EXHIBIT 99.2
Published on
EXHIBIT 99.2
COMBINED FINANCIAL STATEMENTS
Precision Strip Companies
June 30, 2003 and December 31, 2002 and the six months ended June 30, 2003 and
the year ended December 31, 2002 with Report of Independent Auditors
Precision Strip Companies
Combined Financial Statements
June 30, 2003 and December 31, 2002 and the six months ended June 30, 2003
and the year ended December 31, 2002
TABLE OF CONTENTS
Report of Independent Auditors
The Board of Directors
Precision Strip Companies
We have audited the accompanying combined balance sheets of Precision Strip
Companies (the Company) as of June 30, 2003 and December 31, 2002 and the
related combined statements of income, changes in shareholders' equity, and cash
flows for the six months ended June 30, 2003 and year ended December 31, 2002.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion the financial statements referred to above present fairly, in all
material respects, the combined financial position of Precision Strip Companies
at June 30, 2003 and December 31, 2002 and the combined results of its
operations and its cash flows for the six months ended June 30, 2003 and year
ended December 31, 2002, in conformity with accounting principles generally
accepted in the United States.
[ERNST & YOUNG LLP LOGO]
July 17, 2003
Dayton, Ohio
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Precision Strip Companies
Combined Balance Sheets
(in thousands)
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See accompanying notes
3
Precision Strip Companies
Combined Statements of Income
(in thousands)
See accompanying notes.
4
Precision Strip Companies
Combined Statements of Changes in Shareholders' Equity
(in thousands)
See accompanying notes.
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Precision Strip Companies
Combined Statements of Cash Flows
(in thousands)
See accompanying notes.
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Precision Strip Companies
Notes to Combined Financial Statements
June 30, 2003
(In thousands, except per share information)
1. SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF COMBINED BUSINESS
Precision Strip Companies (the Company) is comprised of the following entities:
Precision Strip, Inc., Precision Strip Transport, Inc., Precision Strip Leasing,
Inc., Precision Strip Kenton, Inc., Precision Strip Kenton, Ltd., PSI Limited
Partnership, and John R. Eiting (d/b/a J.E. Rentals).
Precision Strip, Inc. is engaged in metals processing (primarily slitting) and
storage and distribution of customer products. The facilities are located in
Minster, Kenton, Middletown, and Tipp City, Ohio, Rockport and Anderson,
Indiana, Bowling Green, Kentucky and Talladega, Alabama.
Precision Strip Transport, Inc. offers transportation services to Precision
Strip, Inc.'s customers. These services are offered from the Minster, Kenton,
Middletown, and Tipp City, Ohio plants as well as Anderson, Indiana, Bowling
Green, Kentucky, and Talladega, Alabama locations.
Precision Strip Leasing, Inc. leases three processing lines to two customers in
Indiana. The lines are covered by contracts that specify production and pricing
requirements.
Precision Strip Kenton, LTD., PSI Limited Partnership, and John R. Eiting (d/b/a
J.E. Rentals) own and lease certain property to Precision Strip, Inc. and
Precision Strip Transport, Inc.
Precision Strip Kenton, Inc. and Precision Strip, Inc. own 99% and 1%,
respectively, of Precision Strip Kenton, LTD.
On June 30, 2003, Precision Strip Leasing, Inc. and Precision Strip Kenton, Inc.
merged with and into Precision Strip, Inc. Precision Strip Kenton, LTD, PSI
Limited Partnership, and J.E. Rentals contributed or otherwise transferred to
Precision Strip, Inc. all of their assets and liabilities as of June 30, 2003.
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Precision Strip Companies
Notes to Combined Financial Statements
June 30, 2003
(In thousands, except per share information)
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRINCIPLES OF COMBINATION
The combined statements of the Company as of June 30, 2003 include the accounts
of Precision Strip, Inc. and Precision Strip Transport, Inc. The combined
statements of the Company as of December 31, 2002 include the accounts of
Precision Strip, Inc., Precision Strip Transport, Inc., Precision Strip Leasing,
Inc., Precision Strip Kenton, Inc., Precision Strip Kenton, LTD., PSI Limited
Partnership, and John R. Eiting (d/b/a J.E. Rentals). All significant
intercompany accounts and transactions have been eliminated in the combination.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of three
months or less when purchased to be cash equivalents.
ACCOUNTS RECEIVABLE
The accounts receivable relates to customers located primarily in the United
States. To reduce the credit risk, the Company performs credit investigations
prior to establishing customer credit limits and reviews customer credit
profiles on a continuous basis.
The Company provides an allowance for doubtful accounts, which is determined,
based upon specific identification. The allowance for doubtful accounts was $600
at June 30, 2003 and zero at December 31, 2002.
CONCENTRATION OF CREDIT RISK
Two customers accounted for approximately 45% and 55% of total accounts
receivable at June 30, 2003 and December 31, 2002, respectively. Total sales for
the two customers accounted for approximately 43% and 52% for the six months
ended June 30, 2003 and the year ended December 31, 2002, respectively. The
Company extends trade credit to its customers on terms that are generally
practiced in the industry, which generally does not require collateral or other
security.
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Precision Strip Companies
Notes to Combined Financial Statements
June 30, 2003
(In thousands, except per share information)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenue is recognized at the time services are provided.
Shipping and handling costs are included in cost of sales on the statements of
income.
DEPRECIATION AND AMORTIZATION
Depreciation is provided for on the straight-line method over the following
estimated useful lives:
Buildings 40 years
Machinery and equipment 10-20 years
Vehicles 5 years
Leasehold improvements are amortized on the straight-line method over the
remaining term of the lease.
The covenant not to compete is being amortized over ten years by the
straight-line method. As of June 30, 2003, the covenant not to compete was fully
amortized.
The company's normal policy is to expense repairs made to capital assets as
incurred. Repairs to machinery and equipment must result in an addition to the
useful life of the asset before the costs are capitalized.
PROFIT SHARING PLAN
The Company sponsors a contributory profit sharing plan that covers
substantially all employees. Contributions are based upon a percentage of
qualifying wages. Profit sharing expense for the six months ended June 30, 2003
and the year ended December 31, 2002 was approximately $1,699 and $3,285,
respectively.
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Precision Strip Companies
Notes to Combined Financial Statements
June 30, 2003
(In thousands, except per share information)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company in estimating the fair value of financial instruments used the
following methods and assumptions:
Cash and cash equivalents - the amounts reported approximate
market value.
Trust assets - the amounts reported are at market value. Market
values are based on quoted market prices.
Long-term obligations - the amounts reported are at a carrying
value, which approximates market value. Market values are
determined using similar debt instruments currently available to
the Company that are consistent with the terms, interest rates
and maturities.
USE OF ESTIMATES
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
2. LONG-TERM OBLIGATIONS AND GUARANTEES
The Company's long-term obligations at June 30, 2003 and December 31, 2002
consisted of the following:
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Precision Strip Companies
Notes to Combined Financial Statements
June 30, 2003
(In thousands, except per share information)
2. LONG-TERM OBLIGATIONS AND GUARANTEES (CONTINUED)
The Company participates in a revolving line of credit agreement with a bank,
which allows for borrowings of up to $40,000 at 0.50 percent above the LIBOR
Rate (1.32% at December 31, 2002). The unsecured revolving line of credit
agreement expires on February 1, 2005. The revolving line-of-credit and the
fixed term loan have certain restrictive covenants including a maximum leverage
ratio and minimum current and cash flow ratios and capital requirements.
The Company's future maturities of long-term obligations at June 30, 2003 are
approximately as follows: 2004 -- $396, 2005 -- $24,068, 2006 -- $396, 2007 --
$396, 2008 -- $337, and thereafter -- $0.
3. OPERATING LEASE COMMITMENTS
Precision Strip Leasing, Inc. leases three processing lines at two locations in
Indiana. The first processing line is located in New Carlisle, Indiana and was
constructed in 1992. The initial contract was signed in July 1992 and was
amended in 2000 to extend to December 31, 2007. Annual revenues are based upon
actual production tons multiplied by a tiered pricing structure as certain
production volumes are met. Precision Strip Leasing, Inc. is guaranteed a
monthly minimum payment. For 2003, this monthly minimum was $60.
The second processing line is located in East Chicago, Indiana and was
constructed in 1994. The initial contract was signed in April 1994 and the
initial eight-year term expired in April of 2002. The lease automatically renews
for successive one-year periods unless the customer provides six months notice
prior to the annual expiration that they wish to terminate. Annual revenues are
based upon actual production tons multiplied by a tiered pricing structure as
certain production volumes are met. Pricing is adjusted annually for changes in
the CPI index. Precision Strip Leasing, Inc. is guaranteed a monthly minimum
payment. For 2003, this monthly minimum was $88.
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Precision Strip Companies
Notes to Combined Financial Statements
June 30, 2003
(In thousands, except per share information)
3. OPERATING LEASE COMMITMENTS (CONTINUED)
The third processing line is also located in New Carlisle, Indiana. The initial
contract was signed in February 1997 and the initial five-year term expired in
August of 2002. The extended term runs through December 31, 2007. The customer
may cancel the contract at any time during the extended term. If cancelled, the
customer is responsible to pay $200 in liquidated damages multiplied by the
percentage of time remaining on the extended term at the time of termination.
Annual revenues are based upon actual production tons multiplied by a tiered
pricing structure as certain production volumes are met. Precision Strip
Leasing, Inc. is guaranteed a monthly minimum payment. For 2003, this monthly
minimum was $13.
The Company entered into an operating lease for its Bowling Green facility,
which expires in April 2009. Future minimum rental commitments under operating
leases at June 30, 2003 are as follows:
Rent expense for the six months ended June 30, 2003 and the year ended December
31, 2002 was approximately $503 and $984, respectively.
4. INCOME TAXES
Precision Strip, Inc., Precision Strip Transport, Inc., Precision Strip Leasing,
Inc., and Precision Strip Kenton, Inc., have elected to be treated as subchapter
S corporations. As a result, the shareholders of these entities include the
taxable income or loss of the company in their respective personal income tax
returns and no provision for federal income tax is recorded. The election may be
revoked by action of a majority of the shareholders in future years or may
otherwise become inapplicable so that these entities would be subject to federal
income tax.
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Precision Strip Companies
Notes to Combined Financial Statements
June 30, 2003
(In thousands, except per share information)
4. INCOME TAXES (CONTINUED)
PSI Limited Partnership and Precision Strip Kenton, Ltd are partnerships that
file information tax return. The items of income and expense are allocated to
the partners pursuant to the terms of the Partnership Agreement. Income taxes
applicable to the Partnership's results of operations are the responsibility of
the individual partners and have not been provided for in the accounts of the
Partnership.
5. DIVIDENDS PAID
Dividends paid per company per share are as follows:
6. SUBSEQUENT EVENT
On July 1, 2003, the shareholders of Precision Strip, Inc. sold all of their
shares of stock in Precision Strip, Inc. to RSAC Management Corp., a wholly
owned subsidiary of Reliance Steel & Aluminum Co. and the shareholders of
Precision Strip Transport, Inc. sold all of their shares of stock in Precision
Strip Transport, Inc. to RSAC Management Corp. Effective July 1, 2003, RSAC
Management Corp. repaid the long-term debt in full.
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