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): December 5, 2007
ICAHN ENTERPRISES L.P.
(Exact Name of Registrant as Specified in Its Charter)
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| Delaware | 1-9516 | 13-3398766 | ||
| (State or Other Jurisdiction of Incorporation) |
(Commission File Number) | (IRS Employer Identification No.) |
767 Fifth Avenue,
Suite 4700,
New York, NY 10153
(Address of Principal Executive Offices) (Zip Code)
(212) 702-4300
(Registrant’s Telephone Number, Including Area Code)
American Real Estate Partners, L.P.
(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:
| o | Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
This Current Report on Form 8-K is being filed to provide the financial statements and pro forma financial information relating to our recent acquisition of PSC Metals, Inc. (“PSC Metals”).
On November 9, 2007, we filed our quarterly report on Form 10-Q for the fiscal quarter ended September 30, 2007 (“Form 10-Q”). In Part II, Item 5 of the Form 10-Q (“Other Information”), we reported the completion, on November 5, 2007, of our acquisition of all the issued and outstanding stock of PSC Metals, Inc. from Philip Services Corporation, in which Carl C. Icahn indirectly owns a 95.6% interest and we indirectly own the remaining 4.4% interest. We reported the acquisition in Item 5 of the Form 10-Q in lieu of reporting it in Item 2.01 of a Current Report on Form 8-K which would otherwise have been required to be filed with respect to such information.
PSC Metals is engaged in the business of transporting, recycling and processing metals. We are a diversified holding company owning subsidiaries in the following continuing operating businesses: Investment Management, Metals, Real Estate and Home Fashion.
Section 9 — Financial Statements and Exhibits
Item 9.01 Financial Statements and Exhibits.
i
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
ICAHN ENTERPRISES L.P.
(Registrant)
| By: | Icahn Enterprises G.P. Inc. its General Partner |
| By: | /s/ Andrew R. SkobeAndrew R. Skobe Chief Financial Officer |
Date: December 5, 2007
ii
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
PSC Metals, Inc.
We have audited the accompanying consolidated balance sheets of PSC Metals, Inc. and Subsidiaries as of December 31, 2006 and 2005 and the related consolidated statements of income, stockholder’s equity and other comprehensive income, and cash flows for three years in the period ended December 31, 2006, all on an Icahn pushdown basis. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America as established by the American Institute of Certified Public Accountants. 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 consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of PSC Metals, Inc. and Subsidiaries as of December 31, 2006 and 2005 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America.
/s/ GRANT THORNTON LLP
Cleveland, Ohio
November 5, 2007
1
PSC METALS, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2006 and 2005
(In Thousands)
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| December 31, | ||||||||
| 2006 | 2005 | |||||||
| ASSETS |
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| CURRENT ASSETS |
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| Cash and cash equivalents | $ | 22,332 | $ | 12,949 | ||||
| Marketable securities | 5,543 | — | ||||||
| Accounts receivable (net of allowance for doubtful accounts of $593 and $1,379 at December 31, 2006 and 2005, respectively) | 55,308 | 67,997 | ||||||
| Accounts receivable from related parties | 555 | 1,046 | ||||||
| Inventories | 58,438 | 54,894 | ||||||
| Prepaid expenses and other current assets | 6,412 | 5,096 | ||||||
| Deferred income taxes | 3,304 | 2,215 | ||||||
| Total current assets | 151,892 | 144,197 | ||||||
| PROPERTY, PLANT AND EQUIPMENT, NET | 50,917 | 42,753 | ||||||
| DEFERRED INCOME TAXES — NONCURRENT | 14,178 | 11,727 | ||||||
| OTHER ASSETS | 3,080 | 3,211 | ||||||
| TOTAL ASSETS | $ | 220,067 | $ | 201,888 | ||||
| LIABILITIES AND STOCKHOLDER'S EQUITY |
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| CURRENT LIABILITIES |
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| Current maturities of long-term debt and capital lease obligations | $ | 652 | $ | 1,195 | ||||
| Accounts payable | 23,769 | 24,171 | ||||||
| Accounts payable to related party | 352 | 353 | ||||||
| Accrued liabilities | 8,647 | 8,021 | ||||||
| Total current liabilities | 33,420 | 33,740 | ||||||
| LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, LESS CURRENT PORTION |
1,607 | 2,271 | ||||||
| ACCRUED ENVIRONMENTAL COSTS | 19,861 | 19,931 | ||||||
| COMMITMENTS AND CONTINGENCIES (Notes 8 and 9) | — | — | ||||||
| STOCKHOLDER'S EQUITY |
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| Common stock | — | — | ||||||
| Additional paid-in capital | 131,482 | 131,482 | ||||||
| Retained earnings | 30,138 | 14,373 | ||||||
| Accumulated other comprehensive income | 3,559 | 91 | ||||||
| Total stockholder's equity | 165,179 | 145,946 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY | $ | 220,067 | $ | 201,888 | ||||
The accompanying notes to consolidated financial statements are an integral part of these statements.
2
PSC METALS, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 2006, 2005 and 2004
(In Thousands)
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| Year Ended December 31, | ||||||||||||
| 2006 | 2005 | 2004 | ||||||||||
| Revenues | $ | 710,054 | $ | 600,989 | $ | 660,172 | ||||||
| Cost of sales | 652,090 | 555,311 | 563,909 | |||||||||
| Gross profit | 57,964 | 45,678 | 96,263 | |||||||||
| Selling, general and administrative | 15,028 | 14,525 | 18,196 | |||||||||
| Operating income | 42,936 | 31,153 | 78,067 | |||||||||
| Interest expense | (160 | ) | (278 | ) | (2,405 | ) | ||||||
| Interest and other income | 5,144 | 1,457 | 4,502 | |||||||||
| Income before income taxes | 47,920 | 32,332 | 80,164 | |||||||||
| Provision (benefit) for income taxes | (2,845 | ) | 8,907 | (18,949 | ) | |||||||
| NET INCOME | $ | 50,765 | $ | 23,425 | $ | 99,113 | ||||||
The accompanying notes to consolidated financial statements are an integral part of these statements.
3
PSC METALS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER’S EQUITY
AND OTHER COMPREHENSIVE INCOME
For the Years Ended December 31, 2006, 2005 and 2004
(In Thousands)
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| Common Stock |
Additional Paid-in Capital |
Retained Earnings |
Accumulated Other Comprehensive Income (Loss) |
Total Stockholder's Equity |
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| Balance at January 1, 2004 | $ | — | $ | 70,702 | $ | (98,165 | ) | $ | (728 | ) | $ | (28,191 | ) | |||||||
| Comprehensive income: |
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| Net income | — | — | 99,113 | — | 99,113 | |||||||||||||||
| Foreign currency translation adjustments |
— | — | — | 854 | 854 | |||||||||||||||
| Minimum pension liability adjustment |
— | — | — | (205 | ) | (205 | ) | |||||||||||||
| Total comprehensive income | 99,762 | |||||||||||||||||||
| Capital contribution | — | 60,780 | — | — | 60,780 | |||||||||||||||
| Balance at December 31, 2004 | — | 131,482 | 948 | (79 | ) | 132,351 | ||||||||||||||
| Comprehensive income: |
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| Net income | — | — | 23,425 | — | 23,425 | |||||||||||||||
| Foreign currency translation adjustments |
— | — | — | 717 | 717 | |||||||||||||||
| Minimum pension liability adjustment | — | — | — | (547 | ) | (547 | ) | |||||||||||||
| Total comprehensive income | 23,595 | |||||||||||||||||||
| Dividend payment | — | — | (10,000 | ) | — | (10,000 | ) | |||||||||||||
| Balance at December 31, 2005 | — | 131,482 | 14,373 | 91 | 145,946 | |||||||||||||||
| Comprehensive income: |
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| Net income | — | — | 50,765 | — | 50,765 | |||||||||||||||
| Foreign currency translation adjustments | — | — | — | 391 | 391 | |||||||||||||||
| Minimum pension liability adjustment | — | — | — | 245 | 245 | |||||||||||||||
| Unrealized gain on available for sale securities, net of tax | — | — | — | 2,832 | 2,832 | |||||||||||||||
| Total comprehensive income | 54,233 | |||||||||||||||||||
| Dividend payments | — | — | (35,000 | ) | — | (35,000 | ) | |||||||||||||
| Balance at December 31, 2006 | $ | — | $ | 131,482 | $ | 30,138 | $ | 3,559 | $ | 165,179 | ||||||||||
The accompanying notes to consolidated financial statements are an integral part of these statements.
4
PSC METALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2006, 2005 and 2004
(In Thousands)
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| Year Ended December 31, | ||||||||||||
| 2006 | 2005 | 2004 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES |
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| Net income | $ | 50,765 | $ | 23,425 | $ | 99,113 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
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| Depreciation | 6,816 | 4,097 | 2,827 | |||||||||
| Deferred income taxes | (5,512 | ) | 6,357 | (20,299 | ) | |||||||
| Gain on sale of assets | (797 | ) | (1,035 | ) | (1,666 | ) | ||||||
| Gain on sale of available for sale securities | (3,185 | ) | — | — | ||||||||
| Change in minimum pension obligation | 245 | (547 | ) | — | ||||||||
| Cash flow before changes in operating assets and liabilites | 48,332 | 32,297 | 79,975 | |||||||||
| Changes in operating assets and liabilities | 8,604 | (280 | ) | (40,091 | ) | |||||||
| Net cash provided by operating activities | 56,936 | 32,017 | 39,884 | |||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES |
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| Purchase of property, plant and equipment, net | (15,900 | ) | (26,972 | ) | (10,585 | ) | ||||||
| Proceeds from sale of property, plant and equipment | 1,717 | 989 | 1,989 | |||||||||
| Marketable securities acquired | (1,180 | ) | — | — | ||||||||
| Proceeds from sale of available for sale securities | 3,626 | — | — | |||||||||
| Net cash used in investing activities | (11,737 | ) | (25,983 | ) | (8,596 | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES |
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| Principal payments on debt | (415 | ) | (8,115 | ) | (57,903 | ) | ||||||
| Principal borrowing on debt | 11 | 932 | 11,363 | |||||||||
| Principal payments of capital lease obligations | (803 | ) | (1,185 | ) | (1,284 | ) | ||||||
| Capital contributions from Parent | — | — | 39,200 | |||||||||
| Dividend payment | (35,000 | ) | (10,000 | ) | — | |||||||
| Net cash used in financing activities | (36,207 | ) | (18,368 | ) | (8,624 | ) | ||||||
| Effect of exchange rate changes on cash | 391 | 717 | — | |||||||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 9,383 | (11,617 | ) | 22,664 | ||||||||
| Cash and cash equivalents at beginning of year | 12,949 | 24,566 | 1,902 | |||||||||
| Cash and cash equivalents at end of year | $ | 22,332 | $ | 12,949 | $ | 24,566 | ||||||
The accompanying notes to consolidated financial statements are an integral part of these statements.
5
PSC METALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and 2004
(Amounts in Thousands Except Share Amounts)
Note 1 — Organization and Basis of Presentation
Business
PSC Metals, Inc. (the “Company”), an Ohio corporation, and its wholly owned subsidiaries Cappco Tubular Products Canada, Inc., Cappco Tubular Products USA, Inc. (collectively “Cappco”) and PSC Metals-Akron, Inc., are principally engaged in the business of collecting and processing ferrous and non-ferrous metals. As of December 31, 2006, the Company was a wholly owned subsidiary of Philip Services Corporation (“Philip”), a Delaware corporation that is principally engaged in providing industrial outsourcing and environmental services to major industry sectors throughout North America. As discussed in Note 14, “Subsequent Events,” on November 5, 2007 Icahn Enterprises L.P. (“Icahn Enterprises”), through a direct wholly owned subsidiary, acquired all of the issued and outstanding capital stock of the Company for $335,000 in cash.
The Company collects industrial scrap metal and obsolete scrap metal, processes it into reusable forms, and supplies the recycled metals to its customers including electric-arc furnace mills, integrated steel mills, foundries, secondary smelters and metals brokers. These services are provided through the Company’s recycling facilities located in eight states. The Company’s ferrous products include primarily shredded, sheared, bundled scrap metal and other purchased scrap metal such as turnings and cast and broken furnace iron. The Company also processes non-ferrous metals including aluminum, copper, brass, stainless steel and other nickel-bearing metals.
Cappco is in the secondary steel pipe business and has multiple stocking locations throughout Canada and the United States. Cappco distributes secondary and structural grade pipe to industries that include casing, fiber optics, tunneling, foundation piling, road-boring and fabrication.
Basis of Presentation
In June 2003, Philip and substantially all of its U.S. domiciled subsidiaries, including the Company, filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”). On December 10, 2003, the Bankruptcy Court confirmed the Second Amended and Restated Joint Plan of Reorganization (the “Plan”). Under the terms of the Plan, Philip became wholly owned by entities owned by Mr. Carl C. Icahn. As a result, the accompanying consolidated financial statements reflect the historical push-down basis of the assets and liabilities as if the Company had been acquired by entities owned by Mr. Icahn on December 31, 2003, the effective date of control.
The consolidated financial statements of the Company have been prepared in U.S. dollars using accounting principles generally accepted in the United States of America.
Note 2 — Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management of the Company to make estimates and assumptions that affect reported amounts of assets, liabilities, income and expenses and disclosures of contingencies. Actual results could differ from the estimates and judgments made in preparing these consolidated financial statements, which could be material. Significant items subject to such estimates and assumptions include the carrying value of property, plant and equipment, inventories, deferred income tax assets, environmental liabilities and insurance claims.
Principles of Consolidation
These consolidated financial statements include the accounts of the Company and all of its wholly owned subsidiaries. All significant intercompany balances, transactions and profits have been eliminated in consolidation.
6
PSC METALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and 2004
(Amounts in Thousands Except Share Amounts)
Note 2 — Significant Accounting Policies – (continued)
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on deposit and deposits in money market instruments, with original maturity dates of less than three months from the date they are acquired. At December 31, 2006 and 2005, the Company had cash balances in excess of the Federal Deposit Insurance Corporation maximum of $100. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.
Marketable Securities
Marketable securities consist of shares of stock, acquired in bankruptcy settlement, and held for resale. The securities are accounted for as available-for-sale in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, and are classified as marketable securities on the Consolidated Balance Sheets. Available-for-sale securities are required to be carried at fair value, with any unrealized gains and losses reported on the Consolidated Statement of Stockholder’s Equity within a separate component, accumulated other comprehensive income (loss). The Company utilizes the specific identification method to determine the cost of the securities sold.
Accounts Receivable, Net
Accounts receivable are recorded when billed or accrued and represent amounts due from customers on product and other sales. The Company’s receivables, net of allowance for doubtful accounts, represent their estimated net realizable value. The Company establishes its allowance for doubtful accounts based on a number of factors, including the age of the balance, past experience with the customer, changes in collection patterns and general industry conditions.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using the average cost method. The production and accounting process utilized by the Company to record recycled metals inventory quantities relies on significant estimates. The Company relies upon perpetual inventory records that utilize estimated recoveries and yields that are based upon historical trends and periodic tests for certain unprocessed metal commodities. Over time, these estimates are reasonably good indicators of what is ultimately produced; however, actual recoveries and yields can vary depending on product quality, moisture content and source of the unprocessed metal. To assist in validating the reasonableness of the estimates, the Company performs periodic physical inventories. Physical inventories may detect significant variations in volume, but because of variations in product density and production processes utilized to manufacture the product, physical inventories will not generally detect smaller variations. To help mitigate this risk, the Company adjusts its physical inventories when the volume of a commodity is low and a physical inventory can more accurately predict the remaining volume.
Details of inventory are as follows:
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| 2006 | 2005 | |||||||
| Ferrous | $ | 30,360 | $ | 33,963 | ||||
| Non-ferrous | 7,871 | 3,005 | ||||||
| Secondary | 20,207 | 17,926 | ||||||
| $ | 58,438 | $ | 54,894 | |||||
Property, Plant and Equipment
Property, plant and equipment are recorded at cost less accumulated depreciation. Major rebuilds and improvements are capitalized, while repairs and maintenance costs are expensed as incurred. Depreciation is
7
PSC METALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and 2004
(Amounts in Thousands Except Share Amounts)
Note 2 — Significant Accounting Policies – (continued)
determined for financial reporting purposes using the straight-line method over the following estimated useful lives: 10 to 20 years for buildings and 3 to 25 years for equipment.
Impairment of Long-Lived Assets
The Company reviews long-lived assets, including property, plant and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Management will determine whether there has been a permanent impairment on such assets held for use in the business by comparing anticipated undiscounted future cash flows from operating activities involving the asset to the carrying value of the asset. The amount of any resulting impairment will be calculated using the present value of the same cash flows. Long-lived assets to be disposed of are valued at the lower of carrying amount or net realizable value.
Environmental Liability
The Company accrues environmental remediation costs associated with identified sites where an assessment has indicated that cleanup costs are probable and can be reasonably estimated. Such accruals are based on currently available information, existing technology and enacted laws and regulations. The liability for environmental and closure costs is included in the consolidated balance sheet under accrued environmental costs. The Company accounts for its environmental remediation costs in accordance with AICPA Statement of Position 96-1, Environmental Remediation Liabilities.
Self-Insured Reserves
For medical claims for most of its employees, workers’ compensation claims and general liability claims, the Company has a deductible or self-insurance retention and is protected by stop-loss insurance policies. The Company records a reserve for reported but unpaid claims and the estimated cost of incurred but not reported (“IBNR”) claims. IBNR reserves are based on a lag estimate for medical claims and actuarial assumptions for workers’ compensation and general liability claims.
Impact of New Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board (the “FASB”) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB No. 109 (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements and provides guidance on the recognition, de-recognition, and measurement of benefits related to an entity’s uncertain tax positions. FIN 48 is effective for the Company beginning January 1, 2007. As a result of the implementation of FIN 48, the Company will recognize an increased liability of approximately $1.3, which will be accounted for as a reduction to the January 1, 2007 balance of retained earnings.
In September 2006, the FASB issued FASB Statement (“SFAS”) No. 157, Fair Value Measurements (“SFAS No. 157”). This statement defines “fair value,” establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of its adoption of SFAS No. 157.
In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106, and 132(R) (“SFAS No. 158”). SFAS No. 158 requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in the statement of financial position and to recognize changes in that funded status in the year in which the changes occur through other comprehensive income. The Company is required to adopt SFAS No. 158 as of December 31, 2007. The Company is evaluating the effect the adoption of this statement will have on its consolidated financial position or results of operations.
8
PSC METALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and 2004
(Amounts in Thousands Except Share Amounts)
Note 2 — Significant Accounting Policies – (continued)
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115 (“SFAS No. 159”). The fair value option established by SFAS No. 159 permits all entities to choose to measure eligible items at fair value at specified election dates. A business entity will report unrealized gains and losses on items for which the fair value option has been elected in earnings (or another performance indicator if the business entity does not report earnings) at each subsequent reporting date. The fair value option: (a) may be applied instrument by instrument, with a few exceptions, such as investments otherwise accounted for by the equity method; (b) is irrevocable (unless a new election date occurs) and (c) is applied only to entire instruments and not to portions of instruments. SFAS No. 159 is effective as of the beginning of fiscal years beginning after November 15, 2007. The adoption of SFAS No. 159 is not expected to be material to our financial statements.
Financial Instruments
The Company’s accounts receivable, accounts payable and long-term debt constitute financial instruments. The fair value of the Company’s long-term debt is discussed in Note 6 to the Consolidated Financial Statements. The Company’s accounts receivable and accounts payable approximated their fair value at December 31, 2006 and 2005. Concentration of credit risk in accounts receivable is limited, due to the large number of customers the Company services throughout North America. One customer represented 13% and 12% of accounts receivable at December 31, 2006 and 2005, respectively. Sales to this customer represented 7.7%, 7.1% and 7.8% of revenues for the years ended December 31, 2006, 2005 and 2004, respectively.
Revenue Recognition
The Company’s primary source of revenue is from the sale of processed ferrous and non-ferrous scrap metals. The Company also generates revenues from the brokering of scrap metals or from services performed. Revenues from processed ferrous and non-ferrous scrap metal sales are recognized when title passes to the customer. Revenues relating to brokered sales are recognized upon receipt of the materials by the customer. Revenues from services are recognized as the service is performed. Sales adjustments related to price and weight differences and allowances for uncollectible receivables are accrued against revenues as incurred.
Income Taxes
Deferred income taxes are determined based on the difference between the financial reporting and tax basis of assets and liabilities. The deferred income tax provision represents the change during the reporting period in the deferred tax assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in years in which these temporary differences are expected to be recovered or settled. Deferred tax assets include tax loss and credit carryforwards and are reduced by a valuation allowance if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Foreign Currency Translation
The functional currency of the Company’s foreign subsidiary, Cappco Tubular Products Canada Inc., is the Canadian dollar. Transaction gains or losses are realized when incurred. The assets and liabilities denominated in a foreign currency for foreign operations are translated at exchange rates in effect at the balance sheet date. The resulting gains and losses are reflected in the other accumulated comprehensive income in stockholder’s equity.
Stock-Based Compensation
The Company does not have any stock-based employee compensation arrangements at December 31, 2006, 2005 or 2004.
9
PSC METALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and 2004
(Amounts in Thousands Except Share Amounts)
Note 3 — Marketable Securities
Marketable securities consist of shares of common stock of Keystone Consolidated Industries, Inc. (“Keystone”), acquired in bankruptcy settlement, and held for resale. In 2006, the Company determined the value of Keystone common stock it received from the emergence of the bankruptcy protection. As such, 590,033 shares of common stock at a valuation of $1,180 were recorded as marketable securities, available-for-sale. Also, during 2006, the Company sold 220,500 shares for $3,626 recording a gain on sale of $3,185.
As of December 31, 2006, the marketable securities consist of 369,533 shares of Keystone common stock. Any unrealized gains or losses with respect to investments classified as available-for-sale are recognized within the Consolidated Statement of Shareholder’s Equity as accumulated other comprehensive income, net of deferred taxes. At December 31, 2006, the fair value of the securities was an asset of $5,543 and the Company recorded a gross unrealized gain of $4,803 (including the tax effect of $1,972) for the year ended December 31, 2006.
Note 4 — Income Taxes
The Company accounts for income taxes under SFAS No. 109, Accounting for Income Taxes (“SFAS No. 109”). Under SFAS No. 109, the Company provides deferred income taxes for the tax effects of temporary differences between the financial reporting and income tax basis of the Company’s assets and liabilities.
As of December 31, 2006, 2005 and 2004, the Company had federal net operating loss carryforwards in the United States of approximately $100, $15,900 and $15,700, respectively. The U.S. net operating loss carryforwards expire in 2022.
The Company is a part of an affiliated group of corporations controlled by Carl C. Icahn and is included as part of the consolidated federal income tax return for the years ended December 31, 2006, 2005 and 2004. The ultimate parent entity of Philip and the affiliated group of corporations controlled by Mr. Icahn is Starfire Holding Corporation (“Starfire”). The tax provision was prepared on a separate company basis as if the Company filed a stand-alone tax return.
U.S. and foreign income from operations before taxes are as follows:
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| 2006 | 2005 | 2004 | ||||||||||
| U.S. | $ | 43,923 | $ | 29,083 | $ | 78,461 | ||||||
| Non-U.S. | 3,997 | 3,249 | 1,703 | |||||||||
| Total income from operations | $ | 47,920 | $ | 32,332 | $ | 80,164 | ||||||
Federal, state and foreign expense (benefit) for income taxes are as follows:
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| 2006 | 2005 | 2004 | ||||||||||
| U.S. federal and state — current | $ | 1,354 | $ | 142 | $ | 690 | ||||||
| U.S. federal and state — deferred | (5,683 | ) | 6,407 | (19,782 | ) | |||||||
| (4,329 | ) | 6,549 | (19,092 | ) | ||||||||
| Non-U.S. — current | 1,313 | 2,408 | 660 | |||||||||
| Non-U.S. — deferred | 171 | (50 | ) | (517 | ) | |||||||
| 1,484 | 2,358 | 143 | ||||||||||
| Total expense (benefit) | $ | (2,845 | ) | $ | 8,907 | $ | (18,949 | ) | ||||
10
PSC METALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and 2004
(Amounts in Thousands Except Share Amounts)
Note 4 — Income Taxes – (continued)
The Company’s expense (benefit) for income taxes is comprised of the following:
|
|
|
|
|||||||||
| 2006 | 2005 | 2004 | ||||||||||
| Income tax rate based on statutory income tax rate | 35.00 | % | 35.00 | % | 35.00 | % | ||||||
| State taxes, net of federal benefit | 4.18 | % | 18.52 | % | (2.15 | )% | ||||||
| Tax rate differentials in other jurisdictions | .46 | % | 3.12 | % | 1.78 | % | ||||||
| Other | .15 | % | .21 | % | .08 | % | ||||||
| Adjustment due to 2004 tax return filings (U.S. and Canada) | — | (35.67 | )% | — | ||||||||
| Valuation allowance | (45.73 | )% | 6.37 | % | (58.33 | )% | ||||||
| Expense (benefit) for income taxes related to income statement | (5.94 | )% | 27.55 | % | (23.64 | )% | ||||||
The net deferred tax asset/(liabilities) consists of the following temporary differences:
|
|
|
||||||
| 2006 | 2005 | |||||||
| Current Deferred Asset |
||||||||
| Net operating loss | $ | 3,748 | $ | — | ||||
| Excess interest carryforward | — | 3,931 | ||||||
| Accruals not yet deductible | 3,296 | 2,702 | ||||||
| Inventory related | 2,439 | 2,406 | ||||||
| Other | (231 | ) | — | |||||
| Marketable securities | (1,971 | ) | — | |||||
| Valuation allowance | (3,977 | ) | (6,824 | ) | ||||
| Current Deferred Asset | $ | 3,304 | $ | 2,215 | ||||
| Noncurrent Deferred Asset |
||||||||
| Net operating loss | $ | — | $ | 11,206 | ||||
| Property, plant and equipment and goodwill basis differences | 23,826 | 29,203 | ||||||
| Environmental/insurance related | 7,420 | 7,453 | ||||||
| Valuation allowance | (17,068 | ) | (36,135 | ) | ||||
| Noncurrent Deferred Asset | $ | 14,178 | $ | 11,727 | ||||
| Deferred tax asset | $ | 17,482 | $ | 13,942 | ||||
Management considers whether it is more likely than not that all of the deferred tax assets will be realized. Projected future income tax-planning strategies and the expected reversal of deferred tax liabilities are considered in making this assessment. Based on the projected taxable income for 2007, the Company has adjusted its valuation allowance with regard to its U.S. deferred tax assets. For the years ended December 31, 2006 and 2005, the valuation allowance has decreased/(increased) by $21,914 and $(2,060), respectively. The Company will analyze and assess this valuation allowance again as of December 31, 2007. The Company has not provided a valuation allowance against its Canadian deferred tax assets, primarily comprised of tax basis goodwill, based on the level of projected future taxable income over the periods in which the deferred tax assets are deductible.
11
PSC METALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and 2004
(Amounts in Thousands Except Share Amounts)
Note 5 — Property, Plant and Equipment
Details of property, plant and equipment are as follows:
|
|
|
||||||
| 2006 | 2005 | |||||||
| Land | $ | 6,511 | $ | 4,605 | ||||
| Buildings | 3,816 | 3,245 | ||||||
| Equipment | 50,123 | 31,436 | ||||||
| Construction in progress | 8,312 | 14,741 | ||||||
| 68,762 | 54,027 | |||||||
| Less accumulated depreciation | 17,845 | 11,274 | ||||||
| $ | 50,917 | $ | 42,753 | |||||
Details of depreciation expense are as follows:
|
|
|
|
|||||||||
| 2006 | 2005 | 2004 | ||||||||||
| Cost of sales | $ | 6,553 | $ | 3,847 | $ | 2,606 | ||||||
| Selling, general and administrative | 263 | 250 | 221 | |||||||||
| $ | 6,816 | $ | 4,097 | $ | 2,827 | |||||||
Note 6 — Long-Term Debt
|
|
|
||||||
| 2006 | 2005 | |||||||
| Loans collateralized by certain assets having a net book value of $2,723 at December 31, 2006 and 2005 bearing interest at a weighted average fixed rate of 5.5% (2005 — 5%) maturing at various dates up to 2020 | $ | 1,747 | $ | 2,151 | ||||
| Obligations under capital leases on equipment bearing interest at rates varying from 5% to 8% maturing at various dates to 2011 | 512 | 1,315 | ||||||
| 2,259 | 3,466 | |||||||
| Less current maturities of long-term debt | 652 | 1,195 | ||||||
| $ | 1,607 | $ | 2,271 | |||||
As a wholly owned subsidiary of Philip, the Company is jointly and severably liable for debt obligations of its Parent.
Credit Agreement
On December 30, 2004, Philip and its subsidiaries, including the Company, entered into a credit agreement with UBS Securities LLC, as lead arranger, and three other financial institutions, of up to $120,000, which matures on December 30, 2009. The Company is a co-borrower under the credit agreement and has granted a security interest in substantially all of its assets to secure its obligations thereunder. The credit agreement provides for a revolving line of credit, subject to a borrowing base formula calculated on eligible accounts receivable and eligible scrap metal inventory. Borrowings under the credit agreement bear interest at a rate equal to the base rate (which is based on the UBS AG Bank “prime rate”) plus 1.00%, 1.25% or 1.50% depending on Philip’s total liquidity (greater than $50,000, $25,000 to $50,000 and less than $25,000, respectively). Total liquidity is generally defined in the credit agreement as the sum of the borrowing base availability (determined monthly) and the available cash. The credit agreement will generally be used for working capital purposes and to issue letters of credit to support financial assurance needs related to insurance, environmental, bonding and vendor programs. The letters of credit bear an annual fee of 2.0%. Philip
12
PSC METALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and 2004
(Amounts in Thousands Except Share Amounts)
Note 6 — Long-Term Debt – (continued)
had undrawn capacity of $64,077 and $43,877 at December 31, 2006 and 2005, respectively, no borrowings outstanding and outstanding letters of credit of $55,674 and $74,391 at December 31, 2006 and 2005, respectively.
As of December 31, 2006 and 2005, Philip was required to maintain the following financial covenants under the credit agreement: (i) maximum leverage, which is consolidated indebtedness to consolidated earnings before interest, taxes, depreciation and amortization (“EBITDA”), ratio of 5 to 1, (ii) maximum senior leverage, which is consolidated indebtedness less all subordinated indebtedness to consolidated EBITDA, ratio of 3 to 1 and (iii) minimum fixed charge coverage, which is consolidated EBITDA to the sum of consolidated interest expense, capital expenditures, cash tax payments and principal payments, ratio of 1.1 to 1. Financial covenants are not tested if total liquidity is $25,000 or greater. At December 31, 2006 and 2005, Philip was in compliance with the covenants under the credit agreement.
The various components of long-term debt described in this note are financial instruments. As of December 31, 2006 and 2005, the carrying value of the Company’s debt approximated its fair market value.
At December 31, 2006, the aggregate amount of payments required to meet long-term debt installments including capital lease obligations, in each of the next five years and thereafter, is as follows:
|
|
|||
| 2007 | $ | 652 | ||
| 2008 | 394 | |||
| 2009 | 272 | |||
| 2010 | 115 | |||
| 2011 | 113 | |||
| Thereafter | 713 | |||
| $ | 2,259 | |||
Note 7 — Accrued Liabilities
Accrued liabilities consist of the following:
|
|
|
||||||
| 2006 | 2005 | |||||||
| Accrued employee compensation and benefit costs | $ | 4,460 | $ | 2,924 | ||||
| Accrued purchases | 984 | 1,587 | ||||||
| Income taxes payable to parent | 1,835 | 1,515 | ||||||
| Accrued closure, severance and restructuring costs | 438 | 722 | ||||||
| Insurance claims outstanding | 476 | 610 | ||||||
| Accrued other | 317 | 510 | ||||||
| Accrued property and commodity taxes | 137 | 153 | ||||||
| $ | 8,647 | $ | 8,021 | |||||
The Company determines its insurance claims’ liabilities using actuarial principles on an undiscounted basis. The Company retains liability for (i) auto and general liability claims of up to $1,000 for each occurrence and (ii) certain property claims of up to $2,000 for each occurrence. Other than for Ohio, the Company retains liability for workers’ compensation claims of up to $1,000 for each occurrence. In Ohio, the Company is in the State Fund which is administered by the Bureau of Workers Compensation (the “Bureau”). The Bureau makes payments for all workers’ compensation benefits out of the premiums the Company pays into the State Fund.
13
PSC METALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and 2004
(Amounts in Thousands Except Share Amounts)
Note 7 — Accrued Liabilities – (continued)
To the extent that any insurance carrier is unable to meet its obligations under existing insurance policies, the Company could be liable for the defaulted amount. From time to time, other retention/deductible amounts apply because claims arise under policies of subsidiary, acquired or predecessor companies.
Note 8 — Commitments
Future rental payments required under operating leases for premises and equipment are as follows:
|
|
|||
| 2007 | $ | 3,783 | ||
| 2008 | 3,446 | |||
| 2009 | 3,243 | |||
| 2010 | 2,813 | |||
| 2011 | 2,521 | |||
| Thereafter | 12,094 | |||
| $ | 27,900 | |||
Rental expense amounted to $3,805, $3,603 and $3,758 for the years ended December 31, 2006, 2005 and 2004, respectively.
Note 9 — Contingencies
The Company is not currently a party to any material pending legal proceedings, other than routine matters incidental to its business, and no material developments have occurred in any such proceedings. The Company is unable to predict the outcome of the foregoing matters and cannot provide assurance that these or future matters will not have a material adverse effect on the results of operations or financial position of the Company.
The Company is subject to federal, state, local and foreign environmental laws and regulations concerning discharges to the air, soil, surface and subsurface waters and the generation, handling, storage, transportation, treatment and disposal of waste materials and hazardous substances. The Company is also subject to other federal, state, local and foreign laws and regulations including those that require the Company to remove or mitigate the effects of the disposal or release of certain materials at various sites.
It is impossible to predict precisely what effect these laws and regulations will have on the Company in the future. Compliance with environmental laws and regulations may result in, among other things, capital expenditures, costs and liabilities. Management believes, based on past experience and its best assessment of future events, that these environmental liabilities and costs will be assessed and paid over an extended period of time. The Company believes that it will be able to fund such costs in the ordinary course of business.
Certain of the Company’s facilities are environmentally impaired in part as a result of operating practices at the sites prior to their acquisition by the Company and as a result of Company operations. The Company has established procedures to periodically evaluate these sites, giving consideration to the nature and extent of the contamination. The Company has provided for the remediation of these sites based upon management’s judgment and prior experience. The Company has estimated the liability to remediate these sites to be $19,861 and $19,931 at December 31, 2006 and 2005, respectively.
The Company has been named as a potentially responsible or liable party under U.S. federal and state superfund laws in connection with various sites. It is alleged that the Company and its subsidiaries or their predecessors transported waste to the sites, disposed of waste at the sites, or operated the sites in question. The Company has reviewed the nature and extent of the allegations, the number, connection and financial ability of other named and unnamed potentially responsible parties and the nature and estimated cost of the likely remedy. Based on its review, the Company has accrued its estimate of its liability to remediate these
14
PSC METALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and 2004
(Amounts in Thousands Except Share Amounts)
Note 9 — Contingencies – (continued)
sites to be $0 and $300 at December 31, 2006 and 2005, respectively. If it is determined that more expensive remediation approaches are required in the future, the Company could incur additional obligations, which could be material.
Estimates of the Company’s liability for remediation of a particular site and the method and ultimate cost of remediation require a number of assumptions and are inherently difficult to make, and the ultimate outcome may differ from current estimates. As additional information becomes available, estimates are adjusted. It is possible that technological, regulatory or enforcement developments, the results of environmental studies or other factors could alter estimates and necessitate the recording of additional liabilities, which could be material. Moreover, because the Company has disposed of waste materials at numerous third-party disposal facilities, it is possible that the Company will be identified as a potentially responsible party at additional sites. The impact of such future events cannot be estimated at the current time.
Note 10 — Common Stock
|
|
|
||||||
| 2006 | 2005 | |||||||
| Share capital consists of: |
||||||||
| Authorized: 100 shares of common stock, issued and outstanding: |
||||||||
| Quantity | 1 | 1 | ||||||
| Par value per share | $ | 1.00 | $ | 1.00 | ||||
Note 11 — Consolidated Statements of Cash Flows
Changes in operating assets and liabilities are as follows:
|
|
|
|
|||||||||
| 2006 | 2005 | 2004 | ||||||||||
| Accounts receivable | $ | 13,180 | $ | (245 | ) | $ | (29,690 | ) | ||||
| Inventories | (3,544 | ) | (979 | ) | (11,861 | ) | ||||||
| Prepaid expenses and other current assets | (1,316 | ) | (419 | ) | 5,494 | |||||||
| Other assets | 131 | (262 | ) | (2,578 | ) | |||||||
| Accounts payable | (403 | ) | 7,109 | 3,034 | ||||||||
| Accrued liabilities | 556 | (5,484 | ) | (4,490 | ) | |||||||
| $ | 8,604 | $ | (280 | ) | $ | (40,091 | ) | |||||
The supplemental cash flow disclosures are as follows:
|
|
|
|
|||||||||
| 2006 | 2005 | 2004 | ||||||||||
| Interest paid | $ | 160 | $ | 250 | $ | 321 | ||||||
| Income taxes paid, net of refunds | 1,485 | 2,491 | — | |||||||||
| Reorganization exit costs paid | — | — | 2,556 | |||||||||
| Non-cash capital contributions from Parent | $ | — | $ | — | $ | 21,580 | ||||||
Note 12 — Employee Benefit Plans
401(k) Plan
The Company offers a 401(k) plan covering all U.S. employees, with the exception of the Columbus Hourly Union employees. The Company provides a matching contribution equal to 50% of the employee’s pre-tax contribution to a maximum of $3 per year. The Company’s contributions to the Columbus Hourly
15
PSC METALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and 2004
(Amounts in Thousands Except Share Amounts)
Note 12 — Employee Benefit Plans – (continued)
Union’s 401(k) Plan are made in accordance with the Collective Bargaining Agreement. Total Company contributions to both plans for the years ended December 31, 2006, 2005 and 2004 was $577, $552 and $479, respectively.
Forfeitures of unvested Company contributions are used to reduce future Company matching contributions.
Pension Plans
The Company sponsors four defined benefit pension plans for hourly union employees. The four defined benefit pension plans have been frozen and there is no further accrual of benefits/service. The Company’s funding policy for the pension plans is to contribute amounts required to meet regulatory requirements.
The following table sets forth the pension costs for the years ended December 31, 2006, 2005 and 2004:
|
|
|
|
|||||||||
| 2006 | 2005 | 2004 | ||||||||||
| Service cost | $ | 37 | $ | 94 | $ | 200 | ||||||
| Interest cost | 304 | 309 | 295 | |||||||||
| Expected return on plan assets | (391 | ) | (384 | ) | (357 | ) | ||||||
| Amortization of net transition asset | — | — | (7 | ) | ||||||||
| Amortization of net loss | 55 | 49 | 42 | |||||||||
| Net periodic benefit cost | $ | 5 | $ | 68 | $ | 173 | ||||||
The components of the change in benefit obligation of the pension plans are as follows at December 31, 2006, 2005 and 2004:
|
|
|
|
|||||||||
| 2006 | 2005 | 2004 | ||||||||||
| Benefit obligation at beginning of year | $ | 5,759 | $ | 5,416 | $ | 4,838 | ||||||
| Service cost | 37 | 94 | 200 | |||||||||
| Interest cost | 304 | 309 | 295 | |||||||||
| Actuarial loss | 436 | 215 | 385 | |||||||||
| Benefits paid | (284 | ) | (275 | ) | (302 | ) | ||||||
| Benefit obligation at end of year | $ | 6,252 | $ | 5,759 | $ | 5,416 | ||||||
The reconciliation of the beginning and ending balances of the fair value of the assets of the pension plans are as follows at December 31, 2006, 2005 and 2004:
|
|
|
|
|||||||||
| 2006 | 2005 | 2004 | ||||||||||
| Fair value of plan assets at beginning of year | $ | 4,989 | $ | 4,920 | $ | 4,588 | ||||||
| Actual return on plan assets | 665 | 294 | 467 | |||||||||
| Employer contributions | 59 | 50 | 167 | |||||||||
| Benefits paid | (284 | ) | (275 | ) | (302 | ) | ||||||
| Fair value of plan assets at end of year | $ | 5,429 | $ | 4,989 | $ | 4,920 | ||||||
16
PSC METALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and 2004
(Amounts in Thousands Except Share Amounts)
Note 12 — Employee Benefit Plans – (continued)
The funded status of the pension plans are as follows at December 31, 2006, 2005 and 2004:
|
|
|
|
|||||||||
| 2006 | 2005 | 2004 | ||||||||||
| Funded status | $ | (823 | ) | $ | (770 | ) | $ | (496 | ) | |||
| Unrecognized net loss | 1,723 | 1,616 | 1,360 | |||||||||
| Net amount recognized | $ | 900 | $ | 846 | $ | 864 | ||||||
Amounts recognized in the Consolidated Balance Sheets consist of the following at December 31, 2006 and 2005, respectively:
|
|
|
||||||
| 2006 | 2005 | |||||||
| Prepaid benefit cost | $ | 352 | $ | — | ||||
| Accrued benefit liability | (823 | ) | (770 | ) | ||||
| Accumulated other comprehensive income | 1,371 | 1,616 | ||||||
| Net amount recognized | $ | 900 | $ | 846 | ||||
Weighted average assumptions used in the pension plans to determine benefit obligations and net periodic benefit cost are as follows at December 31:
|
|
|
|
|||||||||
| 2006 | 2005 | 2004 | ||||||||||
| Discount rate | 5.50 | % | 5.75 | % | 6.25 | % | ||||||
| Expected return on plan assets | 8.00 | % | 8.00 | % | 8.00 | % | ||||||
The expected rate of return on plan assets assumption is based upon actual historical returns, future expectations for returns for each asset class and the effect of periodic target asset allocation rebalancing. These expected results were adjusted for the payment of reasonable expenses of the plan from plan assets.
The Company made cash contributions of $59, $50 and $167 in 2006, 2005 and 2004, respectively, to its pension plans. Based on estimates provided by its actuaries, the Company expects to make cash-funding contributions to its pension plans of approximately $40 during 2007.
The weighted-average asset allocation of the pension plan assets by asset category and target range are as follows:
Percentage of Plan Assets at December 31, 2006 and 2005:
|
|
|
||||||
| 2006 | 2005 | |||||||
| Equity securities | 68 | % | 66 | % | ||||
| Debt securities | 32 | % | 34 | % | ||||
| Total | 100 | % | 100 | % | ||||
The Company’s pension plan assets are managed by outside investment managers. The Company’s investment strategy with respect to pension plan assets is to maximize returns while preserving principal.
Note 13 — Related Parties
During the first two months of 2005, Philip’s largest stockholder, Carl C. Icahn, participated in Philip’s payment-in-kind debt facilities through entities he controlled. During 2004 Mr. Icahn also participated in the term debt facilities. Philip repaid in full the $150,000 term loan provided by Mr. Icahn during 2004. Mr. Icahn controlled $0 and approximately $14,316 of Philip’s debt as of December 31, 2005 and 2004, respectively,
17
PSC METALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and 2004
(Amounts in Thousands Except Share Amounts)
Note 13 — Related Parties – (continued)
and was associated with approximately $56 and $8,570 in interest expense and fees for the years ended December 31, 2005 and 2004, respectively.
Philip has entered into a Tax Allocation Agreement (the “Agreement”) with Starfire. The Agreement provides that Starfire will pay all consolidated federal income taxes on behalf of the consolidated group which includes Philip. Philip will make payments to Starfire in an amount equal to the tax liability, if any, that it would have if it were to file as a consolidated group separate and apart from Starfire.
The Company uses XO Communications, Inc. to provide the majority of its telecommunications services and incurred $352, $353 and $148 for the years ended December 31, 2006, 2005 and 2004, respectively. Mr. Icahn owns a majority interest in XO Communications, Inc.
The Company sold material to Alliance Castings of approximately $11,025, $9,105 and $6,792 for the years ending December 31, 2006, 2005 and 2004, respectively. Material sold to Chicago Castings was approximately $557, $2,308 and $3 for the years ended December 31, 2006, 2005 and 2004, respectively. Mr. Icahn is a major shareholder of each of the companies.
Included in selling, general and administrative costs is approximately $106, $100 and $1,500 paid to Philip for certain services provided to the Company for the years ended December 31, 2006, 2005 and 2004, respectively.
Note 14 — Subsequent Events
On February 26, 2007, the Company acquired substantially all the assets of Ravenna Salvage, Inc., a full service scrap metal recycler in Ohio. The purchase price of $5,628 and the results of operations for the two yards acquired are reflected in the consolidated results of the Company from the date of acquisition.
On June 20, 2007, the Company acquired substantially all the assets of Midwest Sales, LLC, a full service scrap metal recycler in Missouri. The purchase price of $1,307 and the results of operations for the two yards acquired are reflected in the consolidated results of the Company from the date of acquisition.
On September 10, 2007, the Company acquired substantially all the assets of Wimco Operating Company, Inc., a full service scrap metal recycler in Ohio. The purchase price of $39,960 and the results of operations for these five yards and trucking fleet are reflected in the consolidated results of the Company from the date of acquisition.
On November 5, 2007, Icahn Enterprises, through a direct wholly owned subsidiary, purchased 100% of the issued and outstanding capital stock of the Company in exchange for approximately $335,000 in cash and the Company became an indirect wholly owned subsidiary of Icahn Enterprises. Philip used a portion of the proceeds to pay the Company’s portion of the joint credit agreement, approximately $34,600, and the Company was released from all claims, guarantees and future obligations under the credit agreement. In addition, Philip used proceeds to collateralize the Company’s letters of credit of approximately $6,300.
The Company is currently under negotiations to enter into a $100,000 asset-based borrowing agreement. Subsequent to the closing of the borrowing agreement, the Company will fund its letters of credit from its borrowing base and funds used to collateralize the letters of credit by Philip will be released.
18
PSC METALS, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
|
|
|
||||||
| September 30, 2007 |
December 31, 2006 |
|||||||
| (Unaudited) | ||||||||
| ASSETS |
||||||||
| CURRENT ASSETS |
||||||||
| Cash and cash equivalents | $ | 3,302 | $ | 22,332 | ||||
| Marketable securities | 6,855 | 5,543 | ||||||
| Accounts receivable (net of allowance for doubtful accounts of $1,431 and $593 at September 30, 2007 and December 31, 2006, respectively) | 94,911 | 55,308 | ||||||
| Accounts receivable from related parties | 622 | 555 | ||||||
| Inventories | 68,655 | 58,438 | ||||||
| Prepaid expenses and other current assets | 5,906 | 6,412 | ||||||
| Deferred income taxes | 3,970 | 3,304 | ||||||
| Total current assets | 184,221 | 151,892 | ||||||
| PROPERTY, PLANT AND EQUIPMENT, NET | 78,365 | 50,917 | ||||||
| GOODWILL | 14,908 | — | ||||||
| DEFERRED INCOME TAXES NONCURRENT | 17,037 | 14,178 | ||||||
| OTHER ASSETS | 8,240 | 3,080 | ||||||
| TOTAL ASSETS | $ | 302,771 | $ | 220,067 | ||||
| LIABILITIES AND STOCKHOLDER'S EQUITY |
||||||||
| CURRENT LIABILITIES |
||||||||
| Current maturities of long-term debt and capital lease obligations | $ | 35,114 | $ | 652 | ||||
| Accounts payable | 32,466 | 23,769 | ||||||
| Accounts payable to related party | 274 | 352 | ||||||
| Accrued liabilities | 12,071 | 8,647 | ||||||
| Total current liabilities | 79,925 | 33,420 | ||||||
| LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, LESS CURRENT PORTION |
1,934 | 1,607 | ||||||
| ACCRUED ENVIRONMENTAL COSTS | 24,012 | 19,861 | ||||||
| ACCRUED OTHER LIABILITIES | 1,340 | — | ||||||
| COMMITMENTS AND CONTINGENCIES (Note 9) | — | — | ||||||
| STOCKHOLDER'S EQUITY |
||||||||
| Common stock | — | — | ||||||
| Additional paid-in capital | 132,022 | 131,482 | ||||||
| Retained earnings | 55,927 | 30,138 | ||||||
| Accumulated other comprehensive income | 7,611 | 3,559 | ||||||
| Total stockholder's equity | 195,560 | 165,179 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY | $ | 302,771 | $ | 220,067 | ||||
The accompanying notes to consolidated financial statements are an integral part of these statements.
19
PSC METALS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Three Months Ended September 30, 2007 and 2006
(In Thousands)
|
|
|
||||||
| Three Months Ended September 30, |
||||||||
| 2007 | 2006 | |||||||
| Revenues | $ | 198,903 | $ | 179,173 | ||||
| Cost of sales | 184,368 | 168,412 | ||||||
| Gross profit | 14,535 | 10,761 | ||||||
| Selling, general and administrative | 5,446 | 2,412 | ||||||
| Operating income | 9,089 | 8,349 | ||||||
| Interest expense | (214 | ) | (37 | ) | ||||
| Interest and other income | 147 | 437 | ||||||
| Income before income taxes | 9,022 | 8,749 | ||||||
| Income tax benefit (expense) | (180 | ) | 520 | |||||
| NET INCOME | $ | 8,842 | $ | 9,269 | ||||
The accompanying notes to consolidated financial statements are an integral part of these statements.
20
PSC METALS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Nine Months Ended September 30, 2007 and 2006
(In Thousands)
|
|
|
||||||
| Nine Months Ended September 30, |
||||||||
| 2007 | 2006 | |||||||
| Revenues | $ | 622,282 | $ | 556,143 | ||||
| Cost of sales | 578,274 | 509,743 | ||||||
| Gross profit | 44,008 | 46,400 | ||||||
| Selling, general and administrative | 15,979 | 11,617 | ||||||
| Operating income | 28,029 | 34,783 | ||||||
| Interest expense | (532 | ) | (126 | ) | ||||
| Interest and other income | 172 | 718 | ||||||
| Income before income taxes | 27,669 | 35,375 | ||||||
| Income tax benefit (expense) | (540 | ) | 2,101 | |||||
| NET INCOME | $ | 27,129 | $ | 37,476 | ||||
The accompanying notes to consolidated financial statements are an integral part of these statements.
21
PSC METALS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER’S EQUITY AND
OTHER COMPREHENSIVE INCOME
(Unaudited)
For the Nine Months Ended September 30, 2007
(In Thousands)
|
|
|
|
|
|
|||||||||||||||
| Common Stock |
Additional Paid-in Capital |
Retained Earnings |
Accumulated Other Comprehensive Income |
Total Stockholder's Equity |
||||||||||||||||
| Balance at December 31, 2006 | $ | — | $ | 131,482 | $ | 30,138 | $ | 3,559 | $ | 165,179 | ||||||||||
| Cumulative effect of adjustment from adoption of FIN 48 | — | — | (1,340 | ) | — | (1,340 | ) | |||||||||||||
| Comprehensive income: |
||||||||||||||||||||
| Net income | — | — | 27,129 | — | 27,129 | |||||||||||||||
| Foreign currency translation adjustments |
— | — | — | 3,199 | 3,199 | |||||||||||||||
| Unrealized gain on available for sale securities, net of tax | — | — | — | 853 | 853 | |||||||||||||||
| Total comprehensive income | 31,181 | |||||||||||||||||||
| Capital contribution | — | 540 | — | — | 540 | |||||||||||||||
| Balance at September 30, 2007 | $ | — | $ | 132,022 | $ | 55,927 | $ | 7,611 | $ | 195,560 | ||||||||||
The accompanying notes to consolidated financial statements are an integral part of these statements.
22
PSC METALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended September 30, 2007 and 2006
(In Thousands)
|
|
|
||||||
| Nine Months Ended September 30, |
||||||||
| 2007 | 2006 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||
| Net income | $ | 27,129 | $ | 37,476 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation | 7,275 | 5,037 | ||||||
| Amortization | 360 | — | ||||||
| Deferred income taxes | (3,526 | ) | (4,263 | ) | ||||
| Gain on sale of assets | (514 | ) | (355 | ) | ||||
| Cash flow before changes in assets and liabilites | 30,724 | 37,895 | ||||||
| Changes in operating assets and liabilities | (22,111 | ) | (9,545 | ) | ||||
| Net cash provided by operating activities | 8,613 | 28,350 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES |
||||||||
| Purchase of property, plant and equipment, net | (19,879 | ) | (18,820 | ) | ||||
| Proceeds from sale of property, plant and equipment | 177 | 425 | ||||||
| Acquisitions | (46,886 | ) | — | |||||
| Receipts on long-term notes receivable | 358 | — | ||||||
| Net cash used in investing activities | (66,230 | ) | (18,395 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||
| Principal borrowing on debt | 62,411 | 9 | ||||||
| Principal payments on debt | (27,402 | ) | (406 | ) | ||||
| Principal payments of capital lease obligations | (221 | ) | (594 | ) | ||||
| Dividend payment | — | (10,000 | ) | |||||
| Capital contribution | 540 | — | ||||||
| Other | 60 | — | ||||||
| Net cash provided by (used in) financing activities | 35,388 | (10,991 | ) | |||||
| Effect of exchange rate changes on cash | 3,199 | 896 | ||||||
| NET DECREASE IN CASH AND CASH EQUIVALENTS |
(19,030 | ) | (140 | ) | ||||
| Cash and cash equivalents at beginning of period | 22,332 | 12,949 | ||||||
| Cash and cash equivalents at end of period | $ | 3,302 | $ | 12,809 | ||||
The accompanying notes to consolidated financial statements are an integral part of these statements.
23
PSC METALS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
September 30, 2007
(Amounts in Thousands Except Share Price)
Note 1 — Organization and Basis of Presentation
Business
PSC Metals, Inc. (the “Company”), an Ohio corporation, and its wholly owned subsidiaries Cappco Tubular Products Canada, Inc., Cappco Tubular Products USA, Inc. (collectively “Cappco”), PSC Metals-Akron, Inc., PSC Metals-Alliance, LLC, PSC Metals-Aliquippa, LLC, PSC Metals-CAW, LLC, PSC Metals-Elyria, LLC, PSC Metals-Garn, LLC, PSC Metals-Joyce, LLC, PSC Metals-Metalics, LLC, and PSC Metals-Wooster, LLC, are principally engaged in the business of collecting and processing ferrous and non-ferrous metals. As of September 30, 2007, the Company is a wholly owned subsidiary of Philip Services Corporation (“Philip”), a Delaware corporation that is principally engaged in providing industrial outsourcing and environmental services to major industry sectors throughout North America. As discussed in Note 14, “Subsequent Events,” on November 5, 2007, Icahn Enterprises, through a direct wholly owned subsidiary, acquired all of the issued and outstanding capital stock of the Company for $335,000 in cash.
The Company collects industrial scrap metal and obsolete scrap metal, processes it into reusable forms, and supplies the recycled metals to its customers including electric-arc furnace mills, integrated steel mills, foundries, secondary smelters and metals brokers. These services are provided through the Company’s recycling facilities located in eight states. The Company’s ferrous products include primarily shredded, sheared, bundled scrap metal and other purchased scrap metal such as turnings and cast and broken furnace iron. The Company also processes non-ferrous metals including aluminum, copper, brass, stainless steel and other nickel-bearing metals.
Cappco is in the secondary steel pipe business and has multiple stocking locations throughout Canada and the United States. Cappco distributes secondary and structural grade pipe to industries that include casing, fiber optics, tunneling, foundation piling, road-boring and fabrication.
Basis of Presentation
In June 2003, Philip and substantially all of its U.S. domiciled subsidiaries, including the Company, filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”). On December 10, 2003, the Bankruptcy Court confirmed the Second Amended and Restated Joint Plan of Reorganization (the “Plan”). Under the terms of the Plan, Philip became wholly owned by entities owned by Mr. Carl C. Icahn. As a result, the accompanying consolidated financial statements reflect the historical push-down basis of the assets and liabilities as if the Company had been acquired by entities owned by Mr. Icahn on December 31, 2003, the effective date of control.
The accompanying unaudited consolidated financial statements have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted, although we believe that the disclosures contained herein are adequate to make the information presented not misleading. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for interim periods are not necessarily indicative of the results that may be expected for the entire year. Our balance sheet at December 31, 2006 is derived from the December 31, 2006 audited financial statements, but does not include all disclosures required by U.S. GAAP. These unaudited condensed consolidated financial statements included herein should be read in conjunction with the financial statements and notes for the years ended December 31, 2006, 2005 and 2004.
The Company has not changed its significant accounting and reporting policies from those disclosed in the Company's financial statements and notes for the year ended December 31, 2006, with the exception of
24
PSC METALS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
September 30, 2007
(Amounts in Thousands Except Share Price)
Note 1 — Organization and Basis of Presentation – (continued)
the adoption of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”). Refer to Note 5, “Income Taxes,” for the impact of the adoption of this interpretation. There have been no significant changes in the methods or assumptions used in accounting policies requiring material estimates and assumptions.
The consolidated financial statements of the Company have been prepared in U.S. dollars using U.S. GAAP.
Note 2 — Significant Accounting Policies
Principles of Consolidation
These consolidated financial statements include the accounts of the Company and all of its wholly owned subsidiaries. All significant intercompany balances, transactions and profits have been eliminated in consolidation.
Inventories
Details of inventory are as follows:
|
|
|
||||||
| September 30, 2007 | December 31, 2006 | |||||||
| Ferrous | $ | 36,278 | $ | 30,360 | ||||
| Non-ferrous | 9,741 | 7,871 | ||||||
| Secondary | 22,636 | 20,207 | ||||||
| $ | 68,655 | $ | 58,438 | |||||
Impact of New Accounting Pronouncements
In September 2006, the FASB issued FASB Statement (“SFAS”) No. 157, Fair Value Measurements (“SFAS No. 157”). This statement defines “fair value,” establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of its adoption of SFAS No. 157.
In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106, and 132 (“SFAS No. 158”). SFAS No. 158 requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in the statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. The Company is required to adopt SFAS No. 158 as of December 31, 2007. The Company is evaluating the effect the adoption, of this statement, will have on its consolidated financial position or results of operations.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115 (“SFAS No. 159”). The fair value option established by SFAS No. 159 permits all entities to choose to measure eligible items at fair value at specified election dates. A business entity will report unrealized gains and losses on items for which the fair value option has been elected in earnings (or another performance indicator if the business entity does not report earnings) at each subsequent reporting date. The fair value option: (a) may be applied instrument by instrument, with a few exceptions, such as investments otherwise accounted for by the equity method; (b) is irrevocable (unless a new election date occurs) and (c) is applied only to entire instruments and not to portions of instruments. SFAS No. 159 is effective as of the beginning of fiscal years beginning after November 15, 2007. The adoption of SFAS No. 159 is not expected to be material to our financial statements.
25
PSC METALS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
September 30, 2007
(Amounts in Thousands Except Share Price)
Note 2 — Significant Accounting Policies – (continued)
The Company adopted FIN 48 on January 1, 2007; see Note 5 — Income Taxes.
Financial Instruments
The Company’s accounts receivable, accounts payable and long-term debt constitute financial instruments. The fair value of the Company’s long-term debt is discussed in Note 7 to the Consolidated Financial Statements. The Company’s accounts receivable and accounts payable approximated their fair value for the periods ended at September 30, 2006 and December 31, 2006. Concentration of credit risk in accounts receivable is limited, due to the large number of customers the Company services throughout North America. One customer represented 10% and 13% of accounts receivable at September 30, 2007 and December 31, 2006, respectively. No one customer accounted for more than 10% of sales for both the three and nine months ended September 30, 2007 and 2006.
Note 3 — Acquisitions
On February 26, 2007, the Company acquired substantially all the assets of Ravenna Salvage, Inc., a full service scrap metal recycler in Ohio. The purchase price of $5,628 and the results of operations for the two yards acquired are reflected in the consolidated results of the Company from the date of acquisition.
On June 20, 2007, the Company acquired substantially all the assets of Midwest Sales, LLC, a full service scrap metal recycler in Missouri. The purchase price of $1,307 and the results of operations for the two yards acquired are reflected in the consolidated results of the Company from the date of acquisition.
On September 10, 2007, the Company acquired substantially all the assets of Wimco Operating Company, Inc., a full service scrap metal recycler in Ohio. The purchase price of $39,960 and the results of operations for these five yards and trucking fleet are reflected in the consolidated results of the Company from the date of acquisition.
The following is a summary of the estimated fair values of the assets acquired and liabilities assumed as of the date of the acquisition:
|
|
|
|
|||||||||
| Ravenna | Midwest | Wimco | ||||||||||
| Net working capital | $ | 693 | $ | 300 | $ | 14,705 | ||||||
| Property, plant and equipment | 3,935 | 595 | 9,879 | |||||||||
| Intangibles | 1,000 | — | 5,000 | |||||||||
| Goodwill | — | 412 | 14,496 | |||||||||
| Environmental reserve | — | — | (4,120 | ) | ||||||||
| |
$ | 5,628 | $ | 1,307 | $ | 39,960 | ||||||
Goodwill of $14,908 represents the excess of purchase price over the fair value of the net tangible and identified intangible assets acquired. $10,788 of the goodwill is deductible for tax purposes over a 15-year period and $4,120 is deductible for tax purposes in the period environmental reserve payments are made. In accordance with SFAS No. 142, goodwill is allocated to a reporting unit level and tested for impairment at least annually.
Note 4 — Marketable Securities
Marketable securities consist of shares of common stock of Keystone Consolidated Industries, Inc. (“Keystone”), acquired in bankruptcy settlement, and held for resale. In 2006, the Company determined the value of Keystone common stock it received from the emergence of the bankruptcy protection. As such,
26
PSC METALS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
September 30, 2007
(Amounts in Thousands Except Share Price)
Note 4 — Marketable Securities – (continued)
590,033 shares of common stock at a valuation of $1,180 were recorded as marketable securities, available-for-sale. Also, during 2006, the Company sold 220,500 shares for $3,626 recording a gain on sale of $3,185.
As of September 30, 2007, the marketable securities consist of 369,533 shares of Keystone common stock. Any unrealized gains or losses with respect to investments classified as available-for-sale are recognized within the Consolidated Statement of Shareholder’s Equity as accumulated other comprehensive income, net of deferred taxes. At September 30, 2007, the fair value of the securities was an asset of $6,855 and the Company recorded a gross unrealized gain of $1,312 (including the tax effect of $459) for the nine months ended September 30, 2007.
Note 5 — Income Taxes
The Company accounts for income taxes under SFAS No. 109, Accounting for Income Taxes (“SFAS No. 109”). Under SFAS No. 109, the Company provides deferred income taxes for the tax effects of temporary differences between the financial reporting and income tax basis of the Company’s assets and liabilities.
As of December 31, 2006, the Company had federal net operating loss carryforwards in the United States of approximately $100.
The Company is a part of an affiliated group of corporations controlled by Carl C. Icahn and filed as part of a consolidated federal income tax return for the years ended December 31, 2006, 2005 and 2004. The ultimate parent entity of Philip and the affiliated group of corporations controlled by Mr. Icahn is Starfire Holding Corporation (“Starfire”). The tax provision was prepared on a separate company basis as if the company filed a stand-alone tax return.
For the year ending December 31, 2007, the Company anticipates the effective tax rate on continuing operations to be approximately 41.05%, and the Company anticipates the release of the valuation allowance based on the projected pretax income for 2008 and 2007, respectively.
In June 2006, the FASB issued FIN 48. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements and provides guidance on the recognition, de-recognition, and measurement of benefits related to an entity’s uncertain tax positions. FIN 48 is effective for the Company beginning January 1, 2007. At the adoption date of January 1, 2007, the Company had $1,340 of unrecognized tax uncertainties including $77 of interest and penalties, of which $1,340 would affect the Company’s effective tax rate if recognized. During the nine month period ended September 30, 2007, the Company recognized no additional unrecognized tax uncertainties, interest or penalties. As of September 30, 2007, there were no unrecognized tax uncertainties that are expected to significantly increase or decrease within the next 12 months.
Note 6 — Depreciation Expense
Details of depreciation expense are as follows:
|
|
|
|
|
||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2007 | 2006 | 2007 | 2006 | |||||||||||||
| Cost of sales | $ | 3,264 | $ | 2,730 | $ | 7,079 | $ | 4,630 | ||||||||
| Selling, general and administration | 65 | 67 | 196 | 407 | ||||||||||||
| $ | 3,329 | $ | 2,797 | $ | 7,275 | $ | 5,037 | |||||||||
27
PSC METALS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
September 30, 2007
(Amounts in Thousands Except Share Price)
Note 7 — Long-Term Debt
|
|
|
||||||
| September 30, 2007 | December 31, 2006 | |||||||
| Loans collateralized by certain assets having a net book value of $2,723 bearing interest at a weighted average fixed rate of 8.6% (2006 — 5.5%) maturing at various dates up to 2020 |
$ | 36,756 | $ | 1,747 | ||||
| Obligations under capital leases on equipment bearing interest at rates varying from 5% to 8% maturing at various dates to 2011 |
292 | 512 | ||||||
| 37,048 | 2,259 | |||||||
| Less current maturities of long-term debt | 35,114 | 652 | ||||||
| $ | 1,934 | $ | 1,607 | |||||
As a wholly owned subsidiary of Philip, the Company is jointly and severably liable for debt obligations of its Parent.
Credit Agreement
On December 30, 2004, Philip and its subsidiaries, including the Company, entered into a credit agreement with UBS Securities LLC, as lead arranger, and three other financial institutions, of up to $120,000, which matures on December 30, 2009. The Company is a co-borrower under the credit agreement and has granted a security interest in substantially all of its assets to secure its obligations, thereunder. The credit agreement provides for a revolving line of credit, subject to a borrowing base formula calculated on eligible accounts receivable and eligible scrap metal inventory. Borrowings under the credit agreement bear interest at a rate equal to the base rate (which is based on the UBS AG Bank “prime rate”) plus 1.00%, 1.25% or 1.50% depending on Philip’s total liquidity (greater than $50,000, $25,000 to $50,000 and less than $25,000, respectively). Total liquidity is generally defined in the credit agreement as the sum of the borrowing base availability (determined monthly) and the available cash. The credit agreement will generally be used to issue letters of credit to support financial assurance needs related to insurance, environmental, bonding and vendor programs. The letters of credit bear an annual fee of 2.0%. Philip had undrawn capacity of $23,416 and $64,077 at September 30, 2007 and December 31, 2006, respectively, no borrowings outstanding and outstanding letters of credit of $61,984 and $55,674 at September 30, 2007 and December 31, 2006, respectively.
As of September 30, 2007 and December 31, 2006, Philip was required to maintain the following financial covenants under the credit agreement: (i) maximum leverage, which is consolidated indebtedness to consolidated earnings before interest, taxes, depreciation and amortization (“EBITDA”), ratio of 5 to 1, (ii) maximum senior leverage, which is consolidated indebtedness less all subordinated indebtedness to consolidated EBITDA, ratio of 3 to 1 and (iii) minimum fixed charge coverage, which is consolidated EBITDA to the sum of consolidated interest expense, capital expenditures, cash tax payments and principal payments, ratio of 1.1 to 1. Financial covenants are not tested if total liquidity is $25 million or greater. At September 30, 2007 and December 31, 2006, Philip was in compliance with the covenants under the credit agreement.
The various components of long-term debt described in this note are financial instruments. As of September 30, 2007 and December 31, 2006, the carrying value of the Company’s debt approximated its fair market value.
28
PSC METALS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
September 30, 2007
(Amounts in Thousands Except Share Price)
Note 8 — Accrued Liabilities
Accrued liabilities consist of the following:
|
|
|
||||||
| September 30, 2007 | December 31, 2006 | |||||||
| Accrued employee compensation and benefit costs | $ | 5,471 | $ | 4,460 | ||||
| Accrued purchases | 1,062 | 984 | ||||||
| Income taxes payable to parent | 3,042 | 1,835 | ||||||
| Accrued closure, severance and restructuring costs | 486 | 438 | ||||||
| Insurance claims outstanding | 888 | 476 | ||||||
| Accrued other | 259 | 317 | ||||||
| Accrued property and commodity taxes | 863 | 137 | ||||||
| $ | 12,071 | $ | 8,647 | |||||
The Company determines its insurance claims’ liabilities using actuarial principles on an undiscounted basis. The Company retains liability for (i) auto and general liability claims of up to $1,000 for each occurrence and (ii) certain property claims of up to $2,000 for each occurrence. Other than for Ohio, the Company retains liability for workers’ compensation claims of up to $1,000 for each occurrence. In Ohio, the Company is in the State Fund which is administered by the Bureau of Workers Compensation (the “Bureau”). The Bureau makes payments for all workers’ compensation benefits out of the premiums the Company pays into the State Fund.
To the extent that any insurance carrier is unable to meet its obligations under existing insurance policies, the Company could be liable for the defaulted amount. From time to time, other retention/deductible amounts apply because claims arise under policies of subsidiary, acquired or predecessor companies.
Note 9 — Contingencies
The Company is not currently a party to any material pending legal proceedings, other than routine matters incidental to its business, and no material developments have occurred in any such proceedings. The Company is unable to predict the outcome of the foregoing matters and cannot provide assurance that these or future matters will not have a material adverse effect on the results of operations or financial position of the Company.
The Company is subject to federal, state, local and foreign environmental laws and regulations concerning discharges to the air, soil, surface and subsurface waters and the generation, handling, storage, transportation, treatment and disposal of waste materials and hazardous substances. The Company is also subject to other federal, state, local and foreign laws and regulations including those that require the Company to remove or mitigate the effects of the disposal or release of certain materials at various sites.
It is impossible to predict precisely what effect these laws and regulations will have on the Company in the future. Compliance with environmental laws and regulations may result in, among other things, capital expenditures, costs and liabilities. Management believes, based on past experience and its best assessment of future events, that these environmental liabilities and costs will be assessed and paid over an extended period of time. The Company believes that it will be able to fund such costs in the ordinary course of business.
Certain of the Company’s facilities are environmentally impaired in part as a result of operating practices at the sites prior to their acquisition by the Company and as a result of Company operations. The Company has established procedures to periodically evaluate these sites, giving consideration to the nature and extent of the contamination. The Company has provided for the remediation of these sites based upon management’s
29
PSC METALS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
September 30, 2007
(Amounts in Thousands Except Share Price)
Note 9 — Contingencies – (continued)
judgment and prior experience. The Company has estimated the liability to remediate these sites to be $24,012 and $19,861 at September 30, 2007 and December 31, 2006, respectively.
The Company has been named as a potentially responsible or liable party under U.S. federal and state superfund laws in connection with various sites. It is alleged that the Company and its subsidiaries or their predecessors transported waste to the sites, disposed of waste at the sites, or operated the sites in question. The Company has reviewed the nature and extent of the allegations, the number, connection and financial ability of other named and unnamed potentially responsible parties and the nature and estimated cost of the likely remedy. Based on its review, the Company has accrued its estimate of its liability to remediate these sites to be $0 at September 30, 2007 and December 31, 2006. If it is determined that more expensive remediation approaches are required in the future, the Company could incur additional obligations, which could be material.
Estimates of the Company’s liability for remediation of a particular site and the method and ultimate cost of remediation require a number of assumptions and are inherently difficult to make, and the ultimate outcome may differ from current estimates. As additional information becomes available, estimates are adjusted. It is possible that technological, regulatory or enforcement developments, the results of environmental studies or other factors could alter estimates and necessitate the recording of additional liabilities, which could be material. Moreover, because the Company has disposed of waste materials at numerous third-party disposal facilities, it is possible that the Company will be identified as a potentially responsible party at additional sites. The impact of such future events cannot be estimated at the current time.
Note 10 — Common Stock
|
|
|
||||||
| September 30, 2007 | December 31, 2006 | |||||||
| Share capital consists of: |
||||||||
| Authorized: 100 shares of common stock, issued and outstanding: |
||||||||
| Quantity | 1 | 1 | ||||||
| Par value per share | $ | 1.00 | $ | 1.00 | ||||
Note 11 — Consolidated Statement of Cash Flows
Changes in assets and liabilities are as follows:
|
|
|
||||||
| September 30, 2007 | September 30, 2006 | |||||||
| Accounts receivable | $ | (29,191 | ) | $ | (7,453 | ) | ||
| Inventories | (3,976 | ) | (973 | ) | ||||
| Prepaid and other current assets | 1,207 | (284 | ) | |||||
| Other assets | 7,056 | (906 | ) | |||||
| Accounts payable | 2,287 | (1,774 | ) | |||||
| Accrued liabilities | 506 | 1,845 | ||||||
| $ | (22,111 | ) | $ | (9,545 | ) | |||
30
PSC METALS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
September 30, 2007
(Amounts in Thousands Except Share Price)
Note 11 — Consolidated Statement of Cash Flows – (continued)
The supplemental cash flow disclosures are as follows:
|
|
|
||||||
| September 30, 2007 | September 30, 2006 | |||||||
| Interest paid | $ | 531 | $ | 126 | ||||
| Income taxes paid, net of refunds | $ | 1,638 | $ | 212 | ||||
Note 12 — Employee Benefit Plans
401(k) plan
The Company offers a 401(k) plan covering all U.S. employees, with the exception of the Columbus Hourly Union employees. The Company provides a matching contribution equal to 50% of the employee’s pre-tax contribution to a maximum of $3 per year. The Company’s contributions to the Columbus Hourly Union’s 401(k) Plan are made in accordance with the Collective Bargaining Agreement. Total Company contributions to both plans for the periods ended September 30, 2007 and 2006 were $587 and $577, respectively.
Forfeitures of unvested Company contributions are used to reduce future Company matching contributions.
Pension Plans
The Company made cash contributions for the periods ended September 30, 2007 and 2006 of $21 and $59, respectively. Based on estimates provided by its actuaries, the Company expects to make cash funding contributions to its pension plans of approximately $40 during 2007.
Note 13 — Related Parties
During the first two months of 2005, Philip’s largest stockholder, Carl C. Icahn, participated in Philip’s payment-in-kind facilities through entities he controlled. During 2004 Mr. Icahn also participated in the term debt facilities. Philip repaid in full the $150,000 term loan provided by Mr. Icahn during 2004. Mr. Icahn controlled $0 and approximately $14,316 of Philip’s debt as of December 31, 2005 and 2004, respectively, and was associated with approximately $56 and $8,570 in interest expense and fees for the years ended December 31, 2005 and 2004, respectively.
Philip has entered into a Tax Allocation Agreement (the “Agreement”) with Starfire. The Agreement provides that Starfire will pay all consolidated federal income taxes on behalf of the consolidated group which includes Philip. Philip will make payments to Starfire in an amount equal to the tax liability, if any, that it would have if it was to file as a consolidated group separate and apart from Starfire.
The Company uses XO Communications, Inc. to provide the majority of its telecommunications services and incurred $281 and $352 for the periods ended September 30, 2007 and 2006, respectively. Mr. Icahn owns a majority interest in XO Communications, Inc.
The Company sold material to Alliance Castings of approximately $11,025 and $9,105 for the periods ended September 30, 2007 and 2006, respectively. Mr. Icahn is a major shareholder of this company.
Included in selling, general and administrative costs are $27 and $27 for the three months ended September 30, 2007 and 2006, respectively, and $81 and $79 for the nine months ended September 30, 2007 and 2006, respectively, paid to Philip for certain services provided to the Company.
31
PSC METALS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
September 30, 2007
(Amounts in Thousands Except Share Price)
Note 14 — Subsequent Events
On November 5, 2007, Icahn Enterprises, through a direct wholly owned subsidiary, purchased 100% of the issued and outstanding capital stock of the Company in exchange for approximately $335,000 in cash and the Company became an indirect wholly owned subsidiary of Icahn Enterprises. Philip used a portion of the proceeds to pay the Company’s portion of the joint credit agreement, approximately $34,600, and the Company was released from all claims, guarantees and future obligations under the credit agreement. In addition, Philip used proceeds to collateralize the Company’s letters of credit of approximately $6,300.
The Company is currently under negotiations to enter into a $100,000 asset-based borrowing agreement. Subsequent to the closing of the borrowing agreement, the Company will fund its letters of credit from its borrowing base and funds used to collateralize the letters of credit by Philip will be released.
32
ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information is presented to give effect to:
| • | the acquisition on November 5, 2007 of all of the issued and outstanding stock of PSC Metals, Inc. (“PSC Metals”); and |
| • | the pending sale of American Casino & Entertainment Properties LLC (“ACEP”), an indirect wholly owned subsidiary of Icahn Enterprises L.P (“Icahn Enterprises”), formerly known as American Real Estate Partners, L.P. |
The unaudited pro forma condensed combined financial information is based on the (i) historical financial statements of Icahn Enterprises, (ii) historical consolidated financial statements of PSC Metals, which financial statements are included elsewhere in this current report on Form 8-K and (iii) historical financial statements of ACEP, as well as in each case the assumptions and adjustments described below and in the accompanying notes to the unaudited pro forma condensed combined financial information.
The acquisition of PSC Metals is accounted for as a combination of entities under common control and recorded at the historical pushdown basis of the assets and liabilities acquired at the effective date of control, December 31, 2003, by Icahn Enterprises. The unaudited pro forma condensed combined balance sheet at September 30, 2007, included herein, includes the pro forma combination of Icahn Enterprises and PSC Metals.
The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2007 and 2006 (i) combine the historical unaudited consolidated statements of operations of PSC Metals for each such period and (ii) reflect the combination of such entity with Icahn Enterprises during the period of common control, commencing January 1, 2004.
The unaudited pro forma condensed combined statements of operations for the years ended December 31, 2006, 2005 and 2004 (i) combine the historical audited consolidated statements of operations of PSC Metals for each such period and (ii) reflect the combination of such entity with Icahn Enterprises during the period of common control, commencing January 1, 2004.
The unaudited pro forma condensed combined balance sheet as of September 30, 2007 is presented as if the pending sale of ACEP occurred on September 30, 2007. In its quarterly report on Form 10-Q filed with the Securities and Exchange Commission (the “SEC”) on November 9, 2007, Icahn Enterprises reported the financial position and results of operations of ACEP as assets and liabilities held for sale in its consolidated balance sheet as of September 30, 2007 and discontinued operations in its consolidated statements of operations for the nine months ended September 30, 2007 and 2006. In its current report on Form 8-K filed with the SEC on December 5, 2007, Icahn Enterprises reported the financial position and results of operations of ACEP as assets and liabilities held for sale in its consolidated balance sheets as of December 31, 2006 and 2005, and discontinued operations in its consolidated statements of operations for each of the three years in the period ended December 31, 2006, respectively.
The unaudited pro forma condensed combined financial information does not purport to be indicative of the financial position and results of operations that Icahn Enterprises will obtain in the future, or that Icahn Enterprises would have obtained if the acquisition of PSC Metals and pending sale of ACEP were effective as of the dates indicated above. The pro forma adjustments are based upon currently available information and upon certain assumptions that Icahn Enterprises believes are reasonable. The unaudited pro forma condensed combined financial information should be read in conjunction with the historical consolidated financial statements of Icahn Enterprises included in its annual reports on Form 10-K and quarterly reports on Form 10-Q, and related amendments.
33
ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
September 30, 2007
(In $000s)
|
|
|
|
|
|
|
||||||||||||||||||
| Historical | Pro Forma Adjustments | |||||||||||||||||||||||
| Icahn Enterprises |
PSC Metals(1) |
Subtotal | Acquisition of PSC Metals(1) |
Sale of ACEP(2) | Pro Forma Results | |||||||||||||||||||
| ASSETS |
||||||||||||||||||||||||
| Investment Management: |
||||||||||||||||||||||||
| Cash and cash equivalents | $ | 4,095 | $ | — | $ | 4,095 | $ | — | $ | — | $ | 4,095 | ||||||||||||
| Cash held at consolidated affiliated partnerships and restricted cash | 1,136,546 | — | 1,136,546 | — | — | 1,136,546 | ||||||||||||||||||
| Securities owned, at fair value | 5,585,669 | — | 5,585,669 | — | — | 5,585,669 | ||||||||||||||||||
| Unrealized gains on derivative contracts, at fair value | 55,855 | — | 55,855 | — | — | 55,855 | ||||||||||||||||||
| Due from brokers | 1,600,306 | — | 1,600,306 | — | — | 1,600,306 | ||||||||||||||||||
| Other assets | 154,003 | — | 154,003 | — | — | 154,003 | ||||||||||||||||||
| 8,536,474 | — | 8,536,474 | — | — | 8,536,474 | |||||||||||||||||||
| Holding Company and other operations: |
||||||||||||||||||||||||
| Cash and cash equivalents | 2,836,403 | 3,302 | 2,839,705 | (335,000)(3a) | 1,096,112 | (4a) | 3,600,817 | |||||||||||||||||
| Restricted cash | 41,405 | — | 41,405 | — | — | 41,405 | ||||||||||||||||||
| Investments | 501,604 | 6,855 | 508,459 | — | — | 508,459 | ||||||||||||||||||
| Unrealized gains on derivative contracts, at fair value | 1,849 | — | 1,849 | — | — | 1,849 | ||||||||||||||||||
| Inventories, net | 233,865 | 68,655 | 302,520 | — | — | 302,520 | ||||||||||||||||||
| Trade, notes and other receivables, net | 148,742 | 94,911 | 243,653 | — | — | 243,653 | ||||||||||||||||||
| Assets of discontinued operations held for sale | 646,278 | — | 646,278 | — | (589,054)(4b) | 57,224 | ||||||||||||||||||
| Property, plant and equipment, net | 445,365 | 78,365 | 523,730 | — | — | 523,730 | ||||||||||||||||||
| Intangible assets and goodwill | 20,400 | 14,908 | 35,308 | — | — | 35,308 | ||||||||||||||||||
| Other assets | 51,700 | 35,775 | 87,475 | — | — | 87,475 | ||||||||||||||||||
| 4,927,611 | 302,771 | 5,230,382 | (335,000 | ) | 507,058 | 5,402,440 | ||||||||||||||||||
| Total assets | $ | 13,464,085 | $ | 302,771 | $ | 13,766,856 | $ | (335,000 | ) | $ | 507,058 | $ | 13,938,914 | |||||||||||
| LIABILITIES AND PARTNERS' EQUITY |
||||||||||||||||||||||||
| Investment Management: |
||||||||||||||||||||||||
| Accounts payable, accrued expenses and other liabilities | $ | 29,219 | $ | — | $ | 29,219 | $ | — | $ | — | $ | 29,219 | ||||||||||||
| Deferred management fee payable to related party | 146,863 | — | 146,863 | — | — | 146,863 | ||||||||||||||||||
| Subscriptions received in advance | 23,336 | — | 23,336 | — | — | 23,336 | ||||||||||||||||||
| Payable for purchases of securities | 211,279 | — | 211,279 | — | — | 211,279 | ||||||||||||||||||
| Securities sold, not yet purchased, at fair value | 1,068,262 | — | 1,068,262 | — | — | 1,068,262 | ||||||||||||||||||
| Unrealized losses on derivative contracts, at fair value | 116,498 | — | 116,498 | — | — | 116,498 | ||||||||||||||||||
| 1,595,457 | — | 1,595,457 | — | — | 1,595,457 | |||||||||||||||||||
See accompanying notes.
34
ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET – (continued)
September 30, 2007
(In $000s)
|
|
|
|
|
|
|
||||||||||||||||||
| Historical | Pro Forma Adjustments | |||||||||||||||||||||||
| Icahn Enterprises |
PSC Metals(1) |
Subtotal | Acquisition of PSC Metals(1) |
Sale of ACEP(2) | Pro Forma Results | |||||||||||||||||||
| Holding company and other operations: |
||||||||||||||||||||||||
| Accounts payable | 76,487 | 32,740 | 109,227 | — | — | 109,227 | ||||||||||||||||||
| Accrued expenses and other liabilities | 113,235 | 13,411 | 126,646 | — | 255,484 | (4c) | 382,130 | |||||||||||||||||
| Unrealized losses on derivative contracts, at fair value | 5,687 | — | 5,687 | — | — | 5,687 | ||||||||||||||||||
| Accrued environmental costs | — | 24,012 | 24,012 | — | — | 24,012 | ||||||||||||||||||
| Liabilities of discontinued operations held for sale | 314,895 | — | 314,895 | — | (302,698)(4b) | 12,197 | ||||||||||||||||||
| Long-term debt | 2,040,058 | 37,048 | 2,077,106 | — | — | 2,077,106 | ||||||||||||||||||
| Preferred limited partnership units | 122,049 | — | 122,049 | — | — | 122,049 | ||||||||||||||||||
| 2,672,411 | 107,211 | 2,779,622 | — | (47,214 | ) | 2,732,408 | ||||||||||||||||||
| Total Liabilities | 4,267,868 | 107,211 | 4,375,079 | — | (47,214 | ) | 4,327,865 | |||||||||||||||||
| Commitments and contingencies |
||||||||||||||||||||||||
| Non-controlling interests in consolidated entities: |
||||||||||||||||||||||||
| Investment Management | 6,601,480 | — | 6,601,480 | — | — | 6,601,480 | ||||||||||||||||||
| Holding Company and other operations | 164,472 | — | 164,472 | — | — | 164,472 | ||||||||||||||||||
| 6,765,952 | — | 6,765,952 | — | — | 6,765,952 | |||||||||||||||||||
| Partners’ equity: |
||||||||||||||||||||||||
| Partners' equity | 2,430,265 | 195,560 | 2,625,825 | (335,000)(3a) | 554,272 | (4d) | 2,845,097 | |||||||||||||||||
| Total liabilities and partners' equity | $ | 13,464,085 | $ | 302,771 | $ | 13,766,856 | $ | (335,000 | ) | $ | 507,058 | $ | 13,938,914 | |||||||||||
See accompanying notes.
35
ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Nine Months Ended September 30, 2007
(In 000s, Except Per Unit Data)
|
|
|
|
|
||||||||||||
| Historical | Pro Forma Adjustments | |||||||||||||||
| Icahn Enterprises | PSC Metals(1) |
Acquisition of PSC Metals(3b) | Pro Forma Results | |||||||||||||
| Revenues: |
||||||||||||||||
| Investment Management: |
||||||||||||||||
| Interest, dividends and other income | $ | 133,045 | $ | — | $ | — | $ | 133,045 | ||||||||
| Net gain from investment activities | 554,223 | — | — | 554,223 | ||||||||||||
| Management fees, related parties | 7,494 | — | — | 7,494 | ||||||||||||
| 694,762 | — | — | 694,762 | |||||||||||||
| Holding Company and other operations: |
||||||||||||||||
| Metals | — | 622,282 | — | 622,282 | ||||||||||||
| Real Estate | 83,617 | — | — | 83,617 | ||||||||||||
| Home Fashion | 531,109 | — | — | 531,109 | ||||||||||||
| Interest and other income | 114,860 | 172 | — | 115,032 | ||||||||||||
| Net gain from investment activities | 75,647 | — | — | 75,647 | ||||||||||||
| Other income, net | 28,478 | — | — | 28,478 | ||||||||||||
| 833,711 | 622,454 | — | 1,456,165 | |||||||||||||
| Total revenues | 1,528,473 | 622,454 | — | 2,150,927 | ||||||||||||
| Expenses: |
||||||||||||||||
| Investment Management | 82,934 | — | — | 82,934 | ||||||||||||
| Holding Company and other operations: |
||||||||||||||||
| Metals | — | 594,253 | — | 594,253 | ||||||||||||
| Real Estate | 73,416 | — | — | 73,416 | ||||||||||||
| Home Fashion | 656,158 | — | — | 656,158 | ||||||||||||
| Holding Company expenses | 24,564 | — | — | 24,564 | ||||||||||||
| Interest expense | 98,689 | 532 | — | 99,221 | ||||||||||||
| 852,827 | 594,785 | — | 1,447,612 | |||||||||||||
| Total expenses | 935,761 | 594,785 | — | 1,530,546 | ||||||||||||
| Income from continuing operations before income taxes and non-controlling interests in income of consolidated entities | 592,712 | 27,669 | — | 620,381 | ||||||||||||
| Income tax expense | (13,267 | ) | (540 | ) | — | (13,807 | ) | |||||||||
| Non-controlling interests in (income) loss of consolidated entities: |
— | |||||||||||||||
| Investment Management | (417,242 | ) | — | — | (417,242 | ) | ||||||||||
| Holding Company and other operations | 43,644 | — | — | 43,644 | ||||||||||||
| (373,598 | ) | — | — | (373,598 | ) | |||||||||||
| Income from continuing operations | $ | 205,847 | $ | 27,129 | $ | — | $ | 232,976 | ||||||||
| Income from continuing operations applicable to: |
||||||||||||||||
| Limited partners(5) | $ | 29,320 | $ | 29,320 | ||||||||||||
| Earnings per limited partnership unit: |
||||||||||||||||
| Basic | $ | 0.47 | $ | 0.47 | ||||||||||||
| Diluted | $ | 0.47 | $ | 0.47 | ||||||||||||
| Weighted average limited partnership units outstanding: |
||||||||||||||||
| Basic | 63,533 | 63,533 | ||||||||||||||
| Diluted | 63,533 | 63,533 | ||||||||||||||
See accompanying notes.
36
ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Nine Months Ended September 30, 2006
(In 000s, Except Per Unit Data)
|
|
|
|
|
||||||||||||
| Historical | Pro Forma Adjustments | |||||||||||||||
| Icahn Enterprises | PSC Metals(1) |
Acquisition of PSC Metals(3b) | Pro Forma Results | |||||||||||||
| Revenues: |
||||||||||||||||
| Investment Management: |
||||||||||||||||
| Interest, dividends and other income | $ | 45,115 | $ | — | $ | — | $ | 45,115 | ||||||||
| Net gain from investment activities | 571,774 | — | — | 571,774 | ||||||||||||
| 616,889 | — | — | 616,889 | |||||||||||||
| Holding Company and other operations: |
||||||||||||||||
| Metals | — | 556,143 | — | 556,143 | ||||||||||||
| Real Estate | 101,316 | — | — | 101,316 | ||||||||||||
| Home Fashion | 672,350 | — | — | 672,350 | ||||||||||||
| Interest and other income | 33,798 | 718 | — | 34,516 | ||||||||||||
| Net gain from investment activities | 84,830 | — | — | 84,830 | ||||||||||||
| Other income, net | 13,535 | — | (440 | ) | 13,095 | |||||||||||
| 905,829 | 556,861 | (440 | ) | 1,462,250 | ||||||||||||
| Total revenues | 1,522,718 | 556,861 | (440 | ) | 2,079,139 | |||||||||||
| Expenses: |
||||||||||||||||
| Investment Management | 45,600 | — | — | 45,600 | ||||||||||||
| Holding Company and other operations: |
||||||||||||||||
| Metals | — | 521,360 | — | 521,360 | ||||||||||||
| Real Estate | 78,235 | — | — | 78,235 | ||||||||||||
| Home Fashion | 777,517 | — | — | 777,517 | ||||||||||||
| Holding Company expenses | 19,093 | — | — | 19,093 | ||||||||||||
| Interest expense | 63,769 | 126 | — | 63,895 | ||||||||||||
| 938,614 | 521,486 | — | 1,460,100 | |||||||||||||
| Total expenses | 984,214 | 521,486 | — | 1,505,700 | ||||||||||||
| Income from continuing operations before income taxes and non-controlling interests in income of consolidated entities | 538,504 | 35,375 | (440 | ) | 573,439 | |||||||||||
| Income tax (expense) benefit | (1,720 | ) | 2,101 | — | (381 | ) | ||||||||||
| Non-controlling interests in (income) loss of consolidated entities: |
||||||||||||||||
| Investment Management | (422,337 | ) | — | — | (422,337 | ) | ||||||||||
| Holding Company and other operations | 47,876 | — | — | 47,876 | ||||||||||||
| (374,461 | ) | — | — | (374,461 | ) | |||||||||||
| Income from continuing operations | $ | 162,323 | $ | 37,476 | $ | (440 | ) | $ | 199,359 | |||||||
| Income from continuing operations applicable to: |
||||||||||||||||
| Limited partners(5) | $ | 15,997 | $ | 15,566 | ||||||||||||
| Earnings per limited partnership unit: |
||||||||||||||||
| Basic | $ | 0.25 | $ | 0.25 | ||||||||||||
| Diluted | $ | 0.25 | $ | 0.25 | ||||||||||||
| Weighted average limited partnership units outstanding: |
||||||||||||||||
| Basic | 61,857 | 61,857 | ||||||||||||||
| Diluted | 61,857 | 61,857 | ||||||||||||||
See accompanying notes.
37
ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Year Ended December 31, 2006
(In 000s, Except Per Unit Data)
|
|
|
|
|
||||||||||||
| Historical | Pro Forma Adjustments | |||||||||||||||
| Icahn Enterprises | PSC Metals(1) |
Acquisition of PSC Metals(3b) | Pro Forma Results | |||||||||||||
| Revenues: |
||||||||||||||||
| Investment Management: |
||||||||||||||||
| Interest, dividends and other income | $ | 73,563 | $ | — | $ | — | $ | 73,563 | ||||||||
| Net gain from investment activities | 1,030,740 | — | — | 1,030,740 | ||||||||||||
| 1,104,303 | — | — | 1,104,303 | |||||||||||||
| Holding Company and other operations: |
||||||||||||||||
| Metals | — | 710,054 | — | 710,054 | ||||||||||||
| Real Estate | 132,610 | — | — | 132,610 | ||||||||||||
| Home Fashion | 890,840 | — | — | 890,840 | ||||||||||||
| Interest and other income | 50,433 | 5,144 | — | 55,577 | ||||||||||||
| Net gain from investment activities | 91,308 | — | — | 91,308 | ||||||||||||
| Other income, net | 20,828 | — | (1,540 | ) | 19,288 | |||||||||||
| 1,186,019 | 715,198 | (1,540 | ) | 1,899,677 | ||||||||||||
| Total revenues | 2,290,322 | 715,198 | (1,540 | ) | 3,003,980 | |||||||||||
| Expenses: |
||||||||||||||||
| Investment Management | 79,735 | — | — | 79,735 | ||||||||||||
| Holding Company and other operations: |
||||||||||||||||
| Metals | — | 667,118 | — | 667,118 | ||||||||||||
| Real Estate | 105,825 | — | — | 105,825 | ||||||||||||
| Home Fashion | 1,034,216 | — | — | 1,034,216 | ||||||||||||
| Holding Company expenses | 25,822 | — | — | 25,822 | ||||||||||||
| Interest expense | 85,298 | 160 | — | 85,458 | ||||||||||||
| 1,251,161 | 667,278 | — | 1,918,439 | |||||||||||||
| Total expenses | 1,330,896 | 667,278 | — | 1,998,174 | ||||||||||||
| Income from continuing operations before income taxes and non-controlling interests in income of consolidated entities | 959,426 | 47,920 | (1,540 | ) | 1,005,806 | |||||||||||
| Income tax benefit (expense) | (2,156 | ) | 2,845 | — | 689 | |||||||||||
| Non-controlling interests in (income) loss of consolidated entities: |
||||||||||||||||
| Investment Management | (763,137 | ) | — | — | (763,137 | ) | ||||||||||
| Holding Company and other operations | 65,827 | — | — | 65,827 | ||||||||||||
| (697,310 | ) | — | — | (697,310 | ) | |||||||||||
| Income from continuing operations | $ | 259,960 | $ | 50,765 | $ | (1,540 | ) | $ | 309,185 | |||||||
| Income from continuing operations applicable to: |
||||||||||||||||
| Limited partners(5) | $ | 2,133 | $ | 624 | ||||||||||||
| Earnings per limited partnership unit: |
||||||||||||||||
| Basic | $ | 0.03 | $ | 0.01 | ||||||||||||
| Diluted | $ | 0.03 | $ | 0.01 | ||||||||||||
| Weighted average limited partnership units outstanding: |
||||||||||||||||
| Basic | 61,857 | 61,857 | ||||||||||||||
| Diluted | 61,857 | 61,857 | ||||||||||||||
See accompanying notes.
38
ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Year Ended December 31, 2005
(In 000s, Except Per Unit Data)
|
|
|
|
|
||||||||||||
| Historical | Pro Forma Adjustments | |||||||||||||||
| Icahn Enterprises | PSC Metals(1) |
Acquisition of PSC Metals(3b) | Pro Forma Results | |||||||||||||
| Revenues: |
||||||||||||||||
| Investment Management: |
||||||||||||||||
| Interest, dividends and other income | $ | 47,436 | $ | — | $ | — | $ | 47,436 | ||||||||
| Net gain from investment activities | 305,440 | — | — | 305,440 | ||||||||||||
| 352,876 | — | — | 352,876 | |||||||||||||
| Holding Company and other operations: |
||||||||||||||||
| Metals | — | 600,989 | — | 600,989 | ||||||||||||
| Real Estate | 98,392 | — | — | 98,392 | ||||||||||||
| Home Fashion | 441,771 | — | — | 441,771 | ||||||||||||
| Interest and other income | 41,174 | 1,457 | — | 42,631 | ||||||||||||
| Net loss from investment activities | (21,260 | ) | — | — | (21,260 | ) | ||||||||||
| Other income, net | 9,749 | — | (443 | ) | 9,306 | |||||||||||
| 569,826 | 602,446 | (443 | ) | 1,171,829 | ||||||||||||
| Total revenues | 922,702 | 602,446 | (443 | ) | 1,524,705 | |||||||||||
| Expenses: |
||||||||||||||||
| Investment Management | 26,050 | — | — | 26,050 | ||||||||||||
| Holding Company and other operations: |
||||||||||||||||
| Metals | — | 569,836 | — | 569,836 | ||||||||||||
| Real Estate | 81,596 | — | — | 81,596 | ||||||||||||
| Home Fashion | 462,115 | — | — | 462,115 | ||||||||||||
| Holding Company expenses | 17,142 | — | — | 17,142 | ||||||||||||
| Interest expense | 72,328 | 278 | — | 72,606 | ||||||||||||
| 633,181 | 570,114 | — | 1,203,295 | |||||||||||||
| Total expenses | 659,231 | 570,114 | — | 1,229,345 | ||||||||||||
| Income from continuing operations before income taxes and non-controlling interests in income of consolidated entities | 263,471 | 32,332 | (443 | ) | 295,360 | |||||||||||
| Income tax expense | (2,271 | ) | (8,907 | ) | — | (11,178 | ) | |||||||||
| Non-controlling interests in (income) loss of consolidated entities: |
||||||||||||||||
| Investment Management | (241,361 | ) | — | — | (241,361 | ) | ||||||||||
| Holding Company and other operations | 9,466 | — | — | 9,466 | ||||||||||||
| (231,895 | ) | — | — | (231,895 | ) | |||||||||||
| Income from continuing operations | $ | 29,305 | $ | 23,425 | $ | (443 | ) | $ | 52,287 | |||||||
| Loss from continuing operations applicable to: |
||||||||||||||||
| Limited partners(5) | $ | (48,469 | ) | $ | (48,903 | ) | ||||||||||
| Loss per limited partnership unit: |
||||||||||||||||
| Basic | $ | (0.90 | ) | $ | (0.91 | ) | ||||||||||
| Diluted | $ | (0.90 | ) | $ | (0.91 | ) | ||||||||||
| Weighted average limited partnership units outstanding: |
||||||||||||||||
| Basic | 54,085 | 54,085 | ||||||||||||||
| Diluted | 54,085 | 54,085 | ||||||||||||||
See accompanying notes.
39
ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Year Ended December 31, 2004
(In 000s, Except Per Unit Data)
|
|
|
|
|
||||||||||||
| Historical | Pro Forma Adjustments | |||||||||||||||
| Icahn Enterprises | PSC Metals(1) |
Acquisition of PSC Metals(3b) | Pro Forma Results | |||||||||||||
| Revenues: |
||||||||||||||||
| Investment Management: |
||||||||||||||||
| Interest, dividends and other income | $ | 2,846 | $ | — | $ | — | $ | 2,846 | ||||||||
| Net gain from investment activities | 59,254 | — | — | 59,254 | ||||||||||||
| 62,100 | — | — | 62,100 | |||||||||||||
| Holding Company and other operations: |
||||||||||||||||
| Metals | — | 660,172 | — | 660,172 | ||||||||||||
| Real Estate | 60,123 | — | — | 60,123 | ||||||||||||
| Interest and other income | 41,096 | 4,502 | — | 45,598 | ||||||||||||
| Net gain from investment activities | 16,540 | — | — | 16,540 | ||||||||||||
| Other income, net | 7,913 | — | — | 7,913 | ||||||||||||
| 125,672 | 664,674 | — | 790,346 | |||||||||||||
| Total revenues | 187,772 | 664,674 | — | 852,446 | ||||||||||||
| Expenses: |
||||||||||||||||
| Investment Management | 1,976 | — | — | 1,976 | ||||||||||||
| Holding Company and other operations: |
||||||||||||||||
| Metals | — | 582,105 | — | 582,105 | ||||||||||||
| Real Estate | 49,166 | — | — | 49,166 | ||||||||||||
| Holding Company expenses | 4,741 | — | — | 4,741 | ||||||||||||
| Interest expense | 28,381 | 2,405 | — | 30,786 | ||||||||||||
| 82,288 | 584,510 | — | 666,798 | |||||||||||||
| Total expenses | 84,264 | 584,510 | — | 668,774 | ||||||||||||
| Income from continuing operations before income taxes and non-controlling interests | 103,508 | 80,164 | — | 183,672 | ||||||||||||
| Income tax benefit (expense) | (81 | ) | 18,949 | — | 18,868 | |||||||||||
| Non-controlling interests in income of consolidated entities: |
||||||||||||||||
| Investment Management | (48,649 | ) | — | — | (48,649 | ) | ||||||||||
| Income from continuing operations | $ | 54,778 | $ | 99,113 | $ | — | $ | 153,891 | ||||||||
| Income from continuing operations applicable to: |
||||||||||||||||
| Limited partners(5) | $ | 22,677 | $ | 22,677 | ||||||||||||
| Earnings per limited partnership unit: |
||||||||||||||||
| Basic | $ | 0.49 | $ | 0.49 | ||||||||||||
| Diluted | $ | 0.49 | $ | 0.49 | ||||||||||||
| Weighted average limited partnership units outstanding: |
||||||||||||||||
| Basic | 46,098 | 46,098 | ||||||||||||||
| Diluted | 46,098 | 46,098 | ||||||||||||||
See accompanying notes.
40
ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
1. Acquisition of PSC Metals, Inc.
On November 5, 2007, Icahn Enterprises acquired, through a subsidiary, all of the issued and outstanding capital stock of PSC Metals from Philip Services Corporation (“Philip”) for $335.0 million in cash. PSC Metals is engaged in transporting, recycling and processing metals.
Carl C. Icahn indirectly owns a 95.6% interest and Icahn Enterprises indirectly owns the remaining 4.4% interest in Philip. The transaction was approved by a special committee of independent members of the board of directors of Icahn Enterprises. The special committee was advised by its own legal counsel and independent financial advisor with respect to the transaction. The special committee received an opinion from its financial advisor as to the fairness to Icahn Enterprises, from a financial point of view, of the consideration paid by Icahn Enterprises.
PSC Metals is considered an entity under common control with Icahn Enterprises. Accordingly, the accompanying unaudited pro forma condensed combined financial statements include the net assets and results of operations of PSC Metals during the period of common control.
2. Pending Sale of American Casino & Entertainment Properties LLC
On April 22, 2007, American Entertainment Properties Corp. (“AEP”), a wholly owned indirect subsidiary of Icahn Enterprises, entered into a Membership Interest Purchase Agreement with W2007/ACEP Holdings, LLC, an affiliate of Whitehall Street Real Estate Funds, a series of real estate investment funds affiliated with Goldman Sachs & Co. to sell all of the issued and outstanding membership interests of ACEP, which comprises all of the remaining gaming operation, for $1.3 billion, plus or minus certain adjustments such as working capital, more fully described in the agreement. Pursuant to the terms of the agreement, AEP is required to cause ACEP to repay from funds provided by AEP, the principal, interest, prepayment penalty or premium due on ACEP’s 7.85% senior secured notes due 2012 and ACEP’s senior secured credit facility. With this transaction, Icahn Enterprises anticipates realizing a gain of approximately $0.57 billion on its investments in ACEP, after income taxes. ACEP’s casino assets are comprised of the Stratosphere Casino Hotel & Tower, the Arizona Charlie’s Decatur, the Arizona Charlie’s Boulder and the Aquarius Casino Resort. The transaction is subject to the approval of the Nevada Gaming Commission and the Nevada State Gaming Control Board, as well as customary conditions. The parties expect to close the transaction by the end of the first quarter of fiscal 2008; however, there can be no assurance that the transaction will be consummated.
3. Pro Forma Adjustments — Acquisition of PSC Metals, Inc.
| 3a | Cash paid for the acquisition of all issued and outstanding stock of PSC Metals. |
| 3b | As a result of the acquisition, we have adjusted for dividends paid by PSC Metals to Philip, its parent company in which one of our subs owned a 4.4% interest in. There are no agreements or other arrangements that require further adjustment to the pro forma condensed combined statements of operations. |
4. Pro Forma Adjustments — Disposition of ACEP
| 4a | To record the following adjustments to cash: |
|
|
|||
| (in 000s) | ||||
| Estimated gross proceeds from sale of ACEP | $ | 1,300,000 | ||
| Add: net working capital | 71,575 | |||
| Total proceeds | 1,371,575 | |||
| Repayment of long-term debt | (255,000 | ) | ||
| Debt early redemption fees | (8,600 | ) | ||
| Net proceeds | 1,107,975 | |||
| Estimated transaction costs | (6,863 | ) | ||
| Stay bonuses | (5,000 | ) | ||
| Total adjustments to cash | $ | 1,096,112 | ||
41
ICAHN ENTERPRISES L.P. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
4. Pro Forma Adjustments — Disposition of ACEP – (continued)
| 4b | Reflects the elimination of the September 30, 2007 carrying value of the assets and liabilities of ACEP. |
| 4c | Reflects the estimated amount of income taxes payable relating to the sale of ACEP. |
| 4d | Reflects the amount of the estimated net gain on the transaction, net of income taxes. |
5. Earnings per Limited Partnership Unit
Basic earnings per LP unit are based on earnings attributable to Icahn Enterprises’ limited partners. Earnings of PSC Metals prior to the acquisition by Icahn Enterprises on November 5, 2007 are allocated to the general partner for accounting purposes and pro forma presentation. Therefore, these earnings are excluded from the computation of basic and diluted earnings per LP unit.
42