<PAGE> 1
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 October 31, 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 43RD 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 [X] No [ ]
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 December 15, 1998 was 5,000,000.
<PAGE> 2
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. FINANCIAL INFORMATION:
Item 1 - Financial Statements (Unaudited)
Condensed Statements of Consolidated Operations for the
Quarter and the Three Quarters Ended October 31, 1998, the
Quarter and the Two Quarters Ended October 31, 1997 and the
Quarter Ended March 31, 1997 3
Condensed Statements of Consolidated Comprehensive Income for
the Quarter and the Three Quarters Ended October 31, 1998, the
Quarter and the Two Quarters Ended October 31, 1997 and the
Quarter Ended March 31, 1997 4
Condensed Consolidated Balance Sheets at October 31, 1998 and
January 31, 1998 5
Condensed Statements of Consolidated Cash Flows for the Three
Quarters Ended October 31, 1998, the Two Quarters Ended
October 31, 1997 and the Quarter Ended March 31, 1997 6
Notes to Condensed Unaudited Consolidated Financial Statements 7 - 14
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 15 - 21
Part II. OTHER INFORMATION
Item 6. (a) EXHIBITS 22
6. (b) REPORT ON FORM 8-K
Signature Page 23
</TABLE>
2
<PAGE> 3
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
ITEM 1 - FINANCIAL STATEMENTS
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Predecessor
Reorganized Company Company
----------------------------------------------------------------- -----------
Quarter Three Quarters Quarter Two Quarters Quarter
Ended Ended Ended Ended Ended
October 31, October 31, October 31, October 31, March 31,
1998 1998 1997 1997 1997
----------- -------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Total revenue ........................ $ 142,708 $ 480,551 $ 148,325 $ 315,204 $ 155,587
--------- --------- --------- --------- ---------
Operating costs and expenses:
Cost of sales ..................... 124,401 406,080 127,276 269,411 134,060
Selling, general and administrative
expenses ....................... 15,587 45,495 13,560 27,987 15,046
Merger costs ...................... 2,607 7,023 - - -
--------- --------- --------- --------- ---------
Total operating costs and
expenses......................... 142,595 458,598 140,836 297,398 149,106
--------- --------- --------- --------- ---------
Operating income ............... 113 21,953 7,489 17,806 6,481
Other income (expense):
Other income, net ................. 1,487 2,032 1,074 998 3,179
Interest expense, net ............. (2,303) (6,919) (1,332) (2,811) (245)
Reorganization expense ............ - - - - (2,663)
Fresh-start revaluation ........... - - - - 5,107
--------- --------- --------- --------- ---------
Income (loss) before income tax
provision and extraordinary item .. (703) 17,066 7,231 15,993 11,859
Income tax provision (benefit) ....... (741) 8,740 5,517 10,628 (3,063)
--------- --------- --------- --------- ---------
Income before extraordinary item ..... 38 8,326 1,714 5,365 14,922
Extraordinary item ................... - - - - 43,032
--------- --------- --------- --------- ---------
Net income ........................... $ 38 $ 8,326 $ 1,714 $ 5,365 $ 57,954
========= ========= ========= ========= =========
</TABLE>
See notes to condensed unaudited consolidated financial statements.
3
<PAGE> 4
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
ITEM 1 - FINANCIAL STATEMENTS
CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Predecessor
Reorganized Company Company
------------------------------------------------------------ -----------
Quarter Three Quarters Quarter Two Quarters Quarter
Ended Ended Ended Ended Ended
October 31, October 31, October 31, October 31, March 31,
1998 1998 1997 1997 1997
----------- -------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Net income ....................... $ 38 $ 8,326 $ 1,714 $ 5,365 $ 57,954
Other comprehensive income (loss):
Foreign currency translation
adjustments (a) ............ 1,356 280 (557) 688 (1,224)
-------- -------- -------- -------- --------
Comprehensive income ............. $ 1,394 $ 8,606 $ 1,157 $ 6,053 $ 56,730
======== ======== ======== ======== ========
</TABLE>
(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.
See notes to condensed unaudited consolidated financial statements.
4
<PAGE> 5
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Reorganized Company
---------------------------
October 31, January 31,
1998 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ......... $ 40,515 $ 43,003
Accounts and notes receivable,
net.............................. 78,489 83,931
Inventories ....................... 139,932 117,589
Other assets ...................... 17,013 14,239
-------- --------
Total current assets ........... 275,949 258,762
Property, plant and equipment, net ... 48,047 41,502
Other assets ......................... 22,444 19,522
-------- --------
TOTAL .......................... $346,440 $319,786
======== ========
LIABILITIES
Current liabilities:
Short-term debt and current portion
of long-term debt .............. $ 1,969 $ 4,016
Trade payables .................... 48,329 51,308
Accrued expenses .................. 37,494 30,575
Other current liabilities ......... 8,420 5,106
-------- --------
Total current liabilities ...... 96,212 91,005
-------- --------
Long-term debt ....................... 108,415 103,133
Accrued pension liabilities .......... 41,566 38,351
Environmental liabilities, net ....... 36,618 38,527
Other liabilities .................... 6,020 6,999
-------- --------
Total long-term liabilities .... 192,619 187,010
-------- --------
Total liabilities .............. 288,831 278,015
-------- --------
SHAREHOLDERS' EQUITY
Common stock ......................... - 50
Additional paid-in capital ........... 47,491 40,209
Accumulated other comprehensive
income.............................. 953 673
Retained earnings .................... 9,165 839
-------- --------
Total shareholders' equity ........ 57,609 41,771
-------- --------
TOTAL .......................... $346,440 $319,786
======== ========
</TABLE>
See notes to condensed unaudited consolidated financial statements.
5
<PAGE> 6
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
ITEM 1 - FINANCIAL STATEMENTS
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Predecessor
Reorganized Company Company
------------------------------ -----------
Three Quarters Two Quarters Quarter
Ended Ended Ended
October 31, October 31, March 31,
1998 1997 1997
------------- ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................... $ 8,326 $ 5,365 $ 57,954
Adjustments to reconcile net income to net cash provided by
operating activities:
Executive stock awards ..................................... 750 875 500
Extraordinary item ......................................... - - (43,032)
Fresh-start revaluation .................................... - - (5,107)
Depreciation and amortization .............................. 6,234 3,494 2,143
Gain on sale of assets ..................................... (622) (2,183) (3,266)
Reorganization expense, net of payments .................... (144) (4,051) 1,538
Deferred income taxes ...................................... 2,515 4,798 (3,767)
Provision for doubtful accounts ............................ 550 1,242 162
Provision for environmental costs, net of payments ......... (1,718) (927) (256)
Other, net ................................................. 6,656 3,419 3,057
-------- -------- --------
Total .................................................... 22,547 12,032 9,926
Change in operating assets and liabilities:
Decrease (increase) in trade receivables ................... 7,954 8,363 (20,272)
Increase in inventories .................................... (19,983) (20,081) (6,120)
(Increase) decrease in other current assets ................ (4,985) 1,931 (355)
Increase (decrease) in trade payables and accrued expenses . 6,974 (1,482) 18,895
Decrease in prepetition liabilities ........................ - - (39)
Receipt from environmental trust, net ...................... - - 5,928
Other assets and liabilities, net .......................... (8,714) (2,993) (1,547)
-------- -------- --------
Net cash provided by (used in) operating activities ...... 3,793 (2,230) 6,416
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment ................. (11,576) (5,493) (2,774)
Proceeds from asset sales .................................. 1,337 3,812 4,966
Other, net ................................................. (2,406) 39 (25)
-------- -------- --------
Net cash (used in) provided by investing activities ...... (12,645) (1,642) 2,167
-------- -------- --------
CASH FLOWS FROM FINANCING, MERGER AND REORGANIZATION
ACTIVITIES:
Capital contribution from Safeguard International .......... 3,541 - -
Cash distribution pursuant to plan of reorganization ....... - - (59,366)
Drawdown of prepetition letters of credit .................. - - 9,700
Proceeds from long-term debt, net .......................... 5,569 - 8,100
Net short-term borrowings .................................. (1,968) (57) 1,062
Repayment of long-term debt ................................ (975) (576) (487)
-------- -------- --------
Net cash provided by (used in) financing, merger and
reorganization activities ............................. 6,167 (633) (40,991)
-------- -------- --------
Effects of exchange rate changes on cash and cash
equivalents ................................................ 197 (217) (526)
-------- -------- --------
Net decrease in cash and cash equivalents .................... (2,488) (4,722) (32,934)
Cash and cash equivalents - beginning of period .............. 43,003 30,340 63,274
-------- -------- --------
Cash and cash equivalents - end of period .................... $ 40,515 $ 25,618 $ 30,340
======== ======== ========
</TABLE>
See notes to condensed unaudited consolidated financial statements.
6
<PAGE> 7
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 July 13, 1998, Metallurg, Inc. was acquired by a group of investors
led by Safeguard International Fund, L.P. ("Safeguard International").
The acquisition was accomplished by Metallurg Acquisition Corp., a
wholly owned subsidiary of Metallurg Holdings, Inc. ("Metallurg
Holdings"), a Delaware corporation, merging with and into Metallurg,
with Metallurg being the surviving company and Metallurg Holdings
becoming the sole parent of Metallurg (the "Merger"). Metallurg
Holdings was formed on June 10, 1998 and is a subsidiary of Safeguard
International, an international private equity fund that invests
primarily in equity securities of companies in process industries,
certain limited partners of Safeguard International and a private
equity fund. At the time of the Merger, each outstanding share of
Metallurg common stock was converted into the right to receive $30 in
cash. In connection with the Merger, Metallurg received the consents
of 100% of the registered holders of its Senior Notes to a one-time
waiver of the change of control provisions of the Senior Note
Indenture to make such provisions inapplicable to the Merger and to
amend the definition of "Permitted Holders" under the Senior Note
Indenture to reflect the post-merger ownership of Metallurg. No
other modifications to terms of outstanding debt were affected in this
regard. As of July 13, 1998, in connection with the Merger, all of the
then outstanding shares of common stock of Metallurg were cancelled
and 100 shares of common stock, $0.01 par value, were issued to
Metallurg Holdings. On November 20, 1998, Metallurg consummated a
50,000 for 1 stock split and, as a result, Metallurg has 5,000,000
shares of common stock, $0.01 par value, outstanding, all of which
were owned by Metallurg Holdings.
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 directly comparable
to the Company's financial statements of prior periods.
7
<PAGE> 8
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 three quarters ended
October 31, 1998 include worldwide operating results for the nine
months ended September 30, 1998 and operating results of Metallurg, the
parent holding company, for the nine months ended October 31, 1998.
Balance sheet data at October 31, 1998 reflect the financial position
of Metallurg at October 31, 1998 and of its subsidiaries at September
30, 1998.
2. CHANGE OF CONTROL
As of August 10, 1998, Michael A. Standen resigned as President and
Chief Executive Officer and was elected Vice Chairman of the board of
directors. Alan D. Ewart was appointed President and Chief Executive
Officer, Eric E. Jackson was appointed Senior Vice President and Chief
Operating Officer and Robin A. Brumwell was appointed Senior Vice
President. Barry C. Nuss and Mr. Brumwell signed new employment
agreements with the Company, pursuant to which each received a one-time
payment of $150,000 in consideration of waiving their right to receive
payments under their former employment agreements. As of October 31,
1998, J. Richard Budd and Eric L. Schondorf elected to terminate their
employment agreements. Mr. Budd resigned as Senior Vice President as of
October 31, 1998. Michael A. Banks has notified the Company that he
intends to terminate his employment as of January 1999. Pursuant to
employment agreements between Metallurg and Mr. Standen, Mr. Budd, Mr.
Banks and Mr. Schondorf, each of these individuals became entitled to
payments of $1.2 million, $474,300, $321,300 and $313,650,
respectively, as a result of their termination, in accordance with the
terms of their respective employment agreements following the Merger.
See Metallurg's Annual Report on Form 10-K for the year ended January
31, 1998 which has been filed with the Securities and Exchange
Commission for a discussion of these employment agreements and of
certain other benefits to which these employees become entitled in the
event of their termination.
3. INVENTORIES
Inventories, net of reserves, consist of the following (in thousands):
October 31, January 31,
1998 1998
----------- -----------
Raw materials ... $ 41,017 $ 32,938
Work in process . 2,761 1,981
Finished goods .. 91,046 77,473
Other ........... 5,108 5,197
-------- --------
Total ........ $139,932 $117,589
======== ========
8
<PAGE> 9
4. 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.
5. EARNINGS PER COMMON SHARE
The presentation of earnings per share is not presented since the
Company is a wholly owned subsidiary of Metallurg Holdings.
6. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards
("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
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, "Employers' 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.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. SFAS
No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. The Company is currently evaluating the impact
SFAS No. 133 will have on its financial statements.
7. 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, have fully and
unconditionally guaranteed 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> 10
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE QUARTER ENDED OCTOBER 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Combined Combined
Guarantor Non-Guarantor
Metallurg, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
--------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenue ................... $ 12,052 $ 44,705 $ 109,075 $ (23,124) $ 142,708
--------- --------- --------- --------- ---------
Operating costs and expenses:
Cost of sales ................ 11,862 38,937 97,226 (23,624) 124,401
Selling, general and
administrative expenses ... 1,613 2,828 11,146 - 15,587
Merger costs ................. 2,607 - - - 2,607
--------- --------- --------- --------- ---------
Total operating costs and
expenses .................. 16,082 41,765 108,372 (23,624) 142,595
--------- --------- --------- --------- ---------
Operating income (loss) ......... (4,030) 2,940 703 500 113
Other income (expense):
Other income, net ............ 100 16 1,371 - 1,487
Interest income (expense), net (2,264) 343 (382) - (2,303)
Equity in earnings of
subsidiaries .............. 4,121 2,054 - (6,175) -
--------- --------- --------- --------- ---------
Income (loss) before income
tax provision .............. (2,073) 5,353 1,692 (5,675) (703)
Income tax provision (benefit) .. (2,111) 392 853 125 (741)
--------- --------- --------- --------- ---------
Net income ...................... $ 38 $ 4,961 $ 839 $ (5,800) $ 38
========= ========= ========= ========= =========
</TABLE>
10
<PAGE> 11
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE THREE QUARTERS ENDED OCTOBER 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Combined Combined
Guarantor Non-Guarantor
Metallurg, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
--------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenue ................... $ 38,361 $ 157,457 $ 356,977 $ (72,244) $ 480,551
--------- --------- --------- --------- ---------
Operating costs and expenses:
Cost of sales ................ 36,202 131,804 310,318 (72,244) 406,080
Selling, general and
administrative expenses ... 5,627 8,074 31,794 - 45,495
Merger costs ................. 7,023 - - - 7,023
--------- --------- --------- --------- ---------
Total operating costs and
expenses .................. 48,852 139,878 342,112 (72,244) 458,598
--------- --------- --------- --------- ---------
Operating income (loss) ......... (10,491) 17,579 14,865 - 21,953
Other income (expense):
Other income, net ............ 978 9 1,045 - 2,032
Interest income (expense), net (6,823) 897 (993) - (6,919)
Equity in earnings of
subsidiaries .............. 20,154 7,806 - (27,960) -
--------- --------- --------- --------- ---------
Income before income
tax provision .............. 3,818 26,291 14,917 (27,960) 17,066
Income tax provision (benefit) .. (4,508) 6,672 6,701 (125) 8,740
--------- --------- --------- --------- ---------
Net income ...................... $ 8,326 $ 19,619 $ 8,216 $ (27,835) $ 8,326
========= ========= ========= ========= =========
</TABLE>
11
<PAGE> 12
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
FOR THE QUARTER ENDED OCTOBER 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Combined Combined
Guarantor Non-Guarantor
Metallurg, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
--------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net income ............. $ 38 $ 4,961 $ 839 $(5,800) $ 38
Other comprehensive income
(loss):
Foreign currency translation
adjustment .............. 1,356 (377) 1,306 (929) 1,356
------- ------- ------- ------- -------
Comprehensive income .......... $ 1,394 $ 4,584 $ 2,145 $(6,729) $ 1,394
======= ======= ======= ======= =======
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
FOR THE THREE QUARTERS ENDED OCTOBER 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Combined Combined
Guarantor Non-Guarantor
Metallurg, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
--------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net income .................... $ 8,326 $ 19,619 $ 8,216 $(27,835) $ 8,326
Other comprehensive income
(loss):
Foreign currency translation
adjustment .............. 280 (778) 219 559 280
-------- -------- -------- -------- --------
Comprehensive income .......... $ 8,606 $ 18,841 $ 8,435 $(27,276) $ 8,606
======== ======== ======== ======== ========
</TABLE>
12
<PAGE> 13
CONDENSED CONSOLIDATING BALANCE SHEET AT OCTOBER 31, 1998 (UNAUDITED)
(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 .... $ 19,258 $ 840 $ 20,417 $ 40,515
Accounts and notes
receivable, net ........... 32,609 55,374 62,299 $ (71,793) 78,489
Inventories .................. 8,296 51,315 84,066 (3,745) 139,932
Other assets ................. 10,476 127 9,285 (2,875) 17,013
--------- --------- --------- --------- ---------
Total current assets ..... 70,639 107,656 176,067 (78,413) 275,949
Investments - intergroup ........ 111,466 57,890 - (169,356) -
Investments - other ............. 250 - 3,593 - 3,843
Property, plant and
equipment, net ............... 944 7,226 39,877 - 48,047
Other assets .................... 5,700 3 12,937 (39) 18,601
--------- --------- --------- --------- ---------
Total ..................... $ 188,999 $ 172,775 $ 232,474 $(247,808) $ 346,440
========= ========= ========= ========= =========
LIABILITIES
Current liabilities:
Short-term debt and current
portion of long-term debt .. $ 1,969 $ 1,969
Trade payables ............... $ 1,786 $ 17,400 48,822 $ (19,679) 48,329
Accrued expenses ............. 6,849 10,354 20,291 - 37,494
Loans payable - intergroup ... 21,203 10,135 30,777 (62,115) -
Other current liabilities .... - 5,825 5,595 (3,000) 8,420
--------- --------- --------- --------- ---------
Total current liabilities . 29,838 43,714 107,454 (84,794) 96,212
--------- --------- --------- --------- ---------
Long-term liabilities:
Long-term debt ............... 100,000 - 8,415 - 108,415
Accrued pension liabilities .. 282 1,833 39,451 - 41,566
Environmental liabilities, net - 33,522 3,096 - 36,618
Other liabilities ............ 1,270 - 4,789 (39) 6,020
--------- --------- --------- --------- ---------
Total long-term liabilities 101,552 35,355 55,751 (39) 192,619
--------- --------- --------- --------- ---------
Total liabilities ......... 131,390 79,069 163,205 (84,833) 288,831
--------- --------- --------- --------- ---------
SHAREHOLDERS' EQUITY:
Common stock outstanding ..... - 1,227 80,448 (81,675) -
Additional paid-in capital ... 47,491 90,867 1,014 (91,881) 47,491
Accumulated other
comprehensive income ....... 953 331 22,605 (22,936) 953
Retained earnings (deficit) .. 9,165 1,281 (34,798) 33,517 9,165
--------- --------- --------- --------- ---------
Shareholders' equity ......... 57,609 93,706 69,269 (162,975) 57,609
--------- --------- --------- --------- ---------
Total ..................... $ 188,999 $ 172,775 $ 232,474 $(247,808) $ 346,440
========= ========= ========= ========= =========
</TABLE>
13
<PAGE> 14
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE THREE QUARTERS ENDED OCTOBER 31, 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 ..................... $(18,359) $ 7,825 $ 14,327 $ 3,793
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (58) (1,419) (10,099) (11,576)
Proceeds from asset sales ................ 1,122 135 80 1,337
Other, net ............................... (177) 1 (2,230) (2,406)
-------- -------- -------- --------
Net cash provided by (used in) investing
activities ............................... 887 (1,283) (12,249) (12,645)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING AND MERGER
ACTIVITIES:
Capital contribution from Safeguard
International ......................... 3,541 - - 3,541
Intergroup borrowings (repayments) ....... 13,926 (6,426) (7,500) -
Proceeds from long-term debt ............. - - 5,569 5,569
Net short-term borrowings ................ - - (1,968) (1,968)
Repayment of long-term debt .............. - - (975) (975)
Dividends received (paid) ................ 3,380 - (3,380) -
-------- -------- -------- --------
Net cash provided by (used in) financing and
merger activities ........................ 20,847 (6,426) (8,254) 6,167
-------- -------- -------- --------
Effects of exchange rate changes on cash
and cash equivalents ..................... - - 197 197
-------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents .............................. 3,375 116 (5,979) (2,488)
Cash and cash equivalents -
beginning of period ...................... 15,883 724 26,396 43,003
-------- -------- -------- --------
Cash and cash equivalents -
end of period ............................ $ 19,258 $ 840 $ 20,417 $ 40,515
======== ======== ======== ========
</TABLE>
14
<PAGE> 15
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain matters discussed under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in this Form 10-Q may
constitute forward-looking statements for purposes of Section 21E of the
Securities Exchange Act of 1934, as amended, and as such may involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance and achievements of Metallurg, Inc. to be materially
different from future results, performance or achievements expressed or implied
by such forward-looking statements. Factors which may cause the Company's
results to be materially different include the cyclical nature of the Company's
business, the Company's dependence on foreign customers (particularly customers
in Europe), the economic strength of the Company's markets generally and
particularly the strength of the demand for iron, steel, aluminum and
superalloys and titanium alloy industries in those markets, pricing of the
Company's products, the accuracy of the Company's estimates of the costs of
environmental remediation and the extension or expiration of existing
anti-dumping duties.
OVERVIEW
On July 13, 1998, Metallurg was acquired by a group of institutional
co-investors led by Safeguard International. Metallurg is now a wholly owned
subsidiary of Metallurg Holdings Inc., a Delaware corporation formed on June 10,
1998 by Safeguard International to effect the acquisition.
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 three quarters ending October 31, 1998 include the results
of Metallurg, Inc., the parent holding company, for the nine month period ended
October 31, 1998 and the results of its operating subsidiaries (whose fiscal
years remain the calendar year) for the nine month period ended September 30,
1998. The consolidated balance sheet data of the Company at October 31, 1998
reflect the financial position of Metallurg, Inc. at October 31, 1998 and of the
operating subsidiaries at September 30, 1998.
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 directly comparable to the pre-confirmation periods. The
amounts presented below for the Company for the three quarters ended October 31,
1997 represent the mathematical addition of the historical amounts for the
Predecessor Company and the Reorganized Company only for purposes of the
discussion below. Significant differences between periods due to fresh-start
reporting adjustments are explained below, when necessary.
15
<PAGE> 16
<TABLE>
<CAPTION>
Quarter Quarter Three Quarters Three Quarters
Ended Ended Ended Ended
October 31, October 31, October 31, October 31,
1998 1997 1998 1997
----------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
Total revenue ......................... $ 142,708 $ 148,325 $ 480,551 $ 470,791
--------- --------- --------- ---------
Operating costs and expenses:
Cost of sales ...................... 124,401 127,276 406,080 403,471
Selling, general and administrative
expenses ........................ 15,587 13,560 45,495 43,033
Merger costs ....................... 2,607 - 7,023 -
--------- --------- --------- ---------
Total operating costs and expenses . 142,595 140,836 458,598 446,504
--------- --------- --------- ---------
Operating income ................ 113 7,489 21,953 24,287
Other income (expense):
Other income , net ........ 1,487 1,074 2,032 4,177
Interest expense, net .............. (2,303) (1,332) (6,919) (3,056)
Reorganization expense ............. - - - (2,663)
Fresh-start revaluation ............ - - - 5,107
--------- --------- --------- ---------
Income (loss) before income tax
provision and extraordinary item ... (703) 7,231 17,066 27,852
Income tax provision (benefit) ........ (741) 5,517 8,740 7,565
--------- --------- --------- ---------
Income before extraordinary item 38 1,714 8,326 20,287
Extraordinary item .................... - - - 43,032
--------- --------- --------- ---------
Net income ..................... $ 38 $ 1,714 $ 8,326 $ 63,319
========= ========= ========= =========
</TABLE>
RESULTS OF OPERATIONS
Total Revenues
Total revenues increased by 2.1%, from $470.8 million in the three quarters
ended October 31, 1997 to $480.6 million in the three quarters ended October 31,
1998. Increased volume and selling prices during the first half of 1998 of
ferrovanadium accounted for most of the increase. In addition, revenues from
increased sales of ferrotitanium and chromium metal, due primarily to increased
volume, more than offset a reduction in sales of low carbon ferrochrome,
ferroboron and polishing powders due primarily to increased price competition.
Revenues from sales of products not produced by the Company, primarily cobalt,
silicon and manganese products, also declined during this period, due primarily
to lower volumes.
Total revenues decreased by 3.8%, from $148.3 million in the third quarter of
1997 to $142.7 million in the third quarter of 1998. Decreased revenues from
sales of aluminum master alloys and compacted products, cobalt, silicon and
manganese products, due primarily to declines in volume, more than offset the
increase in volume and selling prices of ferrovanadium.
Gross Margins
Gross margins increased from $67.3 million in the three quarters ended October
31, 1997 to $74.5 million in the three quarters ended October 31, 1998, an
increase of 10.6%, due principally to the price and volume increases in
ferrovanadium. In aluminum master alloys and compacted products, a decrease in
volume was more than offset by improvements in product mix and cost reductions.
Improvement in gross margins was partially offset by decreases in low carbon
ferrochrome margins resulting from lower selling prices and less favorable
product mix. The values of the Company's assets were reduced pursuant to
fresh-start reporting, reducing depreciation expense by $1.0 million and $0.7
million in the three quarters ended October 31, 1998 and 1997, respectively, and
increasing gross margins by equal amounts.
16
<PAGE> 17
Gross margins decreased from $21.0 million in the third quarter of 1997 to $18.3
million in the third quarter of 1998, a decrease of 13.0%. Decreases in low
carbon ferrochrome margins, due to lower volume and selling prices, and
decreases in gross margins from sales of products not produced by the Company,
more than offset the increase in ferrovanadium margins resulting from higher
selling prices during the period. The values of the Company's assets were
reduced pursuant to fresh-start reporting, reducing depreciation expense in each
of the quarters ended October 31, 1998 and 1997 by $0.3 million and increasing
gross margins by an equal amount.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") increased from $43.0
million in the three quarters ended October 31, 1997 to $45.5 million in the
three quarters ended October 31, 1998, an increase of 5.7%. For the three
quarters ended October 31, 1997, SG&A represented 9.1% of the Company's sales
compared to 9.5% for the three quarters ended October 31, 1998. SG&A were higher
in 1998 due primarily to increased compensation expense and increased spending
on research and development projects.
SG&A increased from $13.6 million in the third quarter of 1997 to $15.6 million
in the third quarter of 1998, an increase of 14.9%. For the third quarter of
1997, SG&A represented 9.2% of the Company's sales compared to 10.9% for the
third quarter of 1998. SG&A were higher in 1998 due to increased compensation
expense and increased research and development spending. During 1997, the
Company recognized a recovery of bad debt expense which reduced SG&A by
approximately $0.5 million.
Operating Income
Operating income decreased from $24.3 million in the three quarters ended
October 31, 1997 to $22.0 million in the three quarters ended October 31, 1998,
a decrease of 9.6%. The increase in gross margin, discussed above, was more than
offset by merger-related costs of $7.0 million incurred in 1998. These costs
included (a) $3.5 million for payments to cancel compensatory options; (b) $0.6
million in consent fees incurred in order to obtain a one-time waiver of the
change of control provisions of the Indenture with regard to the Company's
senior notes and to amend the Indenture to reflect the post-Merger ownership of
Metallurg, Inc.; (c) $2.1 million for payments made pursuant to existing
employment agreements with Metallurg management; and (d) $0.8 million of other
merger-related costs.
Operating income decreased substantially, from $7.5 million for the third
quarter of 1997 to $0.1 million for the third quarter of 1998. The decrease
resulted from reduced gross margins and increased SG&A, as noted above. In
addition, $2.6 million of merger-related costs, primarily payments made pursuant
to existing employment agreements with Metallurg management, were recorded
during the period.
17
<PAGE> 18
Interest Income (Expense), Net
Interest income (expense), net is as follows (in thousands):
<TABLE>
<CAPTION>
Quarter Quarter Three Quarters Three Quarters
Ended Ended Ended Ended
October 31, October 31, October 31, October 31,
1998 1997 1998 1997
----------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
Interest income ................. $ 995 $ 610 $ 2,643 $ 3,018
Interest expense ................ (3,298) (1,942) (9,562) (6,074)
------- ------- ------- -------
Interest income (expense), net $(2,303) $(1,332) $(6,919) $(3,056)
======= ======= ======= =======
</TABLE>
Interest expense increased significantly in 1998. In each of the first three
quarters of 1998, the Company accrued approximately $2.8 million of interest
expense on $100 million aggregate principal amount of its 11% senior notes due
2007 (the "11% Senior Notes"), which were issued in November 1997. The Company
used a portion of the proceeds from the 11% Senior Notes to retire $39.5 million
of the then outstanding 12% Senior-Secured Notes of Metallurg, Inc. due 2007
(the "12% Senior-Secured Notes"). In each of the first three quarters of 1997,
the Company accrued approximately $1.2 million of interest expense on these 12%
Senior-Secured 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):
<TABLE>
<CAPTION>
Quarter Quarter Three Quarters Three Quarters
Ended Ended Ended Ended
October 31, October 31, October 31, October 31,
1998 1997 1998 1997
----------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
Total current ........................ $ (943) $3,420 $ 6,259 $ 6,534
Total deferred ....................... 202 2,097 2,481 1,031
------- ------ ------- -------
Income tax provision (benefit), net $ (741) $5,517 $ 8,740 $ 7,565
======= ====== ======= =======
</TABLE>
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
$(0.1) million and $0.3 million in the quarter and the three quarters ended
October 31, 1998, respectively; 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 $1.0 million and $2.9 million in the
quarter and the three quarters ended October 31, 1998, respectively. The
deferred tax expenses referred to in items (iii) and (iv) above will not result
in cash payments in future periods.
Net Income
Net income decreased from $63.3 million for the three quarters ended October 31,
1997 to $8.3 million for the three quarters ended October 31, 1998. 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. In
addition, other income included gains on the sales of the Company's New York
office building
18
<PAGE> 19
and of certain plant assets of one of the Company's German subsidiaries totaling
$4.7 million. The decrease in 1998 results from reduced gross margins,
merger-related costs and increased interest and SG&A expenses, noted above.
These decreases more than offset gains from increased gross margins, as noted
above, as well as a $0.9 million gain realized on the sale of the Company's
Luxembourg affiliate.
Net income was $1.7 million for the third quarter of 1997 compared to breakeven
for the third quarter of 1998, due primarily to reduced gross margins and the
merger-related costs, as described above.
Recent Market Developments
Market prices for several of the Company's products have been declining during
the second half of 1998. The Company believes that the price declines are a
result of lower worldwide and significantly lower U.S. steel production and
adjustments of production plans for the titanium and superalloy industries,
among other generally weaker metal market conditions. During the quarter ended
October 31, 1998, the Company recognized lower of cost or market inventory
provisions of approximately $1.4 million relating to several chrome products.
Management anticipates additional inventory write-downs during the fourth
quarter, the amount of which is indeterminable at this time, because it is
dependent on future market conditions. The market price of ferrovanadium, a
significant product produced by the Company, has declined from over $9 per pound
vanadium at the end of October to under $6 per pound vanadium at the end of
November.
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 $40.5 million of
cash and cash equivalents at October 31, 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 October 31, 1998, the Company had $40.5 million in cash and cash equivalents
and working capital of $179.7 million, as compared to $43.0 million and $167.8
million, respectively, at January 31, 1998. For the first three quarters of
1998, the Company generated $3.8 million in cash from operations and received
proceeds of approximately $1.1 million on the sale of its Luxembourg affiliate.
Capital expenditures approximated $11.6 million in the first three quarters 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 October 31,
1998, there were no outstanding loans and $25.3 million of letters of credit
outstanding in the U.S. under the Revolving Credit Facility. On October 20,
1997, BankBoston, N.A., through its Frankfurt office, made available up to DM
20.5 million (approximately $12.3 million) of financing to certain of its German
subsidiaries (the
19
<PAGE> 20
"German Subfacility"), which is guaranteed by Metallurg and the other U.S.
borrowers under the Revolving Credit Facility. At October 31, 1998, loans of
$0.4 million were outstanding in Germany under this Facility.
In August 1998, one of the Company's German subsidiaries entered into a term
loan with IKB Deutsche Industriebank in the amount of DM 10.0 million
(approximately $6.0 million). The loan, which matures in 2008, bears interest at
rates ranging from 3.75% - 4.75% and is secured by certain property of the
German subsidiary.
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 that vary from company to company. At October 31, 1998,
there were $0.4 million of outstanding loans under these local credit
facilities.
CAPITAL EXPENDITURES
The Company invested $11.6 million in capital expenditures during the first
three quarters of 1998. Capital expenditures are expected to total approximately
$20.0 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 three quarters of 1998, the Company expended $1.7 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 October 31, 1998, had an estimated cost of completion of $38.2 million. Of
this amount, approximately $1.9 million is expected to be expended in the last
quarter of 1998, $3.3 million in 1999 and $6.6 million in 2000. In addition, the
Company estimates it will make expenditures of $5.4 million with respect to
environmental remediation at its foreign facilities. Of this amount,
approximately $0.1 million is expected to be expended in the last quarter of
1998, $0.2 million in 1999 and $0.8 million in 2000.
YEAR 2000 COMPLIANCE
The Year 2000 statement set forth below is a Year 2000 Readiness Disclosure
pursuant to the Year 2000 Information and Readiness Disclosure Act, Public Law
105-271. Please note that, for purposes of any action brought under the
securities laws, as that term is defined in section 3(a)(47) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)(47)), the Year 2000 Information and
Readiness Disclosure Act does not apply to any statements contained in any
documents or materials filed with the Securities and Exchange Commission, or
with Federal banking regulators, pursuant to section 12(i) of the Securities
Exchange Act of 1934 (15 U.S.C. 781(i)), or disclosures or writing that, when
made, accompanied the solicitation of an offer or sale of securities.
Metallurg has completed an internal review of its and its subsidiaries'
information technology systems in connection with its assessment of Year 2000
compliance. Metallurg is in the process of replacing or modifying
20
<PAGE> 21
some of the management and accounting systems at its subsidiaries to upgrade
them generally and to make them Year 2000 compliant. Metallurg expects to spend
between $1.0 million and $2.0 million on these systems changes. Metallurg
expects that the information technology systems for all of its subsidiaries will
be Year 2000 compliant by March 31, 1999. Metallurg is currently assessing
whether any of its non-information technology will need to be modified to become
Year 2000 compliant.
Metallurg has not received written assurances from its significant suppliers and
customers to determine the state of their readiness with regard to Year 2000
compliance. Metallurg believes that they will be prepared for Year 2000 based on
Metallurg's normal interactions with its customers and suppliers and because of
the wide attention which the issue has received. Metallurg has not yet seen the
need for contingency plans for the Year 2000 issue, but this need will continue
to be monitored as Metallurg obtains more information about the state of
readiness of its suppliers and customers.
Metallurg presently believes that the Year 2000 issue will not pose significant
operational problems for its business systems. However, if any needed
modifications and conversions were not made, or were not completed timely, the
Year 2000 issue could have an adverse impact on Metallurg's operations and
liquidity. If any of Metallurg's suppliers or customers do not, or if Metallurg
itself does not, successfully deal with the Year 2000 issue, Metallurg could
experience delays in receiving or shipping products and in receiving payments.
The severity of these possible problems would depend on the nature of the
problem and how quickly it could be corrected or an alternative implemented,
which is unknown at this time.
The anticipated costs for Metallurg to become Year 2000 compliant and the
anticipated timing for Metallurg to complete the Year 2000 modifications are
based on management's best estimates, which were derived utilizing numerous
assumptions of future events, including timely performance by third parties who
will provide Metallurg with the software for its new systems. However, there can
be no guarantee that these estimates will be achieved and actual results could
differ materially from those anticipated. Specific factors that might cause such
material differences include, but are not limited to, the ability to locate and
correct all relevant computer codes, the ability to successfully integrate new
business systems with existing operations and similar uncertainties. Some risks
of the Year 2000 issue are beyond the control of Metallurg and its suppliers and
customers. In particular, Metallurg cannot predict the effect that the Year 2000
issue will have on the general economy.
21
<PAGE> 22
PART II OTHER INFORMATION
ITEM 6. (a) EXHIBITS
27 Financial Data Schedule
6. (b) REPORT ON FORM 8-K
1. Form 8-K dated November 20, 1998 (filed on November
20, 1998) announcing that Metallurg had changed its
certified public accountants to
PricewaterhouseCoopers LLP, and certain other matters
relating to new directors being appointed.
2. Form 8-K/A (filed on November 25, 1998) relating to
the Form 8-K filed November 20, 1998.
3. Form 8-K/A (filed on December 3, 1998) relating to
the Form 8-K filed November 20, 1998.
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on December 15, 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)
23
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
AS OF APRIL 1, 1997, THE COMPANY CHANGED ITS FISCAL YEAR TO JANUARY 31.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 40515
<SECURITIES> 0
<RECEIVABLES> 80739
<ALLOWANCES> 2250
<INVENTORY> 139932
<CURRENT-ASSETS> 275949
<PP&E> 59058
<DEPRECIATION> 11011
<TOTAL-ASSETS> 346440
<CURRENT-LIABILITIES> 96212
<BONDS> 108415
0
0
<COMMON> 0
<OTHER-SE> 57609
<TOTAL-LIABILITY-AND-EQUITY> 346440
<SALES> 142522
<TOTAL-REVENUES> 142708
<CGS> 124401
<TOTAL-COSTS> 142595
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3298
<INCOME-PRETAX> (703)
<INCOME-TAX> (741)
<INCOME-CONTINUING> 38
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
