FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1997
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OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file No. 000-22029
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Special Metals Corporation
(Exact name of registrant as specified in its charter)
DELAWARE 25-1445468
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4317 Middlesettlement Road
NEW HARTFORD, NY 13413
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(Address of principal executive offices)
(Zip Code)
(315) 798-2900
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name,former address and former fiscal year,if changed since last report)
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
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As of August 1, 1997, there were 15,475,000 shares of the Issuer's common stock,
par value $.01 per share, outstanding.
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SPECIAL METALS CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1997
INDEX
Page
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Part I. Financial Information
Item 1. Condensed Financial Statements (unaudited)
Condensed Balance Sheets as of June 30, 1997 and December 31, 1996 2
Condensed Statements of Operations and Retained Earnings (Accumulated
Deficit) for the three months and six months ended June 30, 1996 and
1997 3
Condensed Statements of Cash Flows for the three months and six
months ended June 30, 1996 and 1997 4
Notes to Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Item 3. Quantitative Disclosures About Market Risk 15
Part II. Other Information
Item 1. Legal Proceedings 15
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
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Part I. Financial Information
Item 1. Financial Statements
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SPECIAL METALS CORPORATION
CONDENSED BALANCE SHEETS
(Unaudited - In thousands)
December 31, June 30,
1996 1997
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ASSETS
Current assets:
Cash and cash equivalents $ 3,336 $ 6,924
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Accounts receivable, less allowance for doubtful accounts
of $120 for 1996 and $140 for 1997 28,628 31,354
Inventories 42,739 52,296
Prepaid expenses 382 512
Deferred taxes 2,995 3,579
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Total current assets 78,080 94,665
Property, plant and equipment 33,232 34,815
Deferred taxes 1,743 1,457
Other assets 3,437 3,420
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Total assets $ 116,492 134,357
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:
Accounts payable $ 12,856 $ 19,645
Accrued liabilities 11,791 12,724
Income taxes payable 187 78
Current portion of long-term debt and capital leases 4,296 104
Subordinated notes payable to affiliates 1,500 --
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Total current liabilities 30,630 32,551
Long-term debt and capital lease obligations 42,523 545
Other long-term liabilities 8,564 8,848
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Total liabilities 81,717 41,944
Commitments and contingencies
Shareholders' equity:
Preferred stock -- --
Common stock 124 155
Paid-in surplus 29,716 75,642
Pension adjustment (697) (697)
Retained earnings 5,632 17,313
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Total shareholders' equity 34,775 92,413
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Total liabilities and shareholder's equity $ 116,492 $ 134,357
========= =========
</TABLE>
See accompanying notes to condensed financial statements.
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SPECIAL METALS CORPORATION
CONDENSED STATEMENTS OF OPERATIONS AND
RETAINED EARNINGS (ACCUMULATED DEFICIT)
(Unaudited - In thousands, except per share amounts)
Three months ended June 30, Six months ended June 30,
1996 1997 1996 1997
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Net sales $ 43,727 $ 46,780 $ 83,366 $ 94,204
-------- -------- -------- --------
Cost of goods sold 35,820 35,709 69,248 71,738
-------- -------- -------- --------
7,907 11,071 14,118 22,466
Selling, general and
administrative expenses 1,264 1,857 2,447 3,470
-------- -------- -------- --------
Operating income 6,643 9,214 11,671 18,996
Interest expense 1,003 48 2,090 569
Abandoned acquisition costs -- 542 -- 542
Interest income -- (160) -- (181)
Other income -- (185) -- (204)
-------- -------- -------- --------
Income before income taxes 5,640 8,969 9,581 18,270
Income tax expense 1,631 2,885 2,649 6,589
-------- -------- -------- --------
Net income 4,009 6,084 6,932 11,681
Retained earnings (accumulated deficit):
Beginning of period (10,526) 11,229 (13,449) 5,632
-------- -------- -------- --------
End of period $ (6,517) $ 17,313 $ (6,517) $ 17,313
======== ======== ======== ========
Net income per share $ 0.32 $ 0.39 $ 0.56 0.80
Weighted average shares outstanding 12,400 15,475 12,400 14,524
</TABLE>
See accompanying notes to condensed financial statements.
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SPECIAL METALS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited - In thousands)
Six months ended June 30,
1996 1997
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Operating Activities:
Net income $ 6,932 $ 11,681
Depreciation and amortization 2,224 2,051
Other adjustments and changes in assets and liabilities (6,318) (4,813)
-------- --------
Net cash provided by operating activities 2,838 8,919
Investing Activities:
Capital expenditures (1,103) (3,541)
Financing Activities:
Proceeds from sale of common stock -- 45,957
Borrowings under revolving credit facilities 5,000 --
Repayment of revolving credit facilities (5,000) (26,000)
Proceeds from (repayment of) subordinated notes
payable to affiliates 300 (1,500)
Repayments of term loans (1,250) (20,000)
Payments on capital lease obligations (93) (170)
Other 99 (77)
-------- --------
Net cash used in financing activities (944) (1,790)
-------- --------
Net increase in cash and cash equivalents 791 3,588
Cash and cash equivalents at beginning of period 2,613 3,336
-------- --------
Cash and cash equivalents at end of period $ 3,404 $ 6,924
======== ========
</TABLE>
See accompanying notes to condensed financial statements.
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SPECIAL METALS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997
(Unaudited)
Note 1 - Accounting Policies
The accompanying unaudited condensed financial statements of Special Metals
Corporation (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation have been included. Results for the
period ended June 30, 1997 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1997.
For further information, refer to the financial statements and footnotes thereto
for the year ended December 31, 1996 included in the Company's Registration
Statement on Form S-1 (Reg. No. 333-18499) which was declared effective as of
February 25, 1997.
Note 2 - Inventories
Inventories consist of the following (in thousands):
December 31, June 30,
1996 1997
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Raw materials and supplies $ 11,388 $ 10,299
Work-in-process 31,351 41,997
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$ 42,739 $ 52,296
==============================
Note 3 - Long-Term Debt
During the quarter ended June 30, 1997, the Company amended its Credit
Agreement. Under the Credit Agreement, as amended, the Company may borrow,
repay, and re-borrow from time to time, the lesser of (a) $60 million, declining
$4 million per year from 1997 through 2001, at which time all remaining amounts
outstanding are due, or (b) the Company's borrowing base. The Company's ability
to borrow under the Credit Agreement is subject to the satisfaction of various
conditions, including compliance with certain financial covenants. The amount
the Company may borrow under the Credit Agreement is reduced by the aggregate
amount of any letters of credit issued for the account of the Company. All
advances under the Credit Agreement bear interest at the Company's option at (i)
a base rate, which is the higher of the bank's short-term commercial reference
rate or the Federal Funds rate plus .25%, (ii) the Eurodollar rate, which is the
New York interbank offered rate, plus 1.25% or (iii) LIBOR plus 1.25%. An annual
commitment fee of .20% on the unused available revolving credit facility
commitment is due monthly.
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SPECIAL METALS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Note 3 - Long-Term Debt (Continued)
The Company's obligations under the Credit Agreement are secured by the
Company's receivables, inventory and general intangibles. The Credit Agreement
also contains covenants, including restrictions on the ability of the Company to
make certain restricted payments, incur additional indebtedness, make certain
investments, create liens, guarantee indebtedness and enter into transactions
with affiliates. The Company is also subject to certain financial tests relating
to, among other things, its consolidated net worth, its consolidated leverage
ratio and the ratio of its senior debt to consolidated earnings before interest,
taxes, depreciation and amortization (EBITDA). The Company may prepay amounts
owing under the Credit Agreement at its option at any time.
Note 4 - Contingencies
Environmental
The Company is subject to loss contingencies pursuant to various federal, state
and local environmental laws, and is currently involved in several actions
regarding the clean-up of disposal sites alleged to contain hazardous and/or
toxic wastes generated over a number of years including the following.
The Company, with contribution from other parties, performed remedial actions at
a site in Clayville, New York (the "Ludlow Landfill"), except for a portion of
the site known as the "North Gravel Pit." The New York State Department of
Environmental Conservation ("DEC") has advised the Company that all work
performed to date is acceptable. Notwithstanding the fact that the remediation
work has been completed (except for the North Gravel Pit) the DEC may seek a
post-excavation claim for biota monitoring, which is an environmental assessment
procedure. This claim is not anticipated to be material. The Company is also
responsible for operation and maintenance costs for a period of 30 years. The
costs for this are estimated to be approximately $150,000 per year in years one
and two, and approximately $90,000 in each of the remaining years. The total
estimated costs of approximately $2.8 million have been discounted at an annual
rate of 4% in the accompanying financial statements. The Company may also be
required to perform contingent post-closure activities. It is not possible to
determine which, if any, of the contingent activities the Company will need to
perform. Contamination has been discovered at the North Gravel Pit, and a study
is currently underway to determine the extent of the contamination and to select
an appropriate remedial alternative. This study is expected to be completed in
the second half of 1997. It is not possible to provide a reasonable estimate as
to the cost of any remedial work which will be required in the North Gravel Pit
until the study is complete and a remedial alternative is determined. Based upon
preliminary information, the Company estimates the cost will be at least $1.0
million and the Company has established a reserve in this amount. The Company
has reserved a total of approximately $2.8 million with respect to the Ludlow
Landfill, including the North Gravel Pit.
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SPECIAL METALS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Note 4 - Contingencies (Continued)
Environmental (Continued)
The Company is also involved in a site in Utica, New York which is alleged to be
contaminated. In the mid 1980's, the owners/operators of Universal Waste in
Utica, New York (the "Universal Waste Site") were cited by the DEC in a formal
enforcement proceeding for cleanup of the site which was allegedly contaminated.
The owner of the Universal Waste Site requested by motion that the Company be
named as an indispensable party to that proceeding. The DEC, however, took the
position that the Company should not be named as an indispensable party. The
Company believes that at least four other potentially responsible parties have
been identified with respect to the contamination at the site. A consent order
has been executed obligating the site operator to conduct a preliminary site
assessment on a portion of the property. The preliminary site assessment is
underway. The DEC is also conducting a separate preliminary site assessment. The
Company is presently not involved in investigating the alleged contamination.
Based upon the limited information available to its environmental engineers, the
Company has established a reserve of $575,000. However, because of the
preliminary nature of the investigation, it is not possible, at this time, to
provide a reasonable estimate as to the ultimate cost of any investigative or
remedial work which will be required, or the Company's share, if any, of such
costs.
The Company is on notice of, and involved in, certain other environmental
matters which have been settled or are at various stages of discussion,
negotiation or settlement which the Company does not believe to be material.
Although the Company believes that it is in substantial compliance with
applicable requirements of environmental laws, there can be no assurance that
some, or all, of the risks noted previously will not result in liabilities that
are material to the Company's business, results of operations, financial
positions, or cash flows.
Other
From time to time, the Company is involved in legal proceedings relating to
claims arising out of its operations in the normal course of business. The
Company does not believe that it is a party to any proceedings at the present
time that could reasonably be expected to have a material adverse effect on the
business, financial condition, results of operations or cash flows of the
Company.
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SPECIAL METALS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Note 5 - Effects of New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement No. 130,
"Reporting Comprehensive Income" , which is effective for fiscal years beginning
after December 15, 1997. The Company has not yet determined the impact Statement
No. 130 will have on its financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement No. 131,
"Disclosure about Segments of an Enterprise and Related Information" , which is
effective for fiscal years beginning after December 15, 1997. The Company does
not expect that Statement No. 131 will have any material effect on its financial
statements.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements contained in this item constitute "forward-looking
statements" within the meaning of Section 21E of Securities Exchange Act
of 1934 (the "Reform Act"). See Part II. Other Information, Item 5(b),
"Forward-Looking Statements."
OVERVIEW
The Company manufactures superalloys and special alloys, which are highly
engineered metal alloys designed to withstand extreme heat, stress and
corrosion. Special Metals operates three divisions. The Superalloy Billet and
Bar Division manufactures a wide array of wrought superalloy and special alloy
products in billet, bar and cast form, which are used primarily in jet engines.
This division also produces "shape memory" alloys, such as Nitinol, which are
primarily used in medical and dental applications. The Powder Division produces
powder metallurgy-based superalloy products for military jet engines and the
latest generation of large commercial jet engines. The Dental Division produces
amalgamable dental alloys. For the six months ended June 30, 1997, the
Superalloy Billet and Bar Division, the Powder Division and the Dental Division
accounted for 89%, 9% and 2%, respectively, of the Company's net sales of $94.2
million.
NET SALES. Net sales include sales of the Company's superalloy and special alloy
products and revenue earned from toll conversion. Sales of the Company's
products are made under conventional purchase orders, under one-year supply
contracts and under long-term firm price contracts. A substantial majority of
the Company's net sales during the six months ended June 30, 1997 were sold
under conventional purchase orders or under one-year supply contracts.
Export sales represent a significant portion of the Company's business. During
the six months ended June 30, 1997, sales to purchasers outside of the United
States totaled 31.0% of the Company's net sales. All of the Company's export
sales are conducted in U.S. dollars.
COSTS OF GOODS SOLD. The superalloy industry is characterized by high capital
investment and high fixed costs, and profitability is therefore significantly
affected by changes in volume. Variable costs such as raw materials, labor,
supplies and energy (primarily electricity) generally account for over
three-fourths of the Company's costs of goods sold. Fixed costs, such as
indirect overhead and depreciation, constitute the remainder of the Company's
costs of goods sold.
A substantial portion of the Company's raw material used in production consists
of commodities, such as nickel, that are subject to wide price fluctuations. The
price the Company pays for nickel is usually based upon quoted prices on the
London Metals Exchange (the "LME") plus a premium due to quality, location, and
volume purchased. To attempt to mitigate the risks associated with raw material
price fluctuations and to match raw material purchases with firm price product
orders, the Company often enters into firm price contracts for the purchase of
virgin raw materials from suppliers and for the purchase of scrap from customers
or hedges the price of nickel. At June 30, 1997, the Company had commodity
futures contracts covering approximately 70% of its virgin nickel requirements
of its backlog, for a total purchase price of approximately $12.8 million. The
fair value of the material covered by these contracts, based on the June 30,
1997 price quoted on the LME, was approximately $11.2 million. Unrealized gains
and losses on the contracts are deferred and are recognized in income during the
periods affected.
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses represent costs associated with sales and marketing,
research and development, legal services, and the office of the president.
Results of Operations
The following table sets forth, for the periods indicated, statement of
operations data as a percentage of net sales.
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Three months ended June 30, Six months ended June 30,
1996 1997 1996 1997
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Net sales 100.0% 100.0% 100.0% 100.0%
Costs of goods sold 81.9 76.3% 83.1 76.1%
----- ----- ----- -----
Gross profit 18.1 23.7 16.9 23.9
Selling, general and
administrative expenses 2.9 4.0 2.9 3.7
----- ----- ----- -----
Operating income 15.2 19.7 14.0 20.2
Interest expense 2.3 .1 2.5 .6
Abandoned acquisition costs -- 1.1 -- .6
Interest income -- (.3) -- (.2)
Other income -- (.4) -- (.2)
----- ----- ----- -----
Income before income taxes 12.9 19.2 11.5 19.4
Income taxes expense 3.7 6.2 3.2 7.0
----- ----- ----- -----
Net income 9.2% 13.0% 8.3% 12.4%
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THREE MONTHS ENDED JUNE 30, 1997 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1996.
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NET SALES. Net sales increased $3.1 million, or 7.0% from $43.7 million in the
three months ended June 30, 1996 to $46.8 million in the three months ended June
30, 1997. This increase was principally due to both an increase in pounds
shipped for the core business and improved pricing. A significant portion of the
pounds shipped during the three months ended June 30, 1996 were sold under
long-term contracts negotiated in 1993, at the bottom of the aerospace cycle,
which contained unfavorable pricing provisions. The Company generally did not
earn any profit on sales under these long-term contracts during 1996.
COST OF GOODS SOLD. Cost of goods sold decreased $.1 million, or .3% from $35.8
million in the three months ended June 30, 1996 to $35.7 million in the three
months ended June 30, 1997. As a percentage of net sales, cost of goods sold
decreased from 81.9% in the three months ended June 30, 1996 to 76.3% in the
three months ended June 30, 1997 primarily due to the improved pricing in 1997
as well as to the allocation of the fixed portion of overhead included in cost
of goods sold to a larger sales base.
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GROSS PROFIT. Gross profit increased $3.2 million, or 40.0% from $7.9 million in
the three months ended June 30, 1996 to $11.1 million in the three months ended
June 30, 1997. This increase was due primarily to increased sales and cost
reduction programs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.6 million, or 46.9% from $1.3 million in
the three months ended June 30, 1996 to $1.9 million in the three months ended
June 30, 1997. This increase was due to the increase in net sales, a planned
increase in research and development activities, and increased expenditures
related to the Board of Directors and Managerial Assistance Agreement. Selling,
general and administrative expenses as a percentage of net sales increased from
2.9% in the three months ended June 30, 1996 to 4.0% in the three months ended
June 30, 1997.
OPERATING INCOME. Operating income increased $2.6 million, or 38.7% from $6.6
million in the three months ended June 30, 1996 to $9.2 million in the three
months ended June 30, 1997. Operating income as a percentage of net sales
increased from 15.2% in the three months ended June 30, 1996 to 19.7% in the
three months ended June 30, 1997.
INTEREST EXPENSE. Interest expense decreased $1.0 million, or 95.2% from $1.0
million in the three months ended June 30, 1996 to $48.0 thousand in the three
months ended June 30, 1997. This decrease was due primarily to the repayment of
debt outstanding with proceeds from the Company's initial public offering during
the first quarter of 1997.
INCOME TAXES. Income tax expense increased $1.3 million, or 76.9% from $1.6
million in the three months ended June 30, 1996 to $2.9 million in the three
months ended June 30, 1997. The increase was due to the increase in income
before income taxes and an increase in the overall effective tax rate from 29%
in the three months ended June 30, 1996 to 32% in the three months ended June
30, 1997. The effective income tax rate for the three months ended June 30, 1996
was less than that which would be expected due to utilization of net operating
loss and alternative minimum tax credit carryforwards. The effective income tax
rate for the three months ended June 30, 1997 was less than that which would be
expected due primarily to benefits resulting from the Company's foreign sales
corporation which was established during the third quarter of 1996.
NET INCOME. Net income increased 51.8% from $4.0 million in the three months
ended June 30, 1996 to $6.1 million in the three months ended June 30, 1997. Net
income as a percentage of net sales increased from 9.2% in the three months
ended June 30, 1996 to 13.0% in the three months ended June 30, 1997 primarily
as a result of stronger demand for the Company's products by the aerospace
industry and cost reduction programs.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1996.
- ----------------------------------------------------------------------------
NET SALES. Net sales increased $10.8 million, or 13.0% from $83.4 million in the
six months ended June 30, 1996 to $94.2 million in the six months ended June 30,
1997. This increase was principally due to both and an increase in pounds
shipped for the core business and improved pricing. A significant portion of the
pounds shipped during the six months ended June 30, 1996 were sold under
long-term contracts negotiated in 1993, at the bottom of the aerospace cycle,
which contained unfavorable pricing provisions. The Company generally did not
earn any profit on sales under these long-term contracts during 1996.
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COST OF GOODS SOLD. Cost of goods sold increased $2.5 million, or 3.6% from
$69.2 million in the six months ended June 30, 1996 to $71.7 million in the six
months ended June 30, 1997, primarily as a result of increased sales offset in
part by cost reduction programs. As a percentage of net sales, cost of goods
sold decreased from 83.1% in the six months ended June 30, 1996 to 76.2% in the
six months ended June 30, 1997 primarily due to the improved pricing in 1997 as
well as to the allocation of the fixed portion of overhead included in cost of
goods sold to a larger sales base and cost reduction programs.
GROSS PROFIT. Gross profit increased $8.3 million, or 59.1% from $14.1 million
in the six months ended June 30, 1996 to $22.4 million in the six months ended
June 30, 1997. This increase was due primarily to increased sales and cost
reduction programs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1.0 million, or 41.8% from $2.4 million in
the six months ended June 30, 1996 to $3.4 million in the six months ended June
30, 1997. This increase was due to the increase in net sales, a planned increase
in research and development activities , and increased expenditures related to
the Board of Directors and Managerial Assistance Agreement. Selling, general and
administrative expenses as a percentage of net sales increased from 2.9% in the
six months ended June 30, 1996 to 3.7% in the six months ended June 30, 1997.
OPERATING INCOME. Operating income increased $7.3 million, or 62.8% from $11.7
million in the six months ended June 30, 1996 to $19.0 million in the six months
ended June 30, 1997. Operating income as a percentage of net sales increased
from 14.0% in the six months ended June 30, 1996 to 20.2% in the six months
ended June 30, 1997.
INTEREST EXPENSE. Interest expense decreased $1.5 million, or 72.8% from $2.1
million in the six months ended June 30, 1996 to $.6 million in the six months
ended June 30, 1997. This decrease was due primarily to the repayment of debt
outstanding with proceeds from the Company's initial public offering during the
first quarter of 1997.
INCOME TAXES. Income tax expense increased $3.9 million, or 148.7% from $2.7
million in the six months ended June 30, 1996 to $6.6 million in the six months
ended June 30, 1997. The increase was due to the increase in income before
income taxes and an increase in the overall effective tax rate from 28% in the
six months ended June 30, 1996 to 36% in the six months ended June 30, 1997. The
effective income tax rate for the six months ended June 30, 1996 was less than
that which would be expected due to utilization of net operating loss and
alternative minimum tax credit carryforwards. The effective income tax rate for
the six months ended June 30, 1997 was less than that which would be expected
due primarily to benefits resulting from the Company's foreign sales corporation
which was established during the third quarter of 1996.
NET INCOME. Net income increased 68.5% from $6.9 million in the six months ended
June 30, 1996 to $11.7 million in the six months ended June 30, 1997. Net income
as a percentage of net sales increased from 8.3% in the six months ended June
30, 1996 to 12.4% in the six months ended June 30, 1997 primarily as a result of
stronger demand for the Company's products by the aerospace industry and cost
reduction programs.
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LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs arise primarily from capital investments, working
capital requirements, and principal and interest payments on indebtedness. The
Company has historically met these liquidity requirements with funds generated
from operations and from short-term and long-term debt financing (including
borrowings from its principal stockholders). The Company's business is capital
intensive and requires substantial expenditures for, among other things, the
purchase and maintenance of equipment used in the manufacturing process and
compliance with environmental laws.
Net cash provided by operating activities was $2.8 million and $8.9 million for
the six months ended June 30, 1996 and 1997, respectively. Improvements in cash
flows from operating activities are principally the result of improved operating
results, offset by increased working capital requirements attributable to
increases in accounts receivable and inventory due to increased sales in 1996
and 1997 and a planned increase in inventory to accommodate shutting down one
VIM furnace for a major upgrade scheduled for the third quarter of 1997.
Capital expenditures were $1.1 million and $3.5 million for the six months ended
June 30, 1996 and 1997, respectively.
The Company's principal sources of funds are (i) funds generated from operations
and (ii) borrowings under the Company's Credit Agreement with Credit Lyonnais
and the financial institutions from time to time party thereto (the "Credit
Agreement"). Under the Credit Agreement, as amended, the Company may borrow,
repay, and re-borrow from time to time, the lesser of (a) $60 million, declining
$4 million per year from 1997 through 2001, at which time all remaining amounts
outstanding are due, and (b) the Company's borrowing base. The Credit Agreement
defines the Company's borrowing base as the sum of 85% of eligible accounts
receivable and 60% of eligible inventory. As of June 30, 1997, the borrowing
base was $53.1 million. The Company's ability to borrow under the Credit
Agreement is subject to the satisfaction of various conditions, including
compliance with certain financial covenants. The amount the Company may borrow
under the Credit Agreement is reduced by the aggregate amount of any letters of
credit issued for the account of the Company. All advances under the Credit
Agreement bear interest at the Company's option at (i) a base rate, which is the
higher of the bank's short-term commercial reference rate or the Federal Funds
rate plus .25%, (ii) the Eurodollar rate, which is the New York interbank
offered rate, plus 1.25% or (iii) LIBOR plus 1.25%. An annual commitment fee of
.20% on the unused available revolving credit facility commitment is due
monthly. The Company's obligations under the Credit Agreement are secured by the
Company's receivables, inventory and general intangibles. The Credit Agreement
also contains covenants, including restrictions on the ability of the Company to
make certain restricted payments, incur additional indebtedness, make certain
investments, create liens, guarantee indebtedness and enter into transactions
with affiliates. The Company is also subject to certain financial tests relating
to, among other things, its consolidated net worth, its consolidated leverage
ratio and the ratio of its senior debt to consolidated EBITDA. The Company may
prepay amounts owing under the Credit Agreement at its option at any time.
-13-
<PAGE>
Including the current year and the succeeding four years, the Company plans to
invest over $50 million (or approximately $10 million per year) in capital
expenditures to expand and modernize its melting, forging and finishing
equipment, install a state-of-the-art information system and make other
investments to maintain its technological leadership and reduce production
costs. In addition to planned capital expenditures, the Company expects to
evaluate from time to time potential acquisitions. Potential acquisitions may
include investments in companies, technologies or products that complement the
Company's business or products. Sources of funds for such acquisitions could
include funds generated from operations or alternative sources of debt or equity
capital. Certain covenants in the Credit Agreement may restrict or limit the
Company's ability to enter into or complete an acquisition. Under such
circumstances, the Company would need to amend, obtain a waiver of or refinance
the Credit Agreement. See Part II. Other Information, Item 5(b),
"Forward-Looking Statements."
The Company does not expect the future recurring operation costs of compliance
with currently enacted environmental laws and adopted or proposed regulations to
have a material impact on its liquidity and capital resources. However, the
imposition of more strict standards or requirements under environmental laws and
the possibility of increased enforcement could result in expenditures in excess
of amounts estimated to be required for such matters. See Footnote 4 to the
Condensed Financial Statements in Part I. Item 1. "Condensed Financial
Statements (unaudited)" and Part II. Item 1, " Legal Proceedings." See Part II.
Other information, Item 5(b), "Forward-Looking Statements."
The Company believes that its cash on hand, cash flow from operations and
borrowing capacity under the Credit Agreement will be adequate to meet its
anticipated operating requirements, and planned capital expenditures over the
next 12 months. See Part II. Other information, Item 5(b), "Forward- Looking
Statements.
BACKLOG
As of June 30, 1997, the Company's backlog orders aggregated approximately
$151.3 million, compared to approximately $142.9 million at June 30, 1996. The
increase in backlog orders is primarily due to an increase in orders for jet
engines worldwide and increased demand for jet engine spare parts. The Company
defines backlog as firm purchase orders, which are generally subject to
cancellation by the customer subject to, in certain circumstances, payment of
specified charges. Substantially all orders in the backlog at June 30, 1997 are
expected to be shipped within the next 12 months. Due to the cyclical nature of
order entry experienced by the Company and its dependence on the aerospace
industry, there can be no assurance that order entry will continue at current
levels or that current firm purchase orders will not be canceled or delayed.
INFLATION
Although the Company's sales and results of operations are affected by the
prices of raw materials used to make its products and the cyclicality of the
aerospace industry, the Company does not believe that general economic inflation
has had a material effect on its results of operation for the periods presented.
-14-
<PAGE>
EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement No. 130,
"Reporting Comprehensive Income" , which is effective for fiscal years beginning
after December 15, 1997. The Company has not yet determined the impact Statement
No. 130 will have on its financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement No. 131,
"Disclosure about Segments of an Enterprise and Related Information" , which is
effective for fiscal years beginning after December 15, 1997. The Company does
not expect that Statement No. 131 will have any material effect on its financial
statements.
ITEM 3. QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997 and to Note 4 of the Notes to Condensed Financial
Statements included in Part I of this Report for descriptions of certain
environmental matters. In addition, during the course of a recent excavation
within the plant at New Hartford , New York to install new equipment, the
Company discovered an area of soils contaminated with PCBs. The area of
contamination was defined in accordance with instructions from regulatory
officials. The Company anticipates that the cost of disposal of the soil and
other related clean-up activities will be approximately $125,000. It is likely
that regulatory authorities will require additional soil and ground water
monitoring relating to PCBs at the New Hartford Facility. It is not possible now
to predict whether additional PCB contamination will be discovered or whether
additional remedial action will be required.
-15-
<PAGE>
ITEM 5. OTHER INFORMATION
(a) Press Release
The Company issued a press release dated July 17, 1997 disclosing certain
information, including certain results of operations and earnings for the fiscal
quarter ended June 30, 1997 and six months ended June 30, 1997.
(b) Forward-Looking Statements
Certain statements in this Report and in future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases and in oral
statements made by or with the approval of an authorized executive officer of
the Company constitute "forward-looking statements" within the meaning of the
Reform Act. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors, which may cause the actual results, performance
or achievements of the Company to be materially different from those expressed
or implied by such forward-looking statements. Such factors include economic
slowdowns and recessions (especially in the aerospace industry, in which most of
the Company's customers are concentrated); the availability and pricing of raw
materials used in the manufacture of the Company's products; the reliable
operation of the Company's manufacturing facilities and equipment; the Company's
ability to evaluate, finance and integrate acquired businesses, products and
companies into the Company's existing business and operations; the Company's
ability to effectively compete in the industries in which it does business; the
Company's ability to successfully negotiate new labor agreements and otherwise
maintain favorable relations with its employees, a majority of whom are
unionized; the Company's ability to comply with existing and future
environmental laws and regulations, the accuracy of its current estimates of
existing environmental liabilities and the possibility that currently unknown
environmental liabilities may be discovered.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are included herein:
RIDER A:
10.1 Lease Extension and Modification Agreement, dated as of February 28,
1997, by and between Oneida County Industrial Development Agency and
the Company.
10.2 Amended and Restated Payment in Lieu of Tax Agreement, dated as of
February 28, 1997, by and between Oneida County Industrial Development
Agency and the Company.
27.1 Financial Data Schedule.
The Company did not file any reports on Form 8-K during the is quarter ended
June 30, 1997.
-16-
<PAGE>
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.
SPECIAL METALS CORPORATION
Date: August 11, 1997 By: /s/ Donald R. Muzyka
----------------------------------------
Donald R. Muzyka
President and Chief Executive Officer
Date: August 11, 1997 By: /s/ Donald C. Darling
----------------------------------------
Donald C. Darling
Chief Financial Officer and Chief
Accounting Officer
-17-
This Lease Extension and Modification Agreement (the "Amendment") dated
as of the 28th day of February, 1997, by and between ONEIDA COUNTY INDUSTRIAL
DEVELOPMENT AGENCY, a public benefit corporation duly organized and existing
under the laws of the State of New York, having an office at 153 Brooks Road,
Rome, New York 13441 (the "Agency") and SPECIAL METALS CORPORATION, a
corporation duly organized and existing under the laws of the State of Delaware,
having an office at 4317 Middle Settlement Road, New Hartford, New York 13413
(the "Company").
RECITALS
1. The Agency and the Company entered into a Lease Agreement
dated as of February 1, 1994 (the "Lease").
2. A Memorandum of Lease (the "Memorandum") dated as of February
1,1994, was recorded in the Oneida County Clerk's Office on February 2, 1994 in
Book of Deeds 2673 at Page 655.
3. The Company has requested the Agency to extend the Lease for
an additional term of ten (10) years.
4. The Agency by resolution adopted on October 3, 1996, approved
the extension of the Lease, subject to the conditions hereinafter set forth.
NOW, THEREFORE, it is mutually agreed and covenanted as follows:
<PAGE>
2
1. The definition of "Pilot" in Section 1 of the Lease is
amended to read as follows:
"Pilot" means that agreement of even date herewith between the
Agency and the Company obligating the Company to make certain payments in lieu
of taxes to the Local Taxing Entities, as the same is amended and restated.
2. Section 5.2 of the Lease is hereby amended to read in its
entirety as follows:
Section 5.2. Duration of the Lease Term; Quiet Enjoyment.
(a) The Agency shall deliver to the Company sole and
exclusive possession of the Project Facility (subject to the provisions of
Sections 8.3 and 10.2 hereof), and the leasehold estate created hereby shall
commence on thedate hereof and except as provided in Section 10.2 hereof, the
leasehold estatecreated hereby shall terminate at 11:59 p.m. on February 28,
2007 or on such earlier date as may be permitted by Section 11.1 hereof.
(b) The Agency shall take no action, other than pursuant to
Article X of this Agreement, to prevent the Company from having quiet and
peaceable possession and enjoyment of the Project Facility during the Lease Term
and will, at the request of the Company and at the Company's cost, cooperate
with the Company in order that the Company may have quiet and peaceable
possession and enjoyment of the Project Facility.
3. There is added to Section 2.2 of the Lease the following
subsection:
(g) The Company shall provide to the Agency, within fifteen
days after the end of each calendar quarter, a statement certified to by an
Authorized Officer of the
<PAGE>
3
Company setting forth the minimum number of full time employees employed at the
Project Facility at any time during the immediately preceding calendar quarter.
4. Section 10.1 of the Lease is hereby amended to read as follows:
Section 10.1. Events of Default Defined.
(a) The following shall be "Events of Default" under this
Agreement and the term "Event of Default" shall mean, whenever it is used in
this Agreement, any one or more of the following events:
(1) The failure of the Company to make the
payments required pursuant to Sections 5.3, 6.3, 6.7, 6.8 or any other Section
herein for a period of ten (10) days after written notice of the failure is
given to the Company; or
(2) The failure of the Company to maintain the
insurance required by Section 6.4(c) herein; or
(3) The failure by the Company to observe and
perform any other covenant, condition or agreement hereunder on its part to be
observed or performed for a period of thirty (30) days after written notice,
specifying such failure and requesting that it be remedied, given to the Company
by the Agency provided, however, that if the default is of such a nature that it
cannot be remedied within a period of thirty (30) days, the Company shall not be
in default if it shall promptly commence and thereafter prosecute the curing of
the default with due diligence; or
(4) The abandonment of the Project Facility by
the Company or if the Project Facility remains vacant for a period in excess of
ninety (90) consecutive days after written notice thereof given to the Company
by the Agency; or
<PAGE>
4
(5) The Company fails to continue to maintain
the operation of the Project Facility in the County of Oneida; or
(6) The Company fails to maintain employment at
the Project Facility of not less than 390 full time employees, at all times.
(b) Notwithstanding the provisions of Section 10.1(a), if by
reason of force majeure either party hereto shall be unable in whole or in part
to carry out its obligations under this Agreement and if such party shall give
notice and full particulars of such force majeure in writing to the other party
within a reasonable time after the occurrence of the event or cause relied upon,
the obligations under this Agreement of the party giving such notice, so far as
they are affected by such force majeure, shall be suspended during the
continuance of the inability, which shall include a reasonable time for the
removal of the effect thereof, and the suspension of such obligations for such
period pursuant to this subsection (b) shall not be deemed an Event of Default
under this Section 10.1. Notwithstanding anything to the contrary in this
subsection (b), an event of force majeure shall not excuse, delay or in any way
diminish the obligations of the Company to make the payments required by
sections 5.3, 6.3, 6.7, 6.8 or any other section hereof, to obtain and continue
in full force and effect the insurance required by Section 6.4 hereof, to
provide the indemnity required by Section 8.2 hereof and to comply with the
provisions of Sections 8.2 and 8.8 hereof. The term "force majeure" as used
herein shall include, without limitation, acts of God, strikes, lockouts or
other industrial disturbances, acts of public enemies, orders of any kind of the
government of the United States of America or of the State of New York or any of
their departments, agencies, governmental subdivisions or officials, or any
civil or military authority,
<PAGE>
5
insurrections, riots, epidemics, landslides, lightning, earthquakes, fires,
hurricanes, storms, floods, washouts, droughts, arrests, restraint of government
and people, civil disturbances, explosions, shortages of labor and materials or
delays of carriers, shortage of energy, partial or entire failure of utilities,
or any other cause or event not reasonably within the control of the party
claiming such inability and not due to its fault. The party claiming such
inability shall use reasonable efforts to remove the cause for the same with all
reasonable promptness; provided that it is agreed that the settlement of
strikes, lockouts and other industrial disturbances shall be entirely within the
discretion of the party having difficulty, and the party having difficulty shall
not be required to settle any strike, lockout or other industrial disturbances
by acceding to the demands of the opposing party or parties.
5. Section 12.1 of the Lease is amended to read as follows:
Section 12.1. Notices.
All notices, certificates, and other communications hereunder shall be
in writing and shall be sufficiently given and shall be deemed given when
delivered and, if delivered by mail, shall be sent by registered or certified
mail, postage prepaid, return receipt requested, addressed as follows:
To the Agency:
-------------
Oneida County Industrial Development Agency
153 Brooks Road
Rome, New York 13441
Attention: Chairman
<PAGE>
6
With a copy to:
Groben, Gilroy, Oster & Saunders
P.O. Box 423
Utica, NY 13503
Attention: James C. Oster, Esq.
To the Company:
Special Metals Corporation
4317 Middle Settlement Road
New Hartford, NY 13413
Attention: Robert F. Dropkin
Vice President, Secretary and Chief Legal Counsel
With a copy to:
Bond, Schoeneck & King
One Lincoln Center
Syracuse, NY
Attention: Ronald C. Berger, Esq.
The Agency and the Company may, by notice given hereunder, designate
any further or different addresses to which subsequent notices, certificates
and other communications shall be sent.
6. This Amendment shall be effective as of the day and year
first above mentioned.
<PAGE>
7
7. This Amendment may be executed in one or more counterparts,
each of which shall be an original and all of which together shall constitute
but one instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement by their
duly authorized officers as of the day and year first above mentioned.
ONEIDA COUNTY INDUSTRIAL
DEVELOPMENT AGENCY
By:
Robert R. Calli
Chairman
SPECIAL METALS CORPORATION
By:
Donald R. Muzyka
President
Exhibit 10.2
AMENDED AND RESTATED
PAYMENT IN LIEU OF TAX AGREEMENT
THIS AGREEMENT, dated as of February 28, 1997 by and between ONEIDA
COUNTY INDUSTRIAL DEVELOPMENT AGENCY, a New York public benefit corporation
having an office at 153 Brooks Road, Rome, New York 13441 (the "Agency"), and
SPECIAL METALS CORPORATION, having an office at 4317 Middle Settlement Road, New
Hartford, NY 13413 (the "Company").
RECITALS
1. The Agency and the Company entered into a Payment in Lieu of Tax Agreement
(the "Original Agreement") dated as of February 1, 1994.
2. The Company has requested that the Original Agreement be extended for a term
of ten years.
3. The Agency by resolution adopted on October 3, 1996 approved the extension of
the Original Agreement for a term of ten years subject to certain conditions as
hereinafter stated.
NOW, THEREFORE, the Original Agreement is hereby amended and restated
to read as follows:
WHEREAS, the Agency is authorized and empowered by the provisions of
Title 1 of Article 18-A of the General Municipal Law, Chapter 24 of the
Consolidated Laws of New York, as amended (the "Enabling Act"), and Chapter 372
of the 1970 Laws of New York, as amended, constituting Section 901 of said
General Municipal Law (said Chapter and Enabling Act hereinafter collectively
referred to as the "Act") to promote, develop, encourage and assist in the
acquiring, constructing, reconstructing, improving, maintaining, equipping and
furnishing of, among others, industrial facilities for the purpose of promoting,
attracting and developing economically sound commerce and industry in order to
advance the job opportunities, health, general prosperity and economic welfare
of the people of the State of New York, to improve their prosperity and standard
of living, and to prevent unemployment and economic deterioration; and
WHEREAS, by resolution adopted June 1, 1993 (the "Resolution"), the
Agency indicated its intent: (i) to acquire the Project Facility described in
the following paragraph and (ii) to lease (with an obligation to purchase) the
Project Facility to the Company or such other person as may be designated by the
Company and agreed upon by the Agency; and
WHEREAS, the Project Facility consists of the acquisition of land (the
"Land") located in the Town of New Hartford County of Oneida, State of New York,
and described on attached Exhibit A, buildings (the "Facility") on the Land, and
certain
<PAGE>
2
equipment (the "Equipment") (the Land, the Facility and the Equipment being
hereinafter referred to as the "Project Facility"), all for the use as a
manufacturing facility; and
WHEREAS, the Agency has agreed to accept title to the Project Facility
pursuant to a deed and bill of sale of even date herewith;
WHEREAS, the Agency will simultaneously lease the Project Facility to
the Company pursuant to a lease agreement (the "Original Lease") dated the date
hereof by and between the Agency and the Company; and
WHEREAS, the Agency has agreed to accept title to, and execute the
Original Lease of, the Project Facility in order to advance the job
opportunities, health, general prosperity and economic welfare of the people of
the State of New York.
WHEREAS, it is the intention of, and anticipated by, the Agency and the
Company that the Project Facility will be exempt from real property taxes,
general property taxes, general school district taxes, general assessments,
service charges or other governmental charges of a similar nature levied and/or
assessed upon the Project Facility or the interest therein of the Company or the
occupancy thereof by the Company (the "Exempt Taxes"), commencing March 1, 1994,
because the Project Facility is, or will be, under the jurisdiction, supervision
and/or control of the Agency and used for a purpose within the meaning of the
applicable Constitutional and statutory provisions, including Section 874 of the
New York State Industrial Development Agency Act, Title 1 of Article 18-A of the
General Municipal Law, Chapter 24 of the Consolidated Laws of the State of New
York, as amended (the "Enabling Act"), provided, however, such exemption will
not extend to special assessments or ad valorem levies; and
WHEREAS, the Company understands that it, as lessee of the Project
Facility leased by the Agency, will, in fact, have no Exempt Taxes to pay under
the provisions of the Lease from March 1, 1994 through the term of the Lease
(the "Exemption Term") (each year measured by the twelve month period commencing
with March 1, 1994, herein referred to as an "Exemption Year"); and
WHEREAS, by resolution adopted October 3, 1996 (the "Extension
Resolution"), the Agency indicated its intent to extend the Original Agreement
subject to certain conditions; and
WHEREAS, pursuant to the Extension Resolution the Agency indicated it
intends to extend the Original Lease subject to certain conditions; and
WHEREAS, the Agency and the Company are entering into a Lease Amendment
and Extension Agreement (the "Amendment") dated December 1, 1996 (the Original
Lease and the Amendment being the "Lease"); and
<PAGE>
3
WHEREAS, the Agency has indicated a reluctance for the taxing
authorities (the "Authorities" or an "Authority") to lose all tax revenues from
the Exemption Taxes during the Exemption Term which would otherwise be received
by the Authorities if the Project Facility were owned by the Company.
NOW, THEREFORE, to provide for certain payments to the Authorities, and
for other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. The Company shall pay to each Authority all special assessments and
ad valorem taxes coming due and payable during the term of the Lease for which
the Project Facility is not exempt, no later than the last day during which such
payments may be made without penalty.
2. The Company shall pay to each Authority as set forth on Exhibit B
attached hereto and made a part hereof, an amount in lieu of the Exempt Taxes
(the "Pilot Payments") during each Exemption Year equal to one third (1/3) of
such taxes that would be payable to each such Authority as if the Company, and
not the Agency, owned the Project Facility, for each Exemption Year through the
Exemption Year ending February 28, 2007; and one hundred (100%) percent of such
taxes for each Exemption Year thereafter.
Anything herein to the contrary notwithstanding, if the Company (i)
fails to continue to maintain the operation of the Project Facility in the
County of Oneida, State of New York, or (ii) fails to maintain an employment
level of not less than 390 full time employees at all times, then thereafter the
Company shall pay to each Authority an amount of Pilot Payments during each
Exemption Year equal to one hundred percent (100%) of such taxes that would be
payable to each such Authority as if the Company, and not the Agency, owned the
Project Facility.
Anything herein to the contrary notwithstanding, upon the failure of
the Company in making any payment when due hereunder and upon failure to cure
such default within thirty (30) days of receipt of notice as herein provided,
the Company shall henceforth pay as Pilot Payments one hundred (100%) percent of
the Exempt Taxes together with interest at the rate of nine (9%) percent per
annum on all delinquent payments, together with expenses of collection,
including but not limited to, payment of attorneys' fees; provided, however,
nothing herein contained shall be deemed to limit any other rights and remedies
the Agency may have hereunder or under the Lease.
Anything herein to the contrary notwithstanding, this Agreement shall
terminate on the date on which the Lease shall terminate and the Agency shall
reconvey title to the Project Facility to the Company pursuant to the Lease.
3. The Company will make Pilot Payments to each Authority hereunder
for each Exemption Year by making the required payment to such Authority no
later than
<PAGE>
4
the last day during which such Exempt Taxes could otherwise be made without
penalty as if the Project Facility was owned by the Company.
4. The Pilot Payments to be made by the Company pursuant to this
Agreement are intended to be in lieu of all Exempt Taxes that would have to be
paid on the Project Facility leased to the Company by the Lease.
5. If by reason of a change in the Constitution or laws of the State of
New York, or an interpretation of the Constitution or laws of the State of New
York by the Court of Appeals (or such lower court from which the time to appeal
has expired) of the State of New York, or for any other reason, the Company is
required to pay any tax which the payments specified herein are intended to be
in lieu of, the Company may deduct the aggregate of any such payments made by it
from the amount herein agreed to be paid in lieu of such taxes and need only pay
the difference. Furthermore, inasmuch as the Pilot Payments herein agreed to be
made by the Company are intended to be in lieu of all Exempt Taxes, it is agreed
that said payments shall not, as to any year, be in an amount greater than would
be payable for such year for such Exempt Taxes, in the aggregate, by a private
corporation on account of its ownership of the Project Facility.
6. This Agreement shall be binding upon the successors and
assigns of the parties.
7. It is the intent of the parties that the Company will have all of
the rights and remedies of a taxpayer with respect to any real property or other
tax, service charge, special benefit, ad valorem levy, assessment or special
assessment or service charge because of which, or in lieu of which, the Company
is obligated to make a payment hereunder, as if and to the same extent as if the
Company were the owner of the Project Facility. It is the further intent of the
parties that the Company will have all of the rights and remedies of a taxpayer
as if and to the same extent as if the Company were the owner of the Project
Facility with respect to any proposed assessment or change in assessment
concerning the property, or any portion thereof, whether through an assessor,
board of assessment review, court of law, or otherwise and likewise will be
entitled to protest before and be heard by such assessor, board of assessment
review, court of law or otherwise and will be entitled to take any and all
appropriate appeals or initiate any proceedings to review the validity or amount
of any assessment or the validity or amount of any taxes that would have been
payable but for the provisions hereof. In the event, however, that a court of
competent jurisdiction shall enter an order or judgment determining or declaring
that, by reason of the Agency's ownership of the Project Facility, the Company
does not have the right to bring a proceeding to review such assessment under
the Real Property Tax Law or any other law, then the Company shall have the
right to contest such assessment in the name and as agent of the Agency, and the
Agency agrees to cooperate with the Company in all respects in any such
proceeding.
8. All amounts payable by the Company hereunder will be paid to
the respective Authority and will be payable in such lawful money of the United
States of
<PAGE>
5
America as at the time of payment is legal tender for the payment of public and
private debts, including a check payable in such money.
9. (a) If any term or provision hereof should be for any reason held or
adjudged to be invalid, illegal or unenforceable by any court of competent
jurisdiction, such term or provision will be deemed separate and independent and
the remainder hereof will remain in full force and effect and will not be
invalidated, impaired or otherwise affected by such holding or adjudication.
(b) This Agreement may not be effectively amended, changed, modified,
altered or terminated except by an instrument in writing executed by the parties
hereto.
(c) All notices, certificates or other communications hereunder shall
be in writing and shall be sufficiently given and shall be deemed given when
mailed by United States registered or certified mail, postage prepaid, return
receipt requested, to the Agency or the Company, as the case may be, addressed
as follows:
IF TO THE AGENCY:
Oneida County Industrial Development Agency
153 Brooks Road
Rome, New York 13441
Attention: Chairman
WITH A COPY TO:
Groben, Gilroy, Oster & Saunders
258 Genesee Street
P.O. Box 423
Utica, NY 13503-0423
Attention: James C. Oster, Esq.
IF TO THE COMPANY:
Special Metals Corporation
Middle Settlement Road
New Hartford, NY 13413
Attention: President
WITH A COPY TO:
Bond, Schoeneck & King
One Lincoln Center
Syracuse, NY
Attention: Ronald C. Berger, Esq.
<PAGE>
6
provided, that the Agency or the Company may, by notice given hereunder to the
other, designate any further or different addresses to which subsequent notices,
certificates or other communications to them shall be sent.
(d) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
(e) This Agreement shall be effective as of the 1st day of
December, 1996.
(f) This Agreement may be executed in one or more counterparts, each
of which shall be an original and all of which together shall constitute but one
instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
27th day of February, 1997.
ONEIDA COUNTY INDUSTRIAL
DEVELOPMENT AGENCY
By:
Robert R. Calli
Chairman
SPECIAL METALS CORPORATION
By:
Donald R. Muzyka
President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Financial Statements contained in the Quarterly Report to which this
schedules relates and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0001028965
<NAME> SPECIAL METALS CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 6,924
<SECURITIES> 0
<RECEIVABLES> 31,494
<ALLOWANCES> (140)
<INVENTORY> 52,296
<CURRENT-ASSETS> 94,665
<PP&E> 73,912
<DEPRECIATION> (39,097)
<TOTAL-ASSETS> 134,357
<CURRENT-LIABILITIES> 32,551
<BONDS> 545
0
0
<COMMON> 155
<OTHER-SE> 92,258
<TOTAL-LIABILITY-AND-EQUITY> 134,357
<SALES> 94,204
<TOTAL-REVENUES> 94,204
<CGS> 71,738
<TOTAL-COSTS> 71,738
<OTHER-EXPENSES> 0
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