<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
July 1, 1998
(Date of earliest event reported)
METAL MANAGEMENT, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 0-14836 94-2835068
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
500 Dearborn Street, Suite 405
Chicago, Illinois 60610
(Address of principal executive offices)
Registrant's telephone number, including area code: (312) 645-0700
N/A
(Former name or former address, if changed since last report)
<PAGE> 2
This Amendment No. 1 to the Registrant's Current Report on Form 8-K dated
July 1, 1998 (the "Form 8-K") is being filed for the purpose of including Items
7(a), (b), and (c) to such Current Report.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired:
(1) The following audited and unaudited combined financial statements
of Naporano Iron & Metal Co. and Nimco Shredding Co. (collectively
"Naporano") are attached hereto as Exhibit 99.2:
1. Report of Independent Accountants.
2. Combined Balance Sheets at December 31, 1997 and 1996
and March 31, 1998 (unaudited).
3. Combined Statements of Operations and Retained Earnings for
the years ended December 31, 1997, 1996 and 1995
and the three months ended March 31, 1998 and 1997
(unaudited).
4. Combined Statements of Cash Flows for the years ended December
31, 1997, 1996 and 1995 and the three months ended March 31,
1998 and 1997 (unaudited).
5. Notes to Combined Financial Statements.
(b) Pro Forma Financial Information
(1) The following unaudited pro forma financial statements are attached
hereto as Exhibit 99.3:
1. Introduction to Unaudited Pro Forma Financial Information.
2. Unaudited Pro Forma Condensed Consolidated Balance Sheet at
March 31, 1998.
3. Notes to Unaudited Pro Forma Condensed Consolidated Balance
Sheet.
4. Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the year ended March 31, 1998.
5. Notes to Unaudited Pro Forma Condensed Consolidated Statement
of Operations.
<PAGE> 3
(c) Exhibits.
2.1* Stock Purchase Agreement.
10.1* Registration Rights Agreement.
23.1 Consent of PricewaterhouseCoopers LLP.
99.1* Press Release dated July 6, 1998.
99.2 Combined Financial Statements of Naporano at December 31, 1997 and 1996
and March 31, 1998 (unaudited) and for the fiscal years ended December
31, 1997, 1996 and 1995 and the three months ended March 31, 1998 and
1997 (unaudited).
99.3 Unaudited Pro Forma Condensed Consolidated Financial Statements at
March 31, 1998, and for the year ended March 31, 1998.
- --------------------------------------------------------------------------
*Previously filed as an exhibit to the Registrant's Form 8-K dated July
1, 1998, filed July 7, 1998.
<PAGE> 4
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.
METAL MANAGEMENT, INC.
By:/s/ Robert C. Larry
------------------------------------------
Robert C. Larry
Vice President, Finance,
Treasurer and Chief Financial Officer
Date: July 9, 1998
<PAGE> 5
EXHIBIT INDEX
Exhibit Number Description
2.1 * Stock Purchase Agreement.
10.1 * Registration Rights Agreement.
23.1 Consent of PricewaterhouseCoopers LLP.
99.1 * Press release dated July 6, 1998.
99.2 Combined Financial Statements of Naporano at
December 31, 1997 and 1996 and March 31, 1998
(unaudited) and for the fiscal years
ended December 31, 1997, 1996 and 1995 and the three
months ended March 31, 1998 and 1997 (unaudited).
99.3 Unaudited Pro Forma Condensed Consolidated Financial
Statements at March 31, 1998, and for the year ended
March 31, 1998.
__________________________________
* Previously filed as an exhibit to the Registrant's Form 8-K dated July 1,
1998, filed July 7, 1998.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-10487) and in the Prospectus constituting part
of the Registration Statements on Form S-3 (No. 333-45913 and No. 333-43423) of
Metal Management, Inc., of our report dated June 23, 1998, appearing in this
Form 8-K/A.
PricewaterhouseCoopers LLP
Chicago, Illinois
July 9, 1998
<PAGE> 1
EXHIBIT 99.2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Naporano Iron &
Metal Co. and Nimco Shredding Co.
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations and retained earnings and of cash flows
present fairly, in all material respects, the financial position of Naporano
Iron & Metal Co. and Nimco Shredding Co. (collectively, the "Company"), at
December 31, 1997 and 1996, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management, our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
Price Waterhouse LLP
Florham Park, New Jersy
June 23, 1998
<PAGE> 2
NAPORANO IRON & METAL CO. AND NIMCO SHREDDING CO.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, MARCH 31,
1997 1996 1998
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,530,369 $ 4,631,794 $10,301,595
Trade accounts receivable, net of $50,000 allowance 7,073,446 5,910,735 11,253,806
Sundry receivables 1,201,666 776,324 1,141,977
Inventories 18,923,181 15,101,082 10,774,108
Prepaid expenses and other assets 1,157,197 574,612 1,078,655
Due from related parties 81,161 3,598,554 81,789
----------- ----------- -----------
Total current assets 35,967,020 30,593,101 34,631,930
Property and equipment, net 6,736,093 6,139,433 6,453,555
Investment in affiliate 2,388,698 3,749,907 2,226,640
----------- ----------- -----------
Total assets $45,091,811 $40,482,441 $43,312,125
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 375,964 $ 351,153 $ 286,450
Accounts payable 5,787,892 4,362,086 1,288,641
Accrued expenses 3,676,281 2,811,356 4,546,078
----------- ----------- -----------
Total current liabilities 9,840,137 7,524,595 6,121,169
Long-term debt 1,380,297 1,751,728 1,379,677
----------- ----------- -----------
Total liabilities 11,220,434 9,276,323 7,500,846
----------- ----------- -----------
Commitments and contingencies (Note 10)
Stockholders' equity:
Invested capital 358,331 358,331 358,331
Retained earnings 33,513,047 30,847,787 35,452,948
----------- ----------- -----------
Total stockholders' equity 33,871,378 31,206,118 35,811,279
----------- ----------- -----------
Total liabilities and stockholders' equity $45,091,811 $40,482,441 $43,312,125
=========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
<PAGE> 3
NAPORANO IRON & METAL CO. AND NIMCO SHREDDING CO.
COMBINED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Gross sales $ 155,746,608 $ 117,077,928 $ 223,575,615
Less: outbound freight 16,470,552 7,930,437 25,710,764
------------- ------------- -------------
Net sales 139,276,056 109,147,491 197,864,851
Cost of sales 116,921,846 101,139,752 178,050,560
------------- ------------- -------------
Gross profit 22,354,210 8,007,739 19,814,291
General and administrative expenses 10,521,076 9,484,847 10,390,034
Interest expense 226,198 432,205 589,866
Interest and sundry income (927,760) (963,204) (514,599) )
Equity (income) loss of affiliate (580,793) 283,304 (634,295)
------------- ------------- -------------
Income (loss) before income taxes 13,115,489 (1,229,413) 9,983,285
Provision (benefit) for state income taxes 172,698 (22,598) 135,889
------------- ------------- -------------
Net income (loss) $ 12,942,791 $ (1,206,815) $ 9,847,396
============= ============= =============
Retained earnings, beginning of year $ 30,847,787 $ 37,017,221 $ 32,855,919
Net income (loss) 12,942,791 (1,206,815) 9,847,396
Distributions to stockholders (10,277,531) (5,210,367) (6,172,894)
Contributions from stockholders -- 247,748 486,800 )
------------- ------------- -------------
Retained earnings, end of year $ 33,513,047 $ 30,847,787 $ 37,017,221
============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
------------- -------------
1998 1997
------------- -------------
<S> <C> <C>
Gross sales $ 48,240,497 $ 41,009,261
Less: outbound freight 2,690,501 3,274,663
------------- -------------
Net sales 45,549,996 37,734,598
Cost of sales 35,809,834 25,789,369
------------- -------------
Gross profit 9,740,162 11,945,229
General and administrative expenses 7,796,762 7,373,823
Interest expense 10,751 52,753
Interest and sundry income (375,553) (485,906)
Equity (income) loss of affiliate 214,060 (204,152)
------------- -------------
Income (loss) before income taxes 2,094,142 5,208,711
Provision (benefit) for state income taxes 27,703 67,664
------------- -------------
Net income (loss) $ 2,066,439 $ 5,141,047
============= =============
Retained earnings, beginning of year 33,513,047 30,847,787
Net income (loss) 2,066,439 5,141,046
Distributions to stockholders -- --
Contributions from stockholders (126,538) (466,148)
------------- -------------
Retained earnings, end of year $ 35,452,948 $ 35,522,685
============= =============
</TABLE>
See accompanying notes to combined financial statements.
<PAGE> 4
NAPORANO IRON & METAL CO. AND NIMCO SHREDDING CO.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 12,942,791 $ (1,206,815) $ 9,847,396
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation 1,749,048 1,864,551 1,856,756
Bad debt expense 18,638 68,986 --
Equity (income) loss of affiliate (580,793) 283,304 (634,295)
Changes in operating assets and liabilities:
Trade accounts receivable (1,181,350) 7,718,076 (6,062,620)
Sundry receivable (425,342) (22,306) (24,588)
Inventories (3,822,099) (8,255,864) 15,506,134
Prepaid expenses and other assets (582,585) 259,354 346,543
Due from related parties 204,393 (196,948) 203,398
Accounts payable 1,425,806 (2,230,445) (1,705,976)
Accrued expenses and taxes 864,925 (2,704,930) 1,613,836
------------ ------------ ------------
Net cash provided by (used in) operating
activities 10,613,432 (4,423,037) 20,946,584
INVESTING ACTIVITIES:
Net change in investment of affiliate 1,942,002 2,950,000 (1,050,000)
Purchases of property and equipment (2,345,708) (713,235) (2,250,737)
Increase in cash surrender value of officers'
life insurance -- 2,830,082 (237,439)
------------ ------------ ------------
Net cash (used in) provided by investing
activities (403,706) 5,066,847 (3,538,176)
FINANCING ACTIVITIES:
Repayment of bank debt -- -- (6,010,000)
Proceeds from note receivable - related party 3,313,000 (3,313,000) --
Repayments of long-term debt, net (346,620) (399,882) (234,152)
Net distributions to stockholders (10,277,531) (4,962,619) (5,686,094)
------------ ------------ ------------
Net cash used in financing activities (7,311,151) (8,675,501) (11,930,246)
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents 2,898,575 (8,031,691) 5,478,162
Cash and cash equivalents, beginning of year 4,631,794 12,663,485 7,185,323
------------ ------------ ------------
Cash and cash equivalents, end of year $ 7,530,369 $ 4,631,794 $ 12,663,485
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA:
Interest paid $ 180,792 $ 211,270 $ 512,096
============ ============ ============
State income taxes paid $ 181,620 $ 139,130 $ 137,355
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 2,066,439 $ 5,141,047
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation 536,873 391,332
Bad debt expense 60,635 1,200
Equity (income) loss of affiliate (214,060) 204,152
Changes in operating assets and liabilities:
Trade accounts receivable (4,240,995) (3,545,328)
Sundry receivable 59,689 (122,271)
Inventories 8,149,073 2,608,688
Prepaid expenses and other assets 78,542 (845,546)
Due from related parties (628) 217,650
Accounts payable (4,499,251) (4,240,385)
Accrued expenses and taxes 869,797 1,279,685
------------ ------------
Net cash provided by (used in) operating
activities 2,866,114 1,090,224
INVESTING ACTIVITIES:
Net change in investment of affiliate 376,118 792,041
Purchases of property and equipment (254,334) (192,640)
Increase in cash surrender value of officers'
life insurance -- --
------------ ------------
Net cash (used in) provided by investing
activities 121,784 599,401
FINANCING ACTIVITIES:
Repayment of bank debt -- --
Proceeds from note receivable - related party -- --
Repayments of long-term debt, net (90,134) (84,189)
Net distributions to stockholders (126,538) (466,148)
------------ ------------
Net cash used in financing activities (216,672) (550,337)
------------ ------------
Net increase (decrease) in cash and cash
equivalents 2,771,226 1,139,288
Cash and cash equivalents, beginning of year 7,530,369 4,631,794
------------ ------------
Cash and cash equivalents, end of year 10,301,595 5,771,082
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA:
Interest paid $ 38,194 $ 41,195
============ ============
State income taxes paid $ -- $ --
============ ============
</TABLE>
See accompanying notes to combined financial statements
<PAGE> 5
NAPORANO IRON & METAL CO. AND NIMCO SHREDDING CO.
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS
Naporano Iron & Metal Co. and Nimco Shredding Co. (collectively, the
"Company") are engaged in collecting, processing, selling and shipping
scrap metals. Founded in 1907, the Company's operations, with three
locations in Newark, New Jersey, include ferrous shredding; ferrous,
nonferrous and stainless steel processing; dismantling and salvaging buses
and railroad cars; and stevedoring. Domestic and international economic
conditions, such as recessionary trends, inflation and interest rates, as
well as changes in the commodity price of scrap metals can have a
significant impact on the Company's operations.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The combined financial statements include the accounts of Naporano Iron &
Metal Co. and Nimco Shredding Co. For financial reporting purposes, the
Company operates as one segment. All significant intercompany accounts,
transactions and profits have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amount of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
REVENUE RECOGNITION
Revenue from the sale of products is recognized when titles passes to a
third party, which generally occurs at the time of shipment. Revenue from
stevedoring operations is recognized in the period services are rendered.
CASH EQUIVALENTS
Cash equivalents represent investments in short-term deposits and
commercial paper with banks which have original maturities of ninety days
or less.
INVENTORY
Inventory quantities are verified on a monthly basis, using scale weights,
physical counts, perpetual records, reconciliations, and field estimates.
Inventory quantities subject to estimation techniques are routinely
verified by weighing amounts on hand and zeroing piles when market
conditions and sales quantities allow. The impact of inventory quantity
adjustments, if any, are recognized in that period.
<PAGE> 6
NAPORANO IRON & METAL CO. AND NIMCO SHREDDING CO.
NOTES TO COMBINED FINANCIAL STATEMENTS 5
- --------------------------------------------------------------------------------
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of temporary cash investments and trade
accounts receivable. Cash and cash equivalents includes all cash balances and
highly liquid investments with a maturity of three months or less when
acquired. The Company places its temporary cash investments with high credit
quality financial institutions. At times, such investments may exceed
Federally insured limits. Concentrations of credit risk with respect to trade
receivables are limited due to the large number of customers comprising the
Company's customer base, generally short payment terms and the use of
irrevocable letters of credit. In addition, the Company routinely assesses the
financial strength of its customers and financial institutions.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided
principally on the declining balance method for equipment, buildings and
improvements based upon the estimated useful lives of the respective assets.
Major renewals and improvements are capitalized while repairs and maintenance
are expensed as incurred.
INVESTMENT
In 1989, the Company entered into a joint venture to collect, process and
market stainless steel scrap solids, turnings and alloys. The Company is a 50%
owner and accounts for its interest in the joint venture using the equity
method.
IMPAIRMENT OF LONG-LIVED ASSETS
Effective January 1, 1996, the Company adopted SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of, ("SFAS 121"). SFAS 121 requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. SFAS 121 is applicable for most
long-lived assets, indentifiable intangible and goodwill related to those
assets. Management has determined that long-lived assets are fairly stated in
the accompanying balance sheets, and that no indicators of impairment are
present.
INCOME TAXES
The Company, with the consent of its two stockholders, has elected to be
treated as an "S" Corporation under the applicable sections of the Internal
Revenue Code. Under these sections, corporate income or loss, in general, is
allocated to the stockholders for inclusion in their personal income tax
returns. Accordingly, there is no provision for Federal income tax in the
accompanying financial statements. The Company has also elected to be treated
as an "S" Corporation for New Jersey state income tax purposes. The State of
New Jersey imposes a nominal tax on "S" Corporations.
<PAGE> 7
NAPORANO IRON & METAL CO. AND NIMCO SHREDDING CO.
NOTES TO COMBINED FINANCIAL STATEMENTS 6
- --------------------------------------------------------------------------------
ENVIRONMENTAL LIABILITIES AND EXPENDITURES
Accruals for environmental matters are recorded in operating expense when
it is probable that a liability has been incurred and the amount of the
liability can be reasonably estimated. Accrued liabilities are exclusive
of claims against third parties (except where payment has been received or
the amount of the liability or contribution by such other parties,
including insurance companies, has been agreed) and are not discounted.
In general, costs related to environmental remediation are charged to
expense. Environmental costs are capitalized if the cost increase the
value of the property and/or mitigate or prevent contamination from future
operations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of all short-term financial instruments approximate their
carrying value due to their short maturity period. The fair value of
long-term financial instruments approximates carrying value based on the
variable interest rates implicit in the related instrument.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited balance sheet as of March 31, 1998 and the
related unaudited statements of operations and retained earnings and cash
flows for the three months ended March 31, 1998 and 1997 have been prepared
by the Company in accordance with generally accepted accounting principles
for interim financial information. Accordingly, they do not include all
the information and footnotes required by generally accepted accounting
principles for complete financial statements. However, in the opinion of
management, the interim financial statements include all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of results of the periods presented.
3. INVENTORIES
Inventories are stated at the lower of cost (principally weighted average
cost) or net realizable market value.
Inventories consist of the following:
<TABLE>
<CAPTION>
(Unaudited)
1997 1996 1998
------------ ------------ ------------
<S> <C> <C> <C>
Ferrous Division $ 17,872,887 $ 13,708,574 $ 9,895,460
Nonferrous Division 753,968 1,074,706 525,957
Other 296,326 317,802 352,691
------------ ------------ ------------
Totals $ 18,923,181 $ 15,101,082 $ 10,774,108
------------ ------------ ------------
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<PAGE> 8
NAPORANO IRON & METAL CO. AND NIMCO SHREDDING CO.
NOTES TO COMBINED FINANCIAL STATEMENTS 7
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RANGE OF
ESTIMATED
USEFUL LIVES 1997 1996
----------------- ----------------- -----------------
(YEARS)
<S> <C> <C>
Land - $ 629,005 $ 629,005
Building and improvements 15-40 4,544,078 3,851,260
Plant equipment 7-15 5,191,381 5,067,089
Mobile equipment 3-5 11,753,629 11,437,882
Furniture and fixtures 5-10 1,058,254 837,336
Construction in progress - 193,475 157,854
--------------- ---------------
23,369,822 21,980,426
Less accumulated depreciation (16,633,729) (15,840,993)
--------------- ---------------
Totals $ 6,736,093 $ 6,139,433
--------------- ---------------
</TABLE>
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
<S> <C> <C>
Line of credit (Note 10) $ - $ -
Promissory note payable - principal and interest payable in
monthly installments through December 1999 170,905 249,190
Promissory note payable - principal and interest payable in
monthly installments through September 2002 1,585,356 1,853,691
---------------- ----------------
1,756,261 2,102,881
Less: current portion (375,964) (351,153)
---------------- ----------------
$ 1,380,297 $ 1,751,728
---------------- ----------------
</TABLE>
Interest on the promissory notes accrues at a rate which is 2.15% above the
average one month commercial paper rate stated in the Federal Reserve
Statistical Release (5.90% and 5.88% as of December 31, 1997 and 1996,
respectively). The notes are secured by mobile equipment and contain
certain debt covenant requirements which include tangible net worth, current
ratio and leverage ratio.
Principal payment requirements in each of the five years subsequent to
December 31, 1997 are as follows:
<PAGE> 9
NAPORANO IRON & METAL CO. AND NIMCO SHREDDING CO.
NOTES TO COMBINED FINANCIAL STATEMENTS 8
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
-----------
<S> <C>
1998 $ 375,000
1999 400,000
2000 335,000
2001 360,000
2002 290,000
</TABLE>
6. PENSION AND PROFIT-SHARING PLANS
The Company maintains qualified noncontributory pension and profit-sharing
plans for the benefit of all eligible nonunion employees. The pension plan
provides for an annual minimum contribution of 1% of eligible compensation,
while contributions to the profit-sharing plan are determined by the
Company's Board of Directors. Total contributions to the plans charged to
operations amounted to $202,000, $36,000 and $197,000 for the years ended
December 31, 1997, 1996 and 1995, respectively.
7. ACCRUED EXPENSES
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Accrued freight $ 1,266,684 $ 423,707
Bonus accrual 550,000 83,000
Other liabilities 1,859,597 2,304,649
----------- ----------
$ 3,676,281 $2,811,356
----------- ----------
</TABLE>
8. STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Invested capital consists of: 1997 1996
--------- ----------
<S> <C> <C>
Preferred common stock no par value; 1000 shares
authorized, no shares outstanding $ - $ -
Common stock, no par value; 400 shares authorized,
issued and outstanding - -
Common stock, $100 par value; 300 shares
authorized; 200 shares issued and outstanding 20,000 20,000
Additional paid in capital 338,331 338,331
--------- ---------
$ 358,331 $ 358,331
--------- ---------
</TABLE>
<PAGE> 10
NAPORANO IRON & METAL CO. AND NIMCO SHREDDING CO.
NOTES TO COMBINED FINANCIAL STATEMENTS 9
- --------------------------------------------------------------------------------
9. RELATED PARTY TRANSACTIONS
The Company leases a processing facility from a related party.
In 1996, the Company had a note receivable from a stockholder of $3,313,000
which was repaid in August 1997 with interest.
In 1996, officers' life insurance with a cash surrender value of $2,830,082
was sold to a related party.
10. COMMITMENTS AND CONTINGENCIES
LEGAL AND ENVIRONMENTAL MATTERS
The Company is subject, among other things, to comprehensive local, state,
federal and international regulatory and statutory requirements relating to
the acceptance, storage, handling and/or disposal of solid waste and storm
water, air emissions, and soil contamination and employee health. The
Company believes that it is in material compliance with currently
applicable environmental and other laws and regulations. The Company is a
defendant or plaintiff in lawsuits that have arisen in the normal course of
business. The Company maintains insurance coverage for various aspects of
its business and operations. The Company has elected, however, to retain a
portion of losses that occur through the use of various deductibles,
limits and retention's under its insurance programs. This situation may
subject the Company to future liability for which it is only partially
insured. While certain of the lawsuits involve allegedly significant
amounts, it is management's opinion, based on the advice of counsel, that
the ultimate resolution of such litigation will not have a material adverse
effect on the Company's financial position or results of operations.
LINE OF CREDIT
The Company has a loan and security agreement with Fleet Bank, N.A. expiring
July 30, 1999 which allows for borrowings of up to $20,000,000 with
interest at the prime rate. The security for any borrowings includes cash,
accounts receivable, inventories, real property and equipment. The
agreement contains certain debt covenant requirements which include
tangible net worth, current ratio and leverage ratio. At December 31, 1997
and 1996, the Company had no outstanding borrowings under the agreement and
was in compliance with all debt covenants. The Company is obligated to pay
an unused commitment fee of .188% per annum.
LEASES
The Company is obligated under an agreement with the Port Authority of New
York/New Jersey to lease certain storage and shipping facilities which are
currently under construction by the Company. The Company is leasing
temporary facilities at $67,000 per month. Rentals paid for the temporary
facilities amounted to $788,000 in 1997 and $778,000 in 1996, including
excess tonnage charges. Upon completion of construction, which is expected
to occur by December 1, 1998, the Company is committed to lease the
permanent facilities under an operating lease that expires February 29,
2020. Minimum future rentals under the operating lease in years subsequent
to December 31, 1997 are as follows:
<PAGE> 11
NAPORANO IRON & METAL CO. AND NIMCO SHREDDING CO.
NOTES TO COMBINED FINANCIAL STATEMENTS 10
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ending December 31, Amount
------------------------ ------
<S> <C>
1998 $ 803,000
1999 1,074,000
2000 1,191,000
2001 1,265,000
2002 1,340,000
Thereafter 27,668,000
------------
Total $ 33,341,000
------------
</TABLE>
Commencing, March 1, 1999, the base rent will be increased annually based on
changes in the Consumer Price Index. The Company can terminate without
cause during the first five years subject to specified liquidated damages.
Thereafter, either party has the right to terminate the lease on the
eleventh and sixteenth anniversary, with two years' prior notice.
In April 1998, the Company obtained an irrevocable standby letter of
credit for $1,900,000 from Fleet Bank, N.A., which acts as a
security interest for the lease.
11. OPERATIONS BY GEOGRAPHIC AREA
Geographic revenues are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
United States 54.4% 56.5% 26.2%
Asia 43.9% 22.6% 47.5%
Middle East - 8.0% 17.4%
Other 1.7% 12.9% 8.9%
-------- -------- --------
100.0% 100.0% 100.0%
-------- -------- --------
</TABLE>
12. SUBSEQUENT EVENT
On May 24, 1998, the Company signed a definitive stock purchase agreement
with Metal Management, Inc. pursuant to which Metal Management, Inc. will
acquire all the outstanding capital stock of the Company.
<PAGE> 1
EXHIBIT 99.3
INTRODUCTION TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated balance sheet
of Metal Management, Inc. (the "Company") gives effect to the Company's
issuance of $180.0 million of Senior Subordinated Notes on May 13, 1998 (the
"Offering"), the application of the net proceeds therefrom, borrowings under
the Company's Senior Credit Facility entered into on March 31, 1998 and the
application of the proceeds therefrom, the Company's merger with R & P Holdings,
Inc. ("Bluestone") accounted for as a pooling of interests, and the Company's
acquisition of Naporano Iron & Metal Co. and Nimco Shredding Co. (collectively,
"Naporano") as if such transactions had occurred on March 31, 1998 (the "Pro
Forma Balance Sheet Transactions"). The unaudited pro forma condensed
consolidated balance sheet does not give effect to acquisitions that are not
significant as defined by Regulation S-X. The following unaudited pro forma
condensed consolidated statement of operations of the Company gives effect to
the Offering and borrowings under the Senior Credit Facility, the application
of the net proceeds therefrom, the merger with Bluestone, the Pro Forma
Operating Statement Acquisitions (as defined below) and certain other
transactions as if such transactions had occurred on April 1, 1997.
The unaudited pro forma condensed consolidated statement of operations
do not reflect the operating results from discontinued operations or
insignificant acquisitions. The discontinued operations include (1) the
Spectra*Star printer and consumables business, which was sold during the first
quarter of fiscal 1997 and (2) the Video Show business and its related product
lines, which were sold during the third quarter of fiscal 1997.
The following acquisitions (herein, the "Pro Forma Operating Statement
Acquisitions") are presented in the Company's historical condensed consolidated
statements of operations from the effective date of each acquisition. The
effective date of each Pro Forma Operating Statement Acquisition is as follows:
<TABLE>
<CAPTION>
ACQUISITION EFFECTIVE DATE
- --------------------------------------------------------------------------------------------------
<S> <C>
Reserve Iron & Metal............................................................. 5/1/97
Isaac Group...................................................................... 6/23/97
Proler Southwest................................................................. 9/1/97
Cozzi Iron & Metal............................................................... 12/1/97
Aerospace........................................................................ 1/20/98
Naporano......................................................................... 7/1/98
</TABLE>
The merger with Bluestone is accounted for as a pooling of interests.
Accordingly, the pro forma statement of operations reflects Bluestone's
accounts on a pooled basis from April 1, 1997.
The accompanying unaudited pro forma condensed consolidated financial
statements have been derived from:
a. The Company's audited consolidated balance sheet at March 31, 1998 and
audited consolidated statement of operations for the year ended
March 31, 1998;
b. Reserve Iron & Metal Limited Partnership's ("Reserve Iron & Metal")
unaudited statement of income for the one month ended April 30, 1997;
c. The Isaac Corporation's and Ferrex Trading Corporation's ("Isaac Group")
unaudited statement of operations for the twelve weeks ended June 23,
1997;
<PAGE> 2
d. Proler Southwest Inc.'s and Proler Steelworks, L.L.C.'s (collectively
"Proler Southwest") unaudited combined statement of operations for the
five months ended August 31, 1997;
e. Cozzi Iron & Metal, Inc.'s and subsidiaries ("Cozzi Iron & Metal")
unaudited consolidated statement of operations for the eight months
ended November 30, 1997;
f. Aerospace Metals, Inc. and subsidiaries ("Aerospace") unaudited
consolidated statement of income and retained earnings for the period
ended January 20, 1998;
g. Bluestone's audited consolidated balance sheet at March 31, 1998 and
audited consolidated statement of operations for the year ended
March 31, 1998; and
h. Naporano's unaudited combined balance sheet at March 31, 1998 and
unaudited combined statement of operations for the twelve months ended
March 31, 1998.
The excess of the acquisition cost over the fair value (as estimated
by the Company) of the net assets of Naporano has been allocated to
goodwill. The Company considers all intangible assets in the allocation of
purchase price. Such allocation of the purchase price may change upon the final
determination of the fair value of assets acquired (including other
intangibles) and liabilities assumed.
Certain amounts presented in the historical financial statements of the
Pro Forma Operating Statement Acquisitions have been reclassified in the pro
forma presentation to conform to the Company's operating statement presentation.
The unaudited pro forma condensed consolidated financial statements are
presented for comparative purposes only and do not purport to be indicative of
the combined financial position or results of operations which would have been
realized had the transactions reflected therein been consummated as of the date
or during the periods for which the unaudited pro forma financial statements
are presented or for any future period or date.
The unaudited pro forma financial information should be read in
conjunction with the Company's Annual Report on Form 10-K for the year ended
March 31, 1998 (filed with the Commission on June 23, 1998). The unaudited pro
forma financial information should also be read in conjunction with historical
audited and unaudited financial statements and notes thereto for Naporano that
appear elsewhere in this Form 8-K amendment.
<PAGE> 3
METAL MANAGEMENT, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AT MARCH 31, 1998
<TABLE>
<CAPTION>
BLUESTONE NAPORANO PRO FORMA
(IN MILLIONS) HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash $ 4.4 $ 0.1 $ 10.3 $ (14.8) (1) $ --
Accounts receivable, net 107.8 14.6 12.5 -- 134.9
Inventories 56.8 4.7 10.8 0.4 (2) 72.7
Other current assets 8.5 -- 1.1 -- 9.6
-------- ------- ------- -------- --------
Total current assets 177.5 19.4 34.7 (14.4) 217.2
Property and equipment, net 109.1 0.8 6.5 9.1 (3) 125.5
Goodwill and other intangibles, net 186.5 -- -- 59.4 (4) 252.3
6.4 (5)
Other assets 7.7 1.0 2.2 -- 10.9
-------- ------- ------- -------- --------
TOTAL ASSETS $ 480.8 $ 21.2 $ 43.4 $ 60.5 $ 605.9
======== ======= ======= ======== ========
Operating lines of credit $ -- $ 9.9 $ -- $ (9.9) (6) $ --
Accounts payable 60.2 6.7 1.3 0.7 (7) 68.9
Accrued liabilities 17.0 -- 4.5 21.5
Current portion of debt 11.9 0.4 0.3 (1.8) (6) 10.8
-------- ------- ------- -------- --------
Total current liabilities 89.1 17.0 6.1 (11.0) 101.2
Long-term portion of debt 129.3 -- 1.4 88.3 (6) 219.0
Deferred taxes 12.0 (0.3) -- 0.2 (2) 11.9
Other liabilities 1.5 0.8 -- -- 2.3
-------- ------- ------- -------- --------
TOTAL LIABILITIES 231.9 17.5 7.5 77.5 334.4
Convertible preferred stock, Series A 14.0 -- -- -- 14.0
Convertible preferred stock, Series B 19.0 -- -- -- 19.0
Common stock, warrants and paid-in-capital 246.3 0.1 0.4 19.3 (8) 266.1
Retained earnings (accumulated deficit) (30.4) 3.6 35.5 0.2 (2) (27.6)
-- -- -- (36.5) (9) --
-------- ------- ------- -------- --------
TOTAL SHAREHOLDERS' EQUITY 248.9 3.7 35.9 (17.0) 271.5
-------- ------- ------- -------- --------
TOTAL LIABILITIES AND EQUITY $ 480.8 $ 21.2 $ 43.4 $ 60.5 $ 605.9
======== ======= ======= ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet.
<PAGE> 4
METAL MANAGEMENT, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN MILLIONS)
The unaudited pro forma condensed consolidated balance sheet at March 31,
1998 reflects the Offering and the application of the net proceeds therefrom,
borrowings under the Senior Credit Facility and the application of proceeds
therefrom, the merger with Bluestone and the acquisition of Naporano as if
these transactions had occurred on March 31, 1998.
The Company's merger with Bluestone is being accounted for under the
pooling-of-interests method. Accordingly, except for pro forma adjustments to
conform accounting policies (as described below), no other pro forma adjustments
are required as Bluestone's historical results will be combined with the
Company.
The purchase consideration for Naporano is comprised of the following:
<TABLE>
<S> <C>
Shares of MTLM restricted common stock issued 1,938,879
Cash payment $ 84.0
Value of MTLM restricted common stock issued 19.7
Cash payment for acquisition costs 0.7
-----------
Total estimated consideration $ 104.4
===========
</TABLE>
The estimated purchase consideration for Naporano is allocated for pro
forma purposes as follows:
<TABLE>
<S> <C>
Current assets $ 34.7
Noncurrent assets 17.8
Current liabilities (6.1)
Long term debt/other liabilities (1.4)
Goodwill 59.4
-----------
$ 104.4
===========
</TABLE>
The above allocation of the estimated purchase consideration is
preliminary and may change upon final determination of the fair value of assets
acquired and liabilities assumed. Goodwill is being amortized over 40 years.
(1) Reflects the following:
<TABLE>
<S> <C>
Total sources:
Proceeds of the Offering $ 180.0
Borrowings under Senior Credit Facility 28.2
-------
208.2
-------
Total uses:
Cash consideration paid to the former shareholders of Naporano in partial
consideration for all the stock of Naporano (84.0)
Repayment of existing short-term lines of credit (9.9)
Repayment of existing debt (121.7)
Prepayment penalities incurred in connection with the repayment
of existing bank debt, net of taxes (1.0)
Estimated transaction fees for the Offering (6.4)
-------
(223.0)
-------
$ (14.8)
=======
</TABLE>
(2) Reflects the adjustment of inventory valuation for Bluestone from a LIFO
basis to a FIFO basis to conform to the Company's accounting policy for
inventory valuation. Also, reflects the deferred tax and retained earnings
impact of the change in inventory valuation.
<PAGE> 5
METAL MANAGEMENT, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (CONTINUED)
(DOLLARS IN MILLIONS)
(3) Reflects the write-up of fixed assets purchased from Naporano to
estimated fair market value.
(4) Reflects goodwill, net of acquisition costs already capitalized, related
to the acquisition of Naporano.
(5) Reflects the debt issuance costs incurred for the Offering. These costs
are being amortized over the 10 year life of the notes issued in the
Offering.
(6) Reflects the following:
<TABLE>
<S> <C>
Repayment of existing current portion of debt $ (1.8)
-------
Repayment of existing operating lines of credit (9.9)
-------
Repayment of existing long-term portion of debt (119.9)
Outstanding balance of the notes issued in the Offering 180.0
Borrowings under Senior Credit Facility 28.2
-------
Net adjustment to long-term portion of debt $ 88.3
-------
$ 76.6
=======
(7) Reflects estimated remaining transaction costs to be incurred related to the
acquisition of Naporano.
(8) Reflects the following:
Issuance of approximately 1.9 million shares of restricted common stock to
the shareholders of Naporano in partial consideration for all the
common stock of Naporano. The Company has agreed to file a registration
statement for the common stock issued within 30 days. Therefore, the
common stock was valued at approximately the closing stock price of
$10.69 on June 30, 1998. $ 19.7
The elimination of common stock and additional paid-in-capital of Naporano. (0.4)
-------
$ 19.3
=======
(9) Reflects the following:
Elimination of retained earnings of Naporano. $ (35.5)
In connection with the repayment of certain debt, the Company incurred approximately
$1.0 million, net of taxes, of one-time prepayment penalities. The prepayment
penalities will be recorded as an extraordinary charge during the first quarter
of fiscal 1999. (1.0)
-------
$ (36.5)
=======
</TABLE>
<PAGE> 6
METAL MANAGEMENT, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
MERGER/ACQUISITION PRO FORMA
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 479.7 $ 540.3 (1) $ -- $ 1,020.0
Cost of sales 431.9 491.0 (2) 1.2 (9) 924.1
--------- -------- -------- -----------
Gross profit 47.8 49.3 (1.2) 95.9
General and administrative expenses 24.4 29.4 (3) (1.1) (10) 52.7
Depreciation and amortization 10.0 5.2 (4) 2.7 (11) 17.9
Non-recurring expenses 33.7 -- -- 33.7
--------- -------- -------- -----------
Operating profit (loss) from continuing operations (20.3) 14.7 (2.8) (8.4)
Income (loss) from joint ventures 0.1 (0.3) (5) -- (0.2)
Other income, net 0.2 1.8 (6) -- 2.0
--------- -------- -------- -----------
Income (loss) from continuing operations before
interest expense and income taxes (20.0) 16.2 (2.8) (6.6)
Interest expense 9.0 5.1 (7) 9.8 (12) 23.9
--------- -------- -------- -----------
Income (loss) from continuing operations before (29.0) 11.1 (12.6) (30.5)
income taxes
Provision (benefit) for income taxes (0.4) 2.0 (8) (2.2) (13) (0.6)
--------- -------- -------- -----------
Net income (loss) from continuing operations (28.6) 9.1 (10.4) (29.9)
Preferred stock dividends 7.1 -- -- 7.1
--------- -------- -------- -----------
Net income (loss) from continuing operations
applicable to common stock $ (35.7) $ 9.1 $ (10.4) $ (37.0)
========= ======== ======== ===========
Weighted average shares outstanding 19.7 n/a 16.7 (14) 36.4
Basic loss from continuing operations
applicable to common stock $ (1.81) n/a $ (0.62) $ (1.02)
========= ======== ======== ===========
Diluted loss from continuing operations
applicable to common stock $ (1.81) n/a $ (0.62) $ (1.02)
========= ======== ======== ===========
</TABLE>
See notes to Unaudited Pro Forma Condensed Consolidated Statement of
Operations
<PAGE> 7
METAL MANAGEMENT, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN MILLIONS)
The unaudited pro forma condensed consolidated statement of operations
for the fiscal year ended March 31, 1998 reflects the Offering, the application
of the net proceeds therefrom, borrowings under the Senior Credit Facility and
the application of proceeds therefrom, the merger with Bluestone, the Pro Forma
Operating Statement Acquisitions, and other equity transactions as if such
transactions had occurred on April 1, 1997.
The unaudited Pro Forma Operating Statement Merger/Acquisitions historical
information for each period includes historical information of Bluestone for
the year ended March 31, 1998 and historical information of the Pro Forma
Operating Statement Acquisitions through each respective acquisition date or
for the twelve months ended March 31, 1998, as applicable (see introduction to
"Unaudited Pro Forma Financial Information") as follows:
<TABLE>
<S> <C>
(1) Reflects the historical net sales for: Reserve Iron & Metal $ 9.3
Isaac Group 46.0
Proler Southwest 13.5
Cozzi Iron & Metal 173.8
Aerospace 44.4
Bluestone 90.3
Naporano 163.0
-------
$ 540.3
=======
(2) Reflects the historical cost of sales for: Reserve Iron & Metal $ 8.4
Isaac Group 44.6
Proler Southwest 11.1
Cozzi Iron & Metal 162.1
Aerospace 38.8
Bluestone 85.1
Naporano 140.9
-------
$ 491.0
=======
(3) Reflects the historical general and administrative expenses
for: Reserve Iron & Metal $ 0.5
Isaac Group 3.4
Proler Southwest 1.9
Cozzi Iron & Metal 5.9
Aerospace 3.1
Bluestone 3.7
Naporano 10.9
-------
$ 29.4
=======
(4) Reflects the historical depreciation and amortization
expense for: Reserve Iron & Metal $ 0.2
Isaac Group 0.4
Proler Southwest 0.1
Cozzi Iron & Metal 1.9
Aerospace 0.5
Bluestone 0.2
Naporano 1.9
-------
</TABLE>
<PAGE> 8
METAL MANAGEMENT, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS)
<TABLE>
<S> <C> <C>
$ 5.2
=======
(5) Reflects the historical income (loss) from joint ventures
for:
Cozzi Iron & Metal $ (0.7)
Bluestone 0.2
Naporano 0.2
-------
$ (0.3)
=======
(6) Reflects the historical other income for:
Proler Southwest $ 0.1
Cozzi Iron & Metal 0.5
Aerospace 0.2
Bluestone 0.2
Naporano 0.8
-------
$ 1.8
=======
(7) Reflects the historical interest expense for:
Reserve Iron & Metal $ 0.2
Proler Southwest 0.1
Isaac Group 0.7
Cozzi Iron & Metal 2.8
Aerospace 0.1
Bluestone 1.0
Naporano 0.2
-------
$ 5.1
=======
(8) Reflects the historical income tax expense
for: Proler Southwest $ 0.2
Cozzi Iron & Metal 0.5
Aerospace 0.9
Bluestone 0.3
Naporano 0.1
-------
$ 2.0
=======
</TABLE>
The following reflects Pro Forma Adjustments to the Company's condensed
consolidated statement of operations giving effect to Offering and borrowings
under the Senior Credit Facility, the application of net proceeds therefrom,
the merger with Bluestone, the Pro Forma Operating Statement Acquisitions and
other equity transactions as if such transactions had occurred on April 1, 1997.
<TABLE>
<S> <C>
(9) Reflects the following:
Adjustment of Isaac Group's LIFO cost of goods sold to a FIFO
basis to conform to the Company policy for inventory valuation $ (0.2)
</TABLE>
<PAGE> 9
METAL MANAGEMENT, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN MILLIONS)
<TABLE>
<S> <C>
Adjustment of Aerospace's LIFO cost of goods sold to a
FIFO basis to conform to the Company policy for
inventory valuation 0.3
Adjustment of Bluestone's LIFO cost of goods sold to a
FIFO basis to conform to the Company policy for
inventory valuation 0.9
Adjustment to reflect lease expense on Aerospace's real
property which the Company is leasing under a 10 year
lease agreement 0.2
-------
$ 1.2
=======
(10) Reflects the contractual reduction in compensation expense for the former
shareholders of the Pro Forma Operating Statement Acquisitions who have
signed new employment agreements with the Company:
Isaac Group $ (0.2)
Proler Southwest (0.3)
Aerospace (0.6)
-------
$ (1.1)
=======
(11) Reflects the following adjustments to conform depreciation
policies to the Company's policy and record additional
depreciation expense on the fair value of fixed assets acquired:
Adjustment to eliminate accelerated depreciation expense
recognized by the following:
Reserve Iron & Metal $ (0.2)
Isaac Group (0.4)
Cozzi Iron & Metal (1.9)
Naporano (1.8)
-------
Subtotal $ (4.3)
-------
Adjustment to record depreciation expense under the Company's
straight-line method based on the fair market value
of fixed assets acquired, using an average useful life of 30 years
for buildings and improvements and 7 to 19 years for
machinery and equipment, for the following:
Reserve Iron & Metal $ 0.1
Isaac Group 0.4
Cozzi Iron & Metal 1.3
Naporano 1.7
-------
Subtotal $ 3.5
-------
Adjustment to record incremental depreciation expense for those companies
already using the straight-line depreciation method based
on the fair market value of fixed assets, using an average
useful life of 30 years for buildings and improvements and 7 to 19
years for machinery and equipment, for the following:
</TABLE>
<PAGE> 10
METAL MANAGEMENT, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN MILLIONS)
<TABLE>
<S> <C>
Proler Southwest $ 0.2
Aerospace 0.2
-------
Subtotal $ 0.4
-------
Adjustment to eliminate depreciation expense on the
Aerospace real estate which was not acquired by
the Company:
Subtotal (0.1)
-------
Adjustment to eliminate historical amortization on intangible assets of
Cozzi Iron & Metal which were not acquired by the Company:
Subtotal $ (0.1)
-------
Adjustment to record goodwill and intangible amortization associated
with the acquisitions of the following:
Isaac Group $ 0.4
Proler Southwest 0.3
Cozzi Iron & Metal 1.1
Aerospace 0.1
Naporano 1.4
-------
Subtotal $ 3.3
-------
TOTAL $ 2.7
=======
(12) Reflects the following:
Adjustment to record amortization of debt issuance costs of
$6.8 million over the 10 year life of the notes issued in
the Offering:
$ 0.6
Adjustment to reverse interest expense recognized on notes
payable issued to the former shareholders of Reserve Iron & Metal
which was converted into common stock: (0.1)
Adjustment to eliminate historical interest expense on debt repaid
with proceeds from the Offering: (12.8)
Adjustment to record interest expense on the $180 million of
notes issued in the Offering at an annual interest rate of 10.0%: 18.0
Adjustment to record interest expense on $21.6 million
</TABLE>
<PAGE> 11
METAL MANAGEMENT, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN MILLIONS)
<TABLE>
<S> <C>
of notes payable to the former shareholders of Isaac
Group at an annual interest rate of 8.5%: 1.8
Adjustment to record interest expense on borrowings on
Senior Credit Facility at 8.0%: 2.3
-------
TOTAL $ 9.8
=======
(13) Adjustment to record income taxes on Reserve Iron & Metal, Isaac
Group, Naporano and the tax effects of deductible pro forma adjustments
at an estimated statutory rate of 40.95%.
(14) Reflects the following:
Adjustment to weighted average shares outstanding to reflect incremental
shares issued w1ith each respective acquisition and other issuances of
common stock:
Isaac Group 0.4
Proler Southwest 0.7
Cozzi Iron & Metal 7.7
Aerospace 0.3
Bluestone 1.0
Naporano 1.9
Other issuances of Common Stock 3.0
-------
Subtotal 15.0
-------
In April and May 1997, the Company completed a private
offering of 2,025,000 shares of common stock at $7.25 per
share. Adjustment to reflect the incremental shares issued:
Subtotal 0.3
-------
On December 18, 1997, the Company completed a private
offering of 1,470,588 shares of common stock to Samstock,
L.L.C. Adjustment to reflect the incremental shares issued:
Subtotal 1.4
-------
TOTAL 16.7
=======
</TABLE>
