<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 JANUARY 31, 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 (IRS Employer
of 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 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.
[X] YES [ ] NO
Number of shares outstanding of each of the registrant's classes of common
stock, as of March 7, 1997:
COMMON STOCK, NO PAR VALUE 1,000 SHARES
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FORM 10-Q
RENCO METALS, INC.
QUARTER ENDED JANUARY 31, 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 - JANUARY 31, 1997 AND OCTOBER 31, 1996 3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - THREE MONTHS ENDED JANUARY 31,
1997 AND 1996 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - THREE MONTHS ENDED
JANUARY 31, 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 9
SIGNATURES 10
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RENCO METALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
JANUARY 31, October 31,
1997 1996
Assets (UNAUDITED) (Audited)
------ ----------- -----------
Current assets:
Cash and cash equivalents $ 17,457 $ 20,779
Accounts receivable, less allowance for
doubtful accounts of $514 in 1997 and 1996 23,347 24,864
Inventories, net (note 2) 28,937 26,447
Prepaid expenses and other current assets 2,113 3,130
-------- --------
Total current assets 71,854 75,220
-------- --------
Property, plant, and equipment, net 35,817 36,613
Other assets, net 6,602 6,825
-------- --------
$114,273 $118,658
-------- --------
-------- --------
Liabilities and Stockholder's Deficit
-------------------------------------
Current liabilities:
Accounts payable $ 5,027 $ 7,794
Accrued expenses 11,959 19,486
Other current liabilities 1,079 263
-------- --------
Total current liabilities 18,065 27,543
-------- --------
Long-term debt 155,088 154,132
Other liabilities 11,278 11,017
-------- --------
Total liabilities 184,431 192,692
-------- --------
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 (70,659) (74,535)
-------- --------
Total stockholder's deficit (70,158) (74,034)
-------- --------
Commitments and contingencies
-------- --------
$114,273 $118,658
-------- --------
-------- --------
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 INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS)
THREE MONTHS
ENDED JANUARY 31,
-----------------------
1997 1996
------- -------
Sales $45,786 $48,239
Costs and expenses:
Cost of sales 27,300 27,313
Depreciation, depletion, and amortization 1,967 1,680
Selling, general, and administrative expenses 5,941 4,091
------- -------
Total costs and expenses 35,208 33,084
------- -------
Income from operations 10,578 15,155
Other income (expense):
Interest income 246 466
Interest expense (4,597) (2,520)
------- -------
Total other income (expense) (4,351) (2,054)
------- -------
Income before income taxes 6,227 13,101
Provision for income taxes 2,351 4,806
------- -------
Net income $ 3,876 $ 8,295
------- -------
------- -------
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)
THREE MONTHS
ENDED JANUARY 31,
--------------------
1997 1996
-------- -------
Net cash provided by (used in) operating activities $ (3,108) $ 8,181
-------- -------
Cash flows from investing activities -
Capital expenditures, net (1,171) (2,842)
-------- -------
Net cash used in investing activities (1,171) (2,842)
-------- -------
Cash flows from financing activities:
Net borrowings (repayments) under revolving
credit agreements 961 (131)
Repayment of long-term debt (4) (4)
Dividends - (6,122)
-------- -------
Net cash provided by (used in)
financing activities 957 (6,257)
-------- -------
Decrease in cash and cash equivalents (3,322) (918)
Cash and cash equivalents, beginning of period 20,779 30,092
-------- -------
Cash and cash equivalents, end of period $17,457 $29,174
-------- -------
-------- -------
Supplemental Disclosures of Cash Flow Information
- -------------------------------------------------
Cash paid during the period for interest $ 8,706 $ 4,577
Cash paid during the period for income taxes $ 71 $ 177
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
Three months
Ended January 31,
(Unaudited)
---------------------
1997 1996
------- -------
(dollars in thousands)
Statement of operations data:
Net sales $45,786 $48,239
Cost of sales $27,300 $27,313
Income before extraordinary item $ 3,879 $ 8,274
Net income $ 3,879 $ 8,274
January 31, October 31,
1997 1996
(Unaudited) (Audited)
----------- -----------
(dollars in thousands)
Balance sheet data:
Current assets $ 68,918 $ 71,982
Noncurrent assets $ 42,419 $ 43,438
Current liabilities $ 15,741 $ 20,907
Noncurrent liabilities $ 14,866 $ 13,649
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RENCO METALS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(2) INVENTORIES
Inventories consist of the following:
January 31, October 31,
1997 1996
(Unaudited) (Audited)
----------- -----------
(dollars in thousands)
Finished goods $ 19,757 $ 17,293
Brine in ponds 1,781 1,942
Spare parts and supplies 7,115 6,937
Raw materials and work-in-process 864 855
--------- ---------
29,517 27,027
Less LIFO reserve 580 580
--------- ---------
$ 28,937 $ 26,447
--------- ---------
--------- ---------
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JANUARY 31, 1997 COMPARED TO THREE
MONTHS ENDED JANUARY 31, 1996
SALES for the three month period ended January 31, 1997 decreased 5.1 percent
over the prior period. The decrease was attributable to a 5.2 percent decrease
in Magcorp's revenues, and a 4.8 percent decrease in Sabel's revenues.
Magcorp's average selling price for magnesium decreased 3.5 percent and
magnesium shipments decreased 2.5 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.
Magnesium volumes were down due to reduced spot sales due to competition from
primarily Russian and Chinese producers. According to International Magnesium
Association statistics, worldwide market shipments in calendar 1996 were down
2.8 percent over 1995's record levels, and magnesium shipped to the West in 1996
from Eastern (principally Russian and Chinese) producers increased 20.1 percent
over 1995. 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 participates.
COST OF SALES for the three month period ended January 31, 1997 remained
constant on a consolidated basis. Magcorp's cost of sales increased 2.1 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; unit costs will increase as
production levels decrease. The cost of sales at Sabel decreased 5.9 percent,
which percentage corresponds to the sales decrease discussed above.
DEPRECIATION, DEPLETION, AND AMORTIZATION for the three month period ended
January 31, 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
January 31, 1997 increased 45.2 percent primarily due to $1.5 million of
development costs associated with magnesium process enhancements. Excluding the
$1.5 million developmental project charge, selling, general, and administrative
expenses for the three month period ended January 31, 1997 did not change
significantly from the corresponding prior period.
INTEREST INCOME for the three month period ended January 31, 1997 decreased
$220,000 due to cash and cash equivalent balances on hand that decreased to a
month-end average of $20.4 million in the current period from a month-end
average of $30.7 million in the corresponding prior period.
INTEREST EXPENSE for the three month period ended January 31, 1997 increased
$2.1 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.
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's liquidity was reduced and its debt service
requirements increased as a result the issuance of the 11 1/2 percent Notes in
July, 1996, which increased long-term debt by $76.5 million.
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 January 31, 1997, the unused amounts
available to Magcorp and Sabel were approximately $23.4
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million and $3.8 million, respectively. During the three month period ended
January 31, 1997, Sabel had net borrowings of $961,000 under their revolving
credit facility to fund working capital requirements. Magcorp has not
borrowed cash under its revolving credit facility since November 1994.
Cash used in operating activities was $3.1 million for the three months ended
January 31, 1997 compared to cash provided by operating activities of $8.1
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 quarter.
Capital expenditures were $1.2 million during the first quarter of fiscal 1997.
Capital expenditures are budgeted at approximately $10.8 million over the
remaining nine months of the fiscal year, and at $26 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.
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. As of January
31, 1997, no 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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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)
March 7, 1997 /s/ Ira Leon Rennert
- --------------------------- -------------------------------------
Date Ira Leon Rennert
Chairman of the Board and
Principal Executive Officer
March 7, 1997 /s/ Roger L. Fay
- --------------------------- -------------------------------------
Date Roger L. Fay
Vice President - Finance
Principal Financial and
Accounting Officer
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 17,457
<SECURITIES> 0
<RECEIVABLES> 23,861
<ALLOWANCES> 514
<INVENTORY> 28,937
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<PP&E> 74,618
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0
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<SALES> 45,786
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