10-Q 1 zinc-20140331x10q.htm 10-Q ZINC-2014.03.31-10Q
 
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, 2014
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: 001-33658
 
 
 
Horsehead Holding Corp.
(Exact Name of Registrant as Specified in Its Charter)
 
 
Delaware
 
20-0447377
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
4955 Steubenville Pike, Suite 405
Pittsburgh, Pennsylvania 15205
 
(724) 774-1020
(Address of Principal Executive Offices, including Zip Code)
 
(Registrant’s Telephone Number, Including Area Code)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one).
 
Large accelerated Filer
 
¨
  
Accelerated filer
 
x
 
 
 
 
Non-accelerated filer
 
¨
  
Smaller reporting company
 
¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
The number of shares outstanding of the issuer’s common stock as of May 9, 2014 was 50,709,506.
 




TABLE OF CONTENTS
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
Item 1.
Item 1A  
Item 2.
Item 3
Item 4
Item 5.
Item 6.
 
CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report contains forward-looking statements within the meaning of the federal securities laws. These statements relate to analyses and other information, which are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our future prospects, developments and business strategies.
These forward looking statements are identified by the use of terms and phrases such as “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “predict”, “project”, and similar terms and phrases, including references to assumptions. However, these words are not the exclusive means of identifying such statements. These statements are contained in many sections of this report (including “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations”). Although we believe that our plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, we cannot assure you that we will achieve those plans, intentions or expectations. We believe that the following factors, among others (including those described in “Part II, Item 1A. Risk Factors”), could affect our future performance and the liquidity and value of our securities and cause our actual results to differ materially from those expressed or implied by forward-looking statements made by us or on our behalf: the cyclical nature of the metals industry; the state of the credit and financial markets; decreases in the prices of zinc and nickel-based products; competition from global zinc and nickel manufacturers; long term declines in demand of zinc and nickel products due to competing technologies or materials; our ability to implement our business strategy successfully; our ability to complete the final phase of construction, commissioning and ramp up of our new zinc facility; our ability to realize the projected benefits from the new zinc facility once fully operational; the ability of the new zinc facility to produce Special High Grade or Continuing Galvanizing Grade zinc; cash flow generation and the availability of financing being sufficient to meet our needs for capital; our ability to service our debt; our ability to integrate acquired businesses; work stoppages and labor disputes; material disruptions at any of our manufacturing facilities, including for equipment, power failures or industrial accidents; fluctuations in the costs or availability of our energy or raw material supplies; decreases in order volume from major customers;

i


the costs of compliance with environmental, health and safety laws and responding to potential liabilities and changes under these laws; the effect of litigation related to worker safety or employment laws; failure of our hedging strategies, including those relating to the prices of energy, raw materials and zinc products; our ability to attract and retain key personnel; our ability to protect our intellectual property and know-how; our dependence on third parties for transportation services; and risks associated with our substantial indebtedness and limitations in our debt documents.
There may be other factors that may cause our actual results to differ materially from the forward-looking statements. 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 this report 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 Quarterly Report on Form 10-Q to reflect events or circumstances after the date hereof.

ii


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Horsehead Holding Corp. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
March 31, 2014 and December 31, 2013
(Unaudited)
(Amounts in thousands, except per share amounts)
 
March 31,
2014
 
December 31,
2013
ASSETS
 
 
 
Current assets
 
 
 
       Cash and cash equivalents
$
65,470

 
$
136,327

Accounts receivable, net of allowance of $469 and $554, respectively
68,501

 
58,649

Inventories, net
66,311

 
69,576

Prepaid expenses and other current assets
16,625

 
5,264

Deferred income taxes
5,762

 
6,337

Total current assets
222,669

 
276,153

Property, plant and equipment, net
759,959

 
708,250

Other assets
 
 
 
Intangible assets, net
10,887

 
11,268

Deposits and other
9,065

 
9,641

Total other assets
19,952

 
20,909

Total assets
$
1,002,580

 
$
1,005,312

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities
 
 
 
Current maturities of long-term debt
$
2,881

 
$
2,870

Accounts payable
100,273

 
114,191

Accrued expenses
53,762

 
44,758

Total current liabilities
156,916

 
161,819

Long-term debt, less current maturities
354,199

 
354,768

Other long-term liabilities
18,015

 
17,787

Deferred income taxes
25,710

 
26,044

Commitments and contingencies


 


Stockholders’ equity
 
 
 
Common stock, par value $0.01 per share; 100,000 shares authorized; 50,708 and 50,437 shares issued and outstanding in 2014 and 2013, respectively
507

 
504

Preferred stock, par value $0.01 per share; 10,000 shares authorized; no shares issued or outstanding

 

Additional paid-in capital
311,056

 
308,825

Retained earnings
131,562

 
130,833

Accumulated other comprehensive income
663

 
667

Total stockholders’ equity before noncontrolling interest
443,788

 
440,829

Noncontrolling interest
3,952

 
4,065

Total stockholders’ equity
447,740

 
444,894

Total liabilities and stockholders’ equity
$
1,002,580

 
$
1,005,312

The accompanying notes to financial statements are an integral part of these statements.


1


Horsehead Holding Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended March 31, 2014 and 2013
(Unaudited)
(Amounts in thousands except per share amounts)
 
        
 
Three Months Ended 
 March 31,
 
 
2014
 
2013
 
Net sales of zinc material and other goods
$
87,812

 
$
92,614

 
Net sales of nickel-based material and other services
12,397

 
14,758

 
EAF dust service fees
9,855

 
10,890

 
Net sales
110,064

 
118,262

 
Cost of sales of zinc material and other goods
83,203

 
81,221

 
Cost of sales of nickel-based material and other services
8,771

 
8,993

 
Cost of EAF dust services
7,880

 
9,799

 
Restructuring expenses
146

 

 
Cost of sales (excluding depreciation and amortization)
100,000

 
100,013

 
Depreciation and amortization
4,853

 
7,104

 
Selling, general and administrative expenses
6,038

 
5,830

 
Total costs and expenses
110,891

 
112,947

 
(Loss) income from operations
(827
)
 
5,315

 
Other income (expense)
 
 
 
 
Interest expense
(538
)
 
(1,081
)
 
Interest and other income
2,488

 
424

 
Total other income (expense)
1,950

 
(657
)
 
Income before income taxes
1,123

 
4,658

 
Income tax expense
394

 
1,830

 
NET INCOME
$
729

 
$
2,828

 
Income per common share:
 
 
 
 
Basic
$
0.01

 
$
0.06

 
Diluted
$
0.01

 
$
0.06

 
Weighted average shares outstanding:
 
 
 
 
Basic
50,581

 
44,014

 
Diluted
51,789

 
44,294

 
The accompanying notes to financial statements are an integral part of these statements.


2


Horsehead Holding Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months ended March 31, 2014 and 2013
(Unaudited)
(Amounts in thousands except per share amounts)
 
        
 
Three Months Ended 
 March 31,
 
 
2014
 
2013
 
Net income
$
729

 
$
2,828

 
Other comprehensive income, net of tax:
 
 
 
 
Net pension liability adjustment
(4
)
 

 
Comprehensive income
$
725

 
$
2,828

 
The accompanying notes to financial statements are an integral part of these statements.


3


Horsehead Holding Corp. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
For the three months ended March 31, 2014
(Unaudited)
(Amounts in thousands)
 
 
 
 
 
 
 
 
 
 
Accumulated
Other
Comprehensive
(Loss) Income
 
 
 
Common Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
 
Noncontrolling
interest
 
Total
 
Shares
 
Amount
 
 
 
 
 
Balance at December 31, 2013
50,437

 
$
504

 
$
308,825

 
$
130,833

 
$
667

 
$
4,065

 
$
444,894

Restricted stock vesting
201

 
2

 
(2
)
 

 

 

 

Stock compensation expense

 

 
1,233

 

 

 

 
1,233

Stock option exercise
70

 
1

 
909

 

 

 

 
910

Net tax benefit of equity award vesting

 

 
774

 

 

 

 
774

Distribution to noncontrolling interests

 

 

 

 

 
(113
)
 
(113
)
Restricted stock withheld for taxes

 

 
(683
)
 

 

 

 
(683
)
Comprehensive income, net of tax

 

 

 
729

 
(4
)
 

 
725

Balance at March 31, 2014
50,708

 
$
507

 
$
311,056

 
$
131,562

 
$
663

 
$
3,952

 
$
447,740

The accompanying notes to financial statements are an integral part of these statements


4


Horsehead Holding Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 2014 and 2013
(Unaudited)
(Amounts in thousands)
 
2014
 
2013
Cash Flows from Operating Activities:
 
 
 
Net income
$
729

 
$
2,828

Adjustments to reconcile net income to net cash used by operating activities:
 
 
 
Depreciation and amortization
4,853

 
7,104

Deferred income tax benefit
241

 
(262
)
Accretion on debt
955

 
939

Accretion on ESOI liabilities
105

 
112

Amortization of deferred finance costs
616

 
579

Losses on writedown or disposal of assets

 
108

Losses on derivative financial instruments
(3,100
)
 
(1,047
)
Lower of cost or market adjustment to inventories
956

 
862

Non-cash compensation expense
1,233

 
1,008

Capitalization of interest
(7,942
)
 
(6,478
)
Changes in operating assets and liabilities:
 
 
 
(Increase) in accounts receivable, net
(9,817
)
 
(4,685
)
Decrease (increase) in inventories, net
2,309

 
(8,216
)
(Increase) decrease in prepaid expenses and other current assets
(9,194
)
 
4,432

(Increase) in deposits and other
(7
)
 
(140
)
(Decrease) in accounts payable
(13,918
)
 
(2,338
)
Increase in accrued expenses
9,902

 
4,212

Increase in other long-term liabilities
119

 
261

Net cash used in operating activities
(21,960
)
 
(721
)
Cash Flows from Investing Activities:
 
 
 
Purchase of property, plant and equipment
(48,235
)
 
(64,917
)
Net cash used in investing activities
(48,235
)
 
(64,917
)
Cash Flows from Financing Activities:
 
 
 
Distributions to noncontrolling interest equity holders
(113
)
 
(114
)
Borrowings on the Credit Facilities
6,874

 
3,500

Repayments on the Credit Facilities
(7,900
)
 
(3,500
)
Debt issuance costs
(37
)
 
(25
)
Borrowings on the Credit Agreement
178

 
3,957

Repayments on the Credit Agreement
(665
)
 
(304
)
Proceeds from the exercise of stock options
910

 

Tax effect of share based compensation award exercise and vesting
774

 
193

Restricted stock withheld for taxes
(683
)
 
(345
)
Net cash (used in) provided by financing activities
(662
)
 
3,362

Net decrease in cash and cash equivalents
(70,857
)
 
(62,276
)
Cash and cash equivalents at beginning of period
136,327

 
244,119

Cash and cash equivalents at end of period
$
65,470

 
$
181,843

The accompanying notes to financial statements are an integral part of these statements.

5

HORSEHEAD HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except per share amounts)


NOTE A—BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Horsehead Holding Corp. and its subsidiaries as of March 31, 2014 and for the three months ended March 31, 2014 and 2013 have been prepared pursuant to the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2014 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2014. The accompanying financial statements include the accounts of Horsehead Holding Corp. and all of its subsidiaries (collectively referred to as the “Company”, “we”, “us” or “our” or similar terms). All intercompany accounts and transactions have been eliminated. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant items requiring the use of management estimates and assumptions relate to inventory reserves, bad debt reserves, environmental and asset retirement obligations, workers’ compensation liabilities, reserves for contingencies and litigation and fair value of financial instruments and business acquisitions. Management bases its estimates on the Company’s historical experience and its expectations of the future and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.
Certain reclassifications have been made to prior year amounts in Note S - Segment Information to conform with current year classifications.
NOTE B—ACQUISITION OF BUSINESS
On November 16, 2012, the Company purchased the single membership interest in Mitsui Zinc Powder LLC (“MZP”), a manufacturer of zinc powders for the alkaline battery business, co-located on the Company’s Monaca facility site, from Oak-Mitsui, Inc. MZP was renamed Horsehead Zinc Powders, LLC. ("HZP"). The Company was MZP's long-term supplier of Special Special High Grade zinc metal used in their production process. The estimated purchase price was $1,101 which was comprised of $500 in cash at closing, a working capital adjustment and $1,270 in contingent consideration. The contingent consideration is a per ton fee based on tons shipped for a period of time up to a maximum of $1,500.
The first two payments related to the contingent consideration were made in 2013. Based upon a decrease in expected production, however, the contingent consideration was reduced by $257 in 2013. During the first quarter of 2014, HZP production was idled due to a lack of raw material supply and a drop in a customer's production, shipments however have continued. As a result, the contingent consideration was reduced by an additional $124 . This adjustment was recorded in Interest and other income in the Consolidated Statements of Operations. The final payment under the contingent consideration will be made in May 2014.
NOTE C - RESTRUCTURING EXPENSES

On October 31, 2013, the Company notified various required parties, as required by the Worker Adjustment and Retraining Notification Act of 1988, 29 U.S.C. § 2101 et seq., that a majority of its manufacturing operations at the plant located in Monaca, Pennsylvania were expected to be permanently closed and shut down within several months of the notification date. The Company expects to permanently terminate the employment of five hundred ten salaried and hourly positions. The zinc oxide and high purity zinc metal refinery operations at the Monaca facility ceased operation on December 23, 2013. The smelting operation was reduced from six furnaces to five furnaces as remaining zinc feedstock at the site was converted to PW grade metal. Production at the zinc smelter ceased at the end of April 2014.

Costs and the related liabilities due to involuntary termination costs associated with one-time benefit arrangements provided as part of an exit or disposal activity are recognized by the Company when a formal plan for reorganization is approved at the appropriate level of management and communicated to the affected employees. The Company recorded a charge of $7,691 during the fourth quarter of 2013 for severance and other employee-related costs associated with the closing of the Monaca, Pennsylvania facility.



6

HORSEHEAD HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except per share amounts)

Accrual at October 31, 2013
$
7,517

Adjustments to previously recorded restructuring charges
174

Cash payments
(9
)
Accrual at December 31, 2013
$
7,682

Adjustments to previously recorded restructuring charges
$
146

Cash payments
$
(787
)
Remaining accrual at March 31, 2014
$
7,041


The majority of the remaining cash expenditures of $7,041 related to the severance and other employee-related costs are expected to be paid by the end of the second quarter of 2014.

Costs associated with exit or disposal activities (e.g., costs to close facilities) are recognized and measured at their fair value in the period in which the liability incurred. The Company is expected to incur $1,700 during 2014 in exit and disposal costs related to the closing of the Monaca, Pennsylvania facility and incurred approximately $141 during the first quarter of 2014.
NOTE D—CASH AND CASH EQUIVALENTS
Cash and cash equivalents consisted of the following at March 31, 2014 and December 31, 2013.
 
 
March 31,
2014
 
December 31,
2013
Cash in bank
$
65,253

 
$
136,110

Money market demand account
217

 
217

 
$
65,470

 
$
136,327

The Company’s cash balance was concentrated in three U.S. banks and one Canadian bank at both March 31, 2014 and December 31, 2013. The Company carries deposits in excess of federally insured amounts. At March 31, 2014, the Company had $2,762 in cash held at foreign institutions. The Company does not believe that it is exposed to significant concentration of credit risk.
The money market demand account carried an interest rate of 0.20% on March 31, 2014 and December 31, 2013. The balances approximate fair value.
NOTE E—INVENTORIES
Inventories consisted of the following at March 31, 2014 and December 31, 2013.
 
March 31,
2014
 
December 31,
2013
Raw materials
$
13,678

 
$
12,053

Work-in-process
2,154

 
5,120

Finished goods
37,983

 
40,468

Supplies and spare parts
12,496

 
11,935

 
$
66,311

 
$
69,576

Inventories were net of reserves for slow moving inventory of $5,649 and $6,164 at March 31, 2014 and December 31, 2013, respectively.
The Company recorded lower of cost or market (“LCM”) adjustments of $956 and $862 to its finished goods inventories during the three months ended March 31, 2014 and 2013, respectively. The Company recorded total LCM adjustments to its finished goods inventories of $3,739 during 2013. The 2014 and 2013 LCM adjustments were the result of the low London Metal Exchange (“LME”) zinc price and increased production costs in 2014, at the Monaca facility, as the plant operated at inefficient levels during shutdown.

7

HORSEHEAD HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except per share amounts)

NOTE F—PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following at March 31, 2014 and December 31, 2013.
 
March 31,
2014
 
December 31,
2013
Refundable income taxes
$
2,344


$
2,017

Prepaid hedge contracts
2,358


191

Contractual obligation receivable
9,000

 

Other
2,923


3,056

 
$
16,625


$
5,264

See Note P – Accounting for Derivative Instruments and Hedging Activities for more information regarding Prepaid hedge contracts.
NOTE G—PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at March 31, 2014 and December 31, 2013.

March 31,
2014

December 31,
2013
Land and land improvements
$
21,879


$
21,879

Buildings and building improvements
27,819


27,758

Machinery and equipment
199,068


196,760

Construction in progress
600,340


546,519


849,106


792,916

Less accumulated depreciation
(89,147
)

(84,666
)

$
759,959


$
708,250

The Company capitalized $7,942 and $6,478 of interest expense during the three months ended March 31, 2014 and March 31, 2013, respectively. The interest expense capitalized related to the construction of the new zinc facility. Through March 31, 2014, the Company has capitalized a total of $48,441 of interest expense related to the new zinc facility.
 
During the fourth quarter of 2011, the Company recorded an initial impairment charge of $9,797 related to the Monaca, Pennsylvania facility, to adjust the net book value of the assets for the potential partial closure and/or disposition of the facility in connection with the expected future start-up of the new zinc plant in North Carolina. The useful lives of the assets related to the smelting operation were reduced to two years on December 31, 2011.

On March 15, 2012, the Company announced that it had entered into an option agreement with Shell Chemical LP to purchase its Monaca, Pennsylvania site. Based upon the signing of the option agreement, the Company recorded an additional impairment charge of $3,274 related to its Monaca, Pennsylvania facility in the first quarter of 2012. During the third quarter of 2012, the Company announced its intent to close the zinc oxide refinery production capacity at the Monaca, Pennsylvania facility when the smelting operation is closed. Based upon this announcement, the Company recorded an additional impairment charge of $6,065 during the third quarter of 2012. The useful lives of the assets related to the refinery operations were reduced to fifteen months on September 30, 2012. During the fourth quarter of 2012, the Company recorded an additional impairment charge of $15,966 based upon the extension of the Shell option agreement in December 2012, the continuation of the construction of the new zinc facility and the determination that the power plant, which had been idled since September 2011, will not be restarted.

On June 28, 2013, Shell extended its option until January 2014. Based upon this extension, the Company evaluated the carrying values of these assets and no impairment charge was recorded. On October 31, 2013, the Company notified various related parties, as required by the Worker Adjustment and Retraining Notification Act of 1988, 29 U.S.C. § 2101 et seq., that a majority of Horsehead Corporation's manufacturing operations at its Monaca, Pennsylvania facility were expected to be permanently closed and shut down within several months of the notification date. Based upon this notice, the Company recorded an impairment charge of $9,349 during the fourth quarter of 2013 related to its Monaca facility. The Company has recorded total impairment charges of $44,451 related to the Monaca facility. The net book value of the remaining assets of the Monaca, Pennsylvania facility

8

HORSEHEAD HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except per share amounts)

was approximately $5,000 at December 31, 2013 and no additional impairment or depreciation will be recorded related to the Monaca facility.

The impairment charge calculations were performed using average expected future cash flows under various likelihoods of asset retirements or dispositions. The cash flows were then discounted and compared to the book value of the related assets resulting in the impairment charge.
NOTE H— DEPOSITS AND OTHER
Deposits and other at March 31, 2014 and December 31, 2013 consisted of the following:

March 31,
2014

December 31,
2013
Deferred finance costs
$
8,324


$
8,903

Other
741


738


$
9,065


$
9,641

See Note I – Long Term Debt for additional information regarding deferred finance costs. 
NOTE I—LONG –TERM DEBT
Long-term debt consisted of the following at March 31, 2014 and December 31, 2013:

March 31,
2014

December 31,
2013
Loan Payable, related to New Market Tax Credit program
$
255


$
255

3.80% Convertible Senior Notes due July 2017, net of debt discount
86,694


85,814

10.50% Senior Secured Notes due June 2017, net of debt discount
193,809


193,734

ABL Facility, interest payable at variable rates
27,600

 
31,500

Zochem Credit Facility, interest payable at variable rates
12,874

 
10,000

INMETCO Credit Facility, interest payable at variable rates
15,000

 
15,000

Credit Agreement, interest payable at variable rates
20,848


21,335


357,080


357,638

Less portion currently payable
2,881


2,870


$
354,199


$
354,768


Convertible Senior Notes
On July 27, 2011, the Company issued $100,000 of 3.80% Convertible Senior Notes due 2017 (the “Convertible Notes”) in a private placement. The Company received proceeds of $100,000 and recognized $3,481 in issuance costs in connection with the offering. The Company used the proceeds from the offering for the initial stages of construction for the state-of-the-art zinc and diversified metal production facility in Rutherford County, North Carolina (“new zinc facility”) and for general corporate purposes, including working capital needs, investment in business initiatives, capital expenditures and acquisitions.
The Convertible Notes pay interest semi-annually in arrears on July 1 and January 1 of each year at a rate of 3.80% per annum. The Convertible Notes mature on July 1, 2017. The Convertible Notes are convertible into shares of the Company’s common stock, cash, or a combination of the Company’s common stock and cash, at the Company’s election, at an initial conversion rate of 0.0666667 shares of the Company’s common stock per $1 principal amount of the Convertible Notes (approximately 6,666.67 underlying shares), which is equivalent to an initial conversion price of approximately $15.00 per share of common stock, subject to adjustment in certain circumstances, as defined in the indenture governing the Convertible Notes. The Company has stated that it intends to settle the par value in cash and the conversion spread in either cash, shares or a combination of both.
The Convertible Notes are senior unsecured obligations of the Company and rank senior in right of payment to its future indebtedness that is expressly subordinated in right of payment to the Convertible Notes; equal in right of payment to its existing and future unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of its secured

9

HORSEHEAD HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except per share amounts)

indebtedness, to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness and other liabilities (including trade payables) of its subsidiaries.
Holders of the Convertible Notes may convert their Convertible Notes at the applicable conversion rate at any time on or after April 1, 2017 until the close of business on the second business day immediately preceding the maturity date. The Convertible Notes may be converted prior to April 1, 2017 only under certain circumstances. If the Company undergoes a fundamental change, as defined in the indenture governing the Convertible Notes, holders may require the Company to repurchase for cash all or a portion of their notes at a price equal to 100% of the principal amount of the Convertible Notes to be repurchased plus any accrued and unpaid interest up to, but excluding the fundamental change repurchase date. The Company does not have the right to redeem the Convertible Notes prior to the stated maturity date of July 1, 2017 and no sinking fund is provided for the Convertible Notes.
In accordance with the guidance under ASC 815-015 Embedded Derivatives and ASC 470-20 Debt with Conversion and other Options, the Company separately accounted for the liability and equity components of the Convertible Notes to reflect the Company’s nonconvertible borrowing rate when interest cost is recognized in subsequent periods. The fair value of the liability component of the Convertible Notes was calculated to be $78,174 and was determined by measuring the fair value of a similar liability that does not have an associated equity component. The nonconvertible rate was determined by the Company to be 8.5%. The carrying amount of the embedded conversion option (the debt discount) of $21,826 was determined by deducting the fair value of the liability component from the initial proceeds of the Convertible Notes and was recorded, net of deferred taxes of $8,805, as additional paid-in capital. The Company is accreting the long-term debt balance to par value over the term of the bonds using the interest method as required by ASC 835-30 Imputation of Interest.
 
Costs of $3,481 associated with the issuance were allocated to the liability and equity components in proportion to the allocation of the fair value of the Convertible Notes. As such, $2,721 was accounted for as debt issuance costs attributable to the liability component of the Convertible Notes and were capitalized as a component of other assets. These costs are being amortized to interest expense over the term of the Convertible Notes and are included as a component of interest expense. The Company recognized interest expense of $115 related to the amortization of debt issuance costs during both the three months ended March 31, 2014 and 2013. The remaining issuance costs of $760 were accounted for as equity issuance costs and were recorded in additional-paid in capital.
During the three months ended March 31, 2014, the Company recognized $1,830 in interest expense related to the Convertible Notes. During the three months ended March 31, 2013, the Company recognized $1,758 in interest expense related to the Convertible Notes. Interest expense includes the contractual interest coupon of 3.80% and amortization of the discount on the liability component. This interest expense reflects an effective interest rate of 8.50%.
The carrying amount of the Convertible Notes was $86,694 with an unamortized discount of $13,306 at March 31, 2014. The carrying amount of the Convertible Notes was $85,814 with an unamortized discount of $14,186 at December 31, 2013. The carrying amount of the equity component was $7,457 and $8,028 at March 31, 2014 and December 31, 2013, respectively. The accumulated accretion related to the equity component was $5,564 and $4,993 at March 31, 2014 and December 31, 2013, respectively. The fair value of the Convertible Notes was estimated to be approximately $130,000 and $127,000 at March 31, 2014 and December 31, 2013, respectively, per quotes obtained from active markets.
Revolving Credit and Security Agreement (as amended the “ABL Facility”)
On September 28, 2011, the Company’s subsidiary Horsehead Corporation (“Horsehead”) entered into an ABL Facility, as borrower, with PNC Bank, as agent and lender, to support liquidity needs for the Company’s new zinc facility and to allow for the availability of previously restricted cash. Horsehead Holding Corp. also entered into the ABL Facility, as guarantor of Horsehead’s obligations.
The ABL Facility provides for a five-year senior secured revolving credit facility in an aggregate principal amount of up to $60,000. The aggregate amount of loans permitted to be made under the revolving credit facility may not exceed a borrowing base consisting of the lesser of: (a) $60,000, minus the aggregate undrawn amount of outstanding letters of credit, and (b) the sum of certain portions of eligible accounts receivable and of eligible inventory of Horsehead, minus the aggregate undrawn amount of outstanding letters of credit and certain availability reserves. Up to an aggregate of $30,000 is available to Horsehead for the issuance of letters of credit, which reduces availability under the ABL Facility. At March 31, 2014, the Company had $9,712 in letters of credit outstanding under the ABL Facility. Horsehead’s obligations under the ABL Facility are secured by a first priority lien (subject to certain permitted liens and exclusions) on substantially all of the tangible and intangible personal property assets of Horsehead. At March 31, 2014, there were $27,600 in outstanding borrowings under the ABL Facility. At March 31, 2014, there was no availability remaining under the ABL facility. The carrying amount of the debt approximated fair value at March 31, 2014.

10

HORSEHEAD HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except per share amounts)

Borrowings by Horsehead under the ABL Facility bear interest at a rate per annum which, at the option of Horsehead, can be either: (a) a domestic rate equal to the “alternate base rate,” as determined under the ABL Facility, plus an applicable margin (ranging from 0.25% to 1.00%) based on average undrawn availability, or (b) a eurodollar rate equal to the “eurodollar rate,” as determined under the ABL Facility, plus an applicable margin (ranging from 1.75% to 2.50%) based on average undrawn availability. Horsehead will pay a letter of credit fee to the lenders under the ABL Facility ranging from 1.75% to 2.50%, based on average undrawn availability, and a fronting fee to the issuing bank equal to 0.25% per annum on the average daily face amount of each outstanding letter of credit, as well as certain other related charges and expenses.
The ABL Facility contains customary events of default. During an event of default, if the agent or lenders holding greater than 66 2/3% of the advances under the facility so elect, the interest rate applied to any outstanding obligations will be equal to the otherwise applicable rate (including the highest applicable margin) plus 2.0% and any letter of credit fees will be increased by 2.0%. Upon (a) the occurrence of an event of default related to the bankruptcy of Horsehead or Horsehead Holding Corp. or (b) at the option of lenders holding greater than 66 2/3% of the advances under the facility, the occurrence of any other event of default, all obligations under the ABL Facility will become immediately due and payable.
 
Horsehead pays an unused line fee to the lenders under the ABL Facility ranging from 0.25% to 0.375% per annum, based on average undrawn availability, times the amount by which the maximum revolving advance amount exceeds the average daily unpaid balance of revolver loans and undrawn amount of any outstanding letters of credit during any calendar quarter.
The ABL Facility contains a minimum fixed charge coverage ratio of 1.15:1.00 which Horsehead must comply with in the event that undrawn availability is less than or equal to $10,000 on any business day or is less than or equal to $12,500 for any consecutive five business days. The ABL Facility also contains customary restrictive negative covenants as well as customary reporting and other affirmative covenants. The Company was in compliance with all covenants at March 31, 2014.
The Company incurred issuance costs of $444 in connection with the ABL Facility. These costs were capitalized in the Company’s Consolidated Balance Sheet as a component of other assets. The issuance costs will be amortized to interest expense over the term of the ABL Facility. Interest expense of $22 and $21 related to the amortization of deferred finance costs was recorded during the three months ended March 31, 2014 and 2013, respectively.
On July 26, 2012, the Company amended its ABL Facility to permit the offering of the Senior Secured Notes (as defined below) and the incurrence of liens on the collateral that secures the Senior Secured Notes and the ABL Facility. Pursuant to the ABL Facility, Horsehead’s existing and future domestic subsidiaries, other than certain excluded subsidiaries, are required to guarantee Horsehead’s obligations under the facility, jointly and severally, on a senior secured basis.
Senior Secured Notes
On July 26, 2012, the Company completed a private placement of $175,000 in aggregate principal amount of 10.50% Senior Secured Notes due 2017 (“Senior Secured Notes”), at an issue price of 98.188% of par. The Company received proceeds of $171,829 and recognized approximately $7,732 in issuance costs in connection with the offering. The total net proceeds from the offering were $164,097. The Company used the proceeds from the Senior Secured Notes to pay for the completion of the construction of the Company’s new zinc facility and the remainder for general corporate purposes, including working capital needs, investment in other business initiatives and other capital expenditures
The Senior Secured Notes pay interest at a rate of 10.50% per annum, payable in cash semi-annually, in arrears, on June 1 and December 1 of each year. The Notes mature on June 1, 2017.
The Senior Secured Notes are fully and unconditionally guaranteed, on a senior secured basis, by the Company’s existing and future domestic restricted subsidiaries, other than certain excluded subsidiaries (the “Guarantors”). The Senior Secured Notes and the related guarantees are secured by a first-priority lien on all of the Company’s and the Guarantors’ existing and future property and assets, whether real, personal or mixed (other than certain excluded assets), subject to certain permitted liens; provided that the lien on the accounts receivable, inventory, certain deposit accounts, cash and certain other assets and, in each case, the proceeds thereof, of Horsehead and the guarantors under the ABL Facility will be a second-priority lien. The Senior Secured Notes are the Company’s and the Guarantors’ senior secured obligations. The Senior Secured Notes and the guarantees rank equal in right of payment with any of the Company’s and the Guarantors’ senior indebtedness, including indebtedness under the ABL Facility and, in the case of the Company, the Company’s Convertible Notes. The Senior Secured Notes and the guarantees rank senior in right of payment to any of the Company’s and the Guarantors’ future indebtedness that is expressly subordinated to the Senior Secured Notes or guarantees. The Senior Secured Notes and the guarantees are effectively senior to any of the Company’s or the Guarantors’ unsecured indebtedness, including the Convertible Notes, to the extent of the value of the collateral securing

11

HORSEHEAD HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except per share amounts)

the Senior Secured Notes, and the Senior Secured Notes are effectively senior to indebtedness of the Company that is not guaranteed by the Guarantors, including the Company’s Convertible Notes, to the extent of the value of the guarantees. With respect to the collateral securing the Senior Secured Notes, the Senior Secured Notes and the guarantees are effectively junior to the Company’s and the Guarantors’ obligations under the ABL Facility, to the extent of the value of the collateral securing the ABL Facility on a first-lien basis, and effectively senior to the Company’s and the Guarantors’ obligations under the ABL Facility, to the extent of the value of the collateral securing the ABL Facility on a second-lien basis.
The Company may redeem some or all of the Senior Secured Notes prior to June 1, 2016, by paying a make-whole premium, plus accrued and unpaid interest, if any, to the date of redemption or, on or after June 1, 2016, at a redemption price equal to 105.25%, plus accrued and unpaid interest, if any, to the date of redemption. Prior to June 1, 2015, the Company may redeem up to 35.0% of the aggregate principal amount of the Senior Secured Notes at a redemption price equal to 110.50%, plus accrued and unpaid interest, if any, to the date of redemption, with the net cash proceeds of certain equity offerings.
The Indenture contains covenants that limit the Company’s ability and the ability of its restricted subsidiaries to, among other things: (i) incur additional indebtedness and guarantee indebtedness; (ii) declare or pay dividends, redeem capital stock or make other distributions to stockholders; (iii) make investments and acquire assets; (iv) sell or transfer certain assets; (v) enter into transactions with affiliates; (vi) create liens or use assets as security in other transactions; (vii) enter into sale and leaseback transactions; (viii) merge or consolidate, or sell, transfer, lease or dispose of substantially all of its assets; and (ix) make certain payments on indebtedness. The Indenture also provides for customary events of default. On October 24, 2012, the Company entered into the First Supplemental Indenture to the Senior secured Notes to add Horsehead Metal Products, Inc. ("HMP"), a North Carolina corporation and the owner of the Mooresboro, North Carolina real property as an additional subsidiary guarantor under the Indenture.
The Company recorded an initial debt carrying value of $171,829 (net of the debt discount of $3,171) and is accreting the long-term debt balance to par value over the term of the Senior Secured Notes using the interest method as required by ASC 835-30 Imputation of Interest. During the three months ended March 31, 2014 and 2013, the Company recognized $4,741 and $4,726 respectively, in interest expense related to the Senior Secured Notes. Interest expense includes the contractual interest coupon of 10.50% and amortization of the debt discount to reflect an effective interest rate of 11.00%.
The carrying amount of the Senior Secured Notes was $172,744 with an unamortized discount of $2,256 at March 31, 2014. The carrying amount of the Senior Secured Notes was $172,597 with an unamortized discount of $2,403 at December 31, 2013. The fair value of the Senior Secured Notes was estimated to be approximately $196,000 and $192,000 at March 31, 2014 and December 31, 2013, respectively, per quotes obtained from active markets.
Costs of $7,732 associated with the issuance were capitalized as a component of other assets. These costs are being amortized to interest expense over the term of the Senior Secured Notes. The Company recognized interest expense of $400 related to the amortization of debt issuance costs during both the three months ended March 31, 2014 and 2013, respectively.
On June 3, 2013, the Company completed the sale to certain purchasers of an additional $20,000 in aggregate principal amount of its Senior Secured Notes (the “Additional Notes”) at an issue price of 106.5% of the principal amount of the Additional Notes plus accrued interest from June 1, 2013, in a private placement to “qualified institutional buyers” as defined in Rule 144A under the Securities Act of 1933, as amended. The Additional Notes were issued pursuant to the Indenture. The Senior Secured Notes and Additional Notes (collectively, the “Notes”) will not, until the first anniversary of the issuance of the Additional Notes, trade fungibly, but have identical terms and shall be treated as a single class for all purposes under the Indenture.
The Company recorded an initial debt carrying value of $21,300 (including the debt premium of $1,300) and is amortizing the long-term debt balance to par value over the remaining term of the Notes using the interest method as required by ASC 835-30 Imputation of Interest. During the three months ended March 31, 2014, the Company recognized $453 in interest expense related to the Additional Notes. Interest expense includes the contractual interest coupon of 10.50% and amortization of the debt premium to reflect an effective interest rate of 8.6%.
 
The carrying amount of the Additional Notes was $21,065 with an unamortized premium of $1,065 at March 31, 2014. The carrying amount of the Additional Notes was $21,137 with an unamortized premium of $1,137 at December 31, 2013. The fair value of the Additional Notes was estimated to be approximately $22,400 and $22,000 at March 31, 2014 and December 31, 2013, respectively, per quotes obtained from active markets.

12

HORSEHEAD HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except per share amounts)

Costs of $345 associated with the issuance were capitalized as a component of other assets. These costs are being amortized to interest expense over the remaining term of the Notes. The Company recognized interest expense of $22 related to the amortization of debt issuance costs during the three months ended March 31, 2014.
Credit Agreement
On August 28, 2012, Horsehead Corporation and Horsehead Holding Corp. entered into a Credit Agreement (the “Credit Agreement”) with Banco Bilbao Vizcaya Argentaria, S.A., a Spanish bank. The Credit Agreement provides for the financing of up to €18,583 (approximately $25,805 USD) for purchases under the contracts between Horsehead and Tecnicas Reunidas, S.A., a Spanish corporation providing equipment and related products and services for the new zinc facility and additional financing of $968 for the premium for the insurance on such loan which was issued by Compania Espanola de Seguros de Credito a la Exportacion (“CESCE”). The Company closed on the facility on November 14, 2012.
The obligations of Horsehead under the Credit Agreement are secured by an unconditional guarantee of the Company, but are not secured by security interest or mortgages on any real or personal property of Horsehead, the Company or any of the Company’s other direct or indirect subsidiaries.
The Credit Agreement provides for drawings there under to be repaid semiannually over a period ending on August 2022, amortizing over that period, and bearing interest a per annum rate equal to the London Interbank Offered Rate (“LIBOR”) plus 3.20%. The Company will also semiannually pay a commitment fee of 0.50% calculated on the undrawn amount of the Credit Agreement. At March 31, 2014 and December 31, 2013, the Company had outstanding borrowings of $20,848 and $21,335, respectively, under the Credit Agreement. At March 31, 2014 and December 31, 2013, the current portion of amounts due under the Credit Agreement was $2,881 and $2,870, respectively.
Draws may be made under the Credit Agreement until September 2014. Principal and interest payments are due semiannually. The Credit Agreement contains customary events of default. In the event of a default, the Credit Agreement will be terminated and immediate repayment will be required for all amounts outstanding under the Credit Agreement including accrued interest.
The Credit Agreement contains a maximum Debt to Equity ratio of 1.2:1. The Credit Agreement also contains customary restrictive negative covenants as well as customary reporting and other affirmative covenants. The Company was in compliance with all covenants at March 31, 2014. Availability under the Credit Agreement was approximately $3,395 at March 31, 2014. The carrying amount of the debt approximated fair value at March 31, 2014.
The Company incurred issuance costs of $1,248 in connection with the Credit Agreement. These costs were capitalized in the Company’s Consolidated Balance Sheet as a component of other assets. The issuance costs will be amortized to interest expense over the term of the Credit Agreement. Interest expense of $35 related to the amortization of deferred finance costs was recorded during both the three months ended March 31, 2014 and 2013.
Zochem Revolving Credit and Security Agreement
On December 21, 2012, Zochem entered into a Revolving Credit and Security Agreement (the “Zochem Facility”), as borrower, with PNC Bank, Canada Branch, as agent and lender. The Company also entered into the Zochem Facility as a guarantor of Zochem’s obligations. Zochem entered into the Zochem Facility to support liquidity needs for its recently completed production capacity expansion in Brampton, Ontario. On April 29, 2014, Zochem terminated the $15,000 CAD Zochem Facility and entered into, as borrower, a new $20,000 revolving credit facility (the "2014 Zochem Facility") with PNC Bank, as agent and lender. The Company also entered into the 2014 Zochem Facility as a guarantor of Zochem's obligations. Terms under the 2014 Zochem Facility are essentially the same as the terms under the terminated Zochem Facility.
 
The Zochem Facility provided for a forty-five month senior secured revolving credit facility in an aggregate principal amount of up to $15,000 CAD (approximately $13,578 USD at March 31, 2014). The aggregate amount of loans permitted to be made to Zochem under the revolving credit facility could not exceed a borrowing base consisting of the lesser of: (a) $15,000 CAD, minus the aggregate undrawn amount of outstanding letters of credit, and (b) the sum of a certain portion of eligible accounts receivable and eligible inventory of Zochem, minus the aggregate undrawn amount of outstanding letters of credit and certain availability reserves. Up to an aggregate of $5,000 CAD would be available to Zochem for the issuance of letters of credit, which reduce availability under the revolving credit facility. Zochem’s obligations under the Zochem Facility was secured by a first priority lien (subject to certain permitted liens) on substantially all of the tangible and intangible assets of Zochem. At March 31, 2014, the Company had $12,874 outstanding borrowings under the Zochem Facility. Undrawn availability under the Zochem Facility was $242 at March 31, 2014. The carrying amount of the debt approximated fair value at March 31, 2014.

13

HORSEHEAD HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except per share amounts)

Borrowings by Zochem under the Zochem Facility bore interest at a rate per annum which, at the option of Zochem, can be either: (a) a domestic rate equal to the “alternate base rate,” as determined under the Zochem Facility, plus an applicable margin of 1.00% based on average undrawn availability, or (b) a CDOR, Libor or eurodollar rate as applicable, plus a margin of 2.50% based on average undrawn availability. Zochem paid a letter of credit fee to the lenders under the Zochem Facility of 2.50%, based on average undrawn availability, and a fronting fee to the issuing bank equal to 0.25% per annum on the average daily face amount of each outstanding letter of credit, as well as certain other related charges and expenses.
The Zochem Facility contained customary events of default. During an event of default, if the agent or lenders holding greater than 66 2/3% of the advances under the facility so elected, the interest rate applied to any outstanding obligations would be equal to the otherwise applicable rate (including the highest applicable margin) plus 2.0% and any letter of credit fees would be increased by 2.0%. Upon (a) the occurrence of an event of default related to the bankruptcy of Zochem or the Company or (b) at the option of lenders holding greater than 66 2/3% of the advances under the facility, the occurrence of any other event of default, all obligations under the Zochem Facility would become immediately due and payable.
Zochem paid an unused line fee to the lenders under the Zochem Facility of 0.75% per annum, based on average undrawn availability, times the amount by which the maximum revolving advance amount exceeded the average daily unpaid balance of revolver loans and undrawn amount of any outstanding letters of credit during any calendar quarter.
The Zochem Facility contained a minimum fixed charge coverage ratio of 1.15:1.00 which Zochem must comply with at the time of any advance request. The Zochem Facility also contained customary restrictive negative covenants as well as customary reporting and other affirmative covenants. On September 30, 2013, Zochem entered into Amendment Number One which amended several definitions within the Zochem Facility Agreement. The Company was in compliance with all covenants at March 31, 2014.
The Company incurred issuance costs of $164 in connection with the Zochem Facility. These costs were capitalized in the Company’s Consolidated Balance Sheet as a component of other assets. The issuance costs will be amortized to interest expense over the term of the Zochem Facility. Interest expense of $11and $8 related to the amortization of deferred finance costs was recorded during the three months ended March 31, 2014 and 2013, respectively.
INMETCO Senior Secured Revolving Credit Agreement
On June 24, 2013, The International Metals Reclamation Company, Inc. (“INMETCO”), a wholly owned subsidiary of the Company, entered into a Senior Secured Revolving Credit Agreement (the “INMETCO Facility”), as borrower, with Wells Fargo Bank, N.A., as lender. The Company entered into a guaranty of INMETCO’s obligations under the INMETCO Facility. The INMETCO Facility was entered into to support working capital requirements and for general corporate purposes. On March 31, 2014, the Company entered into the First Amendment to the Credit Agreement which amended certain provisions of the Credit Agreement including the increase of the maximum advances allowed from $15,000 to $20,000.
The INMETCO Facility provides for a three year secured line of credit with the aggregate amount of loans permitted to be made to INMETCO not to exceed $20,000. INMETCO’s obligations under the INMETCO facility are secured by a first priority lien (subject to certain permitted liens) on substantially all of the personal property of INMETCO, including accounts receivable, inventory, deposit accounts, equipment and general intangibles. At March 31, 2014, INMETCO had $15,000 in outstanding borrowings under the INMETCO Facility and $5,000 of remaining availability. The carrying amount of the debt approximated fair value at March 31, 2014.
 
Borrowings under the INMETCO facility will bear interest at a rate per annum of LIBOR plus a margin of 2.0%. INMETCO will pay unused line fees of 0.375% per annum, based on the average daily unused amount of the INMETCO facility, and a one time fronting fee to the issuing bank equal to 0.50% of the maximum principal amount of the INMETCO Facility.
The INMETCO Facility contains quarterly financial covenants, which include a maximum cash flow leverage ratio of 2.00:1.00, a minimum tangible net worth requirement of $15,000 and a minimum net profit requirement of $100. The INMETCO Facility also contains customary restrictive negative covenants as well as customary reporting and other affirmative covenants. The Company was in compliance with all covenants at March 31, 2014. The First Amendment to the Credit Agreement amended the minimum net worth requirement for the March and June 2014 quarters.
INMETCO incurred issuance costs of $126 in connection with the INMETCO Facility. These costs were capitalized in the Company’s Consolidated Balance Sheet as a component of other assets. The issuance costs will be amortized to interest expense over the term of the INMETCO Facility. Interest expense of $11 related to the amortization of deferred finance costs was recorded during the three months ended March 31, 2014.

14

HORSEHEAD HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except per share amounts)

Other
At March 31, 2014 and December 31, 2013, the Company had $10,094 of letters of credit outstanding under the ABL Facility and Zochem Facility to collateralize self-insured claims for workers’ compensation and other general insurance claims. The Company also had three surety bonds outstanding in the amount of $11,213 to collateralize closure bonds for the three facilities located in Pennsylvania at both March 31, 2014 and December 31, 2013.
NOTE J—ACCRUED EXPENSES
Accrued expenses at March 31, 2014 and December 31, 2013 consisted of the following.

March 31,
2014

December 31,
2013
Employee related costs
$
6,427


$
9,165

EAF dust processing reserve
3,535


2,395

Workers’ compensation insurance claim liabilities
1,800


1,800

Unearned tolling revenue
3,172


2,616

Accrued electric
4,068


4,189

Accrued interest
8,130


4,136

Unearned contractual services
9,000

 

Restructuring accrual
7,041

 
7,682

Other
10,589


12,775


$
53,762


$
44,758


NOTE K—OTHER LONG-TERM LIABILITIES
Other long-term liabilities at March 31, 2014 and December 31, 2013 consisted of the following.

March 31,
2014

December 31,
2013
Environmental obligations
$
624


$
644

Insurance claim liabilities
7,318


7,195

Asset retirement obligations
4,532


4,452

Deferred purchase price obligation
4,097


3,988

Other
1,444


1,508


$
18,015


$
17,787

 
NOTE L — EMPLOYEE BENEFIT PLANS
As part of the acquisition of Zochem, on November 1, 2011, the Company assumed the pension assets and the pension liability for both the hourly and salary pension plans which were in effect at the time of the acquisition. These plans are maintained and contributions are made in accordance with the Pension Benefits Act of Ontario, which prescribes the minimum contributions that the Company must make to the Plans.
Net periodic benefit costs related to the plan for the three months ended March 31, 2014 and 2013, were $31 and $48, respectively.

15

HORSEHEAD HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except per share amounts)

Net periodic benefit costs for the three months ended March 31, 2014 and 2013 were:

Three months ended March 31, 2014

Three months ended March 31, 2013
Components of net periodic benefit cost:



Service Cost
$
60


$
63

Interest Cost
56


54

Expected return on plan assets
(79
)

(69
)
Amortization of prior service cost



Losses
(6
)


Net periodic benefit cost
$
31


$
48

During the three months ended March 31, 2014 and 2013, the Company made contributions in the amount of $76 and $33, respectively, to its defined benefit pension plans. The Company anticipates making $387 of additional contributions to fund its defined benefit pension plans during the remainder of 2014.
The Company’s hourly and salary pension plan assets of $4,993 are held at fair value and are held in one fund which seeks to provide investors with a steady flow of monthly income and capital growth primarily through investments in Canadian fixed income and large cap securities. The pension plan assets are considered to be in level 2 of the fair value hierarchy.
NOTE M—INCOME TAXES
The Company’s effective tax rates were 35.1% and 39.3% for the three months ended March 31, 2014 and 2013, respectively. Income tax expense (benefit) differs from the amount computed by applying the U.S. statutory federal income tax rate of 35% to income before income taxes, due to state income taxes, a lower income tax rate on Canadian income and the impact of permanent differences.
On September 13, 2013 the IRS released the final Regulations governing the application of Code Sections 162(a) and 263(a) to amounts paid to acquire, produce, or improve tangible property. Management has concluded that the impact of these new regulations will not be material to the financial statements.
The Company and its subsidiaries file income tax returns in the U.S., Canada and various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. The tax years that remain subject to examination are 2008 through 2013. U.S. income taxes and foreign withholding taxes are not provided on undistributed earnings of foreign subsidiaries because it is expected such earnings will be permanently reinvested in the operations of such subsidiaries. It is not practical to determine the amount of income tax liability that would result had such earnings been repatriated.
NOTE N—ACCUMULATED OTHER COMPREHENSIVE INCOME
Components of accumulated other comprehensive income are as follows:

March 31, 2014

December 31, 2013
Cumulative translation adjustments
$
30


$
30

Net pension adjustment
633


637

Accumulated other comprehensive income
$
663


$
667

NOTE O—SHARE-BASED COMPENSATION

In 2006, the Company adopted the Horsehead Holding Corp. 2006 Long-Term Equity Incentive Plan (the “2006 Plan”), which was amended and restated on June 11, 2007 and which provided for grants of stock options, stock appreciation rights, restricted stock, restricted stock units, deferred stock units and other equity-based awards. Directors, officers and other employees of the Company, as well as others performing services for the Company, were eligible for grants under the 2006 Plan. The 2006 Plan is administered by the compensation committee of the Company’s Board of Directors (the “Compensation Committee”).


16

HORSEHEAD HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except per share amounts)

On January 16, 2007, the Board authorized the issuance of options to purchase 1,085 shares of the Company’s common stock to certain officers and employees of the Company under the terms of the 2006 Plan. The options have a term of ten years and vest ratably over a five-year period from date of grant. During the three months ended March 31, 2014, 70 options were exercised and the Company received proceeds of $910 from the exercise of these options. At March 31, 2014, there were 585 options still outstanding; all were fully vested and exercisable, each with an exercise price of $13.00 per share and 2.79 years of remaining contractual life. The options outstanding under the 2006 Plan had $2,235 of intrinsic value at March 31, 2014. All compensation expense had been recognized as of March 31, 2012.

The Company had a total of 636 restricted stock units at a weighted average grant date fair value of $10.32 per unit outstanding under the 2006 Plan at December 31, 2013. During the three months ended March 31, 2014, 206 restricted stock units vested having an intrinsic value of $3,409. At March 31, 2014, there were 430 restricted stock units outstanding and the remaining contractual life ranged from 0.08 years to 3.50 years. The related compensation expense for the three months ended March 31, 2014 and 2013 was $390 and $532, respectively. Unrecognized compensation expense as of March 31, 2014 was $2,505.
On May 17, 2012, the Company adopted the Horsehead Holding Corp. 2012 Incentive Compensation Plan (“2012 Plan”), after it was approved by the Company’s stockholders at the 2012 Annual Meeting of Stockholders. The 2012 Plan replaced the 2006 Plan, and no further awards, stock options or other grants will be issued under the 2006 Plan. The 2012 Plan provides for grants of stock options, stock appreciation rights, restricted stock, restricted stock units and other cash- or equity-based awards. Directors, officers and other employees of the Company, as well as others performing consulting or advisory services for the Company, are eligible for grants under the 2012 Plan. The 2012 Plan is administered by the Compensation Committee. A total of 2,700 shares of the Company’s common stock were initially authorized for issuance under the 2012 Plan. The number of shares available for issuance under the 2012 Plan is subject to adjustment in the event of a reorganization, stock split, merger or similar change in the corporate structure or the number of outstanding shares of common stock. In the event of any of these occurrences, the Committee may make any adjustments considered appropriate to, among other things, the number and kind of shares, options or other property available for issuance under the 2012 Plan or covered by grants previously made under the 2012 Plan. The shares available for issuance under the 2012 Plan may be, in whole or in part, authorized and unissued or held as treasury shares. If awards under the 2012 Plan are for any reason canceled, or expire or terminate unexercised, the shares covered by such awards may again be available for the grant of awards under the 2012 Plan.
During the three months ended March 31, 2014, the Company granted 131 service based restricted stock units with an average grant date fair value of $16.34 per unit. The restricted stock units vest over a one or five-year service period.
The Company also granted 108 restricted stock units to management based on the future achievement of a predefined level of total shareholder return compared to a group of global metals companies. The fair value at the date of grant for these restricted stock units was $31.15 per unit, as estimated by a third party on the date of grant, using a valuation model based on commonly accepted economic theory which is used for all valuations of awards with market conditions. This economic theory is also used as the basis for the Black-Scholes and Monte Carlo valuations. The significant assumptions used were a risk free rate of 0.76%, expected volatility of the Company and each comparator company, no expected dividends and a forfeiture rate of zero. A vesting percentage was then estimated based on the Company’s rank within the comparator group. Upon vesting and the achievement of the required shareholder return, these restricted stock units will be issued for par value.
The related compensation expense for all 2012 Plan restricted stock units for the three months ended March 31, 2014 and 2013 was $842 and $476, respectively. The remaining contractual life ranged from 0.75 years to 4.83 years. Unrecognized compensation expense as of March 31, 2014 was $8,427.

NOTE P—ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company’s business consists principally of the sale of zinc and nickel-based products. As a result, its results of operations are subject to risk of fluctuations in the market prices of these metals. While the Company’s finished products are generally priced based on a spread to the price of zinc or nickel, as applicable, on the LME, its revenues are impacted significantly by changes in the market prices of these metals. The Company pursues various hedging strategies as described below to reduce its exposure to movements in the prices of zinc and nickel.
The Company’s marketing strategy includes a metal hedging program that allows customers to secure a firm price for future deliveries under a sales contract. Hedges are entered into based on firm sales contracts to deliver specified quantities of product on a monthly basis for terms generally not exceeding one year. A portion of the Company’s raw material purchases related to such firm price contracts are at varying zinc prices that are based on the LME. In order to protect its cash flow related to firm price sales contracts, the Company enters into fixed-to-variable swap contracts to convert the LME-based fixed sales price back to

17

HORSEHEAD HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except per share amounts)

variable. Thus, if raw material costs increase as a result of LME zinc price increases, the related sales value and related cash flows will also increase. As of March 31, 2014, the fixed portions of these contracts ranged from a monthly average of $0.89 to $0.93 per pound for zinc.
The Company has hedged approximately 4.6 tons of zinc with fixed-to-variable future swap contracts at March 31, 2014, all of which settle at various dates up to and including December 31, 2014
The Company also enters into variable-to-fixed swap contracts as a financial hedge of a portion of its exposure to the movements in the LME prices nickel. As of March 31, 2014, the fixed portion of the nickel swap contracts ranged from a monthly average of $6.57 to $6.64 per pound.
The Company has hedged approximately 0.5 tons of nickel with variable-to-fixed future swap contracts at March 31, 2014, all of which settle at various dates up to and including December 31, 2014.
The Company paid cash of $32 from the settlement of zinc and nickel swap contracts for the three months ended March 31, 2014. The Company received cash of $163 from the settlement of zinc and nickel swap contracts for the three months ended March 31, 2013.
At December 31, 2012, the Company had zinc put options with an $0.85 per pound strike price outstanding, which covered approximately 106 tons of zinc production, representing 75% of the expected shipments for the period from January 2013 through December 2013. During 2012, the Company purchased the zinc put options, for the second half of 2013, at a cost of $4,945. These put options were put in place to provide protection to operating cash flow in the event that zinc prices decline below that level during the completion of construction of the new zinc facility. The Company also had zinc call options with a $1.81 per pound strike price outstanding but their value was negligible at December 31, 2012. The remaining zinc call options expired during the six months ended June 30, 2013.
During the first quarter of 2013, the Company purchased put options, with an $0.85 per pound strike price, for the first quarter of 2014 that covered approximately 13.2 tons of production at a cost of $774. These put options were put in place to provide protection to operating cash flow in the event that zinc prices decline below that level during the completion of construction and start up of the new zinc facility. During August 2013, the Company put in place equivalent $0.85 per pound strike price put options covering an additional 4.4 tons per month of zinc production for the period of January 2014 through March 2014 and converted $0.85 per pound strike price put options covering 5.0 tons per month of zinc production from October 2013 through March 2014 to fixed price swap contracts for the same period at an average price of approximately $0.903 per pound. The sale of the put options resulted in a $1,295 cash benefit, and the Company was able to put the swaps in place without any additional payment. In December 2013, the Company entered into additional fixed price swap contracts for the first quarter of 2014 at an average price of approximately $0.90 per pound. These fixed price swaps were also transacted without any payment by the Company. At December 31, 2013, the total quantity covered under forward fixed price swaps for the first quarter of 2014 is 26.6 tons. The Company converted a portion of their put options into swaps in order to reduce the effect of changes in the zinc price on cash flow during the period of planned transition of operations to the new zinc facility. At December 31, 2013, the Company also continued to have put options in place with a strike price of $0.85 per pound covering approximately 11.6 tons of zinc production for the first quarter of 2014.
During the first quarter of 2014, the Company added fixed price swaps for the second quarter of 2014, at an average price of approximately $0.94 per pound for a total quantity covered of 26.5 tons for the quarter.
The Company paid $1,040 from the settlement of zinc fixed price swaps during the first quarter of 2014.
The 2014 and 2013 put options settled monthly on an average LME pricing basis. The average LME monthly zinc prices for the three months ended March 31, 2014 and 2013, were higher than the strike price for the contracts and the Company received no settlement payment.
As of March 31, 2014, the Company's does not have any put options in place.


 

18

HORSEHEAD HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except per share amounts)

The gains and losses resulting from the Company’s hedging activities are recorded in the Consolidated Statements of Operations as indicated in the table below.
 

Three Months Ended 
 March 31, 2014

Three Months Ended 
 March 31, 2013
(Losses) gains included in net sales:



Options
$
(3
)

$
1,264

Swaps
2,030


(53
)
Total gains resulting from hedging activities
$
2,027


$
1,211

The fair value of the swap contracts and put options as of March 31, 2014 and December 31, 2013 are listed in the table below.
Fair Value Measurements Using Significant Other Observable Inputs (Level 2)

March 31,
2014

December 31,
2013
 
 
 
 
Options and swaps included in Prepaid expenses and other current assets.
$
2,358


$
191

 
 
 
 
Swaps included in Accrued expenses
$
687


$
1,585

The fair values of derivative instruments are based upon a comparison of third party counterparties valuations to ensure that there is an acceptable level of consistency among them. The swap valuations are based on the official LME closing valuations at the end of the trading day on March 31, 2014 and December 31, 2013, using the mid-point of the closing bid and ask prices on all open swap positions regardless of the holder. The closing prices are supervised by the London Clearing House and are regulated by the Financial Services Authority, the financial regulatory body in the United Kingdom.
The Company is exposed to credit loss in cases where counterparties with which they have entered into derivative transactions are unable to pay the Company when they owe the Company funds as a result of agreements with them. To minimize the risk of such losses, the Company utilizes seven different brokers for their hedging program. The Company does not require collateral and does not enter into master netting arrangements.
On November 11, 2011, the Company received notification via email from MF Global UK Ltd. (in special administration) notifying it that all outstanding Over the Counter (“OTC”) hedge positions would be closed with an effective date of November 1, 2011. The net value of these outstanding OTC positions was $366 and their value was written off during the fourth quarter of 2011. During the first quarter of 2013, the Company sold its rights to any future bankruptcy settlement for these OTC positions to a third party and received $820.
NOTE Q—CONTINGENCIES
The Company is subject to federal, state and local laws designed to protect the environment and believes that as a general matter, its policies, practices and procedures are properly designed to minimize risk of environmental damage and financial liability to the Company.
The Company is party to various litigation, claims and disputes, including labor regulation claims and Occupational Safety and Health Act (“OSHA”) and environmental regulation violations, some of which are for substantial amounts, arising in the ordinary course of business. While the ultimate effect of such actions cannot be predicted with certainty, the Company expects that the outcome of these matters will not result in a material adverse effect on its business, financial condition or results of operations.
NOTE R—EARNINGS PER SHARE
Basic earnings (loss) per common share (“EPS”) is computed by dividing net income or loss by the weighted average number of common shares outstanding for the period. Diluted earnings per share are computed similarly to basic earnings per share except that the denominator is increased to include the number of shares that would have been outstanding if the potentially dilutive common shares had been issued. The Company uses the treasury stock method when calculating the dilutive effect in basic EPS.

19

HORSEHEAD HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except per share amounts)

Diluted EPS for periods with a net loss is calculated by dividing the net loss by the weighted average number of basic shares outstanding.
The information used to compute basic and diluted earnings (loss) per share is as follows:
 
Three months ended March 31,
 
2014

2013
Basic income per share:



Net income
$
729

 
$
2,828

Weighted average shares outstanding – basic
50,581

 
44,014

Basic income per share
$
0.01

 
$
0.06

Diluted income per share:
 
 
 
Net income
$
729

 
$
2,828

Weighted average shares outstanding – diluted
51,789

 
44,294

Diluted income per share
$
0.01

 
$
0.06

Reconciliation of average shares outstanding – basic to average shares outstanding – diluted:
 
 
 
Weighted average shares outstanding – basic
50,581

 
44,014

Effect of dilutive securities:
 
 
 
Options
174

 

Convertible Notes
628

 

Restricted stock units
406

 
280

Weighted average shares outstanding – diluted
51,789

 
44,294

 
Exercise
Price

Three months ended March 31,
 
2014

2013
Anti-dilutive shares excluded from earnings per share calculation





Options
$
13.00




655


 
On July 27, 2011, the Company issued $100,000 of Convertible Notes. The Convertible Notes are convertible at a conversion price of approximately $15.00 per share into cash, shares or a combination of both at the Company’s election. According to guidance under ASC 260 Earnings Per Share, if an entity issues a contract that may be settled in common stock or cash at the election of the entity or holder, then it is presumed that the contract will be settled in shares unless past experience or a stated policy provides a reasonable basis to believe that the contract will be paid partially or wholly in cash and the “if converted” method shall not be used. The Company has stated that it intends to settle the par value in cash and the conversion spread in either cash, shares or a combination of both. The Company utilizes the modified treasury stock method and assumes dilution if the average stock price for the quarter exceeds the conversion price. The share dilution is calculated by dividing the conversion spread value by the average share price for the quarter. During the three months ended March 31, 2014 the average share price was higher than the exercise price for the Convertible Notes and therefore a conversion spread was recognized and dilution was assumed. During the three months ended March 31, 2013, the average stock price was lower than the exercise price for the Convertible Notes and therefore no conversion spread was recognized and no dilution assumed.
NOTE S—SEGMENT INFORMATION
As a result of the impending closure of the Monaca facility in 2014, the zinc oxide refinery operation at that facility ceased production on December 23, 2013. During 2014, zinc oxide production will occur only at the Zochem facility. Consequently, Horsehead Corporation and Zochem do not continue to meet the aggregation criteria as required by ASC 280 Segment Reporting and have not been combined into one reporting segment effective January 1, 2014.
The Company will now report three segments, Horsehead, Zochem and INMETCO. The Horsehead segment processes EAF dust and other zinc-bearing material to produce and sell zinc and other metals. The Zochem segment produces and sells zinc

20

HORSEHEAD HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except per share amounts)

oxide. The INMETCO segment processes a variety of metal-bearing waste material generated primarily by the specialty steel industry, provides tolling services and produces and sells nickel-chromium-molybdenum-iron remelt alloy to the stainless and specialty steel industries. Accordingly, the prior year's segment information has been reclassified to conform to the new segment presentation.
The following table presents information regarding the Company’s new segment presentation:
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

 
 
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


March 31, 2014
Horsehead
 
Zochem
 
INMETCO
 
Corporate, eliminations
and other
 
Total
Property, plant and equipment
$
704,412

 
$
22,705

 
$
32,842

 
$

 
$
759,959

Total assets
840,828

 
65,239

 
77,738

 
18,775

 
1,002,580

Capital expenditures for the three months ended March 31, 2014
44,455

 
3,554

 
226

 

 
48,235

 
 
 
 
 
 
 
 
 
 
December 31, 2013
 
 
 
 
 
 
 
 
 
Property, plant and equipment
$
655,475

 
$
19,429

 
$
33,346

 
$

 
$
708,250

Total assets
788,281

 
55,060

 
73,989

 
87,982

 
1,005,312

Capital expenditures for the twelve months ended December 31, 2013
297,968

 
11,059

 
2,771

 

 
311,798


21

HORSEHEAD HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except per share amounts)

NOTE T—INSURANCE RECOVERIES

On October 28, 2012, a fire occurred at the Company’s INMETCO facility. As INMETCO began its annual maintenance shutdown of the rotary hearth furnace and the submerged arc furnace, it experienced an unrelated fire in the material preparation and blending section of the plant, incurring damage to that portion of the building.

Through June 30, 2013, the Company incurred clean up, repair and other costs associated with the fire of $4,580 and a claim was submitted for property damage insurance recovery. The planned maintenance outage was only extended a day as a result of delays caused by the fire but the Company was not able to operate at full capacity until mid-December because power was not fully restored to some ancillary operations. All of the repairs associated with the fire were substantially complete by the end of the first quarter of 2013.

The damages from the fire exceeded our insurance deductible of $500 and we reached a final settlement in the amount of $3,950 during the second quarter of 2013. As of December 31, 2013, the entire insurance recovery of $3,950 had been received in cash.
The cost and insurance recoveries are summarized in the table below.
 
 
2013
 
2012
 
Total
Property damage insurance recovery
 
$
2,450

 
$
1,500

 
$
3,950

Cost of clean-up and repairs
 
129

 
148

 
277

Write off of fixed assets
 

 
236

 
236

Gain related to insurance recovery included in cost of sales
(excluding depreciation and amortization)
 
$
2,321

 
$
1,116

 
$
3,437

 
 
 
 
 
 
 
Insurance proceeds related to fixed assets
 
$
1,791

 
$
1,264

 
 
 
 
 
 
 
 
 
Costs capitalized
 
$
1,791

 
$
2,276

 
 
NOTE U—GUARANTOR FINANCIAL INFORMATION
The Senior Secured Notes were issued by Horsehead Holding Corp. and are fully and unconditionally guaranteed, on a senior secured basis by the Company’s existing and future domestic restricted subsidiaries, other than certain excluded subsidiaries. The non-guarantor subsidiaries held approximately 8.8% of total assets at March 31, 2014, accounted for 32.5% of its consolidated revenues and recorded $2,268 of consolidated net income for the three months ended March 31, 2014. The Consolidated Financial Statements are presented net of intercompany activity. The following supplemental financial information sets forth on a consolidating basis, balance sheets, statements of operations, statements of comprehensive income (loss), and statements of cash flows for the Company, the subsidiary Guarantors, and the Company’s non-guarantor subsidiaries.
 



22

HORSEHEAD HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except per share amounts)




Horsehead Holding Corp. and Subsidiaries
Consolidated Balance Sheets
March 31, 2014
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Consolidated
ASSETS



 

 

 

Current assets



 

 

 

Cash and cash equivalents
$
40,976

 
$
21,732

 
$
2,762

 
$

 
$
65,470

Accounts receivable, net of allowance

 
51,759

 
21,567

 
(4,825
)
 
68,501

Inventories, net

 
48,663

 
17,648

 

 
66,311

Prepaid expenses and other current assets
2

 
21,147

 
104

 
(4,628
)
 
16,625

Deferred income taxes

 
5,744

 
18

 

 
5,762

Total current assets
40,978

 
149,045

 
42,099

 
(9,453
)
 
222,669

Property, plant and equipment, net

 
708,959

 
51,000

 

 
759,959

Other assets
 
 
 
 
 
 
 
 
 
Intangible assets

 
10,737

 
150

 

 
10,887

Investment in and advances to subsidiaries
669,196

 
(504,102
)
 
(5,722
)
 
(159,372
)
 

Deposits and other
21,006

 
1,673

 
744

 
(14,358
)
 
9,065

Total other assets
690,202

 
(491,692
)
 
(4,828
)
 
(173,730
)
 
19,952

Total assets
$
731,180

 
$
366,312

 
$
88,271

 
$
(183,183
)
 
$
1,002,580

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
Current maturities of long-term debt
$

 
$
2,881

 
$

 
$

 
$
2,881

Accounts payable

 
88,762

 
16,336

 
(4,825
)
 
100,273

Accrued expenses
7,775

 
48,305

 
2,284

 
(4,602
)
 
53,762

Total current liabilities
7,775

 
139,948

 
18,620

 
(9,427
)
 
156,916

Long-term debt, less current maturities
280,503

 
60,567

 
27,328

 
(14,199
)
 
354,199

Other long-term liabilities

 
17,655

 
360

 

 
18,015

Deferred income taxes

 
24,468

 
1,242

 

 
25,710

Commitments and contingencies


 


 


 


 


Stockholders’ equity
 
 
 
 
 
 
 
 
 
Common stock
507

 

 

 

 
507

Preferred stock

 

 

 

 

Additional paid-in capital
311,056

 
41,652

 

 
(41,652
)
 
311,056

Retained earnings
131,339

 
78,070

 
40,058

 
(117,905
)
 
131,562

Accumulated other comprehensive loss

 

 
663

 

 
663

Total stockholders’ equity before noncontrolling interest
442,902

 
119,722

 
40,721

 
(159,557
)
 
443,788

Noncontrolling interest

 
3,952

 

 

 
3,952

Total stockholders’ equity
442,902

 
123,674

 
40,721

 
(159,557
)
 
447,740

Total liabilities and stockholders’ equity
$
731,180

 
$
366,312

 
$
88,271

 
$
(183,183
)
 
$
1,002,580


 

23

HORSEHEAD HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except per share amounts)



Horsehead Holding Corp. and Subsidiaries
Consolidated Balance Sheets
December 31, 2013
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Consolidated
ASSETS









Current assets









Cash and cash equivalents
$
101,449

 
$
26,782

 
$
8,096

 
$

 
$
136,327

Accounts receivable, net of allowance

 
46,163

 
12,915

 
(429
)
 
58,649

Inventories, net

 
54,550

 
15,026

 

 
69,576

Prepaid expenses and other current assets
8

 
10,205

 
7

 
(4,956
)
 
5,264

Deferred income taxes

 
6,319

 
18

 

 
6,337

Total current assets
101,457

 
144,019

 
36,062

 
(5,385
)
 
276,153

Property, plant and equipment, net

 
660,161

 
48,089

 

 
708,250

Other assets
 
 
 
 
 
 
 
 
 
Intangible assets

 
11,100

 
168

 

 
11,268

Investment in and advances to subsidiaries
599,444

 
(435,470
)
 
(5,444
)
 
(158,530
)
 

Deposits and other
22,194

 
1,774

 
703

 
(15,030
)
 
9,641

Total other assets
621,638

 
(422,596
)
 
(4,573
)
 
(173,560
)
 
20,909

Total assets
$
723,095

 
$
381,584

 
$
79,578

 
$
(178,945
)
 
$
1,005,312

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
Current maturities of long-term debt
$

 
$
2,870

 
$

 
$

 
$
2,870

Accounts payable

 
104,015

 
10,605

 
(429
)
 
114,191

Accrued expenses
3,606

 
42,386

 
3,617

 
(4,851
)
 
44,758

Total current liabilities
3,606

 
149,271

 
14,222

 
(5,280
)
 
161,819

Long-term debt, less current maturities
279,549

 
64,963

 
25,184

 
(14,928
)
 
354,768

Other long-term liabilities

 
17,427

 
360

 

 
17,787

Deferred income taxes

 
24,802

 
1,242

 

 
26,044

Commitments and contingencies


 


 


 


 


Stockholders’ equity
 
 
 
 
 
 
 
 
 
Common stock
504

 

 

 

 
504

Preferred stock

 

 

 

 

Additional paid-in capital
308,825

 
41,654

 

 
(41,654
)
 
308,825

Retained earnings
130,611

 
79,402

 
37,903

 
(117,083
)
 
130,833

Accumulated other comprehensive loss

 

 
667

 

 
667

Total stockholders’ equity before noncontrolling interest
439,940

 
121,056

 
38,570

 
(158,737
)
 
440,829

Noncontrolling interest

 
4,065

 

 

 
4,065

Total stockholders’ equity
439,940

 
125,121

 
38,570

 
(158,737
)
 
444,894

Total liabilities and stockholders’ equity
$
723,095

 
$
381,584

 
$
79,578

 
$
(178,945
)
 
$
1,005,312



24

HORSEHEAD HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except per share amounts)



Horsehead Holding Corp. and Subsidiaries
Consolidated Statements of Operations
For the three months ended March 31, 2014

Issuer
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Total
Consolidated
Net sales of zinc material and other goods
$

 
$
52,088

 
$
35,747

 
$
(23
)
 
$
87,812

Net sales of nickel-based material and other services

 
12,397

 

 

 
12,397

EAF dust service fees

 
9,855

 

 

 
9,855

Net sales


74,340


35,747


(23
)

110,064

Cost of sales of zinc material and other goods

 
51,728

 
31,498

 
(23
)
 
83,203

Cost of sales of nickel-based material and other services

 
8,771

 

 

 
8,771

Cost of EAF dust services

 
7,880

 

 

 
7,880

Restructuring Expenses

 
146

 

 

 
146

Cost of sales (excluding depreciation and amortization)


68,525


31,498


(23
)

100,000

Depreciation and amortization

 
4,192

 
661

 

 
4,853

Selling, general and administrative expenses
363

 
5,036

 
639

 

 
6,038

Total costs and expenses
363


77,753


32,798


(23
)

110,891

(Loss) income from operations
(363
)

(3,413
)

2,949




(827
)
Equity (loss) in income of subsidiaries, net of taxes
843

 

 

 
(843
)
 

Other income (expense)
 
 
 
 
 
 
 
 
 
Interest expense

 
(507
)
 
(269
)
 
238

 
(538
)
Interest and other income
249

 
2,016

 
439

 
(216
)
 
2,488

Total other income (expense)
249


1,509


170


22


1,950

Income (loss) before income taxes
729


(1,904
)

3,119


(821
)

1,123

Income tax (benefit) expense

 
(457
)
 
851

 

 
394

NET INCOME (LOSS)
$
729


$
(1,447
)

$
2,268


$
(821
)

$
729

 

25

HORSEHEAD HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except per share amounts)



Horsehead Holding Corp. and Subsidiaries
Consolidated Statements of Operations
For the three months ended March 31, 2013
 
Issuer
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Total
Consolidated
Net sales of zinc material and other goods
$

 
$
72,761

 
$
20,149

 
$
(296
)
 
$
92,614

Net sales of nickel-based material and other services

 
14,758

 

 

 
14,758

EAF dust service fees

 
10,890

 

 

 
10,890

Net sales

 
98,409

 
20,149

 
(296
)
 
118,262

Cost of sales of zinc material and other goods

 
63,966

 
17,551

 
(296
)
 
81,221

Cost of sales of nickel-based material and other services

 
8,993

 

 

 
8,993

Cost of EAF dust services

 
9,799

 

 

 
9,799

Cost of sales (excluding depreciation and amortization)

 
82,758

 
17,551

 
(296
)
 
100,013

Depreciation and amortization

 
6,570

 
534

 

 
7,104

Selling, general and administrative expenses
398

 
4,903

 
529

 

 
5,830

Total costs and expenses
398

 
94,231

 
18,614