<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
METALLURG HOLDINGS, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 23-2967577
- ------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
800 The Safeguard Building
435 Devon Park Drive
Wayne, Pennsylvania 19087
--------------------------
(Address of Principal Executive Offices)
(Zip Code)
(610) 293-0838
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
--- ---
There are no common equity securities of the registrant outstanding. At June 15,
1999, the outstanding capital of Metallurg Holdings, Inc. was comprised of
5,202.335 shares of Series A Voting Convertible Preferred Stock and 4,524 shares
of Series B Non-Voting Preferred Stock, $.01 par value.
<PAGE> 2
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C> <C>
Part I. FINANCIAL INFORMATION:
Item 1 - Financial Statements (Unaudited)
Condensed Statement of Consolidated Operations of Metallurg Holdings,
Inc. for the Quarter Ended April 30, 1999 3
Condensed Statements of Consolidated Operations of Metallurg, Inc.
for the Quarters Ended April 30, 1999 and 1998 4
Condensed Consolidated Balance Sheets of Metallurg Holdings,
Inc. at April 30, 1999 and January 31, 1999 5
Condensed Consolidated Balance Sheets of Metallurg, Inc.
at April 30, 1999 and January 31, 1999 6
Condensed Statement of Consolidated Cash Flows of Metallurg Holdings,
Inc. for the Quarter Ended April 30, 1999 7
Condensed Statements of Consolidated Cash Flows of Metallurg, Inc.
for the Quarters Ended April 30, 1999 and 1998 8
Notes to Condensed Unaudited Consolidated Financial Statements 9 - 15
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 16 - 21
Part II. OTHER INFORMATION
Item 6. (a) EXHIBITS 22
6. (b) REPORT ON FORM 8-K 22
Signature Page 23
</TABLE>
2
<PAGE> 3
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
ITEM 1 - FINANCIAL STATEMENTS
CONDENSED STATEMENT OF CONSOLIDATED OPERATIONS (UNAUDITED)
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter
Ended
April 30,
1999
---------
<S> <C>
Sales ........................................................ $ 117,679
Commission income ............................................ 134
---------
Total revenue ............................................. 117,813
Operating costs and expenses: ---------
Cost of sales ............................................. 108,039
Selling, general and administrative expenses .............. 15,739
---------
Total operating costs and expenses ..................... 123,778
---------
Operating loss ......................................... (5,965)
Other income (expense):
Other income, net ......................................... 32
Interest expense, net ..................................... (5,251)
---------
Loss before income tax
provision .............................................. (11,184)
Income tax provision ......................................... 979
---------
Net loss ..................................................... (12,163)
Other comprehensive loss:
Foreign currency translation adjustment ................... (1,684)
---------
Comprehensive loss ........................................ $ (13,847)
=========
</TABLE>
- --------------------------------------------------------------------------------
See notes to condensed unaudited consolidated financial statements
3
<PAGE> 4
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
ITEM 1 - FINANCIAL STATEMENTS
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Quarter
Ended Ended
April 30, April 30,
1999 1998
--------- ---------
<S> <C> <C>
Sales .............................................. $ 117,679 $ 167,675
Commission income .................................. 134 155
--------- ---------
Total revenue ................................... 117,813 167,830
Operating costs and expenses: --------- ---------
Cost of sales ................................... 108,039 139,008
Selling, general and administrative expenses .... 14,408 14,761
--------- ---------
Total operating costs and expenses ........... 122,447 153,769
--------- ---------
Operating (loss) income ...................... (4,634) 14,061
Other income (expense):
Other income, net ............................... 32 878
Interest expense, net ........................... (2,966) (2,072)
--------- ---------
(Loss)income before income tax
provision .................................... (7,568) 12,867
Income tax provision ............................... 976 6,077
--------- ---------
Net (loss) income .................................. (8,544) 6,790
Other comprehensive (loss) income :
Foreign currency translation adjustment ......... (1,684) 76
--------- ---------
Comprehensive (loss) income ..................... $ (10,228) $ 6,866
========= =========
</TABLE>
- --------------------------------------------------------------------------------
See notes to condensed unaudited consolidated financial statements
4
<PAGE> 5
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
April 30, January 31,
1999 1999
--------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ..................... $ 41,018 $ 38,395
Accounts and notes receivable, net ............ 74,007 63,745
Inventories ................................... 103,065 120,658
Other assets .................................. 17,307 17,106
--------- ---------
Total current assets ....................... 235,397 239,904
Property, plant and equipment, net ............... 47,751 49,018
Goodwill ......................................... 97,525 98,794
Other assets ..................................... 24,823 26,640
--------- ---------
TOTAL ...................................... $ 405,496 $ 414,356
========= =========
LIABILITIES
Current liabilities:
Short-term debt and current portion
of long-term debt .......................... $ 5,663 $ 4,945
Trade payables ................................ 44,352 37,460
Accrued expenses .............................. 27,382 26,047
Other current liabilities ..................... 2,611 3,955
--------- ---------
Total current liabilities .................. 80,008 72,407
--------- ---------
Long-term debt ................................... 179,772 178,885
Accrued pension liabilities ...................... 37,915 41,062
Environmental liabilities, net ................... 34,399 35,463
Other liabilities ................................ 6,007 5,556
--------- ---------
Total long-term liabilities ................ 258,093 260,966
--------- ---------
Total liabilities .......................... 338,101 333,373
--------- ---------
SHAREHOLDERS' EQUITY
Additional paid-in capital ....................... 96,692 96,433
Accumulated other comprehensive (loss) income .... (1,669) 15
Retained deficit ................................. (27,628) (15,465)
--------- ---------
Total shareholders' equity ................. 67,395 80,983
--------- ---------
TOTAL ...................................... $ 405,496 $ 414,356
========= =========
</TABLE>
- --------------------------------------------------------------------------------
See notes to condensed unaudited consolidated financial statements.
5
<PAGE> 6
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
April 30, January 31,
1999 1999
--------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................... $ 39,945 $ 37,293
Accounts and notes receivable, net .......... 74,007 63,680
Inventories ................................. 103,065 120,658
Other assets ................................ 16,960 16,759
--------- ---------
Total current assets ..................... 233,977 238,390
Property, plant and equipment, net ............. 47,751 49,018
Other assets ................................... 21,979 23,709
--------- ---------
TOTAL .................................... $ 303,707 $ 311,117
========= =========
LIABILITIES
Current liabilities:
Short-term debt and current portion
of long-term debt ........................ $ 5,663 $ 4,945
Trade payables .............................. 44,352 37,460
Accrued expenses ............................ 27,178 25,801
Other current liabilities ................... 2,611 3,955
--------- ---------
Total current liabilities ................ 79,804 72,161
--------- ---------
Long-term debt ................................. 107,861 109,185
Accrued pension liabilities .................... 37,915 41,062
Environmental liabilities, net ................. 34,399 35,463
Other liabilities .............................. 6,007 5,556
--------- ---------
Total long-term liabilities .............. 186,182 191,266
--------- ---------
Total liabilities ........................ 265,986 263,427
--------- ---------
SHAREHOLDERS' EQUITY
Common stock ................................... 50 50
Additional paid-in capital ..................... 45,516 45,257
Accumulated other comprehensive loss ........... (2,072) (388)
Retained (deficit) earnings .................... (5,773) 2,771
--------- ---------
Total shareholders' equity ............... 37,721 47,690
--------- ---------
TOTAL .................................... $ 303,707 $ 311,117
========= =========
</TABLE>
- --------------------------------------------------------------------------------
See notes to condensed unaudited consolidated financial statements.
6
<PAGE> 7
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
ITEM 1 - FINANCIAL STATEMENTS
CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter
Ended
April 30,
1999
---------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ........................................................ $(12,163)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization ................................... 3,301
Gain on sale of assets .......................................... (7)
Interest accretion on Discount Notes ............................ 2,211
Deferred income taxes ........................................... 580
Provision for doubtful accounts ................................. 135
Other, net ...................................................... 4,316
--------
Total ......................................................... (1,627)
Change in operating assets and liabilities:
Increase in trade receivables ................................... (14,917)
Decrease in inventories .............................. 13,754
Decrease in other current assets ................................ 1,024
Increase in trade payables and accrued expenses ................. 8,076
Other assets and liabilities, net ............................... (1,637)
--------
Net cash provided by operating activities ..................... 4,673
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment ...................... (2,340)
Proceeds from asset sales ....................................... 13
Other, net ...................................................... (293)
--------
Net cash used in investing activities ......................... (2,620)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings ....................................... 1,296
Repayment of long-term debt ..................................... (392)
--------
Net cash provided by financing activities ..................... 904
--------
Effects of exchange rate changes on cash and cash equivalents ..... (334)
--------
Net increase in cash and cash equivalents ......................... 2,623
Cash and cash equivalents - beginning of period ................... 38,395
--------
Cash and cash equivalents - end of period ......................... $ 41,018
========
</TABLE>
- --------------------------------------------------------------------------------
See notes to condensed unaudited consolidated financial statements.
7
<PAGE> 8
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
ITEM 1 - FINANCIAL STATEMENTS
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Quarter
Ended Ended
April 30, April 30,
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income ...................................... $ (8,544) $ 6,790
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Executive stock awards ............................... -- 293
Depreciation and amortization ........................ 1,945 2,188
Gain on sale of assets ............................... (7) (493)
Deferred income taxes ................................ 580 1,387
Provision for doubtful accounts ...................... 135 289
Other, net ........................................... 4,316 4,123
-------- --------
Total .............................................. (1,575) 14,577
Change in operating assets and liabilities:
Increase in trade receivables ........................ (14,982) (11,353)
Decrease (increase) in inventories ................... 13,754 (297)
Decrease in other current assets ..................... 1,024 1,328
Increase in trade payables and accrued expenses ...... 8,118 8,633
Payment for environmental remediation ................ (713) (558)
Other assets and liabilities, net .................... (924) (1,286)
-------- --------
Net cash provided by operating activities .......... 4,702 11,044
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment ........... (2,340) (2,929)
Proceeds from asset sales ............................ 13 1,143
Other, net ........................................... (293) (1,781)
-------- --------
Net cash used in investing activities .............. (2,620) (3,567)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings ............................ 1,296 146
Repayment of long-term debt .......................... (392) (419)
-------- --------
Net cash provided by (used in ) financing activities 904 (273)
-------- --------
Effects of exchange rate changes on cash and
cash equivalents ..................................... (334) 14
-------- --------
Net increase in cash and cash equivalents .............. 2,652 7,218
Cash and cash equivalents - beginning of period ........ 37,293 43,003
-------- --------
Cash and cash equivalents - end of period .............. $ 39,945 $ 50,221
======== ========
</TABLE>
- --------------------------------------------------------------------------------
See notes to condensed unaudited consolidated financial statements.
8
<PAGE> 9
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Metallurg Holdings, Inc., a Delaware corporation, was formed on June 10,
1998 and is owned by Safeguard International Fund, L.P. ("Safeguard
International") an international private equity fund that invests
primarily in equity securities of companies in process industries. On
July 13, 1998, Metallurg Holdings, Inc. acquired Metallurg, Inc.
The accompanying condensed unaudited consolidated financial statements
include the accounts of Metallurg Holdings, Inc. ("Metallurg Holdings")
and Metallurg, Inc. and its majority-owned subsidiaries ("Metallurg")
(collectively, the "Company"). These financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information pursuant to Accounting Principles Board
Opinion No. 28. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. The condensed consolidated balance sheet as
of January 31, 1999 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.
For further information, see the financial statements and footnotes thereto
included in the Company's audited consolidated financial statements for the
year ended January 31, 1999.
Metallurg Holdings and Metallurg, Inc. both report on a fiscal year ending
January 31. The operating subsidiaries of Metallurg, Inc. report on a
calendar year ending December 31. Accordingly, the consolidated financial
statements of Metallurg Holdings include the accounts of Metallurg Holdings
and Metallurg, Inc. for the quarter ended April 30, 1999 and of Metallurg,
Inc.'s operating subsidiaries for the quarter ended March 31, 1999. Balance
sheet data at April 30, 1999 reflect the financial position of Metallurg
Holdings and Metallurg, Inc. at April 30, 1999 and of Metallurg, Inc.'s
operating subsidiaries at March 31, 1999. Balance sheet data at January 31,
1999 reflect the financial position of Metallurg Holdings and Metallurg,
Inc. at January 31, 1999 and of Metallurg, Inc.'s operating subsidiaries at
December 31, 1998.
2. INVENTORIES
Inventories, net of reserves, consist of the following (in thousands):
<TABLE>
<CAPTION>
April 30, January 31,
1999 1999
--------- -----------
<S> <C> <C>
Raw materials .......................... $ 20,468 $ 29,096
Work in process ........................ 2,862 3,249
Finished goods ......................... 74,877 83,116
Other .................................. 4,858 5,197
-------- --------
Total ............................... $103,065 $120,658
======== ========
</TABLE>
9
<PAGE> 10
3. COMMITMENTS AND CONTINGENCIES
The Company continues defending various claims and legal actions arising in
the normal course of business, including those relating to environmental
matters. Management believes, based on the advice of counsel, that the
outcome of such litigation will not have a material adverse effect on the
Company's consolidated financial 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 the Company which
could have a material adverse effect on the Company's future results of
operations or cash flows.
4. EARNINGS PER COMMON SHARE
The presentation of earnings per share is not presented since 100% of the
capital stock of the Company is owned by a group of private investors led
by and including Safeguard International.
5. ACQUISITION TRANSACTIONS
On July 13, 1998, Metallurg was acquired by a group of investors led by
Safeguard International. The acquisition was accomplished by Metallurg
Acquisition Corp., a wholly owned subsidiary of Metallurg Holdings, a
Delaware corporation, merging with and into Metallurg, with Metallurg being
the surviving company and Metallurg Holdings becoming the sole parent of
Metallurg. Metallurg Holdings was formed on June 10, 1998 and is owned by
Safeguard International (an international private equity fund that invests
primarily in equity securities of companies in process industries), certain
limited partners of Safeguard International, certain individuals and a
private equity fund.
At the time of the Merger, each outstanding share of Metallurg common
stock, par value $.01 per share, was converted into the right to receive
$30 in cash, representing an aggregate cash price of approximately
$152,200,000 (including payments for cancellation of compensatory options).
Metallurg Holding's purchase of Metallurg was recorded under the purchase
method of accounting in accordance with APB Opinion No. 16, "Business
Combinations". The total value of the transaction, including existing
indebtedness and environmental, pension and other liabilities, net of cash,
was approximately $300,000,000. The excess of the purchase price over the
estimated fair value of the net assets acquired was approximately
$101,500,000 and is being amortized over a period of 20 years. The purchase
price allocation is subject to finalization in 1999.
In order to finance the Merger, (i) Safeguard International and certain of
its limited partners contributed approximately $97,000,000 of capital to
Metallurg Holdings (the "Equity Contribution"); and (ii) Metallurg Holdings
received approximately $62,900,000 net proceeds upon consummation of the
offering (the "Offering") of $121,000,000 aggregate principal amount at
maturity of 12 3/4% Senior Discount Notes due 2008 (the "Discount Notes").
As used herein, the term "Acquisition Transactions" means the Equity
Contribution, the Offering, the Merger, the Consent Solicitation (as
defined herein) and the execution of a supplemental indenture to the
indenture governing Metallurg's 11% Senior Notes due 2007 (the "Senior
Notes").
In connection with the Merger, Metallurg received the consents (the
"Consents Solicitation") of 100% of the registered holders of its Senior
Notes to a one-time waiver of the change of control provisions of the
Senior Note Indenture to make such provisions inapplicable to the Merger
and to amend the definition of "Permitted Holders".
Merger-related costs of $7,888,000 were incurred, and recorded as expense
by Metallurg, in the year ended January 31, 1999 and included (a)
$3,541,000 for payments to cancel compensatory stock options; (b) $625,000
in consent fees incurred in order to obtain the one-time waiver of the
change of control provisions of the Senior Note Indenture; (c) $2,822,000
for payments made pursuant to existing employment agreements with Metallurg
management and (d) $900,000 of other merger-related costs. Metallurg was
reimbursed for the compensatory stock option cancellation costs of
$3,541,000 by a capital contribution from Safeguard International at the
time of the Merger, which amount is included in Metallurg Holdings'
acquisition cost. Accordingly, Metallurg Holdings recognized the balance of
such costs, totaling $4,347,000, in the post-Merger period ended January
31, 1999.
6. PRO FORMA RESULTS (UNAUDITED)
The pro forma information presented below is based upon the historical
financial statements of Metallurg included elsewhere herein. The pro forma
information illustrate the estimated effects of (i) the issuance of the
12-3/4% Senior Discount Notes of Metallurg Holdings due 2008 and (ii) the
Merger and the transactions related thereto (collectively, the "Pro Forma
Transactions"), as if these transactions had occurred as of January 31,
1998.
<TABLE>
<CAPTION>
Quarter Quarter
Ended Ended
April 30, April 30,
1999 1998
--------- ---------
<S> <C> <C>
Revenues ................................. $ 117,813 $167,830
Operating (loss) income .................. (5,965) 12,729
Net (loss) income ........................ (12,303) 3,293
</TABLE>
The pro forma financial information is not necessarily indicative of either
the results of operations that would have occurred had the Pro Forma
Transactions taken place at the beginning of the respective periods or the
future operating results of the Company.
This Merger has been accounted for under the purchase method of accounting
and accordingly, the results of operations of Metallurg have been included
in the accompanying consolidated financial statements since the date of the
Merger, July 13, 1998. The cost of the Merger was allocated on the basis of
the preliminary estimated fair value of the assets acquired and liabilities
assumed. These estimates are being finalized during 1999.
The pro forma adjustments include the amortization of goodwill over 20
years, interest expense due to the issuance of the Discount Notes, certain
overhead expenses and the tax effect of the pro forma adjustments.
10
<PAGE> 11
7. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
those instruments at fair value. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. The Company is
currently evaluating the impact SFAS No. 133 will have on its financial
statements.
8. SUPPLEMENTAL GUARANTOR INFORMATION
In November 1997, Metallurg, Inc. issued $100 million principal amount of
its 11% Senior Notes due 2007. Under the terms of the Senior Notes,
Shieldalloy Metallurgical Corporation ("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.
11
<PAGE> 12
8. SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE QUARTER ENDED APRIL 30, 1999
(In thousands)
<TABLE>
<CAPTION>
Combined Combined
Metallurg, Inc. Guarantor Non-Guarantor Metallurg, Inc.
("Parent Company") Subsidiaries Subsidiaries Eliminations Consolidated
---------------- ------------ ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Sales .................................... $ 7,297 $ 32,741 $ 96,653 $(19,012) $ 117,679
Commission income ........................ -- 2 177 (45) 134
-------- -------- -------- -------- ---------
Total revenue ......................... 7,297 32,743 96,830 (19,057) 117,813
-------- -------- -------- -------- ---------
Operating costs and expenses:
Cost of sales ......................... 6,572 35,244 85,120 (18,897) 108,039
Selling, general and
administrative expenses ............ 1,926 2,191 10,291 -- 14,408
-------- -------- -------- -------- ---------
Total operating costs and
expenses ........................... 8,498 37,435 95,411 (18,897) 122,447
-------- -------- -------- -------- ---------
Operating (loss) income .................. (1,201) (4,692) 1,419 (160) (4,634)
Other income (expense):
Other income, net ..................... -- 7 25 -- 32
Interest (expense) income, net ........ (2,931) 426 (461) -- (2,966)
Equity in losses of
subsidiaries ....................... (2,986) (675) -- 3,661 --
-------- -------- -------- -------- ---------
(Loss) income before income
tax provision ....................... (7,118) (4,934) 983 3,501 (7,568)
Income tax provision (benefit) ........... 1,426 (1,623) 1,173 -- 976
-------- -------- -------- -------- ---------
Net loss ................................. (8,544) (3,311) (190) 3,501 (8,544)
Other comprehensive loss:
Foreign currency translation adjustment (1,684) (1,199) (1,676) 2,875 (1,684)
-------- -------- -------- -------- ---------
Comprehensive loss .................... $(10,228) $ (4,510) $ (1,866) $ 6,376 $ (10,228)
======== ======== ======== ======== =========
</TABLE>
12
<PAGE> 13
8. SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET AT APRIL 30, 1999 (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Combined Combined
Metallurg, Inc. Guarantor Non-Guarantor Metallurg, Inc.
("Parent Company") Subsidiaries Subsidiaries Eliminations Consolidated
------------------ ------------ ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .... $ 28,998 $ 1,131 $ 15,374 $ (5,558) $ 39,945
Accounts, notes and loans
receivable, net ........... 28,754 39,946 58,019 (52,712) 74,007
Inventories .................. -- 36,840 69,503 (3,278) 103,065
Other assets ................. 8,224 2,036 8,193 (1,493) 16,960
--------- --------- --------- --------- ---------
Total current assets ..... 65,976 79,953 151,089 (63,041) 233,977
Investments - intergroup ........ 103,762 55,248 -- (159,010) --
Property, plant and
equipment, net ............... 1,026 7,962 38,763 -- 47,751
Other assets .................... 5,167 17,618 16,408 (17,214) 21,979
--------- --------- --------- --------- ---------
Total ..................... $ 175,931 $ 160,781 $ 206,260 $(239,265) $ 303,707
========= ========= ========= ========= =========
LIABILITIES
Current liabilities:
Short-term debt and current
portion of long-term debt .. $ 11,221 $ (5,558) $ 5,663
Accounts and loans payable ... $ 13,176 $ 29,560 64,328 (62,712) 44,352
Accrued expenses ............. 6,290 8,085 12,803 -- 27,178
Other current liabilities .... -- 1,519 2,585 (1,493) 2,611
--------- --------- --------- --------- ---------
Total current liabilities . 19,466 39,164 90,937 (69,763) 79,804
--------- --------- --------- --------- ---------
Long-term liabilities:
Long-term debt ............... 100,000 -- 7,861 -- 107,861
Accrued pension liabilities .. 173 1,795 35,947 -- 37,915
Environmental liabilities, net -- 31,986 2,413 -- 34,399
Other liabilities ............ 18,571 -- 4,650 (17,214) 6,007
--------- --------- --------- --------- ---------
Total long-term liabilities 118,744 33,781 50,871 (17,214) 186,182
--------- --------- --------- --------- ---------
Total liabilities ......... 138,210 72,945 141,808 (86,977) 265,986
--------- --------- --------- --------- ---------
SHAREHOLDERS' EQUITY:
Common stock outstanding ..... 50 1,227 52,191 (53,418) 50
Additional paid-in capital ... 45,516 90,867 1,014 (91,881) 45,516
Accumulated other
comprehensive (loss) income. (2,072) (1,385) 19,669 (18,284) (2,072)
Retained deficit ............. (5,773) (2,873) (8,422) 11,295 (5,773)
--------- --------- --------- --------- ---------
Shareholders' equity ...... 37,721 87,836 64,452 (152,288) 37,721
--------- --------- --------- --------- ---------
Total ..................... $ 175,931 $ 160,781 $ 206,260 $(239,265) $ 303,707
========= ========= ========= ========= =========
</TABLE>
13
<PAGE> 14
8. SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE QUARTER ENDED APRIL 30, 1999
(In thousands)
<TABLE>
<CAPTION>
Combined Combined
Metallurg, Inc. Guarantor Non-Guarantor Consolidated
("Parent Company") Subsidiaries Subsidiaries Eliminations Metallurg, Inc.
------------------ ------------ ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
NET CASH FLOWS FROM
OPERATING ACTIVITIES ................ $ 448 $ 2,915 $ 1,323 $ 16 $ 4,702
-------- ------- -------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment ......................... (129) (604) (1,607) -- (2,340)
Proceeds from asset sales ........... -- 13 -- -- 13
Other, net .......................... (312) -- 19 -- (293)
-------- ------- -------- ------- --------
Net cash used in investing
activities .......................... (441) (591) (1,588) -- (2,620)
-------- ------- -------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Intergroup borrowings (repayments) .. 3,238 (2,288) (934) (16) --
Net short-term borrowings ........... -- -- 776 520 1,296
Repayment of long-term debt ......... -- -- (392) -- (392)
Dividends received (paid) ........... 140 -- (140) -- --
-------- ------- -------- ------- --------
Net cash provided by (used in) financing
activities .......................... 3,378 (2,288) (690) 504 904
-------- ------- -------- ------- --------
Effects of exchange rate changes on cash
and cash equivalents ................ -- -- (334) -- (334)
-------- ------- -------- ------- --------
Net increase (decrease) in cash and cash
equivalents ......................... 3,385 36 (1,289) 520 2,652
Cash and cash equivalents -
beginning of period ................. 25,613 1,095 16,663 (6,078) 37,293
-------- ------- -------- ------- --------
Cash and cash equivalents -
end of period ....................... $ 28,998 $ 1,131 $ 15,374 $(5,558) $ 39,945
======== ======= ======== ======= ========
</TABLE>
14
<PAGE> 15
9. SUBSEQUENT EVENT
In June 1999, the Company received proceeds in the amount of $6.5 million
from an insurance company upon settlement of environmental claims relating
to periods dating back to the 1960's. These claims relate to historical
costs of remedial activities at the Company's Newfield, New Jersey site.
15
<PAGE> 16
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain matters discussed under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in this Form 10-Q may
constitute forward-looking statements for purposes of Section 21E of the
Securities Exchange Act of 1934, as amended, and as such may involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance and achievements of the Company to be materially different
from future results, performance or achievements expressed or implied by such
forward-looking statements. Factors which may cause the Company's results to be
materially different include the cyclical nature of the Company's business, the
Company's dependence on foreign customers (particularly customers in Europe),
the economic strength of the Company's markets generally and particularly the
strength of the demand for iron, steel, aluminum and superalloys and titanium
alloy industries in those markets, the accuracy of the Company's estimates of
the costs of environmental remediation and the extension or expiration of
existing anti-dumping duties.
OVERVIEW
The industries that Metallurg supplies are cyclical. Throughout 1997 and into
1998, market conditions for most of Metallurg's products were favorable.
However, sales prices and demand for several of Metallurg's major products
declined during the second half of 1998 and into 1999. Metallurg believes that
the declines were the result of economic turmoil seen in Asia, Latin America
and Russia in 1997 and 1998. In the steel industry, this led to lower
production almost everywhere except in the U.S. during the first half of 1998.
In the second half of 1998, Japan, Russia, Brazil and some other Asian
countries exported large volumes of steel to the U.S. causing domestic
production to be drastically curtailed in the latter months of 1998 and into
1999 with only very slow improvement beginning to show towards the end of the
quarter. In addition, civilian airliner production in 1998 did not reach the
levels forecast by a major producer, and the economic turmoil already mentioned
caused postponements and cancellation of orders for airliners as trans-Pacific
and Asian air passenger volumes fell sharply. These factors contributed to
lower sales of products to the superalloy and titanium alloy industries, which
had been left holding vastly excessive inventories of their aerospace related
products. The aluminum industry had sustained satisfactory levels of demand for
the Company's products throughout 1998, as this has continued in 1999.
As Metallurg Holdings is a holding company and does not have any material
operations or asets other than the ownership of Metallurg, the following
discussion of the Company's results of operations relates to Metallurg, unless
otherwise indicated.
METALLURG HOLDINGS' RESULTS OF OPERATIONS FOR THE QUARTER ENDED APRIL 30, 1999
The net loss, which is discussed in the following section of $12.2 million
includes the consolidation of Metallurg, Inc. (a loss of $8.5 million),
$2.2 million of interest expense on its Senior Discount Notes, $1.4 million of
amortization of acquisition, goodwill and deferred issuance costs and $0.1
million of general overhead costs.
METALLURG INC.'S RESULTS OF OPERATIONS
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 United States, the United Kingdom
and Germany.
16
<PAGE> 17
Summarized financial information concerning Metallurg, Inc.'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.
<TABLE>
<CAPTION>
London and Gesellschaft
Scandinavian fur Elektro- Elektrowerk
Metallurgical metallurgie Weisweiler Metallurg, Inc.
Co., Ltd. mbH GmbH Intersegment Consolidated
Shieldalloy ("LSM") ("GfE") ("EWW") Other Eliminations Totals
----------- ------------- ------------- ----------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE FOR THE QUARTER ENDED APRIL 30, 1999
Revenues from external customers $31,712 $26,955 $19,950 $3,290 $35,906 $117,813
Intergroup revenue ............. 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)
FOR THE FOR THE QUARTER ENDED APRIL 30, 1998
Revenues from external customers $54,375 $31,031 $29,457 $5,298 $47,669 $167,830
Intergroup revenue ............. 1,158 15,746 2,770 9,872 13,880 $(43,426) --
Income tax provision ........... 3,113 605 601 861 897 -- 6,077
Net income ..................... 4,409 1,327 876 791 8,050 (8,663) 6,790
</TABLE>
Total Revenues
Total revenues decreased from $167.8 million in the quarter ended April 30, 1998
to $117.8 million in the quarter ended April 30, 1999 due to decreases in the
selling prices and volumes of Metallurg's primary products.
Shieldalloy revenues were $22.8 million (41%) below the first quarter of 1998.
As a result of the negative developments in the steel industry, the market price
of ferrovanadium, a significant product for Shieldalloy, declined from
approximately $13.75 per pound during April 1998 to approximately $5.25 per
pound during April 1999. Decreased volume and selling prices of ferrovanadium
during the first quarter of 1999 resulted in a revenue decrease of approximately
$10.0 million. Volume and selling prices of ferrosilicon, chrome metal and low
carbon ferrochrome also declined in 1999.
The developments in the aerospace industry led to a reduction in superalloy and
titanium alloy demand that impacted negatively on price, and particularly on
volumes, of Metallurg's specialty low carbon ferrochrome, chromium and vanadium
aluminum products. As a result of negative developments in the steel and
aerospace industries, LSM total revenues were $11.2 million (24%) below the
first quarter of 1998 due primarily to decreased volume of ferrotitanium and
chromium metal sales. GfE total revenues were $8.6 million (27%) below 1998 due
primarily to decreased selling prices and volumes of vanadium aluminum and
ferrovanadium. Total revenues of EWW were $6.4 million (42%) below the first
quarter of 1998 due primarily to reduced demand for low carbon ferrochrome.
Gross Margins
Total gross margin decreased from $28.8 million in the quarter ended April 30,
1998 to $9.8 million in the quarter ended April 30, 1999, a decrease of 66.1%,
due principally to price and volume decreases in ferrovanadium, ferrotitanium
and chromium. In addition, Shieldalloy recognized a lower of cost or market
adjustment of $3.6 million relating to ferrovanadium in 1999. In aluminum master
alloys and compacted products, a decrease in volume was more than offset by
improvements in product mix and cost reductions. Gross margins of low carbon
ferrochrome declined in 1999, resulting from lower selling prices and less
favorable product mix.
17
<PAGE> 18
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") decreased slightly from
$14.8 million in the quarter ended April 30, 1998 to $14.4 million in the
quarter ended April 30, 1999. For the quarter ended April 30, 1998, SG&A
represented 8.8% of the Company's sales compared to 12.2% for the quarter ended
April 30, 1999, as a result of decreased revenues.
Operating Income
Operating income decreased from $14.1 million in the quarter ended April 30,
1998 to a loss of $4.6 million in the quarter ended April 30, 1999, due to the
decrease in gross margin, discussed above.
Other Income, Net
In March 1998, Metallurg sold its minority investment in a Luxemburg affiliate
and realized a gain of approximately $0.9 million.
Interest Expense, Net:
Interest expense, net, is as follows (in thousands):
<TABLE>
<CAPTION>
Quarter Quarter
Ended Ended
April 30, April 30,
1999 1998
--------- ---------
<S> <C> <C>
Interest income ........ $ 492 $ 828
Interest expense ....... (3,458) (2,900)
------- -------
Interest expense, net $(2,966) $(2,072)
======= =======
</TABLE>
Interest expense increased $0.6 million in the quarter ended April 30, 1999
reflecting primarily higher effective interest rates and increased external
borrowing levels during the current period.
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,
1999 1998
---- ------
<S> <C> <C>
Total current .............. $396 $4,690
Total deferred ............. 580 1,387
---- ------
Income tax provision, net $976 $6,077
==== ======
</TABLE>
The differences between the statutory Federal income tax rate and Metallurg's
effective rate result primarily because of: (i) the U.S. taxability of foreign
dividends; (ii) the excess of foreign tax rates over the statutory Federal
income tax rate; (iii) certain deductible temporary differences which, in other
circumstances would have generated a deferred tax benefit, have been fully
provided for in a valuation allowance; (iv) 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, 1999; and (v) the deferred tax effects of certain deferred tax assets for
which a corresponding credit has been recorded to "Additional paid-in capital"
approximating $0.3 million in the quarter ended April 30, 1999. The deferred tax
expenses referred to in items (iv) and (v) above will not result in cash
payments in future periods.
Net Income
Net income decreased from $6.8 million for the quarter ended April 30, 1998 to a
loss of $8.5 million for the quarter ended April 30, 1999. The decrease in 1999
results primarily from reduced gross margins and increased interest expense, as
noted above.
18
<PAGE> 19
LIQUIDITY AND FINANCIAL RESOURCES OF THE COMPANY
General
The Company's sources of liquidity include cash from operations and amounts
available under credit facilities. The Company believes that these sources are
sufficient to fund the current and anticipated future requirements of working
capital, capital expenditures, pension benefits, potential acquisitions and
environmental expenditures through at least January 31, 2000.
At April 30, 1999, the Company had cash and cash equivalents of $41.0 million
and working capital of $155.4 million. Metallurg had cash and cash equivalents
of $39.9 million and working capital of $154.2 million, as compared to $37.3
million and $166.2 million, respectively, at January 31, 1999. For the first
quarter of 1999, the Company generated $4.7 million in cash from operations.
Capital expenditures approximated $2.3 million in the first quarter of 1999.
Credit Facilities and Other Financing Arrangements
Metallurg, Inc. has a credit facility with certain financial institutions led by
BankBoston, N.A. 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 at a rate per annum equal to (i) the Alternate
Base Rate plus 1.0% per annum (the Alternate Base Rate is the greater of the
Base Rate or the Federal Funds Effective Rate plus 0.5%) or (ii) the reserve
adjusted Eurodollar rate plus 2.5% for interest periods of one, two or three
months. The Revolving Credit Facility permits borrowings of up to $50.0 million
for working capital requirements and general corporate purposes, up to $30.0
million of which may be used for letters of credit in the U.S. At April 30,
1999, there were no outstanding loans and $25.1 million of letters of credit
outstanding in the U.S. under the Revolving Credit Facility. On October 20,
1997, BankBoston, N.A., through its Frankfurt office, made available up to DM
20.5 million (approximately $11.3 million) of financing to certain of its German
subsidiaries (the "German Subfacility"), which is guaranteed by Metallurg, Inc.
and the other U.S. borrowers under the Revolving Credit Facility. At April 30,
1999, no loans were outstanding in Germany under this Facility.
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, 1999, there were
$4.5 million of outstanding loans under these local credit facilities.
CAPITAL EXPENDITURES
Metallurg invested $2.3 million in capital expenditures during the first quarter
of 1999. Capital expenditures are expected to total approximately $18.0 million
in 1999. Although Metallurg has budgeted these items in 1999, Metallurg has not
committed to complete these projects which are 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
AICPA Statement of Position 96-1, "Environmental Remediation Liabilities",
requires 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 by the Company to their present value.
During the first quarter of 1999, Metallurg expended $0.7 million for
environmental remediation.
19
<PAGE> 20
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, 1999, had an estimated cost of completion of $36.7 million. Of
this amount, approximately $2.9 million is expected to be expended in the last
three quarters of 1999, $5.7 million in 2000 and $7.4 million in 2001. In
addition, Metallurg estimates it will make expenditures of $4.3 million with
respect to environmental remediation at its foreign facilities. Of this amount,
approximately $1.9 million is expected to be expended in the last three quarters
of 1999, $0.9 million in 2000 and $0.8 million in 2001.
20
<PAGE> 21
YEAR 2000 READINESS
Metallurg has completed an internal review of its and its subsidiaries'
information technology systems in connection with its assessment of Year 2000
readiness and is in the process of replacing or modifying some of the management
and accounting systems at its subsidiaries to upgrade them generally and to make
them Year 2000 ready. Metallurg expects to spend between $1.0 million and $2.0
million on these systems changes. Metallurg expects that the information
technology systems for all of its subsidiaries will be Year 2000 ready by August
31, 1999 and a substantial percentage has been completed to date. Those systems
that are not being replaced are being, or have been, modified by Metallurg
personnel to assure that they are Year 2000 ready. Accordingly, no additional
cost has been recognized for such internal upgrades. Metallurg is currently
assessing whether any of its non-information technology will need to be modified
to become Year 2000 ready.
Metallurg has not received written assurances from its significant suppliers and
customers to determine the state of their readiness with regard to Year 2000.
Metallurg believes that they will be prepared for Year 2000 based on its normal
interactions with its customers and suppliers and because of the wide attention
that the issue has received. Metallurg has not yet seen the need for contingency
plans for the Year 2000 issue, but this need will continue to be monitored as it
obtains more information about the state of readiness of its suppliers and
customers.
Metallurg presently believes that the Year 2000 issue will not pose significant
operational problems for its business systems as it believes that all needed
modifications and conversions will be timely made. If any of Metallurg's
suppliers or customers do not, or if Metallurg itself does not, successfully
deal with the Year 2000 issue, Metallurg could experience delays in receiving or
shipping products and in receiving payments. The severity of these possible
problems would depend on the nature of the problem and how quickly it could be
corrected or an alternative implemented, which is unknown at this time.
The anticipated costs for Metallurg to become Year 2000 ready and the
anticipated timing to complete the Year 2000 modifications are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events, including timely performance by third parties who will provide
Metallurg with the software for its new systems. However, there can be no
guarantee that these estimates will be achieved and actual results could differ
materially from those anticipated. Specific factors that might cause such
material differences include, but are not limited to, the ability to locate and
correct all relevant computer codes, the ability to successfully integrate new
business systems with existing operations and similar uncertainties. Some risks
of the Year 2000 issue are beyond the control of Metallurg and its suppliers and
customers. In particular, Metallurg cannot predict the effect that the Year 2000
issue will have on the general economy.
21
<PAGE> 22
PART II OTHER INFORMATION
ITEM 6.(a) EXHIBITS
27. Financial Data Schedule
6.(b) REPORT ON FORM 8-K
None
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on June 15, 1999 on its
behalf by the undersigned thereunto duly authorized.
METALLURG HOLDINGS, INC.
/s/ ARTHUR R. SPECTOR
-----------------------------------
Arthur R. Spector
Vice President
(Principal Financial Officer and
Principal Accounting Officer)
23
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0
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