<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF 1934
DATE OF REPORT: MAY 1, 1998
(Date of earliest event reported)
METAL MANAGEMENT, INC.
(Exact name of registrant as specified in the charter)
<TABLE>
<S> <C> <C>
DELAWARE 0-14836 94-2835068
(State or other
jurisdiction.............. (Commission File No.) (IRS Employer
of incorporation) Identification No.)
</TABLE>
500 DEARBORN STREET, SUITE 405
CHICAGO, ILLINOIS 60610
(Address of Principal Executive Offices)
(312) 645-0700
(Registrant's telephone number including area code)
N/A
(Former name or former address, if changed since last report)
<PAGE> 2
This Current Report on Form 8-K is being filed for the purpose of providing
certain pro forma information with respect to the acquisition of Aerospace
Metals, Inc., and its consolidated subsidiaries ("Aerospace").
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired
The following financial statements of Aerospace Metals, Inc. are attached
hereto:
1. Report of Independent Accountants.
2. Consolidated Balance Sheets as of June 1, 1996 and May 31, 1997
(audited) and as of December 26, 1997 (unaudited).
3. Consolidated Statements of Income and Retained Earnings for the years
ended June 3, 1995, June 1, 1996 and May 31, 1997 (audited) and for the
seven months ended December 28, 1996 and December 26, 1997 (unaudited).
4. Consolidated Statements of Cash Flows for the years ended June 3, 1995,
June 1, 1996 and May 31, 1997 (audited) and for the seven months ended
December 28, 1996 and December 26, 1997 (unaudited).
5. Notes to Consolidated Financial Statements.
(b) Pro Forma Financial Information
The following updated, unaudited pro forma combined condensed financial
statements are attached hereto:
1. Introduction to Pro Forma Financial Information.
2. Unaudited Pro Forma Combined Condensed Balance Sheet as of December 31,
1997.
3. Notes to Unaudited Pro Forma Combined Condensed Balance Sheet.
4. Unaudited Pro Forma Combined Condensed Statement of Operations for the
nine months ended December 31, 1997.
5. Unaudited Pro Forma Combined Condensed Statement of Operations for the
year ended March 31, 1997.
6. Notes to Unaudited Pro Forma Combined Condensed Statements of Operations
2
<PAGE> 3
ITEM 7(A) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
AEROSPACE METALS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... 4
Consolidated Financial Statements:
Consolidated Balance Sheets as of June 1, 1996, May 31, 1997
and (unaudited) December 26, 1997......................... 5
Consolidated Statements of Income and Retained Earnings for
the years ended June 3, 1995, June 1, 1996, May 31, 1997
and (unaudited) seven months ended December 28, 1996 and
December 26, 1997......................................... 6
Consolidated Statements of Cash Flows for the years ended
June 3, 1995, June 1, 1996, May 31, 1997 and (unaudited)
seven months ended December 28, 1996 and December 26,
1997...................................................... 7
Notes to Consolidated Financial Statements.................. 8
</TABLE>
3
<PAGE> 4
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
AEROSPACE METALS, INC.:
We have audited the accompanying consolidated balance sheets of Aerospace
Metals, Inc. and Subsidiaries (the "Company") as of June 1, 1996 and May 31,
1997, and the related consolidated statements of income and retained earnings
and cash flows for each of the three years ended June 3, 1995, June 1, 1996 and
May 31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Aerospace Metals, Inc. and Subsidiaries as of June 1, 1996 and May 31, 1997, and
the consolidated results of their operations and cash flows for the three years
ended June 3, 1995, June 1, 1996 and May 31, 1997 in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
August 12, 1997, except as to the
information presented in Note 7,
for which the date is March 9, 1998
4
<PAGE> 5
AEROSPACE METALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 1, 1996 AND MAY 31, 1997 AND
(UNAUDITED) DECEMBER 26, 1997
<TABLE>
<CAPTION>
JUNE 1, MAY 31, DECEMBER 26,
1996 1997 1997
------- ------- ------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 3,936 $ 2,095 $ 5,762
Accounts receivable, less allowance for doubtful accounts
of $159 in 1996 and $138 in 1997 and $152 in December
1997.................................................... 10,581 10,257 5,620
Inventories............................................... 5,127 7,323 8,332
Prepaid expenses and other current assets................. 1,075 986 751
Deferred income taxes, net................................ 253 210 210
-------- -------- --------
TOTAL CURRENT ASSETS............................... 20,972 20,871 20,675
-------- -------- --------
PROPERTY, PLANT AND EQUIPMENT, AT COST...................... 16,312 17,040 17,739
Less -- accumulated depreciation.......................... (12,686) (13,257) (13,595)
-------- -------- --------
3,626 3,783 4,144
-------- -------- --------
Other assets
Investments............................................... 6 8 8
Cash surrender value of life insurance (net of policy
loans of $93 in 1996 and 1997 and December 1997)........ 111 134 139
Intangible asset -- pension plans......................... 258 224 224
-------- -------- --------
375 366 371
-------- -------- --------
TOTAL ASSETS....................................... $ 24,973 $ 25,020 $ 25,190
======== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current portion of long-term debt......................... $ 208 $ 247 $ 444
Accounts payable.......................................... 4,267 4,101 4,887
Accrued expenses.......................................... 826 503 432
Accrued and withheld taxes................................ 196 402 184
Accrued pension liability................................. 326 137 --
Income taxes payable (refundable)......................... 773 276 (282)
Dividends payable......................................... 107 -- --
-------- -------- --------
TOTAL CURRENT LIABILITIES............................ 6,703 5,666 5,665
-------- -------- --------
PENSION LIABILITY........................................... 60 137 220
LONG-TERM DEBT, LESS CURRENT PORTION........................ 712 1,928 1,806
DEFERRED INCOME TAXES, NET.................................. 535 513 513
-------- -------- --------
TOTAL LIABILITIES.................................... 8,010 8,244 8,204
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 7)
STOCKHOLDER'S EQUITY
6% preferred stock (1% cumulative) -- $100 par value;
authorized 19,365 shares; issued and outstanding -0- in
1997 and 17,800 shares in 1996.......................... 1,780 -- --
Common stock -- $25 par value; authorized 32,000 shares;
issued and outstanding 14,288 shares.................... 357 357 357
Retained earnings......................................... 14,982 16,298 16,459
Paid-in capital........................................... -- 298 298
Pension liability adjustment.............................. (156) (177) (128)
-------- -------- --------
TOTAL STOCKHOLDER'S EQUITY........................... 16,963 16,776 16,986
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY........... $ 24,973 $ 25,020 $ 25,190
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
5
<PAGE> 6
AEROSPACE METALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED JUNE 3, 1995, JUNE 1, 1996 AND MAY 31, 1997 AND
(UNAUDITED) SEVEN MONTHS ENDED DECEMBER 28, 1996 AND DECEMBER 26, 1997
<TABLE>
<CAPTION>
SEVEN MONTHS SEVEN MONTHS
ENDED ENDED
DECEMBER 28, DECEMBER 26,
1995 1996 1997 1996 1997
---- ---- ---- ------------ ------------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales........................... $42,264 $54,177 $50,400 $24,894 $28,804
Cost of goods sold.................. 35,209 44,964 44,756 23,115 26,799
------- ------- ------- ------- -------
GROSS PROFIT...................... 7,055 9,213 5,644 1,779 2,005
General and administrative
expenses.......................... 3,497 3,647 3,452 1,625 1,795
------- ------- ------- ------- -------
INCOME FROM OPERATIONS............ 3,558 5,566 2,192 154 210
Other income, net................... 290 174 204 142 168
Interest expense.................... (110) (81) (148) (52) (103)
------- ------- ------- ------- -------
INCOME BEFORE PROVISION FOR INCOME
TAXES.......................... 3,738 5,659 2,248 244 275
Provision for income taxes.......... 1,349 2,370 932 101 114
------- ------- ------- ------- -------
NET INCOME........................ 2,389 3,289 1,316 143 161
Retained earnings, beginning of
period............................ 9,518 11,800 14,982 14,982 16,298
Preferred stock dividends ($6 per
share)............................ (107) (107) -- -- --
------- ------- ------- ------- -------
Retained earnings, end of period.... $11,800 $14,982 $16,298 $15,125 $16,459
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
6
<PAGE> 7
AEROSPACE METALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 3, 1995, JUNE 1, 1996 AND MAY 31, 1997 AND
(UNAUDITED) SEVEN MONTHS ENDED DECEMBER 28, 1996 AND DECEMBER 26, 1997
<TABLE>
<CAPTION>
SEVEN MONTHS SEVEN MONTHS
ENDED ENDED
DECEMBER 28, DECEMBER 26,
1995 1996 1997 1996 1997
---- ---- ---- ------------ ------------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $ 2,389 $3,289 $ 1,316 $ 143 $ 161
------- ------ ------- ------- -------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation....................................... 663 537 571 328 339
Loss on disposition of property, plant and
equipment........................................ 6 42 -- -- --
Deferred income taxes.............................. 314 125 21 -- --
Change in assets and liabilities:
Decrease (increase) in accounts receivable,
net............................................ (4,968) (554) 324 3,029 4,637
(Increase) decrease in inventories............... 575 399 (2,196) (2,679) (1,009)
Decrease (increase) in prepaid expenses and other
current assets................................. (30) (414) 89 270 235
(Increase) in cash value of life insurance....... (33) (9) (23) (6) (5)
(Decrease) increase in accounts payable and
accrued expenses............................... 663 362 (283) (280) 497
(Decrease) increase in accrued pension costs..... 16 (778) (99) 188 (6)
(Decrease) increase in income taxes payable...... 578 55 (497) (1,305) (558)
------- ------ ------- ------- -------
Total adjustments.............................. (2,216) (235) (2,093) (455) 4,130
------- ------ ------- ------- -------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES................................... 173 3,054 (777) (312) 4,291
------- ------ ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................. (346) (509) (728) (486) (699)
Proceeds from disposition of property, plant and
equipment.......................................... -- 22 -- -- --
(Increase) in investments............................ -- -- (2) -- --
------- ------ ------- ------- -------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES................................... (346) (487) (730) (486) (699)
------- ------ ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan from officer.................................... -- -- 300 300 293
Repayment of loan from officer....................... (46) -- (261) (26) (96)
Repayment of long-term debt.......................... (139) (191) (208) (122) (122)
Purchase of preferred stock.......................... -- -- (58) (58) --
Preferred stock dividends............................ (18) (107) (107) (107) --
------- ------ ------- ------- -------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES................................... (203) (298) (334) (13) 75
------- ------ ------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS... (376) 2,269 (1,841) (811) 3,667
Cash and cash equivalents at beginning of period....... 2,043 1,667 3,936 3,936 2,095
------- ------ ------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............. $ 1,667 $3,936 $ 2,095 $ 3,125 $ 5,762
======= ====== ======= ======= =======
Supplemental disclosure of cash flow information:
Cash paid for:
Interest........................................... $ 119 $ 76 $ 135 $ 41 $ 32
Income taxes....................................... 457 2,189 1,408 1,406 672
Non-cash investing and financing activities:
For the years ended June 1, 1996 and May 31, 1997, the Company recorded minimum pension liability adjustments
of $414 and $401, respectively (see Note 3).
During fiscal year 1997, the Company redeemed its outstanding 6% preferred stock of $1,780 for $1,482,
resulting in a paid-in capital contribution of $298 (see Note 4). The transaction was funded with a cash
payment of $58 and a note in the amount of $1,424.
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
7
<PAGE> 8
AEROSPACE METALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 3, 1995, JUNE 1, 1996 AND MAY 31, 1997
AND (UNAUDITED) SEVEN MONTHS ENDED DECEMBER 28, 1996 AND DECEMBER 26, 1997
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Aerospace Metals, Inc. (the "Company") is an international company with
special capabilities in recycling aerospace and high technology metals and
alloys. Through its Suisman and Blumenthal Division, the Company is a technical
and marketing leader in the recycling of aerospace and high technology metals,
especially nickel and cobalt alloys. Suisman Titanium (a wholly-owned
subsidiary) is the world leader in recycling of titanium for the aerospace
industry. The Company is the sole manufacturer of ST-20001, a titanium scrap
turning product.
Fiscal Year
The Company prepares its financial statements on the basis of a 52-53 week
fiscal year with the year ending on the Saturday nearest May 31.
Principles of Consolidation
The consolidated financial statements include the accounts of Aerospace
Metals, Inc. (the "Company") and those of its division, Suisman & Blumenthal,
and its wholly-owned subsidiaries, Danny Corp. (formerly Aerodyne Alloys, Inc.),
and Suisman Titanium Corp. Significant intercompany accounts and transactions
have been eliminated in consolidation.
Cash Equivalents
Short-term investments with original maturities when purchased of three
months or less are considered to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the last-in, first-out (LIFO) method for the Suisman & Blumenthal
Division's inventories and the first-in, first-out (FIFO) method for the
inventories of the Company's wholly-owned subsidiaries.
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 1, MAY 31, DECEMBER 26,
1996 1997 1997
------------- ------------- ------------
(UNAUDITED)
($ IN THOUSANDS)
<S> <C> <C> <C>
Processed.............................. $ 6,569 $ 8,336 $ 9,760
Partially processed and unprocessed.... 2,122 2,213 1,798
------- ------- -------
Gross inventories at FIFO.............. 8,691 10,549 11,558
Less: LIFO reserve..................... (3,564) (3,226) (3,226)
------- ------- -------
Net inventories........................ $ 5,127 $ 7,323 $ 8,332
======= ======= =======
</TABLE>
Periodically, the Company enters into foreign currency exchange contracts
in order to hedge any currency risks associated with certain purchases of
foreign source aerospace scrap. Any gains or losses on such contracts are
recognized in the period in which the contract is settled.
8
<PAGE> 9
AEROSPACE METALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JUNE 3, 1995, JUNE 1, 1996 AND MAY 31, 1997
AND (UNAUDITED) SEVEN MONTHS ENDED DECEMBER 28, 1996 AND DECEMBER 26, 1997
Property, Plant and Equipment
Property, plant and equipment is stated at cost, less accumulated
depreciation. Depreciation of the related assets is charged against income over
their estimated useful lives by using the straight-line and declining-balance
methods. Estimated useful lives range from 3 to 40 years.
Expenditures for repairs and maintenance are charged to expense as
incurred. For assets sold or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts, and any resulting gain
or loss is reflected in income for the period.
Income Taxes
The Company uses the asset and liability method of accounting for income
taxes. Under this method, deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory rates
applicable to future years to differences between the financial statement
carrying amounts and tax bases of existing assets and liabilities. The effect on
deferred taxes of a change in tax rates is recognized in income in the period
that includes the enactment date. In addition, deferred tax assets are subject
to a valuation allowance to reduce them to net realizable value.
Pension Plans
The Company has two noncontributory defined benefit pension plans covering
substantially all of its employees. Pension expense is actuarially determined in
accordance with Statement of Financial Accounting Standards No. 87 (see Note 3).
Additionally, the Company offers a 401(k) savings plan for eligible salaried
employees.
Investments
Investments are carried at the lower of cost or market.
Concentrations of Credit Risk
The Company invests its excess cash in deposits and short-term investments,
which have maturities of less than ninety days and, therefore, bear minimal
risk. The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. The Company's sales are concentrated in
the aerospace industry, principally to domestic customers.
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, as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
9
<PAGE> 10
AEROSPACE METALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JUNE 3, 1995, JUNE 1, 1996 AND MAY 31, 1997
AND (UNAUDITED) SEVEN MONTHS ENDED DECEMBER 28, 1996 AND DECEMBER 26, 1997
NOTE 2 -- PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment is as follows:
<TABLE>
<CAPTION>
JUNE 1, MAY 31, DECEMBER 26,
1996 1997 1997
-------- -------- ------------
(UNAUDITED)
($ IN THOUSANDS)
<S> <C> <C> <C>
Land................................... $ 269 $ 269 $ 269
Plant and improvements................. 4,626 4,654 4,654
Roads and surfacing.................... 466 526 526
Machinery and equipment................ 8,255 8,715 9,000
Trucks, cranes and containers.......... 2,266 2,290 2,329
Furniture, fixtures and office
equipment............................ 418 433 439
Construction in process................ 12 153 522
-------- -------- --------
16,312 17,040 17,739
Less -- accumulated depreciation....... (12,686) (13,257) (13,595)
-------- -------- --------
$ 3,626 $ 3,783 $ 4,144
======== ======== ========
</TABLE>
NOTE 3 -- EMPLOYEE BENEFIT PLANS
The Company has two defined benefit pension plans (salaried and hourly)
covering substantially all of its employees. The benefits for the salaried plan
are based on years of service and the employee's compensation during the later
years of employment. Benefits for the hourly plan are based on arrangements set
forth in collective bargaining agreements. Contributions are intended to provide
not only for benefits attributed to service to date but also for those expected
to be earned in the future. The Company's policy is to fund an amount within the
deductible range as allowed by Internal Revenue Service regulations.
10
<PAGE> 11
AEROSPACE METALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JUNE 3, 1995, JUNE 1, 1996 AND MAY 31, 1997
AND (UNAUDITED) SEVEN MONTHS ENDED DECEMBER 28, 1996 AND DECEMBER 26, 1997
The following table sets forth a reconciliation of each of the plan's
funded status to the amounts recognized in the Company's consolidated balance
sheets as of June 1, 1996, May 31, 1997 and December 26, 1997, respectively:
<TABLE>
<CAPTION>
JUNE 1, 1996
------------------------------
SALARIED HOURLY TOTAL
-------- ------- -------
($ IN THOUSANDS)
<S> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefits............................ $ 2,874 $ 1,561 $ 4,435
Nonvested benefits......................... 24 44 68
------- ------- -------
Accumulated benefit obligations.............. 2,898 1,605 4,503
Projected effect of future compensation
increases.................................. 328 15 343
------- ------- -------
Projected benefit obligations for service
rendered to date........................... 3,226 1,620 4,846
Less - plan assets at fair value, primarily
insurance company separate accounts,
immediate participation guarantee contracts
and mutual funds........................... (2,915) (1,549) (4,464)
------- ------- -------
Projected benefit obligations in excess of
plan assets................................ 311 71 382
Unrecognized prior service cost.............. (39) (143) (182)
Unrecognized net gain (loss) from past
experience different from that assumed and
effects of changes in assumptions.......... 292 (171) 121
Unrecognized net obligation at June 1, 1987
being recognized over 15 years............. (234) (115) (349)
Additional minimum liability................. -- 414 414
------- ------- -------
Accrued pension liability included in the
Company's consolidated balance sheets...... $ 330 $ 56 $ 386
======= ======= =======
</TABLE>
11
<PAGE> 12
AEROSPACE METALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JUNE 3, 1995, JUNE 1, 1996 AND MAY 31, 1997
AND (UNAUDITED) SEVEN MONTHS ENDED DECEMBER 28, 1996 AND DECEMBER 26, 1997
<TABLE>
<CAPTION>
MAY 31, 1997
------------------------------------
SALARIED HOURLY TOTAL
-------- -------- --------
($ IN THOUSANDS)
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits...................................... $ 2,756 $ 1,631 $ 4,387
Nonvested benefits................................... 36 50 86
------- ------- -------
Accumulated benefit obligations........................ 2,792 1,681 4,473
Projected effect of future compensation increases...... 625 -- 625
------- ------- -------
Projected benefit obligations for service rendered to
date................................................. 3,417 1,681 5,098
Less -- plan assets at fair value, primarily insurance
company separate accounts, immediate participation
guarantee contracts and mutual funds................. (3,105) (1,663) (4,768)
------- ------- -------
Projected benefit obligations in excess of plan
assets............................................... 312 18 330
Unrecognized prior service cost........................ (37) (127) (164)
Unrecognized net gain (loss) from past experience
different from that assumed and effects of changes in
assumptions.......................................... 187 (177) 10
Unrecognized net obligation at June 1, 1987 being
recognized over 15 years............................. (206) (97) (303)
Additional minimum liability........................... -- 401 401
------- ------- -------
Accrued pension liability included in the Company's
consolidated balance sheets.......................... $ 256 $ 18 $ 274
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 26, 1997
----------------------------------
SALARIED HOURLY TOTAL
-------- ------- -------
(UNAUDITED)
($ IN THOUSANDS)
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits...................................... $ 2,914 $ 1,688 $ 4,602
Nonvested benefits................................... 36 53 89
------- ------- -------
Accumulated benefit obligations........................ 2,950 1,741 4,691
Projected effect of future compensation increases...... 625 -- 625
------- ------- -------
Projected benefit obligations for service rendered to
date................................................. 3,575 1,741 5,316
Less -- plan assets at fair value, primarily insurance
company separate accounts, immediate participation
guarantee contracts and mutual funds................. (3,337) (1,781) (5,118)
------- ------- -------
Projected benefit obligations in excess of (less than)
plan assets.......................................... 238 (40) 198
Unrecognized prior service cost........................ (36) (118) (154)
Unrecognized net gain (loss) from past experience
different from that assumed and effects of changes in
assumptions.......................................... 248 (150) 98
Unrecognized net obligation at June 1, 1987 being
recognized over 15 years............................. (190) (87) (277)
Additional minimum liability........................... -- 355 355
------- ------- -------
Accrued pension liability included in the Company's
consolidated balance sheets.......................... $ 260 $ (40) $ 220
======= ======= =======
</TABLE>
12
<PAGE> 13
AEROSPACE METALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JUNE 3, 1995, JUNE 1, 1996 AND MAY 31, 1997
AND (UNAUDITED) SEVEN MONTHS ENDED DECEMBER 28, 1996 AND DECEMBER 26, 1997
Net pension cost included the following components:
<TABLE>
<CAPTION>
JUNE 3, JUNE 1, MAY 31, DECEMBER 28, DECEMBER 26,
1995 1996 1997 1996 1997
------- ------- ------- ------------ ------------
(UNAUDITED)
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Service cost --
benefits earned
during the period... $ 159 $ 123 $ 158 $ 92 $ 97
Interest cost on
projected benefit
obligation.......... 369 374 406 237 240
Actual return on plan
assets.............. (184) (428) (484) (234) (246)
Net amortization and
deferral............ (32) 178 147 38 38
----- ----- ----- ----- -----
$ 312 $ 247 $ 227 $ 133 $ 129
===== ===== ===== ===== =====
</TABLE>
The weighted-average discount rate, rate of increase in future compensation
levels and the expected long-term rate of return on assets used in determining
the actuarial present value of the projected benefit obligation for fiscal years
1995, 1996 and 1997 were 8.25%, 4.5% and 9.0%, respectively.
In accordance with provisions of Statement of Financial Accounting
Standards No. 87, "Employers' Accounting for Pensions" ("SFAS 87"), the Company
has accrued an additional minimum liability of $414,000 and $401,000 as of June
1, 1996 and May 31, 1997, respectively. Under the provisions of SFAS 87, a
corresponding amount is recognized as either an intangible asset, a reduction of
equity or a combination of both. Accordingly, the Company recorded intangible
assets of $258,000 and $224,000 as of June 1, 1996 and May 31, 1997,
respectively. In addition, the Company recorded equity reductions of $156,000
and $177,000 as of June 1, 1996 and May 31, 1997, respectively.
The Company offers a savings plan under Section 401(k) of the Internal
Revenue Code. The savings plan allows eligible salaried employees to defer up to
10% of their income on a pretax basis through contributions to the plan. For
every dollar an employee contributes (up to 6% of an individual's income on a
pretax basis), the Company will match 50%. For the years ended June 3, 1995,
June 1, 1996 and May 31, 1997, the expense for matching contributions was
$48,000, $55,000 and $64,000, respectively.
13
<PAGE> 14
AEROSPACE METALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JUNE 3, 1995, JUNE 1, 1996 AND MAY 31, 1997
AND (UNAUDITED) SEVEN MONTHS ENDED DECEMBER 28, 1996 AND DECEMBER 26, 1997
NOTE 4 -- LONG-TERM DEBT
Long-term debt comprised the following at:
<TABLE>
<CAPTION>
JUNE 1, MAY 31, DECEMBER 26,
1996 1997 1997
------- ------- ------------
(UNAUDITED)
($ IN THOUSANDS)
<S> <C> <C> <C>
Officer promissory note, due on demand
(a)..................................... $ -- $ 39 $ 236
Term loan (b)............................. 920 712 590
7 1/2% promissory note, due 2006 (c)...... -- 1,424 1,424
----- ------ ------
920 2,175 2,250
Less -- current portion................... (208) (247) (444)
----- ------ ------
$ 712 $1,928 $1,806
===== ====== ======
</TABLE>
(a) This promissory note, which is payable to the Chairman of the
Company, was entered into during fiscal year 1997, in the amount of
$300,000 and is payable upon demand and accrues interest at the base
rate minus 1/2%.
(b) The Company has a credit facility with Fleet Bank consisting of a
term loan facility of $2,500,000 and a revolving working capital
line of credit of $10,000,000. At June 1, 1996 and May 31, 1997,
borrowings of $920,000 and $712,000, respectively, were outstanding
under the term loan facility, which expires on October 1, 2000.
These borrowings bear interest at a fixed rate of 6.98%. Under the
terms of this facility, the Company covenants that, among other
things, it will maintain certain levels of tangible net worth. An
additional $1,250,000 is available to the Company under the term
loan facility for a seven-year term, at a fixed rate of interest to
be determined at the time of the related closing. The revolving
$10,000,000 working capital line of credit expires on December 1,
1998 and bears interest at the bank's base rate with an option to
convert to a LIBOR rate. Borrowings under this facility are limited
by a collateral formula based on levels of accounts receivable and
inventories. At June 1, 1996 and May 31, 1997, there were no
borrowings outstanding under this line of credit, however, the
Company did maintain standby letters of credit in conjunction with
its workers' compensation insurance plan, in the amount of
approximately $165,000 and $100,000, respectively. Both the term
loan and the working capital line of credit are collateralized by
accounts receivable, inventories and certain personal property.
(c) On December 15, 1996, the Company redeemed all the outstanding
shares of its 6% preferred stock in exchange for an initial $58,000
payment and a $1,424,000 promissory note (the "Note"). The Note,
issued to a related party, bears interest at a fixed rate of 7 1/2%
and matures in 2006. The Note is uncollateralized and subordinate to
the prior payment in full of any institutional indebtedness.
Interest, in the amount of approximately $49,000, had been paid as
of May 31, 1997.
14
<PAGE> 15
AEROSPACE METALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JUNE 3, 1995, JUNE 1, 1996 AND MAY 31, 1997
AND (UNAUDITED) SEVEN MONTHS ENDED DECEMBER 28, 1996 AND DECEMBER 26, 1997
Maturities of long-term debt at May 31, 1997 for the succeeding five fiscal
years and thereafter are as follows:
<TABLE>
<CAPTION>
($ IN
THOUSANDS)
<S> <C>
1998................................ $ 247
1999................................ 208
2000................................ 208
2001................................ 88
2002................................ --
Thereafter.......................... 1,424
------
$2,175
======
</TABLE>
NOTE 5 -- INCOME TAXES
The provision for income taxes comprised the following:
<TABLE>
<CAPTION>
JUNE 3, JUNE 1, MAY 31, DECEMBER 28, DECEMBER 26,
1995 1996 1997 1996 1997
------- ------- ------- ------------ ------------
(UNAUDITED)
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Currently payable:
Federal................... $ 867 $1,597 $666 $ 75 $ 85
State..................... 168 648 246 26 29
------ ------ ---- ---- ----
1,035 2,245 912 101 114
------ ------ ---- ---- ----
Deferred:
Federal................... 278 94 15 -- --
State..................... 36 31 5 -- --
------ ------ ---- ---- ----
314 125 20 -- --
------ ------ ---- ---- ----
$1,349 $2,370 $932 $101 $114
====== ====== ==== ==== ====
</TABLE>
Deferred taxes comprised the following:
<TABLE>
<CAPTION>
JUNE 1, MAY 31, DECEMBER 26,
1996 1997 1997
------- ------- ------------
(UNAUDITED)
($ IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets.............................. $ 354 $ 272 $ 272
Deferred tax liabilities......................... (636) (575) (575)
----- ----- -----
$(282) $(303) $(303)
===== ===== =====
</TABLE>
The principal temporary differences that give rise to deferred tax assets
and liabilities are related to inventory capitalization adjustments,
miscellaneous reserves, and the use of accelerated methods of depreciation.
The difference between the actual tax provision and the amounts obtained by
applying the statutory U.S. Federal income rate of 34% to income before taxes is
primarily attributable to state income taxes.
15
<PAGE> 16
AEROSPACE METALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JUNE 3, 1995, JUNE 1, 1996 AND MAY 31, 1997
AND (UNAUDITED) SEVEN MONTHS ENDED DECEMBER 28, 1996 AND DECEMBER 26, 1997
NOTE 6 -- CONTINGENT LIABILITY
The Company has been named, together with other parties, in certain claims
by the U.S. Environmental Protection Agency (the "EPA"), as a potentially
responsible party ("PRP"), with respect to alleged liability under the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"),
relating to cleanup costs at certain sites not owned or operated by the Company.
The Company's counsel has indicated that it was not possible at this time
to provide an opinion as to the potential liability, if any, with respect to any
of the aforementioned CERCLA claims. In the opinion of management, ultimate
resolution of these claims will not have a material impact on the financial
position of the Company.
NOTE 7 -- SUBSEQUENT EVENT
On January 20, 1998, Metal Management, Inc. ("MTLM") purchased certain of
the Company's assets and assumed certain of its liabilities. In connection with
this transaction, approximately $2 million of the purchase price is being held
in escrow to cover the anticipated costs of remediating the Company's property,
in accordance with a remediation workplan approved by MTLM. Currently, a
subsidiary of MTLM is leasing the property under a ten year lease with an option
to purchase the property after four years. Management believes that the escrowed
funds will be sufficient to cover the remediation costs contemplated by the
remediation workplan.
16
<PAGE> 17
ITEM 7(B) PRO FORMA FINANCIAL INFORMATION
PRO FORMA FINANCIAL INFORMATION
(UNAUDITED)
The following unaudited pro forma combined condensed balance sheet of the
Company gives effect to the acquisition of Aerospace and other transactions as
if such transactions had occurred on December 31, 1997. The following unaudited
pro forma combined condensed other statements of operations of the Company give
effect to the Completed Acquisitions (defined below) and certain transactions as
if such transactions had occurred on April 1, 1996.
The unaudited pro forma combined condensed statements of operations do not
reflect the operating results from discontinued operations. 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 (the "Completed 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 Completed
Acquisition is as follows:
<TABLE>
<CAPTION>
ACQUISITION EFFECTIVE DATE
----------- --------------
<S> <C>
MacLeod Companies........................................... 1/1/97
HouTex...................................................... 1/7/97
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
</TABLE>
The accompanying unaudited pro forma condensed combined financial
statements have been derived from:
a. The Company's unaudited consolidated condensed balance sheet as of
December 31, 1997, audited consolidated statement of operations for the
year ended March 31, 1997 and unaudited consolidated condensed statements
of operations for the nine months ended December 31, 1996 and 1997;
b. The MacLeod Companies' audited consolidated statement of operations for
the year ended June 30, 1996 and unaudited consolidated statements of
operations for the three months ended June 30, 1996 and the six months
ended December 31, 1996;
c. HouTex's audited consolidated statement of operations for the nine
months ended June 30, 1996 and unaudited consolidated statements of
operations for the six months ended March 31, 1996 and the three months
ended December 31, 1996;
d. Reserve Iron & Metal's audited statement of income for the year ended
December 31, 1996 and unaudited statements of income for the three months
ended March 31, 1996 and four months ended April 30, 1997;
e. The audited statement of operations for the year ended December 31, 1996
and the unaudited statements of operations for the three months ended
March 31, 1996 and 1997 and the periods ended June 30, 1996 and June 23,
1997 of The Isaac Corporation and Ferrex Trading Corporation;
17
<PAGE> 18
PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(UNAUDITED)
f. Proler Southwest's audited combined statement of operations for the
year ended December 31, 1996 and unaudited combined statements of
operations for the three months ended March 31, 1996 and 1997 and the
eight months ended August 31, 1996 and 1997;
g. Cozzi Iron & Metal's audited consolidated statement of operations for
the year ended December 31, 1996 and unaudited consolidated statements of
operations for the three months ended March 31, 1996 and 1997 and the
eleven months ended November 30, 1997;
h. Aerospace's unaudited consolidated balance sheet as of December 26,
1997, audited consolidated statement of income and retained earnings for
the year ended June 1, 1996 and May 31, 1997 and unaudited consolidated
statements of income and retained earnings for the ten months ended March
29, 1996 and 1997 and the seven months ended December 28, 1996 and
December 26, 1997.
The excess of the acquisition cost over the fair value (as estimated by the
Company) of the net assets acquired from Aerospace 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
Completed Acquisitions have been reclassified in the pro forma presentation to
conform to the Company's operating statement presentation.
The unaudited pro forma combined condensed 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 combined condensed
financial statements are presented or for any future period or date.
18
<PAGE> 19
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
MTLM AEROSPACE PRO FORMA PRO FORMA
12/31/97 12/26/97 ADJUSTMENTS(1) COMBINED
-------- --------- -------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................. $ 30,134 $ 5,762 $(14,411)(2) $ 8,123
(5,762)(5)
(20,900)(11)
13,300(13)
Accounts receivable, net.................. 85,900 5,620 90(5) 91,610
Inventories............................... 43,350 8,332 3,226(7) 54,908
Other current assets...................... 6,352 961 (251)(5) 7,062
-------- ------- -------- --------
Total current assets.............. 165,736 20,675 (24,708) 161,703
Property and equipment, net................. 94,532 4,144 1,926(8) 98,876
(1,726)(9)
Goodwill and other intangibles.............. 166,619 224 2,763(6) 169,382
(224)(5)
Other assets................................ 10,027 147 (147)(5) 10,027
-------- ------- -------- --------
Total Assets...................... $436,914 $25,190 $(22,116) $439,988
======== ======= ======== ========
LIABILITIES AND EQUITY
Current liabilities:
Operating lines of credit................. $ 7,610 $ 0 $ (7,610)(14) $ 0
Accounts payable.......................... 53,823 4,887 74(4) 58,784
Other accrued liabilities................. 14,272 334 109(5) 14,618
(97)(12)
Current portion of debt................... 29,748 444 (444)(5) 0
(20,900)(11)
(1,542)(12)
13,300(13)
(20,606)(14)
-------- ------- -------- --------
Total current liabilities.............. 105,453 5,665 (37,716) 73,402
Long term debt, less current................ 96,272 1,806 (1,806)(5) 124,488
28,216(14)
Deferred taxes.............................. 11,534 513 (513)(5) 11,534
Other liabilities........................... 836 220 (220)(5) 836
-------- ------- -------- --------
Total Liabilities................. 214,095 8,204 (12,039) 210,260
-------- ------- -------- --------
Stockholders equity:
Convertible preferred stock -- Series A... 24,217 0 0 24,217
Convertible preferred stock -- Series B... 19,063 0 0 19,063
Common stock, warrants and additional paid
in capital............................. 210,352 527 5,270(3) 217,261
(527)(10)
1,639(12)
Retained earnings (accumulated deficit)... (30,813) 16,459 (16,459)(10) (30,813)
-------- ------- -------- --------
Total stockholders equity.............. 222,819 16,986 (10,077) 229,728
-------- ------- -------- --------
Total Liabilities and Stockholders
Equity.......................... $436,914 $25,190 $(22,116) $439,988
======== ======= ======== ========
</TABLE>
See notes to unaudited pro forma combined condensed balance sheet.
19
<PAGE> 20
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
Items 1-10 represent pro forma adjustments to the Company's combined
balance sheet as of December 31, 1997 giving effect to the acquisition of
Aerospace using the purchase method of accounting.
1. The estimated purchase consideration is comprised of the following ($ in
000's):
<TABLE>
<CAPTION>
AEROSPACE
---------
<S> <C>
Shares of MTLM restricted common stock issued............... 402,893
Cash payment................................................ $ 14,411
Value of restricted common stock issued..................... 5,270
Cash payment for transaction costs.......................... 210
--------
Total estimated consideration..................... $ 19,891
========
</TABLE>
The estimated purchase consideration will be allocated for pro forma
purposes as follows (in 000's):
<TABLE>
<CAPTION>
AEROSPACE
---------
<S> <C>
Current assets.............................................. $17,978
Noncurrent assets........................................... 4,344
Current liabilities......................................... (5,330)
Long term debt/other liabilities............................ 0
Goodwill.................................................... 2,899
-------
$19,891
=======
</TABLE>
The above allocation of the estimated 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.
2. Reflects the cash consideration paid to the former shareholder of Aerospace
in partial consideration for substantially all of the assets of Aerospace.
3. Reflects the issuance of 402,893 shares of restricted common stock at $13.08
per share issued to the sole shareholder of Aerospace in partial
consideration for substantially all of the assets of Aerospace.
4. Reflects estimated transaction costs remaining to be incurred for Aerospace
(in 000's):
<TABLE>
<S> <C>
Estimated transaction costs................................. $210
Incurred through December 31, 1997.......................... 136
----
Remaining costs to be paid........................ $ 74
====
</TABLE>
The remaining costs to be incurred is presented as an increase in accounts
payable.
5. Reflects the elimination of assets and liabilities which were not purchased
or assumed from Aerospace.
6. Reflects the goodwill, net of transaction costs already capitalized, related
to the acquisition of Aerospace.
7. Reflects the adjustment of LIFO inventory to a FIFO basis to conform to
MTLM's accounting policy for inventory valuation.
20
<PAGE> 21
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED BALANCE SHEET -- (CONTINUED)
8. Reflects the write-up of fixed assets to fair market value (in 000's):
<TABLE>
<S> <C>
Fair market value........................................... $4,344
Book value.................................................. 2,418
------
Write-up of fixed assets.......................... $1,926
======
</TABLE>
9. Reflects the elimination of real property of Aerospace which was not
purchased by the Company.
10. Reflects the elimination of the equity accounts of Aerospace.
Items 11-14 represent pro forma adjustments to the Company's combined
balance sheet for other transactions completed by the Company subsequent to
December 31, 1997 assuming these transactions occurred on December 31, 1997.
11. On January 7, 1998, the Company repaid a $8.1 million short-term loan issued
to the former shareholders of Proler Southwest, Inc. On February 13, 1998,
the Company repaid $12.8 million of short-term loans issued to the former
shareholders of Isaac. Presented as a $20.9 million decrease to cash and
current portion of debt.
12. On January 14, 1998, the former shareholders of Reserve converted a
$1,541,660 note payable and accrued interest of $97,124 into 182,087 shares
of common stock. Presented as a $1,541,660 reduction in current portion of
debt, a $97,124 reduction in accrued expenses and a $1,638,784 increase in
equity.
13. On February 12, 1998, the Company drew $13.3 million from two lines of
credit at an interest rate of prime rate plus 50 basis points. Presented as
a $13.3 million increase in cash and current portion of debt.
14. On March 31, 1998, the Company entered into a Senior Credit facility, with a
three year term, which refinanced substantially all of the Company's
existing debt. Pro forma adjustment reflects reclassification of current
portion of debt to long-term portion of debt.
21
<PAGE> 22
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THE COMPANY RESERVE ISAAC
NINE MONTHS ONE MONTH TWELVE WEEKS
ENDED ENDED ENDED
12/31/97 4/30/97 6/23/97
----------- --------- ------------
<S> <C> <C> <C>
Net sales............................................ $ 283,353 $9,304 $46,039
Cost of sales........................................ 255,579 8,448 44,628
---------- ------ -------
Gross profit......................................... 27,774 856 1,411
Expenses:
General and administrative......................... 14,610 489 3,392
Depreciation and amortization...................... 6,712 186 361
Non-recurring expenses............................. 33,710
---------- ------ -------
Operating income (loss) from continuing operations... (27,258) 181 (2,342)
Interest expense..................................... (6,166) (226) (677)
Income (loss) from joint-ventures.................... 195 38
Other income, net.................................... 562 0 44
---------- ------ -------
Income (loss) from continuing operations before
income taxes....................................... (32,667) (7) (2,975)
Provision (benefit) for income tax................... (3,165) 0 0
---------- ------ -------
Net income (loss) from continuing operations......... (29,502) (7) (2,975)
Accretion of preferred stock to redemption value..... 57
Preferred stock dividends............................ 895
Non-cash dividend.................................... 5,592
---------- ------ -------
Net income (loss) from continuing operations
applicable to common stock......................... $ (36,046) $ (7) $(2,975)
========== ====== =======
Net income (loss) from continuing operations per
common share....................................... $ (2.25) n/a n/a
Weighted average shares outstanding.................. 16,032,000 n/a n/a
</TABLE>
See notes to unaudited pro forma combined condensed statement of operations.
22
<PAGE> 23
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENT OF OPERATIONS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
PROLER COZZI AEROSPACE COMBINED
FIVE MONTHS EIGHT MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED PRO FORMA ENDED
8/31/97 11/30/97 12/26/97 ADJUSTMENTS 12/31/97
----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$13,477 $173,813 $41,109 $ 0 $ 567,095
11,123 162,100 35,966 112(1) 518,159
203(2)
------- -------- ------- ---------- ----------
2,354 11,713 5,143 (315) 48,936
1,872 5,878 2,861 (1,133)(3) 27,969
144 1,871 444 1,870(4) 11,179
(2,425)(4)
264(5)
(53)(6)
1,752(7)
53(8)
33,710
------- -------- ------- ---------- ----------
338 3,964 1,838 (643) (23,922)
(34) (2,832) (132) 93(9) (9,853)
1,308(10)
(426)(11)
(761)(12)
(739) (506)
133 477 172 1,388
------- -------- ------- ---------- ----------
437 870 1,878 (429) (32,893)
216 514 780 (685)(13) (2,340)
------- -------- ------- ---------- ----------
221 356 1,098 256 (30,553)
57
6,487
------- -------- ------- ---------- ----------
$ 221 $ 356 $ 1,098 $ 256 $ (37,097)
======= ======== ======= ========== ==========
n/a n/a n/a $ (1.23)
n/a n/a n/a 12,420,429(14) 30,115,455
261,957(15)
1,401,069(16)
</TABLE>
See notes to unaudited pro forma combined condensed statement of operations.
23
<PAGE> 24
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AUDITED MACLEOD HOUTEX RESERVE ISAAC PROLER
THE COMPANY NINE MONTHS NINE MONTHS TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS
FISCAL YEAR ENDED ENDED ENDED ENDED ENDED
MARCH 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31, MARCH 31,
1997 1996 1996 1997 1997 1997
----------- ------------ ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales..................... $ 65,196 $22,867 $15,658 $119,579 $176,065 $30,709
Cost of sales................. 58,324 23,024 11,400 110,255 162,157 25,365
--------- ------- ------- -------- -------- -------
Gross profit................ 6,872 (157) 4,258 9,324 13,908 5,344
Expenses:
General and
administrative............ 6,174 1,083 4,141 5,035 7,756 5,546
Depreciation and
amortization.............. 2,282 164 209 2,249 1,738 360
--------- ------- ------- -------- -------- -------
Operating income (loss) from
continuing operations....... (1,584) (1,404) (92) 2,040 4,414 (562)
Interest expense.............. (1,449) (81) (378) (2,330) (763) (88)
Income (loss) from joint
ventures.................... 468
Other income, net............. 181 378 45 152 465 479
--------- ------- ------- -------- -------- -------
Income (loss) from continuing
operations before income
taxes....................... (2,852) (1,107) (425) 330 4,116 (171)
Provision (benefit) for income
tax......................... (842) (319) (124) 0 0 (58)
--------- ------- ------- -------- -------- -------
Net income (loss) from
continuing operations
applicable to common
stock....................... $ (2,010) $ (788) $ (301) $ 330 $ 4,116 $ (113)
========= ======= ======= ======== ======== =======
Net income (loss) from
continuing operations per
common share................ $ (0.22) n/a n/a n/a n/a n/a
Weighted average shares
outstanding................. 9,106,000 n/a n/a n/a n/a n/a
</TABLE>
See notes to unaudited pro forma combined condensed statement of operations.
24
<PAGE> 25
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENT OF OPERATIONS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COZZI AEROSPACE PRO FORMA
TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS
ENDED ENDED ENDED
MARCH 31, MARCH 31, PRO FORMA MARCH 31,
1997 1997 ADJUSTMENTS 1997
------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
$216,851 $50,112 $ 0 $ 697,037
201,601 44,261 (1,494)(1) 635,163
270(2)
-------- ------- ---------- ----------
15,250 5,851 1,224 61,874
7,608 3,526 (7,596)(3) 33,273
2,454 565 5,410(4) 14,281
(6,264)(4)
1,003(5)
(183)(6)
4,065(7)
229(8)
-------- ------- ---------- ----------
5,188 1,760 4,560 14,320
(2,879) (111) 46(9) (11,112)
281(10)
(1,780)(11)
(1,580)(12)
(910) (442)
838 224 2,762
-------- ------- ---------- ----------
2,237 1,873 1,527 5,528
986 794 3,986(13) 4,423
-------- ------- ---------- ----------
$ 1,251 $ 1,079 $ (2,459) $ 1,105
======== ======= ========== ==========
n/a n/a $ 0.04
n/a n/a 17,362,392(14) 30,366,531
2,025,000(15)
1,470,588(16)
402,551(17)
</TABLE>
See notes to unaudited pro forma combined condensed statement of operations.
25
<PAGE> 26
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF OPERATIONS
The following reflects pro forma adjustments to the Company's statements of
operations giving effect to the Completed Acquisitions and other transactions as
if these transactions had occurred on April 1, 1997.
1. Reflects the adjustment of LIFO cost of goods sold for Isaac, Cozzi and
Aerospace to conform to the Company's accounting policy for inventory
valuation. Adjustment is through the effective dates for the Isaac and Cozzi
acquisition (in 000's):
<TABLE>
<CAPTION>
9 MONTHS FISCAL YEAR
ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1997
------------ -----------
<S> <C> <C>
Isaac............................................... $(206) $ (112)
Cozzi............................................... (20) (993)
Aerospace........................................... 338 (389)
----- -------
Total..................................... $ 112 $(1,494)
===== =======
</TABLE>
2. The Company did not purchase the real estate where the operations of
Aerospace are conducted. The Company entered into a 10 year lease agreement
requiring annual lease payments of $150,000 for the first two years of the
lease. The annual lease payments will increase to $300,000 for the remaining
term. The pro forma adjustment reflects the straight-line lease expense for
the period.
3. Reflects the reduction in compensation expense for the former shareholders
of the Completed Acquisitions Companies who have signed new employment
agreements with the Company. The pro forma adjustment is reflected for the
period up to the effective date for each respective acquisition (in 000's):
<TABLE>
<CAPTION>
9 MONTHS FISCAL YEAR
ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1997
------------ -----------
<S> <C> <C>
Isaac............................................... $ 173 $2,859
MacLeod............................................. n/a 132
HouTex.............................................. n/a 188
Proler.............................................. 271 3,134
Cozzi............................................... 25 542
Aerospace........................................... 664 741
------ ------
Total..................................... $1,133 $7,596
====== ======
</TABLE>
4. Reserve, Isaac and Cozzi recorded depreciation expense based on accelerated
depreciation methods. The Company calculates depreciation expense using the
straight line method. Reflects the reversal of depreciation expense
recognized based on the accelerated method and the recognition of
depreciation expense based on the straight-line method. Depreciation expense
is calculated based on the fair market value of the fixed assets acquired
using an average useful life of 30 years for buildings and improvements, 7
to 19 years for operating
26
<PAGE> 27
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF OPERATIONS -- (CONTINUED)
machinery and equipment and 5 years for office equipment. The pro forma
adjustment is reflected for the period up to the effective date for each
respective acquisition (in 000's):
<TABLE>
<CAPTION>
9 MONTHS FISCAL YEAR
ENDED ENDED
DECEMBER 31, MARCH 31,
REVERSAL OF ACCELERATED DEPRECIATION EXPENSE: 1997 1997
--------------------------------------------- ------------ -----------
<S> <C> <C>
Reserve............................................. $ 177 $2,139
Cozzi............................................... 1,888 2,386
Isaac............................................... 360 1,739
------ ------
Total..................................... $2,425 $6,264
====== ======
</TABLE>
<TABLE>
<CAPTION>
9 MONTHS FISCAL YEAR
ENDED ENDED
DECEMBER 31, MARCH 31,
STRAIGHT-LINE DEPRECIATION EXPENSE: 1997 1997
----------------------------------- ------------ -----------
<S> <C> <C>
Reserve............................................. $ 129 $1,545
Cozzi............................................... 1,298 1,947
Isaac............................................... 443 1,918
------ ------
Total..................................... $1,870 $5,410
====== ======
</TABLE>
5. MacLeod, Houtex, Proler and Aerospace used the straight line method for
recording depreciation expense. Reflects additional depreciation expense on
the write-up of the fixed assets to fair market value. Incremental
depreciation expense was computed assuming an average useful life of 30
years for buildings and improvements and 7 years for machinery and
equipment. Also, the Company did not purchase the real estate where
Aerospace's operations are located. Therefore, historical depreciation
expense on the real estate is eliminated. Pro forma adjustment is reflected
for the period up to the effective date for each respective acquisition (in
000's).
<TABLE>
<CAPTION>
9 MONTHS FISCAL YEAR
ENDED ENDED
DECEMBER 31, MARCH 31,
INCREMENTAL DEPRECIATION EXPENSE: 1997 1997
--------------------------------- ------------ -----------
<S> <C> <C>
MacLeod............................................. n/a $ 175
HouTex.............................................. n/a 328
Aerospace........................................... 206 275
Aerospace real estate............................... (98) (149)
Proler.............................................. 156 374
---- ------
Total..................................... $264 $1,003
==== ======
</TABLE>
6. Reflects the elimination of existing goodwill amortization for Reserve and
Cozzi. Pro forma adjustment is reflected for the period up to the effective
date of each respective acquisition.
<TABLE>
<CAPTION>
9 MONTHS FISCAL YEAR
ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1997
------------ -----------
<S> <C> <C>
Reserve............................................. $ 9 $110
Cozzi............................................... 44 73
--- ----
Total..................................... $53 $183
=== ====
</TABLE>
27
<PAGE> 28
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF OPERATIONS -- (CONTINUED)
7. Reflects goodwill amortization associated with the acquisition of each
respective company. Pro forma adjustments are reflected for the period up to
the effective date of each respective acquisition (in 000's):
<TABLE>
<CAPTION>
9 MONTHS FISCAL YEAR
ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1997
------------ -----------
<S> <C> <C>
MacLeod............................................. n/a $ 102
HouTex.............................................. n/a 131
Reserve............................................. 15 180
Isaac............................................... 280 1,212
Proler.............................................. 292 702
Cozzi............................................... 1,111 1,666
Aerospace........................................... 54 72
------ ------
Total..................................... $1,752 $4,065
====== ======
</TABLE>
8. Reflects amortization expense on the $1.8 million non-compete intangible
asset created from the acquisition of Isaac. The non-compete intangible
asset is being amortized over 8 years which represents the term of the
non-compete agreement. Pro forma adjustment represents estimated
amortization for periods prior to the effective date of the Isaac
acquisition.
9. Pro forma adjustment reflects elimination of interest expense recognized by
Aerospace on a preferred stock redemption and shareholder loan which were
not assumed liabilities.
10. Reflects the reversal of interest expense recognized on notes payable which
have been repaid or converted into common stock by the Company. These notes
were issued as purchase consideration to the selling shareholders of the
Acquired Companies (in 000's):
<TABLE>
<CAPTION>
9 MONTHS FISCAL YEAR
ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1997
------------ -----------
<S> <C> <C>
MacLeod............................................. $ 119 $189
HouTex.............................................. 48 92
Reserve............................................. 94 0
Isaac............................................... 799 0
Proler.............................................. 248 0
------ ----
Total..................................... $1,308 $281
====== ====
</TABLE>
11. Reflects interest expense on outstanding notes payable issued in connection
with the following acquisitions (in 000's):
<TABLE>
<CAPTION>
9 MONTHS FISCAL YEAR
ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1997
------------ -----------
<S> <C> <C>
MacLeod............................................. $ 43 $ 255
Isaac............................................... 313 1,357
Proler.............................................. 70 168
---- ------
Total..................................... $426 $1,780
==== ======
</TABLE>
28
<PAGE> 29
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF OPERATIONS -- (CONTINUED)
12. The Company completed the following debt transactions with commercial banks:
(a) In May 1997, the Company obtained a $4.5 million revolving and term loan
at the prime rate of interest.
(b) In August 1997, the Company repaid a $6.5 million term loan.
(c) In February 1998, the Company drew down $13.3 million from two lines of
credit at the prime rate of interest 6 50 basis points. Pro forma adjustment
represents recognition of interest expense for the period up to the date of
loans and reversal of interest expense recognized on the repaid loan (in
000's):
<TABLE>
<CAPTION>
NINE MONTHS FISCAL YEAR
ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1997
------------ -----------
<S> <C> <C>
$4.5 million loan................................ $ 64 $ 383
$6.5 million loan................................ (201) 0
$13.3 million loan............................... 898 1,197
----- ------
Total.................................... $ 761 $1,580
===== ======
</TABLE>
13. Adjustment to income tax provision to reflect income taxes on Reserve, Isaac
and deductible pro forma adjustments. Income taxes were calculated at a
statutory rate of 40%.
14. Reflects the pro forma adjustment to weighted shares outstanding to reflect
the incremental shares issued with each respective acquisition and the
conversion of debt to stock as if the transactions had occurred on April 1,
1996:
<TABLE>
<CAPTION>
NINE MONTHS FISCAL YEAR
ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1997
------------ -----------
<S> <C> <C>
MacLeod............................................ n/a 546,223
HouTex............................................. n/a 365,865
Isaac.............................................. 586,390 1,942,857
Proler............................................. 941,818 1,750,000
Cozzi.............................................. 10,203,624 11,499,986
Aerospace.......................................... 402,893 402,893
Debt Conversion and warrant exercise............... 285,704 854,568
---------- ----------
12,420,429 17,362,392
========== ==========
</TABLE>
15. 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 represents the
incremental shares for each period.
16. On December 18, 1997, the Company completed a private offering of 1,470,588
shares of common stock to Samstock, L.L.C. The Company received proceeds of
approximately $25.0 million. Adjustment represents the incremental shares
for each period.
17. Reflects the dilutive effect of outstanding options and warrants for the
fiscal year ended March 31, 1997. Dilutive options on warrants were not
considered for the nine months ended December 31, 1997 as their effect would
have been anti-dilutive.
29
<PAGE> 30
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/ DAVID A. CARPENTER
------------------------------------
David A. Carpenter
Vice-President and General Counsel
Dated: May 1, 1998
