- ------------------ ------------- ---------------
LONG-TERM DEBT
Long-term debt, less current maturities 10,306 - 8,412 (2) 18,718
Long-term debt - related parties
less current maturities 736 - - 736
----------------- ------------------ ------------- ---------------
Total Long-Term Debt 11,042 - 8,412 19,454
----------------- ------------------ ------------- ---------------
Total Liabilities 18,527 1,231 9,481 29,239
----------------- ------------------ ------------- ---------------
COMMITMENTS & CONTINGENCIES
Redeemable common stock 1,500 - - 1,500
----------------- ------------------ ------------- ---------------
STOCKHOLDERS' EQUITY
Preferred Stock 907 - 1,000 (2) 1,907
Common Stock 13 1 (1)(3) 13
Additional paid-in capital 25,566 244 (244)(3) 25,566
Retained earnings (deficit) (10,931) 14,604 (14,604)(3) (10,931)
----------------- ------------------ ------------- ---------------
Total Stockholders' Equity 15,555 14,849 (13,849) 16,555
----------------- ------------------ ------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 35,582 $ 16,080 $ (4,368) $ 47,294
----------------- ------------------ ------------- ---------------
----------------- ------------------ ------------- ---------------
</TABLE>
See accompanying Introduction and Notes to Pro Forma Consolidated
Financial Statements.
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF EARNINGS
TWELVE MONTHS ENDED SEPTEMBER 30, 1996
(Thousands of dollars except per share amounts)
<TABLE>
RECYCLING
INDUSTRIES
RECYCLING RECYCLING OF MID-AMERICA
INDUSTRIES, INDUSTRIES TEXAS, INC. SHREDDING
INC. & OF PRO FORMA MID-AMERICA PRO FORMA
(SEPTEMBER 30, 1996) SUBSIDIARIES TEXAS, INC. ADJUSTMENTS SHREDDING ADJUSTMENTS
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales $ 27,619 $ 14,359 $ (11,549) (7) $ 2,857 $ (1,687) (7)
------------ ----------- ----------- ----------- -----------
Cost of sales and
operating expenses 26,590 13,572 (11,398) (7) 2,754 (1,525) (7)
26 (4) (20) (4)
(100) (8)
------------ ----------- ----------- ----------- -----------
Total cost of sales and
operating expenses 26,590 13,572 (11,472) 2,754 (1,545)
------------ ----------- ----------- ----------- -----------
Gross profit 1,029 787 (77) 103 (142)
------------ ----------- ----------- ----------- -----------
Selling, general and
administrative expenses 3,323 938 (603) (7) 175 (100) (7)
(110) (6)
22 (4)
28 (5)
------------ ----------- ----------- ----------- -----------
Total selling, general and
administrative costs 3,323 938 (663) 175 (100)
------------ ----------- ----------- ----------- -----------
Operating income (loss) (2,294) (151) 586 (72) (42)
------------ ----------- ----------- ----------- -----------
Other income (expense)
Interest expense (732) (323) 256 (7) (133) 66 (7)
Miscellaneous 4 - (19) (10) - -
------------ ----------- ----------- ----------- -----------
Total other income (expense) (728) (323) 237 (133) 66
------------ ----------- ----------- ----------- -----------
Earnings (loss) before
income taxes and
extraordinary gain (3,022) (474) 823 (205) 24
Extraordinary gain from
settlement of debt 70 - - - -
------------ ----------- ----------- ----------- -----------
Earnings (loss) before
income taxes (2,952) (474) 823 (205) 24
Income tax expense 9 - - (9) - - (9)
------------ ----------- ----------- ----------- -----------
Net earnings (loss) $ (2,961) $ (474) $ 823 $ (205) $ 24
------------ ----------- ----------- ----------- -----------
------------ ----------- ----------- ----------- -----------
Earnings (loss) per common share:
Net earnings (loss) before
extraordinary item $ (0.30)
Extraordinary item 0.01
------------
Earnings (loss)
per common share $ (0.29)
------------
------------
Weighted average
shares outstanding 10,212,000
------------
------------
CONSOLIDATED
PRO FORMA BEFORE ADDLESTONE
WEISSMAN RECYCLING CORP. & RECYCLING CORP. &
IRON & METAL ADDLESTONE ADDLESTONE
WEISSMAN PRO FORMA INTERNATIONAL INTERNATIONAL CORP
(SEPTEMBER 30, 1996) IRON & METAL ADJUSTMENTS CORPORATION DECEMBER 31, 1996
------------ ----------- --------------- -------------------
<C> <C> <C> <C>
Net sales $ 18,799 $ (3,144) (7) $ 47,254 $ 27,536
------------ ----------- --------------- -------------------
Cost of sales and
operating expenses 14,678 (2,491) (7) 42,196 23,093
(135) (6)
245 (4)
------------ ----------- --------------- -------------------
Total cost of sales and
operating expenses 14,678 (2,381) 42,196 23,093
------------ ----------- --------------- -------------------
Gross profit 4,121 (763) 5,058 4,443
------------ ----------- --------------- -------------------
Selling, general and
administrative expenses 1,263 (156) (7) 4,672 1,964
11 (4)
42 (5)
(161) (6)
------------ ----------- --------------- -------------------
Total selling, general and
administrative costs 1,263 (264) 4,672 1,964
------------ ----------- --------------- -------------------
Operating income (loss) 2,858 (499) 386 2,479
------------ ----------- --------------- -------------------
Other income (expense):
Interest expense (84) 84 (7) (1,346) (252)
(461) (10)
Miscellaneous - - 4 267
------------ ----------- --------------- -------------------
Total other income (expense) (84) (377) (1,342) 15
------------ ----------- --------------- -------------------
Earnings (loss) before
income taxes and
extraordinary gain 2,774 (876) (956) 2,494
Extraordinary gain from
settlement of debt - - 70 -
------------ ----------- --------------- -------------------
Earnings (loss) before
income taxes 2,774 (876) (886) 2,494
Income tax expense - - (9) 9 -
------------ ----------- --------------- -------------------
Net earnings (loss) $ 2,774 $ (876) $ (895) $ 2,494
------------ ----------- --------------- -------------------
------------ ----------- --------------- -------------------
ADDLESTONE
RECYCLING CORP. &
ADDLESTONE
INTERNATIONAL CORP. CONSOLIDATED
PRO FORMA PRO FORMA
(SEPTEMBER 30, 1996) ADJUSTMENTS SEPTEMBER 30, 1996
------------------- -------------------
<C> <C>
Net sales $ - $ 74,790
------------------- -------------------
Cost of sales and
operating expenses 117 (4) 65,406
------------------- -------------------
Total cost of sales and
operating expenses 117 65,406
------------------- -------------------
Gross profit (117) 9,384
------------------- -------------------
Selling, general and
administrative expenses (235) (6) 6,401
------------------- -------------------
Total selling, general and
administrative costs (235) 6,401
------------------- -------------------
Operating income (loss) 118 2,983
------------------- -------------------
Other income (expense):
Interest expense (1,087) (10) (2,685)
Miscellaneous - 271
------------------- -------------------
Total other income (expense) (1,087) (2,414)
------------------- -------------------
Earnings (loss) before
income taxes and
extraordinary gain (969) 569
Extraordinary gain from
settlement of debt - 70
------------------- -------------------
Earnings (loss) before
income taxes (969) 639
Income tax expense - (9) 9
------------------- -------------------
Net earnings (loss) $ (969) $ 630
------------------- -------------------
------------------- -------------------
Earnings (loss) per common share:
Net earnings (loss) before
extraordinary item $ 0.05
Extraordinary item 0.01
-------------------
Earnings (loss)
per common share $ 0.06
-------------------
-------------------
Weighted average
shares outstanding 543,000 (11) 10,755,000
------------------- -------------------
------------------- -------------------
</TABLE>
See Accompanying Introduction and Notes to Pro Forma Consolidated
Financial Statements.
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF EARNINGS
SIX MONTHS ENDED MARCH 31, 1997
(Thousands of dollars except per share amounts)
<TABLE>
ADDLESTONE
RECYCLING RECYCLING CORP. &
INDUSTRIES, INC. ADDLESTONE CONSOLIDATED
& SUBSIDIARIES INTERNATIONAL CORP PRO FORMA PRO FORMA
MARCH 31, 1997 MARCH 31, 1997 ADJUSTMENTS MARCH 31, 1997
----------------- ----------------- ---------- --------------
<S> <C> <C> <C> <C>
Net sales $ 23,502 $ 18,824 $ - $ 42,326
Cost of sales and operating expenses 19,813 16,404 58 (4) 36,275
----------------- ----------------- ---------- --------------
Gross profit 3,689 2,420 (58) 6,051
Selling, general and administrative expenses 2,663 1,569 (117) (6) 4,115
----------------- ----------------- ---------- --------------
Operating income (loss) 1,026 851 59 1,936
----------------- ----------------- ---------- --------------
Other income (expense):
Interest expense (889) (101) (569) (10) (1,559)
Miscellaneous 34 83 - 117
----------------- ----------------- ---------- --------------
Total other income (expense) (855) (18) (569) (1,442)
----------------- ----------------- ---------- --------------
Earnings before income taxes 171 833 (510) 494
Income tax benefit 295 - - (9) 295
----------------- ----------------- ---------- --------------
Net earnings $ 466 $ 833 $ (510) $ 789
----------------- ----------------- ---------- --------------
----------------- ----------------- ---------- --------------
Net earnings available to common
shareholders $ 186 $ 509
----------------- ----------------- ---------- --------------
----------------- ----------------- ---------- --------------
Earnings per common share $ 0.01 $ 0.03
----------------- ----------------- ---------- --------------
----------------- ----------------- ---------- --------------
Weighted average shares outstanding 14,356,000 543,000 14,899,000
----------------- ----------------- ---------- --------------
----------------- ----------------- ---------- --------------
</TABLE>
See Accompanying Introduction and Notes to Pro Forma Consolidated
Financial Statements.
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 earnings
are computed assuming the acquisitions of ARC and AIC 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 ARC and AIC were consummated at March 31, 1997 for the March 31,
1997 balance sheet. The pro forma adjustments for Recycling Industries of
Texas, Inc. (formerly known as Anglo Iron and Metal), Mid- America Shredding
and Weissman Iron and Metal are computed assuming the acquisitions were
consummated at the beginning of the applicable periods presented.
NOTE 2 - ACQUISITION OF SUBSIDIARIES
The acquisitions are recorded using the purchase method of accounting.
NOTE 3 - UNACQUIRED ASSETS AND LIABILITIES
Removes assets and liabilities that were not acquired or assumed by the Company.
NOTE 4 - ADDITIONAL DEPRECIATION AND AMORTIZATION
Recycling Industries of Texas, Inc. and Weissman Iron and Metal
Reflects additional depreciation of property and equipment due to the increased
cost of the assets acquired. Reflects amortization and goodwill using the
straight line method over 20 years.
Mid-America Shredding, ARC and AIC
Reflects additional depreciation of property and equipment due to the allocated
costs of the assets acquired.
NOTE 5 - NON-COMPETE AND CONSULTING AGREEMENTS
Reflects amortization of the non-compete and consulting agreements with the
president of Recycling Industries of Texas, Inc. and the president of Weissman
Iron and Metal over the six and five year terms using the straight line method.
NOTE 6 - NON-RECURRING EXPENSES
Removes non-recurring expenses paid to former officers and stockholders of the
acquired business for salaries and benefits that will not be incurred in the
future under terms of the acquisition agreements.
NOTE 7 - DUPLICATE TRANSACTIONS
Removes operations for Recycling Industries of Texas, Inc., Mid-America
Shredding and Weissman Iron and Metal subsequent to their acquisition, which are
included in the historical operations of the Company for the year ended
September 30, 1996.
NOTE 8 - NON-RECURRING REMEDIATION EXPENSES
Removes non-recurring outside labor costs, direct labor costs and landfill costs
incurred for remediation costs in compliance with the terms of the Recycling
Industries of Texas, Inc. sale agreement.
NOTE 9 - PROVISION FOR INCOME TAXES
No provision for income taxes on the acquired operations has been
recorded due to the recognition of the tax benefit from utilization of Recycling
Industries, Inc.'s net operating loss carryforwards.
NOTE 10 - INTEREST EXPENSE
Reflects additional interest expense for notes payable used to finance the
acquisition of Weissman Iron and Metal (interest at 10.5% at September 30,
1996), Recycling Industries of Texas, Inc. (interest at 14%), ARC and AIC
(interest at 12.5% at September 30, 1996 and March 31, 1997).
NOTE 11 - WEIGHTED AVERAGE SHARES OUTSTANDING
The weighted average shares outstanding reflects the conversion of the ARC and
AIC Convertible Preferred Stock into common stock equivalents.
