<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, 1997
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 May 30, 1997:
COMMON STOCK, NO PAR VALUE 1,000 SHARES
<PAGE>
FORM 10-Q
RENCO METALS, INC.
QUARTER ENDED APRIL 30, 1997
TABLE OF CONTENTS
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PAGE NO.
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TABLE OF CONTENTS 2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS - APRIL 30, 1997
AND OCTOBER 31, 1996 3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - SIX AND
THREE MONTHS ENDED APRIL 30, 1997 AND 1996 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS -
SIX MONTHS ENDED APRIL 30, 1997 AND 1996 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 6 - EXHIBITS AND REPORTS ON FORM 8-K 10
SIGNATURES 11
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<PAGE>
RENCO METALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
APRIL 30, October 31,
1997 1996
Assets (Unaudited) (Audited)
------ ----------- ----------
Current assets:
Cash and cash equivalents $ 28,347 $ 20,779
Accounts receivable, less allowance for
doubtful accounts of $552 in 1997 and
$514 in 1996 25,935 24,864
Inventories, net (note 2) 26,800 26,447
Prepaid expenses and other current assets 2,036 3,130
-------- --------
Total current assets 83,118 75,220
-------- --------
Property, plant, and equipment, net 34,784 36,613
Other assets, net 6,349 6,825
-------- --------
$124,251 $118,658
-------- --------
-------- --------
Liabilities and Stockholder's Deficit
-------------------------------------
Current liabilities:
Accounts payable $ 6,322 $ 7,794
Accrued expenses 16,317 19,486
Other current liabilities 2,303 263
-------- --------
Total current liabilities 24,942 27,543
-------- --------
Long-term debt 155,062 154,132
Other liabilities 11,450 11,017
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Total liabilities 191,454 192,692
-------- --------
Stockholder's deficit:
Common stock, no par value. Authorized, issued,
and outstanding 1,000 shares 1 1
Additional paid-in capital 500 500
Accumulated deficit (67,704) (74,535)
-------- --------
Total stockholder's deficit (67,203) (74,034)
-------- --------
Commitments and contingencies
-------- --------
$124,251 $118,658
-------- --------
-------- --------
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>
SIX MONTHS THREE MONTHS
ENDED APRIL 30, ENDED APRIL 30,
------------------- -------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales $94,601 $99,110 $48,815 $50,739
Costs and expenses:
Cost of sales 59,740 56,238 32,440 28,925
Depreciation, depletion, and amortization 3,923 3,369 1,956 1,689
Selling, general, and administrative expenses 11,167 8,967 5,226 4,744
------- ------- ------- -------
Total costs and expenses 74,830 68,574 39,622 35,358
------- ------- ------- -------
Income from operations 19,771 30,536 9,193 15,381
Other income (expense):
Interest income 518 830 272 364
Interest expense (9,293) (5,034) (4,696) (2,514)
------- ------- ------- -------
Total other income (expense) (8,775) (4,204) (4,424) (2,150)
Income before income taxes 10,996 26,332 4,769 13,231
Provision for income taxes 4,165 9,447 1,814 4,641
------- ------- ------- -------
Net income $ 6,831 $16,885 $ 2,955 $ 8,590
------- ------- ------- -------
------- ------- ------- -------
</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>
SIX MONTHS
ENDED APRIL 30,
---------------------
1997 1996
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<S> <C> <C>
Net cash provided by operating activities $ 8,729 $ 17,302
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Cash flows from investing activities -
Capital expenditures, net (2,091) (5,022)
------- --------
Net cash used in investing activities (2,091) (5,022)
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Cash flows from financing activities:
Net borrowings (repayments) under revolving credit agreements 939 (484)
Repayment of long-term debt (9) (8)
Dividends - (9,822)
Other - (50)
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Net cash provided by (used in) financing activities 930 (10,364)
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Increase in cash and cash equivalents 7,568 1,916
Cash and cash equivalents, beginning of period 20,779 30,091
------- --------
Cash and cash equivalents, end of period $28,347 $ 32,007
------- --------
------- --------
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for interest $ 8,799 $ 4,648
Cash paid during the period for income taxes $ 2,146 $ 9,134
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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<PAGE>
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
<TABLE>
Six months Three months
Ended April 30, Ended April 30,
(Unaudited) (Unaudited)
-------------------- --------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Statement of operations data:
Net sales $94,601 $99,110 $48,815 $50,739
Cost of sales $59,740 $56,238 $32,440 $28,925
Net income $ 6,824 $16,817 $ 2,945 $ 8,543
April 30, October 31,
1997 1996
(Unaudited) (Audited)
----------- -----------
Balance sheet data:
Current assets $78,361 $71,982
Noncurrent assets $41,133 $43,438
Current liabilities $16,794 $20,907
Noncurrent liabilities $15,012 $13,649
</TABLE>
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<PAGE>
RENCO METALS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(2) INVENTORIES
Inventories consist of the following:
APRIL 30, October 31,
1997 1996
(UNAUDITED) (Audited)
----------- -----------
(dollars in thousands)
Finished goods $17,790 $17,293
Brine in ponds 1,612 1,942
Spare parts and supplies 7,157 6,937
Raw materials and work-in-process 866 855
------- -------
27,425 27,027
Less LIFO reserve 625 580
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$26,800 $26,447
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------- -------
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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, 1997 COMPARED TO SIX MONTHS
ENDED APRIL 30, 1996
SALES for the six month period ended April 30, 1997 decreased 4.5 percent
over the prior period. The decrease was attributable to a 5.6 percent
decrease in Magcorp's revenues and a 0.7 percent decrease in Sabel's
revenues. Magnesium shipments increased 2.5 percent while Magcorp's average
selling price for magnesium decreased 7.7 percent. Selling prices were
impacted by lower magnesium list prices. Effective January 1, 1997, Magcorp
reduced its list price by 6.7 percent, and other manufacturers announced
similar reductions. Competition from primarily Chinese and Russian producers
continues to put pressure on prices. Magnesium volumes improved due to
stronger demand across all market segments. According to International
Magnesium Association (IMA) statistics, estimated worldwide market shipments
for the 1997 first calendar quarter were up 6.3 percent over the comparable
period in 1996. 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 volume
throughout all the steel markets in which Sabel participates during the first
three months of the six month period, offset by recovering demand overall and
recovering of pricing in the scrap steel markets during the most recent three
months.
COST OF SALES for the six month period ended April 30, 1997 increased 6.2
percent on a consolidated basis. Magcorp's cost of sales increased 8.3
percent primarily due to increases in certain energy costs when compared to
the corresponding period in 1996. Magcorp's cost of sales is highly
sensitive to acquired energy costs and levels of production. The cost of
sales at Sabel increased 0.5 percent, reflecting increasing prices in the
scrap steel markets during the latter part of the six month period.
DEPRECIATION, DEPLETION, AND AMORTIZATION for the six month period ended
April 30, 1997 increased due to increased depreciation of plant and equipment
as the result of recent capital equipment additions.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES for the six month period ended
April 30, 1997 increased 24.5 percent primarily due to a $1.8 million
increase in development costs associated with magnesium process enhancement
piloting work together with an increase in legal expenses at Magcorp.
INTEREST INCOME for the six month period ended April 30, 1997 decreased
$312,000 due to cash and cash equivalent balances on hand that decreased to a
month-end average of $21.9 million in the current period from a month-end
average of $30.2 million in the corresponding prior period.
INTEREST EXPENSE for the six month period ended April 30, 1997 increased $4.3
million primarily as a result of the issuance of the 111/2 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.
RESULTS OF OPERATIONS - THREE MONTHS ENDED APRIL 30, 1997 COMPARED TO THREE
MONTHS ENDED APRIL 30, 1996
SALES for the three month period ended April 30, 1997 decreased 3.8 percent
over the prior period. The decrease was attributable to a 5.8 percent
decrease in Magcorp's revenues, offset by a 3.1 percent increase in Sabel's
revenues. Magnesium shipments increased 7.6 percent while Magcorp's average
selling price for magnesium decreased 11.5 percent. Selling prices were
impacted by lower magnesium list prices. Effective January 1, 1997, Magcorp
reduced its list price by 6.7 percent, and other manufacturers announced
similar reductions. Competition from primarily Chinese and Russian producers
continues to put pressure on prices. Magnesium volumes improved due to
stronger demand across all market segments. According to IMA statistics,
estimated worldwide market shipments for the 1997 first calendar quarter were
up 6.3 percent over the comparable period in 1996. Magnesium pricing and
volume are dependent on the overall market supply
-8-
<PAGE>
and demand, and there is no assurance that current trends will continue.
Sabel's sales increase was due to an upturn of volume throughout all the
steel markets in which Sabel participates, and price increases in the scrap
steel markets during the three month period ended April 30, 1997.
COST OF SALES for the three month period ended April 30, 1997 increased 12.2
percent. Magcorp's cost of sales increased 14.2 percent due to increased
volume noted above and due to increases in certain energy costs when
compared to the corresponding period in 1996. Magcorp's cost of sales is
highly sensitive to acquired energy costs and levels of production. Cost of
sales at Sabel increased 6.5 percent, reflecting increasing prices in the
scrap steel markets during the three month period.
DEPRECIATION, DEPLETION, AND AMORTIZATION for the three month period ended
April 30, 1997 increased 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 April 30, 1997 increased 10.2 percent primarily due to increases in
development costs associated with magnesium process enhancement piloting work
together with an increase in legal expenses at Magcorp.
INTEREST INCOME for the three month period ended April 30, 1997 decreased
$92,000 due to cash and cash equivalent balances on hand that decreased to a
month-end average of $22.2 million in the current period from a month-end
average of $29.4 million in the corresponding prior period.
INTEREST EXPENSE for the three month period ended April 30, 1997 increased
$2.1 million primarily as a result of the issuance of the 111/2 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs arise from working capital requirements,
capital investments, interest payment obligations, and to a lesser extent due
to their discretionary nature, dividend payments. The Company's primary
available source of liquidity is from cash provided by operating activities.
The Company's liquidity was reduced and its debt service requirements
increased as a result of the issuance of the 111/2 percent Notes in July
1996, which increased long-term debt by $76.5 million. The Company's
liquidity has also been reduced by average selling prices for magnesium that
are down notably from record 1996 levels, reducing gross profit, net income,
and cash provided by operating activities. Magnesium pricing and volume are
dependent on the overall market supply and demand, and there is no assurance
that current trends will continue.
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 April 30, 1997, the
unused amounts available to Magcorp and Sabel were approximately $24.2
million and $3.9 million, respectively. During the six month period ended
April 30, 1997, Sabel had net borrowings of $939,000 under their revolving
credit facility to fund working capital requirements. Magcorp has not
borrowed cash under its revolving credit facility since November 1994.
Cash provided by operating activities was $8.7 million for the six months
ended April 30, 1997 compared to $17.3 million for the 1996 period. The
decrease in operating cash flow in 1997 compared to 1996 resulted from a
decrease in net income and changes in primarily inventories, income taxes,
and accrued expenses during the 1997 period.
Capital expenditures were $2.1 million during the first half of fiscal 1997.
Capital expenditures are budgeted at approximately $6 million over the
remaining six months of the fiscal year, and at $30 million for 1998 and $24
million for 1999. An estimated $40 million of estimated capital expenditures
for 1997, 1998, and 1999 is related to magnesium process enhancements that
will also improve environmental compliance.
-9-
<PAGE>
Subsequent to the Company's April 30, 1997 fiscal quarter end, the Board of
Directors on May 19, 1997 declared dividends totaling $1.3 million, which
were paid May 19, 1997 on all outstanding shares to the Company's 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 on a cumulative basis up to 50 percent of consolidated net income
earned since July 1, 1996. 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. At April 30, 1997, after taking into account the dividend paid
on May 19, 1997, approximately $130,000 of additional dividends would be
allowed under the long-term debt provisions. Management anticipates
that existing cash balances and cash generated from operations and available
revolving credit facilities will be sufficient to finance the Company's
liquidity needs for the foreseeable future.
The Company's long-term debt agreements contain numerous covenants and
prohibitions that limit the financial activities of the Company, including
requirements that the Company satisfy certain financial ratios and
limitations on additional indebtedness. The ability of the Company to meet
its debt service requirements and to comply with such covenants will be
dependent upon future operating performance and financial results of the
Company, which will be subject to financial, economic, political,
competitive, and other factors affecting the Company, many of which are
beyond its control.
PART II- OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Method of Filing
------- ----------------
27. Financial Data Schedules Filed herewith electronically
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter for which this
report is filed.
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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)
May 30, 1997 /s/ Ira Leon Rennert
- --------------------------- ---------------------------
Date Ira Leon Rennert
Chairman of the Board and
Principal Executive Officer
May 30, 1997 /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-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> APR-30-1997
<CASH> 28,347
<SECURITIES> 0
<RECEIVABLES> 26,487
<ALLOWANCES> 552
<INVENTORY> 26,800
<CURRENT-ASSETS> 83,118
<PP&E> 75,517
<DEPRECIATION> 40,733
<TOTAL-ASSETS> 124,251
<CURRENT-LIABILITIES> 24,942
<BONDS> 155,062
0
0
<COMMON> 1
<OTHER-SE> (67,204)
<TOTAL-LIABILITY-AND-EQUITY> 124,251
<SALES> 94,601
<TOTAL-REVENUES> 94,601
<CGS> 59,740
<TOTAL-COSTS> 74,830
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 38
<INTEREST-EXPENSE> 9,293
<INCOME-PRETAX> 10,996
<INCOME-TAX> 4,165
<INCOME-CONTINUING> 6,831
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,831
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
