UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
METALLURG, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 13-1661467
- -------------------------------- --------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6 EAST 43{RD} STREET
NEW YORK, NEW YORK 10017
----------------------------------------
(Address of Principal Executive Offices)
(Zip Code)
(212) 835-0200
--------------
(Registrant's Telephone Number, Including Area Code)
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 [ ] No [ X ]
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
--- ---
The number of shares of common stock, $0.01 par value, issued and outstanding
as of June 9, 1998 was 4,956,406.
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
INDEX
PAGE NO.
Part I. FINANCIAL INFORMATION:
Item 1 - Financial Statements (Unaudited)
Condensed Statements of Consolidated Operations
for the Quarters Ended April 30, 1998 and March 31, 1997 3
Condensed Statements of Consolidated Comprehensive Income
for the Quarters Ended April 30, 1998 and March 31, 1997 4
Condensed Consolidated Balance Sheets at April 30, 1998
and January 31, 1998 5
Condensed Statements of Consolidated Cash Flows for the
Quarters Ended April 30, 1998 and March 31, 1997 6
Notes to Condensed Unaudited Consolidated Financial Statements 7-12
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-16
Part II. OTHER INFORMATION
Item 6. (a) EXHIBITS 17
6. (b) REPORT ON FORM 8-K
Signature Page 18
2
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
ITEM 1 - FINANCIAL STATEMENTS
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Reorganized Predecessor
Company Company
------------------ ---------------
Quarter Ended Quarter Ended
April 30, 1998 March 31, 1997
------------------ ------------------
<S> <C> <C>
Total revenue ................................................... $167,830 $155,587
------------------ ------------------
Operating costs and expenses:
Cost of sales ................................................ 139,008 134,060
Selling, general and administrative expenses ................. 14,761 15,046
------------------ ------------------
Total operating costs and expenses ........................... 153,769 149,106
------------------ ------------------
Operating income .......................................... 14,061 6,481
Other income (expense):
Other income, net ............................................ 878 3,179
Interest income (expense), net ............................... (2,072) (245)
Reorganization expense ....................................... - (2,663)
Fresh-start revaluation ...................................... - 5,107
------------------ -----------------
Income before income tax provision and
extraordinary item ........................................ 12,867 11,859
Income tax provision (benefit) .................................. 6,077 (3,063)
------------------ -----------------
Net income before extraordinary item ............................ 6,790 14,922
Extraordinary item .............................................. - 43,032
------------------ -----------------
Net income ...................................................... $ 6,790 $ 57,954
================== =================
Weighted average shares outstanding.............................. 4,956
==================
Basic and diluted earnings per share............................. $ 1.37
==================
</TABLE>
See notes to condensed unaudited consolidated financial statements.
3
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
ITEM 1 - FINANCIAL STATEMENTS
CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Reorganized Predecessor
Company Company
---------------- -----------------
Quarter Ended Quarter Ended
April 30, 1998 March 31, 1997
---------------- -----------------
<S> <C> <C>
Net income ........................................... $6,790 $57,954
Other comprehensive income (loss):
Foreign currency translation adjustments (a)........ 76 (1,224)
---------------- -----------------
Comprehensive income ................................. $6,866 $56,730
================ =================
(a) The Company does not provide for U.S.
income taxes on foreign currency translation
adjustments because it does not provide for
such taxes on undistributed earnings of foreign
subsidiaries.
</TABLE>
See notes to condensed unaudited consolidated financial statements.
4
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Reorganized Company
------------------------------------------
April 30, January 31,
1998 1998
--------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................... $ 50,221 $ 43,003
Accounts and notes receivable, net .................. 90,827 83,931
Inventories ......................................... 116,574 117,589
Other assets ........................................ 12,815 14,239
--------------- ------------
Total current assets ............................. 270,437 258,762
Property, plant and equipment, net ..................... 41,666 41,502
Other assets ........................................... 18,569 19,522
--------------- ------------
TOTAL ............................................ $330,672 $319,786
=============== ============
LIABILITIES
Current liabilities:
Short-term debt and current portion
of long-term debt ................................ $ 3,975 $ 4,016
Trade payables ...................................... 54,383 51,308
Accrued expenses .................................... 31,537 30,575
Other current liabilities ........................... 6,592 5,106
--------------- ------------
Total current liabilities ........................ 96,487 91,005
--------------- ------------
Long-term debt ......................................... 102,722 103,133
Accrued pension liabilities ............................ 37,473 38,351
Environmental liabilities, net ......................... 37,753 38,527
Other liabilities ...................................... 6,410 6,999
--------------- ------------
Total long-term liabilities ...................... 184,358 187,010
--------------- ------------
Total liabilities ................................ 280,845 278,015
--------------- ------------
SHAREHOLDERS' EQUITY
Common stock ........................................... 50 50
Additional paid-in capital ............................. 41,399 40,209
Accumulated other comprehensive income ................. 749 673
Retained earnings ...................................... 7,629 839
--------------- ------------
Total shareholders' equity .......................... 49,827 41,771
--------------- ------------
TOTAL ............................................ $330,672 $319,786
=============== ============
- ----------------------------------------------------------------------------------------------------
See notes to condensed unaudited consolidated financial statements.
</TABLE>
5
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
ITEM 1 - FINANCIAL STATEMENTS
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Reorganized Predecessor
Company Company
------------ ---------
Quarter Quarter
Ended Ended
April 30, March 31,
1998 1997
------------ ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................ $6,790 $57,954
Adjustments to reconcile net income to net cash
provided by operating activities: .....................
Executive stock awards .............................. 293 500
Extraordinary item .................................. - (43,032)
Fresh-start revaluation ............................. - (5,107)
Depreciation and amortization ....................... 2,188 2,143
Gain on sale of assets .............................. (493) (3,266)
Reorganization expense, net of payments ............. (169) 1,538
Deferred income taxes ............................... 1,272 (3,767)
Provision for doubtful accounts ..................... 289 162
Provision for environmental costs, net of payments... (558) (256)
Other, net .......................................... 4,238 3,057
---------- ----------
Total ............................................. 13,850 9,926
Change in operating assets and liabilities:
Increase in trade receivables ....................... (11,353) (20,272)
Increase in inventories ............................. (297) (6,120)
Decrease (increase) in other current assets ......... 1,328 (355)
Increase in trade payables and accrued expenses ..... 8,633 18,895
Decrease in prepetition liabilities ................. - (39)
Receipt from environmental trust, net ............... - 5,928
Other assets and liabilities, net ................... (1,117) (1,547)
---------- -----------
Net cash provided by operating activities ......... 11,044 6,416
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment, net ..... (2,929) (2,774)
Proceeds from asset sales ........................... 1,143 4,966
Other, net .......................................... (1,781) (25)
----------- -----------
Net cash (used in) provided by investing
activities ........................................ (3,567) 2,167
----------- ----------
CASH FLOWS FROM FINANCING AND REORGANIZATION
ACTIVITIES:
Cash distribution pursuant to plan of
reorganization ..................................... - (59,366)
Drawdown of prepetition letters of credit ........... - 9,700
Proceeds from long-term debt, net ................... - 8,100
Net short-term borrowings ........................... 146 1,062
Repayment of long-term debt ......................... (419) (487)
----------- -----------
Net cash used in financing and reorganization
activities ....................................... (273) (40,991)
----------- -----------
Effects of exchange rate changes on cash and cash
equivalents .......................................... 14 (526)
---------- -----------
Net increase (decrease) in cash and cash
equivalents ........................................ 7,218 (32,934)
Cash and cash equivalents - beginning of period ....... 43,003 63,274
---------- ----------
Cash and cash equivalents - end of period ............. $50,221 $30,340
========== ==========
See notes to condensed unaudited consolidated financial statements.
6
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying condensed unaudited consolidated financial statements include
the accounts of Metallurg, Inc. ("Metallurg") and its majority-owned
subsidiaries (collectively, the "Company"). These financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information pursuant to Accounting Principles Board Opinion
No. 28. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. The condensed consolidated balance sheet as of January 31, 1998
and the condensed statements of consolidated operations and of consolidated
cash flows for the quarter ended March 31, 1997 were derived from audited
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. Operating results for the interim periods
presented are not necessarily indicative of the results to be expected for a
full year.
On February 26, 1997, the Fourth Amended and Restated Joint Plan of
Reorganization (the "Plan") of Metallurg and one of its subsidiaries,
Shieldalloy Metallurgical Corporation ("Shieldalloy"), was confirmed by the
U.S. Bankruptcy Court for the Southern District of New York. Transactions
contemplated by the Plan were consummated on April 14, 1997 (the "Effective
Date"). For financial reporting purposes, the Company has reflected the
effects of the Plan consummation as of March 31, 1997. As a result of the
consummation of the Plan and the adoption of fresh-start reporting under the
American Institute of Certified Public Accountants' ("AICPA") Statement of
Position 90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code", financial statements for the quarter ended March 31, 1997,
which includes the effects of the adoption of fresh-start reporting and
consummation of the Plan, are referred to as the "Predecessor Company".
Financial statements for periods subsequent to March 31, 1997 are referred to
as the "Reorganized Company". The financial statements of the Company after
consummation of the Plan are not comparable to the Company's financial
statements of prior periods.
For further information, see the financial statements and footnotes thereto
included in the Company's audited consolidated financial statements for the
three quarters ended January 31, 1998 and the quarter ended March 31, 1997.
Effective April 1, 1997, the Company changed the reporting period of Metallurg
from a calendar year ending December 31 to a fiscal year ending January 31 and
began reporting the results of its operating subsidiaries on a one-month lag.
Accordingly, the quarter ended April 30, 1998 includes worldwide operating
results for the three months ended March 31, 1998 and operating results of
Metallurg, the parent holding company, for the three months ended April 30,
1998.
7
<PAGE>
2. INVENTORIES
Inventories, net of reserves, consist of the following (in thousands):
</TABLE>
<TABLE>
<CAPTION>
April 30, January 31,
1998 1998
---------------- -----------------
<S> <C> <C>
Raw materials .......................................... $ 30,496 $ 32,938
Work in process ........................................ 2,075 1,981
Finished goods ......................................... 79,137 77,473
Other .................................................. 4,866 5,197
---------------- -----------------
Total ............................................... $116,574 $117,589
================ =================
</TABLE>
3. COMMITMENTS AND CONTINGENCIES
The Company continues defending various claims and legal actions arising in the
normal course of business, including those relating to environmental matters.
Management believes, based on the advice of counsel, that the outcome of such
litigation will not have a material adverse effect on the Company's
consolidated financial statements.
4. EARNINGS PER COMMON SHARE
Earnings per share are calculated in accordance with SFAS No. 128, "Earnings
per Share". All diluted earnings per share amounts are computed on the basis
of the weighted average shares of common stock outstanding plus common
equivalent shares arising from the effect of dilutive stock options, using the
treasury method. The effect of dilutive stock options issued on April 1, 1998
at a strike price of $8.43 per share was not material. Earnings per share for
periods prior to April 1, 1997 are not presented because such presentation
would not be meaningful due to fresh-start reporting and the recapitalization
of the Company in connection with the Plan as of March 31, 1997.
8
<PAGE>
5. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Company adopted SFAS No. 130, "Reporting Comprehensive Income", as of
February 1, 1998. This standard requires the display of comprehensive income
and its components in the financial statements.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosure about
Segments of an Enterprise and Related Information". SFAS No. 131 requires the
reporting of profit and loss, specific revenue and expense items and assets for
reportable segments. It also requires the reconciliation of total segment
revenues, total segment profit or loss, total segment assets and other amounts
disclosed for segments to the corresponding amounts in the general purpose
financial statements. The Company will adopt this standard in the fourth
quarter of 1998.
In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosure About
Pensions and Other Postretirement Benefits". SFAS No. 132 changes current
financial disclosure requirements from those that were required under SFAS No.
87, Employers' Accounting for Pensions", SFAS No. 88, "Employers' Accounting
for Settlement and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits" and SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions". The Company will adopt this
standard in the fourth quarter of 1998.
6. SUPPLEMENTAL GUARANTOR INFORMATION
In November 1997, the Company sold $100 million principal amount of 11% senior
notes due 2007 (the "Senior Notes"). Under the terms of the Senior Notes,
Shieldalloy, Metallurg Holdings Corporation, Metallurg Services, Inc. and MIR
(China), Inc. (collectively, the "Guarantors"), wholly-owned subsidiaries of
the Company, will fully and unconditionally guarantee on a joint and several
basis the Company's obligations to pay principal, premium and interest relative
to the Senior Notes. Management has determined that separate, full financial
statements of the Guarantors would not be material and, accordingly, such
financial statements are not provided. Supplemental financial information of
the Guarantors is presented below.
9
<PAGE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED APRIL 30, 1998
(In thousands)
<TABLE>
<CAPTION>
Combined Combined
Guarantor Non-Guarantor
Metallurg, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
--------------- ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenue.................... $11,796 $55,547 $126,127 $(25,640) $167,830
---------- ---------- ----------- ---------- ----------
Operating costs and expenses:
Cost of sales................ 10,331 45,603 108,214 (25,140) 139,008
Selling, general and
administrative expenses.... 2,005 2,528 10,228 - 14,761
---------- ---------- ---------- ---------- ----------
Total operating costs and
expenses................... 12,336 48,131 118,442 (25,140) 153,769
---------- ---------- ---------- ---------- ----------
Operating income (loss).......... (540) 7,416 7,685 (500) 14,061
Other income (expense):
Other income (expense), net.. 878 - - - 878
Interest income (expense), net (2,177) 238 (133) - (2,072)
Equity in earnings of
subsidiaries................ 8,163 2,604 - (10,767) -
---------- ---------- ---------- ---------- ----------
Income before income
tax provision.................. 6,324 10,258 7,552 (11,267) 12,867
Income tax provision (benefit).... (466) 3,166 3,377 - 6,077
---------- ---------- ---------- ---------- ----------
Net income........................ $ 6,790 $ 7,092 $ 4,175 $(11,267) $ 6,790
========== ========== ========== ========== ==========
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSSIVE INCOME
FOR THE QUARTER ENDED APRIL 30, 1998
(In thousands)
<TABLE>
<CAPTION>
Combined Combined
Guarantor Non-Guarantor
Metallurg, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
--------------- ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Income...................... $6,790 $7,092 $4,175 $(11,267) $6,790
Other comprehensive income
(loss):
Foreign currency translation
adjustment.................. 76 440 76 (516) 76
---------- --------- --------- --------- --------
Comprehensive income............ $6,866 $7,532 $4,251 $(11,783) $6,866
========== ========= ========= ========= ========
</TABLE>
10
<PAGE>
CONDENSED CONSOLIDATING BALANCE SHEET AT APRIL 30, 1998
(In thousands)
<TABLE>
<CAPTION>
Combined Combined
Guarantor Non-Guarantor
Metallurg, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
--------------- ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..... $ 24,377 $ 3,402 $ 22,442 $ 50,221
Accounts and notes
receivable, net............ 32,597 46,178 75,016 $(62,964) 90,827
Inventories................... 7,972 41,034 71,813 (4,245) 116,574
Other assets.................. 7,287 244 5,284 - 12,815
---------- ---------- ---------- ---------- ----------
Total current assets....... 72,233 90,858 174,555 (67,209) 270,437
Investments - intergroup......... 100,338 54,039 - (154,377) -
Investments - other.............. - - 3,152 - 3,152
Property, plant and
equipment, net................ 1,016 6,930 33,720 - 41,666
Other assets..................... 5,333 3 11,010 (929) 15,417
---------- ---------- ---------- ---------- ----------
Total...................... $178,920 $151,830 $222,437 $(222,515) $330,672
========== ========== ========== ========== ==========
LIABILITIES
Current liabilities:
Short-term debt and current
portion of long-term debt... $ 3,975 $ 3,975
Trade payables................ $ 2,402 $ 17,096 50,334 $(17,634) 52,198
Accrued expenses.............. 5,853 8,340 17,344 - 31,537
Loans payable - intergroup.... 19,098 4,815 33,602 (55,330) 2,185
Other current liabilities..... - 3,195 3,397 - 6,592
---------- ---------- ---------- ---------- ----------
Total current liabilities... 27,353 33,446 108,652 (72,964) 96,487
---------- ---------- ---------- ---------- ----------
Long-term liabilities:
Long-term debt................ 100,000 - 2,722 - 102,722
Accrued pension liabilities... 345 1,784 35,344 - 37,473
Environmental liabilities, net - 34,691 3,062 - 37,753
Other liabilities............. 1,395 - 5,944 (929) 6,410
---------- ---------- ---------- ---------- ----------
Total long-term liabilities 101,740 36,475 47,072 (929) 184,358
---------- ---------- ---------- ---------- ----------
Total liabilities.......... 129,093 69,921 155,724 (73,893) 280,845
---------- ---------- ---------- ---------- ==========
SHAREHOLDERS' EQUITY:
Common stock outstanding...... 50 1,227 80,358 (81,585) 50
Additional paid-in capital.... 41,399 90,867 1,104 (91,971) 41,399
Accumulated other comprehensive
income..................... 749 1,549 22,462 (24,011) 749
Retained earnings (deficit)... 7,629 (11,734) (37,211) 48,945 7,629
---------- ---------- ---------- ---------- ----------
Shareholders' equity.......... 49,827 81,909 66,713 (148,622) 49,827
---------- ---------- ---------- ---------- ----------
Total...................... $178,920 $151,830 $222,437 $(222,515) $330,672
========== ========== ========== ========== ==========
</TABLE>
11
<PAGE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE QUARTER ENDED APRIL 30, 1998
(In thousands)
<TABLE>
<CAPTION>
Combined Combined
Guarantor Non-Guarantor
Metallurg, Inc. Subsidiaries Subsidiaries Consolidated
--------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Cash Flows from
Operating Activities......................... $ 5,168 $2,229 $ 3,647 $11,044
---------- ---------- ---------- ----------
Cash Flows from Investing Activities:
Additions to property, plant and equipment.. (35) (443) (2,451) (2,929)
Proceeds from asset sales................... 1,122 - 21 1,143
Other, net.................................. 19 1 (1,801) (1,781)
---------- ---------- ---------- ----------
Net cash provided by (used in) investing
activities.................................. 1,106 (442) (4,231) (3,567)
---------- ---------- ---------- ----------
Cash Flows from Financing Activities:
Intergroup borrowings (repayments).......... 2,220 891 (3,111) -
Net short-term borrowings................... - - 146 146
Repayment of long-term debt................. - - (419) (419)
---------- ---------- ---------- ----------
Net cash provided by (used in) financing
activities.................................. 2,220 891 (3,384) (273)
---------- ---------- ---------- ----------
Effects of exchange rate changes on cash
and cash equivalents........................ - - 14 14
---------- ---------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents................................. 8,494 2,678 (3,954) 7,218
Cash and cash equivalents -
beginning of period......................... 15,883 724 26,396 43,003
---------- ---------- ---------- ----------
Cash and cash equivalents -
end of period............................... $24,377 $3,402 $22,442 $50,221
========== ========== ========== ==========
</TABLE>
12
<PAGE>
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Effective March 31, 1997, the Company implemented fresh-start reporting
relating to its emergence from bankruptcy. Accordingly, all assets and
liabilities were restated to reflect their respective fair values and the
consolidated financial statements subsequent to that date include the related
amortization of credits associated with the fair value adjustments. The
consolidated financial statements after that date are those of a new reporting
entity and are not comparable to the pre-confirmation periods.
In addition, as a result of Metallurg's change in its fiscal year from a
calendar year to January 31, effective as of April 1, 1997, the consolidated
operating results of the Company for the quarter ending April 30, 1998 include
the results of Metallurg, Inc., the parent holding company, for the three month
period ended April 30, 1998 and the results of its operating subsidiaries
(whose fiscal years remain the calendar year) for the three month period ended
March 31, 1998. The consolidated balance sheet data of the Company at April 30,
1998 reflect the financial position of Metallurg, Inc. at April 30, 1998 and of
the operating subsidiaries at March 31, 1998.
RESULTS OF OPERATIONS
TOTAL REVENUES
- --------------
Total revenues for Metallurg and its subsidiaries increased by 7.9%, from
$155.6 million in the first quarter of 1997 to $167.8 million in the first
quarter of 1998. Increased volume and selling prices of ferrovanadium
accounted for substantially all of the increase. In addition, increased
revenues from sales of ferrotitanium and low carbon ferrochrome, due primarily
to increased volume, more than offset a reduction in sales of ferroboron and
polishing powders due primarily to increased price competition.
GROSS MARGINS
- -------------
Gross margins increased from $21.5 million in the first quarter of 1997 to
$28.8 million in the first quarter of 1998, an increase of 33.9%, due
principally to the price and volume increases in ferrovanadium and
ferrotitanium discussed above. In aluminum master alloys and compacted
products, a slight decrease in volume was more than offset by improvements in
product mix and selling prices, which offset negative production variances. The
values of the Company's assets were reduced pursuant to fresh-start reporting,
reducing depreciation expense in the quarter ended April 30, 1998 by $0.3
million and increasing gross margins by an equal amount.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
Selling, general and administrative expenses ("SG&A") decreased from $15.0
million in the first quarter of 1997 to $14.8 million in the first quarter of
1998, a decrease of 1.9%. For the first quarter of 1997, SG&A represented 9.7%
of the Company's sales compared to 8.8% for the first quarter of 1998. SG&A
was higher in 1997 due to increased bonus accruals and awards under the Stock
Award and Stock Option Plan of Metallurg incurred in connection with the
consummation of the Plan and additional costs related to the audit of March 31,
1997 financial statements.
13
<PAGE>
OPERATING INCOME
- ----------------
Operating income increased from $6.5 million for the first quarter 1997 to
$14.1 million for the first quarter of 1998, an increase of 117.0%. The
increase resulted from the improvement in gross margins and decrease in SG&A,
mentioned above.
INTEREST INCOME (EXPENSE), NET
- ------------------------------
Interest income (expense), net is as follows (in thousands):
Quarter Quarter
Ended Ended
April 30, March 31,
1998 1997
---------- ---------
Interest income.............................. $ 828 $ 1,461
Interest expense............................. (2,900) (1,706)
---------- ---------
Interest income (expense), net............ $(2,072) $ (245)
========== =========
Interest expense increased significantly in 1998. In the first quarter of
1998, the Company accrued approximately $2.8 million of interest expense on
$100 million aggregate principal amount of its 11% senior notes, which were
issued in November 1997. The Company used a portion of the proceeds from the
11% notes to retire $39.5 million of outstanding 12% senior-secured notes. In
the first quarter of 1997, the Company accrued approximately $1.2 million of
interest expense on these 12% notes. The Company did not accrue interest on
debt incurred prior to entering Chapter 11 proceedings. As a result,
approximately $2.1 million of contractual interest on these unsecured
obligations, which were reported as part of liabilities subject to compromise,
was not reflected in the quarter ended March 31, 1997.
INCOME TAX PROVISION (BENEFIT):
- ------------------------------
Income tax provision, net of tax benefits, is as follows (in thousands):
Quarter Quarter
Ended Ended
April 30, March 31,
1998 1997
---------- ---------
Total current................................ $4,690 $ 704
Total deferred............................... 1,387 (3,767)
---------- ---------
Income tax provision (benefit), net....... $6,077 $(3,063)
========== =========
The differences between the statutory Federal income tax rate and the Company's
effective rate result primarily because of: (i) the excess of foreign tax
rates over the statutory Federal income tax rate; (ii) certain deductible
temporary differences which, in other circumstances would have generated a
deferred tax benefit, have been fully provided for in a valuation allowance;
(iii) the deferred tax effects of certain tax assets, primarily foreign net
operating losses, for which the benefit had been previously recognized
approximating $0.5 million in the quarter ended April 30, 1998; and (iv) the
deferred tax effects of certain deferred tax assets for which a corresponding
credit has been recorded to "Additional paid-in capital" approximating $0.9
million in the quarter ended April 30, 1998. The deferred tax expenses
referred to in items (iii) and (iv) above will not result in cash payments in
future periods.
14
<PAGE>
NET INCOME
- ----------
Net income was $6.8 million for the first quarter of 1998 compared to $58.0
million for the first quarter of 1997. Included in the 1997 net income is an
extraordinary item of $43.0 million representing the cancellation of debt
resulting from the consummation of the Company's Reorganization Plan and a $5.1
million credit representing the effects of revaluing the Company's assets and
liabilities under fresh-start reporting. Reorganization expenses for the first
quarter of 1997 were $2.7 million. In March 1998, the Company sold its
minority investment in a Luxembourg affiliate and realized a gain of
approximately $0.9 million. In the first quarter of 1997, other income
included a $2.7 million gain on the sale of the Company's New York office
building.
LIQUIDITY AND FINANCIAL RESOURCES
GENERAL
- -------
The Company's sources of liquidity include cash from operations and amounts
available under credit facilities. In addition, the Company has $50.2 million
of cash and cash equivalents at April 30, 1998. In November 1997, the Company
sold $100 million principal amount of 11% senior notes due 2007, the proceeds
of which were used to retire the Company's then existing 12% senior-secured
notes (approximately $39.5 million), repay certain debt of the UK and German
subsidiaries (approximately $19.8 million) and to pay a cash dividend
(approximately $20.0 million). The balance of the net proceeds will be used
for general corporate purposes. The Company believes that these sources are
sufficient to fund the current and anticipated future requirements of working
capital, capital expenditures, pension benefits, potential acquisitions and
environmental expenditures through at least 1999.
At April 30, 1998, the Company had $50.2 million in cash and cash equivalents
and working capital of $174.0 million, as compared to $43.0 million and $167.8
million, respectively, at January 31, 1998. For the first quarter of 1998, the
Company generated $11.0 million in cash from operations and received proceeds
of approximately $1.1 million on the sale of its Luxembourg affiliate. Capital
expenditures approximated $2.9 million in the quarter and in February 1998, the
Company purchased an additional 5% interest in a Russian magnesium metal
producer for approximately $2.0 million.
CREDIT FACILITIES AND OTHER FINANCING ARRANGEMENTS
- --------------------------------------------------
The Company has a credit facility with certain financial institutions led by
BankBoston, N.A. as agent (the "Revolving Credit Facility") which provides
Metallurg, Shieldalloy and certain of their subsidiaries with up to $50.0
million of financing resources at a rate per annum equal to (i) the Alternate
Base Rate plus 1.0% per annum (the Alternate Base Rate is the greater of the
Base Rate or the Federal Funds Effective Rate plus 0.5%) or (ii) the reserve
adjusted Eurodollar rate plus 2.5% for interest periods of one, two or three
months. The Revolving Credit Facility permits borrowings of up to $50.0
million for working capital requirements and general corporate purposes, up to
$30.0 million of which may be used for letters of credit in the U.S. At April
30, 1998, there were no outstanding loans and $29.3 million of letters of
credit outstanding in the U.S. under the Revolving Credit Facility.
In addition, several of the other foreign subsidiaries of Metallurg have credit
facility arrangements with local banking institutions to provide funds for
working capital and general corporate purposes. These local credit facilities
contain restrictions which vary from company to company. At April 30, 1998,
there were $2.9 million of outstanding loans under these local credit
facilities.
15
<PAGE>
CAPITAL EXPENDITURES
The Company invested $2.9 million in capital expenditures during the first
quarter of 1998. Capital expenditures are expected to total approximately $20
million in 1998. Although the Company has budgeted these items in 1998, the
Company has not committed to complete these projects which are contingent on
senior management approval and other conditions. The Company believes that
these projects will be funded through internally generated cash, borrowings
under the Revolving Credit Facility and local credit lines.
ENVIRONMENTAL REMEDIATION COSTS
In 1996, the Company elected early adoption of the AICPA Statement of Position
96-1, "Environmental Remediation Liabilities", which among other
requirements, states that losses associated with environmental remediation
obligations are accrued when such losses are deemed probable and reasonably
estimable. Such accruals generally are recognized no later than the completion
of the remedial feasibility study and are adjusted as further information
develops or circumstances change. Costs of future expenditures for
environmental remediation obligations are generally not discounted to their
present value. During the first quarter of 1998, the Company expended $0.6
million for environmental remediation.
As part of the Plan, Shieldalloy entered into settlement agreements with
various environmental regulatory authorities with regard to all of the
significant environmental remediation liabilities of which it is aware.
Pursuant to these agreements, Shieldalloy has agreed to perform environmental
remediation which, as of April 30, 1998, had an estimated cost of completion of
$39.4 million. Of this amount, approximately $4.2 million is expected to be
expended in 1998, $4.3 million in 1999 and $8.1 million in 2000. In addition,
the Company estimates it will make expenditures of $5.0 million with respect to
environmental remediation at its foreign facilities. Of this amount,
approximately $1.8 million is expected to be expended in 1998, $0.7 million in
1999 and $0.7 million in 2000.
16
<PAGE>
PART II OTHER INFORMATION
Item 6.(a) EXHIBITS
27 Financial Data Schedule
6. (b) REPORT ON FORM 8-K
None
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on June 9, 1998 on its
behalf by the undersigned thereunto duly authorized.
METALLURG, INC.
/s/ BARRY C. NUSS
-----------------------------------
Barry C. Nuss
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
18
<PAGE>
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