<PAGE> 1
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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, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
------------------------
METALLURG, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 13-1661467
(State of organization) (I.R.S. Employer Identification No.)
6 EAST 43RD STREET (212) 835-0200
NEW YORK, NEW YORK 10017 (Registrant's telephone number,
(Address of principal executive offices) including area code)
</TABLE>
------------------------
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 11, 2000 was 5,000,000.
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<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, 2000
and 1999.............................................. 3
Condensed Consolidated Balance Sheets at October 31,
2000 and January 31, 2000............................. 4
Condensed Statements of Consolidated Cash Flows for the
Three Quarters Ended October 31, 2000 and 1999........ 5
Notes to Condensed Unaudited Consolidated Financial
Statements............................................ 6-13
Item 2 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations.......... 14-19
Item 3 -- Quantitative and Qualitative Disclosure of
Market Risk............................................ 20
Part II. OTHER INFORMATION:
Item 6. (a) EXHIBITS...................................... 21
Item 6. (b) REPORTS ON FORM 8-K........................... 21
Signature Page............................................ 22
</TABLE>
2
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTERS ENDED THREE QUARTERS ENDED
OCTOBER 31, OCTOBER 31,
---------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales........................................... $116,983 $113,103 $372,940 $346,679
Commission income............................... 183 155 486 444
-------- -------- -------- --------
Total revenues................................ 117,166 113,258 373,426 347,123
-------- -------- -------- --------
Operating costs and expenses:
Cost of sales................................. 101,697 99,570 322,228 308,374
Selling, general and administrative
expenses................................... 13,412 13,656 41,528 42,130
Environmental expense recovery................ -- -- (750) (5,501)
Restructuring charges......................... -- -- -- 4,386
-------- -------- -------- --------
Total operating costs and expenses............ 115,109 113,226 363,006 349,389
-------- -------- -------- --------
Operating income (loss)......................... 2,057 32 10,420 (2,266)
Other income (expense):
Other income (expense), net................... 135 (16) 5,485 (11)
Interest expense, net......................... (2,499) (2,298) (7,848) (8,158)
-------- -------- -------- --------
(Loss) income before income tax provision and
minority interest............................. (307) (2,282) 8,057 (10,435)
Income tax provision............................ 1,200 743 4,691 3,488
-------- -------- -------- --------
(Loss) income before minority interest.......... (1,507) (3,025) 3,366 (13,923)
Minority interest............................... 104 -- 161 --
-------- -------- -------- --------
Net (loss) income............................... (1,403) (3,025) 3,527 (13,923)
Other comprehensive (loss) income:
Foreign currency translation adjustment....... (1,472) 2,048 (4,598) (373)
-------- -------- -------- --------
Comprehensive loss............................ $ (2,875) $ (977) $ (1,071) $(14,296)
======== ======== ======== ========
</TABLE>
See notes to condensed unaudited consolidated financial statements.
3
<PAGE> 4
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
2000 2000
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 29,731 $ 58,611
Accounts and notes receivable, net........................ 69,595 68,480
Inventories............................................... 91,167 80,653
Other current assets...................................... 13,216 10,369
-------- --------
Total current assets................................... 203,709 218,113
Property, plant and equipment, net.......................... 59,086 52,545
Other assets................................................ 20,461 22,993
-------- --------
Total.................................................. $283,256 $293,651
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Short-term debt and current portion of long-term debt..... $ 6,369 $ 1,932
Trade payables............................................ 49,041 48,792
Accrued expenses.......................................... 33,779 30,213
Other current liabilities................................. 2,802 1,306
-------- --------
Total current liabilities.............................. 91,991 82,243
-------- --------
Long-term Liabilities:
Long-term debt............................................ 114,340 109,062
Accrued pension liabilities............................... 31,757 35,890
Environmental liabilities, net............................ 29,844 31,819
Other liabilities......................................... 6,518 6,220
-------- --------
Total long-term liabilities............................ 182,459 182,991
-------- --------
Total liabilities...................................... 274,450 265,234
-------- --------
Minority Interest........................................... 670 (24)
Shareholder's Equity:
Common stock.............................................. 50 50
Due from parent company................................... (19,714) --
Additional paid-in capital................................ 46,661 46,181
Accumulated other comprehensive loss...................... (6,501) (1,903)
Retained deficit.......................................... (12,360) (15,887)
-------- --------
Total shareholder's equity............................. 8,136 28,441
-------- --------
Total.................................................. $283,256 $293,651
======== ========
</TABLE>
See notes to condensed unaudited consolidated financial statements.
4
<PAGE> 5
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE QUARTERS ENDED
OCTOBER 31,
--------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $ 3,527 $(13,923)
Adjustments to reconcile net income (loss) to net cash (used
in) provided by operating activities:
Depreciation and amortization............................. 6,485 6,190
(Gain) loss on sale of assets............................. (5,161) 16
Deferred income taxes..................................... 1,825 1,306
Provision for restructuring costs......................... -- 4,386
-------- --------
Total............................................. 6,676 (2,025)
Change in operating assets and liabilities:
Increase in trade receivables............................. (819) (6,087)
(Increase) decrease in inventories........................ (12,371) 21,112
(Increase) decrease in other current assets............... (3,552) 2,419
Increase in trade payables and accrued expenses........... 4,486 13,414
Restructuring payments.................................... (1,510) --
Environmental payments.................................... (1,889) (2,132)
Other assets and liabilities, net......................... 2,338 (3,290)
-------- --------
Net cash (used in) provided by operating activities.... (6,641) 23,411
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment................ (12,356) (9,373)
Proceeds from asset sales................................. 8,417 42
Acquisitions, net of cash................................. (11,196) --
Other, net................................................ 62 (61)
-------- --------
Net cash used in investing activities.................. (15,073) (9,392)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings (repayments).................... 5,877 (1,680)
Proceeds (repayment) of long-term debt.................... 6,915 (874)
Purchase of parent company debt........................... (19,714) --
Minority interest contribution............................ 676 --
-------- --------
Net cash used in financing activities.................. (6,246) (2,554)
-------- --------
Effects of exchange rate changes on cash and cash
equivalents............................................... (920) (333)
-------- --------
Net (decrease) increase in cash and cash equivalents........ (28,880) 11,132
Cash and cash equivalents -- beginning of period............ 58,611 37,293
-------- --------
Cash and cash equivalents -- end of period.................. $ 29,731 $ 48,425
======== ========
</TABLE>
See notes to condensed unaudited consolidated financial statements.
5
<PAGE> 6
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. and its majority-owned subsidiaries
(collectively, "Metallurg"). 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, 2000 was 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.
Metallurg is a wholly owned subsidiary of Metallurg Holdings, Inc.
("Metallurg Holdings") since the acquisition date of July 13, 1998. The
financial statements do not reflect the pushdown of purchase accounting
adjustments recorded by Metallurg Holdings.
For further information, see the financial statements and footnotes thereto
included in Metallurg's audited consolidated financial statements for the year
ended January 31, 2000.
Metallurg, Inc. reports the results of its operating subsidiaries on a
one-month lag. Accordingly, the three quarters ended October 31, 2000 and 1999
include operating results of Metallurg, Inc., the parent holding company, for
the nine months ended October 31, 2000 and 1999 and worldwide operating results
for the nine months ended September 30, 2000 and 1999. Balance sheet data at
October 31, 2000 reflect the financial position of Metallurg, Inc. at October
31, 2000 and of its subsidiaries at September 30, 2000. Balance sheet data at
January 31, 2000 reflect the financial position of Metallurg, Inc. at January
31, 2000 and of its subsidiaries at December 31, 1999. See "Note 10. Subsequent
Event -- Change in Fiscal Year".
Amounts reflected in the 1999 condensed statement of consolidated cash
flows have been reclassed to conform to the current period's disclosure.
2. SEGMENTS AND RELATED INFORMATION
Metallurg operates in one significant industry segment, the manufacture and
sale of ferrous and non-ferrous metals and alloys. Metallurg is organized
geographically, having established a worldwide sales network built around
Metallurg's core production facilities in the U.S., the U.K. and Germany. In
addition to selling products manufactured by Metallurg, Metallurg distributes
complementary products manufactured by third parties.
Reportable Segments
Shieldalloy Metallurgical Corporation ("Shieldalloy") -- This unit is
comprised of two production facilities in the U.S. The New Jersey plant
manufactures and sells aluminum alloy grain refiners and alloying tablets for
the aluminum industry, metal powders for the welding industry and specialty
ferroalloys for the superalloy and steel industries. The Ohio plant manufactures
and sells ferrovanadium and vanadium-based chemicals used mostly in the steel
and petrochemical industries.
London & Scandinavian Metallurgical Co Limited and its subsidiaries
(collectively, "LSM") -- This unit is comprised mainly of three production
facilities in the U.K. which manufacture and sell aluminum alloy grain refiners
and alloying tablets for the aluminum industry, chromium metal and specialty
ferroalloys for the steel and superalloy industries and aluminum powder for
various metal powder consuming industries. On March 31, 2000, LSM acquired the
business of Hydelko KS ("Hydelko"), a Norwegian producer of master alloys for
the aluminum industry.
6
<PAGE> 7
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
2. SEGMENTS AND RELATED INFORMATION -- (CONTINUED)
Gesellschaft fur Elektrometallurgie mbH and its subsidiaries (collectively,
"GfE") -- This unit is comprised of two production facilities and a sales office
in Germany. The Nuremberg plant manufactures and sells a wide variety of
specialty products, including vanadium based chemicals and sophisticated metals,
alloys and powders used in the titanium, superalloy, electronics, steel,
biomedical and optics industries. The Morsdorf plant produces medical
prostheses, implants and surgical instruments for orthopedic applications.
Elektrowerk Weisweiler GmbH ("EWW") -- This production unit, also located
in Germany, produces various grades of low carbon ferrochrome used in the
superalloy, welding and steel industries.
In addition to their manufacturing operations, Shieldalloy, LSM and GfE
import and distribute complementary products manufactured by affiliates and
third parties.
Summarized financial information concerning Metallurg's reportable segments
is shown in the following table (in thousands). Each segment records direct
expenses related to its employees and operations. The "Other" column includes
corporate related items and results of subsidiaries not meeting the quantitative
thresholds as prescribed by applicable accounting rules. Metallurg does not
allocate general corporate overhead expenses to operating segments. There have
been no material changes in segment assets from the amounts disclosed in the
last annual report.
<TABLE>
<CAPTION>
INTERSEGMENT CONSOLIDATED
SHIELDALLOY LSM GFE EWW OTHER ELIMINATIONS TOTALS
----------- ------- ------- ------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
QUARTER ENDED OCTOBER 31, 2000
Revenues from external customers....... $28,608 $30,647 $19,191 $ 3,023 $ 35,697 $117,166
Intergroup revenues.................... 951 8,649 3,059 4,556 8,467 $(25,682) --
Income tax (benefit) provision......... (224) 327 22 146 929 -- 1,200
Net (loss) income...................... (314) 391 96 276 (788) (1,064) (1,403)
QUARTER ENDED OCTOBER 31, 1999
Revenues from external customers....... $29,978 $25,685 $16,959 $ 2,779 $ 37,857 $113,258
Intergroup revenues.................... 1,387 7,135 2,252 3,862 6,010 $(20,646) --
Income tax provision (benefit)......... 403 (145) 11 (115) 589 -- 743
Net income (loss)...................... 598 (340) 290 (116) (3,316) (141) (3,025)
</TABLE>
<TABLE>
<CAPTION>
INTERSEGMENT CONSOLIDATED
SHIELDALLOY LSM GFE EWW OTHER ELIMINATIONS TOTALS
----------- ------- ------- ------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
THREE QUARTERS ENDED OCTOBER 31, 2000
Revenues from external customers....... $87,694 $97,675 $62,716 $10,000 $115,341 $373,426
Intergroup revenues.................... 2,975 31,149 9,722 16,364 23,865 $(84,075) --
Environmental expense recovery......... (750) -- -- -- -- -- (750)
Income tax provision................... 658 1,337 395 847 1,454 -- 4,691
Net income (loss)...................... 970 2,822 (497) 838 11,965 (12,571) 3,527
THREE QUARTERS ENDED OCTOBER 31, 1999
Revenues from external customers....... $89,396 $79,140 $53,502 $ 9,027 $116,058 $347,123
Intergroup revenues.................... 3,455 25,416 10,274 14,413 27,247 $(80,805) --
Environmental expense recovery......... (5,501) -- -- -- -- -- (5,501)
Restructuring charges.................. -- -- 3,385 1,001 -- -- 4,386
Income tax provision................... 969 362 283 334 1,540 -- 3,488
Net income (loss)...................... 2,230 904 (5,627) (893) (13,741) 3,204 (13,923)
</TABLE>
7
<PAGE> 8
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
3. INVENTORIES
Inventories, net of reserves, consist of the following (in thousands):
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
2000 2000
----------- -----------
<S> <C> <C>
Raw materials............................................. $18,498 $16,222
Work in process........................................... 3,036 3,212
Finished goods............................................ 66,383 57,607
Other..................................................... 3,250 3,612
------- -------
Total............................................. $91,167 $80,653
======= =======
</TABLE>
4. COMMITMENTS AND CONTINGENCIES
Metallurg 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 Metallurg's
consolidated financial position, results of operations or liquidity. There can
be no assurance, however, that existing or future litigation will not result in
an adverse judgment against Metallurg which could have a material adverse effect
on Metallurg's future results of operations or cash flows.
5. EARNINGS PER COMMON SHARE
Earnings per share is not presented since Metallurg, Inc. is a wholly owned
subsidiary of Metallurg Holdings, Inc.
6. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("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, as amended, is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. Metallurg is currently evaluating the impact SFAS
No. 133 will have on its financial statements.
The Securities and Exchange Commission (the "SEC") has issued Staff
Accounting Bulletin ("SAB") No. 101, which addresses principles of revenue
recognition. Metallurg is currently evaluating the impact, if any, SAB No. 101
will have on its financial statements for the year ending December 31, 2000.
7. SUPPLEMENTAL GUARANTOR INFORMATION
In November 1997, Metallurg, Inc. sold $100 million principal amount of its
11% Senior Notes due 2007 (the "Senior Notes"). Under the terms of the Senior
Notes, Shieldalloy, Metallurg Holdings Corporation, Metallurg Services, Inc.,
Metallurg International Resources, Inc. and MIR (China), Inc. (collectively, the
"Guarantors"), wholly owned subsidiaries of Metallurg, Inc., have fully and
unconditionally guaranteed on a joint and several basis Metallurg, Inc.'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 to potential investors and, accordingly, such
financial statements are not provided. Supplemental financial information of the
Guarantors is presented below.
8
<PAGE> 9
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
7. SUPPLEMENTAL GUARANTOR INFORMATION -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE QUARTER ENDED OCTOBER 31, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
METALLURG, INC. COMBINED COMBINED
("PARENT GUARANTOR NON-GUARANTOR
COMPANY") SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenues................... $36,890 $96,233 $(15,957) $117,166
------- ------- -------- --------
Operating costs and expenses:
Cost of sales.................. 33,746 83,688 (15,737) 101,697
Selling, general and
administrative expenses..... $ 1,599 2,837 8,976 -- 13,412
------- ------- ------- -------- --------
Total operating costs and
expenses.................... 1,599 36,583 92,664 (15,737) 115,109
------- ------- ------- -------- --------
Operating (loss) income.......... (1,599) 307 3,569 (220) 2,057
Other income (expense):
Other income, net.............. 5 -- 130 -- 135
Interest (expense) income,
net......................... (1,926) 205 (778) -- (2,499)
Equity in earnings of
subsidiaries................ 844 1,266 -- (2,110) --
------- ------- ------- -------- --------
(Loss) income before income tax
provision and minority
interest....................... (2,676) 1,778 2,921 (2,330) (307)
Income tax (benefit) provision... (1,273) 1,270 1,203 -- 1,200
------- ------- ------- -------- --------
(Loss) income before minority
interest....................... (1,403) 508 1,718 (2,330) (1,507)
Minority interest................ -- -- 104 -- 104
------- ------- ------- -------- --------
Net (loss) income................ (1,403) 508 1,822 (2,330) (1,403)
Other comprehensive loss:
Foreign currency translation
adjustment.................. (1,472) (683) (1,472) 2,155 (1,472)
------- ------- ------- -------- --------
Comprehensive (loss) income.... $(2,875) $ (175) $ 350 $ (175) $ (2,875)
======= ======= ======= ======== ========
</TABLE>
9
<PAGE> 10
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
7. SUPPLEMENTAL GUARANTOR INFORMATION -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE THREE QUARTERS ENDED OCTOBER 31, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
METALLURG, INC. COMBINED
("PARENT COMBINED GUARANTOR NON-GUARANTOR
COMPANY") SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------------- ------------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenues.................... $113,768 $312,916 $(53,258) $373,426
-------- -------- -------- --------
Operating costs and expenses:
Cost of sales................... 102,777 272,653 (53,202) 322,228
Selling, general and
administrative expenses...... $ 4,665 8,493 28,370 -- 41,528
Environmental expense
recovery..................... -- (750) -- -- (750)
-------- -------- -------- -------- --------
Total operating costs and
expenses..................... 4,665 110,520 301,023 (53,202) 363,006
-------- -------- -------- -------- --------
Operating (loss) income........... (4,665) 3,248 11,893 (56) 10,420
Other income (expense):
Other income, net............... 1 5,128 356 -- 5,485
Interest (expense) income,
net.......................... (6,590) 658 (1,916) -- (7,848)
Equity in earnings of
subsidiaries................. 12,515 5,100 -- (17,615) --
-------- -------- -------- -------- --------
Income before income tax provision
and minority interest........... 1,261 14,134 10,333 (17,671) 8,057
Income tax (benefit)
provision....................... (2,266) 2,638 4,319 -- 4,691
-------- -------- -------- -------- --------
Income before minority interest... 3,527 11,496 6,014 (17,671) 3,366
Minority interest................. -- -- 161 -- 161
-------- -------- -------- -------- --------
Net income........................ 3,527 11,496 6,175 (17,671) 3,527
Other comprehensive loss:
Foreign currency translation
adjustment................... (4,598) (3,278) (4,598) 7,876 (4,598)
-------- -------- -------- -------- --------
Comprehensive (loss) income..... $ (1,071) $ 8,218 $ 1,577 $ (9,795) $ (1,071)
======== ======== ======== ======== ========
</TABLE>
10
<PAGE> 11
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
7. SUPPLEMENTAL GUARANTOR INFORMATION -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET AT OCTOBER 31, 2000 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
METALLURG, INC. COMBINED COMBINED
("PARENT GUARANTOR NON-GUARANTOR
COMPANY") SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents...... $ 24,985 $ 853 $ 14,949 $ (11,056) $ 29,731
Accounts, notes and loans
receivable, net............. 16,912 23,668 60,829 (31,814) 69,595
Inventories.................... -- 37,086 55,932 (1,851) 91,167
Other current assets........... 3,761 1,457 9,997 (1,999) 13,216
-------- -------- -------- --------- --------
Total current assets........ 45,658 63,064 141,707 (46,720) 203,709
Investments -- intergroup........ 87,109 50,855 -- (137,964) --
Property, plant and equipment,
net............................ 829 13,000 45,257 -- 59,086
Other assets..................... 7,109 17,451 16,652 (20,751) 20,461
-------- -------- -------- --------- --------
Total....................... $140,705 $144,370 $203,616 $(205,435) $283,256
======== ======== ======== ========= ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Short-term debt and current
portion of long-term debt... $ 17,425 $ (11,056) $ 6,369
Trade payables................. $ 7,401 $ 27,291 46,163 (31,814) 49,041
Accrued expenses............... 6,770 10,129 16,880 -- 33,779
Other current liabilities...... -- 1,999 2,802 (1,999) 2,802
-------- -------- -------- --------- --------
Total current liabilities... 14,171 39,419 83,270 (44,869) 91,991
-------- -------- -------- --------- --------
Long-term Liabilities:
Long-term debt................. 100,000 -- 14,340 -- 114,340
Accrued pension liabilities.... 35 1,663 30,059 -- 31,757
Environmental liabilities,
net......................... -- 28,173 1,671 -- 29,844
Other liabilities.............. 18,363 -- 8,907 (20,752) 6,518
-------- -------- -------- --------- --------
Total long-term
liabilities............... 118,398 29,836 54,977 (20,752) 182,459
-------- -------- -------- --------- --------
Total liabilities........... 132,569 69,255 138,247 (65,621) 274,450
-------- -------- -------- --------- --------
Minority Interest................ -- -- 670 -- 670
-------- -------- -------- --------- --------
Shareholder's Equity:
Common stock................... 50 1,227 52,191 (53,418) 50
Due from parent company........ (19,714) -- -- -- (19,714)
Additional paid-in capital..... 46,661 94,460 11,927 (106,387) 46,661
Accumulated other comprehensive
(loss) income............... (6,501) (3,955) 15,234 (11,279) (6,501)
Retained deficit............... (12,360) (16,617) (14,653) 31,270 (12,360)
-------- -------- -------- --------- --------
Total shareholder's
equity.................... 8,136 75,115 64,699 (139,814) 8,136
-------- -------- -------- --------- --------
Total....................... $140,705 $144,370 $203,616 $(205,435) $283,256
======== ======== ======== ========= ========
</TABLE>
11
<PAGE> 12
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
7. SUPPLEMENTAL GUARANTOR INFORMATION -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE THREE QUARTERS ENDED OCTOBER 31, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
METALLURG, INC. COMBINED COMBINED
("PARENT GUARANTOR NON-GUARANTOR
COMPANY") SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH FLOWS FROM OPERATING
ACTIVITIES..................... $(4,888) $(7,925) $ 169 $ 6,003 $(6,641)
------- ------- -------- -------- -------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions to property, plant
and equipment............... (59) (3,306) (8,991) -- (12,356)
Proceeds from asset sales...... 48 8,277 92 -- 8,417
Acquisitions, net of cash...... -- -- (11,196) -- (11,196)
Other, net..................... 62 -- -- -- 62
------- ------- -------- -------- -------
Net cash provided by (used in)
investing activities........... 51 4,971 (20,095) -- (15,073)
------- ------- -------- -------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Intergroup borrowings
(repayments)................ 3,519 3,243 (759) (6,003) --
Net short-term borrowings...... -- -- 7,784 (1,907) 5,877
Proceeds from long-term debt... -- -- 6,915 -- 6,915
Purchase of parent company
debt........................ (19,714) -- -- -- (19,714)
Minority interest
contribution................ -- -- 676 -- 676
Dividends received (paid)...... 590 -- (590) -- --
------- ------- -------- -------- -------
Net cash (used in) provided by
financing activities........... (15,605) 3,243 14,026 (7,910) (6,246)
------- ------- -------- -------- -------
Effects of exchange rate changes
on cash and cash equivalents... -- -- (920) -- (920)
------- ------- -------- -------- -------
Net (decrease) increase in cash
and cash equivalents........... (20,442) 289 (6,820) (1,907) (28,880)
Cash and cash equivalents --
beginning of period............ 45,427 564 21,769 (9,149) 58,611
------- ------- -------- -------- -------
Cash and cash equivalents -- end
of period...................... $24,985 $ 853 $ 14,949 $(11,056) $29,731
======= ======= ======== ======== =======
</TABLE>
8. INVESTMENTS
On March 31, 2000, LSM acquired the business of Hydelko, a Norwegian
producer of master alloys for the aluminum industry, for approximately $9.0
million.
During April, 2000, a subsidiary of Metallurg, Inc. completed the sale of
its minority interest in Solikamsk Magnesium Works ("SMW"), a Russian magnesium
metal producer, for proceeds of approximately $8.3 million resulting in a gain
on sale of approximately $5.1 million.
12
<PAGE> 13
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
8. INVESTMENTS -- (CONTINUED)
On September 29, 2000, LSM acquired the ferrotitanium business of
Willan-Wogen Alloys Limited ("Willan-Wogen"), for approximately $1.7 million.
9. DUE FROM PARENT COMPANY
On October 17, 2000, Metallurg, Inc. completed the purchase of
approximately $76.1 million in face amount of 12 3/4% Senior Discount Notes due
2008 (the "Senior Discount Notes) of Metallurg Holdings, Inc., its parent
company, for approximately $20 million in cash. The Senior Discount Notes were
purchased on the open market in several separately negotiated transactions.
Consent to the transaction from Metallurg, Inc.'s bank group under its Amended
and Restated Loan Agreement, dated October 29, 1999, had been previously
obtained. Metallurg, Inc.'s investment in these Senior Discount Notes is
recorded as a reduction in equity, as the only significant asset of Metallurg
Holdings, Inc. is its investment in Metallurg, Inc.
10. SUBSEQUENT EVENT -- CHANGE IN FISCAL YEAR
On November 10, 2000, Metallurg, Inc.'s Board of Directors approved a
change in the company's fiscal year-end, from January 31 to December 31, to be
effective beginning December 31, 2000. The report on Form 10-K covering the
fiscal year ended December 31, 2000 (the transition period) will include the
results of Metallurg, Inc., the parent holding company, for the eleven months
ended December 31, 2000 and, consistent with current reporting practice, the
results of its operating subsidiaries for the twelve month period ended December
31, 2000, and will be filed in accordance with the SEC filing requirements.
13
<PAGE> 14
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 to be materially different
from future results, performance or achievements expressed or implied by such
forward-looking statements. Factors which may cause Metallurg's results to be
materially different include, but are not limited to, the cyclical nature of
Metallurg's business, Metallurg's dependence on foreign customers (particularly
customers in Europe), the economic strength of Metallurg's markets generally and
particularly the strength of the demand of the aluminum, superalloy, titanium
alloy, iron and steel industries in those markets, the accuracy of Metallurg's
estimates of the costs of environmental remediation and the extension or
expiration of existing anti-dumping duties.
OVERVIEW
Metallurg is a leading international producer and seller of high quality
metal alloys and specialty metals used by manufacturers of aluminum,
superalloys, titanium alloys, steel and chemicals and other metal consuming
industries. The industries that Metallurg supplies are cyclical.
Steady growth in the aluminum industry continued throughout much of the
world and Metallurg's sales of products continued to increase in Europe, Asia
and South America. In recent months, however, U.S. consumption of aluminum has
tended to decline such as in the construction and transport sectors, and at the
same time, U.S. primary aluminum production has declined in response to higher
cost and lower availability of power. As a result, demand for Metallurg's
products has weakened in the U.S. The acquisition of Hydelko, a Norwegian
producer of master alloys for the aluminum industry has increased Metallurg's
worldwide market share and production capability.
The superalloy industry remained strong as its customers continued to meet
heavy U.S. demand for power generation equipment. In addition, the demand for
aerospace materials began to gather pace as the excess inventories built up in
the late 1990's finally appear to have been substantially consumed. Metallurg
has thus seen strong demand for its chromium and related products, and a notable
rise in sales of master alloys to the titanium industry, particularly in Europe.
Worldwide steel production increased steadily over the past 12-18 months,
but a slowdown that began in the U.S. in the second quarter of 2000 has gathered
pace and spread to many other parts of the world. Sales volume of ferrovanadium
in the U.S. remained steady but prices declined due to falling customer demand
and stronger pressure from imports.
RESULTS OF OPERATIONS
Metallurg operates in one significant industry segment, the manufacture and
sale of ferrous and non-ferrous metals and alloys. It is organized
geographically, having established a worldwide sales network built around the
core production facilities in the U.S., the U.K. and Germany.
Summarized financial information concerning Metallurg's reportable segments
is shown in the following table (in thousands). Each segment records direct
expenses related to its employees and operations. The "Other" column includes
corporate related items and results of subsidiaries not meeting the quantitative
thresholds as prescribed by applicable accounting rules. Metallurg does not
allocate general corporate overhead expenses to operating segments. There have
been no material changes in segment assets from the amounts disclosed in the
last annual report.
14
<PAGE> 15
RESULTS OF OPERATIONS -- THE QUARTER ENDED OCTOBER 31, 2000 COMPARED TO THE
QUARTER ENDED
OCTOBER 31, 1999
<TABLE>
<CAPTION>
INTERSEGMENT CONSOLIDATED
SHIELDALLOY LSM GFE EWW OTHER ELIMINATIONS TOTALS
----------- ------- ------- ------ ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
QUARTER ENDED OCTOBER 31, 2000
Total revenues........................... $29,559 $39,296 $22,250 $7,579 $44,164 $(25,682) $117,166
Gross margins............................ 1,890 3,862 3,650 844 5,443 (220) 15,469
Operating (loss) income.................. (687) 1,048 341 403 1,172 (220) 2,057
Interest income (expense), net........... 149 (354) (351) 19 (1,962) -- (2,499)
Income tax (benefit) provision........... (224) 327 22 146 929 -- 1,200
Net (loss) income........................ (314) 391 96 276 (788) (1,064) (1,403)
QUARTER ENDED OCTOBER 31, 1999
Total revenues........................... $31,365 $32,820 $19,211 $6,641 $43,867 $(20,646) $113,258
Gross margins............................ 2,311 2,889 3,477 314 3,894 803 13,688
Operating income (loss).................. 298 (491) 149 (233) (494) 803 32
Interest income (expense), net........... 704 6 (177) (10) (2,821) -- (2,298)
Income tax provision (benefit)........... 403 (145) 11 (115) 589 -- 743
Net income (loss)........................ 598 (340) 290 (116) (3,316) (141) (3,025)
</TABLE>
Total Revenues
Shieldalloy revenues were $1.8 million (6%) below the third quarter of 1999
due primarily to lower sales volumes of products to the aluminum industry in the
quarter ended October 31, 2000. LSM revenues were $6.5 million (20%) above the
third quarter of 1999. Approximately one-half of this increase was due to the
Hydelko acquisition in March 2000. In addition, nickel boron and aluminum powder
sales volumes increased in the third quarter of 2000. GfE revenues were $3.0
million (16%) above 1999 due primarily to higher selling prices of nickel-based
and columbium-based products. EWW revenues were $0.9 million (14%) above the
third quarter of 1999 due to increased sales volumes of low carbon ferrochrome.
Gross Margins
Gross margins increased from $13.7 million (12.1% of total revenues) in the
quarter ended October 31, 1999 to $15.5 million (13.2% of total revenues) in the
quarter ended October 31, 2000, an increase of 13%, due principally to improved
profitability in vanadium products, aluminum powder and tantalum products.
Increased production volumes and lower production costs resulting from
restructuring activities implemented in the second half of 1999 also contributed
to the improved gross margins.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") decreased from $13.7
million in the quarter ended October 31, 1999 to $13.4 million in the quarter
ended October 31, 2000. Reduced compensation costs following reductions in
staffing were partially offset by increased outside professional fee expenses.
For the quarter ended October 31, 2000, SG&A represented 11.4% of total revenues
compared to 12.1% for the quarter ended October 31, 1999.
Operating Income
Operating income of $2.1 million in the quarter ended October 31, 2000
reflects a significant improvement as compared to breakeven results for the
quarter ended October 31, 1999, due primarily to the increase in gross margins,
discussed above.
15
<PAGE> 16
Interest Expense, Net
Interest expense, net, is as follows (in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED
OCTOBER 31,
------------------
2000 1999
------- -------
<S> <C> <C>
Interest income......................................... $ 1,124 $ 788
Interest expense........................................ (3,623) (3,086)
------- -------
Interest expense, net.............................. $(2,499) $(2,298)
======= =======
</TABLE>
Income Tax Provision
Income tax provision, net of tax benefits, is as follows (in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED
OCTOBER 31,
--------------
2000 1999
------ ----
<S> <C> <C>
Total current............................................... $ 729 $537
Total deferred.............................................. 471 206
------ ----
Income tax provision, net.............................. $1,200 $743
====== ====
</TABLE>
The differences between the statutory Federal income tax rate and
Metallurg'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 $0.2 million in the quarter ended October 31, 2000; 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 $0.1 million in the quarter ended October 31, 2000. The deferred
tax expenses referred to in items (iii) and (iv) above will not result in cash
payments in future periods.
Net Income
Metallurg recognized a net loss of $1.4 million for the quarter ended
October 31, 2000 compared to a net loss of $3.0 million for the quarter ended
October 31, 1999. The improvement in 2000 resulted primarily from increased
gross margins, discussed above.
RESULTS OF OPERATIONS -- THE THREE QUARTERS ENDED OCTOBER 31, 2000 COMPARED TO
THE THREE QUARTERS ENDED OCTOBER 31, 1999
<TABLE>
<CAPTION>
INTERSEGMENT CONSOLIDATED
SHIELDALLOY LSM GFE EWW OTHER ELIMINATIONS TOTALS
----------- -------- ------- ------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
THREE QUARTERS ENDED OCTOBER 31, 2000
Total revenues......................... $90,669 $128,824 $72,438 $26,364 $139,206 $(84,075) $373,426
Gross margins.......................... 7,823 13,353 11,325 3,213 15,540 (56) 51,198
Environmental expense recovery......... (750) -- -- -- -- -- (750)
Operating income....................... 912 4,773 708 1,653 2,430 (56) 10,420
Interest income (expense), net......... 716 (808) (1,014) 32 (6,774) -- (7,848)
Income tax provision................... 658 1,337 395 847 1,454 -- 4,691
Net income (loss)...................... 970 2,822 (497) 838 11,965 (12,571) 3,527
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
INTERSEGMENT CONSOLIDATED
SHIELDALLOY LSM GFE EWW OTHER ELIMINATIONS TOTALS
----------- -------- ------- ------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
THREE QUARTERS ENDED OCTOBER 31, 1999
Total revenues......................... $92,851 $104,556 $63,776 $23,440 $143,305 $(80,805) $347,123
Gross margins.......................... 2,106 11,184 8,156 2,439 13,561 1,303 38,749
Environmental expense recovery......... (5,501) -- -- -- -- -- (5,501)
Restructuring charges.................. -- -- 3,385 1,001 -- -- 4,386
Operating income (loss)................ 1,513 1,244 (5,455) (477) (394) 1,303 (2,266)
Interest income (expense), net......... 1,696 22 (732) (94) (9,050) -- (8,158)
Income tax provision................... 969 362 283 334 1,540 -- 3,488
Net income (loss)...................... 2,230 904 (5,627) (893) (13,741) 3,204 (13,923)
</TABLE>
Total Revenues
Shieldalloy revenues were $2.2 million (2%) lower than the first three
quarters of 1999. Increased sales volumes of columbium alloys were more than
offset by lower sales volumes and selling prices of aluminum, silicon and chrome
products. LSM revenues were $24.3 million (23%) above the first three quarters
of 1999. Approximately $8.8 million of the increase resulted from the
acquisition of Hydelko on March 31, 2000. In addition, aluminum powder sales
volumes and ferrotitanium selling prices increased in 2000. GfE revenues were
$8.7 million (14%) above 1999 due primarily to increased selling prices of
nickel-based products and increased sales volumes of columbium-based products.
EWW revenues were $2.9 million (12%) higher in the current year than in the
first three quarters of 1999 due primarily to increased sales volumes of low
carbon ferrochrome.
Gross Margins
Gross margins increased from $38.7 million (11.2% of total revenues) in the
three quarters ended October 31, 1999 to $51.2 million (13.7% of total revenues)
in the three quarters ended October 31, 2000, an increase of 32%, due
principally to improved profitability in ferrovanadium, low carbon ferrochrome
and tantalum products. In the first quarter of 1999, Shieldalloy recognized a
lower of cost or market adjustment of $3.6 million related to ferrovanadium.
Increased production volumes and lower production costs resulting from
restructuring activities implemented in the second half of 1999 also contributed
to the increased gross margins in the current year.
Selling, General and Administrative Expenses
SG&A decreased from $42.1 million in the three quarters ended October 31,
1999 to $41.5 million in the three quarters ended October 31, 2000. Reduced
compensation costs of over $2 million following reductions in staffing were
partially offset by increased outside professional fee expenses. For the three
quarters ended October 31, 2000, SG&A represented 11.1% of total revenues
compared to 12.1% for the three quarters ended October 31, 1999.
Operating Income
Operating income of $10.4 million in the three quarters ended October 31,
2000 reflects a significant improvement as compared to a loss of $2.3 million in
the three quarters ended October 31, 1999, due primarily to the increase in
gross margins, discussed above. The 2000 results also included an environmental
expense recovery of $0.8 million. The 1999 results included a restructuring
provision of $4.4 million and an environmental expense recovery of $5.5 million.
17
<PAGE> 18
Interest Expense, Net
Interest expense, net, is as follows (in thousands):
<TABLE>
<CAPTION>
THREE QUARTERS ENDED
OCTOBER 31,
--------------------
2000 1999
-------- --------
<S> <C> <C>
Interest income....................................... $ 2,787 $ 1,999
Interest expense...................................... (10,635) (10,157)
-------- --------
Interest expense, net............................ $ (7,848) $ (8,158)
======== ========
</TABLE>
Income Tax Provision
Income tax provision, net of tax benefits, is as follows (in thousands):
<TABLE>
<CAPTION>
THREE QUARTERS
ENDED
OCTOBER 31,
----------------
2000 1999
------ ------
<S> <C> <C>
Total current............................................. $2,866 $2,182
Total deferred............................................ 1,825 1,306
------ ------
Income tax provision, net............................ $4,691 $3,488
====== ======
</TABLE>
The differences between the statutory Federal income tax rate and
Metallurg'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 $0.9 million in the three quarters ended October 31,
2000; 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 $0.5 million in the three quarters ended October 31, 2000. The
deferred tax expenses referred to in items (iii) and (iv) above will not result
in cash payments in future periods.
Net Income
Metallurg recognized net income of $3.5 million for the three quarters
ended October 31, 2000 compared to a net loss of $13.9 million for the three
quarters ended October 31, 1999. The improvement in 2000 resulted primarily from
increased gross margins, discussed above. In addition, the 2000 results included
a pre-tax gain of approximately $5.1 million relating to the sale of SMW.
LIQUIDITY AND FINANCIAL RESOURCES
General
Metallurg's sources of liquidity include cash from operations and amounts
available under credit facilities. In addition, Metallurg had $29.7 million of
cash and cash equivalents at October 31, 2000. Metallurg believes that these
sources are sufficient to fund current and anticipated future requirements
through at least December 31, 2001.
At October 31, 2000, Metallurg had working capital of $111.7 million, as
compared to $135.9 million at January 31, 2000. For the first three quarters of
2000, Metallurg's use of $6.6 million in cash for operations resulted primarily
from the increase in inventory and payment of interest on its Senior Notes. In
April 2000, Metallurg, Inc. received cash proceeds of $8.3 million upon the sale
of a minority interest in SMW owned by one of Metallurg, Inc.'s operating
subsidiaries. On March 31, 2000 LSM acquired the business of Hydelko for
approximately $9.0 million. On September 29, 2000 LSM acquired the ferrotitanium
business of Willan-Wogen for $1.7 million. LSM utilized existing cash balances
and loan facilities to effect these purchases.
18
<PAGE> 19
On October 17, 2000, Metallurg, Inc. purchased approximately $76.1 million
in face amount of Senior Discount Notes of Metallurg Holdings, Inc., its parent
company, for approximately $20 million in cash. The Senior Discount Notes were
purchased on the open market in several separately negotiated transactions.
Consent to the transaction from Metallurg, Inc.'s bank group under its Amended
and Restated Loan Agreement, dated October 29, 1999, had been previously
obtained. Metallurg, Inc.'s investment in these Senior Discount Notes is
recorded as a reduction in equity, as the only significant asset of Metallurg
Holdings, Inc. is its investment in Metallurg, Inc.
Credit Facilities and Other Financing Arrangements
Metallurg has a credit facility with certain institutions led by Fleet
National Bank as agent (the "Revolving Credit Facility") which provides
Metallurg, Inc., Shieldalloy and certain of their subsidiaries with up to $50.0
million of financing resources, including a German subfacility (as discussed
below). Interest is charged at a rate per annum equal to (i) LIBOR plus
2.0% - 2.5% or (ii) Prime plus up to 1%, based on the performance of Metallurg,
Inc. and certain of its subsidiaries. The Revolving Credit Facility permits
borrowings of up to $50.0 million for working capital requirements and general
corporate purposes, up to $35.0 million of which may be used for letters of
credit in the U.S. As part of the Revolving Credit Facility, Fleet National
Bank, through its London office, makes available up to DM 20.5 million
(approximately $9.2 million) of financing to certain of Metallurg's German
subsidiaries, which is guaranteed by Metallurg, Inc. and the other U.S.
borrowers under the Revolving Credit Facility. At October 31, 2000, $1.5 million
of loans were outstanding in Germany and $24.8 million of letters of credit were
outstanding in the U.S.
In addition, certain 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, 2000, there were
$3.8 million of outstanding loans under these local credit facilities.
CAPITAL EXPENDITURES
Metallurg invested $12.4 million in capital expenditures during the first
three quarters of 2000. Capital expenditures are expected to total approximately
$25 million over the next five quarters. Although Metallurg has projected these
items in 2000 and 2001, some projects remain contingent on appropriate senior
management or board of directors approval and the actual timing of expenditures
may extend into 2002. Metallurg believes that these projects will be funded
through internally generated cash, borrowings under the Revolving Credit
Facility and local credit lines.
ENVIRONMENTAL REMEDIATION COSTS
American Institute of Certified Public Accountants' Statement of Position
96-1, "Environmental Remediation Liabilities", 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 2000,
Metallurg expended $1.9 million for environmental remediation.
In 1997, 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 that, as
of October 31, 2000, had a remaining estimated cost of completion of $33.2
million. Of this amount, approximately $0.5 million is expected to be expended
in the fourth quarter of 2000, $5.6 million in 2001 and $5.8 million in 2002. In
addition, Metallurg estimates it will make expenditures of $3.0 million with
respect to environmental remediation at its foreign facilities. Of this amount,
no material expenditures are anticipated through 2002.
19
<PAGE> 20
ITEM 3 -- QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
Refer to the Market Risk and Risk Management Policies section of
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in Metallurg's annual report on Form 10-K for the year ended
January 31, 2000, which is incorporated by reference herein.
20
<PAGE> 21
PART II -- OTHER INFORMATION
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
<TABLE>
<S> <C> <C>
10. First Amendment to Amended and Restated Loan Agreement
(dated as of October 29, 1999), dated as of October 11,
2000, among Metallurg, Inc., Shieldalloy Metallurgical
Corporation and Metallurg International Resources, Inc. as
Borrowers, Metallurg Services, Inc., Metallurg Holdings
Corporation and MIR (China), Inc. as Guarantors, and Fleet
National Bank (formerly BankBoston, N.A.) as Agent for
itself and other financial institutions parties thereto, and
the banks named therein.
27. Financial Data Schedule
</TABLE>
(B) REPORTS ON FORM 8-K:
Metallurg, Inc. filed Reports on Form 8-K with the SEC on October 26,
2000, reporting its purchase of certain Senior Discount Notes of Metallurg
Holdings, its parent, and on November 21, 2000, reporting a change in its
fiscal year-end.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on December 11, 2000 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)
22
