UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended March 31, 1996
Commission File Number 0-22206
INTERNATIONAL METALS ACQUISITION CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
59-3182820
(I.R.S. Employer
Identification Number)
667 Madison Avenue
New York, New York 10021
(Address of principal executive office)
(212) 317-1000
(Registrant's telephone
number, including area code)
N/A
(Former name, former address and former fiscal year, if
changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
Number of shares of Common Stock Outstanding at March 31, 1996
Common Stock, $.001 par value 3,500,000
(Class) (Number of Shares)
<PAGE>
INTERNATIONAL METALS ACQUISITION CORPORATION
INDEX TO MARCH 31, 1996 FORM 10-Q
- - ------------------------------------------------------------------------------
PAGE
PART I - FINANCIAL INFORMATION (UNAUDITED)
FINANCIAL STATEMENTS (UNAUDITED):
INTERNATIONAL METALS ACQUISITION CORPORATION ("IMAC")
AND SUBSIDIARIES:
BALANCE SHEETS........................................... 3
STATEMENTS OF INCOME..................................... 4
STATEMENTS OF COMMON STOCK,
PREFERRED STOCK, ADDITIONAL
PAID-IN CAPITAL AND DEFICIT............................ 5
STATEMENTS OF CASH FLOWS.............................. 6
NOTES TO FINANCIAL STATEMENTS......................... 7-11
NIAGARA COLD DRAWN CORP. AND SUBSIDIARY ("NIAGARA")
(PREDECESSOR COMPANY, INFORMATION PRIOR TO DATE OF
ACQUISITION BY IMAC HEREIN DISCLOSED):
STATEMENTS OF INCOME..................................... 13
STATEMENTS OF CASH FLOWS................................. 14
NOTES TO FINANCIAL STATEMENTS............................ 15-17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS....................................... 18
PART II - OTHER INFORMATION.......................................... 20
SIGNATURES........................................................... 23
<TABLE>
<CAPTION>
INTERNATIONAL METALS ACQUISITION CORPORATION
AND SUBSIDIARIES
BALANCE SHEETS
=============================================================================================================================
<S> <C> <C>
December 31, March 31,
1995(a) 1996(b)
- - -----------------------------------------------------------------------------------------------------------------------------
(unaudited)
ASSETS
CURRENT:
Cash and cash equivalents $ 2,186,897 $ 1,746,633
Trade accounts receivable, net of allowance for doubtful
accounts of $183,700 and $333,146 4,239,369 9,419,654
Inventories 14,743,541 14,862,466
Other current assets 165,874 310,445
- - -----------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 21,335,681 26,339,198
PROPERTY, PLANT AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION 12,745,144 20,092,750
GOODWILL ON ACQUISITION OF SOUTHWEST, NET OF ACCUMULATED AMORTIZATION - 2,484,761
OTHER ASSETS, NET 512,587 744,567
- - -----------------------------------------------------------------------------------------------------------------------------
$34,593,412 $49,661,276
=============================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Trade accounts payable $ 4,786,769 $ 7,319,463
Accrued expenses and compensation 3,728,388 2,972,944
Current maturities of long-term debt 733,048 275,273
Deferred income taxes 202,000 209,241
- - -----------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 9,450,205 10,776,921
- - -----------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT, LESS CURRENT MATURITIES 6,968,860 20,474,087
- - -----------------------------------------------------------------------------------------------------------------------------
DEFERRED INCOME TAXES 3,712,000 3,656,000
- - -----------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value - shares authorized 1,000,000; none outstanding - -
Common stock, $.001 par value - shares authorized 50,000,000; outstanding 3,500,000 3,500 3,500
Additional paid-in capital 15,560,296 15,560,296
Deficit (1,101,449) (809,528)
- - -----------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 14,462,347 14,754,268
- - -----------------------------------------------------------------------------------------------------------------------------
$34,593,412 $49,661,276
=============================================================================================================================
- - --------------
(a) Includes the balance sheets of International Metals Acquisition Corporation and Niagara Cold Drawn Corp. as of
December 31, 1995.
(b) Includes the balance sheets of International Metals Acquisition Corporation, Niagara Cold Drawn Corp.
and Southwest Steel Company, Inc. as of March 31, 1996.
- - -----------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
- - ------------------------------------------------------------------------------
INTERNATIONAL METALS ACQUISITION CORPORATION
AND SUBSIDIARIES
STATEMENTS OF INCOME
(UNAUDITED)
Three months ended March 31, 1995(a) 1996(b)
- - ------------------------------------------------------------------------------
NET SALES $ -- $ 18,803,737
COST OF PRODUCTS SOLD -- 16,053,892
- - ------------------------------------------------------------------------------
GROSS PROFIT -- 2,749,845
OPERATING EXPENSES:
Selling, general and administrative 54,103 2,013,007
- - ------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS (54,103) 736,838
OTHER INCOME (EXPENSE):
Interest income 210,112 25,291
Interest expense -- (298,008)
- - ------------------------------------------------------------------------------
INCOME BEFORE TAXES ON INCOME 156,009 464,121
TAXES ON INCOME -- 172,200
- - ------------------------------------------------------------------------------
NET INCOME FOR THE PERIOD $ 156,009 $ 291,921
==============================================================================
NET INCOME PER SHARE $ 0.04 $ 0.08
==============================================================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 3,500,000 3,500,000
==============================================================================
(a) Includes the results of International Metals Acquisition Corporation only.
(b) Includes the results of International Metals Acquisition Corporation and
Niagara Cold Drawn Corp. for the period from January 1, 1996 to March
31, 1996, and the results of Southwest Steel Company, Inc. for the
period from February 1, 1996 to March 31, 1996.
==============================================================================
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
INTERNATIONAL METALS ACQUISITION CORPORATION
AND SUBSIDIARIES
=================================================================================================================================
STATEMENTS OF COMMON STOCK, PREFERRED STOCK, ADDITIONAL PAID-IN CAPITAL AND DEFICIT
(UNAUDITED)
Period January 1, 1996 to March 31, 1996
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Common stock Preferred stock
------------------------- ---------------------- Additional Retained
Number of Number of paid-in earnings
shares Amount shares Amount capital (deficit) Total
- - ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 1, 1996 3,500,000 $ 3,500 - $- $ 15,560,296 $ (1,101,449) $ 14,462,347
Net income for the period - - - - - 291,921 291,921
- - ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1996 3,500,000 $ 3,500 - $- $ 15,560,296 $ (809,528) $ 14,754,268
- - ---------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL METALS ACQUISITION CORPORATION
AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<S> <C> <C>
Three months ended March 31, 1995(a) 1996(b)
- - ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 156,009 $ 291,921
- - ------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,341 388,169
Deferred income taxes -- 29,500
Allowance for bad debts -- 14,859
Changes in assets and liabilities, net of effects from purchase of
Southwest:
Increase in interest on U.S. Government secu- rities held in Trust Fund (197,112) -
Increase in accounts receivable -- (2,280,720)
Decrease in inventories -- 3,100,786
Decrease in prepaid expenses -- 48,753
Increase in other assets -- (261,733)
Decrease in accounts payable and accrued expenses (8,000) (717,624)
- - ------------------------------------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS (203,771) 321,990
- - ------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERAT- ING ACTIVITIES (47,762) 613,911
- - ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Southwest, net of cash acquired -- (3,004,999)
Acquisitions of fixed assets, net -- (1,133,979)
- - ------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES -- (4,138,978)
- - ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from financing -- 3,084,803
- - ------------------------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (47,762) (440,264)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 936,757 2,186,897
- - ------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 888,995 $ 1,746,633
========================================================================================================================
- - -----------
(a) Includes the cash flows of International Metals Acquisition Corporation only.
(b) Includes the cash flows of International Metals Acquisition Corporation and Niagara Cold Drawn Corp. for the
period from January 1, 1996 to March 31, 1996 and the cash flows of Southwest Steel Company, Inc.
for the period from February 1, 1996 to March 31, 1996.
</TABLE>
INTERNATIONAL METALS ACQUISITION CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - INFORMATION AS OF
MARCH 31, 1996 AND FOR THE PERIODS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED.
1. BASIS OF The accompanying financial statements are unaudited;
PRESENTATION however, in the opinion of management, all
adjustments necessary for a fair statement of
financial position and results for the stated
periods have been included. These adjustments are
of a normal recurring nature. Selected information
and footnote disclosures normally included in
financial statements prepared in accordance with
generally accepted accounting principles have been
condensed or omitted. Results for interim periods
are not necessarily indicative of the results to be
expected for an entire fiscal year. It is suggested
that these condensed financial statements be read
in conjunction with the audited financial
statements and notes thereto as of and for the year
ended December 31, 1995.
On August 16, 1995, International Metals
Acquisition Corporation ("IMAC") acquired all of
the issued and outstanding common and preferred
stock of Niagara Cold Drawn Corp. ("Niagara"), a
manufacturer of cold drawn steel bars, for
$10,744,045 in cash. The acquisition was accounted
for as a purchase and the consolidated financial
statements include the results of Niagara from
August 17, 1995. (See Note 4.)
The purchase price for Niagara, including certain
transaction expenses of $1,174,377, totaled
$11,918,422. Niagara's stockholder's equity at
August 16, 1995 was $6,519,678. After giving effect
to this excess and a $3,309,000 deferred tax
liability, the purchase price for Niagara exceeded
the book value of Niagara's stockholder's equity by
approximately $8,708,000. This excess was
allocated to the carrying amounts of certain assets
of Niagara. As a result of the Niagara acquisition,
IMAC was able to utilize its net operating loss
carryforward at August 16, 1995 of approximately
$1,150,000. The tax benefit of this loss (that was
previously fully reserved by a valuation allowance)
totals approximately $460,000, which amount was
recorded as a deferred tax asset at the date of the
acquisition. Approximately $1,000,000 of this loss
was utilized as of December 31, 1995, and the
remainder was utilized during the quarter ended
March 31, 1996 to reduce current tax liabilities.
In accordance with SFAS 109, the tax benefit
received from this utilization was reflected as a
reduction of the deferred tax asset rather than a
reduction in tax expense in the statement of
operations.
On January 31, 1996, Niagara entered into a stock
purchase agreement with the stockholders of
Southwest Steel Company, Inc. ("Southwest"), a
manufacturer of cold drawn steel bars, pursuant to
which, and simultaneously therewith, Niagara
purchased all of the outstanding capital stock of
Southwest for $1,920,000 in cash and $1,156,773
principal amount of Niagara promissory notes
guaranteed by IMAC. In connection with this
acquisition, Niagara discharged $8,518,691 of
Southwest indebtedness and IMAC guaranteed $898,000
of Southwest indebtedness to a former Southwest
stockholder. The acquisition was accounted for as a
purchase and financed by a $12,000,000 term loan
facility and the utilization of a portion of
Niagara's revolving line of credit. The
consolidated financial statements include the
results of Southwest from February 1, 1996.
The purchase price of Southwest, including certain
transaction expenses of $483,270, totaled
$3,560,043. Southwest's stockholders' equity at
January 31, 1996 was $1,071,782. This excess of
$2,488,261 has been allocated to goodwill.
On May 8, 1996, in accordance with the provisions
of the Southwest stock purchase agreement, Niagara
asserted indemnification claims in the aggregate
amount of $1,289,956 against the former
stockholders of Southwest. Such stockholders have
not yet responded to these claims. Any amount
received in satisfaction of these claims would be
accounted for as a reduction in purchase price and
an adjustment to goodwill.
2. ACQUISITIONS OF As discussed in Note 1 above, on August 16, 1995,
NIAGARA AND IMAC acquired all of the issued and outstanding
SOUTHWEST shares of common and preferred stock of Niagara,
and on January 31, 1996 Niagara acquired all of the
issued and outstanding capital stock of Southwest.
Pro forma results of operations, as if both
acquisitions had occurred on January 1, 1995, are
detailed below. Pro forma adjustments primarily
include additional depreciation and amortization on
the excess purchase price allocated to property,
plant, equipment (Niagara) and goodwill
(Southwest), elimination of interest income on the
portion of IMAC's investment in a U.S. government
security deposited in the trust fund liquidated on
consummation of the acquisition of Niagara and
elimination of other nonrecurring items. This pro
forma financial data does not purport to be
indicative of the results which actually could have
been obtained had such transactions been completed
as of the assumed dates or which may be obtained in
the future.
Three months Three months
ended March 31, ended March 31,
In thousands 1995 1996
-------------------------------------------------------------------------
Net sales $22,981 $21,390
Net income 493 315
Net income per share .14 .09
-------------------------------------------------------------------------
3. INVENTORIES Inventories consisted of the following:
December 31, March 31,
1995 1996
-------------------------------------------------------------------------
Raw materials $6,978,363 $ 5,400,929
Work-in-process 1,088,153 1,250,527
Finished goods 6,677,025 8,211,010
-------------------------------------------------------------------------
$14,743,541 $14,862,466
-------------------------------------------------------------------------
Inventories are stated using the LIFO method.
4. CONTINGENCIES Niagara is subject to Federal, state and local
environmental laws and regulations concerning,
among other matters, water emissions and waste
disposal. Management believes that Niagara
currently is in material compliance with all
applicable environmental laws and regulations.
During 1994, Axia, Inc. ("Axia"), the prior owner
of Niagara's Buffalo, N.Y. property, alleged that
Niagara and certain other parties are responsible
for some or all of the costs that may be incurred
to remediate a site adjoining such property. Axia
requested payment of $200,000 in exchange for
Axia's agreeing to assume full responsibility for
the remediation and to indemnify Niagara against
any claim arising from this matter. Niagara is
presently negotiating with Axia and has offered to
pay $40,000 in exchange for Axia's agreeing to
assume full responsibility for the remediation and
to indemnify Niagara against any claim arising from
this matter. Axia did not respond to the offer but
suggested that the parties continue their
settlement discussions. The balance sheets at
December 31, 1995 and March 31, 1996 include an
accrued liability of $40,000 for this contingency.
In accordance with the stock purchase agreement for
the acquisition of Niagara, on August 16, 1995,
Niagara's former majority stockholder, Adage, Inc.
("Adage"), paid $1,666,327 to certain senior
management of Niagara in satisfaction of such
individuals' rights under their existing stock
option and employment agreements. Niagara treated
this payment, which is reflected as an employment
expense deduction on Niagara's financial statements
for the period ended August 16, 1995, as a contri-
bution of additional paid-in capital and
compensation to management. Pursuant to the stock
purchase agreement, Niagara is required to pay
Adage an amount equal to Niagara's Federal income
taxes for the taxable period January 1, 1995
through August 16, 1995, computed as if Niagara
were not included in a consolidated Federal income
tax return for such period. In determining such
amount, Niagara deducted from its income the
payment made to senior management, thereby reducing
the amount payable by Niagara to Adage. Adage has
disputed Niagara's taking of this $1,666,327
deduction, the tax effect of which is approximately
$567,000, which, if deemed payable, would be
accounted for as an adjustment to the purchase
price of Niagara. Pursuant to the stock purchase
agreement, this matter is subject to binding
arbitration by an independent accounting firm.
Under Niagara's insurance programs, coverage is
obtained for catastrophic exposures, as well as
those risks required to be insured by law or
contract. It is the policy of Niagara to retain a
portion of certain expected losses related
primarily to workers' compensation, physical loss
to property, business interruption resulting from
such loss and comprehensive general, product,
vehicle, medical and life benefits and liability.
Provisions for losses expected under these programs
are recorded based upon Niagara's estimates of the
aggregate liability, actual and estimated, for
claims. Such estimates utilize certain actuarial
assumptions followed in the insurance industry and
are included in accrued expenses.
NIAGARA COLD DRAWN CORP.
AND SUBSIDIARY
CONTENTS
==============================================================================
NIAGARA COLD DRAWN CORP. is considered a predecessor
company:
Statements of income 13
Statements of cash flows 14
Notes to financial statements 15-17
NIAGARA COLD DRAWN CORP.
AND SUBSIDIARY
STATEMENTS OF INCOME
(UNAUDITED)
==============================================================================
Memorandum
only
-----------
Three months ended March 31, 1995 1996 (a)
- - ------------------------------------------------------------------------------
NET SALES $ 13,464,040 $ 18,803,737
COST OF PRODUCTS SOLD 11,134,164 16,053,892
- - ------------------------------------------------------------------------------
GROSS PROFIT 2,329,876 2,749,845
Selling, general and administrative expenses 1,272,650 1,827,449
- - ------------------------------------------------------------------------------
INCOME FROM OPERATIONS 1,057,226 922,396
OTHER INCOME (EXPENSE):
Interest (202,934) (298,008)
- - ------------------------------------------------------------------------------
INCOME BEFORE TAXES ON INCOME 854,292 624,388
TAXES ON INCOME 315,000 239,000
- - ------------------------------------------------------------------------------
NET INCOME $ 539,292 $ 385,388
==============================================================================
- - ---------
(a) This information is provided for informational purposes only to provide
for comparisons to prior periods. The amounts were derived from
combining Niagara's results of operations from January 1, 1996 to March
31, 1996 with Southwest's results of operations from February 1, 1996 to
March 31, 1996.
==============================================================================
See accompanying notes to financial statements.
NIAGARA COLD DRAWN CORP.
AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months ended March 31, 1995(a)
- - ------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 539,292
- - ------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Allowance for doubtful accounts 157,000
Depreciation and amortization 197,649
Decrease (increase) in:
Inventories 48,156
Trade accounts receivable (1,330,884)
Other current assets 15,212
Other assets (220,534)
Increase in:
Trade accounts payable and accrued expenses 1,461,936
- - ------------------------------------------------------------------------------
TOTAL ADJUSTMENTS 328,535
- - ------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 867,827
- - ------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets, net 144,666
- - ------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from financing 184,481
Due to former shareholder (888,554)
Payment for redemption of preferred stock (338,812)
- - ------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (1,042,885)
- - ------------------------------------------------------------------------------
NET DECREASE IN CASH (30,392)
CASH, BEGINNING OF PERIOD 30,392
- - ------------------------------------------------------------------------------
CASH, END OF PERIOD $ -
==============================================================================
- - ---------
(a) Includes the cash flows of Niagara Cold Drawn Corp. only.
==============================================================================
See accompanying notes to financial statements.
NIAGARA COLD DRAWN CORP.
AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS - INFORMATION FOR THE
PERIODS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED.
1. BASIS OF The accompanying financial statements are unaudited;
PRESENTATION however, in the opinion of management, all
adjustments necessary for a fair statement of
results for the stated periods have been included.
These adjustments are of a normal recurring nature.
Selected information and footnote disclosures
normally included in financial statements prepared
in accordance with generally accepted accounting
principles have been condensed or omitted.
Results for interim periods are not necessarily
indicative of the results to be expected for an
entire fiscal year. It is suggested that these
condensed financial statements be read in conjunc-
tion with the audited financial statements and
notes thereto as of and for the year ending
December 31, 1995.
On January 31, 1996, Niagara entered into a stock
purchase agreement with the stockholders of
Southwest Steel Company, Inc. ("Southwest"), a
manufacturer of cold drawn steel bars, pursuant to
which, and simultaneously therewith, Niagara
purchased all of the outstanding capital stock of
Southwest for $1,920,000 in cash and $1,156,773
principal amount of Niagara promissory notes
guaranteed by IMAC. In connection with this
acquisition, Niagara discharged $8,518,691 of
Southwest indebtedness and IMAC guaranteed $898,000
of Southwest indebtedness to a former Southwest
stockholder. The acquisition was accounted for as a
purchase, and financed by a $12,000,000 term loan
facility and the utilization of a portion of
Niagara's revolving line of credit. The Niagara
financial statements include the results of
Southwest from February 1, 1996.
The purchase price of Southwest, including certain
transaction expenses of $483,270, totaled
$3,560,043. Southwest's stockholders' equity at
January 31, 1996 was $1,071,782. This excess of
$2,488,261 has been allocated to goodwill.
On May 8, 1996, in accordance with the provisions
of the Southwest stock purchase agreement, Niagara
asserted indemnification claims in the aggregate
amount of $1,289,956 against the former
stockholders of Southwest. Such stockholders have
not yet responded to these claims. Any amount
received in satisfaction of these claims would be
accounted for as a reduction in purchase price and
an adjustment to goodwill.
2. CONTINGENCIES Niagara is subject to Federal, state and local
environmental laws and regulations concerning,
among other matters, water emissions and waste
disposal. Management believes that Niagara
currently is in material compliance with all
applicable environmental laws and regulations.
During 1994, Axia, Inc. ("Axia"), the prior owner
of Niagara's Buffalo, N.Y. property, alleged that
Niagara and certain other parties are responsible
for some or all of the costs that may be incurred
to remediate a site adjoining such property. Axia
requested payment of $200,000 in exchange for
Axia's agreeing to assume full responsibility for
the remediation and to indemnify Niagara against
any claim arising from this matter. Niagara is
presently negotiating with Axia and has offered to
pay $40,000 in exchange for Axia's agreeing to
assume full responsibility for the remediation and
to indemnify Niagara against any claim arising from
this matter. Axia did not respond to the offer but
suggested that the parties continue their
settlement discussions. The balance sheets at
December 31, 1995 and March 31, 1996 include an
accrued liability of $40,000 for this contingency.
In accordance with the stock purchase agreement for
the acquisition of Niagara, on August 16, 1995,
Niagara's former majority stockholder, Adage, Inc.
("Adage"), paid $1,666,327 to certain senior
management of Niagara in satisfaction of such
individuals' rights under their existing stock
option and employment agreements. Niagara treated
this payment, which is reflected as an employment
expense deduction on Niagara's financial statements
for the period ended August 16, 1995, as a contri-
bution of additional paid-in capital and
compensation to management. Pursuant to the stock
purchase agreement, Niagara is required to pay
Adage an amount equal to Niagara's Federal income
taxes for the taxable period January 1, 1995
through August 16, 1995, computed as if Niagara
were not included in a consolidated Federal income
tax return for such period. In determining such
amount, Niagara deducted from its income the
payment made to senior management, thereby reducing
the amount payable by Niagara to Adage. Adage has
disputed Niagara's taking of this $1,666,327
deduction, the tax effect of which is approximately
$567,000, which, if deemed payable, would be
accounted for as an adjustment to the purchase
price of Niagara. Pursuant to the stock purchase
agreement, this matter is subject to binding
arbitration by an independent accounting firm.
Under Niagara's insurance programs, coverage is
obtained for catastrophic exposures, as well as
those risks required to be insured by law or
contract. It is the policy of Niagara to retain a
portion of certain expected losses related
primarily to workers' compensation, physical loss
to property, business interruption resulting from
such loss and comprehensive general, product,
vehicle, medical and life benefits and liability.
Provisions for losses expected under these programs
are recorded based upon Niagara's estimates of the
aggregate liability, actual and estimated, for
claims. Such estimates utilize certain actuarial
assumptions followed in the insurance industry and
are included in accrued expenses.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
International Metals Acquisition Corporation ("IMAC," and, with its
subsidiaries, the "Company"), a Delaware corporation, was organized on April
27, 1993 with the objective of acquiring an operating business engaged in the
metals processing and distribution industry or metals-related manufacturing
industry.
On June 1, 1995, IMAC entered into a stock purchase agreement with the
stockholders of Niagara Cold Drawn Corp. ("Niagara Cold Drawn"), a
manufacturer of cold drawn steel bars, providing for the purchase by IMAC of
all outstanding shares of common and preferred stock of Niagara Cold Drawn for
$10,744,045 in cash. This acquisition was consummated on August 16, 1995.
On January 31, 1996, Niagara Cold Drawn entered into a stock purchase
agreement with the stockholders of Southwest Steel Company, Inc.
("Southwest"), a manufacturer of cold drawn steel bars, pursuant to which, and
simultaneously therewith, Niagara Cold Drawn purchased all outstanding
capital stock of Southwest for $1,920,000 in cash and $1,156,773 principal
amount of Niagara Cold Drawn promissory notes guaranteed by IMAC. In
connection with this acquisition, Niagara Cold Drawn discharged $8,518,691 of
Southwest indebtedness and IMAC guaranteed $898,000 of Southwest indebtedness
to a former Southwest stockholder. On May 8, 1996, Niagara Cold Drawn asserted
an aggregate of $1,289,956 of indemnification claims against the former
Southwest stockholders. (See Note 1 to the financial statements of the Company
and Niagara.)
IMAC is engaged in substantive commercial activity through Niagara Cold
Drawn and Southwest and the following comparison of results of operations
relates primarily to the operations of such subsidiaries. In this connection,
Niagara Cold Drawn and Southwest are referred to as "Niagara."
THREE MONTHS ENDED MARCH 31, 1996 COMPARED WITH MARCH 31, 1995
Net sales for the three months ended March 31, 1996 were $18,803,737,
representing an increase of $5,339,697 or 39.7% over the same period in 1995.
This increase resulted from an increase in sales primarily due to the
acquisition of Southwest.
Cost of sales for the three months ended March 31, 1996 increased by
$4,919,728 to $16,053,892, representing an increase of 44.2% over the same
period in 1995. This increase was primarily caused by the growth in sales.
Gross margins for the first quarter of 1996 decreased approximately 2.7%
primarily due to lower selling prices.
Selling, general and administrative expenses of Niagara (not including
freight, management fees, bonuses and step-up amortization) for the three
months ended March 31, 1996 increased by approximately $215,000 to
approximately $1,159,000, or 6.2% of sales compared to 7.0% for the same
period in 1995. This increase was primarily due to costs associated with the
increase in sales.
Interest expense for the three months ended March 31, 1996 increased
$95,066 to $298,008 due to increased levels of borrowing.
Pre-tax income for the three months ended March 31, 1996 was $624,388, a
decrease of $229,904 or approximately 27% from the three months ended March
31, 1995. Approximately $200,000 of this decrease resulted from increased
administrative expenses and step-up amortization.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had approximately $1,746,000 in
cash and cash equivalents. Such funds are used for working capital and other
corporate purposes. IMAC's selling, general and administrative expenses
increased by $243,000 for the three months ended March 31, 1996 to
approximately $297,000. IMAC's interest income for the three months ended
March 31, 1996 was approximately $25,000 compared to approximately $210,000
for the same period in 1995. The increase in expenses and decrease in
interest income were due primarily to the completion of the acquisition of
Niagara Cold Drawn.
Niagara's principal long-term liquidity requirement has been and is
expected to be the funding of capital expenditures to modernize, improve and
expand its facilities, machinery and equipment. Capital expenditures for the
three months ended March 31, 1996 totaled approximately $1,134,000 compared to
approximately $145,000 for the same period in 1995. Most of this increase
related to the continued construction of Niagara's new facility in Midlothian,
Texas.
Niagara Cold Drawn has credit facilities (the "Credit Facilities") with
Manufacturers and Traders Trust Company. These Facilities are guaranteed by
IMAC and consist of: (i) a $12,000,000 term loan facility (the "Term Loan
Facility") and (ii) a $14,000,000 revolving credit facility (the "Revolving
Credit Facility"). The Credit Facilities are guaranteed by IMAC and Southwest,
are primarily secured by Niagara's eligible accounts receivable and inventory,
and carry restrictions on, among other things, capital expenditures, dividends
and changes in control of Niagara and require minimum levels of net worth
through maturity. Niagara is in compliance with these provisions.
The Term Loan Facility provides for the payment of (i) interest in
monthly installments from March 1, 1996 through February 1, 1997 and (ii)
principal and interest in monthly installments from March 1, 1997 through
February 1, 2003. The interest rate is fixed at 7.49% for the first two years
and thereafter will be periodically adjusted to 2.5% above the average yield
on certain United States Treasury obligations. Loans made pursuant to the
Revolving Credit Facility are secured by, and based on, a percentage of
eligible accounts receivable and inventory and will mature on January 31,
1999. The interest rate on each loan is 2.5% above the applicable LIBOR rate.
Monthly interest payments commenced on March 1, 1996.
Working capital of the Company at March 31, 1996 was $15,562,277 as
compared to $11,885,476 on December 31, 1995. At March 31, 1996, Niagara had
borrowed $5,816,459 under the Revolving Credit Facility and had $7,883,441 in
available credit under this Facility.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
+3.1 Registrant's Restated Certificate of Incorporation.
*3.2 Registrant's By-laws.
*4.1 Form of Common Stock Certificate.
*4.2 Form of Warrant Certificate.
**4.3 Unit Purchase Option Granted to GKN Securities Corp.
**4.4 Warrant Agreement between Continental Stock Transfer & Trust
Company and the Registrant.
*10.1 Agency Agreement dated as of May 7, 1993 between the Registrant
and GKN Securities Corp. (without schedules).
**10.2 Share Escrow Agreement between Registrant and Continental Stock
Transfer & Trust Company.
*10.3 Letter Agreement among each of the Stockholders of the
Registrant, the Registrant and GKN Securities Corp.
(without schedules).
+10.4 Stock Purchase Agreement dated June 1, 1995, among the
Registrant, Adage, Inc., Frank Archer, Raymond Rozanski and
Robert Witherspoon.
++10.5 Term Loan Agreement between Manufacturers and Traders Trust
Company and Niagara Cold Drawn Corp. dated January 31, 1996.
++10.6 Amended and Restated Revolving Credit Agreement between
Manufacturers and Traders Trust Company and Niagara Cold Drawn
Corp. dated January 31, 1996.
++10.7 Stock Purchase Agreement by and among Niagara Cold Drawn Corp.
and the stockholders of Southwest Steel Company, Inc. dated
January 31, 1996.
-10.8 Form of Promissory Note made by Niagara Cold Drawn Corp., dated
January 31, 1996.
-10.9 Form of Guaranty made by the Registrant, dated January 31, 1996.
-10.10 Amended and Restated Promissory Note made by Southwest Steel
Company, Inc. in favor of the Cohn Family Revocable Trust, u/t/a
dated June 15, 1988, in the principal amount of $898,000, dated
January 31, 1996. o10.11 Guaranty, made by the Registrant in
favor of the Cohn Family Revocable Trust, u/t/a dated June 15,
1988, dated January 31, 1996. o21 Subsidiaries of the
Registrant.
27 Financial Data Schedule
- - --------------------------
+ Incorporated by reference to Registrant's Report on Form 10-K for the
year ended December 31, 1994.
* Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-1, Registration No. 33-64682.
** Incorporated by reference to exhibits filed with the Registrant's Report
on Form 10-K for the fiscal year ended December 31, 1993.
+ Incorporated by reference to exhibit 10.1 to the Registrant's Report on
Form 8-K, dated June 6, 1995.
++ Incorporated by reference to exhibits filed with the Registrant's Report
on Form 8-K, dated February 13, 1996.
- - - Incorporated by reference to exhibits filed in the Registrant's Report on
Form 10-K for the fiscal year ended December 31, 1995.
(b) Reports on Form 8-K
The Registrant filed its Report on Form 8-K, dated February
15, 1996 (the "8-K"), reporting the Southwest acquisition
under Items 2, 5 and 7. The financial statements of
Southwest and pro forma financial information were filed by
an 8-K amendment on April 15, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 14, 1996 INTERNATIONAL METALS ACQUISITION CORPORATION
--------------------------------------------
(Registrant)
/s/ Gilbert D. Scharf
--------------------------------------------
Gilbert D. Scharf, Vice President
Date: May 14, 1996 /s/ Gilbert D. Scharf
--------------------------------------------
Gilbert D. Scharf, Principal Accounting Officer
Exhibit Index
+3.1 Registrant's Restated Certificate of Incorporation.
*3.2 Registrant's By-laws.
*4.1 Form of Common Stock Certificate.
*4.2 Form of Warrant Certificate.
**4.3 Unit Purchase Option Granted to GKN Securities Corp.
*4.4 Warrant Agreement between Continental Stock Transfer & Trust
Company and the Registrant.
*10.1 Agency Agreement dated as of May 7, 1993 between the Registrant
and GKN Securities Corp. (without schedules).
**10.2 Share Escrow Agreement between Registrant and Continental Stock
Transfer & Trust Company.
*10.3 Letter Agreement among each of the Stockholders of the Registrant,
the Registrant and GKN Securities Corp. (without schedules).
+10.4 Stock Purchase Agreement dated June 1, 1995, among the
Registrant, Adage, Inc., Frank Archer, Raymond Rozanski and
Robert Witherspoon.
++10.5 Term Loan Agreement between Manufacturers and Traders Trust
Company and Niagara Cold Drawn Corp. dated January 31, 1996.
++10.6 Amended and Restated Revolving Credit Agreement between
Manufacturers and Traders Trust Company and Niagara Cold Drawn
Corp. dated January 31, 1996.
++10.7 Stock Purchase Agreement by and among Niagara Cold Drawn Corp. and
the stockholders of Southwest Steel Company, Inc. dated January
31, 1996.
-10.8 Form of Promissory Note made by Niagara Cold Drawn Corp., dated
January 31, 1996.
-10.9 Form of Guaranty made by the Registrant, dated January 31, 1996.
-10.10 Amended and Restated Promissory Note made by Southwest Steel
Company, Inc. in favor of the Cohn Family Revocable Trust, u/t/a
dated June 15, 1988, in the principal amount of $898,000, dated
January 31, 1996.
-0.11 Guaranty, made by the Registrant in favor of the Cohn Family
Revocable Trust, u/t/a dated June 15, 1988, dated January 31,
1996.
-21 Subsidiaries of the Registrant.
27 Financial Data Schedule
- - --------------------------
+ Incorporated by reference to Registrant's Report on Form 10-K for the
year ended December 31, 1994.
* Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-1, Registration No. 33-64682.
** Incorporated by reference to exhibits filed with the Registrant's Report
on Form 10-K for the fiscal year ended December 31, 1993.
+ Incorporated by reference to exhibit 10.1 to the Registrant's Report on
Form 8-K, dated June 6, 1995.
++ Incorporated by reference to exhibits filed with the Registrant's Report
on Form 8-K, dated February 13, 1996.
- - - Incorporated by reference to exhibits filed in the Registrant's Report on
Form 10-K for the fiscal year ended December 31, 1995.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information
extracted from the financial statements of Interna-
tional Metals Acquisition Corporation and subsidiar-
ies as of March 31, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,747
<SECURITIES> 0
<RECEIVABLES> 9,753
<ALLOWANCES> 333
<INVENTORY> 14,862
<CURRENT-ASSETS> 26,339
<PP&E> 20,904
<DEPRECIATION> 811
<TOTAL-ASSETS> 49,661
<CURRENT-LIABILITIES> 10,777
<BONDS> 20,474
<COMMON> 4
0
0
<OTHER-SE> 14,751
<TOTAL-LIABILITY-AND-EQUITY> 49,661
<SALES> 18,804
<TOTAL-REVENUES> 18,804
<CGS> 16,054
<TOTAL-COSTS> 16,054
<OTHER-EXPENSES> 2,013
<LOSS-PROVISION> 15
<INTEREST-EXPENSE> 273
<INCOME-PRETAX> 464
<INCOME-TAX> 172
<INCOME-CONTINUING> 291
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<EXTRAORDINARY> 0
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<NET-INCOME> 291
<EPS-PRIMARY> 0.08
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