<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 APRIL 30, 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.
[X] Yes [ ] 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.
[X] Yes [ ] No
The number of shares of common stock, $0.01 par value, issued and
outstanding as of June 14, 2000 was 5,000,000.
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<PAGE> 2
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C> <C> <C>
Part I. FINANCIAL INFORMATION:
Item 1 -- Financial Statements (Unaudited)
Condensed Statements of Consolidated Operations for the
Quarters Ended April 30, 2000 and 1999...................... 2
Condensed Consolidated Balance Sheets at April 30, 2000 and
January 31, 2000............................................ 3
Condensed Statements of Consolidated Cash Flows for the
Quarters Ended April 30, 2000 and 1999...................... 4
Notes to Condensed Unaudited Consolidated Financial
Statements.................................................. 5-10
Item 2 -- Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 11-14
Item 3 -- Quantitative and Qualitative Disclosure of Market Risk...... 15
Part II. OTHER INFORMATION:
Item 6. (a) EXHIBITS..................................................... 16
Item 6. (b) REPORT ON FORM 8-K........................................... 16
Signature Page........................................................... 17
</TABLE>
1
<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
APRIL 30,
--------------------
2000 1999
-------- --------
<S> <C> <C>
Sales....................................................... $123,859 $117,679
Commission income........................................... 193 134
-------- --------
Total revenues............................................ 124,052 117,813
-------- --------
Operating costs and expenses:
Cost of sales............................................. 107,301 108,039
Selling, general and administrative expenses.............. 13,712 14,408
Environmental expense recovery............................ (750) --
-------- --------
Total operating costs and expenses........................ 120,263 122,447
-------- --------
Operating income (loss)..................................... 3,789 (4,634)
Other income (expense):
Other income, net......................................... 15 32
Interest expense, net..................................... (2,572) (2,966)
-------- --------
Income (loss) before income tax provision and minority
interest.................................................. 1,232 (7,568)
Income tax provision........................................ 1,616 976
-------- --------
Loss before minority interest............................... (384) (8,544)
Minority interest........................................... 29 --
-------- --------
Net loss.................................................... (355) (8,544)
Other comprehensive loss:
Foreign currency translation adjustment................... (698) (1,684)
-------- --------
Comprehensive loss........................................ $ (1,053) $(10,228)
======== ========
</TABLE>
See notes to condensed unaudited consolidated financial statements
2
<PAGE> 4
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
2000 2000
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 54,196 $ 58,611
Accounts and notes receivable, net........................ 76,795 68,480
Inventories............................................... 85,584 80,653
Other current assets...................................... 11,431 10,369
-------- --------
Total current assets................................... 228,006 218,113
Property, plant and equipment, net.......................... 56,780 52,545
Other assets................................................ 23,502 22,993
-------- --------
Total.................................................. $308,288 $293,651
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Short-term debt and current portion of long-term debt..... $ 5,835 $ 1,932
Trade payables............................................ 44,587 48,792
Accrued expenses.......................................... 33,574 30,213
Deferred income........................................... 8,311 --
Other current liabilities................................. 1,462 1,306
-------- --------
Total current liabilities.............................. 93,769 82,243
-------- --------
Long-term Liabilities:
Long-term debt............................................ 115,633 109,062
Accrued pension liabilities............................... 34,282 35,890
Environmental liabilities, net............................ 30,925 31,819
Other liabilities......................................... 6,124 6,220
-------- --------
Total long-term liabilities............................ 186,964 182,991
-------- --------
Total liabilities...................................... 280,733 265,234
-------- --------
Minority Interest........................................... (51) (24)
-------- --------
Shareholder's Equity:
Common stock.............................................. 50 50
Additional paid-in capital................................ 46,399 46,181
Accumulated other comprehensive loss...................... (2,601) (1,903)
Retained deficit.......................................... (16,242) (15,887)
-------- --------
Total shareholder's equity............................. 27,606 28,441
-------- --------
Total.................................................. $308,288 $293,651
======== ========
</TABLE>
See notes to condensed unaudited consolidated financial statements.
3
<PAGE> 5
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTERS ENDED
APRIL 30,
--------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $ (355) $ (8,544)
Adjustments to reconcile net loss to net cash (used in)
provided by
operating activities:
Depreciation and amortization............................. 1,986 1,945
Gain on sale of assets.................................... (1) (7)
Deferred income taxes..................................... 572 580
Other, net................................................ 3,308 4,316
-------- --------
Total.................................................. 5,510 (1,710)
Change in operating assets and liabilities:
Increase in trade receivables............................. (10,705) (14,847)
(Increase) decrease in inventories........................ (3,408) 13,754
(Increase) decrease in other current assets............... (997) 1,024
(Decrease) increase in trade payables and accrued
expenses............................................... (427) 8,118
Restructuring payments.................................... (411) --
Environmental payments.................................... (686) (713)
Other assets and liabilities, net......................... (837) (924)
-------- --------
Net cash (used in) provided by operating activities.... (11,961) 4,702
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment................ (3,377) (2,340)
Proceeds from asset sales................................. 8,349 13
Acquisitions, net of cash................................. (8,957) --
Other, net................................................ (37) (293)
-------- --------
Net cash used in investing activities.................. (4,022) (2,620)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings................................. 4,253 1,296
Proceeds (repayment) of long-term debt.................... 7,432 (392)
-------- --------
Net cash provided by financing activities.............. 11,685 904
-------- --------
Effects of exchange rate changes on cash and cash
equivalents............................................... (117) (334)
-------- --------
Net (decrease) increase in cash and cash equivalents........ (4,415) 2,652
Cash and cash equivalents -- beginning of period............ 58,611 37,293
-------- --------
Cash and cash equivalents -- end of period.................. $ 54,196 $ 39,945
======== ========
</TABLE>
See notes to condensed unaudited consolidated financial statements.
4
<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 quarters ended April 30, 2000 and 1999 include
operating results of Metallurg, Inc., the parent holding company, for the three
months ended April 30, 2000 and 1999 and worldwide operating results for the
three months ended March 31, 2000 and 1999. Balance sheet data at April 30, 2000
reflect the financial position of Metallurg, Inc. at April 30, 2000 and of its
subsidiaries at March 31, 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.
Amounts reflected on prior quarter's condensed statements of consolidated
cash flows have been reclassed to confirm 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. In addition to its manufacturing operations,
Shieldalloy imports and distributes complementary products manufactured by
affiliates and third parties.
London & Scandinavian Metallurgical Co., Ltd. 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.
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
5
<PAGE> 7
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
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.
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, fresh-start adjustments 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 APRIL 30, 2000
Revenues from external customers... $27,262 $32,104 $21,093 $3,534 $40,059 $124,052
Intergroup revenues................ 773 9,795 3,105 5,507 7,521 $(26,701) --
Income tax provision............... 492 641 123 196 164 -- 1,616
Net income (loss).................. 708 1,349 (643) 247 600 (2,616) (355)
QUARTER ENDED APRIL 30, 1999
Revenues from external customers... $31,712 $26,955 $19,950 $3,290 $35,906 $117,813
Intergroup revenues................ 1,029 8,653 3,652 5,437 11,282 $(30,053) --
Income tax (benefit) provision..... (1,669) 256 141 226 2,022 -- 976
Net (loss) income.................. (2,704) 386 (1,083) 224 (8,193) 2,826 (8,544)
</TABLE>
3. INVENTORIES
Inventories, net of reserves, consist of the following (in thousands):
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
2000 2000
--------- -----------
<S> <C> <C>
Raw materials............................................... $18,899 $16,222
Work in process............................................. 3,568 3,212
Finished goods.............................................. 60,065 57,607
Other....................................................... 3,052 3,612
------- -------
Total..................................................... $85,584 $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.
6
<PAGE> 8
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
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 issued Staff Accounting Bulletin
("SAB") No. 101, which addresses principles of revenue recognition. Metallurg is
currently evaluating the impact SAB No. 101 will have on its financial
statements.
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.
7
<PAGE> 9
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE QUARTER ENDED APRIL 30, 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................. $34,955 $106,386 $(17,289) $124,052
------- -------- -------- --------
Operating costs and expenses:
Cost of sales................ 31,841 92,989 (17,529) 107,301
Selling, general and
administrative expenses... $ 1,335 2,611 9,766 -- 13,712
Environmental expense
recovery.................. -- (750) -- -- (750)
------- ------- -------- -------- --------
Total operating costs and
expenses.................. 1,335 33,702 102,755 (17,529) 120,263
------- ------- -------- -------- --------
Operating (loss) income........ (1,335) 1,253 3,631 240 3,789
Other income (expense):
Other (expense) income,
net....................... (4) -- 19 -- 15
Interest (expense) income,
net....................... (2,332) 162 (402) -- (2,572)
Equity in earnings of
subsidiaries.............. 2,856 1,708 -- (4,564) --
------- ------- -------- -------- --------
(Loss) income before income tax
provision and minority
interest..................... (815) 3,123 3,248 (4,324) 1,232
Income tax (benefit)
provision.................... (460) 579 1,497 -- 1,616
------- ------- -------- -------- --------
(Loss) income before minority
interest..................... (355) 2,544 1,751 (4,324) (384)
Minority interest.............. -- -- 29 -- 29
------- ------- -------- -------- --------
Net (loss) income.............. (355) 2,544 1,780 (4,324) (355)
Other comprehensive (loss)
income:
Foreign currency translation
adjustment................ (698) (177) (698) 875 (698)
------- ------- -------- -------- --------
Comprehensive (loss)
income.................... $(1,053) $ 2,367 $ 1,082 $ (3,449) $ (1,053)
======= ======= ======== ======== ========
</TABLE>
8
<PAGE> 10
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET AT APRIL 30, 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.... $ 53,359 $ 1,429 $ 10,321 $ (10,913) $ 54,196
Accounts, notes and loans
receivable, net........... 16,058 27,796 69,353 (36,412) 76,795
Inventories.................. -- 27,237 59,902 (1,555) 85,584
Other current assets......... 2,557 529 8,536 (191) 11,431
-------- -------- -------- --------- --------
Total current assets...... 71,974 56,991 148,112 (49,071) 228,006
Investments -- intergroup...... 80,094 49,694 -- (129,788) --
Investments -- other........... -- 3,179 1,757 -- 4,936
Property, plant and equipment,
net.......................... 910 11,911 43,959 -- 56,780
Other assets................... 8,094 17,488 14,134 (21,150) 18,566
-------- -------- -------- --------- --------
Total..................... $161,072 $139,263 $207,962 $(200,009) $308,288
======== ======== ======== ========= ========
LIABILITIES AND SHAREHOLDER'S
EQUITY
Current Liabilities:
Short-term debt and current
portion of long-term
debt...................... $ 16,748 $ (10,913) $ 5,835
Trade payables............... $ 463 $ 30,974 50,251 (37,101) 44,587
Accrued expenses............. 6,248 9,413 17,913 -- 33,574
Deferred income.............. 8,311 -- -- -- 8,311
Other current liabilities.... -- 191 1,462 (191) 1,462
-------- -------- -------- --------- --------
Total current
liabilities............. 15,022 40,578 86,374 (48,205) 93,769
-------- -------- -------- --------- --------
Long-term Liabilities:
Long-term debt............... 100,000 -- 15,633 -- 115,633
Accrued pension
liabilities............... 81 1,728 32,473 -- 34,282
Environmental liabilities,
net....................... -- 29,249 1,676 -- 30,925
Other liabilities............ 18,363 -- 8,910 (21,149) 6,124
-------- -------- -------- --------- --------
Total long-term
liabilities............. 118,444 30,977 58,692 (21,149) 186,964
-------- -------- -------- --------- --------
Total liabilities......... 133,466 71,555 145,066 (69,354) 280,733
-------- -------- -------- --------- --------
Minority Interest.............. -- -- (51) -- (51)
-------- -------- -------- --------- --------
Shareholder's Equity:
Common stock................. 50 1,227 52,191 (53,418) 50
Additional paid-in capital... 46,399 94,460 10,327 (104,787) 46,399
Accumulated other
comprehensive (loss)
income.................... (2,601) (854) 19,134 (18,280) (2,601)
Retained deficit............. (16,242) (27,125) (18,705) 45,830 (16,242)
-------- -------- -------- --------- --------
Total shareholder's
equity.................. 27,606 67,708 62,947 (130,655) 27,606
-------- -------- -------- --------- --------
Total..................... $161,072 $139,263 $207,962 $(200,009) $308,288
======== ======== ======== ========= ========
</TABLE>
9
<PAGE> 11
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE QUARTER ENDED APRIL 30, 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............. $ 1,859 $ 2,698 $(13,801) $ (2,717) $(11,961)
------- ------- -------- -------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions to property, plant and
equipment..................... (16) (1,584) (1,777) -- (3,377)
Proceeds from asset sales........ 8,317 -- 32 -- 8,349
Other, net....................... 20 (30) (8,984) -- (8,994)
------- ------- -------- -------- --------
Net cash provided by (used in)
investing activities............. 8,321 (1,614) (10,729) -- (4,022)
------- ------- -------- -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Intergroup repayments............ (2,248) (219) (250) 2,717 --
Net short-term borrowings........ -- -- 6,017 (1,764) 4,253
Proceeds from long-term debt..... -- -- 7,432 -- 7,432
------- ------- -------- -------- --------
Net cash (used in) provided by
financing activities............. (2,248) (219) 13,199 953 11,685
------- ------- -------- -------- --------
Effects of exchange rate changes on
cash and cash equivalents........ -- -- (117) -- (117)
------- ------- -------- -------- --------
Net increase (decrease) in cash and
cash equivalents................. 7,932 865 (11,448) (1,764) (4,415)
Cash and cash
equivalents -- beginning of
period........................... 45,427 564 21,769 (9,149) 58,611
------- ------- -------- -------- --------
Cash and cash equivalents -- end of
period........................... $53,359 $ 1,429 $ 10,321 $(10,913) $ 54,196
======= ======= ======== ======== ========
</TABLE>
8. INVESTMENTS
On March 31, 2000, LSM acquired the business of Hydelko KS ("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. Due to the one-month
lag in reporting the results of subsidiaries, the resultant gain on sale of
approximately $5.1 million will be recognized in the quarter ending July 31,
2000.
10
<PAGE> 12
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 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 for iron, steel, aluminum and superalloys and titanium
alloy 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 steel, aluminum,
superalloys, titanium alloys, chemicals and other metal consuming industries.
The industries that Metallurg supplies are cyclical.
Steel production volume and, more recently, prices have improved in the
U.S. and throughout the rest of the world. U.S. steel output is close to full
capacity and worldwide stainless steel output continues to grow in a recovery
that started in mid-1999. In addition, the market price of ferrovanadium, a
significant product for Shieldalloy, increased from approximately $4.40 per
pound at the start of 2000 to over $6.00 per pound in April 2000. The outlook
for the superalloy industry is improving as its customers prepare to meet
significant demand for the construction of land-based turbines during the period
from 2000 through 2003, and Metallurg is seeing stronger demand for its chromium
and related products. Sales of titanium alloys into the Asian chemical industry
have also increased as the economic climate in that region continues to improve.
Although the outlook for the aerospace sector is beginning to show signs of
improvement, excess inventory, built in 1996-98 in the supply chain, continues
to negatively impact our sales to the superalloy and titanium alloy industries
for that sector. Steady worldwide growth in the aluminum industry continues.
Production volumes of products supplied to the aluminum industry are up, pricing
is now steady and margins are improving. Metallurg's acquisition of the business
of Hydelko, a Norwegian producer of master alloys for the aluminum industry,
will increase the company's worldwide market share significantly and complement
the production capabilities of its current operations in the U.S., the U.K.,
Spain and Brazil.
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, fresh-start adjustments and results of subsidiaries not
meeting the quantitative thresholds as prescribed by applicable accounting
rules. Metallurg does not allocate
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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 APRIL 30, 2000
Total revenues........................ $28,035 $41,899 $24,198 $9,041 $47,580 $(26,701) $124,052
Gross margins......................... 2,468 4,999 3,357 1,059 4,628 240 16,751
Operating income (loss)............... 908 2,075 (246) 438 374 240 3,789
Interest income (expense), net........ 292 (80) (303) 5 (2,486) -- (2,572)
Income tax provision.................. 492 641 123 196 164 -- 1,616
Net income (loss)..................... 708 1,349 (643) 247 600 (2,616) (355)
QUARTER ENDED APRIL 30, 1999
Total revenues........................ $32,741 $35,608 $23,602 $8,727 $47,188 $(30,053) $117,813
Gross margins......................... (2,635) 3,980 2,598 1,214 4,777 (160) 9,774
Operating (loss) income............... (4,808) 634 (866) 489 77 (160) (4,634)
Interest income (expense), net........ 428 8 (277) (39) (3,086) -- (2,966)
Income tax (benefit) provision........ (1,669) 256 141 226 2,022 -- 976
Net (loss) income..................... (2,704) 386 (1,083) 224 (8,193) 2,826 (8,544)
</TABLE>
Total Revenues
Shieldalloy revenues were $4.7 million (14.4%) below the first quarter of
1999 due primarily to decreased sales volume and selling prices of ferrosilicon,
chromium metal and low carbon ferrochrome in the quarter ended April 30, 2000.
Although the recovery in domestic steel production has resulted in increased
shipments of ferrovanadium during the current quarter, lower selling prices, as
compared to the first quarter of 1999, offset the sales value of the increased
shipments.
LSM revenues were $6.3 million (17.7%) above the first quarter of 1999.
Chromium metal sales volume increased during the quarter due, in part, to demand
by superalloy producers for use in land-based turbines. In addition, aluminum
powder sales volumes and ferrotitanium selling prices increased in the first
quarter of 2000. GfE revenues were $0.6 million (2.5%) above 1999 due primarily
to increased selling prices of nickel-based alloy products. EWW revenues were
marginally higher in the current quarter than in the first quarter of 1999.
Gross Margins
Gross margins increased from $9.8 million in the quarter ended April 30,
1999 to $16.8 million in the quarter ended April 30, 2000, an increase of 71.4%,
due principally to improved profitability in ferrovanadium, ferrotitanium and
chromium products. In the quarter ended April 30, 1999, Shieldalloy recognized a
lower of cost or market adjustment of $3.6 million relating to ferrovanadium.
Lower production costs resulting from restructuring activities implemented in
the second half of 1999, higher selling prices for ferrotitanium and increased
sales volume of chromium products contributed to the increased gross margins in
the current quarter.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") decreased from $14.4
million in the quarter ended April 30, 1999 to $13.7 million in the quarter
ended April 30, 2000, due primarily to reduced compensation costs following
reductions in staffing, partially offset by increased outside professional fee
expenses. For the quarter ended April 30, 1999, SG&A represented 12.2% of
Metallurg's sales compared to 11.1% for the quarter ended April 30, 2000.
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Operating Income
Operating income of $3.8 million in the quarter ended April 30, 2000
reflects a significant improvement as compared to a loss of $4.6 million in the
quarter ended April 30, 1999, due primarily to the increase in gross margin,
discussed above. In addition, Shieldalloy recognized an environmental expense
recovery of $0.8 million in the current quarter upon settlement with an
insurance company relating to disputed coverage for old environmental claims.
Interest Expense, Net
Interest expense, net, is as follows (in thousands):
<TABLE>
<CAPTION>
QUARTER QUARTER
ENDED ENDED
APRIL 30, APRIL 30,
2000 1999
--------- ---------
<S> <C> <C>
Interest income............................................. $ 780 $ 492
Interest expense............................................ (3,352) (3,458)
------- -------
Income expense, net....................................... $(2,572) $(2,966)
======= =======
</TABLE>
Income Tax Provision
Income tax provision, net of tax benefits, is as follows (in thousands):
<TABLE>
<CAPTION>
QUARTER QUARTER
ENDED ENDED
APRIL 30, APRIL 30,
2000 1999
--------- ---------
<S> <C> <C>
Total current............................................... $1,044 $396
Total deferred.............................................. 572 580
------ ----
Income tax provision, net................................. $1,616 $976
====== ====
</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 April 30, 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 $0.2 million in the quarter ended April 30, 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 $0.4 million for the quarter ended April
30, 2000 compared to a net loss of $8.5 million for the quarter ended April 30,
1999. The improvement in 2000 resulted primarily from increased gross margins.
LIQUIDITY AND FINANCIAL RESOURCES
General
Metallurg's sources of liquidity include cash from operations and amounts
available under credit facilities. In addition, Metallurg had $54.2 million of
cash and cash equivalents at April 30, 2000. Metallurg believes that these
sources are sufficient to fund current and anticipated future requirements
through at least January 31, 2001.
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At April 30, 2000, Metallurg had working capital of $134.2 million, as
compared to $135.9 million at January 31, 2000. For the first quarter of 2000,
Metallurg's use of $12.0 million in cash for operations resulted primarily from
the increase in trade receivables and inventory. 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. Due to the
one-month lag in reporting the results of its subsidiaries, the resultant gain
on sale has been deferred until the second quarter of 2000, when the sale was
completed. 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. LSM utilized existing cash balances and loan facilities to effect the
purchase.
Credit Facilities and Other Financing Arrangements
Metallurg has a credit facility with certain financial 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 DM20.5 million
(approximately $10.0 million) of financing to certain of its German
subsidiaries, which is guaranteed by Metallurg, Inc. and the other U.S.
borrowers under the Revolving Credit Facility. At April 30, 2000, no loans were
outstanding in the U.S. or Germany under this facility, however, $24.2 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 April 30, 2000, there were
$4.7 million of outstanding loans under these local credit facilities.
CAPITAL EXPENDITURES
Metallurg invested $3.4 million in capital expenditures during the first
quarter of 2000. Capital expenditures are expected to total approximately $25
million in 2000. Although Metallurg has budgeted these items in 2000, Metallurg
has not yet committed to complete all of these projects, some of which remain
contingent on senior management approval and other conditions. 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 quarter of 2000, Metallurg
expended $0.7 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 which,
as of April 30, 2000, had a remaining estimated cost of completion of $34.2
million. Of this amount, approximately $2.6 million is expected to be expended
in the last three quarters of 2000, $5.6 million in 2001 and $8.4 million in
2002. In addition, Metallurg estimates it will make expenditures of $3.4 million
with respect to environmental remediation at its foreign facilities. Of this
amount, approximately $0.7 million is expected to be expended in the last three
quarters of 2000 and $0.5 million in 2001.
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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.
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PART II -- OTHER INFORMATION
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27. Financial Data Schedule
(b) REPORTS ON FORM 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on June 14, 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)
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