<PAGE> 1
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): AUGUST 30, 1996
CHASE BRASS INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 1-13394 51-0328047
(STATE OR OTHER JURISDICTION (COMMISSION (IRS EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NUMBER)
STATE ROUTE 15, MONTPELIER, OH 43543
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (419) 485-3193
</TABLE>
NOT APPLICABLE
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
- --------------------------------------------------------------------------------
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
<TABLE>
<CAPTION>
Page
----
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
<S> <C>
The following interim combined financial statements of UNR Leavitt Division and Leavitt Structural Tubing Co. and
Subsidiary for the period ended August 30, 1996, are submitted herewith on the pages indicated:
Balance Sheet as of August 30, 1996, and December 31, 1995 . . . . . . . . . . . . . . . . . . . . 4
Statement of Income for the Periods Ended August 30, 1996, and August 31, 1995 . . . . . . . . . . 5
Statement of Cash Flows for the Periods Ended August 30, 1996, and August 31, 1995 . . . . . . . . 6
Statement of Changes in Divisions' Equity for the Periods Ended August 30, 1996,
and August 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Notes to Interim Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
The following combined financial statements of UNR Leavitt Division and Leavitt Structural Tubing Co. and Subsidiary for
the year ended December 31, 1995, are submitted herewith on the pages indicated:
Report of Independent Public Accountants (Arthur Andersen LLP) . . . . . . . . . . . . . . . . . . 12
Balance Sheet as of December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Statement of Income for the Years Ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . 14
Statement of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . 15
Statement of Changes in Divisions' Equity for the Years Ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(B) PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial information of Chase Brass Industries, Inc. and UNR Leavitt
Division and Leavitt Structural Tubing Co. and Subsidiary are submitted herewith on the pages indicated:
Pro Forma Combined Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Consolidated Balance Sheet as of September 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . 25
Notes to Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Pro Forma Combined Statement of Operations as of December 31, 1995 . . . . . . . . . . . . . . . . 29
Pro Forma Combined Statement of Operations as of September 30, 1996 . . . . . . . . . . . . . . . . 30
Notes to Pro Forma Combined Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
2
<PAGE> 3
CHASE BRASS INDUSTRIES, INC.
(C) EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
2.1 Sale and Purchase Agreement dated as of May 15, 1996, among Chase Brass Industries, Inc., Leavitt
Structural Tubing Co. and UNR Industries, Inc. (incorporated by reference to Exhibit 2.1 to Registrant's
Form 10-Q for the quarter ended June 30, 1996).
2.2 Assignment and Assumption Agreement dated June 27, 1996, by and between Chase Brass Industries, Inc. and
Leavitt Tube Company, Inc. (incorporated by reference to Exhibit 2.3 to Registrant's Form 10-Q for the
quarter ended June 30, 1996).
2.3 Amendment No. 1 to Sale and Purchase Agreement dated as of July 1, 1996, by and among Chase Brass
Industries, Inc., Leavitt Tube Company, Inc., Leavitt Structural Tubing Co. and UNR Industries, Inc.
(incorporated by reference to Exhibit 2.2 to Registrant's Form 10-Q for the quarter ended June 30,
1996).
2.4** Amendment No. 2 to Sale and Purchase Agreement dated as of August 29, 1996, among Chase Brass
Industries, Inc., Leavitt Tube Company, Inc., Leavitt Structural Tubing Co. and UNR Industries, Inc.
23.1* Consent of Arthur Andersen LLP.
99.1** Credit Agreement by and among Chase Brass Industries, Inc., the banks referred to therein and PNC Bank,
National Association, as Agent, dated as of August 30, 1996.
99.2** Press Release of Registrant dated August 30, 1996.
</TABLE>
* Filed herewith.
** Previously filed with the Registrant's Form 8-K dated September 13, 1996.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
3
<PAGE> 4
UNR LEAVITT DIVISION AND LEAVITT STRUCTURAL TUBING CO. AND SUBSIDIARY
COMBINED BALANCE SHEETS
AS OF AUGUST 30, 1996, AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
A S S E T S 1996 1995
------------- -------------
CURRENT ASSETS: (unaudited)
<S> <C> <C>
Cash $ 1,291,039 $ 16,250
Accounts receivable, less allowance for doubtful accounts of
$431,848 and $331,295 in 1996 and 1995, respectively 13,477,819 11,162,607
Inventories 29,255,843 32,789,374
Prepaid expenses 73,517 244,454
------------- -------------
Total current assets 44,098,218 44,212,685
------------- -------------
PROPERTY, PLANT AND EQUIPMENT:
Land 5,471,419 5,471,419
Buildings 17,941,786 17,941,786
Machinery, equipment and leasehold improvements 67,230,496 65,638,901
------------- -------------
90,643,701 89,052,106
Less- Accumulated depreciation (60,306,823) (57,565,017)
------------- -------------
Net property, plant and equipment 30,336,878 31,487,089
------------- -------------
Total assets $ 74,435,096 $ 75,699,774
============= =============
LIABILITIES AND DIVISIONS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 128,892 $ 3,931,421
Accounts payable 9,542,092 9,364,977
Other accrued liabilities 2,977,305 4,569,674
------------- -------------
Total current liabilities 12,648,289 17,866,072
------------- -------------
LONG-TERM DEBT 661,565 13,903,898
------------- -------------
DIVISIONS' EQUITY:
Additional paid-in capital 25,598,694 22,856,029
Intercompany account (82,527,423) (100,739,736)
Retained earnings 118,053,971 121,813,511
------------- -------------
Total divisions' equity 61,125,242 43,929,804
------------- -------------
Total liabilities and divisions' equity
$ 74,435,096 $ 75,699,774
============= =============
</TABLE>
The accompanying notes to unaudited interim combined financial statements
are an integral part of these combined balance sheets.
4
<PAGE> 5
UNR LEAVITT DIVISION AND LEAVITT STRUCTURAL TUBING CO. AND SUBSIDIARY
COMBINED STATEMENTS OF INCOME
FOR THE EIGHT MONTH PERIODS ENDED AUGUST 30, 1996 AND AUGUST 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
NET SALES $101,890,194 $108,149,782
COST OF PRODUCTS SOLD 89,053,877 91,745,684
------------ ------------
Gross profit 12,836,317 16,404,098
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Selling expenses 2,475,996 2,528,643
General and administrative expenses 2,570,891 2,740,455
------------ ------------
Operating income 7,789,430 11,135,000
INTEREST EXPENSE 932,768 1,197,725
------------ ------------
INCOME BEFORE INCOME TAXES 6,856,662 9,937,275
INCOME TAX PROVISION 2,742,665 3,974,910
------------ ------------
NET INCOME $ 4,113,997 $ 5,962,365
============ ============
</TABLE>
The accompanying notes to unaudited interim combined financial statements
are an integral part of these statements.
5
<PAGE> 6
UNR LEAVITT DIVISION AND LEAVITT STRUCTURAL TUBING CO. AND SUBSIDIARY
COMBINED STATEMENTS OF CASH FLOWS
FOR THE EIGHT MONTH PERIODS ENDED AUGUST 30, 1996 AND AUGUST 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,113,997 $ 5,962,365
Adjustments for noncash items included
in net income-
Income tax provision 2,742,665 3,974,910
Depreciation 2,741,806 2,989,992
Cash effects of changes in assets and
liabilities-
(Increase) decrease in accounts receivable (2,315,212) 2,070,156
(Increase) decrease in inventories 3,533,531 2,517,941
(Increase) decrease in prepaid expenses 170,937 45,028
Increase in accounts payable 177,115 2,127,051
Increase (decrease) in other
accrued liabilities (1,592,369) (649,957)
------------ ------------
Net cash provided by
operating activities 9,572,470 19,037,486
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,591,595) (1,017,756)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (7,873,537) (4,901,044)
Repayment of debt (17,044,862) (2,367,378)
Net change in intercompany account 18,212,313 (10,751,308)
------------ ------------
Net cash used in financing
activities (6,706,086) (18,019,730)
------------ ------------
NET INCREASE (DECREASE) IN CASH 1,274,789 --
CASH, beginning of period 16,250 16,250
------------ ------------
CASH, end of period $ 1,291,039 $ 16,250
============ ============
CASH PAID DURING THE PERIOD FOR INTEREST $ 1,250,573 $ 1,330,064
============ ============
CASH PAID DURING THE PERIOD FOR INCOME TAXES $ -- $ --
============ ============
</TABLE>
The accompanying notes to unaudited interim combined financial statements
are an integral part of these statements.
6
<PAGE> 7
UNR LEAVITT DIVISION AND LEAVITT STRUCTURAL TUBING CO. AND SUBSIDIARY
COMBINED STATEMENTS OF CHANGES IN DIVISIONS' EQUITY
FOR THE EIGHT MONTH PERIODS ENDED AUGUST 30, 1996 AND AUGUST 31, 1995
<TABLE>
<CAPTION>
Additional
Paid-in Intercompany Retained
Capital Account Earnings
------------- ------------- -------------
<S> <C> <C> <C>
BALANCE, December 31, 1994 $ 18,024,434 $ (80,048,942) $ 119,467,161
Net income -- -- 5,962,365
Dividends paid -- -- (4,901,044)
Net change in intercompany account, net -- (10,751,308) --
Income tax contribution 3,974,910 -- --
------------- ------------- -------------
BALANCE, August 31, 1995 $ 21,999,344 $ (90,800,250) $ 120,528,482
============= ============= =============
BALANCE, December 31, 1995 $ 22,856,029 $(100,739,736) $ 121,813,511
Net income -- -- 4,113,997
Dividends paid -- -- (7,873,537)
Net change in intercompany account, net -- 18,212,313 --
Income tax contribution 2,742,665 -- --
------------- ------------- -------------
BALANCE, August 30, 1996 $ 25,598,694 $ (82,527,423) $ 118,053,971
============= ============= =============
</TABLE>
The accompanying notes to unaudited interim combined financial statements
are an integral part of these statements
7
<PAGE> 8
UNR LEAVITT DIVISION AND LEAVITT STRUCTURAL TUBING CO. AND SUBSIDIARY
NOTES TO UNAUDITED INTERIM COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND PRESENTATION:
On August 30, 1996, Chase Brass Industries, Inc. acquired UNR Leavitt Division
and Leavitt Structural Tubing Co.("LSTC") and Subsidiary (collectively referred
to as "Leavitt") from UNR Industries, Inc.("UNR"). The accompanying unaudited
interim combined financial statements as of and for the eight month period
ended August 30, 1996 reflect historical Leavitt financial information prior to
the acquisition and do not include any purchase accounting adjustments
resulting from the acquisition. Financial information for the eight month
period ended August 31, 1995 is shown for comparative purposes.
Accounting policies used in the preparation of the unaudited interim combined
financial statements are consistent with the accounting policies described in
the Notes to Combined Financial Statements for the year ended December 31,
1995. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission, although management believes that
the disclosures are adequate to make the information presented not misleading.
In the opinion of management, the interim combined financial statements reflect
all adjustments consisting only of normal recurring adjustments which are
necessary for a fair presentation of Leavitt's financial position, results of
operations and cash flows for the periods presented. The results for such
interim periods are not necessarily indicative of results for the full year.
These combined financial statements should be read in conjunction with the
combined financial statements for the year ended December 31, 1995 and the
accompanying notes thereto.
2. INVENTORIES:
Inventories are stated at the lower of cost, on a first-in, first-out (FIFO)
basis, or market. Inventory costs include material, labor and factory overhead.
Inventories as of August 30, 1996 and December 31, 1995 are summarized as
follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Raw materials $12,694,864 $12,018,317
Work in process 3,346,593 3,443,541
Finished goods 13,214,386 17,327,516
----------- -----------
Total inventories $29,255,843 $32,789,374
=========== ===========
</TABLE>
3. RELATED-PARTY TRANSACTIONS:
Balances due to or due from UNR are netted and reflected in the "Intercompany
account" in the accompanying combined balance sheets in the divisions' equity
section. These amounts arise principally from net cash advances and property
transfers.
8
<PAGE> 9
4. INCOME TAXES:
As of January 1, 1992, Leavitt adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Beginning in
1991, UNR agreed to pay income taxes on behalf of Leavitt. Prior to the
adoption of SFAS 109, Leavitt was not required to reflect a tax provision in
its combined income statement. Similarly for the eight month periods ended
August 30, 1996 and August 31, 1995, any income tax liability resulting from
the application of SFAS 109 is the responsibility of UNR. Therefore, the
current liability-related provision reflected on the combined statements of
income has been eliminated by a credit to paid-in capital on the combined
balance sheet.
Leavitt's tax provision has been computed under the separate return method.
Income tax expense for the eight month periods ended August 30, 1996 and August
31, 1995 consists of a current provision of $2,742,665 and $3,974,910,
respectively. Leavitt's deferred temporary differences are not significant and
have not been recorded.
5. LONG-TERM DEBT:
The borrowings of Leavitt as of August 30, 1996 and December 31, 1995 consisted
of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
First mortgage payable at prime rate plus 1/4% $ -- $11,509,319
Mortgages payable at 9.5% -- 5,028,775
Capital leases 790,457 883,902
Other -- 413,323
----------- -----------
T o t a l $ 790,457 $17,835,319
=========== ===========
Classified on the balance sheet as follows-
Current portion of long-term debt $ 128,892 $ 3,931,421
Long-term debt 661,565 13,903,898
----------- -----------
T o t a l $ 790,457 $17,835,319
=========== ===========
</TABLE>
LSTC has pledged all property, plant and equipment as collateral for the first
mortgage payable
The first mortgage payable contains certain financial covenants. The most
restrictive of these covenants requires LSTC to maintain a Liabilities to Net
Worth ratio, as defined, of not greater than 2.0 to 1. LSTC is in compliance
with its loan covenants as of August 30, 1996.
UNR Leavitt Division has outstanding mortgages payable with a maturity date of
August 1, 2005 , related to its building on 115th Street. The interest rate is
9.5%. Leavitt has pledged all property and plant as collateral for the
mortgages payable.
In August 1996, LSTC transferred the remaining debt on the first mortgage
payable and the UNR Leavitt Division mortgages payable related to its building
on 115th Street to UNR Industries, Inc., as UNR is assuming this debt.
9
<PAGE> 10
6. OTHER ACCRUED LIABILITIES:
Other accrued liabilities as of August 30, 1996 and December 31, 1995 consist
of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Accrued salaries and wages $ 681,037 $ 740,686
Accrued vacation 854,753 894,254
Real estate taxes 784,315 1,088,349
Other accrued liabilities 657,200 1,846,385
---------- ----------
Total $2,977,305 $4,569,674
========== ==========
</TABLE>
10
<PAGE> 11
UNR LEAVITT DIVISION AND LEAVITT
STRUCTURAL TUBING CO. AND
SUBSIDIARY
COMBINED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND 1994
TOGETHER WITH AUDITORS' REPORT
11
<PAGE> 12
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Management of
UNR Leavitt Division and Leavitt
Structural Tubing Co. and Subsidiary:
We have audited the accompanying combined balance sheets of UNR LEAVITT
DIVISION (a division of UNR Industries, Inc.) AND LEAVITT STRUCTURAL TUBING CO.
(a Delaware corporation and a wholly-owned subsidiary of UNR Industries, Inc.)
AND SUBSIDIARY as of December 31, 1995 and 1994, and the related combined
statements of income, divisions' equity and cash flows for each of the three
years in the period ended December 31, 1995. These combined financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined 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 financial statements referred to above present fairly, in
all material respects, the financial position of UNR Leavitt Division and
Leavitt Structural Tubing Co. and Subsidiary as of December 31, 1995 and 1994,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
Chicago, Illinois,
August 31, 1996
12
<PAGE> 13
UNR LEAVITT DIVISION AND LEAVITT STRUCTURAL TUBING CO. AND SUBSIDIARY
COMBINED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
A S S E T S 1995 1994
----------- ------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 16,250 $ 16,250
Accounts receivable, less allowance for doubtful accounts of
$331,295 and $524,279 in 1995 and 1994, respectively 11,162,607 15,477,010
Inventories 32,789,374 38,234,928
Prepaid expenses 244,454 208,510
------------- -------------
Total current assets 44,212,685 53,936,698
------------- -------------
PROPERTY, PLANT AND EQUIPMENT:
Land 5,471,419 5,471,419
Buildings 17,941,786 16,259,040
Machinery, equipment and leasehold improvements 65,638,901 65,691,506
------------- -------------
89,052,106 87,421,965
Less- Accumulated depreciation (57,565,017) (53,377,216)
------------- -------------
Net property, plant and equipment 31,487,089 34,044,749
------------- -------------
Total assets $ 75,699,774 $ 87,981,447
============= =============
LIABILITIES AND DIVISIONS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 3,931,421 $ 3,212,645
Accounts payable 9,364,977 3,972,407
Other accrued liabilities 4,569,674 5,517,848
------------- -------------
Total current liabilities 17,866,072 12,702,900
------------- -------------
LONG-TERM DEBT 13,903,898 17,835,894
------------- -------------
DIVISIONS' EQUITY:
Additional paid-in capital 22,856,029 18,024,434
Intercompany account (100,739,736) (80,048,942)
Retained earnings 121,813,511 119,467,161
------------- -------------
Total divisions' equity 43,929,804 57,442,653
------------- -------------
Total liabilities and divisions' equity $ 75,699,774 $ 87,981,447
============= =============
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these combined balance sheets.
13
<PAGE> 14
UNR LEAVITT DIVISION AND LEAVITT STRUCTURAL TUBING CO. AND SUBSIDIARY
COMBINED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES $156,332,848 $175,122,836 $149,890,655
COST OF PRODUCTS SOLD 135,124,239 147,255,872 125,170,129
------------ ------------ ------------
Gross profit 21,208,609 27,866,964 24,720,526
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Selling expenses 3,677,195 3,874,953 3,963,748
General and administrative expenses 3,699,722 4,507,281 3,947,143
------------ ------------ ------------
Operating income 13,831,692 19,484,730 16,809,635
INTEREST EXPENSE 1,752,703 1,864,400 2,123,730
------------ ------------ ------------
INCOME BEFORE INCOME TAXES 12,078,989 17,620,330 14,685,905
INCOME TAX PROVISION (Note 2) 4,831,595 7,048,132 5,874,362
------------ ------------ ------------
NET INCOME $ 7,247,394 $ 10,572,198 $ 8,811,543
============ ============ ============
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
14
<PAGE> 15
UNR LEAVITT DIVISION AND LEAVITT STRUCTURAL TUBING CO. AND SUBSIDIARY
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,247,394 $ 10,572,198 $ 8,811,543
Adjustments for noncash items included
in net income-
Income tax provision 4,831,595 7,048,132 5,874,362
Depreciation 4,314,387 4,237,182 4,301,663
Cash effects of changes in assets and
liabilities-
(Increase) decrease in accounts
receivable 4,314,403 (2,340,881) (3,525,737)
(Increase) decrease in
inventories 5,445,554 (7,761,449) (1,541,769)
(Increase) decrease in prepaid
expenses (35,944) 32,808 (215,456)
Increase in accounts payable 5,392,570 188,832 2,445,184
Increase (decrease) in other
accrued liabilities (948,174) 1,317,060 172,635
------------ ------------ ------------
Net cash provided by
operating activities 30,561,785 13,293,882 16,322,425
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,756,727) (2,209,540) (1,057,245)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (4,901,044) (4,420,614) (4,853,751)
Repayment of debt (3,213,220) (1,310,839) (3,628,724)
Net change in intercompany account (20,690,794) (5,355,411) (6,782,816)
------------ ------------ ------------
Net cash used in financing
activities (28,805,058) (11,086,864) (15,265,291)
------------ ------------ ------------
NET DECREASE IN CASH -- (2,522) (111)
CASH, beginning of year 16,250 18,772 18,883
------------ ------------ ------------
CASH, end of year $ 16,250 $ 16,250 $ 18,772
============ ============ ============
CASH PAID DURING THE YEAR FOR INTEREST $ 1,805,234 $ 1,566,876 $ 2,127,123
============ ============ ============
CASH PAID DURING THE YEAR FOR INCOME TAXES
$ -- $ -- $ --
============ ============ ============
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
15
<PAGE> 16
UNR LEAVITT DIVISION AND LEAVITT STRUCTURAL TUBING CO. AND SUBSIDIARY
COMBINED STATEMENTS OF CHANGES IN DIVISIONS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Additional
Paid-in Intercompany Retained
Capital Account Earnings
------------- ------------- -------------
<S> <C> <C> <C>
BALANCE, December 31, 1992 $ 5,101,940 $ (67,910,715) $ 109,357,785
Net income -- -- 8,811,543
Dividends paid -- -- (4,853,751)
Net change in intercompany account, net -- (6,782,816) --
Income tax contribution 5,874,362 -- --
------------- ------------- -------------
BALANCE, December 31, 1993 10,976,302 (74,693,531) 113,315,577
Net income -- -- 10,572,198
Dividends paid -- -- (4,420,614)
Net change in intercompany account, net -- (5,355,411) --
Income tax contribution 7,048,132 -- --
------------- ------------- -------------
BALANCE, December 31, 1994 18,024,434 (80,048,942) 119,467,161
Net income -- -- 7,247,394
Dividends paid -- -- (4,901,044)
Net change in intercompany account, net -- (20,690,794) --
Income tax contribution 4,831,595 -- --
------------- ------------- -------------
BALANCE, December 31, 1995 $ 22,856,029 $(100,739,736) $ 121,813,511
============= ============= =============
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements
16
<PAGE> 17
UNR LEAVITT DIVISION AND LEAVITT STRUCTURAL TUBING CO. AND SUBSIDIARY
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
1. NATURE OF OPERATIONS:
The UNR Leavitt Division includes the Leavitt, Jackson, Hammond and Production
Tube operating divisions of UNR Industries, Inc. ("UNR"). Leavitt Structural
Tubing Co. ("LSTC") is a wholly-owned subsidiary of UNR. The financial
information related to LSTC includes the accounts of its wholly-owned
subsidiary, Holco Corporation. The UNR Leavitt Division and LSTC (collectively
referred to as "Leavitt") manufacture structural and mechanical steel tubular
products. Leavitt's steel tubing is found in a broad range of consumer and
commercial products, including furniture, housewares, exercise equipment, lawn
care products, toys, shopping carts, business furniture and fixtures, storage
racks, ornamental iron products and animal confinement equipment. Leavitt's
products are used in manufacturing, construction and farm equipment,
nonresidential construction projects, electrical and mechanical equipment and
various other structural fabrication applications.
Leavitt conducts its business at its five manufacturing facilities, of which
three are located in Illinois, one in Indiana and one in Mississippi. Leavitt's
headquarters are located in Chicago, Illinois.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. Principles of Combination and Presentation
The financial statements include the combined accounts of the UNR Leavitt
Division and Leavitt Structural Tubing Co. and Subsidiary, as defined above.
All significant intercompany transactions have been eliminated in combination.
b. Cash
Leavitt transfers all customer cash receipts to UNR as part of the UNR zero
balance account. Leavitt maintains a separate payroll account and its own petty
cash.
c. Inventories
Inventories are stated at the lower of cost, on a first-in, first-out (FIFO)
basis, or market. Inventory costs include material, labor and factory overhead.
Inventories as of December 31, 1995 and 1994, are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Raw materials $12,018,317 $13,581,309
Work in process 3,443,541 4,822,755
Finished goods 17,327,516 19,830,864
----------- -----------
Total inventories $32,789,374 $38,234,928
=========== ===========
</TABLE>
d. Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Expenditures for
maintenance and repairs are charged directly against income. When properties
are retired or
17
<PAGE> 18
otherwise disposed of, the original cost and accumulated depreciation are
removed from the respective accounts and the profit or loss resulting from the
disposal is reflected in income. Major renewals and betterments are
capitalized. Depreciation is generally provided on the straight-line method for
financial reporting purposes and on the accelerated method for tax purposes.
Estimated useful lives are as follows:
<TABLE>
<S> <C>
Buildings 20-27.5 years
Machinery, equipment and leasehold
improvements 3-10 years
=============
</TABLE>
e. Related-Party Transactions
Balances due to or due from UNR are netted and reflected in the "Intercompany
account" in the accompanying combined balance sheets in the divisions' equity
section. These amounts arise principally from net cash advances and property
transfers.
Kaufmann Electric Co., an Illinois corporation, 25% owned by William S. Leavitt
(a Director of UNR during 1993 and a portion of 1994), with the remainder owned
by Leavitt family members who are stockholders of UNR, supplied certain of
Leavitt's electrical service requirements at a cost to Leavitt of $0, $400,000
and $393,000 in 1995, 1994 and 1993, respectively. As of December 1994,
electricians of Kaufmann Electric Co. became part of Leavitt's payroll. In the
opinion of Leavitt, these costs are comparable to prices generally charged by
electrical contractors.
Leavitt participates in UNR-sponsored insurance programs which include coverage
in the U.S. for medical, workers' compensation, product liability, property and
general liability insurance. Leavitt paid UNR $981,690, $1,014,557 and
$1,066,291 for medical insurance for the years ended December 31, 1995, 1994
and 1993, respectively. Leavitt paid UNR $710,832 for third-party
administrators for workers' compensation, product liability, property and
general liability insurance for the years ended December 31, 1995, 1994 and
1993.
f. Income Taxes
As of January 1, 1992, Leavitt adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Beginning in
1991, UNR agreed to pay income taxes on behalf of Leavitt. Prior to the
adoption of SFAS 109, Leavitt was not required to reflect a tax provision in
its combined income statement. Similarly for 1995, 1994 and 1993, any income
tax liability resulting from the application of SFAS 109 is the responsibility
of UNR. Therefore, the current liability-related provision reflected on the
combined statements of income has been eliminated by a credit to paid-in
capital on the combined balance sheet.
Leavitt's tax provision has been computed under the separate return method.
Income tax expense for 1995, 1994 and 1993 consists of a current provision of
$4,831,595, $7,048,132 and $5,874,362, respectively. Leavitt's tax provision
differed from the statutory U.S. federal income tax rate as follows:
18
<PAGE> 19
<TABLE>
<CAPTION>
1 9 9 5 1 9 9 4 1 9 9 3
----------------------- ----------------------- -----------------------
Amount Percent Amount Percent Amount Percent
---------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Computed statutory
provision $4,227,646 35% $6,167,115 35% $5,140,067 35%
State taxes, net of
federal effect
603,949 5 881,017 5 734,295 5
---------- --- ---------- --- ---------- ---
$4,831,595 40% $7,048,132 40% $5,874,362 40%
========== === ========== === ========== ===
</TABLE>
Leavitt's deferred temporary differences are not significant and have not been
recorded.
g. Accounting Estimates
The preparation of these 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 the
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.
h. Pension and Profit Sharing Plans
Leavitt provides various pension plans covering substantially all of its union
employees. Annual contributions of approximately $651,763, $770,277 and
$557,416 were made to the plans in 1995, 1994 and 1993, respectively. The
related pension asset or liability is recorded on a consolidated basis by UNR.
Salaried employees are covered by a profit sharing plan. Discretionary
contributions of $618,134, $600,767 and $522,813 were charged to expense in
1995, 1994 and 1993, respectively.
Net periodic pension expense for company-sponsored plans in 1995, 1994 and 1993
includes the following components (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Service cost--benefits earned during the period $186 $151 $145
Interest on projected benefit obligations 414 344 321
Actual return on plan assets (321) (420) (430)
Net amortization and deferral (71) (23) -
---- ---- -----
Net periodic pension expense $208 $ 52 $36
==== ==== =====
</TABLE>
19
<PAGE> 20
The following table sets forth the funded status of the plans at December 31,
1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Fair market value of plan assets $ 5,593 $ 5,576
------- -------
Actuarial present value of benefits for services rendered to date-
Accumulated benefit obligation based on salaries to date,
including vested benefits of $5,581 and $4,647 in 1995 and
1994, respectively 5,927 4,931
Additional benefits based on estimated future salary levels -- --
------- -------
Projected benefit obligations 5,927 4,931
------- -------
Excess of plan assets over projected benefit obligations (334) 645
Unrecognized net transitional asset (338) (381)
Unrecognized market (gain) (873) 145
Unrecognized prior service costs 1,231 567
------- -------
Prepaid (accrued) pension liability recognized on UNR's balance
sheet at year-end $ (314) $ 976
======= =======
</TABLE>
The expected long-term rate of return on plan assets was 8.5% for 1995, 1994
and 1993. The weighted average discount rate used in determining the actuarial
present value of accumulated benefit obligations was 7.5% in 1995, 1994 and
1993.
i. Acquisition
Effective April 1, 1991, LSTC purchased all the issued and outstanding common
stock of Holco Corporation ("Holco") for approximately $27.0 million. Holco's
primary asset is a structural tube mill located in Chicago, Illinois. LSTC had
leased the facility from its former owner since 1980 and continues to use the
facility for the production of structural tubing.
The purchase price of approximately $27.0 million was financed through a $15.0
million first mortgage with a bank, payable over seven years, at prime rate
plus 1/4%, a $7.0 million second mortgage provided by the seller, payable in
equal installments over five years, beginning July, 1993, at a fixed rate of
11% and a $4.5 million intercompany loan from UNR. The acquisition was recorded
using the purchase method of accounting.
20
<PAGE> 21
3. LONG-TERM DEBT:
The borrowings of Leavitt as of December 31, 1995 and 1994, consisted of the
following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
First mortgage payable at prime rate plus 1/4% $11,509,319 $14,217,394
Mortgages payable at 9.5% 5,028,775 5,321,764
Second mortgage payable at 11.0% - -
Capital leases 883,902 997,142
Other 413,323 512,239
----------- -----------
T o t a l $17,835,319 $21,048,539
=========== ===========
Classified on the balance sheet as follows-
Current portion of long-term debt $ 3,931,421 $ 3,212,645
Long-term debt 13,903,898 17,835,894
----------- -----------
T o t a l $17,835,319 $21,048,539
=========== ===========
</TABLE>
LSTC has pledged all property, plant and equipment as collateral for the first
mortgage payable. The net book value of this property, plant and equipment was
$19,467,113 as of December 31, 1995.
The first mortgage payable contains certain financial covenants. The most
restrictive of these covenants requires LSTC to maintain a Liabilities to Net
Worth ratio, as defined, of not greater than 2.0 to 1. LSTC's Liabilities to
Net Worth ratio was .7 to 1 for 1995 and 1994.
During 1994, LSTC refinanced its debt by paying off the second mortgage (second
mortgage payable at 11.0%), which had a balance of $5,600,000 at the time of
refinancing, and borrowing an additional $7,000,000 from the bank holding the
first mortgage and extending payment through 1999.
LSTC also has intercompany debt of $4,500,000 which represents a subordinated
promissory note between Leavitt and UNR. This intercompany loan relates to
LSTC's purchase of Holco (see Note 2i.). No interest rate or term date is
indicated. Under an agreement with the holder of the first mortgage, LSTC is
not permitted to make payments of principal or interest on the intercompany
promissory note until the first mortgage has been fully paid. Since this
intercompany debt will not be paid to UNR, the related amount is included in
the Intercompany Account in the divisions' equity section in the accompanying
combined balance sheets.
UNR Leavitt Division has outstanding mortgages payable with a maturity date of
August 1, 2005 , related to its building on 115th Street. The interest rate is
9.5%. Leavitt has pledged all property and plant as collateral for the
mortgages payable.
21
<PAGE> 22
The required annual principal payments for 1996 through 2000 and thereafter on
all outstanding debt are as follows:
<TABLE>
<S> <C>
1996 $ 3,931,421
1997 3,299,378
1998 3,317,811
1999 3,337,476
2000 683,331
Thereafter 3,265,902
-----------
Total $17,835,319
===========
</TABLE>
4. LEASES:
Leavitt leases one of its facilities under a capital lease, as defined by SFAS
No. 13. Leavitt's property under the capital lease, which is included in plant
and equipment, consists of $883,902 and $997,142 at December 31, 1995 and 1994,
respectively (see Note 3).
Future minimum payments for the capital lease at December 31, 1995, are
$121,809 in 1996, $131,028 in 1997, $140,943 in 1998, $151,611 in 1999,
$163,084 in 2000 and $175,427 thereafter.
5. LITIGATION:
Leavitt is involved in various pending legal proceedings and claims arising in
the normal course of its business. Although the outcome of such proceedings and
claims cannot be determined with certainty, Leavitt is of the opinion, after
consultation with counsel, that such proceedings and claims, individually or in
the aggregate, are not material to its business or financial condition.
6. BUSINESS SEGMENT INFORMATION:
Leavitt operates predominantly in a single industry as a manufacturer of steel
tubing materials.
Leavitt's export sales are less than 10% of total revenues. Revenues and
identifiable assets are related to its U.S. operations and no one other
geographic area accounts for more than 10% of total revenues or 10% of total
assets. In addition, no one customer or related group of customers represent
more than 10% of total revenues.
7. OTHER ACCRUED LIABILITIES:
Other accrued liabilities consist of the following:
<TABLE>
<CAPTION>
December 31
-----------------------------
1995 1994
---------- ----------
<S> <C> <C>
Accrued salaries and wages $ 740,686 $1,269,635
Accrued vacation 894,254 1,069,830
Real estate taxes 1,088,349 1,142,680
Other current liabilities 1,846,385 2,035,703
---------- ----------
$4,569,674 $5,517,848
========== ==========
</TABLE>
22
<PAGE> 23
8. SUBSEQUENT EVENT:
On May 16, 1996, UNR announced it had signed an agreement to sell the Leavitt
Division to Chase Brass Industries, Inc. for $95,000,000.
23
<PAGE> 24
CHASE BRASS INDUSTRIES, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The unaudited pro forma combined statements of operations give effect on a
purchase accounting basis to the acquisition of the assets and operations of
the UNR-Leavitt Division ("Leavitt") of UNR Industries, Inc. by Leavitt Tube
Company, Inc., a wholly-owned subsidiary of Chase Brass Industries, Inc.
("Chase"). The acquisition was consummated August 30, 1996.
The consolidated balance sheet of Chase as of September 30, 1996, represents the
historical balance sheet of Chase as of that date, and includes the assets and
operations acquired in the Leavitt acquisition. The historical balance sheet as
of September 30, 1996, has been provided in lieu of a pro forma balance sheet in
accordance with Rule 11-02(c) of Regulation S-X. The consolidated balance sheet
of Chase as of December 31, 1995, is provided for comparison purposes only and
does not include (on a pro forma basis) the assets and operations acquired in
the Leavitt acquisition.
The pro forma combined statements of operations for the nine months ended
September 30, 1996, and the year ended December 31, 1995, assume the acquisition
occurred at the beginning of each respective period presented. The pro forma
statements ending September 30, 1996 were included because it is management's
belief that this is the most current and best information available. The pro
forma statement of operations for the nine months ended September 30, 1996,
includes results of Leavitt for the eight months ended August 30, 1996. Results
of operations for Leavitt Tube Company, Inc. for the month of September are
included in the historical results of Chase for the period ended September 30,
1996.
The unaudited pro forma statements of operations are presented for illustrative
purposes only and are not necessarily indicative of the operating results that
would have occurred if the transactions given pro forma effect herein had been
consummated as of the time reflected herein, nor are they intended to be a
projection of future results of operations. It should be noted that Chase's
future consolidated financial statements will reflect the acquisition as of
August 30, 1996.
The pro forma adjustments are based upon available information and certain
assumptions and estimates that Chase believes are reasonable and factually
supportable, and which are subject to revision once appraisals, evaluations and
other studies of the fair market value of Leavitt's assets and liabilities are
completed. Actual purchase accounting adjustments are not expected to differ
materially from the pro forma adjustments presented herein. Certain
reclassifications were made to Leavitt's historical financial statements to
conform to Chase's presentation.
The pro forma combined statements of operations should be read in conjunction
with the consolidated financial statements of Chase Brass Industries, Inc.
filed with the Securities and Exchange Commission in its Quarterly Report on
Form 10-Q for the nine months ended September 30, 1996, its Annual Report on
Form 10-K for the year ended December 31, 1995, and the historical financial
statements of UNR Leavitt Division and Leavitt Structural Tubing Co. and
Subsidiary included herein.
24
<PAGE> 25
CHASE BRASS INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED; IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,516 $ 16,973
Receivables, net of allowance for doubtful accounts and
claims of $1,276 and $1,036 in 1996 and 1995, respectively 44,571 28,071
Inventories 44,119 15,975
Prepaid expenses 690 733
Deferred income taxes 2,423 850
-------- --------
Total current assets 93,319 62,602
Property, plant and equipment, net 103,257 38,445
Other assets 5,096 1,956
-------- --------
Total assets $201,672 $103,003
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 23,028 $ 18,900
Accrued liabilities 11,523 3,594
Accrued income taxes 3,277 3,310
Current portion of long-term debt 3,279 --
-------- --------
Total current liabilities 41,107 25,804
Long-term debt 82,871 18,784
Deferred income taxes 8,699 4,770
-------- --------
Total liabilities 132,677 49,358
-------- --------
Commitments and contingencies -- --
-------- --------
Stockholders' equity:
Common stock, $.01 par value, 25,000,000 shares authorized;
5,964,271 and 5,960,721 shares issued and outstanding
in 1996 and 1995, respectively 60 60
Nonvoting common stock, $.01 par value, 5,000,000 shares
authorized; 4,100,079 shares issued and outstanding
in 1996 and 1995 41 41
Additional paid-in capital 30,026 29,990
Retained earnings 38,868 23,554
-------- --------
Total stockholders' equity 68,995 53,645
-------- --------
Total liabilities and stockholders' equity $201,672 $103,003
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated balance sheet.
25
<PAGE> 26
CHASE BRASS INDUSTRIES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET
1. SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION AND INTERIM FINANCIAL INFORMATION
The consolidated balance sheet as of September 30, 1996, and December
31, 1995, includes the accounts of Chase Brass Industries, Inc. ("Chase"), a
Delaware corporation, and its wholly-owned subsidiaries, Chase Brass & Copper
Company, Inc. ("CBCC"), a Delaware corporation, and Leavitt Tube Company, Inc.
("Leavitt"), a Delaware corporation.
The accompanying consolidated balance sheet does not include all the
information and footnote disclosures required by generally accepted accounting
principles. The financial information for September 30, 1996, included herein
is unaudited, and, in the opinion of management, reflects all adjustments
necessary, consisting only of normal recurring adjustments, for a fair
presentation of such financial information.
On August 24, 1990, Chase acquired, through CBCC, the assets and
operations of a Delaware corporation formerly named Chase Brass & Copper
Company, Incorporated ("Old Chase"), pursuant to the Asset Purchase Agreement
("CBCC Purchase Agreement") dated May 10, 1990, by and between Chase, CBCC, Old
Chase, BP Exploration (Alaska) Inc. ("BPE") and The Standard Oil Company (the
"CBCC Acquisition"). BPE and The Standard Oil Company (collectively referred
to as "BP") own all of the stock of Old Chase. The CBCC Acquisition was
accounted for as a purchase.
2. INVENTORIES:
Inventories are stated at the lower of cost-or-market, with cost
determined on the last-in, first-out (LIFO) basis. Inventories have been
written down to lower of cost-or-market and such amounts are considered cost
for subsequent periods. If the first-in, first-out (FIFO) method for
determining cost had been used, inventories would have been approximately $3.2
million and $4.3 million higher at September 30, 1996, and December 31, 1995,
respectively. Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------ -----------
<S> <C> <C>
Raw materials $ 11,029 $ 6,641
Work in process 15,875 4,903
Finished goods 20,048 7,952
-------- -------
46,952 19,496
Tolling metal due customers (2,833) (3,521)
-------- --------
$ 44,119 $ 15,975
======== ========
</TABLE>
26
<PAGE> 27
CHASE BRASS INDUSTRIES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET (CONTINUED)
3. COMMITMENTS AND CONTINGENCIES:
In connection with the CBCC Acquisition, Chase and BP entered into a
Remediation Agreement (the "Remediation Agreement"). Under the terms of the
Remediation Agreement, BP is responsible for certain remediation activities
attributable to environmental releases which occurred prior to the CBCC
Acquisition at CBCC's manufacturing facility and the construction of a new
waste water treatment plant to enable CBCC to comply with its waste water
discharge permit (the "Permit"). BP also is obligated under the CBCC Purchase
Agreement to indemnify Chase for liabilities arising out of certain
environmental conditions that existed as of the CBCC Acquisition date. BP has
performed certain activities in this regard and has acknowledged liability for
certain releases of regulated substances into the environment which occurred
prior to the CBCC Acquisition.
CBCC and/or other entities named "Chase Brass & Copper Co." (which may
include Old Chase or divisions of Old Chase) have been named by governmental
agencies and/or private parties as a potentially responsible party ("PRP")
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980 ("CERCLA") and/or analogous state laws with respect to two sites, and
may have been identified as a PRP at one additional site.
Chase believes that CBCC has no liability for the cleanup costs
related to these sites because (a) such liability is attributable to an entity
that had the same or similar name to that of CBCC, such as a division or
subsidiary of BP (other than the brass rod division of Old Chase), or (b) such
liability arose from acts that occurred prior to the CBCC Acquisition and,
therefore, BP retained such liability under the CBCC Purchase Agreement and is
contractually obligated to indemnify Chase for such liabilities. To the extent
CBCC incurs any cleanup costs with respect to these sites, it intends to
enforce its rights under the CBCC Purchase Agreement to recover such amounts
from BP.
Preliminary studies conducted immediately prior to the CBCC
Acquisition indicated that the site upon which CBCC's manufacturing facility is
located has been contaminated with certain volatile organic compounds,
including trichlorethylene, as well as total petroleum hydrocarbons and certain
metals from historical operating practices. While Chase is aware that the site
is contaminated, the full extent and magnitude of contamination has not yet
been determined. Pursuant to the Remediation Agreement, BP is required to fund
a comprehensive site investigation to determine the extent of contamination and
appropriate cleanup methods.
27
<PAGE> 28
CHASE BRASS INDUSTRIES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET (CONTINUED)
Because the site investigatory activities are not yet complete, Chase
presently is unable to estimate with any degree of certainty the extent of
contamination or the amount of site cleanup costs associated therewith although
such costs may be material. However, because BP has acknowledged its
obligations with respect to site contamination attributable to Old Chase's
operations, the probability that CBCC would be required to make material
expenditures related to site cleanup appears to be remote. Accordingly, no
reserves have been established regarding the aforementioned matters.
Additionally, Chase expects no material impact on its financial position,
results of operations or liquidity as a result of the existence of any other
environmental conditions. However, to the extent CBCC is required to fund
cleanup costs related to the remediation of contamination at its manufacturing
facility as a result of BP's refusal to implement remediation activities
acceptable to CBCC, such costs could have a material adverse effect on Chase's
financial condition and results of operations pending the receiving of such
amounts from BP. To the extent CBCC incurs cleanup costs with respect to these
sites, it intends to enforce its rights under the CBCC Purchase Agreement to
recover such amounts from BP. In the event Chase is entitled to recovery from
BP pursuant to the CBCC Purchase Agreement, or otherwise, but is unable to
collect such amounts from BP, Chase may elect to offset the amounts of such
recoveries against amounts payable under the $20 million Seller Note to the
extent it legally is entitled to do so.
28
<PAGE> 29
CHASE BRASS INDUSTRIES, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(in thousands, except share information)
<TABLE>
<CAPTION>
For the Year Ended December 31, 1995
------------------------------------------------------------
Historical Pro Forma
------------------------- ------------------------------
Chase Leavitt Adjustments Combined
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 313,097 $ 156,333 $ 469,430
Cost of goods sold (exclusive of
depreciation and amortization
shown separately below) 270,022 130,943 400,965
----------- ---------- -----------
Gross profit 43,075 25,390 68,465
Selling, general and administrative
expenses 8,264 7,244 15,508
Depreciation and amortization 5,537 4,314 $ 486 (a) 10,337
----------- ---------- ----------- -----------
Operating income 29,274 13,832 (486) 42,620
Net interest expense 1,530 1,753 2,719 (b) 6,002
----------- ---------- ----------- -----------
Income before income taxes 27,744 12,079 (3,205) 36,618
Provision (benefit) for income taxes 11,043 4,832 (1,282)(c) 14,593
----------- ---------- ----------- -----------
Net income $ 16,701 $ 7,247 $ (1,923) $ 22,025
=========== ========== =========== ===========
Average shares outstanding 10,060,800 10,060,800
=========== ===========
Earnings per share $ 1.66 $ 2.19
=========== ===========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
29
<PAGE> 30
CHASE BRASS INDUSTRIES, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(in thousands, except share information)
<TABLE>
<CAPTION>
For the Nine Months Ended September 30, 1996
--------------------------------------------------
Historical Pro Forma
------------------------ ----------------------
Chase Leavitt Adjustments Combined
----------- --------- ----------- --------
<S> <C> <C> <C> <C>
Net sales $ 260,265 $101,890 $ 362,155
Cost of goods sold
(exclusive of
depreciation and
amortization shown
separately below) 221,485 86,378 307,863
---------- -------- ----------
Gross profit 38,780 15,512 54,292
Selling, general and
administrative expenses 8,012 4,981 12,993
Depreciation and
amortization 4,216 2,742 $ 458 (a) 7,416
---------- -------- ------- ----------
Operating income 26,552 7,789 (458) 33,883
Net interest expense 1,228 993 2,431 (b) 4,592
---------- -------- ------- ----------
Income before income
taxes 25,324 6,856 (2,889) 29,291
Provision (benefit) for
income taxes 10,010 2,742 (1,156)(c) 11,596
---------- -------- ------- ----------
Net income $ 15,314 $ 4,114 $(1,733) $ 17,695
========== ======== ======= ==========
Average shares outstanding 10,062,501 10,062,501
========== ==========
Earnings per share $ 1.52 $ 1.76
========== ==========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
30
<PAGE> 31
CHASE BRASS INDUSTRIES, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
The following is a summary of adjustments reflected in the pro forma combined
statements of operations. The statement of operations for the nine months ended
September 30, 1996, includes results of Leavitt for the eight months ended
August 30, 1996. Results of operations for Leavitt Tube Company, Inc. for the
month of September are included in the historical results of Chase for the
period ended September 30, 1996.
(a) As of the acquisition date, Leavitt's property, plant and equipment was
increased $31.3 million over its then-current book value to reflect the
estimated fair value of the assets purchased. Assets totaling $4.4 million
were recorded as of the acquisition date to reflect a non-compete
agreement, a supply agreement with an affiliate of UNR Industries, Inc.
and to reflect actual purchase price in excess of the fair market value of
the assets acquired. The pro forma adjustment reflects the impact on
earnings of the additional depreciation and amortization expenses, which
have been computed using the straight-line method over the estimated useful
lives.
<TABLE>
<S> <C>
buildings and improvements 39 years
machinery and equipment 15 years
goodwill 15 years
intangible assets 5 years
</TABLE>
(b) The acquisition was funded by a combination of cash on hand and acquisition
debt. The pro forma adjustment reflects the incremental interest expense
associated with the acquisition debt and the elimination of Chase's
interest income on cash invested prior to the acquisition, partially offset
by the elimination of interest expense on the portion of Leavitt debt not
assumed by Chase. The acquisition debt balance as of August 30, 1996, was
$61.7 million, and the estimated effective interest rate was 6.5% per
annum.
(c) Recognition of the estimated income tax effects of the pro forma
adjustments outlined above at an effective income tax rate of 40%.
31
<PAGE> 32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
CHASE BRASS INDUSTRIES INC.
Date: November 12, 1996 By: /S/ MARTIN V. ALONZO
-------------------------------------
Martin V. Alonzo
Chairman of the Board,
President and Chief Executive Officer
32
<PAGE> 33
CHASE BRASS INDUSTRIES, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description Page
- ------- ----------- ----
<S> <C> <C>
2.1 Sale and Purchase Agreement dated as of May 15, 1996, among Chase Brass Industries, Inc., Leavitt
Structural Tubing Co. and UNR Industries, Inc. (incorporated by reference to Exhibit 2.1 to Registrant's
Form 10-Q for the quarter ended June 30, 1996).
2.2 Assignment and Assumption Agreement dated June 27, 1996, by and between Chase Brass Industries, Inc. and
Leavitt Tube Company, Inc. (incorporated by reference to Exhibit 2.3 to Registrant's Form 10-Q for the
quarter ended June 30, 1996).
2.3 Amendment No. 1 to Sale and Purchase Agreement dated as of July 1, 1996, by and among Chase Brass
Industries, Inc., Leavitt Tube Company, Inc., Leavitt Structural Tubing Co. and UNR Industries, Inc.
(incorporated by reference to Exhibit 2.2 to Registrant's Form 10-Q for the quarter ended June 30,
1996).
2.4** Amendment No. 2 to Sale and Purchase Agreement dated as of August 29, 1996, among Chase Brass
Industries, Inc., Leavitt Tube Company, Inc., Leavitt Structural Tubing Co. and UNR Industries, Inc.
23.1* Consent of Arthur Andersen LLP.
99.1** Credit Agreement by and among Chase Brass Industries, Inc., the banks referred to therein and PNC Bank,
National Association, as Agent, dated as of August 30, 1996.
99.2** Press Release of Registrant dated August 30, 1996.
</TABLE>
* Filed herewith.
** Previously filed with the Registrant's Form 8-K dated September 12, 1996.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 8-K into Chase Brass Industries, Inc.'s
previously filed Registration Statement File No. 33-87278.
Arthur Andersen LLP
Chicago, Illinois,
November 12, 1996
