<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
COMMISSION FILE NUMBER 33-68230
RENCO METALS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3724916
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
238 NORTH 2200 WEST
SALT LAKE CITY, UTAH 84116
(Address of principal executive offices) (Zip Code)
(801) 532-2043
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 proceeding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
[X] YES [ ] NO
Number of shares outstanding of each of the registrant's classes of common
stock, as of May 24, 1996:
COMMON STOCK, NO PAR VALUE 1,000 SHARES
<PAGE>
FORM 10-Q
RENCO METALS, INC.
QUARTER ENDED APRIL 30, 1996
TABLE OF CONTENTS
PAGE NO.
--------
TABLE OF CONTENTS 2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS - APRIL 30, 1996 AND
OCTOBER 31, 1995 3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - SIX AND
THREE MONTHS ENDED APRIL 30, 1996 AND 1995 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - SIX
MONTHS ENDED APRIL 30, 1996 AND 1995 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
PART II - OTHER INFORMATION
ITEM 5 - OTHER INFORMATION 9
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 10
SIGNATURES 11
-2-
<PAGE>
RENCO METALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 30, October 31,
1996 1995
Assets (UNAUDITED) (Audited)
------ ----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 32,007 $ 30,091
Accounts receivable, less allowance for doubtful accounts of
$570 in 1996 and $514 in 1995 27,710 27,854
Inventories, net (note 2) 24,293 21,631
Prepaid expenses and other current assets 1,377 1,376
----------- -----------
Total current assets 85,387 80,952
----------- -----------
Property, plant, and equipment, net 33,680 32,014
Other assets, net 3,234 3,585
----------- -----------
$ 122,301 $ 116,551
----------- -----------
----------- -----------
Liabilities and Stockholder's Equity
------------------------------------
Current liabilities:
Accounts payable $ 6,394 $ 7,511
Accrued expenses 14,216 14,327
Other current liabilities 260 234
----------- -----------
Total current liabilities 20,870 22,072
----------- -----------
Long-term debt 77,505 77,997
Other liabilities 12,103 11,722
----------- -----------
Total liabilities 110,478 111,791
----------- -----------
Stockholder's equity:
10% preferred stock, $1,000 par value. Authorized, issued,
and outstanding 8,500 shares 8,500 8,500
Common stock, no par value. Authorized, issued, and
outstanding 1,000 shares 1 1
Additional paid-in capital 500 500
Retained earnings (accumulated deficit) 3,035 (4,028)
Minimum pension liability adjustment (213) (213)
----------- -----------
Total stockholder's equity 11,823 4,760
Commitments and contingencies
----------- -----------
$ 122,301 $ 116,551
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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<PAGE>
RENCO METALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS THREE MONTHS
ENDED APRIL 30, ENDED APRIL 30,
------------------------------- -------------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 99,110 $ 87,681 $ 50,739 $ 45,409
Costs and expenses:
Cost of sales 56,238 58,900 28,925 30,596
Depreciation, depletion, and amortization 3,369 2,878 1,689 1,439
Selling, general, and administrative expenses 8,967 8,898 4,744 4,544
----------- ----------- ----------- -----------
Total costs and expenses 68,574 70,676 35,358 36,579
----------- ----------- ----------- -----------
Income from operations 30,536 17,005 15,381 8,830
Other income (expense):
Interest income 830 210 364 138
Interest expense (5,034) (5,056) (2,514) (2,527)
----------- ----------- ----------- -----------
Total other income (expense) (4,204) (4,846) (2,150) (2,389)
Income before income taxes 26,332 12,159 13,231 6,441
Provision for income taxes 9,447 5,000 4,641 2,695
----------- ----------- ----------- -----------
Net income $ 16,885 $ 7,159 $ 8,590 $ 3,746
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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<PAGE>
RENCO METALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED APRIL 30,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Net cash provided by operating activities: $ 17,302 $ 9,580
----------- -----------
Cash flows from investing activities:
Capital expenditures (5,022) (3,352)
----------- -----------
Net cash used in investing activities (5,022) (3,352)
----------- -----------
Cash flows from financing activities:
Net repayments under revolving credit agreements (484) (1,199)
Long-term borrowings - 500
Repayment of long-term debt (8) (1)
Dividends (9,822) -
Other (50) -
----------- -----------
Net cash used in financing activities (10,364) (700)
----------- -----------
Increase in cash and cash equivalents 1,916 5,528
Cash and cash equivalents, beginning of period 30,091 7,881
----------- -----------
Cash and cash equivalents, end of period $ 32,007 $ 13,409
----------- -----------
----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 4,648 $ 4,657
Cash paid during the period for income taxes $ 9,346 $ 3,132
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-5-
<PAGE>
RENCO METALS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands)
(1) BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared from the accounting records of Renco Metals, Inc. (Renco Metals)
and its subsidiaries, Magnesium Corporation of America (Magcorp), and Sabel
Industries, Inc. (Sabel), without audit (except where presented data is
specifically identified as audited) pursuant to the rules and regulations
of the Securities and Exchange Commission. The financial statements
reflect all adjustments (consisting solely of normal recurring adjustments)
which are, in the opinion of management, necessary for a fair statement of
results for the interim periods presented. The results of operations for
the interim periods presented are not necessarily indicative of the results
to be expected for the full year.
Renco Metals is a holding company that has no independent operations, and
its only assets are cash and its investments in Magcorp and Sabel. Renco
Metals, senior notes are unconditionally and fully guaranteed, jointly and
severally, by both of its subsidiaries, Magcorp and Sabel (the Guarantors).
Separate financial statements of the Guarantors are not presented because,
in management's opinion, such financial statements would not be material to
investors. Summarized financial information on the combined Guarantors is
presented below:
SUMMARIZED COMBINED GUARANTOR FINANCIAL INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS THREE MONTHS
ENDED APRIL 30, ENDED APRIL 30,
(UNAUDITED) (UNAUDITED)
-------------------------- --------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Statement of operations data:
Net sales $ 99,110 $ 87,681 $ 50,739 $ 45,409
Cost of sales $ 56,328 $ 58,900 $ 28,925 $ 30,596
Net income $ 16,817 $ 7,053 $ 8,543 $ 3,697
<CAPTION>
APRIL 30, OCTOBER 31,
1996 1995
(UNAUDITED) (AUDITED)
----------- -----------
<S> <C> <C>
Balance sheet data:
Current assets $ 79,529 $ 75,163
Noncurrent assets $ 36,914 $ 35,599
Current liabilities $ 18,232 $ 19,434
Noncurrent liabilities $ 14,608 $ 14,719
</TABLE>
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<PAGE>
RENCO METALS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands)
(2) INVENTORIES
Inventories consist of the following:
APRIL 30, OCTOBER 31,
1996 1995
(UNAUDITED) (AUDITED)
------------- -------------
Finished goods $ 14,800 $ 12,600
Brine in ponds 2,126 2,677
Spare parts and supplies 6,759 5,897
Raw materials and work-in-process 908 798
------------- -------------
24,593 21,972
Less LIFO reserve 300 341
------------- -------------
$ 24,293 $ 21,631
------------- -------------
------------- -------------
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS - SIX MONTHS ENDED APRIL 30, 1996 COMPARED TO SIX MONTHS
ENDED APRIL 30, 1995
SALES for the six month period ended April 30, 1996 increased 13.0 percent over
the prior period. The increase was attributable to a 23.1 percent increase in
Magcorp's revenues, which was offset by a 12.1 percent decrease in Sabel's
revenues. Magcorp's magnesium shipments increased 1.3 percent and average
selling price increased 21.4 percent. Both selling price and sales volume were
impacted by favorable demand trends in the magnesium market. Magnesium pricing
and volume are dependent on the overall market supply and demand, and there is
no assurance that the current favorable trends will continue. Sabel's sales
decrease was due to a general weakening of prices and volume throughout all the
steel markets in which Sabel operates.
COST OF SALES for the six month period ended April 30, 1996 decreased 4.5
percent despite higher sales levels. Magcorp's cost of sales decreased 0.3
percent primarily due to decreases in certain energy costs when compared to the
corresponding period in 1995. Magcorp's cost of sales is highly sensitive to
acquired energy costs and levels of production; unit costs will increase as
production levels decrease. The cost of sales at Sabel decreased 15.7 percent,
which percentage is higher than the sales decrease discussed above due to lower
cost of goods purchased for resale in the current period.
DEPRECIATION, DEPLETION, AND AMORTIZATION for the six month period ended April
30, 1996 increased primarily due to increased depreciation of plant and
equipment as the result of recent capital equipment additions.
INTEREST INCOME for the six month period ended April 30, 1996 increased $0.6
million due to cash and cash equivalent balances on hand that increased to an
average of $31.0 million in the current period from an average of $10.6 million
in the corresponding prior period.
INCOME TAX EXPENSE was 35.9 percent and 41.1 percent of pre-tax earnings for the
six month period ended April 30, 1996 and 1995, respectively. The primary
difference in the effective rate is attributable to depletion credits allowable
for Magcorp's operations in profitable fiscal years, which were not included in
the income tax provision for the period ended April 30, 1995 due to
uncertainties at that date regarding eligibility for such credits for the full
fiscal year.
RESULTS OF OPERATIONS - THREE MONTHS ENDED APRIL 30, 1996 COMPARED TO THREE
MONTHS ENDED APRIL 30, 1995
SALES for the three month period ended April 30, 1996 increased 11.7 percent
over the prior period. The increase was attributable to a 21.8 percent increase
in Magcorp's revenues, which was offset by a 12.8 percent decrease in Sabel's
revenues. Magcorp's magnesium shipments increased 0.4 percent and average
selling price increased 20.4 percent. Both selling price and sales volume were
impacted by favorable demand trends in the magnesium market. Magnesium pricing
and volume are dependent on the overall market supply and demand, and there is
no assurance that the current favorable trends will continue. Sabel's sales
decrease was due to a general weakening of prices and volume throughout all the
steel markets in which Sabel operates.
COST OF SALES for the three month period ended April 30, 1996 decreased 5.5
percent despite higher sales levels. Magcorp's cost of sales remained
relatively constant despite higher sales levels, primarily due to decreases in
certain energy costs when compared to the corresponding period in 1995.
Magcorp's cost of sales is highly sensitive to acquired energy costs and levels
of production; unit costs will increase as production levels decrease. The cost
of sales at Sabel decreased 18.1 percent, which percentage is higher than the
sales decrease discussed above due to lower cost of goods purchased for resale
in the current period.
DEPRECIATION, DEPLETION, AND AMORTIZATION for the three month period ended April
30, 1996 increased primarily due to increased depreciation of plant and
equipment as the result of recent capital equipment additions.
-8-
<PAGE>
SELLING, GENERAL, AND ADMINISTRATIVE for the three month period ended April 30,
1996 increased 4.4 percent due to accruals directly related to Magcorp's
profitability.
INTEREST INCOME for the three month period ended April 30, 1996 increased $0.2
million due to cash and cash equivalent balances on hand that increased to an
average of $30.6 million in the current period from an average of $10.8 million
in the corresponding prior period.
INCOME TAX EXPENSE was 35.0 percent and 41.8 percent of pre-tax earnings for the
three month period ended April 30, 1996 and 1995, respectively. The primary
difference in the effective rate is attributable to depletion credits allowable
for Magcorp's operations in profitable fiscal years, which were not included in
the income tax provision for the period ended April 30, 1995 due to
uncertainties at that date regarding eligibility for such credits for the full
fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs arise from working capital requirements, capital
investments, dividend payments, and interest payment obligations. The Company's
primary available source of liquidity is from cash provided by operating
activities. The Company also has available a $23.0 million in revolving credit
facilities that provide for advances by the lender based on specified
percentages of eligible accounts receivable, supplies inventories, and finished
goods inventories to a maximum of $20.0 million for Magcorp and $3.0 million for
Sabel, net of outstanding letters of credit. As of April 30, 1996, the unused
amounts available to Magcorp and Sabel were approximately $18.4 million and $1.0
million, respectively.
In the six month period ended April 30, 1996, $17.3 million was provided by
operating activities, of which $5.0 million was used in investing activities,
and $10.4 million was used in financing activities (primarily dividends to the
Company's sole shareholder), resulting in a net increase in cash for the period
of $1.9 million. As of April 30, 1996, the Company has budgeted approximately
$11 million for capital expenditures over the remaining six months of the fiscal
year. The Company has budgeted approximately $17 million, $26 million, and $19
million for capital expenditures for fiscal 1997, 1998, and 1999, respectively,
of which an estimated $40 million is related to magnesium process enhancements
that will also improve environmental compliance.
Subsequent to the Company's April 30, 1996 fiscal quarter end, the Board of
Directors on May 15, 1996 declared dividends totaling $4.1 million, which were
paid May 16, 1996 on all outstanding shares to its sole shareholder. The
declaration and payment of dividends by the Company are restricted by the
Company's long-term debt agreements, which generally allow dividends up to
50 percent of consolidated net income. Based on profitability and after taking
into account the Company's prospects and liquidity needs, the Company plans to
pay quarterly dividends to the extent allowed by the Company's long-term debt
agreements. Management anticipates that existing cash balances and cash
generated from operations, particularly in light of current favorable magnesium
pricing trends, and available revolving credit facilities will be sufficient to
finance the Company's liquidity needs for the foreseeable future.
PART II- OTHER INFORMATION
ITEM 5 - OTHER INFORMATION
On May 24, 1996, the Company issued an Offer to Purchase and Consent
Solicitation with respect to its $75.0 million outstanding principal amount of
12% Senior Notes due 2000, soliciting tenders of such Notes at 111 percent of
their principal amount plus accrued interest for purchase by the Company, and
consents to amendments of the Indenture dated August 1, 1993 under which such
Notes were issued. On May 24, 1996, the Company also filed a Registration
Statement on Form S-1 with the Securities and Exchange Commission under the
Securities Act of 1933 with respect to a proposed public offering of $150.0
million in principal amount of its ____% Senior Notes due 2003, to be guaranteed
by its subsidiaries, Magcorp and Sabel.
-9-
<PAGE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Method of Filing
------- ----------------
27. Financial Data Schedules Filed herewith electronically
(b) No reports on Form 8-K were filed during the quarter for which this report
is filed.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RENCO METALS, INC.
(Registrant)
May 28, 1996 /s/ Ira Leon Rennert
- ------------------------ --------------------------------------
Date Ira Leon Rennert
Chairman of the Board and
Principal Executive Officer
May 28, 1996 /s/ Roger L. Fay
- ------------------------ --------------------------------------
Date Roger L. Fay
Vice President - Finance
Principal Financial and
Accounting Officer
-11-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1995
<PERIOD-END> APR-30-1996
<CASH> 32,007
<SECURITIES> 0
<RECEIVABLES> 28,280
<ALLOWANCES> 570
<INVENTORY> 24,293
<CURRENT-ASSETS> 85,387
<PP&E> 67,636
<DEPRECIATION> 33,956
<TOTAL-ASSETS> 122,301
<CURRENT-LIABILITIES> 20,870
<BONDS> 77,505
0
8,500
<COMMON> 1
<OTHER-SE> 3,322
<TOTAL-LIABILITY-AND-EQUITY> 122,301
<SALES> 99,110
<TOTAL-REVENUES> 99,110
<CGS> 56,238
<TOTAL-COSTS> 68,574
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 56
<INTEREST-EXPENSE> 5,034
<INCOME-PRETAX> 26,332
<INCOME-TAX> 9,447
<INCOME-CONTINUING> 16,885
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,885
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
