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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 1998
--- TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-20179
RECYCLING INDUSTRIES, INC.
(Exact Name of Registrant as Specified in its Charter)
COLORADO 84-1103445
- ---------------------------------------- ------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
9780 S. MERIDIAN BLVD, SUITE 180
ENGLEWOOD, COLORADO 80112
- ----------------------------------------------- ---------------
(Mailing Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (303) 790-7372
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock as of the close of the period covered by this Report.
CLASS NUMBER OF SHARES OUTSTANDING AS OF:
- -------------------------------- July 31, 1998
Common Stock, $.001 Par Value -------------
22,641,438
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TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION PAGE
ITEM 1. FINANCIAL STATEMENTS*
Consolidated Balance Sheets - June 30, 1998
And September 30, 1997 1-2
Consolidated Statements of Operations for the
Three and Nine Months Ended June 30, 1998 and 1997 3-4
Consolidated Statements of Stockholders' Equity
For the Nine Months Ended June 30, 1998 5
Consolidated Statements of Cash Flows for the Nine Months
Ended June 30, 1998 and 1997 6
Notes to the Consolidated Financial Statements 7-16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 17-24
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 25
ITEM 2. CHANGES IN SECURITIES 25-26
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 27-28
SIGNATURES 29
- ---------------------
*The accompanying interim financial statements have not been audited by an
independent certified public accountant. Only those statements corresponding to
a fiscal year-end (September 30) are audited.
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RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND SEPTEMBER 30, 1997
(THOUSANDS OF DOLLARS)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, 1998 SEPTEMBER 30, 1997
------------- ------------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 2,232 $ 746
Accounts receivable, net 37,422 8,820
Inventories 23,575 4,183
Deferred income taxes - 810
Prepaid expenses and other 2,698 445
-------- -------
Total Current Assets 65,927 15,004
-------- -------
PROPERTY, PLANT AND EQUIPMENT, NET 174,645 33,227
-------- -------
OTHER ASSETS:
Notes receivable, related party 1,525 85
Deferred income taxes - 585
Goodwill, net of amortization 66,613 2,749
Other assets, net of amortization 15,106 3,429
-------- -------
Total Other Assets 83,244 6,848
-------- -------
TOTAL ASSETS $323,816 $55,079
-------- -------
-------- -------
</TABLE>
See Accompanying Notes to the Consolidated Financial Statements
1
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RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND SEPTEMBER 30, 1997
(THOUSANDS OF DOLLARS)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30, 1998 SEPTEMBER 30, 1997
------------- ------------------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 3,277 $ 3,300
Accounts payable 9,779 2,661
Accounts payable - related parties - 438
Other current liabilities 4,584 1,049
-------- --------
Total Current Liabilities 17,640 7,448
-------- --------
LONG-TERM LIABILITIES:
Long-term debt, less current maturities 218,053 29,456
Deferred tax liability 816 -
Other long-term liabilities 10,197 -
-------- --------
Total long-term liabilities 229,066 29,456
-------- --------
Total Liabilities 246,706 36,904
-------- --------
COMMITMENTS AND CONTINGENT LIABILITIES
Redeemable common stock, $.001 par value,
363,636 shares issued and outstanding 1,500 1,500
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, no par value, 10,000,000
shares authorized, 34,995 and 10,000 shares
issued and outstanding 9,752 500
Common Stock ($.001 par value), 50,000,000
shares authorized, 22,634,938 and
14,149,780 shares issued and outstanding 22 14
Additional paid-in capital 78,119 26,846
Accumulated deficit (12,283) (10,685)
-------- --------
Total Stockholders' Equity 75,610 16,675
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $323,816 $ 55,079
-------- --------
-------- --------
</TABLE>
See Accompanying Notes to the Consolidated Financial Statements
2
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RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 AND 1997
(THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
<S> <C>
Net sales $73,742 $17,056
Cost of sales and operating expenses 62,740 14,634
---------- ----------
Gross profit 11,002 2,422
Selling, general and administrative expenses 5,088 1,305
---------- ----------
Operating income 5,914 1,117
---------- ----------
Other income (expense):
Interest expense (5,926) (645)
Miscellaneous 48 23
---------- ----------
Total other income (expense) (5,878) (622)
---------- ----------
Earnings before income taxes 36 495
Benefit (provision) for income taxes (14) 300
---------- ----------
Net earnings 22 795
Preferred stock dividends 10 72
---------- ----------
Net earnings available to common shareholders $ 12 $ 723
---------- ----------
---------- ----------
Earnings per share:
Basic earnings per common share $ 0.00 $ 0.05
---------- ----------
---------- ----------
Weighted average common shares outstanding 20,883,000 13,903,000
---------- ----------
---------- ----------
Diluted earnings per common share $ 0.00 $ 0.04
---------- ----------
---------- ----------
Weighted average diluted common shares outstanding 31,489,000 16,220,000
---------- ----------
---------- ----------
</TABLE>
See Accompanying Notes to the Consolidated Financial Statements
3
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RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1998 AND 1997
(THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
<S> <C> <C>
Net sales $174,859 $40,558
Cost of sales and operating expenses 148,493 34,447
---------- ----------
Gross profit 26,366 6,111
Selling, general and administrative expenses 11,981 3,968
---------- ----------
Operating income 14,385 2,143
---------- ----------
Other income (expense):
Interest expense (12,959) (1,534)
Miscellaneous (103) 57
---------- ----------
Total other income (expense) (13,062) (1,477)
---------- ----------
Earnings before income taxes and extraordinary loss 1,323 666
Benefit (provision) for income taxes (507) 595
---------- ----------
Earnings before extraordinary loss 816 1,261
Extraordinary (loss) on early extinguishment of debt,
net of tax (2,414) -
---------- ----------
Net earnings (loss) (1,598) 1,261
Preferred stock dividends 369 353
---------- ----------
Net earnings (loss) available to common shareholders $ (1,967) $ 908
---------- ----------
---------- ----------
Earnings (loss) per share:
Basic earnings (loss) per share:
Before extraordinary item $ 0.02 $ 0.07
Extraordinary item (0.13) -
---------- ----------
Basic earnings (loss) per common share $ (0.11) $ 0.07
---------- ----------
---------- ----------
Weighted average common shares outstanding 18,115,000 13,859,000
---------- ----------
---------- ----------
Diluted earnings (loss) per common share:
Before extraordinary item $ 0.02 $ 0.06
Extraordinary item (0.09) -
---------- ---------
Diluted earnings (loss) per common share $ (0.07) $ 0.06
---------- ----------
---------- ----------
Weighted average diluted common shares outstanding 27,238,000 14,521,000
---------- ----------
---------- ----------
</TABLE>
See Accompanying Notes to the Consolidated Financial Statements
4
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RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED JUNE 30, 1998
(THOUSANDS OF DOLLARS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED STOCK COMMON STOCK PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
------ -------- ---------- -------- ------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, September 30,1997 10,000 $ 500 14,149,780 $ 14 $26,846 $(10,685) $16,675
Preferred stock issued for
acquisitions 67,073 23,007 - - - - 23,007
Preferred stock converted
to common stock, net of
issuance costs (42,078) (13,755) 926,659 1 13,654 - (100)
Common stock issued for
acquisitions, net of
issuance costs - - 1,484,983 2 14,328 - 14,330
Common stock issued for
cash, net of issuance
costs - - 1,666,666 2 9,724 - 9,726
Common stock issued on
exercise of options and
warrants, net of issuance
costs - - 4,406,850 3 4,929 - 4,932
Issuance of warrants in
connection with debt
financing - - - - 9,007 - 9,007
Preferred stock dividends - - - - (369) - (369)
Net (loss) - - - - - (1,598) (1,598)
------ -------- ---------- ----- ------- -------- -------
Balances, June 30, 1998 34,995 $ 9,752 22,634,938 $ 22 $78,119 $(12,283) $75,610
------ -------- ---------- ----- ------- -------- -------
------ -------- ---------- ----- ------- -------- -------
</TABLE>
See Accompanying Notes to the Consolidated Financial Statements
5
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JUNE 30, 1998 AND 1997
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings (loss) $ (1,598) $ 1,261
Adjustments to reconcile net earnings
(loss) to net cash used in
operating activities:
Depreciation and amortization 6,055 1,777
Prepaid loan fees 1,212 -
Non-operating activities 2,532 -
Deferred income taxes (789) (595)
Changes in assets and liabilities, net of the
effect of business acquisitions:
Accounts receivable (5,186) (3,082)
Inventories (7,301) (1,357)
Prepaid expenses and other (2,510) (10)
Accounts payable 3,869 417
Current liabilities, excluding debt 1,277 (4)
-------- --------
Net cash used in operating activities (2,439) (1,593)
-------- --------
INVESTING ACTIVITIES:
Capital expenditures, net (4,467) (2,313)
Note receivable, related party (1,440) -
Other assets (6,480) (1,649)
Acquisitions, net of equity issued (184,690) (11,200)
Cash acquired in acquisitions 3,083 -
-------- --------
Net cash used in investing activities (193,994) (15,162)
-------- --------
FINANCING ACTIVITIES:
Proceeds from borrowings 230,329 23,560
Principal payments on borrowings (35,408) (7,339)
Other long-term liabilities 1,619 -
Prepayment penalty on debt (2,532) -
Loan fees paid (10,717) -
Dividends paid (30) (353)
Net proceeds from issuance of stock 14,658 1,025
Redemption of preferred stock - (1,000)
Common stock repurchased - (119)
-------- --------
Net cash provided by financing activities 197,919 15,774
-------- --------
Increase (decrease) in cash 1,486 (981)
Cash, beginning of period 746 1,450
-------- --------
Cash, end of period $ 2,232 $ 469
-------- --------
-------- --------
</TABLE>
See Accompanying Notes to the Consolidated Financial Statements
6
<PAGE>
RECYCLING INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
GENERAL INFORMATION:
I.
The consolidated financial statements included herein have been prepared by the
Company without audit except the September 30, 1997 balance sheet, which was
audited. The statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission and reflect all
adjustments, consisting of only normal recurring accruals which are, in the
opinion of management, necessary for a fair statement of the results of
operations for the periods shown. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's latest report on Form 10-K/A, dated September 30, 1997.
II.
The results of operations for the three and nine months ended June 30, 1998 and
1997 are not necessarily indicative of the results to be expected for the full
year.
III.
Inventories as of June 30, 1998 and September 30, 1997, consisted of the
following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
JUNE 30, 1998 SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Raw Materials $ 14,491 $ 2,590
Finished Goods 9,027 1,330
Other 57 263
- --------------------------------------------------------------------------------
Total $ 23,575 $ 4,183
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
IV. RECENT ACQUISITIONS
The following acquisitions were accounted for using the purchase method of
accounting. The results of operations of the businesses acquired have been
included in the Company's consolidated financial statements since the date of
acquisition.
The purchase price allocations for the May 1998 and December 1997 acquisitions
are preliminary and subject to the completion of appraisals and environmental
studies. In addition, certain working capital accounts are subject to post-
closing adjustments pursuant to the purchase agreements.
MCKINNEY SMELTING, INC.
On May 29, 1998, a wholly-owned subsidiary of the Company completed the
acquisition of substantially all of the assets of McKinney Smelting, Inc.
("McKinney"), with operations in the McKinney, Texas area. The assets acquired
from McKinney consist of heavy equipment, tools and
7
<PAGE>
rolling stock used in the business of recycling ferrous and non-ferrous
metals. The total purchase price for McKinney was $2.9 million in cash.
FEREX CORPORATION
On May 28, 1998, the Company acquired all of the capital stock of Ferex
Corporation ("Ferex"), headquartered in Tyler, Texas. Ferex is a metals
recycler and auto crusher with operations in Arkansas, Oklahoma and Texas.
Ferex operates 16 facilities, a scrap brokering business, six mobile auto
crushing units that operate in a six state geographic region, one non-ferrous
shredder and one non-ferrous wire chopper operation. The total aggregate
purchase price for Ferex was $46.3 million, comprised of $28.9 million in
cash, 556,944 shares of the Company's common stock, $0.001 par value per
share ("Common Stock"), having a stated value of $6.125 per share or $3.4
million on May 28, 1998 and $14.0 million of assumed liabilities.
PEANUT CITY IRON & METAL CO., INC.
On May 28, 1998, a wholly-owned subsidiary of the Company acquired
substantially all of the scrap metals recycling assets and business of Peanut
City Iron & Metal Co., Inc. ("Peanut City"), a privately held metals recycler
with operations in the Suffolk, Virginia area. The assets acquired from Peanut
City consist of heavy equipment, tools and rolling stock used in the business
of recycling ferrous and non-ferrous metals. The Company also purchased from
Peanut City approximately three acres of real property, buildings and
improvements used in the metals recycling business. The total purchase price
for Peanut City was $3.4 million, comprised of $2.9 million in cash and 1,005
shares of the Company's Series J Redeemable Convertible Preferred Stock having
a stated value of $0.5 million, or $500 per share.
REPUBLIC ALLOYS, INC.
On May 22, 1998, a wholly-owned subsidiary of the Company acquired
substantially all of the scrap metals recycling assets and business of Republic
Alloys, Inc. ("Republic"), a privately held metals recycler and crane operator
with operations in the Charlotte, North Carolina area. The assets acquired
from Republic consist of heavy equipment, tools and rolling stock used in the
business of recycling ferrous and non-ferrous metals. The Company also
purchased approximately 13.5 acres of real property, buildings and improvements
used in the metals recycling business. The total purchase price for Republic
was $12.9 million, comprised of $10.2 million in cash, 5,080 shares of the
Company's Series K Redeemable Convertible Preferred Stock having a stated value
of $2.5 million, or $500 per share, and 30,000 shares of the Company's Common
Stock, $.001 par value per share, having a stated value of $0.2 million, or
$5.62 per share.
PRO RECYCLING, L.L.C.
On May 22, 1998, a wholly-owned subsidiary of the Company acquired
substantially all of the scrap metals recycling assets and business of Pro
Recycling, L.L.C. ("Pro Recycling"), a privately-held metals recycler with
operations in the Milwaukee, Wisconsin area. The assets acquired from Pro
Recycling consist primarily of heavy equipment, tools and rolling stock used
in the business of recycling ferrous and non-ferrous metals. Also as part of
the transaction the Company also purchased from Lewinsky Iron and Metal and
AA Investment three separate parcels of real property, buildings and
improvements used in the metals recycling business of Pro Recycling. The
total purchase price for Pro Recycling was $3.0 million, comprised of $2.5
million of cash and 1,030 shares of the Company's Series M Redeemable
Convertible Preferred Stock valued at $0.5 million, or $500 per share.
8
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C&J CRUSHING, INC.
On May 21, 1998, a wholly-owned subsidiary of the Company acquired
substantially all of the scrap metals recycling assets and business of C&J
Crushing, Inc. ("C&J Crushing"), a privately held metals recycler with
operations in the Landis, North Carolina area. The assets acquired from C&J
Crushing consist primarily of heavy equipment, tools and rolling stock used
in the business of recycling ferrous and non-ferrous metals. The Company
also purchased from C&J Crushing approximately 3.5 acres of real property,
buildings and improvements used in the metals recycling business. The total
purchase price for C&J Crushing was $1.5 million, comprised of $1.2 million
of cash and 580 shares of the Company's Series L Redeemable Convertible
Preferred Stock valued at $0.3 million, or $500 per share.
WM. LANS SONS' CO., INC.
On December 8, 1997, the Company 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 Company also purchased from an affiliate of Lans
certain real property, buildings and leasehold improvements used in the
metals recycling business. The total adjusted purchase price for Lans was
$25.2 million, comprised of $22.0 million of cash and 9,072 shares of the
Company's Series I 8% Redeemable Convertible Preferred Stock (the "Series I
Preferred") having a stated value of $3.2 million.
Effective April 1, 1998, the Company and the holders of its Series I Preferred
(the "Series I Holders") agreed to convert 5,772 shares of Series I Preferred
plus accrued dividends through March 31, 1998 into 169,905 shares of Common
Stock. In addition, the Series I Holders agreed to amend the terms of the
Series I Preferred to eliminate all dividends thereon effective April 1, 1998.
If on December 8, 1999, the aggregate value of the shares of Common Stock
issued upon conversion of the Series I Preferred is less than $2,549,000, the
Company will issue to the Series I Holders additional shares of Common Stock
at the then market price such that the Series I Holders will hold shares of
Common Stock having an aggregate value of $2,549,000.
BRENNER COMPANIES, INC.
On December 5, 1997, a wholly-owned subsidiary of the Company acquired
substantially all of the scrap metals recycling assets and business of 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 Company 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
$23.8 million, comprised of $15.7 million of cash, 14,000 shares of the
Company's Series F 6.5% Redeemable Convertible Preferred Stock (the "Series F
Preferred") having a stated value of $3.5 million, 14,000 shares of the
Company's Series G 6.5% Redeemable Convertible Preferred Stock (the "Series G
Preferred") having a stated value of $3.5 million and the assumption of $1.1
million of Brenner's deferred compensation liabilities.
9
<PAGE>
Effective April 1, 1998, the Company and the holders of its Series F Preferred
(the "Series F Holders") agreed to convert 11,000 shares of Series F Preferred
plus accrued dividends through March 31, 1998 into 189,834 shares of Common
Stock. In addition, the Series F Holders agreed to amend the terms of the
Series F Preferred to eliminate all dividends thereon effective April 1, 1998.
If, on December 5, 2000, the aggregate value of the shares of Common Stock
issued upon conversion of the Series F Preferred is less than $3,417,012, the
Company will issue to the Series F Holders additional shares of Common Stock
at the then market price such that the Series F Holders will hold shares of
Common Stock having an aggregate value of $3,417,012.
Effective April 1, 1998, the Company and the holders of its Series G Preferred
(the "Series G Holders") agreed to convert all outstanding shares of Series G
Preferred plus accrued dividends through March 31, 1998 into 234,465 shares of
Common Stock.
If on December 5, 2000, the aggregate value of the shares of Common Stock
issued upon conversion of the Series G Preferred is less than $4,220,370, the
Company will issue to the Series G Holders additional shares of Common Stock
at the then market price such that the Series G Holders will hold shares of
Common Stock having an aggregate value of $4,220,370.
GROSSMAN BROTHERS COMPANY AND MILWAUKEE METAL BRIQUETTING CO., INC.
On December 5, 1997, a wholly owned subsidiary of the Company 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 consisted of
heavy equipment, tools and rolling stock used in the business of recycling
ferrous and non-ferrous metals. The Company is leasing, pursuant to a capital
lease with an option to purchase, the real property, buildings and leasehold
improvements used in the metals recycling business acquired from Grossman. The
total purchase price for Grossman was $7.4 million, comprised of $3.7 million
of cash, a capital lease with a present value of $2.7 million, 98,000 shares
of Common Stock valued at $0.7 million which will be held in escrow during
the lease term, and the assumption of $0.3 million of Grossman's liabilities.
CENTRAL METALS COMPANY, INC.
On December 5, 1997, a wholly owned subsidiary of the Company 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 Company until Central can provide clear
title to these assets, at which time the Company will complete the purchase of
the real property and buildings. The Company is leasing certain equipment used
in the metals recycling business from an affiliate of Central. The total
purchase price for Central was $31.0 million, comprised of $20.7 million of
cash and 800,000 shares of Common Stock, having an agreed value of $12.50 per
share or $10 million. The Company also assumed $0.3 million of Central's
liabilities.
The Company has guaranteed that the aggregate market value of the 800,000
shares of Common Stock issued to Central will be at least $10 million on
December 4, 1999. If the market value of the Common Stock is less than $10
million, the Company will issue shares of Common Stock to Central having a
market value equal to the difference between $10 million and the market value
of the 800,000 shares of Common Stock initially issued to Central.
10
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In connection with the acquisition, Central was issued warrants to acquire up
to 200,000 shares of the Company's Common Stock for $15.00 per share,
exercisable upon satisfaction of certain financial performance conditions
related to the operations of the acquired subsidiary (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
million. The value of the Contingent Warrants will be reflected as an
adjustment to the purchase price, as an increase in goodwill, when the
financial performance conditions are met by Central.
MONEY POINT LAND HOLDING CORPORATION AND MONEY POINT DIAMOND CORPORATION
On December 5, 1997, a wholly owned subsidiary of the Company acquired
substantially all of the scrap metals recycling assets and business of Money
Point Land Holding Corporation and Money Point Diamond Corporation
(collectively "Jacobson"). Jacobson was a privately held metals recycler with
operations in the Chesapeake, Virginia area. The assets acquired from Jacobson
consist of heavy equipment, tools and rolling stock used in the business of
recycling ferrous and non-ferrous metals.
The Company also purchased from Jacobson certain real property, buildings and
leasehold improvements used in the metals recycling business. The total
purchase price for Jacobson was $19.9 million, comprised of $16.9 million of
cash and 10,000 shares of the Company's Series E Redeemable Convertible
Preferred Stock (the "Series E Preferred") having a stated value of $3.0
million.
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
$3.0 million. Unless Jacobson elects to retain the shares of Common Stock
received upon conversion of the Series E Preferred (the "Series E Conversion
Shares"), the Company will assist Jacobson 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 Company will pay the
difference to Jacobson.
UNITED METAL RECYCLERS, INC.
On December 5, 1997, a wholly owned subsidiary of the Company 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 Company 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 Smithfield, North Carolina area. The total purchase
price for the United assets and United's 50% interest in D.H. Griffin was $42.0
million, comprised of $36.0 million of cash, 11,378 shares of the Company's
Series H 6% Secured Redeemable Convertible Preferred Stock having a stated
value of $5.7 million and the assumption of $0.3 million of United's
liabilities.
Effective April 1, 1998, the Company and the holders of its Series H Preferred
(the "Series H Holders") agreed to convert 10,379 shares of Series H Preferred
plus accrued dividends through March 31, 1998 into 344,683 shares of Common
Stock. In addition, the Series H Holders agreed to amend the terms of the
Series H Preferred to eliminate all dividends thereon effective April 1, 1998.
If on December 5, 2000, the aggregate value of the shares of Common Stock
issued upon conversion of the Series H Preferred is less than $6,287,916, the
Company will issue to the Series H Holders additional shares of Common Stock
at the then market price such that the Series H Holders will hold shares of
Common Stock having an aggregate value of $6,287,916
11
<PAGE>
UNITED METAL - D. H. GRIFFIN RECYCLERS L.L.C.
On April 15, 1998, the Company acquired for approximately $8.0 million the
remaining 50% interest of United Metal - D. H. Griffin Recyclers L.L.C. ("D. H.
Griffin") located in Smithfield, North Carolina. The purchase price was
financed with proceeds from the Company's acquisition line of credit. The
initial 50% interest was acquired in December 1997 as part of the Company's
acquisition of United Metal Recyclers. The Company will continue the metals
recycling operations of D. H. Griffin.
On December 5, 1997, in connection with the acquisitions referred to above, the
Company and all of its operating subsidiaries entered into a $150 million
Senior Credit Facility ("Credit Facility") with General Electric Capital
Corporation and BankBoston, N.A. as agents for the lenders. The Credit Facility
is comprised of a $45 million revolving credit facility, a $40 million term
loan due December 5, 2003, with interest and principal payable quarterly, 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 with interest and
principal payable quarterly, and a $25 million acquisition line of credit due
December 5, 2003, with interest and principal payable quarterly. The notes
bear interest at either (i) the higher of (a) prime plus .75% or (b) the
Federal Funds rate plus 50 basis points per annum plus .75%, or (ii) at the
option of the Company upon certain conditions, the LIBOR rate plus 2.25%. The
proceeds from the Credit Facility are secured by substantially all of the
Company's assets and are to be used in part for acquisitions.
On May 29, 1998, and December 5, 1997, in connection with the acquisitions
referred to above, the Company issued $50 million and $60 million,
respectively, in Senior Subordinated Notes (the "Subordinated Debt"), the
proceeds of which were used in part for acquisitions. The Subordinated Debt is
guaranteed by all of the Company's operating subsidiaries. The Subordinated
Debt bears interest at 13% and matures in December 2005.
In connection with the Credit Facility and the issuance of the Subordinated
Debt, 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. The $10
million in proceeds were used in part for acquisitions.
The Company issued warrants to acquire up to 1,266,000 shares of Common Stock
in connection with the issuance of the Subordinated Debt. The exercise price
of the warrants is $0.01 per share. Additionally, warrants were issued to
acquire 200,000 shares of Common Stock with an exercise price of $2.50 per
share as part of entering into the Credit Facility. For accounting purposes
the fair value of the warrants have been recorded as paid-in-capital and as a
discount to the respective debt which is amortized as interest expense over the
life of the debt.
12
<PAGE>
The following summarized unaudited pro forma results of operations assumes
that the acquisitions of McKinney, Ferex, Peanut City, Republic, Pro
Recycling, C&J Crushing, Lans, Brenner, Grossman, Central, Jacobson, United,
and, D.H. Griffin had occurred at the beginning of each period presented.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NINE MONTHS ENDED JUNE 30, 1998 1997
- --------------------------------------------------------------------------------
(THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Net sales $261,000 $211,809
Depreciation and amortization 9,224 7,109
Operating income 23,563 18,867
Earnings before income taxes and extraordinary loss 3,875 6,589
Provision for income taxes 1,763 3,030
Extraordinary (loss) on early extinguishment of debt,
net of tax (2,414) (2,414)
Net earnings (loss) (302) 1,145
Preferred stock dividends 566 1,177
Net loss available to common shareholders $ (868) $(32)
---------- ----------
---------- ----------
Basic earnings (loss) per common share:
Earnings before extraordinary item $ 0.07 $ 0.14
Extraordinary item (0.11) (0.14)
---------- ----------
Basic earnings (loss) per common share $ (0.04) $ 0.00
---------- ----------
---------- ----------
Weighted average number of common shares outstanding 21,267,000 17,011,000
---------- ----------
---------- ----------
Diluted earnings (loss) per common share (2):
Earnings before extraordinary item $ 0.05 $ 0.09
Extraordinary item (0.08) (0.09)
---------- ----------
Diluted earnings (loss) per common share $ (0.03) $ 0.00
---------- ----------
---------- ----------
Weighted average number of common shares outstanding 31,424,000 25,502,000
---------- ----------
---------- ----------
EBITDA (1) $ 32,787 $ 25,976
---------- ----------
---------- ----------
- --------------------------------------------------------------------------------
</TABLE>
(1) "EBITDA" represents, for any period, operating income before interest
expense, income taxes, depreciation and amortization. EBITDA is
presented because it is a widely accepted financial indicator of a
company's ability to service and/or incur indebtedness. Management
believes that presentation of EBITDA is helpful to investors. However,
EBITDA should not be considered as an alternative to net income as a
measure of the Company's operating results or cash flows as a measure of
liquidity. In addition, although the EBITDA measure of performance is
not recognized under generally accepted accounting principles, it is
widely used by industrial companies as a general measure of a company's
operating performance because it assists in comparing performance on a
relatively consistent basis across companies without regard to
depreciation and amortization, which can vary significantly depending on
accounting methods (particularly where acquisitions are involved) or
non-operating factors such as historical cost bases. Because EBITDA is
not calculated identically by all companies, the presentation herein may
not be comparable to other similarly titled measures of other companies.
13
<PAGE>
(2) Potentially dilutive issues not included in the computation of pro forma
diluted earnings per common share:
For the nine months ended June 30, 1998, warrants and options to acquire
439,937 shares of common stock, at exercise prices of $6.25 to $75.00 per
share, were not included in the computation of diluted EPS because the
warrants' and options' exercise prices were greater than the average
market price of the common shares. Preferred shares convertible into
2,125,319 common shares, at various conversion rates, were not included in
the computation of diluted EPS as the effect would be anti-dilutive.
For the nine months ended June 30, 1997, warrants and options to acquire
5,169,898 shares of common stock at exercise prices of $1.50 to $75.00 per
share were not included in the computation of diluted EPS because the
warrants' and options' exercise prices were greater than the average market
price of the common shares. Preferred shares convertible into 5,899,237
common shares, at various conversion rates, were not included in the
computation of diluted EPS as the effect would be anti-dilutive.
The pro forma data is for informational purposes only and may not necessarily
reflect the results of operations of the Company had the acquired businesses
operated as part of the Company for the periods ended June 30, 1998 and 1997
nor are they indicative of the results of future operations.
14
<PAGE>
V. SUPPLEMENTAL DISCLOSURES FOR EARNINGS (LOSS) PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
(THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS) 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BASIC EARNINGS (LOSS) PER COMMON SHARE:
NUMERATOR
Earnings before extraordinary (loss) $ 22 $ 795 $ 816 $1,261
Preferred stock dividends (10) (72) (369) (353)
---------- ---------- ---------- ----------
Earnings before extraordinary (loss) on early
extinguishment of debt available to common
shareholders 12 723 447 908
Extraordinary (loss) on early extinguishment of debt - - (2,414) -
---------- ---------- ---------- ----------
Net earnings (loss) available to common shareholders $ 12 $ 723 $(1,967) $ 908
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
DENOMINATOR
Weighted average common shares outstanding 20,883,000 13,903,000 18,115,000 13,859,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
PER SHARE AMOUNTS
Basic earnings before extraordinary (loss) on early
extinguishment of debt $0.00 $0.05 $ 0.02 $ 0.07
Extraordinary (loss) on early extinguishment of debt - - (0.13) -
---------- ---------- ---------- ----------
Basic earnings (loss) $0.00 $0.05 $ (0.11) $ 0.07
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
DILUTED EARNINGS (LOSS) PER COMMON SHARE:
NUMERATOR
Earnings before extraordinary (loss) on early
extinguishment of debt available to common
shareholders $ 12 $ 723 $ 447 $ 908
Effect of dilutive securities:
Interest on convertible notes - 15 - -
Dividends on convertible preferred stock - 9 - -
---------- ---------- ---------- ----------
Earnings before extraordinary (loss) on early
extinguishment of debt available to common
shareholders and assumed conversions 12 747 447 908
Extraordinary (loss) on early extinguishment of debt - - (2,414) -
---------- ---------- ---------- ----------
Net earnings (loss) available to common
shareholders and assumed conversions
outstanding $ 12 $ 747 $(1,967) $ 908
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
DENOMINATOR
Weighted average common shares outstanding 20,883,000 13,903,000 18,115,000 13,859,000
Effect of dilutive securities:
Options and warrants 6,841,000 1,678,000 7,413,000 662,000
Convertible notes - 327,000 - -
Convertible preferred stock outstanding 950,000 312,000 378,000 -
Contingent shares - preferred stock 1,913,000 - 638,000 -
Contingent shares - common stock 902,000 - 694,000 -
---------- ---------- ---------- ----------
Weighted average common shares and
assumed conversions outstanding 31,489,000 16,220,000 27,238,000 14,521,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
PER SHARE AMOUNTS
Diluted earnings before extraordinary (loss) on
early extinguishment of debt $0.00 $0.05 $ 0.02 $ 0.06
Extraordinary (loss) on early extinguishment of debt - - (0.09) -
---------- ---------- ---------- ----------
Diluted earnings (loss) $0.00 $0.05 $ (0.07) $ 0.06
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
15
<PAGE>
Potentially dilutive issues not included in the computation of diluted earnings
per common share:
For the three and nine months ended June 30, 1998, warrants and options to
acquire 439,937 shares of common stock, at exercise prices of $6.25 to $75.00
per share, were not included in the computation of diluted EPS because the
warrants' and options' exercise prices were greater than the average market
price of the common shares. Preferred shares convertible into 88,005 and
1,068,402 common shares, respectively, for the three and nine months ended June
30, 1998, at various conversion rates, were not included in the computation of
diluted EPS as the effect would be anti-dilutive.
For the three and nine months ended June 30, 1997, warrants and options to
acquire 5,169,898 shares of common stock at exercise prices of $2.00 to $75.00
per share were not included in the computation of diluted EPS because the
warrants' and options' exercise prices were greater than the average market
price of the common shares. Preferred shares convertible into 628,319 and
602,316 common shares, respectively, for the three and nine months ended June
30, 1997 were not included in the computation of diluted EPS as the effect
would be anti-dilutive. Notes convertible into 153,113 and 160,118 shares,
respectively, for the three and nine months ended June 30, 1997 were not
included in the computation of diluted EPS as the effect would be anti-
dilutive.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ALL STATEMENTS CONTAINED HEREIN, AS WELL AS STATEMENTS MADE IN PRESS RELEASES
AND ORAL STATEMENTS THAT MAY BE MADE BY THE COMPANY OR ITS OFFICERS, DIRECTORS,
OR EMPLOYEES ACTING ON ITS BEHALF, THAT ARE NOT STATEMENTS OF HISTORICAL FACT
CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF
THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. SUCH FORWARD-LOOKING
STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS
THAT COULD CAUSE THE ACTUAL RESULTS OF THE COMPANY TO BE MATERIALLY DIFFERENT
FROM HISTORICAL RESULTS OR FROM ANY FUTURE RESULTS EXPRESSED OR IMPLIED BY
SUCH FORWARD-LOOKING STATEMENTS AND RISK FACTORS DESCRIBED FROM TIME TO TIME
IN THE COMPANY'S REPORTS FILED WITH THE COMMISSION. IN ADDITION TO STATEMENTS
THAT EXPLICITLY DESCRIBE SUCH RISKS AND UNCERTAINTIES, READERS ARE URGED TO
CONSIDER STATEMENTS THAT INCLUDE THE TERMS "BELIEVES," "BELIEF," "EXPECTS,"
"PLANS," "ANTICIPATES," "INTENDS" OR THE LIKE TO BE UNCERTAIN AND
FORWARD-LOOKING. ALL CAUTIONARY STATEMENTS MADE HEREIN SHOULD BE READ AS
BEING APPLICABLE TO ALL FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR.
GENERAL
The largest portion of the Company's operations involves the collection,
processing and sale of ferrous scrap, the primary raw material for mini-mill
steel producers who utilize Electric Arc Furnace technology. The Company's
operations consist of purchasing and processing unprepared scrap and selling
processed scrap. Scrap is categorized as either ferrous, containing iron and
consisting primarily of steel, or non-ferrous. Ferrous scrap is generated in
two forms consisting of prompt industrial scrap and old scrap. Prompt
industrial scrap is the material left over from manufacturing processes that
use steel, such as automobile and appliance manufacturing. Old scrap
includes obsolete or broken goods consisting of automobiles, refrigerators
and other consumer and industrial steel goods. The Company purchases
unprepared scrap primarily from automobile salvage and wrecking yards,
demolition firms, ordinance depots, military bases, public utilities,
industrial facilities, metal fabricators, machine shops, railroads,
refineries, shipyards and numerous independent scrap collectors. Unprepared
scrap is processed for resale by resorting, cleaning, shearing and shredding
by a variety of methods according to customer specifications and market
demand. The Company sells its processed ferrous scrap to mini-mill steel
producers, integrated steel producers, foundries and brokers.
The Company has completed several acquisitions, each of which was financed in
part by borrowings and the issuance of common and/or preferred stock. See
"Recent Acquisitions." The acquisitions have been accounted for using the
purchase method of accounting and the operating results of the entities have
been included in the Company's consolidated financial statements since the date
of acquisition. Management believes these acquisitions will have a positive
impact on the Company's future results of operations and that the historical
results of operations of the acquired companies do not reflect the operating
efficiencies and improvements that the Company seeks to achieve by integrating
the acquired businesses into the Company's operations. The Company plans to
integrate certain functions such as administration, finance and information
systems which may be duplicated at certain newly acquired companies. If there
are downturns in the markets for the Company's products or if the Company is
unable to successfully integrate acquired operations and realize operating
efficiencies, the Company's operating results will be adversely affected.
The principal elements of the Company's cost of sales are raw materials, direct
labor and manufacturing overhead. The Company seeks to partially offset
fluctuations in raw material costs by entering into long-term supply
arrangements with certain customers, none of which is material to the Company's
operations. The Company purchases and processes many different grades of
ferrous and non-ferrous material with varying gross margins. Accordingly, the
Company's overall gross margin is impacted by its material mix, raw material
costs and its ability to efficiently process various ferrous and non-ferrous
materials.
17
<PAGE>
The following table sets forth selected statement of income data as a
percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
STATEMENT OF OPERATIONS DATA: JUNE 30, JUNE 30,
- -------------------------------------------------------------------------------------
1998 1997 1998 1997
---------------- -----------------
<S> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales and operating expenses 85.1 85.8 84.9 84.9
---------------- -----------------
Gross profit 14.9 14.2 15.1 15.1
Selling, general and administrative expenses 6.9 7.6 6.9 9.8
---------------- -----------------
Operating income 8.0 6.6 8.2 5.3
Interest expense and other 8.0 3.7 7.4 3.7
---------------- -----------------
Earnings before income taxes and
extraordinary(loss) 0.0 2.9 0.8 1.6
Income tax benefit (provision) 0.0 1.8 (0.3) 1.5
Extraordinary (loss) on settlement of debt -- -- (1.4) --
---------------- -----------------
Net earnings (loss) 0.0% 4.7% (0.9)% 3.1%
---------------- -----------------
---------------- -----------------
EBITDA (1) 11.4% 10.6% 11.6% 9.6%
---------------- -----------------
</TABLE>
(1) "EBITDA" represents, for any period, operating income before interest
expense, income taxes, depreciation and amortization. EBITDA is
presented because it is a widely accepted financial indicator of a
company's ability to service and/or incur indebtedness. Management
believes that presentation of EBITDA is helpful to investors. However,
EBITDA should not be considered as an alternative to net income as a
measure of the Company's operating results or cash flows as a measure of
liquidity. In addition, although the EBITDA measure of performance is
not recognized under generally accepted accounting principles, it is
widely used by industrial companies as a general measure of a company's
operating performance because it assists in comparing performance on a
relatively consistent basis across companies without regard to
depreciation and amortization, which can vary significantly depending on
accounting methods (particularly where acquisitions are involved) or
non-operating factors such as historical cost bases. Because EBITDA is
not calculated identically by all companies, the presentation herein may
not be comparable to other similarly titled measures of other companies.
RECENT ACQUISITIONS
Since September 30, 1997, the Company directly or indirectly, through its
subsidiaries, has consummated 13 acquisitions (the "Recent Acquisitions") for
an aggregate purchase price of approximately $228 million. As the Recent
Acquisitions were accounted for using the purchase method of accounting, the
purchase price was allocated to the acquired assets at their estimated fair
value. The purchase price allocation for the Recent Acquisitions is
preliminary and is subject to the completion of appraisals and environmental
studies. In addition, certain working capital accounts are subject to post-
closing adjustments pursuant to the purchase agreements. The Recent
Acquisitions were financed in part with proceeds generated in May 1998 and
December 1997 from the Credit Facility, the sale of Subordinated Debt and
proceeds from the sale of the Company's Common Stock to various accredited
investors in connection with the Credit Facility. The acquisitions were also
financed in part from the issuance of the Company's Preferred and Common Stock
to the owners of the acquired facilities.
RESULTS OF OPERATIONS
The Company's operating results depend in large part on its ability to
effectively manage the purchase, processing and sale of scrap metals. The
demand for processed ferrous and non-ferrous scrap is subject to general
economic, industry and market-specific conditions beyond the Company's control,
which may result in periodic fluctuations in the sales prices of the Company's
products. The Company seeks
18
<PAGE>
to maintain its operating margins by adjusting the purchase price for raw
ferrous and non-ferrous scrap in response to such fluctuations, subject to
local market conditions. Although the Company is unable to hedge against
changes in ferrous market prices, it seeks to minimize this risk by
maintaining low inventory levels of raw and processed scrap.
The results of operations for the three and nine months ended June 30, 1998 and
1997 have been driven primarily by the Company's acquisition activity.
NET SALES. Net sales for the three and nine months ended June 30, 1998, were
$73.7 million and $174.9 million, respectively. This is an increase of $56.7
million, or 332% and $134.3 million, or 331%, respectively, compared to the
same periods one year earlier. The increase was primarily related to
increased processing capacity resulting from the acquisition of Addlestone
International Corporation's Georgetown, South Carolina facility ("AIC") on
June 26, 1997, the acquisition of Lans, Brenner, Grossman, Central, Jacobson,
and United, in December 1997, and the acquisition of McKinney, Ferex, Peanut
City, Republic, Pro Recycling, and C&J Crushing during May, 1998. Total tons
processed of ferrous material for the three and nine months ended June 30,
1998 increased by approximately 384% to 361,000 tons and 334% to 828,000
tons, respectively, as compared to the same periods one year earlier. The
increase in total ferrous tons processed for the quarter ended June 30, 1998,
as compared to the same period in 1997, was primarily related to new
acquisitions as tons processed during the quarter by facilities acquired
prior to the third quarter of fiscal 1997 were almost unchanged. The
increase in total ferrous tons processed for the nine months ended June 30,
1998, was primarily attributable to new acquisitions and a 44% increase in
tons processed by facilities acquired prior to fiscal year 1997. Total pounds
processed of non-ferrous material for the three and nine months ended June
30, 1998 increased by approximately 179% to 38,113,000 pounds and 195% to
90,197,000 pounds, respectively, as compared to the same periods one year
earlier. The increase was partially offset by a decline in pounds processed
of non-ferrous material during the three and nine month periods for
facilities acquired prior to the third quarter of fiscal 1997.
The average sales price per ton of prepared ferrous material was $131 and $136
for the three and nine month periods ended June 30, 1998, respectively, a
decrease of 2.3% and an increase of 5.3%, respectively, compared to the same
periods one year earlier. The average sales price per pound of prepared non-
ferrous material for the three and nine month periods ended June 30, 1998 was
$0.42 and $0.45, respectively, representing an increase of 10.5% and 28.6%,
respectively, compared to the same periods one year ago. The increase in the
average sales price of prepared ferrous and non-ferrous material is primarily
attributable to changes in material mix.
Net sales from brokerage activities for the three and nine month periods
ended June 30, 1998, were $3.2 million and $6.0 million, respectively, an
increase of 119% and 98.9%, respectively, compared to the same periods in
1997. The increases were primarily related to new acquisitions and increased
brokerage volume at facilities acquired prior to the third quarter of fiscal
1997.
The average sales price of ferrous and non-ferrous material for the quarter
ended June 30, 1998 declined by approximately $12.60 per ton and $0.05 per
pound, respectively, compared to the quarter ending March 31, 1998. The
decline in the average sales price of both ferrous and non-ferrous material
is a result of a current trend in the metals market. Weak demand for exports
of ferrous and non-ferrous prepared scrap as well as an increase in ferrous
scrap imports from Europe and Asia have served to reduce prices of shredded
scrap.
GROSS PROFIT. Gross profit for the three and nine months ended June 30, 1998
was $11.0 million and $26.4 million, respectively, an increase of $8.6 million
and $20.3 million, respectively, compared to the same periods one year earlier.
The increase in gross profit is principally attributable to new acquisitions.
19
<PAGE>
Gross profit margin for the three months ended June 30, 1998 was 14.9% as a
percentage of net sales compared to 14.2% for the same period in 1997. Gross
profit margin as a percentage of sales was 15.1% for the nine month period
ended June 30, 1998, unchanged as compared to the same period in 1997.
SELLING, GENERAL, AND ADMINISTRATIVE. Selling, general, and administrative
(SG&A) expenses for the three months ended June 30, 1998 increased to $5.1
million compared to $1.3 million in the same period in 1997, an increase of
$3.8 million or 290%. SG&A for the nine month period ended June 30, 1998,
increased to $12.0 million from $4.0 million in the same period in 1997, an
increase of 202%. The increase for the three and nine month periods of 1998
was primarily the result of the new acquisitions and staffing and other
related administrative expenses in anticipation of planned growth. As a
percent of net sales, SG&A declined to 6.9% for both the three and nine
months ended June 30, 1998 from 7.6% and 9.8% during the same periods in
1997. As a result of continued emphasis on productivity improvements, the
Company believes it has managed to achieve increases in net sales while
achieving significant decreases in support costs as a percentage of sales.
OPERATING INCOME. Operating income for the three month period ended June 30,
1998 increased to $5.9 million from $1.1 million in the same period in 1997,
an increase of $4.8 million or 429%. Operating income for the nine months
ended June 30, 1998 increased to $14.4 million from $2.1 million in the same
period in 1997, an increase of $12.2 million or 571%. The increase was
principally a result of the new acquisitions and continued emphasis on
productivity improvements. Declines in the average selling prices of ferrous
and non-ferrous material since March 31, 1998, have impacted and will
continue to have a negative impact on operating income for the next quarter
as metal prices continue to decline. The average purchase price of ferrous
and non-ferrous material trails the declines in the average sales price which
negatively impacts margins. At this time, management cannot assess whether
metal prices will remain at lower levels or the net effect the lower prices
will have on operating income. Management is continuously monitoring the
operations of the facilities and has implemented and continues to implement
certain cost cutting strategies in order to improve operating income without
reducing net sales.
INTEREST EXPENSE. Interest expense increased for the three months ended June
30, 1998 to $5.9 million from $0.6 million in the same period in 1997, an
increase of $5.3 million. Interest expense for the nine months ended June 30,
1998 increased to $13.0 million from $1.5 million in the same period in 1997,
an increase of $11.4 million. The increases were primarily related to
increases in long-term debt to finance the acquisition of AIC in June 1997,
Brenner, United, Jacobson, Central, Grossman and Lans in December 1997,
McKinney, Ferex, Peanut City, Republic, Pro Recycling, and C&J Crushing in
May 1998, and the amortization of transaction costs associated with the Credit
Facility and Subordinated Debt.
MISCELLANEOUS. Miscellaneous expense for the nine months ended June 30, 1998
includes $0.2 million of expense for minority interest in the earnings of a
metals recycling facility.
EARNINGS BEFORE EXTRAORDINARY (LOSS). Earnings before extraordinary (loss) for
the nine months ended June 30, 1998 were $0.8 million compared to $1.3 million
for the nine months ended June 30, 1997. During the first quarter of 1998, the
Company recorded a $2.4 million extraordinary loss net of a tax benefit from
early extinguishment of debt. The income tax benefit of $1.3 million was
recorded as an increase in the deferred tax asset. As a result of the
foregoing, the Company's net loss during the nine months ended June 30, 1998
was $1.6 million.
INCOME TAX EXPENSE. The Company recorded a $14,000 income tax provision for
the quarter ending June 30, 1998, compared to a $0.3 million income tax benefit
for the same period one year earlier. The benefit for the quarter ending June
30, 1997 resulted from the realization of net operating loss
20
<PAGE>
carry forwards. Income tax expense before the extraordinary item was $0.5
million on earnings of $1.3 million for an effective tax rate of 38% for the
nine months ended June 30, 1998.
During the quarter ended June 30, 1998, the Internal Revenue Service began an
examination of the Company's federal income tax return for the year ended
September 30, 1996.
The Company does not believe its businesses have been adversely affected by
general inflation.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
JUNE 30, 1998 SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Current ratio 3.74:1 2.01:1
Working Capital $ 48.3 $ 7.6
- --------------------------------------------------------------------------------
</TABLE>
The increased liquidity at June 30, 1998 compared to September 30, 1997 is
primarily attributable to increases in accounts receivable and inventory from
acquisitions, financed with long-term debt proceeds as discussed below.
The Company invested $4.5 million in property and equipment, not including
property and equipment acquired in business acquisitions, during the nine
months ended June 30, 1998 for expansion of the Company's ferrous and non-
ferrous processing capacity and general modernization and efficiency upgrades.
Planned capital expenditures for the remainder of fiscal 1998 for the Company's
existing facilities are estimated to be $2.0 million. Included in this amount
are capital expenditures for the Company's shredders and materials handling
equipment designed to increase capacity and improve operating efficiencies.
Management anticipates the capital expenditures will be paid with long-term
debt financing.
In December 1997, the Company and all of its operating subsidiaries entered
into a $150 million Senior Credit Facility ("Credit Facility") with General
Electric Capital Corporation and BankBoston, N.A. as agents for the lenders.
The Credit Facility is comprised of a $45 million revolving credit facility, a
$40 million term loan due December 5, 2003, with interest and principal payable
quarterly, 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 with
interest and principal payable quarterly, and a $25 million acquisition line of
credit due December 5, 2003, with interest and principal payable quarterly.
The notes bear interest at either (i) the higher of (a) prime plus .75% or (b)
the Federal Funds rate plus 50 basis points per annum plus .75%, or (ii) at the
option of the Company upon certain conditions, the LIBOR rate plus 2.25%. The
proceeds from the Credit Facility are secured by substantially all of the
Company's assets and are to be used for acquisitions, repayment of existing
indebtedness and general corporate purposes. At June 30, 1998, approximately
$14.2 million was outstanding under the $45 million revolving credit facility.
During the quarter, the Company advanced $24.3 million under the acquisition
line of credit leaving available funds under the acquisition line of $0.7
million. The proceeds from the acquisition line advance were used in part to
acquire the assets of certain companies acquired in May 1998. At June 30,
1998, the Company failed to meet certain financial ratios which resulted in a
violation to certain covenants under the Credit Facility. The failure to
meet these covenants has been waived by the lenders to the Credit Facility.
On May 29, 1998, the Company issued an additional $50 million in Senior
Subordinated Notes (the "Subordinated Debt") increasing the $60 million in
Subordinated Debt issued in December, 1997, to
21
<PAGE>
$110 million. The proceeds were used for acquisitions, repayment of existing
indebtedness and general corporate purposes. The Subordinated debt bears
interest at 13%, matures in December, 2005, and is guaranteed by all of the
Company's operating subsidiaries.
The Company issued warrants to acquire up to 1,266,000 shares of Common Stock
in connection with the issuance of the Subordinated Debt. The exercise price
of the warrants is $0.01 per share. Additionally, warrants were issued to
acquire 200,000 shares of Common Stock with an exercise price of $2.50 per
share as part of entering into the Credit Facility. For accounting purposes
the fair value of the warrants has been recorded as paid-in-capital and as a
discount to the respective debt which is amortized as interest expense over the
life of the debt.
In connection with the Credit Facility and the issuance of the Subordinated
Debt, 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 (the
"Securities Act"). The $10 million in proceeds were used for acquisitions,
repayment of existing indebtedness and general corporate purposes.
On December 5, 1997, long-term debt of $32.1 million was repaid in advance of
scheduled maturity with proceeds in part from the Credit Facility and the
issuance of the Subordinated Debt and Common Stock as discussed above. As a
result of the early extinguishment of debt, the Company recognized $3.7 million
in loan fees expense which includes a prepayment penalty of $2.5 million and
$1.2 million of prepaid loan fees both of which were charged to expense as an
extraordinary item, net of a tax benefit of $1.3 million.
On April 1, 1998, the Company converted 42,078 shares or $13.8 million of
Preferred Stock plus accrued dividends into 926,659 shares of the Company's
Common Stock and amended the terms of its Series F, G, H and I preferred to
make them non-dividend bearing effective April 1, 1998.
In April 1998, the Company's Chairman and Chief Executive Officer was issued
2,110,000 shares of common stock pursuant to exercising certain options at an
average exercise price of $1.48 per share netting proceeds to the Company of
$3,123,500. Total cash proceeds from the exercise of warrants and options for
the nine months ended June 30, 1998, amounted to $5.1 million.
In March 1998, the Company commenced an exchange offer in which it offered to
exchange 0.2517291 shares of its Common Stock for each of its 2,641,827
outstanding Series G and Series J Common Stock purchase warrants. The holders
of 2,611,827 of such warrants were entitled to purchase one share of Common
Stock for $5.52 per share for each warrant held and the holders of 30,000 of
such warrants were entitled to purchase one share of Common Stock for $4.00 per
share for each warrant held. The exchange offer was designed to reduce the
overhang to the market for the Common Stock. Following the completion of the
exchange offer on April 12, 1998, there were 403,666 warrants outstanding
exercisable at $5.52 per share and 30,000 warrants outstanding exercisable at
$4.00 per share. All of such warrants expire on December 27, 1999.
Management intends to continue seeking opportunities for expansion in the
metals recycling business and believes that the Company's liquidity, capital
resources and borrowing capabilities are adequate for its current operations.
The Company may, however, need to raise additional capital to fund the
22
<PAGE>
acquisition and integration of additional metals recycling businesses, which is
an integral component of the Company's strategy. The Company may raise such
funds through warrant exercises, bank financing, or public or private offerings
of its securities. There can be no assurance that the Company will be able to
secure such additional financing. If the Company is not successful in securing
such financing, the Company's ability to purse its acquisition strategy may be
impaired and the results of operations for future periods may be adversely
affected.
YEAR 2000 COMPLIANCE
The Company recognizes the need to ensure its operations will not be adversely
impacted by Year 2000 software failures. Software failures due to processing
errors potentially arising from calculations using the Year 2000 date are a
known risk. The Company is addressing this risk to the availability and
integrity of financial systems and the reliability of operational systems.
Based upon a review of its technology and software, the Company has concluded
that there are no material issues regarding its Year 2000 compliance that will
not be resolved through normal software upgrades and replacements that will be
made through 1999. While the Company believes its planning efforts are
adequate to address its Year 2000 concerns, there can be no guarantee that the
systems of other companies on which the Company's systems and operations rely
will be converted on a timely basis and will not have a material adverse effect
on the Company.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Company has implemented Financial Accounting Standards ("FAS") No. 128
"Earnings per Share." FAS 128 provides for the calculation of "basic" and
"diluted" earnings per share. Basic earnings per share includes no dilution
and is computed by dividing income available to common shareholders by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution of securities that could
share in the earnings of the entity, similar to fully diluted earnings per
share. In loss periods, dilutive common equivalent shares are excluded, as
the effect would be anti-dilutive.
The Company is also required to implement FAS No. 130, "Reporting Comprehensive
Income" and FAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information" in fiscal 1998. FAS No. 130 establishes standards for
reporting and display of comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include all changes in equity
except those resulting from investments by owners and distribution to owners.
Among other disclosures, FAS No. 130 requires that all items that are required
to be recognized under current accounting standards as components of
comprehensive income be reported in a financial statement that displays with
the same prominence as other financial statements. FAS No. 131 supercedes FAS
No. 14 "Financial Reporting for Segments of a Business Enterprise." FAS No.
131 establishes standards on the way that public companies report financial
information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. FAS No. 131 defines operating segments as components of a company
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to allocate
resources in assessing performance. FAS Nos. 130 and 131 require comparative
information for earlier years to be restated. Because of the recent issuance
of these standards, management has been unable to fully evaluate the impact, if
any, the standards may have on the future financial statement disclosures.
Results of operations, financial position and cash flows, however, will be
unaffected by implementation of these standards.
In February 1998, the FASB issued FAS No., 132, "Employers' Disclosures about
Pensions and Other Post-retirement Benefits" which standardizes the disclosure
requirements for pensions and other post-retirement benefits and requires
additional information on changes in the benefit obligations and fair values of
plan assets that will
23
<PAGE>
facilitate financial analysis. FAS No. 132 is effective for years beginning
after December 15, 1997, and requires comparative information for earlier
years to be restated, unless such information is not readily available.
Management believes the adoption of this statement will have no material
impact on the Company's financial statements.
In June 1998, the Financial Accounting Standards Board issued FAS No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. FAS No. 133
requires companies to recognize all derivatives contracts as either assets
or liabilities in the balance sheet and to measure them at fair value.
If certain conditions are met, a derivative may be specifically designated as
a hedge of the: (i) exposure to changes in the fair value of a recognized
asset or liability or an unrecognized firm commitment ("fair value hedges"),
(ii) exposure to variable cash flows of a forecasted transaction ("cash
flow hedges"), or (iii) foreign currency exposure of a net investment in a
foreign operation, an unrecognized firm commitment, an available-for-sale
security, or a foreign-currency-denominated forecasted transaction ("foreign
currency hedges"). The objective of hedge accounting is to match the timing
of gain or loss recognition on the hedging derivative with the recognition of
(i) the changes in the fair value of the hedged asset or liability that are
attributable to the hedged risk or (ii) the earnings effect of the hedged
forecasted transaction. For a derivative not designated as a hedging
instrument (e.g., derivative contracts entered into for speculative
purposes), the gain or loss is recognized in income in the period of change.
FAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. The Company currently plans to adopt FAS No. 133 on
January 1, 2000. On that date, hedging relationships will be designated anew
and documented. The Company has not yet evaluated the financial statement
impact of adopting FAS No. 133
EVENTS SUBSEQUENT TO JUNE 30, 1998
Effective August 1, 1998, the Company adopted the Recycling Industries, Inc.
401(k) Retirement Plan covering all eligible employees. The Company
contributes to the plan an amount equal to 25% of the employee contributions up
to a maximum of 6% of employee compensation. Employee vesting is based on
years of service with 20% vested after one year of service and an additional
20% vesting with each additional complete year of service.
24
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS.
DEPARTMENT OF TOXIC SUBSTANCES CONTROL V. INTERSTATE NON-FERROUS CORPORATION;
SAN FERNANDO MOTORS, INC. V. A-1 METAL MARKET, U.S. District Court for the
Eastern District of California, Docket No. CV-F-97-5016 OWW DLB
The Company's subsidiary, Nevada Recycling, Inc., is one of 94 entities named
in a third party complaint filed by San Fernando Motors seeking indemnification
and contribution for contamination at a site referenced as "the Mobile Smelting
facility" located in or near Mojave, California. This action arises out of a
complaint filed against San Fernando Motors and others allegedly responsible
for response, removal and remedial costs in connection with hazardous waste
contamination at the Mobile Smelting site.
These actions are in the preliminary stages and discovery has not commenced.
Accordingly, at this time, the Company is unable to make an assessment of its
potential liability, if any.
ITEM 2. - CHANGES IN SECURITIES
RECENT SALES OF UNREGISTERED SECURITIES
During the quarter ended June 30, 1998, the Company completed the following
sales of its securities pursuant to the exemption from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act")
provided by Section 4(2) thereof and Regulation D promulgated thereunder.
Based upon representations made to the Company and further investigation by
the Company, the Company believes that each purchaser in the following
transactions was an accredited investor as that term is defined under Rule
501(a) of Regulation D:
1. In connection with the Company's acquisition of substantially all of the
assets of Peanut City, on May 28, 1998 the Company issued 1,005 shares of
Series J Preferred to Peanut City, as payment of $502,500 of the purchase
price for that acquisition. See "Recent Acquisitions," above.
The Series J Preferred is subject to automatic conversion at the earlier
of a consolidation or merger of the Company or on May 28, 2001. The
Series J Preferred will automatically convert on May 28, 2001 into that
number of shares of the Company's Common Stock as determined by dividing
$502,500 by the average market price of the Common Stock for the 30
trading days preceding the date of the conversion. Holders of the Series
J Preferred are not entitled to dividends. At any time prior to the
conversion, the Company and Peanut City may mutually agree to redeem the
outstanding shares of Series J Preferred Stock, in whole or in part, at a
cash redemption price equal to $500 per share.
2. In connection with the Company's acquisition of substantially all the
assets of Republic, on May 22, 1998 the Company issued 5,080 shares of
Series K Preferred to Republic as payment of $2,540,000 of the purchase
price for that acquisition. See "Recent Acquisitions," above.
The Series K Preferred is subject to automatic conversion at the earlier
of a consolidation or merger of the Company or on May 20, 2000. The
Series K Preferred may be converted at any time before May 20, 2000 into
that number of shares of the Company's Common Stock as determined by
dividing $2,540,000 by $16. On May 20, 2000, the Series K Preferred
shall convert into that number of shares of Common Stock equal to the
lesser of: (i) 158,750 or (ii) an amount equal to $2,540,000 divided by
the average closing price for the Common Stock for the 30 trading days
immediately preceding the date of the conversion. Holders of the Series K
Preferred are not entitled to dividends.
3. In connection with the Company's acquisition of substantially all the
assets of C&J Crushing, on May 21, 1998 the Company issued 580 shares
of Series L Preferred to C&J Crushing, as payment of $290,000 of the
purchase price for that acquisition. See "Recent Acquisitions," above.
The Series L Preferred is subject to automatic conversion at the earlier
of a consolidation or merger of the Company or on May 21, 2001. The
Series L Preferred may be converted at any time before May 21, 2001 into
that number of shares of the Company's Common Stock as determined by
dividing $290,000 by $18. On May 21, 2001, the Series L Preferred shall
convert into that number of shares of Common Stock equal to the lesser
of: (i) 16,111 or (ii) an amount equal to $290,000 divided by the average
closing price for the common stock for the 30 trading days immediately
preceding the date of the conversion. Holders of the Series L Preferred
are not entitled to dividends.
4. In connection with the Company's acquisition of substantially all the
assets of Pro Recycling, on May 22, 1998 the Company issued 1,030 shares
of Series M Preferred to Pro Recycling, as payment of $515,000 of the
purchase price for that acquisition. See "Recent Acquisitions," above.
The Series M Preferred is subject to automatic conversion at the earlier
of a consolidation or merger of the Company or on May 22, 2001. The
Series M Preferred may be converted on May 22, 2001 into that number of
shares of the Company's Common Stock as determined by dividing $515,000
by $16. On May 20, 2000, the Series M Preferred shall convert that
number of shares of Common Stock equal to the lesser of: (i) 32,188 or
(ii) an amount equal to $515,000 divided by the average closing price for
the common stock for the 30 trading days immediately preceding the date
of the conversion. Holders of the Series M Preferred are not entitled to
dividends.
5. In connection with the Company's acquisition of substantially all of the
assets of Ferex, on May 28, 1998, the Company issued 556,944 shares of
its Common Stock as payment of $3,411,000 of the purchase price for that
acquisition. See "Recent Acquisitions," above.
6. In connection with the Company's acquisition of substantially all of the
assets of Republic, on May 22, 1998, the Company issued 30,000 shares of
its Common Stock as payment of $168,600 of the purchase price for that
acquisition. See "Recent Acquisitions," above.
25
<PAGE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
Exhibit
Number Description
- -------- -----------
2.1 Asset Purchase Agreement dated May 21, 1998, by and among Recycling
Industries of Greensboro, Inc., a Colorado corporation, Recycling
Industries, Inc., a Colorado corporation, C&J Crushing, Inc., a
North Carolina corporation, Carl Drye and the Seller Owners.
Incorporated by reference to Exhibit 2.1 to the Company's current
report on Form 8-K as filed with the commission on June 5, 1998,
and amended on August 4, 1998, on Form 8-K/A, Commission File No.
0-20179.
2.2 Asset Purchase Agreement dated May 22, 1998, by and among Recycling
Industries of Wisconsin, Inc., a Colorado corporation, Recycling
Industries, Inc., a Colorado corporation, Pro Recycling, L.L.C., a
Wisconsin limited liability company, Lewinsky Iron & Metal, Inc., a
Wisconsin corporation, Steven Lewinsky and Arthur Arnstein.
Incorporated by reference to Exhibit 2.2 to the Company's current
report on Form 8-K as filed with the commission on June 5, 1998,
and amended on August 4, 1998, on Form 8-K/A, Commission File No.
0-20179.
2.3 Asset Purchase Agreement dated May 21, 1998, by and among Recycling
Industries of Charlotte, Inc., a Colorado corporation, Recycling
Industries, Inc., a Colorado corporation, Republic Alloys, Inc., a
North Carolina corporation, William. B. Allen and Mark W. Russo.
Incorporated by reference to Exhibit 2.3 to the Company's current
report on Form 8-K as filed with the commission on June 5, 1998,
and amended on August 4, 1998, on Form 8-K/A, Commission File No.
0-20179.
2.4 Asset Purchase Agreement dated May 27, 1998, by and among Recycling
Industries of Suffolk, Inc., a Colorado corporation, Recycling
Industries, Inc., a Colorado corporation, Peanut City Iron & Metal
Co., Inc., a Virginia corporation, George Ginsburg, Fred Jacobson,
Edwin Jacobson, Kenny Weinstein and Samuel Blum. Incorporated by
reference to Exhibit 2.4 to the Company's current report on Form 8-K
as filed with the commission on June 5, 1998, and amended on
August 4, 1998, on Form 8-K/A, Commission File No. 0-20179.
2.5 Agreement and Plan of Share Exchange dated May 27, 1998, by and
among Recycling Industries, Inc., a Colorado corporation, Ferex
Corporation, a Texas corporation, and its Control Shareholders.
Incorporated by reference to Exhibit 2.1 to the Company's current
report on Form 8-K as filed with the commission on June 12, 1998,
and amended on August 4, 1998, on Form 8-K/A, Commission File No.
0-20179.
2.6 Asset Purchase Agreement dated April 15, 1998, by and among
McKinney Smelting, Inc., a Texas corporation, Benjamin L. Smith and
Ferex Metals Recycling of McKinney, Inc., a Texas corporation.
Incorporated by reference to Exhibit 2.2 to the Company's current
report on Form 8-K as filed with the commission on June 12, 1998,
and amended on August 4, 1998, on Form 8-K/A, Commission File No.
0-20179.
3(i).1 Articles of Amendment to the Amended and Restated Articles of
Incorporation of Recycling Industries, Inc. - Designation of
Preferences, Limitations and Relative Rights of the Series J
Redeemable Convertible Preferred Stock of Recycling Industries, Inc.
Incorporated by reference to Exhibit 3(i).1 to the Company's current
report on Form 8-K as filed with the commission on June 5, 1998,
and amended on August 4, 1998, on Form 8-K/A, Commission File No.
0-20179.
3(i).2 Articles of Amendment to the Amended and Restated Articles of
Incorporation of Recycling Industries, Inc. - Designation of
Preferences, Limitations and Relative Rights of the Series K
Redeemable Convertible Preferred Stock of Recycling Industries, Inc.
Incorporated by reference to Exhibit 3(i).2 to the Company's current
report on Form 8-K as filed with the commission on June 5, 1998,
and amended on August 4, 1998, on Form 8-K/A, Commission File No.
0-20179.
3(i).3 Articles of Amendment to the Amended and Restated Articles of
Incorporation of Recycling Industries, Inc. - Designation of
Preferences, Limitations and Relative Rights of the Series L
Redeemable Convertible Preferred Stock of Recycling Industries, Inc.
Incorporated by reference to Exhibit 3(i).3 to the Company's current
report on Form 8-K as filed with the commission on June 5, 1998,
and amended on August 4, 1998, on Form 8-K/A, Commission File No.
0-20179.
3(i).4 Articles of Amendment to the Amended and Restated Articles of
Incorporation of Recycling Industries, Inc. - Designation of
Preferences, Limitations and Relative Rights of the Series M
Redeemable Convertible Preferred Stock of Recycling Industries, Inc.
Incorporated by reference to Exhibit 3(i).4 to the Company's current
report on Form 8-K as filed with the commission on June 5, 1998,
and amended on August 4, 1998, on Form 8-K/A, Commission File No.
0-20179.
27 Financial Data Schedule*
* Filed Herewith
26
<PAGE>
REPORTS ON FORM 8-K
1. Current report on Form 8-K dated April 30, 1998.
2. Current report on Form 8-K dated June 1, 1998.
3. Current Report on Form 8-K dated June 5, 1998, reporting the acquisition
of substantially all the assets of C&J Crushing, Inc., on May 21, 1998, Pro
Recycling, L.L.C. and Republic Alloys, Inc., on May 22, 1998, and Peanut
City Iron and Metal Co., Inc., on May 23, 1998.
4. Current Report on Form 8-K dated June 12, 1998, reporting the acquisition
of all the capital stock of Ferex Corporation on May 28, 1998, and
substantially all the assets of McKinney Smelting, Inc., on May 29, 1998.
27
<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 thereunto duly authorized.
Recycling Industries, Inc.
Date: August 14, 1998 By: /s/ Thomas J. Wiens
---------------------------------------
Thomas J. Wiens, Chairman &
Chief Executive Officer
Date: August 14, 1998 By: /s/ Brian L. Klemsz
---------------------------------------
Brian L. Klemsz, Principal
Financial Officer
28
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