-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G4SE/GMHycw38ANejt06SKBTHwEtha382kiRuqqwF4VLsfDx2iGTHBZ0WyIc/DOW /hrQ/047VDFPH40cZk6UZg== 0000950144-99-009995.txt : 19990813 0000950144-99-009995.hdr.sgml : 19990813 ACCESSION NUMBER: 0000950144-99-009995 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIMCALA INC CENTRAL INDEX KEY: 0000941174 STANDARD INDUSTRIAL CLASSIFICATION: PRIMARY PRODUCTION OF ALUMINUM [3334] IRS NUMBER: 341780941 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-53791 FILM NUMBER: 99686234 BUSINESS ADDRESS: STREET 1: OHIO FERRO ALLOYS ROAD STREET 2: P O BOX 68 CITY: MT MEIGS STATE: AL ZIP: 36057 BUSINESS PHONE: 3342157560 MAIL ADDRESS: STREET 1: OHIO FERRO ALLOYS ROAD STREET 2: P O BOX 68 CITY: MT MEIGS STATE: AL ZIP: 36057 10-Q 1 SIMCALA, INC. 1 ============================================================================== 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, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________________ TO_____________ COMMISSION FILE NUMBER: 333-53791 SIMCALA, INC. (Exact name of registrant as specified in its charter) DELAWARE 34-1780941 (State of incorporation) (I.R.S. Employer Identification No.) 1350 OHIO FERRO ROAD MT. MEIGS, ALABAMA 36057 (Address of principal executive offices) (334) 215-7560 (Registrant's telephone number) 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 [ ] The number of shares of the registrant's Common Stock outstanding as of August 6, 1999 was 10,889. ============================================================================== 2 PART I. FINANCIAL INFORMATION* * As used in this Form 10-Q, unless the context otherwise requires, "SAC" refers to SAC Acquisition Corp., "Predecessor" refers to SIMCALA, Inc. in respect of periods prior to the Acquisition (as defined herein), and the "Company" refers to the registrant, SIMCALA, Inc. 2 3 ITEM 1. FINANCIAL STATEMENTS SIMCALA, INC. CONDENSED BALANCE SHEETS
JUNE 30, DECEMBER 31, ASSETS 1999 1998 - --------------------------------------------------------------------------------------------------------- (unaudited) Current Assets Cash and cash equivalents $ 9,833,213 $ 14,652,789 Restricted Cash 6,188,523 -- Accounts receivable 6,013,376 6,126,286 Inventories 1,574,624 3,416,277 Other current assets 465,458 272,113 - --------------------------------------------------------------------------------------------------------- Total current assets 24,075,194 24,467,465 Property, Plant and Equipment, net of accumulated depreciation of $5,102,849 and $2,974,138, at June 30, 1999 and December 31, 1998, respectively 51,662,080 52,805,557 Intangible Assets, net of accumulated amortization of $2,554,302 and $1,533,862, at June 30, 1999 and December 31, 1998, respectively 37,232,161 38,252,601 - --------------------------------------------------------------------------------------------------------- Total Assets $112,969,435 $115,525,623 ========================================================================================================= LIABILITIES AND SHAREHOLDER'S EQUITY - --------------------------------------------------------------------------------------------------------- Current Liabilities Accounts payable $ 3,942,935 $ 3,330,469 Accrued expenses 975,414 1,048,578 Accrued interest payable 1,591,251 1,638,560 Current maturities of long-term debt and capital leases 46,298 72,747 - --------------------------------------------------------------------------------------------------------- Total current liabilities 6,555,898 6,090,354 Long Term Debt and Capital Leases - Net of Current Portion 81,018,824 81,034,098 Deferred Income Taxes 11,100,528 11,816,575 - --------------------------------------------------------------------------------------------------------- Total Liabilities 98,675,250 98,941,027 - --------------------------------------------------------------------------------------------------------- Shareholder's Equity Preferred Stock (Series B preferred stock, 3,000 shares authorized, none issued and outstanding, $1.00 par value) - - Common stock, 20,000 shares authorized - 10,889 shares issued and outstanding, par value $.01 per share 109 109 Additional paid-in capital 18,806,891 18,806,891 Retained deficit (4,512,815) (2,222,404) - --------------------------------------------------------------------------------------------------------- Total shareholder's equity 14,294,185 16,584,596 - --------------------------------------------------------------------------------------------------------- Total Liabilities and Shareholder's Equity $112,969,435 $115,525,623 =========================================================================================================
See Notes to Condensed Financial Statements. 3 4 SIMCALA, INC. CONDENSED STATEMENTS OF INCOME FOR THE THREE MONTH PERIOD ENDED JUNE 30 (UNAUDITED)
Company Company Three months ended Three months ended June 30, 1999 June 30, 1998 (unaudited) (unaudited) - -------------------------------------------------------------------------------------------------------- Net Sales $13,309,499 $14,917,509 Cost of Goods Sold 13,175,781 13,021,899 - -------------------------------------------------------------------------------------------------------- Gross Profit 133,718 1,895,610 Selling and Administrative Expenses 595,584 826,341 - -------------------------------------------------------------------------------------------------------- Operating (Loss) Income (461,866) 1,069,269 Interest Expense 1,914,096 1,899,493 Other Income, Net (241,401) (344,486) - -------------------------------------------------------------------------------------------------------- Loss before Income Taxes (2,134,561) (485,738) Income Taxes (593,077) (46,528) - -------------------------------------------------------------------------------------------------------- Net Loss $(1,541,484) $ (439,210) ========================================================================================================
See Notes to Condensed Financial Statements. 4 5 SIMCALA, INC. CONDENSED STATEMENTS OF INCOME FOR THE SIX MONTH PERIOD ENDED JUNE 30 (UNAUDITED) On March 31, 1998, SAC Acquisition Corp. acquired all of the outstanding capital stock of the Company and on such date SAC merged into the Company. The purchase method of accounting was used to record assets acquired and liabilities assumed. As a result of purchase accounting, the accompanying statements of income and cash flows of the Company and the Predecessor are not comparable in all material respects since the financial statements report financial position, results of operations, and cash flows of these two separate entities.
Company Company Predecessor Six months ended Three months ended Three months ended June 30, 1999 June 30, 1998 March 31, 1998 (unaudited) (unaudited) (unaudited) - ------------------------------------------------------------------------------------------------------------------- Net Sales $28,220,630 $14,917,509 $14,853,920 Cost of Goods Sold 26,528,456 13,021,899 11,678,879 - ------------------------------------------------------------------------------------------------------------------- Gross Profit 1,692,174 1,895,610 3,175,041 Selling and Administrative Expenses 1,283,300 826,341 3,824,493 - ------------------------------------------------------------------------------------------------------------------- Operating (Loss) Income 408,874 1,069,269 (649,452) Interest Expense 3,851,935 1,899,493 313,946 Other Income, Net (436,603) (344,486) (282,272) - ------------------------------------------------------------------------------------------------------------------- Loss before Income Taxes (3,006,458) (485,738) (681,126) Income Taxes (716,047) (46,528) (100,198) - ------------------------------------------------------------------------------------------------------------------- Net Loss $(2,290,411) $ (439,210) $ (580,928) ===================================================================================================================
See Notes to Condensed Financial Statements. 5 6 SIMCALA, INC. CONDENSED STATEMENTS OF CASH FLOW On March 31, 1998, SAC Acquisition Corp. acquired all of the outstanding capital stock of the Company and on such date SAC merged into the Company. The purchase method of accounting was used to record assets acquired and liabilities assumed. As a result of purchase accounting, the accompanying statements of income and cash flows of the Company and the Predecessor are not comparable in all material respects since the financial statements report financial position, results of operations, and cash flows of these two separate entities.
Company Company Predecessor Six Months Ended Three Months Ended Three Months Ended June 30, 1999 June 30, 1998 March 31, 1998 Cash Flows from Operating Activities: (unaudited) (unaudited) (unaudited) - ----------------------------------------------------------------------------------------------------------------------------- Net loss $(2,290,411) $ (439,210) $ (580,928) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 3,149,152 1,434,603 470,903 Deferred income taxes (716,047) -- 800,000 Noncash stock option compensation -- -- 903,680 Change in certain assets and liabilities: (Increase) decrease in accounts receivable 112,910 24,989 20,824 Increase (decrease) in other receivables -- 1,799,747 (2,806,751) (Increase) decrease in inventories 1,841,653 471,109 (206,968) Decrease (increase) in other assets (193,345) (251,312) 202,831 Increase in accounts payable and accrued expenses 465,544 184,119 2,364,754 - ----------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 2,369,456 3,224,045 1,168,345 - ----------------------------------------------------------------------------------------------------------------------------- Cash Flows from Investing Activities (985,235) (1,235,444) (1,184,422) - Purchase of property, plant and equipment Cash Flows from Financing Activities - ----------------------------------------------------------------------------------------------------------------------------- Payments on non-interest-bearing debt (15,274) (15,659) -- Net borrowings of long-term debt -- -- 39,085 - ----------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities (15,274) (15,659) 39,085 Change in Cash and Cash Equivalents and Restricted Cash 1,368,947 1,972,942 23,008 Cash and Equivalents at Beginning of Period 14,652,789 18,057,301 634,877 - ----------------------------------------------------------------------------------------------------------------------------- Cash and Equivalents and Restricted Cash at End of Period $16,021,736 $20,030,243 $ 657,885 ============================================================================================================================= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for: Interest $ 3,883,133 $ 139,000 $ 161,000 ----------- ----------- ----------- Income taxes $ 112,000 -----------
See Notes to Condensed Financial Statements. 6 7 SIMCALA, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - ORGANIZATION AND OPERATIONS On March 31, 1998, SIMCALA Holdings, Inc. ("Holdings"), through its wholly owned subsidiary, SAC Acquisition Corp. ("SAC") purchased all of the outstanding common stock of SIMCALA, Inc. ("SIMCALA" or the "Company") (the "Acquisition"). On such date, SAC was merged into SIMCALA. Holdings and SAC conducted no significant business other than in connection with the Acquisition. The term "Predecessor" refers to the Company prior to the Acquisition. The Company is a producer of silicon metal for sale to the aluminum and silicones industries. The Company sells to customers in the metal industry who are located primarily throughout the United States. Credit is extended based on an evaluation of the customer's financial condition. During the six months ended June 30, 1999 and the six months ended June 30, 1998, three customers accounted for 36%, 32%, and 10% and 41%, 15%, and 14% of net sales, respectively. At June 30, 1999 and December 31, 1998, three customers accounted for 46%, 12%, and 11% and 54%, 10% and 8%, respectively, of outstanding receivables. The Company maintains credit insurance for all customer accounts receivable. The Acquisition of the Predecessor for approximately $65.3 million in cash, including $6.1 million in expenses directly related to the Acquisition and assumption of approximately $22 million in liabilities, has been accounted for as a purchase. The Acquisition was financed through the issuance of Senior Notes in the amount of $75 million and equity contributed of $22 million. The uses of cash associated with the Acquisition were as follows (in thousands of dollars): The Acquisition $ 65,291 Repayment of indebtedness 9,159 Transaction fees and expenses 6,051 General corporate purposes 16,499 -------- $ 97,000 ========
Accordingly, the purchase price has been allocated to the identifiable assets and liabilities based on fair values at the acquisition date. The excess of the purchase price over the fair value of the identifiable net assets in the amount of $34.5 million has been classified as goodwill. Additionally, the effect of the carryover basis of senior management of $3.2 million has been considered in the allocation of the purchase price. The carryover basis adjustment results from the application of Emerging Issues Task Force ("EITF") Consensus No. 88-16, Basis in Leveraged Buyout Transactions, and is allocated to property, plant, and equipment and goodwill based upon the March 31, 1998 balances. The Acquisition was financed through the issuance of senior notes in the amount of $75,000,000 and equity contributed of $22,000,000. Senior Management had an 8% ownership interest in the Predecessor, and as a result of the Acquisition, has a 9% ownership interest in the Company. The sale of the Predecessor's stock of which 92% was not owned by Senior Management, constitutes a change in control of the Company. The condensed financial statements included herein for the periods prior to March 31, 1998, represent the Predecessor's results of operations and cash flows prior to the Acquisition and consequently, are stated on the Predecessor's historical cost basis. The financial statements as of December 31, 1998 and June 30, 1999, and for the six months ended June 30, 1999, reflect the adjustments which were made to record the Acquisition. Accordingly, the financial statements of the Predecessor for the periods prior to March 31, 1998 are not comparable in all material respects with the financial statements subsequent to the Acquisition. The most significant differences relate to amounts recorded for property, plant and equipment, goodwill, and debt which resulted in increased cost of sales, amortization, depreciation and interest expense in the six months ended June 30, 1999. 7 8 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES For a summary of the Company's and the Predecessor's accounting policies, please refer to the Company's 1998 Annual Report on Form 10-K. Restricted Cash - In January 1999, the Company entered into an amendment to the Credit Agreement whereby the Company was required to provide cash collateral of $6,147,946 for the letter of credit backing the industrial revenue bonds. This cash, plus interest accrued thereon, is reflected as restricted cash on the Company's condensed balance sheet as of June 30, 1999. NOTE 3 - INVENTORIES As of June 30, 1999 and December 31, 1998, inventories consisted of the following:
June 30, December 31, 1999 1998 (unaudited) ----------- ----------- Raw Materials $ 479,560 $ 908,839 Finished Goods 799,064 2,211,438 Supplies 296,000 296,000 ----------- ----------- $ 1,574,624 $ 3,416,277 =========== ===========
NOTE 4 - PRO FORMA DATA The following unaudited pro forma financial data has been prepared assuming that the Acquisition was consummated on January 1, 1997. This pro forma financial data is presented for informational purposes and is not necessarily indicative of the operating results that would have occurred had the Acquisition been consummated on January 1, 1997, nor is it necessarily indicative of future operations.
Six Months Ended June 30, 1998 ------------- Net Sales $29,772,000 Net Loss $(2,816,000)
8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. General On March 31, 1998, Holdings, through its wholly owned subsidiary, SAC, purchased all of the outstanding shares of common stock of SIMCALA. On such date, SAC was merged into SIMCALA. SIMCALA, as the surviving corporation in the Merger, became a wholly owned subsidiary of Holdings. The following is a discussion of the Company's results of operations. The financial statements included herein for the periods prior to March 31, 1998, represent the Predecessor's results of operations and cash flows prior to the Acquisition and consequently, are stated on the Predecessor's historical cost basis. The financial statements as of June 30, 1999, and for the six months then ended, reflect the adjustments which were made to record the Acquisition. Accordingly, the financial statements of the Predecessor for the periods prior to March 31, 1998 are not comparable in all material respects with the financial statements subsequent to the Acquisition. The most significant differences relate to amounts recorded for property, plant and equipment, goodwill, and debt which resulted in increased cost of sales, amortization, depreciation and interest expense in the six months ended June 30, 1999 and will result in such increases in future years. During the quarter ended June 30, 1999, the Company was approached by Dow Corning Corporation, a significant customer of the Company, and asked to consider a delay in the construction of the planned fourth smelting furnace. Dow Corning reiterated its commitment to take all volumes called for in the contract signed in 1998. By delaying construction of the fourth furnace, the Company would delay the recognition of revenue and income associated with the project. Given the current excess supply in the market, however, a delay in the construction of the fourth furnace is being considered by the Company. The table below sets forth certain statement of operations information as a percentage of net sales during the six months ended June 30, 1999 and the quarters ended June 30, 1999, June 30, 1998 and March 31, 1998:
Company Company Company Predecessor Six months Three months Three months Three months ended ended ended ended June 30, June 30, June 30, March 31, 1999 1999 1998 1998 ---------- ------------ ------------ ------------ Net sales 100.0% 100.0% 100.0% 100.0% Cost of goods sold 94.0 99.0 87.3 78.6 ----- ----- ----- ---- Gross profit 6.0 1.0 12.7 21.4 Selling and administrative expenses 4.6 4.5 5.5 25.7 ----- ----- ----- ---- Operating income (loss) 1.4 (3.5) 7.2 (4.3) Interest expense 13.7 14.4 12.7 2.1 Other income, net (1.6) (1.8) (2.3) (1.9) ----- ----- ----- ---- Loss before income taxes (10.7) (16.1) (3.2) (4.5) Income tax benefit (2.5) (4.5) (0.3) (0.7) ----- ----- ----- ---- Net loss (8.2)% (11.6)% (2.9)% (3.8)% ===== ===== ===== ====
9 10 THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998 NET SALES Net sales decreased by $1.6 million in the three months ended June 30, 1999, or 10.7%, to $13.3 million from $14.9 million for the same period in 1998. This decrease was due principally to a reduction in average selling prices for all aluminum grades of silicon metal. Production of silicon metal in the second quarter of 1999 was 8,257 metric tons, compared with 9,472 metric tons produced in the second quarter of 1998. GROSS PROFIT Gross profit decreased by $1.8 million, or 92.9%, to $0.1 million in three months ended June 30, 1999 as compared to $1.9 million in the same period in 1998. The gross profit margin decreased to 1.0% in the three months ended June 30, 1999 from 12.7% in the same period in 1998. These decreases were principally due to decreased selling prices for all aluminum grades of silicon metal. Average selling price per metric ton decreased to $1,478 in the three months ended June 30, 1999 from $1,661 in the same period in 1998. This was due to continued excess supply in the primary and secondary aluminum markets coupled with reduced demand for silicon metal in Asian markets. Average production cost per metric ton increased to $1,310 in the three months ended June 30, 1999 from $1,287 in the same period in 1998. This increase resulted primarily from lower production volumes which allowed for less absorption of fixed costs. The lower production volumes resulted from poor furnace performance in the first two months of the quarter and longer than planned maintenance on one furnace. SELLING AND ADMINISTRATIVE EXPENSES Selling and administrative expenses decreased $0.2 million, or 27.9%, to $0.6 million in the three months ended June 30, 1999 as compared to $0.8 million in the same period in 1998. The decrease was primarily due the elimination of the Alabama Franchise Tax, which was declared unconstitutional by the Alabama Supreme Court. OPERATING INCOME Income from operations decreased $1.5 million to a loss of $0.5 million in the three months ended June 30, 1999 from an operating income of $1.1 million in the same period of 1998. At the same time, the operating margin decreased to (3.5)% from 7.2% for the same period in the prior year. The decrease was primarily due to a reduction of selling prices for all grades of silicon metal coupled with increased production costs per metric ton. INTEREST EXPENSE Interest expense increased $0.015 million, or 0.7%, to $1.914 million in the three months ended June 30, 1999 from $1.899 million in the same period in 1998. The change in interest expense is insignificant. OTHER INCOME - NET Other income - net decreased $0.1 million, or 29.9%, to $0.2 million in the three months ended June 30, 1999 from $0.3 million in the same period in 1998. The decrease in other income was primarily due to a decrease in interest income when compared to the same period in 1998. INCOME TAXES The income tax benefit recorded increased $0.5 million, or 1174.7%, to $0.6 million in the three months ended June 30, 1999 when compared to the same period in 1998. The increase resulted from all the factors above, which created a larger pre-tax loss. NET LOSS As a result of the above factors, the net loss for the three months ended June 30, 1999 was $1.5 million compared to a net loss of $0.4 million for the same period in 1998. 10 11 SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998 NET SALES Net sales decreased by approximately $1.6 million, or 5.2 percent, to $28.2 million in the six months ended June 30, 1999, from $29.8 million in the same period in 1998. This decrease was due principally to a reduction in average selling prices for all aluminum grades of silicon metal. The reduction in sales price more than offset slightly higher sales volumes. Production of silicon metal in the six months ended June 30, 1999 was 17,427 metric tons, compared with 18,582 metric tons produced in the same period in 1998. GROSS PROFIT Gross profit decreased by $3.4 million, or 66.6%, to $1.7 million in six months ended June 30, 1999 as compared to $5.1 million in the same period in 1998. The gross profit margin decreased to 6.0% in the six months ended June 30, 1999 from 17.0% in the same period in 1998. These decreases were principally due to decreased selling prices for all aluminum grades of silicon metal coupled with higher depreciation expense in 1999 associated with the Acquisition. Average selling price per metric ton decreased to $1,484 in the six months ended June 30, 1999 from $1,661 in the same period in 1998. This was due to continued excess supply in the primary and secondary aluminum markets coupled with reduced demand for silicon metal in Asian markets. Average production cost per metric ton decreased to $1,237 in the six months ended June 30, 1999 from $1,272 in the same period in 1998. This decrease resulted primarily from improved product handling and reduced raw material costs. SELLING AND ADMINISTRATIVE EXPENSES Selling and administrative expenses decreased $3.4 million, or 72.4%, to $1.2 million in the six months ended June 30, 1999 as compared to $4.6 million in the same period in 1998. The decrease is primarily due to a bonus paid to management related to the exercise of options of $1.5 million, the recognition of compensation expense of $0.9 million related to certain stock options, and the write-off of certain intangible expenses related to the Acquisition during the quarter ended March 31, 1998. These costs were non-recurring. OPERATING INCOME Income from operations and operating margin were essentially unchanged in the six months ended June 30, 1999 as compared to the same period in 1998. INTEREST EXPENSE Interest expense increased $1.6 million, or 74.0%, to $3.9 million in the six months ended June 30, 1999 from $2.2 million in the same period in 1998. The increase results from substantially higher debt levels in the six months ended June 30, 1999 associated with the Acquisition, which occurred on March 31, 1998. OTHER INCOME - NET Other income - net decreased $0.2 million, or 30.3%, to $0.4 million in the six months ended June 30, 1999 from $0.6 million in the same period in 1998. The decrease in other income was primarily due to reduced "Mercedes" benefits realized by the Company in the six months ended June 30, 1999. The "Mercedes" benefits recorded as Other Income stem from payroll withholding for Alabama income tax that is retained by the Company pursuant to an Alabama state law. The exercise of stock options by management in the first quarter of 1998 generated significant compensation expense against which Alabama income tax was withheld by the Company. There was no such activity during the six months ended June 30, 1999. INCOME TAXES The income tax benefit recorded increased $0.6 million, or 388.3%, to $0.7 million in six months ended June 30, 1999 when compared to the same period in 1998. The increase resulted from all factors above, which created a larger pre-tax loss. 11 12 NET LOSS As a result of the above factors, the net loss for the six months ended June 30, 1999 was $2.3 million compared to a net loss of $1.0 million for the same period in 1998. LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of liquidity are cash flow from operations, borrowings under its secured credit facility and a portion of the net proceeds from the offering of its 9 5/8% Senior Notes due 2006 (the "Notes"). The Company's principal uses of liquidity are to fund operations, meet debt service requirements and finance the Company's planned capital expenditures, including the possible construction of a fourth smelting furnace, engineering work for which has already begun. The Company's cash flows from its operations are influenced by selling prices of its products and raw materials costs, and are subject to moderate fluctuation due to market supply factors driven by imports. The Company's silicon metal business experiences price fluctuations principally due to the competitive nature of one of its markets, the secondary aluminum market. Historically, the Company's microsilica business has been affected by the developing nature of the markets for this product. Cash and cash equivalents were $9.8 million and $14.7 million at June 30, 1999 and December 31, 1998, respectively, and restricted cash was $6.2 million as of June 30, 1999. The increase in total cash and equivalents and restricted cash in the first six months of 1999 resulted principally from cash provided by operations. Depreciation and amortization for the second quarter of 1999 totaled $1.6 million, compared to $1.4 million for the same period in 1998. The increase in the second quarter of 1999 primarily resulted from an increase in depreciation expense related to capital expenditures in the last year. In the second quarters of 1999 and 1998, net cash provided by operating activities was $(0.5) million and $3.2 million, respectively. The decrease in the second quarter of 1999 resulted primarily from a larger net loss in 1999, accelerated funding of accounts payable due to the timing of check clearings, and a significant receivables transaction in the second quarter of 1998 related to the Acquisition. In the second quarters of 1999 and 1998, net cash used in investing activities was $0.6 million and $1.2 million, respectively. The changes primarily reflect different levels of capital spending during the corresponding quarters of each year. In the second quarters of 1999 and 1998, net cash used in financing activities was insignificant. In connection with the Acquisition, the Company replaced its existing credit facility with a new credit facility (the "Credit Facility") providing availability for revolving borrowings and letters of credit in an aggregate principal amount of up to $15.0 million (of which $6.1 million is reserved for support of a letter of credit issued in connection with the industrial revenue bond financing of the Company). As of June 30, 1999 and December 31, 1998, no drawings were outstanding under the Credit Facility. Ongoing interest payments on the Notes represent significant liquidity requirements for the Company. With respect to the $75.0 million borrowed under the Notes, the Company will be required to make semiannual interest payments of approximately $3.6 million over the life of the Notes. With respect to ongoing capital spending, the Company expects to spend approximately $2.5 million to $3.0 million annually to properly maintain its furnaces and other production facilities. In addition, the Company is considering the addition of a fourth smelting furnace using proceeds of the Notes, together with internally generated or borrowed cash. The Company estimates that construction of the furnace, if undertaken, will cost approximately $25.0 million. The agreement governing the Credit Facility (the "Credit Agreement") imposes restrictions on the Company's ability to make capital expenditures and both the Credit Agreement and the indenture governing the Notes (the "Indenture") limit the Company's ability to incur additional indebtedness. Such restrictions, together with the highly leveraged nature of the Company, could limit the Company's ability to respond to market conditions, to meet its capital spending program, to provide for unanticipated capital investments or to take advantage of business opportunities. The covenants contained in the Credit Agreement also, among other things, restrict the ability of 12 13 the Company and its subsidiaries to dispose of assets, incur guarantee obligations, repay the Notes, pay dividends, create liens on assets, enter into sale and leaseback transactions, make investments, loans or advances, make acquisitions, engage in acquisitions or consolidations, make capital expenditures or engage in certain transactions with affiliates, and otherwise restrict corporate activities. At June 30, 1999, the Company was in compliance with all loan covenants, as amended. The covenants contained in the Indenture governing the Notes also impose restrictions on the operation of the Company's business. YEAR 2000 The Company uses several application programs written over many years using two-digit year fields to define the applicable year, rather than four-digit year fields. Such programs may recognize a date using "00" as the year 1900 rather than the Year 2000. This misinterpretation of the year could result in an incorrect computation, a computer malfunction, or a computer shutdown. The Company has identified the systems that could be affected by the Year 2000 issue and has developed a plan to resolve the issue. The plan contemplates the replacement of the Company's sales order system by September 1, 1999 and perpetual inventory system by September 1, 1999. Management has estimated that the costs associated with the implementation of the plan to be approximately $50,000 although no assurances can be given in this regard. The Company has made approximately $25,000 of Year 2000 expenditures through the end of July, 1999. The Company is reviewing its top suppliers and customers to determine whether they have similar Year 2000 issues and, if so, when they will become Year 2000 compliant. This will allow the Company to determine whether the suppliers' and customers' Year 2000 problems will impede their ability to provide goods and services to the Company. An initial review has indicated that all of the Company's major suppliers and customers appear to be in the process of resolving their Year 2000 issues and that they do not foresee any material problems. If the Company cannot successfully and timely resolve its Year 2000 issues, its business, results of operations and financial condition could be materially adversely affected. Except for the systems controlling the Company's sales order and perpetual inventory processes, which can be manually operated in the event of a systems failure, management is not aware of any systems or operations of the Company that will be adversely affected as a result of the Year 2000 problem. If, however, any other system or operation of the Company is adversely affected by the Year 2000 problem, the Company's business, results of operations and financial condition could be materially adversely affected. The Company has not developed a contingency plan in the event of a Year 2000 problem. However, based upon the results of the Company's internal review, it does not believe a contingency plan is necessary. FORWARD-LOOKING STATEMENTS Certain of the matters discussed in this document, particularly regarding anticipating future financial performance, business prospects, growth and operating strategies, the effects of the Acquisition on the Company and similar matters, and those preceded by, followed by or that otherwise include the words "may," "would," "could," "will," "believes," "expects," "anticipates," "plans," "intends," "estimates," or similar expressions or variations thereof may constitute "forward-looking statements" for purposes of the Securities Act of 1933, as amended (the "Securities Act"), and the Securities Exchange Act of 1934, as amended. For those statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve a number of risks and uncertainties. A variety of factors, including without limitation those discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations" herein and in Item 7 of the Company's Annual Report on Form 10-K, and in other filings by the Company with the Securities and Exchange Commission, may affect the future results of the Company and could cause those results to differ materially from those expressed in the forward-looking statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The fair value of the Company's long-term debt and capital leases is affected by changes in interest rates. Based upon current market conditions, the fair value and hypothetical increase in fair value of long-term debt and capital leases, including current portion, is not expected to be materially different from that as of December 31, 1998. 13 14 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. Not applicable ITEM 2. CHANGES IN SECURITIES. Not applicable ITEM 3. DEFAULTS UPON SENIOR NOTES. Not applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable ITEM 5. OTHER INFORMATION. Not applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits 27 Financial Data Schedule (for SEC use only) (b) Reports on Form 8-K None 14 15 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SIMCALA, Inc. Date: August 10, 1999 /s/ R. Myles Cowan ------------------------------------------------ R. Myles Cowan Vice President and Chief Financial Officer (Principal Accounting and Financial Officer) 15 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF SIMCALA INC. FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 16,022 0 6,013 0 1,575 24,075 56,765 5,103 112,969 6,556 81,000 0 0 18,807 (4,513) 112,969 28,221 28,221 26,528 26,528 (437) 0 3,852 (3,006) (716) (2,290) 0 0 0 (2,290) 0 0 OF THIS AMOUNT, 6,189 WAS RESTRICTED CASH.
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