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
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
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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
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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
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