1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 JUNE 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
METALLURG, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-1661467
(State of organization) (I.R.S. Employer Identification No.)
6 EAST 43RD STREET (212) 835-0200
NEW YORK, NEW YORK 10017 (Registrant's telephone number,
(Address of principal executive offices) 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 [ ]
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [ ]
The number of shares of common stock, $0.01 par value, issued and
outstanding as of August 13, 2001 was 5,000,000.
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METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
INDEX
PAGE NO.
--------
Part I. FINANCIAL INFORMATION:
Item 1 - Financial Statements (Unaudited)
Condensed Statements of Consolidated Operations for the Quarters
and the Two Quarters Ended June 30, 2001 and July 31, 2000 .......... 2
Condensed Consolidated Balance Sheets at June 30, 2001 and
December 31, 2000 ................................................... 3
Condensed Statements of Consolidated Cash Flows for the Two Quarters
Ended June 30, 2001 and July 31, 2000 ............................... 4
Notes to Condensed Unaudited Consolidated Financial Statements ...... 5-12
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations ............................................... 13-19
Item 3 - Quantitative and Qualitative Disclosure of Market Risk .............. 20
Part II. OTHER INFORMATION:
Item 1. LEGAL PROCEEDINGS .................................................... 21
Item 6. (a) EXHIBITS ......................................................... 21
Item 6. (b) REPORTS ON FORM 8-K .............................................. 21
Signature Page ............................................................... 22
1
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
(IN THOUSANDS)
QUARTER ENDED TWO QUARTERS ENDED
----------------------- -----------------------
JUNE 30, JULY 31, JUNE 30, JULY 31,
2001 2000 2001 2000
-------- -------- -------- --------
Sales ......................................... $130,445 $133,261 $266,129 $258,143
Commission income ............................. 259 110 665 303
-------- -------- -------- --------
Total revenue .............................. 130,704 133,371 266,794 258,446
-------- -------- -------- --------
Operating costs and expenses:
Cost of sales .............................. 109,616 114,393 223,650 222,717
Selling, general and administrative expenses 13,280 14,404 27,402 28,116
Environmental expense recovery ............. (282) -- (600) (750)
-------- -------- -------- --------
Total operating costs and expenses ......... 122,614 128,797 250,452 250,083
-------- -------- -------- --------
Operating income ........................... 8,090 4,574 16,342 8,363
Other income (expense):
Other income, net .......................... 75 5,335 132 5,350
Interest expense, net ...................... (3,243) (2,777) (6,337) (5,349)
-------- -------- -------- --------
Income before income tax provision and
minority interest ....................... 4,922 7,132 10,137 8,364
Income tax provision .......................... 2,758 1,875 5,053 3,491
-------- -------- -------- --------
Income before minority interest ............ 2,164 5,257 5,084 4,873
Minority interest ............................. (16) 28 52 57
-------- -------- -------- --------
Net income ................................. 2,148 5,285 5,136 4,930
Other comprehensive income (loss):
Foreign currency translation adjustment .... 11 (2,428) (2,814) (3,126)
Deferred loss on derivatives ............... (126) -- (192) --
-------- -------- -------- --------
Comprehensive income ....................... $ 2,033 $ 2,857 $ 2,130 $ 1,804
======== ======== ======== ========
See notes to condensed unaudited consolidated financial statements.
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4
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
JUNE 30, DECEMBER 31,
2001 2000
----------- ------------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents ........................... $ 25,961 $ 33,402
Accounts and notes receivable, net .................. 73,127 69,212
Inventories ......................................... 97,731 91,176
Other current assets ................................ 11,428 14,820
-------- --------
Total current assets ............................. 208,247 208,610
Property, plant and equipment, net ..................... 59,253 61,428
Other assets ........................................... 20,209 20,117
-------- --------
Total ............................................ $287,709 $290,155
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Short-term debt and current portion of long-term debt $ 6,406 $ 11,305
Trade payables ...................................... 44,900 44,985
Accrued expenses .................................... 25,206 27,335
Other current liabilities ........................... 4,167 4,116
-------- --------
Total current liabilities ........................ 80,679 87,741
-------- --------
Long-term Liabilities:
Long-term debt ...................................... 122,339 115,420
Accrued pension liabilities ......................... 29,851 33,442
Environmental liabilities, net ...................... 28,857 30,219
Other liabilities ................................... 6,549 7,029
-------- --------
Total long-term liabilities ...................... 187,596 186,110
-------- --------
Total liabilities ................................ 268,275 273,851
-------- --------
Minority Interest ...................................... 500 557
-------- --------
Shareholder's Equity:
Common stock ........................................ 50 50
Due from parent company ............................. (19,714) (19,714)
Additional paid-in capital .......................... 48,723 47,666
Accumulated other comprehensive loss ................ (9,497) (6,491)
Retained deficit .................................... (628) (5,764)
-------- --------
Total shareholder's equity ....................... 18,934 15,747
-------- --------
Total ............................................ $287,709 $290,155
======== ========
See notes to condensed unaudited consolidated financial statements.
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5
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
TWO QUARTERS ENDED
----------------------
JUNE 30, JULY 31,
2001 2000
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................................. $ 5,136 $ 4,930
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization .......................................... 5,271 4,156
Loss (gain) on sale of assets .......................................... 96 (5,133)
Deferred income taxes .................................................. 2,097 1,354
-------- --------
Total .............................................................. 12,600 5,307
Change in operating assets and liabilities:
Increase in trade receivables .......................................... (9,051) (10,335)
Increase in inventories ................................................ (10,381) (8,336)
Decrease (increase) in other current assets ............................ 2,095 (4,617)
Increase in trade payables and accrued expenses ........................ 2,520 3,546
Restructuring payments ................................................. (45) (1,431)
Environmental payments ................................................. (1,069) (1,014)
Other assets and liabilities, net ...................................... (2,043) (2,679)
-------- --------
Net cash used in operating activities .............................. (5,374) (19,559)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment .................................. (5,535) (8,735)
Proceeds from asset sales ................................................... 57 8,354
Acquisitions, net of cash ................................................... -- (9,392)
Other, net .................................................................. 41 41
-------- --------
Net cash used in investing activities .............................. (5,437) (9,732)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds of long-term debt .............................................. 7,851 7,362
Net short-term (repayments) borrowings ...................................... (3,085) 9,882
Minority interest contribution .............................................. -- 676
-------- --------
Net cash provided by financing activities .......................... 4,766 17,920
-------- --------
Effects of exchange rate changes on cash and cash equivalents ............... (1,396) (452)
-------- --------
Net decrease in cash and cash equivalents ................................... (7,441) (11,823)
Cash and cash equivalents - beginning of period ............................. 33,402 58,611
-------- --------
Cash and cash equivalents - end of period ................................... $ 25,961 $ 46,788
======== ========
See notes to condensed unaudited consolidated financial statements.
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METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed unaudited consolidated financial statements
include the accounts of Metallurg, Inc. and its majority-owned subsidiaries
(collectively, "Metallurg"). These financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information pursuant to Accounting Principles Board Opinion No. 28. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. The condensed
consolidated balance sheet as of December 31, 2000 was derived from audited
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the interim periods presented are not
necessarily indicative of the results to be expected for a full year.
Metallurg is a wholly owned subsidiary of Metallurg Holdings, Inc.
("Metallurg Holdings") since the acquisition date of July 13, 1998. The
financial statements do not reflect the pushdown of purchase accounting
adjustments recorded by Metallurg Holdings.
For further information, see the financial statements and footnotes
thereto included in Metallurg's audited consolidated financial statements for
the year ended December 31, 2000.
Effective December 31, 2000, Metallurg, Inc. changed from a fiscal year
ending January 31 to a calendar year. As a result, Metallurg, Inc. no longer
reports the results of its operating subsidiaries on a one-month lag. The
quarter ended July 31, 2000 includes operating results of Metallurg, Inc., the
parent holding company, for the three months ended July 31, 2000 and worldwide
operating results for the three months ended June 30, 2000. The two quarters
ended July 31, 2000 include the results of Metallurg Inc., the parent holding
company, for the six months ended July 31, 2000 and worldwide operating results
for the six months ended June 30, 2000.
Certain prior year amounts were reclassified to conform to current year
presentations.
2. SEGMENTS AND RELATED INFORMATION
Metallurg operates in one significant industry segment, the manufacture
and sale of performance-enhancing additives mainly for the metallurgical
industry. Metallurg is organized around its major production facilities in the
U.S., the U.K., Germany and Brazil, which are supported by an established
worldwide sales network. In addition to selling products manufactured by
Metallurg, Metallurg distributes complementary products manufactured by third
parties.
Reportable Segments
Shieldalloy Metallurgical Corporation ("Shieldalloy") - This unit is
comprised of two production facilities in the U.S. The New Jersey plant
manufactures and sells aluminum alloy grain refiners and alloying tablets for
the aluminum industry, metal powders for the welding industry and specialty
ferroalloys for the superalloy and steel industries. The Ohio plant manufactures
and sells ferrovanadium and vanadium-based chemicals used mostly in the steel
and petrochemical industries.
London & Scandinavian Metallurgical Co Limited and its subsidiaries
(collectively, "LSM") - This unit is comprised mainly of three production
facilities in the U.K., one in Poland and another in Norway which manufacture
and sell aluminum alloy grain refiners and alloying tablets for the aluminum
industry, chromium metal and specialty ferroalloys for the steel and superalloy
industries and aluminum powder for various metal powder-consuming industries.
The Norwegian facility ("Hydelko") was acquired on March 31, 2000.
5
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METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS - (CONTINUED)
2. SEGMENTS AND RELATED INFORMATION - (CONTINUED)
Gesellschaft fur Elektrometallurgie mbH and its subsidiaries
(collectively, "GfE") - This unit is comprised of two production facilities and
a sales office in Germany. The Nuremberg plant manufactures and sells a wide
variety of specialty products, including vanadium-based chemicals and
sophisticated metals, alloys and powders used in the titanium, superalloy,
electronics, telecommunications, biomedical and optics industries. The Morsdorf
plant produces medical prostheses, implants and surgical instruments for
orthopedic applications.
Elektrowerk Weisweiler GmbH ("EWW") -- This production unit, also
located in Germany, produces various grades of low carbon ferrochrome used in
the superalloy, welding and steel industries.
Companhia Industrial Fluminense ("CIF") -- This unit is comprised
mainly of two production facilities in Brazil. The Sao Joao del Rei plant
manufactures and sells aluminum alloy grain refiners and alloying tablets for
the aluminum industry and metal oxides used in the telecommunications,
superalloy and specialty metal industries. The Nazareno mine extracts and
concentrates ores containing tantalum and niobium that are processed, along with
other raw materials, into metal oxides at the Sao Joao del Rei plant.
In addition to their manufacturing operations, Shieldalloy, LSM and GfE
import and distribute complementary products manufactured by affiliates and
third parties.
Summarized financial information concerning Metallurg's reportable
segments is shown in the following table (in thousands). Each segment records
direct expenses related to its employees and operations. The "Other" column
includes corporate related items and results of subsidiaries not meeting the
quantitative thresholds as prescribed by applicable accounting rules. Metallurg
does not allocate general corporate overhead expenses to operating segments.
There have been no material changes in segment assets from the amounts disclosed
in the last annual report.
INTERSEGMENT CONSOLIDATED
SHIELDALLOY LSM GFE EWW CIF OTHER ELIMINATIONS TOTALS
----------- --------- --------- --------- --------- --------- ------------ ------------
QUARTER ENDED
JUNE 30, 2001
Revenue from external
customers ........ $ 25,940 $ 35,614 $ 21,791 $ 3,415 $ 3,766 $ 40,178 $ 130,704
Intergroup revenue .. 1,202 10,408 2,749 7,129 5,792 5,595 $ (32,875) --
Income tax provision 111 559 321 634 313 820 -- 2,758
Net (loss) income ... (360) 927 731 677 1,159 7,311 (8,297) 2,148
QUARTER ENDED
JULY 31, 2000
Revenue from external
customers ........ $ 31,824 $ 36,087 $ 22,432 $ 3,443 $ 3,804 $ 35,781 $ 133,371
Intergroup revenue .. 1,251 13,006 3,558 6,301 3,791 4,086 $ (31,993) --
Income tax provision 390 369 250 505 -- 361 -- 1,875
Net income .......... 576 1,082 50 315 647 13,632 (11,017) 5,285
6
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METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS - (CONTINUED)
2. SEGMENTS AND RELATED INFORMATION - (CONTINUED)
INTERSEGMENT CONSOLIDATED
SHIELDALLOY LSM GFE EWW CIF OTHER ELIMINATIONS TOTALS
----------- --------- --------- --------- --------- --------- ------------ ------------
TWO QUARTERS ENDED
JUNE 30, 2001
Revenue from external
customers ......... $ 51,105 $ 70,807 $ 45,765 $ 6,847 $ 7,861 $ 84,409 $ 266,794
Intergroup revenue ... 2,512 19,325 6,506 13,885 11,877 11,402 $ (65,507) --
Income tax (benefit)
provision ......... (314) 706 871 1,339 501 1,950 -- 5,053
Net (loss) income .... (1,115) 1,316 1,546 2,178 2,429 15,834 (17,052) 5,136
TWO QUARTERS ENDED
JULY 31, 2000
Revenue from external
customers ......... $ 59,086 $ 69,214 $ 43,525 $ 6,977 $ 7,241 $ 72,403 $ 258,446
Intergroup revenue ... 2,024 23,228 6,663 11,808 7,077 8,321 $ (59,121) --
Income tax provision . 882 1,010 373 701 4 521 -- 3,491
Net income (loss) .... 1,284 2,431 (593) 562 1,104 15,483 (15,341) 4,930
3. INVENTORIES
Inventories, net of reserves, consist of the following (in thousands):
JUNE 30, DECEMBER 31,
2001 2000
-------- ------------
Raw materials . $ 22,169 $ 20,491
Work in process 4,088 2,854
Finished goods 68,703 64,781
Other ......... 2,771 3,050
-------- --------
Total .... $ 97,731 $ 91,176
======== ========
4. CONTINGENT LIABILITIES
Metallurg continues to respond to legal claims arising in the normal
course of business. Management believes, based on the advice of counsel, that
the outcome of such claims will not have a material adverse effect on
Metallurg's consolidated financial position, results of operations or liquidity.
There can be no assurance, however, that future litigation or proceedings will
not result in an adverse judgment against Metallurg, which could have a material
adverse effect on Metallurg's future results of operations or cash flows.
5. EARNINGS PER SHARE
Earnings per share is not presented since Metallurg, Inc. is a wholly
owned subsidiary of Metallurg Holdings.
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METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS - (CONTINUED)
6. RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2001, Metallurg adopted Financial Accounting
Standards Board Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities", as amended ("SFAS 133"). As a result of adopting SFAS 133,
Metallurg recognizes all derivatives on the balance sheet at fair value.
Derivatives that are not designated hedges are adjusted to fair value through
income. Changes in the fair value of derivatives that are designated hedges are
either offset against the change in fair value of the hedged firm commitment
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings, depending on the nature of the hedge. The
adoption of SFAS 133 did not have a material effect on Metallurg's financial
statements.
7. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations",
which establishes accounting and reporting standards for business combinations,
and SFAS No. 142, "Goodwill and Other Intangible Assets", which addresses the
accounting and reporting of acquired goodwill and other intangible assets.
The provisions of SFAS No. 141 will apply to all business combinations
initiated after June 30, 2001. Metallurg is required to adopt SFAS 142 on
January 1, 2002. Metallurg does not expect either SFAS 141 or SFAS 142 to have a
material effect on its financial statements.
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METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS - (CONTINUED)
8. SUPPLEMENTAL GUARANTOR INFORMATION
In November 1997, Metallurg, Inc. issued $100 million principal amount
of its 11% Senior Notes due 2007 (the "Senior Notes"). Under the terms of the
Senior Notes, Shieldalloy, Metallurg Holdings Corporation, Metallurg Services,
Inc., Metallurg International Resources, LLC and MIR (China), Inc.
(collectively, the "Guarantors"), wholly owned subsidiaries of Metallurg, Inc.,
have fully and unconditionally guaranteed on a joint and several basis
Metallurg, Inc.'s obligations to pay principal, premium and interest relative to
the Senior Notes. Management has determined that separate, full financial
statements of the Guarantors would not be material to potential investors and,
accordingly, such financial statements are not provided. Supplemental financial
information of the Guarantors is presented below.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
QUARTER ENDED JUNE 30, 2001
(IN THOUSANDS)
COMBINED
COMBINED NON-
METALLURG, GUARANTOR GUARANTOR
INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------ ------------ ------------ ------------
Total revenue ............................ $ 42,395 $109,611 $(21,302) $130,704
-------- -------- -------- --------
Operating costs and expenses:
Cost of sales ......................... 37,325 92,988 (20,697) 109,616
Selling, general and administrative
expenses ........................... $ 1,266 2,600 9,771 (357) 13,280
Environmental expense recovery ........ -- (282) -- -- (282)
-------- -------- -------- -------- --------
Total operating costs and expenses .... 1,266 39,643 102,759 (21,054) 122,614
-------- -------- -------- -------- --------
Operating (loss) income ............... (1,266) 2,752 6,852 (248) 8,090
Other income (expense):
Other income, net ..................... -- 28,598 75 (28,598) 75
Interest (expense) income, net ........ (2,511) 215 (947) -- (3,243)
Equity in earnings of subsidiaries .... 4,605 (26,394) 1,240 20,549 --
-------- -------- -------- -------- --------
Income before income tax
provision and minority interest .... 828 5,171 7,220 (8,297) 4,922
Income tax (benefit) provision ........... (1,320) 1,641 2,437 -- 2,758
-------- -------- -------- -------- --------
Income before minority interest ....... 2,148 3,530 4,783 (8,297) 2,164
Minority interest ........................ -- -- (16) -- (16)
-------- -------- -------- -------- --------
Net income ............................ 2,148 3,530 4,767 (8,297) 2,148
Other comprehensive income (loss):
Foreign currency translation adjustment 11 355 (57) (298) 11
Deferred loss on derivatives .......... (126) -- (126) 126 (126)
-------- -------- -------- -------- --------
Comprehensive income .................. $ 2,033 $ 3,885 $ 4,584 $ (8,469) $ 2,033
======== ======== ======== ======== ========
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METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS - (CONTINUED)
8. SUPPLEMENTAL GUARANTOR INFORMATION - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
TWO QUARTERS ENDED JUNE 30, 2001
(IN THOUSANDS)
COMBINED
COMBINED NON-
METALLURG, GUARANTOR GUARANTOR
INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------ ------------ ------------ ------------
Total revenue ............................ $ 88,232 $220,460 $(41,898) $266,794
-------- -------- -------- --------
Operating costs and expenses:
Cost of sales ......................... 77,600 186,606 (40,556) 223,650
Selling, general and administrative
expenses ........................... $ 2,661 5,457 19,641 (357) 27,402
Environmental expense recovery ........ -- (600) -- -- (600)
-------- -------- -------- -------- --------
Total operating costs and expenses .... 2,661 82,457 206,247 (40,913) 250,452
-------- -------- -------- -------- --------
Operating (loss) income ............... (2,661) 5,775 14,213 (985) 16,342
Other income (expense):
Other income, net ..................... -- 28,598 132 (28,598) 132
Interest (expense) income, net ........ (4,883) 200 (1,654) -- (6,337)
Equity in earnings of subsidiaries .... 10,300 (24,071) 1,240 12,531 --
-------- -------- -------- -------- --------
Income before income tax
provision and minority interest .... 2,756 10,502 13,931 (17,052) 10,137
Income tax (benefit) provision ........... (2,380) 2,794 4,639 -- 5,053
-------- -------- -------- -------- --------
Income before minority interest ....... 5,136 7,708 9,292 (17,052) 5,084
Minority interest ........................ -- -- 52 -- 52
-------- -------- -------- -------- --------
Net income ............................ 5,136 7,708 9,344 (17,052) 5,136
Other comprehensive loss:
Foreign currency translation adjustment (2,814) (1,697) (2,882) 4,579 (2,814)
Deferred loss on derivatives .......... (192) -- (192) 192 (192)
-------- -------- -------- -------- --------
Comprehensive income .................. $ 2,130 $ 6,011 $ 6,270 $(12,281) $ 2,130
======== ======== ======== ======== ========
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METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS - (CONTINUED)
8. SUPPLEMENTAL GUARANTOR INFORMATION - (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET AT JUNE 30, 2001 (UNAUDITED)
(IN THOUSANDS)
COMBINED
COMBINED NON-
METALLURG, GUARANTOR GUARANTOR
INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------ ------------ ------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents ............ $ 15,906 $ 1,425 $ 16,903 $ (8,273) $ 25,961
Accounts, notes and loans
receivable, net ................... 22,776 27,957 65,049 (42,655) 73,127
Inventories .......................... -- 38,732 62,476 (3,477) 97,731
Other current assets ................. 7,457 3,896 8,946 (8,871) 11,428
-------- -------- -------- ---------- --------
Total current assets ........... 46,139 72,010 153,374 (63,276) 208,247
Investments - intergroup ................ 90,625 42,665 51,938 (185,228) --
Property, plant and equipment, net ...... 795 13,680 44,778 -- 59,253
Other assets ............................ 6,496 29,115 43,803 (59,205) 20,209
-------- -------- -------- ---------- --------
Total .......................... $144,055 $157,470 $293,893 $(307,709) $287,709
======== ======== ======== ========== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Short-term debt and current portion of
long-term debt .................... $ 14,679 $ (8,273) $ 6,406
Trade payables ....................... $ 2,783 $ 36,178 48,594 (42,655) 44,900
Accrued expenses ..................... 3,033 9,050 13,123 -- 25,206
Other current liabilities ............ -- 8,871 4,167 (8,871) 4,167
-------- -------- -------- ---------- --------
Total current liabilities ...... 5,816 54,099 80,563 (59,799) 80,679
-------- -------- -------- ---------- --------
Long-term Liabilities:
Long-term debt ..................... 100,000 -- 22,339 -- 122,339
Accrued pension liabilities ........ 942 42 28,867 -- 29,851
Environmental liabilities, net ..... -- 26,552 2,305 -- 28,857
Other liabilities .................. 18,363 -- 19,150 (30,964) 6,549
-------- -------- -------- ---------- --------
Total long-term liabilities .... 119,305 26,594 72,661 (30,964) 187,596
-------- -------- -------- ---------- --------
Total liabilities .............. 125,121 80,693 153,224 (90,763) 268,275
-------- -------- -------- ---------- --------
Minority Interest ....................... -- -- 500 -- 500
-------- -------- -------- ---------- --------
Shareholder's Equity:
Common stock ......................... 50 1,227 120,935 (122,162) 50
Due from parent company .............. (19,714) -- -- -- (19,714)
Additional paid-in capital ........... 48,723 94,460 11,927 (106,387) 48,723
Accumulated other comprehensive
(loss) income ..................... (9,497) (6,323) 12,170 (5,847) (9,497)
Retained deficit ..................... (628) (12,587) (4,863) 17,450 (628)
-------- -------- -------- ---------- --------
Total shareholder's equity ..... 18,934 76,777 140,169 (216,946) 18,934
-------- -------- -------- ---------- --------
Total .......................... $144,055 $157,470 $293,893 $(307,709) $287,709
======== ======== ======== ========== ========
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METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS - (CONTINUED)
8. SUPPLEMENTAL GUARANTOR INFORMATION - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
QUARTER ENDED JUNE 30, 2001
(IN THOUSANDS)
COMBINED
COMBINED NON-
METALLURG, GUARANTOR GUARANTOR
INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------ ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES ... $ (6,389) $ (4,604) $ 5,619 $ (5,374)
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment ........................ (21) (1,685) (3,829) (5,535)
Proceeds from asset sales ........... -- -- 57 57
Other, net .......................... 41 -- -- 41
-------- -------- -------- --------
Net cash provided by (used in)
investing activities .......... 20 (1,685) (3,772) (5,437)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Intergroup (repayments) borrowings .. (6,497) 6,130 367 --
Net proceeds of long-term debt ...... -- -- 7,851 7,851
Net short-term borrowings ........... -- -- (5,297) $ 2,212 (3,085)
Dividends received (paid) ........... 3,596 -- (3,596) -- --
-------- -------- -------- -------- --------
Net cash (used in) provided by
financing activities .......... (2,901) 6,130 (675) 2,212 4,766
-------- -------- -------- -------- --------
Effects of exchange rate changes on cash
and cash equivalents ................ -- -- (1,396) -- (1,396)
-------- -------- -------- -------- --------
Net decrease in cash and cash
equivalents ......................... (9,270) (159) (224) 2,212 (7,441)
Cash and cash equivalents -
beginning of period ................. 25,176 1,584 17,127 (10,485) 33,402
-------- -------- -------- -------- --------
Cash and cash equivalents -
end of period ....................... $ 15,906 $ 1,425 $ 16,903 $ (8,273) $ 25,961
======== ======== ======== ======== ========
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain matters discussed under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in this Form 10-Q may
constitute forward-looking statements for purposes of Section 21E of the
Securities Exchange Act of 1934, as amended, and as such may involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance and achievements of Metallurg to be materially different
from future results, performance or achievements expressed or implied by such
forward-looking statements. Factors which may cause Metallurg's results to be
materially different include the cyclical nature of Metallurg's business,
Metallurg's dependence on foreign customers (particularly customers in Europe),
the economic strength of Metallurg's markets generally and particularly the
strength of the demand for aluminum, superalloys, titanium alloys, iron and
steel in those markets, the accuracy of Metallurg's estimates of the costs of
environmental remediation and the extension or expiration of existing
anti-dumping duties.
OVERVIEW
Metallurg is a leading international producer and seller of high-quality
specialty metals, alloys and metallic chemicals which are essential to the
production of high-performance aluminum and titanium alloys, superalloys, steel
and certain non-metallic materials for engineered applications in the aerospace,
power supply, automotive, petrochemical processing and telecommunications
industries. The industries that Metallurg supplies are cyclical.
Over the first half of 2001, production in the aluminum industry has
subsided from the high levels of late 2000. The decline was particularly
pronounced in the U.S. during this period, and recently has become more notable
in Europe, Japan, and Southeast Asia. Demand for Metallurg's aluminum products
has thus been subdued in North America, but has held up well elsewhere during
the first half. Metallurg carried out a rationalization of its aluminum master
alloys and grain refiner production activities during the second quarter in
order to better utilize the capabilities of its various plants and better serve
customers in this competitive and increasingly global marketplace. As a result,
melting operations are currently discontinued at Shieldalloy's New Jersey
facility and production is being increased at plants in the U.K., Norway and
Brazil.
The superalloy industry operated at a high capacity level during the first
half of 2001 to meet heavy U.S. demand for power generation equipment and
aerospace materials, resulting in healthy demand for Metallurg's chromium and
high-purity niobium products.
U.S. steel production has been quite depressed during the first half of
2001 although there has been some improvement from the very low levels of
production seen at the beginning of the year. In most other parts of the world,
steel production remained stable, with little overall change since the latter
part of last year, with oil and gas pipeline plate production tending to
increase. Ferrovanadium demand in the U.S. was generally subdued while prices
rose slightly from the first quarter but remained at historically low levels.
During 2000, demand for electronic components containing tantalum
increased sharply, which impacted the price of all tantalum materials as the
year progressed. Metallurg benefited, particularly in the last three quarters,
in its various tantalum operations from the consequent strengthening of its
tantalum product prices. Prices have declined in 2001, but Metallurg's products
continue to be priced at higher levels than in the first half of 2000.
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RESULTS OF OPERATIONS - THE QUARTER ENDED JUNE 30, 2001 COMPARED TO THE QUARTER
ENDED JULY 31, 2000
Metallurg operates in one significant industry segment, the manufacture
and sale of performance-enhancing additives mainly for the metallurgical
industry. Metallurg is organized around its major production facilities in the
U.S., the U.K., Germany and Brazil, which are supported by an established
worldwide sales network. In addition to its own products, Metallurg distributes
products manufactured by third parties. This is a natural complement to
Metallurg's manufacturing operations and leverages its global sales staff by
providing a broader product offering to existing customers without incurring
significant additional overhead.
Summarized financial information concerning Metallurg's reportable
segments is shown in the following table (in thousands). Each segment records
direct expenses related to its employees and operations. The "Other" column
includes corporate related items and results of subsidiaries not meeting the
quantitative thresholds as prescribed by applicable accounting rules. Metallurg
does not allocate general corporate overhead expenses to operating segments.
There have been no material changes in segment assets from the amounts disclosed
in the last annual report.
INTERSEGMENT CONSOLIDATED
SHIELDALLOY LSM GFE EWW CIF OTHER ELIMINATIONS TOTALS
----------- --------- --------- --------- --------- --------- ------------ ------------
QUARTER ENDED
JUNE 30, 2001
Total revenue ......... $ 27,142 $ 46,022 $ 24,540 $ 10,544 $ 9,558 $ 45,773 $ (32,875) $ 130,704
Gross profit .......... 1,755 4,642 4,980 1,726 2,107 6,483 (605) 21,088
SG&A .................. 2,092 2,598 3,703 451 464 4,326 (354) 13,280
Environmental expense
recovery ........... (282) -- -- -- -- -- -- (282)
Operating (loss) income (225) 1,878 1,277 1,275 1,643 2,490 (248) 8,090
Interest (expense)
income, net ........ (24) (404) (233) 36 (171) (2,447) -- (3,243)
Income tax provision .. 111 559 321 634 313 820 -- 2,758
Net (loss) income ..... (360) 927 731 677 1,159 7,311 (8,297) 2,148
QUARTER ENDED
JULY 31, 2000
Total revenue ......... $ 33,075 $ 49,093 $ 25,990 $ 9,744 $ 7,595 $ 39,867 $ (31,993) $ 133,371
Gross profit .......... 3,465 4,492 4,318 1,310 1,048 4,421 (76) 18,978
SG&A .................. 2,604 2,681 3,705 498 378 4,578 (40) 14,404
Operating income ...... 691 1,650 613 812 670 214 (76) 4,574
Interest income
(expense), net ..... 275 (374) (360) 8 (24) (2,302) -- (2,777)
Income tax provision .. 390 369 250 505 -- 361 -- 1,875
Net income ............ 576 1,082 50 315 647 13,632 (11,017) 5,285
Total Revenue
Consolidated total revenue decreased by $2.7 million (2%) in the second
quarter of 2001 as compared to the second quarter of 2000. Shieldalloy revenue
was $5.9 million (18%) below the second quarter of 2000 due primarily to
decreased sales volume and prices of vanadium, aluminum and niobium products.
LSM revenue was $3.1 million (6%) below the second quarter of 2000. An increase
in sales volume of aluminum products and sales volume and prices of
ferrotitanium was offset by a discontinuation of sales of certain low-margin
products sourced from third parties. GfE revenue was $1.5 million (6%) below the
second quarter of 2000 due primarily to increased sales volume and selling
prices of specialty coating materials and alloys for the titanium industry
offset by lower sales volume of third-party nickel and niobium products sold to
the iron and steel industries. CIF revenue was $2.0 million (26%) above the
first quarter of 2000 due primarily to increased selling prices of tantalum
products. Increased revenue at EWW and from distribution activities included in
"Other" above was primarily the result of increased volume and/or selling prices
of tantalum-containing products.
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16
Gross Profit
Gross profit increased to $21.1 million (16.1% of total revenue) in the
quarter ended June 30, 2001 from $19.0 million (14.2% of total revenue) in the
quarter ended July 31, 2000, an increase of 11%. Improved profitability in
tantalum-containing products and specialty coating materials was offset somewhat
by reduced profitability of ferrovanadium, ferrotitanium and aluminum products.
Selling, General and Administrative Expenses ("SG&A")
SG&A decreased slightly to $13.3 million in the quarter ended June 30,
2001 from $14.4 million in the quarter ended July 31, 2000. For the quarter
ended June 30, 2001, SG&A represented 10.2% of total revenue compared to 10.8%
for the quarter ended July 31, 2000.
Operating Income
Operating income increased to $8.1 million in the quarter ended June 30,
2001 from $4.6 million in the quarter ended July 31, 2000, due primarily to the
increase in gross profit, discussed above. In addition, Shieldalloy recognized
an environmental expense recovery of $0.3 million in the quarter ended June 30,
2001 upon settlement of a legal action relating to environmental matters at its
New Jersey facility.
Interest Expense, Net
Interest expense, net, is as follows (in thousands):
QUARTER ENDED
---------------------
JUNE 30, JULY 31,
2001 2000
-------- --------
Interest income ........ $ 486 $ 883
Interest expense ....... (3,729) (3,660)
-------- --------
Interest expense, net $ (3,243) $ (2,777)
======== ========
Income Tax Provision, Net
Income tax provision, net of tax benefits, is as follows (in thousands):
QUARTER ENDED
---------------------
JUNE 30, JULY 31,
2001 2000
-------- --------
Total current .............. $ 1,648 $ 1,093
Total deferred ............. 1,110 782
-------- --------
Income tax provision, net $ 2,758 $ 1,875
======== ========
The difference between the statutory federal income tax rate and
Metallurg's effective rate for the quarter ended June 30, 2001 is principally
due to: (i) losses in certain foreign jurisdictions for which the related
deferred tax was offset by a valuation allowance; (ii) the deferred tax effects
of certain tax assets, primarily foreign net operating losses, for which the
benefit had been previously recognized of $0.2 million in the quarter ended June
30, 2001; and (iii) the deferred tax effects of certain deferred tax assets for
which a corresponding credit has been recorded to "Additional paid-in capital",
of $0.6 million in the quarter ended June 30, 2001. The deferred tax expenses
referred to in items (ii) and (iii) above will not result in cash payments in
future periods.
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17
Net Income
Net income was $2.1 million in the quarter ended June 30, 2001 compared to
$5.3 million for the quarter ended July 31, 2000. The net income for the quarter
ended June 30, 2001 benefited primarily from the increased gross margins,
discussed above, whereas the net income for the quarter ended July 31, 2000
resulted primarily from a gain of $5.1 million, recorded in other income, on the
sale of Metallurg's interest in Solikamsk Magnesium Works ("SMW").
RESULTS OF OPERATIONS - THE TWO QUARTERS ENDED JUNE 30, 2001 COMPARED TO THE TWO
QUARTERS ENDED JULY 31, 2000
INTERSEGMENT CONSOLIDATED
SHIELDALLOY LSM GFE EWW CIF OTHER ELIMINATIONS TOTALS
----------- --------- --------- --------- --------- --------- ------------ ------------
TWO QUARTERS ENDED
JUNE 30, 2001
Total revenue ......... $ 53,617 $ 90,132 $ 52,271 $ 20,732 $ 19,738 $ 95,811 $ (65,507) $ 266,794
Gross profit .......... 2,772 8,398 10,434 4,426 4,197 14,259 (1,342) 43,144
SG&A .................. 4,437 5,362 7,537 1,007 930 8,469 (340) 27,402
Environmental expense
recovery ........... (600) -- -- -- -- -- -- (600)
Operating (loss) income (1,405) 2,695 2,897 3,419 3,267 6,454 (985) 16,342
Interest (expense)
income, net ........ (24) (751) (530) 98 (337) (4,793) -- (6,337)
Income tax (benefit)
provision .......... (314) 706 871 1,339 501 1,950 -- 5,053
Net (loss) income ..... (1,115) 1,316 1,546 2,178 2,429 15,834 (17,052) 5,136
TWO QUARTERS ENDED
JULY 31, 2000
Total revenue ......... $ 61,110 $ 92,442 $ 50,188 $ 18,785 $ 14,318 $ 80,724 $ (59,121) $ 258,446
Gross profit .......... 5,933 9,491 7,675 2,369 1,909 8,188 164 35,729
SG&A .................. 4,744 5,436 7,308 1,119 750 8,840 (81) 28,116
Environmental expense
recovery ........... (750) -- -- -- -- -- -- (750)
Operating income ...... 1,599 3,725 367 1,250 1,159 99 164 8,363
Interest income
(expense), net ..... 567 (454) (663) 13 (52) (4,760) -- (5,349)
Income tax provision .. 882 1,010 373 701 4 521 -- 3,491
Net income (loss) ..... 1,284 2,431 (593) 562 1,104 15,483 (15,341) 4,930
Total Revenue
Consolidated total revenue increased by $8.3 million (3%) in the first two
quarters of 2001 as compared to the first two quarters of 2000. Shieldalloy
revenue was $7.5 million (12%) below the first two quarters of 2000. Increased
sales volume of chrome products was more than offset by lower sales volume and
prices of vanadium and aluminum products. LSM revenue was $2.3 million (2%)
below the first two quarters of 2000. An increase in sales of aluminum products,
due primarily to the acquisition of Hydelko on March 31, 2000, and higher sales
prices and volumes of ferrotitanium and compacted products were offset by a
discontinuation of sales of certain low-margin products sourced from third
parties. GfE revenue was $2.1 million (4%) above the first two quarters of 2000
due primarily to increased sales volume and selling prices of specialty coating
materials and alloys for the titanium industry offset by decreased volume and
selling prices of third-party nickel products. CIF revenue was $5.4 million
(38%) above the first two quarters of 2000 due primarily to increased selling
prices of tantalum products. Increased revenue at EWW and from distribution
activities included in "Other" above was primarily the result of increased
volume and/or selling prices of tantalum-containing products.
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Gross Profit
Gross profit increased to $43.1 million (16.2% of total revenue) in the
two quarters ended June 30, 2001 from $35.7 million (13.8% of total revenue) in
the two quarters ended July 31, 2000, an increase of 21%. Improved profitability
in tantalum-containing products and specialty coating materials was offset
somewhat by reduced profitability of ferrovanadium, ferrotitanium and aluminum
products.
Selling, General and Administrative Expenses
SG&A decreased slightly to $27.4 million in the two quarters ended June
30, 2001 from $28.1 million in the two quarters ended July 31, 2000. For the two
quarters ended June 30, 2001, SG&A represented 10.3% of total revenue compared
to 10.9% for the two quarters ended July 31, 2000.
Operating Income
Operating income increased to $16.3 million in the two quarters ended June
30, 2001 from $8.4 million in the two quarters ended July 31, 2000, due
primarily to the increase in gross profit, discussed above. In addition,
Shieldalloy recognized an environmental expense recovery of $0.6 million in the
two quarters ended June 30, 2001 compared to $0.8 million in the two quarters
ended July 31, 2000 upon settlements of legal actions relating to environmental
matters at its New Jersey facility.
Interest Expense, Net
Interest expense, net, is as follows (in thousands):
TWO QUARTERS ENDED
----------------------
JUNE 30, JULY 31,
2001 2000
-------- --------
Interest income ........ $ 1,028 $ 1,663
Interest expense ....... (7,365) (7,012)
-------- --------
Interest expense, net $ (6,337) $ (5,349)
======== ========
Income Tax Provision, Net
Income tax provision, net of tax benefits, is as follows (in thousands):
TWO QUARTERS ENDED
----------------------
JUNE 30, JULY 31,
2001 2000
-------- --------
Total current .............. $ 2,956 $ 2,137
Total deferred ............. 2,097 1,354
-------- --------
Income tax provision, net $ 5,053 $ 3,491
======== ========
The difference between the statutory federal income tax rate and
Metallurg's effective rate for the two quarters June 30, 2001 is principally due
to: (i) losses in certain foreign jurisdictions for which the related deferred
tax was offset by a valuation allowance; (ii) the deferred tax effects of
certain tax assets, primarily foreign net operating losses, for which the
benefit had been previously recognized of $0.7 million in the two quarters ended
June 30, 2001; and (iii) the deferred tax effects of certain deferred tax assets
for which a corresponding credit has been recorded to "Additional paid-in
capital", of $1.1 million in the two quarters ended June 30, 2001. The deferred
tax expenses referred to in items (ii) and (iii) above will not result in cash
payments in future periods.
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Net Income
Net income was $5.1 million in the two quarters ended June 30, 2001
compared to $4.9 million for the two quarters ended July 31, 2000. The net
income for the two quarters ended June 30, 2001 benefited primarily from the
increased gross margins, discussed above, whereas the net income for the two
quarters ended July 31, 2000 resulted primarily from a gain of $5.1 million,
recorded in other income, on the sale of Metallurg's interest in SMW.
LIQUIDITY AND FINANCIAL RESOURCES
General
Metallurg's sources of liquidity include cash and cash equivalents, cash
from operations and amounts available under credit facilities. At June 30, 2001,
Metallurg had $26.0 million in cash and cash equivalents. Metallurg believes
that these sources are sufficient to fund current and anticipated future
requirements through the next twelve months.
At June 30, 2001, Metallurg had working capital of $127.6 million, as
compared to $120.9 million at December 31, 2000. For the first two quarters of
2001, Metallurg's use of $5.4 million in cash for operations resulted primarily
from net income, which was more than offset by the increase in trade receivables
and inventory and the $5.5 million semi-annual interest payment on the Senior
Notes.
Credit Facilities and Other Financing Arrangements
Metallurg has a credit facility with certain financial institutions led by
Fleet National Bank as agent (the "Revolving Credit Facility") which provides
Metallurg, Inc., Shieldalloy and certain of their subsidiaries with up to $50.0
million of financing resources, including a German subfacility (as discussed
below). Interest is charged at a rate per annum equal to (i) LIBOR plus 2.0% -
2.5% or (ii) Prime plus up to 1%, based on the performance of Metallurg, Inc.
and certain of its subsidiaries. The Revolving Credit Facility permits
borrowings of up to $50.0 million for working capital requirements and general
corporate purposes, up to $35.0 million of which may be used for letters of
credit in the U.S. As part of the Revolving Credit Facility, Fleet National
Bank, through its London office, makes available up to DM 20.5 million ($8.9
million) of financing to GfE, which is guaranteed by Metallurg, Inc. and the
other U.S. borrowers under the Revolving Credit Facility. At June 30, 2001, $0.9
million of loans were outstanding in Germany and $23.2 million of letters of
credit were outstanding in the U.S.
During the second quarter, LSM extended and restructured its revolving
credit facilities and term loans with Barclays Bank plc and HSBC Bank plc. The
agreements provide LSM with several facilities. Three overdraft facilities
provide LSM with up to L8.5 million ($12.0 million) of borrowings, L43.3 million
($61.3 million) in notional amount of foreign exchange contracts and options and
L2.8 million ($4.0 million) for other ancillary banking arrangements, including
bank guarantees. Borrowings under these facilities are payable on demand.
Outstanding loans under this facility bear interest at a rate of 1.0% over the
lender's base rate. Four revolving term loan facilities provide for borrowings
up to L12.0 million ($17.0 million) at interest rates of LIBOR plus 0.75% -
0.95%. LSM is required to pay fees ranging from 0.375% to 0.475% per annum on
the unused portion of these facilities. Two of the facilities expire during the
second quarter of 2004 while the other two expire during the second quarter of
2006. These term loan facilities require LSM to comply with various covenants,
including the maintenance of minimum net worth and interest coverage. The
proceeds from these loans were used to refinance existing term loans and
overdraft facilities. At June 30, 2001 LSM had L2.0 million ($2.8 million)
outstanding under the overdraft facilities and L12.0 million ($17.0 million)
outstanding under the revolving term loan facilities.
In addition, certain other foreign subsidiaries of Metallurg have credit
facility arrangements with local banking institutions to provide funds for
working capital and general corporate purposes. These local credit facilities
contain restrictions that vary from company to company. At June 30, 2001, there
were $1.4 million of outstanding loans under these local credit facilities.
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CAPITAL EXPENDITURES
Metallurg invested $5.5 million in capital expenditures during the first
two quarters of 2001. Capital expenditures are expected to total approximately
$20 million in 2001. Although Metallurg has projected these items in 2001,
Metallurg has not committed purchases to vendors for all of these projects as
some projects remain contingent on final approvals and other conditions and the
actual timing of expenditures may extend into 2002. Metallurg believes that
these projects will be funded through existing and future internally generated
cash and credit lines.
ENVIRONMENTAL REMEDIATION COSTS
Losses associated with environmental remediation obligations are accrued
when such losses are deemed probable and reasonably estimable. Such accruals
generally are recognized no later than the completion of the remedial
feasibility study and are adjusted as further information develops or
circumstances change. Costs of future expenditures for environmental remediation
obligations are generally not discounted to their present value. During the
first two quarters of 2001, Metallurg expended $1.1 million for environmental
remediation activities that have been previously accrued for.
In 1997, Shieldalloy entered into settlement agreements with various
environmental regulatory authorities with regard to all of the significant
environmental remediation liabilities of which it is aware. Pursuant to these
agreements, Shieldalloy has agreed to perform environmental remediation that, as
of June 30, 2001, had an accrual of $31.6 million for the remaining estimated
cost of completion. Of this amount, $2.6 million is expected to be expended in
the last two quarters of 2001, $5.4 million in 2002 and $2.3 million in 2003. In
addition, Metallurg had accruals of $2.9 million for estimated expenditures with
respect to environmental remediation at its foreign facilities. Of this amount,
$0.9 million is expected to be expended over the next three years.
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ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
Refer to the Market Risk section of Management's Discussion and Analysis
of Financial Condition and Results of Operations included in Metallurg's annual
report on Form 10-K for the year ended December 31, 2000, which is incorporated
by reference herein.
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PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Registrant has previously reported that it was a defendant in an
action brought by local residents alleging personal injury and property damage
from groundwater contamination and other exposure to hazardous materials
allegedly originating from Shieldalloy's New Jersey plant. In June 2001, this
action was settled and all claims against Metallurg were dismissed with
prejudice.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
None
(b) REPORTS ON FORM 8-K
None
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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 August 13, 2001 on its
behalf by the undersigned thereunto duly authorized.
METALLURG, INC.
By: /s/ Barry C. Nuss
----------------------------
Barry C. Nuss
Vice President, Finance and
Chief Financial Officer
22