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Form_8-K_2007-01-03reliance steel & aluminum

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  • 1. Table of Contents UNITED STATES 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 3, 2007 RELIANCE STEEL & ALUMINUM CO. (Exact name of registrant as specified in its charter) California 001-13122 95-1142616 (State or other jurisdiction of (Commission File Number) (I.R.S. Employer incorporation) Identification Number) 350 S. Grand Ave., Suite 5100 Los Angeles, CA 90071 (Address of principal executive offices) (213) 687-7700 (Registrant’s telephone number, including area code) Not applicable. (Former name or former address, if changed since last report) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
  • 2. TABLE OF CONTENTS Item 8.01. Other Events Item 9.01 Financial Statements and Exhibits SIGNATURES Index to Exhibits EXHIBIT 23.1 EXHIBIT 23.2 EXHIBIT 99.1 EXHIBIT 99.2
  • 3. Table of Contents Item 8.01. Other Events. Reliance Steel & Aluminum Co. (the “Company”) is filing this Current Report on Form 8-K for the purpose of, among other things, incorporating the contents of this report in the Registration Statement on Form S-4 (the “Registration Statement”) that the Company will file on the date hereof. This report contains an additional footnote to the Company’s audited financial statements for the fiscal year ended December 31, 2005 and unaudited financial statements for the fiscal quarter ended September 30 2006. The additional footnote provides condensed consolidating financial information in accordance with Rule 3-10(f) of Regulation S-X promulgated by the Securities and Exchange Commission in order for the subsidiary guarantors that will be additional registrants on the Registration Statement to continue to be exempt from Securities Exchange Act of 1934 (the “Exchange Act”) reporting requirements pursuant to Rule 12h-5 under the Exchange Act. This report also contains Yarde Metals, Inc.’s (“Yarde”) audited financial statements for the fiscal year ended June 30, 2006. Yarde is a subsidiary guarantor that will be an additional registrant on the Registration Statement. These financial statements are provided in accordance with Rule 3-10(g) of Regulation S-X in order that Yarde will also continue to be exempt from Exchange Act reporting requirements pursuant to Rule 12h-5 under the Exchange Act. Item 9.01 Financial Statements and Exhibits. (a) Financial Statements of Businesses Acquired. N/A. (b) Pro Forma Financial Information. N/A. (c) Exhibits. Exhibit No. Description 23.1 Consent of Del Conte, Hyde, Annello & Schuch, P.C. 23.2 Consent of Ernst & Young LLP 99.1 Updated historical financial information of Reliance Steel & Aluminum Co. as required by Rule 3-10 of Regulation S-X. 99.2 Yarde Metals, Inc. and Affiliate’s audited combined balance sheet at June 30, 2006 and audited combined statements of income and retained earnings, and cash flows for the year then ended and notes thereto and Report of Independent Auditors. 2
  • 4. Table of Contents SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. RELIANCE STEEL & ALUMINUM CO. By /s/ David H. Hannah Dated: January 3, 2007 David H. Hannah Chief Executive Officer 3
  • 5. Table of Contents RELIANCE STEEL & ALUMINUM CO. FORM 8-K INDEX TO EXHIBITS Exhibit No. Description 23.1 Consent of Del Conte, Hyde, Annello & Schuch, P.C. 23.2 Consent of Ernst & Young LLP 99.1 Updated historical financial information of Reliance Steel & Aluminum Co. as required by Rule 3-10 of Regulation S-X. 99.2 Yarde Metals, Inc. and Affiliate’s audited combined balance sheet at June 30, 2006 and audited combined statements of income and retained earnings, and cash flows for the year then ended and notes thereto and Report of Independent Auditors.
  • 6. Exhibit 23.1 [Letterhead of Del Conte, Hyde, Anello & Schuch, P.C.] Reliance Steel & Aluminum Co. Los Angeles, CA CONSENT OF INDEPENDENT PUBLIC ACCOUNTING FIRM We consent to the use in this Current Report of Reliance Steel & Aluminum Co. on Form 8-K of our report dated November 3, 2006 on the combined balance sheet of Yarde Metals, Inc. and Affiliates as of June 30, 2006 and the related combined statements of income, comprehensive income, changes in retained earnings and members’/partners’ equity, cash flows, the combined schedules of cost of revenue and selling, general and administrative expenses, and the combining balance sheet, combining statements of income, comprehensive income, changes in retained earnings and members’/partners equity and cash flows, and combining schedules of cost of revenue and selling, general and administrative expenses for the year then ended (which includes an explanatory paragraph relating to the adoption of Interpretation No. 46R, Consolidation of Variable Interest Entities, issued by the Financial Accounting Standards Board ). /s/ Del Conte, Hyde, Anello & Schuch, P.C. Farmington, Connecticut January 3, 2007
  • 7. Exhibit 23.2 Consent of Independent Registered Public Accounting Firm We consent to the incorporation by reference in the Registration Statement (Form S-4) and related Prospectus of Reliance Steel & Aluminum Co., for the registration of $350,000,000 of 6.200% Senior Notes due 2016 and $250,000,000 of 6.850% Senior Notes due 2036, of our report dated March 10, 2006 (except for Note 14, as to which the date is December 29, 2006) with respect to the consolidated financial statements and schedule of Reliance Steel & Aluminum Co. included in this Current Report (Form 8-K) which updates Item 8 of Reliance Steel & Aluminum Co.’s Annual Report (Form 10-K) for the year ended December 31, 2005 and of our report dated March 10, 2006 with respect to Reliance Steel & Aluminum Co.’s management’s assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Reliance Steel & Aluminum Co., included in its Annual Report (Form 10-K) for the year ended December 31, 2005, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP Los Angeles, California January 3, 2007
  • 8. EXHIBIT 99.1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Shareholders and Board of Directors Reliance Steel & Aluminum Co. We have audited the accompanying consolidated balance sheets of Reliance Steel & Aluminum Co. and subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2005. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Reliance Steel & Aluminum Co. and subsidiaries at December 31, 2005 and 2004, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Reliance Steel & Aluminum Co.’s internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 10, 2006 expressed an unqualified opinion thereon. /s/ ERNST & YOUNG LLP Los Angeles, California March 10, 2006, except for Note 14, as to which the date is December 29, 2006
  • 9. Note 14. Condensed Consolidating Financial Statements In November 2006, the Company issued senior unsecured notes for an aggregate principal amount of $600 million at fixed interest rates that are guaranteed by certain of its wholly owned domestic subsidiaries. The accompanying combined and consolidating financial information has been prepared and presented pursuant to Rule 3-10 of SEC Regulation S-X “Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or being Registered.” The guarantees are full and unconditional and joint and several obligations of each of the guarantor subsidiaries. There are no significant restrictions on the ability of the Company to obtain funds from any of the guarantor subsidiaries by dividends or loan. The supplemental consolidating financial information has been presented in lieu of separate financial statements of the guarantors as such separate financial statements are not considered meaningful. Consolidating financial information related to the Company, its guarantor subsidiaries and non-guarantor subsidiaries as of December 31, 2005, and 2004 and for each of the three years in the period ended December 31, 2005 is shown below: Condensed Consolidating Balance Sheet As of December 31, 2005 (amounts in thousands) Non- Guarantor Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated Assets Cash and cash equivalents $ (7,912) $ 35,717 $ 7,217 $ — $ 35,022 Accounts receivable, less allowance for doubtful accounts 70,533 288,372 12,640 (1,614) 369,931 Inventories 58,659 304,318 24,408 — 387,385 Prepaid expenses and other current assets 110 15,659 3,240 — 19,009 Deferred income taxes — 35,868 133 — 36,001 Total current assets 121,390 679,934 47,638 (1,614) 847,348 Investments in subsidiaries 571,358 989,050 — (1,560,408) — Property, plant and equipment, net 66,692 403,405 9,622 — 479,719 Goodwill 12,437 372,293 — — 384,730 Intangible assets, net 906 43,442 36 — 44,384 Intercompany receivables 212,919 — — (212,919) — Other assets 552 12,653 148 (464) 12,889 Total assets $986,254 $2,500,777 $ 57,444 $(1,775,405) $1,769,070 Liabilities & Shareholders’ Equity Accounts payable $ 35,241 $ 146,322 $ 4,494 $ (1,614) $ 184,443 Accrued compensation and retirement costs 8,418 42,023 1,913 — 52,354 Other current liabilities 6,310 38,657 1,994 — 46,961 Current maturities of long-term debt 49,200 325 — — 49,525 Current maturities of capital lease obligations — 536 — — 536 Total current liabilities 99,169 227,863 8,401 (1,614) 333,819 Long-term debt 300,050 1,225 — — 301,275 Intercompany borrowings — 190,264 22,655 (212,919) — Deferred taxes and other long-term liabilities — 104,125 604 (618) 104,111 Total shareholders’ equity 587,035 1,977,300 25,784 (1,560,254) 1,029,865 Total liabilities and shareholders’ equity $986,254 $2,500,777 $ 57,444 $(1,775,405) $1,769,070 1
  • 10. Condensed Consolidating Balance Sheet As of December 31, 2004 (amounts in thousands) Non- Guarantor Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated Assets Cash and cash equivalents $ (10,638) $ 21,084 $ 1,213 $ — $ 11,659 Accounts receivable, less allowance for doubtful accounts 73,114 247,953 10,463 (1,539) 329,991 Inventories 73,988 256,922 18,869 — 349,779 Prepaid expenses and other current assets 171 11,749 5,296 — 17,216 Deferred income taxes — 24,584 — — 24,584 Total current assets 136,635 562,292 35,841 (1,539) 733,229 Investments in subsidiaries 570,159 877,388 — (1,447,547) — Property, plant and equipment, net 67,181 382,792 8,840 — 458,813 Goodwill 12,436 329,344 — — 341,780 Intangible assets, net 1,245 15,368 60 — 16,673 Intercompany receivables 196,027 — — (196,027) — Other assets 45 12,721 70 — 12,836 Total assets $983,728 $2,179,905 $ 44,811 $(1,645,113) $1,563,331 Liabilities & Shareholders’ Equity Accounts payable $ 28,301 $ 110,700 $ 4,840 $ (1,539) $ 142,302 Accrued compensation and retirement costs 7,628 40,702 1,629 — 49,959 Other current liabilities 8,238 26,716 1,063 — 36,017 Current maturities of long-term debt 46,150 250 — — 46,400 Total current liabilities 90,317 178,368 7,532 (1,539) 274,678 Long-term debt 349,300 31,550 — — 380,850 Intercompany borrowings — 175,118 20,909 (196,027) — Deferred taxes and other long-term liabilities — 85,274 518 (541) 85,251 Total shareholders’ equity 544,111 1,709,595 15,852 (1,447,006) 822,552 Total liabilities and shareholders’ equity $983,728 $2,179,905 $ 44,811 $(1,645,113) $1,563,331 2
  • 11. Condensed Consolidating Statement of Income For the year ended December 31, 2005 (amounts in thousands) Guarantor Non-Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated Net sales $736,804 $2,571,386 $ 77,385 $ (18,524) $3,367,051 Other income, net 435 12,625 (18) (9,371) 3,671 737,239 2,584,011 77,367 (27,895) 3,370,722 Costs and expenses: Cost of sales (exclusive of depreciation and amortization shown below) 538,970 1,874,035 54,601 (18,606) 2,449,000 Warehouse, delivery, selling, general and administrative 112,820 384,945 13,862 (3,722) 507,905 Depreciation and amortization 6,924 39,157 550 — 46,631 Interest 26,513 3,924 352 (5,567) 25,222 685,227 2,302,061 69,365 (27,895) 3,028,758 Income before minority interest and income taxes 52,012 281,950 8,002 — 341,964 Minority interest — (8,666) (86) — (8,752) Equity in earnings of subsidiaries 171,196 2,128 — (173,324) — Income from continuing operations before income taxes 223,208 275,412 7,916 (173,324) 333,212 Provision for income taxes 19,900 105,650 2,225 — 127,775 Net income $203,308 $ 169,762 $ 5,691 $ (173,324) $ 205,437 Condensed Consolidating Statement of Income For the year ended December 31, 2004 (amounts in thousands) Guarantor Non-Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated Net sales $711,020 $2,190,330 $ 57,305 $ (15,621) $2,943,034 Other income, net 1,141 13,795 741 (11,509) 4,168 712,161 2,204,125 58,046 (27,130) 2,947,202 Costs and expenses: Cost of sales (exclusive of depreciation and amortization shown below) 514,534 1,572,436 39,581 (15,703) 2,110,848 Warehouse, delivery, selling, general and administrative 115,039 362,699 11,697 (5,548) 483,887 Depreciation and amortization 7,280 36,731 616 — 44,627 Interest 26,869 7,318 382 (5,879) 28,690 663,722 1,979,184 52,276 (27,130) 2,668,052 Income before minority interest and income taxes 48,439 224,941 5,770 — 279,150 Minority interest — (8,193) (989) — (9,182) Equity in earnings of subsidiaries 139,988 (728) — (139,260) — Income from continuing operations before income taxes 188,427 216,020 4,781 (139,260) 269,968 Provision for income taxes 17,971 80,032 2,237 — 100,240 Net income $170,456 $ 135,988 $ 2,544 $ (139,260) $ 169,728 3
  • 12. Condensed Consolidating Statement of Income For the year ended December 31, 2003 (amounts in thousands) Guarantor Non-Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated Net sales $488,411 $1,378,929 $ 26,896 $ (11,303) $1,882,933 Other income, net 1,044 9,952 160 (8,319) 2,837 489,455 1,388,881 27,056 (19,622) 1,885,770 Costs and expenses: Cost of sales (exclusive of depreciation and amortization shown below) 357,680 1,005,136 20,977 (11,483) 1,372,310 Warehouse, delivery, selling, general and administrative 98,175 293,579 7,930 (3,757) 395,927 Depreciation and amortization 7,849 27,493 1,528 — 36,870 Interest 24,520 6,118 489 (4,382) 26,745 488,224 1,332,326 30,924 (19,622) 1,831,852 Income before minority interest and income taxes 1,231 56,555 (3,868) — 53,918 Minority interest — 1,394 (456) — 938 Equity in earnings of subsidiaries 33,715 (466) — (33,249) — Income from continuing operations before income taxes 34,946 57,483 (4,324) (33,249) 54,856 Provision for income taxes 467 22,113 (1,734) — 20,846 Net income $ 34,479 $ 35,370 $ (2,590) $ (33,249) $ 34,010 4
  • 13. Condensed Consolidating Cash Flow Statement For the year ended December 31, 2005 (amounts in thousands) Non- Guarantor Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated Cash Flows from operating activities: Net income (loss) $ 203,308 $ 169,763 $ 5,690 $ (173,324) $ 205,437 Equity in earnings of subsidiaries (171,196) (2,128) — 173,324 — Adjustments to reconcile net income to cash provided by (used in) operating activities 141,458 (75,778) 1,102 — 66,782 173,570 91,857 6,792 — 272,219 Cash provided by (used in) operating activities Cash Flows from investing activities: Purchases of property, plant and equipment, net (6,229) (45,058) (2,453) — (53,740) Acquisitions of metals service centers and net asset purchases of metals service centers, net of cash acquired (94,377) — — — (94,377) Intercompany loan repayments (advances), net (16,892) — — 16,892 — Other investing activities, net 1,485 — — — 1,485 (116,013) (45,058) (2,453) 16,892 (146,632) Cash provided by (used in) investing activities Cash Flows from financing activities: Net borrowings (repayments) of long-term debt (46,200) (47,311) — — (93,511) Dividends paid (12,530) — — — (12,530) Intercompany borrowings (repayments) — 15,145 1,747 (16,892) — Other financing activities 3,898 — — — 3,898 (54,832) (32,166) 1,747 (16,892) (102,143) Cash provided by (used in) financing activities Effect of exchange rate changes on cash and cash — — (81) — (81) equivalents 2,725 14,633 6,005 — 23,363 Increase (decrease) in cash and cash equivalents (10,637) 21,083 1,213 — 11,659 Cash and cash equivalents at beginning of period $ (7,912) $ 35,716 $ 7,218 $ — $ 35,022 Cash and cash equivalents at end of period 5
  • 14. Condensed Consolidating Cash Flow Statement For the year ended December 31, 2004 (amounts in thousands) Non- Guarantor Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated Cash Flows from operating activities: Net income (loss) $ 170,457 $ 135,987 $ 2,544 $ (139,260) $ 169,728 Equity in earnings of subsidiaries (139,988) 728 — 139,260 — Adjustments to reconcile net income to cash provided by (used in) operating activities (4,130) (39,547) (4,283) — (47,960) 26,339 97,168 (1,739) — 121,768 Cash provided by (used in) operating activities Cash Flows from investing activities: Purchases of property, plant and equipment, net (4,496) (30,040) (1,446) — (35,982) Tax reimbursements made related to prior acquisition (16,475) — — — (16,475) Intercompany loan repayments (advances), net 5,441 — — (5,441) — Other investing activities, net 2,808 — — — 2,808 (12,722) (30,040) (1,446) (5,441) (49,649) Cash provided by (used in) investing activities Cash Flows from financing activities: Net borrowings (repayments) of long-term debt (22,150) (42,250) — — (64,400) Dividends paid (8,448) — — — (8,448) Intercompany borrowings (repayments) — (6,717) 1,276 5,441 — Other financing activities 8,657 — — — 8,657 (21,941) (48,967) 1,276 5,441 (64,191) Cash provided by (used in) financing activities Effect of exchange rate changes on cash and cash — — 1,565 — 1,565 equivalents (8,324) 18,161 (344) — 9,493 Increase (decrease) in cash and cash equivalents (2,313) 2,922 1,557 — 2,166 Cash and cash equivalents at beginning of period $ (10,637) $ 21,083 $ 1,213 $ — $ 11,659 Cash and cash equivalents at end of period 6
  • 15. Condensed Consolidating Cash Flow Statement For the year ended December 31, 2003 (amounts in thousands) Non- Guarantor Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated Cash Flows from operating activities: Net income (loss) $ 34,477 $ 35,372 $ (2,590) $ (33,249) $ 34,010 Equity in earnings of subsidiaries (33,715) 466 — 33,249 — Adjustments to reconcile net income to cash provided by (used in) operating activities 255,931 (184,428) 2,307 — 73,810 256,693 (148,590) (283) — 107,820 Cash provided by (used in) operating activities Cash Flows from investing activities: Purchases of property, plant and equipment, net (2,290) (17,292) (1,327) — (20,909) Acquisitions of metals service centers and net asset purchases of metals service centers, net of cash acquired (245,850) — — — (245,850) Intercompany loan repayments (advances), net (147,238) — — 147,238 — Other investing activities, net 3,020 — — — 3,020 (392,358) (17,292) (1,327) 147,238 (263,739) Cash provided by (used in) investing activities Cash Flows from financing activities: Net borrowings (repayments) of long-term debt 134,850 12,395 — — 147,245 Dividends paid (7,643) — — — (7,643) Intercompany borrowings (repayments) — 145,651 1,587 (147,238) — Other financing activities 8,706 — — — 8,706 135,913 158,046 1,587 (147,238) 148,308 Cash provided by (used in) financing activities Effect of exchange rate changes on cash and cash — — 472 — 472 equivalents 248 (7,836) 449 — (7,139) Increase (decrease) in cash and cash equivalents (2,561) 10,759 1,107 — 9,305 Cash and cash equivalents at beginning of period $ (2,313) $ 2,923 $ 1,556 $ — $ 2,166 Cash and cash equivalents at end of period 7
  • 16. Unaudited consolidating financial information related to the Company, its guarantor subsidiaries and non-guarantor subsidiaries as of September 30, 2006 and for the three and nine-month periods ended September 30, 2006 and 2005, respectively, is reflected below. Unaudited Condensed Consolidating Balance Sheet As of September 30, 2006 (amounts in thousands) Non- Guarantor Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated Assets Cash and cash equivalents $ (17,448) $ 27,695 $ 11,794 $ — $ 22,041 Accounts receivable, less allowance for doubtful accounts 96,243 616,694 36,954 (3,941) 745,950 Inventories 116,178 829,670 41,657 — 987,505 Prepaid expenses and other current assets — 18,885 726 — 19,611 Deferred income taxes — 35,482 142 — 35,624 Total current assets 194,973 1,528,426 91,273 (3,941) 1,810,731 Investments in subsidiaries 590,191 1,986,657 — (2,576,848) — Property, plant and equipment, net 88,065 632,954 15,161 — 736,180 Goodwill 15,328 741,633 2,704 — 759,665 Intangible assets, net 1,120 350,513 26 — 351,659 Intercompany receivables 504,925 — — (504,925) — Other assets 526 72,777 1,611 (464) 74,450 Total assets $1,395,128 $5,312,960 $ 110,775 $(3,086,178) $3,732,685 Liabilities & Shareholders’ Equity Accounts payable $ 47,792 $ 302,446 $ 31,439 $ (3,941) $ 377,736 Accrued compensation and retirement costs 4,958 74,150 3,301 — 82,409 Other current liabilities 15,110 89,745 3,275 — 108,130 Current maturities of long-term debt 44,200 51,040 1,118 — 96,358 Current maturities of capital lease obligations — 553 — — 553 Total current liabilities 112,060 517,934 39,133 (3,941) 665,186 Long-term debt 279,850 873,151 — — 1,153,001 Intercompany borrowings — 493,400 11,525 (504,925) — Deferred taxes and other long-term liabilities — 239,864 1,443 — 241,307 Total shareholders’ equity 1,003,218 3,188,611 58,674 (2,577,312) 1,673,191 Total liabilities and shareholders’ equity $1,395,128 $5,312,960 $ 110,775 $(3,086,178) $3,732,685 8
  • 17. Unaudited Condensed Consolidating Statement of Income For the nine months ended September 30, 2006 (amounts in thousands) Guarantor Non-Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated Net sales $650,784 $3,405,578 $ 145,017 $ (27,963) $4,173,416 Other income, net 833 12,616 1,266 (11,074) 3,641 651,617 3,418,194 146,283 (39,037) 4,177,057 Costs and expenses: Cost of sales (exclusive of depreciation and amortization shown below) 462,988 2,505,950 110,376 (28,025) 3,051,289 Warehouse, delivery, selling, general and administrative 90,514 475,642 23,979 (3,117) 587,018 Depreciation and amortization 5,475 39,000 657 — 45,132 Interest 18,309 31,123 459 (7,895) 41,996 577,286 3,051,715 135,471 (39,037) 3,725,435 Income before minority interest and income taxes 74,331 366,479 10,812 — 451,622 Minority interest — (104) (123) — (227) Equity in earnings of subsidiaries 221,358 3,820 — (225,178) — Income from continuing operations before income taxes 295,689 370,195 10,689 (225,178) 451,395 Provision for income taxes 19,645 148,099 3,786 — 171,530 Net income $276,044 $ 222,096 $ 6,903 $ (225,178) $ 279,865 Unaudited Condensed Consolidating Statement of Income For the nine months ended September 30, 2005 (amounts in thousands) Guarantor Non-Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated Net sales $560,049 $1,893,463 $ 57,857 $ (12,996) $2,498,373 Other income, net 359 10,291 (36) (7,905) 2,709 560,408 1,903,754 57,821 (20,901) 2,501,082 Costs and expenses: Cost of sales (exclusive of depreciation and amortization shown below) 408,317 1,395,440 40,774 (13,057) 1,831,474 Warehouse, delivery, selling, general and administrative 83,240 285,254 10,297 (3,178) 375,613 Depreciation and amortization 5,200 29,208 398 — 34,806 Interest 20,197 3,504 255 (4,666) 19,290 516,954 1,713,406 51,724 (20,901) 2,261,183 Income before minority interest and income taxes 43,454 190,348 6,097 — 239,899 Minority interest — (6,271) — — (6,271) Equity in earnings of subsidiaries 109,821 933 — (110,754) — Income from continuing operations before income taxes 153,275 185,010 6,097 (110,754) 233,628 Provision for income taxes 9,359 76,750 2,670 — 88,779 Net income $143,916 $ 108,260 $ 3,427 $ (110,754) $ 144,849 9
  • 18. Unaudited Condensed Consolidating Statement of Income For the three months ended September 30, 2006 (amounts in thousands) Guarantor Non-Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated Net sales $225,595 $1,352,067 $ 58,177 $ (9,631) $1,626,208 Other income, net 91 5,768 836 (4,708) 1,987 225,686 1,357,835 59,013 (14,339) 1,628,195 Costs and expenses: Cost of sales (exclusive of depreciation and amortization shown below) 160,017 998,890 44,884 (9,652) 1,194,139 Warehouse, delivery, selling, general and administrative 31,572 183,652 10,568 (1,089) 224,703 Depreciation and amortization 1,893 14,336 282 — 16,511 Interest 6,221 16,580 151 (3,598) 19,354 199,703 1,213,458 55,885 (14,339) 1,454,707 Income before minority interest and income taxes 25,983 144,377 3,128 — 173,488 Minority interest — (33) (62) — (95) Equity in earnings of subsidiaries 87,161 1,145 — (88,306) — Income from continuing operations before income taxes 113,144 145,489 3,066 (88,306) 173,393 Provision for income taxes 6,786 58,251 851 — 65,888 Net income $106,358 $ 87,238 $ 2,215 $ (88,306) $ 107,505 Unaudited Condensed Consolidating Statement of Income For the three months ended September 30, 2005 (amounts in thousands) Guarantor Non-Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated Net sales $186,295 $ 668,524 $ 19,927 $ (4,622) $ 870,124 Other income, net 86 3,554 121 (2,416) 1,345 186,381 672,078 20,048 (7,038) 871,469 Costs and expenses: Cost of sales (exclusive of depreciation and amortization shown below) 136,968 494,197 14,873 (4,642) 641,396 Warehouse, delivery, selling, general and administrative 28,031 99,003 4,187 (961) 130,260 Depreciation and amortization 1,716 9,713 108 — 11,537 Interest 6,771 1,352 95 (1,435) 6,783 173,486 604,265 19,263 (7,038) 789,976 Income before minority interest and income taxes 12,895 67,813 785 — 81,493 Minority interest — (1,755) — — (1,755) Equity in earnings of subsidiaries 38,976 96 — (39,072) — Income from continuing operations before income taxes 51,871 66,154 785 (39,072) 79,738 Provision for income taxes 2,529 27,344 428 — 30,301 Net income $ 49,342 $ 38,810 $ 357 $ (39,072) $ 49,437 10
  • 19. Unaudited Condensed Consolidating Cash Flow Statement For the nine months ended September 30, 2006 (amounts in thousands) Non- Guarantor Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated Cash Flows from operating activities: Net income (loss) $ 276,044 $ 222,097 $ 6,902 $ (225,178) $ 279,865 Equity in earnings of subsidiaries (221,358) (3,820) — 225,178 — Adjustments to reconcile net income to cash provided by (used in) operating activities 815,448 (1,093,787) 10,003 — (268,336) 870,134 (875,510) 16,905 — 11,529 Cash provided by (used in) operating activities Cash Flows from investing activities: Purchases of property, plant and equipment, net (17,966) (64,245) (2,509) — (84,720) Acquisitions of metals service centers and net asset purchases of metals service centers, net of cash acquired (538,714) (20,679) — — (559,393) Intercompany loan repayments (advances), net (292,005) — — 292,005 — Other investing activities, net 2,272 — — — 2,272 (846,413) (84,924) (2,509) 292,005 (641,841) Cash provided by (used in) investing activities Cash Flows from financing activities: Net borrowings (repayments) of long-term debt (25,200) 649,275 1,118 — 625,193 Dividends paid (11,608) — — — (11,608) Intercompany borrowings (repayments) — 303,136 (11,131) (292,005) — Other financing activities 3,552 — — — 3,552 (33,256) 952,411 (10,013) (292,005) 617,137 Cash provided by (used in) financing activities Effect of exchange rate changes on cash and cash — — 194 — 194 equivalents (9,535) (8,023) 4,577 — (12,981) Increase (decrease) in cash and cash equivalents (7,912) 35,717 7,217 — 35,022 Cash and cash equivalents at beginning of period $ (17,447) $ 27,694 $ 11,794 $ — $ 22,041 Cash and cash equivalents at end of period 11
  • 20. Unaudited Condensed Consolidating Cash Flow Statement For the nine months ended September 30, 2005 (amounts in thousands) Non- Guarantor Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated Cash Flows from operating activities: Net income (loss) $ 143,916 $ 108,260 $ 3,427 $ (110,754) $ 144,849 Equity in earnings of subsidiaries (109,821) (933) — 110,754 — Adjustments to reconcile net income to cash provided by (used in) operating activities 119,430 (96,251) (2,860) — 20,319 153,525 11,076 567 — 165,168 Cash provided by (used in) operating activities Cash Flows from investing activities: Purchases of property, plant and equipment, net (4,567) (28,548) (1,199) — (34,314) Acquisitions of metals service centers and net asset purchases of metals service centers, net of cash acquired (94,383) — — — (94,383) Intercompany loan repayments (advances), net (24,177) — — 24,177 — Other investing activities, net 1,191 — — — 1,191 (121,936) (28,548) (1,199) 24,177 (127,506) Cash provided by (used in) investing activities Cash Flows from financing activities: Net borrowings (repayments) of long-term debt (23,200) (7,181) — — (30,381) Dividends paid (9,220) — — — (9,220) Intercompany borrowings (repayments) — 21,599 2,578 (24,177) — Other financing activities 835 — — — 835 (31,585) 14,418 2,578 (24,177) (38,766) Cash provided by (used in) financing activities Effect of exchange rate changes on cash and cash — — (136) — (136) equivalents 4 (3,054) 1,810 — (1,240) Increase (decrease) in cash and cash equivalents (10,637) 21,083 1,213 — 11,659 Cash and cash equivalents at beginning of period $ (10,633) $ 18,029 $ 3,023 $ — $ 10,419 Cash and cash equivalents at end of period 12
  • 21. EXHIBIT 99.2 Combined Financial Statements Yarde Metals, Inc. and Affiliates June 30, 2006
  • 22. YARDE METALS, INC. AND AFFILIATES CONTENTS JUNE 30, 2006 Independent Auditors’ Report 1 Financial Statements: Combined Balance Sheet 3 Combined Statement of Income 5 Combined Statement of Comprehensive Income 6 Combined Statement of Changes in Retained Earnings and Members’/Partners’ Equity 7 Combined Statement of Cash Flows 8 Notes to Combined Financial Statements 9 Supplementary Financial Information: Combined Schedule of Cost of Revenue 24 Combined Schedule of Selling, General and Administrative Expenses 25 Combining Balance Sheet 26 Combining Statement of Income 28 Combining Statement of Comprehensive Income 29 Combining Statement of Changes in Retained Earnings and Members’/Partners’ Equity 30 Statement of Changes in Retained Earnings – Yarde Metals, Inc. 31 Statement of Changes in Members’ Equity – 10160 Phillipp Parkway, LLC 32 Combining Statement of Cash Flows 33 Combining Schedule of Cost of Revenue 34 Combining Schedule of Selling, General and Administrative Expenses 35
  • 23. [Letterhead of Del Conte, Hyde, Anello & Schuch, P.C.] To the Board of Directors and Members Yarde Metals, Inc. and Affiliates Southington, Connecticut We have audited the accompanying combined balance sheet of Yarde Metals, Inc. and Affiliates as of June 30, 2006 and the related combined statements of income, comprehensive income, changes in retained earnings and members’/partners’ equity, and cash flows for the year then ended. These combined financial statements are the responsibility of Yarde Metals, Inc. and Affiliates’ management. Our responsibility is to express an opinion on these combined financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 combined financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of Yarde Metals, Inc. and Affiliates as of June 30, 2006, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. As described in Note 2 to the combined financial statements, Yarde Metals, Inc. leases its corporate offices and certain warehousing and office facilities from entities that are subject to the provisions of Interpretation No. 46R (FIN 46R), Consolidation of Variable Interest Entities, issued by the Financial Accounting Standards Board. Yarde Metals, Inc. adopted the provisions of FIN 46R for these variable interest entities on July 1, 2005, the effect of which is shown as a cumulative effect of a change in accounting principle in the accompanying combined financial statements.
  • 24. Our audit was conducted for the purpose of forming an opinion on the basic combined financial statements taken as a whole. The combined schedules of cost of revenue and selling, general and administrative expenses, and the combining balance sheet, combining statements of income, comprehensive income, changes in retained earnings and members’/partners’ equity and cash flows, and combining schedules of cost of revenue and selling, general and administrative expenses, on pages 24 through 35, are presented only for purposes of additional analysis and are not a required part of the basic combined financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic combined financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic combined financial statements taken as a whole. /s/ Del Conte, Hyde, Anello & Schuch, P.C. Farmington, Connecticut November 3, 2006
  • 25. YARDE METALS, INC. AND AFFILIATES COMBINED BALANCE SHEET JUNE 30, 2006 ASSETS CURRENT ASSETS Cash and cash equivalents $ 8,847,642 Trade receivables 56,602,791 Employee loans receivable 23,572 Inventory 81,782,552 Prepaid expenses 1,465,464 $148,722,021 Total Current Assets PROPERTY AND EQUIPMENT Land 2,905,251 Buildings 22,775,390 Machinery and equipment 23,488,523 Office furnishings and equipment 5,693,517 Motor vehicles 2,329,145 Leasehold improvements 1,052,295 58,244,121 Less accumulated depreciation 19,619,358 38,624,763 Total Property and Equipment OTHER ASSETS Employee loans receivable, net of current portion 132,267 Federal tax deposit to retain fiscal year 2,184,517 Derivative swap obligation 1,143,955 Deposits 388,448 Loan closing costs, net of amortization 129,470 3,978,657 Total Other Assets $191,325,441 Total Assets The accompanying notes are an integral part of these financial statements. -3-
  • 26. LIABILITIES AND EQUITY CURRENT LIABILITIES Notes payable — Short-term $75,347,402 Current maturities of long-term debt 9,451,453 Notes payable — Related parties 14,774,809 Accounts payable 23,349,161 Accrued compensation 8,789,568 Accrued taxes and expenses 9,101,232 $140,813,625 Total Current Liabilities LONG-TERM DEBT, NET OF CURRENT PORTION 12,744,150 153,557,775 Total Liabilities EQUITY Common stock 1,500 Additional paid-in capital 10,028,500 Retained earnings 17,925,477 Members’/Partners’ equity 8,668,234 Accumulated other comprehensive income 1,143,955 37,767,666 Total Equity $191,325,441 Total Liabilities and Equity -4-
  • 27. YARDE METALS, INC. AND AFFILIATES COMBINED STATEMENT OF INCOME FOR THE YEAR ENDED JUNE 30, 2006 REVENUE Net sales $386,104,556 Rental income 30,000 $386,134,556 Total Revenue COST OF REVENUE 317,678,299 68,456,257 Gross Profit SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 33,992,726 34,463,531 Income from Operations OTHER INCOME (EXPENSE) Interest and dividend income 5,679 Gain on sale of assets 15,164 Other income 45,753 Shareholder compensation (17,221,000) Compensation related to the sale (9,137,005) Interest expense (5,472,160) (31,763,569) 2,699,962 Income before Provision for Income and Other Taxes PROVISION FOR INCOME AND OTHER TAXES 90,357 $ 2,609,605 Net Income The accompanying notes are an integral part of these financial statements. -5-
  • 28. YARDE METALS, INC. AND AFFILIATES COMBINED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED JUNE 30, 2006 NET INCOME $2,609,605 OTHER COMPREHENSIVE INCOME Interest rate swap adjustment 837,174 $3,446,779 Total Comprehensive Income The accompanying notes are an integral part of these financial statements. -6-
  • 29. YARDE METALS, INC. AND AFFILIATES COMBINED STATEMENT OF CHANGES IN RETAINED EARNINGS AND MEMBERS’/PARTNERS’ EQUITY FOR THE YEAR ENDED JUNE 30, 2006 Accumulated Additional Other Common Paid-in Retained Members’/ Comprehensive Stock Capital Earnings Partners’ Equity Income Total Balance, June 30, 2005, as $ 1,500 $10,028,500 $16,861,753 $ 8,175,233 $ 306,781 $35,373,767 previously reported Adjustment for understatement of accrued compensation — — (684,198) — — (684,198) 1,500 10,028,500 16,177,555 8,175,233 306,781 34,689,569 Balance, June 30, 2005 Cumulative effect of change in accounting principle due to adoption of FIN 46R on July 1, 2005 — — 512,580 — — 512,580 Net income — — 1,242,452 1,367,153 — 2,609,605 Dividends paid — — (7,110) — — (7,110) Members’/Partners’ draw — — — (874,152) — (874,152) Other comprehensive income — — — — 837,174 837,174 $ 1,500 $10,028,500 $17,925,477 $ 8,668,234 $ 1,143,955 $37,767,666 Balance, June 30, 2006 The accompanying notes are an integral part of these financial statements. -7-
  • 30. YARDE METALS, INC. AND AFFILIATES COMBINED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2006 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 2,609,605 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,409,182 Gain on sale of assets (15,164) Increase in allowance for doubtful accounts 91,594 (Increase) decrease in operating assets: Trade receivables (10,621,002) Inventory (91,553) Prepaid expenses (797,054) Federal tax deposit (151,188) Deposits (137,904) Loan closing costs, net of amortization (41,867) Increase (decrease) in operating liabilities: Accounts payable 1,074,913 Accrued compensation 2,023,545 Accrued taxes and expenses 7,525,615 $ 4,878,722 Net Cash Provided by Operating Activities CASH FLOWS FROM INVESTING ACTIVITIES Repayments from employees, net 15,841 Proceeds from sale of assets 227,191 Purchases of property and equipment (4,474,901) (4,231,869) Net Cash Used in Investing Activities CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds from notes payable — Short-term 17,267,000 Proceeds from long-term borrowing 3,182,173 Repayment of long-term debt (4,549,198) Repayment of related party notes (9,092,037) Dividends paid (7,110) Members’/Partners’ draw (874,102) 5,926,726 Net Cash Provided by Financing Activities Net increase in cash and cash equivalents 6,573,579 Cash and cash equivalents at beginning of year 2,274,063 $ 8,847,642 Cash and Cash Equivalents at End of Year The accompanying notes are an integral part of these financial statements. -8-
  • 31. YARDE METALS, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS JUNE 30, 2006 NOTE 1 — NATURE OF BUSINESS AND PRINCIPLES OF COMBINATION The accompanying combined financial statements include the operations of Yarde Metals, Inc., 10160 Phillipp Parkway, LLC, Route 38 Associates, LLC, 45 Newell Street, LLC, Yarde Realty Company and Yarde Lot, LLC, collectively referred to as the “Company”. All inter- company accounts, transactions, and profits are eliminated in the combination. Yarde Metals, Inc. (“Yarde Metals”) is a Connecticut corporation which commenced operations in 1977. Yarde Metals is primarily engaged in the wholesale distribution of metal alloys to a broad range of customers operating in various industries throughout the world. The majority of Yarde Metals’ customers are concentrated in the New England, Mid-Atlantic and Ohio Regions. 10160 Phillipp Parkway, LLC (“10160 Phillipp”) is an Ohio limited liability company whose members are also some of the shareholders/officers of Yarde Metals. This entity was formed in December 2003 to acquire and hold warehousing facilities for Yarde Metals in Ohio. 10160 Phillipp leases the office and warehouse facilities in Streetsboro, Ohio to Yarde Metals. The financial success of 10160 Phillipp is dependent upon the financial success of Yarde Metals. Route 38 Associates, LLC (“Route 38”) is a New Hampshire limited liability company whose members are also some of the shareholders/officers of Yarde Metals. This entity was formed to construct warehousing facilities for Yarde Metals in New Hampshire. Route 38 leases the office and warehouse facilities in Pelham, New Hampshire to Yarde Metals. The financial success of Route 38 is dependent upon the financial success of Yarde Metals. 45 Newell Street Associates, LLC (“45 Newell”) is a Connecticut limited liability company whose members are also some of the shareholders/officers of Yarde Metals. 45 Newell leases the office and warehouse facilities, acquired in March 2001, in Southington, Connecticut to Yarde Metals. The financial success of 45 Newell is dependent upon the financial success of Yarde Metals. Yarde Realty Company (“Yarde Realty”) is a Connecticut partnership whose partners are also some of the shareholders/officers of Yarde Metals. This entity was formed in 1980 to acquire and hold warehousing facilities for Yarde Metals in Bristol, Connecticut. Yarde Realty leases the warehouse facilities in Bristol, Connecticut to Yarde Metals. The financial success of Yarde Realty is dependent upon the financial success of Yarde Metals. Yarde Lot, LLC (“Yarde Lot”) is a Connecticut limited liability company whose members are also some of the shareholders/officers of Yarde Metals. Yarde Lot leases the parking lot across from the office and warehouse facilities in Southington, Connecticut to Yarde Metals. The financial success of Yarde Lot is dependent upon the financial success of Yarde Metals. -9-
  • 32. YARDE METALS, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS JUNE 30, 2006 NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The preparation of combined financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the combined financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income, requires a full set of general purpose financial statements to be expanded to include the reporting of “comprehensive income”. Comprehensive income is comprised of two components, net income and other comprehensive income. For the year ended June 30, 2006, the only items qualifying as other comprehensive income were the interest rate swap agreement adjustments. For purposes of the financial statements, the Company considers all highly liquid investments with original maturities of three months or less as the equivalent of cash. There were no cash equivalents at June 30, 2006. The Company carries its accounts receivable at cost less an allowance for doubtful accounts. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for doubtful accounts, based upon an estimate of collectibility of the accounts receivable, prior bad debt history and current credit conditions. Generally, the Company does not charge or accrue interest/finance charges on past due trade receivables unless the account is turned over for collections. A receivable is considered past due based upon management’s knowledge of the customer, past experience and current conditions. Management periodically reviews its receivable balances and determines which customers are to be turned over for collections. Accounts are written off as uncollectible when collection procedures are unsuccessful. Inventory, which consists primarily of metal alloys purchased for resale, is valued at the lower of cost or market, which is determined on the specific identification method. Property and equipment are stated at cost. Major renewals and betterments are capitalized, while maintenance and repairs that do not improve or extend the lives of the respective assets are charged against income. Depreciation and amortization are recorded using straight- line methods over the estimated useful lives of the related assets. The estimated useful lives of assets are as follows: Buildings 15-40 years Machinery and equipment 7-10 years Office furnishings and equipment 5-10 years Motor vehicles 3-10 years Leasehold improvements 5-40 years - 10 -
  • 33. YARDE METALS, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS JUNE 30, 2006 NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Depreciation expense for the year ended June 30, 2006 was $3,380,283. Rentals pertaining to noncapitalized lease agreements, which merely convey the right to use property, are expensed as incurred. Intangible assets for the Company consist of loan acquisition costs that are being amortized on the straight-line basis over 5-20 years. Amortization expense for the year ended June 30, 2006 was $28,899. Yarde Metals has elected, by consent of its stockholders, to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Under these provisions, Yarde Metals does not pay Federal corporate income taxes on its taxable income. Instead, the stockholders are liable for individual Federal income taxes on their respective shares of Yarde Metals’ taxable income. Accordingly, the financial statements reflect no provision or liability for Federal income taxes. Yarde Metals is liable for state income taxes only in certain states that do not follow the federal pass-thru treatment. Income tax expense includes state taxes currently payable and deferred. When material, Yarde Metals provides for deferred taxes on temporary differences arising from assets and liabilities whose bases are different for financial reporting and income tax purposes. These differences relate primarily to inventory costs capitalized for income tax purposes, but expensed for financial reporting purposes, bad debt expense reported in different periods for financial reporting and income tax purposes, and different depreciation methods and lives used for financial reporting and income tax purposes. In addition, because Yarde Metals reports on a fiscal year basis, it must represent to the Internal Revenue Service that either the fiscal year is its natural year or it must pay a deposit. The deposit is calculated as the product of the highest individual tax rate plus 1%, the percentage of the deferral period to a total year, and the entity’s taxable income for the prior year. 10160 Phillipp, Route 38, 45 Newell, Yarde Realty and Yarde Lot are not taxpaying entities for income tax purposes, and thus, no Federal income tax expense has been recorded in the statements. Income from the limited liability companies and the partnership are taxed to the members/partners on their individual returns. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of trade receivables, trade sales and trade purchases. The Company has limited concentration of credit risk regarding trade receivables and trade sales due to the large number of customers comprising the Company’s base and their dispersion across different industries. As of June 30, 2006, the Company had no significant concentration of credit risk regarding trade receivables and trade sales. The Company has significant concentration of -11-
  • 34. YARDE METALS, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS JUNE 30, 2006 NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) credit risk regarding trade purchases. Purchases from one vendor accounted for 18% of total purchases in the year ended June 30, 2006. Interest rate swap contracts designated and qualifying as cash flow hedges are reported at fair value. The gain or loss on the effective portion of the hedge initially is included as a component of other comprehensive income and subsequently reclassified into earnings when interest on the related debt is paid. Advertising costs are charged to operations when incurred. For the year ended June 30, 2006, advertising expense was $331,474. In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46) with the objective of improving financial reporting by companies involved with variable interest entities. FIN 46 clarifies the application of Accounting Research Bulletin No. 51 to certain entities, defined as variable interest entities, in which equity investors do not have characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated support from other parties. In December 2003, the FASB issued a revision to FIN 46 (FIN 46R) to clarify some of the provisions of FIN 46. On July 1, 2005, Yarde Metals, Inc. adopted FIN 46R related to 10160 Phillipp Parkway, LLC, Route 38 Associates, LLC, 45 Newell Street Associates, LLC, Yarde Realty Company and Yarde Lot, LLC, which resulted in the combining of these entities with Yarde Metals, Inc. for financial reporting purposes. The effect of Yarde Metals, Inc. adopting FIN 46R related to 10160 Phillipp Parkway, LLC, Route 38 Associates, LLC, 45 Newell Street Associates, LLC, Yarde Realty Company and Yarde Lot, LLC as of July 1, 2005, is recorded as a cumulative effect of a change in accounting principle of $512,580 in the accompanying combined statement of changes in retained earnings and members’ equity as of June 30, 2006. NOTE 3 — TRADE RECEIVABLES Trade receivables at June 30, 2006 consist of the following: Open accounts receivable $58,306,347 Less: Allowance for doubtful accounts 1,703,556 Total Trade Receivables $56,602,791 - 12 -
  • 35. YARDE METALS, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS JUNE 30, 2006 NOTE 4 — NOTES PAYABLE — SHORT-TERM On August 16, 2005, Yarde Metals refinanced its revolving line of credit, which was to expire on December 31, 2007. Yarde Metals may borrow up to the sum of 85% of eligible trade receivables and 65% of eligible inventory, to a maximum of $100,000,000. Interest for the year ended June 30, 2006 was payable at the current LIBOR Market Index rate or the bank’s one-month, three-month or six-month LIBOR plus 1% (the LIBOR rate plus the applicable margin at June 30, 2006 was 6.33%). The line of credit also has an optional hedge that allows Yarde Metals to enter into an interest rate swap agreement (see Note 6). This interest rate swap agreement was subsequently terminated on July 19, 2006. The lines are secured by substantially all assets of Yarde Metals and are personally guaranteed by the majority stockholders. The balance due on the line of credit at June 30, 2006 was $75,347,402. As disclosed in Note 16, Yarde Metals was acquired by Reliance Steel & Aluminum Co. on August 1, 2006. As a result of this transaction, the revolving line of credit became due and payable on August 1, 2006. NOTE 5 — LONG-TERM DEBT Long-term debt at June 30, 2006 is summarized below: Mortgage loan payable to Connecticut Development Authority in monthly installments of $28,121 including interest at 5.00% through March 2020, secured by property and all improvements, a first priority lien and security interest in all of the personal property and fixtures, an assignment of leases and rentals with respect to the premises, and assignment of all contracts, permits, approvals and UCC filings of the property in Southington, CT held by 45 Newell Street Associates, LLC. The note contains personal guarantees by the members and a corporate officer and a corporate guarantee by Yarde Metals, Inc. $3,516,013 Second mortgage loan payable to Banknorth, N.A. in monthly installments of $43,229 including interest until the maturity date of April 1, 2016, the interest rate was fixed at 6.00% through April 2004, at which time the interest rate was adjusted to the Three Year Federal Home Loan Bank of Boston Classic Advance Rate plus the applicable margin. As of June 30, 2006, the interest rate was 4.90% and is scheduled for adjustment on April 1, 2007, and every three years thereafter until maturity. The mortgage is secured by property and all improvements, a first priority lien and security interest in all of the personal property and - 13 -
  • 36. YARDE METALS, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS JUNE 30, 2006 NOTE 5 — LONG-TERM DEBT (Continued) fixtures, an assignment of leases and rentals with respect to the premises, and assignment of all contracts, permits, approvals and UCC filings of property in Southington, CT held by 45 Newell Street Associates, LLC. The note contains personal guarantees by the members and a corporate officer. 4,021,636 First mortgage loan payable to Banknorth, N.A. in monthly installments of $17,034 including interest until the maturity date of April 1, 2016, the interest rate was fixed at 6.00% through April 2004, at which time the interest rate was adjusted to the Three Year Federal Home Loan Bank of Boston Classic Advance Rate plus the applicable margin. As of June 30, 2006 the interest was 4.90% and is scheduled for adjustment on April 1, 2007, and every three years thereafter until maturity. The mortgage is secured by property and all improvements, a first priority lien and security interest in all of the personal property and fixtures, an assignment of leases and rentals with respect to the premises, and assignment of all contracts, permits, approvals and UCC filings of property in Southington, CT held by 45 Newell Street, LLC. The note contains personal guarantees by the members and a corporate officer. 1,575,153 First mortgage loan payable to Wachovia in monthly installments, through April 2016, of $12,685 plus interest at a rate of the bank’s one-month LIBOR plus 1.16% (6.33% at June 30, 2006), secured by property and all improvements, a first priority lien and security interest in all of the personal property and fixtures, an assignment of leases and rentals with respect to the premises, and assignment of all contracts, permits, approvals and UCC filings of property in Streetsboro, OH held by 10160 Phillipp Parkway, LLC. The note contains personal guarantees by the members and a corporate officer and a corporate guarantee by Yarde Metals, Inc. 1,416,765 - 14 -
  • 37. YARDE METALS, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS JUNE 30, 2006 NOTE 5 — LONG-TERM DEBT (Continued) Note payable to GE Capital Public Finance in monthly installments of $26,687 including interest at 5.83% through December 2014, secured by property and all improvements, a first priority lien and security interest in all of the personal property and fixtures, an assignment of leases and rentals with respect to the premises, and assignment of all contracts, permits, approvals and UCC filings of property in Pelham, NH held by Route 38 Associates, LLC. The note contains personal guarantees by the members and a corporate officer and a corporate guarantee by Yarde Metals, Inc. 2,142,445 $2,500,000 equipment line of credit payable to Wachovia with advances made at 80% of the invoice cost of the equipment purchased over a draw period ending December 31, 2006. At that point this converts to a five-year term loan. Interest only is paid during the draw period. Once converted, 1/60th of the principal balance plus interest at a rate of the bank’s one- month, three-month or six-month LIBOR plus 1.00% or the current LIBOR Market Index Rate plus 1.00% (6.33% at June 30, 2006) will be payable monthly. The note is secured by substantially all the assets of Yarde Metals, Inc. and is personally guaranteed by the majority stockholders. 1,213,420 Note payable to GE Capital Public Finance at 5.83% with monthly payments of interest only until June 2001, and monthly payments of $9,890, including principal and interest from June 2001 to June 2011. The note is secured by equipment of Yarde Metals, Inc. 366,860 Term loan for $8,500,000 payable to Wachovia used to refinance certain existing term debt with forty-eight equal monthly principal payments, through August 2009, of $177,083 plus interest at a rate of the bank’s one-month, three-month or six- month LIBOR plus 1.00% or at Yarde Metals’ discretion the current LIBOR Market Index Rate plus 1.00% (6.33% at June 30, 2006). The note is secured by substantially all the assets of Yarde Metals, Inc. and is personally guaranteed by the majority stockholders. 6,729,167 - 15 -
  • 38. YARDE METALS, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS JUNE 30, 2006 NOTE 5 — LONG-TERM DEBT (Continued) Mortgage loan payable to Banknorth, N.A. in monthly installments of $12,961 including interest at 5.32% through February 2009, secured by a second mortgage on real property, a collateral assignment of leases and rentals with respect to the premises in Southington, CT held by 45 Newell Street Associates, LLC. The note contains personal guarantees by the members and a corporate officer. 965,921 Mortgage loan payable to Connecticut Development Authority in monthly installments of $11,609 including interest at 7.40% through September 2008, secured by a second mortgage on real property, a collateral assignment of leases and rentals with respect to the premises in Bristol, CT held by Yarde Realty Company. The note contains personal guarantees by the members and a corporate officer and a corporate guarantee by Yarde Metals, Inc. 248,222 22,195,602 Less: Current maturities 9,451,452 Total Long-Term Debt $ 12,744,150 The expected maturities of long-term debt are as follows: YEAR ENDING JUNE 30, 2007 $ 9,448,408 2008 1,190,932 2009 2,909,809 2010 962,922 2011 1,031,002 6,652,529 Thereafter $ 22,195,602 Total Long-Term Debt Yarde Metals also has two Capex Notes with Wachovia that would allow Yarde Metals to borrow $2,500,000 for each of the next two years starting January 2006. Interest only will be paid during the draw period and principal of 1/60th of the converted amount plus interest will be paid thereafter. Yarde Metals may choose to pay interest at a rate of the bank’s one-month, three-month or six-month LIBOR plus 1.00% or the current LIBOR Market Index Rate plus 1.00%. Yarde Metals paid off its two Capex Notes in July 2006. - 16 -
  • 39. YARDE METALS, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS JUNE 30, 2006 NOTE 5 — LONG-TERM DEBT (Continued) The revolving and equipment lines of credit and the equipment note payable to Wachovia (Yarde Metals’ major lender) contain various restrictive financial covenants with respect to borrowings, working capital, tangible net worth, leverage, and debt service coverage. As of June 30, 2006, Yarde Metals failed one of its required ratios. As disclosed in Note 16, Yarde Metals was acquired by Reliance Steel & Aluminum Co. As a result of this transaction, all debt with Yarde Metals’ lenders became due and payable on August 1, 2006. In addition, all security interests in Yarde Metals’ assets related to the debt were released and all of its corporate guarantees were terminated. Therefore, all debt of Yarde Metals is classified as a current liability as of June 30, 2006. NOTE 6 — FAIR VALUE OF FINANCIAL INSTRUMENTS SFAS No. 107 “Disclosures about Fair Value of Financial Instruments,” requires disclosure of the following information about the fair value of certain financial instruments for which it is practical to estimate that value. For purposes of the following disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. The estimated fair values of the Company’s financial instruments at June 30, 2006 are as follows: Carrying Fair Market Value Value Assets: Cash and cash equivalents $ 8,847,642 $ 8,847,642 Trade receivables including non-current portion 56,602,791 56,602,791 Employee loans receivable 155,839 120,003 Liabilities: Notes payable including related party notes (90,122,211) (88,946,880) Long-term debt (22,195,603) (20,497,282) Fair values were determined as follows: The carrying amount of cash and cash equivalents approximates fair value due to the short-term maturities of these instruments. The carrying amount of accounts receivable approximate fair value since the receivables are shown net of an allowance for uncollectible amounts. - 17 -
  • 40. YARDE METALS, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS JUNE 30, 2006 NOTE 6 — FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) The fair value of employee loans receivable is based on current rates offered by local lending institutions for notes with similar characteristics. The employee loans receivable bear interest at 2.5% per annum, are secured by real estate, and have terms requiring weekly payments of principal and interest over a period of up to ten years. Fair values of notes payable approximate their carrying values based on quoted market prices for those or similar instruments. Fair values of notes payable – related parties are based on current rates offered by local lending institutions for notes with similar characteristics. The notes bear interest at 4% per annum and have terms requiring principal and interest payments due June 30, 2010. Fair values of long-term debt are based on current rates at which the Company could borrow funds at similar remaining maturities. Yarde Metals and 10160 Phillipp entered into interest rate swap agreements on November 30, 2004 and December 29, 2003, respectively, to control the impact of changes in interest rates on their floating and fixed rate long-term debt. At June 30, 2006, Yarde Metals had one interest rate swap agreement with a commercial bank having a total notional principal amount of $20,000,000 with an interest rate of 7.03% from November 30, 2004 through May 30, 2005 changing to 3.70% effective May 31, 2005 until the termination date. On July 19, 2006, Yarde Metals terminated the swap agreement, which was to mature on November 30, 2009. At June 30, 2006, 10160 Phillipp had one interest rate swap agreement with a commercial bank having a total notional principal amount of $1,600,000 with an interest rate of 4.96%. The interest rate swap agreement of 10160 Phillipp matures on December 29, 2008. The Company is exposed to credit loss in the event of non-performance by the other party to the interest rate swap agreements. However, the Company does not anticipate non-performance by the counter party. The fair market value of the swap agreements at June 30, 2006 was $1,143,955. NOTE 7 — LEASES Yarde Metals leases vehicles, equipment, office, and warehouse space under various agreements expiring on dates through 2017. Various office and warehouse facilities are leased from related entities (as described in Note 1), which have common ownership. In accordance with the provisions of FIN 46R (as described in Note 2) the rent expense incurred with these common ownership, or variable interest entities, is eliminated for combined financial statement purposes. Rent expense relating to vehicle and equipment leases amounted to approximately $1,378,558 for the year ended June 30, 2006. Rent expense relating to office and warehouse leases amounted to approximately $4,354,148, for the year ended June 30, 2006, of which $2,689,640 was eliminated for combined financial statement purposes as it was paid to the related entities. - 18 -
  • 41. YARDE METALS, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS JUNE 30, 2006 NOTE 7 – LEASES (Continued) Future minimum payments under operating leases at June 30, 2006 are as follows: NON-AFFILIATES YEAR ENDING OFFICES AND VEHICLES AND JUNE 30, WAREHOUSING EQUIPMENT 2007 $ 1,930,876 $ 1,506,008 2008 1,906,026 1,324,428 2009 1,966,813 1,059,364 2010 782,874 697,865 2011 514,178 386,225 Thereafter 3,166,935 208,835 Total $ 10,267,702 $ 5,182,725 NOTE 8 — CONTINGENCIES AND COMMITMENTS Yarde Metals’ loan and security agreement with its major lender contains financial covenants with respect to borrowings, working capital, tangible net worth, leverage, cash flow and interest coverage. In addition, the agreement restricts fixed asset purchases and does not allow the payment of cash dividends, except as provided for in the agreement. There is no requirement to maintain compensating balances under the agreement; however, Yarde Metals is required to pay a facility fee of 1/4 of 1% per calendar quarter on the excess of the average daily maximum amount of the revolving credit minus the average daily outstanding principal amount of the revolving credit loans during such quarter. The Company maintains cash in bank accounts, which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on such accounts. As of June 30, 2006, the aggregate cash balances at the financial institutions used by the Company exceeded the federally insured limit of $100,000 by $11,679,788. On June 30, 2006, Yarde Metals had placed deposits totaling $157,546, to be applied to the purchase of various pieces of equipment with an estimated aggregate cost of $1,094,478. NOTE 9 — RELATED PARTY TRANSACTIONS Yarde Metals has unsecured notes due to stockholders and their family members with interest computed at 4% for the fiscal year ended June 30, 2006. Certain amounts of these notes are subordinated to the bank debt. These loans were due June 30, 2010; however, as a result of the shareholders’ selling their stock (as disclosed in Note 16), all outstanding debt with Yarde Metals’ stockholders was repaid on August 1, 2006. Interest expense on these loans for the year ended June 30, 2006 was $884,295. - 19 -
  • 42. YARDE METALS, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS JUNE 30, 2006 NOTE 9 — RELATED PARTY TRANSACTIONS (Continued) Yarde Metals leases various office and warehouse facilities from entities that have common ownership, as discussed in Notes 1 and 7. NOTE 10 — COMMON STOCK TRANSACTIONS Yarde Metals is authorized to issue 20,000 shares of $0.10 par value common stock, of which 15,000 shares were issued and outstanding on June 30, 2006. NOTE 11 — PROFIT SHARING AND EMPLOYEE BENEFITS Yarde Metals sponsors a 401(k) profit sharing plan covering substantially all full-time employees who are not required to fulfill a service waiting period and may enter the plan quarterly on January 1, April 1, July 1 and October 1 of each year. Eligible employees may contribute between 1% and 50% of their annual compensation. Yarde Metals may make a discretionary qualified matching employer contribution up to 50% of the employees’ contribution up to 10% of their annual compensation. The matching contribution was 50% for the year ended June 30, 2006. In addition, Yarde Metals maintains a discretionary profit sharing plan for employees who are employed on the first and last day of the plan year and have provided one year or 1,000 hours of service. Contributions to the plan are discretionary and are allocated based on participants’ compensation. Yarde Metals did not make discretionary profit sharing contributions for the year ended June 30, 2006. Total profit sharing expense (401(k) match) for the year ended June 30, 2006 was $1,175,713. NOTE 12 — SUPPLEMENTARY CASH FLOW INFORMATION The Company uses the indirect method when presenting its cash flows from operating activities in the Combined Statement of Cash Flows. Therefore, the Company is required to disclose the following information: Interest paid $5,395,676 Income taxes paid (including prepayments) $ 160,751 The Company is also required to disclose non-cash investing and financing activities not included in the Combined Statement of Cash Flows. - 20 -
  • 43. YARDE METALS, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS JUNE 30, 2006 NOTE 12 — SUPPLEMENTARY CASH FLOW INFORMATION (Continued) On August 16, 2005, Yarde Metals refinanced its existing equipment loans that resulted in the following non-cash transaction: Term loan $ 8,500,000 Existing Long-term debt repayment (8,199,153) Cash received $ 300,847 During the year ended June 30, 2006, the Company recorded a prior-period adjustment in the amount of $684,198 relating to an error in accrued compensation, as described in Note 15. During the year ended June 30, 2006, the Company recorded an adjustment in the amount of $512,580 relating to a cumulative effect of a change in accounting principle, as described in Note 2. During the year ended June 30, 2006, the Company recorded an unrealized gain of $837,174 relating to the interest rate swap agreements. NOTE 13 — DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES As disclosed in Note 6, the Company has two interest rate swap contracts which are derivative financial instruments for the purpose of hedging the risk of cash flows caused by movements in the interest rates. The Company’s purpose in entering into these swap arrangements is to hedge against the risk of interest rate increases on the related variable rate debts. Accordingly, the swap arrangements are classified as cash flow hedging activities and represent derivative financial instruments. These derivative financial instruments are not held for trading purposes. The Company accounts for these derivative financial instruments in accordance with Statement of Financial Accounting Standards No. 133, as amended by SFAS No. 137 and SFAS No. 138. Accordingly, the derivative financial instruments are reflected on the combined balance sheet at their fair values. Since these instruments are classified as hedging activities, changes in the fair values of these instruments are recognized as components of other comprehensive income. The effective portion of the gain or loss on the derivative instruments is reported initially as a component of “Accumulated Other Comprehensive Income” (AOCI) and subsequently recognized in earnings when the forecasted transaction affects earnings. Any amounts excluded from the assessment of hedge effectiveness, as well as the ineffective portion of the hedge, are reported in earnings immediately. Adoption of SFAS No. 133 resulted in the Company recording a derivative instrument asset in the amount of $1,143,955 at June 30, 2006. The Company anticipates volatility in AOCI from its cash flow hedges. The amount of volatility will vary with the level of derivative activities and market conditions during any period. - 21 -
  • 44. YARDE METALS, INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS JUNE 30, 2006 NOTE 14 – INCOME TAXES The Company reports on a fiscal year, and is required to pay a deposit to the Internal Revenue Service as described in Note 2. The amount on deposit was $2,184,517 as of June 30, 2006. The components of state income tax expense for the period ended June 30, 2006 consist of current taxes payable of $70,989. NOTE 15 – PRIOR-PERIOD ADJUSTMENTS An error resulting in an understatement of accrued compensated absences was discovered during the current year. Accordingly, an adjustment of $684,198 was made during the year ended June 30, 2006 to reflect the balance due as of July 1, 2005. A corresponding entry was made to reduce retained earnings. A state income tax effect on the restatement was not made since the state income tax effect was not considered material. Relating to the effects of FIN 46R, as described in Note 2, the Company recorded an adjustment in the amount of $512,580 relating to a cumulative effect of a change in accounting principle. NOTE 16 – SUBSEQUENT EVENT On August 1, 2006, the Company’s stockholders sold all of their shares to Reliance Steel & Aluminum Co. As a result of this transaction, Yarde Metals became a subsidiary of Reliance Steel & Aluminum Co. through their wholly-owned subsidiary RSAC Management Corp. As part of the transaction, all outstanding debt with Yarde Metals’ stockholders and their current lenders was repaid. In addition, all security interests in Yarde Metals’ assets related to the debt were released and all of its corporate guarantees were terminated. - 22 -
  • 45. SUPPLEMENTARY FINANCIAL INFORMATION - 23 -
  • 46. YARDE METALS, INC. AND AFFILIATES COMBINED SCHEDULE OF COST OF REVENUE FOR THE YEAR ENDED JUNE 30, 2006 Inventory, beginning of year $ 81,690,999 Purchases 271,088,026 Direct labor 25,698,067 Supplies 4,534,885 Trucking, leasing and expense 3,855,532 Medical insurance and reimbursement plan 2,597,723 Payroll taxes 2,271,813 Depreciation and amortization 2,130,669 Utilities 1,819,167 Rent 1,556,482 Maintenance and repairs 945,036 Profit sharing expense 644,596 Freight-in 239,182 Equipment leasing 210,276 Purchased services 109,517 Blades and sharpening 68,881 399,460,851 Less: Inventory, end of year 81,782,552 $317,678,299 Total Cost of Revenue - 24 -
  • 47. YARDE METALS, INC. AND AFFILIATES COMBINED SCHEDULE OF SELLING, GENERAL AND ADMINISTRATIVE EXPENSES FOR THE YEAR ENDED JUNE 30, 2006 Administrative and clerical salaries $15,670,563 General insurance 2,403,465 Freight-out 2,248,179 Payroll taxes 1,733,246 Medical insurance and reimbursement plan 1,493,870 Sales commissions 1,450,269 Entertainment and travel 1,346,802 Depreciation and amortization 1,278,513 Automobile leasing and expenses 674,722 Bad debts and collection 615,196 Office supplies and expense 601,924 Telephone 584,937 Repairs and maintenance 575,476 Profit sharing expense 531,117 Banking fees 482,997 Property taxes 385,120 Professional services 378,542 Advertising 331,474 Employee relations 246,303 Postage 171,341 Computer supplies 169,725 Dues and subscriptions 137,197 Miscellaneous and other expense 123,974 Employee training 120,695 Rent 108,026 Utilities 67,917 Donations 61,136 $33,992,726 Total Selling, General and Administrative Expenses - 25 -
  • 48. YARDE METALS, INC. AND AFFILIATES COMBINING BALANCE SHEET JUNE 30, 2006 ASSETS YARDE 10160 PHILLIPP ROUTE 38 45 NEWELL STREET YARDE REALTY ELIMINATING METALS, INC. PARKWAY, LLC ASSOCIATES, LLC ASSOCIATES, LLC COMPANY YARDE LOT, LLC ENTRIES COMBINED CURRENT ASSETS Cash and cash equivalents $ 8,612,910 $ 17,293 $ 36,031 $ 135,942 $ 18,506 $ 26,960 $ — $ 8,847,642 Trade receivables 56,602,791 — — — — — — 56,602,791 Employee loans receivable 23,572 — — — — — — 23,572 Inventory 81,782,552 — — — — — — 81,782,552 Prepaid expenses 1,465,464 — — — — — — 1,465,464 148,487,289 17,293 36,031 135,942 18,506 26,960 — 148,722,021 Total Current Assets PROPERTY AND EQUIPMENT Land — 344,675 507,443 1,625,932 241,656 185,545 — 2,905,251 Buildings — 1,534,689 4,380,075 13,560,003 3,300,623 — — 22,775,390 Machinery and equipment 23,488,523 — — — — — — 23,488,523 Office furnishings and equipment 5,693,517 — — — — — — 5,693,517 Motor vehicles 2,329,145 — — — — — — 2,329,145 Leasehold improvements 1,052,295 — — — — — — 1,052,295 32,563,480 1,879,364 4,887,518 15,185,935 3,542,279 185,545 — 58,244,121 Less accumulated depreciation 16,192,535 95,918 538,384 1,451,158 1,341,363 — — 19,619,358 Total Property and 16,370,945 1,783,446 4,349,134 13,734,777 2,200,916 185,545 — 38,624,763 Equipment OTHER ASSETS Employee loans receivable, net of current portion 132,267 — — — — — — 132,267 Federal tax deposit to retain fiscal year 2,184,517 — — — — — — 2,184,517 Derivative swap obligation 1,091,169 52,786 — — — — — 1,143,955 Deposits 388,075 326 — — — 47 — 388,448 Loan closing costs, net of amortization 61,503 — 36,458 31,509 — — — 129,470 3,857,531 53,112 36,458 31,509 — 47 — 3,978,657 Total Other Assets $168,715,765 $ 1,853,851 $ 4,421,623 $ 13,902,228 $ 2,219,422 $ 212,552 $ — $191,325,441 Total Assets
  • 49. -26-
  • 50. LIABILITIES AND EQUITY YARDE 10160 PHILLIPP ROUTE 38 45 NEWELL STREET YARDE REALTY ELIMINATING METALS, INC. PARKWAY, LLC ASSOCIATES, LLC ASSOCIATES, LLC COMPANY YARDE LOT, LLC ENTRIES COMBINED CURRENT LIABILITIES Notes payable — Short-term $ 75,347,402 $ — $ — $ — $ — $ — $ — $ 75,347,402 Current maturities of long-term debt 8,309,447 82,854 200,642 733,384 125,126 — — 9,451,453 Notes payable — Related parties 14,774,809 — — — — — — 14,774,809 Accounts payable 23,349,161 — — — — — — 23,349,161 Accrued compensation 8,789,568 — — — — — — 8,789,568 Accrued taxes and expenses 9,098,732 — — 2,500 — — — 9,101,232 139,669,119 82,854 200,642 735,884 125,126 — — 140,813,625 Total Current Liabilities LONG-TERM DEBT, NET OF CURRENT PORTION — 1,333,911 1,941,803 9,345,340 123,096 — — 12,744,150 139,669,119 1,416,765 2,142,445 10,081,224 248,222 — — 153,557,775 Total Liabilities EQUITY Common stock 1,500 — — — — — — 1,500 Additional paid-in capital 10,028,500 — — — — — — 10,028,500 Retained earnings 17,925,477 — — — — — — 17,925,477 Members’/Partners’ equity — 384,300 2,279,178 3,821,004 1,971,200 212,552 8,668,234 Accumulated other comprehensive income 1,091,169 52,786 — — — — — 1,143,955 29,046,646 437,086 2,279,178 3,821,004 1,971,200 212,552 — 37,767,666 Total Equity Total Liabilities and $168,715,765 $ 1,853,851 $ 4,421,623 $ 13,902,228 $ 2,219,422 $ 212,552 $ — $191,325,441 Equity -27-
  • 51. YARDE METALS, INC. AND AFFILIATES COMBINING STATEMENT OF INCOME FOR THE YEAR ENDED JUNE 30, 2006 YARDE 10160 PHILLIPP ROUTE 38 45 NEWELL STREET YARDE REALTY ELIMINATING METALS, INC. PARKWAY, LLC ASSOCIATES, LLC ASSOCIATES, LLC COMPANY YARDE LOT, LLC ENTRIES COMBINED REVENUE Net sales $386,104,556 $ — $ — $ — $ — $ — $ — $386,104,556 Rental income — 229,760 365,413 1,859,027 241,440 24,000 (2,689,640) 30,000 386,104,556 229,760 365,413 1,859,027 241,440 24,000 (2,689,640) 386,134,556 Total Revenue COST OF REVENUE 320,056,179 — — — — — (2,377,880) 317,678,299 66,048,377 229,760 365,413 1,859,027 241,440 24,000 (311,760) 68,456,257 Gross Profit SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 33,693,609 39,277 114,512 371,123 85,470 495 (311,760) 33,992,726 32,354,768 190,483 250,901 1,487,904 155,970 23,505 — 34,463,531 Income from Operations OTHER INCOME (EXPENSE) Interest and dividend income 5,679 — — — — — — 5,679 Gain on sale of assets 15,164 — — — — — — 15,164 Other income 45,753 — — — — — — 45,753 Shareholder compensation (17,221,000) — — — — — — (17,221,000) Compensation related to the sale (9,137,005) — — — — — — (9,137,005) Interest expense (4,731,050) (73,427) (119,607) (524,996) (23,080) — — (5,472,160) (31,022,459) (73,427) (119,607) (524,996) (23,080) — — (31,763,569) Income before Provision for 1,332,309 117,056 131,294 962,908 132,890 23,505 — 2,699,962 Income and Other Taxes PROVISION FOR INCOME AND OTHER TAXES 89,857 — — 250 — 250 — 90,357 $ 1,242,452 $ 117,056 $ 131,294 $ 962,658 $ 132,890 $ 23,255 $ — $ 2,609,605 Net Income -28-
  • 52. YARDE METALS, INC. AND AFFILIATES COMBINING STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED JUNE 30, 2006 YARDE 10160 PHILLIPP ROUTE 38 45 NEWELL STREET YARDE REALTY ELIMINATING METALS, INC. PARKWAY, LLC ASSOCIATES, LLC ASSOCIATES, LLC COMPANY YARDE LOT, LLC ENTRIES COMBINED NET INCOME $ 1,242,452 $ 117,056 $ 131,294 $ 962,658 $ 132,890 $ 23,255 $ — $2,609,605 OTHER COMPREHENSIVE INCOME Interest rate swap adjustment 784,388 52,786 — — — — — 837,174 Total Comprehensive $ 2,026,840 $ 169,842 $ 131,294 $ 962,658 $ 132,890 $ 23,255 $ — $3,446,779 Income -29-
  • 53. YARDE METALS, INC. AND AFFILITATES COMBINING STATEMENT OF CHANGES IN RETAINED EARNINGS AND MEMBERS’/PARTNERS’ EQUITY FOR THE YEAR ENDED JUNE 30, 2006 YARDE 10160 PHILLIPP ROUTE 38 45 NEWELL STREET YARDE REALTY ELIMINATING METALS, INC. PARKWAY, LLC ASSOCIATES, LLC ASSOCIATES, LLC COMPANY YARDE LOT, LLC ENTRIES COMBINED Balances, June 30, 2005, as $ 16,861,753 $ 399,686 $ 2,197,884 $ 3,458,346 $ 1,930,020 $ 189,297 $ — $25,036,986 previously reported Adjustment for understatement of accrued compensation (684,198) — — — — — — (684,198) 16,177,555 399,686 2,197,884 3,458,346 1,930,020 189,297 — 24,352,788 Balances, June 30, 2005 Cumulative effect of change in accounting principle due to adoption of FIN 46R on July 1, 2005 512,580 — — — — — — 512,580 Net income 1,242,452 117,056 131,294 962,658 132,890 23,255 — 2,609,605 Dividends paid (7,110) — — — — — — (7,110) Members’/Partners’ draw — (132,442) (50,000) (600,000) (91,710) — — (874,152) $ 17,925,477 $ 384,300 $ 2,279,178 $ 3,821,004 $ 1,971,200 $ 212,552 $ — $26,593,711 Balances, June 30, 2006 -30-
  • 54. YARDE METALS, INC. STATEMENT OF CHANGES IN RETAINED EARNINGS FOR THE YEAR ENDED JUNE 30, 2006 Accumulated Additional Other Common Paid-in Retained Comprehensive Stock Capital Earnings Income Total $ 1,500 $10,028,500 $16,861,753 $ 306,781 $27,198,534 Balances, June 30, 2005, as previously reported Adjustment for understatement of accrued compensation — — (684,198) — (684,198) 1,500 10,028,500 16,177,555 306,781 26,514,336 Balances, June 30, 2005 Cumulative effect of change in accounting principle due to adoption of FIN 46R on July 1, 2005 — — 512,580 — 512,580 Net income — — 1,242,452 — 1,242,452 Dividends paid — — (7,110) — (7,110) Other comprehensive income — — — 784,388 784,388 $ 1,500 $10,028,500 $17,925,477 $ 1,091,169 $29,046,646 Balances, June 30, 2006 -31-
  • 55. 10160 PHILLIPP PARKWAY, LLC STATEMENT OF CHANGES IN MEMBERS’ EQUITY FOR THE YEAR ENDED JUNE 30, 2006 Accumulated Other Members’ Comprehensive Equity Income Total $ 399,686 $ — $ 399,686 Balances, June 30, 2005 Net income 117,056 — 117,056 Members’ draw (132,442) — (132,442) Other comprehensive income — 52,786 52,786 $ 384,300 $ 52,786 $ 437,086 Balances, June 30, 2006 -32-
  • 56. YARDE METALS, INC. AND AFFILIATES COMBINING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2006 YARDE 10160 PHILLIPP ROUTE 38 45 NEWELL STREET YARDE REALTY ELIMINATING METALS, INC. PARKWAY, LLC ASSOCIATES, LLC ASSOCIATES, LLC COMPANY YARDE LOT, LLC ENTRIES COMBINED CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 1,242,452 $ 117,056 $ 131,294 $ 962,658 $ 132,890 $ 23,255 $ — $ 2,609,605 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,809,136 38,512 113,791 366,908 80,755 80 — 3,409,182 Gain on sale of assets (15,164) — — — — — — (15,164) Increase in allowance for doubtful accounts 91,594 — — — — — — 91,594 (Increase) decrease in operating assets: Trade receivables (10,621,002) — — — — — — (10,621,002) Inventory (91,553) — — — — — — (91,553) Prepaid expenses (797,054) — — — — — — (797,054) Federal tax deposit (151,188) — — — — — — (151,188) Deposits (137,904) — — — — — — (137,904) Loan closing costs, net of amortization (41,867) — — — — — — (41,867) Increase (decrease) in operating liabilities: Accounts payable 1,074,913 — — — — — — 1,074,913 Accrued compensation 2,023,545 — — — — — — 2,023,545 Accrued taxes and expenses 7,525,615 — — — — — — 7,525,615 Net Cash Provided by 2,911,523 155,568 245,085 1,329,566 213,645 23,335 — 4,878,722 Operating Activities CASH FLOWS FROM INVESTING ACTIVITIES Repayment from employees, net 15,841 — — — — — — 15,841 Proceeds from sale of assets 227,191 — — — — — — 227,191 Purchases of property and
  • 57. equipment (4,406,723) — — — (68,178) — — (4,474,901) Net Cash Used in Investing (4,163,691) — — — (68,178) — — (4,231,869) Activities CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds from notes payable — Short-term 17,267,000 — — — — — — 17,267,000 Proceeds from long-term borrowing 3,182,173 — — — — — — 3,182,173 Repayment of long-term debt (3,489,090) (78,796) (173,947) (691,139) (116,226) — — (4,549,198) Repayment of related party notes (9,092,037) — — — — — — (9,092,037) Dividends paid (7,110) — — — — — — (7,110) Members’/Partners’ draw — (132,442) (50,000) (600,000) (91,660) — — (874,102) Net Cash Provided by (Used in) Financing 7,860,936 (211,238) (223,947) (1,291,139) (207,886) — — 5,926,726 Activities Net increase (decrease) in cash and cash equivalents 6,608,768 (55,670) 21,138 38,427 (62,419) 23,335 — 6,573,579 Cash and cash equivalents at beginning of year 2,004,142 72,963 14,893 97,515 80,925 3,625 — 2,274,063 Cash and Cash Equivalents at End of $ 8,612,910 $ 17,293 $ 36,031 $ 135,942 $ 18,506 $ 26,960 $ — $ 8,847,642 Year - 33 -
  • 58. YARDE METALS, INC. AND AFFILIATES COMBINING SCHEDULE OF COST OF REVENUE FOR THE YEAR ENDED JUNE 30, 2006 YARDE 10160 PHILLIPP ROUTE 38 45 NEWELL STREET YARDE REALTY ELIMINATING METALS, INC. PARKWAY, LLC ASSOCIATES, LLC ASSOCIATES, LLC COMPANY YARDE LOT, LLC ENTRIES COMBINED Inventory, beginning of year $ 81,690,999 $ — $ — $ — $ — $ — $ — $ 81,690,999 Purchases 271,088,026 — — — — — — 271,088,026 Direct labor 25,698,067 — — — — — — 25,698,067 Supplies 4,534,885 — — — — — — 4,534,885 Trucking, leasing and expense 3,855,532 — — — — — — 3,855,532 Medical insurance and reimbursement plan 2,597,723 — — — — — — 2,597,723 Payroll taxes 2,271,813 — — — — — — 2,271,813 Depreciation and amortization 2,130,669 — — — — — — 2,130,669 Utilities 1,819,167 — — — — — — 1,819,167 Rent 3,934,362 — — — — — (2,377,880) 1,556,482 Maintenance and repairs 945,036 — — — — — — 945,036 Profit sharing expense 644,596 — — — — — — 644,596 Freight-in 239,182 — — — — — — 239,182 Equipment leasing 210,276 — — — — — — 210,276 Purchased services 109,517 — — — — — — 109,517 Blades and sharpening 68,881 — — — — — — 68,881 401,838,731 — — — — — (2,377,880) 399,460,851 Less: Inventory, end of year 81,782,552 — — — — — — 81,782,552 $320,056,179 $ — $ — $ — $ — $ — $ (2,377,880) $317,678,299 Total Cost of Revenue - 34 -
  • 59. YARDE METALS, INC. AND AFFILIATES COMBINING SCHEDULE OF SELLING, GENERAL AND ADMINISTRATIVE EXPENSES FOR THE YEAR ENDED JUNE 30, 2006 YARDE 10160 PHILLIPP ROUTE 38 45 NEWELL STREET YARDE REALTY ELIMINATING METALS, INC. PARKWAY, LLC ASSOCIATES, LLC ASSOCIATES, LLC COMPANY YARDE LOT, LLC ENTRIES COMBINED Administrative and clerical salaries $ 15,670,563 $ — $ — $ — $ — $ — $ — $15,670,563 General insurance 2,403,465 — — — — — — 2,403,465 Freight-out 2,248,179 — — — — — — 2,248,179 Payroll taxes 1,733,246 — — — — — — 1,733,246 Medical insurance and reimbursement plan 1,493,870 — — — — — — 1,493,870 Sales commissions 1,450,269 — — — — — — 1,450,269 Entertainment and travel 1,346,802 — — — — — — 1,346,802 Depreciation and amortization 678,467 38,512 113,791 366,908 80,755 80 — 1,278,513 Automobile leasing and expenses 674,722 — — — — — — 674,722 Bad debts and collection 615,196 — — — — — — 615,196 Office supplies and expense 601,695 75 100 — 44 10 — 601,924 Telephone 584,937 — — — — — — 584,937 Repairs and maintenance 572,851 — — 2,625 — — — 575,476 Profit sharing expense 531,117 — — — — — — 531,117 Banking fees 482,997 — — — — — — 482,997 Property taxes 381,329 — — — 3,791 — — 385,120 Professional services 374,356 690 621 1,590 880 405 — 378,542 Advertising 331,474 — — — — — — 331,474 Employee relations 246,303 — — — — — — 246,303 Postage 171,341 — — — — — — 171,341 Computer supplies 169,725 — — — — — — 169,725 Dues and subscriptions 137,197 — — — — — — 137,197 Miscellaneous and other expense 123,974 — — — — — — 123,974 Employee training 120,695 — — — — — — 120,695 Rent 419,786 — — — — — (311,760) 108,026 Utilities 67,917 — — — — — — 67,917 Donations 61,136 — — — — — — 61,136 Total Selling, General and $ 33,693,609 $ 39,277 $ 114,512 $ 371,123 $ 85,470 $ 495 $ (311,760) $33,992,726 Administrative Expenses - 35 -