<PAGE>
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):
February 11, 1998 (December 5, 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)
9780 South Meridian Boulevard, No. 180
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 December 5, 1997 and December 8, 1997, the Registrant completed the
following six acquisitions:
ACQUISITION OF THE ASSETS OF GROSSMAN BROTHERS COMPANY AND MILWAUKEE METAL
BRIQUETTING CO., INC.
On December 5, 1997, Recycling Industries of Wisconsin, Inc., a
wholly-owned subsidiary of the Registrant, acquired substantially all of the
scrap metals recycling assets and business of Grossman Brothers Company, Inc.
and Milwaukee Metal Briquetting Co., Inc. (collectively "Grossman").
Grossman was a privately held metals recycler with operations in the
Milwaukee, Wisconsin area.
The assets acquired from Grossman consist of heavy equipment, tools and
rolling stock used in the business of recycling ferrous and non-ferrous
metals. The Registrant is leasing, with an option to purchase, the real
property, buildings and leasehold improvements used in the metals recycling
business. The lease is accounted for as a capital lease.
The total purchase price for Grossman was $7,437,000, comprised of
$3,726,000 of cash, a capital lease with a present value of $2,660,000, 98,000
shares Registrants common stock valued at $750,000 which will be held in escrow
during the lease term and the assumption of $301,000 of Grossman's liabilities.
The purchase price was financed, in part, from the proceeds of the Senior
Secured Credit Facility, Subordinated Notes and Sale of Common Stock escribed
in Item 5, below. 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
Grossman.
ACQUISITION OF THE ASSETS OF CENTRAL METALS COMPANY, INC.
On December 5, 1997, Recycling Industries of Atlanta, Inc., a
wholly-owned subsidiary of the Registrant, acquired substantially all of the
scrap metals recycling assets and business of Central Metals Company, Inc.
("Central"), a privately held metals recycler with operations in the Atlanta,
Georgia area.
The assets acquired from Central consist of heavy equipment, tools and
rolling stock used in the business of recycling ferrous and non-ferrous
metals. The real property and buildings owned and used by Central in the
metals recycling business have been placed into escrow and are being leased
by the Registrant until Central can provide clear title to these assets, at
which time the Registrant will complete the purchase of the real property and
buildings. The Registrant is leasing certain equipment used in the metals
recycling business from an affiliate of Central.
The total purchase price for Central was $30,979,000, comprised of
$20,679,000 of cash and 800,000 shares of the Registrant's common stock,
$.001 par value per share (the "Common
-2-
<PAGE>
Stock") having an agreed value of $12.50 per share or $10,000,000. The
Registrant also assumed $300,000 of Central's liabilities.
The Registrant has guaranteed that the aggregate market value of the
800,000 shares of Common Stock issued to Central will be at least $10,000,000
on December 4, 1999. If the market value of the Common Stock is less than
$10,000,000, the Registrant will issue shares of Common Stock to Central
having a market value equal to the difference between $10,000,000 and the
market value of the 800,000 shares of Common Stock initially issued to
Central.
In connection with the acquisition, Central was issued warrants to
acquire up to 200,000 shares of the Registrant's common stock for $15.00 per
share, exercisable upon satisfaction of certain financial performance
conditions related to the operations of Recycling Industries of Atlanta, Inc.
(the "Contingent Warrants"). The exercise price per share of the Contingent
Warrants is subject to adjustment at the time of exercise so that the
aggregate spread between the exercise price of all Contingent Warrants and
the market value of the Common Stock received upon exercise of the Contingent
Warrants is not less than $1,000,000. The Registrant also granted
"piggyback" registration rights to the holders of the Contingent Warrants
with respect to the shares of Common Stock received upon their exercise.
The cash portion of the purchase price was financed, in part, from the
proceeds of the Senior Secured Credit Facility, Subordinated Notes and Sale
of Common Stock described in item 5, below. 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 Central.
ACQUISITION OF THE ASSETS OF MONEY POINT LAND HOLDING CORPORATION AND MONEY
POINT DIAMOND CORPORATION
On December 5, 1997, Recycling Industries of Chesapeake, Inc., a
wholly-owned subsidiary of the Registrant, acquired substantially all of the
scrap metals recycling assets and business of Money Point Land Holding
Corporation and Money Point Diamond Corporation (collectively "Money Point").
Money Point was a privately held metals recycler with operations in the
Chesapeake, Virginia area.
The assets acquired from Money Point consist of heavy equipment, tools
and rolling stock used in the business of recycling ferrous and non-ferrous
metals. The Registrant also purchased from Money Point certain real property,
buildings and leasehold improvements used in the metals recycling business.
The total purchase price for Money Point was $19,900,000, comprised of
$16,900,000 of cash and 10,000 shares of the Registrant's Series E Redeemable
Convertible Preferred Stock (the "Series E Preferred") having a stated value
of $3,000,000.
-3-
<PAGE>
The cash portion of the purchase price was financed, in part, from the
proceeds of the Senior Secured Credit Facility, Subordinated Notes and Sale
of Common Stock described in item 5, below. The purchase price was
determined through arm's length negotiations and based upon an independent
appraisal.
If not earlier redeemed or converted, on December 5, 2000, the Series E
Preferred will automatically convert into that number of shares of Common
Stock having an aggregate market value on the date of conversion of not less
than $3,000,000. Unless Money Point elects to retain the shares of Common
Stock received upon conversion of the Series E Preferred (the "Series E
Conversion Shares"), the Registrant will assist Money Point in selling the
Series E Conversion Shares on or before January 4, 2001. If the sale of the
Series E Conversion Shares yields net proceeds of less than $3,000,000, the
Registrant will pay the difference to Money Point. The Registrant has
granted "piggyback" registration rights to the holders of the Series E
Preferred with respect to the Series E Conversion Shares.
The Registrant will continue the metals recycling operations of Money
Point.
ACQUISITION OF WM. LANS SONS' CO., INC.
On December 8, 1997, the Registrant acquired from Bertram Lans, Bruce
Lans and Scott Lans all of the issued and outstanding capital stock of Wm.
Lans Sons' Co., Inc. ("Lans"), a privately held metals recycler with
operations in the South Beloit, Illinois, area.
The assets owned by Lans consist of heavy equipment, tools and rolling
stock used in the business of recycling ferrous and non-ferrous metals. The
Registrant also purchased from an affiliate of Lans certain real property,
buildings and leasehold improvements used in the metals recycling business.
The total purchase price for Lans was $25,500,000, comprised of
$22,000,000 of cash and 10,000 shares of the Registrant's Series I 8%
Redeemable Convertible Preferred Stock (the "Series I Preferred") having a
stated value of $3,500,000.
The cash portion of the purchase price was financed, in part, from the
proceeds of the Senior Secured Credit Facility Subordinated Notes and sale of
Common Stock described in Item 5, below. The purchase price was determined
through arm's length negotiations and based upon an independent appraisal.
If not earlier redeemed or converted, on December 8, 1999, the Series I
Preferred will automatically convert into that number of shares of Common
Stock having a market value on the date of conversion of not less than
$3,500,000. The Registrant has agreed to register on or before December 5,
2000 the shares of Common Stock received upon conversion of the Series I
Preferred.
-4-
<PAGE>
The Registrant will continue the metals recycling operations of Lans.
ACQUISITION OF THE ASSETS OF THE BRENNER COMPANIES, INC.
On December 5, 1997, Recycling Industries of Winston-Salem, Inc., a
wholly-owned subsidiary of the Registrant, acquired substantially all of the
scrap metals recycling assets and business of the Brenner Companies, Inc.
("Brenner"), a privately held metals recycler with operations in the
Winston-Salem, North Carolina area.
The assets acquired from Brenner consist of heavy equipment, tools and
rolling stock used in the business of recycling ferrous and non-ferrous
metals. The Registrant also purchased from Brenner certain real property,
buildings and leasehold improvements used in the metals recycling business.
The total purchase price for the Brenner assets was $23,773,000,
comprised of $15,683,000 of cash, 14,000 shares of the Registrant's Series F
6 1/2% Redeemable Convertible Preferred Stock (the "Series F Preferred")
having a stated value of $3,500,000, 14,000 shares of the Registrant's Series
G 6 1/2% Redeemable Convertible Preferred Stock (the "Series G Preferred")
having a stated value of $3,500,000 and the assumption of $1,090,000 of
Brenner's deferred compensation labilities.
The cash portion of the purchase price was financed, in part, from the
proceeds of the Senior Secured Credit Facility, Subordinated Notes and Sale
of Common Stock described in Item 5, below. The purchase price was
determined through arm's length negotiations and based upon an independent
appraisal.
If not earlier redeemed or converted, on December 5, 2000, the Series F
Preferred will automatically convert into that number of shares of Common
Stock having an aggregate market value on the date of conversion of not less
than $3,500,000. Brenner has the right to require the Registrant to find a
purchaser of the shares of common stock received upon conversion of the
Series F Preferred (the "Series F Conversion Shares") on or before December
5, 2000. If the sale of the Series F Conversion Shares yields net proceeds
of less than $3,500,000, the Registrant will pay the difference to Brenner.
The Registrant has agreed to register on or before December 5, 2000 the
Series F Conversion Shares, unless such shares may be sold by the holder
thereof pursuant to Rule 144(k) promulgated under the Securities Act of 1933,
as amended (the "Securities Act") or any equivalent provision then in effect.
If not earlier redeemed or converted, on December 5, 2000, the Series G
Preferred will automatically convert into that number of shares of Common
Stock having an aggregate market value on the date of conversion of not less
than $3,500,000. The Registrant has agreed to register on or before December
5, 2000 the shares of Common Stock received upon conversion of the Series G
Preferred, unless such shares may be sold by the holder thereof pursuant to
Rule 144(k) promulgated under the Securities Act or any equivalent provision
then in effect.
-5-
<PAGE>
The Registrant will continue the metals recycling operations of Brenner.
ACQUISITION OF THE ASSETS OF UNITED METAL RECYCLERS, INC.
On December 5, 1997, Recycling Industries of Greensboro, Inc., a
wholly-owned subsidiary of the Registrant, acquired substantially all of the
scrap metals recycling assets and business of United Metal Recyclers, Inc.
("United"), a privately held metals recycler with operations in the
Kernersville, North Carolina area.
The assets acquired from United consist of heavy equipment, tools and
rolling stock used in the business of recycling ferrous and non-ferrous
metals. The Registrant also purchased from United certain real property,
buildings and leasehold improvements used in the metals recycling business
and United's 50% interest in another metals recycling facility located in the
Greensboro, North Carolina area.
The total purchase price for the United assets was $41,975,000,
comprised of $35,975,000 of cash,12,000 shares of the Registrant's Series H
6% Secured Redeemable Convertible Preferred Stock having a stated value of
$5,660,000 and the assumption of $340,000 of United's liabilities.
The cash portion of the purchase price was financed, in part, from the
proceeds of the Senior Secured Credit Facility, Subordinated Notes and Sale
of Common Stock described in Item 5, below. The purchase price was
determined through arm's length negotiations and based upon an independent
appraisal.
If not earlier redeemed or converted, on December 5, 2000, the Series H
Preferred will automatically convert into that number of shares of Common
Stock having an aggregate market value on the date of conversion of not less
than $6,000,000. United has the right to require the Registrant to find a
purchaser of the shares of common stock received upon conversion of the
Series H Preferred (the "Series H Conversion Shares") on or before December
5, 2000. If the sale of the Series H Conversion Shares yields net proceeds
of less than $6,000,000, the Registrant will pay the difference to United.
The Registrant has agreed to register on or before December 5, 2000 the
Series H Conversion shares, unless such shares may be sold by the holder
thereof pursuant to Rule 144(k) promulgated under the Securities Act or any
equivalent provision then in effect.
The Registrant will continue the metals recycling operations of United.
ITEM 5. OTHER EVENTS.
The acquisitions described in Item 2, above, were financed, in part, by
the following:
SENIOR SECURED CREDIT FACILITY
On December 5, 1997, the Registrant and its subsidiaries entered into a
$150 million Senior Secured Credit facility with General Electric Capital
Corporation as agent for the lenders (the "Credit Facility"). The Credit
facility is comprised of (i) a $45 million revolving credit facility; (ii) a
$40 million term loan due December 5, 2003, with accrued interest and
principal payable quarterly; (iii) a $40 million term loan due on the earlier
of December 5, 2005 or six months prior to the maturity of the Subordinated
Notes discussed below; and (iv) a $25 million acquisition line of credit due
December 5, 2003, with accrued interest and principal payable quarterly.
Loans made under the Credit Facility bear interest at either (i) the
higher of (a) the Prime Rate quoted in the WALL STREET JOURNAL plus .75%, and
(b) the Federal Funds rate plus 50 basis points per annum plus .75%, or (ii)
at the option of the Registrant upon satisfaction of certain conditions, the
LIBOR rate plus 2.25%. The Credit facility is secured by substantially all
of the Registrant's assets.
SUBORDINATED NOTES
On December 5, 1997, the Registrant issued $60 million of 13% Senior
Subordinated Notes due 2005 to a group of investors including Sun America
Life Insurance Company.
SALE OF COMMON STOCK
In connection with the Credit Facility and the issuance of the
Subordinated Notes, the Company sold 1,666,666 shares of its Common Stock for
an aggregate of $10 million to various accredited investors in a transaction
exempt from the registration requirements of the Securities Act of 1933, as
amended.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
a) PRO-FORMA FINANCIAL INFORMATION.
1. Unaudited pro forma consolidated financial statements for Recycling
Industries, Inc. and Subsidiaries and introduction and notes.
(b) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
1. Financial statements of:
- Central Metals Company, Inc.
- Money Point Land Holding Coporation and Money Point Diamond Corporation
- Wm. Lans and Sons' Co., Inc. and Idal Realty Company
- Brenner Companies, Inc.
- United Metal Recyclers, Inc.
- United Metal - D.H. Griffin Recyclers, L.L.C.
-7-
<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: February 11, 1998 By /s/ Thomas J. Wiens
--------------------------------
Thomas J. Wiens, Chairman and
CEO
-8-
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1997
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
RECYCLING
INDUSTRIES, INC. CONSOLIDATED
& SUBSIDIARIES PRO FORMA PROFORMA
SEPTEMBER 30, 1997 ACQUISITIONS ADJUSTMENTS SEPTEMBER 30, 1997
------------------ ------------ ------------ ------------------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash $ 746 $ 9,675 $ (9,675) (3) $ 2,971
327 (2)
1,898 (7)
Accounts receivable, net 8,820 21,355 (21,355) (3) 28,381
19,561 (2)
Inter-company receivable - - 12,843 (2) -
(12,843) (7)
Interest receivable - 97 (97) (3) 99
99 (2)
Short-term marketable securities - 1,200 (1,200) (3) 1,467
1,467 (2)
Inventories 4,183 14,315 (14,315) (3) 15,179
10,996 (2)
Deferred income taxes 810 - 810
Prepaid expenses and deposits 445 133 (132) (3) 1,183
737 (2)
--------- ---------- --------- ----------
Total Current Assets 15,004 46,775 (11,689) 50,090
PROPERTY AND EQUIPMENT, NET 33,227 26,700 (26,700) (3) 159,716
126,489 (2)
--------- ---------- --------- ----------
OTHER ASSETS:
Investment in subsidiaries - 13,687 (13,687) (3) -
(5,106) (2)
7,500 (2)
(2,394) (7)
Notes receivable - 26 (26) (3) -
Note receivable, related party 85 965 (965) (3) 1,050
965 (2)
Deferred income taxes 585 - 585
Other asssets, net of amortization 6,178 1,061 (1,061) (3) 22,571
963 (2)
2,394 (7)
3,036 (7)
10,000 (11)
--------- --------- --------- ----------
Total Other Assets 6,848 15,739 1,619 24,206
--------- --------- --------- ----------
TOTAL ASSETS $55,079 $ 89,214 $89,719 $234,012
--------- --------- --------- ----------
--------- --------- --------- ----------
</TABLE>
SEE ACCOMPANYING INTRODUCTION AND NOTES TO PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1997
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
RECYCLING
INDUSTRIES, INC. CONSOLIDATED
& SUBSIDIARIES PRO FORMA PROFORMA
SEPTEMBER 30, 1997 ACQUISITIONS ADJUSTMENTS SEPTEMBER 30, 1997
------------------ ------------ ----------- ------------------
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 3,300 $ 1,663 $ (1,663) (3) $ 3,300
Current maturities of long-term debt, related parties - 253 (253) (3) -
Accounts payable 3,099 4,560 (4,560) (3) 5,320
2,221 (2)
Other current liabilities 1,049 5,835 (5,835) (3) 2,650
1,601 (2)
------- ------- --------- ---------
Total Current Liabilities 7,448 12,311 (8,489) 11,270
------- ------- --------- ---------
LONG-TERM DEBT:
Long-term debt, less current maturities 29,456 6,803 (6,803) (3) 140,331
122,354 (2)
(2,472) (13)
(9,007) (13)
Note payable (receivable) - Parent Company - 926 (926) (3) -
35,346 (2)
(35,346) (11)
5,436 (11)
2,473 (13)
(7,909) (7)
Minority interest in subsidiary - - 5,106 (2) 5,106
Capital lease - - 2,660 (2) 2,660
Other long-term liabilities 6,463 (2) 6,463
Deferred compensation 1,085 (1,085) (3) 1,090
- 1,090 (2)
--------- --------- --------- ----------
Total Long-term Debt 29,456 8,814 117,380 155,650
--------- --------- --------- ----------
Total Liabilities 36,904 21,125 108,891 166,920
--------- --------- --------- ----------
Redeemable common stock 1,500 - - 1,500
--------- --------- --------- ----------
STOCKHOLDERS' EQUITY:
Preferred Stock 500 - 19,160 (11) 19,660
Common Stock 14 1,866 (1,866) (3) 17
3 (11)
Additional paid-in capital 26,846 8,250 (8,250) (3) 56,600
750 (11)
9,007 (13)
19,997 (11)
Retained earnings (deficit) (10,685) 47,611 (47,611) (3) (10,685)
Partners' equity - 10,362 (10,362) (3) -
--------- --------- --------- ----------
Total Stockholders' Equity 16,675 68,089 (19,172) 65,592
--------- --------- --------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 55,079 $89,214 $ 89,719 $234,012
--------- --------- --------- ----------
--------- --------- --------- ----------
</TABLE>
SEE ACCOMPANYING INTRODUCTION AND NOTES TO PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF EARNINGS
TWELVE MONTHS ENDED SEPTEMBER 30, 1997
(THOUSANDS OF DOLLARS EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
RECYCLING
INDUSTRIES, INC. CONSOLIDATED
& SUBSIDIARIES PRO FORMA PROFORMA
SEPTEMBER 30, 1997 ACQUISITIONS ADJUSTMENTS SEPTEMBER 30, 1997
------------------ ------------ ----------- ------------------
<S> <C> <C> <C> <C>
Net sales $ 62,424 $172,631 $ 18,824 (8) $ 253,879
Cost of sales and operating expenses 55,179 144,345 16,404 (8) 218,005
2,077 (4)
--------- ---------- --------- -----------
Gross profit 7,245 28,286 343 35,874
Selling, general and administrative expenses 4,221 12,803 1,570 (8) 15,751
(2,843)(10)
--------- ---------- --------- -----------
Operating income 3,024 15,483 1,616 20,123
--------- ---------- --------- -----------
Other income (expense):
Interest expense (2,616) (758) (101) (8) (18,291)
(12,582) (5)
(1,126) (5)
(1,108)(13)
Miscellaneous 73 3,521 83 (8) 1,425
(2,384) (9)
66 (9)
66 (9)
-------- ---------- --------- -----------
Total other income (expense) (2,543) 2,763 (17,086) (16,866)
-------- ---------- --------- -----------
Earnings (loss) before income taxes and
extraordinary loss 481 18,246 (15,470) 3,257
Extraordinary (loss) from early extinguishment
of debt - net of tax - - (2,414)(13) (2,414)
--------- ---------- --------- -----------
Earnings (loss) before income taxes 481 18,246 (17,884) 843
Income tax benefit (provision) 595 3 (891) (6) (293)
--------- ---------- --------- -----------
Net earnings 1,076 18,249 (18,775) 550
Preferred stock dividends 364 - 1,075 (14) 1,439
--------- ---------- --------- -----------
Net earnings (loss) available to common
shareholders $ 712 $ 18,249 $ (19,850) $ (889)
--------- ---------- --------- -----------
--------- ---------- --------- -----------
Earnings (loss) per common share:
Net earnings before extraordinary item $ 0.04 $ 0.06
Extraordinary item - (0.10)
--------- -----------
Earnings (loss) per common share $ 0.04 $ (0.04)
--------- -----------
--------- -----------
Weighted average shares outstanding 17,608,000 6,486,000 (12) 24,094,000
---------- --------- ----------
---------- --------- ----------
</TABLE>
See accompanying introduction and notes to proforma consolidated financial
statements.
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
GROSSMAN BROTHERS (Grossman), MONEY POINT LAND HOLDING CORPORATION
AND MONEY POINT DIAMOND CORPORATION (Jacobson), UNITED METAL
RECYCLERS (United), BRENNER COMPANIES (Brenner), CENTRAL METALS (Central)
and WM. LANS and SONS (Lans).
NOTE 1 - INTRODUCTION
The unaudited pro forma condensed consolidated financial statements give
effect to the acquisitions by Recycling Industries, Inc. (the Company) for
the entities listed above and are based on the estimates and assumptions set
forth in these notes to such statements. The pro forma information has been
prepared using the historical financial statements for Grossman, Jacobson,
United and Brenner for the twelve months ending September 30, 1997, Central
for the eleven months ending November 30, 1997 and Lans for the twelve months
ending June 30, 1997. Also included in the pro forma are the historical
financial statements of Addlestone Recycling Corp. (ARC) and Addlestone
International Corp. (AIC) as the entities were acquired during fiscal 1997,
the year for which the pro forma information is presented. 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 adjustments relating to the pro forma consolidated statements of
operations are computed assuming the acquisitions of ARC and AIC, Brenner,
Grossman, Lans, Central, Jacobson, United and its fifty-percent interest in
United Metal-D.H. Griffin Recyclers L.L.C. (Griffin) were consummated at the
beginning of the period presented. The adjustments relating to the pro forma
consolidated balance sheet are computed assuming the acquisitions were
consummated at September 30, 1997 for the September 30, 1997 balance sheet
except for ARC and AIC which are included in the Company's balance sheet at
September 30, 1997.
The Company has included as supplemental information the calculation of
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) as
a supplemental schedule to the pro forma financial information. The EBITDA
calculation, which is not a measure of financial performance under generally
accepted accounting principles, was included as certain investors use the
data to determine the Company's ability to service its indebtedness. EBITDA
is not a substitute for income from continuing operations, net income or
cash flows presentation under generally accepted accounting principles.
NOTE 2 - ACQUISITON OF SUSIDIARIES
Represents the acquisition of Brenner, Grossman, Lans, Central, Jacobson,
United and United's fifty-percent controlling interest in Griffin accounted
for on a consolidated basis. The Company acquired the assets and assumed
certain liabilities for Brenner, Grossman, Central, Jacobson and United and
purchased all of the issued and outstanding capital stock of Lans. The
preliminary purchase allocation to record the acquisitions are presented in
Exhibit I using the purchase method of accounting. Certain working capital
accounts are subject to post-closing adjustments pursuant to the Asset
Purchase Agreement and certain property and equipment amounts are pending
final appraisal information for the real property acquired at Lans, Jacobson
and Grossman. The net change to working capital or property and equipment
are not anticipated to have a material effect on the Company's pro forma
consolidated balance sheets. The preliminary purchase price allocation
includes certain estimates including; allowance for uncollectible accounts
receivable, inventory shrinkage reserves and costs to register stock issued
in connection ith the acquisitions. Additionally, the Company has included
$4.7 million in other long term
<PAGE>
liabilities for amounts estimated as remediation costs of certain properties
acquired in the acquisitions.
The historical financial statements for Brenner and United includes
inventories valued using the last-in, first-out (LIFO) method. The effect of
changing from LIFO to the first-in, first-out method used by the Company is
not significant to the pro forma financial information and therefore no pro
forma adjustments were recorded.
NOTE 3 - UNACQUIRED ASSETS AND LIABLITIES
Removes assets and liabilities of acquired companies. See Note 2 and
Exhibit I for preliminary allocation of the acquisitions purchase price for
the assets acquired and liabilities assumed.
NOTE 4 - ADDITIONAL DEPRECIATION AND AMORTIZATION
Reflects additional depreciation and amortization of $2.1 million from the
incremental increase of assets acquired at fair market value compared to
their historical costs. Additionally, amortization has been recognized on
costs in excess of the fair value of net assets acquired over a term of
twenty-five years. Property and equipment is being depreciated using the
straight-line method using lives ranging from three to twenty-five years.
NOTE 5 - INTEREST EXPENSE
Reflects additional interest expense for the Senior Secured Credit Facility
and the Senior Subordinated Notes used to finance the acquisitions at an
average rate of 11%. Additionally, interest expense includes $1.1 million of
amortized interest from the issuance of warrants (see Note 13).
NOTE 6 - PROVISION FOR INCOME TAXES
Records the provision for income taxes at an approximate effective rate of
thirty seven percent on the acquired operations.
NOTE 7 - ELIMINATIONS
Eliminates inter-company transactions and balances resulting from the
financing of the acquisitions.
NOTE 8 - ADDITIONAL TRANSACTIONS
Includes the operations of ARC and AIC prior to their acquisition.
Subsequent to their acquisition, the operations of ARC and AIC are included
in the historical operations of the Company for the years ended September 30,
1997. The assets and liabilities of ARC and AIC are included in the
Company's consolidated balance sheet at September 30, 1997.
<PAGE>
NOTE 9 - INVESTMENT IN SUBSIDIARY
Removes earnings and investment in fifty percent owned consolidated
subsidiary. The minority earnings from the fifty percent consolidated
subsidiary are immaterial and have been included in miscellaneous income.
Also included in miscellaneous income is Brenner's elimination of their fifty
percent interest in the earnings of United.
NOTE 10 - 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 11 - ISSUANCE OF COMMON AND PREFERRED STOCK AND WARRANTS
Records the issuance of Common Stock to various accredited investors in
connection with the Credit Facility and the issuance of Common and Preferred
Stock to acquire Brenner, Grossman, Lans, Central, Jacobson and United and
the value of warrants issued in connection with the acquisition of Central.
The Common and Preferred Stock was issued by the Company to finance in part
the acquisitions. The Company recorded the issuance of the stock as a Note
Receivable from the subsidiary as the amount is carried by the subsidiary as
part of the financing of the acquired entity (see Exhibit I).
NOTE 12 - WEIGHTED AVERAGE SHARES OUTSTANDING
Reflects the issuance of common stock and the common stock equivalents of
preferred shares and warrants issued pursuant to the acquisition of the
entities and warrants issued pursuant to the Credit Facility and issuing
Subordinated Notes.
NOTE 13 - LONG-TERM DEBT
Records the effect of entering into a $150 million Senior Secured Credit
Facility and issuing $60 million in Senior Subordinated Notes to finance in
part the acquisitions and to refinance the Company's consolidated debt,
primarily on a long-term basis. Pursuant to the Senior Secured Credit
Facility and Senior Subordinated Notes the Company was required to extinguish
all existing debt before scheduled maturity and incurred $2.3 million in
prepayment penalties and wrote off $1.3 million in loan fees. The Company
issued 1,466,000 warrants with an estimated value of $9 million to various
parties as part of the financing. The value of warrants have been recorded
as a discount to the related debt issued and are amortized as additional
interest expense over the eight year loan term.
<PAGE>
NOTE 14 - PREFERRED STOCK DIVIDENDS
Reflects the preferred stock dividends on the Preferred Stock issued to
acquire ARC, Brenner, Lans, Jacobson and United.
<PAGE>
RECYCLING INDUSTRIES, INC.
PRELIMINARY PURCHASE ALLOCATION
EXHIBIT I
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
DESCRIPTION GROSSMAN JACOBSON UNITED METALS BRENNER CENTRAL LANS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ADJUSTED PURCHASE PRICE ALLOCATION:
Cash $ - $ - $ - $ 14 $ - $ 28
Accounts receivable 1,653 2,925 2,173 2,252 5,786 3,663
Interest receivable - - 99 - - -
Short-term marketable securities - - - - - 1,467
Inventories 675 2,526 2,039 1,667 170 2,550
Prepaid expenses and deposits - 6 - 5 - 723
Property and equipment 5,205 15,300 29,799 20,396 27,239 20,993
Investment in subsidiaries - - 7,500 - - -
Note receivable, related party - - 965 - - -
Other asssets - 100 300 300 200 -
Accounts payable (301) - - - (300) (1,470)
Other current liabilities (645) (340) - - (592)
Deferred compensation - - - (1,090) - -
Other long term liabilities (96) (330) (900) (862) (2,413) (1,862)
------------------------------------------------------------------------------
Total adjusted purchase price allocation 7,136 19,882 41,635 22,682 30,682 25,500
------------------------------------------------------------------------------
FINANCING:
Notes payable (4,142) (18,768) (39,995) (11,998) (22,993) (24,458)
Notes payable - Parent Company (Preferred Stock) - (3,000) (5,660) (7,000) - (3,500)
Notes payable - Parent Company (Common Stock) (750) - - - (10,000) -
Notes payable - Parent Company - - - (5,436) - -
Capital lease (2,660) - - - - -
------------------------------------------------------------------------------
Total financing (7,552) (21,768) (45,655) (24,434) (32,993) (27,958)
------------------------------------------------------------------------------
OTHER ALLOCATIONS:
Inter-company receivable (A) 416 1,886 4,020 1,752 2,311 2,458
Minority interest in subsidiary - - - - - -
Investment in subsidiary - - - - - -
------------------------------------------------------------------------------
Total other allocations 416 1,886 4,020 1,752 2,311 2,458
------------------------------------------------------------------------------
NET $ - $ - $ - $ - $ - $ -
------------------------------------------------------------------------------
------------------------------------------------------------------------------
UNITED
METAL'S
50% INTEREST IN CONSOLIDATED
SUB-TOTAL GRIFFIN TOTAL
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ADJUSTED PURCHASE PRICE ALLOCATION:
Cash $ 42 $ 285 $ 327
Accounts receivable 18,452 1,109 19,561
Interest receivable 99 - 99
Short-term marketable securities 1,467 - 1,467
Inventories 9,627 1,369 10,996
Prepaid expenses and deposits 734 3 737
Property and equipment 118,932 7,557 126,489
Investment in subsidiaries 7,500 - 7,500
Note receivable, related party 965 - 965
Other asssets 900 63 963
Accounts payable (2,071) (150) (2,221)
Other current liabilities (1,577) (24) (1,601)
Deferred compensation (1,090) - (1,090)
Other long term liabilities (6,463) - (6,463)
----------------- -------------- ---------------
Total adjusted purchase price allocation 147,517 10,212 157,729
----------------- -------------- ---------------
FINANCING:
Notes payable (122,354) - (122,354)
Notes payable - Parent Company (Preferred Stock) (19,160) - (19,160)
Notes payable - Parent Company (Common Stock) (10,750) - (10,750)
Notes payable - Parent Company (5,436) - (5,436)
Capital lease (2,660) - (2,660)
----------------- -------------- ---------------
Total financing (160,360) - (160,360)
----------------- -------------- ---------------
OTHER ALLOCATIONS:
Inter-company receivable (A) 12,843 - 12,843
Minority interest in subsidiary - (5,106) (5,106)
Investment in subsidiary - (5,106) (5,106)
----------------- -------------- ---------------
Total other allocations 12,843 (10,212) 2,631
----------------- -------------- ---------------
NET $ - $ - $ -
----------------- -------------- ---------------
----------------- -------------- ---------------
(A) Represents allocation of financing proceeds between subsidiaries and Recycling Industries, Inc. (Parent Company)
</TABLE>
<PAGE>
SUPPLEMENTAL INFORMATION
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PROFORMA EARNINGS BEFORE INTEREST, TAXES,
DEPRECIATION AND AMORTIZATION
SUPPLEMENTAL INFORMATION
TWELVE MONTHS ENDED SEPTEMBER 30, 1997
The Company has included as supplemental information the calculation of
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) as
a supplemental schedule to the pro forma financial information. The EBITDA
calculation, which is not a measure of financial performance under generally
accepted accounting principles, was included as certain investors use the
data to determine the Company's ability to service its indebtedness. EBITDA
is not a substitute for income from continuing operations, net income or
cash flows presentation under generally accepted accounting principles.
<TABLE>
<CAPTION>
RECYCLING
INDUSTRIES, INC. CONSOLIDATED
& SUBSIDIARIES PRO FORMA PROFORMA
SEPTEMBER 30, 1997 ACQUISITIONS ADJUSTMENTS SEPTEMBER 30, 1997
------------------ ------------ ----------- ------------------
<S> <C> <C> <C> <C>
EBITDA:
Earnings (loss) before income taxes and
extraordinary (loss) $ 481 $ 18,246 $ (15,470) $ 3,257
Interest 2,616 758 14,917 18,291
Depreciation and Amortization 2,592 4,078 2,077 8,747
--------- ---------- --------- ----------
EBITDA $ 5,689 $ 22,665 $ 1,941 $ 30,295
--------- ---------- --------- ----------
--------- ---------- --------- ----------
</TABLE>
See unaudited proforma consolidated statements of earnings, introduction
and notes to proforma consolidated financial statements.
<PAGE>
CENTRAL METALS COMPANY, INC.
FINANCIAL STATEMENTS
AS OF NOVEMBER 30, 1997 AND DECEMBER 31, 1996
AND FOR THE ELEVEN MONTHS ENDED NOVEMBER 30, 1997
AND FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<PAGE>
CENTRAL METALS COMPANY, INC.
CONTENTS
<TABLE>
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3
BALANCE SHEETS 4
STATEMENTS OF INCOME 5
STATEMENTS OF STOCKHOLDERS' EQUITY 6
STATEMENTS OF CASH FLOWS 7
SUMMARY OF ACCOUNTING POLICIES 8 - 9
NOTES TO FINANCIAL STATEMENTS 10 - 16
</TABLE>
2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Central Metals Company, Inc.
Atlanta, Georgia
We have audited the accompanying balance sheets of Central Metals Company, Inc.
as of November 30, 1997 and December 31, 1996 and the related statements of
income, stockholders' equity, and cash flows for the eleven months ended
November 30, 1997 and for the years ended December 31, 1996 and 1995. These
financial statements are the responsibility of the Company'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
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 financial statements referred to above present fairly, in
all material respects, the financial position of Central Metals Company, Inc. as
of November 30, 1997 and December 31, 1996, and the results of its operations
and its cash flows for the eleven months ended November 30, 1997 and for the
years ended December 31, 1996 and 1995 in conformity with generally accepted
accounting principles.
BDO Seidman, LLP
January 30, 1998
Denver, Colorado
3
<PAGE>
<TABLE>
<CAPTION>
NOVEMBER 30, December 31,
1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
ASSETS (Notes 3 and 4)
CURRENT ASSETS:
Cash and cash equivalents $ 121,000 $ 126,000
Accounts receivable trade
less allowance for
doubtful accounts of
$350,000 and $252,000 5,216,000 3,839,000
Inventories (Note 1) 1,104,000 1,290,000
- ---------------------------------------------------------------------------
Total current assets 6,441,000 5,255,000
- ---------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, NET (Note 2) 6,440,000 5,626,000
- ---------------------------------------------------------------------------
OTHER ASSETS, net of accumulated amortization
of $660,000 and $582,000 228,000 290,000
- ---------------------------------------------------------------------------
$13,109,000 $11,171,000
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
<PAGE>
CENTRAL METALS COMPANY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
NOVEMBER 30, December 31,
1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdrafts $ 984,000 $ 821,000
Accounts payable 425,000 498,000
Accrued expenses:
Profit sharing (Note 6) 100,000 100,000
Other 237,000 38,000
Current maturities of long-term debt:
Related parties (Note 3) 58,000 55,000
Other (Note 4) 1,381,000 162,000
Environmental liabilities (Note 6) 105,000 -
- ---------------------------------------------------------------------------
Total current liabilities 3,290,000 1,674,000
- ---------------------------------------------------------------------------
LONG-TERM DEBT:
Related parties (Note 3) 176,000 230,000
Other (Note 4) 1,094,000 1,939,000
ENVIRONMENTAL LIABILITIES (Note 6) 2,800,000 2,800,000
- ---------------------------------------------------------------------------
Total long-term liabilities 4,070,000 4,969,000
Total liabilities 7,360,000 6,643,000
- ---------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 3, 6 and 8)
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value - 1,000,000
shares authorized, 100,000 shares issued and
outstanding 100,000 100,000
Additional paid-in capital 436,000 436,000
Retained earnings 5,213,000 3,992,000
- ---------------------------------------------------------------------------
Total stockholders' equity 5,749,000 4,528,000
- ---------------------------------------------------------------------------
$13,109,000 $11,171,000
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO FINANCIAL
STATEMENTS.
4
<PAGE>
CENTRAL METALS COMPANY, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
ELEVEN MONTHS
ENDED Years Ended December 31,
NOVEMBER 30, ------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES (Note 5): $36,050,000 $32,511,000 $31,865,000
COST OF SALES 29,685,000 27,516,000 26,797,000
- ------------------------------------------------------------------------------------------
Gross profit 6,365,000 4,995,000 5,068,000
SELLING, GENERAL AND ADMINISTRATIVE 4,359,000 3,512,000 3,686,000
- ------------------------------------------------------------------------------------------
Operating income 2,006,000 1,483,000 1,382,000
- ------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense (203,000) (160,000) (88,000)
Other income 120,000 236,000 129,000
- ------------------------------------------------------------------------------------------
Total other income (expense) (83,000) 76,000 41,000
- ------------------------------------------------------------------------------------------
NET INCOME $ 1,923,000 $ 1,559,000 $ 1,423,000
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO FINANCIAL
STATEMENTS.
5
<PAGE>
CENTRAL METALS COMPANY, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1995 AND 1996 AND FOR THE Common Stock Additional Total
ELEVEN MONTHS ENDED --------------------- Paid-in Retained Stockholders'
NOVEMBER 30, 1997 Shares Amount Capital Earnings Equity
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1995 100,000 $ 100,000 $ 436,000 $ 2,286,000 $ 2,822,000
Dividends - - - (811,000) (811,000)
Net income for the year - - - 1,423,000 1,423,000
- --------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1995 100,000 100,000 436,000 2,898,000 3,434,000
Dividends - - - (465,000) (465,000)
Net income for the year - - - 1,559,000 1,559,000
- --------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1996 100,000 100,000 436,000 3,992,000 4,528,000
Dividends - - - (702,000) (702,000)
Net income for the
eleven months ended
November 30, 1997 - - - 1,923,000 1,923,000
- --------------------------------------------------------------------------------------------------------------------------
BALANCE, November 30, 1997 100,000 $ 100,000 $ 436,000 $ 5,213,000 $ 5,749,000
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO FINANCIAL
STATEMENTS
6
<PAGE>
CENTRAL METALS COMPANY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
ELEVEN MONTHS
ENDED YEARS ENDED DECEMBER 31,
NOVEMBER 30, ---------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,923,000 $ 1,559,000 $ 1,423,000
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 788,000 1,022,000 925,000
Bad debt expense (recoveries) 98,000 (9,000) 229,000
Changes in operating assets and liabilities:
Accounts receivable (1,475,000) 368,000 (1,339,000)
Inventories 186,000 143,000 (36,000)
Accounts payable (73,000) (180,000) (291,000)
Accrued expenses 304,000 (47,000) (51,000)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,751,000 2,856,000 860,000
- ----------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Property and equipment purchases (1,524,000) (2,730,000) (1,247,000)
Other assets (16,000) - 20,000
- ----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,540,000) (2,730,000) (1,227,000)
- ----------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Dividends paid (702,000) (465,000) (811,000)
Advances (payments) on lines of credit, net 519,000 (192,000) 659,000
Payments on long-term debt (145,000) (249,000) (255,000)
Proceeds from long-term debt - 1,000,000 327,000
Payments on long-term debt related parties (51,000) (52,000) (56,000)
Bank overdrafts 163,000 (163,000) 459,000
- ----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (216,000) (121,000) 323,000
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (5,000) 5,000 (44,000)
CASH AND CASH EQUIVALENTS, beginning of period 126,000 121,000 165,000
- ----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of period $ 121,000 $ 126,000 $ 121,000
- ----------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO FINANCIAL
STATEMENTS.
7
<PAGE>
CENTRAL METALS COMPANY, INC.
SUMMARY OF ACCOUNTING POLICIES
BUSINESS Central Metals Company, Inc. (the "Company") is a
Georgia corporation formed in 1915. The Company
operates metals recycling facilities in Georgia
providing wholesale sales primarily to
southeastern steel mills and markets.
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 The Company's financial instruments that are
CREDIT RISK exposed to concentrations of credit risk consist
primarily of cash and accounts receivable.
The Company maintains its cash in bank deposit
accounts which, at times, may exceed federally
insured limits. The Company has 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 November 30, 1997, accounts
receivable from one customer totaled $664,000 or
12% of the total accounts receivable balance. At
December 31, 1996, accounts receivable from one
customer totaled $1,054,000 or 27% of total
accounts receivable. Ongoing credit evaluations
of customers' financial conditions are performed
and, generally, no collateral is required.
INVENTORIES Inventories consist primarily of scrap metals.
Inventories are stated at the lower of average
cost (first-in, first-out) or market.
PROPERTY AND Property and equipment are recorded at cost.
EQUIPMENT 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 $710,000 for
the eleven months ended November 30, 1997 and
$936,000 and $839,000 for the years ended December
31, 1996 and 1995. Maintenance and repairs are
charged to expense as incurred and expenditures
for major improvements are capitalized.
8
<PAGE>
OTHER Other assets includes noncompete agreements which
ASSETS are carried at cost less accumulated amortization.
Amortization is provided over the 10 year term of
the agreements and totaled $78,000 for the eleven
months ended November 30, 1997 and $86,000 and
$86,000 for the years ended December 31, 1996 and
1995.
FUTURES CONTRACTS
Futures contracts are entered into to hedge the
effect of price changes on certain metals
commodities the Company recycles and sells. Gains
and losses that effectively hedge commodities are
deferred and included in income as part of those
transactions. At November 30, 1997 and December
31, 1996 the Company had net contracts to sell 700
and 2,300 pounds of copper. The net deferred gain
(loss) on these contracts was $5,000 and $(15,000)
at November 30, 1997 and December 31, 1996.
INCOME TAXES The Company has elected under the Internal Revenue
Code to be an S-corporation. In lieu of corporate
income taxes, the stockholders are taxed on their
proportional share of the Company's taxable
income. Therefore, no provision or liability for
income taxes is included in the financial
statements.
FAIR VALUE OF The carrying amounts reported in the balance
FINANCIAL sheets for cash, accounts receivable and accounts
INSTRUMENTS payable, and accrued liabilities approximate fair
value because of the immediate or short-term
maturity of these financial instruments. The fair
value of long-term debt were estimated based on
market values of financial instruments with
similar terms. Management believes that the fair
value of the long-term debt approximates their
carrying value.
REVENUE Sales are recorded in the period materials are
RECOGNITION shipped.
CASH AND CASH For purpose of the statement of cash flows, the
EQUIVALENTS Company considers all highly liquid investments
purchased with an initial maturity of three months
or less to be cash equivalents.
9
<PAGE>
CENTRAL METALS COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
1. Inventories Inventories consisted of the following:
<TABLE>
<CAPTION>
NOVEMBER 30, December 31,
1997 1996
-------------------------------------------------------------------------------
<S> <C> <C>
Raw materials (unprocessed) $ 278,000 $ 365,000
Finished goods (processed) 826,000 925,000
-------------------------------------------------------------------------------
$1,104,000 $1,290,000
------------------------------------------------------------------------------
------------------------------------------------------------------------------
</TABLE>
2. PROPERTY AND
EQUIPMENT Property and equipment consisted of the following:
<TABLE>
<CAPTION>
NOVEMBER 30, December 31,
1997 1996
---------------------------------------------------------------------------------
<S> <C> <C>
Land $ 771,000 $ 771,000
Building and improvements 583,000 583,000
Heavy machinery and equipment 7,437,000 6,457,000
Automotive shredder 4,402,000 4,018,000
Transportation equipment 1,453,000 1,293,000
Office equipment 92,000 92,000
---------------------------------------------------------------------------------
Total 14,738,000 13,214,000
Less accumulated depreciation 8,298,000 7,588,000
---------------------------------------------------------------------------------
$ 6,440,000 $ 5,626,000
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
3. RELATED PARTY Long-term debt related parties consisted of the following:
TRANSACTIONS
AND BALANCES
NOVEMBER 30, December 31,
1997 1996
-------------------------------------------------------------------------------
<S> <C> <C>
6% note payable to a former
stockholder, payable $3,095
per month including interest
through August 2001 $ 124,000 $ 151,000
6% note payable to a former
stockholder, payable $2,789
per month including interest
through September 2000 110,000 134,000
-------------------------------------------------------------------------------
Total 234,000 285,000
Less current maturities 58,000 55,000
-------------------------------------------------------------------------------
Long-term related parties $ 176,000 $ 230,000
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>
Future maturities of long-term debt related
parties are as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDING NOVEMBER 30,
-------------------------------------------------------------------------------
<S> <C>
1998 $ 58,000
1999 62,000
2000 65,000
2001 49,000
-------------------------------------------------------------------------------
$ 234,000
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>
The Company leases two properties from a
partnership whose partners are stockholders of
the Company. The agreements expire through June
30, 1999 and require monthly payments of $1,800
and $2,000. Rent expense under the terms of
the agreements totaled $42,800 for the eleven
months ended November 30, 1997 and $45,600 and
$45,600 for the years ended December 31, 1996
and 1995.
11
<PAGE>
During the eleven months ended November 30,
1997 the Company purchased $125,000 of raw
materials from Pull-A-Part, a related entity,
established by the stockholders of the Company
in September 1997. The purchase price of the
raw materials approximates the cost paid to
other large bulk suppliers of the Company.
The Company has provided financial guarantees
of debt aggregating $2,000,000 at November 30,
1997 for two related entities. Expiration
dates of these guarantees extend through May
31, 1998, and are secured by substantially all
of the Company's assets.
4. Long-Term Debt Long-term debt consisted of the following:
<TABLE>
<CAPTION>
NOVEMBER 30, December 31,
1997 1996
----------------------------------------------------------------------------------
<S> <C> <C>
Note payable to a bank,
pursuant to a $1,500,000
line of credit, interest
payable monthly at the
bank's prime rate (8.5%
at November 30, 1997);
collateralized by substan-
tially all of the Company's
assets; due May 31, 1998 $ 1,059,000 $ 899,000
Note payable to a bank,
payable in monthly
installments of $16,667
commencing July 1, 1997
plus interest at the
banks prime rate (8.5%
at November 30, 1997);
collateralized by
substantially all of the
Company's assets, due
June 1, 2002 917,000 1,000,000
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
NOVEMBER 30, December 31,
1997 1996
-----------------------------------------------------------------------------
<S> <C> <C>
Note payable to a bank,
pursuant to a $750,000
line of credit, interest
payable monthly at the
bank's prime rate (8.5%
at November 30, 1997);
convertible to a term loan
January 1, 1998; collater-
alized by substantially
all of the Company's assets,
due January 1, 2003 359,000 -
Noncompete payments (dis-
counted at 9%) payable
to two individuals, each
payable $40,000 per year
through February 14, 1999 140,000 202,000
-----------------------------------------------------------------------------
Total 2,475,000 2,101,000
Less current portion 1,381,000 162,000
-----------------------------------------------------------------------------
Long-term portion $1,094,000 $1,939,000
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
</TABLE>
13
<PAGE>
Future maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDING NOVEMBER 30,
---------------------------------------------------------
<S> <C>
1998 $ 1,381,000
1999 336,000
2000 270,000
2001 278,000
2002 204,000
Thereafter 6,000
---------------------------------------------------------
$ 2,475,000
---------------------------------------------------------
---------------------------------------------------------
</TABLE>
In December 1997 the Company paid off all of the
long-term debt with banks in connection with the
sale of substantially all of the Company's assets
as described in Note 8.
5. MAJOR
CUSTOMERS Non-affiliated customers which comprised more than
10% of the Company's sales are as follows:
<TABLE>
<CAPTION>
ELEVEN MONTHS
ENDED Years Ended December 31,
NOVEMBER 30, --------------------------
1997 1996 1995
----------------------------------------------------------------------
<S> <C> <C> <C>
A 25% 2% 6%
B -% 43% 32%
----------------------------------------------------------------------
----------------------------------------------------------------------
</TABLE>
14
<PAGE>
6. COMMITMENTS ENVIRONMENTAL LIABILITIES
AND
CONTINGENCIES
In connection with the recycling and processing of
metals, the Company may come in contact with
"hazardous materials" as that term is defined
under various environmental laws. Although the
Company screens for "hazardous materials" in raw
materials, certain items processed may
inadvertently contain such materials, which could
result in contamination of the waste by-products
and premises. Although the past operations were
in substantial compliance with the then applicable
regulations, changes in environmental laws and
inadvertent handling of hazardous materials have
resulted in certain potential violations of
current laws and regulations subjecting the
Company to fines and responsibility for costs
attributable to remediation.
On August 7, 1997 the Company was named as a
potentially liable party resulting from the
improper disposal of certain waste by-products.
The financial statements include an estimated
environmental cleanup liability of approximately
$105,000 at November 30, 1997 related to this
matter.
At November 30, 1997 and December 31, 1996, the
Company had recorded as other non-current
liabilities $2,800,000 to cover future
environmental expenditures, principally for
remediation of sites on which the Company
operates (See Note 8). Management believes that
it is reasonably possible that additional costs
may be incurred beyond the amounts accrued as a
result of new information. However, the
amounts, if any, cannot be estimated and
management believes that they would not be
material to the Company's financial position,
but could be material to the Company's results
of operations and cash flows in a given period.
PROFIT SHARING PLAN
The Company provides a defined contribution profit
sharing plan covering substantially all of its
employees. The plan provides for Company
contributions at the discretion of the Board of
Directors.
Contributions to the plan for the eleven months
ended November 30, 1997 and for the years ended
December 31, 1996 and 1995 were $100,000, $100,000
and $126,000.
15
<PAGE>
7. SUPPLEMENTAL Supplemental information to the statements of cash
CASH FLOW flows are as follows:
INFORMATION
<TABLE>
<CAPTION>
ELEVEN MONTHS
ENDED Years Ended December 31,
NOVEMBER 30, ------------------------
1997 1996 1995
---------------------------------------------------------------------
<S> <C> <C> <C>
Cash paid for interest $ 206,000 $ 161,000 $ 89,000
</TABLE>
8. SUBSEQUENT On December 5, 1997, the stockholders of the
EVENTS Company sold substantially all of the assets
used in its metals recycling operations to
Recycling Industries, Inc. ("RII") for
$20,000,000 plus 800,000 shares of RII common
stock and warrants to acquire 200,000 shares of
RII common stock at a price of $15.00 per
share. RII also assumed approximately $300,000
of accounts payable of the Company and entered
into Lease and Purchase and Sale Agreement to
lease and acquire certain properties owned by a
partnership whose partners are stockholders of
the Company (See Note 3).
In connection with the transaction the
stockholders of the Company entered into a
Remediation Escrow Agreement ("the Agreement").
The Agreement requires that 80,000 shares of
RII common stock be placed in escrow to pay for
environmental remediation costs up to and not
to exceed $1,000,000 (See Note 6).
16
<PAGE>
MONEY POINT DIAMOND CORPORATION &
MONEY POINT LAND HOLDING COMPANY
COMBINED (UNAUDITED) COMPARATIVE BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 99 $ (85)
Accounts receivable,
less allowance for doubtful accounts 2,442 1,356
Inventories 4,128 7,315
Prepaid expenses and other 129 180
--------------------------------------
Total Current Assets 6,798 8,766
--------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET 3,036 2,585
--------------------------------------
TOTAL ASSETS $ 9,834 $ 11,351
--------------------------------------
--------------------------------------
</TABLE>
<PAGE>
MONEY POINT DIAMOND CORPORATION &
MONEY POINT LAND HOLDING COMPANY
COMBINED (UNAUDITED) COMPARATIVE BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 1,598 $ 3,250
Accounts payable 147 1,160
Other current liabilities 467 383
--------------------------------------
Total Current Liabilities 2,212 4,793
--------------------------------------
LONG-TERM DEBT:
Long-term debt, less current maturities 2,868 3,340
--------------------------------------
Total Liabilities 5,080 8,133
--------------------------------------
STOCKHOLDERS' EQUITY:
Common Stock 1 1
Additional paid-in capital 8,250 5,450
Accumulated deficit (3,497) (2,233)
--------------------------------------
Total Stockholders' Equity 4,754 3,218
--------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,834 $ 11,351
--------------------------------------
--------------------------------------
</TABLE>
<PAGE>
MONEY POINT DIAMOND CORPORATION &
MONEY POINT LAND HOLDING COMPANY
COMBINED (UNAUDITED) COMPARATIVE INCOME STATEMENTS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
---------------------------------------
<S> <C> <C>
Net sales $ 19,431 $ 20,995
Cost of sales and operating expenses 16,345 19,970
--------------------------------------
Gross profit (loss) 3,086 1,025
Selling, general and administrative expenses 1,334 1,329
--------------------------------------
Operating income (loss) 1,752 (304)
--------------------------------------
Other income (expense):
Interest expense (477) (394)
Miscellaneous 289 81
--------------------------------------
Total other income (expense) (188) (313)
--------------------------------------
Earnings (loss) before income tax benefit
(expense) 1,564 (617)
Income tax benefit - -
--------------------------------------
Net earnings (loss) $1,564 ($617)
--------------------------------------
--------------------------------------
</TABLE>
<PAGE>
MONEY POINT DIAMOND CORPORATION &
MONEY POINT LAND HOLDING COMPANY
COMBINED (UNAUDITED) COMPARATIVE CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
--------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Earnings (loss)
$ 1,564 $ (617)
Adjustments to reconcile net earnings (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization 472 199
Changes in Assets and Liabilities:
Accounts receivable (1,086) 831
Inventories 3,187 (1,984)
Prepaid expenses and 51 168
Accounts payable (1,013) 222
Current liabilities, excluding debt 84 (403)
--------------------------------------
Net Cash provided by (used in) Operating Activities
3,259 (1,584)
--------------------------------------
INVESTING ACTIVITIES:
Capital expenditures, net (923) (547)
Other assets - 1
--------------------------------------
Net Cash provided by (used in) Investing Activities (923) (546)
--------------------------------------
FINANCING ACTIVITIES:
Net Proceeds from financing (2,124) 993
Partner distributions (28) (2,316)
Net Cash Provided by Financing Activities (2,152) (1,323)
--------------------------------------
Increase (decrease) in Cash 184 (3,453)
CASH, beginning of period (85) 3,368
--------------------------------------
CASH, end of period $ 99 $ (85)
--------------------------------------
--------------------------------------
</TABLE>
<PAGE>
MONEY POINT LAND HOLDING CORPORATION AND MONEY POINT DIAMOND CORPORATION
NOTES TO THE FINANCIAL STATMENTS
GENERAL INFORMATION:
I. The Financial Statements included herein have been prepared by the Company
without audit.
II. Inventories as of September 30, 1997, and September 30, 1996, consisted of
the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
Raw materials $ 412 $ 731
Finished goods 3,716 6,584
----- -----
Total $ 4,128 $ 7,315
------------ -----------
------------ -----------
</TABLE>
<PAGE>
Combined Financial Statements
Years Ended December 31,
1996 and 1995
MONEY POINT LAND
HOLDING CORPORATION
AND
MONEY POINT DIAMOND
CORPORATION
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Directors and Stockholders
Money Point Land Holding Corporation and
Money Point Diamond Corporation
Chesapeake, Virginia
We have audited the accompanying combined balance sheets of Money
Point Land Holding Corporation and Money Point Diamond Corporation as of
December 31, 1996 and 1995, and the related combined statements of
operations, retained earnings (deficit), and cash flows for the years then
ended. These financial statements are the responsibility of the Companys'
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
audits 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
Money Point Land Holding Corporation and Money Point Diamond Corporation, as
of December 31, 1996 and 1995, and the combined results of operations and
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
/s/ Goodman & Company, L.L.P.
One Commercial Place
Norfolk, Virginia
April 16, 1997
- 1 -
<PAGE>
MONEY POINT LAND HOLDING CORPORATION AND
MONEY POINT DIAMOND CORPORATION
COMBINED BALANCE SHEETS
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Money Point Money Point
ASSETS Land Holding Diamond Combined Combined
Corporation Corporation Eliminations 1996 1995
-------------- -------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Current assets
Cash and cash on hand $ 3,583 $ 455,002 $ 0 $ 458,585 $ 135,721
Accounts receivable - trade 0 3,227,114 0 3,227,114 1,836,593
Notes receivable 577 94,099 0 94,676 96,471
Bid deposits 0 62,826 0 62,826 108,668
Inventory 0 4,835,152 0 4,835,152 6,316,102
Prepaid expenses 0 11,485 0 11,485 32,230
Other current assets 1,395 0 0 1,395 14,815
-------------------------------------------------------------------------------
Total current assets 5,555 8,685,678 0 8,691,233 8,540,600
-------------------------------------------------------------------------------
Property and equipment, at cost
Land and land improvements 1,064,734 0 0 1,064,734 992,318
Buildings and improvements 335,413 15,156 0 350,569 405,705
Machinery and equipment 7,268,980 15,403 0 7,284,383 6,358,952
Furniture and fixtures 81,294 0 0 81,294 81,294
-------------------------------------------------------------------------------
8,750,421 30,559 0 8,780,980 7,838,269
Less - accumulated depreciation 5,731,350 23,516 0 5,754,866 5,210,832
-------------------------------------------------------------------------------
3,019,071 7,043 0 3,026,114 2,627,437
-------------------------------------------------------------------------------
Other assets
Due from Money Point Diamond
Corporation 3,305,586 0 (3,305,586) 0
-------------------------------------------------------------------------------
$ 6,330,212 $ 8,692,721 $ (3,305,586) $ 11,717,347 $ 11,168,037
-------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank overdraft $ 0 $ 0 $ 0 $ 0 $ 95,907
Accounts payable 0 755,650 0 755,650 1,256,935
Accrued expenses 21,932 162,460 0 184,392 281,999
Note payable 0 3,006,022 0 3,006,022 152,042
Notes payable - stockholders 0 834,144 0 834,144 190,572
Note payable - related party 0 300,000 0 300,000 0
Current portion of long-term debt 1,052,352 0 0 1,052,352 954,127
-------------------------------------------------------------------------------
Total current liabilities 1,074,284 5,058,276 0 6,132,560 2,931,582
-------------------------------------------------------------------------------
Non-current liabilities
Long-term debt 2,352,178 0 0 2,352,178 2,408,387
Due to Money Point Land
Holding Corporation 0 3,305,586 (3,305,586) 0 0
-------------------------------------------------------------------------------
Total non-current liabilities 2,352,178 3,305,586 (3,305,586) 2,352,178 2,408,387
-------------------------------------------------------------------------------
Stockholders' equity
Common stock - $1 par value;
1,000 shares authorized,
577 shares outstanding 577 0 0 577 577
Common stock - $1 par value;
1,000 shares authorized,
577 shares outstanding 0 577 0 577 577
Additional paid-in capital 0 8,250,000 0 8,250,000 5,450,000
Retained earnings (deficit) 2,903,173 (7,921,718) 0 (5,018,545) 376,914
-------------------------------------------------------------------------------
Total stockholders' equity 2,903,750 328,859 0 3,232,609 5,828,068
-------------------------------------------------------------------------------
$ 6,330,212 $ 8,692,721 $ (3,305,586) $ 11,717,347 $ 11,168,037
-------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
- 2 -
<PAGE>
MONEY POINT LAND HOLDING CORPORATION AND
MONEY POINT DIAMOND CORPORATION
COMBINED STATEMENTS OF RETAINED EARNINGS (DEFICIT)
Years Ended December 31, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Money Point Money Point
Land Holding Diamond Combined Combined
Corporation Corporation Eliminations 1996 1995
-------------- -------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance - beginning of year $ 5,514,064 $ (5,137,150) $ 0 $ 376,914 $ (194,158)
Net income (loss) 2,317,680 (2,784,568) 0 (466,888) 2,595,029
Distributions to stockholders (4,928,571) 0 0 (4,928,571) (2,023,957)
-------------------------------------------------------------------------------
Balance - end of year $ 2,903,173 $ (7,921,718) $ 0 $ (5,018,545) $ 376,914
-------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
- 3 -
<PAGE>
MONEY POINT LAND HOLDING CORPORATION AND
MONEY POINT DIAMOND CORPORATION
COMBINED STATEMENTS OF OPERATIONS
Years Ended December 31, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Money Point Money Point
Land Holding Diamond Combined Combined
Corporation Corporation Eliminations 1996 1995
-------------- -------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Gross sales $ 0 $ 28,852,141 $ 0 $ 28,852,141 $ 32,636,832
Rental income 3,415,230 0 (3,415,230) 0 0
Less - sales allowances 0 (378,733) 0 (378,733) (291,727)
-------------------------------------------------------------------------------
Net sales 3,415,230 28,473,408 (3,415,230) 28,473,408 32,345,105
Cost of sales (see schedules) 0 29,187,260 (3,415,230) 25,772,030 26,588,239
-------------------------------------------------------------------------------
Gross income (loss) 3,415,230 (713,852) 0 2,701,378 5,756,866
Operating expenses (see schedule) 1,107,962 1,706,885 0 2,814,847 3,343,703
-------------------------------------------------------------------------------
Operating income (loss) 2,307,268 (2,420,737) 0 (113,469) 2,413,163
Other income (expense)
Interest 0 16,694 0 16,694 13,816
Miscellaneous income 0 15,976 0 15,976 36,139
Gain on sale of property and equipment 10,412 0 0 10,412 131,911
Site clean-up 0 (396,501) 0 (396,501) 0
-------------------------------------------------------------------------------
Net income (loss) $ 2,317,680 $ (2,784,568) $ 0 $ (466,888) $ 2,595,029
-------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
- 4 -
<PAGE>
MONEY POINT LAND HOLDING CORPORATION AND
MONEY POINT DIAMOND CORPORATION
COMBINED SCHEDULES OF COSTS OF SALES
Years Ended December 31, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Money Point Money Point
Land Holding Diamond Combined Combined
Corporation Corporation Eliminations 1996 1995
-------------- -------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Material $ 0 $ 21,277,286 $ 0 $ 21,277,286 $ 22,297,941
Rent 0 3,446,313 (3,415,230) 31,083 0
Labor
Direct 0 821,949 0 821,949 948,598
Indirect 0 590,659 0 590,659 500,447
Repairs and maintenance 0 783,768 0 783,768 948,080
Waste removal 0 523,535 0 523,535 472,790
Contract Labor 0 355,059 0 355,059 39,820
Fuels 0 283,292 0 283,292 220,052
Insurance 0 279,311 0 279,311 241,400
Freight 0 232,112 0 232,112 223,379
Utilities 0 183,711 0 183,711 196,256
Supplies 0 178,091 0 178,091 242,426
Payroll taxes 0 129,576 0 129,576 107,659
Compensated absences 0 36,523 0 36,523 32,212
Security 0 33,651 0 33,651 32,610
Miscellaneous 0 32,107 0 32,107 84,253
Depreciation 0 317 0 317 316
-------------------------------------------------------------------------------
$ 0 $ 29,187,260 $ (3,415,230) $ 25,772,030 $ 26,588,239
-------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
- 5 -
<PAGE>
MONEY POINT LAND HOLDING CORPORATION AND
MONEY POINT DIAMOND CORPORATION
COMBINED SCHEDULES OF OPERATING EXPENSES
Years Ended December 31, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
Money Point Money Point
Land Holding Diamond Combined Combined
Corporation Corporation Eliminations 1996 1995
-------------- -------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Depreciation and amortization $ 587,488 $ 0 $ 0 $ 587,488 $ 513,691
Interest expense 248,612 227,957 0 476,569 393,913
Administrative salaries 40,000 368,599 0 408,599 566,605
Professional services 19,482 243,484 0 262,966 298,745
Rent expense 208,359 0 0 208,359 194,983
Insurance 0 179,994 0 179,994 238,980
Sales salaries and commissions 0 174,634 0 174,634 188,365
Taxes and licenses 3,460 109,632 0 113,092 120,066
Compensated absences 0 80,123 0 80,123 74,779
Employee benefits 0 62,156 0 62,156 21,352
Payroll taxes 0 49,843 0 49,843 63,337
Advertising 0 40,919 0 40,919 40,254
Utilities 0 28,536 0 28,536 32,983
Office 0 25,159 0 25,159 25,678
Miscellaneous 561 24,232 0 24,793 23,889
Contributions 0 24,110 0 24,110 42,835
Travel 0 20,432 0 20,432 14,819
Security 0 17,000 0 17,000 16,387
Auto expense 0 14,650 0 14,650 12,845
Repairs and maintenance 0 8,236 0 8,236 43,005
Dues and subscriptions 0 7,009 0 7,009 3,091
Bad debts - net of recoveries 0 180 0 180 29,251
Foreign sales corporation commission 0 0 0 0 300,000
Environmental settlement expense 0 0 0 0 83,850
-------------------------------------------------------------------------------
$ 1,107,962 $ 1,706,885 $ 0 $ 2,814,847 $ 3,343,703
-------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
- 6 -
<PAGE>
MONEY POINT LAND HOLDING CORPORATION AND
MONEY POINT DIAMOND CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
Years Ended December 31, 1996 and 1995
- ------------------------------------------------------------------------------------------------------------------------
Money Point Money Point
Land Holding Diamond Combined Combined
Corporation Corporation Eliminations 1996 1995
-------------- -------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 2,317,680 $(2,784,568) $ 0 $ (466,888) $ 2,595,029
Adjustments to reconcile to
net cash provided
(used) by operating activities:
Depreciation and amortization 587,488 317 0 587,805 514,007
Gain on sale of property
and equipment (10,412) 0 0 (10,412) (131,911)
Changes in:
Accounts receivable - trade 0 (1,390,521) 0 (1,390,521) 1,524,806
Notes receivable 0 1,795 0 1,795 (38,215)
Bid deposits 0 45,842 0 45,842 150,616
Inventory 0 1,480,950 0 1,480,950 (2,012,507)
Prepaid expenses 0 20,745 0 20,745 21,579
Other current assets 13,420 0 0 13,420 (13,650)
Due from Money Point
Diamond Corporation 1,720,351 0 (1,720,351) 0 0
Accounts payable 0 (501,285) 0 (501,285) 526,387
Accrued expenses (23,432) (71,174) 0 (94,606) 124,246
-----------------------------------------------------------------------------
Net cash provided (used) by
operating activities 4,605,095 (3,197,899) (1,720,351) (313,155) 3,260,387
-----------------------------------------------------------------------------
Cash flows from investing activities
Purchase of property and equipment (92,042) 0 0 (92,042) (92,470)
Proceeds from sale of property
and equipment 35,200 0 0 35,200 134,500
-----------------------------------------------------------------------------
Net cash provided (used) by
Investing activities (56,842) 0 0 (56,842) 42,030
-----------------------------------------------------------------------------
Cash flows from financing activities
Distributions to stockholders (4,928,571) 0 0 (4,928,571) (1,578,385)
Additional paid-in capital
from stockholders 0 2,800,000 0 2,800,000 600,000
Net decrease in due to Money Point Land
Holding Corporation 0 (1,720,351) 1,720,351 0 0
Proceeds (payments) on short-term debt 0 1,601,693 0 1,601,693 (1,439,582)
(Decrease) increase in notes payable
stockholder (190,572) 834,144 0 643,572 (255,000)
Proceeds from note payable
related party 0 300,000 0 300,000 0
Proceeds from long-term debt 1,310,000 0 0 1,310,000 34,305
Payments on long-term debt (833,196) (104,730) 0 (937,926) (806,900)
-----------------------------------------------------------------------------
Net cash provided (used) by
Financing activities (4,642,339) 3,710,756 1,720,351 788,768 (3,445,562)
-----------------------------------------------------------------------------
Net increase (decrease) in cash ( 94,086) 512,857 0 418,771 (143,145)
Cash at beginning of year 97,669 (57,855) 0 39,814 182,959
-----------------------------------------------------------------------------
Cash at end of year $ 3,583 $ 455,002 $ 0 $ 458,585 $ 39,814
-----------------------------------------------------------------------------
Cash at end of year is presented
in the combined
balance sheets as follows
Cash and cash on hand $ 3,583 $ 455,002 $ 0 $ 458,585 $ 135,721
Bank overdraft 0 0 0 0 (95,907)
-----------------------------------------------------------------------------
$ 3,583 $ 455,002 $ 0 $ 458,585 $ 39,814
-----------------------------------------------------------------------------
Supplemental disclosure of
cash flow information
Cash paid during the year
for interest $ 258,436 $ 198,532 $ 0 $ 456,968 $ 372,229
-----------------------------------------------------------------------------
</TABLE>
Supplemental disclosure of non-cash investing and financing activities
During 1996, Money Point Land Holding Corporation acquired property and
equipment totalling $1,011,270 by paying $92,042 in cash and financing
the remainder with long-term debt.
During 1996, the Companies refinanced $1,249,286 of long-term debt and
$3,001 of accrued interest with a short-term note payable.
During 1995, Money Point Land Holding Corporation acquired property and
equipment totalling $1,117,935 by paying $92,470 in cash and financing
the remainder with long-term debt.
During 1995, Money Point Land Holding Corporation made $2,023,957 in
distributions to stockholders by paying $1,578,385 in cash and issuing a
note payable for $445,572.
The accompanying notes are an integral part of these financial statements.
- 7 -
<PAGE>
MONEY POINT LAND HOLDING CORPORATION AND
MONEY POINT DIAMOND CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND BUSINESS
Money Point Land Holding Corporation is a closely held Virginia
corporation formed in 1985 and is engaged in the rental of property and
equipment to Money Point Diamond Corporation.
Money Point Diamond Corporation is a closely held Virginia
corporation formed in 1985 and is engaged in the processing and recycling of
scrap metals. It operates a facility in Chesapeake, Virginia which it leases
from Money Point Land Holding Corporation.
Combined financial statements are presented because the Companies
have identical ownership and are mutually dependent. In addition, certain debt
of the companies contain cross -collateralization terms and mutual guarantees as
described in notes 5 and 7.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Combination
Intercompany transactions have been eliminated.
Credit Risk
Financial instruments which potentially subject Money Point Diamond
Corporation to concentration of credit risk as described in FASB Statement No.
105 consist principally of temporary cash investments and accounts receivable.
At December 31, 1996, Money Point Diamond Corporation had cash on deposit in
excess of the FDIC insured limit at a single high credit quality financial
institution. With the exception of major customers (note 9), concentration of
credit risk with respect to trade receivables is limited due to the large number
of customers comprising Money Point Diamond's customer base, and their
dispersion across many different industries.
Estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, and expenses and disclosure of contingent assets and
liabilities for the reported periods. Actual results could differ from those
estimates and assumptions.
Bad Debts
Money Point Diamond Corporation evaluates each of its accounts
receivable individually, and provides a charge to income which is appropriate,
in the opinion of management, to absorb probable credit losses.
(Notes continued on next page)
- 8 -
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Inventory
Materials inventory is valued at the lower of average cost or market
value. The costs of labor and overhead are included in inventory consistent with
the full absorption inventory method.
Property and Equipment
Property and equipment are depreciated by the straight-line or
accelerated methods over the following estimated lives:
Assets Lives
--------- --------
Land improvements 15 years
Buildings and improvements 5 to 39 years
Machinery and equipment 3 to 7 years
Furniture and fixtures 5 to 7 years
Income Taxes
No provision for income taxes has been made as the Companies have
elected to be taxed as "S" corporations for income tax purposes and do not pay
income taxes at the corporate level.
Advertising
Advertising costs are expensed as incurred by Money Point Diamond
Corporation. Advertising costs for the years ended December 31, 1996 and 1995
were $40,919 and $40,254, respectively.
NOTE 3 - RELATED PARTY TRANSACTIONS
At December 31, 1996 and 1995, Money Point Diamond Corporation owed
Money Point Land Holding Corporation $3,305,586 and $5,653,581, respectively,
which has been eliminated in combination. Rent of $3,415,230 and $3,881,413,
representing the greater of 12% of the gross sales of Money Point Diamond
Corporation or $50,000 monthly, was incurred in 1996 and 1995, respectively, and
has also been eliminated in combination.
Accounts payable includes $16,799 and $170,240 due to a related party at
December 31, 1996 and 1995, respectively.
At December 31, 1996, Money Point Diamond Corporation owed a related
party $300,000 on an uncollateralized short-term note payable with interest
payable monthly at 9%, due September, 1997.
Additional related party transactions are described in Notes 6 and 8.
(Notes continued on next page)
- 9 -
<PAGE>
NOTE 4 - INVENTORY
Inventory consists of the following:
<TABLE>
Money Point Money Point
Land Holding Diamond Combined Combined
Corporation Corporation Eliminations 1996 1995
------------- ------------- ------------ -------- --------
<S> <C> <C> <C> <C> <C>
Material $ - $ 3,573,478 $ - $ 3,573,478 $ 4,902,386
Labor - 322,747 - $ 322,747 412,902
Overhead - 938,927 - $ 938,927 1,000,814
------------- --------------- ------------ ------------------ ---------------
$ - $ 4,835,152 $ - $ 4,835,152 $ 6,316,102
============= =============== ============ ================== ===============
</TABLE>
NOTE 5 - NOTE PAYABLE
At December 31, 1996 and 1995, Money Point Diamond Corporation had
drawn $3,006,022 and $152,042, respectively, on its $4,000,000 line of credit
with Signet Bank. The line of credit is due on demand with interest payable
monthly at prime plus one-half of one percent and is secured by all assets of
the Money Point Diamond Corporation and a deed of trust on property and
equipment owned by Money Point Land Holding Corporation.
(Notes continued on next page)
- 10 -
<PAGE>
NOTE 6 - NOTES PAYABLE - STOCKHOLDERS
Notes payable - stockholders consist of the following:
<TABLE>
Money Point Money Point
Land Holding Diamond Combined Combined
Corporation Corporation Eliminations 1996 1995
------------- ------------ ------------- -------- --------
<S> <C> <C> <C> <C> <C>
Notes payable to stock-
holders, due
November, 1997
interest payable
monthly at 9%. $ - $ 834,144 $ - $ 834,144 $ -
Note payable to stock-
holder, payable on
demand, interest at
8%. - - - - 190,572
------------ --------------- ------------- -------------- ---------------
$ - $ 834,144 $ - $ 834,144 $ 190,572
============ =============== ============= ============== ===============
</TABLE>
NOTE 7 - LONG-TERM DEBT
Details of long-term debt are as follows:
<TABLE>
Money Point Money Point
Land Holding Diamond Combined Combined
Corporation Corporation Eliminations 1996 1995
------------ ------------ ------------- -------- --------
<S> <C> <C> <C> <C> <C>
Notes payable to G.E. Capital
Corporation, collateralized
by equipment, guaranteed
by the Company s
stockholders and Money
Point Diamond
corporation, monthly
payments totaling $89,257
including interest adjusted
monthly to the rate listed
for one month
commercial
paper plus 2.78% to
3.31% $ 3,177,605 $ - $ - $ 3,177,605 $ 1,674,601
Notes payable to Signet
Bank, collateralized by a
deed of trust and an
assignment of rents and
leases, guaranteed by the
Company s' stockholders
and Money Point
Diamond Corporation,
monthly payments of
$4,167 plus interest at the
30 day London Interbank
offered rate plus 3.25%. 183,333 - - 183,333 229,167
Note payable to First Virginia
Bank, collateralized by a
vehicle, monthly payments
of $697 including interest
at 7.50%, due June,2001. 31,874 - - 31,874 -
Note payable to Toyota Motor
Corporation, collateralized
by a vehicle, monthly
payments of $661
including interest at
1.976%, due June 1998. 11,718 - - 11,718 -
(Notes continued on next page)
-11-
<PAGE>
Money Point Money Point
Land Holding Diamond Combined Combined
Corporation Corporation Eliminations 1996 1995
------------ ------------ ------------- -------- ----------
Promissory note to a former
Stockholder as
Consideration for
Redemption of 375 shares
Of common stock during
1989, monthly installments
of $20,629 from each
corporation including
interest at 9.93%. - - - - 1,458,756
------------- ------------- ------------- ------------ ------------
3,404,530 - - 3,404,530 3,362,514
Less-current portion 1,052,352 - - 1,052,352 954,127
------------- ------------- ------------- ------------ ------------
Non-current portion $ 2,352,178 $ - $ - $ 2,352,178 $ 2,408,387
------------- ------------- ------------- ------------ ------------
------------- ------------- ------------- ------------ ------------
</TABLE>
NOTE 7 - LONG-TERM DEBT (Continued)
Maturities of long-term debt are as follows:
Money Point Money Point
Land Holding Diamond
Corporation Corporation Combined
------------ ------------ ----------
1997 $1,052,352 $ - $1,052,352
1998 800,927 - 800,927
1999 796,875 - 796,875
2000 584,010 - 584,010
2001 117,349 - 117,349
Thereafter 53,017 - 53,017
------------ ------------- ------------
$3,404,530 $ - $3,404,530
------------ ------------- ------------
------------ ------------- ------------
NOTE 8 - ADDITIONAL PAID-IN CAPITAL
During 1996 and 1995, Money Point Diamond Corporation received $2,800,000 and
$600,000, respectively, in additional paid-in capital.
(Notes continued on next page)
- 12 -
<PAGE>
NOTE 9 - MAJOR CUSTOMERS
Revenues earned by Money Point Diamond Corporation from two major
customers were approximately $15,200,000 and $13,140,000 representing 53% and
40% of total gross sales for the years ended December 31, 1996 and 1995,
respectively. Of these amounts, $1,761,856 and $227,503 remained outstanding at
December 31, 1996 and 1995, respectively, representing 55% and 12% of accounts
receivable - trade.
NOTE 10 - CONTINGENCY AND RELATED ENVIRONMENTAL MATTERS
Substantially all of the facilities of the Companies are subject to
Federal and State provisions regulating the discharge of material into the
environment. During 1996, Money Point Diamond Corporation incurred $396,501 in
costs to clean-up the site where its operations are located, pursuant to Federal
requirements. Management does not expect further compliance with these
provisions to have any material effects on the capital expenditures, net income,
financial condition or competitive position of the Companies in the near term.
* * * * *
-13-
<PAGE>
MONEY POINT LAND HOLDING CORPORATION
AND
MONEY POINT DIAMOND CORPORATION
CHESAPEAKE, VIRGINIA
COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Directors and Stockholders
Money Point Land Holding Corporation and
Money Point Diamond Corporation
Chesapeake, Virginia
We have audited the accompanying combined balance sheets of Money
Point Land Holding Corporation and Money Point Diamond Corporation as of
December 31, 1995 and 1994, and the related combined statements of operations,
retained earnings (deficit), and cash flows for the years then ended. These
financial statements are the responsibility of the Companys' 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 audits
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 Money Point
Land Holding Corporation and Money Point Diamond Corporation, as of December 31,
1995 and 1994, and the combined results of operations and cash flows for the
years then ended, in conformity with generally accepted accounting principles.
/s/ Goodman & Company, L.L.P
One Commercial Place
Norfolk, Virginia
April 16, 1996
<PAGE>
MONEY POINT LAND HOLDING CORPORATION AND
MONEY POINT DIAMOND CORPORATION
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1995 and 1994
- --------------------------------------------------------------------------------------------------------------------------------
Money Point Money Point
ASSETS Land Holding Diamond Combined Combined
Corporation Corporation Eliminations 1995 1994
---------------- --------------- ------------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
Current assets
Cash and cash on hand $ 97,669 $ 38,052 $ 0 $ 135,721 $ 218,057
Accounts receivable - trade 0 1,836,593 0 1,836,593 3,361,399
Notes receivable 577 95,894 0 96,471 58,256
Bid deposits 0 108,668 0 108,668 259,284
Inventory 0 6,316,102 0 6,316,102 4,303,595
Prepaid expenses 0 32,230 0 32,230 53,809
Other current assets 14,815 0 0 14,815 1,165
-----------------------------------------------------------------------------
Total current assets 113,061 8,427,539 0 8,540,600 8,255,565
-----------------------------------------------------------------------------
Property and equipment, at cost
Land and land improvements 992,318 0 0 992,318 992,318
Buildings and improvements 390,549 15,156 0 405,705 402,105
Machinery and equipment 6,343,549 15,403 0 6,358,952 5,421,044
Furniture and fixtures 81,294 0 0 81,294 66,105
-----------------------------------------------------------------------------
7,807,710 30,559 0 7,838,269 6,881,572
Less - accumulated depreciation 5,187,633 23,199 0 5,210,832 4,856,711
-----------------------------------------------------------------------------
2,620,077 7,360 0 2,627,437 2,024,861
-----------------------------------------------------------------------------
Other assets
Due from Money Point
Diamond Corporation 5,653,581 0 5,653,581 0 0
Loan origination costs
(net of accumulated
amortization) 0 0 0 0 1,237
-----------------------------------------------------------------------------
$ 8,386,719 $ 8,434,899 $ 5,653,581 $ 11,168,037 $10,281,663
-----------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank overdraft $ 0 $ 95,907 $ 0 $ 95,907 $ 35,098
Accounts payable 0 1,256,935 0 1,256,935 730,548
Accrued expenses 48,365 233,634 0 281,999 157,753
Note payable 0 152,042 0 152,042 1,591,624
Note payable - stockholder 190,572 0 0 190,572 0
Current portion of long-term debt 770,804 183,323 0 954,127 806,984
-----------------------------------------------------------------------------
Total current liabilities 1,009,741 1,921,841 0 2,931,582 3,322,007
-----------------------------------------------------------------------------
Non-current liabilities
Long-term debt 1,862,337 546,050 0 2,408,387 2,302,660
Due to Money Point Land
Holding Corporation 0 5,653,581 5,653,581 0 0
-----------------------------------------------------------------------------
Total non-current liabilities 1,862,337 6,199,631 5,653,581 2,408,387 2,302,660
-----------------------------------------------------------------------------
Stockholders' equity
Common stock - $1 par value; 1,000 shares
authorized, 577 shares outstanding 577 0 0 577 577
Common stock - $1 par value; 1,000 shares
authorized, 577 shares outstanding 0 577 0 577 577
Additional paid-in capital 0 5,450,000 0 5,450,000 4,850,000
Retained earnings (deficit) 5,514,064 (5,137,150) 0 376,914 (194,158)
-----------------------------------------------------------------------------
Total stockholders' equity 5,514,641 313,427 0 5,828,068 4,656,996
-----------------------------------------------------------------------------
$ 8,386,719 $ 8,434,899 $ 5,653,581 $ 11,168,037 $10,281,663
-----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 2 -
<PAGE>
MONEY POINT LAND HOLDING CORPORATION AND
MONEY POINT DIAMOND CORPORATION
COMBINED STATEMENTS OF RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
Years Ended December 31, 1995 and 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Money Point Money Point
Land Holding Diamond Combined Combined
Corporation Corporation Eliminations 1995 1994
---------------- ------------------ ----------------- ------------------ -----------------
<S> <C> <C> <C> <C> <C>
Balance - beginning of year $ 4,611,618 $ (4,805,776) $ 0 $ (194,158) $ (438,840)
Net income (loss) 2,926,403 (331,374) 0 2,595,029 2,944,682
Distributions to stockholders (2,023,957) 0 0 (2,023,957) (2,700,000)
----------------------------------------------------------------------------------------------------
Balance - end of year $ 5,514,064 $ (5,137,150) $ 0 $ 376,914 $ (194,158)
----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE>
MONEY POINT LAND HOLDING CORPORATION AND
MONEY POINT DIAMOND CORPORATION
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31, 1995 and 1994
- ----------------------------------------------------------------------------------------------------------------------------
Money Point Money Point
Land Holding Diamond Combined Combined
Corporation Corporation Eliminations 1995 1994
-------------- --------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Gross sales $ 0 $ 32,636,832 $ 0 $ 32,636,832 $ 25,717,924
Rental income 3,881,413 0 3,881,413 0 0
Less - sales allowances 0 (291,727) 0 (291,727) (193,497)
---------------------------------------------------------------------------------
Net sales 3,881,413 32,345,105 3,881,413 32,345,105 25,524,427
Cost of sales (see schedules) 0 30,469,652 3,881,413 26,588,239 19,854,896
---------------------------------------------------------------------------------
Gross income 3,881,413 1,875,453 0 5,756,866 5,669,531
Operating expenses (see schedule) 1,087,452 2,256,251 0 3,343,703 2,707,171
---------------------------------------------------------------------------------
Operating income (loss) 2,793,961 (380,798) 0 2,413,163 2,962,360
Other income (loss)
Interest 0 13,816 0 13,816 1,383
Miscellaneous 531 35,608 0 36,139 2,162
Gain (loss) on sale of property
and equipment 131,911 0 0 131,911 (21,223)
---------------------------------------------------------------------------------
Net income (loss) $ 2,926,403 $ (331,374) $ 0 $ 2,595,029 $ 2,944,682
---------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 4 -
<PAGE>
MONEY POINT LAND HOLDING CORPORATION AND
MONEY POINT DIAMOND CORPORATION
COMBINED SCHEDULES OF COSTS OF SALES
<TABLE>
<CAPTION>
Years Ended December 31, 1995 and 1994
- ---------------------------------------------------------------------------------------------------------------
Money Point Money Point
Land Holding Diamond Combined Combined
Corporation Corporation Eliminations 1995 1994
-------------- --------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Material $ 0 $ 22,297,941 $ 0 $ 22,297,941 $ 16,224,915
Rent 0 3,881,413 3,881,413 0 0
Labor
Direct 0 948,598 0 948,598 829,027
Indirect 0 500,447 0 500,447 406,156
Repairs and maintenance 0 948,080 0 948,080 766,570
Waste removal 0 472,790 0 472,790 407,279
Supplies 0 242,426 0 242,426 134,411
Insurance 0 241,400 0 241,400 312,124
Freight 0 223,379 0 223,379 174,878
Fuels 0 220,052 0 220,052 193,833
Utilities 0 196,256 0 196,256 176,154
Payroll taxes 0 107,659 0 107,659 98,566
Miscellaneous 0 84,253 0 84,253 66,012
Contract Labor 0 39,820 0 39,820 1,970
Security 0 32,610 0 32,610 32,238
Compensated absences 0 32,212 0 32,212 30,296
Depreciation 0 316 0 316 467
---------------------------------------------------------------------------------
$ 0 $ 30,469,652 $ 3,881,413 $ 26,588,239 $ 19,854,896
---------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 5 -
<PAGE>
MONEY POINT LAND HOLDING CORPORATION AND
MONEY POINT DIAMOND CORPORATION
COMBINED SCHEDULES OF OPERATING EXPENSES
<TABLE>
<CAPTION>
Years Ended December 31, 1995 and 1994
- ----------------------------------------------------------------------------------------------------------------------------
Money Point Money Point
Land Holding Diamond Combined Combined
Corporation Corporation Eliminations 1995 1994
-------------- --------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Administrative salaries $ 80,000 $ 486,605 $ 0 $ 566,605 $ 503,665
Depreciation 512,454 0 0 512,454 470,134
Interest expense 212,549 181,364 0 393,913 451,756
Foreign sales corporation commission 0 300,000 0 300,000 199,930
Professional services 48,638 250,107 0 298,745 140,073
Insurance 0 238,980 0 238,980 207,362
Rent expense 194,983 0 0 194,983 144,736
Sales salaries and commissions 0 188,365 0 188,365 154,984
Taxes and licenses 8,265 111,801 0 120,066 88,765
Environmental settlement expense 0 83,850 0 83,850 0
Compensated absences 0 74,779 0 74,779 63,859
Payroll taxes 0 63,337 0 63,337 53,683
Repairs and maintenance 29,326 13,679 0 43,005 32,404
Contributions 0 42,835 0 42,835 4,663
Advertising 0 40,254 0 40,254 39,687
Utilities 0 32,983 0 32,983 29,680
Bad debts - net of recoveries 0 29,251 0 29,251 0
Office 0 25,678 0 25,678 18,062
Miscellaneous 0 23,889 0 23,889 27,850
Employee benefits 0 21,352 0 21,352 29,095
Security 0 16,387 0 16,387 16,683
Travel 0 14,819 0 14,819 12,569
Auto expense 0 12,845 0 12,845 11,346
Dues and subscriptions 0 3,091 0 3,091 4,835
Amortization 1,237 0 0 1,237 1,350
---------------------------------------------------------------------------------
$ 1,087,452 $ 2,256,251 $ 0 $ 3,343,703 $ 2,707,171
---------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 6 -
<PAGE>
MONEY POINT LAND HOLDING CORPORATION AND
MONEY POINT DIAMOND CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31, 1995 and 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Money Point Money Point
Land Holding Diamond Combined Combined
Corporation Corporation Eliminations 1995 1994
-------------- ------------------ ----------------- ------------------ -----------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 2,926,403 $ (331,374) $ 0 $ 2,595,029 $ 2,944,682
Adjustments to reconcile to
net cash provided
(used) by operating activities:
Depreciation and amortization 513,691 316 0 514,007 471,951
(Gain) loss on sale of property
and equipment (131,911) 0 0 (131,911) 21,223
Changes in:
Accounts receivable - trade 0 1,524,806 0 1,524,806 (868,446)
Notes receivable 0 (38,215) 0 (38,215) (19,948)
Bid deposits 0 150,616 0 150,616 (200,790)
Inventory 0 (2,012,507) 0 (2,012,507) (2,009,543)
Prepaid expenses 0 21,579 0 21,579 (4,213)
Cash surrender value of
life insurance 0 0 0 0 238
Other current assets (13,650) 0 (13,650) 0
Due from Money Point
Diamond Corporation (785,563) 0 785,563 0 0
Accounts payable 0 526,387 0 526,387 (108,585)
Accrued expenses 21,684 102,562 0 124,246 (285,889)
--------------------------------------------------------------------------------------
Net cash provided (used) by
operating activities 2,530,654 (55,830) 785,563 3,260,387 (59,320)
--------------------------------------------------------------------------------------
Cash flows from investing activities
Purchase of property and equipment (92,470) 0 0 (92,470) (398,771)
Proceeds from sale of property
and equipment 134,500 0 0 134,500 27,500
--------------------------------------------------------------------------------------
Net cash provided (used) by
investing activities 42,030 0 0 42,030 (371,271)
--------------------------------------------------------------------------------------
Cash flows from financing activities
Distributions to stockholders (1,578,385) 0 0 (1,578,385) (2,700,000)
Additional paid-in capital from
stockholders 0 600,000 0 600,000 2,700,000
Net increase in due to Money Point Land
Holding Corporation 0 785,563 (785,563) 0 0
Proceeds (payments) on short-term debt 0 (1,439,582) (1,439,582) 1,211,896
(Decrease) increase in notes payable
- stockholder (255,000) 0 0 (255,000) (240,238)
Proceeds from long-term debt 34,305 0 0 34,305 693,669
Payments on long-term debt (640,837) (166,063) 0 (806,900) (1,006,997)
--------------------------------------------------------------------------------------
Net cash provided (used) by
financing activities (2,439,917) (220,082) (785,563) (3,445,562) 658,330
--------------------------------------------------------------------------------------
Net increase (decrease) in cash 132,767 (275,912) 0 (143,145) 227,739
Cash at beginning of year (35,098) 218,057 0 182,959 (44,780)
--------------------------------------------------------------------------------------
Cash at end of year $ 97,669 $ (57,855) $ 0 $ 39,814 $ 182,959
--------------------------------------------------------------------------------------
Cash at end of year is presented
in the combined
balance sheets as follows
Cash and cash on hand $ 97,669 $ 38,052 $ 0 $ 135,721 $ 218,057
Bank overdraft 0 (95,907) 0 (95,907) (35,098)
--------------------------------------------------------------------------------------
$ 97,669 $ (57,855) $ 0 $ 39,814 $ 182,959
--------------------------------------------------------------------------------------
Supplemental disclosure of
cash flow information
Cash paid during the year for interest $ 190,865 $ 181,364 $ 0 $ 372,229 $ 481,292
--------------------------------------------------------------------------------------
</TABLE>
Supplemental disclosure of non-cash investing and financing activities
During 1995, Money Point Land Holding Corporation acquired property and
equipment totalling $1,117,935 by paying $92,470 in cash and financing
the remainder with long-term debt.
During 1995, Money Point Land Holding Corporation made $2,023,957 in
distributions to stockholders by paying $1,578,385 in cash and issuing a
note payable for $445,572.
During 1994, Money Point Land Holding Corporation incurred $1,556,250 in
long-term debt of which $862,581 was used to refinance existing
long-term debt and $693,669 was received in cash.
The accompanying notes are an integral part of these financial statements.
- 7 -
<PAGE>
MONEY POINT LAND HOLDING CORPORATION AND
MONEY POINT DIAMOND CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND BUSINESS
Money Point Land Holding Corporation is a closely held Virginia
Corporation formed in 1985 and is engaged in the rental of property and
equipment to Money Point Diamond Corporation.
Money Point Diamond Corporation is a closely held Virginia
corporation formed in 1985 and is engaged in the processing and recycling of
scrap metals. It operates a facility in Chesapeake, Virginia which it leases
from Money Point Land Holding Corporation.
Combined financial statements are presented because the Companies
have identical ownership and are mutually dependent. In addition, certain debt
of the companies contain cross -collateralization terms and mutual guarantees as
described in notes 5 and 7.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Credit Risk
Financial instruments which potentially subject Money Point Diamond
Corporation to concentration of credit risk as described in FASB Statement No.
105 consist principally of accounts receivable. With the exception of major
customers (note 9), concentration of credit risk with respect to trade
receivables is limited due to the large number of customers comprising Money
Point Diamond's customer base, and their dispersion across many different
industries.
Estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, and expenses and disclosure of contingent assets and
liabilities for the reported periods. Actual results could differ from those
estimates and assumptions.
Bad Debts
Money Point Diamond Corporation evaluates each of its accounts
receivable individually, and provides a charge to income which is appropriate,
in the opinion of management, to absorb probable credit losses.
Inventory
Materials inventory is valued at the lower of cost (first-in,
first-out) or market value. The costs of labor and overhead are included in
inventory consistent with the full absorption inventory method.
(Notes continued on next page)
- 8 -
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property and Equipment
Property and equipment are depreciated by the straight-line or
accelerated methods over the following estimated lives:
Assets Lives
-------- -------
Land improvements 15 years
Buildings and improvements 5 to 31.5 years
Machinery and equipment 3 to 7 years
Furniture and fixtures 5 to 7 years
Income Taxes
No provision for income taxes has been made as the Companies have
elected to be taxed as "S" corporations for income tax purposes and do not pay
income taxes at the corporate level.
Loan Origination Costs
Loan origination costs are stated at cost, less amounts amortized to
income by the straight-line method over the term of the related loan.
Basis of Combination
Intercompany transactions have been eliminated.
NOTE 3 - RELATED PARTY TRANSACTIONS
At December 31, 1995 and 1994, Money Point Diamond Corporation owed
Money Point Land Holding Corporation $5,653,581 and $4,868,018, respectively,
which has been eliminated in combination. Rent of $3,881,413 and $3,062,931,
representing the greater of 12% of the gross sales of Money Point Diamond
Corporation or $50,000 monthly, was incurred in 1995 and 1994, respectively, and
has also been eliminated in combination.
Accounts payable includes $170,240 and $168,102 due to a related party
at December 31, 1995 and 1994, respectively.
Additional related party transactions are described in Note 6.
(Notes continued on next page)
- 9 -
<PAGE>
NOTE 4 - INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
Money Point Money Point
Land Holding Diamond Combined Combined
Corporation Corporation Elimination 1995 1994
------------- -------------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Material $ - $4,902,386 $ - $ 4,902,386 $ 3,264,234
Labor - 412,902 - 412,902 305,325
Overhead - 1,000,814 - 1,000,814 734,036
------------- -------------- ------------- -------------- ------------
$ - $6,316,102 $ - $ 6,316,102 $ 4,303,595
============= ============== ============== ============== ============
</TABLE>
NOTE 5 - NOTE PAYABLE
At December 31, 1995 and 1994, Money Point Diamond Corporation had
drawn $152,042 and $1,591,624, respectively, on its $4,000,000 line of credit
with Signet Bank. The line of credit is due on demand with interest payable
monthly at prime plus one-half of one percent and is secured by all assets of
the Money Point Diamond Corporation and a deed of trust on property and
equipment owned by Money Point Land Holding Corporation.
NOTE 6 - NOTES PAYABLE - STOCKHOLDER
Notes payable - stockholder consist of the following:
<TABLE>
<CAPTION>
Money Point Money Point
Land Holding Diamond Combined Combined
Corporation Corporation Eliminations 1995 1994
------------- ------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Note payable to stock-
holder,payable on
demand, interest at 8%
$ 190,572 $ - $ - $ 190,572 $ -
------------- ------------- ------------ ------------ -----------
------------- ------------- ------------ ------------ -----------
</TABLE>
(Notes continued on next page)
- 10 -
<PAGE>
NOTE 7 - LONG-TERM DEBT
Details of long-term debt are as follows:
<TABLE>
<CAPTION>
Money Point Money Point
Land Holding Diamond Combined Combined
Corporation Corporation Eliminations 1995 1994
------------- ------------ ------------ ---------- --------
<S> <C> <C> <C> <C> <C>
Promissory note to a former
stockholder as consideration
for redemption of 375 shares
of common stock during
1989, monthly installments
of $20,629 from each
corporation including
interest at 9.93%,
personally guaranteed by the
remaining stockholders, due
July, 1999. $ 729,373 $ 729,373 $ - $ 1,458,746 $ 1,790,872
Note payable to G.E. Capital
Corporation, collateralized
by equipment, guaranteed by the
Companys' stockholders and
Money Point Diamond
Corporation, monthly
payments of $27,564 including
interest adjusted monthly to
the rate listed for one month
commercial paper plus 3.31% 578,846 - - 578,846 882,051
Note payable to G.E. Capital
Corporation, collateralized by
equipment, guaranteed by the
Companys' stockholders and
Money Point Diamond
Corporation, monthly
payments of $4,241 including
interest adjusted monthly to
the rate listed for one month
commercial paper plus 3.31%. 296,875 - - 296,875 343,527
</TABLE>
(Notes continued on next page)
11
<PAGE>
NOTE 7 - LONG-TERM DEBT (Continued)
<TABLE>
<CAPTION>
Money Point Money Point
Land Holding Diamond Combined Combined
Corporation Corporation Eliminations 1995 1994
------------ ----------- ------------ --------- --------
<S> <C> <C> <C> <C> <C>
Note payable to G.E.
Capital Corporation,
collateralized by
equipment,
guaranteed by the
Companys'
stockholder and
Money Point
Diamond
Corporation, monthly
payments of $4,820
including interest
adjusted monthly to
the rate listed for
one month
commercial paper
plus 2.78%. 400,038 - - 400,038 -
Note payable to G.E.
Capital Corporation,
collateralized by
equipment,
guaranteed by the
Companys'
stockholders and
Money Point
Diamond
Corporation, monthly
payments of $625
including interest
adjusted monthly to
the rate listed for
one month
commercial paper
plus 2.78%. 29,363 - - 29,363 -
Note payable to G.E.
Capital Corporation,
collateralized by
equipment,
guaranteed by the
Companys'
stockholders and
Money Point
Diamond
Corporation, monthly
payments of $7,540
including interest
adjusted monthly to
the rate listed for
one month
commercial paper
plus 2.78%. 369,479 - - 369,479 -
</TABLE>
(Notes continued on next page)
- 12 -
<PAGE>
NOTE 7 - LONG-TERM DEBT (Continued)
<TABLE>
<CAPTION>
Money Point Money Point
Land Holding Diamond Combined Combined
Corporation Corporation Eliminations 1995 1994
------------- ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Note payable to
Signet Bank,
collateralized by a
deed of trust and an
assignment of rents
and leases,
guaranteed by the
Companys'
stockholders and
Money Point
Diamond
Corporation, monthly
payments of $4,167
plus interest at 30
day London Interbank
offered rate plus
3.25%. 229,167 - - 229,167 -
Note payable to
Signet Bank,
collateralized by a
deed of trust and an
assignment of rents
and leases,
guaranteed by the
Companys'
stockholders and
Money Point
Diamond
Corporation, monthly,
payments of $8,333
plus interest at prime
plus .75%. - - - - 93,194
--------------- ------------ --------- ------------ -------------
2,633,141 729,373 - 3,362,514 3,109,644
Less - current portion 770,804 183,323 954,127 806,984
--------------- ------------ --------- ------------ -------------
Non-current portion $ 1,862,337 $ 546,050 $ - $2,408,387 $ 2,302,660
--------------- ------------ --------- ------------ -------------
--------------- ------------ --------- ------------ -------------
</TABLE>
(Notes continued on next page)
- 13 -
<PAGE>
NOTE 7 - LONG-TERM DEBT (Continued)
Maturities of long-term debt are as follows:
- --------------------------------------------------------------------------------
Money Point Money Point
Land Holding Diamond
Corporation Corporation Combined
- --------------------------------------------------------------------------------
1996 $ 770,804 $ 183,323 $ 954,127
1997 707,164 202,376 909,540
1998 480,120 223,409 703,529
1999 376,351 120,265 496,616
2000 145,437 - 145,437
Thereafter 153,265 - 153,265
--------------- ------------- ---------------
$ 2,633,141 $ 729,373 $ 3,362,514
--------------- ------------- ---------------
--------------- ------------- ---------------
NOTE 8 - ADDITIONAL PAID-IN CAPITAL
During 1995 and 1994, Money Point Diamond Corporation received $600,000 and
$2,700,000, respectively, in additional paid-in capital.
NOTE 9 - MAJOR CUSTOMERS
Revenues earned by Money Point Diamond Corporation from major customers
were approximately $13,140,000 and $5,240,000 representing 40% and 20% of total
gross sales for the years ended December 31, 1995 and 1994, respectively. Of
these amounts, $227,503 and $1,990,905 remained outstanding at December 31, 1995
and 1994, respectively, representing 12% and 59% of accounts receivable - trade.
* * * * *
<PAGE>
WM. LANS SONS' CO. INC. AND
IDAL REALTY COMPANY
COMBINED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1997 (UNAUDITED) AND JUNE 30, 1997 AND 1996
AND FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED) AND FOR
THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
<PAGE>
WM. LANS SONS' CO. INC. AND
IDAL REALTY COMPANY
CONTENTS
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS 1
FINANCIAL STATEMENTS
Combined Balance Sheets 2
Combined Statements of Operations 3
Combined Statements of Stockholders' and Partners' Equity 4
Combined Statements of Cash Flows 5-6
Summary of Accounting Policies 7-9
Notes to Combined Financial Statements 10-12
</TABLE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders' and Partners'
WM. LANS SONS' CO. INC.
IDAL REALTY COMPANY
South Beloit, Illinois
We have audited the accompanying combined balance sheets of WM. LANS SONS' CO.
INC. and IDAL REALTY COMPANY (in combination, the Company) as of June 30, 1997
and 1996 and the related combined statements of operations, stockholders' and
partners' equity, and cash flows for each of the three years in the period ended
June 30, 1997. These financial statements are the responsibility of the
Company'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
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 WM. LANS SONS' CO.
INC. and IDAL REALTY COMPANY as of June 30, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1997 in conformity with generally accepted accounting principles.
BDO Seidman, LLP
January 23, 1998
Denver, Colorado
1
<PAGE>
<TABLE>
<CAPTION>
JUNE 30,
SEPTEMBER 30, ------------------------
1997 1997 1996
(UNAUDITED)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,283,970 $ 1,022,179 $ 1,697,294
Accounts receivable 2,783,910 3,273,030 3,591,977
Inventories (Note 1) 2,124,461 2,386,162 2,010,381
Prepaid expenses 31,184 79,842 89,529
- --------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 6,223,525 6,761,213 7,389,181
- --------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, NET (Notes 2 and 7) 1,947,690 1,661,407 1,853,344
- --------------------------------------------------------------------------------------------------------
OTHER ASSETS
Inventories (Note 1) 1,738,000 1,953,000 1,644,000
Federal tax deposits 672,563 672,563 602,272
- --------------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 2,410,563 2,625,563 2,246,272
- --------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 10,581,778 $ 11,048,183 $ 11,488,797
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
WM. LANS SONS' CO. INC. AND
IDAL REALTY COMPANY
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
SEPTEMBER 30, --------------------------
1997 1997 1996
(UNAUDITED)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' AND
PARTNERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 1,136,700 $ 1,191,961 $ 2,471,961
Accrued payroll and other expenses 70,662 113,000 90,651
Note payable - related party (Note 3) 125,555 125,555 125,555
- --------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,332,917 1,430,516 2,688,167
NOTE PAYABLE - RELATED PARTY (NOTE 3) 376,667 376,667 502,222
ENVIROMENTAL LIABILITIES (NOTE 5) 2,800,000 2,800,000 2,800,000
- --------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 4,509,584 4,607,183 5,990,389
- --------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 5 AND 7)
STOCKHOLDERS' EQUITY (Note 7)
Common stock, $.50 par value:
Class A - 35,000 shares authorized,
9,231 issued and outstanding 4,616 4,616 4,616
Class B - 300,000 shares authorized,
175,394 issued and outstanding 87,697 87,697 87,697
Retained earnings 5,830,395 6,199,135 5,256,280
PARTNERS' EQUITY 149,486 149,552 149,815
- --------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' AND PARTNERS' EQUITY 6,072,194 6,441,000 5,498,408
- --------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
AND PARTNERS' EQUITY $ 10,581,778 $ 11,048,183 $ 11,488,797
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO COMBINED FINANCIAL
STATEMENTS.
2
<PAGE>
WM. LANS SONS' CO. INC. AND
IDAL REALTY COMPANY
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED JUNE 30,
-------------------------- -----------------------------------------
1997 1996 1997 1996 1995
(UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SALES, net (Note 4) $ 6,546,184 $ 6,203,968 $ 25,007,993 $ 29,098,702 $ 28,331,860
Cost of sales 5,927,894 6,145,566 20,545,374 24,847,651 23,253,932
- ----------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 618,290 58,402 4,462,619 4,251,051 5,077,928
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 618,922 464,892 2,685,185 2,886,666 3,220,425
- ----------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) (632) (406,490) 1,777,434 1,364,385 1,857,503
- ----------------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Gain on sale of assets 99,250 - 797 95,451 7,498
Interest income 10,296 17,663 58,484 104,322 78,113
Interest expense (11,300) (14,124) (56,365) (65,916) (77,217)
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME (EXPENSE) 98,246 3,539 2,916 133,857 8,394
- ----------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) BEFORE TAXES 97,614 (402,951) 1,780,350 1,498,242 1,865,897
- ----------------------------------------------------------------------------------------------------------------------------
ILLINOIS PERSONAL PROPERTY REPLACEMENT TAX - - 56,596 5,231 29,332
- ----------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 97,614 $ (402,951) $ 1,723,754 $ 1,493,011 $ 1,836,565
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO COMBINED FINANCIAL
STATEMENTS.
3
<PAGE>
WM. LANS SONS' CO. INC. AND
IDAL REALTY COMPANY
COMBINED STATEMENTS OF STOCKHOLDERS' AND PARTNERS' EQUITY
<TABLE>
<CAPTION>
WM. LANS SONS' CO. INC.
------------------------------------------------------------------
COMMON STOCK
YEARS ENDED JUNE 30, 1995, IDAL REALTY
1996 AND 1997 AND CLASS A CLASS B COMPANY TOTAL
THREE MONTHS ENDED $.50 PAR VALUE $.50 PAR VALUE ----------- STOCKHOLDERS'
SEPTEMBER 30, --------------------- ---------------------- RETAINED PARTNERS' AND PARTNERS'
1997 (UNAUDITED) SHARES AMOUNT SHARES AMOUNT EARNINGS EQUITY EQUITY
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 1, 1994 9,231 $ 4,616 175,394 $ 87,697 $ 5,320,636 $ 150,341 $ 5,563,290
Net income - - - - 1,550,481 286,084 1,836,565
Distributions - - - - (914,259) (286,347) (1,200,606)
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1995 9,231 4,616 175,394 87,697 5,956,858 150,078 6,199,249
Net income - - - - 1,207,115 285,896 1,493,011
Distributions - - - - (1,907,693) (286,159) (2,193,852)
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1996 9,231 4,616 175,394 87,697 5,256,280 149,815 5,498,408
Net income - - - - 1,437,722 286,032 1,723,754
Distributions - - - - (494,867) (286,295) (781,162)
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1997 9,231 4,616 175,394 87,697 6,199,135 149,552 6,441,000
Net income for the
period (Unaudited) - - - - 26,744 70,870 97,614
Distributions (Unaudited) - - - - (395,484) (70,936) (466,420)
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30,
1997 (UNAUDITED) 9,231 $ 4,616 175,394 $ 87,697 $ 5,830,395 $ 149,486 $ 6,072,194
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO COMBINED FINANCIAL
STATEMENTS.
4
<PAGE>
WM. LANS SONS' CO. INC. AND
IDAL REALTY COMPANY
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED JUNE 30,
------------------------- ----------------------------------------
1997 1996 1997 1996 1995
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS: (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 97,614 $ (402,951) $ 1,723,754 $ 1,493,011 $ 1,836,565
Adjustment to reconcile net income
(loss) to net cash provided by
(used in) operating activities
Depreciation 99,756 113,166 450,595 527,635 427,643
Gain on sale of property and
equipment (99,250) - (797) (95,451) (7,498)
Changes in operating assets
and liabilities
Accounts receivable 489,120 988,957 318,947 (1,112,147) (928,275)
Inventories 476,701 600,251 (684,781) 1,398,633 117,583
Prepaid expenses 48,658 58,325 9,687 (14,939) 2,985
Accounts payable and accrued expenses (97,599) (1,451,451) (1,257,651) (880,167) 2,599,451
- ----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 1,015,000 (93,703) 559,754 1,316,575 4,048,454
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO COMBINED FINANCIAL
STATEMENTS.
5
<PAGE>
WM. LANS SONS' CO. INC. AND
IDAL REALTY COMPANY
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED JUNE 30,
------------------------- ----------------------------------------
1997 1996 1997 1996 1995
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS: (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTING ACTIVITIES
Property and equipment purchases (386,789) (135,921) (282,771) (1,074,471) (309,072)
Proceeds from sale of property and equipment 100,000 - 24,910 99,000 31,500
- ----------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (286,789) (135,921) (257,861) (975,471) (277,572)
- ----------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Distributions (466,420) (71,486) (781,162) (2,193,852) (1,200,606)
Principal payments on note - - (125,555) (125,555) (125,555)
Federal tax deposits - - (70,291) (426,424) (150,577)
- ----------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (466,420) (71,486) (977,008) (2,745,831) (1,476,738)
- ----------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 261,791 (301,110) (675,115) (2,404,727) 2,294,144
CASH AND CASH EQUIVALENTS, beginning of period 1,022,179 1,697,294 1,697,294 4,102,021 1,807,877
- ----------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of period $ 1,283,970 $ 1,396,184 $ 1,022,179 $ 1,697,294 $ 4,102,021
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO COMBINED FINANCIAL
STATEMENTS.
6
<PAGE>
WM. LANS SONS CO. INC. AND
IDAL REALTY COMPANY
SUMMARY OF ACCOUNTING POLICIES
(INFORMATION AS OF SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)
- -------------------------------------------------------------------------------
BUSINESS WM. LANS SONS' CO. INC. ("LANS") is an Illinois
corporation formed in 1910; IDAL REALTY COMPANY
("IDAL") is an Illinois partnership formed in
1973 (collectively, the "Company"). The Company
operates metals recycling facilities in
Illinois and Wisconsin providing wholesale
sales primarily to midwestern steel mills and
markets.
COMBINATION The combined financial statements include the
accounts of LANS and the IDAL accounts used in
recycling operations, which are under common
control through majority ownership. Assets,
liabilities and operating results of the
segment of IDAL which does not conduct metals
recycling activities are not combined. All
material intercompany accounts and transactions
are eliminated.
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.
CONCENTRATION OF The Company's financial instruments that are
RISK exposed to concentrations of credit risk
consist primarily of cash and accounts
receivable.
The Company maintains its cash in bank deposit
accounts which, at times, may exceed federally
insured limits. The Company has 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 June 30, 1997,
accounts receivable balances from two customers
were $972,158 and $486,992 or 30% and 15% of
total accounts receivable. At June 30, 1996,
accounts receivable balances from two customers
were $1,587,501 and $446,244 or 44% and 12% 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 September 30,
1997 or June 30, 1997 and 1996 based on prior
years experience and management's analysis of
possible bad debts.
7
<PAGE>
(INFORMATION AS OF SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)
- --------------------------------------------------------------------------------
INVENTORIES Inventories consist primarily of ferrous and
non-ferrous scrap metals. Inventories are
stated at the lower of average cost (first-in,
first-out) or market. Inventories which are
estimated to be on hand for in excess of one
year are classified as long-term.
PROPERTY AND Property and equipment are recorded at cost.
EQUIPMENT Depreciation is provided using the
straight-line method over the estimated useful
lives ranging from 5 to 15 years. Depreciation
expense of property and equipment was $99,756
and $113,166 for the three months ended
September 30, 1997 and 1996 and $450,595,
$527,635 and $427,643 for the years ended June
30, 1997, 1996 and 1995. 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 LANS, with the consent of their stockholders,
AND TAX DEPOSITS have elected under the Internal Revenue Code to
be an S-corporation. In lieu of corporate
income taxes, the stockholders are taxed on
their proportional share of the Company's
taxable income. The IDAL financial statements
do not include a provision for income taxes
because the partnership does not incur federal
or state income taxes. Instead, its earnings
are included in the partners personal income
tax returns. The Company is subject to
taxation under the Illinois Personal Property
Replacement Tax. Replacement taxes totaled
$56,596, $5,231, and $29,332 for the years
ended June 30, 1997, 1996, and 1995.
As a result of LANS S-corporation status and
fiscal year end election, the Internal Revenue
Service requires federal tax deposits. At such
time as LANS S-corporation status is revoked or
there is a change to a calendar year end, the
deposits would be refunded.
FAIR VALUE OF The carrying amounts reported in the balance
FINANCIAL sheets for cash, accounts receivable and
INSTRUMENTS 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 note payable
was estimated based on market values of
financial instruments with similar terms.
Management believes that the fair value of the
note payable approximates its carrying value.
8
<PAGE>
(INFORMATION AS OF SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)
- --------------------------------------------------------------------------------
REVENUE Sales are recorded in the period materials are shipped.
RECOGNITION
CASH AND CASH For purpose of the statement of cash flows, the
EQUIVALENTS Company considers all highly liquid investments
with an original maturity of three months or
less to be cash equivalents.
UNAUDITED In management's opinion, the interim financial
INTERIM FINANCIAL statements contain all adjustments, consisting
STATEMENTS only of normal recurring accruals, necessary
for a fair presentation of financial position,
results of operations and cash flows.
9
<PAGE>
(INFORMATION AS OF SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)
- ------------------------------------------------------------------------------
1. INVENTORIES Inventories consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
SEPTEMBER 30, --------------------------
1997 1997 1996
(UNAUDITED)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Ferrous metals $ 2,157,053 $ 2,858,794 $ 1,981,193
Non-ferrous metals 1,675,108 1,450,068 1,662,953
Supplies 30,300 30,300 10,235
---------------------------------------------------------------------------------
3,862,461 4,339,162 3,654,381
Less long-term inventories 1,738,000 1,953,000 1,644,000
---------------------------------------------------------------------------------
$ 2,124,461 $ 2,386,162 $ 2,010,381
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
</TABLE>
Substantially all of the Company's inventory is raw
material.
2. PROPERTY AND
EQUIPMENT Property and equipment consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
SEPTEMBER 30, ------------------------
1997 1997 1996
(UNAUDITED)
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 149,342 $ 149,342 $ 149,342
Building and improvements 692,570 659,430 653,332
Heavy machinery and equipment 5,949,247 5,609,348 5,540,272
Transportation equipment 1,658,928 1,651,178 1,495,848
Office equipment 147,420 147,420 135,982
-------------------------------------------------------------------------------
Total 8,597,507 8,216,718 7,974,776
Less accumulated depreciation 6,649,817 6,555,311 6,121,432
-------------------------------------------------------------------------------
$ 1,947,690 $ 1,661,407 $ 1,853,344
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
3. RELATED PARTY Note payable - related parties consisted of the
TRANSACTIONS following:
AND BALANCES
<TABLE>
<CAPTION>
JUNE 30,
SEPTEMBER 30, -----------------------
1997 1997 1996
(UNAUDITED)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Note payable to the estate of a former
stockholder, annual installments of
$125,555 due May 1 plus interest
compounded annually at 9%, final
payment is due on May 1, 2001 $ 502,222 $ 502,222 $ 627,777
Less current portion 125,555 125,555 125,555
--------------------------------------------------------------------------------
$ 376,667 $ 376,667 $ 502,222
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
</TABLE>
The aggregate amount of long-term debt maturing in each
of the next four years is $125,555.
4. MAJOR Non-affiliated customers which comprised more than 10%
CUSTOMERS AND of the Company's sales are as follows:
VENDORS
<TABLE>
<CAPTION>
Three months ended Years ended
September 30, June 30,
------------------- ----------------------------------
1997 1996 1997 1996 1995
(UNAUDITED)
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Customer A 45% 44% 36% 33% 32%
Customer B - - 14% - -
</TABLE>
5. COMMITMENTS ENVIRONMENTAL LIABILITIES - In connection with
AND the recycling and processing of metals, the
CONTINGENCIES Company may come in contact with hazardous
materials as that term is defined under various
environmental laws. Although the Company
screens 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. Although the past
operations were in substantial compliance with
the then applicable regulations, changes in
environmental laws and inadvertent handling of
hazardous materials have resulted in certain
potential violations of current laws and
regulations subjecting the Company to fines and
responsibility for costs attributable to
remediation.
11
<PAGE>
At September 30, 1997 and June 30, 1997 and
1996 the Company had recorded as other
non-current liabilities $2,800,000 to cover
future environmental expenditures, principally
for remediation of sites on which the Company
operates. Management believes that it is
reasonably possible that additional costs may
be incurred beyond the amounts accrued as a
result of new information. However, the
amounts, if any, cannot be estimated and
management believes that they would not be
material to the Company's financial position,
but could be material to the Company's results
of operations and cash flows in a given period.
PROFIT SHARING PLAN - LANS provides a qualified
discretionary profit sharing retirement plan
for all eligible employees as defined in the
plan. The plan provides for employee salary
reduction contributions permitted under Section
401(k) of the Internal Revenue Code.
LANS contributions to the plan for the years
ended June 30, 1997, 1996 and 1995 were $5,320,
$5,051 and $5,776, and for the three months
ended September 30, 1997 and 1996 were $1,000
and $971.
6. SUPPLEMENTAL Supplemental information to the statements of cash flows
CASH FLOW are as follows:
INFORMATION
<TABLE>
<CAPTION>
Three months ended Years ended
September 30, June 30,
--------------------- ---------------------------------------
1997 1996 1997 1996 1995
(UNAUDITED)
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash paid for interest $ - $ - $ 58,248 $ 67,800 $ 79,100
</TABLE>
7. SUBSEQUENT On December 8, 1997, the stockholders of LANS
EVENTS sold their common stock in LANS and the
partners of IDAL sold substantially all of the
property and equipment used in the metals
recycling operations to Recycling Industries,
Inc. (RII) for cash of $16,900,000 and 3,500
shares of RII convertible preferred stock
valued at $3,500,000. In connection with the
transaction the stockholders of LANS entered
into an Environmental Escrow Agreement (the
Agreement). The Agreement requires that 3,300
shares of the RII preferred stock be placed
into escrow to pay for environmental
remediation costs up to $1,150,000.
12
<PAGE>
BRENNER COMPANIES, INC.
FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
<PAGE>
BRENNER COMPANIES, INC.
COMPARATIVE (UNAUDITED) BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 6,091 $ 7,065
Accounts receivable,
less allowance for doubtful accounts 3,749 3,954
Inventories 1,028 1,425
Prepaid expenses and other
15 21
--------- ---------
Total Current Assets 10,883 12,465
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, NET 2,811 2,748
--------- ---------
OTHER ASSETS:
Other assets, net of amortization 8,682 7,252
--------- ---------
Total Other Assets 8,682 7,252
--------- ---------
TOTAL ASSETS $ 22,376 $ 22,465
--------- ---------
--------- ---------
</TABLE>
<PAGE>
BRENNER COMPANIES, INC.
COMPARATIVE (UNAUDITED) BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ - $ -
Accounts payable 933 1,011
Other current liabilities 1,152 1,241
--------- ---------
Total Current Liabilities 2,085 2,252
--------- ---------
OTHER LONG-TERM LIABILITIES:
Other long-term liabilities 3,085 3,147
--------- ---------
Total Liabilities 5,170 5,399
--------- ---------
STOCKHOLDERS' EQUITY:
Common Stock 694 694
Retained earnings 16,512 16,372
--------- ---------
Total Stockholders' Equity 17,206 17,066
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$ 22,376 $ 22,465
--------- ---------
--------- ---------
</TABLE>
<PAGE>
BRENNER COMPANIES, INC.
COMPARATIVE (UNAUDITED) INCOME STATEMENTS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
Net sales $ 25,526 $ 22,712
Cost of sales and operating expenses 19,675 18,128
--------- ---------
Gross profit (loss) 5,851 4,584
Selling, general and administrative expenses 1,588 1,674
--------- ---------
Operating income (loss) 4,263 2,910
--------- ---------
Other income (expense):
Interest expense - -
Miscellaneous - -
--------- ---------
Total other income (expense) - -
--------- ---------
Earnings (loss) before income tax benefit (expense) 4,263 2,910
Income tax benefit - -
--------- ---------
Net earnings (loss) $ 4,263 $ 2,910
--------- ---------
--------- ---------
</TABLE>
<PAGE>
BRENNER COMPANIES, INC.
COMPARATIVE (UNAUDITED) CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Earnings (loss) $ 4,263 $ 2,910
Adjustments to reconcile net earnings
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 518 480
Equity in earnings of joint venture (2,082) (1,338)
Changes in Assets and Liabilities:
Accounts receivable (658) (867)
Inventories 135 (125)
Prepaid expenses and other (3) 1
Accounts payable 98 316
Deferred compensation (47) (47)
Current liabilities, excluding debt 310 666
--------- ---------
Net Cash provided by (used in) Operating Activities 2,534 1,996
--------- ---------
INVESTING ACTIVITIES:
Capital expenditures, net (327) (607)
Distributions from joint venture 1,050 200
--------- ---------
Net Cash provided by (used in) Investing Activities 723 (407)
--------- ---------
FINANCING ACTIVITIES:
Dividends Paid (5,127) (5,468)
--------- ---------
Net Cash Provided by Financing Activities (5,127) (5,468)
--------- ---------
Increase (decrease) in Cash (1,870) (3,879)
CASH, beginning of period 7,961 10,944
--------- ---------
CASH, end of period $ 6,091 $ 7,065
--------- ---------
--------- ---------
</TABLE>
<PAGE>
BRENNER COMPANIES, INC.
NOTES TO THE FINANCIAL STATMENTS
GENERAL INFORMATION:
I. The Financial Statements included herein have been prepared by the Company
without audit.
II. Inventories as of September 30, 1997, and September 30, 1996, consisted of
the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
Raw materials $ 185 $ 257
Finished goods 432 598
Other 411 570
--------- ---------
Total $ 1,028 $ 1,425
--------- ---------
--------- ---------
</TABLE>
<PAGE>
BRENNER COMPANIES, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
February 21, 1997
To the Shareholders and Board of Directors of
Brenner Companies, Inc.
In our opinion, the accompanying balance sheet and the related statements of
income and retained earnings and of cash flows present fairly, in all material
respects, the financial position of Brenner Companies, Inc. at December 31, 1996
and 1995, and the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
<PAGE>
BRENNER COMPANIES, INC.
BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,738,000 $ 6,526,000
Short-term investments 4,223,000 4,418,000
Accounts receivable less allowance for doubtful
accounts of $68,000 and $119,000, respectively 3,091,000 3,087,000
Inventories 1,163,000 1,300,000
Prepaid expenses 12,000 22,000
------------ ------------
Total current assets 12,227,000 15,353,000
Investment in 50%-owned joint venture 7,549,000 6,019,000
Property, plant and equipment, net 3,002,000 2,621,000
Other assets 101,000 95,000
------------ ------------
Total assets $ 22,879,000 $ 24,088,000
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 835,000 $ 695,000
Other accrued liabilities 842,000 575,000
Deferred compensation - current 62,000 67,000
Accrued environmental cleanup costs 2,000,000 2,000,000
------------ ------------
Total current liabilities 3,739,000 3,337,000
------------ ------------
Deferred compensation - noncurrent 1,070,000 1,127,000
------------ ------------
Shareholders' equity:
Common stock $.50 par value, 3,000,000 shares
authorized, 1,387,659 shares issued and outstanding 694,000 694,000
Retained earnings 17,376,000 18,982,000
Unrealized holding losses on available for
sale securities - (52,000)
------------ ------------
Total shareholders' equity 18,070,000 19,624,000
------------ ------------
Commitments and contingencies (Notes 6, 7, 8, 9 and 10)
Total liabilities and shareholders' equity $ 22,879,000 $ 24,088,000
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
BRENNER COMPANIES, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
Revenues:
Net revenues $ 28,570,000 $ 30,821,000
Costs and expenses:
Cost of products sold 23,832,000 24,355,000
Selling, general and administrative expenses 2,045,000 2,459,000
Depreciation 650,000 590,000
------------ ------------
26,527,000 27,404,000
------------ ------------
Equity in earnings of 50%-owned joint venture 1,730,000 3,634,000
Unrealized gain on trading investments 407,000 409,000
Gain on sale of property, plant and equipment 82,000 13,000
------------ ------------
2,219,000 4,056,000
------------ ------------
Net income 4,262,000 7,473,000
Retained earnings at beginning of period 18,982,000 17,167,000
Cash dividends paid (5,468,000) (5,658,000)
Equity adjustment to cost of minority shares acquired (Note 9) (400,000) -
------------ ------------
Retained earnings at end of period $ 17,376,000 $ 18,982,000
------------ ------------
------------ ------------
Earnings per common share:
Net income $ 3.07 $ 5.39
------------ ------------
------------ ------------
Dividends per common share $ 3.94 $ 4.08
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
BRENNER COMPANIES, INC.
STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income from continuing operations $ 4,262,000 $ 7,473,000
Items not requiring (providing) cash:
Depreciation 650,000 590,000
Equity in earnings of joint venture (1,730,000) (3,634,000)
Gain on sale of property, plant and equipment (82,000) (13,000)
Loss on sale of available-for-sale securities 31,000 -
Unrealized gain on trading investments (407,000) (409,000)
Changes in assets and liabilities:
Net purchases of trading investments (50,000) (269,000)
Accounts receivables (4,000) (300,000)
Inventories 137,000 (82,000)
Prepaid expenses 10,000 14,000
Other assets (6,000) 3,000
Accounts payable-trade 140,000 52,000
Other accrued liabilities 267,000 41,000
Deferred compensation (62,000) (62,000)
----------- -----------
Cash provided by operating activities 3,156,000 3,404,000
----------- -----------
Cash flows from investing activities:
Purchases of available-for-sale securities (8,000) (101,000)
Proceeds from sale of available-for-sale securities 681,000 50,000
Equity adjustment to cost of minority shares acquired (400,000) -
Proceeds from sale of property, plant and equipment 155,000 26,000
Purchases of property, plant and equipment (1,104,000) (465,000)
Distributions from joint venture 200,000 6,250,000
----------- -----------
Cash (used) provided by investing activities (476,000) 5,760,000
----------- -----------
Cash flows from financing activities:
Dividends paid (5,468,000) (5,658,000)
----------- -----------
Cash used by financing activities (5,468,000) (5,658,000)
----------- -----------
Net (decrease) increase in cash and cash equivalents (2,788,000) 3,506,000
Cash and cash equivalents:
Beginning 6,526,000 3,020,000
----------- -----------
Ending $ 3,738,000 $ 6,526,000
----------- -----------
----------- -----------
Non-cash investing activities:
Unrealized holding losses decreased investments and shareholders' equity by $52,000 during 1995.
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
BRENNER COMPANIES, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - THE BUSINESS AND ITS SIGNIFICANT ACCOUNTING POLICIES
Brenner Companies, Inc. (the "Company") engages in two principal lines of
business: (1) processing ferrous and nonferrous secondary metals and selling
them to foundries, steel mills, smelters, and refiners and (2) fabricating and
selling structural, miscellaneous and reinforcing steel for the construction
industry. The major accounting policies followed by the Company in preparing
the accompanying financial statements are as follows:
CASH AND CASH EQUIVALENTS
The Company considers all short-term investments having an initial maturity of
three months or less to be cash equivalents.
INVENTORIES
Inventories are recorded at the lower of cost or market, with cost determined
principally using the last-in, first-out (LIFO) method.
INVESTMENT IN 50%-OWNED JOINT VENTURE
The investment in the 50%-owned joint venture is carried at the Company's equity
in the underlying net assets of the joint venture. The Company's share of net
earnings of the joint venture is included in the statement of income and
retained earnings.
DEPRECIATION
Property, plant and equipment are depreciated over their estimated useful lives
using the straight-line method. Major renewals and betterments are charged to
the property accounts while replacements, maintenance and repairs which do not
improve or extend the lives of the respective assets are expensed currently.
Estimated useful lives are 20 to 40 years for buildings, building improvements
and land improvements and 3 to 10 years for machinery and equipment.
INCOME TAXES
The Company is a Subchapter S-Corporation under the Internal Revenue Code. As
such, the financial statements reflect no provision or liability for income
taxes since the tax attributes of the Company flow through to the shareholders.
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
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
EARNINGS PER COMMON SHARE
Earnings per common share have been computed based on the weighted average
number of shares of common stock outstanding for each period presented.
<PAGE>
RECLASSIFICATIONS
Certain prior year's amounts have been reclassified to conform with current year
presentation.
NOTE 2 - INVESTMENT IN 50%-OWNED JOINT VENTURE
The Company has a 50% general partnership interest in United Metal Recyclers
(UMR), a joint venture engaged in processing scrap and recycling metals.
The financial position and results of operations of UMR are summarized as
follows:
CONDENSED STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
Current assets $ 7,484,000 $ 10,226,000
Other assets 8,382,000 4,444,000
------------ -------------
$ 15,866,000 $ 14,670,000
------------ -------------
------------ -------------
Current liabilities $ 769,000 $ 2,632,000
Partners' equity 15,097,000 12,038,000
------------ -------------
$ 15,866,000 $ 14,670,000
------------ -------------
------------ -------------
</TABLE>
CONDENSED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
Net revenues $ 33,115,000 $ 42,039,000
Costs and expenses 29,656,000 34,770,000
------------ -------------
Earnings $ 3,459,000 $ 7,269,000
------------ -------------
------------ -------------
</TABLE>
Included in net revenues for each period presented are sales to individual
customers which exceeded 10% of total net sales. Sales to major customers
consist of sales to three customers in the amount of $18,914,000 (58% of total
net sales) and $21,282,000 (51% of total net sales) for the year ended December
31, 1996 and 1995, respectively.
Inventories valued at current or replacement cost would have been approximately
$331,000 and $791,000 greater than the LIFO valuation at December 31, 1996 and
1995, respectively.
During 1995, inventory quantities were reduced, resulting in a liquidation of
LIFO inventory quantities carried at lower costs prevailing in prior years as
compared with the cost of 1995 purchases. The 1995 effect of this LIFO
liquidation was to decrease cost of products sold and increase net income by
approximately $277,000 for the year ended December 31,1995.
2
<PAGE>
NOTE 3 - SHORT-TERM INVESTMENTS
Trading securities are valued at fair value as determined by quoted market price
with any gains or losses recorded in the statement of income and retained
earnings. The unrealized gains related to the Company's trading securities
totaled $816,000 and $409,000 at December 31, 1996 and 1995, respectively.
Available-for-sale securities are valued at fair value as determined by quoted
market price with the difference between amortized cost and fair value shown as
unrealized holding gains or losses on available-for-sale securities. There were
no unrealized holding gains or losses on available-for-sale securities at
December 31, 1996. The cumulative unrealized holding losses related to the
Company's available-for-sale securities totaled $52,000 at December 31, 1995
which is shown as a separate component of stockholders' equity. The realized
loss related to the Company's sale of available-for-sale securities totaled
$31,000 for the year ended December 31, 1996. There were no realized gains or
losses on available-for-sale securities for the year ended December 31, 1995.
All securities for which a quoted market price is not available are recorded at
amortized cost. The Company uses the specific identification method to
calculate gains and losses on the sale of short-term investments.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------------------
--------------------------------------------------------------
GROSS GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
Trading
Equity securities $ 3,075,000 $ 816,000 $ - $ 3,891,000
Mutual funds 68,000 - - 68,000
------------ ---------- ---------- ------------
3,143,000 816,000 - 3,959,000
------------ ---------- ---------- ------------
Available-for-sale securities 264,000 - - 264,000
------------ ---------- ---------- ------------
$ 3,407,000 $ 816,000 $ - $ 4,223,000
------------ ---------- ---------- ------------
------------ ---------- ---------- ------------
<CAPTION>
DECEMBER 31, 1995
--------------------------------------------------------------
GROSS GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
Trading
Equity securities $ 2,501,000 $ 409,000 $ - $ 2,910,000
Mutual funds 592,000 - - 592,000
------------ ---------- ---------- ------------
3,093,000 409,000 - 3,502,000
------------ ---------- ---------- ------------
Available-for-sale securities 968,000 - (52,000) 916,000
------------ ---------- ---------- ------------
$ 4,061,000 $ 409,000 $ (52,000) $ 4,418,000
------------ ---------- ----------- ------------
------------ ---------- ----------- ------------
</TABLE>
3
<PAGE>
NOTE 4 - INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
Last-in, first-out $ 1,161,000 $ 1,295,000
First-in, first-out 2,000 5,000
------------ ------------
$ 1,163,000 $ 1,300,000
------------ ------------
------------ ------------
Excess of current cost over stated LIFO value $ 551,000 $ 648,000
------------ ------------
------------ ------------
</TABLE>
Inventories valued on the last-in, first-out method use single dollar value
pools. Therefore, it is impractical to separate inventory values as between raw
materials, work-in-process and finished goods.
During 1996 and 1995, inventory quantities were reduced resulting in a
liquidation of LIFO inventory quantities carried at lower costs prevailing in
prior years as compared with the cost of 1996 and 1995 purchases. The effect of
these LIFO liquidations was to decrease cost of products sold and increase net
income by approximately $65,000 and $1,000 for the years ended December 31, 1996
and 1995, respectively.
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
Land and land improvements $ 422,000 $ 422,000
Buildings and improvements 1,278,000 1,250,000
Machinery and equipment 8,198,000 7,897,000
Construction in progress 145,000 68,000
----------- -----------
10,043,000 9,637,000
Less - Accumulated depreciation 7,041,000 7,016,000
----------- -----------
$ 3,002,000 $ 2,621,000
----------- -----------
----------- -----------
</TABLE>
4
<PAGE>
NOTE 6 - RETIREMENT PLANS
The Company has a defined benefit pension plan which covers substantially all
employees. The benefits are based on years of service and the employees'
highest five consecutive calendar years of compensation paid during the ten
calendar years preceding the earlier of actual or normal retirement age. The
Company's policy is to fund the maximum amount deductible for federal income tax
purposes.
The following table sets forth the plan's funded status and amounts recognized
in the Company's financial statements:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
Actuarial present value of:
Vested benefits $ 3,848,000 $ 3,788,000
Non-vested benefits 91,000 109,000
------------ ------------
Accumulated benefit obligation $ 3,939,000 $ 3,897,000
------------ ------------
------------ ------------
Projected benefit obligation $ (4,262,000) $ 4,317,000)
Plan assets at fair value 4,994,000 4,798,000
------------ ------------
Excess of plan assets over projected benefit
obligation 732,000 481,000
Unrecorded transitional liability being
amortized over 17 years 283,000 320,000
Unrecognized prior service cost 57,000 62,000
Unrecognized net gain due to experience
different from that assumed (1,260,000) (1,028,000)
------------ ------------
Accrued pension cost $ (188,000) $ (165,000)
------------ ------------
------------ ------------
</TABLE>
Net pension cost for the year included the following components:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
Service cost $ 77,000 $ 74,000
Interest cost 320,000 324,000
Actual gain on plan assets (478,000) (874,000)
Net amortization 104,000 589,000
------------ ------------
Net periodic pension cost $ 23,000 $ 113,000
------------ ------------
------------ ------------
</TABLE>
5
<PAGE>
The weighted average discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected benefit
obligation for the periods ended December 31, 1996 and 1995 were 8.0% and 6.5%,
respectively. The expected long-term rate of return on assets was 8.0% for each
period presented. Prior service costs are amortized using the straight-line
method over the average remaining service period of employees expected to
receive benefits under the plan.
The Company also maintains a 401(k) savings plan in which employees may elect to
defer from one to fifteen percent of their salary. Employees who have completed
six months of service and have attained age twenty-one may participate in the
plan. The Company contributed thirty-five percent of the first four percent of
employee contributions for 1996 and 1995. Compensation expense under this plan
amounted to $36,000 and $34,000 in 1996 and 1995, respectively.
NOTE 7 - POSTRETIREMENT BENEFITS
The Company provides certain postretirement medical benefits to all employees
who elect early retirement for the period of time until the employee and any
dependents reach age 65. The medical plan requires 100% of the monthly premiums
be paid by the employee or dependent. The Company's maximum liability is
$30,000 per year per employee, reduced by the amount of premiums paid by the
employee.
The Company also provides a postretirement supplemental prescription drug plan
to all employees. The plan requires 100% of the monthly premiums be paid by the
employee and only covers prescription drugs which are not covered by Medicare.
The Company's maximum liability is $10,000 per employee, reduced by the amount
of premiums paid by the employee. The $10,000 represents a lifetime maximum for
each employee.
The Company adopted Statement of Financial Accounting Standards No. 106
"Employers' Accounting for Postretirement Benefits Other Than Pensions" (SFAS
106) on January 1, 1995. The standard required companies to recognize the
estimated costs of providing postretirement benefits on an accrual basis. The
Company elected the delayed recognition method of adoption which allows
amortization of the initial transition obligation over a 20-year period. At
January 1, 1995, the actuarially determined accumulated postretirement benefit
obligation was $377,000.
6
<PAGE>
The amounts recognized in the Company's balance sheet at December 31, 1996 and
1995 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ (239,000) $ (240,000)
Active employees (137,000) (138,000)
---------- ----------
(376,000) (378,000)
Unrecognized prior service cost 339,000 358,000
---------- ----------
Accrued postretirement benefit cost $ (37,000) $ (20,000)
---------- ----------
---------- ----------
</TABLE>
Net periodic postretirement benefit cost for 1996 and 1995 include the following
components:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
Service cost $ 8,000 $ 8,000
Interest cost 29,000 29,000
Amortization of unrecognized transition
obligation 19,000 19,000
----------- ----------
Net periodic postretirement benefit cost $ 56,000 $ 56,000
----------- ----------
----------- ----------
</TABLE>
The discount rate used in determining the accumulated postretirement benefit
obligation was 8.0% for 1996 and 1995. The assumed health care cost trend rate
was 9.0% in 1996 and 1995, declining to an ultimate rate of 5.5% by 2000. The
effect of a 1% increase in the assumed health care cost trend rate for each
future year would have increased the accumulated postretirement benefit
obligation at December 31, 1996 by $17,256 and increased the aggregate of
service and interest cost for 1996 by $3,416.
NOTE 8 -DEFERRED COMPENSATION
Under the terms of employment contracts with certain key employees, the Company
has provided for annual retirement benefits equal to 50% of the average annual
salary of one officer and 35% of the average annual salary of a former officer.
The average annual salary is calculated using the three years prior to normal
retirement or death, whichever occurs first. The benefits are payable to the
officers or the officers' beneficiaries in equal monthly amounts for ten years
after retirement or death, whichever occurs first. There were no amounts
charged to expense related to these contracts in 1996 or 1995 as all amounts
payable under the contracts are fully accrued.
7
<PAGE>
NOTE 9 - LEGAL MATTERS
On October 27, 1988, the shareholders of the predecessor company to Brenner
Companies, Inc. ("Predecessor") approved an agreement and plan of merger
resulting in each share of common stock of the Predecessor, other than the
shares owned by members of the Brenner family, being converted into the right to
receive a cash payment of $18 per share. On January 25, 1989, a group of
minority shareholders filed a petition with the Superior Court of Forsyth
County, North Carolina seeking appointment by the Court of three independent
appraisers to determine the fair value of the shares of the Predecessor owned by
the minority shareholder and the awarding of the appraised value to said
minority shareholders. In December 1996, a settlement agreement was entered
into with the former minority shareholders. Pursuant to this agreement, the
Company paid $400,000, thereby releasing the Company from any further claims or
obligations.
NOTE 10 - ENVIRONMENTAL MATTERS
As of December 31, 1996, the Company has been named as a potentially responsible
party (PRP) at three Superfund sites located in North Carolina, Alabama and
Pennsylvania. Applicable federal law imposes joint and several liability on
each PRP for the cleanup of these sites leaving the Company with the uncertainty
that it may be responsible for the remediation cost attributable to other PRPs
who are unable to pay their share of the remediation costs. In the Alabama and
Pennsylvania cases, future environmental related expenditures cannot be
quantified with a reasonable degree of accuracy. At December 31, 1996 and 1995,
the Company has accrued $2,000,000 for environmental related matters. This
accrual represents management's estimate of the amount of expenditure which will
be incurred by the Company on the North Carolina site. The cost of cleanups for
which the Company remains primarily liable may be materially higher than this
accrual. It is the Company's policy to accrue environmental cleanup costs if it
is probable that a liability has been incurred and an amount is reasonably
estimable. As assessments and cleanups proceed, these liabilities are reviewed
periodically and adjusted as additional information becomes available. The
liabilities can change substantially due to such factors as additional
information on the nature or extent of contamination, methods of remediation
required, and other actions by governmental agencies or private parties.
NOTE 11 - SALES TO MAJOR CUSTOMERS
Included in net revenues for each period presented are sales to individual
customers which exceeded 10% of total net sales. Sales to major customers
consist of sales to two customers in the amount of $9,201,000 (33% of total net
sales) and $11,165,000 (37% of total net sales) for each years ended
December 31, 1996 and 1995, respectively.
8
<PAGE>
BRENNER COMPANIES, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
<PAGE>
[LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
February 16, 1996
To the Shareholders and Board of Directors of
Brenner Companies, Inc.
In our opinion, the accompanying balance sheet and the related statements of
income and retained earnings and of cash flows present fairly, in all material
respects, the financial position of Brenner Companies, Inc. at December 31, 1995
and 1994, and the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
<PAGE>
BRENNER COMPANIES, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995 1994
---- ----
<S> <C> <C>
Revenues:
Net sales $ 30,821,000 $ 25,106,000
Equity in earnings of 50%-owned joint venture 3,634,000 3,167,000
------------- -------------
34,455,000 28,273,000
------------- -------------
Costs and expenses:
Cost of products sold 24,355,000 21,110,000
Selling, general and administrative expenses 2,459,000 2,285,000
Depreciation 590,000 666,000
------------- -------------
27,404,000 24,061,000
------------- -------------
Other:
Unrealized gain on trading investments 409,000 -
Gain (loss) on sale of property, plant and
equipment (Note 6) 13,000 (13,000)
------------- -------------
422,000 (13,000)
------------- -------------
Income from continuing operations 7,473,000 4,199,000
Loss from discontinued operations (Note 2) - 40,000
------------- -------------
Net income 7,473,000 4,159,000
Retained earnings at beginning of period 17,167,000 16,519,000
Cash dividends paid (5,658,000) (3,511,000)
------------- -------------
Retained earnings at end of period $ 18,982,000 $ 17,167,000
------------- -------------
------------- -------------
Earnings per common share:
From continuing operations $ 5.39 $ 3.03
From discontinued operations - (.03)
------------- -------------
Net income $ 5.39 $ 3.00
------------- -------------
------------- -------------
Dividends per common share $ 4.08 $ 2.53
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
BRENNER COMPANIES, INC.
BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 1) $ 6,526,000 $ 3,020,000
Short-term investments (Note 4) 4,418,000 3,741,000
Accounts receivable less allowance for doubtful
accounts of $119,000 and $56,000, respectively 3,087,000 2,787,000
Inventories (Note 5) 1,300,000 1,218,000
Prepaid expenses 22,000 36,000
------------- -------------
Total current assets 15,353,000 10,802,000
Investment in 50%-owned joint venture (Notes 1 and 3) 6,019,000 8,634,000
Property, plant and equipment at cost,
less accumulated depreciation (Note 6) 2,621,000 2,760,000
Other assets 95,000 98,000
------------- -------------
Total assets $ 24,088,000 $ 22,294,000
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 695,000 $ 643,000
Other accrued liabilities (Note 7) 575,000 534,000
Deferred compensation - current (Note 9) 67,000 62,000
Accrued environmental cleanup costs 2,000,000 2,000,000
Income taxes payable - -
------------- -------------
Total current liabilities 3,337,000 3,239,000
------------- -------------
Deferred compensation - noncurrent (Note 9) 1,127,000 1,194,000
------------- -------------
Shareholders' equity:
Common stock $.50 par value, 3,000,000 shares
authorized, 1,387,659 shares issued and outstanding 694,000 694,000
Retained earnings 18,982,000 17,167,000
Unrealized holding losses on available for sale
securities (Note 4) (52,000) -
------------- -------------
Total stockholders' equity 19,624,000 17,861,000
------------- -------------
Commitments and contingencies
(Notes 7, 9, 11 and 13)
Total liabilities and stockholders' equity $ 24,088,000 $ 22,294,000
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
BRENNER COMPANIES, INC.
STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995 1994
---- ----
<S> <C> <C>
Cash flow from operating activities:
Net income from continuing operations $ 7,473,000 $ 4,199,000
Items not requiring (providing) cash:
Depreciation 590,000 666,000
Deferred compensation (62,000) (52,000)
Equity in earnings of joint venture (3,634,000) (3,167,000)
(Gain)/loss on sale of property, plant and equipment (13,000) 13,000
Change in assets and liabilities:
Short-term investments classified as trading (678,000) 978,000
Receivables (300,000) (348,000)
Inventories (82,000) 527,000
Prepaid expenses 14,000 (7,000)
Other assets 3,000 -
Accounts payable - trade 52,000 (25,000)
Income taxes payable - (51,000)
Other payables and accruals 41,000 121,000
------------- -------------
Cash provided by continuing operations 3,404,000 2,854,000
------------- -------------
Net loss from discontinued operations - (40,000)
------------- -------------
Cash used by discontinued operations - (40,000)
------------- -------------
Cash provided by operating activities 3,404,000 2,814,000
------------- -------------
Cash flow from investing activities:
Purchases of available-for-sale securities (101,000) (48,000)
Proceeds from sale of available-for-sale securities 50,000 -
Proceeds from sale of property, plant and equipment 26,000 1,000
Purchases of property, plant and equipment (465,000) (345,000)
Distributions from joint venture 6,250,000 2,200,000
Other - 1,000
------------- -------------
Cash provided by investing activities 5,760,000 1,809,000
------------- -------------
Cash flow from financing activities:
Dividends paid (5,658,000) (3,511,000)
------------- -------------
Cash used by financing activities (5,658,000) (3,511,000)
------------- -------------
Net increase in cash and cash equivalents 3,506,000 1,112,000
Cash and cash equivalents:
Beginning 3,020,000 1,908,000
------------- -------------
Ending $ 6,526,000 $ 3,020,000
------------- -------------
------------- -------------
</TABLE>
Non-cash investing activities:
On January 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115 "Accounting for Certain Investments in Debt and Equity
Securities". Unrealized holding losses decreased investments and stockholders'
equity by $52,000 during 1995.
The accompanying notes are an integral part of these financial statements.
<PAGE>
BRENNER COMPANIES, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Brenner Companies, Inc. (the Company) engages in two principal lines of
business: (1) processing ferrous and nonferrous secondary metals and selling
them to foundries, steel mills, smelters, and refiners and (2) fabricating and
selling structural, miscellaneous and reinforcing steel for the construction
industry. The major accounting policies followed by the Company in preparing
the accompanying financial statements are as follows:
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consists of cash and master notes with financial
institutions. The master notes mature on a daily basis and can be redeemed by
the Company on demand.
INVENTORIES
Inventories are recorded at the lower of cost or market, with cost determined
principally using the last-in, first-out (LIFO) method.
INVESTMENT IN 50%-OWNED JOINT VENTURE
The investment in the 50%-owned joint venture is carried at the Company's equity
in the underlying net assets of the joint venture. The Company's share of net
earnings of the joint venture is included in the statement of income and
retained earnings.
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
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
DEPRECIATION
Property, plant and equipment are depreciated over their estimated useful lives
using the straight-line method. Estimated useful lives are 20 to 40 years for
buildings, building improvements and land improvements and 3 to 10 years for
machinery and equipment.
EARNINGS PER COMMON SHARE
Earnings per common share have been computed based on the weighted average
number of shares of common stock outstanding for each period presented
(1,387,659 for the periods ended December 31, 1995 and 1994).
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with current year
presentation.
<PAGE>
NOTE 2 - DISCONTINUED OPERATIONS
On December 15, 1989, the Company sold the inventory and accounts receivable of
Sanco Corporation, its solid waste equipment sales subsidiary, to the Heil
Company. The assets of Sanco Leasing Corporation, a subsidiary of Sanco
Corporation which provided financing for certain sales of Sanco Corporation,
were not sold, but a decision was made not to add financing contracts to its
portfolio and to discontinue the operations of this subsidiary as contracts are
fulfilled. The results of operations of the Sanco Leasing Division are
accounted for as discontinued operations in the statement of income and retained
earnings.
A summary of the results of discontinued operations for the periods ended
December 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995 1994
---- ----
<S> <C> <C>
Net sales $ - $ 17,000
Net costs and expenses - 57,000
-------- ---------
Loss from discontinued operations $ - $ 40,000
-------- ---------
-------- ---------
</TABLE>
2
<PAGE>
NOTE 3 - INVESTMENT IN 50%-OWNED JOINT VENTURE
The Company has a 50% general partnership interest in United Metal Recyclers
(UMR), a joint venture engaged in processing scrap and recycling metals.
The financial position and results of operations of United Metal Recyclers are
summarized as follows:
CONDENSED STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
---- ----
<S> <C> <C>
Current assets $ 10,226,000 $ 13,652,000
Property, plant and equipment, net 4,444,000 4,724,000
------------- -------------
$ 14,670,000 $ 18,376,000
------------- -------------
------------- -------------
Current liabilities $ 2,632,000 $ 1,107,000
Partners' equity 12,038,000 17,269,000
------------- -------------
$ 14,670,000 $ 18,376,000
------------- -------------
------------- -------------
</TABLE>
CONDENSED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995 1994
---- ----
<S> <C> <C>
Net sales $ 42,039,000 $ 36,727,000
Costs and expenses 34,770,000 30,393,000
------------- -------------
Earnings $ 7,269,000 $ 6,334,000
------------- -------------
------------- -------------
</TABLE>
Included in net sales for each period presented are sales to individual
customers which exceeded 10% of total net sales. Sales to major customers
consist of sales to three customers in the amount of $21,282,000 (51% of total
net sales) for the year ended December 31, 1995 and to two customers in the
amount of $17,377,000 (47% of total net sales) for the year ended December 31,
1994.
Inventories valued at current or replacement cost would have been approximately
$791,000 and $1,061,000 above the LIFO valuation at December 31, 1995 and 1994,
respectively.
3
<PAGE>
NOTE 4 - SHORT-TERM INVESTMENTS
The Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115) on
January 1, 1994. The adoption of SFAS 115 changed the Company's method of
accounting for investments in debt and equity securities. Previously, the
Company recorded investments in debt and equity securities at the
lower-of-cost-or-market. SFAS 115 requires the Company to classify investments
as either held-to-maturity, trading or available-for-sale. Investments
classified as held-to-maturity are reported at amortized cost. The Company had
no securities classified as held-to-maturity at December 31, 1995 or 1994.
Trading securities are required to be valued at fair value as determined by
quoted market price with any gains or losses to be recorded in the statement of
income and retained earnings. The gains related to the Company's trading
securities totaled $409,000 at December 31, 1995. There were no gains or losses
related to the Company's trading securities at December 31, 1994.
Available-for-sale securities are required to be valued at fair value as
determined by quoted market price with the difference between amortized cost and
fair value shown as unrealized holding gains or losses on available-for-sale
securities. The cumulative unrealized holding losses related to the Company's
available-for-sale securities totaled $52,000 at December 31, 1995 which is
shown as a separate component of stockholders' equity. There were no unrealized
holding gains or losses on available-for-sale securities at December 31, 1994.
All securities for which a quoted market price is not available are recorded at
amortized cost. The Company uses the specific identification method to
calculate gains and losses on the sale of short-term investments.
4
<PAGE>
Investments at December 31 are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------------------------------------------------
GROSS GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
Trading
Equity securities $ 2,501,000 $ 409,000 $ - $ 2,910,000
Mutual funds 592,000 - - 592,000
------------ ---------- ---------- ------------
3,093,000 409,000 - 3,502,000
------------ ---------- ---------- ------------
Available-for-sale mutual funds 968,000 - (52,000) 916,000
------------ ---------- ---------- ------------
$ 4,061,000 $ 409,000 $ (52,000) $ 4,418,000
------------ ---------- ---------- ------------
------------ ---------- ---------- ------------
DECEMBER 31, 1994
--------------------------------------------------------------
GROSS GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
Trading
Equity securities $ 447,000 $ - $ - $ 447,000
Mutual funds 435,000 - - 435,000
US Treasury securities 1,942,000 - - 1,942,000
------------ ---------- ---------- ------------
2,824,000 - - 2,824,000
------------ ---------- ---------- ------------
Available-for-sale mutual funds 917,000 - - 917,000
------------ ---------- ---------- ------------
$ 3,741,000 $ - $ - $ 3,741,000
------------ ---------- ---------- ------------
------------ ---------- ---------- ------------
</TABLE>
5
<PAGE>
NOTE 5 - INVENTORIES
A summary of inventories by method of pricing is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
---- ----
<S> <C> <C>
Last-in, first-out $ 1,295,000 $ 1,213,000
First-in, first-out 5,000 5,000
------------ ------------
$ 1,300,000 $ 1,218,000
------------ ------------
------------ ------------
Excess of current cost over
stated LIFO value $ 648,000 $ 867,000
------------ ------------
------------ ------------
</TABLE>
Inventories valued on the last-in, first-out method use single dollar value
pools. Therefore, it is impractical to separate inventory values as between raw
materials, work-in-process and finished goods.
During 1995, inventory quantities were reduced. This reduction resulted in a
liquidation of LIFO inventory quantities carried at lower costs prevailing in
prior years as compared with the cost of 1995 purchases, the effect of which
decreased cost of products sold by approximately $253,000 and increased net
income by approximately $253,000 or $0.18 per share.
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
---- ----
<S> <C> <C>
Land and land improvements $ 422,000 $ 384,000
Buildings and improvements 1,250,000 1,225,000
Machinery and equipment 7,897,000 7,644,000
Construction in progress 68,000 2,000
------------ ------------
9,637,000 9,255,000
Less - Accumulated depreciation 7,016,000 6,495,000
------------ ------------
$ 2,621,000 $ 2,760,000
------------ ------------
------------ ------------
</TABLE>
The gain (loss) on sale of property, plant and equipment was $13,000 and
($13,000) for the years ended December 31, 1995 and 1994, respectively.
6
<PAGE>
NOTE 7 - RETIREMENT PLANS
The Company has a pension plan which covers substantially all employees. The
benefits are based on years of service and the employees' highest five
consecutive calendar years of compensation paid during the ten calendar years
preceding the earlier of actual or normal retirement age. The Company's policy
is to fund the maximum amount deductible for federal income tax purposes.
The following table sets forth the plan's funded status and amounts recognized
in the Company's financial statements:
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
---- ----
<S> <C> <C>
Actuarial present value of:
Vested benefits $ 3,788,000 $ 3,808,000
Non-vested benefits 109,000 109,000
------------ ------------
Accumulated benefit obligation $ 3,897,000 $ 3,917,000
------------ ------------
------------ ------------
Projected benefit obligation $ (4,318,000) $ (4,340,000)
Plan assets at fair value 4,798,000 4,162,000
------------ ------------
(Deficit) excess of plan assets (under)
over projected benefit obligation 480,000 (178,000)
Unrecorded transitional liability being
recorded over 17 years 319,000 356,000
Unrecognized net gain due to experience
different from that assumed (964,000) (251,000)
------------ ------------
(Accrued) prepaid pension cost $ (165,000) $ (73,000)
------------ ------------
------------ ------------
Net pension cost for the year included the following components:
YEAR ENDED
DECEMBER 31,
1995 1994
---- ----
Service cost $ 74,000 $ 82,000
Interest cost 324,000 318,000
Actual loss (gain) on plan assets (874,000) 107,000
Net amortization 589,000 (423,000)
------------ ------------
Net periodic pension cost $ 113,000 $ 84,000
------------ ------------
------------ ------------
</TABLE>
7
<PAGE>
The weighted average discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected benefit
obligation for the periods ended December 31, 1995 and 1994 were 8.0% and 6.5%,
respectively. The expected long-term rate of return on the assets was 8.0% for
each period presented. Prior service costs are amortized using the
straight-line method over the average remaining service period of employees
expected to receive benefits under the plan.
The Company also maintains a 401(k) savings plan in which employees may elect to
defer from one to fifteen percent of their salary. Employees who have completed
six months of service and have attained age twenty-one may participate in the
plan. The Company contributed twenty-five percent of the first four percent of
employee contributions for 1995 and 1994. Compensation expense under this plan
amounted to $34,000 in 1995 and 1994.
NOTE 8 - POSTRETIREMENT BENEFITS
The Company provides certain postretirement medical benefits to all employees
who elect early retirement for the period of time until the employee and any
dependents reach age 65. The medical plan requires 100% of the monthly premiums
be paid by the employee or dependent. The Company's maximum liability is
$30,000 per year per employee, reduced by the amount of premiums paid by the
employee.
The Company also provides a postretirement supplemental prescription drug plan
to all employees. The plan requires 100% of the monthly premiums be paid by the
employee and only covers prescription drugs which are not covered by Medicare.
The Company's maximum liability is $10,000 per employee, reduced by the amount
of premiums paid by the employee. The $10,000 represents a lifetime supplement
for each employee.
The Company adopted Statement of Financial Accounting Standards No. 106
"Employers' Accounting for Postretirement Benefits Other Than Pensions" (SFAS
106) on January 1, 1995. The standard required companies to recognize the
estimated costs of providing postretirement benefits on an accrual basis. The
Company elected the delayed recognition method of adoption which allows
amortization of the initial transition obligation over a 20-year period.
Accordingly, the adoption of SFAS 106 did not have a material impact on the
Company's financial position or results of operations.
8
<PAGE>
NOTE 9 - DEFERRED COMPENSATION
Under the terms of employment contracts with certain key employees, the Company
is providing, among other things, for annual retirement benefits equal to 50% of
the average annual salary of one officer and 35% of the average annual salary of
a former officer. The average annual salary is calculated using the three years
prior to normal retirement or death, whichever comes first. The benefits are
payable to the officers or the officers' beneficiaries in equal monthly amounts
for ten years after retirement or death. There were no amounts charged to
expense related to these contracts in 1995 or 1994 as all amounts payable under
these contracts are fully accrued.
NOTE 10 - PROVISION FOR INCOME TAXES
The Company is an S-Corporation. As such, no provision is necessary for current
year earnings. Income tax payments of $51,000 were made during the year ended
December 31, 1994. Income tax payments related to a built-in gain on the sale
of rental property and tax due for LIFO recapture as a result of becoming an
S-Corporation. No income tax payments were made during 1995.
NOTE 11 - LEGAL MATTERS
On January 25, 1989, a minority shareholder filed a petition with the Superior
Court of Forsyth County, North Carolina seeking appointment by the Court of
three independent appraisers to appraise the fair value of the shares of the
Company owned by the minority shareholder and the awarding of the appraised
value to the petitioner. The shares in question represent shares of the former
C-Corporation. The Company elected to be taxed as a Subchapter S-Corporation
effective September 1, 1991. The Company's motion to dismiss was denied on
February 8, 1993. In conjunction with the order of dismissal, the Court
tentatively scheduled for April 12, 1993, a motion for summary judgment on all
issues not related to the valuation of the shares. The Court denied the
Company's motion for summary judgment on October 12, 1993. Three qualified and
disinterested appraisers were appointed by the Clerk of Court on October 10,
1994. On October 20, 1995, the Company filed exceptions to the award of the
appraisers and requested the matter be transferred to Forsyth County Superior
Court for trial by jury. The Company believes that the impact of this case on
the financial position and results of operations will not be material.
9
<PAGE>
NOTE 12 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Effective January 1, 1995, the Company adopted Statement of Financial Accounting
Standards No. 107 (SFAS 107) "Disclosures about Fair Value of Financial
Instruments". Management believes the fair value of its financial instruments
approximates their carrying value. The carrying amounts and fair values of the
Company's financial instruments at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
--------------------------- ---------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 6,526,000 $ 6,526,000 $ 3,020,000 $ 3,020,000
------------ ------------ ------------ ------------
Short-term investments
Trading 3,502,000 3,502,000 2,824,000 2,824,000
Available-for-sale 916,000 916,000 917,000 917,000
------------ ------------ ------------ ------------
4,418,000 4,418,000 3,741,000 3,741,000
------------ ------------ ------------ ------------
Liabilities:
Deferred compensation
including current portion 1,194,000 972,000 1,256,000 1,023,000
</TABLE>
The fair values of the Company's deferred compensation contracts, including the
current portion, are estimated using discounted cash flow analyses, based upon
prime interest rates.
NOTE 13 - ENVIRONMENTAL MATTERS
As of December 31, 1995, the Company has been named as a potentially responsible
party (PRP) at three Superfund sites located in North Carolina, Alabama and
Pennsylvania. Applicable federal law imposes joint and several liability on
each PRP for the cleanup of these sites leaving the Company with the uncertainty
that it may be responsible for the remediation cost attributable to other PRPs
who are unable to pay their share of the remediation costs. In the Alabama and
Pennsylvania cases, future environmental related expenditures cannot be
quantified with a reasonable degree of accuracy. The aggregate environmental
related accrual was $2,000,000 at December 31, 1995 and 1994. This accrual
represents management's estimate of the lowest amount of expenditure which will
be incurred by the Company on the North Carolina site. The cost of cleanups for
which the Company remains primarily liable may be materially higher than current
year accruals. It is the Company's policy to accrue environmental cleanup costs
if it is probable that a liability has been incurred and an amount is reasonably
estimable. As assessments and cleanups proceed, these liabilities are reviewed
periodically and adjusted as additional information becomes available. The
liabilities can change substantially due to such factors as additional
information on the nature or extent of contamination, methods of remediation
required, and other actions by governmental agencies or private parties.
10
<PAGE>
NOTE 14 - SALES TO MAJOR CUSTOMERS
Included in net sales for each period presented are sales to individual
customers which exceeded 10% of total net sales. Sales to major customers
consist of sales to one customer in the amount of $6,552,000 (21% of total net
sales) and $5,866,000 (23% of total net sales) for each years ended December 31,
1995 and 1994, respectively.
11
<PAGE>
EXHIBIT 99.1
[LOGO]
UNITED METAL RECYCLERS
(A PARTNERSHIP)
FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
<PAGE>
UNITED METAL RECYCLERS
COMPARATIVE (UNAUDITED) BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,471 $ 1,923
Accounts receivable, less allowance
for doubtful accounts 3,467 2,768
Inventories 1,943 1,761
Prepaid expenses and other
1,297 1,583
--------- ---------
Total Current Assets 8,178 8,035
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, NET 3,889 4,403
--------- ---------
OTHER ASSETS:
Other assets, net of amortization 6,071 2,822
--------- ---------
Total Other Assets 6,071 2,822
--------- ---------
TOTAL ASSETS $ 18,138 $ 15,260
--------- ---------
--------- ---------
</TABLE>
<PAGE>
UNITED METAL RECYCLERS
COMPARATIVE (UNAUDITED) BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ - $ -
Accounts payable 756 678
Other current liabilities 397 264
--------- ---------
Total Current Liabilities 1,153 942
--------- ---------
STOCKHOLDERS' EQUITY:
Partner's Capital 16,985 14,318
--------- ---------
Total Stockholders' Equity 16,985 14,318
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 18,138 $ 15,260
--------- ---------
--------- ---------
</TABLE>
<PAGE>
UNITED METAL RECYCLERS
COMPARATIVE (UNAUDITED) INCOME STATEMENTS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
Net sales $ 25,125 $ 23,387
Cost of sales and operating expenses 20,550 20,146
--------- ---------
Gross profit (loss) 4,575 3,241
Selling, general and administrative expenses 771 729
--------- ---------
Operating income (loss) 3,804 2,512
--------- ---------
Other income (expense):
Interest expense - -
Miscellaneous 184 167
--------- ---------
Total other income (expense) 184 167
--------- ---------
Net earnings (loss) $ 3,988 $ 2,679
--------- ---------
--------- ---------
</TABLE>
<PAGE>
UNITED METAL RECYCLERS
COMPARATIVE (UNAUDITED) CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Earnings (loss) $ 3,988 $ 2,679
Adjustments to reconcile net earnings (loss)
to net cash provided by (used in) operating activities:
Gain on sale of property (44) -
Depreciation and amortization 500 529
Loss from joint venture 66 -
Changes in Assets and Liabilities:
Accounts receivable (1,795) 482
Inventories 730 (43)
Prepaid expenses and other 15 19
Accounts payable 421 (1,465)
Current liabilities, excluding debt 11 (265)
--------- ---------
Net Cash provided by (used in) Operating Activities 3,892 1,936
--------- ---------
INVESTING ACTIVITIES:
Capital expenditures, net (100) (487)
Proceeds from sale of investments 200 2,400
Purchase of investments (200) (350)
Advance on loan receivable - (965)
Acquisitions (2,200) (1,842)
Other assets 200 -
--------- ---------
Net Cash provided by (used in) Investing Activities (2,100) (1,244)
--------- ---------
FINANCING ACTIVITIES:
Partner distributions (2,100) (400)
--------- ---------
Net Cash Provided by Financing Activities (2,100) (400)
--------- ---------
Increase (decrease) in Cash (308) 292
CASH, beginning of period 1,779 1,631
--------- ---------
CASH, end of period $ 1,471 $ 1,923
--------- ---------
--------- ---------
</TABLE>
<PAGE>
UNITED METAL RECYCLERS
NOTES TO THE FINANCIAL STATMENTS
GENERAL INFORMATION:
I. The Financial Statements included herein have been prepared by the Company
without audit.
II. Inventories as of September 30, 1997, and September 30, 1996, consisted of
the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
Raw materials $ 583 $ 528
Finished goods 1,360 1,233
--------- ---------
Total $ 1,943 $ 1,761
--------- ---------
--------- ---------
</TABLE>
<PAGE>
[LOGO]
UNITED METAL RECYCLERS
(A PARTNERSHIP)
REPORT AND FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
February 4, 1997
To the Partners of
United Metal Recyclers
In our opinion, the accompanying balance sheet and the related statements of
income and partners' equity and of cash flows present fairly, in all material
respects, the financial position of United Metal Recyclers at December 31, 1996
and 1995, and the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Partnership's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
<PAGE>
UNITED METAL RECYCLERS (a partnership)
BALANCE SHEET
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,779,000 $ 1,631,000
Short-term investments 1,200,000 3,620,000
Accounts receivable 1,816,000 3,237,000
Inventories 2,674,000 1,719,000
Prepaid expenses and other 15,000 19,000
----------- -----------
Total current assets 7,484,000 10,226,000
Investment in 50%-owned joint 3,172,000 -
Note receivable 965,000 -
Property, plant and equipment, net 4,245,000 4,444,000
----------- -----------
$15,866,000 $14,670,000
----------- -----------
----------- -----------
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable - trade $ 200,000 $ 1,903,000
Other accrued liabilities 569,000 729,000
----------- -----------
Total current liabilities 769,000 2,632,000
Partners' equity 15,097,000 12,038,000
----------- -----------
Commitments and contingencies (Notes
6, 7 and 8)
$15,866,000 $14,670,000
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
UNITED METAL RECYCLERS (a partnership)
STATEMENT OF INCOME AND PARTNERS' EQUITY
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
Net revenues $33,115,000 $42,039,000
----------- -----------
Costs and expenses:
Cost of products sold 27,900,000 32,606,000
Selling, general and administrative expenses 1,058,000 1,439,000
Depreciation 698,000 725,000
----------- -----------
29,656,000 34,770,000
----------- -----------
Net income 3,459,000 7,269,000
Partners' equity at beginning of year 12,038,000 17,269,000
Cash distributed to partners (400,000) (12,500,000)
----------- -----------
Partners' equity at end of year $15,097,000 $12,038,000
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
UNITED METAL RECYCLERS (a partnership)
STATEMENT OF CASH FLOWS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,459,000 $ 7,269,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 698,000 725,000
Gain on sale of property, plant and equipment (68,000) (19,000)
Changes in assets and liabilities:
Accounts receivable 1,421,000 (119,000)
Inventories (955,000) 582,000
Prepaid expenses and other assets 4,000 -
Note receivable (965,000) -
Accounts payable-trade (1,703,000) 1,234,000
Other accrued liabilities (160,000) 291,000
------------ -----------
Net cash provided by operating activities 1,731,000 9,963,000
------------ -----------
Cash flows from investing activities:
Proceeds from sale of short-term investments 2,970,000 4,579,000
Purchase of short-term investments (550,000) (1,725,000)
Investment in joint venture (3,172,000) -
Purchase of property, plant and equipment (510,000) (448,000)
Proceeds from sale of property, plant and equipment 79,000 22,000
------------ -----------
Net cash (used) provided by investing activities (1,183,000) 2,428,000
------------ -----------
Cash flows from financing activities:
Distributions to partners (400,000) (12,500,000)
------------ -----------
Net cash used by financing activities (400,000) (12,500,000)
------------ -----------
Net increase (decrease) in cash 148,000 (109,000)
Cash:
Beginning 1,631,000 1,740,000
------------ -----------
Ending $ 1,779,000 $ 1,631,000
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
UNITED METAL RECYCLERS (a partnership)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - THE BUSINESS AND ITS SIGNIFICANT ACCOUNTING POLICIES
United Metal Recyclers (the "Partnership" or "UMR") processes ferrous and
nonferrous secondary metals and sells them to foundries, steel mills, smelters
and refiners. UMR is also involved in retail recycling operations. The major
accounting policies followed by the Partnership in preparing the accompanying
financial statements are as follows:
CASH AND CASH EQUIVALENTS
The Partnership considers all short-term investments having an initial maturity
of three months or less to be cash equivalents.
INVENTORIES
Inventories are valued at the lower of average cost or market with cost being
determined principally on the last-in, first-out (LIFO) method. Market value is
defined as net realizable value.
INVESTMENT IN 50%-OWNED JOINT VENTURE
The investment in the 50%-owned joint venture is carried at the Partnership's
equity in the underlying net assets of the joint venture. The Partnership's
share of net earnings of the joint venture is included in the statement of
income and partners' equity.
DEPRECIATION
Property, plant and equipment is recorded at cost less accumulated depreciation.
Major renewals and betterments are charged to the property accounts while
replacements, maintenance and repairs which do not improve or extend the lives
of the respective assets are expensed currently. Assets are depreciated over
their estimated useful lives, using the straight-line method, as follows:
<TABLE>
<S> <C>
Buildings 18 to 30 years
Machinery and equipment 7 to 25 years
Office furniture and equipment 8 to 10 years
Vehicles 5 years
</TABLE>
INCOME TAXES
The financial statements reflect no provision or liability for income taxes
since each partner reports its share of the net income of the Partnership on its
individual income tax return.
<PAGE>
UNITED METAL RECYCLERS (a partnership)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain prior year's amounts have been reclassified to conform with the current
year presentation.
NOTE 2 - INVESTMENT IN 50%-OWNED JOINT VENTURE
The Partnership formed a joint venture, UMR - Griffin Recyclers, LLC (the
"company"), with D. H. Griffin Family Limited Partnership on April 30, 1996.
The company's operations will consist of automobile shredding and recycling in
Smithfield, North Carolina. During the period from inception through December
31, 1996, the company's operations were devoted primarily to raising capital,
constructing the facility, and administrative functions. Start up expenses were
capitalized and will be amortized over future years.
The Partnership has a 50% general partnership interest in the company.
In April 1996, the Partnership agreed to loan D.H. Griffin Family Limited
Partnership the principal sum of up to one million dollars for the purpose of
making capital contributions to the company. At December 31, 1996 the loan
balance outstanding was $965,000. Accrued interest at December 31, 1996 was
$33,487. Interest at seven and one-half percent is payable on April 1 of each
year. The maturity date is the earlier of seven years or March 15 of the fifth
calendar year following the calendar year in which the company has positive net
taxable income.
2
<PAGE>
UNITED METAL RECYCLERS (a partnership)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The financial position and results of operations of UMR - Griffin Recyclers are
summarized as follows:
CONDENSED STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
1996
----
<S> <C>
Current assets $ 137,000
Other assets 6,944,000
------------
$ 7,081,000
------------
------------
Current liabilities $ 737,000
Partners' equity 6,344,000
------------
$ 7,081,000
------------
------------
</TABLE>
CONDENSED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
TO DECEMBER 31,
1996
----
<S> <C>
Net sales $ 800
Costs and expenses 100
------------
Earnings $ 700
------------
------------
</TABLE>
3
<PAGE>
UNITED METAL RECYCLERS (a partnership)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3 - SHORT-TERM INVESTMENTS
Short-term investments are carried at either cost or market depending on the
nature of the investment and management's intention. The Partnership uses the
specific identification method to calculate gains and losses on the sale of
short-term investments.
The Partnership classifies its investments as available for sale. Available for
sale securities are valued at fair value with the difference between amortized
cost and fair value shown as unrealized holding gains or losses. There were no
unrealized holding gains or losses at December 31, 1996 and 1995.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------ ------------------------
CARRYING CARRYING
AMOUNT COST AMOUNT COST
-------- ---- -------- ----
<S> <C> <C> <C> <C>
Available for sale:
Municipal Bonds $1,200,000 $1,200,000 $3,620,000 $3,620,000
---------- ---------- ---------- ----------
Total short-term investments $1,200,000 $1,200,000 $3,620,000 $3,620,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
NOTE 4 - INVENTORIES
The Partnership values inventory using the last-in, first-out (LIFO) method.
Inventories valued at current or replacement cost would have been approximately
$331,000 and $791,000 greater than the LIFO valuation at December 31, 1996 and
1995, respectively.
During 1995, inventory quantities were reduced, resulting in a liquidation of
LIFO inventory quantities carried at lower costs prevailing in prior years as
compared with the cost of 1995 purchases. The effect of this LIFO liquidation
was to decrease cost of products sold and increase net income by approximately
$278,000 for the year ended December 31, 1995.
4
<PAGE>
UNITED METAL RECYCLERS (a partnership)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
Land $ 899,000 $ 899,000
Buildings 1,982,000 1,982,000
Machinery and equipment 13,306,000 13,111,000
------------- -------------
16,187,000 15,992,000
Less - Accumulated depreciation 11,942,000 11,548,000
------------- -------------
$ 4,245,000 $ 4,444,000
------------- -------------
------------- -------------
</TABLE>
NOTE 6 - RETIREMENT PLANS
The Partnership has a defined benefit pension plan covering substantially all of
its employees. The benefits are based on years of service and the employees'
highest five consecutive calendar years of compensation paid during the ten
calendar years preceding the earlier of actual or normal retirement age. The
Partnership's funding policy is to contribute annually the maximum amount
deductible for income tax purposes. Contributions are intended to provide not
only for benefits attributed to service to date, but also for those expected to
be earned in the future.
The following table sets forth the plan's funded status and amounts recognized
in the Partnership's financial statements:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
Actuarial present value of:
Vested benefits $ 770,000 $ 779,000
Non-vested benefits 56,000 73,000
------------- ------------
Accumulated benefit obligation $ 826,000 $ 852,000
------------- ------------
------------- ------------
Projected benefit obligation $ (1,110,000) $ (1,110,000)
Plan assets at fair value 1,196,000 1,067,000
------------- ------------
Excess (deficit) of plan assets above (below)
projected benefit obligation 86,000 (43,000)
Unrecognized transitional liability being amortized over 18 years 13,000 15,000
Unrecognized prior service cost (13,000) (14,000)
Unrecognized net gain from past experience different
from that assumed (249,000) (115,000)
------------- ------------
Accrued pension cost $ (163,000) $ (157,000)
------------- ------------
------------- ------------
</TABLE>
5
<PAGE>
UNITED METAL RECYCLERS (a partnership)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Net pension cost includes the following components:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
Service cost $ 56,000 $ 57,000
Interest cost 79,000 79,000
Actual gain on plan assets (112,000) (177,000)
Net amortization 18,000 108,000
-------------- --------------
Net periodic pension cost $ 41,000 $ 67,000
-------------- --------------
-------------- --------------
</TABLE>
The weighted average discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected benefit
obligation were 8.0% and 6.5%, respectively, for the periods ended December 31,
1996 and 1995. The expected long-term rate of return on assets was 8.0% for
each period presented. Prior service costs are amortized using the
straight-line method over the average remaining service period of employees
expected to receive benefits under the plan.
The Partnership also maintains a 401(k) savings plan in which employees may
elect to defer from one to fifteen percent of their salary. Employees who have
completed six months of service and have attained age twenty-one may participate
in the plan. The Partnership contributed thirty-five percent of the first four
percent of employee contributions for 1996 and 1995. Compensation expense under
this plan amounted to $24,000 and $20,000 in 1996 and 1995, respectively.
NOTE 7 - POSTRETIREMENT BENEFITS
The Partnership provides certain postretirement medical benefits to all
employees who elect early retirement for the period of time until the employee
and any dependents reach age 65. The medical plan requires 100% of the monthly
premiums be paid by the employee or dependent. The Partnership's maximum
liability is $30,000 per year per employee, reduced by the amount of premiums
paid by the employee.
The Partnership also provides a postretirement supplemental prescription drug
plan to all employees. The plan requires 100% of the monthly premiums be paid
by the employee and only covers prescription drugs which are not covered by
Medicare. The Partnership's maximum liability is $10,000 per employee, reduced
by the amount of premiums paid by the employee. The $10,000 represents a
lifetime maximum for each employee.
6
<PAGE>
UNITED METAL RECYCLERS (a partnership)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Partnership adopted Statement of Financial Accounting Standards No. 106
"Employers' Accounting for Postretirement Benefits Other Than Pensions" (SFAS
106) on January 1, 1995. The standard requires companies to recognize the
estimated costs of providing postretirement benefits on an accrual basis. The
Partnership elected the delayed recognition method of adoption which allows
amortization of the initial transition obligation over a 20-year period. At
January 1, 1995, the actuarially determined accumulated postretirement benefit
obligation was $92,000.
The amounts recognized in the Partnership's balance sheet at December 31, 1996
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ (16,000) $ (15,000)
Active employees (99,000) (88,000)
----------- -----------
(115,000) (103,000)
Unrecognized prior service cost 83,000 88,000
----------- -----------
Accrued postretirement benefit cost $ (32,000) $ (15,000)
----------- -----------
----------- -----------
</TABLE>
Net periodic postretirement benefit cost for 1996 and 1995 include the
following components:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
Service cost $ 6,000 $ 6,000
Interest cost 9,000 8,000
Amortization of unrecognized transition 5,000 4,000
---------- ----------
Net periodic postretirement benefit cost $ 20,000 $ 18,000
----------- -----------
----------- -----------
</TABLE>
The discount rate used in determining the accumulated postretirement benefit
obligation was 8.0% for 1996 and 1995. The assumed health care cost trend rate
was 9.0% in 1996 and 1995, declining to an ultimate rate of 5.5% by 2000. The
effect of a 1% increase in the assumed health care cost trend rate for each
future year would have increased the accumulated postretirement benefit
obligation at December 31, 1996 by $5,935 and increased the aggregate of service
and interest cost for 1996 by $1,175.
7
<PAGE>
UNITED METAL RECYCLERS (a partnership)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8 - ENVIRONMENTAL MATTERS
As of December 31, 1996, the Partnership has been named as a potentially
responsible party (PRP) at a Superfund site located in Illinois. Applicable
federal law imposes joint and several liability on each PRP for the cleanup of
these sites leaving the Partnership with the uncertainty that it may be
responsible for the remediation costs attributable to other PRPs who are unable
to pay their share. The cost of cleanup for which the Partnership remains
primarily liable is not yet determinable. It is the Partnership's policy to
accrue environmental cleanup costs if it is probable that a liability has been
incurred and an amount is reasonably estimable and material. As its potential
exposure is not yet estimable, the Partnership has not accrued any costs
associated with this site at December 31, 1996. As assessments and cleanups
proceed, the need for an accrual will be reviewed periodically and adjusted as
additional information becomes available. The liabilities can change
substantially due to such factors as additional information on the nature or
extent of contamination, methods of remediation required, and other actions by
governmental agencies or private parties.
NOTE 9 - SALES TO MAJOR CUSTOMERS
Included in net revenues for each period presented are sales to individual
customers which exceeded 10% of total net sales. Sales to major customers
consist of sales to three customers in the amount of $18,914,000 (58% of total
net sales) and $21,282,000 (51% of total net sales) for the years ended
December 31, 1996 and 1995, respectively.
8
<PAGE>
[LOGO]
UNITED METAL RECYCLERS
(A PARTNERSHIP)
FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
<PAGE>
[LOGO]
REPORT OF INDEPENDENT ACCOUNTANTS
February 14, 1996
To the Partners of
United Metal Recyclers
In our opinion, the accompanying balance sheet and the related statements of
income and partners' equity and of cash flows present fairly, in all material
respects, the financial position of United Metal Recyclers at December 31,
1995 and 1994, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Partnership's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements
in accordance with generally accepted auditing standards which 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
<PAGE>
UNITED METAL RECYCLERS (a partnership)
BALANCE SHEET
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash $ 8,000 $ 152,000
Short-term investments (Note 2) 5,243,000 8,062,000
Accounts receivable 3,237,000 3,118,000
Inventories (Note 3) 1,719,000 2,301,000
Prepaid expenses and other assets 19,000 19,000
------------- -------------
Total current assets 10,226,000 13,652,000
Property, plant and equipment at cost,
less accumulated depreciation (Note 4) 4,444,000 4,724,000
------------- -------------
$ 14,670,000 $ 18,376,000
------------- -------------
------------- -------------
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable - trade $ 1,876,000 $ 656,000
Accounts payable to affiliates 27,000 13,000
Other accrued liabilities 729,000 438,000
------------- -------------
Total current liabilities 2,632,000 1,107,000
Partners' equity 12,038,000 17,269,000
------------- -------------
$ 14,670,000 $ 18,376,000
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
UNITED METAL RECYCLERS (a partnership)
STATEMENT OF INCOME AND PARTNERS' EQUITY
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995 1994
---- ----
<S> <C> <C>
Net revenues $ 42,039,000 $ 36,727,000
------------- -------------
Costs and expenses:
Cost of products sold 32,606,000 28,811,000
Selling, general and
administrative expenses 1,439,000 941,000
Depreciation 725,000 641,000
------------- -------------
34,770,000 30,393,000
------------- -------------
Net income 7,269,000 6,334,000
Partners' equity at beginning of year 17,269,000 15,335,000
Cash distributed to partners (12,500,000) (4,400,000)
------------- -------------
Partners' equity at end of year $ 12,038,000 $ 17,269,000
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
UNITED METAL RECYCLERS (a partnership)
STATEMENT OF CASH FLOWS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,269,000 $ 6,334,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 725,000 641,000
Gain on sale of property and equipment (19,000) (31,000)
Changes in assets and liabilities:
Short-term investments classified as trading 1,420,000 (1,000,000)
Accounts receivable (119,000) (85,000)
Inventories 582,000 (92,000)
Prepaid expenses - (2,000)
Accounts payable-trade 1,220,000 304,000
Accounts payable to affiliates 14,000 (16,000)
Other accrued liabilities 291,000 68,000
----------- ------------
Net cash provided by operating activities 11,383,000 6,121,000
----------- ------------
Cash flows from investing activities:
Change in short-term investments classified
as held-to-maturity 1,399,000 (426,000)
Purchase of property and equipment (448,000) (1,183,000)
Proceeds from sale of property and equipment 22,000 31,000
----------- ------------
Net cash provided (used) by investing activities 973,000 (1,578,000)
----------- ------------
Cash flows from financing activities:
Partners' withdrawals (12,500,000) (4,400,000)
----------- ------------
Net cash used by financing activities (12,500,000) (4,400,000)
----------- ------------
Net (decrease) increase in cash (144,000) 143,000
Cash:
Beginning 152,000 9,000
----------- ------------
Ending $ 8,000 $ 152,000
----------- ------------
----------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
UNITED METAL RECYCLERS (a partnership)
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
United Metal Recyclers (the Partnership or UMR) processes ferrous and
nonferrous secondary metals and sells them to foundries, steel mills,
smelters and refiners. UMR is also involved in retail recycling operations.
The major accounting policies followed by the Partnership in preparing the
accompanying financial statements are as follows:
FAIR VALUE OF FINANCIAL INSTRUMENTS
Effective January 1, 1995, the Partnership adopted Statement of Financial
Accounting Standards No. 107 "Disclosures About Fair Value of Financial
Instruments" (SFAS 107). SFAS 107 requires the disclosure of the fair value
of financial instruments. See Note 7. Management believes that the fair
value of accounts receivable and accounts payable closely approximates
carrying value. Therefore, no disclosure is made for these items in Note 7.
INVENTORIES
Inventories are valued at the lower of average cost or market with cost being
determined principally on the last-in, first-out (LIFO) method. Market value
is defined as net realizable value.
DEPRECIATION
Property, plant and equipment are depreciated over their estimated useful
lives using the straight-line method. Estimated useful lives are as follows:
<TABLE>
<S> <C>
Buildings 18 to 30 years
Machinery and equipment 7 to 25 years
Office furniture and equipment 8 to 10 years
Vehicles 5 years
</TABLE>
INCOME TAXES
The financial statements reflect no provision or liability for income taxes
since each partner reports its share of the net income of the Partnership on
its individual income tax return.
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
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
<PAGE>
UNITED METAL RECYCLERS (a partnership)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2 - SHORT-TERM INVESTMENTS
Short-term investments are carried at either cost or market depending on the
nature of the investment and management's intention. The Partnership uses
the specific identification method to calculate gains and losses on the sale
of short-term investments.
UMR adopted Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" (SFAS 115) on January
1, 1994. The adoption of SFAS 115 changed the Partnership's method of
accounting for investments in debt securities. Previously, the Partnership
recorded investments in debt securities at the lower-of-cost-or-market. SFAS
115 requires the Partnership to classify investments as either
held-to-maturity, trading or available-for-sale. Investments classified as
held-to-maturity are reported at amortized cost. Investments classified as
either trading or available-for-sale are reported at fair value. UMR
believes its investments in debt securities should be classified as
held-to-maturity and trading. The fair values of the Partnership's
investments approximated the amortized cost at January 1, 1994 and December
31, 1994. Accordingly, the adoption of SFAS 115 did not have a material
impact on the Partnership's results of operations.
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
---------------------- ----------------------
Carrying Carrying
Amount Cost Amount Cost
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Trading
Municipal Bonds $ 3,620,000 $ 3,620,000 $ 5,180,000 $ 5,180,000
Master Note 140,000 140,000 -- --
------------ ------------ ------------ ------------
3,760,000 3,760,000 5,180,000 5,180,000
------------ ------------ ------------ ------------
Held-to-Maturity
Commercial Paper 187,000 187,000 -- --
Certificates of Deposit 1,296,000 1,296,000 1,588,000 1,588,000
U.S. Obligations -- -- 994,000 994,000
Municipal Bonds -- -- 300,000 300,000
------------ ------------ ------------ ------------
1,483,000 1,483,000 2,882,000 2,882,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Total short-term investments $ 5,243,000 $ 5,243,000 $ 8,062,000 $ 8,062,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
2
<PAGE>
UNITED METAL RECYCLERS (a partnership)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3 - INVENTORIES
The Partnership values inventory using the last-in, first-out (LIFO) method.
Inventories valued at current or replacement cost would have been
approximately $791,000 and $1,061,000 above the LIFO valuation at December
31, 1995 and 1994, respectively.
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
----------- -----------
<S> <C> <C>
Land $ 899,000 $ 899,000
Buildings 1,982,000 1,962,000
Machinery and equipment 13,111,000 12,716,000
----------- -----------
15,992,000 15,577,000
Less - Accumulated depreciation 11,548,000 10,853,000
----------- -----------
$ 4,444,000 $ 4,724,000
----------- -----------
----------- -----------
</TABLE>
3
<PAGE>
UNITED METAL RECYCLERS (a partnership)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5 - RETIREMENT PLANS
The Partnership has a defined benefit pension plan covering substantially all
of its employees. The benefits are based on years of service and the
employees' highest five consecutive calendar years of compensation paid
during the ten calendar years preceding the earlier of actual or normal
retirement age. The Partnership's funding policy is to contribute annually
the maximum amount deductible under the Internal Revenue Code. Contributions
are intended to provide not only for benefits attributed to service to date,
but also for those expected to be earned in the future.
The following table sets forth the plan's funded status and amounts
recognized in the Partnership's financial statements:
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
----------- -----------
<S> <C> <C>
Actuarial present value of:
Vested benefits $ 779,000 $ 665,000
Non-vested benefits 73,000 63,000
----------- -----------
Accumulated benefit obligation $ 852,000 728,000
----------- -----------
----------- -----------
Projected benefit obligation $(1,110,000) (947,000)
Plan assets at fair value 1,067,000 832,000
----------- -----------
Deficit of plan assets
below projected benefit obligation (43,000) (115,000)
Unrecognized transitional liability
being amortized over 18 years 15,000 16,000
Unrecognized prior service cost (14,000) 33,000
Unrecognized net gain from past experience
different from that assumed and effects
of changes in assumptions (115,000) (97,000)
----------- -----------
Unfunded accrued pension cost $ (157,000) $ (163,000)
----------- -----------
----------- -----------
</TABLE>
4
<PAGE>
UNITED METAL RECYCLERS (a partnership)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Net pension cost includes the following components:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995 1994
--------- ---------
<S> <C> <C>
Service cost $ 57,000 $ 51,000
Interest cost 79,000 67,000
Actual (gain) loss on plan assets (177,000) 19,000
Net amortization 108,000 (87,000)
--------- ---------
Net periodic pension cost $ 67,000 $ 50,000
--------- ---------
--------- ---------
</TABLE>
The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 8.0% and 6.5%, respectively, for the period
ended December 31, 1995 and for the period ended December 31, 1994. The
expected long-term rate of return on assets was 8.0% for each period
presented. Prior service costs are amortized using the straight-line method
over the average remaining service period of employees expected to receive
benefits under the plan.
The Partnership also maintains a 401(k) savings plan in which employees may
elect to defer from one to fifteen percent of their salary. Employees who
have completed six months of service and have attained age twenty-one may
participate in the plan. The Partnership contributed thirty-five percent of
the first four percent of employee contributions for 1995 and 1994.
Compensation expense under this plan amounted to $20,389 and $23,000 in 1995
and 1994, respectively.
NOTE 6 - SALES TO MAJOR CUSTOMERS
Included in net sales for each period presented are sales to individual
customers which exceeded 10% of total net sales. Sales to major customers
consist of sales to three customers in the amount of $21,282,000 (51% of
total net sales) for the year ended December 31, 1995 and to two customers in
the amount of $17,377,000 (47% of total net sales) for the year ended
December 31, 1994.
5
<PAGE>
UNITED METAL RECYCLERS (a partnership)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The financial position of the Partnership at December 31, 1995 includes certain
financial instruments. Management believes the fair value of these instruments
approximate their carrying value. The carrying amounts and estimated fair
value of the Company's financial instruments at December 31, 1995 and 1994 are
as follows:
<TABLE>
<CAPTION>
1995 1994
-------------------------- --------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Assets:
Cash $ 8,000 $ 8,000 $ 152,000 $ 152,000
Short-term investments
Trading 3,760,000 3,760,000 5,180,000 5,180,000
Held-to-Maturity 1,483,000 1,483,000 2,882,000 2,882,000
---------- ---------- ---------- ----------
$5,243,000 $5,243,000 $8,062,000 $8,062,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
NOTE 8 - ENVIRONMENTAL MATTERS
As of December 31, 1995, the Partnership has been named as a potentially
responsible party (PRP) at a Superfund site located in Illinois. Applicable
federal law imposes joint and several liability on each PRP for the cleanup
of these sites leaving the Partnership with the uncertainty that it may be
responsible for the remediation costs attributable to other PRPs who are
unable to pay their share. The cost of cleanup for which the Partnership
remains primarily liable is not yet determinable. It is the Partnership's
policy to accrue environmental cleanup costs if it is probable that a
liability has been incurred and an amount is reasonably estimable and
material. As its potential exposure is not yet estimable, the Partnership
has not accrued any costs associated with this site at December 31, 1995. As
assessments and cleanups proceed, the need for an accrual will be reviewed
periodically and adjusted as additional information becomes available. The
liabilities can change substantially due to such factors as additional
information on the nature or extent of contamination, methods of remediation
required, and other actions by governmental agencies or private parties.
6
<PAGE>
UNITED METAL RECYCLERS (a partnership)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9 - SUBSEQUENT EVENTS
On January 22, 1996, the Partnership advanced D.H. Griffin Wreaking Service
("D.H. Griffin") $877,000 to purchase a shredding plant and associated
machinery and equipment. This advance is secured by the machinery being
purchased by D.H. Griffin, and is subject to the terms of a Note and Security
Agreement between D.H. Griffin and the Partnership. This is a non-interest
bearing Note, which is due on demand. Management is currently considering
forming a joint venture with D.H. Griffin to establish a shredder facility in
eastern North Carolina, and estimates that the required investment of the
joint venture would be between $4 and $5 million. The equipment that D.H.
Griffin purchased with the advance from the Partnership would be used in the
proposed eastern North Carolina facility. In the event that D.H. Griffin and
the Partnership agree to form a joint venture, the Note would be
extinguished, as the Partnership would be a partial owner of the equipment
that is currently securing the Note.
NOTE 10 - POSTRETIREMENT BENEFITS
The Company provides certain postretirement medical benefits to all employees
who elect early retirement for the period of time until the employee and any
dependents reach age 65. The medical plan requires 100% of the monthly
premiums be paid by the employee or dependent. The Company's maximum
liability is $30,000 per year per employee, reduced by the amount of premiums
paid by the employee.
The Company also provides a postretirement supplemental prescription drug
plan to all employees. The plan requires 100% of the monthly premiums be
paid by the employee and only covers prescription drugs which are not covered
by Medicare. The Company's maximum liability is $10,000 per employee,
reduced by the amount of premiums paid by the employee. The $10,000
represents a lifetime supplement for each employee.
The Company adopted Statement of Financial Accounting Standards No. 106
"Employers' Accounting for Postretirement Benefits Other Than Pensions" (SFAS
106) on January 1, 1995. The standard required companies to recognize the
estimated costs of providing postretirement benefits on an accrual basis.
The Company elected the delayed recognition method of adoption which allows
amortization of the initial transition obligation over a 20-year period.
Accordingly, the adoption of SFAS 106 did not have a material impact on the
Company's financial position or results of operations.
7
<PAGE>
------------------------------------------
-------------------------------------------
UNITED METAL - D. H. GRIFFIN
RECYCLERS, L.L.C.
FINANCIAL REPORT
NINE MONTHS ENDED SEPTEMBER 30, 1997
------------------------------------------
-------------------------------------------
<PAGE>
UNITED METAL-D. H. GRIFFIN RECYCLERS, L.L.C.
(A PARTNERSHIP)
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Page No.
--------
Accountant's Review Report on Financial Statements . . . . . . . . . . . 1
FINANCIAL STATEMENTS
Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Statement of Income . . . . . . . . . . . . . . . . . . . . . . . . . 3
Statement of Members' Capital . . . . . . . . . . . . . . . . . . . . 4
Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . 6
Accountant's Review Report on Supplementary Information . . . . . . . . 10
SUPPLEMENTARY INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
Schedule of Cost of Sales . . . . . . . . . . . . . . . . . . . . . . 11
Schedule of Administrative and General Expenses . . . . . . . . . . . 12
SUPPLEMENTARY INFORMATION FOR THE THREE MONTHS ENDED SEPTEMBER 30 1997
Statement of Income . . . . . . . . . . . . . . . . . . . . . . . . . 13
Schedule of Cost of Sales . . . . . . . . . . . . . . . . . . . . . . 14
Schedule of Administrative and General Expenses . . . . . . . . . . . 15
<PAGE>
ACCOUNTANT'S REVIEW REPORT
To the Board of Directors
United Metal - D.H. Griffin Recyclers, L.L.C.
Smithfield, North Carolina
We have reviewed the accompanying balance sheet of United Metal - D.H.
Griffin Recyclers, L.L.C. as of September 30, 1997, and the related
statements of income, members' capital, and cash flows for the nine months
then ended, in accordance with Statements on Standards for Accounting and
Review Services issued by the American Institute of Certified Public
Accountants. All information included in these financial statements is the
representation of the management of United Metal - D.H. Griffin Recyclers,
L.L.C.
A review consists principally of inquiries of Company personnel and
analytical procedures applied to financial data. It is substantially less in
scope than an audit in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express an
opinion.
Based on our review, we are not aware of any material modification that
should be made to the accompanying financial statements in order for them to
be in conformity with generally accepted accounting principles.
Bernard Robinson & Company, L.L.P.
----------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
Greensboro, North Carolina
October 24, 1997
<PAGE>
UNITED METAL - D.H. GRIFFIN RECYCLERS, L.L.C.
BALANCE SHEET
SEPTEMBER 30, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current Assets:
Cash and cash equivalents $ 284,921
Accounts receivable 1,108,938
Inventories 1,369,639
Prepaid expenses 3,249
-----------
Total Current Assets 2,766,747
-----------
Other Assets:
Start-up costs, net of accumulated amortization of $9,969 62,536
Organization costs, net of accumulated amortization of $170 431
-----------
Total Other Assets 62,967
-----------
Property:
Land 294,885
Land improvements 1,153,529
Buildings 868,269
Machinery and equipment 5,542,821
Furniture and fixtures 51,465
-----------
Total Property 7,910,969
Less accumulated depreciation (354,373)
-----------
Net Property 7,556,596
-----------
Total Assets $10,386,310
-----------
-----------
LIABILITIES AND MEMBERS' CAPITAL
Current Liabilities:
Accounts payable $ 149,749
Accrued expenses 24,316
-----------
Total Current Liabilities 174,065
-----------
Members' Capital 10,212,245
-----------
Total Liabilities and Members' Capital $10,386,310
-----------
-----------
</TABLE>
SEE ACCOUNTANT'S REVIEW REPORT AND NOTES TO FINANCIAL STATEMENTS.
- -------------------------------------------------------------------------------
PAGE 2
<PAGE>
UNITED METAL - D.H. GRIFFIN RECYCLERS, L.L.C.
STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Sales $ 6,834,728
Cost of sales 6,819,058
-----------
Gross profit (deficit) 15,670
Administrative and general expenses 148,637
-----------
Operating loss (132,967)
Other income 775
-----------
Net loss $ (132,192)
-----------
-----------
</TABLE>
SEE ACCOUNTANT'S REVIEW REPORT AND NOTES TO FINANCIAL STATEMENTS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PAGE 3
<PAGE>
UNITED METAL - D.H. GRIFFIN RECYCLERS, L.L.C.
STATEMENT OF MEMBERS' CAPITAL
NINE MONTHS ENDED SEPTEMBER 30, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
D.H. Griffin
United Family
Metal Limited
Total Recyclers Partnership
------------ ----------- ------------
<S> <C> <C> <C>
Members' capital, beginning $6,344,438 $3,172,219 $3,172,219
Capital contributed 4,400,000 2,200,000 2,200,000
Capital distributed (400,000) (200,000) (200,000)
Net loss (132,192) (66,096) (66,096)
----------- ---------- ----------
Members' capital, ending $10,212,246 $5,106,123 $5,106,123
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
SEE ACCOUNTANT'S REVIEW REPORT AND NOTES TO FINANCIAL STATEMENTS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PAGE 4
<PAGE>
UNITED METAL - D.H. GRIFFIN RECYCLERS, L.L.C.
STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss $ (132,192)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation 354,373
Amortization 10,060
(Increase) decrease in:
Accounts receivable (1,103,705)
Inventories (1,369,639)
Prepaid expenses (1,412)
Deposits 40,000
Increase (decrease) in:
Accounts payable (585,447)
Accrued expenses 22,285
-----------
Net cash used in operating activities (2,765,677)
-----------
Cash flows from investing activities:
Purchase of property (1,033,875)
Start-up cost paid (6,040)
-----------
Net cash used in investing activities (1,039,915)
-----------
Cash flows from financing activities:
Capital contributions received 4,400,000
Capital distributions paid (400,000)
-----------
Net cash provided by financing activities 4,000,000
-----------
Increase in cash and cash equivalents 194,408
Cash and cash equivalents, beginning 90,513
-----------
Cash and cash equivalents, ending $ 284,921
-----------
-----------
</TABLE>
SEE ACCOUNTANT'S REVIEW REPORT AND NOTES TO FINANCIAL STATEMENTS.
- -------------------------------------------------------------------------------
PAGE 5
<PAGE>
UNITED METAL - D.H. GRIFFIN RECYCLERS, L.L.C.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
United Metal - D.H. Griffin Recyclers, L.L.C. was organized on
May 1, 1996, and began operations on January 1, 1997. The
Company is an equally-owned limited liability company of United
Metal Recyclers and D.H. Griffin Family Limited Partnership. The
Company's operations consist of automobile shredding and
recycling in Smithfield, North Carolina.
A summary of significant accounting policies follows:
INTERIM PERIOD
These financial statements reflect all adjustments consisting
of normal recurring accruals, which are necessary for a fair
presentation of the results for an interim period. Interim
periods are not necessarily indicative of results to be expected
for the year due to seasonal factors and price fluctuations of
the various metal markets.
CASH AND CASH EQUIVALENTS
For purposes of reporting the cash flows, the Company considers
all highly liquid investments purchased with a maturity of three
months or less to be cash equivalents.
INVENTORIES
Inventories are valued at the lower of first-in, first-out cost
or market. Market value is defined as net realizable value.
START-UP COSTS
The Company has elected to capitalize all expenses incurred
during the development stage of operations which ended December 31,
1996.
AMORTIZATION
Organizational and start-up costs are amortized using the
straight-line method over five years. Amortization of
organizational costs began at the Company's inception.
Amortization of the start-up costs began upon commencement of
operations in January, 1997.
SEE ACCOUNTANT'S REVIEW REPORT
- -------------------------------------------------------------------------------
PAGE 6
<PAGE>
UNITED METAL - D.H. GRIFFIN RECYCLERS, L.L.C.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(Continued)
PROPERTY
Land, buildings, machinery and equipment are stated at cost.
Maintenance, repairs, rearrangement expenses and renewals which
do not enhance the value or increase the basic productive
capacity of the assets are expensed as incurred.
Depreciation expense for financial purposes is computed on the
straight-line method using the following estimated useful lives:
<TABLE>
<S> <C>
Buildings 30 Years
Land improvements 7 to 15 Years
Machinery and equipment 8 to 10 Years
Office furniture and equipment 5 Years
Vehicles 5 years
</TABLE>
Depreciation expense for income tax purposes is computed using
applicable Federal income tax methods which are primarily all
accelerated methods over lives as specified by Federal tax laws
and regulations.
INCOME TAXES
No provision or liability for income taxes is reflected in these
financial statements as each member reports its share of the
Company's net income and other tax attributes on its respective
income tax returns.
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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.
SEE ACCOUNTANT'S REVIEW REPORT
- -------------------------------------------------------------------------------
PAGE 7
<PAGE>
UNITED METAL - D.H. GRIFFIN RECYCLERS, L.L.C.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 2 - RELATED PARTY TRANSACTIONS
The following is a summary of transactions and balances with
members and their affiliates for the nine months ended September 30,
1997:
<TABLE>
<S> <C>
Sales $1,407,003
Construction costs 755,367
Equipment and supplies purchases 7,644
Payroll reimbursement 39,280
Management fees 5,000
Due to members (included in accounts payable
in the accompanying balance sheet) 21,576
</TABLE>
NOTE 3 - ENVIRONMENTAL REMEDIATION AND COMPLIANCE
Environmental expenditures that relate to current operations are
expensed or capitalized as appropriate. 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 and/or remedial efforts are probable, and the cost
can be reasonably estimated. At this time contingent liabilities
related to environmental issues may be probable but cannot be
reasonably estimated.
NOTE 4 - CONTINGENCIES
The Company maintains its cash in bank deposit accounts which, at
times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts and believes it is not
exposed to any significant credit risk on cash and cash
equivalents.
SEE ACCOUNTANT'S REVIEW REPORT
- -------------------------------------------------------------------------------
PAGE 8
<PAGE>
UNITED METAL - D.H. GRIFFIN RECYCLERS, L.L.C.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 5 - MAJOR CUSTOMERS
The Company conducts a major portion of its business with certain
customers, each of which accounts for more than 10% of total
sales. For the nine months ended September 30, 1997, sales from
four major customers amounted to $6,702,700, or 98% of total
sales. The total accounts receivable from these four customers
at September 30, 1997 was $1,098,256.
NOTE 6 - RETIREMENT PLAN
The employees of the Partnership may participate in a 401(k)
savings plan, whereby the employees may elect to defer from one
to fifteen percent of their salary upon completing six months of
service and having attained age twenty-one. The Partnership
contributes twenty-five percent of the first four percent of
employee contributions.
Retirement plan expenses totaled $613 for the nine months ended
September 30, 1997.
- -------------------------------------------------------------------------------
PAGE 9
<PAGE>
ACCOUNTANT'S REVIEW REPORT ON SUPPLEMENTARY INFORMATION
To the Board of Directors
United Metal - D.H. Griffin Recyclers L.L.C.
Smithfield, North Carolina
Our review was made for the purpose of expressing limited assurance that
there are no material modifications that should be made to the basic
financial statements in order for them to be in conformity with generally
accepted accounting principles. The following supplementary information
contained in the schedules of cost of sales, and administrative and general
expenses, for the nine months ended September 30, 1997, and the schedules of
income, cost of sales, and administrative and general expenses for the three
months ended September 30, 1997, are presented for purposes of additional
analysis and are not a required part of the basic financial statements. Such
information has been subjected to the inquiry and analytical procedures
applied in the review of the basic financial statements and we did not become
aware of any material modifications that should be made to such information.
Bernard Robinson & Company, L.L.P.
----------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
Greensboro, North Carolina
October 24, 1997
PAGE 10
<PAGE>
UNITED METAL - D.H. GRIFFIN RECYCLERS, L.L.C.
SCHEDULE OF COST OF SALES
NINE MONTHS ENDED SEPTEMBER 30, 1997
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
Materials:
Purchases $6,200,048
Less ending inventory (1,369,639)
-----------
Total materials 4,830,409
-----------
Labor 244,850
-----------
Overhead:
Depreciation 333,373
Gas, oil, tires 39,674
Utilities 109,477
Insurance 38,638
Patrol and alarm service 41,313
Repairs and maintenance 461,314
Freight 345,453
Plant supplies 20,472
Payroll taxes 21,414
Other taxes and licenses 716
Miscellaneous 22,760
Safety expenses 2,762
Disposal expense 306,433
-----------
Total overhead 1,743,799
-----------
Total cost of sales $6,819,058
-----------
-----------
</TABLE>
SEE ACCOUNTANT'S REVIEW REPORT ON SUPPLEMENTARY INFORMATION.
- -------------------------------------------------------------------------------
PAGE 11
<PAGE>
UNITED METAL - D.H. GRIFFIN RECYCLERS, L.L.C.
SCHEDULE OF ADMINISTRATIVE AND GENERAL EXPENSES
NINE MONTHS ENDED SEPTEMBER 30, 1997
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
Salaries - management $ 39,280
Management fees 5,000
Advertising 1,417
Dues and subscriptions 315
Professional 10,446
Postage and box rent 408
Taxes and licenses 595
Telephone 7,880
Travel and entertainment 17,520
Miscellaneous 3,132
Office supplies 26,966
Utilities 4,005
Depreciation 21,000
Amortization 10,060
Retirement Plan expenses 613
-----------
$ 148,637
-----------
-----------
</TABLE>
SEE ACCOUNTANT'S REVIEW REPORT ON SUPPLEMENTARY INFORMATION.
- -------------------------------------------------------------------------------
PAGE 12
<PAGE>
UNITED METAL - D.H. GRIFFIN RECYCLERS, L.L.C.
STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1997
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
Sales $3,524,547
Cost of sales 3,399,647
------------
Gross margin 124,900
Administrative and general expenses 54,743
Operating income 70,157
Other income 196
------------
Net income $ 70,353
------------
------------
</TABLE>
SEE ACCOUNTANT'S REVIEW REPORT ON SUPPLEMENTARY INFORMATION.
- -------------------------------------------------------------------------------
PAGE 13
<PAGE>
UNITED METAL - D.H. GRIFFIN RECYCLERS, L.L.C.
SCHEDULE OF COST OF SALES
NINE MONTHS ENDED SEPTEMBER 30, 1997
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
Materials:
Beginning inventory $ 1,147,252
Purchases 2,737,973
Less ending inventory (1,369,639)
-----------
Total materials 2,515,586
-----------
Labor 98,981
-----------
Overhead:
Depreciation 117,373
Gas, oil, tires 14,127
Utilities 62,860
Insurance 10,968
Patrol and alarm service 13,929
Repairs and maintenance 143,565
Freight 223,017
Plant supplies 2,554
Payroll taxes 10,646
Other taxes and licenses -
Miscellaneous 5,317
Safety expenses 1,482
Disposal expense 179,242
-----------
Total overhead 785,080
-----------
Total cost of sales $ 3,399,647
-----------
-----------
</TABLE>
SEE ACCOUNTANT'S REVIEW REPORT ON SUPPLEMENTARY INFORMATION.
- -------------------------------------------------------------------------------
PAGE 14
<PAGE>
UNITED METAL - D.H. GRIFFIN RECYCLERS, L.L.C.
SCHEDULE OF ADMINISTRATIVE AND GENERAL EXPENSES
NINE MONTHS ENDED SEPTEMBER 30, 1997
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
Salaries - management $ 14,460
Management fees 5,000
Advertising 765
Dues and subscriptions 270
Professional 3,117
Postage and box rent 121
Taxes and licenses 225
Telephone 2,510
Travel and entertainment 4,189
Miscellaneous 1,132
Office supplies 10,595
Utilities 1,393
Depreciation 7,000
Amortization 3,353
Retirement Plan expenses 613
-----------
$ 54,743
-----------
-----------
</TABLE>
SEE ACCOUNTANT'S REVIEW REPORT ON SUPPLEMENTARY INFORMATION.
PAGE 15
<PAGE>
-------------------------------------
-------------------------------------
UNITED METAL - D. H. GRIFFIN
RECYCLERS, L.L.C.
FINANCIAL REPORT
FOR THE PERIOD FROM INCEPTION
(MAY 1, 1996) TO DECEMBER 31, 1996
-------------------------------------
-------------------------------------
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
United Metal - D.H. Griffin Recyclers, L.L.C.
Smithfield, North Carolina
We have audited the accompanying balance sheet of United Metal - D.H. Griffin
Recyclers, L.L.C. as of December 31, 1996, and the related statements of
income, members' capital, and cash flows for the period from inception (May 1,
1996) to December 31, 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion the financial statements referred to in the first paragraph
present fairly, in all material respects, the financial position of United Metal
- - D.H. Griffin Recyclers, L.L.C. as of December 31, 1996, and the results of its
operations and its cash flows for the initial period then ended in conformity
with generally accepted accounting principles.
Bernard Robinson & Company, L.L.P.
----------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
Greensboro, North Carolina
January 17, 1997
<PAGE>
UNITED METAL - D.H. GRIFFIN RECYCLERS, L.L.C.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current Assets:
Cash and cash equivalents $ 90,513
Receivable - related party 5,233
Prepaid expenses 1,837
Deposits 40,000
----------
Total Current Assets 137,583
----------
Other Assets:
Organization costs, net of accumulated amortization 521
----------
Property:
Land 294,885
Machinery and equipment 1,070,294
Furniture and fixtures 26,890
Construction in progress 5,486,496
----------
Total Property 6,878,565
----------
Total Assets $7,016,669
----------
----------
<CAPTION>
LIABILITIES AND MEMBERS' CAPITAL
<S> <C>
Current Liabilities:
Accounts payable $ 735,196
Accrued expenses 2,031
----------
Total Current Liabilities 737,227
----------
Members' Capital:
United Metal Recyclers 3,139,721
D.H. Griffin Family Limited Partnership 3,139,721
----------
Total Members' Capital 6,279,442
----------
Total Liabilities and Members' Capital $7,016,669
----------
----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
- -------------------------------------------------------------------------------
PAGE 2
<PAGE>
UNITED METAL - D.H. GRIFFIN RECYCLERS, L.L.C.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF INCOME
FOR THE PERIOD FROM MAY 1, 1996 (DATE OF INCEPTION) TO DECEMBER 31, 1996
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
Sales $ -
Cost of sales 24,416
--------
Gross profit (deficit) (24,416)
General and administrative expenses 40,659
--------
Operating loss (65,075)
Other income 833
--------
Net loss $(64,242)
--------
--------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
- -------------------------------------------------------------------------------
PAGE 3
<PAGE>
UNITED METAL - D.H. GRIFFIN RECYCLERS, L.L.C.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF MEMBERS' CAPITAL
FOR THE PERIOD FROM MAY 1, 1996 (DATE OF INCEPTION) TO DECEMBER 31, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
D.H. Griffin
United Family
Metal Limited
Total Recyclers Partnership
----------- ----------- ------------
<S> <C> <C> <C>
Capital contributions $ 6,343,684 $ 3,171,842 $3,171,842
Net loss (64,242) (32,121) (32,121)
----------- ----------- ----------
Members' capital, end of period $ 6,279,442 $ 3,139,721 $3,139,721
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
- -------------------------------------------------------------------------------
PAGE 4
<PAGE>
UNITED METAL - D.H. GRIFFIN RECYCLERS, L.L.C.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM MAY 1, 1996 (DATE OF INCEPTION) TO DECEMBER 31, 1996
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss $ (64,242)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Amortization 80
(Increase) decrease in:
Receivable - related party (5,233)
Prepaid expenses (1,837)
Deposits (40,000)
Increase (decrease) in:
Accounts payable 735,196
Accrued expenses 2,031
----------
Net cash provided by operating activities 625,995
----------
Cash flows from investing activities:
Purchase of property (6,878,565)
Organization costs paid (601)
----------
Net cash used in investing activities (6,879,166)
----------
Cash flows from financing activities:
Capital contributions 6,343,684
----------
Net cash provided by financing activities 6,343,684
----------
Increase in cash and cash equivalents 90,513
Cash and cash equivalents, beginning -
Cash and cash equivalents, ending $ 90,513
----------
----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
- -------------------------------------------------------------------------------
PAGE 5
<PAGE>
UNITED METAL - D.H. GRIFFIN RECYCLERS, L.L.C.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
United Metal - D.H. Griffin Recyclers, L.L.C. is an equally-owned
limited liability company of United Metal Recyclers and D.H. Griffin
Family Limited Partnership. The Company's operations will consist of
automobile shredding and recycling in Smithfield, North Carolina.
A summary of significant accounting policies follows:
CASH AND CASH EQUIVALENTS
For purposes of reporting the cash flows, the Company considers all
highly liquid investments purchased with a maturity of three months or
less to be cash equivalents.
AMORTIZATION
Organization costs are amortized using the straight-line method over
five years.
PROPERTY
Land, buildings, machinery and equipment are stated at cost.
Maintenance, repairs, rearrangement expenses and renewals which do not
enhance the value or increase the basic productive capacity of the
assets are expensed as incurred.
INCOME TAXES
No provision or liability for income taxes is reflected in these
financial statements as each member reports its share of the Company's
net income and other tax attributes on its respective income tax
returns.
PAGE 6
<PAGE>
UNITED METAL - D.H. GRIFFIN RECYCLERS, L.L.C.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
DEVELOPMENT STAGE OPERATIONS
The Company was formed on May 1, 1996. During the period from
inception through December 31, 1996, the Company's operations were
devoted primarily to raising capital, constructing the facility, and
administrative functions. The operating agreement provides for
distributions and profit or loss to be allocated to the members in
proportion to their percentage interest.
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 revenue
and expenses during the reporting period. Actual results could differ
from those estimates.
NOTE 2 - RELATED PARTY TRANSACTIONS
The following is a summary of transactions and balances with members
and their affiliates for the year ended December 31, 1996:
<TABLE>
<S> <C>
Construction costs $2,404,746
Equipment purchases 86,221
Management fees 22,400
Due to members and their affiliates
(included in accounts payable in the
accompanying balance sheets) 480,217
</TABLE>
PAGE 7
