<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, 1999
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 333-4513
RENCO METALS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
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)
</TABLE>
(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.
/ / YES /X/ NO
Number of shares outstanding of each of the registrant's classes of common
stock, as of June 4, 1999:
COMMON STOCK, NO PAR VALUE 1,000 SHARES
<PAGE>
FORM 10-Q
RENCO METALS, INC.
QUARTER ENDED APRIL 30, 1999
TABLE OF CONTENTS
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<CAPTION>
PAGE NO.
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TABLE OF CONTENTS 2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets - April 30, 1999 and October 31, 1998 3
Condensed Consolidated Statements Of Income - Six Months and Three Months Ended April 30, 4
1999 and 1998
Condensed Consolidated Statements Of Cash Flows - Six Months Ended April 30, 1999 and 1998 5
Notes To Consolidated Financial Statements 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES 12
</TABLE>
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
RENCO METALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1999 1998
ASSETS (UNAUDITED) (AUDITED)
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 15,885 $ 21,690
Accounts receivable, less allowance for doubtful accounts of
$589 in 1999 and $514 in 1998 24,543 25,749
Inventories, net (note 2) 42,713 34,500
Prepaid expenses and other current assets 3,438 3,024
------------- -------------
Total current assets 86,579 84,963
------------- -------------
Property, plant, and equipment, net 37,012 35,385
Other assets, net 5,306 5,626
------------- -------------
$128,897 $ 125,974
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Current installments of long-term debt $ 23 $ 23
Accounts payable 7,491 7,279
Accrued expenses and other current liabilities 14,442 15,149
------------- -------------
Total current liabilities 21,956 22,451
------------- -------------
Long-term debt, excluding current installments 154,954 154,567
Other liabilities 12,506 14,180
------------- -------------
Total liabilities 189,029 191,585
------------- -------------
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 (60,633) (66,112)
------------- -------------
Total stockholder's deficit (60,132) (65,611)
------------- -------------
Commitments and contingencies
------------- -------------
$128,897 $ 125,974
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------------- -------------
</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,
--------------------------- ---------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 87,567 $ 94,964 $ 45,947 $ 47,545
Costs and expenses:
Cost of sales 60,313 60,540 31,545 29,606
Depreciation, depletion, and amortization 4,672 4,406 2,336 2,130
Selling, general, and administrative expenses 10,199 12,042 5,520 6,876
------------ ------------ ------------ ------------
Total costs and expenses 75,184 76,988 39,401 38,612
------------ ------------ ------------ ------------
Income from operations 12,383 17,976 6,546 8,933
Other income (expense):
Interest income 363 585 124 269
Interest expense (9,330) (9,450) (4,659) (4,730)
------------ ------------ ------------ ------------
Total other income (expense) (8,967) (8,865) (4,535) (4,461)
------------ ------------ ------------ ------------
Income before income taxes 3,416 9,111 2,011 4,472
Income tax (benefit) expense (note 3) (2,063) 2,720 - 1,358
------------ ------------ ------------ ------------
Net income $ 5,479 $ 6,391 $ 2,011 $ 3,114
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</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,
---------------------------
1999 1998
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<S> <C> <C>
Net cash provided by operating activities $ 899 $ 2,875
------------ -----------
Cash flows from investing activities -
Capital expenditures, net (6,268) (1,769)
------------ -----------
Net cash used in investing activities (6,268) (1,769)
------------ -----------
Cash flows from financing activities:
Net borrowings (repayments) under revolving credit agreements (375) 1,752
Repayment of long-term debt (11) (10)
Payment of financing fees (50) -
Dividends - (2,000)
------------ -----------
Net cash used in financing activities (436) (258)
------------ -----------
Increase (decrease) in cash and cash equivalents (5,805) 848
Cash and cash equivalents, beginning of period 21,690 26,607
------------ -----------
Cash and cash equivalents, end of period $ 15,885 $ 27,455
------------ -----------
------------ -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 8,836 $ 8,956
Cash paid during the period for income taxes $ 209 $ 3,016
</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
(UNAUDITED)
(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 (the Company), 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% 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. These interim condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes
thereto included in the Company's Form 10-K for the fiscal year ended
October 31, 1998.
Renco Metals' 11.5% Senior Notes due 2003 (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>
<CAPTION>
SIX MONTHS THREE MONTHS
ENDED APRIL 30, ENDED APRIL 30,
1999 1998 1999 1998
------------ ------------ -------------- ------------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Statement of operations data:
Net sales $87,567 $94,964 $ 45,947 $47,545
Cost of sales $60,313 $60,540 $ 31,545 $29,606
Net income $ 5,422 $ 6,379 $ 1,972 $ 3,103
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 31,
APRIL 30, 1998
1999 (AUDITED)
-------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Balance sheet data:
Current assets $ 84,752 $83,687
Noncurrent assets $ 42,318 $41,011
Current liabilities $ 15,311 $16,300
Noncurrent liabilities $ 17,073 $19,134
</TABLE>
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<PAGE>
(2) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1999 1998
(UNAUDITED) (AUDITED)
-------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Finished goods $ 32,513 $ 24,451
Brine in ponds 1,117 1,100
Spare parts and supplies 8,859 8,740
Raw materials and work-in-process 1,146 743
--------------- --------------
43,635 35,034
Less LIFO reserve 922 534
--------------- --------------
$ 42,713 $ 34,500
--------------- --------------
--------------- --------------
</TABLE>
(3) INCOME TAXES
On January 15, 1999, Group filed an election with the consent of its
shareholders with the Internal Revenue Service to change its taxable
status from that of a subchapter C corporation to that of a subchapter
S corporation, effective November 1, 1998. At the same time, Group
elected for the Company to be treated as a qualified subchapter S
subsidiary (QSSS). Most states in which the Company operates will follow
similar tax treatment. QSSS status requires the ultimate shareholders to
include their pro rata share of the Company's income or loss in their
individual tax returns. The Company will continue to provide for state
and local income taxes for the taxing jurisdictions which do not
recognize QSSS status; however, management believes this is not material
to the Company. As a result of this change in tax status, the Company
recognized an income tax benefit of $2,063,000 during the three months
ended January 31, 1999, which included the elimination of net deferred
tax liabilities recorded as of October 31, 1998.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS - SIX MONTHS ENDED APRIL 30, 1999 COMPARED TO SIX MONTHS
ENDED APRIL 30, 1998
SALES for the six-month period ended April 30, 1999 decreased 7.8% over the
prior period. The decrease was attributable to a 7.5% decrease in Magcorp's
revenues and a 8.6% decrease in Sabel's revenues. Magnesium shipments decreased
3.7% and Magcorp's average selling price for magnesium decreased 3.9%. Import
competition from foreign producers continues to put pressure on magnesium
volumes and pricing, particularly in the steel desulfurization segment of the
magnesium business. According to International Magnesium Association statistics,
calendar 1998 shipments by non-western producers represented a 24% increase over
1997 levels, demonstrating the increased foreign imports in the markets in which
Magcorp participates. Magnesium pricing and volume are dependent on the overall
market supply and demand, and there is no certainty that current trends will not
continue. Sabel's sales decrease was due to overall price and volume decreases
affecting the U.S. steel industry.
COST OF SALES for the six-month period ended April 30, 1999 decreased 0.4% on a
consolidated basis. Magcorp's cost of sales increased 4.0% due in large part to
increased processing costs associated with increased volumes of recycled
magnesium when compared to the corresponding period in 1998. Magcorp continues
to increase its participation in die cast markets, which also requires handling
and recycling of die cast customer scrap, increasing costs and decreasing
margins for the recycled material. The 11.8% cost of sales decrease at Sabel is
attributable to the volume and price decreases mentioned above.
DEPRECIATION, DEPLETION, AND AMORTIZATION for the six-month period ended April
30, 1999 increased 6.0% due to increased depreciation of plant and equipment as
the result of recent capital equipment additions.
-7-
<PAGE>
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES for the six-month period ended
April 30, 1999 decreased 15.3% primarily due to decreased computer consulting
costs, development costs, legal costs, and profit-based compensation accruals
when compared to the corresponding period in 1998.
INTEREST INCOME for the six-month period ended April 30, 1999 decreased $222,000
due to cash and cash equivalent balances on hand that decreased to a month-end
average of $18.2 million in the current six-month period from a month-end
average of $26.2 million in the corresponding prior period.
INTEREST EXPENSE for the six-month period ended April 30, 1999 was lower than
that of the corresponding prior period due to lower long-term debt levels than
in the corresponding prior period.
INCOME TAXES for the six-month period ended April 30, 1999 reflects the
Company's change in taxable status effective November 1, 1998 described in Note
3 to the condensed consolidated financial statements in Item 1 above.
Accordingly, the Company recognized an income tax benefit of $2.1 million that
represents the elimination of net deferred tax liabilities recorded as of
October 31, 1998.
RESULTS OF OPERATIONS - THREE MONTHS ENDED APRIL 30, 1999 COMPARED TO THREE
MONTHS ENDED APRIL 30, 1998
SALES for the three-month period ended April 30, 1999 decreased 3.4% over the
prior period. The decrease was attributable to a 11.8% decrease in Sabel's
revenues and a 0.1% decrease in Magcorp's revenues. Magnesium shipments
increased 5.9% while Magcorp's average selling price for magnesium decreased
6.3%. Increased shipments of recycled magnesium helped offset reduced primary
magnesium shipments due to foreign imports discussed above, but imports continue
to put pressure on magnesium volumes and pricing. Because of recycled
magnesium's higher production costs, their higher sales volumes did not
contribute proportionately to income from operations. Magnesium pricing and
volume are dependent on the overall market supply and demand, and there is no
certainty that current trends will not continue. Sabel's sales decrease was due
to overall price and volume decreases affecting the U.S. steel industry.
COST OF SALES for the three-month period ended April 30, 1999 increased 6.5% on
a consolidated basis. Magcorp's cost of sales increased 17.3% due in large part
to increased processing costs associated with increased volumes of recycled
magnesium from die cast customers when compared to the corresponding period in
1998. Magcorp continues to increase its participation in die cast markets, which
also requires handling and recycling of die cast customer scrap, increasing
costs and decreasing margins for the recycled material. Magcorp's cost of sales
increase was offset by a 16.9% cost of sales decrease at Sabel attributable to
the volume and price decreases mentioned above.
DEPRECIATION, DEPLETION, AND AMORTIZATION for the three-month period ended April
30, 1999 increased 9.7% 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, 1999 decreased 19.7% primarily due to decreased development costs,
legal costs, and profit-based compensation accruals when compared to the
corresponding period in 1998.
INTEREST INCOME for the three-month period ended April 30, 1999 decreased
$145,000 due to cash and cash equivalent balances on hand that decreased to a
month-end average of $14.2 million in the current three-month period from a
month-end average of $24.8 million in the corresponding prior period.
INTEREST EXPENSE for the three-month period ended April 30, 1999 was lower than
that of the corresponding prior period due to lower long-term debt levels than
in the corresponding prior period.
INCOME TAXES for the three-month period ended April 30, 1999 were zero,
reflecting the Company's change in taxable status effective November 1, 1998
described in Note 3 to the condensed consolidated financial statements in Item 1
above.
-8-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs arise from working capital requirements, capital
investments 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 and 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, 1999,
the unused amounts available to Magcorp and Sabel were approximately $29.2
million and $2.8 million, respectively. During the six-month period ended April
30, 1999, Sabel repaid a net amount of $375,000 under its revolving credit
facility. Magcorp has not borrowed cash under its revolving credit facility
since 1994.
Cash provided by operating activities was $899,000 for the six-month period
ended April 30, 1999 compared to $2.9 million for the corresponding prior
period. The decrease in cash provided by operations in 1999 compared to 1998
resulted primarily from increases in inventories, offset partially by decreases
in accounts receivable. Magcorp is increasing inventory levels in 1999 to
accommodate decreases in production that are planned to take place during the
period of conversion to new electrolytic cell technology discussed below. The
increase in inventories is also due to increased volumes on hand of recycled die
cast magnesium to be processed by third parties or already processed by third
parties. Cash flow has also been adversely affected by reduced operating income
attributable to lower sales volume and pricing from increased import competition
in both the magnesium and steel operations and by lower margins on sales of
recycled magnesium. Pricing and volume are dependent on the overall market
supply and demand, and there is no assurance that current trends will not
continue.
Capital expenditures were $6.3 million for the six-month period ended April 30,
1999. Capital expenditures are budgeted at approximately $13 million for the
remainder of 1999, $35 million for 2000 and $17 million for 2001. Of these
projected capital expenditure amounts, an estimated total of $40 to $45 million
is related to new electrolytic cell technology that is expected to improve
manufacturing efficiencies and ensure compliance with future environmental
standards. Prototype work continues on the electrolytic cell conversion program.
Assuming the successful completion of prototype work by the end of fiscal 1999,
the conversion of the remaining cells is expected to take place over a period of
two to three years. As a result, the associated cost reductions and related
manufacturing efficiencies are not expected to be realized in the Company's
operating results until 2001 or 2002.
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% of consolidated net income earned since the issuance
of the Senior Notes. 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 and availability under its 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.
YEAR 2000 BUSINESS MATTERS
Many information technology (IT) and process control systems used in the current
business environment were designed to use only two digits in the date field and
thus may not function properly in the Year 2000 and after. This could result in
system failures or in miscalculations causing disruption of operations,
including, but not limited to, an inability to process transactions, to send and
receive electronic data, or to engage in routine business activities and
operations. Management has initiated projects to prepare the Company's IT and
process control systems to be Year 2000 compliant. The projects consist of four
phases: evaluation, renovation, testing and implementation. The Company expects
to both replace some systems and upgrade others. Projected funds to cover
remaining remediation costs as incurred are expected to come from operations.
-9-
<PAGE>
For IT systems, the evaluation phase is complete. IT projects since 1994 have
been planned with Year 2000 compliance in mind, and no other IT projects have
been deferred to accommodate Year 2000 costs. Replacement of mainframe-based IT
systems began in 1994 and were completed in early 1999. The Company anticipates
completion of renovation, testing and implementation of its IT systems by July
1999. Since Year 2000-related replacements began in 1994, the Company has
expensed approximately $1.1 million in IT maintenance or modification costs and
capitalized approximately $700,000. Remaining IT modification costs, all
expected to be expensed, are estimated to be less than $25,000.
The Company's IT and non-IT systems are not materially interdependent. Process
control and other non-IT systems are being evaluated individually and may
require replacement software, reprogramming or other corrective actions.
Completion status of non-IT systems is estimated to be as follows:
evaluation-100%; renovation-98%; testing-98%; and implementation-95%. The
Company anticipates completion of renovation, testing and implementation of its
process control systems by July 1999. Non-IT Year 2000 modification costs to
date are approximately $20,000 and total remaining costs are estimated not to
exceed $10,000.
The Year 2000 issue is a potentially significant issue for most companies, with
implications that cannot be anticipated or predicted with any degree of
certainty. The Company is communicating with third parties material to the
Company's operations, including electric and natural gas utility companies, to
determine the extent of the Company's vulnerability to the failure of third
parties to remediate their own Year 2000 issues. The Company will use
information learned from this process in developing its contingency plans to
mitigate the effect of suppliers that will not be Year 2000 ready on a timely
basis. The Company is presently dependent on a single source for certain of its
energy and raw materials needs. If certain vendors are unable to supply the
energy or raw materials on a timely basis in 2000, it could result in the
Company's inability to operate or require the Company to operate at a reduced
level. There can be no assurance that third parties material to the Company's
operations will be Year 2000 compliant, or that their failure to be compliant
will not have a material adverse effect on the Company's operations.
The Company intends to make the modifications necessary to mitigate the risk of
disruption to its operations. The remaining costs of this project and its timely
completion are dependent upon numerous assumptions about future events,
including availability of certain resources, third party remediation plans, and
other factors, many of which are beyond the Company's control.
ENVIRONMENTAL MATTERS
Title III of the Clean Air Act will establish, on a published schedule, new
national emission standards for hazardous air pollutants (NESHAPS). NESHAPS are
to be based on maximum achievable control technology as determined by a
comparison of installations at similar facilities in specific industry
categories. Representatives from the United States Environmental Protection
Agency (EPA) have visited Magcorp's facility in preparation for the process of
establishing NESHAPS for chlorine and hydrogen chloride emissions. It is
expected that Magcorp will be required to make substantial reductions in
chlorine emissions to meet NESHAPS for primary magnesium refineries that will be
promulgated by November 2000, with an expected three to five year timetable for
compliance following promulgation of the new standards.
In anticipation of the new standards, Magcorp has embarked on a program to
install new electrolytic cell technology that will reduce chlorine emissions at
the source. The new cells are also expected to significantly reduce costs
because they have much higher throughput and are more energy efficient. Assuming
the successful completion of prototype work by mid-1999, the conversion of the
remaining cells is expected to take place over a period of two to three years.
With respect to hydrogen chloride, Magcorp has recently installed and is
successfully operating scrubbers to reduce pertinent emissions. Magcorp does not
expect that it will be required to spend significant additional amounts to meet
the new standards for hydrogen chloride. Magcorp plans to spend an estimated $40
to $45 million of its capital expenditure budget for 1999, 2000 and 2001,
directly or indirectly, to meet environmental regulatory requirements, primarily
for NESHAPS, and for other anticipated future requirements. Prototype
cell-related project development expenses to date total $5.1 million. There can
be no assurance that Magcorp's cell conversion program will be successful, and
to the extent it is not successful, it could have a material adverse effect on
the Company's financial condition and results of operations.
-10-
<PAGE>
Representatives of the Utah State Department of Environmental Quality (UDEQ)
Division of Solid and Hazardous Waste visited Magcorp in 1994 regarding the
issue of whether piles of material generated in the electrolytic process, which
cover an extensive land area at Magcorp's Rowley facility, can be classified as
a hazardous or solid waste, and if so classified, what measures might be
required to investigate and address these piles. No similar material has been
classified by the State as hazardous or solid waste. The State accepted
Magcorp's written storage plan, which does not consider the piles hazardous and
under which no remediation or action by the Company is necessary. If the piles
were at some point in the future to be classified as hazardous waste, thereby
becoming subject to State regulation, corrective action could be required. The
costs of such compliance, if any, could be material; however, such costs cannot
be assessed at this time.
Sampling conducted by MagCorp and by UDEQ in 1998 indicated a low but measurable
accumulation of chlorinated hydrocarbons in the form of dioxin/furan compounds
in soil and sediment samples from a contained and permitted process wastewater
collection and retention system used at the Magcorp plant site for over 25
years. While MagCorp does not consider, and believes that UDEQ does not
consider, a health hazard to be associated with these preliminary sampling
results, Magcorp conducted additional sampling to determine the extent of
accumulations of these compounds. Sampling results confirmed the accumulation of
small amounts of dioxin/furan compounds in soil and sediment from the process
wastewater collection and retention system, and that facility perimeter areas
contained only background levels of the compounds. An air emissions test is
being planned to verify the suspected insignificance of any dioxins in air
emissions from the facility. Management does not expect magnesium refineries to
become subject to new regulations regarding these compounds in the near future.
If these compounds do become subject to government regulation, the costs of such
compliance, if any, could have a material adverse effect on the Company's
financial condition and results of operations; however, such costs cannot be
assessed at this time.
Industrial companies such as Magcorp and Sabel have in recent years become
subject to changing and increasingly demanding environmental standards imposed
by governmental laws and regulations. The Company cannot currently assess the
impact of more stringent standards on its results of operations or financial
condition.
FORWARD-LOOKING STATEMENTS
This report includes "forward-looking statements," which involve known and
unknown risks, uncertainties and other important factors that could cause the
actual results, performance or achievements of the Company to differ materially
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such risks, uncertainties and other important
factors include, among others: general economic and business conditions;
industry capacity; demand; industry trends; competition; currency fluctuations;
the loss of any significant customers; availability of qualified personnel;
changes in environmental regulations; successful completion of planned
installation of new technology; and major equipment failures. These
forward-looking statements speak only as of the date of this report. The Company
expressly disclaims any obligation or undertaking to disseminate any updates or
revisions to any forward-looking statement contained herein to reflect any
change in the Company's expectations with regard thereto or any change in
events, conditions or circumstances on which any such forward-looking statement
is based.
PART II- OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
A list of exhibits required to be filed as part of this Report on Form
10-Q is set forth in the "Exhibit Index" which immediately precedes
such exhibits, and is incorporated herein by reference.
(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)
<TABLE>
<S> <C>
JUNE 4, 1999 /s/ IRA LEON RENNERT
- -------------------------- -----------------------------
Date Ira Leon Rennert
Chairman of the Board and
Principal Executive Officer
JUNE 4, 1999 /s/ ROGER L. FAY
- -------------------------- -----------------------------
Date Roger L. Fay
Vice President - Finance
Principal Financial and
Accounting Officer
</TABLE>
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<PAGE>
RENCO METALS, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<S> <C>
27. Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<PAGE>
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