Horsehead Holding Corp. (Nasdaq:ZINC)
reported consolidated net income of $0.7 million, or $0.01 per diluted
share, for the first quarter of 2014 compared to a consolidated net
income of $2.8 million, or $0.06 per diluted share, for the first
quarter of 2013. Results for the quarter, adjusted to exclude favorable
non-cash adjustments associated with hedges, was a loss of $1.3 million,
or $(0.02) per diluted share compared to consolidated net income on the
same basis of $2.3 million for the first quarter of 2013, or $0.05 per
diluted share. The LME zinc price was approximately the same for both
quarters, although nickel prices were 15% lower in the current quarter.
“During the first quarter we were faced with significant challenges, but
accomplished several critical milestones in our transition plan:
-
We are very excited that zinc production at our new Mooresboro, North
Carolina facility is imminent. Construction of the zinc production
facility is essentially finished. We have completed all of the
pre-production checks and operated nearly all of the key unit
operations in an actual production mode including waelz oxide
unloading and washing, leaching, solvent extraction, effluent
treatment and the melting and casting facilities. The cellhouse is
fully commissioned awaiting the production of sufficient
on-specification electrolyte in order to fill the cells, turn on the
power and begin zinc production. We expect first zinc production to
begin shortly,
-
We permanently closed the zinc smelter in our Monaca, Pennsylvania
facility at the end of April 2014 reflecting the start-up readiness of
Mooresboro and the expectation that the continued sale of calcine and
waelz oxide from our recycling operations will generate higher margins
than the continued operation of the Monaca smelter,
-
Zochem had a strong quarter with shipments increasing 82% compared to
the prior year’s first quarter reflecting the full integration of our
zinc oxide business into a single location. We started the seventh
furnace by the end of the quarter and shifted all zinc oxide
production to the Brampton, Ontario facility,
-
INMETCO also had a strong quarter as a 10% increase in production
helped to offset a 15% lower nickel price
-
Severe weather adversely affected the logistics of product shipments
and EAF dust deliveries, productivity at our Monaca smelter and energy
costs at all of our facilities, which impacted our financial results
during the quarter,” said Jim Hensler, President and Chief Executive
Officer.
First Quarter Highlights
Compared to the same quarter last year:
-
Zinc product shipments decreased 4,384 tons, or 10.2%, to 38,542 tons
for the quarter, reflecting the shutdown of the refinery operation at
the Monaca facility during the fourth quarter of 2013 and declining
smelter productivity.
-
EAF dust receipts decreased 10.6% to 140,108 tons as deliveries were
affected by weather conditions.
-
The LME zinc price averaged $0.92/lb for the first quarters of each of
2014 and 2013. The LME nickel price averaged $6.64/lb for the first
quarter of 2014 compared to $7.85/lb for the first quarter of 2013.
Zinc prices were hedged at $0.902/lb for the first quarter of 2014.
-
Net sales, excluding $3.1 million related to non-cash hedge benefits
for the current quarter and $1.0 million for the first quarter of
2013, decreased $10.2 million, or 9%, to $107.0 million reflecting the
effect of reduced shipment volumes and nickel prices. Price
realization for zinc products on a zinc-contained basis reflected a
$0.20/lb premium to the average LME zinc price for the quarter
compared to a $0.24/lb premium in the prior year quarter with the
difference primarily being due to a decrease in zinc oxide shipments
as a portion of total shipments.
-
Cost of sales were $100.0 million, unchanged from the prior year
quarter as the effect of lower shipments and reduced cost for
purchased feed were slightly offset by higher energy costs and reduced
absorption of fixed costs due to lower production levels.
-
Adjusted EBITDA(1) was $2.3 million for the quarter
compared to $12.4 million for the same quarter last year, primarily
the result of lower shipment levels and higher unit conversion costs.
Adjusted EBITDA was $23.6 million and the LME zinc price was $0.87/lb
for the twelve months ended March 31, 2014 compared to $41.9 million
and a LME zinc price of $0.88/lb, respectively, for the twelve months
ended March 31, 2013.
-
Cash used by operating activities was $22.0 million for the quarter
ended March 31, 2014 as accounts payable decreased and accounts
receivable increased during the quarter. Capital spending was $48.2
million for the quarter. Cash on hand was $65.5 million at the end of
the quarter. In addition, we had $8.6 million of unused availability
under our various credit facilities as of March 31, 2014. An
additional $6.5 million of availability was added in April 2014. We
continue to believe we have adequate liquidity to meet the capital
needs of the business through the ramp-up of the Mooresboro facility.
|
Shipments and Production Data
|
|
|
|
|
|
|
Quarter ended March 31,
|
|
|
|
|
|
2014
|
|
|
2013
|
Zinc production – zinc equivalent tons
|
|
|
|
|
34,509
|
|
|
40,901
|
Zinc product shipments - tons
|
|
|
|
|
38,542
|
|
|
42,926
|
Zinc contained - tons
|
|
|
|
|
35,009
|
|
|
38,464
|
Net sales realization
|
|
|
|
|
|
|
|
|
Zinc products - per lb
|
|
|
|
|
$1.01
|
|
|
$1.04
|
Zinc products -per lb zinc contained
|
|
|
|
|
$1.12
|
|
|
$1.16
|
EAF dust receipts - tons
|
|
|
|
|
140,108
|
|
|
156,647
|
Nickel remelt alloy shipments - tons
|
|
|
|
|
7,271
|
|
|
6,858
|
LME average zinc price - per lb
|
|
|
|
|
$0.92
|
|
|
$0.92
|
LME average nickel price - per lb
|
|
|
|
|
$6.64
|
|
|
$7.85
|
|
Business Outlook
Hensler added, “Our results compared against the prior year’s first
quarter reflect the unfavorable effect of a 10% reduction in zinc
product shipments, a 28% reduction in smelter production and a $2.6
million or $0.03 per share increase in energy prices, which temporarily
spiked due to the weather. The smelter production also declined due to
the wind down of operations in Monaca as we closed the zinc oxide
refinery at the end of 2013 and prepared for the permanent closure of
the smelter at the end of April 2014. In total, including those
terminated at the end of 2013 with the closure of the zinc oxide
refinery, 510 salaried and hourly positions will have been eliminated
with the closure of our Monaca facility. Of this number, only about 40
positions remain on the site today to assist with pre-demolition closure
of the facility and final product shipments. As a result of declining
production of the smelter, we increased the sale of waelz oxide and
calcine to third parties during the quarter. In total, 22% of the zinc
units from our EAF dust recycling operations were sold to third parties.
In addition, we have entered into agreements to sell additional waelz
oxide and calcine, as needed, during the transition period while
Mooresboro is ramping up.”
During the first quarter, EAF dust tons processed declined by 15%
compared with the fourth quarter of 2013, as unusually severe weather
conditions adversely affected both the delivery of EAF dust and
operating up-time of our process equipment. We processed a quantity of
dust approximately 6% lower than our dust receipts during the quarter.
EAF dust receipts began to return to normal levels in March. Average
service fees increased by 2.6% compared with the prior year’s first
quarter, primarily as a result of contractual price increases. We idled
the second kiln at our Rockwood, Tennessee plant on May 2, 2014 to
balance capacity with supply. We expect to remain at this operating
level for a few weeks. Steel industry output remained steady as we
entered the second quarter of 2014.
Demolition of the Monaca site, undertaken pursuant to our option
agreement with Shell Chemical LP, was in full swing during the first
quarter. Demolition of many of the buildings around the perimeter of the
facility, away from the smelting operations, has been accomplished or
initiated. Shell Chemical LP continues its activities related to its
ongoing review of the Monaca location for its proposed petrochemical
complex. If Shell exercises their option, we would expect to begin
demolishing the remaining structures on the facility.
Zochem’s earnings before taxes for the quarter were $3.5 million which
increased by 69% compared with the prior year’s first quarter due
primarily to higher product margins and increased volume. Shipments
increased by 82% compared with the prior year’s first quarter. We
operated six of seven muffle furnaces at Zochem for most of the first
quarter. We started the new seventh furnace at the end of March 2014.
Transactional premiums on zinc oxide continue to hold steady during the
quarter compared to the fourth quarter of 2013, however, realized
premiums dipped slightly due to the lag effect in oxide pricing as a
result of higher LME zinc prices in the current quarter. Construction
activity related to the expansion project at Zochem is essentially
complete with only a few minor items remaining. We may install
additional baghouse capacity on some of the furnaces later this year to
gain extra production capacity if market conditions warrant the
investment.
INMETCO’s earnings before taxes were $1.7 million for the quarter which
is lower than the prior year’s first quarter of $4.1 million. The prior
year had a favorable one-time settlement on hedges of $0.8 million
related to the MF Global claim and a favorable mark-to-market adjustment
on hedges of $0.4 million, while the current quarter was adversely
affected by a 15% lower nickel price and an unfavorable mark-to-market
adjustment on hedges of $0.8 million. INMETCO had a strong operating
quarter with tolling receipts 13% higher and remelt alloy production up
10% compared with the prior year’s first quarter. We have been
successful in increasing the production rate on our submerged arc
furnace to keep pace with increasing tolling orders from our customers.
We are evaluating some modest capital investments to get further
increases in capacity later this year.
We have progressed through all of the required stages of commissioning
at Mooresboro over the past several months and, as a result, were able
to identify and correct equipment and installation issues albeit at the
cost of some delay in the start of production. We have reached the final
stage of commissioning of the zinc plant and expect to start zinc
production shortly. We expect the ramp-up to substantially full zinc
production to take about six months once zinc production begins. The
lead-silver recovery circuit is still expected to be completed late in
the second quarter of 2014. The first production of the resulting
concentrate is expected early in the third quarter. The current estimate
of the cost to construct the Mooresboro facility is $525 million, of
which, $504 million has been recorded through the end of the first
quarter of 2014. The increase since our September 2013 estimate is
primarily related to the extended commissioning process, issues with
contractors, and final scope additions. We continue to believe that the
new Mooresboro facility will deliver $90 to $110 million of incremental
annual adjusted EBITDA once fully operational, along with other
potential benefits such as reduced cost of hedging, maintenance capital
spending and cash taxes.”
Conference Call Information
Horsehead will conduct a conference call with investors and analysts on
Monday, May 12, 2014, at 11:00 am EDT to discuss its first quarter.
Dial-in instructions are as follows.
Dial-In Numbers:
United States: 1 (888) 895-5271
International:
1 (847) 619-6547
Confirmation Number: 37065243
An Audio-Only Web Conference Cast will also be available from the
Investor Relations Corporate Information page of our website www.horsehead.net
or directly at http://event.on24.com/r.htm?e=779708&s=1&k=8623321F394359CEED91209D1014788B
A replay of the call will be available beginning at 1:30 pm EDT on
Monday, May 12, 2014 and ending on Tuesday, May 19, 2014 at 11:59 pm
EDT. Dial in instructions for the replay is as follows.
Dial-In Numbers:
United States: 1 (888) 843-7419
International:
1 (630) 652-3042
Access Code: 37065243#
About Horsehead
Horsehead Holding Corp. (“Horsehead”) (Nasdaq:ZINC) is the parent
company of Horsehead Corporation, a leading U.S. producer of specialty
zinc and zinc-based products and a leading recycler of electric arc
furnace dust; The International Metals Reclamation Company (“INMETCO”),
a leading recycler of metals-bearing wastes and a leading processor of
nickel-cadmium (NiCd) batteries in North America; and Zochem Inc., a
zinc oxide producer located in Brampton, Ontario. Horsehead,
headquartered in Pittsburgh, Pa., employs approximately 700 people and
has seven facilities throughout the U.S. and Canada. Visit www.horsehead.net
for more information.
Cautionary Statement about Forward-Looking Statements
This press release contains forward-looking statements, including
statements about business outlook, future operating levels, proposed and
potential initiatives and strategy, financial and performance targets
and statements about historical results that may suggest trends for our
business. These statements are based on assumptions, estimates and
information available to us at the time of this press release and are
not guarantees of future performance. There may be several factors that
may cause our actual results to differ materially from the
forward-looking statements, including, among others, the impact of
future market conditions or unexpected production disruptions, including
labor disruptions associated with the wind down of our Monaca facility
on our results of operations, our future operating costs and production
levels and our expansion plans and initiatives, delays in the
achievement of full commercial operations at our Mooresboro facility,
our ability to successfully implement and maintain past and future price
increases, our ability to achieve the benefits we expect to achieve from
the Mooresboro facility once fully operational, the ultimate cost to
construct and start up the new plant and our ability to pay these costs
and maintain adequate liquidity, our ability to obtain environmental and
regulatory permits and approvals, and the success and timing of our
expansion plans and initiatives and their impact on our future
capabilities, capacity and production costs and our financial results.
Our actual results, performance or achievements could differ materially
from those expressed in, or implied by, the forward-looking statements.
We can give no assurances that any of the events anticipated by the
forward-looking statements will occur or, if any of them does, what
impact they will have on our results of operations and financial
condition. You should carefully read the factors described in the “Risk
Factors” section of our filings with the Securities and Exchange
Commission for a description of certain risks that could, among other
things, cause our actual results to differ from these forward-looking
statements. All forward-looking statements are qualified in their
entirety by this cautionary statement, and we undertake no obligation to
revise or update this earnings release to reflect events or
circumstances after the date hereof.
Summary Consolidated Financial Results (in
thousands except per share amounts):
|
Income Statement (unaudited)
|
|
|
|
|
|
|
Quarter ended March 31,
|
|
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
|
|
$
|
110,064
|
|
|
|
$
|
118,262
|
Cost of sales (excluding depreciation and amortization)
|
|
|
|
|
|
100,000
|
|
|
|
|
100,013
|
Gross profit (excluding depreciation and amortization)
|
|
|
|
|
|
10,064
|
|
|
|
|
18,249
|
Depreciation and amortization
|
|
|
|
|
|
4,853
|
|
|
|
|
7,104
|
S G & A expenses
|
|
|
|
|
|
6,038
|
|
|
|
|
5,830
|
(Loss)income from operations
|
|
|
|
|
|
(827
|
)
|
|
|
|
5,315
|
Interest expense
|
|
|
|
|
|
538
|
|
|
|
|
1,081
|
Interest and other income
|
|
|
|
|
|
2,488
|
|
|
|
|
424
|
Income before taxes
|
|
|
|
|
|
1,123
|
|
|
|
|
4,658
|
Income tax provision
|
|
|
|
|
|
394
|
|
|
|
|
1,830
|
Net income
|
|
|
|
|
$
|
729
|
|
|
|
$
|
2,828
|
|
|
|
|
|
|
|
|
|
Earnings per diluted share
|
|
|
|
|
$
|
0.01
|
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding
|
|
|
|
|
|
51,789
|
|
|
|
|
44,294
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA (1)
|
|
|
|
|
$
|
2,305
|
|
|
|
$
|
12,380
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Items
|
|
|
|
|
March 31, 2014
|
|
|
|
December 31, 2013
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
Cash and equivalents
|
|
|
|
|
$
|
65,470
|
|
|
|
$
|
136,327
|
Other current assets
|
|
|
|
|
|
157,199
|
|
|
|
|
139,826
|
Property, plant and equipment, net
|
|
|
|
|
|
759,959
|
|
|
|
|
708,250
|
Other assets
|
|
|
|
|
|
19,952
|
|
|
|
|
20,909
|
Total assets
|
|
|
|
|
$
|
1,002,580
|
|
|
|
$
|
1,005,312
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
$
|
156,916
|
|
|
|
$
|
161,819
|
Long-term debt
|
|
|
|
|
|
354,199
|
|
|
|
|
354,768
|
Other long-term liabilities
|
|
|
|
|
|
43,725
|
|
|
|
|
43,831
|
Stockholders’ equity
|
|
|
|
|
|
447,740
|
|
|
|
|
444,894
|
Total liabilities and stockholders’ equity
|
|
|
|
|
$
|
1,002,580
|
|
|
|
$
|
1,005,312
|
|
|
Segment Information (unaudited)
|
|
Three months ended March 31, 2014
|
|
|
|
|
Horsehead
|
|
|
Zochem
|
|
|
INMETCO
|
|
|
Corporate,
eliminations
and other
|
|
|
Total
|
Net sales
|
|
|
|
|
$ 62,259
|
|
|
$ 35,747
|
|
|
$ 12,420
|
|
|
$ (362)
|
|
|
$ 110,064
|
(Loss)income before income taxes
|
|
|
|
|
(3,955)
|
|
|
3,475
|
|
|
1,695
|
|
|
(92)
|
|
|
1,123
|
|
Three months ended March 31, 2013
|
|
|
|
|
Horsehead
|
|
|
Zochem
|
|
|
INMETCO
|
|
|
Corporate,
eliminations
and other
|
|
|
Total
|
Net sales
|
|
|
|
|
$ 83,870
|
|
|
$ 20,149
|
|
|
$ 14,780
|
|
|
$ (537)
|
|
|
$ 118,262
|
(Loss)income before income taxes
|
|
|
|
|
(881)
|
|
|
2,051
|
|
|
4,080
|
|
|
(592)
|
|
|
4,658
|
|
(1)
|
|
Adjusted EBITDA is a non-GAAP financial measure. Management
uses adjusted EBITDA to help it evaluate our performance and to
compare our current results with those for prior periods as well
as with the results of other companies in our industry. We caution
investors that Adjusted EBITDA should not be considered as a
substitute for disclosures made in accordance with GAAP. Below is
a reconciliation of adjusted EBITDA to net income (loss):
|
|
Adjusted EBITDA
|
|
|
|
|
Three months ended March 31,
|
|
|
|
|
|
2014
|
|
|
|
2013
|
Net income
|
|
|
|
|
$
|
729
|
|
|
|
$
|
2,828
|
|
Non-cash hedge adjustments
|
|
|
|
|
|
(3,100
|
)
|
|
|
|
(1,047
|
)
|
Non-cash compensation expense
|
|
|
|
|
|
1,233
|
|
|
|
|
1,008
|
|
Severance – Monaca
|
|
|
|
|
|
146
|
|
|
|
|
-
|
|
Income tax provision
|
|
|
|
|
|
394
|
|
|
|
|
1,830
|
|
Interest expense
|
|
|
|
|
|
538
|
|
|
|
|
1,081
|
|
Interest and other income
|
|
|
|
|
|
(2,488
|
)
|
|
|
|
(424
|
)
|
Depreciation and amortization
|
|
|
|
|
|
4,853
|
|
|
|
|
7,104
|
|
Adjusted EBITDA
|
|
|
|
|
$
|
2,305
|
|
|
|
$
|
12,380
|
|
|
Copyright Business Wire 2014