10-K/A 1 a39954.txt METALLURG HOLDINGS INC. U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A (Amendment No. 1) (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2004 or [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from ___________ to ___________ METALLURG HOLDINGS, INC. (Exact name of Registrant as specified in its charter) Delaware 23-2967577 (State of organization) (I.R.S. Employer Identification No.) Building 400 435 Devon Park Drive Wayne, Pennsylvania 19087 (610) 293-0838 (Address of principal executive offices) (Registrant's telephone number, including area code) Securities registered pursuant to section 12(b) of the Act: None Securities registered pursuant to section 12(g) of the Act: None 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 [_] No [X] * Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] There are no common equity securities of the registrant outstanding. At March 30, 2005, the outstanding capital of Metallurg Holdings, Inc. was comprised of 5,202.335 shares of Series A Voting Convertible Preferred Stock and 4,524 shares of Series B Non-Voting Convertible Preferred Stock, $.01 par value. *The registrant is not subject to the filing requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934. The registrant is a voluntary filer. Documents Incorporated By Reference None. EXPLANATORY NOTE This Annual Report on Form 10-K/A amends the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2004 to revise the classification of a gain on extinguishment of debt from extraordinary to a component of loss before income tax provision, minority interest and discontinued operations in the Company's consolidated statement of operations for the fiscal year ended December 31, 2002 included in the annual report, as required by Statement of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections" ("SFAS No. 145"). On June 8, 2005, the Board of Directors of the Company determined, upon the recommendation of the management of the Company that, upon the adoption of SFAS No. 145 in 2003, a gain on the extinguishment of debt, which the Company had previously recorded as an extraordinary item, should have been reclassified as an ordinary income item. The Board of Directors therefore determined to revise the classification of the extraordinary item as a component of loss before income tax provision, minority interest and discontinued operations in the Company's consolidated statement of operations for the fiscal year ended December 31, 2002 pursuant to SFAS No. 145 and to amend its Annual Report on Form 10-K for the fiscal year ended December 31, 2004 to reflect such restatement and to include related disclosures. The Company discussed its conclusion with its independent registered public accounting firm, PricewaterhouseCoopers LLP. This Form 10-K/A does not attempt to modify or update any other disclosures set forth in the original Form 10-K, except to reflect the effects of the item as described above. Additionally, except for the aforementioned information, this amended Form 10-K/A speaks as of the filing date of the original Form 10-K and does not update or discuss any other developments after the date of the original filing. All information contained herein is subject to updating and supplementing as provided in the periodic reports that the Company has filed and will file after the original filing date with the Securities and Exchange Commission. PART I Items 1 and 2. Business and Properties. The following discussion should be read in conjunction with the Company's Consolidated Financial Statements and the related notes thereto included elsewhere in this report. Overview Metallurg Holdings, Inc. ("Metallurg Holdings"), a Delaware corporation formed on June 10, 1998, together with its consolidated subsidiaries, (collectively, the "Company"), is wholly owned by a group of investors led by and including Safeguard International Fund, L.P. ("Safeguard International"), an international private equity fund that invests primarily in equity securities of companies in process industries. On July 13, 1998, Metallurg Acquisition Corp., a wholly-owned subsidiary of Metallurg Holdings, merged with and into Metallurg, Inc., with Metallurg, Inc. being the surviving company and Metallurg Holdings becoming the sole parent of Metallurg, Inc. (the "Merger"). At the time of the Merger, Metallurg Holdings received $62.9 million net proceeds upon consummation of the offering of $121.0 million aggregate principal amount at maturity of Senior Discount Notes due 2008 (the "Senior Discount Notes") in a Rule 144A private placement to qualified institutional investors. In October 1998, the 144A notes were exchanged for similar notes registered under the Securities Act of 1933, as amended. In October 2000, the Company purchased $76.1 million in face amount of these Senior Discount Notes. In December 2002, an additional $4.6 million in face amount of these Senior Discount Notes was acquired in the sale of certain subsidiaries. See "Note 3. Extinguishment of Debt" and "Note 9. Borrowings" to the Company's Consolidated Financial Statements. As Metallurg Holdings is a holding company and does not have any material operations or tangible assets other than the ownership of Metallurg, Inc., the following discussion of the Company's business and properties relates to Metallurg, Inc., a Delaware corporation, together with its majority-owned subsidiaries (collectively "Metallurg"), unless otherwise indicated. Metallurg is a leading international producer and seller of high-quality specialty metals, alloys and metallic chemicals, which are essential to the production of high-performance aluminum and titanium alloys, specialty steel, superalloys and certain non-metallic materials for various applications in the aerospace, power supply, automotive, petrochemical processing and telecommunications industries. Metallurg sells approximately 50 different product groups to over 1,500 customers worldwide (primarily in North America and Europe). The Metallurg group was founded in 1911 with the construction of a vanadium alloy and chemical producing plant in Nuremberg, Germany. In subsequent years, Metallurg's customer base grew throughout Europe and, in 1938, Metallurg added its first subsidiary in the U.K. During the 1950's, Metallurg began operations in the U.S. and, during the 1980's, added production operations in Brazil. Metallurg established a worldwide sales network that sold products manufactured by Metallurg as well as products manufactured by third parties. Metallurg, Inc. was incorporated as a New York holding company in 1947 and reincorporated as a Delaware corporation in 1997. In 2002, Metallurg sold all of its ownership interests in manufacturing facilities in Nuremberg, Germany, as well as several sales offices in Europe. In 2003, Metallurg sold all of its ownership interests in its Weisweiler, Germany manufacturing facility and its Turkish chrome ore mines. In 2004, Metallurg sold all of its interests in its South African sales office. See "Note 2. Discontinued Operations" to the Company's Consolidated Financial Statements. Metallurg operates in one significant industry segment, the manufacture and sale of performance-enhancing additives mainly for the metallurgical industry. Metallurg is organized into three reportable segments centered around its major production facilities in the U.K., the U.S. and Brazil. In addition to its own products, Metallurg distributes products manufactured by third parties. The table below sets forth, for the periods indicated, information concerning revenue from Metallurg's three reportable segments, as described below: 1 Revenue by Segment (In millions)

London & Scandinavian Metallurgical Co Limited and its subsidiaries (collectively, "LSM") - This unit consists mainly of three production facilities in the U.K. that manufacture and sell aluminum alloy grain refiners and alloying tablets for the aluminum industry, chromium metal and ferrotitanium and other specialty ferroalloys for the steel and superalloy industries and aluminum powder for various metal powder-consuming industries. As a result of continuing weakness in operating performance, LSM commenced a restructuring program in the second half of 2003. LSM discontinued its metal catalyst business in the fourth quarter of 2003 and closed its Norwegian production facility in August 2004. See "Note 5. Restructuring and Asset Impairment Charges" to the Company's Consolidated Financial Statements. Shieldalloy Metallurgical Corporation ("SMC") - This unit consists of two production facilities in the U.S. The Ohio plant manufactures and sells ferrovanadium and vanadium-based chemicals used mostly in the steel and petrochemical industries. The New Jersey plant manufactures and sells alloying tablets for the aluminum industry and metal powders for the welding industry. Companhia Industrial Fluminense ("CIF") - This unit consists mainly of two production facilities in Brazil. The Sao Joao del Rei plant manufactures and sells aluminum alloy grain refiners and alloying tablets for the aluminum industry and metal oxides used in the telecommunications, superalloy and specialty metal industries. The Nazareno mine extracts and concentrates ores containing tantalum and niobium that are processed, along with other raw materials, into metal oxides at the Sao Joao del Rei plant. In addition to manufacturing operations, LSM and SMC import and distribute complementary products manufactured by affiliates and third parties. Corporate-related items and results of subsidiaries not meeting the quantitative thresholds prescribed by applicable accounting rules for determining reportable segments are included in "Other". Metallurg does not allocate general corporate overhead expenses to operating segments. Products and Markets For the year ended December 31, 2004, 36% of Metallurg's sales were made to the iron and steel industry, 34% were made to the aluminum industry, 16% were made to the superalloy and titanium alloy industries and the remaining 14% were made to other industries, none of which was individually significant for reporting purposes. No single customer accounted for more than 10% of Metallurg's sales for the year ended December 31, 2004. Based on customer location, for the year ended December 31, 2004, 43% of Metallurg's sales were made in North America, 35% in Europe, 13% in Asia, 7% in South America and 2% in Africa and Australia. 2 The following table sets forth the revenue of product groups most significant to Metallurg's operations: Significant Product Groups (Dollars in millions)

Aluminum Industry; Aluminum Master Alloys and Compacted Products - Metallurg manufactures a series of aluminum-based alloys and compacted additives supplied to the aluminum industry to enhance productivity in aluminum plants and to introduce various specific properties into aluminum products for use in many sectors, including automotive and transport, aerospace, power transmission, construction and consumer durables. Metallurg sells to major aluminum producers throughout the world, including Alcan Aluminium Limited, Alcoa Inc., Pechiney S.A., Norsk Hydro ASA, Rio Tinto plc and Sumitomo Corporation. The aluminum industry is cyclical. Consumption of aluminum products fluctuates with demand from the industry sectors listed above, as well as competition between aluminum and other metals and materials, such as plastics and glass. Iron and Steel Industry; Specialty Ferroalloys - Metallurg manufactures and sells specialty ferroalloys for use in the iron and steel industry. Metallurg's principal specialty ferroalloy products are ferrovanadium and ferrotitanium. It also markets ferroboron, ferrosilicon, ferromanganese, ferrochrome and ferroniobium produced by others. These products are used by iron and steel producers to increase temperature and corrosion resistance and improve mechanical properties and strength-to-weight ratios. Ferroalloys are essential additives to many iron and steel products used in a wide variety of industries, such as the aerospace, automotive, energy and construction industries. Metallurg's iron and steel industry customers include Affival, Inc., Ametek, Inc., Corus Group plc, Nucor Corporation, Steel Dynamics, Inc., ThyssenKrupp Steel AG and United States Steel Corporation. The iron and steel industry is cyclical, with iron and steel consumption depending greatly on demand for durable goods, such as automobiles, construction materials, machinery, appliances and miscellaneous manufactured products. Recently, worldwide demand for steel has risen, as has demand for ferrovanadium as a steel additive. Superalloy and Titanium Alloy Industries; Specialty Metals and Alloys - Metallurg manufactures and sells a series of specialty metals and alloys which are essential to achieving elevated temperature strength and oxidation resistance in nickel-based superalloys and titanium alloys for aerospace, power generation, and oil and petrochemical applications. Its principal products include various chromium-based materials, niobium and vanadium alloys. Metallurg's customers include Allegheny Technologies Incorporated, Carpenter Technology Corporation, Titanium Metals Corporation, RTI International Metals and the Eramet Group. The superalloy and titanium alloy industries are cyclical. Consumption of these products fluctuates with demand from the aerospace, power generation, oil field and petrochemical sectors. Other Industries and Products - In addition to the product lines described above, Metallurg manufactures and distributes a number of products used outside of the aluminum, steel, superalloy, and titanium alloy industries. These products include: tantalum, which is sold to electronics, telecommunications and tool manufacturers; vanadium chemicals for use in the synthetic rubber and ceramics industries; polishing powders used by the glass polishing industry; and metal powders used in the manufacture of rocket fuel, automotive paints, and chemical and metallurgical products. These products generally are higher-margin and technically sophisticated. 3 Metallurg's financial performance fluctuates with the general economic cycle, as well as cycles in the markets for Metallurg's products, which could have a material adverse effect on Metallurg's business, financial condition and results of operations. In addition, many of Metallurg's products are internationally traded, with prices that are significantly affected by worldwide supply and demand. Foreign Operations and Currency Fluctuations - Metallurg has substantial operations outside the U.S. See "Note 4. Segments" to the Company's Consolidated Financial Statements for sales and long-lived assets by geographical area. Approximately 80% of Metallurg's employees were outside the U.S. Foreign operations are subject to certain risks that can materially affect the sales, profits, cash flows and financial position of Metallurg, including taxes on distributions or deemed distributions to Metallurg, Inc. or any U.S. subsidiary, currency exchange rate fluctuations, limitations on repatriation of funds, maintenance of minimum capital requirements, and import and export controls. In general, Metallurg's cost of sales for products manufactured in certain foreign locations can be impacted by changes in the rate of exchange of the respective local currencies of those locations relative to the U.S. dollar and other currencies in which it sells. While Metallurg engages in hedging transactions to reduce certain of the risks of currency rate fluctuations, there can be no assurances regarding the overall effectiveness or adequacy of Metallurg's hedging activities. Manufacturing Processes Metallurg's manufacturing processes involve melting, refining, casting, crushing, sizing, blending and packaging operations, which vary from product to product. For example, in the manufacture of ferrovanadium, SMC's Cambridge, Ohio plant consumes vanadium-containing raw materials, predominantly spent catalysts and residues from petrochemical refineries and ashes and residues from electric utilities burning fuel oil. The raw materials are melted and reductants are added to refine the chemistry of the production batch. The batch is poured into casting molds to form ingots, which are cooled and then crushed, sized, blended and packaged. In general, the manufacture of aluminum master alloys also follows similar principles using aluminum and other additives; however, these master alloys are generally cast as small ingots or processed into a solid rod form for delivery to the customer. The manufacture of briquettes and tablets involves the grinding and blending of raw materials, the compression of these materials into a compacted form and packaging for delivery to the customer. More sophisticated production routes are used for highly specialized products, which can require chemical processing or the use of a variety of other equipment. 4 Facilities and Operations Metallurg operates its corporate headquarters from a leased office in New York and owns all of the production facilities listed below except for the Minworth plant, which is leased. Production Facilities - The following table sets forth, for each of Metallurg's producing subsidiaries, the location of its facilities and the key products manufactured by such subsidiary:

Administrative Office - SMC has administrative personnel in a leased office in Swedesboro, New Jersey. Sales Offices - Metallurg has sales personnel at its production facilities and at its separate representative offices in Brazil, Japan and Mexico. Raw Materials Metallurg produces a wide variety of products for sale to a number of different metals industries and there is no single raw material that makes up the basis of Metallurg's entire production. For the production of chromium metal, LSM purchases chromium oxide from the major global producers. This product also requires large quantities of aluminum powder, substantially produced internally. Metallurg's aluminum processing plants in the U.K. and Brazil buy approximately 35,000 tons of virgin aluminum per year from producers worldwide, while important alloying chemicals are sourced from several different suppliers around the world. Titanium scrap is sourced in significant quantities for the production of ferrotitanium and other titanium-containing products from countries active in the aerospace industry, such as the U.S., the Commonwealth of Independent States ("CIS") and the U.K. Vanadium pentoxide in various forms is the raw material for Metallurg's production of ferrovanadium and vanadium chemicals. For ferrovanadium production, Metallurg purchases vanadium-containing spent catalysts and residues from petrochemical refineries and ashes and residues from electric utilities burning fuel oil. Metallurg currently obtains a majority of these raw materials from only a few sources. See "Limited Sources for Raw Materials." Vanadium chemicals are produced from commercially pure vanadium pentoxide, which is purchased on the open market. 5 Metallurg also utilizes many other raw materials such as strontium, nickel, boron chemicals, mischmetal, manganese and chrome silicide in the manufacture of its broad product range, which are purchased as required from producers or traders. Coinciding with general sales terms, most purchases are made on a spot basis at market prices to minimize the risk of exposure to market fluctuations. Limited Sources for Raw Materials - Certain of Metallurg, Inc.'s subsidiaries are dependent on third parties for raw material supplies. SMC's production unit in Cambridge, Ohio currently obtains a majority of its raw materials requirements for the manufacture of ferrovanadium from only a few sources. Although alternative sources of ferrovanadium raw materials exist, there can be no assurance that Metallurg would be able to obtain adequate supplies of such materials on acceptable terms, or at all, from other sources. Titanium and boron chemicals for the manufacture of sophisticated aluminum master alloys are sourced from long-time suppliers who, in certain instances, also supply competitive producers with these raw materials. Although these and other raw materials are generally priced with reference to related market prices, any increase in demand could cause raw material costs to rise. To the extent Metallurg is unable to recover its increased costs, operating results would be adversely affected. Competition The metals industry is highly competitive on a worldwide basis. Competition is primarily based on price, quality and timely delivery. Price competition remains strong as a result of excess capacity in certain products. In addition, export sales from the CIS and China of metals and alloys produced in excess of local demand can severely hurt prices in Europe and the U.S., which can negatively impact the price of some of Metallurg's products. New entrants may also increase competition in the metals industry, which could materially adversely affect Metallurg. An increase in the use of substitutes for metal alloys also could have a material adverse effect on the financial condition and operations of Metallurg. Although facing competition in each of its markets, Metallurg does not believe that any single competitor competes in all of its products or markets. Aluminum Industry - Competition is international because of the relatively small number of master alloy and alloying tablet manufacturers and the worldwide operations of the aluminum industry. In most markets, Metallurg faces competition to varying degrees from KBM Affilips B.V., KBAlloys, Inc. (and its U.K. subsidiary, Anglo Blackwells, Ltd.), Aleastur (Asturiana de Aleaciones, S.A.), the Eramet Group and Hoesch-Metallurgie GmbH. Iron and Steel Industry - In North America, products manufactured by Strategic Minerals Corporation, Treibacher Industrie AG, Highveld Steel and Vanadium Corporation Limited, Xstrata AG and certain CIS and Chinese sources compete with Metallurg's ferrovanadium products, while several U.S., U.K. and Russian companies compete worldwide with Metallurg's ferrotitanium products. Superalloy and Titanium Alloy Industries - Metallurg has competition in chromium metal from Delachaux S.A., certain Chinese and CIS sources and, to a limited extent, the Eramet Group. Strategic Minerals Corporation and Reading Alloys, Inc. compete internationally with Metallurg in vanadium aluminum. Reading Alloys, Inc. also competes in sophisticated alloys for the superalloy industry, as do CBMM-Cia Brasileira de Metalurgia e Mineracao, Cabot Corporation and H.C. Starck GmbH & Co. KG in certain products. Employees As of December 31, 2004, Metallurg employed approximately 800 people worldwide. Labor unions represent approximately 50% of Metallurg's employees. Unions represent employees at six locations in the U.S., the U.K., and Brazil. SMC's collective bargaining agreement with the United Steelworkers of America (USW, Local 4836-02), which covers 67 employees at the Cambridge, Ohio plant, was renewed for three years on April 14, 2004. SMC's collective bargaining agreement with the United Automobile, Aerospace and Agricultural Implement Workers of America (UAW, Local 2327), which covers 26 employees at the Newfield, New Jersey plant was renewed for four years on May 24, 2004. The collective bargaining agreements covering Metallurg's union employees at its foreign subsidiaries are generally renewable on an annual basis. Metallurg's relationships with its unions are managed at the local level and are considered by management to be satisfactory. 6 Anti-Dumping Duties In response to dumping by the former Soviet Union, Metallurg sought and obtained anti-dumping orders against Russia for imports of ferrovanadium into the U.S. Since July 1995, the Department of Commerce has imposed incremental anti-dumping duties, which currently range from 10.1% to 108%, on imports of Russian ferrovanadium and nitrided vanadium into the U.S. These duties are in addition to the normal duty of 4.2% that applies to ferrovanadium imports. A "sunset review" of the anti-dumping duty order was conducted by the International Trade Commission and the Department of Commerce and was favorably concluded in May 2001. As a result, the order will remain in effect until at least April 2006 when the next "sunset review" is initiated. On November 26, 2001, in response to a surge in imports of ferrovanadium from South Africa and China, the Ferroalloys Association Vanadium Committee, representing Metallurg and other U.S. producers, filed a petition seeking the imposition of anti-dumping duty orders covering imports from those countries. In response to the petition, the Commerce Department initiated investigations and the International Trade Commission unanimously determined that there was a reasonable indication that the U.S. industry was materially injured by reason of imports from these two countries. The final antidumping investigations were favorably concluded during the fourth quarter of 2002 and resulted in duties ranging from 12.97% to 116%, in addition to the 4.2% normal tariff, being imposed on imports from these two countries. Anti-dumping duty rates are subject to annual review by the Department of Commerce. Metallurg had revenues of $38.4 million from sales of ferrovanadium produced by Metallurg and sold in the U.S. for the year ended December 31, 2004. If the anti-dumping duties are not maintained at or near their current levels, Metallurg may be materially adversely affected. Environmental Matters Metallurg's alloy manufacturing operations in Cambridge, Ohio and Newfield, New Jersey are subject to various federal, state and local environmental, safety and health laws and regulations, including those relating to air and water quality, and solid and hazardous wastes. Metallurg's foreign manufacturing operations are subject to analogous environmental laws and regulations. Metallurg is faced with a number of environmental issues, which have largely resulted from environmental cleanup requirements, particularly in the areas of solid waste and hazardous waste removal. There can be no assurance that the current environmental requirements will not result in future liabilities and obligations, including future liability for disposal or contamination at both domestic and foreign facilities. There is also the possibility that changes to applicable environmental laws and regulations might result in future liabilities and obligations for Metallurg, including those related to contamination at Metallurg's facilities. These potential liabilities might also be material to Metallurg's business operations, financial condition or cash flow. Metallurg maintains environmental and industrial safety and health compliance programs at its plants and believes that its manufacturing operations are in general compliance with all applicable safety, health and environmental laws. SMC is addressing certain environmental conditions at the Cambridge, Ohio plant pursuant to a judicial consent order entered into with the State of Ohio in 1997. SMC submitted to the Nuclear Regulatory Commission ("NRC") in July 1999 a plan for decommissioning slag piles at the Cambridge facility. Such plan contemplates capping the slag piles on-site, an alternative that the Ohio Environmental Protection Agency ("OEPA") has approved. Before the NRC completed its review of the plan, the NRC delegated its regulatory authority over the site to the Ohio Department of Health ("ODH") in August 1999. The ODH is now the governmental entity responsible for overseeing the decommissioning of the slag piles. SMC has been engaged for some time in discussions with the ODH and the OEPA with respect to such decommissioning plan and related alternatives. At December 31, 2004, liabilities, net of trust funds, of $6.0 million were outstanding from provisions made in prior periods for the estimated future costs associated with the decommissioning of NRC (now ODH) regulated materials and the remediation of sediments at the Cambridge site. SMC finalized remediation plans with respect to these areas with the OEPA and ODH during 2003 and commenced work in accordance with such plans. Significant remediation activities involving the removal of contaminated sediments and capping of one of the two slag piles occurred in 2004. Limited remediation activities are anticipated for 2005. SMC expects to spend the amount reserved for outstanding liabilities over the next 4 years. 7 In August 2002, SMC filed a decommissioning plan for its Newfield facility with the NRC. At the same time, SMC requested an amendment to the authorized use of the Newfield facility, as permitted by the NRC, to "storage only pending decommissioning". While the Newfield facility will continue to operate, SMC does not intend to resume any previously licensed activities and expects to commence decommissioning activities upon approval of the plan by the NRC. At December 31, 2004, liabilities, net of trust funds, of $15.1 million were outstanding for the estimated future costs associated with the decommissioning of NRC regulated materials and the remediation of groundwater (as to which SMC is exploring alternative treatment approaches), soil and sediments at the Newfield site. SMC expects to spend the amount reserved over the next 15 years or sooner if an acceptable alternative approach for the remediation of groundwater is identified and approved by the interested regulatory authorities. There can be no assurance that SMC will not incur additional expenses related to the environmental projects at the Cambridge and Newfield sites. Liabilities for known environmental matters and Metallurg's related accounting policies are summarized in "Note 13. Environmental Liabilities" and "Note 1. Business and Summary of Significant Accounting Policies - Environmental Remediation Costs and Recoveries" to the Company's Consolidated Financial Statements. See also "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Financial Resources - Environmental Remediation Costs." Item 3. Legal Proceedings. Metallurg, Inc. and certain of its subsidiaries are parties from time to time to legal proceedings relating to their operations. The ultimate legal and financial liability of Metallurg in respect of all legal proceedings in which it is involved at any given time cannot be estimated with any certainty. However, based upon examination of such matters and consultation with counsel, management currently believes that the ultimate outcome of these contingencies, net of liabilities already accrued in the Company's Consolidated Balance Sheet, will not have a material adverse effect on Metallurg's consolidated financial position, although the resolution in any reporting period of one or more of these matters could have a significant impact on Metallurg's results of operations and/or cash flows for that period. For discussion of specific environmental matters, see "Items 1 and 2. Business and Properties - Environmental Matters." Item 4. Submission of Matters to a Vote of Security Holders. There were no matters submitted to a vote of security holders during the fourth quarter of the year ended December 31, 2004. 8 PART II Item 5. Market for the Company's Equity and Related Stockholder Matters. Metallurg Holdings Metallurg Holdings issued no securities during 2004. There is no public trading market for Metallurg Holdings' equity securities. Metallurg Holdings has not paid cash dividends in the last two years. Metallurg Holdings is currently prohibited under Delaware law from paying dividends because its total liabilities exceeded its total assets at December 31, 2004. In addition, Metallurg Holdings does not presently intend to pay any dividends, although it may choose to do so in the future. Metallurg Holdings is restricted in the amount of dividends payable to its shareholders as a result of the indenture for the Senior Discount Notes. Under the terms of the indenture, Metallurg Holdings is limited in its ability to make restricted payments, as defined and including, among other things, minority investments in subsidiaries and dividend payments, to a formula based on the cumulative net income since November 1, 1997 and certain specified allowances. As a result of this limitation, Metallurg Holdings is permitted to make restricted payments in the amount of $7.5 million as of December 31, 2004. Metallurg Holdings is a holding company with limited operations of its own. Substantially all of Metallurg Holdings' operating income or loss is generated by Metallurg. As a result, Metallurg Holdings will rely upon distributions or advances from Metallurg, Inc. to provide the funds necessary to meet its debt service obligations. Metallurg Holdings currently does not expect to have sufficient cash on hand to make future interest payments due on its Senior Discount Notes. While Metallurg, Inc. may be able to distribute cash to Metallurg Holdings for the purpose of making interest payments, Metallurg, Inc. is currently prohibited under Delaware law from paying dividends because its total liabilities exceeded its total assets at December 31, 2004. In addition, Metallurg, Inc. could be prohibited from making cash distributions at such time under the restrictive covenants of its financing agreement with MHR Institutional Partners II LP ("MHR"). See "Note 9. Borrowings" to the Company's Consolidated Financial Statements. In March 2005, Metallurg Holdings received a letter of support from Safeguard International assuring support to Metallurg Holdings in meeting its cash flow needs through at least May 31, 2006. Metallurg There is no public trading market for Metallurg, Inc.'s equity securities, all of which are owned by Metallurg Holdings. On November 20, 1998, the Board of Directors of Metallurg, Inc. (the "Board") adopted the Metallurg, Inc. 1998 Equity Compensation Plan (the "ECP"). Under the ECP, 500,000 shares of common stock are authorized for stock awards and stock options. Pursuant to the ECP, from 1998 through 2004, the Board has awarded to eligible executives and non-employee Board members options to purchase an aggregate of 195,000 shares of common stock, net of cancellations and forfeitures, at an exercise price of $30.00 per share. Such options have a term of ten years and vest in most cases 20% on the date of grant and 20% on each of the first four anniversaries of the date of grant. Metallurg, Inc. did not issue any securities during 2004. Metallurg has not paid cash dividends in the last two years. Metallurg, Inc. is currently prohibited under Delaware law from paying dividends because its total liabilities exceeded its total assets at December 31, 2004. In addition, Metallurg, Inc. is restricted in the amount of dividends payable to its shareholder as a result of the indenture for its 11% Senior Notes due 2007 (the "Senior Notes"). Under the terms of the indenture, Metallurg, Inc. is limited in its ability to make restricted payments, as defined and including, among other things, minority investments in subsidiaries and dividend payments, to a formula based on the cumulative net income since November 1, 1997 and certain specified allowances. Under the terms of the formula, Metallurg, Inc. was permitted to make restricted payments in the amount of $858,000 as of December 31, 2004. 9 In addition to the above restrictions under the Senior Note indenture, Metallurg, Inc.'s financing agreement with MHR limits the payment of dividends and other payments to Metallurg Holdings. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Financial Resources" and "Note 9. Borrowings" to the Company's Consolidated Financial Statements. Metallurg, Inc. is a holding company with limited operations of its own. Substantially all of Metallurg, Inc.'s operating income or loss is generated by its subsidiaries. As a result, Metallurg, Inc. will rely upon distributions or advances from its subsidiaries to provide the funds necessary to meet its debt service obligations. LSM's working capital facility limits its ability to pay dividends to an amount up to 100% of its annual net income. Item 6. Selected Financial Data. The following table presents selected consolidated historical financial data of the Company as of and for the years ended December 31, 2000, 2001, 2002, 2003 and 2004. Effective December 31, 2000, Metallurg Holdings and Metallurg, Inc. changed from a fiscal year ending January 31 to a calendar year. As a result, the year ended December 31, 2000 includes 11 months of consolidated results for Metallurg Holdings, the parent holding company, and Metallurg, Inc., and, consistent with historical reporting practice, the 12 months ended December 31, 2000 of results for its operating subsidiaries. Information as of and for the years ended December 31, 2000 and 2001 is derived from the audited consolidated financial statements of the Company. Information as of and for the years ended December 31, 2002, 2003 and 2004 is derived from the audited consolidated financial statements of the Company, included elsewhere herein. The information in this table should be read in conjunction with "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements of the Company, and related notes thereto, included in "Item 8. Financial Statements and Supplementary Data." SELECTED FINANCIAL DATA (In thousands)

(a) Includes: o environmental expense recoveries of $750, $631 and $3,000 for the years ended December 31, 2000, 2001 and 2002, respectively (See "Note 13. Environmental Liabilities" to the Company's Consolidated Financial Statements); and o restructuring and asset impairment charges of $3,510, $43,381 and $736 for the years ended December 31, 2002, 2003 and 2004, respectively (See "Note 5. Restructuring and Asset Impairment Charges" to the Company's Consolidated Financial Statements). (b) Reflects the extinguishment of certain Senior Discount Notes and the write-off of related issuance costs (See "Note 3. Extinguishment of Debt" to the Company's Consolidated Financial Statements). 10 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion should be read in conjunction with the Company's consolidated financial statements and the related notes thereto included elsewhere in this report. The Company is restating its previously issued consolidated statement of operations for the fiscal year ended December 31, 2002. Before the restatement, the Company's consolidated statement of operations for the fiscal year ended December 31, 2002 had classified a gain on the extinguishment of debt as an extraordinary item. Upon the adoption of SFAS No. 145 in 2003, such gain should have been reclassified as an ordinary item. The Company therefore determined to revise the classification of the extraordinary item as a component of loss before income tax provision, minority interest and discontinued operations in its consolidated statement of operations for the fiscal year ended December 31, 2002 pursuant to SFAS No. 145. The restatement does not affect the Company's total revenue, operating loss, net loss, cash flows or shareholders' deficit for that period. Forward-Looking Statements Certain matters discussed under the captions "Business and Properties" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Annual Report on Form 10-K may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may be identified by the use of words such as "plan", "expect", "believe", "should", "could", "anticipate", "intend" and other expressions that indicate future events or trends. All statements that address expectations or projections about the future, including statements about the Company's strategy for growth, product development, market position, expenditures and financial results are forward-looking statements and as such may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance and achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Factors that may cause the Company's results to be materially different include: o The cyclical nature of Metallurg's business. o Metallurg's dependence on foreign customers. Metallurg operates throughout the world and derives a significant amount of its revenues from outside of the U.S. o The impact of changes of the prices of raw materials and our products. o The impact of changes in foreign exchange rates and foreign trade regulations on Metallurg's competitive standing. Revenues and earnings from outside the U.S. could be materially affected by exchange rate fluctuations. o The ability to complete a refinancing of the financing agreement with MHR on favorable terms, if at all. o The ability to meet debt service requirements. o The availability of raw materials. o The impact of worldwide competition. o The economic strength of Metallurg's markets generally and particularly the strength of the demand for aluminum, superalloys, titanium alloys, iron and steel in those markets. o The impact of changes in the business of our end users. o The impact of changes in technology and methods of marketing. o The accuracy of Metallurg's estimates of the costs of environmental remediation. o The extension or expiration of existing anti-dumping duties. o The performance of world financial markets and the resulting effect on pension expense of Metallurg's defined benefit plans. o The possible disruption of business or increases in the cost of doing business resulting from terrorist activities or global conflicts. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Overview Metallurg Holdings was formed on June 10, 1998 and is wholly owned by a group of investors led by and including Safeguard International, an international private equity fund that invests primarily in equity securities of companies in process industries. As Metallurg Holdings is a holding company and does not have any material operations or assets other than the ownership of Metallurg, Inc., the following discussions of the Company's results of operations relate to Metallurg, unless otherwise indicated. Metallurg is a leading international producer and seller of high-quality specialty metals and metal alloys that are essential to the production of high-performance aluminum and titanium alloys, carbon and specialty steels, superalloys and certain non-metallic materials for various applications in the aerospace, power supply, automotive, petrochemical processing, capital equipment and construction industries. Metallurg operates production facilities in the U.K., the U.S. and Brazil. Metallurg's products are primarily sold to one of three major market sectors: the aluminum industry, the steel industry and the superalloy industry. 11 Overall operating conditions in each of these sectors have been challenging over the past few years with significant pressure on prices caused by increased competition, lower overall demand from customers and lackluster economic conditions worldwide. These difficult business conditions persisted throughout most of 2003. Improvement in demand began in the fourth quarter of 2003 and continued to improve throughout 2004 due to an improved economic environment in Europe and the Americas and changes in consumption patterns in China. Additionally, a declining U.S. dollar caused prices for some of our products to rise as foreign competitors increased prices to offset the negative effect of the declining U.S. dollar. While we cannot predict demand or prices in the markets we serve, this discussion presents a general overview of each of our major market sectors. Demand from the aluminum market continued to rebound from the low levels experienced early in 2003, coinciding with increased global economic activity. On the supply side, there still exists a significant amount of excess, as well as idle, capacity in the industry. While prices for aluminum continued to increase in 2004, our main products - aluminum master alloys and compacted products - continue to be subject to pricing pressure, primarily due to overcapacity. Continuing consolidation in the aluminum industry also has contributed to the pressure on prices for our products. These same conditions have continued throughout 2004, as the industry still faces overcapacity and significant price competition. During 2004, Metallurg announced the closure of its master alloy facility in Norway to reduce excess capacity in the industry. The closure of the Norway plant was completed by the end of the third quarter. Customers will continue to be served from our facilities in the U.K. and Brazil. As a result of this closure and higher demand within the aluminum industry, pricing for our products have shown some improvement. Metallurg continues to seek higher prices for its major products and to implement cost reduction initiatives to enhance operating performance. The domestic steel industry continues to operate at moderately high levels of production. Industry fundamentals for the steel sector have significantly improved from the difficult conditions seen over the prior years, particularly as a result of the consolidation of a number of producers within the industry and the weak U.S. dollar. During 2003, fundamentals in the ferrovanadium market changed as a major producer closed operations due to very low price levels and other factors. Due to a shortage of raw materials, Metallurg was forced to significantly cut production rates at its processing facility in Ohio, adding to a reduction of ferrovanadium units in North America. Also, a labor strike at this facility during the fourth quarter of 2003 and the first quarter of 2004 impacted overall production rates. Demand for ferrovanadium has improved during 2004, driven by increasing world steel production and increasing use of specialty steels containing ferrovanadium in Chinese construction applications. The global supply/demand outlook for ferrovanadium has changed over the last few years, with Asia becoming a net importer of material instead of a net exporter. As a result, prices for ferrovanadium have increased in 2003 and were significantly higher in 2004. In the first quarter of 2004, we were successful in securing a significant long-term source of raw materials to lower production costs and enhance profitability. In April 2004, the labor strike affecting the ferrovanadium production facility in Cambridge, Ohio was settled with the ratification of a new three-year contract. The effects of securing new long-term raw materials arrangements, settling the labor strike and increased demand and pricing for ferrovanadium have improved profitability throughout 2004. During the fourth quarter of 2004, market prices have moved significantly higher. We expect demand for ferrovanadium to remain strong and prices to remain well above long-term historical trend levels throughout 2005. Because prices under our principal raw materials supply contracts for our ferrovanadium production operations are referenced to historical market prices for vanadium, based on these price trends, we expect the cost of our raw materials to increase in 2006. The superalloy industry is rebounding from low production levels over the past few years. This increase in activity is driven by higher military spending, increased applications for energy related projects and improving commercial airliner production build rates. Throughout 2004, prices for titanium have increased significantly due to higher demand and supply shortages. We expect these strong market fundamentals to continue into 2005. On August 13, 2004, Metallurg entered into a new financing agreement to replace the existing facility with Fleet National Bank. Metallurg believes that the new financing agreement, along with anticipated improved operations after recent restructuring efforts, will provide adequate liquidity for Metallurg to meet its obligations as they come due over the next year. During 2003 and throughout 2004, Metallurg restructured its businesses. Metallurg took action to reduce costs at LSM through employee terminations and discontinuing unprofitable businesses, and in North America by consolidating sales offices. In September 2003, Metallurg sold all of its interests in its German facility engaged in the manufacture of low carbon ferrochrome, and its Turkish chrome ore mines. In March 2004, Metallurg sold its South African sales office. See "Note 2. Discontinued Operations" to the Company's Consolidated Financial Statements. Metallurg Holdings currently does not expect to have sufficient cash on hand to make the interest payments due on its Senior Discount Notes. In March 2005, Metallurg Holdings received a letter of support from Safeguard International assuring support to Metallurg Holdings in meeting its cash flow needs through at least May 31, 2006. 12 Financial Statement Presentation Total revenue represents the selling price of our products plus certain shipping charges less applicable provisions for discounts and allowances. Gross profit represents total revenue less cost of sales, which include direct material and manufacturing costs, manufacturing depreciation and delivery costs. Selling, General and Administrative Expenses ("SG&A") includes all non-product related operating expenses. Operating income (loss) represents gross profit less SG&A and restructuring charges. Results of Operations

13 Year Ended December 31, 2004 Compared to the Year Ended December 31, 2003 Total Revenue Consolidated total revenue increased by $68.8 million (24%) for the year ended December 31, 2004. LSM revenue for the year ended December 31, 2004 was $31.2 million (19%) higher than the year ended December 31, 2003. Sales of aluminum master alloys and compacted products increased by $1.7 million as a result of a 17% increase in sales prices despite a 12% decrease in sales volume. Sales of aluminum powder rose by $2.9 million, due to product mix, which resulted in a higher average selling price. Sales of ferrotitanium were $18.2 million higher, due to a 104% increase in average unit selling prices. Sales of metal powders decreased by $1.8 million as a result of a decrease in sales volume. Sales of chrome products were higher by $6.5 million due to a 17% increase in sales volume. The remaining increase in revenues of $3.7 million relates to other products. SMC revenue for the year ended December 31, 2004 was $44.7 million (45%) higher than the year ended December 31, 2003. Sales of aluminum products increased by $8.3 million, due to a 19% increase in average selling prices and a 5% increase in volume. Sales of vanadium products, produced in SMC's Ohio plant, increased by $30.3 million as a result of a 111% increase in average selling prices and a 28% increase in sales volume. The remaining increase in revenues of $6.1 million relates to other products. CIF revenue for the year ended December 31, 2004 was $14.0 million (42%) higher than the year ended December 31, 2003. Sales of aluminum master alloys increased by $9.0 million, primarily as a result of a 30% increase in shipments. Sales of niobium products increased by $4.0 million, due to a 176% increase in sales volume despite a small decrease in average selling prices. Gross Profit Consolidated gross profit increased to $47.5 million (13.5% of total revenue) for the year ended December 31, 2004 from $22.0 million (7.8% of total revenue) for the year ended December 31, 2003. LSM gross profit was $7.2 million (51%) higher than the year ended December 31, 2003. Gross profits from nearly all products increased during the year as higher selling prices offset higher unit costs. SMC gross profit was $16.7 million (672%) higher than the year ended December 31, 2003. Gross profit from vanadium products increased dramatically as stronger demand and tighter supply drove up average unit selling prices. CIF gross profit was $3.0 million (138%) higher than the year ended December 31, 2003 due to higher sales volume for aluminum and higher selling prices for tantulum products offset by higher costs. SG&A SG&A was $34.8 million for the year ended December 31, 2004 versus $30.7 million for the year ended December 31, 2003. The increase was principally due to higher professional fees and ongoing bank charges associated with the new financing agreement and costs related to terminations of sales agencies and certain subsidiary managers. For the year ended December 31, 2004, SG&A represented 9.9% of total revenue compared to 10.8% for the year ended December 31, 2003. Restructuring and Asset Impairment Charges, Net In 2004, LSM completed its restructuring, which began in 2003, and recorded a restructuring charge of $746,000 consisting of (i) severance costs of $316,000 for 15 employees in the U.K. and (ii) severance costs of $430,000 for 28 employees after the closure of its aluminum production facility in Norway. Of this amount, $113,000 is still unpaid as of December 31, 2004. In 2003, Metallurg Holdings determined that it would be unable to recover the carrying value of its goodwill and recorded an impairment of the goodwill of $32.5 million. 14 Also in 2003, in a continuing effort to improve Metallurg's competitive position and to reduce costs, Metallurg continued restructuring its operations at its worldwide locations. LSM recorded $3,652,000 of severance costs for 62 employees and asset impairment charges of $6,706,000 relating to its metal catalyst business and its aluminum production facilities in Norway. Metallurg's Canadian subsidiary recognized a restructuring charge of $417,000 for severance costs of seven employees as its sales and administrative functions were consolidated into the New Jersey operations of SMC. In addition, Metallurg transferred certain sales and administrative functions for tantalum and niobium products from its headquarters location to its production facilities in Brazil and recorded severance costs of $120,000 for two employees. All restructuring charges incurred during 2003 have been paid as of December 31, 2004 with the exception of a $10,000 over-accrual that was reversed in 2004. See "Note 5. Restructuring and Asset Impairment Charges" to the Company's Consolidated Financial Statements. Operating (Loss) Income There was operating income of $12.0 million for the year ended December 31, 2004 compared to an operating loss of $52.1 million for the year ended December 31, 2003, due to the improvement in gross profit and reduction in restructuring and asset impairment charges, discussed above. Interest Expense, Net Interest expense, net, was as follows (in thousands):

The increase in net interest expense is principally due to: (i) interest on additional long-term debt; (ii) amortization on deferred issuance costs related to the additional long-term debt offset by (iii) interest income on a federal tax refund. Income Tax Provision (Benefit) Income tax provision (benefit) was as follows (in thousands):

See "Note 11. Income Taxes" to the Company's Consolidated Financial Statements for additional information about our effective tax rate and deferred tax assets. Net Loss The Company had a net loss of $11.6 million for the year ended December 31, 2004 compared to a net loss of $68.4 million for the year ended December 31, 2003 due primarily to improving operating results and the reduction in restructuring and asset impairment charges discussed above. Net losses also included income from discontinued operations of $0.3 million and $1.4 million, net for the years ended December 31, 2004 and 2003, respectively, and loss on sale of discontinued operations of $1.2 million for the year ended December 31, 2004. The discontinued operations related to the operations and sale of Metallurg's former South African sales office. See "Note 2. Discontinued Operations" to the Company's Consolidated Financial Statements. 15 Year Ended December 31, 2003 Compared to the Year Ended December 31, 2002 Total Revenue Consolidated total revenue increased by $5.6 million (2%) in the year ended December 31, 2003. LSM revenue was $7.2 million (4%) higher than the year ended December 31, 2002. Sales of aluminum master alloys and compacted products increased by $3.7 million, primarily as a result of a 4% increase in sales volume. Sales of aluminum powder rose by $0.4 million, due to product mix, which resulted in a higher average selling price. Sales of ferrotitanium were $2.4 million higher, due to a 20% increase in average unit selling prices, despite a 4% decrease in sales volumes. Sales of metal powders rose by $2.4 million as a result of increases in both sales volume and average selling prices. Sales of chrome products were lower by $1.9 million due to a 9% decrease in sales volume. SMC revenue was $6.7 million (7%) higher than the year ended December 31, 2002. Sales of compacted aluminum products increased by $4.9 million, despite a drop in average selling prices, as a result of an increase of 47% in shipments. Sales of vanadium products, produced in SMC's Ohio plant, increased by $3.0 million as a result of increased average selling prices, despite a drop in sales volume due to lack of raw materials. Sales of niobium products fell by $3.3 million, primarily as a result of a drop in shipments of ferroniobium to the steel industry. Sales of chrome products were higher by $3.0 million due to an 11% increase in sales volume. CIF revenue was $0.3 million (1%) higher than the year ended December 31, 2002. Sales of aluminum master alloys increased by $1.2 million, primarily as a result of a 5% increase in selling prices. Sales of tantalum and niobium products decreased by $1.1 million, due to a drop in demand and lower selling prices. Revenue from operations included in "Other" declined by $11.3 million in the year ended December 31, 2003, primarily due to a drop in demand and selling prices of tantalum products. Gross Profit Consolidated gross profit decreased to $22.0 million (7.8% of total revenue) for the year ended December 31, 2003 from $23.1 million (8.3% of total revenue) for the year ended December 31, 2002. LSM gross profit was $1.5 million (12%) higher than the year ended December 31, 2002. Gross profits from chrome products increased by $1.7 million as a result of the improved product costs. Gross profits from aluminum master alloys, compacted aluminum products and aluminum powder decreased by $0.5 million. Higher unit costs, resulting from price competition and oversupply in the industry, offset increased volumes. SMC gross profit was $1.4 million (130%) higher than the year ended December 31, 2002. Gross profit from aluminum products rose by $2.0 million, due to increased shipments and lower costs resulting from the restructuring of operations during 2002. Gross profit from chrome products rose by $0.8 million, due to improved volume and selling prices, particularly from lower grade products sold to the steel industry. Gross profit from vanadium products decreased by $1.3 million, as average costs rose faster than an increase in average selling prices. CIF gross profit was $0.8 million (26%) below the year ended December 31, 2002 due to higher unit costs on aluminum products. Gross profit from operations included in "Other" was $1.4 million (30%) below the year ended December 31, 2002 due primarily to decreased margins on tantalum products resulting from a decline in selling prices. Selling, General and Administrative Expenses SG&A was virtually unchanged at $30.7 million for the year ended December 31, 2003 versus $30.6 million for the year ended December 31, 2002. For the year ended December 31, 2003, SG&A represented 10.8% of total revenue compared to 11.0% for the year ended December 31, 2002. 16 Restructuring and Asset Impairment Charges, Net Metallurg Holdings performs an annual review of goodwill to determine possible impairment. As a result of continuing operating losses at all of the production facilities, Metallurg Holdings determined that it will be unable to recover the carrying value of its goodwill at December 31, 2003 and recorded an impairment of the goodwill of $32.5 million. As a result of continuing weakness in operating performance, particularly in its metal catalyst and aluminum businesses, LSM implemented a restructuring plan in September 2003 designed to streamline production, improve productivity and reduce costs. Due to a significant deterioration in its metal catalyst business, LSM determined that certain of its plant assets were impaired because recovery of the net book values from projected future undiscounted cash flows could no longer be expected. In the third quarter of 2003, LSM recognized a $2.2 million non-cash impairment loss, which reduced the carrying value of these assets to zero. Plant operations ceased in the fourth quarter of 2003 and the plant assets were abandoned. As a result of continuing losses in its aluminum business due to aggressive price competition and industry wide over-capacity, LSM determined that its plant assets in Norway were similarly impaired. In the fourth quarter of 2003, LSM recognized a non-cash impairment loss of approximately $4.5 million for impairments of fixed assets and goodwill related to these operations. In 2004, LSM announced that it would close down the Norwegian plant. In the fourth quarter of 2003, LSM also accrued severance costs of approximately $3.7 million relating to workforce reductions of 62 employees at its Rotherham, U.K. location. In a continuing effort to improve Metallurg's competitive position and to reduce costs, a plan was implemented in the third quarter of 2003 to consolidate sales and administrative functions performed by Metallurg's Canadian operations into the New Jersey operations of SMC. As a result of this plan, Metallurg recognized a pre-tax restructuring charge of $0.4 million, for severance costs of seven employees. Activities of the Canadian entity are expected to cease completely in the first quarter of 2004. Also in 2003, Metallurg transferred certain sales and administrative functions for tantalum and niobium products from its headquarters location to its production facilities in Brazil. As a result, severance costs of $0.1 million for two employees were recorded at December 31, 2003. During 2002, Metallurg carried out a restructuring program intended to reduce the cost structure at corporate headquarters, LSM and SMC. The restructuring plan included the discontinuation of certain production activities, the termination of employees and the write-down of redundant plant and equipment. A charge of $3.5 million was incurred in the year ended December 31, 2002, primarily for severance costs of 64 terminated employees. See "Note 5. Restructuring and Asset Impairment Charges" to the Company's Consolidated Financial Statements. Operating (Loss) Income There was an operating loss of $52.1 million for the year ended December 31, 2003 compared to an operating loss of $8.0 million for the year ended December 31, 2002, due primarily to the restructuring and asset impairment charges, discussed above. In addition, SMC recognized an environmental expense recovery of $3.0 million for the year ended December 31, 2002. Interest Expense, Net Interest expense, net, was as follows (in thousands):

17 Income Tax (Benefit) Provision Income tax (benefit) provision was as follows (in thousands):

See "Note 11. Income Taxes" to the Company's Consolidated Financial Statements. Net Loss The Company had a net loss of $68.4 million for the year ended December 31, 2003 compared to a net loss of $22.7 million for the year ended December 31, 2002 due primarily to operating results and the restructuring and asset impairment charges discussed above. Net losses also included income from discontinued operations of $1.4 million and $2.3 million, net for the years ended December 31, 2003 and 2002, respectively. See "Note 2. Discontinued Operations" to the Company's Consolidated Financial Statements. Liquidity and Financial Resources General The Company's sources of liquidity include cash and cash equivalents and amounts available under credit facilities. At December 31, 2004, the Company had $23.4 million in cash and cash equivalents and working capital of $80.6 million as compared to $18.6 million and $63.4 million, respectively, at December 31, 2003. Metallurg Holdings relies on distributions from Metallurg, Inc. to meet its debt service obligations. Metallurg, Inc. is currently prohibited under Delaware law from paying dividends because its total liabilities exceed its total assets at December 31, 2004. In addition, Metallurg, Inc. could be prohibited from paying dividends under the restrictive covenants of its financing agreements. Metallurg Holdings currently does not have sufficient cash on hand to make the interest payments due on the Senior Discount Notes. As all of Metallurg, Inc.'s outstanding common stock has been pledged as collateral for Metallurg Holdings' obligations under the Senior Discount Notes, if Metallurg Holdings were unable to make interest payments when due, it could lead to a foreclosure on its assets, principally the equity of Metallurg, Inc. Such foreclosure would create a default in accordance with the indenture terms of Metallurg's Senior Notes and result in an acceleration of $100 million of Senior Note indebtedness. In order to meet the January 15, 2005 interest payment on the Senior Discount Notes, Metallurg, Inc. loaned Metallurg Holdings' approximately $0.7 million to make the interest payment to non-related parties. Metallurg Holdings' next interest payment to non-related parties is due July 15, 2005 in the amount of $1.5 million. In March 2005, Metallurg Holdings received a letter of support from Safeguard International assuring support to Metallurg Holdings in meeting its cash flow needs through at least May 31, 2006. Cash Flow Information Cash Flows from Operating Activities - Cash used in operating activities was $20.2 million for the year ended December 31, 2004, compared to $16.8 million for the year ended December 31, 2003. Our net loss in 2004 was $56.8 million less than it was in 2003. This was offset by an increase in components of working capital of $15.9 million, due to increased revenues and operating activity in 2004, coupled with a $42.6 million decrease in non-cash restructuring and asset impairment charges. Cash Flows from Investing Activities - Net cash provided by investing activities was $3.9 million for the year ended December 31, 2004, compared to net cash used in investing activities of $1.9 million for the year ended December 31, 2003. Capital expenditures were approximately $3.0 million in both years. In 2004, the sale of the South African sales office was partially offset by a loan provided to the buyer of that sales office. In 2003, Metallurg received a repayment of $1.0 million on a loan made to a former German subsidiary. Cash Flows from Financing Activities - Cash provided by financing activities was $20.9 million for the year ended December 31, 2004, compared to $12.4 million for the year ended December 31, 2003. In 2004, Metallurg received $24.7 million from the proceeds of new borrowings (including $8.0 million from related parties) and was required to pay deferred financing fees of $4.6 million to obtain the new borrowings. Cash proceeds of $10.0 million in 2003 from the sales of certain businesses to members of a common controlled group were recorded as capital contributions in accordance with prescribed accounting principles. 18 Credit Facilities and Other Financing Arrangements Senior Discount Notes - The Senior Discount Notes accrue cash interest at a rate of 12 3/4% per annum, payable semi-annually in arrears on January 15 and July 15 of each year. The Senior Discount Notes are redeemable at the option of Metallurg Holdings, in whole or in part, at any time on or after July 15, 2003. The Senior Discount Notes are senior, collateralized obligations of Metallurg Holdings and rank pari passu in right of payment with all existing and future unsubordinated indebtedness and senior in right of payment to all subordinated indebtedness of Metallurg Holdings. However, the Senior Discount Notes are effectively subordinated to all existing and future liabilities of Metallurg. The Senior Discount Notes are collateralized by an assignment and pledge to a trustee of (i) all of the outstanding equity interests held by Metallurg Holdings in Metallurg, Inc. and (ii) all promissory notes issued from time to time to Metallurg Holdings by Metallurg, Inc. The indenture contains limitations on, among other things, the ability of Metallurg Holdings to incur indebtedness and enter into certain mergers, consolidations or asset sales. Metallurg Holdings is a holding company, and its ability to meet its payment obligations on the Senior Discount Notes is dependent upon the receipt of dividends and other distributions from its direct and indirect subsidiaries. Metallurg Holdings does not have, and may not in the future have, any material tangible assets other than the common stock of Metallurg, Inc. Metallurg, Inc. and its subsidiaries are parties to various credit agreements, including Metallurg, Inc.'s Senior Note indenture and the MHR credit facility, which impose substantial restrictions on Metallurg, Inc.'s ability to pay dividends to Metallurg Holdings. Senior Notes - In November 1997, Metallurg, Inc. issued its Senior Notes. Interest is payable semi-annually. The Senior Notes are redeemable at the option of Metallurg, Inc., in whole or in part, and are fully and unconditionally guaranteed by the U.S. subsidiaries of Metallurg, Inc. on a senior unsecured basis. The Senior Note indenture contains limitations on, among other things, the ability of Metallurg to incur indebtedness and enter into certain mergers, consolidations or asset sales. In addition, under the terms of the indenture, Metallurg, Inc. is limited in its ability to make restricted payments, as defined and including, among other things, minority investments in subsidiaries and dividend payments, to a formula based on the cumulative net income since November 1, 1997 and certain specified allowances. As a result of this limitation, Metallurg, Inc. was permitted to make restricted payments in the amount of $858,000 as of December 31, 2004. In January 2005, Metallurg, Inc. loaned Metallurg Holdings, its parent company, $744,000 to pay interest on Metallurg Holdings' 12 3/4% Senior Discount Notes due 2008 (the "Senior Discount Notes") held by non-related parties. This restricted payment was necessary, as Metallurg Holdings did not have sufficient cash on hand to make its required interest payments and reduced Metallurg, Inc.'s ability to make restricted payments to $114,000. MHR Credit Facility - On August 13, 2004, the Company refinanced its revolving credit facility with Fleet National Bank into a new financing agreement with MHR maturing on August 31, 2007. Facility A under the financing agreement, as amended, provided Metallurg, Inc. a $15 million term loan for working capital and a $21 million letter of credit facility. It allows for $15 million of the letter of credit facility to be converted to a term loan with the proceeds being used by SMC to settle certain environmental remediation obligations at its Newfield facility. Transaction costs for Facility A of $4.5 million were capitalized and are being amortized over the term of the agreement. Interest accrues on outstanding balance at a rate of 20% per annum of which one-half is paid monthly in arrears and one-half is paid-in-kind by being added to the outstanding principal balances on a monthly basis. In addition, Metallurg pays MHR a monthly letter of credit commitment fee of 4% per annum on all outstanding letters of credit, a facility maintenance fee of $620,000 on December 31, 2004 and $310,000 on each June 30th and December 31st thereafter, and a monthly monitoring fee of $40,000 in 2004, $30,000 in 2005 and $20,000 thereafter. Mandatory quarterly repayments begin on October 1, 2005 in the amount of $1.0 million and voluntary repayments may be made after July 31, 2005 along with prepayment penalties. Facility A is fully collateralized by all of the assets of Metallurg, Inc. and SMC (the "Borrowers"), fully guaranteed by Metallurg Holdings Corporation, Metallurg International Resources, LLC and Metallurg Services Inc. (the "MHR Guarantors") and partially guaranteed by Metallurg, Inc.'s major subsidiaries in the U.K. and Brazil. The total amount outstanding under Facility A is $15.5 million in loans and $20.8 million in letters of credit at December 31, 2004. Facility B, under the financing agreement, provided Metallurg Holdings with two term loans. The first term loan in the amount of $1,675,000 was made on the closing date and used to pay interest owed as of July 15, 2004 on the Senior Discount Notes. An additional amount of $787,500 was made on January 15, 2005 to pay a portion of the interest due on that date on the Senior Discount Notes. Transaction costs for Facility B of $75,000 were capitalized and are being amortized over the term of the agreement. An additional fee of $37,500 was made upon the funding of the second term loan and will be amortized over the remaining term of the agreement. Interest at a rate of 20% per annum on all outstanding balances is paid-in-kind by being added to the outstanding principal balance on a monthly basis. In addition, Metallurg Holdings will pay MHR a facility maintenance fee of $49,250 on December 31, 2004 and $24,625 on each June 30th and December 31st thereafter. This fee will be paid-in-kind by being added to the outstanding principal balance. Voluntary repayments may be made after July 31, 2005 along with prepayment penalties. Facility B is fully guaranteed by Metallurg, Inc. The total amount outstanding under Facility B is $1.9 million at December 31, 2004. The financing agreement also requires Metallurg to maintain a minimum borrowing base and achieve minimum Consolidated 19 EBITDA, as defined. The Company anticipates that it will seek to refinance these facilities on more favorable terms provided its operating results continue to improve and such financing is available. LSM Revolving Credit Facilities - LSM has revolving credit facilities with Barclays Bank plc ("Barclays"), expiring in June 2007, and HSBC Bank plc ("HSBC"), expiring in July 2009. These facilities provide LSM with up to 'L'5.5 million ($10.6 million) of borrowings, 'L'40.3 million ($77.3 million) of foreign exchange contracts and options and 'L'4.0 million ($7.7 million) for other ancillary banking arrangements, including bank guarantees. Borrowings under these facilities are collateralized by the assets of LSM and are repayable on demand. Outstanding loans under these facilities bear interest at each bank's base rate plus 1.0% to 1.75%. At December 31, 2004, there were 'L'0.5 million ($0.9 million) of borrowings outstanding under these facilities at an interest rate of 3.45% and included in short-term debt on the consolidated balance sheet. In January 2005, these revolving credit facilities were amended to denominate them in U.S. dollars on similar terms and conditions. LSM Term Loans - LSM also has two term loans with Barclays and HSBC. The loan with Barclays is for 'L'6.0 million ($11.5 million) for a term of three years and bears interest at 3-month LIBOR plus 1.75%. Quarterly repayments of 'L'0.2 million ($0.4 million) began in June 2004. The loan with HSBC is for 'L'6.0 million ($11.5 million) for a term of five years and bears interest at 3-month LIBOR plus 1.65%. Quarterly repayments of 'L'0.2 million ($0.4 million) began in July 2004. These term loan facilities are collateralized by the assets of LSM and require LSM to comply with various covenants, including the maintenance of minimum tangible net worth and interest coverage. In January 2005, these loans were amended to denominate them in U.S. dollars on similar terms and conditions. Other - CIF maintains short-term secured and unsecured borrowing arrangements with various banks totaling $11.7 million. Borrowings under these arrangements aggregated $7.1 million at December 31, 2004 at a weighted-average interest rate of 8.4%. Contractual Cash Obligations As described in Notes 9 and 15 to the Company's Consolidated Financial Statements at December 31, 2004, the Company is obligated to make future payments under various contracts, such as debt and lease agreements. Significant contractual cash obligations of the Company are as follows (in millions):

---------- (a) Includes MHR debt interest paid-in-kind and added to principal but does not include approximately $4.4 million of future interest not yet accrued but payable in 1-3 years based on current borrowing levels. (b) Represents purchase orders on hand at December 31, 2004, primarily for the purchase of inventory in the normal course of business. (c) Only included in first period. Information is not available for subsequent periods. 20 Capital Expenditures Metallurg invested $3.1 million in capital projects during the year ended December 31, 2004. Metallurg's capital expenditures include projects related to improving Metallurg's operations, productivity improvements, replacement projects and ongoing environmental requirements (which are in addition to expenditures discussed in "Environmental Remediation Costs" below). Capital expenditures are projected to increase to approximately $5.3 million for the year ended December 31, 2005, including $2.8 million of capital investments which Metallurg believes will result in decreased costs of production, improved efficiency and expanded production capacities. The remaining capital expenditures planned are primarily for replacement and repairs of existing facilities. Although Metallurg has projected these items for the year ended December 31, 2005, Metallurg has not committed purchases to vendors for all of these projects, as some projects remain contingent on final approvals and other conditions and the actual timing of expenditures may extend into 2006. Metallurg believes that these projects will be funded through existing and future internally generated cash and credit lines. Environmental Remediation Costs American Institute of Certified Public Accountants' Statement of Position 96-1, "Environmental Remediation Liabilities," states that losses associated with environmental remediation obligations are accrued when such losses are deemed probable and reasonably estimable. Such accruals generally are recognized no later than the completion of the remedial feasibility study and are adjusted as further information develops or circumstances change. Costs of future expenditures for environmental remediation obligations are generally not discounted to their present value. During the year ended December 31, 2004, Metallurg spent $4.5 million for environmental remediation. In 1997, SMC entered into settlement agreements with various environmental regulatory authorities with regard to all of the significant environmental remediation liabilities of which it is aware. Pursuant to these agreements, SMC has agreed to perform environmental remediation, which, as of December 31, 2004, had an estimated net cost of completion of $21.1 million, net of trust funds of $4.0 million. Of this amount, Metallurg expects to spend $1.9 million in 2005 (excluding the potential settlement by SMC of certain environmental remediation obligations at its Newfield facility), $3.3 million in 2006 and $1.3 million in 2007. These amounts have been accrued for in prior years and are reflected in Metallurg's balance sheet liabilities. See "Note 13. Environmental Liabilities" to the Company's Consolidated Financial Statements. SMC is exploring the settlement of certain non-radiological environmental remediation obligations at its Newfield, New Jersey facility by contracting with an environmental services company to assume such obligations and implement alternative treatment technologies. In the event that such a transaction is successfully negotiated on terms acceptable to the relevant regulatory authorities, SMC would be required to make payments of up to $17 million over the next two years. Financing for such a transaction has been arranged with the environmental services company and under the terms of the MHR debt facilities. See "Note 9. Borrowings - MHR Debt" to the Company's Consolidated Financial Statements. While its remediation obligations and other environmental costs, in the aggregate, will reduce its liquidity, Metallurg believes its cash balances, cash from operations and cash available under its credit facilities are sufficient to fund its current and anticipated future requirements for environmental expenditures. Related Party Transactions Accounts receivable and payable balances between the Company and affiliates of Safeguard International are shown as related party balances on the Company's Consolidated Balance Sheets. A note receivable from the German subsidiary sold in December 2002 is shown as notes receivable - related party on the Company's Consolidated Balance Sheets. This note accrues interest at a rate of 10% per annum. Principal and interest payments are due from 2006 through 2010 and may be repaid prior to maturity under certain circumstances. Safeguard International, for its own account and the accounts of others, and SCP Private Equity Partners, L.P., another shareholder of Metallurg Holdings, provided an $8 million subordinated loan so that SMC could complete the purchase of vanadium-containing raw materials for its Cambridge, Ohio plant under a five-year supply contract. The loan, as amended, is collateralized by a second lien on all of the assets of the Borrowers and MHR Guarantors. Interest on the loan at 8% per annum is paid-in-kind and added to the principal balance. The total amount of this loan outstanding is $8.3 million at December 31, 2004 and is shown as long-term debt - related parties on the Company's Consolidated Balance Sheets. Dr. Schimmelbusch and Mr. Spector are managing directors of the management company for Safeguard International, the majority owner of Metallurg Holdings, and in these positions receive compensation from this management company. 21 Critical Accounting Estimates The preparation of financial statements in accordance with generally accepted accounting principles requires management to make judgments, estimates and assumptions regarding uncertainties that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. In applying the Company's significant accounting policies, as more fully discussed in "Note 1. Business and Summary of Significant Accounting Policies" to the Company's Consolidated Financial Statements, management uses its judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on historical experience, terms of existing contracts, observances of trends in the industry, information provided by Metallurg's customers and information available from other outside sources, as appropriate. Estimates and assumptions about future events and their effects cannot be perceived with certainty and accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as Metallurg's operating environment changes. The Company deems the following estimates and accounting policies to be critical: Inventories Metallurg's inventory is a significant component of current assets and is stated at the lower of cost or market. Metallurg regularly estimates the net realizable value of inventories on hand and adjusts the carrying amounts of these inventories as necessary. Significant or unanticipated changes to market values of these items could impact the amount and timing of any such adjustments that may be required. Such provisions were not significant in the periods presented. Income Taxes The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes", which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. SFAS No. 109 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized. The Company evaluates quarterly the realizability of its deferred tax assets by assessing its valuation allowance and by adjusting the amount of such allowance, if necessary. The factors used to assess the likelihood of realization are the Company's forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. The Company has used tax-planning strategies to realize net deferred tax assets in order to avoid the potential loss of future tax benefits. Failure to achieve forecasted taxable income might affect the ultimate realization of the net deferred tax assets. Factors that may affect the Company's ability to achieve sufficient forecasted taxable income include, but are not limited to, the following: a decline in sales or margins, increased competition or loss of market share. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. These audits can involve complex issues, which may require an extended period of time to resolve. In management's opinion, adequate provisions for income taxes and valuation allowances against deferred taxes have been made for all years. Environmental Remediation Costs Losses associated with environmental remediation obligations are accrued when such losses are deemed probable and reasonably estimable. Such accruals generally are recognized no later than the completion of the remedial feasibility study and are adjusted as further information develops or circumstances change. Significant judgment is required in developing assumptions and estimating costs to be incurred for environmental remediation activities due to, among other factors, the complexity of environmental regulations and remediation technologies. Metallurg enters into agreements (e.g., administrative orders, consent decrees) that generally cover many years. Management must assess the type of technology to be used to accomplish the remediation as well as the continually evolving regulatory environment in evaluating costs associated with these sites. These factors are considered in management's estimates of the timing and amount of any future costs that may be necessary for remedial actions. Given the level of judgments and estimation as described above, it is likely that materially different amounts could be recorded if different assumptions were used or if underlying circumstances were to change (e.g., a significant change in environmental standards). 22 Long-Lived Asset Impairment The Company's recent history includes years with unprofitable results and negative cash flows. This history of losses is an indication that the carrying amounts of the Company's long-lived assets might not be recoverable from future cash flows. The Company periodically evaluates its long-lived assets by comparing estimated future undiscounted cash flows using the particular cash flow assumptions that are considered most likely to occur. Significant judgment is required to estimate future cash flows, including the impact of future prices, production and shipment levels, cost reduction initiatives, prices of inputs like raw materials and energy and future capital requirements. Management uses its best judgment to assess these factors. In 2003, the Company concluded that certain assets in LSM were impaired as the net carrying value of applicable net assets exceeded the related undiscounted cash flows. See "Note 5. Restructuring and Asset Impairment Charges" to the Company's Consolidated Financial Statements. Pensions Metallurg maintains defined benefit plans for its employees in the U.S. and the U.K. Several statistical and other factors that attempt to anticipate future events are used in calculating the expense and liability related to the plans. These factors include assumptions about the discount rate, expected return on plan assets and rate of future compensation increases as determined by Metallurg, within certain guidelines. In addition, Metallurg's actuarial consultants also use subjective factors such as employee turnover and mortality rates to estimate these factors. U.S. Plans - The rate used to discount future estimated liabilities is determined considering the rates available at year-end on long-term, high quality corporate bonds that could be used to settle the obligations of the plan. A change in the discount rate of 1/4 of 1% would change the 2004 pension liability by approximately $0.7 million and change the 2005 net periodic pension expense by approximately $0.1 million. The long-term rate of return is estimated by considering historical returns and expected returns on current and projected asset allocations. A change in the assumption for the long-term rate of return on plan assets of 1/4 of 1% would not materially impact net periodic pension expense in 2005. Non-U.S. Plans - The rate used to discount future estimated liabilities is determined considering the rates available at year-end on long-term, high quality corporate bonds that could be used to settle the obligations of the plan. A change in the discount rate of 1/4 of 1% would change the 2004 pension liability by approximately $5.7 million and change the 2005 net periodic pension expense by approximately $0.6 million. The long-term rate of return is estimated by considering historical returns and expected returns on current and projected asset allocations. A change in the assumption for the long-term rate of return on plan assets of 1/4 of 1% would change the 2005 net periodic pension expense by approximately $0.2 million. The combination of negative actual investment returns and declining interest rates in 2002 had a negative impact on Metallurg's pension plan liabilities and the fair value of plan assets. Where the accumulated benefit obligation exceeded the fair value of plan assets, Metallurg was required to record an adjustment to the pension liability, called a "minimum pension liability adjustment", with a charge to Accumulated Other Comprehensive Loss in Shareholder's Equity. In 2002, Metallurg recorded a net charge of $18.9 million to shareholder's equity. In both 2003 and 2004, stronger than expected asset returns more than offset higher accumulated benefit obligations resulting from declines in the discount rate. Accordingly, Metallurg credited shareholder's equity by $5.9 million and $2.1 million in 2003 and 2004, respectively, for the decline in the minimum pension liability, net of deferred tax in both years. The changes in the minimum pension liability have no current impact on Metallurg's net income, liquidity or cash flows. Based upon the current underfunded status of the plans and the actuarial assumptions being used for 2004, Metallurg expects to make cash contributions in 2005 to the pension plans of approximately $0.3 million and $6.3 million in the U.S. and the U.K., respectively. We expect to make these cash contributions out of operating cash flow. Recent Accounting Pronouncements In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment." This statement revises SFAS No. 123, "Accounting for Stock-Based Compensation", and requires companies to expense the value of employee stock options and similar awards. Metallurg is required to adopt this standard for awards granted beginning January 1, 2006. 23 Effects of Inflation Inflation has not had a significant effect on Metallurg's operations. However, there can be no assurance that inflation will not have a material effect on Metallurg's operations in the future. Metallurg is subject to price fluctuations in its raw materials and products. These fluctuations have affected and will continue to affect Metallurg's results of operations. See "Results of Operations." Item 7A. Quantitative and Qualitative Disclosures about Market Risk Metallurg is exposed to fluctuations in foreign currency exchange rates, interest rates and certain commodity prices. Derivative instruments used to manage these exposures involve little complexity and are not used for speculative purposes. The counterparties of these instruments are diversified financial institutions. Metallurg monitors the concentration risk to limit its counterparty exposure. Foreign Currency Exposures - Metallurg actively manages foreign currency exposures that are associated with foreign currency purchases and sales and other assets and liabilities created in the normal course of business at the operating unit level. Metallurg uses forward contracts to mitigate exposures that cannot be naturally offset within an operating unit. See "Note 10. Financial Instruments" to the Company's Consolidated Financial Statements. Interest Rate Exposures - Metallurg has exposure to interest rate risk from its short-term and certain long-term debt. While the rates on Metallurg's long-term debt are generally fixed, LSM has outstanding balances on its term loans of 'L'11.2 million ($21.4 million) at variable rates. See "Note 9. Borrowings" to the Company's Consolidated Financial Statements. Commodity Price Exposures - Metallurg is exposed to volatility in the prices of raw materials used in some of its products and uses forward contracts to manage some of those exposures. Where Metallurg does not take physical delivery of the raw material under the forward contract, gains and losses on these derivatives are recognized currently in earnings. 24 Item 8. Financial Statements and Supplementary Data. The following audited consolidated financial statements of Metallurg Holdings, Inc. and its consolidated subsidiaries are presented herein pursuant to the requirements of Item 8 on the pages indicated below:

25 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors of Metallurg Holdings, Inc. In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Metallurg Holdings, Inc. and its subsidiaries ("Company") at December 31, 2004 and December 31, 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. In addition, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits of these statements and financial statement schedule in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As more fully described in Note 1 to the consolidated financial statements, Metallurg Holdings, Inc. ("Metallurg Holdings") does not have sufficient cash on hand to make the interest payments due on its senior discount notes. Metallurg Holdings has received a letter of support from its majority owner assuring support to Metallurg Holdings in meeting its cash flow needs through at least May 31, 2006. As more fully described in Note 1A to the consolidated financial statements, the Company has restated its consolidated statement of operations for the year ended December 31, 2002. PricewaterhouseCoopers LLP New York, New York March 8, 2005, except for the Note 1A for which the date is June 9, 2005. 26 METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES STATEMENTS OF CONSOLIDATED OPERATIONS AND COMPREHENSIVE LOSS (In thousands)

See notes to consolidated financial statements. 27 METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data)

See notes to consolidated financial statements. 28 METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS (In thousands)

See notes to consolidated financial statements. 29 METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Business and Summary of Significant Accounting Policies Metallurg Holdings, Inc. ("Metallurg Holdings") and its consolidated subsidiaries, (collectively, the "Company") is wholly-owned by a group of investors led by and including Safeguard International Fund, L.P. ("Safeguard International"), an international private equity fund that invests primarily in equity securities of companies in process industries. On July 13, 1998, Metallurg Acquisition Corp., a wholly-owned subsidiary of Metallurg Holdings, merged with and into Metallurg, Inc., with Metallurg, Inc. being the surviving company and Metallurg Holdings becoming the sole parent of Metallurg, Inc. Metallurg, Inc. and its majority-owned subsidiaries (collectively, "Metallurg") manufactures and sells high-quality specialty metals, alloys and metallic chemicals which are essential to the production of high-performance aluminum and titanium alloys, superalloys, steel and certain non-metallic materials for various applications in the aerospace, power supply, automotive, petrochemical processing and telecommunications industries. Metallurg sells over 50 different product groups to over 1,500 customers worldwide (primarily in North America and Europe). Basis of Presentation and Consolidation - The consolidated financial statements include the accounts of Metallurg Holdings, Metallurg, Inc. and its majority-owned subsidiaries. Investments in companies where the Company has greater than 50% ownership interests are fully consolidated, with the equity owned by the respective partners shown as minority interest on the balance sheet and their portion of net income or loss shown separately in the statement of operations. All material intercompany transactions and balances have been eliminated in consolidation. On March 8, 2004, Metallurg completed the sale of its South African sales office to a group of investors, including local management. Accordingly, the operating results for this entity have been reported as discontinued operations for all periods presented. See "Note 2. Discontinued Operations". Metallurg Holdings currently does not have sufficient cash on hand to make the interest payments due on its 12 3/4% Senior Discount Notes due 2008 (the "Senior Discount Notes"). As all of Metallurg, Inc.'s outstanding common stock has been pledged as collateral for Metallurg Holdings' obligations under the Senior Discount Notes, if Metallurg Holdings were unable to make interest payments when due, it could lead to a foreclosure on its assets, principally the equity of Metallurg, Inc. Such foreclosure would create a default in accordance with the indenture terms of Metallurg, Inc.'s 11% Senior Notes due 2007 (the "Senior Notes") and result in an acceleration of $100 million of Senior Note indebtedness. In order for Metallurg Holdings to meet the January 15, 2005 interest payment on the Senior Discount Notes, Metallurg, Inc. loaned Metallurg Holdings approximately $0.7 million to make the interest payment to non-related parties. Metallurg Holdings' next interest payment to non-related parties is due July 15, 2005 in the amount of $1.5 million. In March 2005, Metallurg Holdings received a letter of support from its majority owner, Safeguard International, assuring support to Metallurg Holdings in meeting its cash flow needs through at least May 31, 2006. Accounting Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. 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. They may also affect the reported amount of revenues and expenses during the reporting period. Significant estimates include, but are not limited to, allowances for doubtful accounts, inventories, environmental remediation costs, restructuring and asset impairment charges, deferred income tax asset valuation allowances, pension plan obligations and contingent liabilities. Actual results could differ from those estimates. Foreign Currency Translation - For foreign operations with functional currencies other than the U.S. dollar, asset and liability accounts are translated at current exchange rates; income and expenses are translated using weighted-average exchange rates. Resulting translation adjustments are reported in a separate component of shareholders' deficit. Translation adjustments for operations in highly inflationary economies and exchange gains and losses on transactions are included in earnings, and amounted to (losses) gains of $(287,000), $22,000 and $(1,106,000) for the years ended December 31, 2004, 2003 and 2002, respectively. Cash and Cash Equivalents - The Company presents all highly liquid instruments, maturing within 30 days or less when purchased, as cash equivalents. 30 METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 1. Business and Summary of Significant Accounting Policies - (Continued) Accounts receivable and allowance for doubtful accounts - Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company provides an allowance for doubtful accounts for known and estimated potential losses arising from sales to customers based on a periodic review of these accounts. Account balances are charged off against the allowance when it is probable the receivable will not be recovered. Inventories - Inventories are stated at the lower of cost or market, cost being determined using principally the average cost and specific identification methods. The Company estimates the net realizable value of its inventories at least quarterly and adjusts the carrying amount of these inventories as necessary. Investments in Affiliates - Investments in affiliates in which the Company has a 20% to 50% ownership interest and exercises significant management influence are accounted for in accordance with the equity method. Where management does not exercise significant influence and where the Company has less than a 20% interest, the investment is carried at cost. Property and Depreciation - Depreciation is computed using principally the straight-line method over the estimated useful lives of the assets. Major renewals and improvements are capitalized, while maintenance and repairs are expensed when incurred. Upon sale or retirement, the costs and related accumulated depreciation are eliminated from the respective accounts and any resulting gain or loss is included in income. Recoverability of Long-Lived Assets - The Company annually, or sooner if circumstances warrant, evaluates the carrying value of long-lived assets to be held and used, including goodwill and other intangible assets, when events and circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flows from such asset are separately identifiable and are less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair market values are reduced for the cost to dispose. Discontinued Operations - At the time that management formally commits to a plan to divest of a business, such business is classified as discontinued operations. The balance sheet amounts and income statement results are reclassified from their historical presentation to assets and liabilities of discontinued operations on the Consolidated Balance Sheet and to discontinued operations in the Statement of Consolidated Operations for all periods presented. Revenue Recognition - Revenue is recognized when the earnings process is complete and the risks and rewards of ownership have transferred to the customer. In certain instances, the Company arranges sales for which the supplier invoices the customer directly. In such cases, the Company receives commission income, in its role as agent, which is recognized when the supplier passes title to the customer. The Company assumes no significant credit or other risk with such transactions. 31 METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 1. Business and Summary of Significant Accounting Policies - (Continued) Environmental Remediation Costs and Recoveries - Losses associated with environmental remediation obligations are accrued when such losses are deemed probable and reasonably estimable. Such accruals generally are recognized no later than the completion of the remedial feasibility study and are adjusted as further information develops or circumstances change. Costs of future expenditures for environmental remediation obligations are not discounted to their present value. Environmental expense recoveries are generally recognized in income upon final settlement with the Company's insurance carriers. Income Taxes - Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities. The Company does not provide for U.S. federal income taxes on the accumulated earnings considered permanently reinvested in certain of its foreign subsidiaries, which approximated $21.8 million at December 31, 2004. These earnings have been invested in facilities and other assets of the Company and have been subject to substantial foreign income taxes, which may or could offset a major portion of any tax liability resulting from their remittance and inclusion in U.S. taxable income. Accordingly, the Company does not provide for U.S. income taxes on foreign currency translation adjustments related to these foreign subsidiaries. Retirement Plans - Metallurg maintains defined benefit plans for its employees in the U.S. and the U.K. Several statistical and other factors, including assumptions about the discount rate, expected return on plan assets, rate of future compensation increases, employee turnover and mortality rates, are used in calculating the expense and liability related to the plans. The rate to discount future estimated liabilities is determined considering the rates available at year-end on long-term, high quality corporate bonds that could be used to settle the obligations of the plans. The long-term rate of return is estimated considering historical returns and expected returns on current and projected asset allocations. A liability is recognized on the balance sheet for each pension plan where the fair value of the assets of that pension plan is less than the accumulated benefit obligation. This liability is called a "minimum pension liability" and is recorded by a charge to Accumulated Other Comprehensive Loss in Shareholders' Deficit. Stock-Based Compensation - Metallurg has a stock-based compensation plan, which is described in "Note 12. Shareholders' (Deficit) Equity". Metallurg accounts for this plan using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations. Accordingly, no compensation cost is reflected in net income as all options granted under this plan had an exercise price at least equal to the estimated market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income if Metallurg had applied the fair value measurement and recognition methods prescribed by Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation", to record expense for stock option compensation (in thousands):

32 METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 1. Business and Summary of Significant Accounting Policies - (Continued) Derivative Instruments and Hedging Activities - Metallurg uses derivative instruments, primarily forward contracts, to manage certain foreign currency, interest rate and commodity price exposures. Derivative instruments are viewed as risk management tools by Metallurg and are not used for trading or speculative purposes. Derivative instruments are recorded on the balance sheet at fair value. Changes in derivatives used to hedge foreign-currency-denominated balance sheet items are reported directly in earnings along with offsetting gains and losses on the items being hedged. Derivatives used to hedge forecasted cash flows associated with foreign currency commitments or forecasted commodity purchases are accounted for as cash flow hedges. Gains and losses on derivatives designated as cash flow hedges are recorded in other comprehensive income and reclassified to earnings in a manner that matches the timing of the earnings impact of the hedged transactions. The ineffective portion of all hedges, if any, and gains and losses on foreign currency transactions not designated as hedges are recognized currently in income. Recent Accounting Pronouncement - In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment." This statement revises SFAS No. 123, "Accounting for Stock-Based Compensation", and requires companies to expense the value of employee stock options and similar awards. Metallurg is required to adopt this standard for awards granted beginning January 1, 2006. Earnings Per Share - Earnings per share is not presented since Metallurg Holdings is wholly-owned by a group of private investors led by and including Safeguard International. Reclassifications - Certain prior year amounts have been reclassified to conform to the current year presentation. 1A. Restatement of December 31, 2002 Consolidated Statement of Operations As more fully described in Note 3 to the consolidated financial statements, in 2002 the Company recognized a gain on the extinguishment of debt (such gain was not taxable). Following the adoption of Statement of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections" ("SFAS No. 145") in 2003, such gain, which the Company had previously recorded as an extraordinary item, should have been reclassified as a component of loss before income tax provision, minority interest and discontinued operations. The Company has restated its previously issued consolidated statement of operations for the year ended December 31, 2002 to report such gain in accordance with the provisions of SFAS No. 145. 2. Discontinued Operations On March 8, 2004, Metallurg completed the sale of its South African sales office to a group of investors, including local management, for a total purchase price of $9,100,000 and recorded a loss of $1,162,000. In connection with the sale, Metallurg accepted a note receivable for $1,370,000 from the buyers, to be repaid in three equal installments plus interest at LIBOR plus 1% over two years. The consolidated financial statements have been restated to reflect the discontinued operation for all periods presented. The following table summarizes certain financial information related to these discontinued operations prior to the sale (in thousands):

33 METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 3. Extinguishment of Debt Effective December 31, 2002, the Company sold all of its ownership interests in manufacturing facilities in Nuremberg, Germany, as well as several sales offices in Europe. In conjunction with the sale, the Company received $4,600,000 in face amount of Metallurg Holdings' Senior Discount Notes from the purchaser. The acquired Senior Discount Notes had a book value on that date of $4,302,000. On a consolidated basis the Company wrote off $74,000 of related deferred issuance costs and recognized a gain on the extinguishment of debt of $2,227,000 (such gain was not taxable). 4. Segments and Related Information Metallurg operates in one significant industry segment, the manufacture and sale of performance-enhancing additives mainly for the metallurgical industry. Metallurg is organized into three reportable segments centered around its major production facilities in the U.K., the U.S. and Brazil. In addition to its own products, Metallurg distributes complementary products manufactured by third parties. The results of Metallurg Holdings consist primarily of interest expense related to the Senior Discount Notes, general overhead expenses, goodwill impairment and income tax expense. The results of Metallurg Holdings are included in "Other" below. Reportable Segments London & Scandinavian Metallurgical Co Limited and its subsidiaries (collectively, "LSM") - This unit consists mainly of three production facilities in the U.K. that manufacture and sell aluminum alloy grain refiners and alloying tablets for the aluminum industry, chromium metal and ferrotitanium and other specialty ferroalloys for the steel and superalloy industries and aluminum powder for various metal powder-consuming industries. As a result of continuing weakness in operating performance, LSM commenced a restructuring program in the second half of 2003. As described in Note 5, LSM discontinued its metal catalyst business in the fourth quarter of 2003 and closed its Norwegian production facility in August 2004. Shieldalloy Metallurgical Corporation ("SMC") - This unit consists of two production facilities in the U.S. The Ohio plant manufactures and sells ferrovanadium and vanadium-based chemicals used mostly in the steel and petrochemical industries. The New Jersey plant manufactures and sells alloying tablets for the aluminum industry and metal powders for the welding industry. Companhia Industrial Fluminense ("CIF") - This unit consists mainly of two production facilities in Brazil. The Sao Joao del Rei plant manufactures and sells aluminum alloy grain refiners and alloying tablets for the aluminum industry and metal oxides used in the telecommunications, superalloy and specialty metal industries. The Nazareno mine extracts and concentrates ores containing tantalum and niobium that are processed, along with other raw materials, into metal oxides at the Sao Joao del Rei plant. In addition to their manufacturing operations, LSM and SMC import and distribute complementary products manufactured by affiliates and third parties. Summarized financial information concerning Metallurg's reportable segments is shown in the following table (in thousands). Each segment records direct expenses related to its employees and operations. The "Other" column includes corporate-related items and results of subsidiaries not meeting the quantitative thresholds as prescribed by applicable accounting rules for determining reportable segments. Metallurg does not allocate general corporate overhead expenses to operating segments. The accounting policies of the segments are the same as those described in "Note 1. Business and Summary of Significant Accounting Policies". Transactions among segments are established based on negotiation among the parties. 34 METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 4. Segments and Related Information - (Continued)

35 METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 4. Segments and Related Information - (Continued) The Company sells its products in over 50 countries. The following table presents revenue by country based on the location of the user of the product (in thousands):

The following table presents property, plant and equipment by country based on the location of the assets (in thousands):

5. Restructuring and Asset Impairment Charges Details of Metallurg's restructuring and asset impairment charges are as follows (in thousands):

36 METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 5. Restructuring and Asset Impairment Charges - (Continued) 2004 - LSM completed its restructuring, which began in 2003, and recorded a restructuring charge of $746,000 consisting of (i) severance costs of $316,000 for 15 employees in the U.K. and (ii) severance costs of $430,000 for 28 employees after the closure of its aluminum production facility in Norway. Of this amount, $113,000 is still unpaid as of December 31, 2004. 2003 - Metallurg Holdings completed an evaluation as of December 31, 2003 and concluded that as a result of continuing operating losses at all of the production facilities, it would be unable to recover the carrying value of its goodwill and recorded an impairment of the goodwill of $32,486,000. In a continuing effort to improve Metallurg's competitive position and to reduce costs, Metallurg continued restructuring its operations at its worldwide locations. LSM recorded $3,652,000 of severance costs for 62 employees and asset impairment charges of $6,706,000 relating to its metal catalyst business and its aluminum production facilities in Norway. Metallurg's Canadian subsidiary recognized a restructuring charge of $417,000 for severance costs of seven employees as its sales and administrative functions were consolidated into the New Jersey operations of SMC. In addition, Metallurg transferred certain sales and administrative functions for tantalum and niobium products from its headquarters location to its production facilities in Brazil and recorded severance costs of $120,000 for two employees. All restructuring charges incurred during 2003 have been paid as of December 31, 2004 with the exception of a $10,000 over-accrual that was reversed in 2004. 2002 - During 2002, Metallurg carried out a restructuring program intended to reduce the cost structure at LSM, SMC and corporate headquarters. LSM recorded a restructuring charge of $1,068,000 for severance costs of 29 employees who were terminated and paid during the year. SMC recorded a restructuring charge of $453,000, of which $350,000 was for severance costs of 26 employees terminated during the year. SMC also recorded a charge of $103,000 for the write-down of property and equipment no longer used in operations. Metallurg, Inc. recorded a restructuring charge of $1,989,000 for severance costs of nine employees terminated during the year at its headquarters location. Under the terms of certain executive employment and severance agreements, the severance was to be paid over a period of up to 18 months. All restructuring charges incurred during 2002 have been paid as of December 31, 2004. 6. Inventories Inventories consist of the following (in thousands):

37 METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 7. Property, Plant and Equipment The major classes of property, plant and equipment are as follows (in thousands):

Depreciation expense related to property, plant and equipment was $6,939,000, $7,627,000 and $6,920,000 for the years ended December 31, 2004, 2003 and 2002, respectively. 38 METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 8. Retirement Plans Metallurg Holdings does not have any retirement plans. Metallurg, Inc. and Domestic Subsidiaries Metallurg, Inc. and its domestic subsidiaries have tax qualified, noncontributory defined benefit pension plans covering substantially all salaried and certain hourly paid employees. The plans generally provide benefit payments using a formula based on an employee's compensation and length of service. These plans are funded in amounts equal to the minimum funding requirements of the Employee Retirement Income Security Act. Metallurg, Inc.'s best estimate of the expected contributions into these plans for 2005 is $325,000. Substantially all plan assets are invested in cash and short-term investments or listed stocks and bonds. Metallurg, Inc. also maintains tax qualified defined contribution plans covering substantially all of the salaried employees of Metallurg, Inc. and its domestic subsidiaries. All contributions, including a portion that represents a company match, are made in cash into mutual fund accounts in accordance with the participants' investment elections. Foreign Subsidiaries LSM's defined benefit pension plans cover all eligible employees in the U.K. Substantially all plan assets are invested in listed stocks and bonds. Benefits under these plans are based on years of service and the employee's compensation. Benefits are paid either from plan assets or, in certain instances, directly by LSM. LSM's best estimate of the expected contributions in 2005 is $6,289,000. Metallurg's other foreign subsidiaries have retirement plans that cover certain eligible employees. Net pension cost consisted of the following for the years ended December 31, 2004, 2003 and 2002, respectively (in thousands):

39 METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 8. Retirement Plans - (Continued) The following table summarizes the changes in benefit obligation and changes in plan assets for Metallurg's principle defined benefit plans (in thousands).

40 METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 8. Retirement Plans - (Continued) The following table summarizes the fair value of plan assets, by major category, and the actual and weighted average target allocation percentages of total plan assets as of December 31, 2004 and 2003, respectively (dollars in thousands):

Metallurg's investment strategy is to achieve long-term capital appreciation, while reducing risk through diversification in order to meet the obligations of the plans. The expected return on plan assets assumption, reviewed annually, reflects the average rate of earnings expected on the funds invested using weighted average historical returns of approximately 12% for equities and approximately 6% for debt. In 2005, the expected return on plan assets is 9.00% for the U.S. plans and approximately 7.79% for the non-U.S. plans. The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for pension benefit plans with accumulated benefit obligations in excess of plan assets as of December 31, 2004 and 2003 were as follows (in thousands):

The expected benefit payments during the next ten years are as follows (in thousands):

41 METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 9. Borrowings Long-term debt consists of the following (in thousands):

Senior Discount Notes In July 1998, Metallurg Holdings received approximately $62,900,000 net proceeds upon consummation of the offering of the Senior Discount Notes. On October 17, 2000, Metallurg, Inc. completed the purchase of $76,065,000 in face amount of the Senior Discount Notes of Metallurg Holdings, its parent company, for $19,714,000 in cash. On December 31, 2002, Metallurg, Inc. acquired an additional $4,600,000 in face amount of the Senior Discount Notes in conjunction with the sale of certain subsidiaries. See "Note 3. Extinguishment of Debt". The Senior Discount Notes accreted interest at a rate of 12 3/4%, to July 15, 2003. Commencing July 15, 2003, the Senior Discount Notes began to accrue cash interest at a rate of 12 3/4% per annum, payable semi-annually in arrears on January 15 and July 15 of each year. The Senior Discount Notes are redeemable at the option of Metallurg Holdings, in whole or in part, at any time on or after July 15, 2003. The Senior Discount Notes are senior, collateralized obligations of Metallurg Holdings and rank pari passu in right of payment with all existing and future unsubordinated indebtedness and senior in right of payment to all subordinated indebtedness of Metallurg Holdings. However, the Senior Discount Notes are effectively subordinated to all existing and future liabilities of Metallurg. On January 15, 2004, Metallurg, Inc. loaned Metallurg Holdings $1,494,000 to pay interest on the Senior Discount Notes held by non-related parties. In addition, a related party holding Senior Discount Notes agreed to purchase a total of $2,166,000 of new notes with the proceeds of the interest payment due to them. Interest accrued on these new notes and added to the principal balance was $194,000 at December 31, 2004. The Senior Discount Notes are collateralized by an assignment and pledge to a trustee of (i) all of the outstanding equity interests held by Metallurg Holdings in Metallurg, Inc. and (ii) all promissory notes issued from time to time to Metallurg Holdings by Metallurg, Inc. The indenture contains limitations on, among other things, the ability of Metallurg Holdings to incur indebtedness and enter into certain mergers, consolidations or asset sales. 42 METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 9. Borrowings - (Continued) Metallurg Holdings is a holding company, and its ability to meet its payment obligations on the Senior Discount Notes is dependent upon the receipt of dividends and other distributions from its direct and indirect subsidiaries. Metallurg Holdings does not have, and may not in the future have, any material tangible assets other than the common stock of Metallurg, Inc. Metallurg, Inc. and its subsidiaries are parties to various credit agreements, including Metallurg, Inc.'s Senior Note indenture and the Revolving Credit Facility, which impose substantial restrictions on Metallurg, Inc.'s ability to pay dividends to Metallurg Holdings. Senior Notes In November 1997, Metallurg, Inc. issued its Senior Notes. Interest is payable semi-annually. The Senior Notes are redeemable at the option of Metallurg, Inc., in whole or in part, and are fully and unconditionally guaranteed by the U.S. subsidiaries of Metallurg, Inc. on a senior unsecured basis. The Senior Note indenture contains limitations on, among other things, the ability of Metallurg to incur indebtedness and enter into certain mergers, consolidations or asset sales. In addition, under the terms of the indenture, Metallurg, Inc. is limited in its ability to make restricted payments, as defined and including, among other things, minority investments in subsidiaries and dividend payments, to a formula based on the cumulative net income since November 1, 1997 and certain specified allowances. As a result of this limitation, Metallurg, Inc. was permitted to make restricted payments in the amount of $858,000 as of December 31, 2004. In January 2005, Metallurg, Inc. loaned Metallurg Holdings, its parent company, $744,000 to pay interest on Metallurg Holdings' 12 3/4% Senior Discount Notes due 2008 (the "Senior Discount Notes") held by non-related parties. This restricted payment was necessary as Metallurg Holdings did not have sufficient cash on hand to make its required interest payments and reduced Metallurg, Inc.'s ability to make restricted payments to $114,000. MHR Debt On August 13, 2004, Metallurg Holdings and Metallurg, Inc. entered into a financing agreement maturing on August 31, 2007 with MHR Institutional Partners II LP, as agent ("MHR"). This financing agreement, described below, replaced the existing facility with Fleet National Bank that would have otherwise expired on October 29, 2004. The financing agreement also requires Metallurg to maintain a minimum borrowing base and achieve minimum Consolidated EBITDA, as defined. Facility A with Metallurg - This financing agreement, as amended, provided Metallurg, Inc. with a $15 million term loan for working capital and a $21 million letter of credit facility. It allows for $15 million of the letter of credit facility to be converted to a term loan with the proceeds being used by SMC to settle certain environmental remediation obligations at its Newfield facility. Transaction costs of $4.5 million were capitalized and are being amortized over the term of the agreement. Interest accrues on outstanding balances at a rate of 20% per annum of which one-half is paid in cash monthly in arrears and one-half is paid-in-kind by being added to the outstanding principal balances on a monthly basis. In addition, Metallurg pays MHR a monthly letter of credit commitment fee of 4% per annum on all outstanding letters of credit, a facility maintenance fee of $620,000 on December 31, 2004 and $310,000 on each June 30th and December 31st thereafter, and a monthly monitoring fee of $40,000 in 2004, $30,000 in 2005 and $20,000 thereafter. Mandatory quarterly repayments begin on October 1, 2005 in the amount of $1,000,000 and voluntary repayments may be made after July 31, 2005 along with prepayment penalties. The financing agreement is fully collateralized by all of the assets of Metallurg, Inc. and SMC (the "Borrowers"), fully guaranteed by Metallurg Holdings Corporation, Metallurg International Resources, LLC and Metallurg Services Inc. (the "MHR Guarantors") and partially guaranteed by Metallurg, Inc.'s major subsidiaries in the U.K. and Brazil. The total amount outstanding under this agreement is $15,466,000 in loans and $20,755,000 in letters of credit at December 31, 2004. 43 METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 9. Borrowings - (Continued) Facility B with Metallurg Holdings - The financing agreement also provided Metallurg Holdings with two term loans. The first term loan in the amount of $1,675,000 was made on the closing date and used to pay interest owed as of July 15, 2004 on the Senior Discount Notes. An additional amount of $787,500 was made on January 15, 2005 to pay a portion of the interest due on that date on the Senior Discount Notes. Transaction costs for Facility B of $75,000 were capitalized and are being amortized over the term of the agreement. An additional fee of $37,500 was made upon the funding of the second term loan and will be amortized over the remaining term of the agreement. Interest at a rate of 20% per annum on all outstanding balances is paid-in-kind by being added to the outstanding principal balances on a monthly basis. In addition, Metallurg Holdings will pay MHR a facility maintenance fee of $49,250 on December 31, 2004 and $24,625 on each June 30th and December 31st thereafter. This fee will be paid-in-kind by being added to the outstanding principal balance. Voluntary repayments may be made after July 31, 2005 along with prepayment penalties. Facility B is fully guaranteed by Metallurg, Inc. The total amount outstanding under Facility B is $1,859,000 at December 31, 2004. Related Parties Safeguard International, for its own account and the accounts of others, and SCP Private Equity Partners, L.P., another shareholder of Metallurg Holdings, provided an $8 million subordinated loan so that SMC could complete the purchase of vanadium-containing raw materials for its Cambridge, Ohio plant under a five-year supply contract. The loan, as amended, is collateralized by a second lien on all of the assets of the Borrowers and MHR Guarantors. Interest on the loan at 8% per annum is paid-in-kind and added to the principal balance. The total amount of this loan outstanding is $8,326,000 at December 31, 2004. Principal repayments of this loan are prohibited until all MHR debt has been repaid. On January 15, 2004 and August 13, 2004 a related party bought two notes from Metallurg Holdings with the proceeds of the interest payments due to them as a holder of Senior Discount Notes. These new notes are due in full on July 15, 2008 and bear interest at a rate of 12 3/4%. Interest is paid-in-kind and added to the principal balance. The total amount outstanding is $2,360,000 at December 31, 2004. Foreign Subsidiaries LSM Revolving Credit Facilities - LSM has revolving credit facilities with Barclays Bank plc ("Barclays") and HSBC Bank plc ("HSBC"). At December 31, 2004, these facilities provide LSM with up to 'L'5,500,000 ($10,552,000) of borrowings, 'L'40,300,000 ($77,316,000) of foreign exchange contracts and options and 'L'4,000,000 ($7,674,000) for other ancillary banking arrangements, including bank guarantees. Borrowings under these facilities are collateralized by the assets of LSM and are repayable on demand. Outstanding loans under these facilities bear interest at each bank's base rate plus 1.0% to 1.75%. At December 31, 2004, there were 'L'477,000 ($915,000) of borrowings outstanding under these facilities at an interest rate of 3.45% and included in short-term debt on the consolidated balance sheet. In January 2005, these revolving credit facilities were amended to denominate them in U.S. dollars on similar terms and conditions. LSM Term Loans - LSM also has two term loans with Barclays and HSBC. The loan with Barclays is for 'L'6,000,000 ($11,511,000) for a term of three years and bears interest at 3-month LIBOR plus 1.75%. Quarterly repayments are required in the amount of 'L'150,000 ($288,000). The outstanding balance for this loan was 'L'5,550,000 ($10,648,000) at an interest rate of 6.65% at December 31, 2004. The loan with HSBC is for 'L'6,000,000 ($11,511,000) for a term of five years and bears interest at 3-month LIBOR plus 1.65%. Quarterly repayments are required in the amount of 'L'195,000 ($374,000). The outstanding balance for this loan was 'L'5,610,000 ($10,763,000) at an interest rate of 6.40% at December 31, 2004. These term loan facilities are collateralized by the assets of LSM and require LSM to comply with various covenants, including the maintenance of minimum tangible net worth and interest coverage. In January 2005, these loans were amended to denominate them in U.S. dollars on similar terms and conditions. Other - CIF maintains short-term secured and unsecured borrowing arrangements with various banks totaling $11,689,000. Borrowings under these arrangements are included in short-term debt on the consolidated balance sheet and aggregated $7,145,000 at December 31, 2004 at a weighted-average interest rate of 8.4%. Interest expense totaled $22,159,000, $19,133,000 and $19,013,000 for the years ended December 31, 2004, 2003 and 2002, respectively. 44 METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 9. Borrowings - (Continued) The scheduled maturities of long-term debt during the next five years are as follows (in thousands):

10. Financial Instruments The carrying amounts and fair values of financial instruments are as follows (in thousands):

(a) Includes notional amounts of $3,853 and market values of $(557) at December 31, 2003 relating to discontinued operations. The carrying amount of cash and cash equivalents and short-term debt approximates fair value due to their liquidity and short-term maturities. All investments purchased with maturities of three months or less are considered cash equivalents. Fair values of investments in affiliates are not readily available. The fair value of Metallurg, Holdings' Senior Discount Notes and Metallurg, Inc.'s Senior Notes is based on quoted market prices. The Company's other long-term debt includes floating-rate debt, the carrying amount of which approximates fair value. The Company does not use financial instruments for trading or other speculative purposes. The Company does not hedge the net investment in its subsidiaries. 45 METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 10. Financial Instruments - (Continued) Metallurg enters into foreign exchange contracts in the regular course of business to manage exposure against fluctuations on sales and raw material purchase transactions denominated in currencies other than the functional currencies of its businesses. The contracts mature at the anticipated cash requirement date, generally within 12 months, and are predominantly denominated in U.S. Dollars and Euros. The counterparties to these contractual arrangements are a diverse group of major financial institutions with which Metallurg also has other financial relationships. Metallurg is exposed to credit risk generally limited to unrealized gains in such contracts in the event of non-performance by counterparties of those financial instruments, but it does not expect any counterparties to fail to meet their obligations given their high credit ratings. The notional values provide an indication of the extent of Metallurg's involvement in such instruments but do not represent its exposure to market risk, which is essentially limited to risk related to currency rate movements. The estimated fair value of foreign exchange contracts is based on estimated amounts at which they could be settled based on market exchange rates and include all foreign exchange contracts regardless of hedge designation. Metallurg is exposed to volatility in the prices of raw materials used in some of its products and uses forward contracts to manage some of these exposures. As the hedging documentation requirements are not currently being met, gains and losses on these derivatives are recognized currently in earnings. The estimated fair value of the forward contracts is based on estimated amounts at which they could be settled based on market prices and include all forward contracts regardless of hedge designation. 11. Income Taxes For financial reporting purposes, (loss) income before income tax provision (benefit), minority interest and discontinued operations includes the following components (in thousands):

The reconciliation of income tax from continuing operations computed at the U.S. federal statutory tax rate to the Company's effective tax rate is as follows (dollars in thousands):

46 METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 11. Income Taxes - (Continued) The income tax provision (benefit) represents the following (in thousands):

U.S. federal income tax refunds receivable of $243,000 at December 31, 2003 consisted of carryback claims related to environmental expenses and have been collected during 2004. These receivables were reflected in prepaid expenses in the accompanying Consolidated Balance Sheets. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows (in thousands):

At December 31, 2004, the Company has net operating loss carryforwards relating to domestic operations of $79,975,000 (of which $3,300,000 is subject to certain limitations relative to utilization), which expire through 2024, and alternative minimum tax credit carryforwards of $1,271,000, which can be carried forward indefinitely. Metallurg Holding's consolidated foreign subsidiaries have income tax loss carryforwards aggregating $2,410,000, a substantial portion of which relates to Brazilian operations, which do not expire. Due to significant uncertainties surrounding the realization of certain loss carryforwards, the related deferred tax assets have been substantially provided for in the valuation allowance at December 31, 2004. Net deferred tax assets that are not fully valued are mainly for LSM in the amount of $1,802,000 and for CIF in the amount of $1,539,000. 47 METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 11. Income Taxes - (Continued) The American Jobs Creation Act (the "AJCA"), which was signed into law on October 22, 2004, created a special one-time 85% tax deduction for certain repatriated foreign earnings that are reinvested in qualifying domestic activities, as defined in the AJCA. The Company may elect to apply this provision to qualifying earnings repatriations in the year ending December 31, 2005. The Company is in the process of evaluating the effects of the repatriation provision and expects to complete its evaluation after its assessment of clarifying guidance published by Congress or the Treasury Department. The maximum amount the Company is eligible to repatriate under the AJCA is approximately $44,700,000. The estimated tax provision that would be required on this amount would be approximately $2,400,000. If any amount is repatriated, it would likely be less than the maximum, with a proportional reduction in the estimated provision for income taxes. 12. Shareholders' (Deficit) Equity

48 METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 12. Shareholders' (Deficit) Equity - (Continued) Accumulated Other Comprehensive Loss The components of accumulated other comprehensive loss are as follows (in thousands):

Stock Compensation Plan - On November 20, 1998, 500,000 shares of common stock were made available for stock awards and stock options under the 1998 Equity Compensation Plan (the "ECP"). Options issued have a term of ten years and vest, in most cases, 20% on the date of grant and 20% on each of the first four anniversaries of the date of grant. The weighted-average remaining life of options outstanding at December 31, 2004 was 4.55 years. Stock option transactions under the ECP are summarized as follows:

49 METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 13. Environmental Liabilities Metallurg's manufacturing operations in Cambridge, Ohio; Newfield, New Jersey; and Sao Joao del Rei, Brazil are subject to environmental laws and regulations for which Metallurg has incurred environmental liabilities. These liabilities are primarily related to the investigation and remediation of contamination resulting from historic operations. Total environmental liabilities consist of the following (in thousands):

SMC and Cyprus Foote Mineral Company ("Cyprus Foote"), the former owner of the Cambridge site, entered into a consent order with the State of Ohio in December 1996. SMC and Cyprus Foote agreed in the consent order to conduct remediation and decommissioning activities at the Cambridge site. Additionally, SMC and Cyprus Foote agreed to enhance, restore and preserve certain wetlands in the vicinity of the Cambridge site. Pursuant to the consent order, SMC and Cyprus Foote are jointly and severally liable to the State of Ohio in respect of these obligations. However, SMC has agreed with Cyprus Foote that it shall perform and be liable for the performance of these remedial obligations. Therefore, SMC has accrued its best estimate of associated costs that it expects to substantially disburse over the next 4 years. With respect to the financial assurance obligations to the State of Ohio, Cyprus Foote has agreed to provide a substantial portion of the financial assurance required by the State of Ohio. SMC, in addition to agreeing to provide the balance thereof, has purchased an annuity contract which will provide for future payments into the trust fund to cover certain of the estimated operation and maintenance costs over approximately the next 100 years. Historic manufacturing processes at both Cambridge and Newfield have resulted in on-site slag piles containing naturally occurring radioactivity. At the Cambridge site, SMC plans to decommission and to cap the slag piles on-site. In August 2002, SMC filed a decommissioning plan for its Newfield facility with the U.S. Nuclear Regulatory Commission (the "NRC"). At the same time SMC requested an amendment to the authorized use of the Newfield facility, as permitted by the NRC, to "storage only pending decommissioning". Financial assurance for implementation and ongoing maintenance of such decommissioning plans is partially assured by cash funds held in trust, letters of credit and an annuity contract. SMC entered into administrative consent orders with the New Jersey Department of Environmental Protection under which SMC must conduct remediation activities at the Newfield facility. These obligations include the closure of wastewater lagoons, the decontamination of groundwater, soil remediation, surface water and sediment clean up, wetlands restoration and related operation and maintenance activities. SMC accrued its best estimate of the associated costs with respect to remedial activities at the site, which it expects to disburse over the next 15 years. At December 31, 2004, outstanding letters of credit issued as financial assurances in favor of various environmental agencies totaled $19,069,000. These letters of credit were issued under the MHR financing agreement. See "Note 9. Borrowings". 50 METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 13. Environmental Liabilities - (Continued) CIF has accrued environmental liabilities in the amounts of $38,000 and $121,000 at December 31, 2004 and 2003, respectively, to cover reclamation costs of closed mine sites. In 2002, SMC recognized environmental expense recoveries of $3,000,000 upon settlement with an insurance company relating to coverage for certain environmental claims stemming from the 1960's and forward. These claims relate mostly to the historical costs of remedial activities at SMC's Newfield, New Jersey site. 14. Contingent Liabilities In addition to environmental matters, which are discussed in Note 13, the Company defends, from time to time, various claims and legal actions arising in the normal course of business. Management believes, based on the advice of counsel, that the outcome of such matters will not have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows. There can be no assurance, however, that existing or future litigation will not result in an adverse judgment against the Company that could have a material adverse effect on the Company's future results of operations or cash flows. 15. Leases Metallurg leases office space, facilities and equipment. The leases generally provide that Metallurg pays the tax, insurance and maintenance expenses related to the leased assets. At December 31, 2004, future minimum lease payments required under non-cancelable operating leases having remaining lease terms in excess of one year are as follows (in thousands):

Rent expense under operating leases was $878,000, $1,197,000 and $1,162,000 for the years ended December 31, 2004, 2003 and 2002, respectively. 51 METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 16. Supplemental Guarantor Information In November 1997, Metallurg, Inc. issued $100 million principal amount of its 11% Senior Notes due 2007. Under the terms of the Senior Notes, SMC, Metallurg Holdings Corporation, Metallurg Services, Inc., Metallurg International Resources, LLC and MIR (China), Inc. (collectively, the "Senior Note Guarantors"), wholly-owned subsidiaries of Metallurg, Inc., have fully and unconditionally guaranteed on a joint and several basis Metallurg, Inc.'s obligations to pay principal, premium and interest relative to the Senior Notes. Management has determined that separate, full financial statements of the Senior Note Guarantors would not be material to potential investors and, accordingly, such financial statements are not provided. Supplemental financial information of the Guarantors is presented below. Metallurg, Inc. and its Consolidated Subsidiaries Condensed Consolidating Statement of Operations Year Ended December 31, 2004 (In thousands)

52 METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 16. Supplemental Guarantor Information - (Continued) Metallurg, Inc. and its Consolidated Subsidiaries Condensed Consolidating Balance Sheet at December 31, 2004 (In thousands)

53 METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 16. Supplemental Guarantor Information - (Continued) Metallurg, Inc. and its Consolidated Subsidiaries Condensed Consolidating Statement of Cash Flows Year Ended December 31, 2004 (In thousands)

54 METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 16. Supplemental Guarantor Information - (Continued) Metallurg, Inc. and its Consolidated Subsidiaries Condensed Consolidating Statement of Operations Year Ended December 31, 2003 (In thousands)

55 METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 16. Supplemental Guarantor Information - (Continued) Metallurg, Inc. and its Consolidated Subsidiaries Condensed Consolidating Balance Sheet at December 31, 2003 (In thousands)

56 METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 16. Supplemental Guarantor Information - (Continued) Metallurg, Inc. and its Consolidated Subsidiaries Condensed Consolidating Statement of Cash Flows Year Ended December 31, 2003 (In thousands)

57 METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 16. Supplemental Guarantor Information - (Continued) Metallurg, Inc. and its Consolidated Subsidiaries Condensed Consolidating Statement of Operations Year Ended December 31, 2002 (In thousands)

58 METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 16. Supplemental Guarantor Information - (Continued) Metallurg, Inc. and its Consolidated Subsidiaries Condensed Consolidating Statement of Cash Flows Year Ended December 31, 2002 (In thousands)

59 METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 17. Related Party Transactions Accounts receivable and payable balances between the Company and affiliates of Safeguard International are shown as related party balances on the Company's Consolidated Balance Sheets. A note receivable from the German subsidiary sold in 2002 is shown as a related party balance on the Company's Consolidated Balance Sheet. This note is subordinated and accrues interest at a rate of 10% per annum. Principal and interest payments are due from 2006 through 2010 and may be repaid prior to maturity under certain circumstances. The Company has notes payable to related parties as described in Note 9. Effective July 1, 2000, an Advisory Agreement between Safeguard International Management, L.L.C. ("Safeguard LLC") and Metallurg, Inc. was amended, whereby Metallurg, Inc. was to pay $15,000 per month to Safeguard LLC for certain advisory and other services. Under this Agreement, Metallurg paid $150,000 in 2002. Effective October 31, 2002, this advisory agreement was terminated and two members of Safeguard LLC, Dr. Heinz C. Schimmelbusch and Mr. Arthur R. Spector, were employed by Metallurg, Inc. on November 11, 2002 as Chief Executive Officer and Executive Vice Chairman, respectively. See "Item 10. Directors and Executive Officers of Metallurg, Inc.". Dr. Schimmelbusch and Mr. Spector are managing directors of Safeguard LLC, which is the management company for Safeguard International, the majority owner of Metallurg Holdings, and in these positions receive compensation from this entity. 60 METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES SELECTED QUARTERLY FINANCIAL DATA (Unaudited) (In thousands)

---------- (a) Includes restructuring charges of $97, $500, $129 and $10 in each of the quarters, respectively. (b) Includes restructuring and asset impairment charges of $2,659 and $40,722 in the third and fourth quarters, respectively. 61 METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (In thousands)

---------- (a) Foreign currency translation adjustments. 62 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Item 9a. Controls and Procedures Evaluation of Disclosure Controls and Procedures The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) designed to ensure that the information required to be reported in its Exchange Act filings is recorded, processed, summarized and reported within the time periods specified and pursuant to the regulations of the Securities and Exchange Commission, including controls and procedures designed to ensure that this information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. It should be noted that, because of inherent limitations, the Company's disclosure controls and procedures, however well designed and operated, can provide only reasonable assurance that the objectives of the disclosure controls and procedures are met. The Company's Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based upon their evaluation and the material weakness described below, the Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this report, the Company's disclosure controls and procedures as of December 31, 2004, were not effective at a reasonable assurance level. Effective December 31, 2002, the Company sold all of its ownership interests in manufacturing facilities in Nuremberg, Germany, as well as several sales offices in Europe. In conjunction with the sale, the Company received $4,600,000 in face amount of the Company's Senior Discount Notes from the purchaser. The acquired Senior Discount Notes had a book value on that date of $4,302,000. On a consolidated basis the Company wrote off $74,000 of related deferred issuance costs and recognized an extraordinary gain on the extinguishment of debt of $2,227,000. On June 8, 2005, the Board of Directors of the Company determined, upon the recommendation of management of the Company that, following the adoption of SFAS No. 145 in 2003, such gain on the extinguishment of debt which had been originally classified as an extraordinary item should have been reclassified as a component of loss before income tax provision, minority interest and discontinued operations. The Board of Directors therefore determined, upon the recommendation of the management of the Company, to revise the classification of the extinguishment of debt in the Company's consolidated statement of operations for the fiscal year ended December 31, 2002 pursuant to SFAS No. 145 and to amend its Annual Report on Form 10-K for the fiscal year ended December 31, 2004 to reflect such restatement and to include related disclosures. The restatement did not affect the Company's total revenue, operating loss, net loss, cash flows or shareholders' deficit for that period. The Company discussed its conclusion with its independent registered public accounting firm, PricewaterhouseCoopers LLP. The Company is not an "accelerated filer" within the SEC reporting rules and as a result, is not required to include in this Form 10-K/A management's assessment of the effectiveness of its internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended) pursuant to Section 404 of the Sarbanes-Oxley Act of 2002. The restatement of financial statements is a strong indicator of the existence of a "material weakness" in the design or operation of internal control over financial reporting. A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. As of December 31, 2004, the Company did not maintain effective controls over the application of generally accepted accounting principles relative to reporting gains and losses from extinguishment of debt. Specifically, the Company did not maintain effective controls over the review and analysis of a new accounting standard to ensure the proper classification, upon adoption of SFAS No. 145 in 2003, of the gain on the extinguishment of debt, which had been originally classified in 2002 as an extraordinary item, as a component of loss before income tax provision, minority interest and discontinued operations as required by generally accepted accounting principles. This control deficiency resulted in a restatement of the Company's consolidated statement of operations for 2002. Accordingly, management determined that, despite the fact that there is no effect on total revenue, operating loss, net loss, cash flows or shareholders' deficit for that period, this control deficiency constitutes a material weakness. Changes in Internal Control over Financial Reporting There was no change in the Company's internal control over financial reporting during this fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. Item 10. Directors and Executive Officers of Metallurg Holdings, Inc. The following table sets forth certain information with respect to the directors and executive officers of Metallurg Holdings:

Each director of Metallurg Holdings holds office until the next annual meeting of stockholders of Metallurg Holdings or until his or her successor has been elected and qualified. Officers of Metallurg Holdings are selected by the Board of Directors and serve at the discretion of the Board of Directors. Heinz C. Schimmelbusch - Dr. Heinz C. Schimmelbusch has been President, Chief Executive Officer and a Director of Metallurg Holdings, Inc. since July 1998. He was appointed Chief Executive Officer of Metallurg, Inc. in November 2002, and has been Chairman of the Board and a Director of Metallurg, Inc. since July 1998. He is a Managing Director of the general partner, and founder, of Safeguard International Fund, L.P., a private equity fund investing in North America and Europe; and Chairman and CEO of Allied Resource Corporation, a global technology and engineering group, both located in Wayne, Pennsylvania. He is also Chairman and CEO of Timminco Limited, Toronto, Canada. He serves as Chairman of the Board of Directors of the following companies: In the U.S. - Puralube, Inc. in Wayne, Pennsylvania; In Germany - ALD Vacuum Technologies AG in Hanau; Pfalz-Flugzengwerke AG in Speyer; and Sudamin Holdings S.A. in Brussels. He is also a Director of Millstream II Acquisition Corporation. He is a member of the Board of Directors of MMC Norilsk Nickel, Moscow, Russia. Dr. Schimmelbusch received his graduate degree (with distinction) and his doctorate (magna cum laude) from the University of Tubingen, Germany. 63 Arthur R. Spector - Mr. Spector has been Executive Vice President and a Director of Metallurg Holdings, Inc. since July 1998 and Treasurer since August 2000. He was elected Vice Chairman of the Board and as Executive Vice Chairman of Metallurg, Inc. in November 2002 and has been a Director since July 1998. He is a Managing Director of the general partner and of the management company of Safeguard International Fund, L.P. From January 1997 to March 1998, Mr. Spector served as Managing Director of TL Ventures LLC, a venture capital company. He is also President, Chief Executive Officer and a Director of Millstream II Acquisition Corporation. Mr. Spector has also served as Chairman of various public companies, including Casino & Credit Services, Inc., Abraham Lincoln Federal Savings Bank and State National Bank of Maryland. Mr. Spector serves as a Director of Docucorp International, a document automation company and NationsHealth, Inc., a healthcare services company. Mr. Spector holds a B.S. degree in economics from the Wharton School of the University of Pennsylvania and a J.D. from the University of Pennsylvania Law School. Samuel A. Plum - Mr. Plum was elected to serve as a Director of Metallurg, Inc. in November 1998 and as a Director of Metallurg Holdings in October 1998. He has been a Managing General Partner of the general partner of SCP Private Equity Partners, L.P. since its commencement in August 1996 and was an employee of Safeguard Scientifics, Inc. from 1993 to 1996. From February 1989 to January 1993, Mr. Plum served as President of Charterhouse, Inc. and Charterhouse North American Securities, Inc., the U.S. investment banking and broker-dealer divisions of Charterhouse PLC, a merchant bank located in the U.K. From 1973 to 1989, he served in various capacities, including Managing Director and partner, at the investment banking divisions of Paine Webber Inc. and Blyth Eastman Dillon & Co., Inc., respectively. Mr. Plum is also a Director of Mobility Technologies, Inc., PacWest Telecomm, Inc., Index Stock Photography, Inc., Pentech Financial Services, Inc. and the Philadelphia Zoological Society. Past directorships include Tishman Holdings Corporation, Icon CMT Corp., Vortex Sound Communications, Inc., Quaker Fabrics Corporation and the National Audubon Society, the latter two as Chairman. Mr. Plum holds a B.A. degree in history from Harvard University and an M.B.A. degree from the Harvard Graduate School of Business Administration. Item 11. Executive Compensation. None of the executive officers or directors of Metallurg Holdings received compensation from Metallurg Holdings during the year ended December 31, 2004. 64 Item 12. Security Ownership of Certain Beneficial Owners and Management. The following table sets forth, as of March 30, 2004, information with respect to each person (including any "group" as that term is used in Section 13(d) (3) of the Exchange Act of 1934, as amended) who is known to the Company to be the beneficial owner of more than 5% of any class of Metallurg Holdings' securities.

None of the directors, officers or management of Metallurg Holdings own any equity securities of Metallurg Holdings. Item 13. Certain Relationships and Related Transactions. See the discussion under "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Related Party Transactions" for details of certain related party transactions occurring in 2004. 65 Item 14. Principal Accounting Fees and Services. Audit Fees - Aggregate fees, including out-of-pocket expenses, for professional services rendered by PricewaterhouseCoopers LLP ("PwC") in connection with (i) the audit of Metallurg's consolidated financial statements as of and for the year ended December 31, 2004, including statutory audits of the financial statements of Metallurg's affiliates and (ii) the reviews of Metallurg's unaudited condensed consolidated interim financial statements as of September 30, 2004, June 30, 2004, and March 31, 2004 were $589,000. Aggregate fees for these services for the year ended December 31, 2003 were $580,000. Audit-Related Fees - Aggregate fees, including out-of-pocket expenses, for professional services rendered by PwC for audit-related services for the year ended December 31, 2004 were $154,000. There were no aggregate fees for these services for the year ended December 31, 2003. Tax Fees - Aggregate fees, including out-of-pocket expenses, for professional services rendered by PwC in connection with tax compliance and advice and preparation of employee expatriate tax returns for the year ended December 31, 2004 were $52,000. Aggregate fees for these services for the year ended December 31, 2003 were $59,000. All Other Fees - There were no fees for miscellaneous professional services in the years ended December 31, 2004 and 2003. Pre-Approval Policies - The Audit Committee's policy is to pre-approve all audit and permissible non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services and other services. Pre-approval is detailed as to the particular service or category of service and is subject to a specific budget. The Audit Committee requires the independent auditors and management to report on the actual fees charged for each category of service at Audit Committee meetings throughout the year. During the year, circumstances may arise when it may become necessary to engage the independent auditors for additional services not contemplated in the original pre-approval. In those instances, the Audit Committee requires specific pre-approval before engaging the independent auditors. All fiscal year 2004 audit and non-audit services provided by the independent auditors were pre-approved. 66 PART IV Item 15. Exhibits, Financial Statement Schedule and Reports on Form 8-K. (a) Documents filed as part of this report: (1) A list of the financial statements filed as part of this report appears on page 25. (2) The financial statement schedule required to be filed as part of this report appears on page 62. (3) The following exhibits are filed as part of this report:

69 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the undersigned registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized as of the 14th day of June 2005. METALLURG HOLDINGS, INC. By: /s/ Arthur R. Spector ------------------------------------ Arthur R. Spector Executive Vice President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the date indicated.

70 STATEMENT OF DIFFERENCES The British pound sterling sign shall be expressed as.................... 'L'

METALLURG HOLDINGS INC 10-K/A