e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
|
|
[X]
|
|
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 |
|
|
For the quarterly period ended December 31, 2006 |
|
[ ]
|
|
Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 |
|
|
For the transition period from ________________________
to ________________________ |
Commission file number 1-33044
METAL MANAGEMENT, INC.
(Exact Name of Registrant as Specified in Its Charter)
|
|
|
Delaware |
|
94-2835068 |
(State or Other Jurisdiction of Incorporation or Organization) |
|
(I.R.S. Employer Identification No.) |
|
|
|
325 N. LaSalle Street, Suite 550, Chicago,
IL |
|
60610 |
(Address of Principal Executive Offices) |
|
(Zip Code) |
Registrants telephone number, Including Area Code
(312) 645-0700
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes
X No
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2 of the
Exchange Act.
|
|
|
Large accelerated filer |
Accelerated filer X |
Non-accelerated filer |
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2 of the
Exchange Act). Yes
No
X
As of January 18, 2007, the registrant had
26,320,197 shares of common stock outstanding.
INDEX
PART I: FINANCIAL INFORMATION
|
|
Item 1. |
Financial Statements |
METAL MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Nine Months Ended | |
|
|
| |
|
| |
|
|
December 31, | |
|
December 31, | |
|
December 31, | |
|
December 31, | |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
Net sales
|
|
$ |
523,965 |
|
|
$ |
395,090 |
|
|
$ |
1,604,585 |
|
|
$ |
1,155,025 |
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (excluding depreciation)
|
|
|
471,702 |
|
|
|
345,984 |
|
|
|
1,401,886 |
|
|
|
1,025,411 |
|
|
General and administrative
|
|
|
21,913 |
|
|
|
20,469 |
|
|
|
65,560 |
|
|
|
58,711 |
|
|
Depreciation and amortization
|
|
|
7,131 |
|
|
|
4,891 |
|
|
|
21,322 |
|
|
|
13,868 |
|
|
Severance and other charges
|
|
|
490 |
|
|
|
995 |
|
|
|
932 |
|
|
|
995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
22,729 |
|
|
|
22,751 |
|
|
|
114,885 |
|
|
|
56,040 |
|
Income from joint ventures
|
|
|
357 |
|
|
|
2,964 |
|
|
|
2,771 |
|
|
|
6,466 |
|
Interest expense
|
|
|
(373 |
) |
|
|
(418 |
) |
|
|
(979 |
) |
|
|
(1,176 |
) |
Interest and other income, net
|
|
|
969 |
|
|
|
376 |
|
|
|
1,913 |
|
|
|
1,433 |
|
Gain on sale of joint venture interest
|
|
|
0 |
|
|
|
0 |
|
|
|
26,362 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
23,682 |
|
|
|
25,673 |
|
|
|
144,952 |
|
|
|
62,763 |
|
Provision for income taxes
|
|
|
8,103 |
|
|
|
10,327 |
|
|
|
55,411 |
|
|
|
25,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
15,579 |
|
|
$ |
15,346 |
|
|
$ |
89,541 |
|
|
$ |
37,713 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.61 |
|
|
$ |
0.63 |
|
|
$ |
3.48 |
|
|
$ |
1.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$ |
0.60 |
|
|
$ |
0.60 |
|
|
$ |
3.40 |
|
|
$ |
1.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per share
|
|
$ |
0.075 |
|
|
$ |
0.075 |
|
|
$ |
0.225 |
|
|
$ |
0.225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
25,532 |
|
|
|
24,556 |
|
|
|
25,733 |
|
|
|
24,429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
26,095 |
|
|
|
25,733 |
|
|
|
26,357 |
|
|
|
25,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
1
METAL MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
March 31, | |
|
|
2006 | |
|
2006 | |
|
|
| |
|
| |
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
79,810 |
|
|
$ |
37,717 |
|
|
Short-term investments
|
|
|
26,480 |
|
|
|
36,035 |
|
|
Accounts receivable, net
|
|
|
141,497 |
|
|
|
168,025 |
|
|
Inventories
|
|
|
179,494 |
|
|
|
100,683 |
|
|
Deferred income taxes
|
|
|
4,425 |
|
|
|
4,842 |
|
|
Prepaid expenses and other assets
|
|
|
11,526 |
|
|
|
7,848 |
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
443,232 |
|
|
|
355,150 |
|
Property and equipment, net
|
|
|
167,127 |
|
|
|
134,674 |
|
Goodwill
|
|
|
6,058 |
|
|
|
2,078 |
|
Intangible assets, net
|
|
|
16,218 |
|
|
|
5,376 |
|
Deferred income taxes, net
|
|
|
9,527 |
|
|
|
10,306 |
|
Investments in joint ventures
|
|
|
20,862 |
|
|
|
45,487 |
|
Other assets
|
|
|
3,337 |
|
|
|
2,246 |
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
666,361 |
|
|
$ |
555,317 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$ |
63 |
|
|
$ |
1,164 |
|
|
Accounts payable
|
|
|
152,762 |
|
|
|
119,477 |
|
|
Income taxes payable
|
|
|
11,711 |
|
|
|
6,526 |
|
|
Other accrued liabilities
|
|
|
31,534 |
|
|
|
37,037 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
196,070 |
|
|
|
164,204 |
|
Long-term debt, less current portion
|
|
|
211 |
|
|
|
2,084 |
|
Other liabilities
|
|
|
4,516 |
|
|
|
5,140 |
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
4,727 |
|
|
|
7,224 |
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
0 |
|
|
|
0 |
|
|
Common stock
|
|
|
271 |
|
|
|
260 |
|
|
Warrants
|
|
|
0 |
|
|
|
179 |
|
|
Additional paid-in capital
|
|
|
197,582 |
|
|
|
183,529 |
|
|
Deferred stock-based compensation
|
|
|
0 |
|
|
|
(5,045 |
) |
|
Accumulated other comprehensive loss
|
|
|
(2,046 |
) |
|
|
(2,046 |
) |
|
Retained earnings
|
|
|
290,588 |
|
|
|
207,012 |
|
|
Treasury stock, at cost
|
|
|
(20,831 |
) |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
465,564 |
|
|
|
383,889 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$ |
666,361 |
|
|
$ |
555,317 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
2
METAL MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended | |
|
|
| |
|
|
December 31, | |
|
December 31, | |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
89,541 |
|
|
$ |
37,713 |
|
Adjustments to reconcile net income to cash flows from
operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
21,322 |
|
|
|
13,868 |
|
|
|
Deferred income taxes
|
|
|
1,327 |
|
|
|
2,350 |
|
|
|
Income from joint ventures
|
|
|
(2,771 |
) |
|
|
(6,259 |
) |
|
|
Gain on sale of joint venture interest
|
|
|
(26,362 |
) |
|
|
0 |
|
|
|
Distributions of earnings from joint ventures
|
|
|
8,748 |
|
|
|
4,360 |
|
|
|
Stock-based compensation expense
|
|
|
4,978 |
|
|
|
5,545 |
|
|
|
Asset impairment charge
|
|
|
0 |
|
|
|
995 |
|
|
|
Excess tax benefit from stock-based compensation
|
|
|
(759 |
) |
|
|
170 |
|
|
|
Other
|
|
|
949 |
|
|
|
1,626 |
|
|
Changes in assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
26,594 |
|
|
|
19,502 |
|
|
|
Inventories
|
|
|
(78,025 |
) |
|
|
(15,171 |
) |
|
|
Accounts payable
|
|
|
33,899 |
|
|
|
(12,477 |
) |
|
|
Income taxes payable
|
|
|
7,229 |
|
|
|
380 |
|
|
|
Other accrued liabilities
|
|
|
(1,729 |
) |
|
|
(6,140 |
) |
|
|
Other assets
|
|
|
(3,293 |
) |
|
|
(4,860 |
) |
|
|
Other liabilities
|
|
|
(1,052 |
) |
|
|
468 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
80,596 |
|
|
|
42,070 |
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(48,073 |
) |
|
|
(22,065 |
) |
|
|
Proceeds from sale of property and equipment
|
|
|
1,658 |
|
|
|
798 |
|
|
|
Purchases of short-term investments
|
|
|
(99,600 |
) |
|
|
(116,620 |
) |
|
|
Sales of short-term investments
|
|
|
109,155 |
|
|
|
86,285 |
|
|
|
Investments in joint ventures
|
|
|
(2,500 |
) |
|
|
0 |
|
|
|
Distributions of capital from joint ventures
|
|
|
1,300 |
|
|
|
1,250 |
|
|
|
Proceeds from sale of joint venture interest
|
|
|
46,005 |
|
|
|
0 |
|
|
|
Acquisitions, net of cash acquired
|
|
|
(28,591 |
) |
|
|
0 |
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(20,646 |
) |
|
|
(50,352 |
) |
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Issuances of long-term debt
|
|
|
10,373 |
|
|
|
427,809 |
|
|
|
Repayments of long-term debt
|
|
|
(13,361 |
) |
|
|
(428,013 |
) |
|
|
Proceeds from exercise of stock options and warrants
|
|
|
11,776 |
|
|
|
5,678 |
|
|
|
Repurchases of common stock
|
|
|
(20,831 |
) |
|
|
0 |
|
|
|
Excess tax benefit from stock-based compensation
|
|
|
759 |
|
|
|
0 |
|
|
|
Cash dividends paid to stockholders
|
|
|
(5,965 |
) |
|
|
(5,694 |
) |
|
|
Fees paid to issue long-term debt
|
|
|
(608 |
) |
|
|
0 |
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(17,857 |
) |
|
|
(220 |
) |
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
42,093 |
|
|
|
(8,502 |
) |
Cash and cash equivalents at beginning of period
|
|
|
37,717 |
|
|
|
52,821 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$ |
79,810 |
|
|
$ |
44,319 |
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Cash interest paid
|
|
$ |
646 |
|
|
$ |
690 |
|
|
|
|
|
|
|
|
Cash income taxes paid, net of refunds
|
|
$ |
46,855 |
|
|
$ |
22,523 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
3
METAL MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(unaudited, in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
Common Stock | |
|
Treasury Stock | |
|
|
|
Additional | |
|
Deferred | |
|
Other | |
|
|
|
|
|
|
| |
|
| |
|
|
|
Paid-In | |
|
Stock-based | |
|
Comprehensive | |
|
Retained | |
|
|
|
|
Shares | |
|
Amount | |
|
Shares | |
|
Amount | |
|
Warrants | |
|
Capital | |
|
Compensation | |
|
Loss | |
|
Earnings | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Balance at March 31, 2006
|
|
|
25,987 |
|
|
$ |
260 |
|
|
|
0 |
|
|
$ |
0 |
|
|
$ |
179 |
|
|
$ |
183,529 |
|
|
$ |
(5,045 |
) |
|
$ |
(2,046 |
) |
|
$ |
207,012 |
|
|
$ |
383,889 |
|
Net income
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
89,541 |
|
|
|
89,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89,541 |
|
Reclassification of deferred stock-based compensation
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
(5,045 |
) |
|
|
5,045 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Issuance of restricted stock (net of cancellations)
|
|
|
238 |
|
|
|
2 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
2 |
|
Issuance of stock under employee stock purchase plan
|
|
|
13 |
|
|
|
1 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
304 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
305 |
|
Exercise of stock options and warrants and related tax benefits
|
|
|
843 |
|
|
|
8 |
|
|
|
0 |
|
|
|
0 |
|
|
|
(157 |
) |
|
|
13,664 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
13,515 |
|
Repurchase of common stock
|
|
|
0 |
|
|
|
0 |
|
|
|
(763 |
) |
|
|
(20,831 |
) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
(20,831 |
) |
Cash dividends paid to stockholders
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
(5,965 |
) |
|
|
(5,965 |
) |
Other
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
(22 |
) |
|
|
152 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
130 |
|
Stock-based compensation expense
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
4,978 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
4,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
27,081 |
|
|
$ |
271 |
|
|
|
(763 |
) |
|
$ |
(20,831 |
) |
|
$ |
0 |
|
|
$ |
197,582 |
|
|
$ |
0 |
|
|
$ |
(2,046 |
) |
|
$ |
290,588 |
|
|
$ |
465,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
4
METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 Basis of Presentation
Organization and Business
Metal Management, Inc., a Delaware corporation, and its wholly
owned subsidiaries (the Company) are principally
engaged in the business of collecting, processing and marketing
ferrous and non-ferrous scrap metals. The Company collects
obsolete and industrial 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 Companys recycling facilities
located in 16 states. The Companys ferrous products
primarily include shredded, sheared, cold briquetted and bundled
scrap metal, and other purchased scrap metal, such as turnings,
cast and broken furnace iron. The Company also processes
non-ferrous metals including, but not limited to, aluminum,
stainless steel and other nickel-bearing metals, copper, brass,
titanium and high-temperature alloys, using similar techniques
and through application of certain of the Companys
proprietary technologies.
The Company has one reportable segment operating in the scrap
metal recycling industry, as determined in accordance with
Statement of Financial Accounting Standards (SFAS)
No. 131, Disclosure about Segments of an Enterprise
and Related Information.
Basis of Presentation
The accompanying unaudited consolidated financial statements of
the Company have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission (the
SEC). All significant intercompany accounts,
transactions and profits have been eliminated. Certain
information related to the Companys organization,
significant accounting policies and footnote disclosures
normally included in financial statements prepared in accordance
with generally accepted accounting principles have been
condensed or omitted. These unaudited consolidated financial
statements reflect, in the opinion of management, all material
adjustments (which include normal recurring adjustments)
necessary to fairly state the financial position and the results
of operations for the periods presented.
Operating results for interim periods are not necessarily
indicative of the results that can be expected for a full year.
These interim financial statements should be read in conjunction
with the Companys audited consolidated financial
statements and notes thereto included in the Companys
Annual Report on
Form 10-K for the
year ended March 31, 2006.
Reclassifications
Certain reclassifications have been made to the prior
years financial information to conform to the current year
presentation. In the consolidated statements of cash flows, the
Company reclassified book overdrafts of $3.0 million from
cash flows from financing activities to cash flows from
operating activities.
Revenue Recognition
The Companys 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 including, but not limited to, tolling,
stevedoring and dismantling. 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.
5
METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Revenues by product category were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Nine Months Ended | |
|
|
| |
|
| |
|
|
December 31, | |
|
December 31, | |
|
December 31, | |
|
December 31, | |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
Ferrous metals
|
|
$ |
300,432 |
|
|
$ |
255,731 |
|
|
$ |
946,543 |
|
|
$ |
747,482 |
|
Non-ferrous metals
|
|
|
182,680 |
|
|
|
116,177 |
|
|
|
558,704 |
|
|
|
344,650 |
|
Brokerage ferrous
|
|
|
35,116 |
|
|
|
15,437 |
|
|
|
78,020 |
|
|
|
42,925 |
|
Brokerage non-ferrous
|
|
|
1,391 |
|
|
|
1,513 |
|
|
|
6,865 |
|
|
|
5,040 |
|
Other
|
|
|
4,346 |
|
|
|
6,232 |
|
|
|
14,453 |
|
|
|
14,928 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
523,965 |
|
|
$ |
395,090 |
|
|
$ |
1,604,585 |
|
|
$ |
1,155,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recently Issued Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board
(FASB) issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48). FIN 48 clarifies the accounting
for uncertainty in income taxes recognized in an
enterprises financial statements in accordance with
SFAS No. 109, Accounting for Income
Taxes. FIN 48 prescribes a recognition
threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected
to be taken in a tax return. FIN 48 also provides guidance
on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition.
FIN 48 is effective for fiscal years beginning after
December 15, 2006. Any differences between the amounts
recognized in the consolidated balance sheet prior to the
adoption of FIN 48 and the amounts reported after adoption
will be accounted for as a cumulative-effect adjustment recorded
to the beginning balance of retained earnings. The Company is
currently assessing the impact, if any, that FIN 48 will
have on its consolidated financial statements.
In September 2006, the SEC issued Staff Accounting
Bulletin No. 108, Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements
(SAB 108). SAB 108 was issued to eliminate
the diversity of practice in how public companies quantify
financial statement misstatements. SAB 108 is effective for
fiscal years ending after November 15, 2006. The Company
does not anticipate that the adoption of SAB 108 will have
a material impact on its consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements. This statement clarifies
the definition of fair value, establishes a framework for
measuring fair value, and expands the disclosures on fair value
measurements. SFAS No. 157 is effective for fiscal
years beginning after November 15, 2007. The Company does
not anticipate that the adoption of SFAS No. 157 will
have a material impact on its consolidated financial statements.
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). This
statement requires an employer to recognize the overfunded or
underfunded status of a defined benefit postretirement plan as
an asset or liability in its statement of financial position and
to recognize changes in the funded status in the year changes
occur through comprehensive income. The Company will adopt
SFAS No. 158 on March 31, 2007. Based on the
funded status of pension plan obligations disclosed in the
Companys consolidated financial statements for the year
ended March 31, 2006, the estimated impact of adopting
SFAS No. 158 would be an increase to other long-term
liabilities of $0.6 million, an increase to deferred tax
assets of $0.2 million and a reduction to
shareholders equity through the recognition of other
comprehensive loss of $0.4 million. At this time, the
Company does not expect the March 31, 2007 amounts to be
recorded on adoption to be significantly different than
estimated.
Additionally, SFAS No. 158 requires an employer to
measure the funded status of each of its pension plans as of the
date of its year-end statement of financial position. This
provision becomes effective for the
6
METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Company for its March 31, 2009 year-end. The funded
status of two of the Companys pension plans are currently
measured as of December 31.
NOTE 2 Stock-Based Compensation
Effective April 1, 2006, the Company adopted
SFAS No. 123(R), Share-Based Payment which
provides for certain changes in the measurement and recognition
of stock-based compensation. The Company elected to use the
modified prospective method of adoption whereby prior periods
have not been revised for comparative purposes. The Company also
changed its accounting policy for recognizing stock-based
compensation expense to a straight-line attribution method for
all awards that are granted on or after April 1, 2006. For
awards subject to graded vesting that were granted prior to the
adoption of SFAS No. 123(R), the Company uses an
accelerated expense attribution method as described by FASB
Interpretation No. 28, Accounting for Stock
Appreciation Rights and Other Variable Stock Option or Award
Plans. SFAS No. 123(R) also required the
deferred stock-based compensation on the consolidated balance
sheet on the date of adoption be netted against additional
paid-in capital. At March 31, 2006, there was a balance of
$5.0 million of deferred stock-based compensation that was
reclassified to additional paid-in capital on April 1, 2006.
Prior to April 1, 2006, the Company accounted for
stock-based compensation using the intrinsic value method
supplemented by pro forma disclosures in accordance with
Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB
No. 25) and SFAS No. 123, Accounting
for Stock-Based Compensation, as amended by
SFAS No. 148, Accounting for Stock-Based
Compensation Transition and Disclosures. Under
the intrinsic value method, compensation expense for stock
options was recorded only if, on the date of the grant, the
current fair value of the Companys common stock exceeded
the exercise price of the stock option. Other equity-based
awards for which stock-based compensation expense was recorded
were generally grants of restricted stock awards which were
measured at fair value on the date of grant based on the number
of shares granted and the quoted price of the Companys
common stock. Such value was recognized as an expense over the
corresponding service period of the awards.
SFAS No. 123(R) requires forfeitures to be estimated
at the time of grant and revised, if necessary, in subsequent
periods if actual forfeitures differ from initial estimates.
Previously under APB No. 25, forfeitures were recognized as
they occurred. The adjustment to account for the expected
forfeitures of stock-based awards granted prior to April 1,
2006, for which the Company previously recorded an expense, was
not material.
As required by SFAS No. 123(R), the Company has
included as part of cash flows from financing activities the
gross benefit of tax deductions related to stock-based
compensation in excess of the grant date fair value of the
related stock-based awards for the options and warrants
exercised in the nine months ended December 31, 2006. This
amount is shown as a reduction to cash flow from operating
activities and an increase to cash flow from financing
activities. Changes in cash and cash equivalents remain
unchanged from what would have been reported prior to the
adoption of SFAS No. 123(R).
7
METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the stock-based compensation
expense for stock options, restricted stock awards and the
employee stock purchase plan included in the Companys
consolidated statement of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three months | |
|
Nine months | |
|
|
ended | |
|
ended | |
|
|
December 31, | |
|
December 31, | |
|
|
2006 | |
|
2006 | |
|
|
| |
|
| |
Cost of sales (excluding depreciation)
|
|
$ |
51 |
|
|
$ |
147 |
|
General and administrative
|
|
|
1,768 |
|
|
|
4,652 |
|
Severance and other charges (See Note 4)
|
|
|
0 |
|
|
|
179 |
|
|
|
|
|
|
|
|
|
Stock-based compensation expense before income taxes
|
|
|
1,819 |
|
|
|
4,978 |
|
|
Income tax benefit
|
|
|
(486 |
) |
|
|
(1,361 |
) |
|
|
|
|
|
|
|
Total stock-based compensation expense after income taxes
|
|
$ |
1,333 |
|
|
$ |
3,617 |
|
|
|
|
|
|
|
|
The income tax benefit is lower than the Companys
effective tax rate due to non-deductible stock-based
compensation. In the three and nine months ended
December 31, 2005, the Company recognized stock-based
compensation expense of $2.2 million and $5.5 million,
respectively, all of which related to restricted stock awards.
The incremental impact of adopting SFAS No. 123(R) was
a reduction of pre-tax income by $0.3 million and
$1.0 million and a reduction of net income by
$0.2 million and $0.7 million in the three and nine
months ended December 31, 2006, respectively. Basic and
diluted earnings per share in the three and nine months ended
December 31, 2006 are $0.01 and $0.03 per share lower,
respectively, than if the Company had continued to account for
stock-based compensation under APB No. 25.
In accordance with SFAS No. 123, the Company provided
pro forma information to illustrate the effect on net income and
earnings per share if the Company had applied the fair value
recognition provision of SFAS No. 123 to stock-based
compensation. The pro forma information required under
SFAS No. 123 was as follows (in thousands, except per
share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
Three months | |
|
Nine months | |
|
|
ended | |
|
ended | |
|
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2005 | |
|
|
| |
|
| |
Net income, as reported
|
|
$ |
15,346 |
|
|
$ |
37,713 |
|
|
Add: Stock-based compensation
expense included in reported net income,
net of related tax effects
|
|
|
1,305 |
|
|
|
3,332 |
|
|
Deduct: Total stock-based compensation
expense determined under the fair value
method for all awards, net of related tax effects
|
|
|
(1,547 |
) |
|
|
(4,002 |
) |
|
|
|
|
|
|
|
Pro forma net income
|
|
$ |
15,104 |
|
|
$ |
37,043 |
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
Basic as reported
|
|
$ |
0.63 |
|
|
$ |
1.54 |
|
|
|
|
|
|
|
|
|
Basic pro forma
|
|
$ |
0.62 |
|
|
$ |
1.52 |
|
|
|
|
|
|
|
|
|
Diluted as reported
|
|
$ |
0.60 |
|
|
$ |
1.48 |
|
|
|
|
|
|
|
|
|
Diluted pro forma
|
|
$ |
0.59 |
|
|
$ |
1.45 |
|
|
|
|
|
|
|
|
Valuation Assumptions for Stock Options
The fair value of each option granted before and after the
adoption of SFAS No. 123(R) is estimated on the date
of grant using the Black-Scholes option valuation model.
Expected volatility is calculated using historical volatility of
the Companys common stock over a period at least equal to
the expected life of each
8
METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
option grant. The expected term represents an estimate of the
time options are expected to remain outstanding. The risk-free
interest rate is based on zero-coupon U.S. Treasuries with
remaining terms equivalent to the expected life of each option
grant. The expected dividend yield is based on the expected
annual dividends divided by the grant date market value of the
Companys common stock. All options are expensed over the
requisite service periods of the awards, which are generally the
vesting periods.
The Company used the following weighted average valuation
assumptions to estimate the fair value of options granted in the
nine months ended December 31, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
Nine months ended | |
|
|
| |
|
|
December 31, | |
|
December 31, | |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
Expected life (years)
|
|
|
2 |
|
|
|
2 |
|
Expected volatility
|
|
|
47.1 |
% |
|
|
49.5 |
% |
Expected dividend yield
|
|
|
0.96 |
% |
|
|
1.30 |
% |
Risk-free interest rate
|
|
|
4.93 |
% |
|
|
3.52 |
% |
Grant date fair value per share
|
|
$ |
8.92 |
|
|
$ |
7.13 |
|
Stock Plans
The Company has one stock-based compensation plan, the Metal
Management, Inc. 2002 Incentive Stock Plan (the 2002
Incentive Stock Plan). The 2002 Incentive Stock Plan
provides for the issuance of up to 4,000,000 shares of
common stock of the Company. The Compensation Committee of the
Board of Directors has the authority to issue stock awards under
the 2002 Incentive Stock Plan to the Companys employees,
consultants and directors over a period of up to ten years. The
stock awards can be in the form of stock options, stock
appreciation rights or restricted stock grants. As of
December 31, 2006, there are approximately 1.5 million
shares available for issuance under the 2002 Incentive Stock
Plan. Prior to the adoption of the 2002 Incentive Stock Plan,
the Company issued warrants to certain employees and directors,
of which, as of December 31, 2006, warrants to
purchase 17,000 shares of common stock remain
outstanding. The following table summarizes compensatory stock
option and warrant activity in the nine months ended
December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted | |
|
|
|
|
|
|
Weighted | |
|
Average | |
|
Aggregate | |
|
|
|
|
Average | |
|
Remaining | |
|
Intrinsic | |
|
|
|
|
Exercise | |
|
Contractual | |
|
Value | |
|
|
Shares | |
|
Price | |
|
Life(Yrs) | |
|
(in 000s) | |
|
|
| |
|
| |
|
| |
|
| |
Outstanding at March 31, 2006
|
|
|
796,210 |
|
|
$ |
22.08 |
|
|
|
|
|
|
|
|
|
Granted
|
|
|
120,000 |
|
|
|
31.33 |
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(330,878 |
) |
|
|
18.30 |
|
|
|
|
|
|
|
|
|
Expired/forfeited
|
|
|
0 |
|
|
|
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2006
|
|
|
585,332 |
|
|
$ |
26.12 |
|
|
|
5.48 |
|
|
$ |
6,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2006
|
|
|
415,334 |
|
|
$ |
24.51 |
|
|
|
5.63 |
|
|
$ |
5,542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of options exercised in the nine
months ended December 31, 2006 was $5.1 million,
determined as of the date of exercise. The total cash received
from stock option exercises in the nine months ended
December 31, 2006 was $6.0 million. As of
December 31, 2006, there was $0.3 million of
unrecognized compensation cost related to nonvested stock
options which is expected to be recognized by March 31,
2007.
9
METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes restricted stock award activity
in the nine months ended December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- | |
|
|
|
|
Average Grant | |
|
|
Shares | |
|
Date Fair Value | |
|
|
| |
|
| |
Outstanding at March 31, 2006
|
|
|
523,227 |
|
|
$ |
20.40 |
|
Granted
|
|
|
241,391 |
|
|
|
29.05 |
|
Vested
|
|
|
(23,707 |
) |
|
|
22.51 |
|
Cancelled
|
|
|
(3,350 |
) |
|
|
26.94 |
|
|
|
|
|
|
|
|
Outstanding at December 31, 2006
|
|
|
737,561 |
|
|
$ |
23.13 |
|
|
|
|
|
|
|
|
Restricted stock awards are subject to substantial risk of
forfeiture and to restrictions on their sale or other transfer
by the holder. A holder of restricted stock has voting rights
and is entitled to all dividends paid with respect to the
restricted stock. As of December 31, 2006, there was
$7.4 million of total unrecognized compensation cost, net
of estimated forfeitures, related to nonvested restricted stock
which is expected to be recognized over a weighted-average
period of 0.94 years. The total fair value of restricted
stock awards vested in the nine months ended December 31,
2006 was $0.7 million.
Employee Stock Purchase Plan
The Metal Management, Inc. Employee Stock Purchase Plan (the
ESPP) was adopted by the Board of Directors and
approved by the stockholders in September 2005 and became
effective on October 1, 2005. Under the ESPP, eligible
employees who elect to participate have the right to purchase
common stock, through payroll deductions, at a 15 percent
discount from the lower of the market value of the
Companys common stock at the beginning or the end of each
three month offering period. The Compensation Committee of the
Board of Directors administers the ESPP. The Company has
reserved a total of 1,000,000 shares of common stock for
issuance under the ESPP. As of December 31, 2006, there
were 982,578 shares available for future award grants under
the ESPP, of which 5,258 shares were issued on
January 2, 2007. In the nine months ended December 31,
2006, ESPP awards were valued using the following weighted
average assumptions:
|
|
|
|
|
Expected life (years)
|
|
|
0.25 |
|
Expected volatility
|
|
|
41.0 |
% |
Expected dividend yield
|
|
|
0.25 |
% |
Risk-free interest rate
|
|
|
4.90 |
% |
Grant date fair value per share
|
|
$ |
7.21 |
|
NOTE 3 Earnings Per Share
Basic earnings per share (EPS) is computed by
dividing net income by the weighted average common shares
outstanding. Diluted EPS reflects the potential dilution that
could occur from the exercise of stock
10
METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
options and warrants and from unvested restricted stock. The
following is a reconciliation of the numerators and denominators
used in computing EPS (in thousands, except for per share
amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended | |
|
Nine months ended | |
|
|
| |
|
| |
|
|
December 31, | |
|
December 31, | |
|
December 31, | |
|
December 31, | |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
15,579 |
|
|
$ |
15,346 |
|
|
$ |
89,541 |
|
|
$ |
37,713 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares, outstanding, basic
|
|
|
25,532 |
|
|
|
24,556 |
|
|
|
25,733 |
|
|
|
24,429 |
|
Incremental common shares attributable to dilutive stock options
and warrants
|
|
|
170 |
|
|
|
786 |
|
|
|
286 |
|
|
|
806 |
|
Incremental common shares attributable to unvested restricted
stock
|
|
|
393 |
|
|
|
391 |
|
|
|
338 |
|
|
|
298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, diluted
|
|
|
26,095 |
|
|
|
25,733 |
|
|
|
26,357 |
|
|
|
25,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share
|
|
$ |
0.61 |
|
|
$ |
0.63 |
|
|
$ |
3.48 |
|
|
$ |
1.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per share
|
|
$ |
0.60 |
|
|
$ |
0.60 |
|
|
$ |
3.40 |
|
|
$ |
1.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the three and nine months ended December 31, 2006,
options to purchase 150,000 and 225,089 weighted average
shares of common stock, respectively, were excluded from the
diluted EPS calculation. In the three and nine months ended
December 31, 2005, options to purchase 305,000 and
345,000 weighted average shares of common stock, respectively,
were excluded from the diluted EPS calculation. These shares
were excluded from the diluted EPS calculation as the option
exercise prices were greater than the average market price of
the Companys common stock for the respective periods
referenced above, and therefore their inclusion would have been
anti-dilutive.
NOTE 4 Other Balance Sheet Information
Short-term investments
All investments with original maturities of greater than
90 days are accounted for in accordance with
SFAS No. 115, Accounting for Certain Investments
in Debt and Equity Securities. The Company determines the
appropriate classification at the time of purchase. At
December 31, 2006, the Company had short-term investments
of approximately $26.5 million, which mainly consisted of
investments in auction rate securities which are classified as
available-for-sale. Auction rate securities consist of tax-free
bonds issued by municipalities which mainly carry AAA ratings.
Investments in auction rate securities are recorded at cost,
which approximates fair value due to their variable interest
rates which reset every 7 to 30 days. As a result, these
securities are classified as current assets. Despite the
long-term nature of their stated contractual maturities, there
is a readily liquid market for these securities. As a result,
the Company had no cumulative gross unrealized holding gains
(losses) or gross realized gains (losses) from its short-term
investments. All income generated from these investments was
recorded as other income.
11
METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Inventories
Inventories for all periods presented are stated at the lower of
cost or market. Cost is determined principally on the average
cost method. Inventories consist of the following at (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
March 31, | |
|
|
2006 | |
|
2006 | |
|
|
| |
|
| |
Ferrous metals
|
|
$ |
89,172 |
|
|
$ |
43,574 |
|
Non-ferrous metals
|
|
|
90,053 |
|
|
|
56,841 |
|
Other
|
|
|
269 |
|
|
|
268 |
|
|
|
|
|
|
|
|
|
|
$ |
179,494 |
|
|
$ |
100,683 |
|
|
|
|
|
|
|
|
Property and Equipment
Property and equipment consists of the following at (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
March 31, | |
|
|
2006 | |
|
2006 | |
|
|
| |
|
| |
Land and improvements
|
|
$ |
47,631 |
|
|
$ |
34,069 |
|
Buildings and improvements
|
|
|
29,139 |
|
|
|
26,524 |
|
Operating machinery and equipment
|
|
|
147,056 |
|
|
|
126,322 |
|
Automobiles and trucks
|
|
|
15,063 |
|
|
|
11,691 |
|
Furniture, office equipment and software
|
|
|
5,619 |
|
|
|
3,232 |
|
Construction in progress
|
|
|
13,731 |
|
|
|
7,469 |
|
|
|
|
|
|
|
|
|
|
|
258,239 |
|
|
|
209,307 |
|
Less accumulated depreciation
|
|
|
(91,112 |
) |
|
|
(74,633 |
) |
|
|
|
|
|
|
|
|
|
$ |
167,127 |
|
|
$ |
134,674 |
|
|
|
|
|
|
|
|
Other Accrued Liabilities
Other accrued liabilities consist of the following at (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
March 31, | |
|
|
2006 | |
|
2006 | |
|
|
| |
|
| |
Accrued employee compensation and benefits
|
|
$ |
18,088 |
|
|
$ |
22,137 |
|
Accrued insurance
|
|
|
5,572 |
|
|
|
5,118 |
|
Accrued equipment and land purchase commitment
|
|
|
1,370 |
|
|
|
4,000 |
|
Other
|
|
|
6,504 |
|
|
|
5,782 |
|
|
|
|
|
|
|
|
|
|
$ |
31,534 |
|
|
$ |
37,037 |
|
|
|
|
|
|
|
|
Accrued Severance and Other Charges
The following table summarizes accrued severance reserve
activity in the nine months ended December 31, 2006 (in
thousands):
|
|
|
|
|
Reserve balances at March 31, 2006
|
|
$ |
1,254 |
|
Charge to income
|
|
|
932 |
|
Cash payments
|
|
|
(140 |
) |
Non-cash application
|
|
|
(179 |
) |
|
|
|
|
Reserve balances at December 31, 2006
|
|
$ |
1,867 |
|
|
|
|
|
In the three months ended June 30, 2006, the Company
recognized severance and other charges of approximately
$442.4 thousand related to the termination of the
Companys former Executive Vice President. The severance
and other charges consisted of cash severance of
$263.2 thousand payable over twelve months and
$179.2 thousand of stock-based compensation expense related
to the acceleration of vesting of stock
12
METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
options and restricted stock held by the former Executive Vice
President. Approximately $124.5 thousand of severance
remains to be paid at December 31, 2006.
In the three months ended December 31, 2006, the Company
recognized severance and other charges of approximately
$490.0 thousand related to the estimated costs of a
proposed settlement of several outstanding claims between the
Company and former officers and directors Albert A. Cozzi, Frank
J. Cozzi and Gregory P. Cozzi. The Company expects the amount
accrued in the three months ended December 31, 2006, along
with previously accrued balances of approximately
$1.2 million in the aggregate will be paid in February 2007
when the settlement agreement is finalized (see
Note 10 Commitments and Contingencies).
NOTE 5 Acquisitions
The Company accounts for acquisitions using the purchase method
of accounting. The results of operations for companies acquired
are included in the Companys consolidated financial
statements for periods subsequent to the date of the acquisition.
On May 16, 2006, the Company acquired substantially all of
the assets of a scrap metal recycling yard in East Chicago,
Indiana. The total purchase price was approximately
$26.7 million, which consisted of $26.6 million in
cash and $0.1 million in other costs. The Company obtained
and considered independent valuations of the tangible and
intangible assets associated with the purchase and allocated the
purchase consideration as follows (in thousands):
|
|
|
|
|
|
Property and equipment acquired
|
|
$ |
8,827 |
|
Other tangible assets acquired
|
|
|
1,998 |
|
Amortizable intangible assets
|
|
|
12,640 |
|
Goodwill
|
|
|
3,641 |
|
|
|
|
|
|
Total assets acquired
|
|
|
27,106 |
|
Liabilities assumed
|
|
|
(419 |
) |
|
|
|
|
|
Total purchase price
|
|
$ |
26,687 |
|
|
|
|
|
The amortizable intangible assets consist of a customer list
that is being amortized over ten years and a non-compete
agreement that is being amortized over five years. Goodwill of
$3.6 million will be deductible for tax purposes. The
purchase price allocation may be subject to revision if
additional information on the fair value of assets and
liabilities becomes available. Any change in the fair value of
the net assets will change the amount of the purchase price
allocable to goodwill. The pro forma effects of this acquisition
on the Companys consolidated financial statements were not
significant.
NOTE 6 Goodwill and Other Intangible
Assets
The following table summarizes changes in the carrying amount of
goodwill in the nine months ended December 31, 2006 (in
thousands):
|
|
|
|
|
Balance at March 31, 2006
|
|
$ |
2,078 |
|
Purchase accounting adjustments
|
|
|
339 |
|
Acquisitions (see Note 5)
|
|
|
3,641 |
|
|
|
|
|
Balance at December 31, 2006
|
|
$ |
6,058 |
|
|
|
|
|
The purchase accounting adjustments primarily relate to the
settlement of purchase price contingencies.
13
METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Intangible assets consist of the following at (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006 | |
|
March 31, 2006 | |
|
|
| |
|
| |
|
|
Gross | |
|
|
|
Gross | |
|
|
|
|
Carrying | |
|
Accumulated | |
|
Carrying | |
|
Accumulated | |
|
|
Amount | |
|
Amortization | |
|
Amount | |
|
Amortization | |
|
|
| |
|
| |
|
| |
|
| |
Amortizable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer lists
|
|
$ |
12,710 |
|
|
$ |
(1,266 |
) |
|
$ |
4,900 |
|
|
$ |
(313 |
) |
|
Non-compete agreements
|
|
|
5,779 |
|
|
|
(1,009 |
) |
|
|
1,025 |
|
|
|
(240 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,489 |
|
|
|
(2,275 |
) |
|
|
5,925 |
|
|
|
(553 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-amortizable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension intangible
|
|
|
4 |
|
|
|
0 |
|
|
|
4 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
18,493 |
|
|
$ |
(2,275 |
) |
|
$ |
5,929 |
|
|
$ |
(553 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for intangible assets in the three and nine
months ended December 31, 2006 was $0.7 million and
$1.8 million, respectively. Amortization expense in the
three and nine months ended December 31, 2005 was
$39.0 thousand and $117.0 thousand, respectively. As
of December 31, 2006, expected future intangible asset
amortization expense will be as follows (in thousands):
|
|
|
|
|
Remainder of fiscal 2007
|
|
$ |
655 |
|
Fiscal 2008
|
|
|
2,643 |
|
Fiscal 2009
|
|
|
2,453 |
|
Fiscal 2010
|
|
|
2,413 |
|
Fiscal 2011
|
|
|
2,380 |
|
Thereafter
|
|
|
5,670 |
|
NOTE 7 Investments in Joint Ventures
At the beginning of the 2007 fiscal year, the Company had
investments in four joint ventures in which it owned between
28.5% and 50% of the joint venture interests. The most
significant joint venture investment was in Southern Recycling,
L.L.C. (Southern), in which the Company had a 28.5%
interest. On April 28, 2006, Southern was sold to a third
party for $161.4 million in cash. Based upon its ownership
interest, the Company received $46.0 million in cash of the
sale proceeds. In the nine months ended December 31, 2006,
the Company recognized a pre-tax gain on the sale of its
ownership interest in Southern of $26.4 million.
At December 31, 2006, investments in joint ventures was
$20.9 million, which primarily represents the
Companys 50% ownership interest in Metal Management
Nashville, LLC and 50% ownership interest in Port Albany
Ventures LLC.
NOTE 8 Long-term Debt
Long-term debt consists of the following at (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
March 31, | |
|
|
2006 | |
|
2006 | |
|
|
| |
|
| |
Mortgage loan (interest rate of 5.50%) due January 2009
|
|
$ |
0 |
|
|
$ |
1,920 |
|
Other debt, due 2010
|
|
|
274 |
|
|
|
1,328 |
|
|
|
|
|
|
|
|
|
|
|
274 |
|
|
|
3,248 |
|
Less current portion of long-term debt
|
|
|
(63 |
) |
|
|
(1,164 |
) |
|
|
|
|
|
|
|
|
|
$ |
211 |
|
|
$ |
2,084 |
|
|
|
|
|
|
|
|
14
METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During the three months ended December 31, 2006, the
Company used existing cash balances to repay two mortgage loans
in the aggregate amount of $1.9 million. Other debt as of
December 31, 2006 is primarily a note payable issued in
exchange for a non-compete agreement in connection with an
acquisition.
Credit Agreement
On May 9, 2006, the Company entered into a
$300 million secured five-year revolving credit and letter
of credit facility, with a maturity date of May 1, 2011 (as
amended, the Credit Agreement). The Credit Agreement
replaced the Companys previous $200 million secured
revolving and letter of credit facility. In consideration for
the Credit Agreement, the Company incurred fees and expenses of
approximately $0.6 million. Pursuant to the Credit
Agreement, the Company pays a fee on the undrawn portion of the
facility that is determined by the leverage ratio (currently
..175% per annum). Significant covenants under the Credit
Agreement include the satisfaction of a leverage ratio and
interest coverage ratio. In addition, the Credit Agreement
permits capital expenditures of up to $90 million for the
year ending March 31, 2007.
The Credit Agreement provides for interest rates based on
variable rates tied to the prime rate plus or minus a margin or
the London Interbank Offered Rate (LIBOR) plus a
margin. The margin is based on the Companys leverage ratio
(as defined in the Credit Agreement) as determined for the
trailing four fiscal quarters. Based on the current leverage
ratio, the margins are either LIBOR plus .875% or prime rate
minus .25%. At December 31, 2006, the Company had no
borrowings outstanding under the Credit Agreement.
NOTE 9 Employee Benefit Plans
The Company sponsors three defined benefit pension plans for
employees at certain of its subsidiaries. Only employees covered
under collective bargaining agreements accrue future benefits
under these defined benefit pension plans. These benefits are
based either on years of service and compensation or on years of
service at fixed benefit rates. The Companys funding
policy for the pension plans is to contribute amounts required
to meet regulatory requirements. The components of net pension
costs were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Nine Months Ended | |
|
|
| |
|
| |
|
|
December 31, | |
|
December 31, | |
|
December 31, | |
|
December 31, | |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
Service cost
|
|
$ |
44 |
|
|
$ |
41 |
|
|
$ |
131 |
|
|
$ |
124 |
|
Interest cost
|
|
|
176 |
|
|
|
174 |
|
|
|
529 |
|
|
|
524 |
|
Expected return on plan assets
|
|
|
(184 |
) |
|
|
(174 |
) |
|
|
(552 |
) |
|
|
(523 |
) |
Amortization of prior service cost
|
|
|
2 |
|
|
|
24 |
|
|
|
7 |
|
|
|
71 |
|
Recognized net actuarial loss
|
|
|
47 |
|
|
|
49 |
|
|
|
141 |
|
|
|
147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$ |
85 |
|
|
$ |
114 |
|
|
$ |
256 |
|
|
$ |
343 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the nine months ended December 31, 2006, the Company
made cash contributions of $1.0 million to its pension
plans. Based on estimates provided by its actuaries, the Company
has fulfilled the cash funding requirements for the pension
plans for the fiscal year ended March 31, 2007 and expects
to make cash contributions of $0.9 million in the year
ending March 31, 2008.
Other Plans
The Company also contributes to several multi-employer pension
plans for certain employees covered under collective bargaining
agreements. Pension contributions to these multi-employer plans
were $0.1 million and $0.4 million in the three and
nine months ended December 31, 2006, respectively, and
$0.1 million and $0.4 million in the three and nine
months ended December 31, 2005, respectively.
15
METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 10 Commitments and Contingencies
Environmental and Labor Matters
The Company is subject to comprehensive local, state, federal
and international regulatory and statutory environmental
requirements relating to, among others, the acceptance, storage,
treatment, handling and disposal of solid waste and hazardous
waste, the discharge of materials into air, the management and
treatment of wastewater and storm water, the remediation of soil
and groundwater contamination, the restoration of natural
resource damages and the protection of employees health
and safety. The Company believes that it and its subsidiaries
are in material compliance with currently applicable statutes
and regulations governing the protection of human health and the
environment, including employee health and safety. However,
environmental legislation may in the future be enacted and
create liability for past actions and the Company or its
subsidiaries may be fined or held liable for damages.
Certain of the Companys subsidiaries have received notices
from the United States Environmental Protection Agency
(USEPA), state agencies or third parties that the
subsidiary has been identified as potentially responsible for
the cost of investigation and cleanup of landfills or other
sites where the subsidiarys material was shipped. In most
cases, many other parties are also named as potentially
responsible parties. The Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA or
Superfund) enables USEPA and state agencies to
recover from owners, operators, generators and transporters the
cost of investigation and cleanup of sites which pose serious
threats to the environment or public health. In certain
circumstances, a potentially responsible party can be held
jointly and severally liable for the cost of cleanup. In other
cases, a party who is liable may only be liable for a divisible
share. Liability can be imposed even if the party shipped
materials in a lawful manner at the time of shipment and the
liability for investigation and cleanup costs can be
significant, particularly in cases where joint and several
liability may be imposed.
CERCLA, including the Superfund Recycling Equity Act of 1999
(SREA), limits the exposure of scrap metal recyclers
for sales of certain recyclable material under certain
circumstances. However, the recycling defense is subject to
conducting reasonable care evaluations of current and potential
consumers. The Company is executing its SREA responsibility
through a contractor working for the Institute of Scrap
Recycling Industries.
Because CERCLA can be imposed retroactively on shipments that
occurred many years ago, and because USEPA and state agencies
are still discovering sites that present problems to public
heath or the environment, the Company can provide no assurance
that it will not become liable in the future for significant
costs associated with any such investigations and remediation of
CERCLA waste sites.
On July 1, 1998, Metal Management Connecticut, Inc.
(MM-Connecticut),
a subsidiary of the Company, acquired the scrap metal recycling
assets of Joseph A. Schiavone Corp. (formerly known as Michael
Schiavone & Sons, Inc.). The acquired assets include
real property in North Haven, Connecticut upon which
MM-Connecticuts
scrap metal recycling operations are currently performed (the
North Haven Facility). The owner of Joseph A.
Schiavone Corp. was Michael Schiavone (Schiavone).
On March 31, 2003, the Connecticut Department of
Environmental Protection (CTDEP) filed suit
against Joseph A. Schiavone Corp., Schiavone, and
MM-Connecticut in the
Superior Court of the State of Connecticut Judicial
District of Hartford. An amended complaint was filed by the
CTDEP on October 21, 2003. The suit alleges, among other
things, that the North Haven Facility discharged and continues
to discharge contaminants, including oily material, into the
environment and has failed to comply with the terms of certain
permits and other filing requirements. The suit seeks
injunctions to restrict
MM-Connecticut from
maintaining discharges and to require
MM-Connecticut to
remediate the facility. The suit also seeks civil penalties from
all of the defendants in accordance with Connecticut
environmental statutes. The suit makes specific claims against
Schiavone and Joseph A. Schiavone Corp. for their alleged
violations of environmental laws including, among other things,
Joseph A. Schiavone Corp.s failure to comply with the
Connecticut Property Transfer Act when it sold the North Haven
Facility to
MM-Connecticut. At this
stage, the Company is not able to
16
METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
predict
MM-Connecticuts
potential liability in connection with this action or any
required investigation and/or remediation. The Company believes
that MM-Connecticut has
meritorious defenses to certain of the claims asserted in the
suit and MM-Connecticut
intends to vigorously defend itself against the claims. In
addition, the Company believes it is entitled to indemnification
from Joseph A. Schiavone Corp. and Schiavone for some or all of
the obligations and liabilities that may be imposed on
MM-Connecticut in
connection with this matter under the various agreements
governing its purchase of the North Haven Facility from Joseph
A. Schiavone Corp., as well as for costs associated with the
undisclosed conditions of the property. The Company cannot
provide assurances that Joseph A. Schiavone Corp. or Schiavone
will have sufficient resources to fund any or all indemnifiable
claims to which the Company may be entitled.
In a letter dated July 13, 2005,
MM-Connecticut and the
Company received notification from Schiavone of his demand
seeking indemnification (including the advance of all costs,
charges and expenses incurred by Schiavone in connection with
his defense) from
MM-Connecticut and the
Company to those claims made against Schiavone in the action
brought by CTDEP. Schiavones demand refers to his
employment agreement at the time and to the certificate of
incorporation of
MM-Connecticut, which
provide for indemnification against claims by reason of his
being or having been a director, officer, employee, or agent of
MM-Connecticut, or
serving or having served at the request of
MM-Connecticut as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust, or other enterprise to the
fullest extent permitted by applicable law. The Company believes
that MM-Connecticut has
meritorious defenses to Schiavones indemnification demand.
The Company has also asserted its own claims for indemnification
against Schiavone pursuant to the terms of the asset purchase
agreement.
The Company has worked with an independent environmental
consultant to implement a CTDEP approved characterization plan
jointly funded by Schiavone and the Company. The Company is
continuing its efforts to reach an acceptable settlement with
the other parties with respect to the CTDEP action, but it
cannot provide assurances that such a settlement will in fact be
reached.
On November 10, 2006, the Company filed a demand for
arbitration with the American Arbitration Association against
Schiavone and Joseph A. Schiavone Corp. in accordance with the
arbitration provisions of the asset purchase agreement governing
MM-Connecticuts
purchase of the North Haven Facility. In the arbitration demand,
the Company has asserted various breach of contract claims and
claims for fraudulent inducement and fraudulent concealment
against Schiavone and Joseph A. Schiavone Corp. The Company
seeks findings of liability against Schiavone and an order for
indemnification, punitive damages, compliance with the
Connecticut Property Transfer Act, and reimbursement for
arbitration costs. The arbitration proceeding is in its initial
stages. In its initial response in the arbitration proceeding,
Schiavone and Joseph A. Schiavone Corp. have denied any
liability to the Company and asserted various counterclaims for
indemnification. While at this preliminary stage the Company is
unable to determine the outcome or potential amount of recovery,
the Company believes that its claims are meritorious. The
Company intends to vigorously defend the counterclaims asserted
by Schiavone and Joseph A. Schiavone Corp. in the arbitration.
On December 15, 2006, the Company filed an application for
prejudgment remedy and a motion for disclosure of assets against
Schiavone in the U.S. District Court for the District of
Connecticut to identify and preserve Schiavones assets
during the pendency of the arbitration proceedings so that an
award in the Companys favor may be satisfied in the event
the Company prevails. At this preliminary stage, the Company is
unable to determine the likelihood of success, but believes that
its arguments are meritorious.
On April 29, 1998, Metal Management Midwest, Inc.
(MM-Midwest),
a subsidiary of the Company, acquired substantially all of the
operating assets of 138 Scrap, Inc.
(138 Scrap) that were used in its scrap metal
recycling business. Most of these assets were located at a
recycling facility in Riverdale, Illinois (the
Facility). In early November 2003,
MM-Midwest was served
with a Notice of Intent to Sue (the Notice) by The
Jeff Diver Group, L.L.C., on behalf of the Village of Riverdale,
alleging, among other things, that the release or disposal of
hazardous substances within the meaning of CERCLA has occurred at
17
METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
an approximately 57 acre property in the Village of
Riverdale (which includes the 8.8 acre Facility that was
leased by MM-Midwest
until December 31, 2003). The Notice indicates that the
Village of Riverdale intends to file suit against
MM-Midwest (directly
and as a successor to 138 Scrap) and numerous other third
parties under one or both of CERCLA and the Resource
Conservation and Recovery Act. At this stage, the Company cannot
predict
MM-Midwests
potential liability, if any, in connection with such lawsuit or
any required remediation. The Company believes that it has
meritorious defenses to certain of the claims outlined in the
Notice and MM-Midwest
intends to vigorously defend itself against any claims
ultimately asserted by the Village of Riverdale. In addition,
although the Company believes that it would be entitled to
indemnification from the prior owner of 138 Scrap for some or
all of the obligations that may be imposed on
MM-Midwest in
connection with this matter under the agreement governing its
purchase of the operating assets of 138 Scrap, the Company
cannot provide assurances that the prior owner will have
sufficient resources to fund any indemnifiable claims to which
the Company may be entitled.
On or about September 23, 2005, CTDEP issued two Notices of
Violation (NOVs) to Metal Management Aerospace, Inc.
(MM-Aerospace),
a subsidiary of the Company, alleging violations of
environmental law at
MM-Aerospaces
Hartford facility, including, among other things:
(1) operation of a solid waste facility without a permit;
(2) failure to comply with certain regulatory requirements
pertaining to the management and/or disposal of used oil,
hazardous wastes and/or polychlorinated byphenols;
(3) failure to comply with certain waste water discharge
obligations; (4) failure to comply with certain storm water
management requirements; and (5) failure to maintain the
facility so as not to create an unreasonable source of pollution
to the waters of the State of Connecticut. Substantially similar
NOVs were also issued by CTDEP to the property lessor and former
business owner, Danny Corp., at the same time.
On October 21, 2005,
MM-Aerospace submitted
substantive responses to CTDEP regarding the NOVs. At this time,
because CTDEP has yet to formally respond to
MM-Aerospaces NOV
responses, the Company is unable to determine
MM-Aerospaces
potential liability under environmental law in connection with
these NOVs. The Company believes that
MM-Aerospace has
meritorious defenses to certain of the allegations outlined in
the NOVs that were raised in the Companys responses to
said NOVs. In addition, the Company believes that by virtue of
certain consent orders, Connecticut Transfer Act obligations,
and lease/transactional documents executed by Danny Corp. and/or
its predecessors in interest, certain environmental liabilities
noted in the NOVs will be the responsibility of Danny Corp.
However, at the present time, even if Danny Corp. is determined
to be liable for any of the matters raised in the NOVs, there
can be no assurance that Danny Corp. will have sufficient
resources to fund any or all of such liabilities.
On June 22, 2006, Metal Management Alabama, Inc.
(MM-Alabama),
a subsidiary of the Company, received a notice from the Alabama
Department of Environmental Management (ADEM)
directing MM-Alabama to
prepare a plan to remove waste from a property in Cleburne
County, Alabama known as the CAMMCO Site.
MM-Alabama has begun an
investigation to determine (i) if it has any liability for
the waste allegedly present on the CAMMCO Site, (ii) the
nature and quantity of the waste allegedly on the CAMMCO Site,
(iii) the identities of other potentially responsible
parties, and (iv) the availability of insurance or
indemnity for any possible liability. At this preliminary stage,
the Company has not determined whether
MM-Alabama has any
liability with respect to the CAMMCO Site.
Legal Proceedings
In January 2003, the Company received a subpoena requesting that
it provide documents to a grand jury that is investigating scrap
metal purchasing practices in the four state region of Ohio,
Illinois, Indiana and Michigan. The Company has fully cooperated
with the subpoena and the grand jurys investigation. The
Company is unable at this stage to determine future legal costs
or other costs to be incurred in responding to such subpoena or
other impact to the Company of such investigation.
18
METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As a result of internal audits conducted by the Company, the
Company determined that current and former employees of a
subsidiary of the Company engaged in activities relating to cash
payments to individual industrial account suppliers of scrap
metal that may have involved violations of federal and state
law. In May 2004, the Company voluntarily disclosed its concerns
regarding such cash payments to the U.S. Department of
Justice. The Board of Directors appointed a special committee,
consisting solely of independent directors, to conduct an
investigation of these activities. On July 1, 2006, the
Company disbanded the special committee. The Company is
cooperating with the U.S. Department of Justice. The
Company implemented policies to eliminate cash payments to
industrial customers. In the year ended March 31, 2004,
such cash payments to industrial customers represented
approximately 0.7% of the Companys consolidated ferrous
and non-ferrous yard shipments. The fines and penalties under
applicable statutes contemplate qualitative as well as
quantitative factors that are not readily assessable at this
stage of the investigation, but could be material. The Company
is not able to predict at this time the outcome of any actions
by the U.S. Department of Justice or other governmental
authorities or their effect on the Company, if any, and
accordingly, the Company has not recorded any amounts in the
financial statements. The Company has incurred legal and other
costs related to this matter of approximately $2.4 million
to date.
On July 15, 2005, the Company and
MM-Midwest filed a
complaint (the Complaint) in the Circuit Court of
Cook County, Illinois, Chancery Division against former officers
and directors Albert A. Cozzi, Frank J. Cozzi, and Gregory P.
Cozzi for allegedly breaching their respective separation and
release agreements, and against Frank J. Cozzi and Gregory P.
Cozzi for alleged constructive fraud. The Cozzis filed a
counterclaim seeking recovery of amounts allegedly due under the
separation and release agreements. On March 8, 2006, the
Cozzis motion to compel arbitration was granted, the lawsuit was
dismissed, and the parties proceeded to arbitration before the
American Arbitration Association. The Company expects to reach a
settlement with the Cozzis in February 2007 of several
outstanding claims and, if an agreement is reached, the Company
anticipates paying the Cozzis in the aggregate $1.2 million
in previously accrued balances and approximately
$490.0 thousand in other costs. Payment will be funded from
existing cash balances of the Company.
From time to time, the Company is involved in various litigation
matters involving ordinary and routine claims incidental to its
business. A significant portion of these matters result from
environmental compliance issues and workers compensation related
claims arising from the Companys operations. There are
presently no legal proceedings pending against the Company,
which, in the opinion of the Companys management, is
likely to have a material adverse effect on its business,
financial condition or results of operations.
NOTE 11 Stockholders Equity
The Company is authorized to issue, in one or more series, up to
a maximum of 2,000,000 shares of preferred stock. The
Company has not issued any shares of preferred stock. The
Company is authorized to issue 50,000,000 shares of common
stock, par value $0.01 per share.
Stock Repurchase Program
On September 8, 2006, the Companys Board of Directors
approved a stock repurchase program that authorizes the Company
to repurchase up to 2.7 million shares of its common stock.
Under the Credit Agreement, the Company is permitted to spend up
to $100 million for the purchase of its common stock during
the term of the Credit Agreement. As of December 31, 2006,
the Company had purchased 763,400 shares of its common
stock under this program at a cost of $20.8 million, or at
an average cost of $27.29 per share. The stock repurchase
program has no expiration date but may be terminated at any time
by the Board of Directors.
Series A Warrants
During the period from November 20, 2000 to June 29,
2001, the Company operated its business as a
debtor-in-possession
subject to the jurisdiction of the United States Bankruptcy
Court for the District of
19
METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Delaware. On June 29, 2001, the Plan of Reorganization
(Plan) became effective and the Company emerged from
bankruptcy.
In accordance with the Plan, the Company distributed
697,465 warrants to purchase 1,394,930 shares of
common stock (designated as Series A Warrants).
The Series A Warrants, which expired on June 29, 2006,
were distributed to the predecessor companys stockholders
and were immediately exercisable. Each Series A Warrant had
a strike price of $21.19 per warrant and was exercisable
for two shares of common stock. At June 29, 2006, there
were approximately 36,000 Series A Warrants outstanding
which were cancelled. As a result, the Company reclassified
$22.0 thousand related to the Series A Warrants to
additional paid-in capital.
20
This Form 10-Q
includes certain statements that may be deemed to be
forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Statements in
this Form 10-Q
which address activities, events or developments that Metal
Management, Inc. (herein, Metal Management, the
Company, we, us,
our or other similar terms) expects or anticipates
will or may occur in the future, including such things as future
acquisitions (including the amount and nature thereof), business
strategy, expansion and growth of our business and operations,
general economic and market conditions and other such matters
are forward-looking statements. Although we believe the
expectations expressed in such forward-looking statements are
based on reasonable assumptions within the bounds of our
knowledge of our business, a number of factors could cause
actual results to differ materially from those expressed in any
forward-looking statements. These and other risks, uncertainties
and other factors are discussed under Risk Factors
appearing in our Annual Report on
Form 10-K for the
year ended March 31, 2006, as the same may be amended from
time to time.
|
|
Item 2. |
Managements Discussion and Analysis of Financial
Condition and Results of Operations |
The following discussion should be read in conjunction with the
unaudited consolidated financial statements and notes thereto
included under Item 1 of this Report. In addition,
reference should be made to the audited consolidated financial
statements and notes thereto and related Managements
Discussion and Analysis of Financial Condition and Results of
Operations included in our Annual Report on
Form 10-K for the
year ended March 31, 2006 (Annual Report).
Overview
We are one of the largest domestic scrap metal recycling
companies with approximately 50 facilities in 16 states. We
enjoy leadership positions in many markets, such as Birmingham,
Chicago, Cleveland, Denver, Hartford, Houston, Memphis,
Mississippi, Newark, New Haven, Phoenix, Pittsburgh, Salt Lake
City, Toledo and Tucson. We operate in one reportable segment,
the scrap metal recycling industry.
Our operations primarily involve the collection, processing and
marketing of ferrous and non-ferrous scrap metals. We collect
obsolete and industrial scrap metal, process it into reusable
forms and supply the recycled metals to our customers, including
electric-arc furnace mills, integrated steel mills, foundries,
secondary smelters and metal brokers. In addition to the buying,
processing and marketing of ferrous and non-ferrous scrap
metals, we are periodically retained as demolition contractors
in certain of our large metropolitan markets in which we
dismantle obsolete machinery, buildings and other structures
containing metal and, in the process, collect both the ferrous
and non-ferrous metals from these sources. At certain of our
locations adjacent to commercial waterways, we provide
stevedoring services. We also operate a bus dismantling business
combined with a bus replacement parts business in Newark, New
Jersey.
We believe that we provide one of the most comprehensive product
offerings of both ferrous and non-ferrous scrap metals. Our
ferrous products primarily include shredded, sheared, cold
briquetted and bundled scrap metal, and other purchased scrap
metal, such as turnings, cast and broken furnace iron. We also
process non-ferrous scrap metals including, but not limited to,
aluminum, copper, stainless steel and other nickel-bearing
metals, brass, titanium and high-temperature alloys, using
similar techniques and through certain proprietary technologies.
Results of Operations
Our operating results are highly cyclical in nature. They tend
to reflect and be amplified by changes to general economic
conditions, both domestically and internationally. This leads to
significant fluctuations in demand and pricing for our products.
In the nine months ended December 31, 2006, we experienced
volatile prices for ferrous scrap which can cause collection
rates for ferrous scrap to increase (when prices are higher) or
decrease (when prices are lower). These variations have had a
significant effect on sales volumes we have handled and are able
to ship through our scrap yards. Variability of units handled by
our scrap yards and variability in units shipped, along with
changing metal prices, are key drivers of variations in our
operating results.
21
Our national footprint enables us to take advantage of relative
strengths in either domestic or export markets and also provides
us transportation advantages. For example, during periods of
weakness in demand from domestic consumers of ferrous scrap, we
are able to leverage our operational flexibility and
multifaceted distribution network to take advantage of more
favorable international markets and to mitigate the effects of
periodic weakness in domestic demand such as we experienced in
the three months ended December 31, 2006. We exported
approximately 500,000 tons of ferrous scrap in the three months
ended December 31, 2006, which is a record.
In the three months ended December 31, 2006, we generated
net sales of $524.0 million, pre-tax income of
$23.7 million and net income of $15.6 million. In the
nine months ended December 31, 2006, we generated net sales
of $1.6 billion, pre-tax income of $145.0 million and
net income of $89.5 million.
Our operating results in the three months ended
December 31, 2006 reflected lower pre-tax income and net
income compared to the first and second quarters of the current
fiscal year. This was a result of lower prices and demand for
ferrous scrap metal in the U.S. and lower income from joint
ventures. Domestic demand for ferrous scrap was lower because
U.S. steel mills produced less steel in the three months
ended December 31, 2006 reducing their needs for raw
materials like ferrous scrap. Weaker ferrous markets were
evident in November 2006 when prices for factory bundles
declined by as much as $75 per ton from levels at September
2006. Other grades of ferrous scrap also declined but to a
lesser degree than factory bundles. Weaker demand for ferrous
scrap from U.S. steel mills was mitigated, to an extent, by
an increase in demand for ferrous scrap metal from international
markets. However, higher freight and other costs associated with
export shipments negatively impacted our ferrous margins in the
three months ended December 31, 2006. Our non-ferrous
operations continued to perform well in the three months ended
December 31, 2006 due to favorable pricing and generally
strong demand for non-ferrous metals in a quarter historically
weaker in demand. Demand for industrial based metals, such as
aluminum and copper, was strong in the three months ended
December 31, 2006. Demand for nickel-based scrap, such as
stainless steel, in the U.S. was generally weaker in the
three months ended December 31, 2006 than in the first and
second quarters of the current fiscal year. We exported
stainless scrap in the three months ended December 31, 2006
to mitigate the weak demand from the U.S., but at lower margins
than in the first and second quarters of the current fiscal year.
Prices for non-ferrous metals were generally higher in the three
months ended December 31, 2006 as compared to the three
months ended December 31, 2005 although the price of copper
declined from $3.56 per pound to $2.85 per pound in
the three months ended December 31, 2006 (according to
COMEX data). Our non-ferrous sales have increased to represent
34.9% and 34.8% of sales in the three and nine months ended
December 31, 2006, respectively, compared to 29.4% and
29.8% in the three and nine months ended December 31, 2005,
respectively. We believe this was due to strong pricing and
demand for non-ferrous metals attributable in part to demand
from industrializing countries such as China who have become
significant consumers of industrial metals and especially
non-ferrous metals. Many analysts and media reporters believe
that demand from industrializing countries such as China for
non-ferrous metals is in large part the reason for the extremely
high prices of non-ferrous metals as compared to historical
averages.
Our operating results in the nine months ended December 31,
2006 remained strong, which was attributable to favorable
industry conditions for non-ferrous metals, a careful focus on
internal operations, benefits from our capital expenditures and
financial discipline. Our industry conditions have generally
been favorable for three calendar years and have remained so for
most of the current fiscal year. In the nine months ended
December 31, 2006, pricing and demand for ferrous metals
were favorable for the first two quarters (due in part to demand
from international markets) but ferrous markets weakened in the
U.S. in third quarter of fiscal 2007 as described above.
Consequently, we experienced strong earnings in the first two
quarters of fiscal 2007 and sequentially significantly lower
earnings in the third quarter of fiscal 2007. Historically,
changing demand and prices for ferrous scrap metals can
significantly impact our earnings, as has been the case in
fiscal 2007. The strength in demand and better pricing for
non-ferrous metals in fiscal 2007 allowed us to ship non-ferrous
scrap metals with attractive margins. Additionally, benefits
realized from recovering more non-ferrous metals from our
shredding operations has significantly increased sales and
operating income in fiscal 2007. On balance, the relative
weakness in domestic ferrous markets in certain periods of
fiscal 2007 was
22
offset by international demand for ferrous scrap and strength in
non-ferrous markets and allowed us to increase our sales and
profitability as compared to the nine months ended
December 31, 2005.
Despite our strong results in the nine months ended
December 31, 2006, there can be no assurance that strong
non-ferrous markets will always outweigh the potential negative
consequences to our earnings associated with weak domestic
ferrous markets and lower ferrous metal prices (as evidenced in
the three months ended December 31, 2006). Additionally, we
cannot expect that international demand for ferrous scrap will
always offset relatively weak demand from U.S. steel mills.
The following table sets forth our results of operations for the
three and nine months ended December 31, 2006 and 2005 ($
in thousands):
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|
|
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|
|
|
|
|
|
|
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|
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|
|
Three Months Ended December 31, | |
|
Nine Months Ended December 31, | |
|
|
| |
|
| |
|
|
2006 | |
|
% | |
|
2005 | |
|
% | |
|
2006 | |
|
% | |
|
2005 | |
|
% | |
|
|
| |
|
| |
|
| |
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| |
|
| |
|
| |
|
| |
|
| |
Sales by commodity:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ferrous metals
|
|
$ |
300,432 |
|
|
|
57.3 |
|
|
$ |
255,731 |
|
|
|
64.7 |
% |
|
$ |
946,543 |
|
|
|
59.0 |
|
|
$ |
747,482 |
|
|
|
64.7 |
% |
|
Non-ferrous metals
|
|
|
182,680 |
|
|
|
34.9 |
|
|
|
116,177 |
|
|
|
29.4 |
|
|
|
558,704 |
|
|
|
34.8 |
|
|
|
344,650 |
|
|
|
29.8 |
|
|
Brokerage ferrous
|
|
|
35,116 |
|
|
|
6.7 |
|
|
|
15,437 |
|
|
|
3.9 |
|
|
|
78,020 |
|
|
|
4.9 |
|
|
|
42,925 |
|
|
|
3.7 |
|
|
Brokerage non-ferrous
|
|
|
1,391 |
|
|
|
0.3 |
|
|
|
1,513 |
|
|
|
0.4 |
|
|
|
6,865 |
|
|
|
0.4 |
|
|
|
5,040 |
|
|
|
0.4 |
|
|
Other
|
|
|
4,346 |
|
|
|
0.8 |
|
|
|
6,232 |
|
|
|
1.6 |
|
|
|
14,453 |
|
|
|
0.9 |
|
|
|
14,928 |
|
|
|
1.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
523,965 |
|
|
|
100.0 |
% |
|
|
395,090 |
|
|
|
100.0 |
% |
|
|
1,604,585 |
|
|
|
100.0 |
% |
|
|
1,155,025 |
|
|
|
100.0 |
% |
|
Cost of sales (excluding depreciation)
|
|
|
471,702 |
|
|
|
90.0 |
|
|
|
345,984 |
|
|
|
87.6 |
|
|
|
1,401,886 |
|
|
|
87.4 |
|
|
|
1,025,411 |
|
|
|
88.8 |
|
General and administrative expense
|
|
|
21,913 |
|
|
|
4.2 |
|
|
|
20,469 |
|
|
|
5.2 |
|
|
|
65,560 |
|
|
|
4.1 |
|
|
|
58,711 |
|
|
|
5.1 |
|
Depreciation and amortization expense
|
|
|
7,131 |
|
|
|
1.4 |
|
|
|
4,891 |
|
|
|
1.2 |
|
|
|
21,322 |
|
|
|
1.3 |
|
|
|
13,868 |
|
|
|
1.2 |
|
Severance and other charges
|
|
|
490 |
|
|
|
0.1 |
|
|
|
995 |
|
|
|
0.3 |
|
|
|
932 |
|
|
|
0.1 |
|
|
|
995 |
|
|
|
0.1 |
|
Income from joint ventures
|
|
|
357 |
|
|
|
0.1 |
|
|
|
2,964 |
|
|
|
0.8 |
|
|
|
2,771 |
|
|
|
0.2 |
|
|
|
6,466 |
|
|
|
0.6 |
|
Interest expense
|
|
|
(373 |
) |
|
|
0.1 |
|
|
|
(418 |
) |
|
|
0.1 |
|
|
|
(979 |
) |
|
|
0.0 |
|
|
|
(1,176 |
) |
|
|
0.1 |
|
Interest and other income, net
|
|
|
969 |
|
|
|
0.2 |
|
|
|
376 |
|
|
|
0.1 |
|
|
|
1,913 |
|
|
|
0.1 |
|
|
|
1,433 |
|
|
|
0.1 |
|
Gain on sale of joint venture interest
|
|
|
0 |
|
|
|
0.0 |
|
|
|
0 |
|
|
|
0.0 |
|
|
|
26,362 |
|
|
|
1.6 |
|
|
|
0 |
|
|
|
0.0 |
|
Provision for income taxes
|
|
|
8,103 |
|
|
|
1.5 |
|
|
|
10,327 |
|
|
|
2.6 |
|
|
|
55,411 |
|
|
|
3.4 |
|
|
|
25,050 |
|
|
|
2.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
15,579 |
|
|
|
3.0 |
% |
|
$ |
15,346 |
|
|
|
3.9 |
% |
|
$ |
89,541 |
|
|
|
5.6 |
% |
|
$ |
37,713 |
|
|
|
3.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 | |
|
|
|
2005 | |
|
|
|
2006 | |
|
|
|
2005 | |
|
|
Sales volume by commodity |
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
(In thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ferrous metals (tons)
|
|
|
1,176 |
|
|
|
|
|
|
|
1,060 |
|
|
|
|
|
|
|
3,514 |
|
|
|
|
|
|
|
3,210 |
|
|
|
|
|
Non-ferrous metals (lbs.)
|
|
|
126,712 |
|
|
|
|
|
|
|
124,334 |
|
|
|
|
|
|
|
392,024 |
|
|
|
|
|
|
|
355,784 |
|
|
|
|
|
Brokerage ferrous (tons)
|
|
|
146 |
|
|
|
|
|
|
|
69 |
|
|
|
|
|
|
|
312 |
|
|
|
|
|
|
|
207 |
|
|
|
|
|
Brokerage non-ferrous (lbs.)
|
|
|
969 |
|
|
|
|
|
|
|
1,478 |
|
|
|
|
|
|
|
3,882 |
|
|
|
|
|
|
|
4,720 |
|
|
|
|
|
Net Sales
Consolidated net sales increased by $128.9 million (32.6%)
and $449.6 million (38.9%) to $524.0 million and
$1.6 billion in the three and nine months ended
December 31, 2006, respectively, compared to consolidated
net sales of $395.1 million and $1.16 billion in the
three and nine months ended December 31, 2005,
respectively. The increase in consolidated net sales was
primarily due to higher average selling prices for both ferrous
and non-ferrous metals, increased unit shipments, and sales from
our recent acquisitions.
Ferrous Sales
Ferrous sales increased by $44.7 million (17.5%) and
$199.0 million (26.6%) to $300.4 million and
$946.5 million in the three and nine months ended
December 31, 2006, respectively, compared to ferrous sales
of $255.7 million and $747.5 million in the three and
nine months ended December 31, 2005, respectively. The
increase was due to higher average selling prices, increased
unit shipments and sales generated from recent
23
acquisitions. In the three and nine months ended
December 31, 2006, the average selling price for ferrous
products increased by approximately $14 per ton (5.9%) to
$255 per ton and $36 per ton (15.7%) to $269 per
ton, respectively, while ferrous unit shipments increased by
116,000 tons (10.9%) and 304,000 tons (9.5%), respectively,
compared to the three and nine months ended December 31,
2005. Ferrous sales generated from recent acquisitions were
approximately $15.3 million and $52.8 million in the
three and nine months ended December 31, 2006, respectively.
The increase in selling prices for ferrous scrap was evident in
data published by American Metal Market (AMM).
According to AMM data, the average price for #1 Heavy
Melting Steel Scrap Chicago (which is a common
indicator for ferrous scrap) was approximately $222 per ton
in the nine months ended December 31, 2006, compared to
$198 per ton in the nine months ended December 31,
2005.
Non-ferrous Sales
Non-ferrous sales increased by $66.5 million (57.2%) and
$214.0 million (62.1%) to $182.7 million and
$558.7 million in the three and nine months ended
December 31, 2006, respectively, compared to non-ferrous
sales of $116.2 million and $344.7 million in the
three and nine months ended December 31, 2005,
respectively. The increase was primarily due to higher average
selling prices and, to a lesser degree, from increased unit
shipments as a result of sales generated from recent
acquisitions. In the three and nine months ended
December 31, 2006, the average selling price for
non-ferrous products increased by approximately $0.51 per
pound (54.8%) to $1.44 per pound and $0.46 per pound
(47.4%) to $1.43 per pound, respectively, while non-ferrous
unit shipments increased by 2.4 million pounds (1.9%) and
36.2 million pounds (10.2%), respectively, compared to the
three and nine months ended December 31, 2005.
Our non-ferrous operations have benefited from higher prices for
copper, aluminum and stainless steel (nickel base metal) in the
three and nine months ended December 31, 2006. The increase
in non-ferrous prices was evident in data published by the
London Metals Exchange (LME) and COMEX. According to
COMEX data, average prices for copper were 57.3% and 92.0%
higher in the three and nine months ended December 31,
2006, respectively, compared to the three and nine months ended
December 31, 2005. According to LME data, average aluminum
and nickel prices were 31.1% and 38.2% and 160.3% and 87.2%
higher, respectively, in the three and nine months ended
December 31, 2006 compared to the three and nine months
ended December 31, 2005. We believe recent non-ferrous
prices are significantly higher than historical average prices
due, in part, to increases in industrial production and demand
from industrializing countries such as China.
Our non-ferrous sales are also impacted by the mix of
non-ferrous metals sold. Generally, prices for copper are higher
than prices for aluminum and stainless steel. In addition, the
amount of high-temperature alloys that we sell, and the selling
prices for these metals, will impact our non-ferrous sales, as
prices for these metals are generally higher than other
non-ferrous metals.
Brokerage Ferrous Sales
Brokerage ferrous sales increased by $19.7 million (127.5%)
and $35.1 million (81.8%) to $35.1 million and
$78.0 million in the three and nine months ended
December 31, 2006, respectively, compared to brokerage
ferrous sales of $15.4 million and $42.9 million in
the three and nine months ended December 31, 2005,
respectively. The increase in the three months ended
December 31, 2006 was due to higher average ferrous
brokered selling prices, which increased by approximately
$17 per ton (7.5%) compared to the three months ended
December 31, 2005 and higher brokered ferrous unit sales,
which increased by 77,000 tons (111.6%) compared to the three
months ended December 31, 2005. The increase in the nine
months ended December 31, 2006 was due to higher average
ferrous brokered selling prices, which increased by
approximately $43 per ton (20.6%) compared to the nine
months ended December 31, 2005, and higher brokered ferrous
unit sales, which increased by 105,000 tons (50.7%) compared to
the nine months ended December 31, 2005. The increase in
ferrous units brokered was due to our exporting strategy which
involved combining brokered scrap with our scrap on ferrous
cargoes sold to international markets.
24
Cost of Sales (excluding Depreciation)
Cost of sales consists of material costs, freight costs and
processing expenses. Cost of sales was $471.7 million and
$1.4 billion in the three and nine months ended
December 31, 2006, respectively, compared to cost of sales
of $346.0 million and $1.03 billion in the three and
nine months ended December 31, 2005, respectively. The
increase was primarily due to higher material costs for both
ferrous and non-ferrous metals.
Freight costs increased by $17.7 million (61.1%) and
$22.1 million (21.8%) in the three and nine months ended
December 31, 2006, respectively, from the comparable prior
year periods. The increase was primarily due to freight costs
incurred in connection with an increase in ferrous scrap sold to
export markets. Processing costs increased by $4.4 million
(10.7%) and $11.8 million (9.4%) in the three and nine
months ended December 31, 2006, respectively, from the
comparable prior year periods. The increase was primarily due to
processing costs from recent acquisitions.
General and Administrative Expense
General and administrative expense was $21.9 million and
$65.6 million in the three and nine months ended
December 31, 2006, respectively, compared to general and
administrative expense of $20.5 million and
$58.7 million in the three and nine months ended
December 31, 2005, respectively. The increase in the nine
months ended December 31, 2006 was due to higher
compensation expense, professional fees and general and
administrative expense from recent acquisitions.
In the nine months ended December 31, 2006, compensation
expense increased by $4.7 million as a result of an
increase in bonus accruals and higher headcount primarily
attributable to recent acquisitions, and professional fees
increased by $0.8 million due to higher legal costs.
General and administrative expense incurred from recent
acquisitions was $0.8 million and $2.5 million in the
three and nine months ended December 31, 2006, respectively.
Depreciation and Amortization
Depreciation expense was $6.5 million and
$19.5 million in the three and nine months ended
December 31, 2006, respectively, compared to depreciation
expense of $4.9 million and $13.8 million in the three
and nine months ended December 31, 2005, respectively.
Amortization expense was $0.6 million and $1.8 million
in the three and nine months ended December 31, 2006,
respectively, compared to amortization expense of $38.9 thousand
and $116.5 thousand in the three and nine months ended
December 31, 2005, respectively.
Depreciation expense was higher due to an increase in capital
expenditures and depreciation expense associated with fixed
assets acquired in connection with recent acquisitions. The
increase in amortization expense was a result of intangible
assets associated with recent acquisitions.
Severance and Other Charges
In the three months ended June 30, 2006, we recognized
severance and other charges of approximately $442.4 thousand
related to the termination of our former Executive Vice
President. The severance and other charges consisted of cash
severance of $263.2 thousand payable over twelve months and
$179.2 thousand of stock-based compensation expense related to
the acceleration of vesting of stock options and restricted
stock held by the former Executive Vice President.
In the three months ended December 31, 2006, we recognized
severance and other charges of approximately $490.0 thousand
related to the estimated costs of a proposed settlement of
several outstanding claims between the company and former
officers and directors Albert A. Cozzi, Frank J. Cozzi and
Gregory P. Cozzi. We expect the amount accrued in the three
months ended December 31, 2006, along with previously
accrued balances of approximately $1.2 million in the
aggregate will be paid in February 2007 when the settlement
agreement is finalized.
25
Income from Joint Ventures
Income from joint ventures was $0.4 million and
$2.8 million in the three and nine months ended
December 31, 2006, respectively, compared to income from
joint ventures of $3.0 million and $6.5 million in the
three and nine months ended December 31, 2005,
respectively. The decline was primarily attributable to the sale
of Southern Recycling, LLC in April 2006 (see below), and losses
incurred at our joint venture in Nashville in the three months
ended December 31, 2006. We currently have 50% ownership
interests in three joint ventures.
Interest Expense
Interest expense was $0.4 million and $1.0 million in
the three and nine months ended December 31, 2006,
respectively, compared to interest expense of $0.4 million
and $1.2 million in the three and nine months ended
December 31, 2005, respectively. The decrease in the nine
months ended December 31, 2006 was primarily attributable
to lower amortization of deferred financing fees costs. Our
interest expense primarily consists of amortization of deferred
financing costs and unused line fees under our Credit Agreement.
Gain on Sale of Joint Venture Interest
On April 28, 2006, we and our joint venture partner in
Southern Recycling, LLC (Southern) sold our
membership interests to a third party for $161.4 million in
cash. Based upon our ownership interest, we received
$46.0 million in cash from the sale proceeds. We recorded a
pre-tax gain from the sale of our ownership interest of
$26.4 million in nine months ended December 31, 2006.
Income Taxes
In the three and nine months ended December 31, 2006, we
recognized income tax expense of $8.1 million and
$55.4 million, respectively, resulting in an effective tax
rate of 34.2% and 38.2%, respectively. In the three and nine
months ended December 31, 2005, our income tax expense was
$10.3 million and $25.1 million, respectively,
resulting in an effective tax rate of approximately 40% for both
periods. The effective tax rate differs from the statutory rate
mainly due to discrete and permanent tax items. Discrete items
recorded in the three months ended December 31, 2006 was
primarily composed of a favorable provision to return adjustment
which lowered our effective tax rate.
Net Income
Net income was $15.6 million and $89.5 million in the
three and nine months ended December 31, 2006,
respectively, compared to net income of $15.3 million and
$37.7 million in the three and nine months ended
December 31, 2005, respectively. Net income increased in
the nine months ended December 31, 2006 due to higher sales
and higher margins on ferrous and non-ferrous metals, net income
generated by recent acquisitions, and benefited from the
one-time gain recognized on the sale of our ownership interest
in Southern.
Liquidity and Capital Resources
Our sources of liquidity include cash and short-term
investments, collections from customers and amounts available
under our Credit Agreement. We believe these sources are
adequate to fund for
day-to-day
expenditures, capital expenditures, the payment of cash
dividends to stockholders and our stock repurchase program.
At December 31, 2006, our total indebtedness was
$0.3 million (primarily a note payable issued in exchange
for a non-compete agreement). We had no borrowings outstanding
on our Credit Agreement and had cash and short-term investments
of $106.3 million at December 31, 2006.
On May 9, 2006, we entered into a $300 million secured
five-year revolving credit and letter of credit facility, with a
maturity date of May 1, 2011 (as amended, the Credit
Agreement). The Credit Agreement replaced the
Companys previous $200 million secured revolving and
letter of credit facility. In consideration for the Credit
Agreement, we paid fees and expenses of approximately
$0.6 million. Pursuant to the Credit Agreement, we pay a
fee on the undrawn portion of the facility that is determined by
the leverage ratio (currently .175% per annum). Significant
covenants under the Credit Agreement include the satisfaction of
a
26
leverage ratio and interest coverage ratio. The Credit Agreement
permits capital expenditures of up to $90 million for the
year ending March 31, 2007. In addition, the Credit
Agreement limits the amount we can spend on stock repurchases to
$100 million during the term of the Credit Agreement. We
satisfied all of our covenants under the Credit Agreement as of
December 31, 2006.
The Credit Agreement provides for interest rates based on
variable rates tied to the prime rate plus or minus a margin or
the London Interbank Offered Rate (LIBOR) plus a
margin. The margin is based on our leverage ratio (as defined in
the Credit Agreement) as determined for the trailing four fiscal
quarters. Based on the current leverage ratio, the margins are
either LIBOR plus .875% or prime rate minus .25%.
Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
| |
|
|
December 31, | |
|
December 31, | |
|
|
2006 | |
|
2005 | |
(in thousands) |
|
| |
|
| |
Net cash provided by operating activities
|
|
$ |
80,596 |
|
|
$ |
42,070 |
|
Net cash used in investing activities
|
|
$ |
(20,646 |
) |
|
$ |
(50,352 |
) |
Net cash used in financing activities
|
|
$ |
(17,857 |
) |
|
$ |
(220 |
) |
In the nine months ended December 31, 2006, the increase in
net cash provided by operating activities was due to higher net
income adjusted for non-cash items ($36.6 million) and a
smaller increase in investments in working capital. Working
capital reduced cash flow from operations by $16.4 million
in the nine months ended December 31, 2006 compared to a
reduction of $18.3 million in the nine months ended
December 31, 2005. The working capital improvement was
mainly due to an increase in accounts payable of
$33.9 million in the nine months ended December 31,
2006 compared to decrease in accounts payable of
$12.5 million in the nine months ended December 31,
2005. Offsetting this increase were higher inventories of
$78.0 million in the nine months ended December 31,
2006 compared to a $15.2 million increase in inventories in
the nine months ended December 31, 2005. Accounts payable
increased in the nine months ended December 31, 2006 due to
higher purchase prices for scrap metal. The increase in
inventories in the nine months ended December 31, 2006 was
due to higher prices and higher levels of both ferrous and
non-ferrous inventory units on hand at December 31, 2006 as
compared to March 31, 2006.
In the nine months ended December 31, 2006, net cash used
in investing activities decreased due to $46.0 million of
cash received from the sale of our ownership interest in
Southern and $9.6 million of cash received from the sale of
short-term investments. This offset, in part, $48.1 million
of cash used for capital expenditures and $28.6 million of
cash used for acquisitions. In the nine months ended
December 31, 2005, net cash used in investing activities
primarily consisted of $22.1 million of cash used for
capital expenditures and $30.3 million of cash used to
purchase short-term investments.
In the nine months ended December 31, 2006, net cash used
in financing activities increased due to $20.8 million of
cash used to repurchase common stock, $6.0 million of cash
used to pay dividends and $3.0 million of cash used to
repay long-term debt. We received $11.8 million of cash
from the exercise of stock options and Series A warrants.
Future Capital Requirements
We expect to fund our working capital needs, stock repurchase
program, dividend payments and capital expenditures over the
next twelve months with cash, short-term investments, and cash
generated from operations, supplemented by undrawn borrowing
availability under the Credit Agreement. We believe these
sources of capital will be sufficient for the next twelve
months, although there can be no assurance that this will be the
case.
Capital expenditures were $48.1 million in the nine months
ended December 31, 2006. We expect that our total capital
expenditures in fiscal 2007 will be in the range of
$75 million to $90 million. Significant capital
expenditures include the construction of a mega-shredder
facility at our Newark facility, for which we have incurred
approximately $17.1 million through December 31, 2006.
We expect to spend an additional
27
$9 million to $10 million over the balance of fiscal
2007 to install the mega-shredder in Newark. We also acquired
land for approximately $12.4 million in January 2007.
In addition, due to favorable financing terms made available by
equipment manufacturing vendors, we have entered into operating
leases for new equipment. These operating leases are attractive
to us since the implied interest rates are lower than interest
rates under our Credit Agreement. We expect to selectively use
operating leases for new material handling equipment or trucks
required by our operations.
We anticipate that our Board of Directors will continue to
declare cash dividends; however, the continuance of cash
dividends is not guaranteed.
Off-Balance Sheet Arrangements, Contractual Obligations and
Other Commitments
Off-Balance Sheet Arrangements
Other than operating leases, we do not have any off-balance
sheet arrangements that are likely to have a current or future
effect on our financial condition, results of operations or cash
flows.
Contractual Obligations
We have various financial obligations and commitments assumed in
the normal course of our operations and financing activities.
Financial obligations are considered to represent known future
cash payments that we are required to make under existing
contractual arrangements, such as debt and lease agreements.
The following table sets forth our known contractual obligations
as of December 31, 2006, and the effect such obligations
are expected to have on our liquidity and cash flow in future
periods (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than | |
|
One to | |
|
Three to | |
|
|
|
|
Total | |
|
One Year | |
|
Three Years | |
|
Five Years | |
|
Thereafter | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Long-term debt and capital leases
|
|
$ |
324 |
|
|
$ |
83 |
|
|
$ |
166 |
|
|
$ |
75 |
|
|
$ |
0 |
|
Operating leases
|
|
|
60,555 |
|
|
|
14,094 |
|
|
|
21,413 |
|
|
|
9,834 |
|
|
|
15,214 |
|
Pension funding obligations
|
|
|
855 |
|
|
|
641 |
|
|
|
214 |
|
|
|
0 |
|
|
|
0 |
|
Other contractual obligations
|
|
|
3,299 |
|
|
|
2,889 |
|
|
|
260 |
|
|
|
60 |
|
|
|
90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$ |
65,033 |
|
|
$ |
17,707 |
|
|
$ |
22,053 |
|
|
$ |
9,969 |
|
|
$ |
15,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Commitments
We enter into letters of credit in the ordinary course of
operating and financing activities. As of January 18, 2007,
we had outstanding letters of credit of $7.0 million, much
of which is securing insurance policies.
Critical Accounting Policies
Our discussion and analysis of our financial condition and
results of operations are based upon our consolidated financial
statements which have been prepared in accordance with
accounting principles generally accepted in the United States.
The preparation of our financial statements requires the use of
estimates and judgments that affect the reported amounts and
related disclosures of commitments and contingencies. We rely on
historical experience and on various other assumptions that we
believe to be reasonable under the circumstances to make
judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results
may differ materially from these estimates.
There have been no material changes to our critical accounting
policies and estimates from the information provided in
Item 7, Managements Discussion and Analysis of
Financial Condition and Results of Operations, included in
our Annual Report, except as follows:
Stock-Based Compensation
Effective April 1, 2006, we adopted the provisions of
SFAS No. 123(R). We estimate the fair value of stock
options and our employee stock purchase plan using the
Black-Scholes option valuation model. Option-pricing models
require the input of highly subjective assumptions, including
the price volatility of the
28
underlying stock. To estimate the fair value of stock options,
we consider the past exercise behavior in order to determine the
expected life assumption in the Black-Scholes option valuation
model. In addition, we are required to estimate the expected
forfeiture rate and only recognize expense for those shares
expected to vest. We estimate the forfeiture rate based on
historical experience of our stock-based awards that are
granted, exercised and cancelled.
Recent Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board
(FASB) issued Interpretation No. 48, Accounting
for Uncertainty in Income Taxes (FIN 48).
FIN 48 clarifies the accounting for uncertainty in income
taxes recognized in an enterprises financial statements in
accordance with SFAS No. 109, Accounting for
Income Taxes. FIN 48 prescribes a recognition
threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected
to be taken in a tax return. FIN 48 also provides guidance
on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition.
FIN 48 is effective for fiscal years beginning after
December 15, 2006. Any differences between the amounts
recognized in the consolidated balance sheet prior to the
adoption of FIN 48 and the amounts reported after adoption
will be accounted for as a cumulative-effect adjustment recorded
to the beginning balance of retained earnings. We are currently
assessing the impact, if any, that FIN 48 will have on our
consolidated financial statements.
In September 2006, the SEC issued Staff Accounting
Bulletin No. 108, Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements
(SAB 108). SAB 108 was issued to eliminate
the diversity of practice in how public companies quantify
financial statement misstatements. SAB 108 is effective for
fiscal years ending after November 15, 2006. We do not
anticipate that the adoption of SAB 108 will have a
material impact on our consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements. This statement clarifies
the definition of fair value, establishes a framework for
measuring fair value, and expands the disclosures on fair value
measurements. SFAS No. 157 is effective for fiscal
years beginning after November 15, 2007. We do not
anticipate that the adoption of SFAS No. 157 will have
a material impact on our consolidated financial statements.
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). This
statement requires an employer to recognize the overfunded or
underfunded status of a defined benefit postretirement plan as
an asset or liability in its statement of financial position and
to recognize changes in the funded status in the year changes
occur through comprehensive income. We will adopt
SFAS No. 158 on March 31, 2007. Based on the
funded status of pension plan obligations disclosed in our
consolidated financial statements for the year ended
March 31, 2006, the estimated impact of adopting
SFAS No. 158 would be an increase to other long-term
liabilities of $0.6 million, an increase to deferred tax
assets of $0.2 million and an reduction to
shareholders equity through the recognition of other
comprehensive loss of $0.4 million. At this time, we do not
expect the March 31, 2007 amounts to be recorded on
adoption to be significantly different than estimated.
Additionally, SFAS No. 158 requires an employer to
measure the funded status of each of its pension plans as of the
date of its year-end statement of financial position. This
provision will become effective for us at March 31, 2009.
The funded status of two of our pension plans is currently
measured as of December 31.
|
|
Item 3. |
Quantitative and Qualitative Disclosures about Market Risk |
We are exposed to financial risk resulting from fluctuations in
interest rates and commodity prices. We seek to minimize these
risks through regular operating and financing activities. We do
not use derivative financial instruments. Refer to Item 7A
of the Annual Report.
29
|
|
Item 4. |
Controls and Procedures |
Evaluation of our Disclosure Controls and Procedures.
As of the end of the period covered by this report, we evaluated
the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in
Rules 13a-15(e)
and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the Exchange
Act)). This evaluation was done under the supervision and
with the participation of management, including Daniel W.
Dienst, our Chairman of the Board, Chief Executive Officer and
President (CEO), and Robert C. Larry, our Executive
Vice President, Finance and Chief Financial Officer
(CFO).
Based upon this evaluation, our CEO and our CFO have concluded
that our disclosure controls and procedures were effective, as
of December 31, 2006, to provide reasonable assurance that
information that is required to be disclosed by the Company in
the reports that it files or submits under the Exchange Act is
recorded, processed, summarized, and reported, within the time
periods specified by the SECs rules and forms. Disclosure
controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to
be disclosed by the Company in the reports that it files or
submits under the Exchange Act is accumulated and communicated
to the Companys management, including its CEO and CFO, or
persons performing similar functions, as appropriate to allow
for timely decisions regarding disclosure.
In November 2006, the Companys largest subsidiary
implemented a new and more analytical scale and financial
reporting information technology system.
CEO and CFO Certifications.
As an exhibit to this report, there are
Certifications of the CEO and CFO. The first form of
Certification is required in accordance with Section 302 of
the Sarbanes-Oxley Act of 2002. This section of the quarterly
report is the information concerning the controls evaluation
referred to in the Section 302 Certifications and this
information should be read in conjunction with the
Section 302 Certifications for a more complete
understanding of the topics presented.
Limitations on the Effectiveness of Controls.
Our management, including our CEO and the CFO, does not expect
that our disclosure controls and procedures or our internal
control over financial reporting will prevent all error and all
fraud. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Further, the
design of disclosure controls and procedures and internal
control over financial reporting must reflect the fact that
there are resource constraints, and the benefits of controls
must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that
judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. Additionally,
controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management
override of the control. The design of any system of controls
also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that
any design will succeed in achieving its stated goals under all
potential future conditions; over time, controls may become
inadequate because of changes in conditions, or the degree of
compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost effective control
system, misstatements due to error or fraud may occur and not be
detected.
30
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
On July 1, 1998, Metal Management Connecticut, Inc.
(MM-Connecticut),
a subsidiary of the Company, acquired the scrap metal recycling
assets of Joseph A. Schiavone Corp. (formerly known as Michael
Schiavone & Sons, Inc.). The acquired assets include
real property in North Haven, Connecticut upon which
MM-Connecticuts
scrap metal recycling operations are currently performed (the
North Haven Facility). The owner of Joseph A.
Schiavone Corp. was Michael Schiavone (Schiavone).
On March 31, 2003, the Connecticut Department of
Environmental Protection (CTDEP) filed suit
against Joseph A. Schiavone Corp., Schiavone, and
MM-Connecticut in the
Superior Court of the State of Connecticut Judicial
District of Hartford. An amended complaint was filed by the
CTDEP on October 21, 2003. The suit alleges, among other
things, that the North Haven Facility discharged and continues
to discharge contaminants, including oily material, into the
environment and has failed to comply with the terms of certain
permits and other filing requirements. The suit seeks
injunctions to restrict
MM-Connecticut from
maintaining discharges and to require
MM-Connecticut to
remediate the facility. The suit also seeks civil penalties from
all of the defendants in accordance with Connecticut
environmental statutes. The suit makes specific claims against
Schiavone and Joseph A. Schiavone Corp. for their alleged
violations of environmental laws including, among other things,
Joseph A. Schiavone Corp.s failure to comply with the
Connecticut Property Transfer Act when it sold the North Haven
Facility to
MM-Connecticut. At this
stage, the Company is not able to predict
MM-Connecticuts
potential liability in connection with this action or any
required investigation and/or remediation. The Company believes
that MM-Connecticut has
meritorious defenses to certain of the claims asserted in the
suit and MM-Connecticut
intends to vigorously defend itself against the claims. In
addition, the Company believes it is entitled to indemnification
from Joseph A. Schiavone Corp. and Schiavone for some or all of
the obligations and liabilities that may be imposed on
MM-Connecticut in
connection with this matter under the various agreements
governing its purchase of the North Haven Facility from Joseph
A. Schiavone Corp., as well as for costs associated with the
undisclosed conditions of the property. The Company cannot
provide assurances that Joseph A. Schiavone Corp. or Schiavone
will have sufficient resources to fund any or all indemnifiable
claims to which the Company may be entitled.
In a letter dated July 13, 2005,
MM-Connecticut and the
Company received notification from Schiavone of his demand
seeking indemnification (including the advance of all costs,
charges and expenses incurred by Schiavone in connection with
his defense) from
MM-Connecticut and the
Company to those claims made against Schiavone in the action
brought by CTDEP. Schiavones demand refers to his
employment agreement at the time and to the certificate of
incorporation of
MM-Connecticut, which
provide for indemnification against claims by reason of his
being or having been a director, officer, employee, or agent of
MM-Connecticut, or
serving or having served at the request of
MM-Connecticut as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust, or other enterprise to the
fullest extent permitted by applicable law. The Company believes
that MM-Connecticut has
meritorious defenses to Schiavones indemnification demand.
The Company has also asserted its own claims for indemnification
against Schiavone pursuant to the terms of the asset purchase
agreement.
The Company has worked with an independent environmental
consultant to implement a CTDEP approved characterization plan
jointly funded by Schiavone and the Company. The Company is
continuing its efforts to reach an acceptable settlement with
the other parties with respect to the CTDEP action, but it
cannot provide assurances that such a settlement will in fact be
reached.
On November 10, 2006, the Company filed a demand for
arbitration with the American Arbitration Association against
Schiavone and Joseph A. Schiavone Corp. in accordance with the
arbitration provisions of the asset purchase agreement governing
MM-Connecticuts
purchase of the North Haven Facility. In the arbitration demand,
the Company has asserted various breach of contract claims and
claims for fraudulent inducement and fraudulent concealment
against Schiavone and Joseph A. Schiavone Corp. The Company
seeks findings of liability against Schiavone and an order for
indemnification, punitive damages, compliance with the
Connecticut Property Transfer Act, and reimbursement for
arbitration costs. The arbitration proceeding is in its initial
stages. In its initial response in the arbitration proceeding,
Schiavone and Joseph A.
31
Schiavone Corp. have denied any liability to the Company and
asserted various counterclaims for indemnification. While at
this preliminary stage the Company is unable to determine the
outcome or potential amount of recovery, the Company believes
that its claims are meritorious. The Company intends to
vigorously defend the counterclaims asserted by Schiavone and
Joseph A. Schiavone Corp. in the arbitration.
On December 15, 2006, the Company filed an application for
prejudgment remedy and a motion for disclosure of assets against
Schiavone in the U.S. District Court for the District of
Connecticut to identify and preserve Schiavones assets
during the pendency of the arbitration proceedings so that an
award in the Companys favor may be satisfied in the event
the Company prevails. At this preliminary stage, the Company is
unable to determine the likelihood of success, but believes that
its arguments are meritorious.
On July 15, 2005, the Company and
MM-Midwest filed a
complaint (the Complaint) in the Circuit Court of
Cook County, Illinois, Chancery Division against former officers
and directors Albert A. Cozzi, Frank J. Cozzi, and Gregory P.
Cozzi for allegedly breaching their respective separation and
release agreements, and against Frank J. Cozzi and Gregory P.
Cozzi for alleged constructive fraud. The Cozzis filed a
counterclaim seeking recovery of amounts allegedly due under the
separation and release agreements. On March 8, 2006, the
Cozzis motion to compel arbitration was granted, the lawsuit was
dismissed, and the parties proceeded to arbitration before the
American Arbitration Association. The Company expects to reach a
settlement with the Cozzis in February 2007 of several
outstanding claims and, if an agreement is reached, the Company
anticipates paying the Cozzis in the aggregate $1.2 million
in previously accrued balances and approximately
$490.0 thousand in other costs. Payment will be funded from
existing cash balances of the Company.
Item 1A. Risk Factors.
Our Annual Report on
Form 10-K for the
year ended March 31, 2006 includes a detailed discussion of
risk factors that could adversely affect our business, results
of operations and financial condition. There have been no
material changes to our risk factors included in our Annual
Report.
|
|
Item 2. |
Unregistered Sales of Equity Securities and Use of
Proceeds |
On September 8, 2006, the Company announced that its Board
of Directors authorized a stock repurchase program for up to
2.7 million shares of common stock. The stock repurchase
program does not have an expiration date but may be terminated
by our Board of Directors at any time. The Companys Credit
Agreement limits stock repurchases to $100 million during
the term of the Credit Agreement. A summary of our common stock
repurchases in the three months ended December 31, 2006 is
set forth in the following table. All such shares of common
stock were repurchased pursuant to open market transactions.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of | |
|
Maximum Number | |
|
|
Total | |
|
|
|
Shares Purchased | |
|
of Shares that May | |
|
|
Number of | |
|
Average | |
|
as Part of Publicly | |
|
Yet be Purchased | |
|
|
Shares | |
|
Price Paid | |
|
Announced | |
|
Under the | |
Period |
|
Purchased | |
|
per Share | |
|
Programs | |
|
Programs | |
|
|
| |
|
| |
|
| |
|
| |
October 1, 2006 October 31, 2006
|
|
|
112,000 |
|
|
$ |
27.55 |
|
|
|
112,000 |
|
|
|
2,056,700 |
|
November 1, 2006 November 30, 2006
|
|
|
70,000 |
|
|
|
27.88 |
|
|
|
70,000 |
|
|
|
1,986,700 |
|
December 1, 2006 December 31, 2006
|
|
|
50,100 |
|
|
|
37.04 |
|
|
|
50,100 |
|
|
|
1,936,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
232,100 |
|
|
$ |
29.70 |
|
|
|
232,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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32
Number and Description of Exhibit
|
|
|
|
|
|
3 |
.1 |
|
Second Amended and Restated Certificate of Incorporation of the
Company, as filed with the Secretary of State of the State of
Delaware on June 29, 2001 (incorporated by reference to
Exhibit 3.1 of the Companys Annual Report on
Form 10-K for the year ended March 31, 2001). |
|
3 |
.2 |
|
Amended and Restated By-Laws of the Company adopted as of
April 29, 2003 (incorporated by reference to
Exhibit 3.2 of the Companys Annual Report on
Form 10-K for the year ended March 31, 2003). |
|
4 |
.1 |
|
Amended and Restated Credit Agreement, dated as of May 9,
2006, among Metal Management, Inc. and certain subsidiaries of
Metal Management, Inc. specified therein, as borrowers, the
lenders party thereto and LaSalle Bank National Association, in
its capacity as agent for the lenders (incorporated by reference
to Exhibit 4.1 of the Companys Current Report on
Form 8-K dated May 9, 2006). |
|
4 |
.2 |
|
Amendment No. 1 to the Amended and Restated Credit
Agreement, dated as of October 13, 2006, among Metal
Management, Inc. and certain subsidiaries of Metal Management,
Inc. specified therein, as borrowers, the lenders party thereto
and LaSalle Bank National Association, in its capacity as agent
for the lenders (incorporated by reference to Exhibit 4.1
of the Companys Current Report on Form 8-K dated
October 13, 2006). |
|
4 |
.3 |
|
Amendment No. 2 to the Amended and Restated Credit
Agreement, dated as of January 12, 2007, among Metal
Management, Inc. and certain subsidiaries of Metal Management,
Inc. specified therein, as borrowers, the lenders party thereto
and LaSalle Bank National Association, in its capacity as agent
for the lenders (incorporated by reference to Exhibit 4.1
of the Companys Current Report on Form 8-K dated
January 12, 2007). |
|
31 |
.1 |
|
Certification of Daniel W. Dienst pursuant to
Section 240.13a-14(a) and Section 240.15d-14(a) of the
Securities Exchange Act of 1934, as amended, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
31 |
.2 |
|
Certification of Robert C. Larry pursuant to
Section 240.13a-14(a) and Section 240.15d-14(a) of the
Securities Exchange Act of 1934, as amended, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
32 |
.1 |
|
Certification of Daniel W. Dienst and Robert C. Larry pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
Daniel W. Dienst |
|
Chairman of the Board, |
|
Chief Executive Officer |
|
and President |
|
(Principal Executive Officer) |
|
|
|
|
|
Robert C. Larry |
|
Executive Vice President, |
|
Finance, Chief Financial |
|
Officer, Treasurer and Secretary |
|
(Principal Financial Officer) |
|
|
|
|
|
Amit N. Patel |
|
Vice President, Finance |
|
and Controller |
|
(Principal Accounting Officer) |
|
|
Date: February 6, 2007 |
34