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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 March 31, 2003
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 HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 23-2967577
(State of organization) (I.R.S. Employer Identification No.)
Building 400
435 Devon Park Drive (610) 293-0838
Wayne, Pennsylvania 19087 (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 is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934) Yes [_] No [X]
There are no common equity securities of the registrant outstanding. At May
13, 2003, the outstanding capital of Metallurg Holdings, Inc. was comprised of
5,202.335 shares of Series A Voting Convertible Preferred Stock and 4,524 shares
of Series B Non-Voting Convertible Preferred Stock, $.01 par value.
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
INDEX
Page No.
--------
Part I. FINANCIAL INFORMATION:
Item 1 - Financial Statements (Unaudited)
Condensed Statements of Consolidated Operations for the Quarters Ended
March 31, 2003 and 2002............................................. 2
Condensed Consolidated Balance Sheets at March 31, 2003 and
December 31, 2002................................................... 3
Condensed Statements of Consolidated Cash Flows for the Quarters Ended
March 31, 2003 and 2002............................................. 4
Notes to Condensed Unaudited Consolidated Financial Statements......... 5-10
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations....................................................... 11-17
Item 3 - Quantitative and Qualitative Disclosure of Market Risk................. 18
Item 4 - Controls and Procedures................................................ 18
Part II. OTHER INFORMATION:
Item 6. (a) Exhibits............................................................ 18
Item 6. (b) Reports on Form 8-K................................................. 18
Signature Page.................................................................. 19
Officers' Certifications........................................................ 20-21
1
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
(In thousands)
Quarters Ended
March 31,
-----------------
2003 2002
------- -------
Sales ........................................................... $89,495 $77,505
Commission income ............................................... 139 175
------- -------
Total revenue ................................................ 89,634 77,680
------- -------
Operating costs and expenses:
Cost of sales ................................................ 79,728 70,838
Selling, general and administrative expenses ................. 9,098 9,648
Environmental expense recovery ............................... -- (3,000)
------- -------
Total operating costs and expenses ........................... 88,826 77,486
------- -------
Operating income .......................................... 808 194
Other income (expense):
Other income, net ............................................ 40 57
Interest expense, net ........................................ (4,551) (4,489)
------- -------
Loss before income tax provision and minority interest .... (3,703) (4,238)
Income tax provision ............................................ 443 127
------- -------
Loss before minority interest ............................. (4,146) (4,365)
Minority interest ............................................... (32) (9)
------- -------
Net loss .................................................. (4,178) (4,374)
Other comprehensive income (loss):
Foreign currency translation adjustment ...................... 294 (763)
Deferred gain on derivatives, net ............................ 11 45
------- -------
Comprehensive loss ........................................ $(3,873) $(5,092)
======= =======
See notes to condensed unaudited consolidated financial statements.
2
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, December 31,
2003 2002
----------- ------------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents .............................. $ 24,699 $ 29,443
Accounts receivable, net ............................... 52,964 51,786
Inventories ............................................ 67,778 65,741
Prepaid expenses and other current assets .............. 10,384 9,776
-------- --------
Total current assets ................................ 155,825 156,746
Goodwill .................................................. 43,524 43,555
Property, plant and equipment, net ........................ 64,898 66,522
Other assets .............................................. 23,287 22,981
-------- --------
Total ............................................... $287,534 $289,804
======== ========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Short-term debt and current portion of long-term debt .. $ 5,616 $ 6,272
Accounts payable ....................................... 34,811 37,125
Accrued expenses ....................................... 20,862 18,593
Other current liabilities .............................. 2,705 2,067
-------- --------
Total current liabilities ........................... 63,994 64,057
-------- --------
Long-term Liabilities:
Long-term debt ......................................... 159,508 158,743
Accrued pension liabilities ............................ 48,611 47,509
Environmental liabilities, net ......................... 25,922 26,285
Other liabilities ...................................... 1,441 1,394
-------- --------
Total long-term liabilities ......................... 235,482 233,931
-------- --------
Total liabilities ................................... 299,476 297,988
-------- --------
Minority Interest ......................................... 474 462
-------- --------
Shareholders' Deficit:
Additional paid-in capital ............................. 71,820 71,717
Accumulated other comprehensive loss ................... (37,913) (38,218)
Retained deficit ....................................... (46,323) (42,145)
-------- --------
Total shareholders' deficit ......................... (12,416) (8,646)
-------- --------
Total ............................................... $287,534 $289,804
======== ========
See notes to condensed unaudited consolidated financial statements.
3
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
(In thousands)
Quarters Ended
March 31,
-----------------
2003 2002
------- -------
Cash Flows from Operating Activities:
Net loss ............................................................ $(4,178) $(4,374)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization .................................... 2,235 2,012
Interest accretion on the Senior Discount Notes .................. 1,198 1,177
Deferred income taxes ............................................ (451) (102)
Change in operating assets and liabilities:
Increase in accounts receivable ............................... (980) (1,139)
(Increase) decrease in inventories ............................ (1,585) 1,899
(Increase) decrease in other current assets ................... (1,186) 124
Increase in accounts payable and accrued expenses ............. 753 2,956
Environmental payments ........................................ (565) (405)
Restructuring payments ........................................ (413) (8)
Other assets and liabilities, net ............................. 944 (135)
------- -------
Net cash (used in) provided by operating activities ........ (4,228) 2,005
------- -------
Cash Flows from Investing Activities:
Additions to property, plant and equipment .......................... (950) (4,316)
Repayment of loan by related party .................................. 1,000 4,000
Other, net .......................................................... 54 40
------- -------
Net cash provided by (used in) investing activities ........ 104 (276)
------- -------
Cash Flows from Financing Activities:
Repayment of long-term debt, net .................................... (88) (85)
(Repayments) borrowings of short-term debt, net ..................... (666) 539
------- -------
Net cash (used in) provided by financing activities ........ (754) 454
------- -------
Effects of exchange rate changes on cash and cash equivalents ....... 134 (288)
------- -------
Net (decrease) increase in cash and cash equivalents ................ (4,744) 1,895
Cash and cash equivalents - beginning of period ..................... 29,443 31,857
------- -------
Cash and cash equivalents - end of period ........................... $24,699 $33,752
======= =======
See notes to condensed unaudited consolidated financial statements.
4
METALLURG HOLDINGS, 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 Holdings, Inc. ("Metallurg Holdings") and its
majority-owned subsidiaries (collectively, the "Company"). 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, these financial statements 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, 2002 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.
The Company is wholly owned by a group of investors led by and including
Safeguard International Fund, L.P. ("Safeguard International"), an international
private equity fund that invests primarily in equity securities of companies in
process industries.
Metallurg Holdings' balance sheet is comprised primarily of its investment
in Metallurg, Inc. and its 12 3/4% Senior Discount Notes due 2008 (the "Senior
Discount Notes").
For further information, see the financial statements and footnotes thereto
included in the Company's audited consolidated financial statements for the year
ended December 31, 2002.
The Company has restated its financial statements for all prior periods to
reflect a new reporting entity that excludes certain subsidiaries sold to
related parties on December 31, 2002. The Company received repayment of loans to
one of these former subsidiaries of $1,000,000 and $4,000,000 in the quarters
ended March 31, 2003 and 2002, respectively.
2. Stock-Based Compensation
The Company accounts for Metallurg, Inc.'s stock-based compensation plan
using the intrinsic value method in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations. Accordingly, no compensation cost is reflected in net income,
as all options granted under this plan had an exercise price at least equal to
the estimated market value of the underlying common stock on the date of grant.
The following table illustrates the effect on net income if the Company had
applied the fair value measurement and recognition methods prescribed by
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation" to record expense for stock option compensation (in
thousands):
Quarter Ended March 31,
-----------------------
2003 2002
------- -------
Net loss, as reported ........................................ $(4,178) $(4,374)
Less: compensation expense for option awards determined by the
fair value based method, net of related tax effects ....... 14 66
------- -------
Pro forma net loss ..................................... $(4,192) $(4,440)
======= =======
3. Segments and Related Information
The Company operates in one significant industry segment, the manufacture
and sale of performance-enhancing additives mainly for the metallurgical
industry. The Company is organized around its major production facilities in the
U.K., the U.S., Brazil and Germany, which are supported by an established
worldwide sales network. In addition to its own products, the Company
distributes complementary products manufactured by third parties.
5
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS - (Continued)
3. Segments and Related Information - (Continued)
Reportable Segments
London & Scandinavian Metallurgical Co Limited and its subsidiaries
(collectively, "LSM") - This unit is comprised mainly of three production
facilities in the U.K. 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.
Shieldalloy Metallurgical Corporation ("SMC") - This unit is comprised of
two production facilities in the U.S. The Ohio plant manufactures and sells
ferrovanadium and vanadium-based chemicals used mostly in the steel and
petrochemical industries. The New Jersey plant currently manufactures and sells
alloying tablets for the aluminum industry and metal powders for the welding
industry.
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.
Elektrowerk Weisweiler GmbH ("EWW") - This production unit, located in
Germany, produces various grades of low carbon ferrochrome used in the
superalloy, welding and steel industries.
In addition to their manufacturing operations, LSM and SMC import and
distribute complementary products manufactured by affiliates and third parties.
Summarized financial information concerning the Company'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 for
determining reportable segments. The Company does not allocate general corporate
overhead expenses to operating segments. The accounting policies of the segments
are the same as those for the consolidated group. Transactions among segments
are established based on negotiation among the parties.
Intersegment Consolidated
LSM SMC CIF EWW Other Eliminations Totals
------- ------- ------ ------ ------- ------------ ------------
Quarter Ended March 31, 2003
Revenue from external customers ... $38,488 $21,384 $4,094 $6,838 $18,830 $89,634
Intergroup revenue ................ 7,211 569 2,989 3,125 1,640 $(15,534) --
Income tax provision (benefit) .... 117 7 127 (98) 290 -- 443
Net income (loss) ................. 190 (264) 297 89 (2,144) (2,346) (4,178)
Intersegment Consolidated
LSM SMC CIF EWW Other Eliminations Totals
------- ------- ------ ------ ------- ------------ ------------
Quarter Ended March 31, 2002
Revenue from external customers ... $27,787 $21,904 $4,030 $4,937 $19,022 $77,680
Intergroup revenue ................ 6,442 825 4,067 3,191 879 $(15,404) --
Income tax (benefit) provision .... (266) (249) 57 90 495 -- 127
Net (loss) income ................. (800) (228) 269 120 (3,147) (588) (4,374)
6
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS - (Continued)
4. Inventories
Inventories consist of the following (in thousands):
March 31, December 31,
2003 2002
--------- ------------
Raw materials ................................... $13,488 $12,727
Work in process ................................. 810 998
Finished goods .................................. 51,193 49,528
Other ........................................... 2,287 2,488
------- -------
Total ........................................ $67,778 $65,741
======= =======
5. Contingent Liabilities
The Company defends, from time to time, various claims and legal actions
arising in the normal course of business, including those relating to
environmental matters. Management believes, based on the advice of counsel, that
the outcome of such matters will not have a material adverse effect on the
Company'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 the Company that could have a material
adverse effect on the Company's future results of operations or cash flows.
6. Environmental Expense Recovery
SMC realized an environmental expense recovery of $3,000,000 in 2002 upon
receipt of a settlement with insurance companies relating to coverage for
certain environmental claims.
7. Earnings Per Share
Earnings per share is not presented since Metallurg Holdings is wholly
owned by a group of private investors led by and including Safeguard
International.
8. Recent Accounting Pronouncements
In June 2001, SFAS No. 143, "Accounting for Asset Retirement Obligations"
was issued. This statement covers all legally enforceable obligations associated
with the retirement of tangible long-lived assets and provides the accounting
and reporting requirements for such obligations. SFAS No. 143 was effective on
January 1, 2003. The adoption of SFAS No. 143 did not have a material impact on
the Company's consolidated financial statements.
In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and
64, Amendment of FASB Statement No. 13, and Technical Corrections" was issued.
SFAS No. 145, in rescinding SFAS No. 4, requires that only unusual or infrequent
gains and losses from extinguishment of debt be classified as extraordinary
items, consistent with Accounting Principles Board Opinion No. 30. The Company
adopted SFAS No. 145 on January 1, 2003. The adoption did not have a material
effect on the Company's financial statements.
Effective January 1, 2003, the Company adopted SFAS No. 146, "Accounting
for Costs Associated with Exit or Disposal Activities". This statement nullifies
Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity", under which
a liability for an exit cost was recognized at the date of an entity's
commitment to an exit plan. SFAS No. 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized at fair value only
once the liability is incurred. The adoption of SFAS No. 146 did not have a
material impact on the Company's consolidated financial statements.
In November 2002, Financial Accounting Standards Board Interpretation No.
45, "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others," was issued. This
interpretation requires the initial recognition and initial measurement, on a
prospective basis only, of guarantees issued or modified after December 31,
2002. Additionally, certain disclosure requirements are effective for financial
statements ending after December 15, 2002. The adoption of this interpretation
did not have a material impact on the Company's consolidated financial
statements.
7
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS - (Continued)
9. 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, SMC, 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.
Metallurg, Inc. and its Consolidated Subsidiaries
Condensed Consolidating Statement of Operations (Unaudited)
Quarter Ended March 31, 2003
(In thousands)
Combined
Combined Non-
Metallurg, Guarantor Guarantor
Inc. Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------ ------------- ------------ ------------
Total revenue ......................................... $23,522 $77,199 $(11,087) $ 89,634
------- ------- -------- --------
Operating costs and expenses:
Cost of sales ...................................... 21,879 68,833 (10,984) 79,728
Selling, general and administrative expenses ....... $ 1,168 1,833 6,076 -- 9,077
------- ------- ------- -------- --------
Total operating costs and expenses ................. 1,168 23,712 74,909 (10,984) 88,805
------- ------- ------- -------- --------
Operating (loss) income ............................ (1,168) (190) 2,290 (103) 829
Other income (expense):
Other income, net .................................. -- -- 40 -- 40
Interest (expense) income, net ..................... (2,627) 356 (1,053) -- (3,324)
Equity in earnings of subsidiaries ................. 603 666 974 (2,243) --
------- ------- ------- -------- --------
(Loss) income before income tax (benefit) provision
and minority interest ........................... (3,192) 832 2,251 (2,346) (2,455)
Income tax (benefit) provision ........................ (262) 260 445 -- 443
------- ------- ------- -------- --------
(Loss) income before minority interest ............. (2,930) 572 1,806 (2,346) (2,898)
Minority interest ..................................... -- -- (32) -- (32)
------- ------- ------- -------- --------
Net (loss) income .................................. (2,930) 572 1,774 (2,346) (2,930)
Other comprehensive income (loss):
Foreign currency translation adjustment ............ 294 275 283 (558) 294
Deferred gain (loss) on derivatives, net ........... 11 9 (16) 7 11
------- ------- ------- -------- --------
Comprehensive (loss) income ........................ $(2,625) $ 856 $ 2,041 $ (2,897) $ (2,625)
======= ======= ======= ======== ========
8
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS - (Continued)
9. Supplemental Guarantor Information - (Continued)
Metallurg, Inc. and its Consolidated Subsidiaries
Condensed Consolidating Balance Sheet (Unaudited)
March 31, 2003
(In thousands)
Combined
Combined Non-
Metallurg, Guarantor Guarantor
Inc. Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------ ------------- ------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents ....................... $ 9,080 $ 560 $ 14,721 $ 24,361
Accounts receivable, net ........................ 29,562 16,868 55,375 $ (48,827) 52,978
Inventories ..................................... -- 26,505 42,742 (1,469) 67,778
Prepaid expenses and other current assets ....... 893 7,225 11,472 (9,324) 10,266
-------- -------- -------- --------- --------
Total current assets ......................... 39,535 51,158 124,310 (59,620) 155,383
Investments - intergroup ........................... 69,810 11,238 39,310 (120,358) --
Property, plant and equipment, net ................. 587 22,345 41,966 -- 64,898
Other assets ....................................... 11,086 59,453 15,060 (60,273) 25,326
-------- -------- -------- --------- --------
Total ........................................ $121,018 $144,194 $220,646 $(240,251) $245,607
======== ======== ======== ========= ========
LIABILITIES AND SHAREHOLDER'S (DEFICIT) EQUITY
Current Liabilities:
Short-term debt and current portion of
long-term debt ............................... $ 5,616 $ 5,616
Accounts payable ................................ $ 3,536 $ 42,628 37,438 $ (48,827) 34,775
Accrued expenses ................................ 5,310 7,242 7,937 -- 20,489
Other current liabilities ....................... 3,140 3,834 5,051 (9,324) 2,701
-------- -------- -------- --------- --------
Total current liabilities .................... 11,986 53,704 56,042 (58,151) 63,581
-------- -------- -------- --------- --------
Long-term Liabilities:
Long-term debt .................................. 100,000 -- 20,586 -- 120,586
Accrued pension liabilities ..................... 6,164 501 41,946 -- 48,611
Environmental liabilities, net .................. -- 23,364 2,558 -- 25,922
Other liabilities ............................... 17,876 -- 43,838 (60,273) 1,441
-------- -------- -------- --------- --------
Total long-term liabilities .................. 124,040 23,865 108,928 (60,273) 196,560
-------- -------- -------- --------- --------
Total liabilities ............................ 136,026 77,569 164,970 (118,424) 260,141
-------- -------- -------- --------- --------
Minority Interest .................................. -- -- 474 -- 474
-------- -------- -------- --------- --------
Shareholder's (Deficit) Equity:
Common stock .................................... 50 1,217 118,103 (119,320) 50
Due from parent company ......................... (21,715) -- -- -- (21,715)
Additional paid-in capital ...................... 72,617 128,351 7,076 (135,427) 72,617
Accumulated other comprehensive loss ............ (38,316) (30,853) (58,483) 89,336 (38,316)
Retained deficit ................................ (27,644) (32,090) (11,494) 43,584 (27,644)
-------- -------- -------- --------- --------
Total shareholder's (deficit) equity ......... (15,008) 66,625 55,202 (121,827) (15,008)
-------- -------- -------- --------- --------
Total ........................................ $121,018 $144,194 $220,646 $(240,251) $245,607
======== ======== ======== ========= ========
9
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS - (Continued)
9. Supplemental Guarantor Information - (Continued)
Metallurg, Inc. and its Consolidated Subsidiaries
Condensed Consolidating Statement of Cash Flows (Unaudited)
Quarter Ended March 31, 2003
(In thousands)
Combined Combined
Metallurg, Guarantor Non-Guarantor
Inc. Subsidiaries Subsidiaries Consolidated
---------- ------------ ------------- ------------
Cash Flows from Operating Activities............................. $(1,717) $(4,892) $ 2,048 $(4,561)
------- ------- ------- -------
Cash Flows from Investing Activities:
Additions to property, plant and equipment.................... (40) (280) (630) (950)
Repayment of loan by related party............................ 1,000 -- -- 1,000
Other, net.................................................... 15 -- 39 54
------- ------- ------- -------
Net cash provided by (used in) investing activities ....... 975 (280) (591) 104
------- ------- ------- -------
Cash Flows from Financing Activities:
Intergroup (repayments) borrowings............................ (3,732) 4,678 (946) --
Repayment of long-term debt, net.............................. -- -- (88) (88)
Repayment of short-term debt, net............................. -- -- (666) (666)
Dividends received (paid)..................................... 252 -- (252) --
------- ------- ------- -------
Net cash (used in) provided by financing activities........ (3,480) 4,678 (1,952) (754)
------- ------- ------- -------
Effects of exchange rate changes on cash and cash equivalents.... -- -- 134 134
------- ------- ------- -------
Net decrease in cash and cash equivalents........................ (4,222) (494) (361) (5,077)
Cash and cash equivalents - beginning of period.................. 13,302 1,054 15,082 29,438
------- ------- ------- -------
Cash and cash equivalents - end of period........................ $ 9,080 $ 560 $14,721 $24,361
======= ======= ======= =======
10
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 within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements may be identified by
the use of words such as "plans", "expect", "believe", "should", "could",
"anticipate", "intend" and other expressions that indicate future events or
trends. All statements that address expectations or projections about the
future, including statements about the Company's strategy for growth, product
development, market position, expenditures and financial results are
forward-looking statements and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
and achievements of the Company to be materially different from future results,
performance or achievements expressed or implied by such forward-looking
statements.
Factors which may cause the Company's results to be materially different
include:
o The cyclical nature of the Company's business.
o The Company's dependence on foreign customers. The Company
operates throughout the world and derives a significant amount of
its revenues from outside of the U.S.
o The impact of changes in foreign exchange rates and foreign trade
regulations on the Company's competitive standing. Revenues and
earnings from outside the U.S. could be materially affected by
exchange rate fluctuations.
o The availability of raw materials, particularly
vanadium-containing materials.
o The impact of worldwide competition.
o The economic strength of the Company's markets generally and
particularly the strength of the demand for aluminum,
superalloys, titanium alloys, iron and steel in those markets.
o The accuracy of the Company's estimates of the costs of
environmental remediation.
o The extension or expiration of existing anti-dumping duties.
o The performance of world financial markets and the resulting
effect on pension expense of the Company's defined benefit plans.
o The ability to meet debt service and financial covenant
requirements.
o The possible disruption of business or increases in the cost of
doing business resulting from terrorist activities or global
conflicts.
o Changes in tax laws, including changes related to taxation of
foreign earnings.
o Changes in accounting standards.
Critical Accounting Estimates
For a discussion of the critical accounting estimates affecting the
Company, see "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Critical Accounting Estimates" beginning
on page 22 of the Company's annual report on Form 10-K for the year ended
December 31, 2002. The critical accounting estimates affecting the Company have
not changed since December 31, 2002.
Overview
Metallurg Holdings was formed on June 10, 1998 and is wholly owned by a
group of investors led by and including Safeguard International, an
international private equity fund that invests primarily in equity securities of
companies in process industries.
The Company 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 various applications in the aerospace,
power supply, automotive, petrochemical processing and telecommunications
industries.
11
World primary aluminum production recovered slightly from the low levels of
the first quarter of 2002 and the demand for the Company's products for the
aluminum industry reflected this trend. However, excess production capacity in
the primary aluminum business, as well as in the products supplied by the
Company, has led to intense competition and resulted in average prices in 2003
showing some stability, albeit at low levels from a historical perspective. Over
the past two years, the Company has improved its competitive position by
relocating its aluminum master alloy and grain refiner production to its lowest
cost melting, casting and finishing facilities in the U.K., Norway and Brazil.
The aerospace sector saw its fortunes drop sharply after September 11,
2001, and since then it has been affected by the difficult financial situation
of the airline industry. In addition, many land-based turbine power generation
projects in the U.S. have been canceled. These market developments led producers
of superalloys and titanium alloys to cut their production rates sharply,
particularly in the U.S., thus reducing their demand for the Company's chromium
and niobium products and alloys for the titanium industry. The Company has
sustained sales volumes of its chromium products by increasing sales of lower
quality grades to less critical applications. The Company believes that the
supply chain to this sector has been reduced in line with the lower levels of
current consumption and therefore improvements in rates of consumption will
drive increased sales volume for the Company's products. However, the outlook
for near term recovery in these sectors remains unlikely.
The U.S. steel industry operated at low production levels throughout most
of 2001 and into 2002 but, with the imposition of protective duties in March
2002, production rates increased significantly and demand and pricing for the
Company's ferrovanadium and ferrotitanium products improved. The recently
announced shutdown of primary vanadium production by a major Australian producer
has contributed to a more balanced market outlook and prices have improved from
historically low levels experienced during the past few years. Worldwide steel
production also grew in 2002 and in the first quarter of 2003, thereby allowing
further improvement in sales of ferrotitanium and normal grade low carbon
ferrochrome.
Although market price and demand for tantalum has declined, the Company
benefited in the first quarter of 2002 from fixed price sales contracts that had
been negotiated when prices were at their peak. Demand and consumption of
tantalum continued to be extremely weak in the first quarter of 2003, and this
has resulted in much lower volumes and prices for the Company's tantalum
products. The Company expects this trend to continue for the foreseeable future.
The Company has completed capital investments in the U.K., the U.S. and
Brazil aimed at reducing the cost of raw materials and expanding capacity for
the production of certain specialty grade products. Significant cost reduction
programs were initiated during 2002. The cost saving measures have improved
operating results as expected. Further improvements in operating results are
expected as increased quantities of lower cost raw materials are processed in
future periods.
Results of Operations - The Quarter Ended March 31, 2003 Compared to the Quarter
Ended March 31, 2002
The Company operates in one significant industry segment, the manufacture
and sale of performance-enhancing additives mainly for the metallurgical
industry. The Company is organized around its major production facilities in the
U.K., the U.S., Brazil and Germany. In addition to its own products, the Company
distributes products manufactured by third parties.
Summarized financial information concerning the Company'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 for
determining reportable segments. The Company does not allocate general corporate
overhead expenses to operating segments. The accounting policies of the segments
are the same as those of the consolidated group. Transactions among segments are
established based on negotiation among the parties. There have been no material
changes in segment assets from the amounts disclosed in the last annual report.
12
Intersegment
(In thousands) LSM SMC CIF EWW Other Eliminations Consolidated
------- ------- ------ ------ ------- ------------ ------------
Quarter Ended March 31, 2003
Total revenue .......................... $45,699 $21,953 $7,083 $9,963 $20,470 $(15,534) $ 89,634
Gross profit ........................... 4,438 1,470 1,016 541 2,544 (103) 9,906
SG&A ................................... 3,745 1,648 388 560 2,757 -- 9,098
Operating income (loss) ................ 693 (178) 628 (19) (213) (103) 808
Interest (expense) income, net ......... (392) (79) (204) 10 (3,886) -- (4,551)
Income tax provision (benefit) ......... 117 7 127 (98) 290 -- 443
Net income (loss) ...................... 190 (264) 297 89 (2,144) (2,346) (4,178)
Quarter Ended March 31, 2002
Total revenue .......................... $34,229 $22,729 $8,097 $8,128 $19,901 $(15,404) $ 77,680
Gross profit ........................... 2,144 (385) 908 587 3,139 449 6,842
SG&A ................................... 2,891 3,030 451 425 2,851 -- 9,648
Environmental expense recovery ......... -- 3,000 -- -- -- -- 3,000
Operating (loss) income ................ (747) (415) 457 162 288 449 194
Interest (expense) income, net ......... (351) (62) (131) 48 (3,993) -- (4,489)
Income tax (benefit) provision ......... (266) (249) 57 90 495 -- 127
Net (loss) income ...................... (800) (228) 269 120 (3,147) (588) (4,374)
Total Revenue
Consolidated total revenue increased by $12.0 million (15%) in the quarter
ended March 31, 2003.
LSM revenue was $11.5 million (34%) higher than the quarter ended March 31,
2002. Sales of aluminum master alloys and compacted products increased by $4.1
million, primarily as a result of a 25% increase in volume. Sales of
ferrotitanium were $2.1 million higher, due to a 36% increase in average unit
selling prices and a 22% increase in sales volumes. Sales of aluminum powder
rose by $1.8 million, due to increased volumes and an improved product mix which
resulted in higher average selling price. Sales of chrome products, primarily
chrome metal, rose by $1.6 million, despite a small drop in prices, as shipments
increased by over 30%. Sales of metal powders rose by $1.4 million as a result
of increases in both volumes and average selling prices.
SMC revenue was $0.8 million (3%) lower than the quarter ended March 31,
2002. Sales of niobium products fell by $1.8 million, primarily as a result of a
drop in shipments of ferroniobium to the steel industry. Sales of chrome
products fell by $0.5 million, due to a decline in shipments of chrome metal.
Sales of vanadium products, produced in SMC's Ohio plant, increased by $0.4
million, due to an increase in average selling prices. Sales of aluminum
products increased by $1.0 million, despite a small drop in average selling
prices, as a result of an increase of nearly 50% in shipments of compacted
products.
CIF revenue was $1.0 million (13%) lower than the quarter ended March 31,
2002, due to decreased demand and lower selling prices of tantalum and niobium
products.
EWW revenue was $1.8 million (23%) higher than the quarter ended March 31,
2002, due to increased shipments and higher selling prices for both normal and
special grades of ferrochrome.
13
Gross Profit
Consolidated gross profit increased to $9.9 million (11.1% of total
revenue) for the quarter ended March 31, 2003 from $6.8 million (8.8% of total
revenue) for the quarter ended March 31, 2002.
LSM gross profit was $2.3 million (107%) higher than the quarter ended
March 31, 2002. Gross profits from aluminum master alloys and compacted aluminum
products increased by $1.2 million, due to increased volumes and lower plant
costs following the restructuring of operations in 2002. Aluminum powder gross
profits doubled to $1.7 million as a result of the improved volumes and product
mix referred to above. Gross profit from chrome products increased by $0.3
million, despite a drop in selling prices, as increased volumes resulted in
improved plant utilization. Gross profit from ferrotitanium improved by $0.2
million as a result of higher prices and increased volume.
SMC gross profit was $1.5 million in the quarter ended March 31, 2003,
compared to a loss of $0.4 million in the quarter ended March 31, 2002. Gross
profit from vanadium products improved by $0.7 million as a result of an
increase in average selling prices. Gross profit from aluminum products rose by
$0.6 million, due to increased shipments and lower costs resulting from the
restructuring of operations during the second half of 2002. Gross profit from
chrome products rose by $0.2 million as contributions from sales of lower grade
products to the steel industry more than offset the decline in volumes sold to
the superalloy industry.
CIF gross profit was $0.1 million (12%) higher than the quarter ended March
31, 2002, due primarily to the improved mix of aluminum master alloy shipments.
EWW gross profit was virtually unchanged from the quarter ended March 31,
2002.
Selling, General and Administrative Expenses ("SG&A")
SG&A decreased to $9.1 million for the quarter ended March 31, 2003 from
$9.6 million for the quarter ended March 31, 2002, a decrease of 6%. An increase
in pension expense, primarily $1.0 million at LSM, due to decreases in plan
asset values resulting from declines in equity markets and interest rates, was
more than offset by reductions in compensation and other expenses resulting
from a recent restructuring program and a reduction of $1.0 million in bad
debt expense. For the quarter ended March 31, 2003, SG&A represented 10.2% of
total revenue compared to 12.4% for the quarter ended March 31, 2002.
Operating Income
Operating income increased to $0.8 million for the quarter ended March 31,
2003 compared to $0.2 million for the quarter ended March 31, 2002, due
primarily to the increase in gross profit, discussed above. 2002 included an
environmental expense recovery of $3.0 million recognized by SMC in the quarter
ended March 31, 2002.
Interest Expense, Net
Interest expense, net, was as follows (in thousands):
Quarters Ended March 31,
------------------------
2003 2002
------- -------
Interest income .............................. $ 313 $ 187
Interest expense ............................. (4,864) (4,676)
------- -------
Interest expense, net ..................... $(4,551) $(4,489)
======= =======
Income Tax Provision, Net
Income tax provision, net of tax benefits, was as follows (in thousands):
Quarters Ended March 31,
------------------------
2003 2002
----- -----
Total current ................................ $ 894 $ 229
Total deferred ............................... (451) (102)
----- -----
Income tax provision, net ................. $ 443 $ 127
===== =====
14
The difference between the statutory federal income tax rate and the
Company's effective rate for the quarter ended March 31, 2003, is principally
due to: (i) certain deductible temporary differences, principally domestic net
operating losses, which in other circumstances would have generated a deferred
tax benefit, have been fully provided for in a valuation allowance; (ii) taxes
paid on foreign dividends; and (iii) the excess of foreign tax rates over the
statutory federal income tax rate.
Net Loss
The Company had a net loss of $4.2 million for the quarter ended March 31,
2003 compared to a net loss of $4.4 million for the quarter ended March 31,
2002. The improvement was due primarily to the improved operating income
discussed above.
Liquidity and Financial Resources
General
The Company's sources of liquidity include cash and cash equivalents, cash
from operations and amounts available under credit facilities. At March 31,
2003, the Company had $24.7 million in cash and cash equivalents and working
capital of $91.8 million as compared to $29.4 million and $92.7 million,
respectively, at December 31, 2002.
The Company believes that existing cash balances and the sources discussed
below are sufficient to fund the current and anticipated future requirements of
working capital, capital expenditures, pension benefits, potential acquisitions
and environmental expenditures for the next twelve months. The Company's
long-term debt agreements contain numerous covenants and prohibitions that limit
the financial activities of Metallurg, Inc., including requirements that
Metallurg, Inc. satisfy certain financial ratios and limitations on additional
indebtedness and maintain a minimum liquidity level. 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.
Cash Flow Information
Cash Flows from Operating Activities - Cash used in operating activities
was $4.2 million for the quarter ended March 31, 2003, compared to cash provided
by operating activities of $2.0 million for the quarter ended March 31, 2002. In
2003, the net loss and an increase in working capital contributed to the cash
used in operating activities. In 2002, SMC realized an environmental expense
recovery and receipt of $3.0 million upon a settlement with an insurance company
relating to coverage for certain environmental claims.
Cash Flows from Investing Activities - Net cash provided by investing
activities was $0.1 million for the quarter ended March 31, 2003, compared to
cash used in investing activities of $0.3 million for the quarter ended March
31, 2002. While capital expenditures were $3.4 million lower in 2003, there were
loan repayments made to the Company by a related party of $1.0 million in 2003
compared to $4.0 million in 2002.
Cash Flows from Financing Activities - Cash used in financing activities
was $0.8 million for the quarter ended March 31, 2003, compared to cash provided
by financing activities of $0.5 million for the quarter ended March 31, 2002.
The Company's foreign subsidiaries had net repayments of $0.7 million of
short-term debt in 2003 compared to net borrowings of $0.5 million in 2002.
15
Credit Facilities and Other Financing Arrangements
On October 29, 1999, Metallurg, Inc., SMC and certain of Metallurg, Inc.'s
other subsidiaries (the "Borrowers") renewed their existing credit facility with
certain financial institutions led by Fleet National Bank as agent (the
"Revolving Credit Facility") for a term of five years. This facility, as
subsequently amended, provides the Borrowers with up to $30.0 million for
working capital requirements and general corporate purposes. Interest is charged
at a rate per annum equal to (i) LIBOR, plus 2.0% - 2.5% or (ii) Prime, plus up
to 1.0%, based on the performance of Metallurg, Inc. and certain of its
subsidiaries (the "North American Group"), as defined in the Revolving Credit
Facility. Interest rates on amounts borrowed are adjusted quarterly, based on
the North American Group's fixed charge coverage ratio. The Borrowers are
required to pay a fee of 0.375% per annum on the unused portion of the facility.
The total amount the Borrowers may borrow at any time is limited to a borrowing
base calculation that is based on eligible accounts receivable, inventory and
certain fixed assets. At March 31, 2003, there were no borrowings under this
facility; however, outstanding letters of credit totaled $21.1 million. The
Borrowers had unused borrowing capacity of $3.0 million under this facility. The
Revolving Credit Facility continues to prohibit Metallurg, Inc. from making
dividends prior to 2004 and requires the Borrowers and certain subsidiaries to
comply with various covenants, including the maintenance of minimum liquidity,
as defined in the agreement, at a $10.0 million level. Liquidity, as defined,
was $12.9 million at March 31, 2003.
LSM has revolving credit facilities with Barclays Bank plc ("Barclays") and
HSBC Bank plc ("HSBC") that provide LSM with up to 'L'7.5 million ($12.1
million) of borrowings, 'L'43.3 million ($69.7 million) of foreign exchange
contracts and options and 'L'4.0 million ($6.4 million) for other ancillary
banking arrangements, including bank guarantees. Borrowings under these
facilities are unsecured and payable on demand. Outstanding loans under this
facility bear interest at a rate of 1.0% over the lender's base rate. At March
31, 2003, borrowings under these facilities were not material.
LSM also has four revolving term loan facilities with Barclays and HSBC
that provide for borrowings up to 'L'12.0 million ($19.0 million) at an
interest rate of LIBOR plus 1.75%, all of which were outstanding at March 31,
2003. 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
are unsecured and require LSM to comply with various covenants, including the
maintenance of minimum net worth and interest coverage.
LSM's Norwegian facility has an unsecured overdraft facility of NOK 15.0
million ($2.1 million). Borrowings under this facility bear interest at a rate
of NIBOR plus 1.25%. At March 31, 2003, there was NOK 9.5 million ($1.3 million)
outstanding under this facility. The Norwegian facility also has an unsecured
term loan with a remaining balance of NOK 7.6 million ($1.0 million). Repayments
continue until 2010 in equal monthly installments plus interest at NIBOR plus
1.25%.
EWW has committed lines of credit with several banks in the aggregate
amount of 'E'3.2 million ($3.5 million). The credit agreements require EWW to
pledge certain assets, which include accounts receivable, inventory and fixed
assets. At March 31, 2003, there were no borrowings under these facilities. EWW
also has a term loan with a remaining balance of 'E'0.5 million ($0.5
million). Repayments continue until 2008 in equal monthly installments plus
interest at 4.25%.
The Company's other foreign subsidiaries maintain short-term secured and
unsecured borrowing arrangements, generally in local currencies, with various
banks totaling $9.0 million. Borrowings under these arrangements aggregated $4.0
million at March 31, 2003 at a weighted-average interest rate of 13.2%.
Capital Expenditures
The Company invested $1.0 million in capital projects during the quarter
ended March 31, 2003. The Company's capital expenditures include projects
related to improving the Company's operations, productivity improvements,
replacement projects and ongoing environmental requirements (which are in
addition to expenditures discussed in "Environmental Remediation Costs" below).
Capital expenditures are projected to total approximately $5 million for the
year ended December 31, 2003, approximately half of which the Company believes
will result in decreased costs of production, improved efficiency and expanded
production capacities. The remaining capital expenditures planned are primarily
for replacement and repairs of existing facilities. Although the Company has
projected these items for the year ended December 31, 2003, the Company 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 2004. The Company believes that these projects
will be funded through existing and future internally generated cash and credit
lines.
16
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
quarter ended March 31, 2003, the Company expended $0.6 million for
environmental remediation.
In 1997, SMC 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, SMC
has agreed to perform environmental remediation, which, as of March 31, 2003,
had an estimated net cost of completion of $27.4 million. Of this amount, $3.6
million is expected to be expended in the remaining three quarters of 2003, $1.9
million in 2004 and $1.7 million in 2005. In addition, the Company estimates it
will make expenditures of $0.7 million with respect to environmental remediation
at its foreign facilities over the next three years. These amounts have been
accrued for in prior years and are reflected in the Company's balance sheet
liabilities.
While its remediation obligations and other environmental costs, in the
aggregate, will reduce its liquidity, the Company believes its cash balances,
cash from operations and cash available under its credit facilities are
sufficient to fund its current and anticipated future requirements for
environmental expenditures.
Other
Currently, Metallurg Holdings does not have sufficient cash on hand to make
the interest payment due in January 2004 on its Senior Discount Notes. While
Metallurg, Inc. is permitted under the terms of its senior note indenture to
distribute cash to Metallurg Holdings for the purpose of making the January 2004
interest payment, Metallurg, Inc. could be prohibited from making cash
distributions at such time under the restrictive covenants of its revolving
credit facility with Fleet National Bank. All of Metallurg, Inc.'s outstanding
common stock has been pledged as collateral for Metallurg Holdings' obligations
under the Senior Discount Notes. If Metallurg Holdings were unable to make its
interest payment when due, it could lead to a foreclosure on its assets,
principally the equity of Metallurg, Inc., and create a default in accordance
with the terms of Metallurg, Inc.'s senior note indenture.
17
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 the Company's annual
report on Form 10-K for the year ended December 31, 2002, which is incorporated
by reference herein.
ITEM 4 - CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, the Company carried
out an evaluation, under the supervision of its Chief Executive Officer and
Principal Financial Officer, of the effectiveness of the design and operation of
its disclosure controls and procedures pursuant to Exchange Act Rule 13a-14.
Based upon that evaluation, the Chief Executive Officer and Principal Financial
Officer concluded that the Company's disclosure controls and procedures are
effective in timely alerting them to material information relating to the
Company (including its consolidated subsidiaries) required to be included in its
Exchange Act filings.
There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect internal controls subsequent
to the date that the Company carried out its evaluation.
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
None
(b) REPORTS ON FORM 8-K
None
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on May 13, 2003 on its
behalf by the undersigned thereunto duly authorized.
METALLURG HOLDINGS, INC.
By: /s/ Arthur R. Spector
------------------------------------
Arthur R. Spector
Executive Vice President
(Principal Financial Officer and
Principal Accounting Officer)
19
OFFICERS' CERTIFICATIONS
I, Heinz C. Schimmelbusch, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Metallurg Holdings,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 13, 2003
/s/ Heinz C. Schimmelbusch
----------------------------------------
Heinz C. Schimmelbusch
Chief Executive Officer
20
OFFICERS' CERTIFICATIONS (CONTINUED)
I, Arthur R. Spector, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Metallurg Holdings,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 13, 2003
/s/ Arthur R. Spector
----------------------------------------
Arthur R. Spector
Principal Financial Officer
21
STATEMENT OF DIFFERENCES
------------------------
The British pound sterling sign shall be expressed as.................. 'L'
The Euro sign shall be expressed as.................................... 'E'