<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 1
to
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
April 11, 1996
METAL MANAGEMENT, INC.
(Exact Name of Registrant as Specified in its Charter)
(formerly General Parametrics Corporation)
Delaware
(State or Other Jurisdiction of Incorporation)
0-14836 94-2835068
(Commission File No.) (IRS Employer Identification Number)
1250 Ninth Street
Berkeley, CA 94710
(Address of Principal Executive Offices)
(510) 524-3950
(Registrant's Telephone Number, Including Area Code)
<PAGE> 2
This Amendment No. 1 to the Registrant's Current Report on Form 8-K
dated April 11, 1996 (the "Form 8-K"), originally filed with the Securities and
Exchange Commission (the "SEC") on April 26, 1996, is being filed for the
purpose of adding Item 5 and amending Items 7(a), (b), and (c) to the Form 8-K.
ITEM 5. OTHER EVENTS.
The following Management Discussion and Analysis of Financial Condition
and Results of Operations of EMCO Recycling Corp. is included to address the
time periods covered by the financial statements set forth in Exhibit 99.3.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF EMCO RECYCLING CORP.
TEN MONTHS ENDED JANUARY 31, 1996 AND 1995
<TABLE>
<CAPTION>
(In '000s)
Ten Months Ended Percentage
January 31, Inc. (Dec.)
----------- -----------
1996 1995 '96 vs. '95
---- ---- -----------
<S> <C> <C> <C>
Sales $ 58,576 $ 45,473 28.8%
Gross margin 5,802 5,888 (1.5%)
Selling, general and administrative 3,097 2,357 31.4%
Depreciation and amortization 969 563 72.1%
Interest expense 1,307 567 130.5%
Other (income) expense (288) (24) 1,100.0%
-------- --------
Operating expenses 5,085 3,463 46.8%
-------- --------
Income before income tax 717 2,425 (70.4%)
Income tax 376 890 (57.8%)
-------- --------
Net income $ 341 $ 1,535 (77.8%)
======== ========
</TABLE>
RESULTS OF OPERATIONS
Sales for the ten months ended January 31, 1996 amounted to $58,576,000 compared
to $45,573,000 for the comparable period in 1995, an increase of 29%. The
average monthly volume in ferrous shipments improved by approximately 500 tons
to 10,500, compared to 10,000 in 1995. Ferrous prices declined by about $10 per
ton in 1996 compared to very stable prices in 1995. Nonferrous sales and
tonnages improved even more, although prices softened by about 10% in the 1996
period from 1995 levels. The shift in sales mix continued in favor of nonferrous
with the ferrous amounting to 22.5% of total sales and nonferrous 77.5%.
Gross margins declined by $86,000 even though total sales volume was higher.
This was a result of a significant narrowing of margins which followed a decline
in the availability of nonferrous materials, primarily in the third quarter of
1996. January of 1996 improved a bit over the third quarter, but supplies remain
tight.
During the ten months ended January 31, 1996, EMCO experienced difficulty in
obtaining sufficient rail cars to meet its ferrous shipping needs. Discussions
with officials from the rail line have been less than satisfactory and
management has arranged with a number of commercial trucking companies to
provide an alternative to rail
-2-
<PAGE> 3
shipments. In some cases, trucking costs are as much as $5 to $10 per ton higher
than comparable rail costs and this may negatively impact future gross margins.
Selling, general and administrative costs increased 31% which is substantially
in line with the increase in sales during the period.
The increase in depreciation and amortization of $406,000 (72%) was solely
associated with new capital equipment acquired.
Interest expense rose 131% ($740,000) as a result of expanded use of the
operating line of credit (although the effective interest rate was reduced in
August, 1995 by 3%), financing costs on new equipment contracts, and $187,500 in
loan commitment fees paid to two Company shareholders in connection with a
$2,000,000 stand-by loan.
Income tax expense was provided for at 40% of net income after permanent
differences in 1996 compared to 37% in 1995. The increase in the effective tax
rate did not have a significant effect on the results of operations for the ten
months ended January 31, 1996.
Net income decreased by 78% from $1,535,000 to $341,000 principally as a result
of declining gross margins, increased depreciation and interest expense, as
discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The scrap industry is capital intensive requiring the use of specialized
equipment for processing and general construction equipment (cranes, forklifts,
roll off trucks, containers, etc.). The equipment tends to wear out faster than
in many other industries which use the same or similar equipment, primarily
because of the density and weight of the scrap materials handled. EMCO finances
such equipment with equipment contracts (leases) and/or borrowings. EMCO has
committed to purchase additional equipment aggregating $2 million and will
finance this with additional borrowings.
Due to the decline in the availability of nonferrous metals during the third
quarter of fiscal 1996 and continuing into January 1996, the company's ability
to borrow under its $8 million line of credit has declined because inventories
available to secure such borrowings have been reduced by $2 million. EMCO has
been able to supplement its ability to borrow under the line of credit with
borrowings from MMI totaling approximately $2.5 million since March 8, 1996.
These borrowings are due on demand, bear interest at 9% per annum and require
monthly interest-only payments beginning in June 1996. Proceeds from these
borrowings were used to pay the remaining notes payable to shareholders of
$950,000 and for working capital purposes. EMCO's management believes that its
existing line of credit together with funds made available from MMI and cash
flow from operations may be adequate for its operating and investing needs for
the next twelve months, provided there is no material adverse change in the
metals commodities market. In the event there is a material adverse change in
the metals commodities market, the Company may have to supplement its cash
flows with other sources of funds such as additional borrowings, equity
offerings, etc.
EMCO's operations are subject to price fluctuations which occur in the metals
commodities markets. EMCO does not enter into futures contracts for speculative
or trading purposes. EMCO does enter into future contracts when it determines
that such contracts are necessary to hedge significant contractual or firm
commitments. In December 1995 and January 1996, EMCO entered into future
contracts with a notional amount of $764,000 (fair value of $810,000 at January
31, 1996) to hedge against price fluctuations for sales with settlement dates
through May 1996. EMCO generally is able to limit its exposure to fluctuating
metals prices by turning its ferrous and nonferrous inventories approximately
ten and twenty-four times per year, respectively, and by entering into
short-term (month to month) purchase and sale commitments which allow for price
adjustments based on current metals prices.
-3-
<PAGE> 4
The above contains forward-looking statements reflecting current expectations.
The Company's actual results may differ materially from current expectations as
a result of, among other things, the risk factors described on pages sixteen
through twenty-one in the Company's Joint Proxy Statement filed March 8, 1996
and which are incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired.
(1) The following audited financial statements were
attached to the Form 8-K or incorporated by reference
therein:
1. Report of Independent Public Accountants.
2. Consolidated Statements of Income for the
Year Ended March 31, 1995 and Eleven Months
Ended March 31, 1994
3. Consolidated Balance Sheets as of March 31,
1995 and 1994.
4. Consolidated Statements of Stockholders'
Equity for the Year Ended March 31, 1995
and Eleven Months Ended March 31, 1994.
5. Consolidated Statements of Cash Flows for
the Year Ended March 31, 1995 and Eleven
Months Ended March 31, 1994.
6. Notes to Financial Statements.
(2) The following updated audited financial statements
are attached hereto as Exhibit 99.3:
1. Report of Independent Accountants.
2. Consolidated Balance Sheet as of January 31,
1996.
3. Consolidated Statement of Income for the ten
months ended January 31, 1996.
4. Consolidated Statement of Stockholders'
Equity for the ten months ended January 31,
1996.
5. Consolidated Statement of Cash Flows for the
ten months ended January 31, 1996.
6. Notes to Financial Statements.
(b) Pro Forma Financial Information.
(1) The following unaudited pro forma financial
statements were attached to the Form 8-K or
incorporated by reference therein:
1. Unaudited Pro Forma Combined Condensed
Statement of Operations for the year ended
October 31, 1995.
2. Unaudited Pro Forma Combined Condensed
Balance Sheet as of October 31, 1995.
3. Notes to Unaudited Pro Forma Financial
Information.
(2) The following updated unaudited pro forma financial
statements are attached hereto as Exhibit 99.4:
1. Unaudited Pro Forma Combined Condensed
Statement of Operations for the five months
ended March 31, 1996.
-4-
<PAGE> 5
2. Unaudited Pro Forma Combined Condensed
Balance Sheet as of March 31, 1996.
3. Notes to Unaudited Pro Forma Financial
Information.
(c) Exhibits.
2.1* Merger Agreement dated as of December 1, 1995, and as
amended through March 7, 1996, between the
Registrant, GPAR Merger, Inc., EMCO Recycling Corp.
and the direct and indirect beneficial owners of
EMCO's Common Stock. (See Appendix A of Exhibit
99.1).
24.1* Consent of Arthur Andersen LLP.
99.1* Joint Proxy Statement of the Company and EMCO, dated
March 8, 1996, furnished to the stockholders of the
Company and shareholders of EMCO (incorporated by
reference from Definitive Joint Proxy Statement of
the Company and EMCO, dated March 8, 1996, filed with
the Commission.
99.2* Report of Arthur Andersen LLP on the financial
statements for EMCO Recycling Corp. as of March 31,
1995 and 1994 and for the year ended March 31, 1995
and for the period from inception (May 1, 1993) to
March 31, 1994 (included in the Joint Proxy Statement
furnished to the stockholders of the Registrant and
shareholders of EMCO dated March 8, 1996).
99.3 Audited Consolidated Financial Statements of EMCO
Recycling Corp. as of January 31, 1996, and for the
ten months ended January 31, 1996, together with
signed report of independent accountants Price
Waterhouse LLP.
99.4 Unaudited Pro Forma Combined Condensed Financial
Statements giving effect to the merger of Metal
Management Inc. and EMCO Recycling Corp. for the five
months ended March 31, 1996.
- ---------------------
* Previously filed as an exhibit to Registrant's Form 8-K dated April 11, 1996.
-5-
<PAGE> 6
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.
Dated: June 19, 1996
METAL MANAGEMENT, INC.
By: /s/ WILLIAM A. SPAZANTE
----------------------------------
William A. Spazante,
Vice President, Finance
and Chief Financial Officer
<PAGE> 1
Exhibit 99.3
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of EMCO Recycling Corp.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of EMCO
Recycling Corp. and its subsidiaries at January 31, 1996, and the results of
their operations and their cash flows for the ten months 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 audit. We conducted our audit 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 audit provides a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Phoenix, Arizona
May 30, 1996
<PAGE> 2
EMCO RECYCLING CORP.
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
JANUARY 31, 1996
----------------
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 369,651
Accounts receivable 5,310,586
Inventories 2,017,956
Income tax and deposits 636,018
Prepaid expenses and deposits 511,821
Purchase advances 297,441
Deferred tax assets 108,694
-----------
Total current assets 9,252,167
PROPERTY AND EQUIPMENT, net 7,484,718
NOTES RECEIVABLE FROM STOCKHOLDER 440,244
GOODWILL 743,556
OTHER ASSETS 53,663
-----------
Total assets $17,974,348
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 5,020,691
Accounts payable and accrued expenses 4,339,316
Current portion of long-term debt 959,541
-----------
Total current liabilities 10,319,548
LONG-TERM DEBT 4,481,253
DEFERRED TAX LIABILITIES 483,829
-----------
Total liabilities 15,284,630
-----------
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS' EQUITY:
Common stock, $1 par; 1,000,000 shares authorized,
10,000 shares issued and outstanding 10,000
Additional paid-in capital 100,200
Retained earnings 2,579,518
-----------
Total stockholders' equity 2,689,718
-----------
Total liabilities and stockholders' equity $17,974,348
===========
</TABLE>
The accompanying notes are an integral part of these financial statements
-2-
<PAGE> 3
EMCO RECYCLING CORP.
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
TEN MONTHS
ENDED
JANUARY 31,
1996
------------
<S> <C>
REVENUES $ 58,576,471
------------
COSTS AND EXPENSES:
Cost of sales and other operating expenses 52,773,815
Selling, general and administrative expenses 3,097,223
Depreciation and amortization 969,211
------------
56,840,249
------------
INCOME FROM OPERATIONS 1,736,222
OTHER INCOME (EXPENSE):
Interest income 19,391
Interest expense (1,307,449)
Other 269,095
------------
INCOME BEFORE INCOME TAXES 717,259
PROVISION FOR INCOME TAXES 376,000
------------
NET INCOME $ 341,259
============
</TABLE>
The accompanying notes are an integral part of these financial statements
-3-
<PAGE> 4
EMCO RECYCLING CORP.
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
----------------------------------------------------
Class A Class B Class C Additional
---------------------------------------------------- Paid-in Retained
Shares Amount Shares Amount Shares Amount Capital Earnings Total
------ ------ ------ ------ ------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, March 31, 1995 6,000 $ 6,000 3,000 $3,000 1,000 $1,000 $100,200 $2,238,259 $2,348,459
Transactions among stockholders
(See Note 10) (300) (300) 300 300
Net income 341,259 341,259
----- -------- ----- ------ ----- ------ -------- ---------- ----------
BALANCE, January 31, 1996 5,700 $ 5,700 3,000 $3,000 1,300 $1,300 $100,200 $2,579,518 $2,689,718
===== ======== ===== ====== ===== ====== ======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
-4-
<PAGE> 5
EMCO RECYCLING CORP.
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
TEN MONTHS
ENDED JANUARY
31, 1996
-----------
<S> <C>
OPERATING ACTIVITIES:
Net income $ 341,259
Adjustments to reconcile net income to cash
provided by (used in) operating activities -
Depreciation and amortization 969,211
Deferred income taxes 234,000
(Increase) decrease in current assets -
Accounts receivable (1,431,342)
Inventories 2,117,820
Purchase advances (73,008)
Income tax deposits (636,018)
Prepaid expenses and deposits (151,901)
Increase (decrease) in current liabilities -
Accounts payable and accrued expenses (82,476)
Income taxes payable (1,000,665)
Other 76,947
-----------
Net cash provided by operating activities 363,827
-----------
INVESTING ACTIVITIES:
Purchase of property and equipment (1,556,103)
Notes receivable from stockholder (11,464)
-----------
Net cash used in investing activities (1,567,567)
-----------
FINANCING ACTIVITIES:
Net borrowings on line of credit 3,030,827
Repayment of long-term debt and capital lease
obligations (3,653,232)
Proceeds from borrowings 1,733,071
-----------
Net cash provided by financing activities 1,110,666
-----------
NET DECREASE IN CASH
AND CASH EQUIVALENTS (93,074)
CASH AND CASH EQUIVALENTS, beginning of period 462,725
-----------
CASH AND CASH EQUIVALENTS, end of period $ 369,651
===========
SUPPLEMENTAL SCHEDULE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $ 1,287,648
Income taxes $ 1,774,083
</TABLE>
The accompanying notes are an integral part of these financial statements
-5-
<PAGE> 6
EMCO RECYCLING CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES:
The Company
EMCO Recycling Corp. (the Company) is an Arizona corporation primarily engaged
in the recycling of both ferrous and non-ferrous metals. The Company's
processing facility is located in Phoenix, Arizona. The Company also operates
several collection centers within the metropolitan Phoenix area and in Prescott,
Arizona. The Company sells the majority of its scrap metal to customers in the
southwestern U.S.
The Company began operations on May 1, 1993, as a result of two long-established
metal recycling companies, Empire Metals, Inc. (Empire) and Copperstate Metals,
Inc. (Copperstate) each contributing specific assets and liabilities to the
Company in exchange for 60% and 30% interests in the Company, respectively. In
addition, the Company received $2.95 million of a $3.0 million credit facility
from two individuals in exchange for a 10% interest in the Company. Both Empire
and Copperstate had previously undergone Chapter 11 bankruptcy proceedings with
the later company still in bankruptcy at the time of the merger in 1993. The
acquisition of Empire and Copperstate assets and liabilities was accounted for
assuming that Empire was the acquiring company since it controlled 60% of the
common stock of the resulting company. Therefore, the assets and liabilities of
Empire were carried at a partial step-up basis and the assets of Copperstate
were accounted for by the purchase method with the purchase price allocated to
the assets and liabilities acquired based on their respective estimated fair
values at the date of acquisition.
The Company consummated a statutory merger of EMCO Recycling Corp. and EMCO
Recycling, L.L.C., affiliated through common ownership, on February 14, 1995.
The merger has been accounted for as a reorganization of affiliated companies
under common control in a manner similar to a pooling of interests. Under this
method, the assets and liabilities of each company were carried over at their
historical book values and their operations have been recorded on a combined
historical basis. The merger did not require any material adjustments to conform
the accounting policies of the two companies.
The Company entered into an agreement dated as of December 1, 1995, as amended,
whereby Metal Management, Inc. (MMI), formerly General Parametrics Corporation,
would acquire all of the Company's outstanding stock in exchange for 3.5 million
shares of MMI common stock, warrants to purchase an additional one million
shares of MMI common stock and $1.15 million in cash. The transaction was
approved by MMI's stockholders on April 9, 1996 and closed on April 11, 1996. In
connection with the acquisition, the notes receivable from stockholder described
in Note 5, net of certain liabilities assumed by such stockholder, were repaid.
Additionally, the notes payable to stockholders described in Note 8 were repaid.
FISCAL YEAR
The Company's fiscal year ends on March 31.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of EMCO
Recycling Corp. and its wholly-owned subsidiaries. All material intercompany
balances and transactions have been eliminated.
-6-
<PAGE> 7
EMCO RECYCLING CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results may differ from these estimates.
CASH EQUIVALENTS
Highly liquid investments with original maturities of three months or less are
classified as cash equivalents.
ACCOUNTS RECEIVABLE
Accounts receivable represent amounts due from customers on product sales. An
allowance for doubtful accounts has not been provided as losses are not
anticipated on the realization of the accounts receivable.
INVENTORIES
Inventories consist of ferrous and non-ferrous material and are carried at the
lower of average cost or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation. Major
renewals and improvements are capitalized while repairs and maintenance are
expensed as incurred. Depreciation is computed using the straight-line method
over estimated useful lives of 10 to 15 years for buildings and improvements and
3 to 15 years for equipment. When assets are sold or otherwise disposed of, the
cost and related accumulated depreciation are removed from the accounts and any
gain or loss is included in results of operations.
GOODWILL
Goodwill resulting from the merger of Empire and Copperstate is being amortized
on a straight-line basis over 15 years. The reported balance is net of
accumulated amortization of $165,648 at January 31, 1996. The Company evaluates
the possibility of goodwill impairment when events or changes in economic
circumstances indicate that the carrying amount may not be recoverable.
REVENUE RECOGNITION
The Company recognizes revenue when title passes to the customer which is
generally at the time of shipment.
-7-
<PAGE> 8
EMCO RECYCLING CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
HEDGE CONTRACTS
The Company periodically enters into futures contracts to hedge the effect of
commodity price decreases on customer sales where the pricing is to be
determined in a future period. Gains or losses on such contracts are deferred
and recognized in the period in which pricing is finalized.
INCOME TAXES
In addition to charging income for taxes actually paid or payable, the provision
for income taxes reflects deferred income taxes resulting from changes between
the tax bases of assets and liabilities and their reported amounts in the
financial statements. The effect on deferred income taxes of a change in tax
rates is recognized in income in the period that includes the enactment date.
FINANCIAL INSTRUMENTS
The carrying values of financial instruments including cash and cash
equivalents, accounts receivable and accounts payable approximate the related
fair values because of the relatively short maturity of these instruments. The
carrying values of long-term debt, including the current portion, approximate
the related fair values as the stated interest rates approximate market rates.
-8-
<PAGE> 9
EMCO RECYCLING CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - ACCOUNTS RECEIVABLE:
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
January 31,
1996
-----------
<S> <C>
Trade accounts receivable $4,928,795
Related party advance (See Note 12) 300,000
Other receivables 81,791
----------
$5,310,586
==========
</TABLE>
NOTE 3 - INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
January 31,
1996
----------
<S> <C>
Nonferrous material $1,663,387
Ferrous material 354,569
----------
$2,017,956
==========
</TABLE>
NOTE 4 - PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
January 31,
1996
-----------
<S> <C>
Land and improvements $ 2,211,752
Buildings and improvements 344,334
Machinery and equipment 6,931,038
-----------
9,487,124
Less: accumulated depreciation (2,002,406)
-----------
$ 7,484,718
===========
</TABLE>
-9-
<PAGE> 10
EMCO RECYCLING CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - NOTES RECEIVABLE FROM STOCKHOLDER:
Notes receivable from stockholder represent noninterest bearing loans which are
due April 30, 1998 and are secured by the stockholder's shares of the Company's
common stock. As described in Note 1, the notes were repaid in connection with
the acquisition of the Company by MMI.
NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
January 31,
1996
----------
<S> <C>
Trade accounts payable $4,033,330
Accrued liabilities 305,986
----------
$4,339,316
==========
</TABLE>
NOTE 7 - LINE OF CREDIT:
In August 1995, the Company entered into an $8.0 million revolving line of
credit with a commercial lender which matures August 1998. Borrowings against
the line of credit bear interest at prime plus 1.75% and are secured by the
Company's accounts receivable, inventories, equipment and all other assets
except land and buildings. The line of credit was used to replace a previously
existing credit facility described below as well as to repay $2.0 million of
notes payable to stockholders.
In August 1994, the Company entered into an agreement with a commercial lender
to provide up to $3.0 million in financing based upon the Company's accounts
receivable. Under the agreement, accounts receivable were sold with recourse if
not collected within sixty days. The Company received 80% of the invoice amount
immediately with the remaining 20% received when paid by the customer.
Borrowings under the agreement were charged interest at prime plus 3%. In
addition, the lender received a discount fee of .5%.
-10-
<PAGE> 11
EMCO RECYCLING CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
January 31,
1996
-----------
<S> <C>
Mortgage note payable, interest at 8%, payable in monthly installments of
$25,000 including interest through May 1998, secured by real property $ 1,585,388
Notes payable to stockholders, due on demand, interest at 10%, payable monthly,
secured by accounts receivable, inventory and equipment 950,000
Note payable, interest at 9.25%, payable in monthly installments of $18,990
including interest through October 1999, secured by vehicles and equipment 720,309
Note payable, interest at 8%, payable in monthly installments of $13,366
including interest through June 1998, remaining balance due July 1, 1998,
unsecured 361,643
Note payable, interest at 8.6%, payable in monthly installments of $8,400
including interest through December 2000, secured by equipment 313,247
Other notes payable (20 notes with balances ranging from $2,000 to $280,000)
maturing at various dates through 2000, interest at rates ranging from 7.75% to
11%, secured by equipment 1,510,207
-----------
5,440,794
Less: current portion (959,541)
-----------
Total long-term debt $ 4,481,253
===========
As of January 31, 1996, long-term debt is scheduled to mature during fiscal
years ending March 31 as follows:
1996 (remainder) $ 144,721
1997 961,368
1998 1,018,028
1999 1,828,970
2000 1,487,707
-----------
$ 5,440,794
===========
</TABLE>
-11-
<PAGE> 12
EMCO RECYCLING CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - LONG-TERM DEBT: (CONTINUED)
In February 1995, the Company entered into a standby loan commitment with
certain stockholders whereby such stockholders agreed to provide $2.0 million in
financing to the Company. Borrowings against this facility are due on demand and
bear interest at 10%. Additionally, an annual commitment fee of $375,000,
payable monthly, was required. The Company had not borrowed against this
facility through January 31, 1996. Interest expense in the accompanying
consolidated statement of income includes commitment fees of $312,500 and
$62,500 for the ten Months ended January 31, 1996 and for the year ended March
31, 1995, respectively. The standby loan commitment was terminated in connection
with the acquisition of the Company by MMI.
On March 8, 1996, MMI loaned the Company $1.0 million for working capital needs.
The loan, which is due on demand, bears interest at 9.0% and requires monthly
interest-only payments beginning in April 1996. On April 11, 1996, MMI loaned
the Company an additional $950,000 in order to repay the notes payable to
stockholders. This loan is also due on demand, bears interest at 9.0% and
requires monthly interest-only payments beginning in May 1996. On May 9, 1996,
MMI advanced an additional $500,000 to the Company and combined all amounts then
outstanding into a single $2.45 million note which is due on demand, bears
interest at 9% and requires monthly interest-only payments beginning in June
1996.
NOTE 9 - INCOME TAXES:
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Ten Months ended
January 31, 1996
----------------
<S> <C>
Current
Federal $107,000
State 35,000
--------
142,000
--------
Deferred
Federal 178,500
State 55,500
--------
234,000
--------
Total $376,000
========
</TABLE>
-12-
<PAGE> 13
EMCO RECYCLING CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - INCOME TAXES: (CONTINUED)
Deferred income tax assets (liabilities) consist of the following:
<TABLE>
<CAPTION>
January 31,
1996
----
<S> <C>
Deferred tax assets -
Uniform capitalization $ 96,862
Other 11,832
---------
108,694
---------
Deferred tax liabilities -
Depreciation and amortization (483,829)
---------
(483,829)
---------
Net deferred tax liability $(375,135)
=========
</TABLE>
Income taxes as reflected in the consolidated statement of income differ from
amounts computed by applying the statutory federal corporate tax rate to income
before income taxes as follows:
<TABLE>
<CAPTION>
Ten Months
ended
January 31,
1996
----
<S> <C>
Income tax at statutory rate $243,868
State income tax, net of federal tax benefit 59,730
Other 72,402
--------
$376,000
========
</TABLE>
NOTE 10 - STOCKHOLDERS' EQUITY:
At the date of the statutory merger described in Note 1, two Class C
stockholders entered into an installment purchase agreement to buy 2,000 shares
of outstanding Class A stock from the current holder at the rate of one hundred
shares every three and one-half Months. As the Class A shares are acquired, they
are retired by the Company and replaced with an equivalent number of Class C
shares. The installment purchase agreement was terminated in connection with the
acquisition of the Company by MMI.
-13-
<PAGE> 14
EMCO RECYCLING CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 11 - COMMITMENTS AND CONTINGENCIES:
The Company leases land, vehicles and equipment under noncancelable operating
lease agreements. The leases expire at various dates through October 2000. As of
January 31, 1996, future minimum lease payments under these agreements for
fiscal years ending March 31 are as follows:
<TABLE>
<S> <C>
1996 (remainder) $ 33,076
1997 168,443
1998 117,887
1999 62,226
2000 and thereafter 68,320
----------
$ 449,952
==========
</TABLE>
Rent expense totaled $328,162 for the ten months ended January 31, 1996.
In order to protect against commodity price decreases on certain customer
shipments made in December 1995 and January 1996 which were to be settled on the
basis of the average market price in March 1996, the Company entered into 25
copper futures contracts on the Commodity Metals Exchange. The weighted average
per pound price for these contracts was $1.22 while the market price for copper
on January 31, 1996 approximated $1.15 per pound. Prepaid expenses and deposits
as of January 31, 1996 includes $38,000 relating to these contracts.
In connection with the acquisition of the Company by MMI, the Company entered
into employment or consulting agreements with five individuals. These agreements
provide for, among other things, aggregate annual base compensation of $600,000
for a period of five years.
NOTE 12 - RELATED PARTY TRANSACTIONS:
The Company purchased scrap metal from several related parties in arms-length
transactions totaling $7.5 million for the ten months ended January 31, 1996.
Accounts payable and accrued expenses at January 31, 1996 includes $407,290
relating to these transactions.
The Company sold scrap metal to several related parties in arms-length
transactions totaling $0.5 million for the ten months ended January 31, 1996.
Accounts receivable at January 31, 1996 includes $58,366 relating to these
transactions.
In August 1995, the Company converted certain advances made in the ordinary
course of business for purchases of scrap metal from a related party to a demand
note receivable in the amount of $300,000 with interest at ten percent. The note
is secured by inventories of the related party. The Company has entered into an
exclusive agreement with the same related party to purchase all of its scrap
metal in the future on a brokerage basis. The Company will pay $2,500 per month
for the exclusive purchase rights during the term of the agreement which is one
year with renewal options.
-14-
<PAGE> 15
EMCO RECYCLING CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 13 - SALES TO MAJOR CUSTOMERS:
The Company's three largest customers represented 20.6% of revenues for the ten
months ended January 31, 1996. The Company's single largest customer represented
7.5% of revenues for the ten months ended January 31, 1996.
-15-
<PAGE> 1
Exhibit 99.4
PRO FORMA FINANCIAL INFORMATION
PRO FORMA FINANCIAL INFORMATION
The acquisition of EMCO Recycling Corp. (EMCO) by Metal Management, Inc. (MMI)
was completed April 11, 1996. The following pro forma information updates the
pro forma information appearing on pages 41 through 45 of the companies' Joint
Proxy Statement dated March 8, 1996, which are incorporated herein by reference.
The following unaudited pro forma combined condensed statement of operations
gives effect to the merger of Metal Management, Inc. (MMI) and EMCO Recycling
Corp. (EMCO) by combining the results of operations of MMI for the five months
ended March 31, 1996 with the results of EMCO for the five months ended February
29, 1996, respectively, using the purchase method of accounting as if the merger
had occurred November 1, 1995 and by giving effect to the pro forma adjustments
described below.
The following unaudited combined condensed balance sheet presents the combined
financial position of MMI as of March 31, 1996 and EMCO as of February 29, 1996,
respectively, assuming the merger occurred as of March 31, 1996, is accounted
for using the purchase method and includes the pro forma adjustments described
below. The allocation of the excess of the acquisition costs over the book value
of the net assets to be acquired has been applied to intangible assets, based on
the Company's estimate of the fair value of the net assets to be acquired. Such
allocation of the purchase price may change upon the final determination of the
fair value of assets acquired and liabilities assumed; however management
believes that the final allocation of the purchase price will not be materially
different from that used in preparing the pro forma financial information.
The unaudited pro forma condensed financial information does not purport to
represent what the Combined Company's results of operations would have been had
the Merger occurred on the dates indicated or for any future period or date.
The pro forma financial information should be read in conjunction with the
historical financial statements and notes thereto for MMI appearing on pages F-3
through F-13 of the companies' Joint Proxy Statement dated March 8, 1996, which
are incorporated herein by reference, and for EMCO appearing elsewhere in this
Form 8K amendment.
-1-
<PAGE> 2
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
HISTORICAL
----------
METAL EMCO PRO FORMA
MANAGEMENT, RECYCLING COMBINED
INC. CORP. FIVE
FIVE MONTHS FIVE MONTHS MONTHS
ENDED ENDED ENDED
MARCH 31, FEBRUARY 29, PRO FORMA MARCH 31,
1996 1996 ADJUSTMENTS 1996
---- ---- ----------- ----
<S> <C> <C> <C> <C>
Net sales $ 3,074 $ 29,752 $ 32,826
Cost of sales 1,969 27,429 29,398
----------- ----------- ----------- -----------
Gross profit 1,105 2,323 3,428
Operating expenses:
Marketing and sales 546 546
Research and development 77 77
General and administrative 618 2,717 (25)(8) 3,629
250 (8)
69 (8)
----------- ----------- ----------- -----------
Total operating expenses 1,241 2,717 294 4,252
Loss from operations (136) (394) (294) (824)
Interest expense 593 36 (9) 629
Other (income) expense (142) (128) 43 (10) (227)
----------- ----------- ----------- -----------
Income (loss) before income tax 6 (859) (373) (1,226)
Benefit from income tax (345) (65)(11) (410)
----------- ----------- ----------- -----------
Net income (loss) $ 6 $ (514) $ (308) $ (816)
=========== =========== =========== ===========
Net income (loss) per share 0 $ (51.40) $ (0.09)
Weighted average number of 5,870,000 10,000 9,370,000
shares outstanding
</TABLE>
-2-
<PAGE> 3
PRO FORMA COMBINED CONDENSED BALANCE SHEET
March 31, 1996
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
HISTORICAL
----------
METAL EMCO
MANAGEMENT, RECYCLING
INC. CORP.
MARCH 31, FEBRUARY 29, PRO FORMA PRO FORMA
1996 1996 ADJUSTMENTS COMBINED
-------- -------- -------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,093 $ 178 $ (2,050)(4) $ 2,221
$ 1,000 (6)
Marketable securities 2,644 2,644
Accounts receivable, net 1,488 5,512 7,000
Loan to EMCO Recycling Corp. 1,000 (1,000)(6)
Inventories 1,359 1,618 2,977
Other current assets 128 1,015 1,143
-------- -------- -------- --------
Total current assets 9,712 8,323 (2,050) 15,985
Property and equipment, net 44 7,266 1,100 (2) 8,410
Deferred charges 478 478
Other assets 115 488 603
Goodwill and other intangibles 739 (739)(7) 10,682
10,682 (1)(7)
-------- -------- -------- --------
Total assets $ 10,349 $ 16,816 $ 8,993 $ 36,158
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Operating line of credit $ 4,735 $ 4,735
Accounts payable 282 3,611 3,893
Other accrued liabilities 459 216 675
Current portion of longterm debt 956 956
-------- -------- -------- --------
Total current liabilities 741 9,518 10,259
Longterm debt, less current portion 4,410 950 (4) 5,360
Other liabilities 141 1,667 (7) 1,808
-------- -------- -------- --------
Total liabilities 741 14,069 2,617 17,427
-------- -------- -------- --------
Stockholders' equity
Common stock and additional
paid in capital 3,378 110 (110)(6) 12,501
8,807 (1)(3)
316 (1)(5)
Retained earnings 6,230 2,637 (2,637)(6) 6,230
-------- -------- -------- --------
Total stockholders' equity 9,608 2,747 6,376 18,731
-------- -------- -------- --------
Total liabilities and
stockholders' equity $ 10,349 $ 16,816 $ 8,993 $ 36,158
======== ======== ======== ========
</TABLE>
-3-
<PAGE> 4
NOTES TO PRO FORMA FINANCIAL INFORMATION
The pro forma financial information is based on the following assumptions and
adjustments:
(1) Reflects the issuance of common stock, warrants and cash consideration
for the acquisition of EMCO as follows:
Total acquisition costs are estimated as follows:
<TABLE>
<CAPTION>
Amount
------
(In thousands)
<S> <C>
Cash payment to EMCO shareholders $ 1,150
Issue 3,500,000 shares of MMI Common Stock (see Note 3) 8,807
Issue warrants for 600,000 shares of MMI Common Stock at $4.48 per share
and 400,000 shares at $6.48 per share 316
Accrual of covenants not to compete 1,667
Cash payment for transaction costs 750
--------
Total estimated consideration $ 12,690
========
</TABLE>
The acquisition costs will be allocated for pro forma purposes as follows:
<TABLE>
<CAPTION>
Amount
------
(In thousands)
<S> <C>
Current assets $ 8,323
Property and equipment 7,266
Other assets 488
Current liabilities (9,518)
Long term debts (4,551)
Goodwill and other intangibles, including covenants not to compete of $1,667 10,682
--------
$ 12,690
========
</TABLE>
The above allocation of acquisition cost is preliminary and may change upon
final determination of the fair value of assets acquired and liabilities
assumed; however, management believes that the final allocation of the purchase
price will not be materially different from that used in preparing the pro forma
financial information. Goodwill and the covenants not to compete are being
amortized over 15 years and 10 years, respectively.
(2) MMI acquired from a beneficiary of Harold Rubenstein for $150,000 in
cash and $950,000 9% notes payable in three years two parcels of real
estate on which certain of Ellis Metals Inc.'s (Ellis) operations are
located.
(3) Reflects the issuance of 3,500,000 shares of MMI Common Stock at a
weighted average share price of $2.52 per share in partial
consideration for all the outstanding shares of EMCO Common Stock, for
a total of $8,807,000. Such price reflects various discounts from the
average closing market price per share as quoted on the NASDAQ during
the period from November 28, 1995 through December 7, 1995. The
discounts reflect, among other things, that none of the 3,500,000
shares are currently registered; 300,000 shares with demand
registration rights principally at shareholders' expense are discounted
15% and the remaining 3,200,000 shares with "piggy-back" registration
rights for two years following the closing of the transaction for up to
20% of the company owned shares that would be registered are discounted
30%.
-4-
<PAGE> 5
(4) Reflects the cash consideration of $1,150,000 in partial consideration
for all the outstanding shares of EMCO Common Stock, $150,000 in cash
and $950,000 in notes payable in consideration for two parcels of real
estate on which certain of Ellis' operations are located and $750,000
for the payment of transaction related expenses, principally legal and
accounting fees. Presented as a reduction of $2,050,000 in cash and
cash equivalents, and an increase of $950,000 in long term debt.
(5) Reflects the estimated value of 600,000 warrants to acquire MMI Common
Stock at $4.48 per share and 400,000 warrants to acquire MMI Common
Stock at $6.48 per share in partial consideration for all the
outstanding shares of EMCO Common Stock.
(6) Reflects the elimination of EMCO's stockholders equity accounts and
loan from MMI to EMCO in March 1996.
(7) Reverse EMCO's goodwill related to its prior acquisitions and record
goodwill ($9,015,000) and covenants not to compete ($1,667,000)
related to MMI's acquisition of EMCO as if the transaction occurred
March 31, 1996.
(8) Reflects the reversal of EMCO's amortization of goodwill from prior
acquisitions and recording amortization of goodwill and other
intangible assets arising upon MMI's acquisition of EMCO ($250,000) and
($69,000), respectively, as if the acquisition had occurred on November
1, 1995.
(9) Adjustment to record interest expense for $950,000 notes payable in
three years which bear interest at 9% which will be issued to acquire
two parcels of real estate on which certain of Ellis' operations are
located.
(10) Adjustment to reduce interest income for the payment of $2,050,000 cash
consideration and related transaction costs as if the acquisitions of
EMCO and the two parcels of real estate on which certain of Ellis'
operations are located had occurred on November 1, 1995.
(11) Adjustment to the income tax provision to reflect the combined results
of operations of MMI and EMCO.
-5-
