<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 JULY 31, 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 NUMBERS 033-68230, 333-4513
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 August 30, 1996:
COMMON STOCK, NO PAR VALUE 1,000 SHARES
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FORM 10-Q
RENCO METALS, INC.
QUARTER ENDED JULY 31, 1996
TABLE OF CONTENTS
PAGE NO.
TABLE OF CONTENTS 2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS - JULY 31, 1996
AND OCTOBER 31, 1995 3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS -
NINE AND THREE MONTHS ENDED JULY 31, 1996 AND 1995 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS -
NINE MONTHS ENDED JULY 31, 1996 AND 1995 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 9
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES 12
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RENCO METALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
JULY 31, OCTOBER 31,
1996 1995
ASSETS (UNAUDITED) (AUDITED)
----------- -----------
Current assets:
Cash and cash equivalents $ 10,084 $ 30,091
Accounts receivable, less allowance for
doubtful accounts of $600 in 1996 and
$514 in 1995 24,765 27,854
Inventories, net (note 2) 26,784 21,631
Prepaid expenses and other current assets 4,653 1,376
----------- -----------
Total current assets 66,286 80,952
----------- -----------
Property, plant, and equipment, net 35,049 32,014
Other assets, net 7,149 3,585
----------- -----------
$ 108,484 $ 116,551
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 6,324 $ 7,511
Accrued expenses 14,640 14,327
Other current liabilities 220 234
----------- -----------
Total current liabilities 21,184 22,072
----------- -----------
Long-term debt (note 3) 154,531 77,997
Other liabilities 11,530 11,722
----------- -----------
Total liabilities 187,245 111,791
----------- -----------
Stockholder's equity (deficit):
10% preferred stock, $1,000 par value.
Authorized 8,500 shares; issued and
outstanding, no shares in 1996 and
8,500 shares in 1995 - 8,500
Common stock, no par value. Authorized,
issued, and outstanding 1,000 shares 1 1
Additional paid-in capital 500 500
Accumulated deficit (79,049) (4,028)
Minimum pension liability adjustment (213) (213)
----------- -----------
Total stockholder's equity (deficit) (78,761) 4,760
Commitments and contingencies
----------- -----------
$ 108,484 $ 116,551
----------- -----------
----------- -----------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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RENCO METALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
NINE MONTHS THREE MONTHS
ENDED JULY 31, ENDED JULY 31,
------------------- -------------------
1996 1995 1996 1995
SALES $ 147,125 $ 135,475 $ 48,015 $ 47,794
--------- --------- -------- --------
Costs and expenses:
Cost of sales 84,512 89,548 28,274 30,648
Depreciation, depletion, and
amortization 4,986 4,316 1,617 1,438
Selling, general, and
administrative expenses 17,488 13,387 8,521 4,489
--------- --------- -------- --------
Total costs and expenses 106,986 107,251 38,412 36,575
--------- --------- -------- --------
Income from operations 40,139 28,224 9,603 11,219
Other income (expense):
Interest income 1,157 500 327 290
Interest expense (8,348) (7,601) (3,314) (2,545)
--------- --------- -------- --------
Total other income (expense) (7,191) (7,101) (2,987) (2,255)
Income before income taxes
and extraordinary item 32,948 21,123 6,616 8,964
Provision for income taxes 11,735 7,800 2,288 2,800
--------- --------- -------- --------
Income before extraordinary
item 21,213 13,323 4,328 6,164
Extraordinary item (less applicable
income tax benefit of $4,559
(note 3)) (7,284) - (7,284) -
--------- --------- -------- --------
Net income (loss) $ 13,929 $ 13,323 $ (2,956) $ 6,164
--------- --------- -------- --------
--------- --------- -------- --------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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RENCO METALS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(dollars in thousands)
NINE MONTHS
ENDED JULY 31,
----------------------
1996 1995
---------- ---------
Net cash provided by operating activities $ 15,583 $ 17,495
---------- ---------
Cash flows from investing activities -
Capital expenditures, net (7,994) (4,745)
---------- ---------
Net cash used in investing activities (7,994) (4,745)
---------- ---------
Cash flows from financing activities:
Net borrowings (repayments) under revolving
credit agreements 46 (507)
Repayment of long-term debt (73,512) (5)
Payment of debt origination and financing fees (6,680) -
Borrowings of long-term debt 150,000 500
Redemption of preferred stock (8,500) -
Dividends (88,950) -
Net cash used in financing activities (27,596) (12)
---------- ---------
Increase (decrease) in cash and cash equivalents (20,007) 12,73
Cash and cash equivalents, beginning of period 30,091 7,881
---------- ---------
Cash and cash equivalents, end of period $ 10,084 $ 20,619
---------- ---------
---------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 8,943 $ 9,272
Cash paid during the period for income taxes $ 9,210 $ 5,318
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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RENCO METALS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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. Renco Metals is a 100 percent
owned subsidiary of The Renco Group, Inc. (Group). 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' senior notes are unconditionally and fully guaranteed,
jointly and severally, by both of its subsidiaries, Magcorp and Sabel (the
Guarantors), each of which is wholly-owned. Separate financial statements
of the Guarantors are not presented because, in management's opinion, such
financial statements would not be material to investors because Renco
Metals is a holding company with no independent operations and its only
assets are cash and its investment in Magcorp and Sabel. Summarized
financial information on the combined Guarantors is presented below:
SUMMARIZED COMBINED GUARANTOR FINANCIAL INFORMATION
Nine months Three months
Ended July 31, Ended July 31,
(Unaudited) (Unaudited)
-------------------- -------------------
1996 1995 1996 1995
-------------------- -------------------
(dollars in thousands)
Statement of operations data:
Net sales $ 147,125 $ 135,475 $ 48,015 $ 47,794
Cost of sales $ 84,512 $ 88,537 $ 28,274 $ 30,311
Income before extraordinary item $ 21,102 $ 13,159 $ 4,285 $ 6,106
Net income (loss) $ 13,818 $ 13,159 $ (2,999) $ 6,106
JULY 31, OCTOBER 31,
1996 1995
(UNAUDITED) (Audited)
---------- ----------
(dollars in thousands)
Balance sheet data:
Current assets $ 63,009 $ 75,163
Noncurrent assets $ 42,198 $ 35,599
Current liabilities $ 18,508 $ 19,434
Noncurrent liabilities $ 14,561 $ 14,719
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RENCO METALS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(2) INVENTORIES
Inventories consist of the following:
JULY 31, October 31,
1996 1995
(UNAUDITED) (Audited)
----------- ----------
(dollars in thousands)
Finished goods $ 17,068 $ 12,600
Brine in ponds 2,321 2,677
Spare parts and supplies 6,867 5,897
Raw materials and work-in-process 828 798
----------- ----------
27,084 21,972
Less LIFO reserve 300 341
----------- ----------
$ 26,784 $ 21,631
----------- ----------
----------- ----------
(3) LONG-TERM DEBT
Long-term debt consists of the following:
JULY 31, October 31,
1996 1995
(UNAUDITED) (Audited)
----------- ----------
(dollars in thousands)
For Renco Metals:
11 1/2% senior notes (a) $ 150,000 $ -
12% senior notes (b) 1,500 75,000
For Magcorp:
Revolving credit facility (c) - -
For Sabel:
Revolving credit facility (c) 2,568 2,522
9.7% mortgage note 479 490
----------- ----------
154,547 78,012
Less current installments 16 15
----------- ----------
$ 154,531 $ 77,997
----------- ----------
----------- ----------
The aggregate maturities of long-term debt for each of the twelve-month
periods subsequent to July 31, 1996 are as follows: 1997, $16,000; 1998,
$20,000; 1999, $2.591 million; 2000, $1.92 million; 2001, $0, and
thereafter, $150 million.
(a) 11 1/2% SENIOR NOTES
In July 1996, Renco Metals issued $150 million aggregate principal amount
of 11 1/2 percent senior notes (the Notes) due July 1, 2003. The Notes
were registered under the Securities Act of 1933, as amended, effective
June 27, 1996. Proceeds from the issuance of the Notes together with
available cash were used to: (i) retire $73.5 million of the existing $75
million 12 percent senior notes due 2000 (Old Notes) at a rate of $1,127.50
per $1,000 principal outstanding plus accrued interest pursuant to a tender
offer and consent solicitation, (ii) redeem all of the existing 10 percent
preferred stock, held by Group, with a par value of $8.5 million, (iii)
pay a dividend to Group in the amount of $75.03 million, (iv) pay certain
contractual compensation payments totaling $5.25 million related to the
dividend to certain executives of Magcorp, and (v) pay related fees and
expenses. An extraordinary charge of $7.28 million (net of income tax
benefit of $4.56 million) was incurred as a result of the early
extinguishment of Old Notes.
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RENCO METALS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(3) LONG-TERM DEBT (CONTINUED)
The Notes are general unsecured obligations of Renco Metals, and are
unconditionally and fully guaranteed, jointly and severally, by the
Guarantors. Secured indebtedness of Renco Metals and the Guarantors,
including borrowings under the Revolving Credit Facilities described below,
is senior in right of payments to the Notes with respect to the assets
securing such indebtedness. Interest on the Notes is payable semiannually
on January 1 and July 1 of each year, commencing January 1, 1997.
Except under certain circumstances defined in the indenture governing the
Notes, the Notes are not redeemable prior to July 1, 2000. Thereafter, the
Notes are redeemable, in whole or in part, at the option of Renco Metals,
at redemption prices,ranging from 105.75 percent to 100 percent of the
principal amount, depending on the date of redemption. The indenture
governing the Notes contains certain covenants that, among others, limit
the type and amount of additional indebtedness that may be incurred by
Renco Metals and impose limitations on investments, loans, advances, the
payment of dividends and the making of certain other payments, the creation
of liens, certain transactions with affiliates, and certain mergers.
(b) 12% SENIOR NOTES ("OLD NOTES")
Concurrent with the issuance of the 11 1/2 percent Notes described
above, Renco Metals purchased $73.5 million of the $75 million aggregate
principal amount of Old Notes through a tender offer and consent
solicitation, and amendments to the indenture governing the Old Notes
were executed, leaving $1.5 million of Old Notes remaining outstanding.
The amendments to the indenture involved deletion of a number of
covenants to facilitate issuance of the new 11 1/2 percent Notes. The
Old Notes are due July 15, 2000, are general unsecured obligations of
Renco Metals, are unconditionally and fully guaranteed, jointly and
severally, by the Guarantors, and have the same rank in right of payment
with other senior indebtedness of Renco Metals. On or after July 15,
1998, Renco Metals may, subject to certain conditions, redeem any or all
of the remaining $1.5 million Old Notes at 104 percent of the principal
amount thereof, declining to 100 percent for redemptions on or after
July 15, 1999 (in each case, together with accrued and unpaid interest
to the redemption date).
(c) REVOLVING CREDIT FACILITIES
Simultaneous with the issuance of the Notes, Magcorp and Sabel entered into
amendments to their respective existing revolving credit facility
agreements, increasing maximum advances based on specified percentages of
certain assets to $33 million for Magcorp and $7 million for Sabel,
lowering the interest rate on advances to prime plus one percent, and
extending the termination date of the agreements to August 1999.
-8-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS - NINE MONTHS ENDED JULY 31, 1996 COMPARED TO NINE MONTHS
ENDED JULY 31, 1995
SALES for the nine month period ended July 31, 1996 increased 8.6 percent over
the prior period. The increase was attributable to a 16.6 percent increase in
Magcorp's revenues, which was offset by a 12.4 percent decrease in Sabel's
revenues. Magcorp's average selling price for magnesium increased 18.6 percent
and magnesium shipments decreased 2.0 percent. Selling prices were favorably
impacted by an increased percentage of contract sales versus spot sales and by
higher US list prices, upon which most contract pricing is based. Volumes were
down due to reduced spot sales due to competition from primarily Russian and
Chinese ("Eastern") producers. Magnesium pricing and volume are dependent on
the overall market supply and demand, and there is no assurance that current
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 nine month period ended July 31, 1996 decreased 5.6
percent. Magcorp's cost of sales decreased 1.1 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 16.4 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 nine month period ended July
31, 1996 increased primarily due to increased depreciation of plant and
equipment as the result of recent capital equipment additions.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES for the nine month period ended
July 31, 1996 increased 30.6 percent due to one time charges totaling $3.85
million related to contractual compensation payments made to certain executives
of Magcorp in connection with the dividend discussed in Note 3 to the financial
statements. ($1.4 million of the $5.25 million paid was previously accrued as a
result of profitable operations.) Excluding the $3.85 million charge, selling,
general, and administrative expenses for the nine month period ended July 31,
1996 did not change significantly from the corresponding prior period.
INTEREST INCOME for the nine month period ended July 31, 1996 increased $0.66
million due to cash and cash equivalent balances on hand that increased to a
month-end average of $28.9 million in the current period from a month-end
average of $13.0 million in the corresponding prior period.
INTEREST EXPENSE for the nine month period ended July 31, 1996 increased $0.75
million primarily as a result of the issuance of the 11 1/2 percent Notes on
July 3, 1996, which increased long-term debt by $76.5 million.
INCOME TAXES are estimated at statutory rates, including estimates of available
credits, for both periods presented.
EXTRAORDINARY ITEM expense of $7.28 million recognized on the early retirement
of the Old Notes consists of $9.37 million premium paid, accelerated
amortization of deferred financing costs of $2.47 million, and related income
tax benefits of $4.56 million.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JULY 31, 1996 COMPARED TO THREE
MONTHS ENDED JULY 31, 1995
SALES for the three month period ended July 31, 1996 increased .5 percent over
the prior period. The increase was attributable to a 5.2 percent increase in
Magcorp's revenues, which was offset by a 13.1 percent decrease in Sabel's
revenues. Magcorp's average selling price for magnesium increased 13.7 percent
and magnesium shipments decreased 8.4 percent. Selling prices were favorably
impacted by an increased percentage of contract sales versus spot sales and by
higher US list prices, upon which most contract pricing is based. Volumes were
down due to reduced spot sales affected by slightly reduced magnesium demand
coupled with more availability of Eastern material and higher levels of
inventories among non-Eastern magnesium producers. The lower demand was mainly
attributable to reduced aluminum can stock production; the aluminum alloying
industry is the single largest user of magnesium. Magnesium pricing and volume
are dependent on the overall market supply and demand, and there is no assurance
that current 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.
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<PAGE>
COST OF SALES for the three month period ended July 31, 1996 decreased 7.7
percent. Magcorp's cost of sales decreased 3.6 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 17.8 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 July
31, 1996 increased primarily due to increased depreciation of plant and
equipment as the result of recent capital equipment additions.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES for the three month period ended
July 31, 1996 increased 89.8 percent due to one time charges totaling $3.85
million related to contractual compensation payments made to certain executives
of Magcorp in connection with the dividend discussed in Note 3 to the financial
statements. ($1.4 million of the $5.25 million paid was previously accrued as a
result of profitable operations.) Excluding the $3.85 million charge, selling,
general, and administrative expenses for the three month period ended July 31,
1996 did not change significantly from the corresponding prior period.
INTEREST INCOME for the three month period ended July 31, 1996 increased $37,000
due to cash and cash equivalent balances on hand that were slightly higher on
average than the corresponding prior period.
INTEREST EXPENSE for the three month period ended July 31, 1996 increased $0.77
million primarily as a result of the issuance of the 11 1/2 percent Notes on
July 3, 1996, which increased long-term debt by $76.5 million.
INCOME TAXES are estimated at statutory rates, including estimates of available
credits, for both periods presented.
EXTRAORDINARY ITEM EXPENSE of $7.28 million recognized on the early
retirement of the Old Notes consists of $9.37 million premium paid,
accelerated amortization of deferred financing costs of $2.47 million, and
related income tax benefits of $4.56 million.
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 $40.0 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 $33.0 million for Magcorp and $7.0 million for
Sabel, net of outstanding letters of credit. As of July 31, 1996, the unused
amounts available to Magcorp and Sabel were approximately $23.7 million and $4.4
million, respectively.
In the nine month period ended July 31, 1996, $15.6 million was provided by
operating activities, of which $8.0 million was used in investing activities
(primarily capital expenditures). In July 1996, Renco Metals issued $150
million aggregate principal amount of 11 1/2 percent Senior Notes due July 1,
2003. Proceeds from the issuance of the Notes together with available cash were
used to: (i) retire $73.5 million of the existing $75 million 12 percent Senior
Notes due 2000 at a rate of $1,127.50 per $1,000 principal outstanding plus
accrued interest pursuant to a tender offer and consent solicitation,
(ii) redeem all of the existing 10 percent Preferred Stock with a par value of
$8.5 million, (iii) pay a dividend to Group in the amount of $75.03 million,
(iv) pay certain contractual compensation payments totaling $5.25 million
related to the dividend to certain executives of Magcorp, and (v) pay related
fees and expenses. Including net borrowings under revolving credit agreements
and dividends paid earlier in the nine month period ended July 31, 1996, net
cash used in financing activities amounted to $27.6 million, contributing to a
net decrease in cash for the period of $20.0 million.
As of July 31, 1996, the Company has budgeted approximately $4 million for
capital expenditures over the remaining three 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.
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
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<PAGE>
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 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT METHOD OF FILING
4.5 First Supplemental Indenture Filed herewith electronically
dated as of July 1, 1996
supplementing Indenture dated
as of August 1, 1993 among
Renco Metals Inc., as Issuer,
Magnesium Corporation of
America, and Sabel Industries,
Inc., as Guarantors, and Fleet
National Bank, as Trustee,
relating to 12% Senior Notes
Due 2000
27. Financial Data Schedules Filed herewith electronically
(b) The following report on Form 8-K was issued during the quarter for which
this report is filed:
ITEMS REPORTED FINANCIAL STATEMENTS FILED DATE OF REPORT
Item 5-Other event: none July 3, 1996
Exhibit filing for
completed indenture,
dated as of July 1,
1996, for the 11 1/2%
Senior Notes due 2003
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<PAGE>
S I G N A T U R E S
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)
August 30, 1996 /s/ Ira Leon Rennert
- -------------------------------- -----------------------------
Date Ira Leon Rennert
Chairman of the Board and
Principal Executive Officer
August 30, 1996 /s/ Roger L. Fay
- -------------------------------- -----------------------------
Date Roger L. Fay
Vice President - Finance
Principal Financial and
Accounting Officer
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<PAGE>
RENCO METALS, INC.,
as Issuer,
MAGNESIUM CORPORATION OF AMERICA
and
SABEL INDUSTRIES, INC.,
as Guarantors,
and
FLEET NATIONAL BANK
as Trustee
-------------------
FIRST SUPPLEMENTAL INDENTURE
Dated as of July 1, 1996
Supplementing Indenture Dated
as of August 1, 1993
-------------------
$75,000,000
12% Senior Notes Due 2000
<PAGE>
FIRST SUPPLEMENTAL INDENTURE, dated as of July 1, 1996 (the
"Supplemental Indenture"), among RENCO METALS, INC., a Delaware corporation,
as issuer (the "Company"), MAGNESIUM CORPORATION OF AMERICA, a Delaware
corporation, as guarantor ("MagCorp"), SABEL INDUSTRIES, INC., an Alabama
corporation, as guarantor ("Sabel", and together with MagCorp, the
"Guarantors"), and FLEET NATIONAL BANK (formerly known as SHAWMUT BANK
CONNECTICUT, NATIONAL ASSOCIATION), a national banking association, as
trustee (the "Trustee").
WHEREAS, the Company and the Guarantors have heretofore executed and
delivered to the Trustee an Indenture, dated as of August 1, 1993 (the
"Indenture"), providing for the creation and issuance by the Company of 12%
Senior Notes Due 2000 of the Company (the "Notes", and together with the
Exchange Notes, in each case, issued, authenticated and delivered under the
Indenture, in each case, as amended or supplemented from time to time
pursuant to the terms of the Indenture, the "Securities");
WHEREAS, Section 9.2 of the Indenture provides that the Company, the
Guarantors and the Trustee may amend or supplement the Indenture or the
Securities with the written consent of the Holders of not less than a
majority in aggregate principal amount of the Securities then outstanding,
subject to certain exceptions specified in Section 9.2 of the Indenture;
WHEREAS, the parties hereto are entering into this Supplemental
Indenture to, among other things, (i) eliminate certain of the definitions
contained in Section 1.1 of the Indenture, (ii) eliminate certain restrictive
covenants contained in Article IV of the Indenture, (iii) eliminate certain
of the requirements contained in Section 5.1 of the Indenture; and (iv)
eliminate all references in the Indenture to sections and definitions to be
deleted in accordance with the preceding clauses (i), (ii) and (iii)
(collectively, the "Proposed Amendments");
WHEREAS, the Holders of not less than a majority in aggregate principal
amount of the Securities have duly consented to the Proposed Amendments in
the manner provided in Section 9.2 of the Indenture; and
WHEREAS, all conditions and requirements necessary to make this
Supplemental Indenture a valid, binding and legal instrument enforceable in
accordance with its terms have been performed and fulfilled by the parties
hereto and the execution and delivery of this Supplemental Indenture have
been in all respect duly authorized by the parties hereto.
<PAGE>
-2-
NOW, THEREFORE, in consideration of the above premises, each party
hereto agrees, for the benefit of the other party and for the equal and ratable
benefit of the Holders of the Securities, as follows:
SECTION 1. DEFINITIONS.
(a) For all purposes of this Supplemental Indenture, except as
otherwise expressly provided or unless the context otherwise requires, the
terms used herein shall have the respective meanings assigned to them in the
Indenture.
(b) The following definitions and any references thereto are hereby
deleted in their entireties from Section 1.1 of the Indenture and from the other
sections of the Indenture where such definitions are referenced:
(i) Acquired Indebtedness;
(ii) Affiliate Transaction;
(iii) Applicable Percentage;
(iv) Asset Acquisition;
(v) Base Period;
(vi) Common Stock;
(vii) Consolidated Cash Flow;
(viii) Consolidated Net Income;
(ix) Consolidated Net Worth;
(x) Disqualified Stock;
(xi) Fixed Charge Coverage Ratio;
(xii) Initial Purchasers;
(xiii) Interest Rate Protection Obligations;
(xiv) Investment;
(xv) Net Income;
(xvi) Net Proceeds;
(xvii) Permitted Liens;
(xviii) Purchase Agreement;
(xix) Restricted Payment;
(xx) Sale-Leaseback Transaction; and
(xxi) Wholly-Owned Subsidiary
SECTION 2. Elimination of
Certain Provisions of
ARTICLE IV OF THE INDENTURE.
(a) Section 4.10 of the Indenture entitled "Limitation on
Additional Indebtedness" is hereby deleted in its entirety, together with any
references thereto in the Indenture.
<PAGE>
-3-
(b) Section 4.11 of the Indenture entitled "Limitation on Liens" is
hereby deleted in its entirety, together with any references thereto in the
Indenture.
(c) Section 4.12 of the Indenture entitled "Limitation on
Restricted Payments" is hereby deleted in its entirety together with any
references thereto in the Indenture.
(d) Section 4.14 of the Indenture entitle "Limitation on
Transactions with Affiliates" is hereby deleted in its entirety, together
with any references thereto in the Indenture.
(e) Section 4.16 of the Indenture entitled "Limitation on
Dividends and Other Payment Restrictions Affecting Subsidiaries" is hereby
deleted in its entirety, together with any references thereto in the
Indenture.
(f) Section 4.17 of the Indenture entitled "Limitation on Issuance
of Preferred Stock by Subsidiaries" is hereby deleted in its entirety,
together with any references thereto in the Indenture.
(g) Section 4.20 of the Indenture entitled "Limitation on
Investments, Loans and Advances" is hereby deleted in its entirety, together
with any references thereto in the Indenture.
(h) Section 4.21 of the Indenture entitled "Limitation on
Sale-Leaseback Transactions" is hereby deleted in its entirety, together with
any references thereto in the Indenture.
SECTION 3. Amendment of
SECTION 5.1 OF THE INDENTURE.
(a) Each of subsections (c), (d), (e), and (g) of Section 5.1 of
the Indenture is hereby deleted in its entirety.
(b) Subsection (f) of Section 5.1 of the Indenture shall hereby be
renamed subsection (c) of the Section 5.1 of the Indenture.
SECTION 4. OPERATIONS OF SUPPLEMENTAL INDENTURE.
This Supplemental Indenture will become effective upon execution by
the parties hereto in accordance with the Statement (as defined) and the
Proposed Amendments will become
<PAGE>
-4-
operative upon the purchase by the Company, by accepting for payment, all
Securities that are validly tendered (and not withdrawn) pursuant to the
Company's offer to purchase Securities on the terms and conditions set forth
in the Company's Offer to Purchase and Consent Solicitation Statement, dated
May 24, 1996, as supplemented by the First Supplement to Offer to Purchase
and Consent Solicitation Statement, dated June 18, 1996 (collectively, the
"Statement"), and the related Consent and Letter of Transmittal.
SECTION 5. CONCERNING THE TRUSTEE.
The Trustee accepts the trusts of the Indenture, as supplemented by
this Supplemental Indenture, and agrees to perform the same, but only upon
the terms and conditions set forth in the Indenture, as supplemented by this
Supplemental Indenture, to which the parties hereto and the Holders from time
to time of the Securities agree and, except as expressly set forth in the
Indenture, as supplemented by this Supplemental Indenture, shall incur no
liability or responsibility in respect thereof. Without limiting the
generality of the foregoing, the Trustee assumes no responsibility for the
correctness of the recitals herein contained, which shall be taken as the
statements of the Company and the Guarantors. The Trustee makes no
representation and shall have no responsibility as to the validity or
sufficiency of this Supplemental Indenture.
SECTION 6. MISCELLANEOUS.
(a) Except as hereby expressly amended, the Indenture is in all
respects ratified and confirmed and all the terms, provisions and conditions
thereof shall be and remain in full force and effect.
(b) All agreements of the Company and the Guarantors in this
Supplemental Indenture shall bind the Company's and the Guarantors'
successors. All agreements of the Trustee in this Supplemental Indenture
shall bind its successors.
(c) THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY THE LAWS OF
THE STATE OF NEW YORK AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE
STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
(d) If and to the extent that any provision of this Supplemental
Indenture limits, qualifies or conflicts with another provision that is
required to be included in this Supplemental Indenture or in the Indenture by
the TIA, the required provision shall control.
<PAGE>
-5-
(e) The titles and headings of the sections of this Supplemental
Indenture have been inserted for convenience of reference only, and are not
to be considered a part hereof and shall in no way modify or restrict any of
the terms or provisions hereof.
(f) This Supplemental Indenture may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall represent one and the same agreement.
(g) In case any provision of this Supplemental Indenture shall be
determined to be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions hereof or of the Indenture
shall not in any way be affected or impaired thereby.
<PAGE>
-6-
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed, all as of the date first written above.
RENCO METALS, INC.
as Issuer
By: /s/ Roger L. Fay
----------------------------------
Name: Roger L. Fay
Title: Vice President
MAGNESIUM CORPORATION OF AMERICA,
as Guarantor
By: /s/ Roger L. Fay
----------------------------------
Name: Roger L. Fay
Title: Vice President
SABEL INDUSTRIES, INC.
as Guarantor
By: /s/ Roger L. Fay
----------------------------------
Name: Roger L. Fay
Title: Vice President
FLEET NATIONAL BANK
as Trustee
By: /s/ Elna Deguia
----------------------------------
Name: Elna Deguia
Title: Asst. Vice President
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<PAGE>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1995
<PERIOD-END> JUL-31-1996
<CASH> 10,084
<SECURITIES> 0
<RECEIVABLES> 25,365
<ALLOWANCES> 600
<INVENTORY> 26,784
<CURRENT-ASSETS> 66,286
<PP&E> 70,610
<DEPRECIATION> 35,561
<TOTAL-ASSETS> 108,484
<CURRENT-LIABILITIES> 21,184
<BONDS> 154,531
0
0
<COMMON> 1
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<TOTAL-LIABILITY-AND-EQUITY> 108,484
<SALES> 147,125
<TOTAL-REVENUES> 147,125
<CGS> 84,512
<TOTAL-COSTS> 106,986
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