<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 JULY 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
METALLURG HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 23-2967577
(STATE OF ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
400 THE SAFEGUARD BUILDING (610) 293-0838
435 DEVON PARK DRIVE (REGISTRANT'S TELEPHONE NUMBER
WAYNE, PENNSYLVANIA 19087 INCLUDING AREA CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
There are no common equity securities of the registrant outstanding. At
September 13, 2000, 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>
Part I. FINANCIAL INFORMATION:
Item 1 - Financial Statements (Unaudited)
Condensed Statements of Consolidated Operations
for the Quarters and the Two Quarters Ended July 31, 2000 and 1999... 3
Condensed Consolidated Balance Sheets
at July 31, 2000 and January 31, 2000 ............................... 4
Condensed Statements of Consolidated Cash Flows
for the Two Quarters Ended July 31, 2000 and 1999 ................... 5
Notes to Condensed Unaudited Consolidated Financial Statements ......... 6-14
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................... 15-22
Item 3 - Quantitative and Qualitative Disclosure of Market Risk ............. 23
Part II. OTHER INFORMATION:
Item 6.(a) EXHIBITS ......................................................... 24
Item 6.(b) REPORT ON FORM 8-K ............................................... 24
Signature Page .............................................................. 25
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTERS ENDED TWO QUARTERS ENDED
JULY 31, JULY 31,
------------------------- -------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales .............................................. $132,098 $115,897 $255,957 $233,576
Commission income .................................. 110 155 303 289
-------- -------- -------- --------
Total revenues ................................. 132,208 116,052 256,260 233,865
-------- -------- -------- --------
Operating costs and expenses:
Cost of sales .................................. 113,230 100,765 220,531 208,804
Selling, general and administrative expenses ... 15,678 15,401 30,697 31,140
Environmental expense recovery ................. -- (5,501) (750) (5,501)
Restructuring charges .......................... -- 4,386 -- 4,386
-------- -------- -------- --------
Total operating costs and expenses ............. 128,908 115,051 250,478 238,829
-------- -------- -------- --------
Operating income (loss) ............................ 3,300 1,001 5,782 (4,964)
Other income (expense):
Other income (expense), net .................... 5,335 (27) 5,350 5
Interest expense, net .......................... (5,373) (5,069) (10,517) (10,320)
-------- -------- -------- --------
Profit (loss) before income tax provision and
minority interest ................................ 3,262 (4,095) 615 (15,279)
Income tax provision ............................... 1,882 1,771 3,501 2,750
-------- -------- -------- --------
Profit (loss) before minority interest ............. 1,380 (5,866) (2,886) (18,029)
Minority interest .................................. 28 -- 57 --
-------- ------- -------- --------
Net profit (loss) .................................. 1,408 (5,866) (2,829) (18,029)
Other comprehensive loss:
Foreign currency translation adjustment ........ (2,428) (737) (3,126) (2,421)
-------- -------- -------- --------
Comprehensive loss ............................. $ (1,020) $ (6,603) $ (5,955) $(20,450)
======== ======== ======== ========
</TABLE>
See notes to condensed unaudited consolidated financial statements.
3
<PAGE> 4
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
2000 2000
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ................................ $ 47,787 $ 59,780
Accounts and notes receivable, net ....................... 79,537 68,386
Inventories .............................................. 89,527 80,653
Other current assets ..................................... 15,488 10,728
--------- ---------
Total current assets ................................ 232,339 219,547
Goodwill ..................................................... 91,178 93,717
Property, plant and equipment, net ........................... 59,325 52,545
Other assets ................................................. 21,570 25,577
--------- ---------
Total ............................................... $ 404,412 $ 391,386
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt and current portion of long-term debt .... $ 11,981 $ 1,932
Trade payables ........................................... 44,996 48,792
Accrued expenses ......................................... 30,692 30,357
Other current liabilities ................................ 4,527 1,311
--------- ---------
Total current liabilities ........................... 92,196 82,392
--------- ---------
Long-term Liabilities:
Long-term debt ........................................... 199,173 187,932
Accrued pension liabilities .............................. 34,162 35,890
Environmental liabilities, net ........................... 30,541 31,819
Other liabilities ........................................ 5,942 6,220
--------- ---------
Total long-term liabilities ......................... 269,818 261,861
--------- ---------
Total liabilities ................................... 362,014 344,253
--------- ---------
Minority Interest ............................................ 819 (24)
--------- ---------
Shareholders' Equity:
Additional paid-in capital ............................... 97,734 97,357
Accumulated other comprehensive loss ..................... (4,626) (1,500)
Retained deficit ......................................... (51,529) (48,700)
--------- ---------
Total shareholders' equity .......................... 41,579 47,157
--------- ---------
Total ............................................... $ 404,412 $ 391,386
========= =========
</TABLE>
See notes to condensed unaudited consolidated financial statements.
4
<PAGE> 5
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
TWO QUARTERS ENDED
JULY 31,
-----------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ....................................................... $ (2,829) $(18,029)
Adjustments to reconcile net loss to net cash (used in) provided
by operating activities:
Depreciation and amortization ................................ 6,869 6,702
(Gain) loss on sale of assets ................................ (5,133) 3
Interest accretion on Senior Discount Notes .................. 5,028 4,443
Deferred income taxes ........................................ 1,354 1,100
Provision for restructuring costs ............................ -- 4,386
Other, net ................................................... 4,914 3,773
-------- --------
Total ...................................................... 10,203 2,378
Change in operating assets and liabilities:
Increase in trade receivables ................................ (10,413) (7,599)
(Increase) decrease in inventories .......................... (8,336) 16,680
Increase in other current assets ............................. (4,605) (2,243)
Increase in trade payables and accrued expenses .............. 3,460 13,306
Restructuring payments ....................................... (1,431) --
Environmental payments ....................................... (1,014) (1,817)
Other assets and liabilities, net ............................ (7,593) (7,389)
-------- --------
Net cash (used in) provided by operating activities ........ (19,729) 13,316
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment ................... (8,735) (5,089)
Proceeds from asset sales .................................... 8,354 35
Acquisitions, net of cash .................................... (9,392) --
Other, net ................................................... 41 63
-------- --------
Net cash used in investing activities ...................... (9,732) (4,991)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings .................................... 9,882 117
Proceeds (repayment) of long-term debt, net .................. 7,362 (524)
Minority interest contribution ............................... 676 --
-------- --------
Net cash provided by (used in) financing activities ........ 17,920 (407)
-------- --------
Effects of exchange rate changes on cash and cash equivalents .. (452) (589)
-------- --------
Net (decrease) increase in cash and cash equivalents ........... (11,993) 7,329
Cash and cash equivalents - beginning of period ................ 59,780 38,395
-------- --------
Cash and cash equivalents - end of period ...................... $ 47,787 $ 45,724
======== ========
</TABLE>
See notes to condensed unaudited consolidated financial statements.
5
<PAGE> 6
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Metallurg Holdings, Inc. ("Metallurg Holdings"), a Delaware
corporation, was formed on June 10, 1998 and is owned by a group of
investors led by and including 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 acquired Metallurg,
Inc. Metallurg, Inc. and its majority-owned subsidiaries (collectively,
"Metallurg") manufacture and sell high quality metal alloys and
specialty metals used by manufacturers of steel, aluminum, superalloys,
titanium alloys, chemicals and other metal consuming industries.
The accompanying condensed unaudited consolidated financial
statements include the accounts of Metallurg Holdings and 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, 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.
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, 2000.
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 include the accounts of Metallurg
Holdings and Metallurg, Inc. for the two quarters ended July 31, 2000
and 1999 and of Metallurg, Inc.'s operating subsidiaries for the two
quarters ended June 30, 2000 and 1999. Balance sheet data at July 31,
2000 reflect the financial position of Metallurg Holdings and
Metallurg, Inc. at July 31, 2000 and of Metallurg, Inc.'s operating
subsidiaries at June 30, 2000. Balance sheet data at January 31, 2000
reflect the financial position of Metallurg Holdings and Metallurg,
Inc. at January 31, 2000 and of Metallurg, Inc.'s operating
subsidiaries at December 31, 1999.
Amounts reflected in the 1999 condensed statements of
consolidated cash flows have been reclassed to conform to the current
period's disclosure.
6
<PAGE> 7
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS - (CONTINUED)
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. The results of Metallurg Holdings
consist primarily of interest expense on the 12-3/4% Senior Discount
Notes due 2008 (the "Senior Discount Notes"), amortization of goodwill
and deferred costs and general overhead expenses. Such costs are
reported in the segment "Other" below.
Reportable Segments
Shieldalloy Metallurgical Corporation ("Shieldalloy") - This
unit is comprised of two production facilities in the U.S. The New
Jersey plant manufactures and sells aluminum alloy grain refiners and
alloying tablets for the aluminum industry, metal powders for the
welding industry and specialty ferroalloys for the superalloy and steel
industries. The Ohio plant manufactures and sells ferrovanadium and
vanadium based chemicals used mostly in the steel and petrochemical
industries.
London & Scandinavian Metallurgical Co., Ltd. and its
subsidiaries (collectively "LSM") - This unit is comprised mainly of
three production facilities in the U.K. and one in Norway 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 sells a wide variety of specialty products, including
vanadium based chemicals and sophisticated metals, alloys and powders
used in the titanium, superalloy, electronics, steel, biomedical and
optics industries. The Morsdorf plant produces medical prostheses,
implants and surgical instruments for orthopedic applications.
Elektrowerk Weisweiler GmbH ("EWW") - This production unit,
also located in Germany, produces various grades of low carbon
ferrochrome used in the superalloy, welding and steel industries.
In addition to their manufacturing operations, Shieldalloy,
LSM and GfE import and distribute complementary products manufactured
by affiliates and third parties.
Summarized financial information concerning the Company'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.
7
<PAGE> 8
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS - (CONTINUED)
2. SEGMENTS AND RELATED INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
INTERSEGMENT CONSOLIDATED
SHIELDALLOY LSM GfE EWW OTHER ELIMINATIONS TOTALS
----------- --------- --------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
QUARTER ENDED JULY 31, 2000
Revenues from external
customers .............. $31,824 $34,924 $22,432 $ 3,446 $39,582 $132,208
Intergroup revenues ....... 1,251 12,705 3,558 6,298 7,880 $(31,692) --
Income tax provision ...... 390 369 250 505 368 -- 1,882
Net income ................ 576 1,082 50 315 8,276 (8,891) 1,408
QUARTER ENDED JULY 31, 1999
Revenues from external
customers .............. $27,706 $26,500 $16,593 $ 2,958 $42,295 $116,052
Intergroup revenues ....... 1,039 9,628 4,370 5,114 9,955 $(30,106) --
Income tax provision
(benefit) .............. 2,235 251 131 223 (1,069) -- 1,771
Net income (loss) ......... 4,336 858 (4,834) (1,001) (5,744) 519 (5,866)
</TABLE>
<TABLE>
<CAPTION>
INTERSEGMENT CONSOLIDATED
SHIELDALLOY LSM GfE EWW OTHER ELIMINATIONS TOTALS
----------- --------- --------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
TWO QUARTERS ENDED JULY 31, 2000
Revenues from external
customers ................... $59,086 $67,028 $43,525 $ 6,977 $79,644 $256,260
Intergroup revenues ............ 2,024 22,500 6,663 11,808 15,398 $(58,393) --
Income tax provision ........... 882 1,010 373 701 535 -- 3,501
Net income (loss) .............. 1,284 2,431 (593) 562 4,994 (11,507) (2,829)
TWO QUARTERS ENDED JULY 31, 1999
Revenues from external
customers ................... $59,418 $53,455 $36,543 $ 6,248 $78,201 $233,865
Intergroup revenues ............ 2,068 18,281 8,022 10,551 21,237 $(60,159) --
Income tax provision ........... 566 507 272 449 956 -- 2,750
Net income (loss) .............. 1,632 1,244 (5,917) (777) (17,556) 3,345 (18,029)
</TABLE>
8
<PAGE> 9
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS - (CONTINUED)
3. INVENTORIES
Inventories, net of reserves, consist of the following (in
thousands):
<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
2000 2000
------- -------
<S> <C> <C>
Raw materials ..... $16,975 $16,222
Work in process ... 3,518 3,212
Finished goods .... 66,290 57,607
Other ............. 2,744 3,612
------- -------
Total .......... $89,527 $80,653
======= =======
</TABLE>
4. COMMITMENTS AND CONTINGENCIES
The Company continues defending various claims and legal
actions arising in the normal course of business, including those
relating to environmental matters. Management believes, based on the
advice of counsel, that the outcome of such litigation will not have a
material adverse effect on the Company's consolidated financial
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.
5. EARNINGS PER COMMON SHARE
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.
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. The Company is currently
evaluating the impact SFAS No. 133 will have on its financial
statements.
The Securities and Exchange Commission has issued Staff
Accounting Bulletin ("SAB") No. 101 which addresses principles of
revenue recognition. The Company is currently evaluating the impact, if
any, SAB No. 101 will have on its financial statements.
9
<PAGE> 10
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS - (CONTINUED)
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.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE QUARTER ENDED JULY 31, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
METALLURG, INC. COMBINED COMBINED
("PARENT GUARANTOR NON-GUARANTOR
COMPANY") SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenues ...................... $ 41,923 $ 110,297 $ (20,012) $ 132,208
--------- --------- --------- ---------
Operating costs and expenses:
Cost of sales .................... 37,190 95,976 (19,936) 113,230
Selling, general and
administrative expenses ....... $ 1,731 3,045 9,628 -- 14,404
--------- --------- --------- --------- ---------
Total operating costs and
expenses ...................... 1,731 40,235 105,604 (19,936) 127,634
--------- --------- --------- --------- ---------
Operating (loss) income ............. (1,731) 1,688 4,693 (76) 4,574
Other income (expense):
Other income, net ............... -- 5,128 207 -- 5,335
Interest (expense) income, net ... (2,332) 291 (736) -- (2,777)
Equity in earnings of
subsidiaries .................. 8,815 2,126 -- (10,941) --
--------- --------- --------- --------- ---------
Income before income tax (benefit)
provision and minority interest .. 4,752 9,233 4,164 (11,017) 7,132
Income tax (benefit) provision ...... (533) 789 1,619 -- 1,875
--------- --------- --------- --------- ---------
Income before minority interest ..... 5,285 8,444 2,545 (11,017) 5,257
Minority interest ................... -- -- 28 -- 28
--------- --------- --------- --------- ---------
Net income .......................... 5,285 8,444 2,573 (11,017) 5,285
Other comprehensive loss:
Foreign currency translation
adjustment ..................... (2,428) (2,418) (2,428) 4,846 (2,428)
--------- --------- --------- --------- ---------
Comprehensive income ............ $ 2,857 $ 6,026 $ 145 $ (6,171) $ 2,857
========= ========= ========= ========= =========
</TABLE>
10
<PAGE> 11
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS - (CONTINUED)
7. SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE TWO QUARTERS ENDED JULY 31, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
METALLURG, INC. COMBINED COMBINED
("PARENT GUARANTOR NON-GUARANTOR
COMPANY") SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenues ...................... $ 76,878 $ 216,683 $ (37,301) $ 256,260
--------- --------- --------- ---------
Operating costs and expenses:
Cost of sales .................... 69,031 188,965 (37,465) 220,531
Selling, general and
administrative expenses ....... $ 3,066 5,656 19,394 -- 28,116
Environmental expense recovery ... -- (750) -- -- (750)
--------- --------- --------- --------- ---------
Total operating costs and
expenses ...................... 3,066 73,937 208,359 (37,465) 247,897
--------- --------- --------- --------- ---------
Operating (loss) income ............. (3,066) 2,941 8,324 164 8,363
Other (expense) income:
Other (expense) income, net ...... (4) 5,128 226 -- 5,350
Interest (expense) income, net ... (4,664) 453 (1,138) -- (5,349)
Equity in earnings of
subsidiaries .................. 11,671 3,834 -- (15,505) --
--------- --------- --------- --------- ---------
Income before income tax (benefit)
provision and minority interest .. 3,937 12,356 7,412 (15,341) 8,364
Income tax (benefit) provision ...... (993) 1,368 3,116 -- 3,491
--------- --------- --------- --------- ---------
Income before minority interest ..... 4,930 10,988 4,296 (15,341) 4,873
Minority interest ................... -- -- 57 -- 57
--------- --------- --------- --------- ---------
Net income .......................... 4,930 10,988 4,353 (15,341) 4,930
Other comprehensive loss:
Foreign currency translation
adjustment ..................... (3,126) (2,595) (3,126) 5,721 (3,126)
--------- --------- --------- --------- ---------
Comprehensive income ............ $ 1,804 $ 8,393 $ 1,227 $ (9,620) $ 1,804
========= ========= ========= ========= =========
</TABLE>
11
<PAGE> 12
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS - (CONTINUED)
7. SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET AT JULY 31, 2000 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
METALLURG, INC. COMBINED COMBINED
("PARENT GUARANTOR NON-GUARANTOR
COMPANY") SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ....... $ 43,608 $ 931 $ 13,776 $ (11,527) $ 46,788
Accounts, notes and loans
receivable, net .............. 13,415 28,640 67,166 (29,668) 79,553
Inventories ..................... -- 32,092 59,066 (1,631) 89,527
Other current assets ............ 3,046 696 11,981 (582) 15,141
--------- --------- --------- --------- ---------
Total current assets ........ 60,069 62,359 151,989 (43,408) 231,009
Investments - intergroup ........... 87,146 50,174 -- (137,320) --
Property, plant and
equipment, net .................. 874 12,405 46,046 -- 59,325
Other assets ....................... 7,371 17,466 15,342 (21,019) 19,160
--------- --------- --------- --------- ---------
Total ........................ $ 155,460 $ 142,404 $ 213,377 $(201,747) $ 309,494
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Short-term debt and current
portion of long-term debt ..... $ 23,508 $ (11,527) $ 11,981
Trade payables .................. $ 2,558 $ 26,301 45,809 (29,672) 44,996
Accrued expenses ................ 3,836 10,162 16,634 -- 30,632
Other current liabilities ....... -- 582 4,524 (582) 4,524
--------- --------- --------- --------- ---------
Total current liabilities .... 6,394 37,045 90,475 (41,781) 92,133
--------- --------- --------- --------- ---------
Long-term Liabilities:
Long-term debt .................. 100,000 -- 15,275 -- 115,275
Accrued pension liabilities ..... 81 1,700 32,381 -- 34,162
Environmental liabilities, net .. -- 28,960 1,581 -- 30,541
Other liabilities ............... 18,363 -- 8,595 (21,016) 5,942
--------- --------- --------- --------- ---------
Total long-term liabilities .. 118,444 30,660 57,832 (21,016) 185,920
--------- --------- --------- --------- ---------
Total liabilities ............ 124,838 67,705 148,307 (62,797) 278,053
--------- --------- --------- --------- ---------
Minority Interest .................. -- -- 819 -- 819
--------- --------- --------- --------- ---------
Shareholder's Equity:
Common stock .................... 50 1,227 52,191 (53,418) 50
Additional paid-in capital ...... 46,558 94,460 11,927 (106,387) 46,558
Accumulated other compre-
hensive (loss) income ........ (5,029) (3,272) 16,706 (13,434) (5,029)
Retained deficit ................ (10,957) (17,716) (16,573) 34,289 (10,957)
--------- --------- --------- --------- ---------
Total shareholder's equity ... 30,622 74,699 64,251 (138,950) 30,622
--------- --------- --------- --------- ---------
Total ........................ $ 155,460 $ 142,404 $ 213,377 $(201,747) $ 309,494
========= ========= ========= ========= =========
</TABLE>
12
<PAGE> 13
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS - (CONTINUED)
7. SUPPLEMENTAL GUARANTOR INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE TWO QUARTERS ENDED JULY 31, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
METALLURG, INC. COMBINED COMBINED
("PARENT GUARANTOR NON-GUARANTOR
COMPANY") SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH FLOWS FROM
OPERATING ACTIVITIES ................ $ (3,001) $ (3,439) $(11,524) $ (1,595) $(19,559)
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment ......................... (44) (2,371) (6,320) -- (8,735)
Proceeds from asset sales ........... 30 8,277 47 -- 8,354
Other, net .......................... 41 -- (9,392) -- (9,351)
-------- -------- -------- -------- --------
Net cash provided by (used in) investing
activities .......................... 27 5,906 (15,665) -- (9,732)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Intergroup borrowings (repayments) .. 565 (2,100) (709) 2,244 --
Net short-term borrowings ........... -- -- 12,909 (3,027) 9,882
Proceeds from long-term debt ........ -- -- 7,362 -- 7,362
Minority interest contribution ...... -- -- 676 -- 676
Intergroup dividends ................ 590 -- (590) -- --
-------- -------- -------- -------- --------
Net cash provided by (used in) financing
activities .......................... 1,155 (2,100) 19,648 (783) 17,920
-------- -------- -------- -------- --------
Effects of exchange rate changes on cash
and cash equivalents ................ -- -- (452) -- (452)
-------- -------- -------- -------- --------
Net (decrease) increase in cash and cash
equivalents ......................... (1,819) 367 (7,993) (2,378) (11,823)
Cash and cash equivalents -
beginning of period ................. 45,427 564 21,769 (9,149) 58,611
-------- -------- -------- -------- --------
Cash and cash equivalents -
end of period ....................... $ 43,608 $ 931 $ 13,776 $(11,527) $ 46,788
======== ======== ======== ======== ========
</TABLE>
13
<PAGE> 14
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS - (CONTINUED)
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 and a pre-tax gain on sale of approximately $5.1 million.
14
<PAGE> 15
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 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 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 which is associated with Safeguard International. As Metallurg
Holdings is a holding company and does not have any material operations or
assets other than the ownership of Metallurg, Inc., the following discussions of
the Company's results of operations relate to Metallurg, unless otherwise
indicated.
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 continued to improve in the U.S. and throughout
the rest of the world. U.S. steel output increased further during the second
quarter, although softness developed at the end of the quarter and has continued
through the summer. Worldwide, crude steel production has increased more than
10% compared to last year. Worldwide stainless steel output continued to grow in
a recovery that started in mid-1999. The superalloy industry continued to
improve as its customers met demand for the construction of land-based turbines
with Metallurg seeing improved demand for its chromium and related products.
Although the outlook for the aerospace sector is stable, sales to the superalloy
and titanium alloy industries for that sector began to show signs of improvement
as excess inventories built in prior years are expected to be substantially
reduced by the end of 2000, especially in Europe and Asia. Steady worldwide
growth in the aluminum industry continued. Volumes of products supplied to the
aluminum industry have continued to increase and the acquisition of the business
of Hydelko, a Norwegian producer of master alloys for the aluminum industry, has
increased the company's worldwide market share and production capabilities.
15
<PAGE> 16
RESULTS OF OPERATIONS - THE QUARTER ENDED JULY 31, 2000 COMPARED TO THE QUARTER
ENDED JULY 31, 1999
Metallurg Holdings
In the quarter ended July 31, 2000, Metallurg Holdings recognized net
income of $1.4 million, which includes the consolidation of Metallurg (income of
$5.3 million), $2.5 million of interest expense on its Senior Discount Notes and
$1.4 million of amortization of acquisition, goodwill and deferred debt issuance
costs.
In the quarter ended July 31, 1999, Metallurg Holdings recognized a net
loss of $5.9 million, which includes the consolidation of Metallurg (a loss of
$2.4 million), $2.2 million of net interest expense on its Senior Discount Notes
and $1.3 million of amortization of acquisition, goodwill and deferred debt
issuance costs.
As Metallurg Holdings is a holding company and does not have any
material operations or assets other than the ownership of Metallurg, the
following discussion of the Company's results of operations for the quarter
ended July 31, 2000 compared to the quarter ended July 31, 1999 relates to
Metallurg, unless otherwise indicated.
Metallurg
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 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.
16
<PAGE> 17
<TABLE>
<CAPTION>
Intersegment Consolidated
Shieldalloy LSM GfE EWW Other Eliminations Totals
----------- --------- --------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
QUARTER ENDED JULY 31, 2000
Total revenues ............ $ 33,075 $ 47,629 $ 25,990 $ 9,744 $ 47,462 $ (31,692) $ 132,208
Gross margins ............. 3,465 4,492 4,318 1,310 5,469 (76) 18,978
Operating income .......... 691 1,650 613 812 884 (76) 4,574
Interest income
(expense), net ........ 275 (374) (360) 8 (2,326) -- (2,777)
Income tax provision ...... 390 369 250 505 361 -- 1,875
Net income ................ 576 1,082 50 315 12,153 (8,891) 5,285
QUARTER ENDED JULY 31, 1999
Total revenues ............ $ 28,745 $ 36,128 $ 20,963 $ 8,072 $ 52,250 $ (30,106) $ 116,052
Gross margins ............. 2,430 4,315 2,081 911 4,890 660 15,287
Environmental expense
recovery .............. (5,501) -- -- -- -- -- (5,501)
Restructuring charges ..... -- -- 3,385 1,001 -- -- 4,386
Operating income (loss) ... 6,023 1,101 (4,738) (733) 23 660 2,336
Interest income
(expense), net ........ 564 8 (278) (45) (3,143) -- (2,894)
Income tax provision
(benefit) ............. 2,235 251 131 223 (1,071) -- 1,769
Net income (loss) ......... 4,336 858 (4,834) (1,001) (2,232) 519 (2,354)
</TABLE>
Total Revenues
Shieldalloy revenues were $4.3 million (15%) above the second quarter
of 1999 due primarily to increased sales volumes of products supplied to the
steel industry in the quarter ended July 31, 2000. LSM revenues were $11.5
million (32%) above the second quarter of 1999. Approximately one-half of this
increase was due to the Hydelko acquisition in March 2000. In addition, aluminum
powder sales volumes and ferrotitanium selling prices increased in the second
quarter of 2000. GfE revenues were $5.0 million (24%) above 1999 due primarily
to higher selling prices of nickel-based products and increased sales volumes of
columbium and vanadium based products. EWW revenues were $1.7 million (21%)
above the second quarter of 1999 due to increased sales volumes of low carbon
ferrochrome.
Gross Margins
Gross margins increased from $15.3 million in the quarter ended July
31, 1999 to $19.0 million in the quarter ended July 31, 2000, an increase of
24%, due principally to improved profitability in vanadium products, low carbon
ferrochrome and tantalum products. Increased production volumes and lower
production costs resulting from restructuring activities implemented in the
second half of 1999 also contributed to the improved gross margins.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") increased from
$14.1 million in the quarter ended July 31, 1999 to $14.4 million in the quarter
ended July 31, 2000. Reduced compensation costs following reductions in staffing
were offset by increased outside professional fee expenses. For the quarter
ended July 31, 2000, SG&A represented 10.9% of Metallurg's sales compared to
12.1% for the quarter ended July 31, 1999.
Operating Income
Operating income of $4.6 million in the quarter ended July 31, 2000
reflects a significant improvement as compared to $2.3 million in the quarter
ended July 31, 1999, due primarily to the increase in gross margins, discussed
above. Additionally, 1999 included income of $5.5 million relating to an
environmental expense recovery and $4.4 million of restructuring charges
relating to Metallurg's German operations.
17
<PAGE> 18
Interest Expense, Net
Interest expense, net, is as follows (in thousands):
<TABLE>
<CAPTION>
Quarter Ended
July 31,
-------------------
2000 1999
------- -------
<S> <C> <C>
Interest income .......... $ 883 $ 995
Interest expense ......... (3,660) (3,889)
------- -------
Interest expense, net.. $(2,777) $(2,894)
======= =======
</TABLE>
Income Tax Provision
Income tax provision, net of tax benefits, is as follows (in
thousands):
<TABLE>
<CAPTION>
Quarter Ended
July 31,
----------------
2000 1999
------ ------
<S> <C> <C>
Total current ................ $1,093 $1,249
Total deferred ............... 782 520
------ ------
Income tax provision, net.. $1,875 $1,769
====== ======
</TABLE>
The differences between the statutory Federal income tax rate and the
Company's effective rate result primarily because of: (i) the excess of foreign
tax rates over the statutory Federal income tax rate; (ii) certain deductible
temporary differences which, in other circumstances would have generated a
deferred tax benefit, have been fully provided for in a valuation allowance;
(iii) the deferred tax effects of certain tax assets, primarily foreign net
operating losses, for which the benefit had been previously recognized
approximating $0.5 million in the quarter ended July 31, 2000; and (iv) the
deferred tax effects of certain deferred tax assets for which a corresponding
credit has been recorded to "Additional paid-in capital" approximating $0.2
million in the quarter ended July 31, 2000. The deferred tax expenses referred
to in items (iii) and (iv) above will not result in cash payments in future
periods.
Net Income
Metallurg recognized net income of $5.3 million for the quarter ended
July 31, 2000 compared to a net loss of $2.4 million for the quarter ended July
31, 1999. The improvement in 2000 resulted primarily from increased gross
margins and a pre-tax gain of approximately $5.1 million upon the sale of a
minority interest in SMW, a Russian magnesium metal producer.
18
<PAGE> 19
RESULTS OF OPERATIONS - THE TWO QUARTERS ENDED JULY 31, 2000 COMPARED TO THE
TWO QUARTERS ENDED JULY 31, 1999
Metallurg Holdings
In the two quarters ended July 31, 2000, Metallurg Holdings recognized
a net loss of $2.8 million, which includes the consolidation of Metallurg
(income of $4.9 million), $5.0 million of interest expense on its Senior
Discount Notes and $2.7 million of amortization of acquisition, goodwill and
deferred debt issuance costs.
In the two quarters ended July 31, 1999, Metallurg Holdings recognized
a net loss of $18.0 million, which includes the consolidation of Metallurg (a
loss of $10.9 million), $4.4 million of net interest expense on its Senior
Discount Notes and $2.7 million of amortization of acquisition, goodwill and
deferred debt issuance costs.
As Metallurg Holdings is a holding company and does not have any
material operations or assets other than the ownership of Metallurg, the
following discussion of the Company's results of operations for the two quarters
ended July 31, 2000 compared to the two quarters ended July 31, 1999 relates to
Metallurg, unless otherwise indicated.
Metallurg
<TABLE>
<CAPTION>
Intersegment Consolidated
Shieldalloy LSM GfE EWW Other Eliminations Totals
----------- --------- --------- --------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
TWO QUARTERS ENDED JULY 31, 2000
Total revenues ................. $ 61,110 $ 89,528 $ 50,188 $ 18,785 $ 95,042 $ (58,393) $ 256,260
Gross margins .................. 5,933 9,491 7,675 2,369 10,097 164 35,729
Environmental expense
recovery ..................... (750) -- -- -- -- -- (750)
Operating income ............... 1,599 3,725 367 1,250 1,258 164 8,363
Interest income
(expense), net ............... 567 (454) (663) 13 (4,812) -- (5,349)
Income tax provision ........... 882 1,010 373 701 525 -- 3,491
Net income (loss) .............. 1,284 2,431 (593) 562 12,753 (11,507) 4,930
TWO QUARTERS ENDED JULY 31, 1999
Total revenues ................. $ 61,486 $ 71,736 $ 44,565 $ 16,799 $ 99,438 $ (60,159) $ 233,865
Gross margins .................. (205) 8,295 4,679 2,125 9,667 500 25,061
Environmental expense
recovery ..................... (5,501) -- -- -- -- -- (5,501)
Restructuring charges .......... -- -- 3,385 1,001 -- -- 4,386
Operating income (loss) ........ 1,215 1,735 (5,604) (244) 100 500 (2,298)
Interest income
(expense), net ............... 992 16 (555) (84) (6,229) -- (5,860)
Income tax provision ........... 566 507 272 449 951 -- 2,745
Net income (loss) .............. 1,632 1,244 (5,917) (777) (10,425) 3,345 (10,898)
</TABLE>
19
<PAGE> 20
Total Revenues
Shieldalloy revenues were virtually unchanged in the current year from
the first two quarters of 1999. Increased sales volumes of ferrocolumbium were
offset by lower sales volumes of ferrosilicon and lower selling prices of
chromium metal and low carbon ferrochrome. LSM revenues were $17.8 million (25%)
above the first two quarters of 1999. Approximately $5.5 million of the increase
resulted from the acquisition of Hydelko on March 31, 2000. In addition,
aluminum powder sales volumes and ferrotitanium selling prices increased in
2000. GfE revenues were $5.6 million (13%) above 1999 due primarily to increased
selling prices of nickel-based products and increased sales volumes of columbium
and vanadium based products. EWW revenues were $2.0 million (12%) higher in the
current year than in the first two quarters of 1999 due primarily to increased
sales volumes of low carbon ferrochrome.
Gross Margins
Gross margins increased from $25.1 million in the two quarters ended
July 31, 1999 to $35.7 million in the two quarters ended July 31, 2000, an
increase of 43%, due principally to improved profitability in ferrovanadium, low
carbon ferrochrome and tantalum products. In the first quarter of 1999,
Shieldalloy recognized a lower of cost or market adjustment of $3.6 million
related to ferrovanadium. Increased production volumes and lower production
costs resulting from restructuring activities implemented in the second half of
1999 also contributed to the increased gross margins in the current year.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") decreased from
$28.5 million in the two quarters ended July 31, 1999 to $28.1 million in the
two quarters ended July 31, 2000. Reduced compensation costs following
reductions in staffing were partially offset by increased outside professional
fee expenses. For the two quarters ended July 31, 2000, SG&A represented 11.0%
of Metallurg's sales compared to 12.2% for the two quarters ended July 31, 1999.
Operating Income
Operating income of $8.4 million in the two quarters ended July 31,
2000 reflects a significant improvement as compared to a loss of $2.3 million in
the two quarters ended July 31, 1999, due primarily to the increase in gross
margins, discussed above.
Interest Expense, Net
Interest expense, net, is as follows (in thousands):
<TABLE>
<CAPTION>
Two Quarters Ended
July 31,
---------------------
2000 1999
------- -------
<S> <C> <C>
Interest income .......... $ 1,663 $ 1,487
Interest expense ......... (7,012) (7,347)
------- -------
Interest expense, net.. $(5,349) $(5,860)
======= =======
</TABLE>
20
<PAGE> 21
Income Tax Provision
Income tax provision, net of tax benefits, is as follows (in
thousands):
<TABLE>
<CAPTION>
Two Quarters Ended
July 31,
------------------
2000 1999
------ ------
<S> <C> <C>
Total current ................ $2,137 $1,645
Total deferred ............... 1,354 1,100
------ ------
Income tax provision, net.. $3,491 $2,745
====== ======
</TABLE>
The differences between the statutory Federal income tax rate and the
Company's effective rate result primarily because of: (i) the excess of foreign
tax rates over the statutory Federal income tax rate; (ii) certain deductible
temporary differences which, in other circumstances would have generated a
deferred tax benefit, have been fully provided for in a valuation allowance;
(iii) the deferred tax effects of certain tax assets, primarily foreign net
operating losses, for which the benefit had been previously recognized
approximating $0.7 million in the two quarters ended July 31, 2000; and (iv) the
deferred tax effects of certain deferred tax assets for which a corresponding
credit has been recorded to "Additional paid-in capital" approximating $0.4
million in the two quarters ended July 31, 2000. The deferred tax expenses
referred to in items (iii) and (iv) above will not result in cash payments in
future periods.
Net Income
Metallurg recognized net income of $4.9 million for the two quarters
ended July 31, 2000 compared to a net loss of $10.9 million for the two quarters
ended July 31, 1999. The improvement in 2000 resulted primarily from increased
gross margins and the gain on sale of SMW.
LIQUIDITY AND FINANCIAL RESOURCES
General
The Company's sources of liquidity include cash from operations and
amounts available under credit facilities. In addition, the Company had $47.8
million of cash and cash equivalents at July 31, 2000. The Company believes that
these sources, together with cash and cash equivalents at July 31, 2000, are
sufficient to fund the current and anticipated future requirements through at
least January 31, 2001.
At July 31, 2000, the Company had working capital of $140.1 million, as
compared to $137.2 million at January 31, 2000. For the first two quarters of
2000, the Company's use of $19.8 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. On March 31, 2000, LSM acquired the business of Hydelko 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 DM 20.5 million
(approximately $10.0 million) of financing to certain of
21
<PAGE> 22
Metallurg's German subsidiaries, which is guaranteed by Metallurg, Inc. and the
other U.S. borrowers under the Revolving Credit Facility. At July 31, 2000, $1.6
million of loans were outstanding in Germany and $23.7 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 July 31, 2000, there
were $9.2 million of outstanding loans under these local credit facilities.
CAPITAL EXPENDITURES
Metallurg invested $8.7 million in capital expenditures during the
first two quarters of 2000. Capital expenditures are expected to total
approximately $25 million in 2000. Although Metallurg has budgeted these items
in 2000, some projects remain contingent on senior management approval and the
actual timing of expenditure may extend into 2001. 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 half of 2000, Metallurg
expended $1.0 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 July 31, 2000, had a remaining estimated cost of completion of $34.0
million. Of this amount, an immaterial amount is expected to be expended in the
second half of 2000, $5.6 million in 2001 and $8.4 million in 2002. In addition,
Metallurg estimates it will make expenditures of $3.3 million with respect to
environmental remediation at its foreign facilities. Of this amount,
approximately $0.3 million is expected to be expended in the second half of 2000
and $0.5 million in 2001.
22
<PAGE> 23
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 the Company's annual report on Form 10-K for the year
ended January 31, 2000, which is incorporated by reference herein.
23
<PAGE> 24
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
24
<PAGE> 25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on September 13, 2000 on
its behalf by the undersigned thereunto duly authorized.
METALLURG HOLDINGS, INC.
/s/ ARTHUR R. SPECTOR
--------------------------------------
Arthur R. Spector
Executive Vice President
(Principal Financial Officer and
Principal Accounting Officer)
25
