1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) JANUARY 27, 1995 COMMERCIAL METALS COMPANY (Exact name of registrant as specified in its charter) DELAWARE (State or other jurisdiction of incorporation) 1-4304 75-0725338 (Commission File Number) (IRS Employer Identification NO.) 7800 Stemmons Freeway, Dallas, Texas 75247 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (214) 689-4300 2 Item 1. Not Applicable. Item 2. Acquisition of Assets. As reported on Form 8-K filed November 30, 1994, Commercial Metals Company (the "Company") acquired on November 15, 1994, by merger, Owen Steel Company, Inc. and two affiliated corporations, Owen Miscellaneous Metals, Inc., and South Carolina Steel Corporation. This Form 8-K is being filed to include the financial statements and pro forma financial information required in connection with the acquisition which were not available at the November 30 filing of the Form 8-K reporting the acquisition. Items 3. and 4. Not Applicable. Item 5. Other Events. See Item 3. Legal Proceedings in the Company's Annual Report on Form 10-K for the year ended August 31,1994, filed November 28, 1994, and Form 8-K filed November 30, 1994, concerning litigation involving the Company's subsidiary, CMC Oil Company and the Federal Energy Regulatory Commission of the United States Department of Energy. On January 20, 1995, CMC Oil Company filed Notice of Appeal of the November 22, 1994, District Court Order granting the Government's Motion for Summary Judgment and affirming the November 30, 1993, Remedial Order issued by the Federal Energy Regulatory Commission. Notice of Appeal was filed in the United States Court of Appeals for the Fifth Circuit and for the Federal Circuit with respect to issues over which each Court of Appeals has jurisdiction. Item 6. Not Applicable. Item 7. Financial Statements and Exhibits. (a) Financial statements of businesses acquired. Audited financial statements: Owen Steel Company, Inc. - year ended December 31, 1993 Owen Steel Company, Inc. - year ended December 31, 1992 Owen Steel Company, Inc. - year ended December 31, 1991 South Carolina Steel Corporation - year ended December 31, 1993 South Carolina Steel Corporation - year ended December 31, 1992 South Carolina Steel Corporation - year ended December 31, 1991 Owen Miscellaneous Metals, Inc. - year ended December 31, 1993 Owen Miscellaneous Metals, Inc. - year ended December 31, 1992 Owen Miscellaneous Metals, Inc. - year ended December 31, 1991 Unaudited financial statements: Owen Steel Company, Inc. - Nine months ended September 30, 1994 and 1993 South Carolina Steel Corporation - Nine months ended September 30, 1994 and 1993 Owen Miscellaneous Metals, Inc. - Nine months ended September 30, 1994 and 1993 3 OWEN STEEL COMPANY, INC. AND ITS SUBSIDIARIES FINANCIAL REPORT DECEMBER 31, 1993 4 OWEN STEEL COMPANY, INC. AND ITS SUBSIDIARIES INDEX YEAR ENDED DECEMBER 31, 1993 INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS EXHIBITS A CONSOLIDATED BALANCE SHEET B CONSOLIDATED STATEMENT OF INCOME C CONSOLIDATED STATEMENT OF RETAINED EARNINGS D CONSOLIDATED STATEMENT OF CASH FLOWS E NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5 INDEPENDENT AUDITOR'S REPORT To the Board of Directors Owen Steel Company, Inc. Columbia, South Carolina We have audited the accompanying consolidated balance sheet of Owen Steel Company, Inc. and its subsidiaries as of December 31, 1993, and the related consolidated statements of income, retained earnings, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Owen Steel Company, Inc. and its subsidiaries as of December 31, 1993, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ DERRICK, STUBBS & STITH Derrick, Stubbs & Stith March 8, 1994 6 EXHIBIT A OWEN STEEL COMPANY, INC. AND ITS SUBSIDIARIES CONSOLIDATED BALANCE SHEET DECEMBER 31, 1993 ASSETS ------ Current Assets: - -------------- Cash $ 5,086,292 Accounts Receivable - Customers, Less, Allowance for Doubtful Accounts of $ 127,055 26,992,171 Accounts Receivable - Other 59,548 Income Tax Refunds Due 5,110,700 Inventories 20,776,721 Prepaid Expenses 104,256 --------------- $ 58,129,688 Long-Term Investments: - --------------------- Other Investments (Note 2) 75,000 Property and Equipment: - ---------------------- Land $ 2,014,145 Offices and Plants 13,694,918 Machinery and Equipment 63,183,294 Furniture and Fixtures 2,582,486 Autos and Trucks 5,849,638 Other 1,404,538 --------------- Total Cost $ 88,729,019 Less, Accumulated Depreciation 48,544,611 --------------- 40,184,408 Other Assets: - ------------ Cash Surrender Value of Life Insurance $ 2,619,440 Fixed Assets Under Construction 412,533 Deferred Charges 342,018 Other Assets 3,490 --------------- 3,377,481 -------------- Total Assets $ 101,766,577 ============== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current Liabilities: Accounts Payable $ 20,616,521 Notes Payable - Amount Due Within One Year (Notes 3 and 4) 15,151,225 Payroll Taxes Payable 165,172 Sales Taxes Payable 295,478 Accrued Expenses 1,683,566 Provision for Waste Removal 418,456 Other Liabilities 7,127 --------------- $ 38,337,545 Long-Term Liabilities: - --------------------- Notes and Loans Payable - Amount Due After One Year (Notes 3 and 4) $ 19,157,192 Accrued Deferred Compensation Expense (Note 5) 747,278 --------------- 19,904,470 -------------- Total Liabilities $ 58,242,015 Deferred Income Taxes (Note 7) 750,841 - --------------------- Minority Interests 2,034,479 - ------------------ Stockholders' Equity: - -------------------- Common Stock: Class A Voting (1,000,000 shares of $ 1 par value authorized; 865,500 shares issued) $ 865,500 Class B Non-Voting (4,000,000 shares of $ 1 par value authorized; 2,820,000 shares issued) 2,820,000 Additional Paid-In Capital 60,000 Retained Earnings - Exhibit C 39,393,415 --------------- $ 43,138,915 Less, Cost of Treasury Stock (639,654 shares) 2,399,673 -------------- 40,739,242 -------------- Total Liabilities and Stockholders' Equity $ 101,766,577 ============== See Notes to Financial Statements. 7 EXHIBIT B OWEN STEEL COMPANY, INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 1993 % of Amount Sales ------------- ------- Sales $ 211,656,333 100.00 Cost of Sales 195,827,075 92.50 ------------- ------ Gross Income $ 15,829,258 7.50 General and Administrative Expenses 33,391,103 15.77 ------------- ------ Net Operating Income $ (17,561,845) (8.27) Other Income and Expenses - Net (2,822,810) (1.33) ------------- ------ Net Income (Loss) Before Taxes $ (20,384,655) (9.60) Income Taxes (Refunds) (5,437,829) (2.57) ------------- ------ Net Income (Loss) Before Minority Interests $ (14,946,826) (7.03) Minority Interests (1,060,228) (.50) -------------- ------ Net Income (Loss) - Exhibit C $ (13,886,598) (6.53) ============= ====== See Notes to Financial Statements. 8 EXHIBIT C OWEN STEEL COMPANY, INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF RETAINED EARNINGS YEAR ENDED DECEMBER 31, 1993 Retained Earnings, Beginning $53,280,013 Net Income (Loss) - Exhibit B (13,886,598) ----------- Retained Earnings, Ending - Exhibit A $39,393,415 =========== See Notes to Financial Statements. 9 EXHIBIT D OWEN STEEL COMPANY, INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1993 Cash Flows from Operating Activities: - ------------------------------------ Net Income (Loss) - Exhibit B $(13,886,598) Adjustments to Reconcile Net Income to Net Cash Provided by (Used in) Operating Activities: Depreciation and Amortization 5,404,178 Deferred Income Taxes (389,122) Deferred Compensation 17,426 Allowance for Doubtful Accounts 19,826 (Gain) Loss on Disposal of Property and Equipment (94,291) Minority Interest in Net Income (Loss) (1,060,228) Changes in Operating Assets and Liabilities: (Increase) Decrease in Accounts Receivable 12,961,508 (Increase) Decrease in Inventories 6,417,532 (Increase) Decrease in Other Assets (65,391) Increase (Decrease) in Accounts Payable and Accrued Expenses (713,770) ------------ Net Cash Provided by Operating Activities $ 8,611,070 ------------ Cash Flows from Investing Activities: - ------------------------------------ Purchase of Property and Equipment $ (1,293,392) Proceeds from Sale of Property and Equipment 261,895 (Increase) Decrease in Cash Surrender Value of Life Insurance (201,745) ------------ Net Cash (Used in) Investing Activities $ (1,233,242) ------------ Cash Flows from Financing Activities: - ------------------------------------ Proceeds from Long-Term Borrowings $ 156,750 Payments on Long-Term Debt (1,778,846) Increase (Decrease) in Short-Term Borrowings (1,200,000) ------------ Net Cash (Used in) Financing Activities $ (2,822,096) ------------ Net Increase in Cash $ 4,555,732 - -------------------- Cash: - ---- Beginning 530,560 ------------ Ending $ 5,086,292 ============ Supplemental Disclosures of Cash Flow Information: - ------------------------------------------------- Cash Payment for: Interest $ 2,852,408 ============ Income Taxes (Net of Refunds) $ (6,850,691) ============ See Notes to Financial Statements. 10 EXHIBIT E Sheet 1 OWEN STEEL COMPANY, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1993 1. Significant Accounting Policies: 1.1 These consolidated financial statements include the accounts of the parent company and all of its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. 1.2 Profits on contracts are recorded on the basis of the Company's estimate of projected revenue and costs on the percentage of completion method applied to individual contracts. Any revisions that are required in contract estimates during the course of the work are reflected in the accounting period in which the facts that require the revision become known. 1.3 Inventories are stated at the lower of cost or market, using principally the last-in, first-out method (LIFO). 1.4 Property and Equipment is stated at cost. For financial reporting purposes, depreciation is computed using principally the accelerated method (except at the Company's subsidiary, Owen Electric Steel Company of South Carolina, which uses principally the straight-line method) over the useful lives of the assets which are as follows: Years ----- Autos and Trucks 3 to 4 Machinery and Equipment 5 to 10 Office Furniture and Fixtures 5 to 10 Computer Hardware and Software 5 Buildings 20 New Melt Shop Equipment at Owen Electric Steel Company of South Carolina 12 1.5 The Company participates in a deferred cash [401(k)] plan covering full time employees who have one year of service and are age twenty-one or older. Company contributions to the Plan are determined annually by the Board of Directors. Participants are immediately one hundred percent (100%) vested. The Company does not have any unfunded liability under this Plan. The Company made contributions to the Plan for the year ended December 31, 1993 of $ 462,054. 1.6 Deferred income taxes are recognized for differences in the time of recording items of income and expense in the financial records and their inclusion in or deduction from taxable income. 1.7 The Company has elected to expense all applicable research and development expense. 11 EXHIBIT E Sheet 2 OWEN STEEL COMPANY, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1993 2. Other Investments: Other Investments represent a qualified investment in The Palmetto Seed Capital Corporation. This is a fund that provides financing to high growth oriented start-up businesses or prestart-up businesses in the state of South Carolina. This investment is not anticipated by the Company to achieve a high rate of return. 3. Notes Payable: 3.1 On July 1, 1992, the Company and each of its subsidiaries entered into an unsecured credit agreement with South Carolina National Bank. Under the terms of this agreement, the parent company could borrow a maximum of $15,000,000 at the prime rate or, at the Company's option LIBOR plus 2%. This agreement was effective through June 30, 1993. This loan agreement, with a maximum borrowing amount of $10,000,000 and a rate of prime plus 3/4%, was extended through July 31, 1993. No agreements have been made for the period after July 31, 1993. Interest payments on this loan balance have been paid timely. The loan balance at December 31, 1993 was $10,000,000. 3.2 On October 24, 1990, the Company entered into a $27,000,000 unsecured loan agreement with Principal Mutual Life Insurance Company and Confederation Life Insurance Company. Interest at a fixed rate of 9.51% is paid quarterly commencing on December 30, 1990. Principal is due in 32 equal quarterly installments commencing on March 30, 1992. The loan agreement is quaranteed by each of the subsidiaries. The remaining five year debt maturities of this loan are as follows: 1994 $ 5,062,500 1995 3,375,000 1996 3,375,000 1997 3,375,000 1998 3,375,000 Remaining 3,375,000 ----------- Total $21,937,500 =========== 3.3 $5,062,500 principal on this loan is due within one year. Included in the currently due amount is $1,687,500 of principal which was due, but not paid, in 1993. Interest payments on these loan balances have been paid timely. 3.4 Both loan agreements contain requirements as to certain financial ratios, capital expenditures and insurance coverage along with other usual protective provisions. Owen Steel Company, Inc. and its subsidiaries have not complied with all of the provisions of these loan agreements. 12 EXHIBIT E Sheet 3 OWEN STEEL COMPANY, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1993 3. Notes Payable (Continued): 3.4 (Continued): The subsidiaries of Owen Steel Company, Inc. are: Owen Steel Company of N. C., Inc., Gastonia, North Carolina Owen of Georgia, Inc., Lawrenceville, Georgia Owen Steel Company of Florida, Jacksonville, Florida Owen Supply Company, Inc., Columbia, South Carolina Owen Industrial Products, Inc., Lexington, South Carolina Owen Electric Steel Company of South Carolina, Cayce, South Carolina Owen Joist Corporation, Cayce, South Carolina Owen Joist of Florida, Inc., Starke, Florida 3.5 Owen Steel Company, Inc. has made loans on certain life insurance policies owned by the Company. These loans bear interest at a rate of 5% to 8% per annum and are shown as a long-term liability since it is anticipated that these loans will not be repaid within one year. The cash surrender values and outstanding policy loans at December 31, 1993 are as follows: Cash Surrender Values $2,619,440 ========== Outstanding Policy Loans $2,201,354 ========== 4. Capital Lease Obligation: Two subsidiaries of the Company have entered into a lease purchase agreement for equipment that qualifies as a capital lease obligation and, accordingly, have been recorded as a purchase of fixed assets. The future lease payments are as follows: Total Year Principal Interest Payment ---------- --------- -------- ---------- 1994 $ 88,725 $12,652 $101,377 1995 42,239 6,265 48,504 1996 38,599 1,821 40,420 -------- ------- -------- $169,563 $20,738 $190,301 ======== ======= ======== 13 EXHIBIT E Sheet 4 OWEN STEEL COMPANY, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1993 5. Deferred Compensation Agreements: The Company has entered into deferred compensation agreements with certain key employees providing for payments only if the participant remains continuously in the employ of the Company until the agreed retirement age of 65, or upon death or disability, if earlier. The agreements do not require funding and there are no vested benefits prior to reaching age 65 or the date of death or disability. Of the total balance of $747,278, at December 31, 1993, $ 243,100 is calculated on the actuarial present value of the future benefits using an 8% assumed rate of return. The remainder of the liability, $ 504,178, accrues interest and does not require any actuarial assumptions. 6. Backlog: One of the Company's operations consists of the fabrication of reinforcing steel. Most of its contracts for these products are fixed price contracts. Scrap steel is a major cost component of reinforcing steel. During the year 1993, scrap prices increased substantially. If these scrap prices do not moderate downward, the Company will likely suffer losses in fulfilling the remaining portions of most of its fabricated reinforcing steel contracts. As of December 31, 1993, the Company had approximately 78,411 net tons remaining to be fabricated on these reinforcing contracts. No provisions have been made for any future losses that may be incurred when these contracts are fabricated. 7. Income Tax Matters: Net deferred tax liabilities consist of the following at December 31, 1993: Deferred Tax Assets $2,623,369 Deferred Tax Liabilities 3,374,210 ---------- $ 750,841 ========== During the year ended December 31, 1993, the Company generated various state and federal net operating loss carryforwards. The amount of the federal net operating loss carryforward at December 31, 1993 is $4,090,000. Management has not recorded a deferred tax asset for any amount of federal tax associated with the future use of this net operating loss carryforward. The Company's deferred tax asset at December 31, 1993 includes $1,713,471 of alternative minimum tax credit carryforward which may be carried forward indefinitely to reduce future regular federal income taxes payable. 14 EXHIBIT E Sheet 5 OWEN STEEL COMPANY, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1993 8. Suspended Operations: The Company has temporarily suspended the structural fabrication operations at its subsidiary companies' plants in Gastonia, North Carolina, Lawrenceville, Georgia and Jacksonville, Florida until the economic outlook in these markets warrants restarting these operations. To facilitate its re-entry into these markets, the Company plans on retaining the physical facilities related to structural fabrication. The Company continues to fabricate reinforcing steel at these plants. 15 OWEN STEEL COMPANY, INC. AND ITS SUBSIDIARIES FINANCIAL REPORT DECEMBER 31, 1992 16 OWEN STEEL COMPANY, INC. AND ITS SUBSIDIARIES INDEX YEAR ENDED DECEMBER 31, 1992 INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS EXHIBITS -------- A CONSOLIDATED BALANCE SHEET B CONSOLIDATED STATEMENT OF INCOME C CONSOLIDATED STATEMENT OF RETAINED EARNINGS D CONSOLIDATED STATEMENT OF CASH FLOWS E NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 17 INDEPENDENT AUDITOR'S REPORT To the Board of Directors Owen Steel Company, Inc. Columbia, South Carolina We have audited the accompanying consolidated balance sheet of Owen Steel Company, Inc. and its subsidiaries as of December 31, 1992, and the related consolidated statements of income, retained earnings, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Owen Steel Company, Inc. and its subsidiaries as of December 31, 1992, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ DERRICK, STUBBS & STITH Derrick, Stubbs & Stith March 5, 1993 18 EXHIBIT A OWEN STEEL COMPANY, INC. AND ITS SUBSIDIARIES CONSOLIDATED BALANCE SHEET DECEMBER 31, 1992 ASSETS ------ Current Assets: - -------------- Cash $ 530,560 Accounts Receivable - Customers, Less, Allowance for Doubtful Accounts of $ 107,229 38,499,412 Accounts Receivable - Other 35,547 Income Tax Refunds Due 6,608,794 Inventories 27,194,253 Prepaid Expenses 87,486 ----------------- $ 72,956,052 Long-Term Investments: - --------------------- Other Investments (Note 3) 75,000 Property and Equipment: - ---------------------- Land $ 1,975,110 Offices and Plants 13,270,926 Machinery and Equipment 62,695,693 Furniture and Fixtures 2,560,067 Autos and Trucks 6,422,358 Other 1,352,147 ----------------- Total Cost $ 88,276,301 Less, Accumulated Depreciation 43,968,001 ----------------- 44,308,300 Other Assets: - ------------ Cash Surrender Value of Life Insurance $ 2,417,695 Fixed Assets Under Construction 567,031 Deferred Charges 287,001 Other Assets 9,886 ----------------- 3,281,613 ------------ Total Assets $120,620,965 ============ Current Liabilities: - ------------------- Accounts Payable $ 21,872,316 Notes Payable - Amount Due Within One Year (Notes 4 and 5) 14,660,355 Payroll Taxes Payable 226,954 Sales Taxes Payable 251,725 Accrued Expenses 912,203 Provision for Waste Removal 625,000 Other Liabilities 11,893 ----------------- $38,560,446 Long-Term Liabilities: - --------------------- Notes and Loans Payable - Amount Due After One Year (Notes 4 and 5) $ 22,470,157 Accrued Deferred Compensation Expense (Note 6) 729,852 ----------------- 23,200,009 ------------ Total Liabilities $ 61,760,455 Deferred Income Taxes 1,139,963 - --------------------- Minority Interests 3,094,707 - ------------------ Stockholders' Equity: - -------------------- Common Stock: Class A Voting (1,000,000 shares of $ 1 par value authorized; 865,500 shares issued) $ 865,500 Class B Non-Voting (4,000,000 shares of $ 1 par value authorized; 2,820,000 shares issued) 2,820,000 Additional Paid-In Capital 60,000 Retained Earnings - Exhibit C 53,280,013 ----------------- $ 57,025,513 Less, Cost of Treasury Stock (639,654 shares) 2,399,673 ----------------- 54,625,840 ------------ Total Liabilities and Stockholders' Equity $120,620,965 ============ See Notes to Financial Statements. 19 EXHIBIT B OWEN STEEL COMPANY, INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 1992 % of Amount Sales ------------- ------ < Sales $ 198,707,317 100.00 Cost of Sales 177,367,314 89.26 ------------- ------ Gross Income $ 21,340,003 10.74 General and Administrative Expenses 35,616,517 17.92 ------------- ------ Net Operating Income $ (14,276,514) (7.18) Other Income and Expenses - Net (1,633,580) (.83) ------------- ------ Net Income (Loss) Before Taxes $ (15,910,094) (8.01) Income Taxes (Refunds) (5,481,064) (2.76) ------------- ------ Net Income (Loss) Before Minority Interests $ (10,429,030) (5.25) Minority Interests (791,130) (.40) ------------- ------ Net Income (Loss) - Exhibit C $ (9,637,900) (4.85) ============= ====== See Notes to Financial Statements. 20 EXHIBIT C OWEN STEEL COMPANY, INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF RETAINED EARNINGS YEAR ENDED DECEMBER 31, 1992 Retained Earnings, Beginning $ 63,527,082 Net Income (Loss) - Exhibit B (9,637,900) Dividends Paid (609,169) ------------- Retained Earnings, Ending - Exhibit A $ 53,280,013 ============= See Notes to Financial Statements. 21 EXHIBIT D OWEN STEEL COMPANY, INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1992 Cash Flows from Operating Activities: - ------------------------------------ Net Income (Loss) - Exhibit B $ (9,637,900) Adjustments to Reconcile Net Income to Net Cash Provided by (Used in) Operating Activities: Depreciation and Amortization 4,448,431 Deferred Income Taxes 1,056,165 Deferred Compensation 24,781 Allowance for Doubtful Accounts 3,921 (Gain) Loss on Disposal of Property and Equipment 63,700 Minority Interest in Net Income (Loss) (791,130) Changes in Operating Assets and Liabilities: (Increase) Decrease in Accounts Receivable (3,117,909) (Increase) Decrease in Inventories (3,185,633) (Increase) Decrease in Other Assets 68,408 Increase (Decrease) in Accounts Payable and Accrued Expenses 2,582,934 -------------- Net Cash (Used in) Operating Activities $ (8,484,232) -------------- Cash Flows from Investing Activities: - ------------------------------------ Purchase of Property and Equipment $ (10,709,294) Proceeds from Sale of Property and Equipment 26,662 Decrease in Short-Term Investments 9,126,446 (Increase) Decrease in Loans to Affiliates 897,000 (Increase) Decrease in Cash Surrender Value of Life Insurance (393,062) -------------- Net Cash (Used in) Investing Activities $ (1,052,248) -------------- Cash Flows from Financing Activities: - ------------------------------------ Proceeds from Long-Term Borrowings $ 2,323,166 Payments on Long-Term Debt (3,392,653) Increase (Decrease) in Short-Term Borrowings 11,200,000 Dividends Paid (609,169) -------------- Net Cash Provided by Financing Activities $ 9,521,344 -------------- Net Increase (Decrease) in Cash $ (15,136) - ------------------------------- Cash: - ---- Beginning 545,696 -------------- Ending $ 530,560 ============== Supplemental Disclosures of Cash Flow Information: - ------------------------------------------------- Cash Payment for: Interest (Net of Amounts Capitalized) $ 2,515,297 ============== Income Taxes (Net of Refunds) $ (2,360,540) ============== See Notes to Financial Statements. 22 EXHIBIT E Sheet 1 OWEN STEEL COMPANY, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1992 1. Significant Accounting Policies: 1.1 These consolidated financial statements include the accounts of the parent company and all of its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. 1.2 Profits on contracts are recorded on the basis of the Company's estimate of projected revenue and costs on the percentage of completion method applied to individual contracts. Any revisions that are required in contract estimates during the course of the work are reflected in the accounting period in which the facts that require the revision become known. 1.3 Inventories are stated at the lower of cost or market, using principally the last-in, first-out method (LIFO). 1.4 Property and Equipment is stated at cost. For financial reporting purposes, depreciation is computed using principally the accelerated method (except at the Company's subsidiary, Owen Electric Steel Company of South Carolina, which uses principally the straight-line method) over the useful lives of the assets which are as follows: Years ----- Autos and Trucks 3 to 4 Machinery and Equipment 5 to 10 Office Furniture and Fixtures 5 to 10 Computer Hardware and Software 5 Buildings 20 New Melt Shop Equipment at Owen Electric Steel Company of South Carolina 12 1.5 The Company participates in a deferred cash [401(k)] plan covering full time employees who have one year of service and are age twenty-one or older. Company contributions to the Plan are determined annually by the Board of Directors. Participants are immediately one hundred percent (100%) vested. The Company does not have any unfunded liability under this Plan. The Company made contributions to the Plan for the year ended December 31, 1992 of $ 598,129. 1.6 Deferred income taxes are recognized for differences in the time of recording items of income and expense in the financial records and their inclusion in or deduction from taxable income. 1.7 For purposes of reporting the statement of cash flows, the Company considers all commercial paper and tax-exempt bonds, regardless of maturity, to be short-term investments. 1.8 The Company has elected to expense all applicable research and development expense. 23 EXHIBIT E Sheet 2 OWEN STEEL COMPANY, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1992 2. Loans Receivable - Affiliates: Prior to June 30, 1992, the Company had loan agreements with affiliated companies whereby loans were made bearing interest at prime less 1/4%. There were no outstanding loans receivable from the affiliates at December 31, 1992. 3. Other Investments: Other Investments represent a qualified investment in The Palmetto Seed Capital Corporation. This is a fund that provides financing to high growth oriented start-up businesses or prestart-up businesses in the state of South Carolina. This investment is not anticipated by the Company to achieve a high rate of return. 4. Notes Payable: 4.1 On July 1, 1992, the Company and each of its subsidiaries entered into an unsecured credit agreement with South Carolina National Bank. Under the terms of this agreement, the parent company may borrow a maximum of $15,000,000 at the prime rate or, at the Company's option LIBOR plus 2%. This agreement is effective through June 30, 1993. The outstanding balance under this loan at December 31, 1992 was $11,200,000. 4.2 On October 24, 1990, the Company entered into a $27,000,000 unsecured loan agreement with Principal Mutual Life Insurance Company and Confederation Life Insurance Company. Interest at a fixed rate of 9.51% is paid quarterly commencing on December 30, 1990. Principal will be repaid in 32 equal quarterly installments commencing on March 30, 1992. The loan agreement is guaranteed by each of the subsidiaries. The outstanding balance under this loan amounted to $23,625,000 at December 31, 1992. 4.3 Both loan agreements contain requirements as to certain financial ratios, capital expenditures and insurance coverage along with other usual protective provisions. Owen Steel Company, Inc. and its subsidiaries have complied with all of the provisions of these loan agreements. The subsidiaries of Owen Steel Company, Inc. are: Owen Steel Company of N. C., Inc., Gastonia, North Carolina Owen of Georgia, Inc., Lawrenceville, Georgia Owen Steel Company of Florida, Jacksonville, Florida Owen Supply Company, Inc., Columbia, South Carolina Owen Industrial Products, Inc., Lexington, South Carolina Owen Electric Steel Company of South Carolina, Cayce, South Carolina Owen Joist Corporation, Cayce, South Carolina Owen Joist of Florida, Inc., Starke, Florida 24 EXHIBIT E Sheet 3 OWEN STEEL COMPANY, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1992 4. Notes Payable (Continued): 4.4 Owen Steel Company, Inc. has made loans on certain life insurance policies owned by the Company. These loans bear interest at a rate of 5% to 8% per annum and are shown as a long-term liability since it is anticipated that these loans will not be repaid within one year. The cash surrender values and outstanding policy loans at December 31, 1992 are as follows: Cash Surrender Values $ 2,417,695 =========== Outstanding Policy Loans $ 2,169,615 =========== 4.5 Five year debt maturities of long-term debt (excluding capital leases) are as follows: 1993 $ 3,375,000 1994 3,375,000 1995 3,375,000 1996 3,375,000 1997 3,375,000 Remaining 8,919,615 ------------- $ 25,794,615 ============= 5. Capital Lease Obligation: Two subsidiaries of the Company have entered into a lease purchase agreement for equipment that qualifies as a capital lease obligation and, accordingly, have been recorded as a purchase of fixed assets. The minimum future lease payments are as follows: Total Year Principal Interest Payment ---------- --------- ------------ ----------- 1993 $ 85,356 $ 6,355 $ 91,711 1994 50,542 2,333 52,875 ------------ ---------- ------------- $ 135,898 $ 8,688 $ 144,586 ============ ========== ============= 25 EXHIBIT E Sheet 4 OWEN STEEL COMPANY, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1992 6. Deferred Compensation Agreements: The Company has entered into deferred compensation agreements with certain key employees providing for payments only if the participant remains continuously in the employ of the Company until the agreed retirement age of 65, or upon death or disability, if earlier. The agreements do not require funding and there are no vested benefits prior to reaching age 65 or the date of death or disability. Of the total balance of $729,852, at December 31, 1992, $ 243,100 is calculated on the actuarial present value of the future benefits using an 8% assumed rate of return. The remainder of the liability, $ 486,752, accrues interest and does not require any actuarial assumptions. The deferred compensation expense charged to administrative salaries for the year ended December 31, 1992 was $5,700. The Company has purchased certain life insurance policies to fund part of its liability under these agreements. 7. Interest Cost: The total interest cost incurred during the year ended December 31, 1992 was $3,941,585, of which $1,323,728 was capitalized as part of the cost of the Company's subsidiary, Owen Electric Steel Company of South Carolina, new melt shop facility that was placed in service on August 7, 1992. 8. Subsequent Events: The Company has temporarily suspended the structural fabrication operations at its subsidiary companies' plants in Gastonia, North Carolina, Lawrenceville, Georgia and Jacksonville, Florida until the economic outlook in these markets warrants restarting these operations. To facilitate its re-entry into these markets, the Company plans on retaining the entire physical facilities related to structural fabrication. The Company will continue to fabricate reinforcing steel at these plants. 26 OWEN STEEL COMPANY, INC. AND ITS SUBSIDIARIES FINANCIAL REPORT DECEMBER 31, 1991 27 OWEN STEEL COMPANY, INC. AND ITS SUBSIDIARIES INDEX YEAR ENDED DECEMBER 31, 1991 INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS EXHIBITS -------- A CONSOLIDATED BALANCE SHEET B CONSOLIDATED STATEMENT OF INCOME C CONSOLIDATED STATEMENT OF RETAINED EARNINGS D CONSOLIDATED STATEMENT OF CASH FLOWS E NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 28 INDEPENDENT AUDITOR'S REPORT To the Board of Directors Owen Steel Company, Inc. Columbia, South Carolina We have audited the accompanying consolidated balance sheet of Owen Steel Company, Inc. and its subsidiaries as of December 31, 1991, and the related consolidated statements of income, retained earnings, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Owen Steel Company, Inc. and its subsidiaries as of December 31, 1991, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ DERRICK, STUBBS & STITH Derrick, Stubbs & Stith March 11, 1992 29 EXHIBIT A OWEN STEEL COMPANY, INC. AND ITS SUBSIDIARIES CONSOLIDATED BALANCE SHEET DECEMBER 31, 1991 ASSETS ------ EQUITY - ------ Current Assets: - -------------- Cash $ 545,696 Short-Term Investments (Note 2) 9,126,446 Accounts Receivable - Customers, Less, Allowance for Doubtful Accounts of $ 103,308 39,338,901 Accounts Receivable - Other 92,737 Accrued Interest Receivable 149,019 Loans Receivable - Affiliates (Note 3) 897,000 Income Tax Refunds Due 2,449,108 Inventories 24,008,620 Prepaid Expenses 73,169 ------------ $ 76,680,696 Long-Term Investments: - --------------------- Other Investments (Note 4) 75,000 Property and Equipment: - ---------------------- Land $ 1,593,275 Offices and Plants 10,154,750 Machinery and Equipment 39,734,986 Furniture and Fixtures 2,510,553 Autos and Trucks 6,808,336 Other 681,465 ------------ Total Cost $ 61,483,365 Less, Accumulated Depreciation 45,161,933 ------------ 16,321,432 Other Assets: - ------------ Cash Surrender Value of Life Insurance $ 2,024,633 Fixed Assets Under Construction 22,383,398 Deferred Charges 363,848 Other Assets 15,765 ------------ 24,787,644 -------------- Total Assets $ 117,864,772 ============== LIABILITIES AND STOCKHOLDERS' ----------------------------- Current Liabilities: - ------------------- Accounts Payable $ 18,554,887 Notes Payable - Amount Due Within One Year (Note 5) 3,375,000 Payroll Taxes Payable 214,142 Sales Taxes Payable 175,447 Accrued Expenses 2,001,293 Provision for Waste Removal 277,833 Other Liabilities 15,081 Accrued Income Taxes 78,474 ------------ $ 24,692,157 Long-Term Liabilities: - --------------------- Notes and Loans Payable - Amount Due After One Year (Note 5) $ 23,625,000 Accrued Deferred Compensation Expense (Note 6) 705,071 ------------ 24,330,071 ----------- Total Liabilities $ 49,022,228 Deferred Income Taxes 83,798 - --------------------- Minority Interests 3,885,837 - ------------------ Stockholders' Equity: - -------------------- Common Stock: Class A Voting (1,000,000 shares of $ 1 par value authorized; 865,500 shares issued)$ 865,500 Class B Non-Voting (4,000,000 shares of $ 1 par value authorized; 2,820,000 shares issued) 2,820,000 Additional Paid-In Capital 60,000 Retained Earnings - Exhibit C 63,527,082 ------------ $ 67,272,582 Less, Cost of Treasury Stock (639,654 shares) 2,399,673 ------------ 64,872,909 -------------- Total Liabilities and Stockholders' Equity $ 117,864,772 ============== See Notes to Financial Statements. 30 EXHIBIT B OWEN STEEL COMPANY, INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 1991 % of Amount Sales -------- ------- Sales $ 216,315,858 100.00 Cost of Sales 182,633,577 84.43 ------------- ------- Gross Income $ 33,682,281 15.57 General and Administrative Expenses 37,858,458 17.50 ------------- ------- Net Operating Income $ (4,176,177) (1.93) Other Income and Expenses - Net (240,531) (.11) ------------- ------- Net Income (Loss) Before Taxes $ (4,416,708) (2.04) Income Taxes (Refunds) (1,424,796) (.66) ------------- ------- Net Income (Loss) Before Minority Interests $ (2,991,912) (1.38) Minority Interests (569,456) (.26) ------------- ------- Net Income (Loss) - Exhibit C $ (2,422,456) (1.12) ============= ======= See Notes to Financial Statements. 31 EXHIBIT C OWEN STEEL COMPANY, INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF RETAINED EARNINGS YEAR ENDED DECEMBER 31, 1991 Retained Earnings, Beginning $ 66,349,779 Net Income (Loss) - Exhibit B (2,422,456) Dividends Paid (609,169) Excess of Book Value Over Purchase Price of Minority Interest Acquired 208,928 ------------- Retained Earnings, Ending - Exhibit A $ 63,527,082 ============= See Notes to Financial Statements. 32 EXHIBIT D OWEN STEEL COMPANY, INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1991 Cash Flows from Operating Activities: - ------------------------------------ Net Income (Loss) - Exhibit B $ (2,422,456) Adjustments to Reconcile Net Income to Net Cash Provided by (Used in) Operating Activities: Depreciation and Amortization 3,900,881 Deferred Income Taxes (47,311) Deferred Compensation 62,636 Allowance for Doubtful Accounts 7,434 (Gain) Loss on Disposal of Property and Equipment (20,046) Minority Interest in Net Income (Loss) (569,456) Changes in Operating Assets and Liabilities: (Increase) Decrease in Accounts Receivable 4,017,828 (Increase) Decrease in Inventories 6,889,167 (Increase) Decrease in Other Assets 61,475 Increase (Decrease) in Accounts Payable and Accrued Expenses (3,432,476) ------------- Net Cash Provided by Operating Activities $ 8,447,676 ------------- Cash Flows from Investing Activities: - ------------------------------------ Purchase of Property and Equipment $ (24,282,036) Proceeds from Sale of Property and Equipment 57,222 Net Change in Short-Term Investments 984,690 (Increase) Decrease in Loans to Affiliates (772,000) (Increase) Decrease in Cash Surrender Value of Life Insurance (345,164) Acquisition of Minority Interest (417,857) ------------- Net Cash (Used in) Investing Activities $ (24,775,145) ------------- Cash Flows from Financing Activities: - ------------------------------------ Proceeds from Long-Term Borrowings $ 17,000,000 Payments on Long-Term Debt (117,452) Dividends Paid (609,169) ------------- Net Cash Provided by Financing Activities $ 16,273,379 ------------- Net Increase (Decrease) in Cash $ (54,090) - ------------------------------- Cash: - ---- Beginning 599,786 ------------- Ending $ 545,696 ============= Supplemental Disclosures of Cash Flow Information: - ------------------------------------------------- Cash Payment for: Interest (Net of Amount Capitalized) $ 1,638,737 ============= Income Taxes (Net of Refunds) $ 964,701 ============= See Notes to Financial Statements. 33 EXHIBIT E Sheet 1 OWEN STEEL COMPANY, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1991 1. Significant Accounting Policies: 1.1 These consolidated financial statements include the accounts of the parent company and all of its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. 1.2 Profits on contracts are recorded on the basis of the Company's estimate of projected revenue and costs on the percentage of completion method applied to individual contracts. Any revisions that are required in contract estimates during the course of the work are reflected in the accounting period in which the facts that require the revision become known. 1.3 Inventories are stated at the lower of cost or market, using principally the last-in, first-out method (LIFO). 1.4 Property and Equipment is stated at cost. For financial reporting purposes, depreciation is computed using principally the accelerated method over the useful lives of the assets which are as follows: Years ----- Autos and Trucks 3 to 4 Machinery and Equipment 5 to 10 Office Furniture and Fixtures 5 to 10 Computer Hardware and Software 5 Buildings 20 1.5 The Company participates in a deferred cash [401(k)] plan covering full time employees who have one year of service and are age twenty-one or older. Company contributions to the Plan are determined annually by the Board of Directors. Participants are immediately one hundred percent (100%) vested. The Company does not have any unfunded liability under this Plan. The Company made contributions to the Plan for the year ended December 31, 1991 of $621,141. 1.6 Deferred income taxes are recognized for differences in the time of recording items of income and expense in the financial records and their inclusion in or deduction from taxable income. 1.7 For purposes of reporting the statement of cash flows, the Company considers all commercial paper and tax-exempt bonds, regardless of maturity, to be short-term investments. 1.8 The Company has elected to expense all applicable research and development expense. 34 EXHIBIT E Sheet 2 OWEN STEEL COMPANY, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1991 2. Short-Term Investments: Short-term investments are stated at cost. The balance at December 31, 1991 is summarized as follows: Date Investment Face Value Purchased Maturity Cost ---------- ---------- --------- -------- ---- Commercial Paper: ---------------- South Carolina National Corporation $ 970,000 12/31/91 01/02/92 $ 970,000 ---------- Tax-Exempt Securities: --------------------- State of SC General Obligation Bonds $ 150,000 03/28/91 03/01/92 $ 151,947 Charleston County, SC School District Bonds 300,000 04/11/91 02/01/92 303,082 Spartanburg School District General Obligation Bonds 1,355,000 05/21/91 04/01/92 1,366,863 Aiken County, SC Consolidated School District Bonds 500,000 05/15/91 04/01/92 504,910 Aiken County, SC Public Facility Bonds 165,000 05/13/91 02/01/92 165,000 Spartanburg County, SC School General Obligation TANS 600,000 07/09/91 04/01/92 601,008 Chesterfield County, SC School District TANS 1,000,000 07/12/91 03/15/92 1,003,920 Lexington County, SC School District TANS 1,000,000 07/16/91 03/31/92 1,001,426 Georgetown, SC General Obligation Bonds 50,000 07/19/91 03/01/92 50,837 Anderson County Tax Anticipation Notes 2,000,000 07/22/91 01/15/92 2,005,223 Orangeburg County, SC School District General Obligation TANS 1,000,000 09/10/91 03/13/92 1,002,230 ---------- Total Tax-Exempt Securities $8,156,446 ---------- Total Short-Term Investments $9,126,446 ========== 3. Loans Receivable - Affiliates: The Company has a loan agreement with affiliated companies whereby loans are made bearing interest at prime less 1/4%. The outstanding loans receivable from the affiliates amounted to $897,000 at December 31, 1991. 4. Other Investments: Other Investments represent a qualified investment in The Palmetto Seed Capital Corporation. This is a fund that provides financing to high growth oriented start-up businesses or prestart-up businesses in the state of South Carolina. This investment is not anticipated by the Company to achieve a high rate of return. 35 EXHIBIT E Sheet 3 OWEN STEEL COMPANY, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1991 5. Notes Payable: 5.1 On July 1, 1990, the Company and each of its subsidiaries entered into an unsecured credit agreement with South Carolina National Bank. Under the terms of this agreement, the parent company may borrow, at the prime rate, a maximum of $15,000,000. This agreement is effective through June 30, 1992. There was no outstanding balances under this loan at December 31, 1991. 5.2 On October 24, 1990, the Company entered into a $27,000,000 unsecured loan agreement with Principal Mutual Life Insurance Company and Confederation Life Insurance Company. Under the terms of this agreement, the parent company has borrowed $10,000,000 on October 24, 1990, $10,000,000 on May 28, 1991 and $7,000,000 on August 29, 1991. Interest at a fixed rate of 9.51% is paid quarterly commencing on December 30, 1990. Principal will be repaid in 32 equal quarterly installments commencing on March 30, 1992. The loan agreement is guaranteed by each of the subsidiaries. 5.3 Both loan agreements contain requirements as to certain financial ratios, capital expenditures and insurance coverage along with other usual protective provisions. Owen Steel Company, Inc. and its subsidiaries have complied with all of the provisions of these loan agreements. The subsidiaries of Owen Steel Company, Inc. are: Owen Steel Company of N. C., Inc., Gastonia, North Carolina Owen of Georgia, Inc., Lawrenceville, Georgia Owen Steel Company of Florida, Jacksonville, Florida Owen Supply Company, Inc., Columbia, South Carolina Owen Industrial Products, Inc., Lexington, South Carolina Owen Electric Steel Company of South Carolina, Cayce, South Carolina Owen Joist Corporation, Cayce, South Carolina Owen Joist of Florida, Inc., Starke, Florida 5.4 Five year debt maturities of long-term debt are as follows: 1992 $ 3,375,000 1993 3,375,000 1994 3,375,000 1995 3,375,000 1996 3,375,000 Remaining 10,125,000 ------------- $ 27,000,000 ============= 36 EXHIBIT E Sheet 4 OWEN STEEL COMPANY, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1991 6. Deferred Compensation Agreements: The Company has entered into deferred compensation agreements with certain key employees providing for payments only if the participant remains continuously in the employ of the Company until the agreed retirement age of 65, or upon death or disability, if earlier. The agreements do not require funding and there are no vested benefits prior to reaching age 65 or the date of death or disability. Of the total balance of $705,071, at December 31, 1991, $237,400 is calculated on the actuarial present value of the future benefits using an 8% assumed rate of return. The remainder of the liability, $467,671, accrues interest and does not require any actuarial assumptions. The deferred compensation expense charged to administrative salaries and bonus for the year ended December 31, 1991 was $32,900. The Company has purchased certain life insurance policies to fund part of its liability under these agreements. 37 SOUTH CAROLINA STEEL CORPORATION FINANCIAL REPORT DECEMBER 31, 1993 38 SOUTH CAROLINA STEEL CORPORATION INDEX YEAR ENDED DECEMBER 31, 1993 INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS FINANCIAL STATEMENTS EXHIBITS -------- A BALANCE SHEET B STATEMENT OF INCOME C STATEMENT OF RETAINED EARNINGS D STATEMENT OF CASH FLOWS E NOTES TO FINANCIAL STATEMENTS 39 INDEPENDENT AUDITOR'S REPORT To the Board of Directors South Carolina Steel Corporation Greenville, South Carolina We have audited the accompanying balance sheet of South Carolina Steel Corporation as of December 31, 1993, and the related statements of income, retained earnings, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit provides 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 South Carolina Steel Corporation as of December 31, 1993, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ DERRICK, STUBBS & STITH Derrick, Stubbs & Stith February 3, 1994 40 EXHIBIT A SOUTH CAROLINA STEEL CORPORATION BALANCE SHEET DECEMBER 31, 1993 ASSETS ------ Current Assets: - -------------- Cash $ 54,061 Accounts Receivable - Customers, Less, Allowance for Doubtful Accounts of $38,183 4,958,847 Accounts Receivable - Other 4,273 Inventories 2,278,126 Prepaid Expense 5,127 ----------- $7,300,434 Investments: - ----------- Common Stock of Owen Electric Steel Company of South Carolina (12,224 shares of $10 par value at equity in net assets - cost $125,295) 1,449,115 Property and Equipment: - ---------------------- Land $ 82,730 Offices and Plants 1,656,271 Machinery and Equipment 2,407,114 Furniture and Fixtures 276,706 Autos and Trucks 569,853 Other 259,370 ----------- Total Cost $ 5,252,044 Less, Accumulated Depreciation 3,803,308 ----------- 1,448,736 Other Assets: - ------------ Fixed Assets Under Construction $ 58,323 Deferred Charges 1,749 Other Assets 15,000 ----------- 75,072 ----------- Total Assets $10,273,357 =========== LIABILITIES AND STOCKHOLDER'S EQUITY - ------------------------------------ Current Liabilities: - ------------------- Accounts Payable $ 1,780,805 Notes Payable - Amount Due Within One Year (Note 2) 1,526,000 Sales Taxes Payable 158,904 Accrued Expenses 91,827 Accrued Income Taxes 85,405 Other Liabilities 10,464 ----------- $3,653,405 Deferred Income Taxes (Note 3) 384,450 - --------------------- Stockholder's Equity: - -------------------- Common Stock (2,500 shares of $10 par value authorized and issued) $ 25,000 Retained Earnings - Exhibit C 7,045,067 ----------- $ 7,070,067 Less, Cost of Treasury Stock (1,000 shares) ( 834,565) ----------- 6,235,502 ----------- Total Liabilities and Stockholder's Equity $10,273,357 =========== See Notes to Financial Statements. 41 EXHIBIT B SOUTH CAROLINA STEEL CORPORATION STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 1993 % of Amount Sales -------- ------- Sales 29,673,564 100.00 Cost of Sales 20,018,888 67.46 ------------ ------- Gross Income 9,654,676 32.54 Manufacturing Expenses 5,123,877 17.27 ------------ ------- Manufacturing Income 4,530,799 15.27 General and Administrative Expenses 3,741,596 12.61 ------------ ------- Net Operating Income $ 789,203 2.66 Other Income and Expenses - Net (18,523) (.06) ------------ ------- Net Income Before Taxes $ 770,680 2.60 Income Taxes 292,994 .99 ------------ ------- Net Income Before Equity in Net Income of Affiliated Company $ 477,686 1.61 Equity in Net Income (Loss) of Affiliated Company (402,636) (1.36) ------------ ------- Net Income - Exhibit C $ 75,050 .25 ============ ======= See Notes to Financial Statements. 42 EXHIBIT C SOUTH CAROLINA STEEL CORPORATION STATEMENT OF RETAINED EARNINGS YEAR ENDED DECEMBER 31, 1993 Retained Earnings, Beginning $ 6,970,017 Net Income - Exhibit B 75,050 ---------------- Retained Earnings, Ending - Exhibit A $ 7,045,067 ================ See Notes to Financial Statements. 43 EXHIBIT D SOUTH CAROLINA STEEL CORPORATION STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1993 Cash Flows from Operating Activities: - ------------------------------------ Net Income - Exhibit B $ 75,050 Adjustments to Reconcile Net Income to Net Cash Provided by (Used in) Operating Activities: Depreciation and Amortization 291,948 Deferred Income Taxes (270,207) Allowance for Doubtful Accounts 20,181 Gain on Disposal of Property and Equipment (4,405) Undistributed Loss of Affiliated Company 642,162 Changes in Operating Assets and Liabilities: (Increase) Decrease in Accounts Receivable (1,303,222) (Increase) Decrease in Inventories 212,845 (Increase) Decrease in Other Assets 1,131 Increase (Decrease) in Accounts Payable and Accrued Expenses 455,107 ----------- Net Cash Provided by Operating Activities $ 120,590 ----------- Cash Flows from Investing Activities: - ------------------------------------ Purchases of Property and Equipment (633,562) Proceeds from Sale of Property and Equipment 12,191 ----------- Net Cash (Used in) Investing Activities $ (621,371) ----------- Cash Flows from Financing Activities: - ------------------------------------ Payment on Long-Term Debt $ (100,000) Increase in Short-Term Borrowings 150,000 ----------- Net Cash Provided by Financing Activities $ 50,000 ----------- Net (Decrease) in Cash (450,781) - ---------------------- Cash: - ---- Beginning 504,842 ----------- Ending $ 54,061 =========== Supplemental Disclosures of Cash Flow Information: - ------------------------------------------------- Cash Payments for: Interest $ 69,812 =========== Income Taxes (Net of Refunds) $ 234,621 =========== See Notes to Financial Statements. 44 EXHIBIT E Sheet 1 SOUTH CAROLINA STEEL CORPORATION NOTES TO FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1993 1. Significant Accounting Policies: 1.1 Profits on contracts are recorded on the basis of the Company's estimates of projected revenue and costs on the percentage of completion method applied to individual contracts. Any revisions that are required in contract estimates during the course of the work are reflected in the accounting period in which the facts that require the revision become known. 1.2 Inventories are stated at the lower of cost or market, using principally the last-in, first-out method (LIFO). 1.3 The Company uses the equity method of accounting for its investment in its affiliated company and includes in income its equity in the earnings of the affiliated company. 1.4 Property and Equipment is stated at cost. For financial reporting purposes, depreciation is computed using principally the accelerated method over the useful lives of the assets which are as follows: Years ----- Autos and Trucks 3 to 4 Machinery and Equipment 5 to 10 Office Furniture and Fixtures 5 to 10 Computer Hardware and Software 5 Buildings 20 1.5 The Company participates in a deferred cash [401(k)] plan covering full time employees who have one year of service and are age twenty-one or older. Company contributions to the Plan are determined annually by the Board of Directors. Participants are immediately one hundred percent (100%) vested. The Company does not have any unfunded liability under this Plan. The Company made contributions to the Plan for the year ended December 31, 1993 of $ 63,308. 1.6 Deferred income taxes are recognized for differences in the time of recording items of income and expense in the financial records and their inclusion in or deduction from taxable income. 2. Notes Payable: 2.1 The Company has entered into a loan agreement for the issuance of a $1,000,000 Industrial Revenue Bond. In accordance with the agreement, the bond was assigned to and purchased by First Citizens Bank and Trust Company of S. C., Greenville, S. C. The bond is due in annual installments of principal and quarterly installments of interest at sixty-five (65%) percent of the bank's prime rate on the unpaid balance. The bond is collateralized by a mortgage on the real estate and improvements owned by the Company plus all machinery purchased with the bond proceeds. At December 31, 1993, the outstanding balance on this loan was $100,000, maturing in one principal payment of $100,000 through 1994. 45 EXHIBIT E Sheet 2 SOUTH CAROLINA STEEL CORPORATION NOTES TO FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1993 2. Notes Payable (Continued): 2.2 The Company has unsecured demand loans with First Citizens Bank and Trust Company of S. C., Greenville, S. C. and they bear interest at the bank's prime interest rate. The outstanding balance of these loans was $1,426,000 at December 31, 1993. 3. Income Tax Matters: Net deferred tax liabilities consist of the following at December 31, 1993: Deferred Tax Assets $ 109,335 Deferred Tax Liabilities 493,785 ------------ $ 384,450 ============ 46 SOUTH CAROLINA STEEL CORPORATION FINANCIAL REPORT DECEMBER 31, 1992 47 SOUTH CAROLINA STEEL CORPORATION INDEX YEAR ENDED DECEMBER 31, 1992 INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS FINANCIAL STATEMENTS EXHIBITS -------- A BALANCE SHEET B STATEMENT OF INCOME C STATEMENT OF RETAINED EARNINGS D STATEMENT OF CASH FLOWS E NOTES TO FINANCIAL STATEMENTS 48 INDEPENDENT AUDITOR'S REPORT To the Board of Directors South Carolina Steel Corporation Greenville, South Carolina We have audited the accompanying balance sheet of South Carolina Steel Corporation as of December 31, 1992, and the related statements of income, retained earnings, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit provides 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 South Carolina Steel Corporation as of December 31, 1992, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ DERRICK, STUBBS & STITH Derrick, Stubbs & Stith March 4, 1993 49 EXHIBIT A SOUTH CAROLINA STEEL CORPORATION BALANCE SHEET DECEMBER 31, 1992 ASSETS ------ Current Assets: - -------------- Cash $ 504,842 Accounts Receivable - Customers, Less, Allowance for Doubtful Accounts of $18,002 3,676,857 Accounts Receivable - Other 3,222 Inventories 2,490,971 Prepaid Expense 4,159 ------------- $ 6,680,051 Investments: - ----------- Common Stock of Owen Electric Steel Company of South Carolina (12,224 shares of $10 par value at equity in net assets - cost $125,295) 2,091,277 Property and Equipment: - ---------------------- Land $ 82,730 Offices and Plants 1,396,133 Machinery and Equipment 2,245,033 Furniture and Fixtures 262,197 Autos and Trucks 630,058 Other 110,071 ------------- Total Cost $ 4,726,222 Less, Accumulated Depreciation 3,589,683 ------------- 1,136,539 Other Assets: - ------------ Fixed Assets Under Construction $ 7,409 Deferred Charges 33,131 Other Assets 15,000 ------------- 55,540 ------------- Total Assets $ 9,963,407 ============= LIABILITIES AND STOCKHOLDER'S EQUITY - ------------------------------------ Current Liabilities: - ------------------- Accounts Payable $ 1,556,238 Notes Payable - Amount Due Within One Year (Note 3) 1,376,000 Sales Taxes Payable 70,832 Accrued Expenses 775 Accrued Income Taxes 44,453 ------------- $ 3,048,298 Long-Term Liabilities: - --------------------- Notes Payable - Amount Due After One Year (Note 3) 100,000 ------------ Total Liabilities $ 3,148,298 Deferred Income Taxes 654,657 - --------------------- Stockholder's Equity: - -------------------- Common Stock (2,500 shares of $10 par value authorized and issued) $ 25,000 Retained Earnings - Exhibit C 6,970,017 ------------- $ 6,995,017 Less, Cost of Treasury Stock (1,000 shares) (834,565) ------------- 6,160,452 ------------- Total Liabilities and Stockholder's Equity $ 9,963,407 ============== See Notes to Financial Statements. 50 EXHIBIT B SOUTH CAROLINA STEEL CORPORATION STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 1992 % of Amount Sales -------- ------- Sales $ 23,060,855 100.00 Cost of Sales 15,454,822 67.02 ------------- ------- Gross Income $ 7,606,033 32.98 Manufacturing Expenses 4,036,127 17.50 ------------- ------- Manufacturing Income $ 3,569,906 15.48 General and Administrative Expenses 2,849,932 12.36 ------------- ------- Net Operating Income $ 719,974 3.12 Other Income and Expenses - Net 39,343 .17 ------------- ------- Net Income Before Taxes $ 759,317 3.29 Income Taxes 273,608 1.18 ------------- ------- Net Income Before Equity in Net Income of Affiliated Company $ 485,709 2.11 Equity in Net Income (Loss) of Affiliated Company (270,734) (1.18) ------------- ------- Net Income - Exhibit C $ 214,975 .93 ============= ======= See Notes to Financial Statements. 51 EXHIBIT C SOUTH CAROLINA STEEL CORPORATION STATEMENT OF RETAINED EARNINGS YEAR ENDED DECEMBER 31, 1992 Retained Earnings, Beginning $ 6,755,042 Net Income - Exhibit B 214,975 ----------- Retained Earnings, Ending - Exhibit A $ 6,970,017 =========== See Notes to Financial Statements. 52 EXHIBIT D SOUTH CAROLINA STEEL CORPORATION STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1992 Cash Flows from Operating Activities: - ------------------------------------ Net Income - Exhibit B $ 214,975 Adjustments to Reconcile Net Income to Net Cash Provided by (Used in) Operating Activities: Depreciation and Amortization 350,320 Deferred Income Taxes (200,670) Allowance for Doubtful Accounts (5,855) Gain on Disposal of Property and Equipment (14,362) Undistributed Loss of Affiliated Company 431,793 Changes in Operating Assets and Liabilities: (Increase) Decrease in Accounts Receivable (175,217) (Increase) Decrease in Inventories (979,658) (Increase) Decrease in Other Assets (12,543) Increase (Decrease) in Accounts Payable and Accrued Expenses (43,872) -------------- Net Cash (Used in) Operating Activities $ (435,089) -------------- Cash Flows from Investing Activities: - ------------------------------------ Purchases of Property and Equipment $ (80,150) Proceeds from Sale of Property and Equipment 27,138 -------------- Net Cash (Used in) Investing Activities $ (53,012) -------------- Cash Flows from Financing Activities: - ------------------------------------ Payment on Long-Term Debt $ (100,000) Increase in Short-Term Borrowings 1,025,000 -------------- Net Cash Provided by Financing Activities $ 925,000 -------------- Net Increase in Cash $ 436,899 - -------------------- Cash: - ---- Beginning 67,943 -------------- Ending $ 504,842 ============== Supplemental Disclosures of Cash Flow Information: - ------------------------------------------------- Cash Payments for: Interest $ 45,537 ============== Income Taxes (Net of Refunds) $ 23,106 ============== See Notes to Financial Statements. 53 EXHIBIT E Sheet 1 SOUTH CAROLINA STEEL CORPORATION NOTES TO FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1992 1. Significant Accounting Policies: 1.1 Profits on contracts are recorded on the basis of the Company's estimates of projected revenue and costs on the percentage of completion method applied to individual contracts. Any revisions that are required in contract estimates during the course of the work are reflected in the accounting period in which the facts that require the revision become known. 1.2 Inventories are stated at the lower of cost or market, using principally the last-in, first-out method (LIFO). 1.3 The Company uses the equity method of accounting for its investment in its affiliated company and includes in income its equity in the earnings of the affiliated company. 1.4 Property and Equipment is stated at cost. For financial reporting purposes, depreciation is computed using principally the accelerated method over the useful lives of the assets which are as follows: Years ----- Autos and Trucks 3 to 4 Machinery and Equipment 5 to 10 Office Furniture and Fixtures 5 to 10 Computer Hardware and Software 5 Buildings 20 1.5 The Company participates in a deferred cash [401(k)] plan covering full time employees who have one year of service and are age twenty-one or older. Company contributions to the Plan are determined annually by the Board of Directors. Participants are immediately one hundred percent (100%) vested. The Company does not have any unfunded liability under this Plan. The Company made contributions to the Plan for the year ended December 31, 1992 of $53,617. 1.6 Deferred income taxes are recognized for differences in the time of recording items of income and expense in the financial records and their inclusion in or deduction from taxable income. 2. Loans Payable - Affiliate: Prior to June 30, 1992, the Company had a loan agreement with an affiliated company, Owen Steel Company, Inc., whereby loans were made bearing interest at prime less 1/4%. There were no outstanding loans payable at December 31, 1992. 3. Notes Payable: 3.1 The Company has entered into a loan agreement for the issuance of a $1,000,000 Industrial Revenue Bond. In accordance with the agreement, the bond was assigned to and purchased by First Citizens Bank and Trust Company 54 EXHIBIT E Sheet 2 SOUTH CAROLINA STEEL CORPORATION NOTES TO FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1992 3. Notes Payable (Continued): 3.1 (Continued): of S. C., Greenville, S. C. The bond is due in annual installments of principal and quarterly installments of interest at sixty-five (65%) percent of the bank's prime rate on the unpaid balance. The bond is collateralized by a mortgage on the real estate and improvements owned by the Company plus all machinery purchased with the bond proceeds. At December 31, 1992, the outstanding balance on this loan was $200,000, maturing in two (2) principal payments of $100,000 through 1994. 3.2 The Company has unsecured demand loans with First Citizens Bank and Trust Company of S. C., Greenville, S. C. and they bear interest at the bank's prime interest rate. The outstanding balance of these loans was $1,276,000 at December 31, 1992. 55 SOUTH CAROLINA STEEL CORPORATION FINANCIAL REPORT DECEMBER 31, 1991 56 SOUTH CAROLINA STEEL CORPORATION INDEX YEAR ENDED DECEMBER 31, 1991 INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS FINANCIAL STATEMENTS EXHIBITS A BALANCE SHEET B STATEMENT OF INCOME C STATEMENT OF RETAINED EARNINGS D STATEMENT OF CASH FLOWS E NOTES TO FINANCIAL STATEMENTS 57 INDEPENDENT AUDITOR'S REPORT To the Board of Directors South Carolina Steel Corporation Greenville, South Carolina We have audited the accompanying balance sheet of South Carolina Steel Corporation as of December 31, 1991, and the related statements of income, retained earnings, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit provides 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 South Carolina Steel Corporation as of December 31, 1991, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ DERRICK, STUBBS & STITH Derrick, Stubbs & Stith February 6, 1992 58 EXHIBIT A SOUTH CAROLINA STEEL CORPORATION BALANCE SHEET DECEMBER 31, 1991 ASSETS ------ Current Assets: - -------------- Cash $ 67,943 Accounts Receivable - Customers, Less, Allowance for Doubtful Accounts of $23,857 3,246,935 Accounts Receivable - Other 4,832 Income Tax Refunds Due 247,240 Inventories 1,511,313 Prepaid Expense 4,346 --------------- $ 5,082,609 Investments: - ----------- Common Stock of Owen Electric Steel Company of South Carolina (12,224 shares of $10 par value at equity in net assets - cost $125,295) 2,523,070 Property and Equipment: - ---------------------- Land $ 82,730 Offices and Plants 1,382,697 Machinery and Equipment 2,227,754 Furniture and Fixtures 297,843 Autos and Trucks 727,080 Other 110,071 --------------- Total Cost $ 4,828,175 Less, Accumulated Depreciation 3,424,466 --------------- 1,403,709 Other Assets: - ------------ Fixed Assets Under Construction $ 3,995 Deferred Charges 39,590 Other Assets 15,000 --------------- 58,585 ---------------- Total Assets $ 9,067,973 ================ LIABILITIES AND STOCKHOLDER'S EQUITY ------------------------------------ Current Liabilities: - ------------------- Accounts Payable $ 1,585,487 Notes Payable - Amount Due Within One Year (Note 3) 101,000 Loans Payable - Affiliate (Note 2) 250,000 Sales Taxes Payable 44,551 Accrued Expenses 82,733 Other Liabilities 3,398 --------------- 2,067,169 Long-Term Liabilities: - --------------------- Notes Payable - Amount Due After One Year (Note 3) 200,000 -------------- Total Liabilities $ 2,267,169 Deferred Income Taxes 855,327 - --------------------- Stockholder's Equity: - -------------------- Common Stock (2,500 shares of $10 par value authorized and issued) $ 25,000 Retained Earnings - Exhibit C 6,755,042 -------------- 6,780,042 Less, Cost of Treasury Stock (1,000 shares) (834,565) -------------- 5,945,477 -------------- Total Liabilities and Stockholder's Equity $ 9,067,973 ============== See Notes to Financial Statements. 59 EXHIBIT B SOUTH CAROLINA STEEL CORPORATION STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 1991 % of Amount Sales -------- ------- Sales $21,020,594 100.00 Cost of Sales 14,099,516 67.07 ----------- ------- Gross Income $ 6,921,078 32.93 Manufacturing Expenses 4,484,409 21.34 ----------- ------- Manufacturing Income 2,436,669 11.59 General and Administrative Expenses 3,044,034 14.48 ----------- ------- Net Operating Income (Loss) $ (607,365) (2.89) Other Income and Expenses - Net 150,392 .72 ----------- ------- Net Income (Loss) Before Taxes $ (456,973) (2.17) Income Taxes (Refunds) (95,157) (.45) ----------- ------- Net Income (Loss) Before Equity in Net Income of Affiliated Company $ (361,816) (1.72) Equity in Net Income (Loss) of Affiliated Company (157,892) (.75) ----------- ------ Net Income (Loss) - Exhibit C $ (519,708) (2.47) =========== ======= See Notes to Financial Statements. 60 EXHIBIT C SOUTH CAROLINA STEEL CORPORATION STATEMENT OF RETAINED EARNINGS YEAR ENDED DECEMBER 31, 1991 Retained Earnings, Beginning $7,274,750 Net Income (Loss) - Exhibit B (519,708) ---------- Retained Earnings, Ending - Exhibit A $6,755,042 ========== See Notes to Financial Statements. 61 EXHIBIT D SOUTH CAROLINA STEEL CORPORATION STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1991 Cash Flows from Operating Activities: - ------------------------------------ Net Income (Loss) - Exhibit B $ (519,708) Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by (Used in) Operating Activities: Depreciation and Amortization 439,913 Deferred Income Taxes (85,930) Allowance for Doubtful Accounts (6,926) Gain on Disposal of Property and Equipment (36,204) Undistributed Loss of Affiliated Company 251,821 Changes in Operating Assets and Liabilities: (Increase) Decrease in Accounts Receivable 829,418 (Increase) Decrease in Inventories (204,132) (Increase) Decrease in Other Assets 2,859 Increase (Decrease) in Accounts Payable and Accrued Expenses (722,033) -------------- Net Cash (Used in) Operating Activities $ (50,922) -------------- Cash Flows from Investing Activities: - ------------------------------------ Purchases of Property and Equipment $ (352,002) Proceeds from Sale of Property and Equipment 36,856 -------------- Net Cash (Used in) Investing Activities $ (315,146) -------------- Cash Flows from Financing Activities: - ------------------------------------ Payment on Long-Term Debt $ (100,000) Increase in Short-Term Borrowings 250,000 -------------- Net Cash Provided by Financing Activities $ 150,000 -------------- Net (Decrease) in Cash $ (216,068) - ---------------------- Cash: - ---- Beginning 284,011 -------------- Ending $ 67,943 ============== Supplemental Disclosures of Cash Flow Information: - ------------------------------------------------- Cash Payments for: Interest $ 32,154 ============== Income Taxes (Net of Refunds) $ 89,348 ============== See Notes to Financial Statements. 62 EXHIBIT E Sheet 1 SOUTH CAROLINA STEEL CORPORATION NOTES TO FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1991 1. Significant Accounting Policies: 1.1 Profits on contracts are recorded on the basis of the Company's estimates of projected revenue and costs on the percentage of completion method applied to individual contracts. Any revisions that are required in contract estimates during the course of the work are reflected in the accounting period in which the facts that require the revision become known. 1.2 Inventories are stated at the lower of cost or market, using principally the last-in, first-out method (LIFO). 1.3 The Company uses the equity method of accounting for its investment in its affiliated company and includes in income its equity in the earnings of the affiliated company. 1.4 Property and Equipment is stated at cost. For financial reporting purposes, depreciation is computed using principally the accelerated method over the useful lives of the assets which are as follows: Years ----- Autos and Trucks 3 to 4 Machinery and Equipment 5 to 10 Office Furniture and Fixtures 5 to 10 Computer Hardware and Software 5 Buildings 20 1.5 The Company participates in a deferred cash [401(k)] plan covering full time employees who have one year of service and are age twenty-one or older. Company contributions to the Plan are determined annually by the Board of Directors. Participants are immediately one hundred percent (100%) vested. The Company does not have any unfunded liability under this Plan. The Company made contributions to the Plan for the year ended December 31, 1991 of $60,733. 1.6 Deferred income taxes are recognized for differences in the time of recording items of income and expense in the financial records and their inclusion in or deduction from taxable income. 2. Loans Payable - Affiliate: The Company has a loan agreement with an affiliated company, Owen Steel Company, Inc., whereby loans are made bearing interest at prime less 1/4%. The outstanding loan payable to the affiliated company amounted to $250,000 at December 31, 1991. 3. Notes Payable: 3.1 The Company has entered into a loan agreement for the issuance of a $1,000,000 Industrial Revenue Bond. In accordance with the agreement, the bond was assigned to and purchased by First Citizens Bank and Trust Company 63 EXHIBIT E Sheet 2 SOUTH CAROLINA STEEL CORPORATION NOTES TO FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1991 3. Notes Payable (Continued): 3.1 (Continued): of S. C., Greenville, S. C. The bond is due in annual installments of principal and quarterly installments of interest at sixty-five (65%) percent of the bank's prime rate on the unpaid balance. The bond is collateralized by a mortgage on the real estate and improvements owned by the Company plus all machinery purchased with the bond proceeds. At December 31, 1991, the outstanding balance on this loan was $300,000, maturing in three (3) principal payments of $100,000 through 1994. 3.2 The Company has unsecured demand loans with First Citizens Bank and Trust Company of S. C., Greenville, S. C. and they bear interest at the bank's prime interest rate. The outstanding balance of these loans was $1,000 at December 31, 1991. 64 OWEN MISCELLANEOUS METALS, INC. FINANCIAL REPORT DECEMBER 31, 1993 65 OWEN MISCELLANEOUS METALS, INC. INDEX YEAR ENDED DECEMBER 31, 1993 INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS FINANCIAL STATEMENTS EXHIBITS A BALANCE SHEET B STATEMENT OF INCOME C STATEMENT OF RETAINED EARNINGS D STATEMENT OF CASH FLOWS E NOTES TO FINANCIAL STATEMENTS 66 INDEPENDENT AUDITOR'S REPORT To the Board of Directors Owen Miscellaneous Metals, Inc. Cayce, South Carolina We have audited the accompanying balance sheet of Owen Miscellaneous Metals, Inc. as of December 31, 1993, and the related statements of income, retained earnings, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit provides 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 Owen Miscellaneous Metals, Inc. as of December 31, 1993, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ DERRICK, STUBBS & STITH Derrick, Stubbs & Stith March 14, 1994 67 EXHIBIT A OWEN MISCELLANEOUS METALS, INC. BALANCE SHEET DECEMBER 31, 1993 ASSETS ------ Current Assets: - -------------- Cash $ 605,044 Accounts Receivable - Customers, Less, Allowance for Doubtful Accounts of $ 4,732 579,520 Accounts Receivable - Other 2,220 Inventories 534,766 Assets Purchased for Resale 615,981 Prepaid Expense 1,524 ------------- $ 2,339,055 Property and Equipment: - ---------------------- Land $ 140,568 Offices and Plants 371,199 Machinery and Equipment 611,024 Furniture and Fixtures 96,464 Autos and Trucks 193,738 Other 11,822 ------------- Total Cost $ 1,424,815 Less, Accumulated Depreciation 1,135,221 ------------- 289,594 -------------- Other Assets: - ------------ Fixed Assets Under Construction $ 14,831 Deferred Charges 10,067 Other Assets 87 ------------- 24,985 -------------- Total Assets $ 2,653,634 ============== LIABILITIES AND STOCKHOLDER'S EQUITY - ------------------------------------ Current Liabilities - ------------------- Accounts Payable $ 413,254 Notes Payable - Amount Due Within One Year (Note 2) 590,000 Payroll Taxes Payable 8,076 Sales Taxes Payable 3,294 Accrued Expenses 43,044 Other Liabilities 718 ------------- $ 1,058,386 Long-Term Liabilities: - --------------------- Notes Payable - Amount Due After One Year (Note 2) 10,000 -------------- Total Liabilities $ 1,068,386 Stockholder's Equity: - -------------------- Common Stock (10,000 shares of $ 10 par value authorized; 3,600 shares issued and outstanding) $ 36,000 Retained Earnings - Exhibit C 1,549,248 ------------- 1,585,248 -------------- Total Liabilities and Stockholder's Equity $ 2,653,634 ============== See Notes to Financial Statements. 68 EXHIBIT B OWEN MISCELLANEOUS METALS, INC. STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 1993 % of Amount Sales ------------------- ------ Sales $ 8,366,975 100.00 Cost of Sales 4,821,487 57.63 ------------------- ------ Gross Income $ 3,545,488 42.37 Manufacturing Expenses 2,320,556 27.73 ------------------- ------ Manufacturing Income $ 1,224,932 14.64 General and Administrative Expenses 1,391,835 16.64 ------------------- ------ Net Operating Income (Loss) $ (166,903) (2.00) Other Income and Expenses - Net 196,238 2.35 ------------------- ------ Net Income - Exhibit C $ 29,335 .35 =================== ====== See Notes to Financial Statements. 69 EXHIBIT C OWEN MISCELLANEOUS METALS, INC. STATEMENT OF RETAINED EARNINGS YEAR ENDED DECEMBER 31, 1993 Retained Earnings, Beginning $ 1,546,373 Net Income - Exhibit B 29,335 Dividends Paid (26,460) -------------- Retained Earnings, Ending - Exhibit A $ 1,549,248 ============== See Notes to Financial Statements. 70 EXHIBIT D OWEN MISCELLANEOUS METALS, INC. STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1993 Cash Flows from Operating Activities: - ------------------------------------ Net Income - Exhibit B $ 29,335 Adjustments to Reconcile Net Income to Net Cash Provided by (Used-in) Operating Activities: Depreciation and Amortization 53,368 Allowance for Doubtful Accounts 598 Gain on Sale of Purchased Assets (260,001) Changes in Operating Assets and Liabilities: (Increase) Decrease in Accounts Receivable 609,831 (Increase) Decrease in Inventories 177,062 (Increase) Decrease in Other Assets 260 Increase (Decrease) in Accounts Payable and Accrued Expenses (282,229) -------------- Net Cash Provided by Operating Activities $ 328,224 -------------- Cash Flows from Investing Activities: - ------------------------------------ Purchases of Property and Equipment $ (961,845) Proceeds from Sale of Property and Equipment 1,495,000 -------------- Net Cash Provided by Investing Activities $ 533,155 -------------- Cash Flows from Financing Activities: - ------------------------------------ Payments on Long-Term Debt $ (5,000) Payments on Short-Term Debt (265,000) Dividends Paid (26,460) -------------- Net Cash (Used-in) Financing Activities $ (296,460) -------------- Net Increase in Cash $ 564,919 - -------------------- Cash: - ---- Beginning 40,125 -------------- Ending $ 605,044 ============== Supplemental Disclosures of Cash Flow Information: - ------------------------------------------------- Cash Payments for: Interest $ 47,415 ============== See Notes to Financial Statements. 71 EXHIBIT E Sheet 1 OWEN MISCELLANEOUS METALS, INC. NOTES TO FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1993 1. Significant Accounting Policies: 1.1 Profits on contracts are recorded on the basis of the Company's estimate of projected revenue and costs on the percentage of completion method applied to individual contracts. Any revisions that are required in contract estimates during the course of the work are reflected in the accounting period in which the facts that require the revision become known. 1.2 The Company regularly buys and sells used metal fabricating equipment for profit. Sales on these transactions are recognized when deliveries are made. 1.3 Inventories are stated at the lower of cost or market, using principally the last-in, first-out method (LIFO). 1.4 Property and Equipment is stated at cost. For financial reporting purposes, depreciation is computed using principally the accelerated method over the useful lives of the assets which are as follows: Years ----- Autos and Trucks 3 to 4 Machinery and Equipment 5 to 10 Office Furniture and Fixtures 5 to 10 Computer Hardware and Software 5 Buildings 20 1.5 The Company participates in a deferred cash [401(k)] plan covering full time employees who have one year of service and are age twenty-one or older. Company contributions to the Plan are determined annually by the Board of Directors. Participants are immediately one hundred percent (100%) vested. The Company does not have any unfunded liability under this Plan. The Company made contributions to the Plan for the year ended December 31, 1993 of $ 32,405. 2. Notes Payable: 2.1 On January 17, 1986, Owen Miscellaneous Metals, Inc. entered into an agreement with Beatrice Parker to purchase approximately 4 acres of land near its plant site in Cayce, S. C. In addition to a cash down payment, the Company issued a note in the amount of $ 50,000 payable in ten (10) annual payments beginning January 17, 1987 of principal plus interest at the rate of nine percent (9%). At December 31, 1993, the outstanding balance on this loan was $15,000 maturing in three (3) annual principal payments of $5,000 through 1996. 2.2 On July 1, 1992, the Company entered into a demand note agreement with The South Carolina National Bank whereby loans up to $1,000,000 were made bearing interest at the bank's prime rate. This note was reduced to $585,000 on November 23, 1993. The outstanding unpaid principal and accrued interest are payable on demand. The outstanding balance on this loan was $585,000 at December 31, 1993. 72 EXHIBIT E Sheet 2 OWEN MISCELLANEOUS METALS, INC. NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1993 3. Income Taxes: Beginning with the year 1982, the stockholders elected, under Section 1372 of the Internal Revenue Code, to be taxed as a small business corporation and have the Corporation's taxable income taxed to the shareholders individually rather than to the Corporation. Beginning with the year 1984, this election was made for State purposes. 4. Major Customer: The Company regularly buys and sells used metal fabricating equipment for profit. The majority of these transactions are with a single company. Sales of this equipment, along with their related costs, are netted and reported in the Statement of Income under the caption "Gain on Sale of Purchased Assets". Inventories of these assets are reported in the Balance Sheet under the caption "Assets Purchased for Resale". No overhead or other costs other than the purchase price of the assets has been applied to these operations in calculating gains on sales. Sales of purchased assets for the year ended December 31, 1993 were $1,494,999. These sales comprised 15% of total revenue for the year ended December 31, 1993. 73 OWEN MISCELLANEOUS METALS, INC. FINANCIAL REPORT DECEMBER 31, 1992 74 OWEN MISCELLANEOUS METALS, INC. INDEX YEAR ENDED DECEMBER 31, 1992 INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS FINANCIAL STATEMENTS EXHIBITS A BALANCE SHEET B STATEMENT OF INCOME C STATEMENT OF RETAINED EARNINGS D STATEMENT OF CASH FLOWS E NOTES TO FINANCIAL STATEMENTS 75 INDEPENDENT AUDITOR'S REPORT To the Board of Directors Owen Miscellaneous Metals, Inc. Cayce, South Carolina We have audited the accompanying balance sheet of Owen Miscellaneous Metals, Inc. as of December 31, 1992, and the related statements of income, retained earnings, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit provides 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 Owen Miscellaneous Metals, Inc. as of December 31, 1992, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ DERRICK, STUBBS & STITH Derrick, Stubbs & Stith March 11, 1993 76 EXHIBIT A OWEN MISCELLANEOUS METALS, INC. BALANCE SHEET DECEMBER 31, 1992 ASSETS ------ Current Assets: - -------------- Cash $ 40,125 Accounts Receivable - Customers, Less, Allowance for Doubtful Accounts of $ 4,134 1,187,618 Accounts Receivable - Other 4,552 Inventories 711,828 Prepaid Expense 1,784 ------------- $ 1,945,907 Property and Equipment: - ---------------------- Land $ 140,568 Offices and Plants 371,199 Machinery and Equipment 570,771 Furniture and Fixtures 93,549 Autos and Trucks 193,738 Other 11,822 ------------- Total Cost $ 1,381,647 Less, Accumulated Depreciation 1,085,140 ------------- 296,507 Other Assets: - ------------ Fixed Assets Under Construction $ 14,519 Assets Purchased for Resale 932,614 Deferred Charges 13,354 Other Assets 87 ------------- 960,574 -------------- Total Assets $ 3,202,988 ============== LIABILITIES AND STOCKHOLDER'S EQUITY - ------------------------------------ Current Liabilities - ------------------- Accounts Payable $ 700,264 Notes Payable - Amount Due Within One Year (Note 3) 855,000 Payroll Taxes Payable 9,119 Sales Taxes Payable 5,613 Accrued Expenses 34,813 Other Liabilities 806 ------------- $ 1,605,615 Long-Term Liabilities: - --------------------- Notes Payable - Amount Due After One Year (Note 3) 15,000 -------------- Total Liabilities $ 1,620,615 Stockholder's Equity: - -------------------- Common Stock (4,000 shares of $ 10 par value authorized; 3,600 shares issued and outstanding) $ 36,000 Retained Earnings - Exhibit C 1,546,373 ------------- 1,582,373 -------------- Total Liabilities and Stockholder's Equity $ 3,202,988 ============== See Notes to Financial Statements. 77 EXHIBIT B OWEN MISCELLANEOUS METALS, INC. STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 1992 % of Amount Sales ------------------- ------ Sales $ 7,480,050 100.00 Cost of Sales 4,088,981 54.66 ------------------- ------ Gross Income $ 3,391,069 45.34 Manufacturing Expenses 2,295,356 30.69 ------------------- ------ Manufacturing Income $ 1,095,713 14.65 General and Administrative Expenses 1,303,914 17.43 ------------------- ------ Net Operating Income (Loss) $ (208,201) (2.78) Other Income and Expenses - Net 228,293 3.05 ------------------- ------ Net Income - Exhibit C $ 20,092 .27 =================== ======= See Notes to Financial Statements. 78 EXHIBIT C OWEN MISCELLANEOUS METALS, INC. STATEMENT OF RETAINED EARNINGS YEAR ENDED DECEMBER 31, 1992 Retained Earnings, Beginning $ 1,625,281 Net Income - Exhibit B 20,092 Dividends Paid (99,000) -------------- Retained Earnings, Ending - Exhibit A $ 1,546,373 ============== See Notes to Financial Statements. 79 EXHIBIT D OWEN MISCELLANEOUS METALS, INC. STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1992 Cash Flows from Operating Activities: - ------------------------------------ Net Income - Exhibit B $ 20,092 Adjustments to Reconcile Net Income to Net Cash Provided by (Used-in) Operating Activities: Depreciation and Amortization 60,462 Allowance for Doubtful Accounts (2,657) Loss on Disposal of Property and Equipment 392 Gain on Sale of Purchased Assets (265,663) Changes in Operating Assets and Liabilities: (Increase) Decrease in Accounts Receivable 326,733 (Increase) Decrease in Inventories (136,031) (Increase) Decrease in Other Assets (762) Increase (Decrease) in Accounts Payable and Accrued Expenses 98,539 ---------------- Net Cash Provided by Operating Activities $ 101,105 ---------------- Cash Flows from Investing Activities: - ------------------------------------ Purchases of Property and Equipment $ (1,377,739) Proceeds from Sale of Property and Equipment 1,168,339 ---------------- Net Cash (Used in) Investing Activities $ (209,400) ---------------- Cash Flows from Financing Activities: - ------------------------------------ Payments on Long-Term Debt $ (5,000) Payments on Short-Term Debt 203,000 Dividends Paid (99,000) ---------------- Net Cash Provided by Financing Activities $ 99,000 ---------------- Net (Decrease) in Cash $ (9,295) - ---------------------- Cash: - ---- Beginning 49,420 ---------------- Ending $ 40,125 ================ Supplemental Disclosures of Cash Flow Information: - ------------------------------------------------- Cash Payments for: Interest $ 45,736 ================ See Notes to Financial Statements. 80 EXHIBIT E Sheet 1 OWEN MISCELLANEOUS METALS, INC. NOTES TO FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1992 1. Significant Accounting Policies: 1.1 Profits on contracts are recorded on the basis of the Company's estimate of projected revenue and costs on the percentage of completion method applied to individual contracts. Any revisions that are required in contract estimates during the course of the work are reflected in the accounting period in which the facts that require the revision become known. 1.2 The Company regularly buys and sells used metal fabricating equipment for profit. Sales on these transactions are recognized when deliveries are made. 1.3 Inventories are stated at the lower of cost or market, using principally the last-in, first-out method (LIFO). 1.4 Property and Equipment is stated at cost. For financial reporting purposes, depreciation is computed using principally the accelerated method over the useful lives of the assets which are as follows: Years ----- Autos and Trucks 3 to 4 Machinery and Equipment 5 to 10 Office Furniture and Fixtures 5 to 10 Computer Hardware and Software 5 Buildings 20 1.5 The Company participates in a deferred cash [401(k)] plan covering full time employees who have one year of service and are age twenty-one or older. Company contributions to the Plan are determined annually by the Board of Directors. Participants are immediately one hundred percent (100%) vested. The Company does not have any unfunded liability under this Plan. The Company made contributions to the Plan for the year ended December 31, 1992 of $ 35,058. 2. Loans Payable - Affiliate: Prior to June 30, 1992, the Company had a loan agreement with an affiliated company, Owen Steel Company, Inc., whereby loans are made bearing interest at prime less 1/4%. There was no outstanding loan balance due affiliate at December 31, 1992. 3. Notes Payable: 2.1 On January 17, 1986, Owen Miscellaneous Metals, Inc. entered into an agreement with Beatrice Parker to purchase approximately 4 acres of land near its plant site in Cayce, S. C. In addition to a cash down payment, the Company issued a note in the amount of $ 50,000 payable in ten (10) annual payments beginning January 17, 1987 of principal plus interest at the rate of nine percent (9%). At December 31, 1992, the outstanding balance on this loan was $20,000 maturing in four (4) annual principal payments of $5,000 through 1996. 81 EXHIBIT E Sheet 2 OWEN MISCELLANEOUS METALS, INC. NOTES TO FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1992 2.2 On July 1, 1992, the Company entered into an unsecured revolving commercial loan agreement with The South Carolina National Bank whereby loans up to $1,000,000 are made bearing interest at the bank's prime rate. The outstanding unpaid principal and accrued interest are payable on demand. At December 31, 1992, the outstanding balance on this loan was $850,000. 4. Income Taxes: Beginning with the year 1982, the stockholders elected, under Section 1372 of the Internal Revenue Code, to be taxed as a small business corporation and have the Corporation's taxable income taxed to the shareholders individually rather than to the Corporation. Beginning with the year 1984, this election was made for State purposes. 5. Major Customer: The Company regularly buys and sells used metal fabricating equipment for profit. The majority of these transactions are with a single company. Sales of this equipment, along with their related costs, are netted and reported in the Statement of Income under the caption "Gain on Sale of Purchased Assets". Inventories of these assets are reported in the Balance Sheet under the caption "Assets Purchased for Resale". No overhead or other costs other than the purchase price of the assets has been applied to these operations in calculating gains on sales. Sales of purchased assets for the year ended December 31, 1992 were $1,168,339. These sales comprised 14% of total revenue for the year ended December 31, 1992. 82 OWEN MISCELLANEOUS METALS, INC. FINANCIAL REPORT DECEMBER 31, 1991 83 OWEN MISCELLANEOUS METALS, INC. INDEX YEAR ENDED DECEMBER 31, 1991 INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS FINANCIAL STATEMENTS EXHIBITS A BALANCE SHEET B STATEMENT OF INCOME C STATEMENT OF RETAINED EARNINGS D STATEMENT OF CASH FLOWS E NOTES TO FINANCIAL STATEMENTS 84 INDEPENDENT AUDITOR'S REPORT To the Board of Directors Owen Miscellaneous Metals, Inc. Cayce, South Carolina We have audited the accompanying balance sheet of Owen Miscellaneous Metals, Inc. as of December 31, 1991, and the related statements of income, retained earnings, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit provides 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 Owen Miscellaneous Metals, Inc. as of December 31, 1991, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ DERRICK, STUBBS & STITH Derrick, Stubbs & Stith February 19, 1992 85 EXHIBIT A OWEN MISCELLANEOUS METALS, INC. BALANCE SHEET DECEMBER 31, 1991 ASSETS ------ Current Assets: - -------------- Cash $ 49,420 Accounts Receivable - Customers, Less, Allowance for Doubtful Accounts of $ 6,791 1,512,985 Accounts Receivable - Other 3,260 Inventories 575,797 Prepaid Expense 1,023 $ 2,142,485 ------------- Property and Equipment: - ---------------------- Land $ 140,568 Offices and Plants 368,099 Machinery and Equipment 539,143 Furniture and Fixtures 82,940 Autos and Trucks 193,738 Other 11,822 ------------- Total Cost $ 1,336,310 Less, Accumulated Depreciation 1,029,226 ------------- 307,084 Other Assets: - ------------ Fixed Assets Under Construction $ 18,659 Assets Purchased for Resale 513,278 Deferred Charges 3,763 Other Assets 87 ------------- 535,787 ------------- Total Assets $ 2,985,356 ============= LIABILITIES AND STOCKHOLDER'S EQUITY - ------------------------------------- Current Liabilities: - -------------------- Accounts Payable $ 570,278 Notes Payable - Amount Due Within One Year (Note 3) 5,000 Loans Payable - Affiliate (Note 2) 647,000 Payroll Taxes Payable 11,908 Sales Taxes Payable 4,632 Accrued Expenses 64,294 Other Liabilities 963 ------------- $ 1,304,075 Long-Term Liabilities: - --------------------- Notes Payable - Amount Due After One Year (Note 3) 20,000 ------------- Total Liabilities $ 1,324,075 Stockholder's Equity: - -------------------- Common Stock (4,000 shares of $ 10 par value authorized; 3,600 shares issued and outstanding) $ 36,000 Retained Earnings - Exhibit C 1,625,281 ------------- 1,661,281 ------------- Total Liabilities and Stockholder's Equity $ 2,985,356 ============= See Notes to Financial Statements. 86 EXHIBIT B OWEN MISCELLANEOUS METALS, INC. STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 1991 % of Amount Sales ------------------- ------ Sales $ 8,691,894 100.00 Cost of Sales 5,180,164 59.60 ------------------- ------ Gross Income $ 3,511,730 40.40 Manufacturing Expenses 2,093,068 24.08 ------------------- ------ Manufacturing Income $ 1,418,662 16.32 General and Administrative Expenses 1,421,698 16.35 ------------------- ------ Net Operating Income (Loss) $ (3,036) (.03) Other Income and Expenses - Net 103,826 1.19 ------------------- ------ Net Income - Exhibit C $ 100,790 1.16 =================== ====== See Notes to Financial Statements. 87 EXHIBIT C OWEN MISCELLANEOUS METALS, INC. STATEMENT OF RETAINED EARNINGS YEAR ENDED DECEMBER 31, 1991 Retained Earnings, Beginning $ 1,589,291 Net Income - Exhibit B 100,790 Dividends Paid (64,800) Retained Earnings, Ending - Exhibit A $ 1,625,281 =============== See Notes to Financial Statements. 88 EXHIBIT D OWEN MISCELLANEOUS METALS, INC. STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1991 Cash Flows from Operating Activities: - ------------------------------------ Net Income - Exhibit B $ 100,790 Adjustments to Reconcile Net Income to Net Cash Provided by (Used-in) Operating Activities: Depreciation and Amortization 73,969 Allowance for Doubtful Accounts 357 Gain on Sale of Purchased Assets (113,012) Changes in Operating Assets and Liabilities: (Increase) Decrease in Accounts Receivable (781,769) (Increase) Decrease in Inventories 291,045 (Increase) Decrease in Other Assets (439) Increase (Decrease) in Accounts Payable and Accrued Expenses 323,104 -------------- Net Cash (Used in) Operating Activities $ (105,955) -------------- Cash Flows from Investing Activities: - ------------------------------------ Purchases of Property and Equipment $ (766,948) Proceeds from Sale of Property and Equipment 437,465 -------------- Net Cash (Used in) Investing Activities $ (329,483) -------------- Cash Flows from Financing Activities: - ------------------------------------ Payments on Long-Term Debt $ (5,000) Loans from Affiliate 522,000 Dividends Paid (64,800) -------------- Net Cash Provided by Financing Activities $ 452,200 -------------- Net Increase in Cash $ 16,762 - -------------------- Cash: - ---- Beginning 32,658 -------------- Ending $ 49,420 ============== Supplemental Disclosures of Cash Flow Information: - ------------------------------------------------- Cash Payments for: Interest $ 8,352 ============== See Notes to Financial Statements. 89 EXHIBIT E OWEN MISCELLANEOUS METALS, INC. NOTES TO FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1991 1. Significant Accounting Policies: 1.1 Profits on contracts are recorded on the basis of the Company's estimate of projected revenue and costs on the percentage of completion method applied to individual contracts. Any revisions that are required in contract estimates during the course of the work are reflected in the accounting period in which the facts that require the revision become known. 1.2 Inventories are stated at the lower of cost or market, using principally the last-in, first-out method (LIFO). 1.3 Property and Equipment is stated at cost. For financial reporting purposes, depreciation is computed using principally the accelerated method over the useful lives of the assets which are as follows: Years ----- Autos and Trucks 3 to 4 Machinery and Equipment 5 to 10 Office Furniture and Fixtures 5 to 10 Computer Hardware and Software 5 Buildings 20 1.4 The Company participates in a deferred cash [401(k)] plan covering full time employees who have one year of service and are age twenty-one or older. Company contributions to the Plan are determined annually by the Board of Directors. Participants are immediately one hundred percent (100%) vested. The Company does not have any unfunded liability under this Plan. The Company made contributions to the Plan for the year ended December 31, 1991 of $ 34,896. 2. Loans Payable - Affiliate: The Company has a loan agreement with an affiliated company, Owen Steel Company, Inc., whereby loans are made bearing interest at prime less 1/4%. The outstanding loan payable to the affiliated company amounted to $647,000 at December 31, 1991. 3. Notes Payable: On January 17, 1986, Owen Miscellaneous Metals, Inc. entered into an agreement with Beatrice Parker to purchase approximately 4 acres of land near its plant site in Cayce, S. C. In addition to a cash down payment, the Company issued a note in the amount of $ 50,000 payable in ten (10) annual payments beginning January 17, 1987 of principal plus interest at the rate of nine percent (9%). At December 31, 1991, the outstanding balance on this loan was $25,000 maturing in five (5) annual principal payments of $5,000 through 1996. 4. Income Taxes: Beginning with the year 1982, the stockholders elected, under Section 1372 of the Internal Revenue Code, to be taxed as a small business corporation and have the Corporation's taxable income taxed to the shareholders individually rather than to the Corporation. Beginning with the year 1984, this election was made for State purposes. 90 OWEN STEEL COMPANY, INC. AND ITS SUBSIDIARIES CONSOLIDATED COMPARATIVE BALANCE SHEETS SEPTEMBER 30, 1994 AND SEPTEMBER 30, 1993 (UNAUDITED) September 30, Assets 1994 1993 ------ ---------------- ---------------- Current Assets: Cash on Hand and In Banks $4,745,703 $3,160,267 Accounts Receivable - Customers 27,854,286 33,147,697 Accounts Receivable - Other 90,659 93,529 Inventories 15,978,083 21,202,419 Prepaid Expenses 413,923 112,807 Income Tax Refunds Due 137,996 5,332,300 ---------------- ---------------- Total Current Assets 49,220,650 63,049,019 ---------------- ---------------- Long-Term Investments: Other Investments 75,000 75,000 ---------------- ---------------- Property and Equipment: Land 2,014,145 2,009,145 Offices and Plants 13,752,959 13,674,499 Machinery and Equipment 63,678,706 62,930,565 Furniture and Fixtures 2,773,504 2,577,112 Autos and Trucks 5,581,270 5,916,632 Other 1,404,141 1,405,138 ---------------- ---------------- Total 89,204,725 88,513,091 Less, Accumulated Depreciation 51,955,484 47,226,248 ---------------- ---------------- Total Property and Equipment 37,249,241 41,286,843 ---------------- ---------------- Other Assets: Cash Surrender Value of Life Insurance 2,762,771 2,699,674 Fixed Assets Under Construction 502,283 395,174 Deferred Charges 373,216 331,251 Other Assets 3,340 9,130 ---------------- ---------------- Total Other Assets 3,641,610 3,435,229 ---------------- ---------------- ---------------- ---------------- Total Assets $90,186,501 $107,846,091 ================ ================ September 30, Liabilities 1994 1993 ----------- ---------------- ---------------- Current Liabilities: Accounts Payable $18,269,635 $22,589,875 Short-Term Notes Payable 10,000,000 10,000,000 Loans Payable-Due in One Year 22,051,597 4,278,851 Other Payables and Accrued Expenses 8,412,555 2,338,169 Provision for Waste Removal 5,085,669 625,000 ---------------- ---------------- Total Current Liabilities 63,819,456 39,831,895 ---------------- ---------------- Long-Term Liabilities: Loans Payable-Due After One Year 17,730,894 Insurance Loans Payable 2,278,921 Other Long-Term Liabilities 760,853 742,921 ---------------- ---------------- Total Long-Term Liabilities 760,853 20,752,736 ---------------- ---------------- Total Liabilities 64,580,309 60,584,631 ---------------- ---------------- Deferred Income Taxes 1,320,012 699,967 ---------------- ---------------- Minority Interests 1,406,512 2,212,240 ---------------- ---------------- Stockholders' Equity: Capital Stock: Class A Voting Common 865,500 865,500 Class B Non-Voting Common 2,820,000 2,820,000 Additional Paid In Capital 60,000 60,000 Retained Earnings 21,533,841 43,003,426 ---------------- ---------------- 25,279,341 46,748,926 Less, Treasury Stock 2,399,673 2,399,673 ---------------- ---------------- Total Stockholders' Equity 22,879,668 44,349,253 ---------------- ---------------- Total Liabilities and Stockholders' Equity $90,186,501 $107,846,091 ================ ================ 91 OWEN STEEL COMPANY, INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) NINE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, 1994 SEPTEMBER 30, 1993 ------------------------ ------------------------ % of % of Amount Sales Amount Sales --------------- -------- --------------- -------- Sales $146,110,569 100.00 $157,051,631 100.00 Cost of Sales 135,562,766 92.78 146,306,816 93.16 ---------------- -------- ---------------- -------- Gross Income 10,547,803 7.22 10,744,815 6.84 General and Administrative Expenses 26,290,741 17.99 25,603,626 16.30 ---------------- -------- ---------------- -------- Net Operating Income (Loss) (15,742,938) (10.77) (14,858,811) (9.46) Other Income and (Expenses) - Net (2,277,287) (1.56) (2,011,446) (1.28) ---------------- -------- ---------------- -------- Net Income (Loss) Before Income Taxes (18,020,225) (12.33) (16,870,257) (10.74) Income Tax Expense (Benefit) 467,314 0.32 (5,711,204) (3.64) ---------------- -------- ---------------- -------- Net Income (Loss) Before Minority Interests (18,487,539) (12.65) (11,159,053) (7.11) Minority Interests (627,965) (0.43) (882,466) (0.56) ---------------- -------- ---------------- -------- Net Income (Loss) ($17,859,574) (12.22) ($10,276,587) (6.54) ========================= ========================= 92 OWEN STEEL COMPANY, INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF RETAINED EARNINGS SEPTEMBER 30, 1994 AND 1993 (UNAUDITED) September 30, 1994 September 30, 1993 ------------------ ------------------ Retained Earnings - Beginning $39,393,415 $53,280,013 Add, Net Income (Loss) (17,859,574) (10,276,587) ------------------ ------------------ Retained earnings - Ending $21,533,841 $43,003,426 ================== ================== 93 OWEN STEEL COMPANY, INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993 (UNAUDITED) NINE MONTHS ENDED NINE MONTHS ENDED 9/30/94 9/30/93 OPERATING ACTIVITIES: ----------------- ----------------- Net Income (Loss) ($17,859,574) ($10,276,587) Adjustments to Reconcile Net Loss to Net Cash Provided by (Used in) Operating Activities: Depreciation and Amortization 3,878,073 4,075,874 Deferred Income Taxes 569,171 (439,996) Deferred Compensation 13,575 13,069 (Gain) Loss on Disposal of Property and Equipment (53,019) 1,503 Minority Interest in Net Income (627,965) (882,466) Changes in Operating Assets and Liabilities: (Increase) Decrease in Accounts Receivable (893,225) 5,293,734 (Increase) Decrease in Income Tax Refunds Due 4,972,704 (Increase) Decrease in Inventories 4,798,636 5,991,834 (Increase) Decrease in Other Assets (309,517) 1,207,678 Increase (Decrease) in Accounts Payable and Accrued Expenses 8,581,540 1,652,952 ----------------- ----------------- Net Cash Provided by (Used in) Operating Activities 3,070,399 6,637,595 ----------------- ----------------- INVESTING ACTIVITIES: Purchase of Property and Equipment (1,032,657) (990,848) Proceeds from Sale of Property and Equipment 21,820 106,785 (Increase) Decrease in Cash Surrender Value of Life Insurance (143,331) (281,979) ----------------- ----------------- Net Cash Provided by (Used in) Investing Activities (1,154,168) (1,166,042) ----------------- ----------------- FINANCING ACTIVITIES: Increase (Decrease) in Short-Term Borrowings (381,504) Increase (Decrease) in Long-Term Borrowings (2,460,342) Payments on Long-Term Debt (2,256,820) ----------------- ----------------- Net Cash Provided by (Used in) Financing Activities (2,256,820) (2,841,846) ----------------- ----------------- Increase (Decrease) in Cash and Cash Equivalents (340,589) 2,629,707 Cash and Cash Equivalents at Beginning of Period 5,086,292 530,560 ----------------- ----------------- Cash and Cash Equivalents at End of Period $4,745,703 $3,160,267 ================= ================= 94 SOUTH CAROLINA STEEL CORPORATION GREENVILLE, SOUTH CAROLINA COMPARATIVE BALANCE SHEETS SEPTEMBER 30, 1994 AND SEPTEMBER 30, 1993 (UNAUDITED) September 30, Assets 1994 1993 ------ ---------------- ---------------- Current Assets: Cash on Hand and In Banks $1,263,904 $400,816 Accounts Receivable - Customers 4,194,112 5,914,423 Accounts Receivable - Other 13,666 3,830 Inventories 2,209,278 1,571,633 Prepaid Expenses 5,792 4,159 Prepaid Income Taxes 98,163 ---------------- ---------------- Total Current Assets 7,686,752 7,993,024 ---------------- ---------------- Investments and Long-Term Receivables: Investment in Subsidiaries and Affiliated Company 1,069,606 1,537,848 ---------------- ---------------- Property and Equipment: Land 82,729 82,730 Offices and Plants 1,606,414 1,656,271 Machinery and Equipment 2,577,303 2,350,223 Furniture and Fixtures 319,612 262,816 Autos and Trucks 602,835 601,498 Other 272,600 214,918 ---------------- ---------------- Total 5,461,493 5,168,456 Less, Accumulated Depreciation 3,958,489 3,757,630 ---------------- ---------------- Total Property and Equipment 1,503,004 1,410,826 ---------------- ---------------- Other Assets: Fixed Assets Under Construction 318,731 47,754 Deferred Income Taxes 112,217 75,452 Deferred Charges 86 3,849 Other Assets 15,000 15,000 ---------------- ---------------- 446,034 142,055 ---------------- ---------------- Total Assets $10,705,396 $11,083,753 ================ ================ September 30, Liabilities 1994 1993 ----------- ---------------- ---------------- Current Liabilities: Accounts Payable $2,092,725 $2,069,412 Short-Term Loans Payable 1,000 1,951,000 Notes Payable-Amount Due Within One Year 100,000 100,000 Other Payables and Accrued Expenses 1,281,339 895,273 ---------------- ---------------- Total Current Liabilities 3,475,064 5,015,685 ---------------- ---------------- Long-Term Liabilities: Notes Payable-Amount Due After One Year 100,000 ---------------- ---------------- Total Liabilities 3,475,064 5,115,685 ---------------- ---------------- Stockholders' Equity: Capital Stock 25,000 25,000 Retained Earnings 8,039,897 6,777,633 ---------------- ---------------- 8,064,897 6,802,633 Less, Treasury Stock 834,565 834,565 ---------------- ---------------- Total Stockholders' Equity 7,230,332 5,968,068 ---------------- ---------------- Total Liabilities and Stockholders' Equity $10,705,396 $11,083,753 ================ ================ 95 SOUTH CAROLINA STEEL CORPORATION GREENVILLE, SOUTH CAROLINA COMPARATIVE STATEMENTS OF OPERATIONS (UNAUDITED) Nine Months Ended September 30, 1994 1993 ----------------------- ----------------------- % of % of Amount Sales Amount Sales -------------- -------- -------------- -------- Sales $20,425,929 100.00 $22,074,243 100.00 Cost of Sales 15,997,938 78.32 19,059,671 86.34 --------------- -------- --------------- -------- Gross Income 4,427,991 21.68 3,014,572 13.66 General and Administrative Expenses 2,486,922 12.18 2,755,725 12.48 --------------- -------- --------------- -------- Net Operating Income 1,941,069 9.50 258,847 1.17 Other Income and (Expenses) - Net 31,840 0.16 (10,166) (0.05) --------------- -------- --------------- -------- Net Income Before Income Taxes 1,972,909 9.66 248,681 1.13 Income Taxes 740,127 3.62 94,065 0.43 --------------- -------- --------------- -------- Net Income Before Equity in Net Income (Loss) of Affiliated Company 1,232,782 6.04 154,616 0.70 Equity in Net Income (Loss) of Affiliated Company (237,952) (1.16) (347,000) (1.57) --------------- -------- --------------- -------- Net Income (Loss) $994,830 4.87 ($192,384) (0.87) =============== ======== =============== ======== 96 SOUTH CAROLINA STEEL CORPORATION GREENVILLE, SOUTH CAROLINA STATEMENTS OF RETAINED EARNINGS (UNAUDITED) September 30, 1994 September 30, 1993 ------------------ ------------------ Retained Earnings - Beginning $7,045,067 $6,970,017 Add, Net Income (Loss) 994,830 (192,384) ------------------ ------------------ Retained earnings - Ending $8,039,897 $6,777,633 ================== ================== 97 SOUTH CAROLINA STEEL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993 (UNAUDITED) 9 Months Ended 9 Months Ended 9/30/94 9/30/93 OPERATING ACTIVITIES: ---------------- ---------------- Net Income (Loss) $994,830 ($192,384) Adjustments to Reconcile Net Income to Net Cash Provided by (Used in) Operating Activities: Depreciation and Amortization 222,894 209,740 Deferred Income Taxes (272,233) 3,201 (Gain) Loss on Disposal of Property and Equipment (4,405) (718) Undistributed Loss of Affiliated Company 237,952 347,000 Changes in Operating Assets and Liabilities: (Increase) Decrease in Accounts Receivable 755,342 (2,238,184) (Increase) Decrease in Inventories 68,848 919,338 (Increase) Decrease in Other Assets (666) Increase (Decrease) in Accounts Payable and Accrued Expenses 1,268,106 765,504 ---------------- ---------------- Net Cash Provided by (Used in) Operating Activities 3,270,668 (186,503) ---------------- ---------------- INVESTING ACTIVITIES: Purchase of Property and Equipment (541,975) (525,091) Proceeds from Sale of Property and Equipment 6,150 32,567 ---------------- ---------------- Net Cash Provided by (Used in) Investing Activities (535,825) (492,524) ---------------- ---------------- FINANCING ACTIVITIES: Increase (Decrease) in Short-Term Borrowings (1,425,000) 675,000 Payments on Long-Term Debt (100,000) (100,000) ---------------- ---------------- Net Cash Provided by (Used in) Financing Activities (1,525,000) 575,000 ---------------- ---------------- Increase (Decrease) in Cash and Cash Equivalents 1,209,843 (104,027) Cash and Cash Equivalents at Beginning of Period 54,061 504,843 ---------------- ---------------- Cash and Cash Equivalents at End of Period $1,263,904 $400,816 ================ ================ 98 OWEN MISCELLANEOUS METALS, INC. COMPARATIVE BALANCE SHEETS SEPTEMBER 30, 1994 AND SEPTEMBER 30, 1993 (UNAUDITED) September 30, Assets 1994 1993 ------ ---------------- ---------------- Current Assets: Cash on Hand and In Banks $677,938 $26,759 Accounts Receivable - Customers 1,017,836 1,582,455 Accounts Receivable - Other 2,068 4,719 Inventories 336,661 622,060 Prepaid Expenses 1,524 1,785 Assets Held for Resale 546,189 512,947 ---------------- ---------------- Total Current Assets 2,582,216 2,750,725 ---------------- ---------------- Property and Equipment: Land 140,568 140,568 Offices and Plants 379,806 371,199 Machinery and Equipment 614,076 611,023 Furniture and Fixtures 100,246 95,387 Autos and Trucks 212,796 193,738 Other 11,822 30,880 ---------------- ---------------- Total 1,459,314 1,442,795 Less, Accumulated Depreciation 1,178,639 1,129,338 ---------------- ---------------- Total Property and Equipment 280,675 313,457 ---------------- ---------------- Other Assets: Fixed Assets Under Construction 36,469 14,831 Other Assets 87 87 ---------------- ---------------- Total Other Assets 36,556 14,918 ---------------- ---------------- Total Assets $2,899,447 $3,079,100 ================ ================ September 30, Liabilities 1994 1993 ----------- ---------------- ---------------- Current Liabilities: Accounts Payable $725,210 $709,961 Short-Term Notes Payable 5,000 890,000 Payroll Taxes Payable 9,142 Sales Taxes Payable 2,961 13,200 Accrued Expenses 53,077 95,774 Other Liabilities 834 802 ---------------- ---------------- Total Current Liabilities 796,224 1,709,737 Long-Term Liabilities: Loans Payable-Due After One Year 5,000 10,000 ---------------- ---------------- Total Liabilities 801,224 1,719,737 ---------------- ---------------- Stockholders' Equity: Capital Stock 36,000 36,000 Retained Earnings 2,062,223 1,323,363 ---------------- ---------------- 2,098,223 1,359,363 ---------------- ---------------- Total Liabilities and Stockholders' Equity $2,899,447 $3,079,100 ================ ================ 99 OWEN MISCELLANEOUS METALS, INC. COLUMBIA, SOUTH CAROLINA COMPARATIVE STATEMENTS OF OPERATIONS (UNAUDITED) Nine Months Ended September 30, 1994 1993 ----------------------- ----------------------- % of % of Amount Sales Amount Sales -------------- -------- -------------- -------- Sales $8,396,235 100.00 $6,378,973 100.00 Cost of Sales 6,968,020 82.99 5,692,751 89.24 --------------- -------- --------------- -------- Gross Income 1,428,215 17.01 686,222 10.76 General and Administrative Expenses 921,613 10.98 1,046,199 16.40 --------------- -------- --------------- -------- Net Operating Income 506,602 6.03 (359,977) (5.64) Other Income and (Expenses) - Net 60,374 0.72 163,428 2.56 --------------- -------- --------------- -------- Net Income (Loss) $566,976 6.75 ($196,549) (3.08) ======================== ======================== 100 OWEN MISCELLANEOUS METALS, INC. CAYCE, SOUTH CAROLINA STATEMENTS OF RETAINED EARNINGS SEPTEMBER 30, 1994 AND 1993 (UNAUDITED) September 30, 1994 September 30, 1993 ------------------- ------------------- Retained Earnings - Beginning $1,549,247 $1,546,372 Add, Net Income (Loss) 566,976 (196,549) Less, Dividends Paid (54,000) (26,460) ------------------- ------------------- Retained earnings - Ending $2,062,223 $1,323,363 =================== =================== 101 OWEN MISCELLANEOUS METALS, INC STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993 (UNAUDITED) 9 Months Ended 9 Months Ended 9/30/94 9/30/93 OPERATING ACTIVITIES: ---------------- ---------------- Net Income (Loss) $566,976 ($196,549) Adjustments to Reconcile Net Income to Net Cash Provided by (Used in) Operating Activities: Depreciation and Amortization 59,358 38,493 (Gain) Loss on Disposal of Property and Equipment (87,020) (215,904) Changes in Operating Assets and Liabilities: (Increase) Decrease in Accounts Receivable (505,320) (424,657) (Increase) Decrease in Inventories 248,105 89,767 (Increase) Decrease in Other Assets 69,791 419,666 Increase (Decrease) in Accounts Payable and Accrued Expenses (349,838) 69,713 ---------------- ---------------- Net Cash Provided by (Used in) Operating Activities 2,052 (219,471) ---------------- ---------------- INVESTING ACTIVITIES: Purchase of Property and Equipment (147,030) (42,402) Proceeds from Sale of Property and Equipment 861,872 239,967 ---------------- ---------------- Net Cash Provided by (Used in) Investing Activities 714,842 197,565 ---------------- ---------------- FINANCING ACTIVITIES: Increase (Decrease) in Short-Term Borrowings (585,000) 40,000 Payments on Long-Term Debt (5,000) (5,000) Dividends Paid (54,000) (26,460) ---------------- ---------------- Net Cash Provided by (Used in) Financing Activities (644,000) 8,540 ---------------- ---------------- Increase (Decrease) in Cash and Cash Equivalents 72,894 (13,366) Cash and Cash Equivalents at Beginning of Period 605,044 40,125 ---------------- ---------------- Cash and Cash Equivalents at End of Period $677,938 $26,759 ================ ================ 102 (b) Pro forma financial information On November 15, 1994, the Company acquired all the outstanding common stock of three privately owned companies - Owen Steel Company, Inc. and two affiliated corporations, Owen Miscellaneous Metals, Inc. and South Carolina Steel Corporation (all three combined referred to as "Owen"). The Company paid approximately $50 million consisting of $25 million in cash and the issuance of 932,301 shares, valued at $26.875 per share, of the Company's common stock. The Company also provided funds for the retirement of approximately $32 million of Owen debt at the closing. Approximately $9 million of the acquisition price is presently maintained in an escrow account, subject to final determination of the net worth of Owen at the closing date and certain other post-closing adjustments. The transaction is accounted for by the purchase method of accounting. The following unaudited pro forma statements of earnings have been derived from historical financial statements of the Company (for the fiscal year ended August 31, 1994 and the three months ended November 30, 1994) and Owen (for the twelve months ended September 30, 1994 and the three months ended September 30, 1994). The information is adjusted to give effect to the acquisition of Owen by the Company as if it had occurred on September 1, 1993. The pro forma statements of earnings are presented for informational purposes only and do not purport to be indicative of the results of operations that actually would have resulted if the acquisition had been consummated on September 1, 1993. Both the Company and Owen operate in cyclical businesses. Accordingly, results during the first quarter of a fiscal year are not necessarily indicative of results which may be expected for an entire fiscal year. The pro forma statements of operations should be read in conjunction with the related notes and Owen's financial statements and related notes contained elsewhere in this filing. The following unaudited pro forma balance sheet has been derived from the historical balance sheet of the Company as of November 30, 1994. The information is adjusted to give effect to the acquisition of Owen by the Company as if it had occurred on November 30, 1994. As the actual date of acquisition was November 15, 1994, the November 30 balance sheet already reflects a summary accounting of the transaction. The adjustments represent a further refinement of the allocation of the purchase price to the fair value of assets acquired and liabilities assumed. The allocation is still preliminary and subject to possible material change as more information becomes available and contingencies are resolved. The pro forma balance sheet is presented for informational purposes only and does not purport to be indicative of the financial condition that actually would have resulted if the acquisition had occurred on November 30, 1994. The pro forma balance sheet should be read in conjunction with the related notes and the Company's consolidated financial statements and related notes previously filed November 28, 1994 on Form 10-K for the year ended August 31, 1994 and Form 10-Q filed January 13, 1995, for the quarter ended November 30, 1994. 103 PRO FORMA STATEMENTS OF OPERATIONS (UNAUDITED) Year ended August 31,1994 (in thousands except share data) CMC Owen Pro forma Adj Historical Historical Adjustments # Pro forma Revenues $1,666,234 $234,910 $1,901,144 Cost of goods sold 1,504,566 211,357 3,454 2 1,719,377 Selling, general and administrative expenses 111,490 38,491 1,296 3 151,277 Interest expense 9,271 3,281 (978) 4 11,574 1,625,327 253,129 3,772 1,882,228 Earnings (loss) before income taxes 40,907 (18,219) (3,772) 18,916 Income taxes 14,737 1,629 (6,068) 5 10,298 Net earnings (loss) $26,170 ($19,848) 2,296 $8,618 Net earnings per share - primary and fully diluted $1.75 - - 6 $0.54 Weighted average shares outstanding 14,956,479 - - 6 15,888,780 Quarter ended November 30,1994 CMC Owen Pro forma Historical Historical Adjustments Pro forma Revenues $413,738 $65,646 $479,384 Cost of goods sold 365,683 53,343 863 2 419,889 Selling, general and administrative expenses 29,678 10,117 297 3 40,092 Interest expense 3,029 820 (130) 4 3,719 Litigation accrual 6,650 0 6,650 405,040 64,280 1,030 470,350 Earnings before income taxes 8,698 1,366 (1,030) 9,034 Income taxes 2,326 797 (361) 5 2,763 Net earnings $6,372 $569 (670) $6,272 Net earnings per share - primary and fully diluted $0.44 - - 6 $0.41 Weighted average shares outstanding 14,537,716 - - 6 15,470,017 See notes to pro forma statements of operations 104 Notes to pro forma statements of operations 1. The fiscal year end of CMC is August 31; of Owen, December 31. These pro forma statements of operations combine CMC's fiscal year ended August 31,1994 results with twelve months to September 30,1994 of Owen. CMC's fiscal quarter ended November 30,1994 is combined with Owen's fiscal quarter ended September 30,1994. 2. Adjustments to cost of goods sold: Year Quarter Owen historical depreciation and amortization (5,635) (1,409) Depreciation and amortization based on purchase cost allocation and asset lives in accordance with CMC accounting policy 9,089 2,272 NET 3,454 863 3. Adjustments to selling, general and administrative expenses: Eliminate salaries/benefits of officers and employees of Owen not continuing with CMC (729) (182) Salaries and benefits of planned increase in workforce 1,365 341 Reduction of professional fees incurred on standalone basis (690) (166) Professional fees to be incurred as part of consolidated group 100 25 Eliminate expenses related to acquisition (50) (46) Startup costs - computer setup, training, travel, etc. 800 200 Increase level of maintenance expenditures 500 125 NET 1,296 297 4. Adjustments to interest expense: Eliminate interest expense on Owen debt retired at acquisition (3,281) (820) Interest expense on debt incurred by CMC for Owen acquisition 2,303 690 NET (978) (130) 5. Income tax effects of pro forma adjustments are calculated at the 35% marginal statutory rate. Amount represents the tax effect of the Owen loss plus the pro forma adjustments ($18,219 + $3,772 at 35%) less 1,629 taxes incurred. 6. Weighted average shares outstanding As part of the acquisition agreement, approximately 164,000 shares (of the 932,301 shares issued at acquisition) of CMC stock are held in an escrow account subject to the resolution of contingencies over a two year period. The disposition of these shares in the first year of operations is unknown; for purposes of calculating earnings per share maximum dilution is assumed. 105 PRO FORMA BALANCE SHEET (UNAUDITED) November 30,1994 (in thousands) CMC Pro forma Adj Pro forma Historical Adjustments # ASSETS Current assets: Cash and temporary investments $22,385 $22,385 Accounts receivable 239,239 31,364 2 270,603 Financial services loans and advances 500 500 Inventories 138,635 33,541 2 172,176 Net working capital - SMI Owen Steel 20,065 (20,065) 2 0 Other 31,980 1,782 33,762 Total current assets 452,804 46,622 499,426 Other assets 2,229 2,229 Property,plant,and equipment: Land 10,747 6,345 2 17,092 Buildings 32,367 9,143 2 41,510 Equipment 361,521 (762) 2 360,759 Leasehold improvements 15,730 15,730 Construction in process 9,124 9,124 Less accumulated depreciation and amortization (220,620) (220,620) 208,869 14,726 223,595 Total assets $663,902 61,348 $725,250 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Commercial paper $10,000 $10,000 Notes payable 40,000 40,000 Financial services notes payable 25,659 25,659 Accounts payable 83,584 20,963 2 104,547 Other payables and accrued expenses 74,850 27,851 2 102,701 Income taxes payable 3,498 3,498 Current maturities of long-term debt 4,855 4,855 Total current liabilities 242,446 48,814 291,260 Deferred income taxes 19,077 12,534 2,3 31,611 Long-term debt 129,877 129,877 Stockholders' equity: Preferred stock 0 0 Common stock 80,663 80,663 Additional paid-in-capital 11,016 11,016 Retained earnings 197,654 197,654 Less treasury stock (16,831) (16,831) Total liabilities and equity $663,902 61,348 $725,250 See notes to pro forma balance sheet 106 Notes to pro forma balance sheet 1. The purchase price is as follows: Cash paid to Owen shareholders $25,055 Value of stock issued to Owen shareholders 25,055 Owen debt retired at acquisition 31,937 Transaction costs paid by CMC 1,220 Total $83,267 This was reflected in CMC's historical November 30,1994 statements as follows: Cash 5,518 Net working capital - SMI Owen Steel 20,065 Other current assets 1,220 Equipment 55,245 Long-term debt (56,993) Stockholders' equity (25,055) 2. Allocation of purchase price to assets acquired and liabilities asssumed: CMC Pro forma Historical 11/30/94 Cash 5,518 5,518 Accounts receivable 31,364 Inventories 33,541 Other current assets 1,220 3,002 Net working capital - SMI Owen Steel 20,065 Land 6,345 Buildings 9,143 Equipment 55,245 54,483 Accounts payable (20,963) Other payables and accrued expenses (27,851) Deferred income taxes (12,534) Long-term debt (56,993) (56,993) Stockholders' equity (25,055) (25,055) 3. Deferred income taxes arise from the difference between the fair value of property, plant, and equipment and their respective tax basis at the acquisition date. Taxes are calculated at the 35% marginal statutory rate. 107 Item 8. Not Applicable. Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. COMMERCIAL METALS COMPANY Date January 27, 1995 By: /s/ STANLEY A. RABIN Stanley A. Rabin, President & Chief Executive Officer