<PAGE> 1
As filed with the Securities and Exchange Commission on December 26, 1996
Registration No. 333-________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
Form S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------------
Titanium Metals Corporation
(Exact name of registrant as specified in its charter)
DELAWARE 3339 13-5630895
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
TIMET Capital Trust I
(Exact name of registrant as specified in its charter)
DELAWARE 9999 84-6301426
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
1999 BROADWAY, SUITE 4300
DENVER, COLORADO 80202
TELEPHONE: (303) 296-5600
(Address, including zip code, and telephone number,
including area code, of Registrant's principal offices)
ROBERT E. MUSGRAVES, ESQ.
VICE PRESIDENT -- ADMINISTRATION AND GENERAL COUNSEL
1999 BROADWAY, SUITE 4300
DENVER, COLORADO 80202
TELEPHONE: (303) 296-5600
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
copy to:
JAMES L. PALENCHAR, Esq.
Bartlit Beck Herman Palenchar & Scott
511 Sixteenth Street, Suite 700
Denver, Colorado 80202
Telephone: (303) 592-3100
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [x]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [x]
<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================
Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Offering Price Per Aggregate Offering Registration Fee
Registered Share (1) Price(1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Convertible Preferred 4,025,000 $53.75(1)(2) $216,343,750(1)(2) $ 65,558.71(3)
Securities of TIMET
Capital Trust I
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Convertible Junior (4) --- --- ---
Subordinated Debentures
of Titanium Metals
Corporation
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Common Stock of 5,161,305(5) $32.125(1) $165,806,918(1) $ 50,263.39(3)
Titanium Metals
Corporation
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Convertible Preferred --- --- --- ---
Securities Guarantee
(6)
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Total --- --- --- $115,822.10(3)
====================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) of the Securities Act.
(2) Exclusive of accrued interest and distributions, if any.
(3) Registration Fee is calculated on the basis of 1/33 of 1% of the aggregate
proposed maximum offering price.
(4) $201,250,000 in aggregate principal amount of 6 5/8% Convertible Junior
Subordinated Debentures (the "Convertible Debentures") of Titanium Metals
Corporation (the "Company") were issued and sold to TIMET Capital Trust I (the
"Trust") in connection with the issuance by the Trust of 4,025,000 of its 6
5/8% Convertible Preferred Securities (the "Convertible Preferred
Securities"). The Convertible Debentures may be distributed, under certain
circumstances, to the holders of Convertible Preferred Securities for no
additional consideration.
(5) In addition to the 5,161,305 shares of Titanium Metals Corporation Common
Stock listed here, such shares as are issuable upon conversion of the
Convertible Preferred Securities registered hereunder. This Registration
Statement also includes such shares as may be issuable pursuant to
anti-dilution adjustments.
(6) No separate consideration will be received for the Convertible Preferred
Securities Guarantee.
_________________
The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
- 2 -
<PAGE> 3
SUBJECT TO COMPLETION DATED DECEMBER 26, 1996
PROSPECTUS
4,025,000 BUCSSM*
TIMET CAPITAL TRUST I
6 5/8% CONVERTIBLE PREFERRED SECURITIES
BENEFICIAL UNSECURED CONVERTIBLE SECURITIES (BUCS)SM*
(LIQUIDATION AMOUNT $50 PER CONVERTIBLE PREFERRED SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY, AND CONVERTIBLE INTO THE COMMON
STOCK OF, TITANIUM METALS CORPORATION
5,161,305 shares
Titanium Metals Corporation Common Stock
This Prospectus relates to (i) the 6 5/8% Convertible Preferred
Securities, Beneficial Unsecured Convertible Securities (BUCS) (the
"Convertible Preferred Securities"), liquidation preference $50 per Convertible
Preferred Security, which represent undivided beneficial ownership interests in
the assets of TIMET Capital Trust I, a statutory business trust formed under
the laws of the State of Delaware (the "Trust"), and the shares of the common
stock, par value $.01 per share ("Common Stock") of Titanium Metals
Corporation, a Delaware corporation ("TIMET" or the "Company"), issuable upon
conversion of the Convertible Preferred Securities, and (ii) 5,161,305 shares
of Common Stock offered hereby (the "Offered Common") by two selling
stockholders (see "Selling Stockholders"). The Convertible Preferred
Securities were issued and sold on November 26, 1996 in transactions exempt
from the registration requirements of the Securities Act of 1933, as amended
(the "Securities Act"), to persons reasonably believed by Salomon Brothers Inc,
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co.,
Incorporated (the "Initial Purchasers") of the Convertible Preferred Securities
to be (i) qualified institutional buyers as defined in Rule 144A under the
Securities Act, (ii) institutional "accredited investors" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act), (iii) outside the United
States to non-U.S. persons in offshore transactions in reliance on Regulation S
under the Securities Act and (iv) to (a) executive officers and directors of
the Company who are "accredited investors" as defined in Rule 501(a)(4) under
the Securities Act and (b) certain individuals having relationships with the
Company (or an executive officer or director thereof) who either (x) are
"accredited investors" as defined in Rule 501(a)(5) or (6) under the Securities
Act or (y) have such knowledge and experience in financial and business matters
that such individuals are capable of evaluating the merits and risks of any
prospective investment in the Convertible Preferred Securities.
The Company directly owns all the common securities issued by the
Trust (the "Trust Common Securities" and, together with the Convertible
Preferred Securities, the "Trust Securities"). The Trust exists for the sole
purpose of issuing the Trust Securities and using the proceeds thereof to
purchase from the Company its 6 5/8% Convertible Junior Subordinated Debentures
due 2026 (the "Convertible Debentures") having the terms described herein.
Upon a Declaration Event of Default (as defined herein), the holders of
Convertible Preferred Securities will have a preference over the holders of the
Trust Common Securities with respect to distributions and payments upon
redemption, liquidation and otherwise. (continued on
following page)
SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SECURITIES BEING
OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
*Salomon Inc has filed applications with the United States Patent and Trademark
Office for the registration of the Beneficial Unsecured Convertible Securities
(BUCS) and BUCS service marks.
The date of this Prospectus is December __, 1996.
<PAGE> 4
(Continued from previous page)
The Convertible Preferred Securities and the Common Stock issuable
upon conversion of the Convertible Preferred Securities (the "Offered
Securities") may be offered and sold from time to time by the holders named
herein or by their transferees, pledgees, donees or their successors
(collectively, the "Selling Holders") pursuant to this Prospectus, and the
Offered Common may be offered and sold from time to time by the Selling
Stockholders or by their transferees, pledgees, donees or their successors.
The Offered Securities may be sold by the Selling Holders from time to time
directly to purchasers or through agents, underwriters or dealers. The
Offered Common may be sold by the Selling Stockholders from time to time on the
Nasdaq National Market or directly to purchasers or through agents,
underwriters or dealers. See "Plan of Distribution." If required, the names
of any such agents or underwriters involved in the sale of the Offered
Securities or the Offered Common and the applicable agent's commission,
dealer's purchase price or underwriter's discount, if any, will be set forth in
an accompanying supplement to this Prospectus (the "Prospectus Supplement").
The Selling Holders will receive all of the net proceeds from the sale of the
Offered Securities and will pay all underwriting discounts and selling
commissions, if any, applicable to any such sale. The Selling Stockholders
will receive all of the net proceeds from the sale of the Offered Common and
will pay all underwriting discounts and selling commissions, if any, applicable
to any such sale. The Company is responsible for payment of all other expenses
incident to the offer and sale of the Offered Securities and the Offered Common
and will not receive any proceeds from such sale. The Selling Holders and any
broker-dealers, agents or underwriters which participate in the distribution of
the Offered Securities may be deemed to be "underwriters" within the meaning of
the Securities Act, and any commission received by them and any profit on the
resale of the Offered Securities purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act. The Selling
Stockholders and any broker-dealers, agents or underwriters which participate
in the distribution of the Offered Common may be deemed to be "underwriters"
within the meaning of the Securities Act, and any commission received by them
and any profit on the resale of the Offered Common purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.
See "Plan of Distribution" for a description of indemnification arrangements.
The Convertible Preferred Securities are convertible, at the option of
the holder thereof, at any time after 90 days following November 26, 1996 and
prior to redemption, into shares of common stock, par value $.01 per share (the
"Common Stock"), of the Company, at a conversion rate of 1.339 shares of Common
Stock for each Convertible Preferred Security (equivalent to approximately
$37.34 per share of Common Stock), subject to adjustment in certain
circumstances. The Common Stock is listed on the Nasdaq National Market under
the symbol "TIMT." On December 24, 1996, the last reported sale price of the
Common Stock on the Nasdaq National Market was $32.125.
Holders of Convertible Preferred Securities are entitled to receive
cumulative cash distributions at an annual rate of 6.625% of the liquidation
amount of $50 per Convertible Preferred Security, accruing from November 26,
1996 and payable quarterly in arrears on March 1, June 1, September 1 and
December 1 of each year, commencing March 1, 1997. See "Description of the
Convertible Preferred Securities--Distributions." The payment of distributions
out of moneys held by the Trust and payments on liquidation of the Trust or the
redemption of Convertible Preferred Securities, as set forth below, are
guaranteed by the Company (the "Guarantee") to the extent described under
"Description of the Guarantee." The Guarantee covers payments of distributions
and other payments on the Convertible Preferred Securities only if the Trust
holds assets that are available for distribution to holders of Convertible
Preferred Securities, and then only to the extent of such assets. The
Guarantee, when taken together with the Company's obligations under the
Convertible Debentures and the Indenture (as defined herein) and its obligations
under the Declaration (as defined herein), including its obligations to pay
costs, expenses, debts and liabilities of the Trust (other than with respect to
the Trust Securities), provide a full and unconditional guarantee of amounts due
on the Convertible Preferred Securities. See "Risk Factors--Rights Under the
Guarantee." The obligations of the Company under the Guarantee are subordinate
and junior in right of payment to all other liabilities of the Company and pari
passu with the most senior preferred stock, if any, issued from time to time by
the Company. The obligations of the Company under the Convertible Debentures
are subordinate and junior in right of payment to all present and future Senior
Indebtedness (as defined herein) of the Company (less than $1 million of which
was outstanding at December 20, 1996), and rank pari passu with the Company's
other general unsecured creditors. The obligations of the Company under the
Convertible Debentures and Guarantee are also effectively subordinated to all
existing and future indebtedness and other liabilities, including trade
payables, of the Company's subsidiaries. As of September 30, 1996, after giving
pro forma effect to the AJM Acquisition (as defined herein), the total
indebtedness and other liabilities of such subsidiaries aggregated approximately
$121 million. The
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<PAGE> 5
Convertible Debentures purchased by the Trust may be subsequently distributed
pro rata to holders of the Convertible Preferred Securities and Trust Common
Securities in connection with the dissolution of the Trust upon the occurrence
of certain events.
The distribution rate and the distribution payment dates and other
payment dates for the Convertible Preferred Securities correspond to the
interest rate and interest payment dates and other payment dates on the
Convertible Debentures, which are the sole assets of the Trust. As a result,
if principal or interest is not paid on the Convertible Debentures, no amounts
will be paid on the Convertible Preferred Securities. If the Company does not
make principal or interest payments on the Convertible Debentures, the Trust
will not have sufficient funds to make distributions on the Convertible
Preferred Securities, in which event the Guarantee will not apply to such
distributions until the Trust has sufficient funds available therefor.
The Company has the right to defer payments of interest on the
Convertible Debentures by extending the interest payment period on the
Convertible Debentures at any time for up to 20 consecutive quarters (an
"Extension Period") during which no interest shall be due and payable; provided
that no such Extension Period may extend beyond the maturity date of the
Convertible Debentures. If interest payments are so deferred, distributions on
the Convertible Preferred Securities will also be deferred. During such
Extension Period, distributions will continue to accumulate, compounded
quarterly at the distribution rate (to the extent permitted by applicable law).
Because TIMET has the right to defer payments of interest for one or more
periods of up to 20 consecutive quarters each, all of the stated interest
payments on the Convertible Debentures will be treated as "original issue
discount" ("OID"). Holders of the Convertible Preferred Securities must
include that OID (which OID continues to accrue during an Extension Period) in
income daily on an economic accrual basis before the receipt of cash
attributable to the interest, regardless of their method of tax accounting.
Moreover, if a holder of a Convertible Preferred Security converts such
security into Common Stock during an Extension Period, such holder will not be
entitled to receive, subject to certain exceptions, any accumulated and unpaid
distributions with respect to such security. There could be multiple Extension
Periods of varying lengths throughout the term of the Convertible Debentures.
See "Risk Factors--Option to Extend Interest Payment Period," "Description of
the Convertible Debentures--Option to Extend Interest Payment Period" and
"United States Federal Income Taxation--Original Issue Discount."
The Convertible Debentures are redeemable by the Company, in whole or
in part, from time to time, on or after December 1, 1999 at the redemption
prices specified herein or at any time in whole (but not in part) in certain
circumstances upon the occurrence of a Tax Event (as defined herein) at 100% of
the principal amount thereof together with accrued and unpaid interest. If the
Company redeems Convertible Debentures, the proceeds thereof will
simultaneously be applied to redeem Trust Securities having an aggregate
liquidation amount equal to the Convertible Debentures so redeemed at the
applicable redemption price specified herein, together with accumulated and
unpaid distributions to the date fixed for redemption. See "Description of the
Convertible Preferred Securities--Mandatory Redemption Upon Optional Redemption
or Maturity of Convertible Debentures." The Convertible Preferred Securities
will be redeemed upon maturity of the Convertible Debentures on December 1,
2026. In addition, upon the occurrence of a Special Event (as defined herein),
unless the Convertible Debentures are redeemed in the limited circumstances
described herein, the Trust will be dissolved, with the result that the
Convertible Debentures will be distributed pro rata to the holders of the Trust
Securities in lieu of any cash distribution. See "Description of the
Convertible Preferred Securities--Special Event Redemption or Distribution." In
the case of the occurrence of a Special Event that is a Tax Event, the Company
will have the right in certain circumstances to redeem the Convertible
Debentures, which would result in the redemption by the Trust of Trust
Securities in the same amount on a pro rata basis. See "Description of the
Convertible Preferred Securities--Special Event Redemption or Distribution" and
"Description of the Convertible Debentures."
In the event of the involuntary or voluntary dissolution, winding up
or termination of the Trust, the holders of the Convertible Preferred
Securities will be entitled to receive for each Convertible Preferred Security
the liquidation amount of $50 plus accumulated and unpaid distributions thereon
(compounded quarterly at the distribution rate, if applicable) to the date of
payment, unless, in connection with such dissolution, winding up or termination
of the Trust, the Convertible Debentures are distributed to the holders of the
Trust Securities. See "Description of the Convertible Preferred Securities--
Liquidation Distribution Upon Dissolution."
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<PAGE> 6
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith files reports, proxy and information statements and other
information with the Commission. Such reports, proxy and information
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's
Regional Offices located at Seven World Trade Center, 13th Floor, New York, New
York 10048 and at Northwest Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials also can be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission also maintains a
World Wide Web site that contains reports, proxy and information statements and
other information that are filed through the Commission's Electronic Data
Gathering, Analysis and Retrieval System. This Web site may be accessed at
http://www.sec.gov.
The Company has agreed that, if at any time while the Offered
Securities are "restricted securities" within the meaning of the Securities Act
and the Company is not subject to the reporting requirements of the Exchange
Act, the Company will furnish to holders of the Offered Securities and to
prospective purchasers designated by such holders the information required to
be delivered pursuant to Rule 144A(d)(4) under the Securities Act to permit
compliance with Rule 144A in connection with resales of Offered Securities.
No separate financial statements of the Trust have been included
herein. TIMET does not consider that such financial statements would be
material to holders of the Convertible Preferred Securities because (i) all of
the voting securities of the Trust are owned, directly or indirectly, by
TIMET, a reporting company under the Exchange Act, (ii) the Trust has no
independent operations but exists for the sole purpose of issuing securities
representing undivided beneficial interests in the assets of the Trust and
investing the proceeds thereof in Convertible Debentures issued by TIMET and
(iii) the obligations of the Trust under the Trust Securities are fully and
unconditionally guaranteed by TIMET to the extent that the Trust has funds
available to meet such obligations. See "TIMET Capital Trust I" and
"Description of the Guarantee."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements under the captions "Summary," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business" are forward-looking statements or discussions of trends which by
their nature involve substantial risks and uncertainties that could
significantly impact expected results. Actual future results and trends may
differ materially from those described under such captions depending on a
variety of factors, including those detailed under the caption "Risk Factors,"
under the captions noted above and elsewhere in this Prospectus.
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<PAGE> 7
SUMMARY
The following summary is qualified in its entirety by and should be
read in conjunction with the more detailed information and the consolidated
financial statements and notes thereto appearing elsewhere in this Prospectus.
References to the "Company" or "TIMET" in this Prospectus, except where
otherwise indicated, (i) include the businesses acquired by the Company from
IMI plc (the "IMI Titanium Business") pursuant to an acquisition completed on
February 15, 1996 (the "IMI Titanium Acquisition"), (ii) exclude the effect of
the transactions consummated in connection with the acquisition of assets from
Axel Johnson Metals, Inc. ("AJM") completed on October 1, 1996 (the "AJM
Acquisition"), and (iii) include the 50% partnership interest in Titanium
Hearth Technologies ("THT") held by TIMET prior to the AJM Acquisition. See "-
- -1996 Acquisitions," and "Business--Introduction." References to the "Company"
or "TIMET" in this Prospectus for periods prior to and including December 31,
1995, except when otherwise indicated, exclude the IMI Titanium Business.
OVERVIEW
Titanium Metals Corporation ("TIMET" or the "Company") is one of the
world's leading integrated producers of titanium sponge and mill products and
has the largest sales volume worldwide. The Company strives to be the low-cost
producer in the industry and, due to its economies of scale, manufacturing
expertise and past investment in technology, believes that it is well
positioned to capitalize on the improving fundamentals in the titanium
industry.
TIMET's products include: titanium sponge, the basic form of titanium
metal used in processed titanium products; titanium ingot and slab, the result
of melting sponge and titanium scrap, either alone or with various other
alloying elements; and forged and cast products produced from ingot or slab,
including billet, bar, flat products (plate, sheet, and strip), tubular
products (welded and seamless tubing and pipe), extrusions and wire.
Titanium is one of the newest specialty metals, having first been
manufactured for commercial use in the 1950s. Titanium's unique combination of
corrosion resistance, elevated-temperature performance and high
strength-to-weight ratio makes it particularly desirable for use in commercial
and military aerospace applications in which these qualities are essential
design requirements. While aerospace applications have historically accounted
for a substantial portion of the worldwide demand for titanium (more than half
of the Company's sales in 1995 and thus far in 1996), the number of end-use
markets for titanium has expanded substantially. Today, numerous industrial
uses for titanium exist, including chemical manufacturing equipment, industrial
power plants, desalination plants and pollution control equipment. Customer
demand for titanium is also increasing in new and emerging uses such as medical
implants, golf club heads, other sporting equipment, offshore oil and gas
production installations, geothermal facilities, and automotive equipment.
The titanium industry is comprised of several manufacturers which,
like the Company, produce a relatively complete range of titanium products.
The Company believes that at least 90% of the world's titanium sponge is
produced by six companies. However, there are a significant number of
producers worldwide that manufacture a limited range of titanium mill products.
RECENT INDUSTRY RECOVERY
The titanium industry suffered a downturn in the early 1990s. In each
of the five years from 1991 through 1995, the Company had a net loss, with the
Company's largest net loss occurring in 1994. However, the titanium industry's
prospects have improved due to a resurgence in commercial aerospace demand,
continuing and stable industrial demand, and the emergence of new uses for
titanium, particularly golf club heads. The Company estimates based on
currently available data that total 1996 U.S. industry mill product shipments
will be approximately 61.5 million pounds, an increase of approximately 41%
compared to 1995. Further, the Company estimates that 1996 U.S. mill product
shipments to the commercial aerospace market will be approximately 25 million
pounds, an increase of 39% compared to 1995, and that 1996 U.S. mill product
shipments to the golf club market will be 8 to 10 million pounds, up from
virtually none in 1992.
Beginning in 1995, demand for titanium strengthened substantially
primarily due to increased demand from the commercial aerospace market.
Historically, orders by commercial airlines for new aircraft have tended to be
driven by the operating profits or
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<PAGE> 8
losses of the respective airlines. In 1995, due to improved fundamentals, the
domestic commercial airline industry reported operating profits of $6.2 billion
compared with $2.4 billion in 1994 and compared to cumulative losses in excess
of $5 billion in the four years prior to 1994. This trend has continued
through the first nine months of 1996. According to recent published reports,
most major carriers are upgrading their fleets. As of September 30, 1996, the
estimated firm order backlog for The Boeing Company, McDonnell Douglas
Corporation and Airbus Industrie, as reported by The Airline Monitor (an
aerospace industry publication), was 2,190 planes versus 1,708 planes on
September 30, 1995, an increase of 28%. The newer wide body planes, such as
the Boeing 777, 747-500, 747-600 and the Airbus A-330 and A-340, tend to use a
higher percentage of titanium in their frames, engines and parts (as measured
by total fly weight) than narrow body planes. "Fly weight" is the empty weight
of a finished aircraft with engines but without fuel or passengers. The Boeing
777, for example, utilizes titanium for approximately 9% of total fly weight,
compared to between 2% and 3% on the older 737, 747 and 767 models. As of
September 30, 1996, the estimated firm order backlog for wide body planes from
Boeing, McDonnell Douglas and Airbus, as reported by The Airline Monitor, was
765 (35% of total backlog) compared to 621 as of September 30, 1995, an
increase of 23%. The Airline Monitor's estimated firm order backlog for the
Boeing 777 was 244 as of September 30, 1996 compared to 170 as of September 30,
1995, an increase of 43%. Growth in firm order backlog for narrow body
aircraft has also been strong, having increased, as reported by The Airline
Monitor, 31% from 1,087 on September 30, 1995 to 1,425 on September 30, 1996.
The Company also expects titanium to become a preferred material used
in the manufacture of golf clubs. TIMET believes that the golf industry will
consume approximately 15% of U.S. titanium mill product shipments in 1996, up
from virtually none in 1992. Most major golf club manufacturers are currently
marketing titanium drivers and fairway woods and certain manufacturers are in
the process of marketing irons.
The Company's order backlog increased to approximately $400 million
(including approximately $130 million related to the IMI Titanium Business) at
September 30, 1996, from $213 million at December 31, 1995 (including $78
million related to the IMI Titanium Business). The Company estimates that of
its sales (excluding sponge) in 1996, approximately 60% will be to the
aerospace sector and approximately 8% will be to the golf club industry.
The Company believes the prospects for the titanium industry are
encouraging given the resurgence of the commercial aerospace industry and the
emergence of the golf club market. Furthermore, while the titanium industry
remains cyclical and continues to be affected by a number of economic and
political factors, the Company believes that current conditions affecting the
titanium industry are different in several important respects from those that
existed during the last industry downturn that began in 1991. Following the
breakup of the former Soviet Union in 1990, military aerospace spending was cut
back significantly. In addition, demand for titanium within the former Soviet
Union declined substantially, which resulted in a sharp increase in shipments
by titanium suppliers within the former Soviet Union to the rest of the world.
After the Persian Gulf War in 1990, commercial aerospace profitability suffered
a sharp decrease and demand for commercial aircraft declined commensurately.
This confluence of events caused a severe titanium product supply and demand
imbalance which the Company believes is in the process of being corrected,
although other economic and political factors or developments that the Company
cannot predict could adversely affect the titanium industry in the future.
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<PAGE> 9
BUSINESS CONSIDERATIONS
In its effort to maintain and expand its leading market and
competitive position, the Company intends to focus on the following strategic
objectives:
o Maximizing its participation in aerospace industry recovery.
The Company's experience in the aerospace industry, its
proprietary alloys developed for that market and its ability
to devote additional production capacity to meet aerospace
demand, position it to benefit from the recovery of this
market. The Company's mill products capacity utilization
through September 30, 1996 is approximately 85%.
o Benefiting from its investment in technology. Since 1991,
TIMET has invested over $132 million in capital expenditures
(excluding the 1996 acquisitions described below) aimed at
enhanced productivity and quality and expansion of production
capacity. In particular, TIMET has invested approximately
$100 million in a new, cost-effective Vacuum Distillation
Process ("VDP") facility at its principal manufacturing site
in Henderson, Nevada. The VDP technology produces
higher-purity titanium sponge using less power and at higher
throughput rates than the traditional Kroll-leach technology.
The IMI Titanium Acquisition, described below, affords an
opportunity for two leading industry participants to exchange
"best practices" technology and thereby to capitalize on the
manufacturing and process technology strengths of each
organization.
o Benefiting from vertical integration. TIMET is one of only
two companies in North America which are vertically integrated
in the production of sponge and mill products. TIMET is one
of the world's largest producers and purchasers of titanium
sponge. It is also a large producer and purchaser of titanium
scrap, another key material in the manufacture of titanium
mill products, which the Company consumes through its own
operations. This position was enhanced by the purchase in
October 1996 of the AJM scrap processing business. The
ability both to produce sponge and to purchase sponge or scrap
allows the Company considerable flexibility in optimizing its
mix of raw material purchases. The Company's 32 million
pounds of sponge capacity gives it valuable latitude in
responding to increases in demand for titanium products by
reducing the Company's dependence on purchasing sponge and
scrap in the open market.
o Proprietary technology. In October 1996, TIMET acquired the
50% interest in THT it did not already own. Utilizing its own
proprietary technology, THT operates four electron beam cold
hearth melting furnaces which provide the Company with the
ability to use a larger percentage of titanium scrap than
traditional melting techniques and to produce slab products
directly without intermediate forging steps, thereby reducing
manufacturing costs. Cold hearth melting produces
high-quality titanium and is required by certain aerospace
manufacturers for certain of their most demanding titanium
applications.
o Strategic alliances and developing new markets, applications
and products. Through various strategic alliances, the
Company has sought to gain access to unique process
technologies and markets for titanium. The Company has
explored and will continue to explore other strategic
arrangements in the areas of product production and
distribution. The Company also continues to work with
existing and potential customers to identify and develop new
or improved applications for titanium that take advantage of
its unique qualities. Historically, the Company has developed
many new and improved applications for titanium with or for
its customers. The Company believes that substantially all of
the proprietary titanium alloys of commercial significance
that have been engineered over the last 25 years have been
invented by TIMET or the IMI Titanium Business.
o Improving financial flexibility. Because the Company operates
in a cyclical industry, management is seeking to improve the
financial flexibility of the Company. A portion of the
Company's net proceeds from the initial sale of the
Convertible Preferred Securities were used to repay
indebtedness under the Company's U.S. credit facility,
substantially all of which may be reborrowed by the Company,
subject to the satisfaction of certain conditions. The
Company will not receive any proceeds of the sale of any
securities offered pursuant to this Prospectus.
- 7 -
<PAGE> 10
1996 ACQUISITIONS
In February 1996, the Company completed the IMI Titanium Acquisition
from IMI plc (which, together with its subsidiaries and affiliates is referred
to herein as "IMI"). The IMI Titanium Business was acquired for approximately
9.6 million shares of Common Stock and $20 million of the Company's
subordinated debt (since repaid) issued in exchange for a like amount of debt
previously owed to IMI by one of its titanium subsidiaries. In addition, the
Company's two principal stockholders, Tremont Corporation ("Tremont") and Union
Titanium Sponge Corporation ("UTSC"), received an option to acquire from IMI an
aggregate of approximately 2 million shares of Common Stock. See "Certain
Relationships and Related Transactions--Shareholders' Agreements."
The IMI Titanium Business is the largest titanium operation in Western
Europe, in addition to having two titanium castings operations located in the
United States. In 1995, the IMI Titanium Business had sales of $147 million
and a net loss of $33 million. The Company believes the IMI Titanium
Acquisition allows the Company to enjoy a strong competitive advantage in
several key areas and thus create additional value for its shareholders. The
Company believes the acquisition will allow for: (i) combined manufacturing
expertise, leading to lower costs and improved overall quality; (ii) the
integration of two world leaders in titanium research and technology, advancing
product and process development; (iii) augmented scale and geographic reach,
leading to efficiencies in marketing, distribution and purchasing; and (iv)
increased production flexibility through additional European manufacturing
facilities, allowing the Company to better service global demand. The Company
believes that, as a result of the IMI Titanium Acquisition and its enhanced
competitive position, it is well positioned to participate in the improving
fundamentals of the titanium industry.
In October 1996, the Company acquired substantially all of the assets
of AJM, including AJM's 50% partnership interest in THT and AJM's titanium
scrap business and additional electron beam cold hearth melting operations (the
"AJM Acquisition"). The purchase price for the AJM assets was $96 million in
cash, which was funded by borrowings under the Company's U.S. credit facility.
During 1995, THT had sales of $47.1 million and net income of $7.9 million.
The AJM Acquisition will enhance TIMET's capacity in titanium scrap utilization
and its leadership in high technology electron beam cold hearth melting. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation--Liquidity and Capital Resources."
Pro forma for the IMI Titanium and AJM Acquisitions, TIMET's 1995
sales and titanium products shipments (including sponge, ingot and slab) were
approximately $380.0 million and 40.6 million pounds, respectively. Pro forma
for the IMI Titanium and AJM Acquisitions, TIMET's melting capacity is
approximately 89 million pounds, and its mill products and castings capacity is
approximately 36 million pounds. Pro forma for the IMI Titanium and AJM
Acquisitions, TIMET's sales and net income were $407.1 million and $19.1
million, respectively, for the nine-month period ended September 29, 1996.
In addition, during the summer of 1996, the Company completed
strategic transactions with Compagnie Europeenne du Zirconium--CEZUS, S.A.
("CEZUS") in France and TISTO Titan und Sonderlegierungen GmbH ("TISTO") in
Germany, which will enhance TIMET's manufacturing and distribution capabilities
in Europe. See "Business--Strategic Alliances--CEZUS" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Overview."
THE COMPANY
The Company completed its initial public offering of Common Stock in
June 1996 (the "Stock Offering"). As a result of the Stock Offering, the
outstanding Common Stock is currently held 30.3% by Tremont, 10.0% by UTSC, a
consortium of Japanese companies, and 6.4% by IMI. In addition, Tremont and
UTSC hold options to acquire all of the outstanding Common Stock held by IMI,
shares which are equal to the number of Offered Common. See "Principal
Stockholders."
The Company is incorporated in Delaware and its principal offices are
located at 1999 Broadway, Suite 4300, Denver, Colorado 80202. Its telephone
number is (303) 296-5600.
- 8 -
<PAGE> 11
RISK FACTORS
See "Risk Factors" beginning on page 17 for a discussion of certain
factors that should be considered by prospective purchasers of the securities
being offered pursuant to this Prospectus.
THE OFFERING
OFFERED SECURITIES
The Issuer TIMET Capital Trust I (the "Trust"), a
Delaware statutory business trust. The
assets of the Trust consist solely of the
Convertible Debentures of the Company.
Securities Offered 4,025,000 6 5/8% Convertible Preferred
Securities, Beneficial Unsecured Convertible
Securities (BUCS) (the "Convertible Preferred
Securities").
Distributions Distributions on the Convertible Preferred
Securities accumulate from November 26, 1996
and are be payable at the annual rate of
6.625% of the liquidation amount of $50 per
Convertible Preferred Security. Subject to
the extension of distribution payment periods
described below, distributions will be
payable quarterly in arrears on each March 1,
June 1, September 1 and December 1,
commencing March 1, 1997. Because income
accruing with respect to the Convertible
Preferred Securities constitutes interest for
Federal income tax purposes, corporate
holders thereof will not be entitled to a
dividends-received deduction for any
distributions received on the Convertible
Preferred Securities.
Option to Extend
Distribution Payment
Periods The ability of the Trust to pay distributions
on the Convertible Preferred Securities is
solely dependent on its receipt of interest
payments from the Company on the Convertible
Debentures. The Company has the right to
defer interest payments at any time and from
time to time on the Convertible Debentures
for successive periods not exceeding 20
consecutive quarters (each, an "Extension
Period"), during which no interest shall be
due and payable; provided that no such
Extension Period may extend beyond the
maturity date of the Convertible Debentures.
As a consequence of any such extension,
quarterly distributions on the Convertible
Preferred Securities will not be made by the
Trust (but will continue to accumulate,
compounded quarterly at the distribution
rate) during any such Extension Period. The
Company will give written notice of its
extension of an interest payment to the Trust
and shall cause the Trust to give such notice
to the holders of the Convertible Preferred
Securities. See "Risk Factors--Option to
Extend Interest Payment Period," "Description
of the Convertible Preferred Securities--
Distributions" and "Description of the
Convertible Debentures--Option to Extend
Interest Payment Period." Because TIMET has
the right to defer payments of interest for
one or more periods of up to 20 consecutive
quarters each, all of the stated interest
payments on the Convertible Debentures will
be treated as OID. Holders of the Preferred
Convertible Securities must include that OID
(which OID continues to accrue during an
Extension Period) in income daily on an
economic accrual basis before the receipt of
cash attributable to the interest, regardless
of their method of tax accounting. Moreover,
if a holder of a Convertible Preferred
Security converts such security into Common
Stock during an Extension Period, such holder
will not be entitled to receive, subject to
certain exceptions, any accumulated and
unpaid distributions with respect to such
security. See "Risk Factors--Option to
Extend Interest Payment Period," "Description
of the Convertible Preferred Securities--
Conversion Rights" and
- 9 -
<PAGE> 12
"-- Mandatory Redemption Upon Optional
Redemption or Maturity of Convertible
Debentures" and "United States Federal Income
Taxation-- Original Issue Discount."
Rights Upon Extension of
Distribution Payment
Periods During any Extension Period, interest on the
Convertible Debentures will compound
quarterly and quarterly distributions
(compounded quarterly at the distribution
rate) will accumulate on the Convertible
Preferred Securities, and the Company has
agreed, among other things, (a) not to
declare or pay dividends on, or make a
distribution with respect to, or redeem,
purchase or acquire, or make a liquidation
payment with respect to, any of its capital
stock (other than (i) purchases or
acquisitions of shares of Common Stock in
connection with the satisfaction by the
Company of its obligations under any employee
benefit plans or the satisfaction by the
Company of its obligations pursuant to any
contract or security requiring the Company to
purchase shares of Common Stock, (ii) as a
result of a reclassification of the Company's
capital stock or the exchange or conversion
of one class or series of the Company's
capital stock for another class or series of
the Company's capital stock or (iii) the
purchase of fractional interests in shares of
the Company's capital stock pursuant to the
conversion or exchange provisions of such
capital stock or the security being converted
or exchanged, (b) not to make any payment of
interest, principal or premium, if any, on or
repay, repurchase or redeem any debt
securities (including guarantees) issued by
the Company that rank pari passu with or
junior to the Convertible Debentures and (c)
not to make any guarantee payments with
respect to the foregoing (other than pursuant
to the Guarantee). See "Description of the
Guarantee--Certain Covenants of the Company"
and "Description of the Convertible
Debentures--Option to Extend Interest Payment
Period."
Conversion into Common
Stock Each Convertible Preferred Security is
convertible at the option of the holder into
shares of Common Stock, at a conversion rate
of 1.339 shares of Common Stock for each
Convertible Preferred Security (equivalent to
a conversion price of approximately $37.34
per share of Common Stock), subject to
adjustment in certain circumstances. At the
pricing of the Convertible Preferred
Securities on November 20, 1996, the last
reported sale price of the Common Stock on
the Nasdaq National Market was $29.875. The
last reported sale price of the Common Stock
on the Nasdaq National Market on December 24,
1996 was $32.125 per share. In connection
with any conversion of a Convertible
Preferred Security, the Conversion Agent (as
defined herein) will exchange such
Convertible Preferred Security for the
appropriate principal amount of Convertible
Debentures held by the Trust and immediately
convert such Convertible Debentures into
shares of Common Stock. No fractional shares
of Common Stock will be issued as a result of
conversion, but in lieu thereof such
fractional interest will be paid by the
Company in cash. See "Description of the
Convertible Preferred Securities--Conversion
Rights." In addition, no additional shares of
Common Stock will be issued upon conversion
of the Convertible Preferred Securities to
account for any accumulated and unpaid
distributions on the Convertible Preferred
Securities at the time of conversion;
provided, however, that any holder of
Convertible Preferred Securities who delivers
such Convertible Preferred Securities for
conversion after receiving a notice of
redemption from the Property Trustee (as
defined herein) during an Extension Period
will be entitled to receive all accumulated
and unpaid distributions to the date of
conversion. See "Description of the
Convertible Debentures--Redemption at the
Option of TIMET," "Description of the
Convertible Preferred Securities--Conversion
Rights" and "--Mandatory Redemption Upon
Optional Redemption or Maturity of
Convertible Debentures."
- 10 -
<PAGE> 13
Liquidation Amount In the event of the liquidation of the Trust,
holders will be entitled to receive the
liquidation amount of $50 per Convertible
Preferred Security plus an amount equal to
any accumulated and unpaid distributions
thereon to the date of payment, unless
Convertible Debentures are distributed to
such holders. See "Description of the
Convertible Preferred Securities--
Liquidation Distribution Upon Dissolution."
Redemption The Convertible Debentures will be redeemable
for cash, at the option of the Company, in
whole or in part, from time to time, after
December 1, 1999, at the redemption prices
specified herein. Upon any redemption of the
Convertible Debentures, Trust Securities
having an aggregate liquidation amount equal
to the aggregate principal amount of the
Convertible Debentures so redeemed will be
redeemed on a pro rata basis at a redemption
price corresponding to the redemption price
of the Convertible Debentures plus accrued
and unpaid interest thereon (the "Redemption
Price"). The Convertible Preferred
Securities do not have a stated maturity
date, although they are subject to mandatory
redemption upon the repayment of the
Convertible Debentures at their stated
maturity (i.e., December 1, 2026), upon
acceleration of the Convertible Debentures,
or upon early redemption of the Convertible
Debentures. See "Description of the
Convertible Preferred Securities--Mandatory
Redemption Upon Optional Redemption or
Maturity of Convertible Debentures."
Guarantee The Company has irrevocably guaranteed, on a
subordinated basis and to the extent set
forth herein, the payment in full of (i) any
accumulated and unpaid distributions on the
Convertible Preferred Securities to the
extent of funds of the Trust available
therefor, (ii) the amount payable upon
redemption of the Convertible Preferred
Securities to the extent of funds of the
Trust available therefor and (iii) generally,
the liquidation amount of the Convertible
Preferred Securities to the extent of the
assets of the Trust available for
distribution to holders of Convertible
Preferred Securities. The Guarantee is
unsecured and will be (i) subordinate and
junior in right of payment to all other
liabilities of the Company except any
liabilities that may be made pari passu
expressly by their terms, (ii) pari passu
with the most senior preferred stock, if any,
issued from time to time by the Company and
with any guarantee now or hereafter entered
into by the Company in respect of any
preferred or preference stock or preferred
securities of any affiliate of the Company,
(iii) senior to the Common Stock and (iv)
effectively subordinated to all existing and
future indebtedness and liabilities,
including trade payables, of the Company's
subsidiaries. Upon the liquidation,
dissolution or winding up of the Company, its
obligations under the Guarantee will rank
junior to all of its other liabilities,
except as aforesaid, and, as a result, funds
may not be available for payment under the
Guarantee. See "Risk Factors--Subordination
of Obligations Under the Guarantee and
Convertible Debentures" and "Description of
the Guarantee."
Voting Rights Generally, holders of the Convertible
Preferred Securities have no voting rights.
See "Description of the Convertible Preferred
Securities--Voting Rights."
Tax Event Redemption;
Distribution Upon a Tax
Event or Investment
Company Event Upon the occurrence of a Tax Event or an
Investment Company Event (each as defined
herein), except in certain limited
circumstances, the Company will cause the
Issuer Trustees (as defined herein) to
liquidate the Trust and cause Convertible
Debentures to be distributed to the holders
of the Convertible Preferred Securities. In
certain circumstances involving a Tax Event,
the Company will have the right to redeem the
Convertible Debentures, in whole (but not in
part), at 100% of the principal amount plus
accrued and unpaid interest, in lieu of a
distribution of the Convertible Debentures,
in which event the Trust Securities will be
redeemed at the
- 11 -
<PAGE> 14
Redemption Price. See "Description of the
Convertible Preferred Securities--Special
Event Redemption or Distribution."
Convertible Debentures The Convertible Debentures mature on December
1, 2026 and will bear interest at the rate of
6.625% per annum, payable quarterly in
arrears. The Convertible Debentures have
provisions with respect to interest,
redemption, conversion into the Common Stock
and certain other terms substantially similar
or analogous to those of the Convertible
Preferred Securities. Interest payment
periods may be extended from time to time by
the Company for successive periods not
exceeding 20 consecutive quarters for each
such period (during which interest will
continue to accrue and compound quarterly).
Prior to the termination of any Extension
Period, the Company may further extend such
Extension Period; provided that such
Extension Period may not exceed 20
consecutive quarters and may not extend
beyond the maturity date of the Convertible
Debentures. Upon the termination of any
Extension Period and the payment of all
amounts then due, the Company may commence a
new Extension Period, subject to certain
limitations. No interest shall be due and
payable during an Extension Period. During
an Extension Period, the Company has agreed,
among other things, (a) not to declare or pay
dividends on, or make a distribution with
respect to, or redeem or purchase or acquire,
or make a liquidation payment with respect
to, any of its capital stock (other than (i)
purchases or acquisitions of shares of Common
Stock in connection with the satisfaction by
the Company of its obligations under any
employee benefit plans or the satisfaction by
the Company of its obligations pursuant to
any contract or security requiring the
Company to purchase shares of Common Stock,
(ii) as a result of a reclassification of the
Company's capital stock or the exchange or
conversion of one class or series of the
Company's capital stock for another class or
series of the Company's capital stock or
(iii) the purchase of fractional interests in
shares of the Company's capital stock
pursuant to the conversion or exchange
provisions of such capital stock or the
security being converted or exchanged), (b)
not to make any payment of interest,
principal or premium, if any, on or repay,
repurchase or redeem any debt securities
(including guarantees) issued by the Company
that rank pari passu with or junior to the
Convertible Debentures and (c) not to make
any guarantee payments with respect to the
foregoing (other than pursuant to the
Guarantee). The Convertible Debentures will
be subordinate to all Senior Indebtedness (as
defined herein) of the Company and
effectively subordinated to all existing and
future indebtedness and liabilities,
including trade payables, of the Company's
subsidiaries.
Use of Proceeds Neither the Company nor the Trust will
receive any proceeds of the sale of the
Offered Securities.
OFFERED COMMON
Common Stock offered by the
Selling Stockholders: 5,161,305
Common Stock outstanding
after the sale of the Offered
Common(1): 31,455,455 Shares
Use of Proceeds: The Company will not receive any proceeds
from the sale of the Offered Common
Nasdaq National Market Symbol: TIMT
- 12 -
<PAGE> 15
(1) The number of outstanding shares of Common Stock as of December 24, 1996.
Does not include 5,389,475 shares of Common Stock reserved for issuance upon
conversion of the Convertible Preferred Securities and 517,400 shares of Common
Stock reserved for issuance upon exercise of outstanding stock options held by
the Company's directors and employees. See "Description of the Capital Stock."
- 13 -
<PAGE> 16
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The summary historical financial data for each of the years in the
five-year period ended December 31, 1995 have been derived from the audited
consolidated financial statements of the Company. The Company uses a fiscal
year ending on the Sunday closest to December 31 of each year. The summary pro
forma financial data for the year ended December 31, 1995 give pro forma effect
to the IMI Titanium Acquisition and the AJM Acquisition, as if they had been
consummated on January 2, 1995, the beginning of fiscal 1995. The pro forma
adjustments are based upon available information and certain assumptions that
management of the Company believes are reasonable. The pro forma financial
data do not purport to represent the results of operations or the financial
position of the Company which actually would have occurred had the IMI Titanium
Acquisition and the AJM Acquisition been consummated on the aforesaid date.
The following summary historical and pro forma financial data should
be read in conjunction with "Capitalization," "Selected Consolidated Historical
and Pro Forma Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and the Unaudited Pro Forma
Financial Statements of the Company, the Consolidated Financial Statements of
the Company, the Combined Financial Statements of the IMI Titanium Business and
the Financial Statements of AJM (including in each case the notes thereto)
included elsewhere in this Prospectus.
- 14 -
<PAGE> 17
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEARS NINE MONTHS ENDED
------------ -----------------
PRO FORMA OCT. 1, SEPT. 29,
1991 1992 1993 1994 1995 1995(11) 1995 1996(12)
---- ---- ---- ---- ---- -------- ---- --------
(IN MILLIONS, EXCEPT EMPLOYEE AND PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales(1) $155.7 $153.9 $151.2 $146.0 $184.7 $380.0 $135.2 $349.8
Operating income (loss)(2) 4.8 (9.7) (16.7) (34.7) 5.4 (37.7) 1.8 38.4
Income (loss) before cumulative
effect of changes in accounting
principles (.1) (9.7) (20.2) (42.1) (4.2) (48.6) (6.5) 23.5
Income (loss) per common share
before cumulative effect of
changes in accounting principles(3) (.01) (.86) (1.78) (2.80) (.27) (1.94) (.42) .89
Weighted average common shares
outstanding(3) 11.3 11.3 11.3 15.0 15.4 25.0 15.3 26.3
Ratio of earnings to fixed charges(4) 4.9
PRO FORMA--AS ADJUSTED(5):
Operating income (loss) $(37.7) $ 38.4
Interest expense 17.9 10.8
Net income (loss) (43.4) 20.9
Net income (loss) per common share (1.73) .80
Ratio of earnings to fixed charges(4) 3.5
BALANCE SHEET DATA:
Working capital(6) $73.3 $62.0 $44.6 $38.0 $52.3 $55.5 $134.5
Total assets 174.6 267.0 262.5 240.2 248.8 257.9 476.3
Long-term debt, including current
maturities(7) 69.6 149.3 75.0 92.9 89.6 95.6 12.8
Stockholders' equity 72.8 46.6 109.0 64.7 68.1 70.4 295.9
OTHER OPERATING DATA:
EBITDA(8) $ 7.8 $ (6.1) $(12.3) $(26.7) $ 18.6 $ 9.3 $ 51.1
Cash flows provided from (used in):
Operating activities 18.9 (3.6) 12.4 (20.0) (6.1) (10.9) (9.4)
Investing activities (30.3) (71.3) (16.3) (4.6) (2.5) (1.9) (15.9)
Financing activities 17.4 70.1 4.7 17.7 8.6 15.0 23.9
------ ------ ------ ------ ------ ------ ------
Total 6.0 (4.8) .8 (6.9) (--) 2.2 (1.4)
Debt to total capitalization 49% 76% 41% 59% 57% 58% 4%
Ratio of EBITDA to interest expense(9) 2.1 1.8 1.2 7.0
Mill product shipments
(millions of pounds) 10.2 10.8 11.2 10.5 12.2 20.5 9.3 19.6
Active employees at period end 1,120 1,170 1,070 880 1,020 2,550 977 2,743
Order backlog at period end(10) $ 80.0 $ 90.0 $ 80.0 $ 85.0 $125.0 $226.0 $115.0 $400.0
Capital expenditures 30.1 67.3 16.3 4.6 3.0 11.9 2.3 10.8
</TABLE>
(1) Net sales include $4 million in 1993 and $20 million in 1994 of sales
related to TIMET's arrangements with CEZUS. Based upon the structure
of a revised agreement entered into in March 1995, TIMET did not
consolidate CEZUS related sales in 1995 or the first seven months of
1996. In August 1996, the Company formed TIMET Savoie which is 70%
owned by TIMET and 30% owned by CEZUS. The Company consolidated TIMET
Savoie effective August 1996. See Note 3 to the Company's
Consolidated Financial Statements.
(2) Operating income (loss) includes restructuring and other special
charges of $4.7 million in 1993, $10 million in 1994, $3.8 million for
pro forma 1995 and $4.7 million in the nine months ended September 29,
1996. A restructuring credit of $1.2 million is included in 1995.
See Note 5 to the Company's Consolidated Financial Statements
regarding restructuring and other special charges.
(3) Per common share data and weighted average common shares outstanding
give effect in all periods presented to the stock split effected in
connection with the Stock Offering. See Note 9 to the Company's
Consolidated Financial Statements.
(4) For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of income from continuing operations before income
taxes and minority interest plus fixed charges (excluding capitalized
interest) and adjustments for certain undistributed equity in
earnings. Fixed charges consist of interest expense, capitalized
interest and the estimated interest factor inherent in operating lease
rentals. The Company's earnings were insufficient to cover fixed
charges for the five fiscal years ended 1995,
- 15 -
<PAGE> 18
pro forma 1995 and pro forma 1995 -- as adjusted. The amount of
coverage deficiency was $.1 million, $18.3 million, $25.6 million,
$42.4 million, $5.1 million, $61.8 million and $56.2 million for the
fiscal years 1991, 1992, 1993, 1994, 1995, pro forma 1995 and pro
forma 1995 -- as adjusted, respectively.
(5) Reflects sale of the Convertible Preferred Securities to the Initial
Purchasers and the application of the Company's net proceeds
therefrom. See "Capitalization." Per share amounts do not account for
shares of Common Stock reserved for issuance pursuant to the
Convertible Debentures.
(6) Working capital represents current assets minus current liabilities
(excluding current portion of long-term debt and current portion of
capital lease obligations).
(7) Includes loans and interest to related parties and capital lease
obligations; excludes trade and other payables to related parties.
(8) EBITDA represents income (loss) before cumulative effect of accounting
changes plus income taxes, interest expense, depreciation and
amortization less equity in earnings of nonoperating joint ventures.
EBITDA is presented because it is a widely accepted financial
indicator of cash flow and the ability to service debt. EBITDA should
not be considered as an alternative to, or more meaningful than,
operating income, net income or cash flow as an indicator of the
Company's performance.
(9) The Company's EBITDA was insufficient to cover interest expense for
the fiscal years ended 1992, 1993 and 1994. The amount of EBITDA
deficiency in 1992, 1993 and 1994 was $10.3 million, $18 million and
$34.3 million, respectively.
(10) "Order backlog" is defined as firm purchase orders (which are
generally subject to cancellation by the customer upon payment of
specified charges).
(11) Gives pro forma effect to the IMI Titanium and AJM Acquisitions. See
"Pro Forma Condensed Consolidated Financial Statements."
(12) See "Pro Forma Condensed Consolidated Financial Statements" at PF-10
for pro forma Statement of Operations data for the nine-month period
ended September 29, 1996.
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<PAGE> 19
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should consider carefully the risk factors set forth
below before making an investment in the securities offered pursuant to this
Prospectus.
CYCLICALITY; DEPENDENCE ON AEROSPACE INDUSTRY
Demand for the Company's titanium products is cyclical and is affected
by, among other things, the cyclical activity in the commercial and military
aerospace industry, particularly the strength of orders from commercial
airlines and aircraft leasing companies. Sales of the Company's products
(excluding sponge) to the commercial and military aerospace industry accounted
for approximately 67%, 70%, 60%, 60% and 62% of the Company's total sales in
1991, 1992, 1993, 1994 and 1995, respectively. Historically, commercial
airlines' orders for new aircraft have tended to be driven by the operating
profits or losses of the respective airlines. Purchases by customers in the
military aerospace sector tend to be driven by defense budgets. Events
adversely affecting the aerospace industry, such as reduced orders from
commercial airlines resulting from operating losses at the airlines, or reduced
military spending, could have a material adverse effect on the business,
financial condition, results of operations and cash flows of the Company. See
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations" and "Business--Markets and Customer Base."
HISTORY OF LOSSES; PRO FORMA LOSSES; DEFICIENCY OF EARNINGS AVAILABLE TO COVER
FIXED CHARGES
During the last five years, when the titanium industry was in a severe
downturn, the Company incurred net losses of $.1 million, $25.7 million, $20.2
million, $43.1 million and $4.2 million in 1991, 1992, 1993, 1994 and 1995,
respectively. Similarly, the IMI Titanium Business reported net losses of
$11.2 million, $15.0 million and $32.8 million in 1993, 1994 and 1995,
respectively. Moreover, the Company on a pro forma basis, giving effect to the
IMI Titanium Acquisition and the AJM Acquisition, incurred a net loss of $48.6
million in 1995, including restructuring and other special charges. During the
last three full years the combined losses of the Company, the IMI Titanium
Business, RMI Titanium Company ("RMI") and Oregon Metallurgical Company
("Oremet") were $181.3 million. Prior to the last industry upturn in 1988
through 1990, the Company, excluding the IMI Titanium Business, reported
aggregate losses from continuing operations of $18.1 million from 1984 through
1987. There can be no assurance that additional losses will not be incurred in
future periods. In addition, the Company's earnings were insufficient to cover
its fixed charges in each of 1991 through 1995. The amount of coverage
deficiency for the five fiscal years from 1991 to 1995 was $.1 million, $18.3
million, $25.6 million, $42.4 million and $5.1 million, respectively.
The ability of the Company to achieve profitability in the future is
dependent upon, among other things: market demand and prices for titanium
products, particularly demand and pricing in the aerospace industry; the
Company's ability to increase prices for titanium products to a level that
exceeds any increases in production costs; avoidance of any material adverse
developments in the capacity utilization for the production of titanium sponge
or availability of titanium scrap; the absence of titanium market instabilities
associated with titanium sponge and scrap from Russia and other countries
comprising the former Soviet Union; and the absence of a general economic
downturn in North America, Europe or the rest of the world. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
HIGHLY COMPETITIVE INDUSTRY; SUBSTANTIAL EXCESS PRODUCTION CAPACITY
The titanium metals industry is highly competitive on a worldwide
basis as a result of many factors, particularly the historical presence of
excess capacity in the industry, which has intensified price competition for
available business at low points in the business cycle. Integrated and
non-integrated producers of mill products are located primarily in the United
States, Japan, Russia, Europe and China (the Company considers an integrated
producer one that produces both titanium sponge and ingot). The Company is one
of two integrated producers in the United States and one of four in the world.
There are also a number of non-integrated producers that produce mill products
from purchased sponge, scrap or ingot. The Company believes that the sponge
production capacity and actual production in the former Soviet Union may be as
much as one-half of aggregate worldwide levels and that significant unused
production capacity may exist in this region. Russia is also known to have
significant melting and mill products production capacity.
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<PAGE> 20
In the U.S. market, the increasing presence of non-U.S. participants
has become a significant competitive factor. Until 1993, imports of foreign
titanium products into the U.S. had not been significant. This was primarily
attributable to relative currency exchange rates, tariffs and, with respect to
Japan and Russia, existing and prior duties (including antidumping duties).
However, imports of titanium sponge, scrap, and other products, principally
from the former Soviet Union, have increased in recent years and have had a
significant competitive impact on the U.S. titanium industry. To the extent
the Company has been able to take advantage of this situation by purchasing
such sponge, scrap or intermediate mill products from such countries for use in
its own operations during the last three years, the negative effect of these
imports on the Company has been somewhat diminished.
As the participation of non-U.S. companies increases, the competitive
environment for the Company may become more difficult, especially if existing
tariffs are eased and certain market participants are no longer subject to
antidumping duties. Currently, imports of titanium ingot and mill products
from countries that receive the most favored nation ("MFN") tariff rate are
subject to a 15% tariff. The tariff rate applicable to imports from countries
that do not receive MFN treatment is 45%.
In addition to regular tariffs, imports of titanium sponge from certain
countries of the former Soviet Union (Russia, Kazakhstan and Ukraine) have been
subject to antidumping duties of 84% for a number of years. On November 8,
1996, the Department of Commerce, based upon its review of sales during a period
in 1994 and 1995, issued its final determination that this antidumping duty
should be eliminated for future sales by one of the two major importers of
Russian sponge, lowered to 28% for the other importer, and maintained at 84% for
the sole Russian producer. A review of sales for the corresponding 1995-96
period is currently underway. It is possible that the lowering of the duties
for the two importers could lead to increased imports of Russian sponge into the
U.S. and an increase in the amount of sponge on the market generally, which
could adversely affect titanium sponge and mill product pricing and thus the
business, financial condition, results of operations and cash flows of the
Company. However, the Company is also currently one of the largest importers of
Russian-produced sponge into the U.S. and, to the extent the Company remains a
substantial purchaser of Russian sponge, adverse effects on product pricing
could be partially ameliorated by decreased cost to the Company for duty-paid
sponge.
The ability of the producers in Russia to compete in the U.S. has also
been enhanced by the elimination since September 1993 of tariffs on most
Russian titanium mill products (excluding titanium ingot, slab and billet,
which continue to carry a 15% duty). The tariffs were temporarily restored
when the enacting legislation expired in July 1995, but were again eliminated
retroactive to July 1995 by renewal legislation in August 1996. Since the
Company has been a significant purchaser of titanium products from Russia in
recent years, any failure to renew this program again upon its scheduled
expiration in May 1997 could have an adverse effect on the Company's earnings
as it would be more costly to continue purchases of titanium mill products from
Russia. Given the current political and economic uncertainties in some of the
countries of the former Soviet Union, there can be no assurance that this
supply of titanium products will continue to be available to the Company
without interruption or at attractive prices. See "Business--Competition" and
"--Strategic Alliances--Russia."
SUBORDINATION OF OBLIGATIONS UNDER THE GUARANTEE AND CONVERTIBLE DEBENTURES;
DEPENDENCE UPON PAYMENTS ON CONVERTIBLE DEBENTURES
TIMET's obligations under the Guarantee are subordinate and junior in
right of payment to all liabilities of TIMET and pari passu in right of payment
with the most senior preferred stock issued, from time to time, if any, by
TIMET. The obligations of TIMET under the Convertible Debentures are
subordinate and junior in right of payment to all present and future Senior
Indebtedness of TIMET. No payment of principal (including redemption payments,
if any) of, premium, if any, or interest on the Convertible Debentures may be
made if (i) any Senior Indebtedness of TIMET is not paid when due and any
applicable grace period with respect to such default has ended with such
default not having been cured or waived or ceasing to exist, (ii) the maturity
of any Senior Indebtedness has been accelerated because of a default or (iii)
if an event of default has occurred and is continuing under the Company's U.S.
credit facility or any refinancing of the U.S. credit facility in the bank
credit market (including institutional participants therein) that would permit
the lenders under the U.S. credit facility or such refinancing to accelerate
the maturity thereof or demand payment in full. As of December 20, 1996, TIMET
had no Senior Indebtedness under its U.S. credit facility. The obligations of
the Company under the Guarantee and the Convertible Debentures are also
effectively subordinated to all existing and future indebtedness, including
trade payables, of the Company's subsidiaries. There are no terms in the
Convertible Preferred Securities, the Convertible Debentures or the Guarantee
that limit the ability of TIMET or its subsidiaries to incur additional
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<PAGE> 21
indebtedness, including indebtedness that ranks senior to or pari passu with
the Convertible Debentures and the Guarantee, or to grant security interests to
secure outstanding or new indebtedness. See "Description of the Guarantee--
Status of the Guarantee; Subordination," and "Description of the Convertible
Debentures--Subordination." The ability of the Trust to pay amounts due on the
Convertible Preferred Securities is wholly dependent upon TIMET's making
payments on the Convertible Debentures as and when required.
RIGHTS UNDER THE GUARANTEE
It is expected that, at the time this Registration Statement becomes
effective, the Guarantee will be qualified as an indenture under the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Chase
Manhattan Bank is acting as indenture trustee under the Guarantee (the
"Guarantee Trustee") for the purposes of compliance with the provisions of the
Trust Indenture Act. The Guarantee Trustee will hold the Guarantee for the
benefit of the holders of the Convertible Preferred Securities.
Under the Guarantee, TIMET guarantees the holders of the Convertible
Preferred Securities the payment of (i) any accumulated and unpaid
distributions that are required to be paid on the Convertible Preferred
Securities, to the extent the Trust has funds available therefor, (ii) the
Redemption Price, including all accumulated and unpaid distributions with
respect to Convertible Preferred Securities called for redemption by the Trust,
to the extent the Trust has funds available therefor, and (iii) upon a
voluntary or involuntary dissolution, winding up or termination of the Trust
(other than in connection with the distribution of Convertible Debentures to
the holders of Convertible Preferred Securities or a redemption of all the
Convertible Preferred Securities), the lesser of (a) the aggregate of the
liquidation amount and all accumulated and unpaid distributions on the
Convertible Preferred Securities to the date of the payment, to the extent the
Trust has funds available therefor or (b) the amount of assets of the Trust
remaining available for distribution to holders of the Convertible Preferred
Securities in liquidation of the Trust. The holders of a majority in
liquidation amount of the Convertible Preferred Securities have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Guarantee Trustee or to direct the exercise of any trust or
power conferred upon the Guarantee Trustee under the Guarantee. In addition,
any record holder of Convertible Preferred Securities may institute a legal
proceeding directly against TIMET to enforce the Guarantee without first
instituting a legal proceeding against the Trust, the Guarantee Trustee or any
other person or entity. If TIMET were to default on its obligation to pay
amounts payable on the Convertible Debentures, the Trust would lack available
funds for the payment of distributions or amounts payable on redemption of the
Convertible Preferred Securities or otherwise, and, in such event, holders of
the Convertible Preferred Securities would not be able to rely upon the
Guarantee for payment of such amounts. Instead, holders of the Convertible
Preferred Securities would rely on the enforcement (1) by the Property Trustee
of its rights as registered holder of the Convertible Debentures against TIMET
pursuant to the terms of the Convertible Debentures or (2) by such holder of
its right of direct action against TIMET to enforce payments on a portion of
the Convertible Debentures. See "Description of the Guarantee" and
"Description of the Convertible Debentures." The Declaration (as defined
herein) provides that each holder of Convertible Preferred Securities, by
acceptance thereof, agrees to the provisions of the Guarantee, including the
subordination provisions thereof, and the Indenture.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF CONVERTIBLE PREFERRED SECURITIES
If (i) the Trust fails to pay distributions in full on the Convertible
Preferred Securities (other than pursuant to a permitted deferral) or (ii) a
Declaration Event of Default occurs and is continuing, then the holders of
Convertible Preferred Securities would rely on the enforcement by the Property
Trustee of its rights as holder of the Convertible Debentures against TIMET.
In addition, the holders of a majority in liquidation amount of the Convertible
Preferred Securities have the right to direct the time, method, and place of
conducting any proceeding for any remedy available to the Property Trustee or
to direct the exercise of any trust or power conferred upon the Property
Trustee under the Declaration, including the right to direct the Property
Trustee to exercise the remedies available to it as a holder of the Convertible
Debentures. Notwithstanding the foregoing, if a Declaration Event of Default
has occurred and is continuing and such event is attributable to the failure of
TIMET to pay interest or principal on the Convertible Debentures on the date
such interest or principal is otherwise payable (or in the case of redemption,
on the redemption date), then the registered holder of Convertible Preferred
Securities may directly institute a proceeding for enforcement of payment to
such holder of the principal of or interest on the Convertible Debentures
having a principal amount equal to the aggregate liquidation amount of the
Convertible Preferred Securities of such holder (a "Direct Action") on or after
the respective due date specified in the Convertible Debentures. In connection
with such Direct Action, TIMET will be subrogated to the rights of such holders
of
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<PAGE> 22
Convertible Preferred Securities under the Declaration to the extent of any
payment made by TIMET to such holder of Convertible Preferred Securities in
such Direct Action. The holders of Convertible Preferred Securities will not
be able to exercise directly any other remedy available to the holders of the
Convertible Debentures. The Indenture provides that the Indenture Trustee (as
defined herein) shall give holders of the Convertible Debentures notice of all
uncured defaults or events of default within 30 days after occurrence.
However, except in the case of a default or an event of default in payment on
the Convertible Debentures, the Indenture Trustee is protected in withholding
such notice if its officers or directors in good faith determine that
withholding of such notice is in the best interests of the holders. See
"Description of the Convertible Preferred Securities--Declaration Events of
Default."
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as TIMET shall not be in default in the payment of interest on
the Convertible Debentures, TIMET has the right under the Indenture (as defined
herein) to defer payments of interest on the Convertible Debentures by
extending the interest payment period at any time, and from time to time, on
the Convertible Debentures. As a consequence of such an extension, quarterly
distributions on the Convertible Preferred Securities would be deferred (but
despite such deferral would continue to accumulate with interest thereon at the
distribution rate, compounded quarterly) by the Trust during any such extended
interest payment period (an "Extension Period"). Such right to extend the
interest payment period for the Convertible Debentures is limited to a period
not exceeding 20 consecutive quarters (although new Extension Periods may be
commenced as described below). In the event that TIMET exercises this right to
defer interest payments, then (a) TIMET shall not declare or pay dividends on,
or make a distribution with respect to, or redeem, purchase or acquire, or make
a liquidation payment with respect to, any of its capital stock (other than (i)
purchases or acquisitions of shares of TIMET Common Stock in connection with
the satisfaction by TIMET of its obligations under any employee benefit plans,
(ii) as a result of a reclassification of TIMET capital stock or the exchange
or conversion of one class or series of TIMET capital stock for another class
or series of TIMET capital stock or (iii) the purchase of fractional interests
in shares of TIMET capital stock pursuant to the conversion or exchange
provisions of such TIMET capital stock or the security being converted or
exchanged), (b) TIMET shall not make any payment of interest, principal or
premium, if any, on or repay, repurchase or redeem any debt securities issued
by TIMET that rank pari passu with or junior to the Convertible Debentures and
(c) TIMET shall not make any guarantee payments with respect to the foregoing
(other than pursuant to the Guarantee). Prior to the termination of any such
Extension Period, TIMET may further extend such Extension Period; provided that
such Extension Period, together with all such previous and further extensions
thereof, may not exceed 20 consecutive quarters or extend beyond the maturity
of the Convertible Debentures. Upon the termination of any Extension Period
and the payment of all amounts then due, TIMET may commence a new Extension
Period, subject to the foregoing restrictions. See "Description of the
Convertible Preferred Securities-- Distributions" and "Description of the
Convertible Debentures--Option to Extend Interest Payment Period."
ORIGINAL ISSUE DISCOUNT
Because TIMET has the right to defer payments of interest for one or
more periods of up to 20 consecutive quarters each, all of the stated interest
payments on the Convertible Debentures will be treated as OID. As a result,
each holder of Convertible Preferred Securities will recognize income for
United States Federal income tax purposes in advance of the receipt of cash and
will not receive the cash from the Trust related to such income if such holder
disposes of its Convertible Preferred Securities prior to the record date for
the date on which distributions of such amounts are made. Should TIMET
exercise its right to defer payments of interest by extending the interest
payment period, each holder of Convertible Preferred Securities will continue
to accrue income as OID in respect of the deferred and compounded interest
allocable to its Convertible Preferred Securities for United States Federal
income tax purposes, which will be allocated but not distributed, to holders of
record of Convertible Preferred Securities. See "United States Federal Income
Taxation--Original Issue Discount."
TIMET has no current intention of exercising its right to defer
payments of interest by extending the interest payment period of the
Convertible Debentures. However, should TIMET determine to exercise such right
in the future, the market price of the Convertible Preferred Securities (which
represent an undivided beneficial interest in the Convertible Debentures) is
likely to be adversely affected. A holder that disposes of its Convertible
Preferred Securities during an Extension Period, therefore, might not receive
the same return on its investment as a holder that continues to hold its
Convertible Preferred Securities. In addition, as a result of the existence of
TIMET's right to defer interest payments, the market price of the Convertible
Preferred Securities may be more volatile than other securities on which OID
accrues that do not have such rights.
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<PAGE> 23
PROPOSED TAX LEGISLATION
On March 19, 1996, as a part of President Clinton's Fiscal 1997 Budget
Proposal, the Treasury Department proposed legislation (the "Proposed
Legislation") that, among other things, would (i) treat as equity for United
States Federal income tax purposes certain debt instruments with a maximum term
of more than 20 years and (ii) disallow interest deductions on certain
convertible debt instruments or defer interest deductions on certain debt
instruments issued with original issue discount. The Proposed Legislation was
proposed to be effective for debt instruments issued on or after December 7,
1995.
On March 29, 1996, Senate Finance Committee Chairman William V. Roth,
Jr. and House Ways and Means Committee Chairman Bill Archer issued a joint
statement (the "Joint Statement") indicating their intent that the Proposed
Legislation, if adopted by either of the tax-writing committees of Congress,
would have an effective date that is no earlier than the date of "appropriate
Congressional action." Based upon the Joint Statement, it is expected that if
the Proposed Legislation were enacted, such legislation would not apply to the
Convertible Debentures since they would be issued prior to the date of any
"appropriate Congressional action" or otherwise qualify for transitional
relief. However, there can be no assurances that the effective date guidance
contained in the Joint Statement will be incorporated in the Proposed
Legislation, if enacted, or that other legislation enacted after November 20,
1996 will not otherwise adversely affect the tax treatment of the Convertible
Debentures. If legislation were enacted that adversely affects the tax
treatment of the Convertible Debentures, there could be a distribution of the
Convertible Debentures to holders of the Convertible Preferred Securities or,
in certain circumstances, the redemption of the Convertible Debentures by TIMET
and the distribution by the Trust of the resulting cash in redemption of the
Convertible Preferred Securities. See "Description of the Convertible
Preferred Securities--Special Event Redemption or Distribution."
SPECIAL EVENT DISTRIBUTION; TAX EVENT REDEMPTION
Upon the occurrence of a Special Event (as defined herein), the Trust
could be dissolved (with the consent of TIMET), except in the limited
circumstance described below, with the result that the Convertible Debentures
would be distributed to the holders of the Trust Securities in connection with
the liquidation of the Trust. In certain circumstances, TIMET would have the
right to redeem the Convertible Debentures, in whole or in part, in lieu of a
distribution of the Convertible Debentures by the Trust, in which event the
Trust would redeem the Trust Securities on a pro rata basis to the same extent
as the Convertible Debentures are redeemed by TIMET. See "Description of the
Convertible Preferred Securities--Special Event Redemption or Distribution."
Under current United States Federal income tax law, a distribution of
Convertible Debentures upon the dissolution of the Trust would not be a taxable
event to holders of the Convertible Preferred Securities. Upon occurrence of a
Special Event, however, a dissolution of the Trust in which holders of the
Convertible Preferred Securities receive cash would be a taxable event to such
holders. See "United States Federal Income Taxation--Receipt of Convertible
Debentures or Cash Upon Liquidation of the Trust."
There can be no assurance as to the market prices for the Convertible
Preferred Securities or the Convertible Debentures that may be distributed in
exchange for Convertible Preferred Securities if a dissolution or liquidation
of the Trust were to occur. Accordingly, the Convertible Preferred Securities
that an investor may purchase, whether pursuant to the offer made hereby or in
the secondary market, or the Convertible Debentures that a holder of
Convertible Preferred Securities may receive on dissolution and liquidation of
the Trust, may trade at a discount to the price that the investor paid to
purchase the Convertible Preferred Securities offered hereby. Because holders
of Convertible Preferred Securities may receive Convertible Debentures upon the
occurrence of a Special Event, prospective purchasers of Convertible Preferred
Securities are also making an investment decision with regard to the
Convertible Debentures and should carefully review all the information
regarding the Convertible Debentures contained in this Prospectus. See
"Description of the Convertible Preferred Securities--Special Event Redemption
or Distribution" and "Description of the Convertible Debentures--General."
VOTING RIGHTS
Except as provided under the Trust Act (as defined herein) and the
Trust Indenture Act, as described under "Description of the Convertible
Preferred Securities--Voting Rights" and "Description of the Guarantee--
Amendments and Assignment," and as otherwise required by law and the
Declaration, the holders of Convertible Preferred Securities have no voting
rights and are not
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<PAGE> 24
entitled to vote to appoint, remove or replace, or to increase or decrease the
number of, Issuer Trustees, which voting rights are vested exclusively in the
holder of the Trust Common Securities.
TRADING CHARACTERISTICS OF CONVERTIBLE PREFERRED SECURITIES
The Convertible Preferred Securities may trade at a price that does
not fully reflect the value of accrued but unpaid interest with respect to the
underlying Convertible Debentures. In addition, as a result of TIMET's right
to defer interest payments on the Convertible Debentures, which would result in
a corresponding deferral of distributions in the Convertible Preferred
Securities, the market price of the Convertible Preferred Securities may be
more volatile than other similar securities where the issuer does not have such
right to defer distributions. A holder who disposes of his Convertible
Preferred Securities between record dates for payments of distributions thereon
will be required to include accrued but unpaid interest on the Convertible
Debentures through the date of disposition in income as ordinary income (i.e.,
OID) and to add such amount to his adjusted tax basis in his pro rata share of
the underlying Convertible Debentures deemed disposed of, but will not be
entitled to receive the cash from the Trust related to such income. To the
extent the selling price is less than the holder's adjusted tax basis (which
will include, in the form of OID, all accrued but unpaid interest), a holder
will recognize a capital loss. Subject to certain limited exceptions, capital
losses cannot be applied to offset ordinary income for Federal income tax
purposes. See "United States Federal Income Taxation--Original Issue Discount"
and "--Sales of Convertible Preferred Securities."
LACK OF PUBLIC MARKET FOR THE CONVERTIBLE PREFERRED SECURITIES; LIMITATIONS ON
TRANSFER
There is no existing trading market for the Convertible Preferred
Securities, and there can be no assurance regarding the future development of a
market for the Convertible Preferred Securities, or the ability of holders of
the Convertible Preferred Securities to sell such securities or the price at
which such holders may be able to sell such securities. If such a market were
to develop, the Convertible Preferred Securities could trade at prices that may
be higher or lower than the initial offering price depending on many factors,
including prevailing interest rates, the price of TIMET's Common Stock, TIMET's
financial condition and results of operations and the market for similar
securities. The Initial Purchasers have advised TIMET that they currently
intend to make a market in the Convertible Preferred Securities. The Initial
Purchasers are not obligated to do so, however, and any market making with
respect to the Convertible Preferred Securities may be discontinued at any time
without notice. Therefore, there can be no assurance as to the liquidity of
any trading market for the Convertible Preferred Securities or that an active
public market for such securities will develop. In addition, the Company does
not intend to apply (and is not obligated to apply) for listing or quotation of
the Convertible Preferred Securities on any securities exchange or stock
market.
LABOR
As of September 30, 1996, approximately 45% of the Company's employees
worked under collectively bargained agreements. The Company recently entered
into a four-year agreement with the union representing approximately 390 hourly
workers at its Nevada facility that expires in October 2000. The Company's
four-year agreement with the union representing approximately 400 hourly workers
at its Ohio plant expires in June 1999. All of the collective bargaining
agreements in place at the Company's two U.K. facilities covering substantially
all of the approximately 750 salaried and hourly workers have one-year terms
expiring on December 31, 1996, which the Company currently anticipates will be
renegotiated. The Company's sales and operating results were adversely affected
from late 1993 through the beginning of 1995 due to work stoppages at its
Henderson, Nevada and Ohio plants. The work stoppage at the Nevada facility
lasted for nine months and the work stoppage at the Ohio facility lasted for ten
weeks. Each of these facilities is material to the Company's operations, and
the Henderson facility includes all of the Company's titanium sponge production
capacity.
While the Company considers its employee relations to be satisfactory,
there can be no assurance that new collective bargaining agreements will be
negotiated at the Company's U.K. facilities or that the results of such new
agreements or any work stoppages in connection with the expiration of such
agreements would not have a material and adverse effect on the business,
financial condition, results of operations or cash flows of the Company. See
"Business--Employees."
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<PAGE> 25
CONTROL BY CERTAIN STOCKHOLDERS; POSSIBLE CONFLICTS OF INTEREST
Of the 31.5 million shares of Common Stock outstanding, approximately
30.3% is held by Tremont, 6.4% by IMI, 10.0% by UTSC and .4% by members of the
Company's management. Tremont and UTSC have an option expiring in 1999 to
acquire the balance of the shares held by IMI at $7.95 per share (Tremont as to
approximately 75% of such shares and UTSC as to approximately 25% of such
shares). Moreover, in addition to having the right to designate nominees for
the Board of Directors as discussed below, certain of these stockholders may be
in a position effectively to control the affairs of the Company.
Pursuant to an agreement entered into among the Company, Tremont and
UTSC, the number of directors comprising the Board of Directors is currently
limited to seven. At its current ownership level, UTSC is entitled to
designate one director. Pursuant to a separate agreement entered into among
the Company, IMI and Tremont, IMI is obligated to vote its shares of Common
Stock in favor of four Tremont nominees to the TIMET Board of Directors. The
Board of Directors is entitled to fill any vacancies on the Board of Directors
(of which one exists currently). See "Management--Directors and Executive
Officers" and "Certain Relationships and Related Transactions--Shareholders'
Agreements."
Tremont may be deemed to control the Company. Approximately 44% of
Tremont's outstanding common stock is held by Contran Corporation ("Contran")
and subsidiaries of Contran, which may be deemed to control Tremont. Contran
may be deemed to be controlled by Harold C. Simmons. See "The Company" and
"Principal Stockholders."
Certain of the Company's executive officers and directors also serve
as executive officers and directors of Tremont. For a discussion of possible
conflicts of interest resulting therefrom, see "Certain Relationships and
Related Transactions--Relationships with Related Parties."
ENVIRONMENTAL REGULATION
Risk of environmental damage is inherent in the Company's operations.
The Company uses and produces substantial quantities of substances, chemicals
and compounds that are considered hazardous or toxic under Federal, state and
local environmental and worker safety and health laws and regulations. In
addition, at the Company's Henderson, Nevada facility, the Company produces and
uses substantial quantities of titanium tetrachloride, a material classified as
extremely hazardous under Federal environmental laws. The Company has used
such substances and compounds throughout the history of its operations and may
be responsible for remediation as a result of past releases or disposal
practices. Moreover, the Company's Henderson, Nevada facility is located
within an area that is potentially contaminated as a result of the historical
operations of the Company and other industrial and chemical manufacturing
businesses. While the Company takes environmental, safety and health
precautions appropriate for the industry, the Company's operations pose an
ongoing risk of accidental releases of, and worker exposure to, hazardous or
toxic substances. In addition, the Company is subject to a wide range of
government environmental requirements, including the extensive regulation of
air and water emissions and waste management. There is a risk that such
requirements, or enforcement thereof, may become more stringent in the future.
There can be no assurances that some, or all, of the risks discussed under this
heading will not result in liabilities that would be material to the Company's
business, results of operations, financial condition or cash flows. See
"Business--Regulatory and Environmental Matters."
POTENTIAL DIFFICULTIES IN INTEGRATING RECENTLY ACQUIRED BUSINESSES
During 1996, the Company acquired the IMI Titanium Business, the
assets of AJM and two smaller businesses. Successful completion of these
transactions requires the integration of companies that have previously
operated independently. There can be no assurance that the Company will not
encounter difficulties in integrating the these acquired businesses or that the
potential benefits of such integration, including cost savings and
manufacturing efficiencies, will be realized to the extent or on the schedule
expected by the Company. Any delays or unexpected costs incurred in connection
with such integration could have a material and adverse effect on the Company's
business, operating results, financial condition and cash flows.
- 23 -
<PAGE> 26
NO ASSURANCE OF NEW PRODUCT DEVELOPMENT
In an effort to lessen its dependence on the aerospace industry and to
increase participation in other markets, the Company, its competitors and
end-users are devoting significant efforts and resources to developing new
markets and applications for titanium, certain of which are still in the
preliminary stages. Developing these emerging applications involves
substantial risk and uncertainties due to the fact that titanium must compete
with less expensive alternative materials in these potential applications.
There can be no assurances the Company will be able to develop new markets and
applications for its products, or as to the time required for such development,
or as to the extent to which it will face competition in this regard. If the
Company is unable to develop these markets to a substantial degree, management
expects the Company's business to be largely dependent on the cyclical
aerospace industry.
DEPENDENCE ON OTHERS FOR CERTAIN RAW MATERIALS AND SERVICES
While the Company is one of six major worldwide producers of titanium
sponge, a basic raw material in the production of titanium ingot and mill
products, under current market conditions it cannot supply all of its needs for
titanium sponge internally and is dependent, therefore, on third parties for a
portion of its titanium sponge needs. The Company obtains sponge from four
suppliers in Japan and the former Soviet Union, both on a spot purchase basis
and, with respect to a portion of these purchases from three of such producers
during 1996, pursuant to one year contracts. Each such contract is subject to
renegotiation or termination if certain events occur. The Company has entered
into, or expects to enter into, similar contracts with three or four of such
suppliers for approximately 25 million pounds of sponge in 1997.
Substantially all of the Company's supply of titanium-containing
rutile ore, one of the primary raw materials used in the production of titanium
sponge, is currently purchased from a limited number of suppliers. Although
the Company believes that the availability of rutile is adequate in the
near-term, there can be no assurance that the Company will not experience
interruptions of its raw material supplies.
An interruption in the Company's supply of rutile and titanium sponge
could have a material adverse effect on the Company's business, operating
results, financial condition and cash flows. See "Business--Raw Materials."
The Company is dependent upon the services of outside processors to
perform important processing functions with respect to certain of its products.
In particular, the Company currently relies upon a single processor to perform
certain rolling steps with respect to some of its plate, sheet, and strip
products and THT is reliant upon a single processor to perform certain
finishing and conditioning steps with respect to its slab products. Neither
the Company nor THT has contracts with these processors, and thus these
arrangements could be terminated at any time. Although the Company believes
that there are numerous metal producers or processors with the capability to
perform these same processing functions, arranging for an alternative processor
or, in THT's case, possibly installing comparable capabilities, could take
several months and any interruption in these functions could have a material
and adverse effect on the Company's or THT's business, results of operations,
financial condition and cash flows in the short term. See "Business--Products
and Operations."
VOLATILITY OF SHARE PRICE
The trading price of TIMET's shares may be affected by the factors
noted above as well as prevailing economic and financial trends and conditions
in the public securities markets. Shortfalls in revenues or earnings from the
levels anticipated by the public markets could have an immediate and
significant effect on the trading price of TIMET's shares in any given period.
Such shortfalls may result from events that are beyond TIMET's immediate
control and can be unpredictable. In addition, the prices at which the Common
Stock trades and the volatility thereof may be affected by trading in the
common stocks of Tremont and NL Industries, Inc. ("NL"), a company which may be
deemed to be, with TIMET, under common control by Tremont and subsidiaries of
Contran. Further, factors such as announcements by TIMET of quarterly
variations in its financial results and changes in general market conditions,
among other things, could cause the market price of the Common Stock to
fluctuate significantly. In recent years, the stock market has experienced
significant price and volume fluctuations.
- 24 -
<PAGE> 27
USE OF PROCEEDS
Neither the Company nor the Trust will receive any proceeds from the
sale of the Offered Securities or the Offered Common.
PRICE RANGE OF COMMON STOCK
Since June 4, 1996, the first day of trading for the Common Stock, the
Common Stock has traded on the Nasdaq National Market under the symbol "TIMT."
The following table sets forth, for the periods indicated, the high and low
last reported sale prices on the Nasdaq National Market for the shares of
Common Stock traded during these respective time periods.
<TABLE>
<CAPTION>
HIGH LOW
PRICE PRICE
----- -----
<S> <C> <C>
Second Quarter (beginning June 4, 1996) $25.875 $24.375
Third Quarter 30.500 22.500
Fourth Quarter (through December 24, 1996) 36.375 28.125
</TABLE>
On December 24, 1996, the last reported sale price of the Common Stock,
as reported on the Nasdaq National Market, was $32.125 per share. As of
December 24, 1996, there were approximately 14,000 holders of record of the
Common Stock. This figure does not reflect beneficial ownership of shares held
in nominee name.
DIVIDEND POLICY
The Company has not declared any cash dividends during the last four
years. Any payment of future dividends will be at the discretion of the
Company's Board of Directors and will depend upon, among other things, the
Company's earnings, financial condition, capital requirements, extent of
indebtedness and contractual restrictions with respect to the payment of
dividends. The Company's U.S. credit facility currently prohibits the payment
of dividends on the Common Stock in excess of 20% of the Company's consolidated
net income in any fiscal year. Under certain circumstances, the terms of the
Indenture and the Declaration will restrict the payment of dividends by the
Company. See "Description of the Convertible Preferred Securities--
Distributions" and "Description of the Convertible Debentures--Option to Extend
Interest Payment Period."
TIMET CAPITAL TRUST I
The Trust is a statutory business trust formed under the laws of the
State of Delaware pursuant to (i) a declaration of trust (as amended and
restated, the "Declaration") executed by the Company as sponsor of the Trust,
and the trustees of the Trust (the "Issuer Trustees"), and (ii) a certificate
of trust filed with the Secretary of State of the State of Delaware. The
Company directly owns Trust Common Securities in an aggregate liquidation
amount equal to 3% of the total capital of the Trust. The Trust Common
Securities rank pari passu, and payment will be made thereon pro rata, with the
Convertible Preferred Securities, except that, upon the occurrence and during
the continuance of a Declaration Event of Default, the rights of the holders of
the Trust Common Securities to payment in respect of distributions and payments
upon liquidation, redemption and otherwise will be subordinated to the rights
of the holders of the Convertible Preferred Securities. See "Description of the
Convertible Preferred Securities--Subordination of Trust Common Securities."
The assets of the Trust consist solely of the Convertible Debentures. The
Trust exists for the exclusive purpose of (i) issuing the Trust Securities
representing undivided beneficial interests in the assets of the Trust, (ii)
investing the gross proceeds of the Trust Securities in the Convertible
Debentures and (iii) engaging in only those other activities necessary or
incidental thereto.
Pursuant to the Declaration, the number of Issuer Trustees initially
is five. Three of the Issuer Trustees (the "Regular Trustees") are and will
continue to be individuals who are employees or officers of or who are
affiliated with the Company. The fourth trustee will be a financial
institution that is unaffiliated with the Company (the "Property Trustee").
The fifth trustee will be an entity that maintains its principal place of
business in the State of Delaware (the "Delaware Trustee"). Currently, Joseph
- 25 -
<PAGE> 28
S. Compofelice, Vice President and Chief Financial Officer, Robert
E. Musgraves, Vice President--Administration, General Counsel and Secretary,
and Mark A. Wallace, Vice President--Strategic Change, are acting as Regular
Trustees. Currently, The Chase Manhattan Bank, a New York banking corporation,
will act as Property Trustee and Chase Manhattan Bank Delaware, a Delaware
banking corporation, are acting as Delaware Trustee, until, in each case,
removed or replaced by the holder of the Trust Common Securities. The Chase
Manhattan Bank is also acting as indenture trustee under the Guarantee (the
"Guarantee Trustee") and under the Indenture (the "Indenture Trustee"). See
"Description of the Convertible Preferred Securities" and "Description of the
Guarantee."
The Property Trustee holds title to the Convertible Debentures for the
benefit of the holders of the Trust Securities and will have the power to
exercise all rights, powers and privileges under the Indenture as the holder of
the Convertible Debentures. In addition, the Property Trustee will maintain
exclusive control of a segregated non-interest bearing bank account (the
"Property Trustee Account") to hold all payments made in respect of the
Convertible Debentures for the benefit of the holders of the Trust Securities.
The Guarantee Trustee holds the Guarantee for the benefit of the holders of the
Convertible Preferred Securities. The Company, as the holder of all the Trust
Common Securities, has the right to appoint, remove or replace any of the
Issuer Trustees and to increase or decrease the number of trustees, provided
that the number of trustees shall be at least two. The Company will pay all
fees and expenses related to the Trust and the offering of the Convertible
Preferred Securities. See "Description of the Convertible Debentures."
The rights of the holders of the Convertible Preferred Securities,
including economic rights, rights to information and voting rights, are as set
forth in the Declaration and the Delaware Business Trust Act, as amended (the
"Trust Act"). See "Description of the Convertible Preferred Securities." The
Declaration, the Indenture and the Guarantee also incorporate by reference the
terms of the Trust Indenture Act. It is expected that, at the time this
Registration Statement becomes effective, the Declaration, the Indenture and
the Guarantee will be qualified under the Trust Indenture Act.
The place of business and the telephone number of the Trust are the
principal executive offices and telephone number of the Company.
ACCOUNTING TREATMENT
The financial statements of the Trust will be consolidated with the
Company's financial statements. The Convertible Preferred Securities will be
shown on the Company's consolidated financial statements as "Minority interest-
- -Company-obligated mandatorily redeemable convertible preferred securities of
TIMET Capital Trust I holding solely 6 5/8% convertible junior subordinated
debentures due 2026." See "Capitalization."
- 26 -
<PAGE> 29
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company (i) as of September 29, 1996, (ii) after giving pro forma effect to the
AJM Acquisition, and (iii) pro forma as adjusted for the sale of the
Convertible Preferred Securities to the Initial Purchasers and the application
of the Company's proceeds therefrom, after deduction of estimated expenses and
discounts. This table should be read in conjunction with the historical
financial statements of the Company and the IMI Titanium Business, and the
notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 29, 1996
------------------
PRO FORMA
PRO AS
ACTUAL FORMA(1) ADJUSTED(2)
------ -------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Cash and cash equivalents $ 2.2 $ 2.3 $ 87.2
====== ====== ======
Short-term debt(4) 2.6 105.9 --
------ ------ ------
Long-term debt, net of current portion:
Capital lease obligations payable to IMI 9.8 9.8 9.8
Other 1.5 1.5 --
------ ------ ------
Total long-term debt 11.3 11.3 9.8
------ ------ ------
Minority interest--Company-obligated mandatorily
redeemable convertible preferred securities of
TIMET Capital Trust I holding solely 6 5/8%
convertible junior subordinated debentures
due 2026(3) -- -- 201.3
Other 3.3 3.3 3.3
------ ------ ------
3.3 3.3 204.6
------ ------ ------
Stockholders' equity:
Preferred stock, $.01 par value; 1 million
shares authorized, none outstanding -- -- --
Common stock, $.01 par value; 99 million
shares authorized, 31.5 million shares
issued and outstanding .3 .3 .3
Additional paid-in capital 345.8 345.8 345.8
Accumulated deficit (49.2) (49.2) (49.2)
Currency translation and pension adjustments (1.0) (1.0) (1.0)
------ ------ ------
Total stockholders' equity 295.9 295.9 295.9
------ ------ ------
Total capitalization $313.1 $416.4 $510.3
====== ====== ======
</TABLE>
(1) Assumes completion of the AJM Acquisition.
(2) Gives effect to the sale of the Convertible Preferred Securities to
the Initial Purchasers and application of the Company's net proceeds
therefrom.
(3) As described herein, the sole assets of the Trust are the Convertible
Debentures, and upon redemption of such debt, the Convertible
Preferred Securities will be mandatorily redeemable.
(4) Includes current portion of long-term debt.
- 27 -
<PAGE> 30
SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
The selected consolidated historical financial data for each of the
years in the five-year period ended December 31, 1995 have been derived from
the audited consolidated financial statements of the Company, and the selected
consolidated historical financial data for the nine-month periods ended October
1, 1995 and September 29, 1996 have been derived from the unaudited
consolidated financial statements of the Company. The Company uses a fiscal
year ending on the Sunday closest to December 31 of each year. The pro forma
financial data for the year ended December 31, 1995 gives pro forma effect to
the IMI Titanium Acquisition and the AJM Acquisition as if they had been
consummated on January 2, 1995. The pro forma adjustments are based upon
available information and certain assumptions that management of the Company
believes are reasonable. The pro forma financial data do not purport to
represent the results of operations or the financial position of the Company
which actually would have occurred had the IMI Titanium Acquisition and the AJM
Acquisition been consummated on the aforesaid date.
The following selected consolidated historical and pro forma financial
data should be read in conjunction with "Capitalization," "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
the Unaudited Pro Forma Financial Statements of the Company, the Consolidated
Financial Statements of the Company, the Combined Financial Statements of the
IMI Titanium Business and the Financial Statements of AJM (including in each
case the notes thereto) included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEARS NINE MONTHS ENDED
------------ -----------------
PRO FORMA OCT. 1, SEPT. 29,
1991 1992 1993 1994 1995 1995(14) 1995 1996(15)
---- ---- ---- ---- ---- -------- ---- --------
(IN MILLIONS, EXCEPT EMPLOYEE AND PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales:
Mill and ingot products(1) $147.4 $145.6 $143.1 $138.3 $164.9 $273.3 $122.7 $ 291.3
VDP sponge(2) -- -- .6 2.6 10.6 10.6 6.6 9.5
Castings -- -- -- -- -- 29.0 -- 38.8
Other 8.3 8.3 7.5 5.1 9.2 67.1 5.9 10.2
------ ------ ------ ------ ------ ------ ------ -------
Total net sales 155.7 153.9 151.2 146.0 184.7 380.0 135.2 349.8
Cost of sales 136.4 151.5 153.4 160.0 170.7 380.3 127.5 294.2
------ ------ ------ ------ ------ ------ ------ -------
Gross profit (loss) 19.3 2.4 (2.2) (14.0) 14.0 (.3) 7.7 55.6
Selling, general and administrative
expenses 11.9 9.9 9.5 10.9 12.2 31.1 7.6 17.5
Research and development costs 2.6 2.4 1.9 1.5 1.8 2.8 1.5 1.1
Equity in earnings of joint ventures(3) -- .2 1.4 1.6 3.7 -- 2.7 6.0
Other income -- -- .2 .1 .5 .3 .5 .1
Restructuring and other special
(charges) credit(4) -- -- (4.7) (10.0) 1.2 (3.8) -- (4.7)
------ ------ ------ ------ ------ ------ ------ -------
Operating income (loss)(4) 4.8 (9.7) (16.7) (34.7) 5.4 (37.7) 1.8 38.4
General corporate income
(expense), net(3) (.1) .2 1.9 .3 1.0 1.4 (.2) .6
Interest expense 3.8 4.2 5.7 7.6 10.4 24.4 7.9 7.3
------ ------ ------ ------ ------ ------ ------ -------
Income (loss) before income
taxes, preacquisition earnings,
and cumulative effect of changes
in accounting principles .9 (13.7) (20.5) (42.0) (4.0) (60.7) (6.3) 31.7
Income tax benefit (expense) (1.0) 4.0 .3 (.1) (.2) 12.1 (.2) (7.8)
Preacquisition earnings -- -- -- -- -- -- -- (.4)
------ ------ ------ ------ ------ ------ ------ -------
Income (loss) before cumulative
effect of changes in accounting
principles (.1) (9.7) (20.2) (42.1) (4.2) (48.6) (6.5) 23.5
Cumulative effect of changes in
accounting principles(5) -- (16.0) -- (1.0) -- -- -- --
------ ------ ------ ------ ------ ------ ------ -------
Net income (loss) $ (.1) $(25.7) $(20.2) $(43.1) $ (4.2) $(48.6) $ (6.5) $ 23.5
====== ====== ====== ====== ====== ====== ====== =======
Per common share(6):
Income (loss) before cumulative
effect of changes in accounting
principles $ (.01) $ (.86) $(1.78) $(2.80) $ (.27) $(1.94) $ (.42) $ .89
====== ====== ====== ====== ====== ====== ====== =======
Cash dividends .17 -- -- -- -- -- -- --
Weighted average common shares
outstanding(6) 11.3 11.3 11.3 15.0 15.4 25.0 15.3 26.3
Ratio of earnings to fixed charges(7) 4.9
</TABLE>
- 28 -
<PAGE> 31
<TABLE>
<CAPTION>
FISCAL YEARS NINE MONTHS ENDED
------------ -----------------
PRO FORMA OCT. 1, SEPT. 29,
1991 1992 1993 1994 1995 1995(14) 1995 1996(15)
---- ---- ---- ---- ---- -------- ---- --------
(IN MILLIONS, EXCEPT EMPLOYEE AND PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA--AS ADJUSTED(8):
Operating income (loss) $(37.7) $ 38.4
Interest expense 17.9 10.8
Net income (loss) (43.4) 20.9
Net income (loss) per common share (1.73) .80
Ratio of earnings to fixed charges(7) 3.5
BALANCE SHEET DATA:
Working capital(9) $ 73.3 $ 62.0 $ 44.6 $ 38.0 $ 52.3 $ 55.5 $134.5
Total assets 174.6 267.0 262.5 240.2 248.8 257.9 476.3
Long-term debt, including current
maturities(10) 69.6 149.3 75.0 92.9 89.6 95.6 12.8
Stockholders' equity 72.8 46.6 109.0 64.7 68.1 70.4 295.9
OTHER OPERATING DATA:
EBITDA(11) $ 7.8 $ (6.1) $(12.3) $(26.7) $ 18.6 $ 9.3 $ 51.1
Cash flows provided from (used in):
Operating activities 18.9 (3.6) 12.4 (20.0) (6.1) (10.9) (9.4)
Investing activities (30.3) (71.3) (16.3) (4.6) (2.5) (1.9) (15.9)
Financing activities 17.4 70.1 4.7 17.7 8.6 15.0 23.9
------ ------ ------ ------ ------ ------ ------
Total 6.0 (4.8) .8 (6.9) (--) 2.2 (1.4)
Debt to total capitalization 49% 76% 41% 59% 57% 58% 4%
Ratio of EBITDA to interest expense(12) 2.1 1.8 1.2 7.0
Mill product shipments
(millions of pounds) 10.2 10.8 11.2 10.5 12.2 20.5 9.3 19.6
Active employees at period end 1,120 1,170 1,070 880 1,020 2,550 977 2,743
Order backlog at period end(13) $ 80.0 $ 90.0 $ 80.0 $ 85.0 $125.0 $226.0 $115.0 $400.0
Capital expenditures 30.1 67.3 16.3 4.6 3.0 11.9 2.3 10.8
</TABLE>
(1) Net sales include $4 million in 1993 and $20 million in 1994 of sales
related to TIMET's arrangements with CEZUS. Based upon the structure
of a revised agreement entered into in March 1995, TIMET did not
consolidate CEZUS related sales in 1995 and the first seven months of
1996. In August 1996 the Company formed TIMET Savoie which is 70%
owned by TIMET and 30% owned by CEZUS. The Company consolidated TIMET
Savoie effective August 1996. See Note 3 to the Company's
Consolidated Financial Statements.
(2) Principally represents sales to UTSC.
(3) Equity in earnings of THT is included in operating income while equity
in earnings of other joint ventures is included in general corporate
income (expense), net. With the AJM Acquisition, this accounting
treatment will not continue. See "Pro Forma Condensed Consolidated
Financial Statements."
(4) Operating income (loss) includes restructuring and other special
charges of $4.7 million in 1993, $10 million in 1994, $3.8 million for
pro forma 1995 and $4.7 million in the nine months ended September 29,
1996. A restructuring credit of $1.2 million is included in 1995.
See Note 5 to the Company's Consolidated Financial Statements
regarding restructuring and other special charges.
(5) Changes in accounting principles related to the effect of SFAS No.
106 (post-retirement benefits) and SFAS No. 109 (income taxes) in
1992 and SFAS No. 112 (postemployment benefits) in 1994. See Note 12
to the Company's Consolidated Financial Statements.
(6) Per common share data and weighted average common shares outstanding
give effect in all periods presented to the stock split effected in
connection with the Stock Offering. See Note 9 to the Company's
Consolidated Financial Statements.
(7) For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of income from continuing operations before income
taxes and minority interest plus fixed charges (excluding capitalized
interest) and adjustments for certain undistributed equity in
earnings. Fixed charges consist of interest expense, capitalized
interest, and the estimated interest factor inherent in operating
lease rentals. The Company's earnings were insufficient to cover
fixed charges for the five fiscal years ended 1995, pro forma 1995 and
pro forma 1995 -- as adjusted. The amount of coverage deficiency was
$.1 million, $18.3 million, $25.6 million, $42.4 million, $5.1
million, $61.8 million and $56.2 million for the fiscal years 1991,
1992, 1993, 1994, 1995, pro forma 1995 and pro forma 1995 -- as
adjusted, respectively.
(8) Reflects sale of the Convertible Preferred Securities to the Initial
Purchasers and application of the Company's net proceeds therefrom.
See "Capitalization."
- 29 -
<PAGE> 32
(9) Working capital represents current assets minus current liabilities
(excluding current portion of long-term debt and current portion of
capital lease obligations).
(10) Includes loans and interest to related parties and capital lease
obligations; excludes trade and other payables to related parties.
(11) EBITDA represents income (loss) before cumulative effect of accounting
changes plus income taxes, interest expense, depreciation and
amortization less equity in earnings of nonoperating joint ventures.
EBITDA is presented because it is a widely accepted financial
indicator of cash flow and the ability to service debt. EBITDA should
not be considered as an alternative to, or more meaningful than,
operating income, net income or cash flow as an indicator of the
Company's performance.
(12) The Company's EBITDA was insufficient to cover interest expense for
the fiscal years ended 1992, 1993 and 1994. The amount of EBITDA
deficiency in 1992, 1993 and 1994 was $10.3 million, $18 million and
$34.3 million, respectively.
(13) "Order backlog" is defined as firm purchase orders (which are
generally subject to cancellation by the customer upon payment of
specified charges).
(14) Gives pro forma effect to the IMI Titanium and AJM Acquisitions. See
"Pro Forma Condensed Consolidated Financial Statements."
(15) See "Pro Forma Condensed Consolidated Financial Statements" at PF-10
for pro forma Statement of Operations data for the nine-month period
ended September 29, 1996.
- 30 -
<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations should be read in conjunction with the financial statements of the
Company and notes thereto appearing elsewhere in this Prospectus. References
to the "Company" or "TIMET" in this Prospectus, except where otherwise
indicated, (i) include the IMI Titanium Business, (ii) exclude the effect of
the transactions consummated in connection with the AJM Acquisition and (iii)
include the 50% partnership interest in THT owned by TIMET prior to the AJM
Acquisition. See "Business--Introduction." References to the "Company" or
"TIMET" in this Prospectus for periods prior to and including December 31,
1995, except when otherwise indicated, exclude the IMI Titanium Business.
Certain statements in the following discussion are forward-looking statements
or discussions of trends which by their nature involve substantial risks and
uncertainties that could significantly impact expected results. Actual future
results and trends may differ materially from those described below depending
on a variety of factors, including those detailed under the caption "Risk
Factors" and elsewhere in this Prospectus.
OVERVIEW
In 1995, the Company and the titanium industry began recovering from
the depressed industry conditions that existed during the prior several years.
The aerospace industry historically has accounted for approximately 65% of U.S.
titanium mill products consumption and has had a significant effect on the
overall sales and profitability of the titanium industry. The aerospace
industry, and consequently the titanium metals industry, is highly cyclical.
Until recently, the Company and the industry had been significantly and
adversely affected by excess worldwide production capacity, depressed levels of
spending for both military and commercial aircraft, and depressed selling
prices resulting from, among other things, relatively inexpensive titanium
scrap, sponge and other mill products, principally from Russia and other
countries comprising the former Soviet Union. However, the Company estimates
that U.S. industry shipments of titanium mill products in 1995 increased 26%
from 1994 levels to 43.5 million pounds and are projected by the Company to
approximate 61.5 million pounds in 1996, an increase of 41% over 1995 levels.
Annual U.S. shipments had previously remained relatively flat in the period
between 1991 and 1994 at about 35 million pounds. The Company estimates that
U.S. industry mill products shipments to the commercial aerospace market in
1995 approximated 18 million pounds, an 18% increase over 1994, and will be
approximately 25 million pounds in 1996, an increase of 39% over 1995 levels.
See "Risk Factors--Cyclicality; Dependence on Aerospace Industry."
The titanium industry's recent improvement is due to a combination of
factors, including a resurgence in commercial aerospace demand, continued and
stable industrial demand, an end to customer inventory drawdowns, and the
emergence of new uses of titanium metal, particularly golf club heads. The
economic health of the commercial airline industry, the largest end market for
titanium, has improved significantly compared to the substantial losses that
the industry reported in prior years. Reported orders for new commercial
aircraft have increased significantly, particularly for wide body aircraft like
the Boeing 777, which use more titanium per plane than narrow body aircraft.
Although military aircraft deliveries continue to remain lower than deliveries
in the 1980s due to constrained defense budgets, sales to industrial markets in
1995 and 1996 have continued at strong levels and are expected to do so during
1997.
On February 15, 1996, the Company completed the IMI Titanium
Acquisition. IMI previously conducted its titanium business principally
through its wholly-owned U.K. subsidiary, IMI Titanium Ltd., and its U.S.
subsidiary, IMI Titanium Inc. IMI Titanium Ltd., now TIMET UK, Ltd. ("TIMET
UK"), is Western Europe's largest producer of titanium ingot and mill products
for aerospace and industrial applications. IMI Titanium Inc., now TIMET
Castings Corporation ("TIMET Castings"), manufactures titanium castings for
aerospace applications and golf club heads. In connection with the IMI
Titanium Acquisition, the Company issued 9,561,305 shares of Common Stock to
IMI, and $20 million of subordinated debt to IMI in exchange for a like amount
of debt previously owed to IMI by IMI Titanium Ltd. As a result of the IMI
Titanium Acquisition and prior to the Stock Offering in June 1996, the Company
was owned 46.3% by Tremont, 37.9% by IMI, 15.4% by UTSC and .4% by members of
the Company's management. The Company has accounted for the IMI Titanium
Acquisition by the purchase method of accounting and has consolidated the
operating results of the IMI Titanium Business in its historical financial
statements as of January 1, 1996. See Note 3 to the Company's Consolidated
Financial Statements.
- 31 -
<PAGE> 34
On June 4, 1996, the Company completed an initial public offering of
its Common Stock in the Stock Offering. Pursuant to the Stock Offering, the
Company, IMI and UTSC sold 6,200,000, 7,550,000 and 750,000 shares of Common
Stock, respectively. Tremont sold 2,175,000 shares of Common Stock pursuant to
the exercise of the underwriters' overallotment options. The Company used
substantially all of the net proceeds to the Company from the Stock Offering of
$131 million to repay outstanding indebtedness, including approximately $42.5
million of shareholder indebtedness to Tremont and IMI. Following the Stock
Offering, approximately 54% of the outstanding Common Stock is held by the
public, and 6.4% is held by IMI, 10.0% by UTSC and 30.3% by Tremont. Tremont
and UTSC have the option to acquire the balance of the shares held by IMI. See
"Principal Stockholders."
Prior to July 1996, TIMET held a 26% interest in TISTO, a German
distributor of titanium products. In July 1996, TIMET acquired the remaining
74% equity interest for approximately $2 million in cash and guaranteed
approximately $2 million in existing loans from former TISTO shareholders.
TIMET has consolidated TISTO's results effective July 1, 1996. TISTO's
revenues approximated $5 million for the three months ended September 29, 1996.
The pro forma effect of the TISTO acquisition is not considered material.
Effective August 1, 1996, TIMET and CEZUS completed an agreement to
form a new jointly-owned French company, TIMET Savoie, S.A. ("TIMET Savoie").
TIMET Savoie will manufacture and sell titanium products, principally products
manufactured by TIMET Savoie at CEZUS' zirconium manufacturing facility in
Ugine, France (utilizing CEZUS as a subcontractor with respect to certain
manufacturing steps pursuant to a long term agreement). TIMET Savoie is
70%-owned by TIMET and 30%-owned by CEZUS. The Company consolidated TIMET
Savoie effective August 1, 1996. TIMET Savoie's revenue for the two months
ended September 29, 1996 was approximately $5 million. The pro forma effect of
the TIMET Savoie transaction is not considered material.
On October 1, 1996, the Company completed the AJM Acquisition for
approximately $96 million in cash plus the assumption of approximately $6
million in debt. The AJM Acquisition was completed through a newly formed
subsidiary of the Company, Titanium Hearth Technologies, Inc. ("THT, Inc."),
and included the acquisition of the remaining 50% general partnership interest
in THT that TIMET did not previously own. The purchase price was funded
through borrowings under TIMET's U.S. credit facility. THT, Inc. and its
subsidiaries operate electron beam cold hearth melting facilities and scrap
processing operations in Pennsylvania, Nevada and California. TIMET will
account for the AJM Acquisition by the purchase method and will consolidate the
financial position and results of operations of THT, Inc. beginning in the
fourth quarter of 1996.
OUTLOOK
The Company's order backlog increased to approximately $400 million at
September 29, 1996, from $213 million at December 31, 1995 (which amounts
include the backlog of the former IMI Titanium Business). The Company defines
"order backlog" as firm purchase orders (which are generally subject to
cancellation by the customer upon payment of specified charges). The Company
has historically experienced a high level of order cancellations and deferrals
in periods of industry downturns. The following table summarizes the quarterly
order backlog of the Company as of September 29, 1996 and for the three years
ended December 31, 1995 (which amounts include the backlog of the former IMI
Titanium Business).
<TABLE>
<CAPTION>
FISCAL QUARTER
--------------
YEAR FIRST SECOND THIRD FOURTH
- ---- ----- ------ ----- ------
(IN MILLIONS)
<S> <C> <C>
1996 $262 $341 $400
1995 152 158 190 $213
1994 112 118 124 125
1993 130 114 103 123
</TABLE>
During the second half of 1995 and continuing into 1996, the Company
has experienced a significant increase in requests for quotations, increased
orders and increased prices on accepted orders. The Company estimates that as
of September 29, 1996, orders for approximately 37% of its anticipated 1997
shipments had been booked at average selling prices (contracted or anticipated
- 32 -
<PAGE> 35
based upon current negotiations) approximately 14% higher than its 1996 average
selling prices to date. The increase in average selling prices on new orders
is partly attributable to the renegotiation of certain long-term customer
agreements at higher prices. The increase in demand has been driven primarily
by the recovery in the commercial aerospace market and the emergence of the
golf club market. The Company estimates that its sales to the golf club market
will be approximately 8% of its 1996 sales. As capacity utilization in the
titanium industry continues to grow and delivery lead times lengthen, the
Company expects prices on new orders to continue to strengthen in 1996 and
1997, although there can be no assurance that this trend will continue or not
be reversed.
The increase in demand for titanium products has contributed to the
upward pressure on prices for certain raw materials used by the Company,
including alloying materials, titanium scrap and titanium sponge. The Company
currently is a significant purchaser of titanium sponge, despite having 32
million pounds of internal practical sponge production capacity. Prices for
titanium sponge under the terms of the Company's sponge purchase contracts are
specified for 1996 for the contracted quantity. Purchases of sponge above the
contracted quantity would likely be at higher prices. The Company expects
increased selling prices to more than offset any raw material cost increases in
1996 and 1997, although there can be no assurance that recent price increases
will continue or not be reversed.
With two significant exceptions, the Company currently contracts with
its customers at prices that reflect current market prices. UTSC has the right
to acquire up to approximately 20% of the Company's annual production capacity
of VDP sponge at agreed-upon prices through early 1997 and higher
formula-determined prices thereafter through 2008. This contract arose out of
UTSC's license of certain VDP technology to the Company. The pricing under
this contract will significantly increase in early 1997 (based on the expected
timing of UTSC purchases) but will remain below market. At anticipated 1996
volume levels under the UTSC agreement (and assuming no increase in average
costs over 1995 levels), the improved pricing under this agreement should
result in an annual benefit to operating income of approximately $2.4 million,
with actual results depending on costs and volumes at the time. In addition,
the Company has another significant long-term supply contract for mill products
containing pricing provisions which are expected to remain substantially below
current market prices through 1998.
- 33 -
<PAGE> 36
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
-----
FISCAL YEARS FISCAL YEARS OCTOBER 1, SEPTEMBER 29,
------------ ------------
1993 1994 1995 '93-'94 '94-'95 1995 1996 CHANGE
---- ---- ---- ------- ------- ---- ---- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $151.2 $146.0 $184.7 $ (5.2) $38.7 $135.2 $349.8 $214.6
====== ====== ====== ====== ===== ====== ====== ======
Operating income $(16.7) $(34.7) $ 5.4 $(18.0) $40.1 1.8 38.4 36.6
General corporate income
(expense) 1.9 .3 1.0 (1.6) .7 (.2) .6 .8
Interest expense 5.7 7.6 10.4 1.9 2.8 7.9 7.3 .6
------ ------ ------ ------ ----- ------ ------ -----
Income (loss) before income
taxes $(20.5) $(42.0) $ (4.0) $(21.5) $38.0 $ (6.3) $ 31.7 $38.0
====== ====== ====== ====== ===== ====== ====== =====
Percent change:
Sales volume (in pounds) -1% +20% +26%
Mill product average
selling prices 0% +9% +16%
</TABLE>
Nine months ended September 29, 1996 compared to nine months ended
October 1, 1995
The results of operations for 1996 include the results of the IMI
Titanium Business acquired on February 15, 1996, TISTO acquired on July 9, 1996
and TIMET Savoie formed on August 1, 1996. All price and volume comparisons in
this discussion of the nine-month periods are pro forma assuming the IMI
Titanium Acquisition occurred at the beginning of fiscal 1995. The pro forma
effect of TISTO and TIMET Savoie on price and volume information would not be
material.
The Company's operating income in the first nine months of 1996
improved significantly from the comparable period in 1995. The improvement was
principally driven by price and volume increases for titanium products in the
commercial aerospace and golf club market. For the first nine months of 1996,
sales volume of titanium mill products increased to 19.6 million pounds
compared to 15.5 million pounds in the year-ago period. Average selling prices
in the first nine months of 1996 were up approximately 16% over the first nine
months of 1995.
The selling price increases reflect both the pass-through of cost
increases, particularly raw material costs, and real price improvement
associated with increased market demand. Although the Company and the titanium
industry are continuing to experience increases in the cost of certain raw
materials, the Company's increased selling prices more than offset those cost
increases. Prices on recent orders for titanium products have continued to
increase relative to 1995 levels although there can be no assurance that this
trend will continue. The Company's backlog of firm orders approximated $400
million at September 29, 1996.
Operating levels at the Company's plants in the first nine months of
1996 were higher than the same period in 1995 and contributed to the better
operating results. The VDP titanium sponge plant operated at about 85% of its
practical capacity of 20 million pounds annually in the first nine months of
1996 compared to about 75% of practical capacity in 1995. The Company
presently expects its VDP plant to operate at practical capacity in 1997 if
current conditions continue. The Company restarted production of titanium
sponge at its original Kroll-leach facility during the second quarter in
response to demand for certain grades of titanium sponge. TIMET presently
intends to increase Kroll-leach titanium sponge production to at least 10
million pounds of annual production in 1997. Costs to restart the Kroll-leach
facility were $1.4 million in the first nine months of 1996 and are expected to
aggregate approximately $2 million for the full year. The Company's overall
mill product capacity utilization for the first nine months of 1996
approximated 85%. Depreciation and amortization expense increased $3.8 million
in the first nine months of 1996 over the year-ago period principally as a
result of the IMI Titanium Acquisition.
TIMET Castings' sales to the aerospace and golf club industry
aggregated $39.6 million for the first nine months of 1996. Operating income
for TIMET Castings was $4 million for the first nine months of 1996. The
Company's operating income in the first nine months of 1996 included $5.8
million related to equity in earnings of THT compared to $2.7 million in the
year-ago period. The Company's consolidated net sales and operating income
(prior to intercompany eliminations) for the nine months ended September 29,
1996 included $10 million and nil, respectively, attributable to TISTO and
TIMET Savoie.
- 34 -
<PAGE> 37
Selling, administrative and development expenses increased relative to
the year-ago periods principally due to the IMI Titanium Acquisition. General
corporate items principally consist of foreign exchange gains and losses and,
prior to October 1995, the Company's equity in earnings of former real estate
ventures.
See Note 3 to the Consolidated Financial Statements regarding the IMI
Titanium, AJM and TISTO acquisitions and TIMET Savoie formation and Note 9
regarding the Stock Offering.
1995 compared to 1994
Sales volume of sponge, ingot and mill products in 1995 increased to
18.7 million pounds, a 20% improvement over 1994 levels. Shipments of titanium
products for industrial applications were up moderately compared to 1994 while
aerospace volumes showed greater improvement than industrial applications.
Sales volume from U.S.-based operations increased in 1995 relative to 1994;
however, this increase was partially offset by reduced sales associated with
the Company's revised agreements with CEZUS, a leading European zirconium and
titanium producer located in France, as discussed below. The Company's dollar
denominated sales benefitted during 1995 from the relative weakness in the
value of the U.S. dollar versus certain other currencies. The 9% increase in
average selling prices in 1995 over 1994 reflects both the pass-through of
certain cost increases and real price improvement associated with increased
market demand.
Operating levels at all of the Company's plants were higher in 1995
than 1994 and contributed to the better operating results relative to 1994.
The higher production levels were partly attributable to the absence of work
stoppages in 1995, and improved VDP related equipment reliability during the
second half of 1995. The VDP plant operated at about 75% of its practical
capacity in 1995, compared with 45% in 1994. Depreciation expense increased
$4.9 million in 1995 over 1994 principally as a result of the units of
production method used to depreciate the VDP plant.
In March 1995, the Company and CEZUS entered into an agreement which
revised the distribution and manufacturing arrangement that had existed between
the Company and CEZUS since 1993. Among other things, the revised agreement
eliminated the Company's sharing in the profits or losses associated with
CEZUS' titanium business after 1994. Based upon the structure of the revised
agreement, the Company recognized only commission income from sales of CEZUS
products in 1995 (approximately $.4 million) whereas the Company had previously
consolidated the titanium sales and related costs associated with its
arrangement with CEZUS. Revenues from CEZUS products included in the Company's
consolidated sales were about $4 million in 1993 and $20 million in 1994. In
August 1996, the Company and CEZUS completed the formation of a jointly-owned
French company, TIMET Savoie, to manufacture and sell titanium products. See
"Business--Strategic Alliances--CEZUS."
The Company's operating income in 1995 included $3.7 million related
to the Company's equity in earnings of THT compared to $1.6 million in 1994.
1994 compared to 1993
The Company's sales and operating results were adversely affected in
1994 by depressed aerospace demand for titanium products, work stoppages at its
two principal plants (Henderson, Nevada, and Toronto, Ohio), and mechanical
difficulties at its VDP titanium sponge production facility. The Company's
sponge, ingot and mill products sales volume in 1994 was 15.6 million pounds
which was comparable to pounds shipped in 1993, as reduced sales from
U.S.-based operations were offset by increased sales associated with the
Company's then-existing agreements with CEZUS. Sales for aerospace
applications in 1994 declined relative to 1993. However, sales for industrial
applications in 1994 continued at 1993 levels as the economic recovery in the
U.S. and other countries resulted in continued levels of capital spending by
the utility, desalination and certain other industries. Additionally, the
Company's dollar denominated sales benefitted from the relative weakness in the
value of the U.S. dollar. Average 1994 selling prices approximated 1993
levels.
Costs associated with the Company's VDP plant had a negative impact on
operating margins in 1994, principally due to mechanical difficulties with
certain shearing and crushing equipment which resulted in the VDP plant
operating at about 45% of capacity. These difficulties required the Company to
operate both the VDP facility and its original Kroll-leach sponge production
- 35 -
<PAGE> 38
facility during the first half of 1994. The Company increased its VDP sponge
production after the mechanical difficulties were addressed and then
temporarily closed its original Kroll-leach facility. Depreciation expense in
1994 increased approximately $3.7 million compared to 1993 principally at the
VDP facility due to the depreciation method used at the VDP facility.
The United Steelworkers of America commenced a work stoppage at the
Company's Henderson, Nevada, facility on October 2, 1993, affecting
approximately 375 hourly workers at that plant. Production at the plant was
continued through the use of salaried personnel and temporary contract labor.
In July 1994, the Company hired approximately 150 of the contract workers as
permanent replacements and, subsequently, the union accepted the Company's
contract proposal, with minor modifications, ending the nine-month strike. In
September 1996, the hourly workforce at the plant, approximately 390 workers,
voted to ratify a new, four-year labor agreement, which expires in October
2000.
In August 1994, approximately 375 hourly workers at the Company's
Toronto, Ohio, production facility, represented by the United Steelworkers of
America, commenced a work stoppage following expiration of their contract.
Production was continued in certain portions of the plant during the strike by
salaried personnel and contract workers. The strike ended in October 1994,
and, in July 1995, the Company and the union agreed to the terms of a new
four-year labor agreement which includes, among other things, greater work rule
flexibility and continuation of a lower-cost medical program. This labor
agreement covered about 330 hourly workers at December 31, 1995, and expires in
June 1999.
RESTRUCTURING AND OTHER SPECIAL CHARGES
The Company's restructuring charges in 1993 and 1994 were related to
cost reduction and containment efforts taken in response to depressed industry
conditions existing in those years. Restructuring charges were $4.7 million in
1993 and $10.0 million in 1994. In the fourth quarter of 1995, the Company
determined that its restructuring costs would ultimately be less than
previously estimated and reversed $1.2 million of previously accrued
restructuring charges.
The Company's restructuring charges were principally related to the
temporary closing of the Company's Kroll-leach sponge production facility, the
closing of certain sales and service center locations, and costs to reduce the
Company's workforce. The Company has continued to monitor its restructuring
activities and related accruals in light of changing business conditions.
Strikes at the Company's principal production facilities in 1993 and 1994,
improved industry conditions in 1995, and other events required the Company to
both defer and revise certain of the restructuring actions it previously
contemplated. As part of its restructuring actions, the Company had expected
to reduce its workforce by approximately 350 people. Since 1993, the Company's
workforce has been reduced by approximately 300 people in connection with its
restructuring activities. However, recently improved market demand for
titanium metal products and other changes in business conditions has resulted
in the Company's adding approximately 300 new employees in selected areas. The
Company restarted production of titanium sponge at its original Kroll-leach
facility in the second quarter of 1996.
The Company recorded $4.7 million of special charges in the first nine
months of 1996 related to the IMI Titanium Acquisition. Such charges included
$3 million ($1.5 million in Common Stock and $1.5 million cash) related to
compensation of the Company's officers in consideration for their services in
connection with the IMI Titanium Acquisition, and $1.7 million related to
integration and other costs. The Company expects to incur additional special
charges related to integration costs during the balance of 1996 of
approximately $.5 million. See Note 5 to the Company's Consolidated Financial
Statements.
GENERAL CORPORATE
General corporate items in each of the past three years principally
consist of the Company's equity in earnings of former real estate ventures. In
October 1995, the Company made a pro rata distribution to its stockholders
consisting of all its interest in these ventures and certain real estate in
Nevada at their net carrying amount which approximated $5 million.
- 36 -
<PAGE> 39
INTEREST EXPENSE
Interest expense in the first nine months of 1996 was slightly lower
than the year-ago period principally due to the net effects of higher average
borrowings under TIMET's U.S. credit facility and the $20 million of
subordinated debt issued to IMI in connection with the IMI Titanium Acquisition
before the Stock Offering was completed and such indebtedness was repaid.
Interest expense increased in 1995 compared to 1994 principally due to higher
average borrowings under the Company's U.S. credit facility and higher average
interest rates effective on such debt. The increase in interest expense in
1994 compared to 1993 reflects the net effect of higher average outstanding
borrowings, lower capitalized interest and cessation of interest accruing after
May 1993 on UTSC's $75 million of debentures. Capitalized interest aggregated
$3.1 million in 1993 and nil in 1994 and 1995. See "--Liquidity and Capital
Resources."
INCOME TAXES
The Company's income tax rate in the first nine months of 1995 varied
from the U.S. statutory rate due to losses which resulted in temporary
differences between book and taxable income for which recognition of a deferred
tax asset was not considered appropriate at the time. The Company's income tax
rate in the first nine months of 1996 varied from the U.S. statutory rate
principally due to a reduction in the deferred tax valuation allowance to
reflect the expected utilization of a portion of its U.S. net operating loss
carryforwards ("NOLs") in 1996.
SFAS No. 109 requires a valuation allowance against all or a portion
of a net deferred tax asset when it is more likely than not that some portion
or all of the deferred tax assets will not be realized. It further states that
forming a conclusion that a valuation allowance is not needed is difficult when
there is negative evidence such as cumulative losses in recent years. The
Company incurred losses in each of its past five fiscal years. Although the
Company has reported net income in its four most recent fiscal quarters, the
Company does not believe the weight of evidence supports release of any of its
valuation allowance at September 29, 1996 in excess of NOLs expected to be
utilized in 1996. The Company may release a portion of its deferred tax asset
valuation allowance in the future, resulting in a tax benefit, if it concludes
that the "more likely than not" realization criteria of SFAS No. 109 are met.
In making its assessment of realizability, the Company will continue to
consider a number of factors, including the length of time it has remained
profitable, its backlog level, general improvement in overall industry
operating conditions, the cyclicality of the commercial aerospace market and
business fundamentals in the Company's key market sectors. When preparing
future financial statements, the Company will evaluate its strategic and
business plans, in light of evolving business conditions, and the valuation
allowance will be adjusted for future expectations resulting from that process,
to the extent different from those inherent in the valuation allowance as of
September 29, 1996.
At December 31, 1995 and September 29, 1996, the Company had, for
financial reporting purposes, U.S. NOLs of approximately $40 million and $30
million, respectively.
As a result of the IMI Titanium Acquisition, an "ownership change," as
defined in Section 382 of the Internal Revenue Code occurred with respect to
the Company. The effect of an "ownership change" is to place an annual
limitation on the amount of NOLs that can be utilized. The limitation is
generally equal to the product of (i) the fair value of the Company's equity
immediately prior to the ownership change, and (ii) the long-term tax exempt
bond rate of return published monthly by the Internal Revenue Service. In the
event that the Company's U.S. taxable income exceeds the annual limitation,
such excess would not be reduced by NOLs and the Company's overall tax rate
would be higher than otherwise expected. The Company believes the limitation
will be $15 million annually.
CHANGES IN ACCOUNTING PRINCIPLES
The Company expects to elect the disclosure alternative prescribed by
SFAS No. 123, "Accounting for Stock-Based Compensation," and to account for
stock-based employee compensation with respect to the Company's Common Stock in
accordance with Accounting Principles Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to Employees," and its various interpretations.
Under APB No. 25, no compensation cost is generally recognized for fixed stock
options in which the exercise price is not less than the market price on the
grant date. Under the disclosure alternative of SFAS No. 123, the Company
will disclose,
- 37 -
<PAGE> 40
starting with its 1996 fiscal year, its respective pro forma net income and
earnings per share as if the fair value based accounting method of SFAS No.
123 had been used to account for stock-based compensation cost for all awards
granted by the Company after January 2, 1995. See Notes 9 and 12 to the
Company's Consolidated Financial Statements.
The Company adopted SFAS No. 112, "Employers' Accounting for
Postemployment Benefits" in 1994 and recorded a related $1.0 million non-cash
charge. See Note 12 to the Company's Consolidated Financial Statements.
QUARTERLY RESULTS OF OPERATIONS
The following table presents the Company's unaudited consolidated
quarterly financial data for fiscal years 1994 and 1995, and the first three
quarters of 1996.
<TABLE>
<CAPTION>
1994 FISCAL QUARTERS 1995 FISCAL QUARTERS 1996 FISCAL QUARTERS
-------------------- -------------------- --------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST SECOND THIRD
----- ------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $40.9 $37.5 $ 32.8 $ 34.8 $41.7 $45.7 $47.9 $49.5 $107.6 $118.8 $123.4
Gross profit (loss) .7 .4 (6.1) (9.0) .6 2.8 4.2 6.4 15.1 17.9 22.6
Operating income (loss) (1.8) (2.2) (8.4) (22.3) (1.6) 1.1 2.3 3.6 6.8 13.8 17.8
Income (loss) before accounting changes (3.1) (4.3) (10.3) (24.4) (4.0) (2.1) (.4) 2.3 2.1 8.1 13.3
Cumulative effect of accounting changes (1.0) -- -- -- -- -- -- -- -- -- --
Net income (loss) $(4.1) $(4.3) $(10.3) $(24.4) $(4.0) $(2.1) $(.4) $ 2.3 $ 2.1 $ 8.1 $ 13.3
</TABLE>
The Company's operating loss includes restructuring charges of $10
million in the fourth quarter of 1994 and restructuring credits of $1.2 million
in the fourth quarter of 1995. The Company recorded special charges
aggregating $4.7 million to operating income in the first three quarters of
1996 principally related to the IMI Titanium Acquisition. Restructuring and
other special charges are described in Note 5 to the Company's Consolidated
Financial Statements. See Note 4 to the Company's Consolidated Financial
Statements for additional information regarding operating income (loss).
INFLATION
In general, costs are affected by inflation and the effects of
inflation may be experienced in the future. The Company believes, however,
that such effects have not been material to the Company in the first three
quarters of 1996 or in the past three years.
LIQUIDITY AND CAPITAL RESOURCES
Although the Company incurred significant losses in each of the past
three fiscal years, the Company's 1995 results improved relative to 1994, and
the Company's results for the first nine months of 1996 were significantly
improved over the year-ago period. The Company's results include significant
noncash items. Depreciation and amortization expense increased to $12.6
million in the first nine months of 1996 compared to $8.8 million for the
year-ago period principally as a result of the IMI Titanium Acquisition. The
Company recorded $4.7 million of special charges in the first nine months of
1996 related to the IMI Titanium Acquisition, approximately $1.5 million of
which was noncash for common stock. The Company's equity in earnings of THT
were $2.7 million and $5.8 million for the first nine months of 1995 and 1996,
respectively, while THT made no distributions in either period. Cash flow from
operations in the first nine months of both 1995 and 1996 was reduced by
increases in accounts receivable and inventories, which was partially offset by
increases in accounts payable. Depreciation expense was $13.2 million in 1995
compared to $8.3 million in 1994. The increase in depreciation expense in 1995
compared to 1994 was principally attributable to the Company's VDP plant
operating at higher levels in 1995 and the resulting impact associated with the
units of production basis of depreciation. In 1994, the Company recorded a
restructuring charge of $10 million (approximately $5 million of which was
noncash) and also provided a $5 million reserve for excess and slow moving
inventory. In 1993, the Company recorded a $4.7 million restructuring charge.
In 1995, the Company determined that its ultimate restructuring costs would be
less than previously estimated and reversed $1.2 million of previously accrued
restructuring charges. During 1994 and 1995, cash costs of $1.2 million and
$1.7 million, respectively, were charged against the restructuring accrual.
The Company's cash flow from operating activities in 1994 and 1993 was
favorably impacted by relative changes in assets and liabilities. Cash flow
from operations in 1995 was negatively impacted by increases in inventories and
accounts receivable, which were partially offset by increases in accounts
- 38 -
<PAGE> 41
payable and accrued liabilities. Restructuring and other special charges are
further discussed in Note 5 to the Company's Consolidated Financial Statements.
The Company's capital expenditures in the first nine months of 1996
were $10.8 million compared to $2.3 million in the year-ago period. The
Company estimates capital expenditures in 1997 will be approximately $40
million. Capital expenditures decreased to $3 million in 1995 compared to $4.6
million in 1994 and $16.3 million in 1993. Construction of the Company's VDP
titanium sponge facility was completed in 1993 and accounted for the majority
of the Company's aggregate capital expenditures that year.
The Company completed the Stock Offering on June 4, 1996. The
Company's net proceeds from the Stock Offering approximated $131 million. The
Company used approximately $42.5 million of such net proceeds to repay existing
indebtedness to stockholders ($22.5 million to Tremont and $20 million to IMI)
and $82 million to repay indebtedness under its U.S. credit facility.
Reductions of indebtedness in the fiscal year 1995 include $5.4
million of installments on the term loan portion of the Company's U.S. credit
facility and payment of the final $1.7 million installment due on the note
associated with the Company's purchase of its original 50% interest in THT in
1992. In April 1994, the Company entered into its current U.S. credit
facility, which replaced its prior U.S. bank agreement, and the Company repaid
$45 million of borrowings outstanding thereunder at closing. The Company's net
repayment of bank debt aggregated $4 million in 1993.
The Company consumed significant amounts of cash in the first nine
months of 1996 and each of the past three years to fund operating losses,
capital expenditures, working capital and debt service, including about $20
million consumed by the Company for such items in the first nine months of 1996
and $16 million in fiscal 1995. The consumption of cash has required the
Company, from time to time, to both increase its bank borrowings and obtain
additional financial support from its stockholders. The Company has taken and
continues to take measures to manage its liquidity requirements including,
among other things, refinancing certain debt, containment of capital
expenditures, and other efforts to control both costs and the level of working
capital.
The Company's U.S. credit facility provided for revolving
loans/letters of credit aggregating up to $105 million at September 29, 1996.
Borrowings are limited to a formula-determined amount of accounts receivable
and inventories. Interest accrues at the prime rate plus .75% or, at the
Company's option, LIBOR plus 2.25% (9% at September 29, 1996). Borrowings are
collateralized by substantially all of the Company's assets. The credit
agreement prohibits dividends on the Company's common stock in excess of 20% of
the Company's net income in any fiscal year, limits the Company's additional
indebtedness and contains other covenants customary in agreements of this type.
The Company had $102 million of borrowings available under its U.S. credit
facility at September 29, 1996, drew $90 million on October 1, 1996, in
connection with AJM Acquisition, and repaid all outstanding amounts in
connection with sale of the Convertible Preferred Securities. The Company has
requested an increase to $135 million in the borrowings available under the
U.S. credit facility.
TIMET UK has a L10 million (approximately $15 million)
overdraft/revolving credit facility maturing January 31, 1997. The agreement
restricts payments of dividends from TIMET UK, loans and other transactions
with related parties and contains other covenants customary in transactions of
this type. Borrowings under this agreement are collateralized by substantially
all of TIMET UK's assets and accrue interest at the bank's base rate plus 2%
(7.75% at September 29, 1996). At September 29, 1996 no amounts were
outstanding.
In July 1996, the Company acquired the remaining 74% interest in TISTO
for approximately $2 million in cash and guaranteed approximately $2 million in
existing loans from former TISTO shareholders. TISTO is the largest
German-based distributor of titanium products. The Company previously owned a
26% equity interest in TISTO. The acquisition was funded with borrowings under
TIMET UK's credit facility.
TISTO has deutsche mark-denominated short term bank credit agreements
and notes payable to former TISTO shareholders with outstanding balances of
$1.1 million and $1.5 million, respectively, at September 29, 1996. Interest
accrues at 9.25% and 11%, respectively, on such facilities.
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<PAGE> 42
Effective August 1, 1996, TIMET and CEZUS completed an agreement to
form TIMET Savoie to manufacture and sell titanium products. TIMET Savoie is
70%-owned by TIMET and 30%-owned by CEZUS. CEZUS contributed cash, equipment
and the CEZUS titanium business to TIMET Savoie, and certain CEZUS employees
became employees of TIMET Savoie. TIMET contributed proprietary technology,
all of its interest in its previously existing France-based distribution
businesses and cash valued at a total of approximately $8 million. TIMET
Savoie has a French franc-denominated credit facility available from CEZUS
which provides for working capital borrowings up to $13 million under certain
circumstances. At September 29, 1996, no amounts were outstanding.
On October 1, 1996, the Company acquired substantially all of the
assets and assumed substantially all of the liabilities of AJM for
approximately $96 million plus the assumption of approximately $6 million in
debt. The AJM Acquisition was completed through a newly formed subsidiary, THT
Inc., and included the acquisition of the 50% general partnership interest in
THT that TIMET did not previously own. THT, Inc. and its subsidiaries operate
titanium electron beam cold hearth melting furnaces and scrap processing
operations. The purchase price was funded through borrowings under TIMET's
U.S. credit facility. A THT, Inc. subsidiary has a bank credit facility which
provides for borrowings up to $15 million. The facility accrues interest at
the borrower's option at either LIBOR plus .85% or the higher of the Federal
funds rate plus 1/2% or the prime rate, and matures on January 31, 1997. The
Company has offered a third party in the titanium industry an opportunity to
acquire a minority interest in THT, Inc. (or the THT partnership), to which the
third party has not yet responded.
In connection with amendments of the Company's U.S. credit facility
during 1995, Tremont advanced the Company $8 million as additional subordinated
debt ($2.5 million of which was advanced in 1994 and $5.5 million of which was
advanced in 1995), guaranteed $5 million of the term loans, collateralized such
guarantee with approximately 600,000 shares of NL common stock held by Tremont,
and agreed to pledge additional NL shares as necessary to meet certain market
value thresholds. Contran, the principal stockholder of Tremont, entered into
an agreement with the Company's lenders whereby Contran is obligated to
purchase the pledged shares from the Company's lenders under certain
conditions. Additionally, in June 1995, the Company completed a
recapitalization under which, among other things, (i) Tremont made a $1 million
cash capital contribution to the Company and exchanged $8 million of
intercompany subordinated debt for Common Stock, (ii) the Company made a $1
million cash prepayment of deferred interest to the Company's minority
stockholder, UTSC, and (iii) UTSC exchanged $3 million of deferred interest
owed by the Company to UTSC for Common Stock. The Company borrowed $10 million
from Tremont during 1993. In connection with the application of the net
proceeds to the Company from the Stock Offering in June 1996, the amounts owing
to Tremont by the Company were fully repaid and the security arrangements
between the Company's lenders and Tremont and Contran were terminated.
Tremont's intercompany loans to the Company approximated $22.5 million
at December 31, 1995 (including accrued interest) and were due January 1, 2000.
The $20 million of subordinated debt issued to IMI in connection with the IMI
Titanium Acquisition required quarterly principal payments of $1.25 million
beginning in 1997 through 1999. The balance was due on December 31, 1999. All
of such indebtedness was repaid with the proceeds from the Stock Offering. See
"Certain Relationships and Related Transactions--Shareholders' Agreements."
In December 1993, UTSC exercised its option to convert its $75 million
of subordinated debentures into 25% of the Company's outstanding Common Stock.
The debentures provided the majority of the financing for the Company's VDP
titanium sponge plant and accrued interest at a weighted average rate of 8.4%
through May 1993 when such interest ceased accruing. See "Certain
Relationships and Related Transactions--Shareholders' Agreements." In
connection with UTSC's conversion of its debentures in 1993, Tremont made an
aggregate $9 million capital contribution of notes and accrued interest to the
Company.
The Company received net proceeds from the sale of the Convertible
Preferred Securities to the Initial Purchasers of approximately $192 million.
The Company used certain of such net proceeds to prepay all existing
indebtedness (other than capital lease obligations) to the Company's lenders,
and expects to use the remaining part of such net proceeds for general
corporate purposes. Commitments under the revolving portion of the Company's
U.S. credit facility were not reduced in connection with the use of proceeds of
the sale of the Convertible Preferred Securities.
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<PAGE> 43
The Company periodically evaluates its liquidity requirements, capital
needs and availability of resources in view of, among other things, its
alternative uses of capital, its debt service requirements, the cost of debt
and equity capital, and estimated future operating cash flows. As a result of
this process, the Company has in the past and may in the future seek to raise
additional capital, restructure ownership interests, refinance or restructure
indebtedness, sell marketable securities or other assets, or take a combination
of such steps or other steps to increase or manage its liquidity and capital
resources. In the normal course of business, the Company may investigate,
evaluate and discuss acquisition, joint venture and other business combination
opportunities in the titanium and specialty metal industries. See "Business --
Strategic Alliances." In the event of any future acquisition or joint venture
opportunities, the Company may consider using available cash, issuing equity
securities or incurring indebtedness.
ENVIRONMENTAL MATTERS
See "Business--Regulatory and Environmental Matters" for a discussion
of environmental matters.
BUSINESS
INTRODUCTION
The Company is one of the world's leading integrated producers of
titanium sponge and mill products and believes it has the largest sales volume
worldwide. The Company strives to be the low-cost producer in the industry
and, due to its economies of scale, manufacturing expertise and past investment
in technology, believes that it is well-positioned to capitalize on the
improving fundamentals in the titanium industry.
On February 15, 1996, the Company completed the acquisition of TIMET
UK and TIMET Castings as a result of the IMI Titanium Acquisition. TIMET UK is
Western Europe's largest producer of titanium ingot and mill products for
aerospace and industrial applications. TIMET Castings manufactures titanium
castings for aerospace applications and golf club heads. The acquired
businesses' 1995 sales approximated $147 million. In connection with the IMI
Titanium Acquisition, the Company issued 9,561,305 shares of Common Stock to
IMI and $20 million of the Company's subordinated debt to IMI in exchange for a
like amount of debt previously owed to IMI by IMI Titanium Ltd. In addition,
Tremont and UTSC received an option to acquire from IMI an aggregate of
approximately 2 million shares of Common Stock. See "Certain Relationships and
Related Transactions--Shareholders' Agreements."
On June 4, 1996, the Company completed the Stock Offering pursuant to
which the Company, IMI and UTSC sold 6,200,000, 7,550,000 and 750,000 shares of
Common Stock, respectively. In addition, Tremont sold 2,175,000 shares of
Common Stock pursuant to the exercise of the underwriters' overallotment
option. Following the Stock Offering, approximately 53% of the outstanding
Common Stock is held by the public, 6.4% by IMI, 10.0% by UTSC and 30.3% by
Tremont. Tremont and UTSC have the option to acquire the shares held by IMI.
See "Principal Stockholders."
The IMI Titanium Business was restructured in 1995 to improve its
competitive position. The restructuring included (i) a reduction in its work
force, (ii) the renegotiation of certain long-term customer contracts, and
(iii) the discontinuance of certain product lines. In connection with these
actions, in 1995 the IMI Titanium Business recorded a $5 million restructuring
charge and a $16 million charge to write-off excess and slow-moving inventories
and to provide for losses on certain customer contracts. Prior to the IMI
Titanium Acquisition, the IMI Titanium Business' liquidity needs were financed
by IMI. In December 1995, IMI converted $80 million of an aggregate $100
million indebtedness into equity capital.
On October 1, 1996, the Company completed the AJM Acquisition. Among
the assets acquired was the 50% partnership interest in THT not already owned
by the Company. THT and THT, Inc., a wholly owned subsidiary of the Company,
own and operate four electron beam cold hearth melting furnaces (22 million, 5
million, 5 million and 1.5 million pound annual capacities) located in
Pennsylvania, Nevada, and California, raw materials processing operations
located in Pennsylvania, and a 1.5 million pound annual capacity vacuum
induction melting furnace located in California. THT's proprietary cold hearth
melting technology enables it to cast molten sponge and scrap directly into
high-quality slabs and ingots used in many industrial and aerospace
applications. This process reduces the Company's production costs by
eliminating certain steps in the production process and by
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<PAGE> 44
improving utilization of titanium scrap. In addition, several of the Company's
customers require that the cold hearth melting process be used for certain of
their most demanding aerospace applications. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation--Liquidity and Capital
Resources."
INDUSTRY OVERVIEW
Titanium is one of the newest specialty metals, having first been
manufactured for commercial use in the 1950s. Titanium's unique combination of
corrosion resistance, elevated-temperature performance and high
strength-to-weight ratio makes it particularly desirable for use in commercial
and military aerospace applications in which these qualities are essential
design requirements. Today, advanced aerospace applications account for a
substantial portion of the worldwide demand for titanium.
The cyclical nature of the aerospace industry has been the principal
cause of the fluctuations in performance of titanium companies. Over the past
19 years, total U.S. titanium mill product and casting shipments achieved
cyclical peaks of 54 million pounds in 1980 and 55 million pounds in 1989.
Beginning in 1991, the industry experienced a slowdown, and domestic industry
shipments fell by 35% from 53 million pounds in 1990 to 34 million pounds in
1991 as customers cut back orders and reduced inventory. In addition to
falling demand, prices also declined during the early 1990s. The downturn
began in the context of decreased military spending following the breakup of
the former Soviet Union, decreased profits at commercial airlines resulting in
reduced demand for new aircraft, and sharp increases in shipments of relatively
inexpensive titanium sponge and mill products from the former Soviet Union.
Aerospace demand for titanium products can be broken down into
commercial and military sectors. Since 1987, sales to the commercial aerospace
sector have been more significant than to the military aerospace markets, which
remain depressed. The commercial aerospace sector is expected to continue its
predominance as a result of the expected growth of worldwide airline traffic,
new orders for aircraft, and replacement and repair of the commercial airline
fleet as well as reduced military spending. In 1995, due to improved
fundamentals, the domestic commercial airline industry reported operating
profits of $6.2 billion compared to $2.4 billion in 1994 and compared to
cumulative losses in excess of $5 billion in the four years prior to 1994.
According to recent published reports, most major carriers are now beginning to
invest in upgrading their fleets. The following data, published in The Airline
Monitor, illustrate the cyclical profitability of worldwide members of the
International Civil Aviation Organization (excluding countries of the former
Soviet Union) and the relationship between their profitability and firm order
backlog. The Company can give no assurance as to the extent or duration of any
recovery in the commercial aerospace market or the extent to which such
recovery will result in increases in demand for titanium products. See "Risk
Factors--Cyclicality; Dependence on Aerospace Industry."
Operating Income Firm Order Backlog
Year (Dollars in millions) (Number of Aircraft)
---- --------------------- -------------------
1971 609 435
1972 806 302
1973 1195 490
1974 792 429
1975 730 302
1976 2156 279
1977 2629 399
1978 3070 794
1979 736 924
1980 -634 878
1981 -692 728
1982 -160 664
1983 1000 595
1984 5100 662
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<PAGE> 45
1985 4100 1005
1986 4600 1312
1987 7200 1548
1988 10,200 2118
1989 7600 3238
1990 -1500 3690
1991 -500 3127
1992 -1800 2700
1993 2300 2172
1994 8000 1878
1995 14,000 2049
1996E 17.075 2300
Source: The Airline Monitor (permission to reproduce not sought). Operating
income in 1996 is estimated by The Airline Monitor.
As of September 30, 1996, the estimated firm order backlog for Boeing,
McDonnell Douglas and Airbus, as reported by The Airline Monitor, was 2,190
planes versus 1,708 planes on September 30, 1995, an increase of 28%. The
newer wide body planes, such as the Boeing 777, 747-500, 747-600 and the Airbus
A-330 and A-340, tend to use a higher percentage of titanium in their frames,
engines and parts (as measured by total fly weight) than narrow body planes.
"Fly weight" is the empty weight of a finished aircraft with engines but
without fuel or passengers. The Boeing 777, for example, utilizes titanium for
approximately 9% of total fly weight, compared to between 2% to 3% on the older
737, 747 and 767 models. As of September 30, 1996, the estimated firm order
backlog for wide body planes from Boeing, McDonnell Douglas and Airbus, as
reported by The Airline Monitor, was 765 (35% of total backlog) compared to 621
as of September 30, 1995, an increase of 23%. The Airline Monitor's estimated
firm order backlog for the Boeing 777 was 244 as of September 30, 1996,
compared to 170 as of September 30, 1995, an increase of 43%. Growth order
backlog for narrow body aircraft has also been strong, having increased, as
reported by The Airline Monitor, 31% from 1,087 on September 30, 1995 to 1,425
on September 30, 1996.
Since titanium's initial aerospace applications, the number of end-use
markets for titanium has expanded substantially. Existing industrial uses for
titanium include chemical manufacturing equipment, industrial power plants,
desalination plants, and pollution control equipment. Titanium is also
experiencing increased customer demand in new and emerging uses such as medical
implants, golf club heads, other sporting equipment, offshore oil and gas
production installations, geothermal facilities, and possible automotive uses.
Several of these applications represent potential growth opportunities that may
reduce the industry's historical dependence on the aerospace market.
PRODUCTS AND OPERATIONS
The Company is a vertically integrated titanium producer whose
products include: titanium sponge, the basic form of titanium metal used in
processed titanium products; titanium ingot and slab, the result of melting
sponge and titanium scrap, either alone or with various other alloying
elements; and forged and cast products produced from ingot or slab, including
billet, bar, flat products (plate, sheet, and strip), tubular products (welded
and seamless tubing and pipe), extrusions, wire and castings. The titanium
product chain is described below.
Titanium sponge (so called because of its appearance) is the
commercially pure, elemental form of titanium metal. The first step in sponge
production involves the chlorination of titanium-containing rutile ores,
derived from beach sand, with chlorine and coke to produce titanium
tetrachloride. Titanium tetrachloride is purified and then reacted with
magnesium in a closed system, producing titanium sponge and magnesium chloride
as co-products. A portion of the Company's titanium sponge production capacity
in Henderson, Nevada, incorporates VDP technology, which removes the magnesium
and magnesium chloride residues by applying heat to the sponge mass while
maintaining vacuum in the chamber. The combination of heat and vacuum boils
the residues from the reactor mass into the condensing vessel. The titanium
mass is then mechanically pushed out of the original reactor, sheared and
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<PAGE> 46
crushed, while the residual magnesium chloride is electrolytically separated
and recycled. The balance of the capacity uses the original Kroll-leach
process, including a leaching process rather than distillation to remove
residues.
Titanium ingots and slab are solid shapes (cylindrical and
rectangular, respectively) that weigh up to 17,500 pounds in the case of ingots
and up to 35,000 pounds in the case of slabs. Each is formed by melting
titanium sponge or scrap or both, usually with various other alloying elements
such as vanadium, aluminum, molybdenum, tin and zirconium. Titanium scrap is a
by-product of milling and machining operations, and significant quantities of
scrap are generated in the production process for most finished titanium
products. The melting process is closely controlled and monitored utilizing
computer control systems to maintain product quality and consistency and meet
customer specifications.
Titanium mill products result from the forging, rolling, drawing
and/or extrusion of titanium ingots or slabs into mill products of various
sizes and grades. These mill products include titanium billet, bar, rod, wire,
plate, sheet, strip, extrusions, pipe and tube. The Company sends certain
products to outside vendors for further processing before being shipped to
customers or to the Company's service centers. The Company's customers usually
process the Company's products for their ultimate end-use or for sale to third
parties.
Titanium cast products are produced by remelting ingot or billet and
pouring molten metal into a cast, the cavity of which has been created in the
shape of the part to be produced. After the metal has cooled and solidified,
the part is removed from the cast and delivered to the customer or a third
party for finishing. The casting process provides significant flexibility in
the shapes that can be produced and is frequently utilized in forming tolerance
critical components such as diffusers, fan frames, seal rings, fluid system
components and missile components.
During the production process and following the completion of
products, the Company performs extensive testing on its products, including
sponge, mill products and castings. Testing may involve chemical analysis,
ultrasonic testing, x-ray and dye penetration testing. The inspection process
is critical to ensuring that the Company's products meet the high quality
requirements of customers, particularly in aerospace components production.
The Company is dependent upon the services of outside processors to
perform important processing functions with respect to certain of its products.
In particular, the Company currently relies upon a single processor to perform
certain rolling steps with respect to some of its plate, sheet, and strip
products and THT is reliant upon a single processor to perform certain
finishing and conditioning steps with respect to its slab products. Neither
the Company nor THT has contracts with these processors, and thus these
arrangements could be terminated at any time. Although the Company believes
that there are numerous metal producers with the capability to perform these
same processing functions, arranging for an alternative processor or, in THT's
case, possibly installing comparable capabilities, could take several months
and any interruption in these functions could have a material and adverse
effect on the Company's or THT's business, results of operations, financial
condition and cash flows in the short term. See "Business--Products and
Operations."
Over 90% of the Company's sales in the past three years were generated
from the sale of titanium ingot and mill products, with the balance from sales
of titanium tetrachloride, sponge, scrap and other by-products. Substantially
all of the 1995 revenues of the IMI Titanium Business were generated from the
sale of titanium ingot, mill products, castings and scrap.
RAW MATERIALS
The principal raw materials used in the production of titanium mill
and cast products are titanium sponge, titanium scrap and alloying materials.
In 1995, the Company produced 15 million pounds of sponge, most of which was
used internally, and the Company intends to restart idled sponge production of
up to 4 million pounds in 1996. Despite this capacity, the Company cannot
supply all of its needs for titanium sponge internally and is dependent,
therefore, on third parties for a portion of its titanium sponge needs. For
example, all of the sponge consumed in TIMET UK is currently purchased from
suppliers in Japan and the former Soviet Union. In 1995, the Company and the
IMI Titanium Business purchased approximately 8.6 million pounds of titanium
sponge or about 34% of their total requirements. Requirements for sponge vary
based upon product mix and the level of scrap usage.
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<PAGE> 47
The Company is the only domestic integrated titanium products producer
that processes rutile ore into titanium tetrachloride and further processes the
titanium tetrachloride into titanium sponge. As a result, the Company is less
susceptible to fluctuations in the market price of titanium sponge than its
competitors. Average spot prices of titanium sponge sold by producers in the
former Soviet Union have more than doubled in the U.S. since the first quarter
in 1994 and have increased substantially outside of the U.S., thereby
eliminating much of the benefit of relatively inexpensive sponge formerly
enjoyed by the Company, particularly at TIMET UK.
While the Company is one of six major worldwide producers of titanium
sponge, a basic raw material in the production of titanium ingot and mill
products, under current market conditions it cannot supply all of its needs for
titanium sponge internally and is dependent, therefore, on third parties for a
portion of its titanium sponge needs. The Company obtains sponge from four
suppliers in Japan and the former Soviet Union, both on a spot purchase basis
and, with respect to a portion of these purchases from three of such producers,
pursuant to sponge contracts that permit the Company to purchase an aggregate
of 10 million pounds of sponge at specified or fixed prices through the end of
1996. Each contract is subject to renegotiation or termination if certain
events occur. The Company has entered into, or expects to enter into, similar
contracts with three or four of such suppliers for approximately 25 million
pounds of sponge in 1997.
The primary raw materials used in the production of titanium sponge
are titanium-containing rutile ore, chlorine, magnesium and coke. Chlorine,
magnesium, and coke are generally available from a number of suppliers.
Titanium-containing rutile ore is currently available from a limited number of
suppliers around the world, principally located in Australia, Africa (South
Africa and Sierra Leone), India and the United States. A majority of the
Company's supply of rutile ore is currently purchased from Australian
suppliers. The Company believes the availability of rutile ore will be
adequate through the remainder of the decade and does not anticipate any
interruptions of its raw material supplies, although political or economic
instability in the countries from which the Company purchases its raw materials
could materially and adversely affect availability. In addition, although the
Company believes that the availability of rutile ore is adequate in the
near-term, there can be no assurance that the Company will not experience
interruptions. Various alloying elements used in the production of titanium
ingot are available from a number of suppliers.
MARKETS AND CUSTOMER BASE
Over 55% of the Company's pro forma 1995 sales were to customers
within North America, with about 36% to European customers and the balance to
other regions. No single customer represents more than 10% of the Company's
direct sales. However, in 1995, about 75% of IMI Titanium Business' sales and
approximately 60% of the Company's sales were used by the Company's customers
to produce parts and other materials for the aerospace industry. The Company
expects that a majority of its 1996 and 1997 sales will also be to this sector.
The aerospace industry is dominated by three major manufacturers of
commercial aircraft and four major manufacturers of aircraft engines.
Typically, the Company's sales are not made directly to the major aircraft and
engine manufacturers but rather to companies who use the Company's titanium to
produce parts and other materials for such manufacturers. For example, from
1993 through 1995, less than 1% of the Company's sales were made directly to
Boeing, the largest aircraft manufacturer. However, if any of the major
aerospace manufacturers were to go out of business or significantly reduce its
activities, there could be a material adverse effect on certain of the
Company's direct customers who supply to such manufacturer and, therefore,
indirectly on the Company.
The Company believes that industrial markets will continue to
represent a significant portion of the Company's sales over the next few years.
The Company's and the IMI Titanium Business' combined order backlog was
approximately $213 million at December 31, 1995 compared to $125 million at
January 1, 1995. The Company's order backlog (including the former IMI
Titanium Business) further increased to approximately $400 million at September
29, 1996, compared to $190 million at October 1, 1995. Over 66% of the backlog
at September 29, 1996 is expected to be delivered by the end of 1997. Although
the Company believes that the backlog is a reliable indicator of future
business activity, conditions in the aerospace industry could change and result
in future cancellations or deferrals of existing aircraft orders and materially
and adversely affect the Company's existing backlog, orders, and future
financial condition and operating results. See Notes 4 and 14 to the TIMET
Consolidated Financial Statements and Notes 3 and 11 to the IMI Titanium
Business Combined Financial Statements.
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<PAGE> 48
PROPERTIES
Set forth below is a listing of the Company's manufacturing
facilities. All of the Company's production facilities other than those in
Witton, Pomona, Verdi, Vallejo and Ugine are owned. The THT raw materials
processing operations are currently being relocated from leased facilities in
Lionville and Bucktown, Pennsylvania to the THT-owned facility in Morgantown,
Pennsylvania. TIMET Savoie has the right to utilize portions of CEZUS'
zirconium manufacturing plant in Ugine, France on a long-term basis to conduct
TIMET Savoie's titanium operations.
<TABLE>
<CAPTION>
FACILITY/LOCATION PRODUCTS MANUFACTURED
- ----------------- ---------------------
<S> <C>
Albany, Oregon Castings
Henderson, Nevada Sponge, Ingot
Morgantown, Pennsylvania Slab, Ingot, Raw Materials Processing
Morristown, Tennessee Tube, Sheet, Plate
Pomona, California Castings
Toronto, Ohio Billet, Bar, Plate, Sheet, Strip, Tube,
Pipe
Ugine, France Ingot, Bar, Billet, Wire, Extrusions
Vallejo, California Slab, Ingot (including non-titanium
superalloys)
Verdi, Nevada Slab, Ingot
Waunarlwydd (Swansea), Wales Bar, Plate
Witton, England Ingot, Billet, Wire, Extrusions
</TABLE>
The Company's VDP facility commenced start-up in 1993. The VDP plant
operated at approximately 75% of its 22 million pound rated annual capacity
during 1995, and the Company expects it to operate near current practical
capacity of 20 million pounds during 1996, if current conditions continue. The
plant produces VDP sponge principally as a raw material for a 30 million pound
annual practical capacity ingot melting facility, also at the Nevada site, and
for the Company's cold hearth melting subsidiary, THT. Titanium mill products
are produced at the Company's forging and rolling facility in Toronto, Ohio,
which receives titanium ingots from the Nevada plant, titanium slabs from THT
and titanium slabs and hot bands purchased from outside vendors including those
located in Russia. Mill products are also produced at the Company's finishing
facility in Morristown, Tennessee.
The Company's facilities have operated below production capacity
during each of the past three years, principally because of lower demand levels
but also as a result of the work stoppages discussed below. The Henderson
facility operated at about 50% and 70% of capacity in 1994 and 1995,
respectively. The Ohio and Tennessee facilities operated at about 40% and 60%,
respectively, of capacity in 1995, compared to about 40% and 45%, respectively,
in 1994. The Company closed its original 32 million pound rated capacity
Kroll-leach process sponge production facility in Nevada in 1994. However, in
connection with market demand for certain grades of sponge, the Company has
reopened its original Kroll-leach plant and expects to operate at an annual
production rate of four million pounds through 1996, increasing to 10 million
pounds during 1997. Costs to restart the Kroll-leach facility were $1.4
million in the first nine months of 1996 and are expected to aggregate
approximately $2 million for the full year.
The Company's sales and operating results were adversely affected in
1994 by mechanical difficulties with the shearing and crushing equipment at the
VDP facility. The Company believes it has solved these mechanical
difficulties. While the Company believes that it adequately maintains its
facilities, it is possible that there could be future unforeseen mechanical and
production difficulties that could adversely affect the Company's business,
financial condition, results of operations or cash flows.
In connection with the IMI Titanium Acquisition, the Company acquired
TIMET Castings, with plants located in Pomona, California, and Albany, Oregon.
These facilities produce titanium castings used principally for aerospace
applications and golf club heads. TIMET UK, also acquired in connection with
the IMI Titanium Acquisition, operates a 16 million pound practical capacity
melting facility in Witton, England which produces ingots sold to customers and
used as raw material feedstock for TIMET UK's forging and rolling operations in
Witton which further process the ingots principally into billet and wire.
TIMET UK also has a
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<PAGE> 49
facility in Waunarlwydd, Wales, which principally produces bar and plate.
TIMET UK purchases its requirements of sponge principally from suppliers
located in Japan and the former Soviet Union.
On October 1, 1996, the Company completed the AJM Acquisition. THT
and THT, Inc., a wholly owned subsidiary of the Company, own and operate four
electron beam cold hearth melting furnaces (22 million, 5 million, 5 million
and 1.5 million pound annual capacities) located in Pennsylvania, Nevada, and
California, raw materials processing operations located in Pennsylvania, and a
1.5 million pound annual capacity vacuum induction melting furnace located in
California.
MARKETING AND DISTRIBUTION
The Company's marketing and distribution system includes five
Company-owned service centers which sell the Company's products on a
just-in-time basis, approximately 70 sales people based in the U.S. and Europe
and 30 independent agents worldwide.
The Company believes that it has a competitive sales and cost
advantage arising from the location of its production plants and service
centers, which are in close proximity to major customers. These centers
primarily sell value-added and customized mill products including bar and
flat-rolled sheets and strips. The Company believes its centers give it a
competitive advantage because of their ability to foster customer
relationships, customize products to suit specific customer requirements and
respond quickly to customer needs. The Company maintains service centers and
sales personnel in the following locations:
<TABLE>
<CAPTION>
LOCATION FUNCTION
- -------- --------
<S> <C>
Albany, Oregon Sales
Birmingham, U.K. Service Center, Sales
Cincinnati, Ohio Sales
Dallas, Texas Sales
Denver, Colorado Sales
Dusseldorf, Germany Service Center, Sales
East Windsor, Connecticut Service Center, Sales
Frankfurt, Germany Sales
Los Angeles, California Service Center, Sales
Morgantown, Pennsylvania Sales
Paris, France Sales
Pomona, California Sales
St. Louis, Missouri Service Center, Sales
Toronto, Ohio Sales
Ugine, France Service Center
</TABLE>
STRATEGIC ALLIANCES
Through various strategic relationships, the Company seeks to gain
access to unique process technologies for the manufacture of its products and
to expand existing markets and create and develop new markets for titanium.
The Company has explored and will continue to explore strategic arrangements in
the areas of product production and distribution. The Company also will
continue to work with existing and potential customers to identify and develop
new or improved applications for titanium that take advantage of its unique
qualities. The Company is currently involved in or pursuing the following
strategic relationships, among others:
CEZUS. CEZUS is a leading European zirconium producer that
also produces and markets titanium ingot, billet and other mill
products to aerospace and industrial customers, primarily in France.
TIMET and CEZUS have had a manufacturing and distribution relationship
since 1993.
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<PAGE> 50
Effective August 1, 1996, TIMET and CEZUS completed an
agreement to form TIMET Savoie, a new jointly-owned French company, to
manufacture and sell titanium products. TIMET Savoie is 70%-owned by
TIMET and 30%-owned by CEZUS, subject to a put and call arrangement
under which CEZUS could put its remaining equity interest to TIMET,
under certain circumstances, for a price estimated at approximately $3
million. CEZUS contributed cash, equipment and the CEZUS titanium
business to TIMET Savoie and certain CEZUS employees became employees
of TIMET Savoie. TIMET contributed proprietary technology, all of its
interest in its previously existing France-based distribution
businesses and cash. TIMET's total contribution to TIMET Savoie was
approximately $8 million. TIMET Savoie will manufacture products
inside CEZUS' production facility in Ugine, France both directly,
utilizing its own personnel and equipment, and, for melting and
forging and certain other operations, indirectly by subcontracting to
CEZUS under a long-term manufacturing agreement with CEZUS. The
Company consolidated TIMET Savoie effective August 1, 1996. TIMET
Savoie's revenues for the two months ended September 29, 1996 were
approximately $5 million.
Russia. The Company has been exploring a potential strategic
relationship with a large titanium producer in Russia. The Company
believes that such a relationship could lead to a substantial
expansion of the market for titanium products worldwide, particularly
in emerging applications. The establishment of this relationship,
which the Company does not currently anticipate would involve
significant investment, entails significant uncertainty and would be
subject to various conditions, including regulatory approval. No
assurances can be given that the relationship will be formed or, if
formed, the nature of the relationship. In connection with the
Company's efforts to establish such a relationship, the Company has
purchased a significant volume of intermediate and finished mill
products from such producer over the last two years. The Company
purchased a total of 2.8 million pounds of such products in 1995 and
2.2 million pounds through November 1996.
MZI, LLC. In 1995 the Company, Oremet and Teledyne Allvac
formed a limited liability company, MZI, LLC, which is owned one-third
by each member. The Company's investment in MZI was approximately $.3
million at September 29, 1996. MZI owns a technologically advanced
ultrasonic unit for inspecting titanium billet. The unit is expected
to result in higher quality billet shipments to the Company's
customers and the joint ownership is expected to result in lower
operating costs to the Company than a wholly-owned facility. MZI
operates on a break-even basis for its three owners and also sells
inspection services to third parties.
COMPETITION
The titanium metals industry is highly competitive on a worldwide
basis as a result of many factors, particularly the presence of excess capacity
in the industry, which has intensified price competition for available
business. Producers of mill products are located primarily in the United
States, Japan, Russia, Europe and China. The Company is one of two integrated
producers in the United States and one of four in the world. The Company
regards as an integrated producer one that produces at least both sponge and
ingot. There are also a number of non-integrated producers that produce mill
products from purchased sponge, scrap or ingot. The Company believes that the
sponge production capacity and actual production in the former Soviet Union may
be as much as one-half of aggregate worldwide levels and that significant
unused production capacity may exist in this region. Russia is also known to
have significant melting and mill product production capacity.
In the U.S. market, the increasing presence of non-U.S. participants
has become a significant competitive factor. Until 1993, imports of foreign
titanium products into the U.S. had not been significant. This was primarily
attributable to relative currency exchange rates, tariffs and, with respect to
Japan and the former Soviet Union, existing and prior duties (including
antidumping duties). However, imports of titanium sponge, scrap, and other
products, principally from the former Soviet Union, have increased in recent
years and have had a significant competitive impact on the U.S. titanium
industry. To the extent the Company has been able to take advantage of this
situation by purchasing such sponge, scrap or intermediate mill products from
such countries for use in its own operations during recent years, the negative
effect of these imports on the Company has been somewhat diminished.
As the participation of non-U.S. companies increases, the competitive
environment for the Company may become more difficult, especially if existing
tariffs are eased and certain market participants are no longer subject to
antidumping duties. Currently, imports of titanium ingot and mill products
from countries that receive the MFN tariff rate are subject to a 15% tariff.
The tariff rate applicable to imports from countries that do not receive MFN
treatment is 45%.
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<PAGE> 51
In addition to regular tariffs, imports of titanium sponge from certain
countries of the former Soviet Union (Russia, Kazakhstan and Ukraine) have been
subject to antidumping duties of 84% for a number of years. On November 8,
1996, the Department of Commerce, based upon its review of sales during a period
in 1994 and 1995, issued its final determination that this antidumping duty
should be eliminated for future sales by one of the two major importers of
Russian sponge, lowered to 28% for the other importer, and maintained at 84% for
the sole Russian producer. A review of sales for the corresponding 1995-96
period is currently underway. It is possible that the lowering of the duties
for the two importers could lead to increased imports of Russian sponge into the
U.S. and an increase in the amount of sponge on the market generally, which
could adversely affect titanium sponge and mill product pricing and thus the
business, financial condition, results of operations and cash flows of the
Company. However, the Company is also currently one of the largest importers of
Russian-produced sponge into the U.S. and to the extent the Company remains a
substantial purchaser of Russian sponge, adverse effects on product pricing
could be partially ameliorated by decreased cost to the Company for duty-paid
sponge.
The ability of the producers in Russia to compete in the U.S. has also
been enhanced by the elimination since September 1993 of tariffs on most
Russian titanium mill products (excluding titanium ingot, slab and billet,
which continue to carry a 15% duty). The tariffs were temporarily restored
when the enacting legislation expired in July 1995, but were again eliminated
retroactive to July 1995 by renewal legislation in August 1996. Since the
Company has been a significant purchaser of titanium products from Russia in
recent years, any failure to renew this program again upon its scheduled
expiration in May 1997 could have an adverse effect on the Company's earnings
as it would be more costly to continue purchases of titanium mill products from
Russia. Given the current political and economic uncertainties in some of the
countries of the former Soviet Union, there can be no assurance that this
supply of titanium products will continue to be available to the Company
without interruption or at attractive prices. See "--Strategic Alliances--
Russia."
The Company's principal U.S. competitors are RMI, Oremet, which is the
other U.S. integrated producer, and Teledyne Allvac. The Company estimates
that it accounted for approximately 60% of U.S. sponge capacity in 1995. The
Company, RMI, Oremet, and Teledyne Allvac represented an estimated aggregate
80% of U.S. sales of titanium mill products in 1995, and the Company believes
it accounted for about one-third of such sales. The Company's principal
competitors in the casting business in the U.S. are Precision Cast Parts and
Howmet. The Company estimates that it accounts for in excess of 50% of mill
product shipments among Western European titanium producers. The Company
competes primarily on the basis of price, quality of products, technical
support and the availability of products to meet customers' delivery schedules.
Producers of other metal products, such as steel and aluminum,
maintain forging, rolling and finishing facilities that could be modified
without substantial expenditures to produce titanium products. The Company
believes, however, that entry as a producer of titanium sponge would require a
significant capital investment and substantial technical expertise. Titanium
mill products also compete with stainless steels, nickel alloys, steel,
plastics, aluminum and composites in certain applications.
RESEARCH AND DEVELOPMENT
The Company's research and development activities are directed toward
improving process technology, developing new alloys, enhancing the performance
of the Company's products in current applications, and searching for new uses
of titanium products. For example, one of the Company's proprietary alloys,
TIMETALR21S, has been specified for a number of aerospace applications
including the Boeing 777. Additionally, TIMETAL LCB, a new low cost beta
alloy, is being tested for new non-aerospace applications; and TIMETAL 15-3 has
been introduced into the sporting goods markets. The Company conducts research
and development activities at its Nevada laboratory, which the Company believes
is one of the largest titanium research and development centers in the world.
The Company's expenditures for research and development have been approximately
$2 million annually during each of the past three years and are expected to be
approximately $2 million in 1996 and $3 million in 1997. The IMI Titanium
Business' expenditures for research and development activities, which have
primarily been directed towards improving process technology, developing alloys
and enhancing product performance in aerospace applications, have averaged
about $1 million annually during the past three years.
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<PAGE> 52
PATENTS AND TRADEMARKS
The Company holds U.S. and foreign patents applicable to certain of
its titanium alloys and manufacturing technology. The Company continually
seeks patent protection with respect to its technical base and has occasionally
entered into cross-licensing arrangements with third parties. However, most of
the titanium alloys and manufacturing technology used by the Company do not
benefit from patent or other intellectual property protection. The Company
believes that the trademarks TIMETR and TIMETAL, which are protected by
registration in the U.S. and other countries, are significant to its business.
EMPLOYEES
As of September 30, 1996, the Company employed approximately 1,900
persons in the U.S. and approximately 900 persons in Europe. In addition, THT
and THT, Inc. employ approximately 300 persons at their U.S. locations. As of
December 31, 1995, prior to the IMI Titanium Acquisition, the Company employed
approximately 1,000 (860 at January 1, 1995) persons in the U.S. and
approximately 20 (20 at January 1, 1995) persons in Europe. The Company's
production and maintenance workers at its facility in Nevada and its
production, maintenance, clerical and technical workers at its facility in Ohio
are represented by the United Steelworkers of America. Substantially all of
the approximately 750 salaried and hourly employees at the Company's two U.K.
facilities are members of one of three European labor unions whose associated
one-year labor contracts expire on December 31, 1996, which the Company
currently believes will be renegotiated. The Company's employees at its
Morristown facility and service center locations and the employees at the TIMET
Castings and THT facilities are not covered by collective bargaining
agreements. In December 1996, the Company was notified that the United
Steelworkers of America had filed a petition with the National Labor Relations
Board seeking a representation election at TIMET Castings' Albany, Oregon
facility.
The United Steelworkers of America commenced a work stoppage at the
Company's Henderson, Nevada, facility on October 2, 1993, affecting
approximately 375 hourly workers at that plant. Production at the plant was
continued through the use of salaried personnel and temporary contract labor.
In July 1994, the Company hired approximately 150 of the contract workers as
permanent replacements and, subsequently, the union accepted the Company's
contract proposal, with minor modifications, ending the nine-month strike. In
September 1996 the hourly workforce at the plant, approximately 390 workers,
voted to ratify a new, four-year labor agreement, which expires in October
2000.
In August 1994, approximately 375 hourly workers at the Company's
Toronto, Ohio, production facility, represented by the United Steelworkers of
America, commenced a work stoppage following expiration of their contract.
Production was continued in certain portions of the plant during the strike by
salaried personnel and contract workers. The strike ended in October 1994. In
July 1995, the Company and the union agreed to terms for a new four-year labor
agreement, which currently covers approximately 400 hourly workers and will
expire in June 1999.
While the Company currently considers its employee relations to be
satisfactory, it is possible that there could be further work stoppages that
could materially and adversely affect its business, financial condition,
results of operations or cash flows. See "Risk Factors--Labor."
In December 1996, TIMET Castings laid off a majority of the production
employees at its Pomona, California golf club castings facility following notice
by a major golf club manufacturer purporting to cancel a long-term supply
agreement with TIMET Castings and refusing further shipments of golf club head
castings to the extent the customer determines such castings do not meet its
specifications. TIMET Castings understands that the customer has also given
similar instructions regarding future shipments to a number of its other
titanium castings suppliers. TIMET Castings is continuing to investigate the
matter, but currently believes that any previous failure to meet specifications
was due to the tooling supplied to TIMET Castings by such customer and not any
error on TIMET Castings' part. In any event, the loss of business, if any, from
such customer and the related layoffs are not expected to have a material
adverse effect on the Company.
REGULATORY AND ENVIRONMENTAL MATTERS
The Company's operations are governed by various Federal, state, local
and foreign environmental and worker safety laws and regulations. In the U.S.,
such laws include the Federal Clean Air Act, the Clean Water Act and the
Resource Conservation and Recovery Act. The Company uses and manufactures
substantial quantities of substances that are considered hazardous or toxic
under environmental and worker safety and health laws and regulations. In
addition, at the Company's Henderson, Nevada facility, the Company uses
substantial quantities of titanium tetrachloride, a material classified as
extremely hazardous under Federal environmental laws. The Company has used
such substances during substantially the entire history of its operations. As
a result, risk of environmental damage is inherent in the Company's operations.
The Company's operations pose a continuing risk of accidental releases of, and
worker exposure to, hazardous or toxic substances. There is also a risk that
government environmental requirements, or enforcement thereof, may become more
stringent in the future. There can be no assurances that some, or all, of the
risks discussed under this heading will not result in liabilities that would be
material to the Company's business, results of operations, financial condition
or cash flows.
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The Company believes that its operations are in compliance in all
material respects with applicable requirements of environmental and worker
safety laws. The Company's policy is to continually strive to improve
environmental performance. From time to time, the Company may be subject to
environmental regulatory enforcement under various statutes, resolution of
which typically involves the establishment of compliance programs.
Occasionally, resolution of these matters may result in the payment of
penalties, but to date no material penalties have been incurred. The Company
incurred capital expenditures for environmental protection and compliance of
less than $1 million in each of the past three years and its capital budget
provides less than $1 million for such expenditures in 1997. However, the
imposition of more strict standards or requirements under environmental laws
and regulations could result in expenditures in excess of amounts estimated to
be required for such matters.
The Company's foreign operations are similarly subject to foreign laws
and regulations respecting environmental and worker safety matters, which laws
are generally less stringent than U.S. laws and which have not had, and are not
presently expected to have, a material adverse effect on the Company. There
can be no assurance that such foreign laws will not become more stringent.
Certain other companies, including Kerr-McGee Chemical Corporation,
Chemstar Lime Company and Pioneer Chlor Alkali Company, Inc. (successor to
Stauffer Chemical Company), also operate facilities in a complex (the "BMI
Complex") owned by Basic Management, Inc. ("BMI") adjacent to the Company's
Henderson, Nevada plant. In 1993, the Company and each of such companies,
along with certain other companies who previously operated facilities in the
BMI Complex (collectively, the "BMI Companies"), completed a Phase I
environmental assessment of the common areas of the BMI Complex and each of the
individual company sites pursuant to consent agreements with the Nevada
Division of Environmental Protection ("NDEP"). In July 1996, the Company
signed a consent agreement with the NDEP regarding implementation of the Phase
II assessment of the Company property within the BMI Complex. A report
regarding the Phase II assessment of the common areas of the BMI Complex was
submitted to NDEP in August 1996. At December 31, 1995 and September 29, 1996,
the Company had accrued $1 million with respect to this matter. Until
completion of the sampling and analysis that will be involved in the Phase II
assessment of the Company property and any further Phase II testing that NDEP
may require for the BMI Complex common areas, it is not possible to provide a
reasonable estimate of the additional remediation costs, if any, or the
Company's likely share of any such costs.
In November 1995, the Company and other BMI Companies were contacted
by a company proposing to develop a parcel of land adjacent to the BMI Complex,
alleging that the parcel had been contaminated by the BMI Companies through
their operations and threatening legal action to recover its development costs
to date of approximately $2.8 million. Based on the results of the
investigation in late 1995 and early 1996, the Company does not believe there
is any basis for the claim, and the claimants have not pursued the matter
further. At December 31, 1995 and September 29, 1996, the Company had not
accrued any amounts with respect to this matter.
The Company has conducted additional study and assessment work as
required by the California Regional Water Quality Control Board--Los Angeles
Region (the "Water Quality Board") related to soil and possible groundwater
contamination at its Pomona, California facility. The site is located near an
area that has been designated as a U.S. Environmental Protection Agency
"Superfund" site. At September 29, 1996, the Company had accrued $.6 million
related to this matter. Although the Company does not believe it will incur a
material liability in respect of the Pomona facility, the Water Quality Board
has not completed its review.
In early 1996, the Company received notice that it has been named as a
defendant, along with approximately 100 additional companies, in an action in
the United States District Court for the District of New Jersey in connection
with the remediation of a Superfund site located in Fairfield, New Jersey
(Caldwell Trucking PRP Group v. ADT Automotive, Inc., et al., No. 95-1690
(WGB)). The complaint alleges that the Company arranged to have septic and/or
industrial waste containing hazardous substances disposed of at the site from
the Company's former research and development facility in Caldwell, New Jersey.
The Company has been offered the opportunity to participate in "de minimis"
settlement discussions and has offered to settle for a nominal amount. Based
upon the Company's investigation into this matter and the lack of meaningful
evidence linking the Company to the site, the Company does not believe it will
incur any material liability in connection with this matter. At December 31,
1995 and September 29, 1996, the Company had not accrued any amount with
respect to this matter.
The Company determines the amount of its accruals for environmental
matters on a quarterly basis by analyzing and estimating the range of possible
costs in light of the available information. Because of a lack of relevant
information, it is not
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<PAGE> 54
possible to estimate the range of costs for certain sites. The imposition of
more stringent standards or requirements under environmental laws or
regulations, the results of future testing and analysis undertaken by the
Company at its operating or non-operating facilities, or a determination that
the Company is potentially responsible for the release of hazardous substances
at other sites, could result in expenditures in excess of amounts currently
estimated to be required for such matters. No assurance can be given that
actual costs will not exceed accrued amounts or that costs will not be incurred
with respect to sites as to which no problem is currently known or where no
estimate can presently be made. Further, there can be no assurance that
additional environmental matters will not arise in the future. However, the
Company currently believes the disposition of all environmental matters,
individually or in the aggregate, should not have a material adverse effect on
the Company's business, results of operations, financial condition, or cash
flows.
LEGAL PROCEEDINGS; CERTAIN CONTINGENCIES
From time to time, the Company is involved in litigation relating to
claims arising out of its operations in the normal course of business. Except
as provided below, the Company is not a party to any material litigation.
Certain contingencies are described below and in Note 14 of the Company's
Consolidated Financial Statements.
Cadmus. In May 1995, the Company received notice of two separate
actions naming the Company as a defendant, each brought by a former employee
alleging that the Company intentionally exposed such employee to dangerous
levels of certain chemicals and/or metals during his employment at TIMET's
plant in Toronto, Ohio (Sutherin v. Titanium Metals Corporation, No. 95 CV
00168, Court of Common Pleas, Jefferson County, Ohio; Cadmus v. Titanium
Metals Corporation, No. 94 CV 00469, Court of Common Pleas, Jefferson County,
Ohio). The complaints seek compensatory and punitive damages totaling
approximately $2.5 million each. Both of these cases were subsequently removed
to U.S. District Court for the Southern District of Ohio (Sutherin, No.
C2-95-551; Cadmus, No. C2-95-586). In June 1996, the plaintiff in Sutherin
dismissed this matter without prejudice. The Cadmus action is currently in
discovery.
Plaintiff's claims in Cadmus are similar to previous claims made by
plaintiff and rejected by the Ohio Industrial Commission (which decision is
currently on appeal in state court in Ohio). The Company intends to vigorously
defend this action. At December 31, 1995 and September 29, 1996, the Company
had not accrued any amount related to this matters.
Tungsten contamination. In 1993, the Company discovered an anomaly in
certain alloyed titanium material manufactured by the Company for shipment to a
jet engine manufacturer, resulting from tungsten carbide contaminated chromium
sold to the Company by a third-party vendor and used as an alloying addition to
this titanium material. In June 1996, the Company entered into a settlement
agreement with the purchaser of the material which calls for payment by the
Company of an aggregate $2 million, payable in equal quarterly payments over
the next five years. The Company is currently engaged in discussions with the
supplier of the contaminated chromium regarding reimbursement of the amounts to
be paid by the Company to the purchaser of the titanium material.
In addition, in 1995 the Company learned that a jet engine disk that
had been in service since 1989 was discovered during routine inspection to have
a high density inclusion that was not identified during manufacture and testing
by the Company or the subsequent forger of the material. The inclusion was
completely intact and showed no signs of cracking or fatigue that would suggest
that it posed a safety problem. Subsequent metallurgical inspection identified
the inclusion as pure tungsten, which the Company believes would have resulted
from contaminated chromium used in the manufacture of the titanium alloy. The
Company currently believes that the engine manufacturer will require that
engines containing disks manufactured from titanium having a link to the
potentially contaminated lot of chromium be subjected to a higher level of
inspection or to more frequent inspection to assure that there is no safety
issue involved. While the Company does not currently anticipate that it will
incur any material liability in connection with this matter, no assurances can
be given in this regard. At December 31, 1995 and September 29, 1996, the
Company had not accrued any amounts with respect to this matter.
Seinfeld. In September 1996, a shareholder of NL brought an action on
behalf of himself and derivatively, on behalf of NL against NL, Valhi, Inc.
("Valhi") and certain current and former members of NL's Board of Directors
including J. Landis Martin, the Company's Chairman and Chief Executive Officer.
(Frank D. Seinfeld v. Harold C. Simmons, et al. Superior Court of New
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Jersey, Bergen County, Chancery Division, No. C-336-96.) The complaint
alleges, among other things, that NL's August 1991 "Dutch Auction" tender offer
was an unfair and wasteful expenditure of NL's funds. Plaintiff seeks, among
other things, to rescind NL's purchase of approximately 10.9 million shares of
its common stock from Valhi pursuant to the Dutch Auction. The Company
understands that each of the defendants believes the complaint is without
merit. The Company further understands that each of the defendants intend to
defend the action vigorously.
THE COMPANY
The Company, headquartered in Denver, Colorado, was incorporated in
1955 and has been engaged in the titanium metals business since incorporation.
The Company is 30.3% owned by Tremont, a holding company with operations
conducted through the Company and NL. Tremont may be deemed to control the
Company. Contran holds, directly or through subsidiaries, approximately 44% of
Tremont's outstanding common stock. Substantially all of Contran's outstanding
voting stock is held by trusts established for the benefit of the children and
grandchildren of Harold C. Simmons of which Mr. Simmons is the sole trustee.
Mr. Simmons, Chairman of the Board, President and Chief Executive Officer of
Contran, and a director of Tremont, may be deemed to control each of such
companies and the Company. See "Principal Stockholders."
The Company is incorporated in Delaware and its principal offices are
located at 1999 Broadway, Suite 4300, Denver, Colorado 80202. Its telephone
number is (303) 296-5600.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors and executive officers are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD
- ---- --- ---------------
<S> <C> <C>
J. Landis Martin 51 Chairman and Chief Executive Officer
Andrew R. Dixey 46 President, Chief Operating Officer and
Director
Joseph S. Compofelice 46 Vice President, Chief Financial Officer
and Director
Edward C. Hutcheson, Jr. 50 Director
Gen. Thomas P. Stafford 65 Director
Yukiji Tadokoro 63 Director
William C. Acton 43 Vice President--THT Operations
Paul J. Bania 46 Vice President--Quality and Technology
Thomas A. Buck 47 Vice President--U.S. Manufacturing
Brian J. Hadley 54 Vice President--European Manufacturing
Richard D. McKinney 53 Vice President--Castings Operations
John P. Monahan 51 Vice President--Sales and Marketing
J. Thomas Montgomery, Jr. 50 Vice President--Finance and Treasurer
Robert E. Musgraves 41 Vice President--Administration, General
Counsel and Secretary
Mark A. Wallace 39 Vice President--Strategic Change
</TABLE>
Pursuant to the terms and conditions of the Investors' Agreement among
the Company, Tremont and UTSC, the number of directors is fixed at seven (one
vacancy currently exists) and UTSC is entitled at current ownership levels to
designate one director, who is Mr. Tadokoro. See "Certain Relationships and
Related Transactions--Shareholders' Agreements."
J. LANDIS MARTIN has been Chairman of the Company since 1987 and Chief
Executive Officer of the Company since January 1995. He also served as
President of the Company from January 1995 to February 1996. Mr. Martin has
served as Chairman
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<PAGE> 56
of Tremont since 1990 and as Chief Executive Officer and a director of Tremont
since 1988. Mr. Martin has served as President and Chief Executive Officer of
NL, a manufacturer of specialty chemicals, since 1987 and as a director of NL
since 1986. From 1990 until its acquisition by Dresser Industries, Inc.
("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief
Executive Officer of Baroid Corporation ("Baroid"), an oilfield services
company. In addition to Tremont and NL, Mr. Martin is a director of Dresser,
which is engaged in the petroleum services, hydrocarbon processing and
engineering industries, and Apartment Investment Management Corporation, a real
estate investment trust.
ANDREW R. DIXEY has been President, Chief Operating Officer and a
director of the Company since February 1996. Prior to this appointment, Mr.
Dixey was, from September 1995, Managing Director of IMI Titanium Ltd. and IMI
Titanium Export Ltd., where he had responsibility for IMI's titanium interests
in both Europe and North America. During 1995, Mr. Dixey was Chief Executive
Officer of Helix plc, which is engaged in the scholastic supplies business, and
from 1990 to 1994, Mr. Dixey held various executive positions in the GKN plc
Group of companies, a manufacturer of automobile components.
JOSEPH S. COMPOFELICE has been Vice President and Chief Financial
Officer of the Company since February 1996 and has been a director of the
Company from 1994, other than from March 1996 to July 1996. Since 1994, he has
been Vice President and Chief Financial Officer of Tremont and NL and, since
1995, a director of NL. Since 1994, Mr. Compofelice has also been Executive
Vice President of Valhi, which is engaged in sugar, hardware products, fast
food, and, through NL, chemical industries, and may be deemed to be an
affiliate of the Company. From 1990 until 1993, he was Vice President and
Chief Financial Officer of Baroid.
EDWARD C. HUTCHESON, JR. has been the Chairman of the Board of Castle
Tower Corporation ("Castle Tower"), an owner and manager of wireless
communication antenna sites, since October 1996. He has served as a director
of Castle Tower since 1994 and was President and Chief Executive Officer of
Castle Tower from 1994 through October 1996. From January 1994 until September
1994, he was involved in private investment activities leading to the creation
of Castle Tower. From 1990 until 1993, Mr. Hutcheson served as the President,
Chief Operating Officer and a director of Baroid.
GENERAL THOMAS P. STAFFORD (RETIRED) has served as co-founder of
Stafford, Burke and Hecker, Inc., a Washington-based consulting firm, since
prior to 1991. General Stafford graduated from the United States Naval Academy
in 1952. He was commissioned as an officer in the United States Air Force
("USAF") and attended the USAF Experimental Flight Test School in 1958. He was
selected as an astronaut in 1962, piloted Gemini VI in 1965 and commanded
Gemini IX in 1966. In 1969, General Stafford was named Chief of the Astronaut
Office and was the Apollo X commander for the first lunar module flight to the
moon. He commanded the Apollo-Soyuz joint mission with the Soviet cosmonauts
in 1975. After his retirement from the USAF in 1979 as Lieutenant General, in
which his last assignment was Deputy Chief of Staff for research, development
and acquisitions, he became Chairman of Gibraltar Exploration Limited, an oil
and gas exploration and production company, and served in that position until
1984, when he joined General Technical Services, Inc., a consulting firm.
General Stafford is a director of Allied-Signal Inc., CMI Corporation, Fischer
Scientific, Inc., Pacific Scientific Corporation, Seagate Technologies, Inc.,
The Wackenhut Corporation and Wheelabrator Technologies, Inc., and is Chairman
of the Board of the Omega Watch Corporation of America, the United States
affiliate of the Omega Watch Company.
YUKIJI TADOKORO has been a director of the Company since 1990. Mr.
Tadokoro was Managing Director of Toho Titanium Co., Ltd. (Tokyo) from 1989
until June 1996 and also President of UTSC from 1992 until June 1996. In June
1996, Mr. Tadokoro assumed the post of Special Advisor to the Board of both
companies.
WILLIAM C. ACTON has been Vice President--THT Operations since the AJM
Acquisition in October 1996. Prior to October 1996, he had been, since 1993,
President of AJM and THT, and was Senior Vice President of AJM from 1991 until
1993.
PAUL J. BANIA has been Vice President--Quality and Technology since
1994. Dr. Bania was the Company's Vice President--Research and Market
Development from 1992 to 1994 and Director of Product Development from 1989
until 1992.
THOMAS A. BUCK has been Vice President--U.S. Manufacturing since 1991.
From 1990 to 1991, Mr. Buck was General Manager of the Company's Henderson
facility.
- 54 -
<PAGE> 57
BRIAN J. HADLEY has been Vice President--European Manufacturing since
February 1996. He has been Operations Director for TIMET UK since 1987. Prior
to joining IMI he was Works Director of APV Paramount, Ltd., an operator of
high alloy and stainless steel foundries.
RICHARD D. MCKINNEY has been Vice President--Castings Operations since
February 1996. He has been President and Chief Executive Officer of TIMET
Castings since 1994. From 1993 until 1994, he served as Vice President
Operations of Teledyne Casting Services, which produces iron sand castings, and
from 1989 until 1993 he was the President of Teledyne Metal Forming, which
manufactures formed metal shapes.
JOHN P. MONAHAN has been Vice President--Sales and Marketing since
1995, and was Vice President--North American Sales and Marketing from 1990 to
1995.
J. THOMAS MONTGOMERY, JR. has been Vice President--Finance and
Treasurer since December 1996. Prior to that, he was Vice President and
Controller of Valhi and Contran since prior to 1991.
ROBERT E. MUSGRAVES has been Vice President and General Counsel of the
Company since 1990 and Vice President--Administration since 1993. He has also
served as Secretary of the Company since 1991 and Assistant Secretary of the
Company from 1990 to 1991. Since 1993, Mr. Musgraves has been General Counsel
and Secretary of Tremont, and since 1994 has also served as Vice President of
Tremont. He was an Assistant Secretary of Tremont from 1990 to 1993. Prior to
joining the Company in 1990, Mr. Musgraves was a partner with the law firm of
Kirkland & Ellis.
MARK A. WALLACE has been Vice President--Strategic Change since
December 1996. Prior to that, he was Vice President--Finance and Treasurer of
the Company since 1992. He has also served as Vice President and Controller of
Tremont since 1992. From 1990 to 1992, Mr. Wallace was Assistant Controller of
Valhi. Prior to joining Valhi, Mr. Wallace was a Senior Manager with Arthur
Andersen & Co.
COMPENSATION OF DIRECTORS
Directors of the Company who are not employees of the Company are paid
an annual retainer of $8,000 in cash plus 400 shares of Common Stock. In
addition, non-employee directors receive an attendance fee of $1,000 per day
for each day on which they attend a meeting of the Board of Directors or a
committee of the Board of Directors. Directors are also be reimbursed for
reasonable expenses incurred in attending Board of Directors and committee
meetings.
The Company has adopted a director compensation plan pursuant to which
each non-employee director was granted, upon consummation of the Stock
Offering, an option to acquire 625 shares of Common Stock at $23 per share (the
initial public offering price in the Stock Offering) and will also be granted
625 options annually at the last reported sales price of the Common Stock on
the Nasdaq National Market on the last trading day of the Company's fiscal
year.
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<PAGE> 58
EXECUTIVE COMPENSATION
The following table sets forth compensation awarded by the Company
during the fiscal year ended December 31, 1995 to (i) the Company's Chief
Executive Officer, (ii) the Company's Chief Financial Officer, (iii) the
Company's five other most highly compensated executive officers for services
rendered during the fiscal year ended December 31, 1995 and (iv) a former
officer who served as chief executive officer of the Company until January 5,
1995.
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
ALL OTHER
COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(4) SATION(5)
- --------------------------- ---- ------ -------- ---------
<S> <C> <C> <C> <C>
J. Landis Martin(2) 1995 $60,000 $-0- $2,650
Chairman and CEO
Joseph S. Compofelice(2) 1995 $45,000 $50,000 $4,476
Vice President and Chief
Financial Officer
Paul J. Bania 1995 $100,000 $26,000 $4,070
Vice President--Quality and Technology
Thomas A. Buck 1995 $120,000 $31,200 $4,935
Vice President--U.S. Manufacturing
John P. Monahan 1995 $120,000 $31,200 $4,968
Vice President--Sales and Marketing
Robert E. Musgraves(2) 1995 $60,000 $15,600 $4,821
Vice President--Administration and
General Counsel
Former Officer:
Kirby C. Adams(3) 1995 $-0- $-0- $229,905
</TABLE>
(1) Columns required by the rules and regulations of the Commission which
contain no entries have been omitted.
(2) The amounts shown as salary and bonus for Messrs. Martin, Compofelice
and Musgraves represent the full amount paid by the Company for
services rendered by such persons during 1995, less the portion (50%)
of such compensation for which Tremont reimbursed the Company in 1995.
Mr. Compofelice was not an executive officer of the Company during
1995.
(3) Mr. Adams resigned as an executive officer of the Company on January
5, 1995. In connection with Mr. Adams' resignation, the Company
agreed to (i) continuation of salary and benefits for up to two years,
(ii) continued vesting of certain Tremont options for the duration of
the salary contribution period, and (iii) payment of certain other
expenses. The aggregate amount payable to, or on behalf of, Mr. Adams
pursuant to this agreement is estimated to be approximately $565,000
(which amounts do not include accrued value for vested options to
acquire Tremont common stock held by Mr. Adams, which was
approximately $340,000 as of December 31, 1995).
(4) Under the Company's variable compensation plan, a portion of the
compensation payable to the Company's officers is based upon the
Company's financial performance. Based on the Company's 1995
financial results, no compensation with respect to the Company's
performance was payable for 1995. The balance of the compensation
payable to the Company's officers under the plan is based on the
assessed performance of the individual officer. In 1995, all
compensation paid under the plan related to individual performance.
Neither Mr. Martin nor Mr. Compofelice participated in the plan as of
December 31, 1995. Based upon the recommendation of the Chief
Executive Officer and TIMET's and Tremont's Management
- 56 -
<PAGE> 59
Development and Compensation Committees, the TIMET and Tremont Boards
approved a bonus of $100,000 for Mr. Compofelice with respect to his
services on behalf of TIMET and Tremont during 1995.
(5) Such amounts represent (i) matching contributions made by the Company
pursuant to the savings feature of the Company's Thrift/Retirement
Plan ($250 for Mr. Martin, $900 for Mr. Compofelice, $1,000 for Mr.
Bania, $1,200 for Mr. Buck, $1,200 for Mr. Monahan, $1,230 for Mr.
Musgraves and $1,000 for Mr. Adams), (ii) retirement contributions
accrued by the Company pursuant to the Thrift/Retirement Plan ($2,400
for Mr. Martin, $2,520 for Mr. Bania, and $3,000 for each other person
named in the table) and (iii) life insurance premiums paid by the
Company ($0 for Mr. Martin, $576 for Mr. Compofelice, $550 for Mr.
Bania, $735 for Mr. Buck, $765 for Mr. Monahan, $591 for Mr. Musgraves
and $905 for Mr. Adams).
J. Landis Martin, the Company's Chairman and Chief Executive Officer,
Joseph S. Compofelice, the Company's Vice President and Chief Financial Officer
(as of March 1996), Robert E. Musgraves, the Company's Vice President--
Administration and General Counsel, and Mark A. Wallace, the Company's Vice
President--Strategic Change also serve as officers of Tremont, and during 1995
Tremont reimbursed the Company for 50% of the salary and bonus each person
received from the Company. Messrs. Martin and Compofelice also serve as
officers of NL and are compensated directly by NL for such services. The
Company expects that (i) Mr. Martin will spend approximately one-half of his
time on matters related directly to the Company, (ii) Mr. Compofelice will
spend approximately one-half of his time on matters related directly to the
Company, and (iii) Mr. Musgraves will spend substantially all of his time on
matters directly related to the Company. Tremont will reimburse the Company
for 20% of the 1996 compensation for Messrs. Martin, Compofelice and Musgraves
pursuant to an intercorporate services agreement. See "Certain Relationships
and Related Transactions--Contractual Relationships."
Commencing with the closing of the Stock Offering, the Company
effected a stock option plan. See "Principal Stockholders" for information
concerning options to acquire Common Stock held by the Company's executives
named in the Summary Compensation table above. Prior to 1996, Tremont issued
options to acquire Tremont common stock to executive officers of the Company
and Tremont in consideration for such officers' services to the Company or to
the Company and Tremont. See "Principal Stockholders" for information
concerning Tremont options held by the Company's executives named in the
Summary Compensation table above. See Note 9 to the Company's Consolidated
Financial Statements in connection with grants of Management Shares to such
persons in 1996.
PENSION PLAN
The Defined Benefit Retirement Plan for Salaried Employees of Titanium
Metals Corporation (the "TIMET Retirement Plan") covers substantially all of
the Company's salaried employees who were employed by the Company as of or
prior to December 31, 1988. Such employees generally became eligible to
receive a vested retirement benefit under such plan after completion of five
years of service. Benefits under the TIMET Retirement Plan are generally based
upon the number of years of service credit, up to 40 years, the final average
compensation of each individual employee, and a percentage of such employee's
eligible earnings. Final average compensation is calculated using the highest
60 consecutive calendar months of compensation during the last 120 months prior
to the date of calculation. Effective December 31, 1988, employees ceased
accruing additional years of service credit under the TIMET Retirement Plan.
Effective April 2, 1994, employees also ceased accruing additional credit for
increases in salary under such plan. Paul J. Bania, John P. Monahan and Kirby
C. Adams, the only individuals named in the "Summary Compensation Table" above
who have participated in the TIMET Retirement Plan, will be entitled to receive
annual payments of approximately $11,000, $24,000, and $24,200 respectively,
pursuant to the TIMET Retirement Plan upon reaching age 65.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1995, J. Landis Martin, the Company's Chairman and Chief
Executive Officer, served on the Company's compensation committee. During
1995, Mr. Martin also served as an executive officer and director of each of
Tremont and NL, and Joseph S. Compofelice, the Company's Vice President and
Chief Financial Officer and a director, served as an executive officer and
director of NL and an executive officer of Tremont.
- 57 -
<PAGE> 60
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Certificate of Incorporation provides that no director
shall be liable personally to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director; provided that, the
Certificate of Incorporation does not eliminate the liability of a director for
(i) any breach of the director's duty of loyalty to the Company or its
stockholders; (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) acts or omissions
in respect of certain unlawful dividend payments or stock redemptions or
repurchases; or (iv) any transaction from which such director derives improper
personal benefit. The effect of this provision is to eliminate the rights of
the Company and its stockholders (through stockholders' derivative suits on
behalf of the Company) to recover monetary damages against a director for
breach of the fiduciary duty of care as a director (including breaches
resulting from negligent or grossly negligent behavior) except in the
situations described in clauses (i) through (iv) above. The limitations
summarized above, however, do not affect the ability of the Company or its
stockholders to seek non-monetary remedies, such as an injunction or
rescission, against a director for breach of his fiduciary duty.
The Company's Bylaws provide that the Company shall indemnify and
advance expenses to the currently acting and former directors, officers,
employees and agents of the Company or of another corporation, partnership,
joint venture, trust or other enterprise if serving at the request of the
Company arising in connection with their acting in such capacities. In
addition, Section 145 of the Delaware General Corporation Law permits the
Company to indemnify an officer or director who was or is a party or is
threatened to be made a party to any proceeding because of his or her position,
if the officer or director acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Company and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling the Company pursuant to
the foregoing provisions, the Company has been informed that in the opinion of
the Commission, such indemnification is against public policy as expressed in
the Securities Act and is therefore unenforceable.
- 58 -
<PAGE> 61
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial
ownership, as defined by the regulations of the Commission, of the Company's
Common Stock as of September 30, 1996 for (i) each director and each current
executive officer named in the Summary Compensation Table set forth in
"Management," (ii) all directors and current executive officers of the Company
as a group, and (iii) each person known by the Company to own beneficially 5%
or more of the outstanding shares of Common Stock. All beneficial ownership is
sole and direct unless otherwise indicated.
See footnote 1 for information concerning individuals and entities
which may be deemed to indirectly beneficially own those shares of Common Stock
directly beneficially owned by Tremont. Information concerning ownership of
Tremont, which may be deemed to be the Company's parent company, is contained
in footnote 1 and the table below, captioned "Ownership of Tremont Common
Stock."
OWNERSHIP OF TIMET COMMON STOCK
<TABLE>
<CAPTION>
AMOUNT
AND
NATURE
OF
BENEFICIAL PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP COMMON STOCK
- ------------------------------------ --------- ------------
<S> <C> <C>
5% Stockholders:
Tremont Corporation(1)(2) 9,525,000 30.3%
1999 Broadway, Suite 4300
Denver, Colorado 80202
Union Titanium Sponge Corporation(2) 3,150,000 10.0%
c/o Toho Titanium Company Ltd.
2-13-31 Kohnan
Minato-ku
Tokyo 108, Japan
IMI Americas, Inc.(2)(3) 2,011,305 6.4%
One Cornelius Place
Anoka, Minnesota 55104
Directors:(4)
J. Landis Martin (5) 41,357 *
Joseph S. Compofelice (5) 22,353 *
Andrew R. Dixey 17,925 *
Edward C. Hutcheson, Jr. 1,400 *
Gen. Thomas P. Stafford 700 *
Yukiji Tadokoro 400 *
Executive Officers:(4)
Paul J. Bania 6,500 *
Thomas A. Buck 8,500 *
John P. Monahan 7,100 *
Robert E. Musgraves 8,500 *
All directors and executive officers as a group
(16 persons):(4)(5) 122,145 *
* Less than 1%.
</TABLE>
- 59 -
<PAGE> 62
(1) Contran is the holder of approximately 3.2% of Tremont's outstanding
common stock. Valhi Group, Inc. ("VGI") and National City Lines, Inc.
("National") are the holders of approximately 35.3% and 4.7%,
respectively, of Tremont's outstanding common stock. In addition, NL,
Valmont Insurance Company ("Valmont") and the Combined Master
Retirement Trust (the "Master Trust") are the holders of 36,137,
30,490 and 3,506 shares, respectively, of Tremont common stock, less
than 1% of the outstanding Tremont common stock.
Valhi is the holder of 100% of the outstanding common stock of
Valmont. Valhi and Tremont are the holders of approximately 55% and
17.7%, respectively, of the outstanding common stock of NL. VGI,
National and Contran are the holders of approximately 75.1%, 10.1% and
6.2%, respectively, of the outstanding common stock of Valhi, and the
Master Trust is the holder of approximately .1% of the outstanding
common stock of Valhi. National, NOA, Inc. ("NOA") and Dixie Holding
Company ("Dixie Holding") are the holders of approximately 73.3%,
11.4% and 15.3%, respectively, of the outstanding common stock of VGI.
Contran and NOA are the holders of approximately 85.7% and 14.3%,
respectively, of the outstanding common stock of National. Contran
and Southwest Louisiana Land Company, Inc. ("Southwest") are the
holders of approximately 49.9% and 50.1%, respectively, of the
outstanding common stock of NOA. Dixie Rice Agricultural Corporation,
Inc. ("Dixie Rice") is the holder of 100% of the outstanding common
stock of Dixie Holding. Contran is the holder of approximately 88.7%
and 54.3% of the outstanding common stock of Southwest and Dixie Rice,
respectively. Substantially all of Contran's outstanding voting stock
is held by trusts established for the benefit of Harold C. Simmons'
children and grandchildren (the "Trusts"), of which Harold C. Simmons
is the sole trustee. As sole trustee of the Trusts, Harold C. Simmons
has the power to vote and direct the disposition of the shares of
Contran common stock held by the Trusts. However, Mr. Simmons
disclaims beneficial ownership thereof. The Master Trust is a trust
formed by Valhi to permit the collective investment by trusts that
maintain the assets of certain employee benefit plans adopted by Valhi
and related companies. Harold C. Simmons is sole trustee of the
Master Trust and sole member of the Trust Investment Committee for the
Master Trust. The trustee and members of the Trust Investment
Committee for the Master Trust are selected by Valhi's Board of
Directors. Harold C. Simmons and Glenn R. Simmons are each members of
Valhi's Board of Directors and are participants in one or more of the
employee benefit plans which invest through the Master Trust.
However, each such person disclaims beneficial ownership of the Valhi
common stock and Tremont common stock held by the Master Trust, except
to the extent of his individual vested beneficial interest in the
assets held by the Master Trust.
Contran's ownership percentages of Valhi and Tremont reported
above include 0.2% of the outstanding shares of Valhi common stock and
2.1% of the outstanding shares of Tremont common stock, respectively,
which shares are directly held by the Contran Deferred Compensation
Trust No. 2 (the "CDCT No. 2"). NationsBank of Texas, N.A. serves
as trustee (the "Trustee") of the CDCT No. 2. Contran established
the CDCT No. 2 as an irrevocable "rabbi trust" to assist Contran in
meeting certain deferred compensation obligations that it owes to
Harold C. Simmons. If the CDCT No. 2 assets are insufficient to
satisfy such obligations, Contran must satisfy the balance of such
obligations. Pursuant to the terms of the CDCT No. 2, Contran (i)
retains the power to vote the shares held by the CDCT No. 2, (ii)
shares dispositive power with the Trustee over such shares and (iii)
may be deemed the indirect beneficial owner of such shares.
Harold C. Simmons is Chairman of the Board of NL, Chairman of
the Board, President and Chief Executive Officer of Contran, Dixie
Holding, NOA, National, VGI and Valhi, is Chairman of the Board and
Chief Executive Officer of Dixie Rice and Southwest, and a director of
Tremont. By virtue of the holding of such offices, the stock
ownership described above and Mr. Simmons' service as trustee as
described above, Mr. Simmons may be deemed to control Contran,
Southwest, Dixie Rice, Dixie Holding, NOA, National, VGI, Valhi,
Tremont, the Company and NL, and Mr. Simmons, VGI, National, NOA,
Dixie Rice, Dixie Holding, Southwest and Contran may be deemed to
possess indirect beneficial ownership of the Common Stock directly
beneficially owned by Tremont and the Tremont common stock held by
Contran and its subsidiaries. However, Mr. Simmons disclaims
beneficial ownership of the shares of Common Stock and Tremont common
stock beneficially owned, directly and indirectly, by such entities.
(2) The shares of Common Stock shown as beneficially owned by Tremont and
UTSC exclude 1,508,075 shares and 503,230 shares, respectively,
obtainable within 60 days of the date of this Prospectus upon exercise
an option expiring February 15, 1999 granted by IMI Americas Inc. to
Tremont (25% of which was concurrently assigned to UTSC) in connection
with the IMI Titanium Acquisition (the "IMI Option") at an exercise
price of $7.95 per share. In connection with the Stock Offering,
- 60 -
<PAGE> 63
Tremont relinquished its right to acquire 1,615 shares, which were
sold by IMI in the Stock Offering. If the IMI Option was fully
exercised, Tremont would hold 11,033,075 shares or 35.1% of the
outstanding Common Stock as of September 30, 1996, and UTSC would hold
3,653,230 shares of Common Stock or 11.6% of the outstanding Common
Stock as of September 30, 1996. UTSC's portion of the IMI Option
reverts to Tremont if not exercised by UTSC on or prior to February
11, 1999.
UTSC is a Delaware corporation, the shareholders of which are
Toho Titanium Company, Ltd. ("Toho"), Nippon Mining and Metals
Company, Ltd. ("NMMS"), Nippon Steel Corporation ("NSC"), Mitsui &
Co., Ltd. ("Mitsui Japan") and Mitsui & Co. (U.S.A.), Inc. ("Mitsui
USA"). The shareholders of UTSC may be deemed to share beneficial
ownership of the Common Stock held of record by UTSC by virtue of
being shareholders of UTSC, but each expressly disclaims such
beneficial ownership. The business address for Toho is Shinagawa NSS
Building 2-13-31, Kohnan, Minato-ku, Tokyo 108, Japan; for NMMS is
10-1,Toranomon 2-chome, Minato-ku, Tokyo 105, Japan; for NSC is 6-3
Ohtemachi 2-chome, Chiyoda-ku, Tokyo 100-71, Japan; for Mitsui Japan
is 2-1 Ohtemachi 1-chome, Chiyoda-ku, Tokyo, Japan; and for Mitsui USA
is 200 Park Avenue, New York, New York 10166-0130.
(3) All of the outstanding capital stock of IMI Americas Inc. is held,
directly or indirectly, by IMI plc.
(4) The address of all such persons is 1999 Broadway, Suite 4300, Denver,
Colorado 80202. The shares of Common Stock shown as beneficially
owned by Mr. Martin include 400 shares held by Mr. Martin's daughters,
beneficial ownership of which is disclaimed by Mr. Martin. The shares
of Common Stock shown as beneficially owned by Mr. Monahan include 100
shares held by Mr. Monahan's son, beneficial ownership of which is
disclaimed by Mr. Monahan. The shares of Common Stock shown as
beneficially owned by Mr. Musgraves include 1,000 shares held by Mr.
Musgraves' mother-in-law, beneficial ownership of which is disclaimed
by Mr. Musgraves.
(5) Includes 3,000 Convertible Preferred Securities held by Mr. Martin and
2,000 Convertible Preferred Securities held by Mr. Compofelice,
convertible into 4,107 and 2,678 shares of Common Stock, respectively.
See "Selling Holders."
- 61 -
<PAGE> 64
The following table sets forth information regarding beneficial
ownership of Tremont's common stock as of September 30, 1996, for (i) each
director and each current executive officer named in the Summary Compensation
Table set forth in "Management," (ii) all directors and current executive
officers of the Company as a group and (iii) a former officer who served as
chief executive officer of the Company until January 5, 1995. All information
has been taken from or based upon ownership filings made by such persons with
the Commission or upon information provided by such persons to Tremont. All
beneficial ownership is sole and direct unless otherwise indicated.
OWNERSHIP OF TREMONT COMMON STOCK
<TABLE>
<CAPTION>
AMOUNT
AND NATURE
OF
BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP COMMON STOCK
- ------------------------ --------- ------------
<S> <C> <C>
Directors:
J. Landis Martin(1) 163,418 2.2%
Joseph S. Compofelice(2) 20,000 *
Andrew R. Dixey -0-
Edward C. Hutcheson, Jr. -0-
Gen. Thomas P. Stafford(2) 4,000 *
Yukiji Tadokoro -0-
Executive Officers:
Paul J. Bania(2) 3,200 *
Thomas A. Buck(2) 14,200 *
John P. Monahan(2) 12,273 *
Robert E. Musgraves(2) 14,210 *
Former Officer:
Kirby C. Adams(3) 85,988 1.1%
All directors and executive officers
as a group (16 persons)(1)(2) 231,001 3.1%
</TABLE>
* Less than 1%.
(1) The shares of Tremont common stock shown as beneficially owned by J.
Landis Martin include 42,500 shares which Mr. Martin has the right to
acquire by exercise of options within 60 days of September 30, 1996
and 510 shares held for the benefit of Mr. Martin under the Savings
Plan for Employees of NL. Such shares also include 2,300 shares held
by Mr. Martin's wife, 1,900 shares held by the Martin's Children Trust
No. II for which Mr. Martin is trustee, and 100 shares held by one of
Mr. Martin's daughters, with respect to which shares beneficial
ownership is disclaimed by Mr. Martin.
(2) The shares of Tremont common stock shown as beneficially owned by
General Thomas P. Stafford, Joseph S. Compofelice, Paul J. Bania,
Thomas A. Buck, John P. Monahan and Robert E. Musgraves and all
directors and executive officers as a group include 3,000, 10,000,
10,200, 14,200, 10,200, 14,200 and 113,700 shares, respectively, which
such persons have the right to acquire by the exercise of options
within 60 days of September 30, 1996 and, in the case of Mr.
Musgraves, 10 shares held by his mother-in-law, beneficial ownership
of which is disclaimed by Mr. Musgraves.
(3) Kirby C. Adams resigned as an executive officer of the Company on
January 5, 1995. The shares of Tremont common stock shown as
beneficially owned by Mr. Adams include 35,400 shares that Mr. Adams
has the right to acquire by the exercise of options within 60 days of
September 30, 1996. See also "Executive Compensation."
- 62 -
<PAGE> 65
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIPS WITH RELATED PARTIES
The Company may be deemed to be controlled by Harold C. Simmons.
Corporations that may be deemed to be controlled by or affiliated with Mr.
Simmons sometimes engage in (i) intercorporate transactions with related
companies such as guarantees, management and expense sharing arrangements,
shared fee arrangements, joint ventures, partnerships, loans, options, advances
of funds on open account, and sales, leases and exchanges of assets, including
securities issued by both related and unrelated parties and (ii) common
investment and acquisition strategies, business combinations, reorganizations,
recapitalizations, securities repurchases, and purchases and sales (and other
acquisitions and dispositions) of subsidiaries, divisions or other business
units, which transactions have involved both related and unrelated parties and
have included transactions which resulted in the acquisition by one related
party of a publicly-held minority equity interest in another related party.
The Company continuously considers, reviews and evaluates, and understands that
Contran, Tremont and related entities consider, review and evaluate such
transactions. Depending upon the business, tax and other objectives then
relevant, it is possible that the Company might be a party to one or more such
transactions in the future. It is the policy of the Company to engage in
transactions with related parties on terms which are, in the opinion of the
Company, no less favorable to the Company than could be obtained from unrelated
parties.
J. Landis Martin, Chairman of the Board and Chief Executive Officer
of the Company, is also currently Chairman of the Board, Chief Executive
Officer and President of Tremont. Mr. Martin also serves as a director, and
President and Chief Executive Officer of NL. Joseph S. Compofelice, Vice
President and Chief Financial Officer and a director, is also Vice President
and Chief Financial Officer of Tremont and Executive Vice President of Valhi.
Mr. Compofelice also serves as a director, and Vice President and Chief
Financial Officer of NL. Robert E. Musgraves, Vice President--Administration
and General Counsel of the Company, is also Vice President and General Counsel
of Tremont. Mark A. Wallace, Vice President--Strategic Change of the Company,
is also Vice President and Controller of Tremont. Such management
interrelationships and intercorporate relationships may lead to possible
conflicts of interest. These possible conflicts of interest may arise from the
duties of loyalty owed by persons acting as corporate fiduciaries to two or
more companies under circumstances in which such companies may have conflicts
of interest. Such individuals divide their time among the companies for which
they serve as executive officers.
Although no specific procedures are in place which govern the
treatment of transactions among the Company and Tremont, the board of directors
of each includes one or more members who are not officers or directors of any
entity that may be deemed to be related to the Company. Additionally, under
applicable principles of law, in the absence of stockholder ratification or
approval by directors who may be deemed disinterested, transactions involving
contracts among companies under common control must be fair to all companies
involved. Furthermore, directors and officers owe fiduciary duties of good
faith and fair dealing to all stockholders of the companies for which they
serve.
The Company understands that Tremont and related entities may consider
acquiring or disposing of shares of Common Stock through open-market or
privately-negotiated transactions depending upon future developments,
including, but not limited to, the availability and alternative uses of funds,
the performance of the Common Stock in the market, an assessment of the
business of and prospects for the Company, financial and stock market
conditions and other factors. The Company does not presently intend, and
understands that Tremont does not presently intend, to engage in any
transaction or series of transactions which would result in the Common Stock
becoming eligible for termination of registration under the Exchange Act, or
ceasing to be traded on a national securities exchange.
Under the Investment Company Act of 1940 (the "Investment Company
Act"), companies such as mutual funds that engage in the investment business
are subject to regulation by the Commission as investment companies. The
Investment Company Act defines an investment company to include an issuer that
(i) is engaged or proposes to engage in the business of investing, reinvesting,
owning, holding or trading in securities and (ii) owns or proposes to acquire
investment securities having a value exceeding 40% of the fair value of such
issuer's total assets on an unconsolidated basis (exclusive of cash and cash
items). Investment securities are defined generally to include all securities
other than those issued by majority-owned subsidiaries of the issuer.
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Tremont is, and has been for the past several years, primarily engaged
in the business of operating manufacturing businesses through the Company and
NL. Tremont does not now nor has it ever engaged or intended to engage in the
business of investing, reinvesting, owning, holding or trading of securities.
Nevertheless, following the IMI Titanium Acquisition, Tremont ceased to own a
majority of the Company's Common Stock. As a result, the Common Stock and NL
shares held by Tremont might both be deemed to be investment securities.
Based on the technical provisions of the Investment Company Act and
because Tremont believes that regulation as an investment company would be
undesirable for a company that engages in a manufacturing business, Tremont has
taken the steps necessary to give itself the benefit of a temporary exemption
under the Investment Company Act, and has sought an order from the Commission
that Tremont is primarily engaged, through the Company and NL, in a
non-investment company business. The Company also understands that Tremont
intends to study the future direction and opportunities available to Tremont
with a view to obviating, within one year (the time period afforded by the
exemption), any argument concerning Tremont's possible status as an investment
company under the Investment Company Act. Based upon current trends, the
Company believes other exemptions may be available in February 1997 should the
Commission not act on, or deny, Tremont's application for an exemptive order.
The Company does not expect that the resolution of Tremont's status under the
Investment Company Act will have an adverse effect upon the Company.
CONTRACTUAL RELATIONSHIPS
Effective January 1, 1996, the Company and Tremont entered into an
intercorporate services agreement which provides that the parties will render
certain management, financial, tax and administrative services to each other.
The term of the agreement is one year, subject to renewal on a quarterly basis.
Prior to entering into the intercorporate services agreement, the Company
charged Tremont a net amount of approximately $.3 million in 1993 and nil in
1994 for such services (including payments for salary, bonus and stock-based
compensation). Tremont charged the Company a net amount of approximately $.9
million in 1995 for such services (including payments for salary, bonus and
stock-based compensation). See "Management--Executive Compensation." The
Company expects to charge Tremont approximately $.4 million under the
intercorporate services agreement in 1996.
As a result of the Stock Offering, the Company repaid certain loans to
Tremont in the aggregate principal amount of $17.7 million together with
accrued but unpaid interest of $4.8 million.
In connection with the operations of the Company's Henderson, Nevada
facility, the Company purchases utility services from Basic Investments, Inc.
and its subsidiaries (collectively, "BII") pursuant to various agreements.
During 1995, the aggregate amount paid by the Company to BII was less than $1
million. A 75%-owned subsidiary of Tremont owns approximately 32% of BII.
The Company believes that the terms of the foregoing intercorporate
services agreement, loans and other transactions with Tremont and BII were no
less favorable to the Company than it might have obtained from unaffiliated
third parties.
In connection with the IMI Titanium Acquisition, the Company issued
$20 million of subordinated debt to IMI in exchange for a like amount of debt
previously owed to IMI by IMI Titanium Ltd. A portion of the proceeds of the
Stock Offering was used to prepay such debt.
Also in connection with the IMI Titanium Acquisition, TIMET UK leased
its manufacturing facility in Witton, England from IMI. The leases on the
principal facilities are for 30-year terms. TIMET UK pays aggregate rental
thereunder of approximately L650,000 per year, which amount is subject to
adjustment every five years based on changes in the Retail Prices Index for all
items excluding housing as published by HM Government's Central Statistical
Office. The Company has guaranteed the obligations of TIMET UK under these
leases.
In connection with the construction and financing of the Company's VDP
plant, UTSC licensed certain technology to the Company and received, among
other consideration, the right to acquire up to 20% of the Company's annual
production capacity of VDP sponge at agreed-upon prices through early 1997 and
higher formula-determined prices thereafter through 2008. The Company
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believes its selling prices to UTSC to be below fair market value and that such
discount represents consideration to UTSC for the licensed technology. Sales
to UTSC in 1993, 1994 and 1995 were $1 million, $2 million and $9 million,
respectively.
The foregoing transactions with IMI and UTSC were entered into in
connection with those entities becoming stockholders of this Company.
Toho Titanium Company, Ltd., a shareholder of UTSC, is through an
intermediary trading company, a party to a contract with TIMET UK pursuant to
which TIMET UK purchases sponge. The contract covers up to 3.2 million pounds
during 1996 at fixed prices. The Company believes that the terms of the
agreement are no less favorable to the Company than the Company might have
obtained from unaffiliated third parties.
SHAREHOLDERS' AGREEMENTS
In connection with the investment by UTSC in the Company, the Company,
Tremont, UTSC, and the stockholders of UTSC entered into an agreement dated May
30, 1990, as amended (the "Investors' Agreement"), that regulates certain
aspects of the governance of the Company. The Investors' Agreement (as
recently amended, as discussed below) provides, among other things, that so
long as UTSC and its stockholders hold at least 10% of the "Adjusted
Outstanding TMC Voting Securities": (i) the Board of the Company shall be
composed of seven members, of whom one shall be designated by UTSC; (ii) UTSC's
approval shall be required for the dissolution or liquidation of the Company or
any of its subsidiaries or the filing by the Company of a petition in
bankruptcy or the commencement by the Company of any other proceeding seeking
relief from its creditors; and (iii) UTSC shall be entitled to receive certain
periodic information about the Company. Adjusted Outstanding TMC Voting
Securities means: (i) all Common stock outstanding prior to the Stock Offering
(other than 92,950 shares issued to certain members of management in 1996),
(ii) all shares of Common Stock issued in the Stock Offering, and (iii) shares
of Common Stock issued following the Stock Offering (unless the issuance of
such shares would cause UTSC to lose its rights associated with owning 10% of
the Adjusted Outstanding TMC Voting Securities or the termination of the
Investors' Agreement, in which case such shares will be counted only if UTSC is
afforded certain pre-emptive rights to avoid such dilution), but does not
include shares issued in connection with any existing or future employee or
director stock option or compensation plan.
The Investors' Agreement also provides for: (i) mutual rights of
indemnification between UTSC and the Company for losses arising from any
material breach of a covenant or agreement contained in the Investors'
Agreement with respect to various representations and warranties made in
connection with UTSC's investment in the Company; (ii) certain limitations on
the right of UTSC to transfer its shares of Common Stock; (iii) a right of
first refusal, under certain circumstances, in favor of Tremont on a proposed
transfer of UTSC's Common Stock; (iv) provisions for the arbitration of certain
disputes arising under the Investors' Agreement; and (v) termination of the
Investors' Agreement in the event that UTSC and its stockholders or their
affiliates, as a group, hold less than 5% of the Adjusted Outstanding TMC
Voting Securities.
In connection with the IMI Titanium Acquisition, the Company, Tremont,
IMI and two of its affiliates, IMI Kynoch Ltd. and IMI Americas Inc., entered
into an agreement dated February 15, 1996, as amended March 29, 1996 (the
"Shareholders' Agreement") to regulate certain matters relating to the
governance of the Company as among the Company, Tremont and its affiliates, and
IMI and its affiliates. UTSC is not a party to the Shareholders' Agreement and
has no rights or obligations as a party to the Shareholder's Agreement.
Certain rights granted to Tremont and IMI and their permitted transferees
("Holders") under the Shareholders' Agreement depend on the percentage of
Common Stock held at any given time. With respect to representation on the
Company's Board of Directors, the Shareholders' Agreement generally provides
that each party shall vote its Common Stock in favor of four nominees of
Tremont for the Board of Directors so long as Tremont holds at least 30% of the
outstanding Common Stock. In addition, each party shall vote its Common Stock
in favor of two nominees of any Holder of 20% or more of the outstanding Common
Stock (a "20% Holder"); and one nominee of a Holder of 10% or more of the
outstanding Common Stock (a "10% Holder").
The Company has agreed in the Shareholders' Agreement that, without
the approval of each 20% and 10% Holder, it shall not cause or permit the
dissolution or liquidation of the Company or any of its subsidiaries or the
filing by the Company of a petition in bankruptcy or the commencement by the
Company of any other proceeding seeking relief from its creditors. The Company
has
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also agreed to provide each 10% Holder certain periodic information about the
Company and its subsidiaries, which right is subject to confidentiality
restrictions.
The Shareholders' Agreement also provides for: (i) rights of
indemnification among the Company, Tremont and IMI with respect to various
representations and warranties made in connection with the IMI Titanium
Acquisition; (ii) certain limitations on the rights of a Holder to transfer its
shares of Common Stock; (iii) restrictions on the ability of a Holder to
transfer certain of the rights accorded by the Shareholders' Agreement; (iv)
agreements not to engage in competition with the Company if the Holder is a 20%
Holder; (v) grant of the IMI Option described below; (vi) the arbitration of
certain disputes arising under the Shareholders' Agreement; and (vii)
termination of the Shareholders' Agreement in the event no Holder of 5% of the
outstanding Common Stock exists.
In connection with the IMI Titanium Acquisition, IMI Americas, Inc.
granted Tremont the IMI Option, giving Tremont the right to acquire 2,012,920
shares of Common Stock. Concurrently with the grant of the IMI Option, Tremont
assigned to UTSC certain rights to acquire 503,230 shares of Common Stock from
IMI. Tremont waived its rights as to 1,615 shares of Common Stock which were
sold by IMI in the Stock Offering. See "Principal Stockholders."
The preceding description of the Investors' Agreement, the
Shareholders' Agreement and the IMI Option is a summary and is qualified in its
entirety by the provisions of the Investors' Agreement and Shareholders'
Agreement, which are included as exhibits to the Registration Statement of
which this Prospectus is a part.
REGISTRATION RIGHTS
Under the Investors' Agreement and subject to certain limitations, so
long as UTSC or its stockholders hold at least 5% of the outstanding Common
Stock of the Company, UTSC and its stockholders are entitled to certain rights
with respect to registration under the Securities Act of the shares of Common
Stock that are held by UTSC. UTSC holds 3,150,000 shares (10% of the
outstanding Common Stock) and, pursuant to the IMI Option, has the right to
acquire an additional 503,230 shares from IMI. The Investors' Agreement
provides that (i) UTSC and its stockholders and their permitted transferees
have one right (the "Demand Right") to request the Company to register under
the Securities Act at least 50% of the shares of Common Stock and any equity
securities of the Company convertible into, or exercisable or exchangeable for,
any shares of Common Stock held by them or their permitted transferees (the
"Registrable Securities"); and (ii) if the Company proposes to register any
securities under the Securities Act (other than a registration on Form S-4 or
Form S-8, or any successor or similar form), whether or not pursuant to
registration rights granted to other holders of its securities and whether or
not for sale for its own account, UTSC and its stockholders and their permitted
transferees have two rights to request the Company to include in such
registration the Registrable Securities held by them or their permitted
transferees (the "Piggyback Right"), provided that such Piggyback Right shall
remain in effect if the Company fails to effect the registration of all
Registrable Securities requested to be registered. Under most circumstances,
substantially all of the expenses for a registration pursuant to a Demand Right
are to be borne by UTSC, and substantially all of the expenses for a
registration pursuant to a Piggyback Right are to be borne by the Company,
other than underwriting commissions and discounts on, and incremental
registration fees relating, to the Registrable Securities included in the
registration. Under certain circumstances, the number of shares included in
such registrations may be limited. The Company has agreed to indemnify the
holders of any Registrable Securities being registered by the Company pursuant
to the Investors' Agreement, as well as the holder's directors and officers and
any underwriters and selling agents, against certain liabilities, including
liabilities under the Securities Act. Pursuant to these requirements, UTSC
requested registration of 3,653,230 shares of Common Stock (consisting of
shares currently held by UTSC and the number of shares UTSC can obtain upon
exercise of the IMI Option) in connection with this Prospectus.
Under the Shareholders' Agreement, IMI, Tremont and their affiliates
are entitled to certain rights with respect to the registration under the
Securities Act of the shares of Common Stock that are held by each of them.
The Shareholders' Agreement generally provides, subject to certain limitations,
that (i) 10% Holders shall have two rights, only one of which can be on Form
S-1, to request the Company to register under the Securities Act an amount of
not less than $25 million of Registrable Securities; and (ii) if the Company
proposes to register any securities under the Securities Act (other than a
registration on Form S-4 or Form S-8, or any successor or similar form),
whether or not pursuant to registration rights granted to other holders of its
securities and whether or not for sale for its own account, IMI, Tremont and
their affiliates have the right to request the Company to include in such
registration
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the Registrable Securities held by them or their permitted transferees so long
as each holds in excess of 5% of the outstanding shares of Common Stock (or to
sell the entire balance of any such Registrable Securities even though less
than 5%). The Company is obligated to pay all registration expenses in
connection with a registration under the Shareholders' Agreement. Under
certain circumstances, the number of shares included in such registrations may
be limited. The Company has agreed to indemnify the holders of any Registrable
Securities to be covered by a registration statement pursuant to the
Shareholders' Agreement, as well as the holder's directors and officers and any
underwriters and selling agents, against certain liabilities, including
liabilities under the Securities Act. Pursuant to these requirements, Tremont
requested registration of 1,508,075 shares of Common Stock (equivalent to the
number of shares Tremont can obtain upon exercise of the IMI Option) in
connection with this Prospectus.
The preceding description of the Investors' Agreement and
Shareholders' Agreement is a summary and is qualified in its entirety by the
provisions of the Investors' Agreement and Shareholders' Agreement, which are
included as exhibits to the Registration Statement of which this Prospectus is
a part.
DESCRIPTION OF THE CONVERTIBLE PREFERRED SECURITIES
The Convertible Preferred Securities were issued pursuant to the terms
of the Declaration. The Declaration incorporates by reference certain terms of
the Trust Indenture Act, and is qualified under the Trust Indenture Act. The
Property Trustee, The Chase Manhattan Bank, is acting as indenture trustee for
the Convertible Preferred Securities under the Declaration for purposes of
compliance with the provisions of the Trust Indenture Act. The terms of the
Convertible Preferred Securities include those stated in the Declaration and
those made part of the Declaration by the Trust Indenture Act. The following
summary of the material terms and provisions of the Convertible Preferred
Securities is subject to, and qualified in its entirety by reference to, the
Declaration, which is included as an exhibit to the Registration Statement of
which this Prospectus is a part.
GENERAL
The Declaration authorizes the Regular Trustees to issue the Trust
Securities on behalf of the Trust. The Convertible Preferred Securities
represent undivided beneficial ownership interests in the assets of the Trust
and entitle the holders thereof to a preference in certain circumstances with
respect to distributions and amounts payable on redemption or liquidation over
the Trust Common Securities, as well as other benefits as described in the
Declaration. The Convertible Preferred Securities were issued in fully
registered form without coupons.
All of the Trust Common Securities are owned by the Company. The
Trust Common Securities rank pari passu, and payments will be made thereon on a
pro rata basis, with the Convertible Preferred Securities, except that upon the
occurrence of a Declaration Event of Default, the rights of the holders of the
Trust Common Securities to receive payment of periodic distributions and
payments upon liquidation, redemption and otherwise will be subordinated to the
rights of the holders of Convertible Preferred Securities. See "--
Subordination of Trust Common Securities." Title to the Convertible Debentures
will be held by the Property Trustee for the benefit of the holders of the
Trust Securities. The Declaration does not permit the issuance by the Trust of
any securities other than the Trust Securities or the incurrence of any
indebtedness by the Trust. The payment of distributions out of money held by
the Trust, and payments upon redemption of the Convertible Preferred Securities
or liquidation of the Trust, are guaranteed by the Company to the extent
described under "Description of the Guarantee." The Guarantee will be held by
The Chase Manhattan Bank, as the Guarantee Trustee, for the benefit of the
holders of the Convertible Preferred Securities. The Guarantee does not cover
the payment of distributions when the Trust does not have sufficient available
funds to pay such distributions. In such event, the remedy of a holder of
Convertible Preferred Securities is (i) to vote to direct the Property Trustee
to enforce the Property Trustee's rights under the Convertible Debentures or
(ii) if the failure of the Trust to pay distributions is attributable to the
failure of the Company to pay interest or principal on the Convertible
Debentures, to institute a proceeding directly against the Company for
enforcement of payment to such holder of the principal of or interest on the
Convertible Debentures having a principal amount equal to the aggregate
liquidation amount of the Convertible Preferred Securities of such holder on or
after the respective due date specified in the Convertible Debentures. See "--
Voting Rights."
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The Declaration does not contain covenants or provisions (such as
limitations on the incurrence of indebtedness or liens, asset sales or the
issuance and sale of subsidiary stock) that afford holders of Convertible
Preferred Securities protection in the event of a highly leveraged transaction
or other similar transactions involving TIMET that could adversely affect such
holders.
DISTRIBUTIONS
Distributions on Convertible Preferred Securities are fixed at a rate
per annum of 6.625% of the stated liquidation amount of $50 per Convertible
Preferred Security. Distributions in arrears for more than one quarter will
bear interest thereon at a rate per annum of 6.625% thereof compounded
quarterly. The amount of distributions payable for any period will be computed
on the basis of a 360-day year of twelve 30-day months.
Distributions on the Convertible Preferred Securities will be
cumulative, will accumulate from November 26, 1996 and will be payable
quarterly in arrears on each March 1, June 1, September 1 and December 1,
commencing March 1, 1997, when, as and if available for payment, by the
Property Trustee, except as otherwise described below. The Company has the
right under the Indenture to defer interest payments from time to time on the
Convertible Debentures for successive periods not exceeding 20 consecutive
quarterly interest periods (each, an "Extension Period") during which no
interest (excluding for such purposes, Additional Interest, if any) shall be
due and payable; provided that no such Extension Period may extend beyond the
maturity date of the Convertible Debentures. As a consequence of such
extension, quarterly distributions on the Convertible Preferred Securities will
be deferred during any such Extension Period (although such distributions will
continue to accumulate with interest since interest will continue to accrue on
the Convertible Debentures and will be compounded quarterly). The Company has
agreed that, in the event that the Company exercises this right, during such
Extension Period it will, among other things (a) not declare or pay dividends
on, or make a distribution with respect to, or redeem or purchase or acquire,
or make a liquidation payment with respect to, any of its capital stock (other
than (i) purchases or acquisitions of shares of Common Stock in connection with
the satisfaction by the Company of its obligations under any employee benefit
plans or the satisfaction by the Company of its obligations pursuant to any
contract or security requiring the Company to purchase shares of the Common
Stock, (ii) as a result of a reclassification of the Company's capital stock or
the exchange or conversion of one class or series of the Company's capital
stock for another class or series of the Company's capital stock or (iii) the
purchase of fractional interests in shares of the Company's capital stock
pursuant to the conversion or exchange provisions of such capital stock or the
security being converted or exchanged), (b) not make any payment of interest,
principal or premium, if any, on or repay, repurchase or redeem any debt
securities (including guarantees) issued by the Company that rank pari passu
with or junior to the Convertible Debentures and (c) not make any guarantee
payments with respect to the foregoing (other than pursuant to the Guarantee).
Prior to the termination of any such Extension Period, the Company may further
extend such Extension Period; provided that such Extension Period, together
with all previous and further extensions thereof, may not exceed 20 consecutive
quarters and that such Extension Period may not extend beyond the maturity date
of the Convertible Debentures. Upon the termination of any Extension Period
and the payment of all amounts then due, the Company may commence a new
Extension Period of up to 20 consecutive quarters, subject to the above
restrictions. Consequently, there could be multiple Extension Periods of
varying lengths throughout the term of the Convertible Debentures. See
"Description of the Convertible Debentures--Interest" and "Description of the
Convertible Debentures--Option to Extend Interest Payment Period." If
distributions are deferred, the accumulated distributions and accrued interest
thereon shall be paid to the holders of record of Convertible Preferred
Securities as they appear on the books and records of the Trust on the record
date next following the termination of such deferral period.
Distributions on the Convertible Preferred Securities will be made to
the extent that the Trust has funds available for the payment of such
distributions in the Property Trustee Account. Amounts available to the Trust
for distribution to the holders of the Convertible Preferred Securities will be
limited to payments received by the Trust from the Company in respect of the
Convertible Debentures. See "Description of the Convertible Debentures." The
payment of distributions out of funds held by the Trust is guaranteed by the
Company, as set forth under "Description of the Guarantee."
Distributions on the Convertible Preferred Securities will be payable
to the holders thereof as they appear on the books and records of the Trust on
the relevant record dates, which generally will be the February 15, May 15,
August 15 and November 15 prior to the relevant payment dates. Subject to any
applicable laws and regulations and the provisions of the Declaration, each
such payment will be made as described under "--Payment and Paying Agents"
below. In the event that any date on which distributions
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are payable on the Convertible Preferred Securities is not a Business Day,
payment of the distribution payable on such date will be made on the next
succeeding day that is a Business Day (without any distribution or other
payment in respect of any such delay) except that, if such Business Day is in
the next succeeding calendar year, such payment will be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date. A "Business Day" shall mean any day other than a day on which
banking institutions in The City of New York or in Chicago, Illinois are
authorized or required by law to close.
CONVERSION RIGHTS
General. Convertible Preferred Securities are convertible at any time
after 90 days following November 26, 1996 and prior to 5:00 p.m. (New York
City time) on the fifth Business Day immediately preceding the date of
repayment of such Convertible Preferred Securities, whether at maturity or upon
redemption (either at the option of the Company or pursuant to a Tax Event), at
the option of the holder thereof and in the manner described below, into shares
of Common Stock at an initial conversion rate of 1.339 shares of Common Stock
for each Convertible Preferred Security (equivalent to a conversion price of
approximately $37.34 per share of Common Stock), subject to adjustment as
described under "--Conversion Price Adjustments" below. The Trust has
covenanted in the Declaration not to convert Convertible Debentures held by it
except pursuant to a notice of conversion delivered to the Property Trustee, as
conversion agent (the "Conversion Agent"), by a holder of Convertible Preferred
Securities. A holder of a Convertible Preferred Security wishing to exercise
its conversion right must deliver an irrevocable notice of conversion,
together, if the Convertible Preferred Security is a Certificated Security (as
defined herein), with such Certificated Security, to the Conversion Agent,
which shall, on behalf of such holder, exchange such Convertible Preferred
Security for a portion of the Convertible Debentures and immediately convert
such Convertible Debentures into Common Stock. Holders may obtain copies of
the required form of the notice of conversion from the Conversion Agent.
Procedures for converting book-entry Convertible Preferred Securities into
shares of Common Stock differ, as described under "--Book-Entry Only Issuance--
The Depository Trust Company."
Holders of Convertible Preferred Securities at 5:00 p.m. (New York
City time) on a distribution record date will be entitled to receive the
distribution payable on such Convertible Preferred Securities on the
corresponding distribution payment date notwithstanding the conversion of such
Convertible Preferred Securities following such distribution record date but
prior to such distribution payment date. Except as provided in the immediately
preceding sentence, neither the Trust nor the Company will make, or be required
to make, any payment, allowance or adjustment for accumulated and unpaid
distributions, whether or not in arrears, on converted Convertible Preferred
Securities; provided, however, that any holder of Convertible Preferred
Securities who delivers such Convertible Preferred Securities for conversion
after receiving a notice of redemption from the Property Trustee during an
Extension Period will be entitled to receive all accumulated and unpaid
distributions to the date of conversion. Each conversion will be deemed to
have been effected immediately prior to 5:00 p.m. (New York City time) on the
day on which the related conversion notice was received by the Conversion
Agent.
Shares of Common Stock issued upon conversion of Convertible Preferred
Securities will be validly issued, fully paid and nonassessable. No fractional
shares of Common Stock will be issued as a result of conversion, but in lieu
thereof such fractional interest will be paid by the Company in cash based on
the last reported sale price of Common Stock on the date such Convertible
Preferred Securities are surrendered for conversion.
Conversion Price Adjustments--General. The conversion price is
subject to adjustment in certain events, including (a) the issuance of shares
of Common Stock as a dividend or a distribution with respect to any class of
capital stock of the Company, (b) subdivisions, combinations and
reclassification of Common Stock, (c) the issuance to all holders of Common
Stock of rights or warrants entitling them to subscribe for shares of Common
Stock at less than the then Current Market Price (as defined below) of the
Common Stock, (d) the distribution to holders of Common Stock of evidences of
indebtedness of the Company, securities or capital stock, cash or assets
(including securities, but excluding those rights, warrants, dividends and
distributions referred to above and dividends and distributions paid
exclusively in cash), (e) the payment of dividends (and other distributions) on
Common Stock paid exclusively in cash, excluding cash dividends if the
annualized per share amount thereof does not exceed 15% of the Current Market
Price of Common Stock as of the trading day immediately preceding the date of
declaration of such dividend, and (f) payment to holders of Common Stock in
respect of a tender or exchange offer (other than an odd-lot offer) by the
Company for Common Stock at a price in excess of 110% of the then Current
Market Price of Common Stock as of the trading day next succeeding the last
date tenders or exchanges may be made pursuant to such tender or exchange
offer. "Current Market Price" means the average of
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the daily closing prices for the five consecutive trading days selected by the
Company commencing not more than 20 trading days before, and ending not later
than, the earlier of the day in question or, if applicable, the day before the
"ex" date with respect to the issuance or distribution in question.
The Company may, at its option, make such reductions in the conversion
price as the Company's Board of Directors deems advisable to avoid or diminish
any income tax to holders of Common Stock resulting from any dividend or
distribution of stock (or rights to acquire stock) or from any event treated as
such for income tax purposes. See "United States Federal Income Taxation--
Adjustment of Conversion Price."
No adjustment of the conversion price will be made upon the issuance
of any shares of Common Stock pursuant to any present or future plan providing
for the reinvestment of dividends or interest payable on securities of the
Company and the investment of additional optional amounts in shares of Common
Stock under any such plan. No adjustment in the conversion price will be
required unless adjustment would require a change of at least 1% in the price
then in effect; provided, however, that any adjustment that would not be
required to be made shall be carried forward and taken into account in any
subsequent adjustment. If any action would require adjustment of the
conversion price pursuant to more than one of the provisions described above,
only one adjustment shall be made and such adjustment shall be the amount of
adjustment that has the highest absolute value to the holder of the Convertible
Preferred Securities.
Conversion Price Adjustments--Merger, Consolidation or Sale of Assets
of the Company. In the event that the Company shall be a party to any
transaction (including, without limitation, and with certain exceptions (a) a
recapitalization or reclassification of the Common Stock, (b) consolidation of
the Company with, or merger of the Company into, any other Person, or any
merger of another Person into the Company, (c) any sale, transfer or lease of
all or substantially all of the assets of the Company or (d) any compulsory
share exchange) pursuant to which the Common Stock is converted into the right
to receive other securities, cash or other property (each of the foregoing
being referred to as a "Transaction"), then the holders of Convertible
Preferred Securities then outstanding shall have the right to convert the
Convertible Preferred Securities into the kind and amount of securities, cash
or other property receivable upon the consummation of such Transaction by a
holder of the number of shares of Common Stock issuable upon conversion of such
Convertible Preferred Securities immediately prior to such Transaction. This
change could substantially lessen or eliminate the value of the conversion
privilege associated with the Convertible Preferred Securities in the future.
For example, if the Company were acquired in a cash merger, each Convertible
Preferred Security would become convertible solely into cash and would no
longer be convertible into securities whose value would vary depending on the
future prospects of the Company and other factors.
Conversion price adjustments or omissions in making such adjustments
may, under certain circumstances, be deemed to be distributions that could be
taxable as dividends to holders of Convertible Preferred Securities or to the
holders of Common Stock. See "United States Federal Income Taxation--
Adjustment of Conversion Price."
MANDATORY REDEMPTION UPON OPTIONAL REDEMPTION OR MATURITY OF CONVERTIBLE
DEBENTURES
The Convertible Debentures mature on December 1, 2026 and may be
redeemed, in whole or in part, at any time after December 1, 1999 or at any
time in certain circumstances upon the occurrence of a Tax Event. Upon the
repayment of the Convertible Debentures, whether at maturity or upon redemption
(either at the option of the Company or pursuant to a Tax Event), the proceeds
from such repayment shall simultaneously be applied to redeem Trust Securities
having an aggregate liquidation amount equal to the Convertible Debentures so
repaid or redeemed at the applicable Redemption Price; provided that holders of
the Trust Securities shall be given not less than 15 nor more than 60 days'
notice of such redemption. See "--Special Event Redemption or Distribution,"
"--Redemption Procedures," and "Description of the Convertible Debentures--
General" and "--Redemption at the Option of TIMET."
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SPECIAL EVENT REDEMPTION OR DISTRIBUTION
If, at any time, a Tax Event or an Investment Company Event (each, a
"Special Event") shall occur and be continuing, the Trust shall, unless the
Convertible Debentures are redeemed in the limited circumstances described
below, be dissolved with the result that, after satisfaction of creditors, if
any, of the Trust, Convertible Debentures with an aggregate principal amount
equal to the aggregate stated liquidation amount of, with an interest rate
identical to the distribution rate of, and accrued and unpaid interest equal to
the accumulated and unpaid distributions on, and having the same record date
for payment as, the Convertible Preferred Securities and the Trust Common
Securities outstanding at such time would be distributed on a pro rata basis to
the holders of the Convertible Preferred Securities and the Trust Common
Securities in liquidation of such holders' interests in the Trust, within 90
days following the occurrence of such Special Event; provided, however, that in
the case of the occurrence of a Tax Event, as a condition of such dissolution
and distribution, the Regular Trustees shall have received an opinion of
nationally recognized independent tax counsel experienced in such matters (a
"No Recognition Opinion"), which opinion may rely on published revenue rulings
of the Internal Revenue Service, to the effect that the holders of the
Convertible Preferred Securities will not recognize any income, gain or loss
for Federal income tax purposes as a result of such dissolution and
distribution of Convertible Debentures; and, provided further, that if at the
time there is available to the Trust the opportunity to eliminate, within such
90-day period, the Special Event by taking some ministerial action, such as
filing a form or making an election, or pursuing some other similar reasonable
measure that, in the sole judgment of the Company, has or will cause no adverse
effect on the Trust, the Company or the holders of the Trust Securities and
will involve no material cost, the Trust will pursue such measure in lieu of
dissolution. Furthermore, if in the case of the occurrence of a Tax Event, (i)
the Regular Trustees have received an opinion (a "Redemption Tax Opinion") of
nationally recognized independent tax counsel experienced in such matters that,
as a result of a Tax Event, there is more than an insubstantial risk that the
Company would be precluded from deducting the interest on the Convertible
Debentures for Federal income tax purposes (determined without regard to the
use made by the Company of the proceeds from the sale of the Convertible
Debentures) even if the Convertible Debentures were distributed to the holders
of Convertible Preferred Securities and Trust Common Securities in liquidation
of such holders' interests in the Trust as described above or (ii) the Regular
Trustees shall have been informed by such tax counsel that a No Recognition
Opinion cannot be delivered to the Trust, the Company shall have the right,
upon not less than 15 nor more than 60 days' notice, to redeem the Convertible
Debentures, in whole (but not in part), at 100% of the principal amount plus
accrued and unpaid interest, within 90 days following the occurrence of such
Tax Event, and promptly following such redemption, the Convertible Preferred
Securities and Trust Common Securities will be redeemed by the Trust; provided,
however, that if at the time there is available to the Company or the Trust the
opportunity to eliminate, within such 90-day period, the Tax Event by taking
some ministerial action, such as filing a form or making an election, or
pursuing some other similar reasonable measure that, in the sole judgment of
the Company, has or will cause no adverse effect on the Trust, the Company or
the holders of the Trust Securities and will involve no material cost, the
Company or the Trust will pursue such measure in lieu of redemption.
"Tax Event" means that the Regular Trustees shall have received an
opinion of nationally recognized independent tax counsel experienced in such
matters (a "Dissolution Tax Opinion") to the effect that as a result of (a) any
amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, (b) any amendment to, or
change in, an interpretation or application of any such laws or regulations by
any legislative body, court, governmental agency or regulatory authority
(including the enactment of any legislation and the publication of any judicial
decision or regulatory determination), (c) any interpretation or pronouncement
that provides for a position with respect to such laws or regulations that
differs from the theretofore generally accepted position or (d) any action
taken by any governmental agency or regulatory authority, which amendment or
change is enacted, promulgated or issued or which interpretation or
pronouncement is issued or adopted or which action is taken, in each case,
after November 20, 1996 (collectively, a "Change in Tax Law"), there is more
than an insubstantial risk that (i) the Trust is, or will be within 90 days of
the date thereof, subject to Federal income tax with respect to income accrued
or received on the Convertible Debentures, (ii) the Trust is, or will be within
90 days of the date thereof, subject to more than a de minimis amount of other
taxes, duties or other governmental charges or (iii) interest payable by the
Company to the Trust on the Convertible Debentures is not, or within 90 days of
the date thereof will not be, deductible by the Company for Federal income tax
purposes (determined without regard to the use made by the Company of the
proceeds of the Convertible Debentures). Notwithstanding anything in the
previous sentence to the contrary, a Tax Event shall not include any Change in
Tax Law that requires the Company for Federal income tax purposes to defer
taking a deduction for any OID that accrues with respect to the Convertible
Debentures until the interest payment related to such OID is paid by the
Company in money; provided that such Change in Tax Law does not create more
than an insubstantial risk that the
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Company will be prevented from taking a deduction for OID accruing with respect
to the Convertible Debentures at a date that is no later than the date the
interest payment related to such OID is actually paid by the Company in money.
"Investment Company Event" means that the Regular Trustees shall have
received an opinion of nationally recognized independent counsel experienced in
practice under the Investment Company Act to the effect that, as a result of
the occurrence of a change in law or regulation or a change in interpretation
or application of law or regulation by any legislative body, court,
governmental agency or regulatory authority (a "Change in Investment Company
Law"), there is more than an insubstantial risk that the Trust is or will be
considered an "investment company" which is required to be registered under the
Investment Company Act, which Change in Investment Company Law becomes
effective on or after November 20, 1996.
On the date fixed for any distribution of Convertible Debentures, upon
dissolution of the Trust, (i) the Convertible Preferred Securities and the
Trust Common Securities will no longer be deemed to be outstanding and (ii)
certificates representing Trust Securities will be deemed to represent
beneficial interests in the Convertible Debentures having an aggregate
principal amount equal to the stated liquidation amount of, and bearing accrued
and unpaid interest equal to the accumulated and unpaid distributions on, such
Trust Securities until such certificates are presented to the Company or its
agent for transfer or reissuance.
There can be no assurance as to the market price for the Convertible
Debentures that may be distributed in exchange for Trust Securities if a
dissolution and liquidation of the Trust were to occur. Accordingly, the
Convertible Debentures that an investor may subsequently receive on dissolution
and liquidation of the Trust may trade at a discount to the price of the Trust
Securities exchanged.
REDEMPTION PROCEDURES
The Trust may not redeem fewer than all of the outstanding Convertible
Preferred Securities unless all accumulated and unpaid distributions have been
paid on all Convertible Preferred Securities for all quarterly distribution
periods terminating on or prior to the date fixed for redemption.
In the event of any redemption in part, the Trust shall not be
required (i) to issue, register the transfer of or exchange any Convertible
Preferred Security during a period beginning at the opening of business 15 days
before any selection for redemption of Convertible Preferred Securities and
ending at 5:00 p.m. New York City time on the earliest date on which the
relevant notice of redemption is deemed to have been given to all holders of
Convertible Preferred Securities to be so redeemed or (ii) to register the
transfer of or exchange any Convertible Preferred Securities so selected for
redemption, in whole or in part, except for the unredeemed portion of any
Convertible Preferred Securities being redeemed in part.
If the Trust gives a notice of redemption in respect of Convertible
Preferred Securities (which notice will be irrevocable), and if the Company has
paid to the Property Trustee a sufficient amount of cash in connection with the
related redemption or maturity of the Convertible Debentures, then, by 12:00
noon, New York City time, on the redemption date, the Trust will irrevocably
deposit with DTC funds sufficient to pay the amount payable on redemption of
all book-entry certificates and will give DTC irrevocable instructions and
authority to pay such amount in respect of Convertible Preferred Securities
represented by the Global Certificates (as defined herein) and will irrevocably
deposit with the paying agent for the Convertible Preferred Securities funds
sufficient to pay such amount in respect of any Certificated Securities and
will give such paying agent irrevocable instructions and authority to pay such
amount to the holders of Certificated Securities upon surrender of their
certificates. If notice of redemption shall have been given and funds are
deposited as required, then upon the date of such deposit, all rights of
holders of such Convertible Preferred Securities so called for redemption will
cease, except the right of the holders of such Convertible Preferred Securities
to receive the Redemption Price, but without interest on such Redemption Price.
In the event that any date fixed for redemption of Convertible Preferred
Securities is not a Business Day, then payment of the amount payable on such
date will be made on the next succeeding day that is a Business Day (without
any interest or other payment in respect of any such delay), except that, if
such Business Day falls in the next calendar year, such payment will be made on
the immediately preceding Business Day. In the event that payment of the
Redemption Price in respect of Convertible Preferred Securities is improperly
withheld or refused and not paid either by the Trust or by the Company pursuant
to the Guarantee described under "Description of the Guarantee," distributions
on such Convertible Preferred Securities will continue to accumulate at the
then applicable rate, from the original redemption date to the date of payment,
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in which case the actual payment date will be considered the date fixed for
redemption for purposes of calculating the amount payable upon redemption
(other than for calculating any premium).
In the event that fewer than all of the outstanding Convertible
Preferred Securities are to be redeemed, the Convertible Preferred Securities
will be redeemed pro rata.
Subject to the foregoing and applicable law (including, without
limitation, Federal securities laws), the Company or its subsidiaries may at
any time and from time to time purchase outstanding Convertible Preferred
Securities by tender, in the open market or by private agreement.
SUBORDINATION OF TRUST COMMON SECURITIES
Payment of distributions on, and the amount payable upon redemption
of, the Trust Securities, as applicable, shall be made pro rata based on the
liquidation amount of the Trust Securities; provided, however, that, if on any
distribution date or redemption date a Declaration Event of Default shall have
occurred and be continuing, no payment of any distribution on, or amount
payable upon redemption of, any Trust Common Security, and no other payment on
account of the redemption, liquidation or other acquisition of Trust Common
Securities, shall be made unless payment in full in cash of all accumulated and
unpaid distributions on all outstanding Convertible Preferred Securities for
all distribution periods terminating on or prior thereto, or in the case of
payment of the amount payable upon redemption of the Convertible Preferred
Securities, the full amount of such amount in respect of all outstanding
Convertible Preferred Securities shall have been made or provided for, and all
funds available to the Property Trustee shall first be applied to the payment
in full in cash of all distributions on, or the amount payable upon redemption
of, Convertible Preferred Securities then due and payable.
In the case of any Declaration Event of Default, the holder of Trust
Common Securities will be deemed to have waived any such Declaration Event of
Default until all such Declaration Events of Default with respect to the
Convertible Preferred Securities have been cured, waived or otherwise
eliminated. Until any such Declaration Events of Default with respect to the
Convertible Preferred Securities have been so cured, waived or otherwise
eliminated, the Property Trustee will act solely on behalf of the holders of
the Convertible Preferred Securities and not the holder of the Trust Common
Securities, and only the holders of the Convertible Preferred Securities will
have the right to direct the Property Trustee to act on their behalf.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary liquidation, dissolution,
winding up or termination of the Trust (each a "Liquidation"), the then holders
of the Convertible Preferred Securities will be entitled to receive out of the
assets of the Trust, after satisfaction of liabilities to creditors,
distributions in an amount equal to the aggregate of the stated liquidation
amount of $50 per Convertible Preferred Security plus accumulated and unpaid
distributions thereon to the date of payment (the "Liquidation Distribution"),
unless, in connection with such Liquidation, Convertible Debentures in an
aggregate stated principal amount equal to the aggregate stated liquidation
amount of, with an interest rate identical to the distribution rate of, and
accrued and unpaid interest equal to the accumulated and unpaid distributions
on, the Convertible Preferred Securities have been distributed on a pro rata
basis to the holders of the Convertible Preferred Securities.
If, upon any such Liquidation Distribution, the Liquidation
Distribution can be paid only in part because the Trust has insufficient assets
available to pay in full the aggregate Liquidation Distribution, then the
amounts payable directly by the Trust on the Convertible Preferred Securities
shall be paid on a pro rata basis. The holders of the Trust Common Securities
will be entitled to receive distributions upon any such dissolution pro rata
with the holders of the Convertible Preferred Securities, except that if a
Declaration Event of Default has occurred and is continuing, the Convertible
Preferred Securities shall have a preference over the Trust Common Securities
with regard to such distributions.
Pursuant to the Declaration, the Trust shall terminate (i) upon the
bankruptcy of the Company; (ii) upon the filing of a certificate of dissolution
or its equivalent with respect to the Company, the filing of a certificate of
cancellation with respect to the Trust after having obtained the consent of at
least a majority in liquidation amount of the Convertible Preferred Securities,
voting
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together as a single class, to file such certificate of cancellation, or the
revocation of the certificate of incorporation of the Company and the
expiration of 90 days after the date of revocation without a reinstatement
thereof; (iii) upon the entry of a decree of judicial dissolution of the
Company or the Trust; (iv) when all of the Trust Securities shall have been
called for redemption and the amounts necessary for redemption thereof, shall
have been paid to the Holders in accordance with the terms of the Trust
Securities; (v) upon the occurrence and continuation of a Tax Event pursuant to
which the Trust shall have been dissolved in accordance with the terms of the
Declaration and all of the Convertible Debentures shall have been distributed
to the holders of Trust Securities in exchange for all of the Trust Securities;
or (vi) the expiration of the term of the Trust on December 1, 2033.
MERGER, CONSOLIDATION OR AMALGAMATION OF THE TRUST
The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any corporation or other entity or person,
except as described below. The Trust may, with the consent of a majority of
the Regular Trustees and without the consent of the holders of the Trust
Securities, the Property Trustee or the Delaware Trustee consolidate,
amalgamate, merge with or into, or be replaced by a trust organized as such
under the laws of any state of the United States or the District of Columbia;
provided that (i) the Convertible Preferred Securities or any substitute
securities having substantially the same terms as the Convertible Preferred
Securities (the "Successor Securities") are listed, or any Successor Securities
will be listed upon notification of issuance, on any national securities
exchange or with another organization on which the Convertible Preferred
Securities are then listed or quoted, (ii) such merger, consolidation,
amalgamation or replacement does not cause the Convertible Preferred Securities
(including any Successor Securities) to be downgraded by any nationally
recognized statistical rating organization, (iii) such merger, consolidation,
amalgamation or replacement does not adversely affect the rights, preferences
and privileges of the holders of the Convertible Preferred Securities
(including any Successor Securities) in any material respect and (iv) prior to
such merger, consolidation, amalgamation or replacement, the Company has
received an opinion of a nationally recognized independent counsel to the Trust
reasonably acceptable to the Property Trustee and experienced in such matters
to the effect that (A) such merger, consolidation, amalgamation or replacement
will not adversely affect the rights, preferences and privileges of the holders
of the Convertible Preferred Securities (including any Successor Securities),
including the limited liability of such holders, in any material respect (other
than with respect to any dilution of the holders' interest in the new entity),
(B) following such merger, consolidation, amalgamation or replacement, neither
the Trust nor such successor entity will be required to register as an
"investment company" under the Investment Company Act and (C) following such
merger, consolidation, amalgamation or replacement, the Trust (or such
successor entity) will be treated as a grantor trust for Federal income tax
purposes; and, provided further, that if the Trust is not the survivor, (i)
such successor entity either (x) expressly assumes all of the obligations of
the Trust under the Trust Securities or (y) substitutes Successor Securities
for the Convertible Preferred Securities, so long as the Successor Securities
rank the same as the Convertible Preferred Securities rank with respect to
distributions, assets and payments upon liquidation, redemption and otherwise,
(ii) the Company expressly acknowledges a trustee of such successor entity
possessing the same powers and duties as the Property Trustee as the holder of
the Convertible Debentures, (iii) such successor entity has a purpose
substantially identical to that of the Trust and (iv) the Company guarantees
the obligations of such successor entity under the Successor Securities to the
same extent as provided by the Guarantee. Notwithstanding the foregoing, the
Trust shall not, except with the consent of holders of 100% in liquidation
amount of the Trust Common Securities, consolidate, amalgamate, merge with or
into, or be replaced by any other entity or permit any other entity to
consolidate, amalgamate, merge with or into, or replace it, if such
consolidation, amalgamation, merger or replacement would cause the Trust or the
successor entity to be classified as other than a grantor trust for Federal
income tax purposes.
DECLARATION EVENTS OF DEFAULT
An Indenture Event of Default (as defined under "Description of
Convertible Debentures--Indenture Events of Default") constitutes a
"Declaration Event of Default"; provided that pursuant to the Declaration, the
holder of the Trust Common Securities will be deemed to have waived any
Declaration Event of Default with respect to the Trust Common Securities until
all Declaration Events of Default with respect to the Convertible Preferred
Securities have been cured, waived or otherwise eliminated. Until all such
Declaration Events of Default with respect to the Convertible Preferred
Securities have been so cured, waived or otherwise eliminated, the Property
Trustee will be deemed to be acting solely on behalf of the holders of the
Convertible Preferred Securities, and only the holders of the Convertible
Preferred Securities will have the right to direct the Property Trustee with
respect to certain matters under the Declaration and, therefore, the Indenture.
The Property Trustee shall notify all holders of the Convertible Preferred
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Securities of any notice of default received from the Indenture Trustee with
respect to the Convertible Debentures. Such notice shall state that such
Indenture Event of Default also constitutes a Declaration Event of Default.
If a Declaration Event of Default has occurred and is continuing and
such event is attributable to the failure of the Company to pay interest or
principal on the Convertible Debentures on the date such interest or principal
is otherwise payable (or in the case of redemption, the redemption date), then
a holder of Convertible Preferred Securities may directly institute a
proceeding for enforcement of payment to such holder directly of the principal
of or interest on the Convertible Debentures having a principal amount equal to
the aggregate liquidation amount of the Convertible Preferred Securities of
such holder on or after the respective due date specified in the Convertible
Debentures (a "Direct Action"). In connection with such Direct Action, the
Company will be subrogated to the rights of such holder of Convertible
Preferred Securities under the Declaration to the extent of any payment made by
the Company to such holder of Convertible Preferred Securities in such Direct
Action. The holders of Convertible Preferred Securities will not be able to
exercise directly any other remedy available to the holders of the Convertible
Debentures.
Upon the occurrence of a Declaration Event of Default, the Property
Trustee, as the holder of the Convertible Debentures, will have the right under
the Indenture to declare the principal of and interest on the Convertible
Debentures to be immediately due and payable. The Company and the Trust are
each required to file annually with the Property Trustee an officers'
certificate as to its compliance with all conditions and covenants under the
Declaration.
VOTING RIGHTS
Except as described herein, under the Trust Act, the Trust Indenture
Act and under "Description of the Guarantee--Amendments and Assignment," and as
otherwise required by law and the Declaration, the holders of the Convertible
Preferred Securities have no voting rights.
Subject to the requirement of the Property Trustee obtaining a tax
opinion in certain circumstances set forth in the last sentence of this
paragraph, the holders of a majority in liquidation amount of the Convertible
Preferred Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Property Trustee and
direct the exercise of any trust or power conferred upon the Property Trustee
under the Declaration, including the right to direct the Property Trustee, as
holder of the Convertible Debentures, to (i) exercise the remedies available to
it under the Indenture as a holder of the Convertible Debentures, (ii) waive
any past Indenture Event of Default that is waivable under the Indenture, (iii)
exercise any right to rescind or annul a declaration that the principal of all
the Convertible Debentures shall be due and payable or (iv) consent to any
amendment, modification or termination of the Indenture or the Convertible
Debentures where such consent shall be required; provided, however, that where
a consent or action under the Indenture would require the consent or act of the
holders of more than a majority of the aggregate principal amount of
Convertible Debentures affected thereby, only the holders of the percentage of
the aggregate stated liquidation amount of the Convertible Preferred Securities
that is at least equal to the percentage required under the Indenture may
direct the Property Trustee to give such consent or take such action. The
Property Trustee shall be under no obligation to revoke any action previously
authorized or approved by a vote of the holders of the Convertible Preferred
Securities or take any action in accordance with the directions of the holders
of the Convertible Preferred Securities unless the Property Trustee has
obtained an opinion of independent tax counsel to the effect that as a result
of such action, the Trust will not fail to be classified as a grantor trust for
United States Federal income tax purposes and each holder will be treated as
owning an undivided beneficial interest in the Convertible Debentures.
In the event the consent of the Property Trustee, as the holder of the
Convertible Debentures, is required under the Indenture with respect to any
amendment, modification or termination of the Indenture, the Property Trustee
shall request the direction of the holders of the Trust Securities with respect
to such amendment, modification or termination and shall vote with respect to
such amendment, modification or termination as directed by a majority in
liquidation amount of the Trust Securities voting together as a single class;
provided, however, that where a consent under the Indenture would require the
consent of each holder of Convertible Debentures, the Property Trustee may only
give such consent at the direction of each holder of Trust Securities. The
Property Trustee shall not take any such action in accordance with the
direction of the holders of the Trust Securities unless the Property Trustee
has obtained an opinion of independent tax counsel to the effect that, as a
result of such action, the Trust will not be classified as other than a grantor
trust for United States Federal income tax purposes.
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A waiver of an Indenture Event of Default will constitute a waiver of
the corresponding Declaration Event of Default.
Any required approval or direction of holders of Convertible Preferred
Securities may be given at a separate meeting of holders of Convertible
Preferred Securities convened for such purpose, at a meeting of all of the
holders of Trust Securities or pursuant to written consent. The Regular
Trustees will cause a notice of any meeting at which holders of Convertible
Preferred Securities are entitled to vote, or of any matter upon which action
by written consent of such holders is to be taken, to be mailed to each holder
of record of Convertible Preferred Securities. Each such notice will include a
statement setting forth: (i) the date of such meeting or the date by which such
action is to be taken, (ii) a description of any resolution proposed for
adoption at such meeting on which such holders are entitled to vote or of such
matter upon which written consent is sought, and (iii) instructions for the
delivery of proxies or consents. No vote or consent of the holders of
Convertible Preferred Securities will be required for the Trust to redeem and
cancel Convertible Preferred Securities or distribute Convertible Debentures in
accordance with the Declaration.
Notwithstanding that holders of Convertible Preferred Securities are
entitled to vote or consent under any of the circumstances described above, any
of the Convertible Preferred Securities that are owned at such time by the
Company or any entity directly or indirectly controlling or controlled by, or
under direct or indirect common control with, the Company, shall not be
entitled to vote or consent and shall, for purposes of such vote or consent, be
treated as if such Convertible Preferred Securities were not outstanding.
The procedures by which holders of Convertible Preferred Securities
represented by the Global Certificates may exercise their voting rights are
described below. See "--Book-Entry Only Issuance--The Depository Trust
Company."
Holders of the Convertible Preferred Securities have no right to
appoint or remove the Regular Trustees, who may be appointed, removed or
replaced solely by the Company as the holder of the Trust Common Securities.
MODIFICATION OF THE DECLARATION
The Declaration may be modified and amended if approved by a majority
of the Regular Trustees (and, in certain circumstances, the Property Trustee
and the Delaware Trustee); provided that if any proposed amendment provides
for, or the Regular Trustees otherwise propose to effect, (i) any action that
would adversely affect the powers, preferences or special rights of the Trust
Securities, whether by way of amendment to the Declaration or otherwise or (ii)
the dissolution, winding up or termination of the Trust other than pursuant to
the terms of the Declaration, then the holders of the Trust Securities voting
together as a single class will be entitled to vote on such amendment or
proposal and such amendment or proposal shall not be effective except with the
approval of at least a majority in liquidation amount of the Trust Securities
affected thereby; provided, however, that if any amendment or proposal referred
to in clause (i) above would adversely affect only the Convertible Preferred
Securities or the Trust Common Securities, then only the affected class will be
entitled to vote on such amendment or proposal and such amendment or proposal
shall not be effective except with the approval of a majority in liquidation
amount of such class of Trust Securities.
Notwithstanding the foregoing, no amendment or modification may be
made to the Declaration if such amendment or modification would (i) cause the
Trust to be classified for Federal income tax purposes as other than a grantor
trust, (ii) reduce or otherwise adversely affect the powers of the Property
Trustee in contravention of the Trust Indenture Act or (iii) cause the Trust to
be deemed an "investment company" that is required to be registered under the
Investment Company Act.
REGISTRATION RIGHTS
The Company and the Trust have agreed, pursuant to a registration
agreement (the "Registration Agreement") with the Initial Purchasers, for the
benefit of the holders of the Convertible Preferred Securities, that (i) the
Company and the Trust will, at the Company's expense, within 90 days after
November 26, 1996, file a registration statement (a "Shelf Registration
Statement") covering resales of the Convertible Preferred Securities (together
with the Guarantee), the Convertible Debentures and the Common Stock issuable
upon conversion thereof pursuant to Rule 415 under the Securities Act, (ii) the
Company and the Trust shall use best efforts to cause such Shelf Registration
Statement to be declared effective by the Commission within 180 days after
November 26, 1996 and (iii) the Company and the Trust will maintain such Shelf
Registration Statement continuously effective under the Securities Act
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until the earliest of (x) November 26, 1999, (y) such date as restrictions on
resales shall terminate pursuant to Rule 144(k) under the Securities Act or any
successor rule thereto or (z) such date as of which all the Convertible
Preferred Securities, Convertible Debentures or the Common Stock issued upon
conversion thereof have been sold pursuant to such Shelf Registration
Statement. If the Shelf Registration Statement is not declared effective
within 180 days after November 26, 1996, then, at such time and on each date
that would have been the successive 30th day following such time, the per annum
interest rate on the Convertible Debentures (which interest rate shall be the
original interest rate on the Convertible Debentures plus any increase or
increases in such interest rate pursuant to this sentence) will increase by an
additional 25 basis points; provided that the interest rate will not increase
by more than 50 basis points pursuant to this sentence. Such increase or
increases will remain in effect until the date on which the Shelf Registration
Statement is declared effective, on which date the interest rate on the
Convertible Debentures will revert to the interest rate originally borne by the
Convertible Debentures. Pursuant to clause (iii) above, however, if the
Company and the Trust fail to keep the Shelf Registration Statement
continuously effective for the period specified above, then at such time as the
Shelf Registration Statement is no longer effective and on each date thereafter
that is the 30th day subsequent to such time and until the earlier of (i) the
date that the Shelf Registration Statement is again deemed effective, (ii)
November 26, 1999, (iii) such date as restrictions on resales shall terminate
pursuant to Rule 144(k) under the Securities Act or any successor rule thereto
or (iv) such date as of which all of the Convertible Preferred Securities,
Convertible Debentures or the Common Stock issued upon conversion thereof are
sold pursuant to the Shelf Registration Statement, the per annum interest rate
on the Convertible Debentures will increase by an additional 25 basis points;
provided that the interest rate will not increase by more than 50 basis points
pursuant to this sentence. Any increase in the interest rate on the
Convertible Debentures will result in a corresponding increase in the rate at
which distributions will accumulate on the Convertible Preferred Securities.
The Company shall have the right, however, to suspend the use of the prospectus
which forms part of the Shelf Registration Statement, as more fully described
below. This Prospectus is part of the Shelf Registration Statement filed in
connection with these requirements.
The Company and the Trust will provide or cause to be provided to each
holder of the Convertible Preferred Securities, Convertible Debentures or the
Common Stock issued upon conversion thereof, copies of this Prospectus, notify
or cause to be notified each such holder when the Shelf Registration Statement
has become effective and take certain other actions as are required to permit
unrestricted resales of the Convertible Preferred Securities, Convertible
Debentures, and the Common Stock issued upon conversion thereof. A holder of
Convertible Preferred Securities, Convertible Debentures, or the Common Stock
issued upon conversion thereof that sells such securities pursuant to the Shelf
Registration Statement will be required to be named as a selling security
holder in the related prospectus and to deliver a prospectus to purchasers,
will be subject to certain of the civil liability provisions under the
Securities Act in connection with such sales and will be bound by the
provisions of the Registration Agreement that are applicable to a holder
(including certain indemnification and contribution rights and obligations).
The Company will be permitted to suspend the use of this Prospectus
for a period not to exceed 30 days in any three-month period or two periods not
to exceed an aggregate of 60 days in any 12-month period under certain
circumstances relating to pending corporate developments, public filings with
the Commission and similar events. The Company will pay all expenses of the
Shelf Registration Statement, provide to each registered holder of Convertible
Preferred Securities, Convertible Debentures or the Common Stock issued upon
conversion thereof copies of this Prospectus, notify each such registered
holder when the Shelf Registration Statement has become effective and take
certain other actions as are required to permit, subject to the foregoing,
unrestricted resales of the Convertible Preferred Securities, Convertible
Debentures and the Common Stock issued upon conversion thereof.
BOOK-ENTRY ONLY ISSUANCE--THE DEPOSITORY TRUST COMPANY
Except as described in the next paragraph, the Depository Trust
Company ("DTC") will act as securities depositary for the Convertible Preferred
Securities, and the Convertible Preferred Securities will be issued only as
fully registered securities registered in the name of Cede & Co., as DTC's
nominee. One or more fully registered global Convertible Preferred Securities
certificates (the "Global Certificates"), will be issued, representing, in the
aggregate, Convertible Preferred Securities sold in reliance on Rule 144A, and
will be deposited with DTC.
Convertible Preferred Securities initially sold (i) to certain
institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act), (ii) to executive officers and directors of the
Company or other individuals having relationships with the Company or such
executive officers and directors or (iii) in offshore transactions pursuant to
Regulation S
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under the Securities Act were issued in fully registered, certificated form
("Certificated Securities"). Upon the transfer of any such Certificated
Securities, such Certificated Securities shall , unless the Global Certificates
have previously been exchanged for Certificated Securities, be exchanged for an
interest in the Global Certificates representing the number of Convertible
Preferred Securities being transferred. Any such transfers will generally
require the delivery by the transferee of a transfer certificate in the form
set forth in the Declaration.
Upon the transfer of an interest in the Global Certificates by a
Beneficial Owner (as defined herein) pursuant to Regulation S, the interest in
the Global Certificates being transferred may not continue to be held in
book-entry form through DTC, will be exchanged for definitive, legended
certificates only and will require the delivery by the transferee of a transfer
certificate in the form set forth in the Declaration.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in the Convertible
Preferred Securities as represented by a Global Certificate.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Participants in DTC
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. DTC is owned by a number of its
Participants and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc., and the National Association of Securities Dealers, Inc. Access
to the DTC system is also available to others such as securities brokers and
dealers, banks and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants"). The rules applicable to DTC and its Participants are on file
with the Commission.
Purchases of Convertible Preferred Securities within the DTC system
must be made by or through Participants, which will receive a credit for the
Convertible Preferred Securities on DTC's records. The ownership interest of
each actual purchaser of Convertible Preferred Securities (a "Beneficial
Owner") is in turn to be recorded on the Participants' and Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from DTC of their purchases, but Beneficial Owners are expected to receive
written conformations providing details of the transactions, as well as
periodic statements of their holdings, from the Participants or Indirect
Participants through which the Beneficial Owners purchased Convertible
Preferred Securities. Transfers of ownership interests in the Convertible
Preferred Securities are to be accomplished by entries made on the books of
Participants and Indirect Participants acting on behalf of Beneficial Owners.
Beneficial Owners will not receive certificates representing their ownership
interests in Convertible Preferred Securities, except in the event that use of
the book-entry system for the Convertible Preferred Securities is discontinued.
DTC has no knowledge of the actual Beneficial Owners of the
Convertible Preferred Securities; DTC's records reflect only the identity of
the Participants to whose accounts such Convertible Preferred Securities are
credited, which may or may not be the Beneficial Owners. The Participants and
Indirect Participants will remain responsible for keeping account of their
holdings on behalf of their customers.
So long as DTC, or its nominee, is the registered owner or holder of a
Global Certificate, DTC or such nominee, as the case may be, will be considered
the sole owner or holder of the Convertible Preferred Securities represented
thereby for all purposes under the Declaration and the Convertible Preferred
Securities. No beneficial owner of an interest in a Global Certificate will be
able to transfer that interest except in accordance with DTC's applicable
procedures, in addition to those provided for under the Declaration.
DTC has advised the Company that it will take any action permitted to
be taken by a holder of Convertible Preferred Securities (including the
presentation of Convertible Preferred Securities for exchange as described
below) only at the direction of
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one or more Participants to whose account the DTC interests in the Global
Certificates are credited and only in respect of such portion of the aggregate
liquidation amount of Convertible Preferred Securities as to which such
Participant or Participants has or have given such direction. However, if
there is Declaration Event of Default with respect to the Convertible Preferred
Securities, DTC will exchange the Global Certificates for Certificated
Securities, which it will distribute to its Participants.
Conveyance of notices and other communications by DTC to Participants,
by Participants to Indirect Participants, and by Participants and Indirect
Participants to Beneficial Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
Redemption notices in respect of the Convertible Preferred Securities
held in book-entry form will be sent to Cede & Co. If less than all of the
Convertible Preferred Securities are being redeemed, DTC will determine the
amount of the interest of each Participant to be redeemed in accordance with
its procedures.
Although voting with respect to the Convertible Preferred Securities
is limited, in those cases where a vote is required, neither DTC nor Cede & Co.
will itself consent or vote with respect to the Convertible Preferred
Securities. Under its usual procedures, DTC would mail an Omnibus Proxy to the
Trust as soon as possible after the record date. The Omnibus Proxy assigns
Cede & Co.'s consenting or voting rights to those Participants to whose
accounts the Convertible Preferred Securities are credited on the record date
(identified in a listing attached to the Omnibus Proxy).
Distributions with respect to the Global Certificates will be made to
DTC in immediately available funds. DTC's practice is to credit Participants'
accounts on the relevant payment date in accordance with their respective
holdings shown on DTC's records unless DTC has reason to believe that it will
not receive payments on such payment date. Payments by Participants and
Indirect Participants to Beneficial Owners will be governed by standing
instructions and customary practices and will be the responsibility of such
Participants and Indirect Participants and not of DTC, the Trust or the
Company, subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of distributions to DTC is the
responsibility of the Trust, disbursement of such payments to Participants is
the responsibility of DTC, and disbursements of such payments to the Beneficial
Owners is the responsibility of Participants and Indirect Participants.
Except as provided herein, a Beneficial Owner of an interest in a
Global Certificate will not be entitled to receive physical delivery of
Convertible Preferred Securities. Accordingly, each Beneficial Owner must rely
on the procedures of DTC to exercise any rights under the Convertible Preferred
Securities.
Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of interest in the Global Certificates among Participants
of DTC, DTC is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Company, the Trust nor the Property Trustee will have any responsibility for
the performance by DTC or its Participants or Indirect Participants under the
rules and procedures governing DTC. DTC may discontinue providing its services
as securities depositary with respect to the Convertible Preferred Securities
at any time by giving notice to the Trust. Under such circumstances, in the
event that a successor securities depositary is not obtained, Convertible
Preferred Security certificates are required to be printed and delivered.
Additionally, the Trust (with the consent of the Company) may decide to
discontinue use of the system of book-entry transfers through DTC (or a
successor depository). In that event, certificates for the Convertible
Preferred Securities will be printed and delivered. In each of the above
circumstances, payments with respect to such Convertible Preferred Securities
will be made by the Paying Agent. See "--Payment and Paying Agents".
PAYMENT AND PAYING AGENTS
Payments in respect of the Convertible Preferred Securities
represented by the Global Certificates will be made to DTC, which will credit
the relevant accounts at DTC on the applicable distribution dates or, in the
case of Certificated Securities, such payments shall be made by check mailed to
the address of the holder entitled thereto as such address shall appear on the
register of the Convertible Preferred Securities. The Paying Agent initially
is First Chicago Trust Company of New York. The Paying Agent will be permitted
to resign as Paying Agent upon 30 days' written notice to the Issuer Trustees.
In the event that First Chicago Trust
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Company of New York will no longer be the Paying Agent, the Trustee shall
appoint a successor to act as Paying Agent (which shall be a bank or trust
company).
REGISTRAR, TRANSFER AGENT, PAYING AGENT AND CONVERSION AGENT
First Chicago Trust Company of New York initially is the Registrar,
Transfer Agent, Paying Agent and Conversion Agent for the Convertible Preferred
Securities.
Registration of transfers of Convertible Preferred Securities will be
effected without charge by or on behalf of the Trust, but upon payment (with
the giving of such indemnity as the Trust or the Company may require) in
respect of any tax or other government charges that may be imposed in relation
to it.
The Trust will not be required to register or cause to be registered
the transfer of Convertible Preferred Securities after such Convertible
Preferred Securities have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Company and certain of its subsidiaries may maintain deposit
accounts and conduct other banking transactions with the Property Trustee in
the ordinary course of their business. The Property Trustee, prior to the
occurrence of a default with respect to the Trust Securities, undertakes to
perform only such duties as are specifically set forth in the Declaration and,
after default, shall exercise the same degree of care as a prudent individual
would exercise in the conduct of his or her own affairs. Subject to such
provisions, the Property Trustee is under no obligation to exercise any of the
powers vested in it by the Declaration at the request of any holder of
Convertible Preferred Securities, unless offered reasonable indemnity by such
holder against the costs, expenses and liabilities which might be incurred
thereby. The holders of Convertible Preferred Securities will not be required
to offer such indemnity in the event such holders, by exercising their voting
rights, direct the Property Trustee to take any action following a Declaration
Event of Default.
GOVERNING LAW
The Declaration and the Convertible Preferred Securities are governed
by, and will be construed in accordance with, the internal laws of the State of
Delaware.
MISCELLANEOUS
The Regular Trustees are authorized and directed to conduct the
affairs of and to operate the Trust in such a way that the Trust will not be
deemed to be an "investment company" required to be registered under the
Investment Company Act or characterized as other than a grantor trust for
Federal income tax purposes so that the Convertible Debentures will be treated
as indebtedness of the Company for Federal income tax purposes. In this
connection, the Regular Trustees are authorized to take any action, not
inconsistent with applicable law, the certificate of trust or the Declaration
that the Regular Trustees determine in their discretion to be necessary or
desirable for such purposes as long as such action does not adversely affect
the interests of the holders of the Convertible Preferred Securities.
Holders of the Trust Securities have no preemptive rights.
DESCRIPTION OF THE GUARANTEE
Set forth below is a summary of information concerning the Guarantee
executed and delivered by the Company for the benefit of the holders from time
to time of Convertible Preferred Securities. The summary does not purport to
be complete and is subject in all respects to the provisions of, and is
qualified in its entirety by reference to, the Guarantee, which is included as
an exhibit to the Registration Statement of which this Prospectus is a part.
The Guarantee incorporates by reference the terms of the Trust Indenture Act.
It is expected that at the time this Registration Statement becomes effective,
the Guarantee will be qualified
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under the Trust Indenture Act. The Chase Manhattan Bank, as the Guarantee
Trustee, will hold the Guarantee for the benefit of the holders of the
Convertible Preferred Securities.
GENERAL
Pursuant to and to the extent set forth in the Guarantee, the Company
has irrevocably and unconditionally agreed to pay in full to the holders of the
Convertible Preferred Securities (except to the extent paid by the Trust), as
and when due, regardless of any defense, right of set off or counterclaim that
the Trust may have or assert, the following payments (the "Guarantee
Payments"), without duplication: (i) any accumulated and unpaid distributions
that are required to be paid on the Convertible Preferred Securities to the
extent the Trust has funds available therefor, (ii) the Redemption Price, with
respect to any Convertible Preferred Securities called for redemption by the
Trust, to the extent the Trust has funds available therefor and (iii) upon a
voluntary or involuntary dissolution, winding up or termination of the Trust
(other than in connection with the distribution of Convertible Debentures to
the holders of Convertible Preferred Securities or the redemption of all the
Convertible Preferred Securities), the lesser of (a) the aggregate of the
liquidation amount and all accumulated and unpaid distributions on the
Convertible Preferred Securities to the date of payment to the extent the Trust
has funds available therefor and (b) the amount of assets of the Trust
remaining available for distribution to holders of Convertible Preferred
Securities upon the liquidation of the Trust. The Company's obligation to make
a Guarantee Payment may be satisfied by direct payment of the required amounts
by the Company to the holders of Convertible Preferred Securities or by causing
the Trust to pay such amounts to such holders, and the Company would be
subrogated to the rights of the holders of such Convertible Preferred
Securities to the extent of any payments made by the Company to such holder.
The holders of a majority in liquidation amount of the Convertible Preferred
Securities have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Guarantee Trustee or to direct
the exercise of any trust or power conferred upon the Guarantee Trustee under
the Guarantee. Any holder of Convertible Preferred Securities may directly
institute a legal proceeding against the Company to enforce the obligations of
the Company under the Guarantee without first instituting a legal proceeding
against the Trust, the Guarantee Trustee or any other person or entity. If the
Company were to default on its obligation to pay amounts payable on the
Convertible Debentures, the Trust would lack available funds for the payment of
distributions or amounts payable on redemption of the Convertible Preferred
Securities or otherwise, and in such event holders of the Convertible Preferred
Securities would not be able to rely upon the Guarantee for payment of such
amounts. Instead, a holder of the Convertible Preferred Securities would be
required to rely on the enforcement (i) by the Property Trustee of its rights,
as registered holder of the Convertible Debentures, against the Company
pursuant to the terms of the Convertible Debentures or (ii) by such holder of
Convertible Preferred Securities of its right of Direct Action against the
Company. See "Description of the Convertible Preferred Securities--Declaration
Events of Default." The Declaration provides that each holder of Convertible
Preferred Securities, by acceptance thereof, agrees to the provisions of the
Guarantee, including the subordination provisions thereof, and the Indenture.
The Guarantee is a guarantee on a subordinated basis with respect to
the Convertible Preferred Securities from the time of issuance of such
Convertible Preferred Securities but will not apply to any payment of
distributions or Redemption Price, or to payments upon the dissolution, winding
up or termination of the Trust, except to the extent the Trust shall have funds
available therefor. If the Company does not make interest payments on the
Convertible Debentures, the Trust will not pay distributions on the Convertible
Preferred Securities and will not have funds available therefor. See
"Description of the Convertible Debentures." The Guarantee, when taken together
with the Company's obligations under the Indenture, the Convertible Debentures
and the Declaration, including its obligations to pay costs, expenses, debts
and liabilities of the Trust (other than with respect to the Trust Securities),
provide a full and unconditional guarantee on a subordinated basis by the
Company of payments due on the Convertible Preferred Securities issued by the
Trust. See "Effect of Obligation Under the Convertible Debentures and the
Guarantee."
CERTAIN COVENANTS OF THE COMPANY
So long as any Convertible Preferred Securities remain outstanding, if
(i) the Company has exercised its option to defer interest payments on the
Convertible Debentures by extending the interest payment period and such
extension shall be continuing, (ii) the Company shall be in default with
respect to its payment or other obligations under the Guarantee or (iii) there
shall have occurred and be continuing any event that, with the giving of notice
or the lapse of time or both, would constitute an Indenture Event of Default,
then the Company has agreed under the Guarantee (a) not to declare or pay
dividends on, or make a distribution with
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respect to, or redeem, purchase or acquire, or make a liquidation payment with
respect to, any of its capital stock (other than (i) purchases or acquisitions
of shares of Common Stock in connection with the satisfaction by the Company of
its obligations under any employee benefit plans or the satisfaction by the
Company of its obligations pursuant to any contract or security requiring the
Company to purchase shares of Common Stock, (ii) as a result of a
reclassification of the Company's capital stock or the exchange or conversion
of one class or series of the Company's capital stock for another class or
series of the Company's capital stock or (iii) the purchase of fractional
interests in shares of the Company's capital stock pursuant to the conversion
or exchange provisions of such capital stock or the security being converted or
exchanged), (b) not to make any payment of interest, principal or premium, if
any, on or repay, repurchase or redeem any debt securities of the Company
(including guarantees) that rank pari passu with or junior to the Convertible
Debentures and (c) not to make any guarantee payments with respect to the
foregoing (other than pursuant to the Guarantee).
As part of the Guarantee, the Company agreed that it will honor all
obligations described therein relating to the conversion of the Convertible
Preferred Securities into Common Stock as described in "Description of the
Convertible Preferred Securities--Conversion Rights."
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not adversely affect the
rights of holders of Convertible Preferred Securities (in which case no vote
will be required), the Guarantee may be amended only with the prior approval of
the holders of at least a majority in liquidation amount of all the outstanding
Convertible Preferred Securities. The manner of obtaining any such approval of
holders of the Convertible Preferred Securities will be as set forth under
"Description of the Convertible Preferred Securities--Voting Rights." All
guarantees and agreements contained in the Guarantee shall bind the successors,
assigns, receivers, trustees and representatives of the Company and shall inure
to the benefit of the holders of the Convertible Preferred Securities then
outstanding. Except in connection with any permitted merger or consolidation
of the Company with or into another entity or any permitted sale, transfer or
lease of the Company's assets to another entity as described under "Description
of the Convertible Debentures--Consolidation, Merger and Sale of Assets," the
Company may not assign its rights or delegate its obligations under the
Guarantee without the prior approval of the holders of at least a majority of
the aggregate stated liquidation amount of the Convertible Preferred Securities
then outstanding.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate as to each holder of Convertible
Preferred Securities upon (i) full payment of the Redemption Price of all
Convertible Preferred Securities; (ii) distribution of the Convertible
Debentures held by the Trust to the holders of the Convertible Preferred
Securities; (iii) liquidation of the Trust; or (iv) distribution of Common
Stock to such holder in respect of conversion of such holder's Convertible
Preferred Securities into Common Stock. The Guarantee also will terminate
completely upon full payment of the amounts payable in accordance with the
Declaration. The Guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any holder of Convertible
Preferred Securities must restore payment of any sum paid under such
Convertible Preferred Securities or such Guarantee.
STATUS OF THE GUARANTEE; SUBORDINATION
The Guarantee constitutes an unsecured obligation of the Company and
will rank (i) subordinate and junior to all other liabilities of the Company
except any liabilities that may be pari passu expressly by their terms, (ii)
pari passu with the most senior preferred stock, if any, issued from time to
time by the Company and with any guarantee now or hereafter entered into by the
Company in respect of any preferred or preference stock or preferred securities
of any affiliate of the Company, (iii) senior to the Common Stock and (iv)
effectively subordinated to all existing and future indebtedness and
liabilities, including trade payables, of the Company's subsidiaries. The
terms of the Convertible Preferred Securities provide that each holder of
Convertible Preferred Securities by acceptance thereof agrees to the
subordination provisions and other terms of the Guarantee.
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The Guarantee constitutes a guarantee of payment and not of collection
(i.e., the guaranteed party may directly institute a legal proceeding against
the Company to enforce its rights under a Guarantee without instituting a legal
proceeding against any other person or entity).
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, prior to the occurrence of a default with
respect to the Guarantee, undertakes to perform only such duties as are
specifically set forth in the Guarantee and, after default with respect to the
Guarantee, shall exercise the same degree of care as a prudent individual would
exercise in the conduct of his or her own affairs. Subject to such provision,
the Guarantee Trustee is under no obligation to exercise any of the powers
vested in it by the Guarantee at the request of any holder of Convertible
Preferred Securities unless it is offered reasonable indemnity against the
costs, expenses and liabilities that might be incurred thereby.
GOVERNING LAW
The Guarantee is governed by, and will be construed in accordance
with, the internal laws of the State of New York.
DESCRIPTION OF THE CONVERTIBLE DEBENTURES
Set forth below is a description of the specific terms of the
Convertible Debentures in which the Trust invested the proceeds from the
issuance and sale of the Trust Securities. The Indenture incorporates by
reference certain terms of the Trust Indenture Act. The Company expects that
at the time this Registration Statement becomes effective, the Indenture will
be qualified under the Trust Indenture Act. The following description does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the Indenture, which is included as an exhibit to the
Registration Statement of which this Prospectus is a part.
Under certain circumstances involving the dissolution of the Trust
following the occurrence of a Special Event, Convertible Debentures may be
distributed to the holders of the Trust Securities in liquidation of the Trust.
See "Description of the Convertible Preferred Securities--Special Event
Redemption or Distribution."
GENERAL
The Convertible Debentures were issued as unsecured debt under the
Indenture. The Convertible Debentures are limited in aggregate principal
amount to 103.092784% of the aggregate liquidation amount of the Convertible
Preferred Securities, such amount being the sum of the aggregate liquidation
amounts of the Convertible Preferred Securities and the Trust Common
Securities.
The Convertible Debentures are not subject to a sinking fund
provision. The entire principal amount of the Convertible Debentures will
mature and become due and payable, together with any accrued and unpaid
interest thereon, including Compound Interest (as defined herein) and
Additional Interest (as defined herein), if any, on December 1, 2026.
If Convertible Debentures are distributed to holders of Convertible
Preferred Securities in liquidation of such holders' interests in the Trust,
such Convertible Debentures will initially be issued in the same form as the
Convertible Preferred Securities that such Convertible Debentures replace.
Under certain limited circumstances, Convertible Debentures may be issued in
certificated form in exchange for a Global Security (as defined herein). See
"--Book-Entry and Settlement" below. In the event that Convertible Debentures
are issued in certificated form, such Convertible Debentures will be in
denominations of $50 and integral multiples thereof and may be transferred or
exchanged at the offices described below. Payments on Convertible Debentures
issued as a Global Security will be made to DTC, a successor depositary or, in
the event that no depositary is used, to a Paying Agent for the Convertible
Debentures. In the event Convertible Debentures are issued in certificated
form, principal and interest will be payable, the transfer of the Convertible
Debentures will be registrable and Convertible Debentures will be exchangeable
for Convertible Debentures of other denominations of a like aggregate principal
amount at the corporate trust office of the Indenture Trustee in New York, New
York; provided that payment of interest may be made at the option of TIMET by
check mailed to the address of the holder entitled thereto or by wire transfer
to an account appropriately designated by the holder entitled thereto.
Notwithstanding the foregoing, so long as the holder of any Convertible
Debentures is the Property Trustee, the payment of principal and interest on
the Convertible
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Debentures held by the Property Trustee will be made at such place and to such
account as may be designated by the Property Trustee.
The Indenture does not contain covenants or provisions (such as
limitations on the incurrence of indebtedness or liens, asset sales or the
issuance and sale of subsidiary stock) that afford holders of Convertible
Debentures protection in the event of a highly leveraged transaction or other
similar transactions involving TIMET that could adversely affect such holders.
SUBORDINATION
The Indenture provides that the Convertible Debentures are subordinate
and junior in right of payment to all existing and future Senior Indebtedness
of TIMET. No payment of principal (including redemption payments, if any) of,
premium, if any, or interest (including Additional Interest and Compound
Interest) on, the Convertible Debentures may be made (i) if any Senior
Indebtedness of TIMET is not paid when due and any applicable grace period with
respect to such default has ended and such default has not been cured or waived
or ceased to exist, (ii) if the maturity of any Senior Indebtedness of TIMET
has been accelerated because of a default or (iii) if an event of default has
occurred and is continuing under the Company's U.S. credit facility or any
refinancing of the U.S. credit facility in the bank credit market (including
institutional participants therein) that would permit the lenders under the
U.S. credit facility or such refinancing to accelerate the maturity thereof or
demand payment in full. At December 20, 1996, the Company had no Senior
Indebtedness under its U.S. credit facility. Upon any distribution of assets
of TIMET to creditors upon any dissolution, winding up, liquidation or
reorganization, whether voluntary or involuntary, or in bankruptcy, insolvency,
receivership or other proceedings, all principal of, and premium, if any, and
interest due or to become due on, all Senior Indebtedness of TIMET must be paid
in full before the holders of Convertible Debentures are entitled to receive or
retain any payment. Upon satisfaction of all claims related to all Senior
Indebtedness then outstanding, the rights of the holders of the Convertible
Debentures will be subrogated to the rights of the holders of Senior
Indebtedness of TIMET to receive payments or distributions applicable to Senior
Indebtedness until all amounts owing on the Convertible Debentures are paid in
full.
The term "Senior Indebtedness" means, with respect to TIMET, (i) the
principal of, premium, if any, and interest in respect of, (A) indebtedness of
such obligor for money borrowed and (B) indebtedness evidenced by securities,
debentures, bonds or other similar instruments issued by such obligor,
including interest accruing on or after a bankruptcy or other similar event,
whether or not an allowed claim therein, (ii) all indebtedness, and all
obligations of TIMET to pay fees and other amounts, under the U.S. credit
facility and any refinancing of the U.S. credit facility in the bank credit
market (including institutional participants therein), (iii) all capital lease
obligations of such obligor, (iv) all obligations of such obligor issued or
assumed as the deferred purchase price of property, all conditional sale
obligations of such obligor and all obligations of such obligor under any title
retention agreement (but excluding obligations to trade creditors), (v) all
obligations of such obligor for reimbursement on any letter of credit, banker's
acceptance, security purchase facility or similar credit transaction, (vi) all
obligations of the types referred to in clauses (i) through (v) above of other
persons for the payment of which such obligor is responsible or liable as
obligor, guarantor or otherwise and (vii) all obligations of the types referred
to in clauses (i) through (vi) above of other persons secured by any lien on
any property or asset of such obligor (whether or not such obligation is
assumed by such obligor), except in the cases of each of clauses (i) through
(vii) above for (1) any such indebtedness that is by its terms subordinated to
or pari passu with the Convertible Debentures and (2) any indebtedness between
or among such obligor or its affiliates, including all other debt securities
and guarantees in respect of those debt securities, issued to (a) the Trust or
a trustee of such Trust or (b) any other trust, or a trustee of such trust,
partnership or other entity affiliated with TIMET that is a financing vehicle
of TIMET (a "financing entity") in connection with the issuance by such
financing entity of preferred securities or other securities that rank pari
passu with, or junior to, the Convertible Preferred Securities.
The Indenture does not limit the aggregate amount of Senior
Indebtedness that may be issued by TIMET. Borrowings pursuant to the U.S.
credit facility would constitute Senior Indebtedness. The U.S. credit facility
currently provides for facilities aggregating $105 million, and the Company has
requested an increase to $135 million.
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<PAGE> 87
REDEMPTION AT THE OPTION OF TIMET
TIMET shall have the right to redeem the Convertible Debentures, in
whole or in part, at any time or from time to time, on or after December 1,
1999, upon not less than 15 nor more than 60 days' notice, at the following
redemption prices (expressed as percentages of the principal amount of the
Convertible Debentures) together with accrued and unpaid interest (including
Additional Interest and Compound Interest) to, but excluding, the redemption
date, if redeemed during the 12-month period beginning December 1:
<TABLE>
<CAPTION>
YEAR PRICES
---- ------
<S> <C>
1999 104.6375%
2000 103.9750
2001 103.3125
2002 102.6500
2003 101.9875
2004 101.3250
2005 100.6625
</TABLE>
and 100% if redeemed on or after December 1, 2006.
If Convertible Debentures are redeemed on any March 1, June 1,
September 1, or December 1, accrued and unpaid interest shall be payable to
holders of record on the relevant record date.
TIMET shall also have the right to redeem the Convertible Debentures
at any time in whole (but not in part) in certain circumstances upon the
occurrence of a Special Event as described under "Description of the
Convertible Preferred Securities--Special Event Redemption or Distribution" at
100% of the principal amount thereof together with accrued and unpaid interest
(including Additional Interest and Compound Interest) to the redemption date.
So long as the corresponding Convertible Preferred Securities are
outstanding, the proceeds from the redemption of any of the Convertible
Debentures will be used to redeem Convertible Preferred Securities.
INTEREST
Each Convertible Debenture shall bear interest at the rate of 6.625%
per annum (subject to adjustment as described under "Description of the
Convertible Preferred Securities--Registration Rights") from November 26, 1996,
payable quarterly in arrears on March 1, June 1, September 1 and December 1 of
each year (each an "Interest Payment Date"), commencing March 1, 1997, to the
person in whose name such Convertible Debenture is registered, subject to
certain exceptions, at the close of business on the Business Day next preceding
such Interest Payment Date. In the event the Convertible Debentures shall not
continue to remain in book-entry only form, TIMET shall have the right to
select record dates, which shall be more than one Business Day prior to the
Interest Payment Date.
The amount of interest payable for any period will be computed on the
basis of a 360-day year of twelve 30-day months. The amount of interest
payable for any period shorter than a full quarterly period for which interest
is computed will be computed on the basis of the actual number of days elapsed
per 30-day month. In the event that any date on which interest is payable on
the Convertible Debentures is not a Business Day, then payment of the interest
payable on such date will be made on the next succeeding day that is a Business
Day (and without any interest or other payment in respect of any such delay),
except that, if such Business Day is in the next succeeding calendar year, then
such payment shall be made on the immediately preceding Business Day, in each
case with the same force and effect as if made on such date.
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<PAGE> 88
PROPOSED TAX LEGISLATION
On March 19, 1996, as a part of President Clinton's Fiscal 1997 Budget
Proposal, the Treasury Department proposed legislation (the "Proposed
Legislation") that, among other things, would (i) treat as equity for United
States Federal income tax purposes certain debt instruments with a maximum term
of more than 20 years and (ii) disallow interest deductions on certain
convertible debt instruments or defer interest deductions on certain debt
instruments issued with original issue discount. The Proposed Legislation was
proposed to be effective for debt instruments issued on or after December 7,
1995.
On March 29, 1996, Senate Finance Committee Chairman William V. Roth,
Jr. and House Ways and Means Committee Chairman Bill Archer issued a joint
statement (the "Joint Statement") indicating their intent that the Proposed
Legislation, if adopted by either of the tax-writing committees of Congress,
would have an effective date that is no earlier than the date of "appropriate
Congressional action." Based upon the Joint Statement, it is expected that if
the Proposed Legislation were enacted, such legislation would not apply to the
Convertible Debentures since they would be issued prior to the date of any
"appropriate Congressional action" or otherwise qualify for transitional
relief. However, there can be no assurances that the effective date guidance
contained in the Joint Statement will be incorporated in the Proposed
Legislation, if enacted, or that other legislation enacted after November 20,
1996 will not otherwise adversely affect the tax treatment of the Convertible
Debentures. If legislation were enacted that adversely affects the tax
treatment of the Convertible Debentures, there could be a distribution of the
Convertible Debentures to holders of the Convertible Preferred Securities or,
in certain circumstances, the redemption of the Convertible Debentures by TIMET
and the distribution by the Trust of the resulting cash in redemption of the
Convertible Preferred Securities. See "Description of the Convertible
Preferred Securities--Special Event Redemption or Distribution."
OPTION TO EXTEND INTEREST PAYMENT PERIOD
The Company shall have the right at any time during the term of the
Convertible Debentures to defer interest payments (excluding, for such
purposes, payments with respect to Additional Interest, if any) from time to
time by extending the interest payment period for successive periods not
exceeding 20 consecutive quarters for each such period; provided no Extension
Period may extend beyond the maturity date of the Convertible Debentures. At
the end of each Extension Period, the Company shall pay all interest then
accrued and unpaid interest (including any accrued and unpaid Additional
Interest), together with interest thereon compounded quarterly at the rate
specified for the Convertible Debentures to the extent permitted by applicable
law ("Compound Interest"); provided that during any Extension Period, the
Company has agreed, among other things (a) not to declare or pay dividends on,
or make a distribution with respect to, or redeem or purchase or acquire, or
make a liquidation payment with respect to, any of its capital stock (other
than (i) purchases or acquisitions of shares of Common Stock in connection with
the satisfaction by the Company of its obligations under any employee benefit
plans or the satisfaction by the Company of its obligations pursuant to any
contract or security requiring the Company to purchase shares of the Common
Stock, (ii) as a result of a reclassification of the Company's capital stock or
the exchange or conversion of one class or series of the Company's capital
stock for another class or series of the Company's capital stock or (iii) the
purchase of fractional interests in shares of the Company's capital stock
pursuant to the conversion or exchange provisions of such capital stock or the
security being converted or exchanged), (b) not to make any payment of
interest, principal or premium, if any, on or repay, repurchase or redeem any
debt securities (including guarantees) issued by the Company that rank pari
passu with or junior to the Convertible Debentures and (c) not to make any
guarantee payments with respect to the foregoing (other than pursuant to the
Guarantee). Prior to the termination of any such Extension Period, the Company
may further extend such Extension Period; provided that such Extension Period
together with all previous and further extensions thereof may not exceed 20
consecutive quarters and may not extend beyond the maturity of the Convertible
Debentures. Upon the termination of any Extension Period and the payment of
all amounts then due, the Company may commence a new Extension Period of up to
20 consecutive quarters, subject to the above requirements. No interest or any
other payment with respect to the Convertible Debentures (other than payments
with respect to any applicable Additional Interest, which the Company shall not
have the right to defer) shall be due and payable during an Extension Period.
The Company has no current intention of exercising its right to defer payments
of interest by extending the interest payment period on the Convertible
Debentures. If the Property Trustee shall be the sole holder of the
Convertible Debentures, the Company shall give the Regular Trustees, the
Property Trustee and the Indenture Trustee notice of its selection of such
Extension Period at least one Business Day prior to the earlier of (i) the date
the distributions on the Convertible Preferred Securities are payable or (ii)
the date the Trust is required to give notice to the Nasdaq National Market (or
any applicable self-regulatory organization) or to holders of the Convertible
Preferred Securities of the record date or the date
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<PAGE> 89
such distribution is payable, but in any event not less than ten Business Days
prior to such record date. The Company shall cause the Trust to give notice of
the Company's selection of such Extension Period to the holders of the
Convertible Preferred Securities. If the Property Trustee shall not be the
sole holder of the Convertible Debentures, the Company shall give the holders
of the Convertible Debentures and the Indenture Trustee notice of its selection
of such Extension Period at least ten Business Days prior to the earlier of (i)
the next succeeding Interest Payment Date or (ii) the date the Company is
required to give notice to the Nasdaq National Market (or any applicable
self-regulatory organization) or to holders of the Convertible Debentures on
the record or payment date of such related interest payment, but in any event
not less than two Business Days prior to such record date.
CONVERSION OF THE CONVERTIBLE DEBENTURES
The Convertible Debentures are convertible into Common Stock at the
option of the holders of the Convertible Debentures at any time beginning 90
days following November 26, 1996 and prior to the close of business on December
1, 2026 (or, in the case of Convertible Debentures called for redemption, the
close of business on the fifth Business Day prior to the Redemption Date) at
the initial conversion price of approximately $37.34 per share subject to the
conversion price adjustments described under "Description of the Convertible
Preferred Securities--Conversion Rights." The Trust has agreed not to convert
Convertible Debentures held by it except pursuant to a notice of conversion
delivered to the Conversion Agent by a holder of Convertible Preferred
Securities. Upon surrender of a Convertible Preferred Security to the
Conversion Agent for conversion, the Trust will distribute $50 principal amount
of the Convertible Debentures to the Conversion Agent on behalf of the holder
of the Convertible Preferred Security so converted, whereupon the Conversion
Agent will convert such Convertible Debentures to Common Stock on behalf of
such holder. TIMET's delivery to the holders of the Convertible Debentures
(through the Conversion Agent) of the fixed number of shares of Common Stock
into which the Convertible Debentures are convertible (together with the cash
payment, if any, in lieu of fractional shares) will be deemed to satisfy
TIMET's obligation to pay the principal amount of the Convertible Debentures so
converted, and the accrued and unpaid interest thereon attributable to the
period from the last date to which interest has been paid or duly provided for;
provided, however, that if any Convertible Debenture is converted after a
record date for payment of interest, the interest payable on the related
interest payment date with respect to such Convertible Debenture shall be paid
to the Trust (which will distribute such interest to the converting holder) or
other holder of Convertible Debentures, as the case may be, despite such
conversion.
ADDITIONAL INTEREST
If at any time prior to the conversion of all of the Convertible
Debentures or the redemption or distribution of the Convertible Debentures as
described in "Description of Convertible Preferred Securities--Special Event
Redemption or Distribution," the Trust shall be required to pay any taxes,
duties, assessments or governmental charges of whatever nature (other than
withholding taxes) imposed by the United States, or any other taxing authority,
then, in any such case, TIMET will pay as additional interest ("Additional
Interest") on the Convertible Debentures such additional amounts as shall be
required so that the net amounts received and retained by the Trust after
paying any such taxes, duties, assessments or other governmental charges will
be not less than the amounts the Trust would have received had no such taxes,
duties, assessments or other governmental charges been imposed. The Company
shall not have the right to defer the payment of such Additional Interest,
including during an Extension Period. See "--Option to Extend Interest Payment
Period."
CERTAIN COVENANTS
So long as any Convertible Debentures are outstanding, if (i) there
shall have occurred and be continuing any event that with the giving of notice
or the lapse of time or both, would constitute an Indenture Event of Default,
(ii) the Company shall be in default with respect to its payment of any
obligations under the Guarantee, or (iii) the Company has exercised its option
to defer interest payments on the Convertible Debentures by extending the
interest payment period and such period, or any extension thereof, shall be
continuing, then the Company has agreed under the Indenture (a) not to declare
or pay dividends on, or make a distribution with respect to, or redeem or
purchase or acquire, or make a liquidation payment with respect to, any of its
capital stock (other than (i) purchases or acquisitions of shares of Common
Stock in connection with the satisfaction by the Company of its obligations
under any employee benefit plans or the satisfaction by the Company of its
obligations pursuant to any contract or security requiring the Company to
purchase shares of the Common Stock, (ii) as a result of a reclassification of
the Company's capital stock or the exchange
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<PAGE> 90
or conversion of one class or series of the Company's capital stock for another
class or series of the Company's capital stock or (iii) the purchase of
fractional interests in shares of the Company's capital stock pursuant to the
conversion or exchange provisions of such capital stock or the security being
converted or exchanged), (b) not to make any payment of interest, principal or
premium, if any, on or repay, repurchase or redeemed any debt securities
(including guarantees) issued by the Company that rank pari passu with or
junior to the Convertible Debentures and (c) not to make any guarantee payments
with respect to the foregoing (other than pursuant to the Guarantee).
The Company has covenanted (i) to directly or indirectly maintain 100%
ownership of the Trust Common Securities; provided, however, that any permitted
successor of the Company under the Indenture may succeed to the Company's
ownership of such Trust Common Securities, and (ii) to use its reasonable
efforts to cause the Trust (x) to remain a statutory business trust, except in
connection with the distribution of Convertible Debentures to the holders of
Trust Securities in liquidation of the Trust, the redemption of all of the
Trust Securities of the Trust, or certain mergers, consolidations or
amalgamations, each as permitted by the Declaration, and (y) to otherwise
continue to be classified as a grantor trust for Federal income tax purposes.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Indenture provides that the Company shall not consolidate with or
merge with or into any other entity or person or, directly or indirectly
convey, transfer or lease all or substantially all of its assets unless (a) if
the Company is not the survivor, the successor is a corporation organized under
the laws of the United States, any state thereof or the District of Columbia
and expressly assumes the due and punctual payment of the principal of,
premium, if any, and interest on all Convertible Debentures issued thereunder
and the performance of every other covenant of the Indenture on the part of the
Company and (b) immediately thereafter no Indenture Event of Default and no
event which, after notice or lapse of time, or both, would become an Indenture
Event of Default, shall have occurred and be continuing. Upon any such
consolidation, merger, conveyance or transfer, the successor entity or person
shall succeed to and be substituted for the Company under the Indenture and
thereafter the predecessor entity or person shall be relieved of all
obligations and covenants under the Indenture and the Convertible Debentures.
INDENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events, which has occurred and is continuing, constitutes an "Indenture Event
of Default" with respect to the Convertible Debentures: (i) failure for 30 days
to pay interest on the Convertible Debentures, including any Additional
Interest and Compound Interest in respect thereof, when due; provided that a
valid extension of an interest payment period will not constitute a default in
the payment of interest (including Compound Interest, but excluding Additional
Interest, if any) for this purpose; (ii) failure to pay principal of or
premium, if any, on the Convertible Debentures when due whether at maturity,
upon redemption, by declaration or otherwise; (iii) failure to observe or
perform any other covenant contained in the Indenture for 90 days after notice
to the Company by the Indenture Trustee or by the holders of not less than 25%
in aggregate outstanding principal amount of the Convertible Debentures; (iv)
failure by the Company to deliver shares of Common Stock upon an election by a
holder of Convertible Preferred Securities to convert such Convertible
Preferred Securities; (v) the voluntary or involuntary dissolution, winding up
or termination of the Trust, except in connection with the distribution of
Convertible Debentures to the holders of Convertible Preferred Securities in
liquidation of the Trust or upon the redemption of all outstanding Convertible
Preferred Securities or in connection with certain mergers, consolidations or
amalgamations permitted by the Declaration; or (vi) certain events of
bankruptcy, insolvency or reorganization of the Company.
The Indenture Trustee or the holders of not less than 25% in aggregate
outstanding principal amount of the Convertible Debentures may declare the
principal of and interest on the Convertible Debentures due and payable
immediately on the occurrence of an Indenture Event of Default; provided,
however, that, after such acceleration, but before a judgment or decree based
on acceleration, the holders of a majority in aggregate principal amount of
outstanding Convertible Debentures may, under certain circumstances, rescind
and annul such acceleration if all Indenture Events of Default, other than the
nonpayment of accelerated principal, have been cured or waived as provided in
the Indenture.
Notwithstanding the foregoing, if an Indenture Event of Default has
occurred and is continuing and such event is attributable to the failure of the
Company to pay interest or principal on the Convertible Debentures on the date
such interest or principal is
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<PAGE> 91
otherwise payable, the Company acknowledges that, in such event, a holder of
Convertible Preferred Securities may institute a Direct Action for payment on
or after the respective due date specified in the Convertible Debentures. The
Company may not amend the Indenture to remove the foregoing right to bring a
Direct Action without the prior written consent of all the holders of
Convertible Preferred Securities. Notwithstanding any payment made to such
holder of Convertible Preferred Securities by the Company in connection with a
Direct Action, the Company shall remain obligated to pay the principal of and
interest (including Additional Interest and Compound Interest) on the
Convertible Debentures held by the Trust or the Property Trustee, and the
Company shall be subrogated to the rights of the holder of such Convertible
Preferred Securities with respect to payments on the Convertible Preferred
Securities to the extent of any payments made by the Company to such holder in
any Direct Action. The holders of Convertible Preferred Securities will not be
able to exercise directly any other remedy available to the holders of the
Convertible Debentures.
The holders of not less than a majority in principal amount of the
outstanding Convertible Debentures may on behalf of the holders of all the
Convertible Debentures waive any past defaults except (a) a default in payment
of the principal of, premium, if any, or interest (including Additional
Interest and Compound Interest) on, any Convertible Debentures and (b) a
default in respect of a covenant or provision of the Indenture which cannot be
amended or modified without the consent of the holder of each Convertible
Debenture; provided, however, that if the Convertible Debentures are held by
the Trust or a trustee of such Trust, such waiver or modification to such
waiver shall not be effective until the holders of a majority in liquidation
amount of Convertible Preferred Securities shall have consented to such waiver
or modification to such waiver; provided, further, that if the consent of the
holder of each outstanding Convertible Debenture is required, such waiver shall
not be effective until each holder of Convertible Preferred Securities shall
have consented to such waiver.
A default under any other indebtedness of the Company or the Trust
would not constitute an Indenture Event of Default under the Convertible
Debentures.
Subject to the provisions of the Indenture relating to the duties of
the Indenture Trustee in case an Indenture Event of Default shall occur and be
continuing, the Indenture Trustee will be under no obligation to exercise any
of its rights or powers under the Indenture at the request or direction of any
holders of Convertible Debentures, unless such holders shall have offered to
the Indenture Trustee reasonable indemnity. Subject to such provisions for the
indemnification of the Indenture Trustee, the holders of a majority in
aggregate principal amount of the Convertible Debentures then outstanding will
have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Indenture Trustee, or exercising any
trust or power conferred on the Indenture Trustee with respect to such series.
Subject to the right of holders of Convertible Preferred Securities to
institute a Direct Action, no holder of any Convertible Debenture will have any
right to institute any proceeding with respect to the Indenture or for any
remedy thereunder, unless (i) such holder shall have previously given to the
Indenture Trustee written notice of a continuing Indenture Event of Default,
(ii) if the Trust is not the sole holder of Convertible Debentures, the holders
of at least 25% in aggregate principal amount of the Convertible Debentures
then outstanding shall also have made a written request, (iii) such holder has
offered reasonable indemnity to the Indenture Trustee to institute such
proceeding as Indenture Trustee, (iv) the Indenture Trustee shall have failed
to institute such proceeding within 60 days of such notice, and (v) the
Indenture Trustee shall not have received from the holders of a majority in
aggregate principal amount of the outstanding Convertible Debentures a
direction inconsistent with such request.
The Company is required to file annually with the Indenture Trustee
and the Property Trustee a certificate as to whether or not the Company is in
compliance with all the conditions and covenants under the Indenture.
MODIFICATIONS AND AMENDMENTS OF THE INDENTURE
The Indenture contains provisions permitting the Company and the
Indenture Trustee, with the consent of the holders of not less than a majority
in aggregate principal amount of the outstanding Convertible Debentures, to
modify the Indenture or the rights of the holders of Convertible Debentures;
provided, however, that no such modification may, without the consent of the
holder of each outstanding Convertible Debenture affected thereby, (i) extend
the stated maturity of the Convertible Debentures or reduce the principal
amount thereof, or reduce the rate or extend the time of payment of interest
thereon, or reduce any premium payable
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<PAGE> 92
upon the redemption thereof, or adversely affect (as to such holder) the right
to convert Convertible Debentures or the subordination provisions of the
Indenture, or (ii) reduce the percentage in aggregate principal amount of
outstanding Convertible Debentures the holders of which are required to consent
to any such supplemental indenture.
The Indenture further provides that none of (i) the definitions of
"Senior Indebtedness" or "U.S. credit facility," (ii) any other defined term
used in the article of the Indenture concerning subordination of the
Convertible Debentures and (iii) the provisions of the Indenture concerning
subordination of the Convertible Debentures shall be modified or amended
without the written consent of the lenders under the Company's U.S. credit
facility (and any refinancings thereof).
In addition, the Company and the Indenture Trustee may execute,
without the consent of any holder of Convertible Debentures, any supplemental
indenture to cure any ambiguities, comply with the Trust Indenture Act and for
certain other customary purposes.
BOOK-ENTRY AND SETTLEMENT
If distributed to holders of Convertible Preferred Securities in
connection with the involuntary or voluntary dissolution, winding up or
liquidation of the Trust as a result of the occurrence of a Special Event, the
Convertible Debentures will be issued in the same form as the Convertible
Preferred Securities which such Convertible Debentures replace. Any Global
Certificate will be replaced by one or more global certificates (each a "Global
Security") registered in the name of the depositary or its nominee. Except
under the limited circumstances described below, Convertible Debentures
represented by the Global Security will not be exchangeable for, and will not
otherwise be issuable as, Convertible Debentures in definitive form. The
Global Securities described above may not be transferred except by the
depositary to a nominee of the depositary or by a nominee of the depositary to
the depositary or another nominee of the depositary or to a successor
depositary or its nominee.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
laws may impair the ability to transfer beneficial interests in such a Global
Security.
Except as provided below under "--Discontinuance of the Depository's
Services," owners of beneficial interests in such a Global Security will not be
entitled to receive physical delivery of Convertible Debentures in definitive
form and will not be considered the holders (as defined in the Indenture)
thereof for any purpose under the Indenture, and no Global Security
representing Convertible Debentures shall be exchangeable, except for another
Global Security of like denomination and tenor to be registered in the name of
the Depositary or its nominee or to a successor Depositary or its nominee.
Accordingly, each Beneficial Owner must rely on the procedures of the
Depositary or, if such person is not a Participant, on the procedures of the
Participant through which such person owns its interest to exercise any rights
of a holder under the Indenture.
THE DEPOSITARY
If Convertible Debentures are distributed to holders of Convertible
Preferred Securities in liquidation of such holders' interests in the Trust,
DTC will act as securities depositary for the Convertible Debentures. For a
description of DTC and the specific terms of the depositary arrangements, see
"Description of the Convertible Preferred Securities--Book-Entry Only Issuance-
- -The Depository Trust Company." As of the date of this Prospectus, the
description therein of DTC's book-entry system and DTC's practices as they
relate to purchases, transfers, notices and payments with respect to the
Convertible Preferred Securities apply in all material respects to any debt
obligations represented by one or more Global Securities held by DTC. TIMET
may appoint a successor to DTC or any successor depositary in the event DTC or
such successor depositary is unable or unwilling to continue as a depositary
for the Global Securities.
None of TIMET, the Trust, the Property Trustee, any paying agent or
any other agent of TIMET or the Debt Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in a Global Security for such Convertible
Debentures or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
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<PAGE> 93
DISCONTINUANCE OF THE DEPOSITARY'S SERVICES
A Global Security shall be exchangeable for Convertible Debentures
registered in the names of persons other than the depositary or its nominee
only if (i) the depositary notifies TIMET that it is unwilling or unable to
continue as a depositary for such Global Security and no successor depositary
shall have been appointed, (ii) the depositary, at any time, ceases to be a
clearing agency registered under the Exchange Act at which time the depositary
is required to be so registered to act as such depositary and no successor
depositary shall have been appointed, (iii) TIMET, in its sole discretion,
determines that such Global Security shall be so exchangeable or (iv) there
shall have occurred an Indenture Event of Default with respect to such
Convertible Debentures. Any Global Security that is exchangeable pursuant to
the preceding sentence shall be exchangeable for Convertible Debentures
registered in such names as the depositary shall direct.
GOVERNING LAW
The Indenture and the Convertible Debentures are governed by, and will
be construed in accordance with, the internal laws of the State of New York.
MISCELLANEOUS
The Indenture provides that TIMET will pay all fees and expenses
related to (i) the initial sale of the Trust Securities and the Convertible
Debentures, (ii) the organization, maintenance and dissolution of the Trust,
(iii) the retention of the Regular Trustees and (iv) the enforcement by the
Property Trustee of the rights of the holders of the Convertible Preferred
Securities. The payment of such fees and expenses are fully and
unconditionally guaranteed by TIMET.
TIMET will have the right at all times to assign any of its respective
rights or obligations under the Indenture to a direct or indirect wholly owned
subsidiary of TIMET; provided that, in the event of any such assignment, TIMET
will remain liable for all of their respective obligations. Subject to the
foregoing, the Indenture will be binding upon and inure to the benefit of the
parties thereto and their respective successors and assigns. The Indenture
provides that it may not otherwise be assigned by the parties thereto.
EFFECT OF OBLIGATIONS UNDER THE
CONVERTIBLE DEBENTURES AND THE GUARANTEE
As set forth in the Declaration, the sole purpose of the Trust is to
issue the Trust Securities evidencing undivided beneficial interests in the
assets of the Trust, and to invest the proceeds from such issuance and sale in
the Convertible Debentures.
As long as payments of interest and other payments are made when due
on the Convertible Debentures, such payments will be sufficient to cover
distributions and payments due on the Trust Securities because of the following
factors: (i) the aggregate principal amount of Convertible Debentures will be
equal to the sum of the aggregate liquidation amount of the Trust Securities;
(ii) the interest rate and the interest and other payment dates on the
Convertible Debentures will match the distribution rate and distribution and
other payment dates for the Convertible Preferred Securities; (iii) TIMET shall
pay all, and the Trust shall not be obligated to pay, directly or indirectly,
any costs, expenses, debt, and obligations of the Trust (other than with
respect to the Trust Securities); and (iv) the Declaration further provides
that the Regular Trustees shall not take or cause or permit the Trust to, among
other things, engage in any activity that is not consistent with the purposes
of the Trust.
Payments of distributions (to the extent the Trust has funds therefor)
and other payments due on the Convertible Preferred Securities (to the extent
the Trust has funds therefor) are guaranteed by TIMET as and to the extent set
forth under "Description of the Guarantee." If TIMET does not make interest
payments on the Convertible Debentures purchased by the Trust, it is expected
that the Trust will not have sufficient funds to pay distributions on the
Convertible Preferred Securities. The Guarantee is a full and unconditional
guarantee on a subordinated basis with respect to the Convertible Preferred
Securities issued by the Trust from the time of its issuance but does not apply
to any payment of distributions unless and until the Trust has sufficient funds
for the payment of such distributions. The Guarantee covers the payment of
distributions and other payments on the Convertible Preferred Securities
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<PAGE> 94
only if and to the extent that TIMET has made a payment of interest or
principal on the Convertible Debentures held by the Trust as its sole asset.
The Guarantee, when taken together with TIMET's obligations under the
Convertible Debentures, the Indenture and the Declaration, including its
obligations to pay costs, expenses, debts and liabilities of the Trust (other
than with respect to the Trust Securities), provides a full and unconditional
guarantee of amounts on the Convertible Preferred Securities.
If TIMET fails to make interest or other payments on the Convertible
Debentures when due (taking account of any Extension Period), the Declaration
provides a mechanism whereby a holder of the Convertible Preferred Securities,
using the procedures described in "Description of the Convertible Preferred
Securities--Book-Entry Only Issuance--The Depository Trust Company" and "--
Voting Rights," may direct the Property Trustee to enforce its rights under the
Convertible Debentures. Notwithstanding the foregoing, if a Declaration Event
of Default has occurred and is continuing and such event is attributable to the
failure of the Company to pay interest or principal on the Convertible
Debentures on the date such interest or principal is otherwise payable (or in
the case of redemption, on the redemption date) in such circumstances a holder
of Convertible Preferred Securities may institute a Direct Action for payment
on or after the respective due date specified in the Convertible Debentures.
In connection with such Direct Action, TIMET will be subrogated to the rights
of such holder of Convertible Preferred Securities under the Declaration to the
extent of any payment made by TIMET to such holder of Convertible Preferred
Securities in such Direct Action. TIMET, under the Guarantee, acknowledges
that the Guarantee Trustee shall enforce the Guarantee on behalf of the holders
of the Convertible Preferred Securities. If TIMET fails to make payments under
the Guarantee, the Guarantee provides a mechanism whereby the holders of the
Convertible Preferred Securities may direct the Guarantee Trustee to enforce
its rights thereunder. Any holder of Convertible Preferred Securities may
institute a legal proceeding directly against TIMET to enforce the obligations
of the Company under the Guarantee without first instituting a legal proceeding
against the Trust, the Guarantee Trustee, or any other person or entity.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 99,000,000
shares of Common Stock, $.01 par value per share, of which 31,455,455 shares
were issued and outstanding as of September 29, 1996, and 1,000,000 shares of
preferred stock, $.01 par value per share (the "Preferred Stock"), none of
which is outstanding. In connection with the sale of the Convertible Preferred
Securities, the Company reserved a total of 5,389,475 shares of Common Stock
for issuance upon conversion of the Convertible Preferred Securities. The
following description of the capital stock of the Company and certain
provisions of the Company's Amended and Restated Certificate of Incorporation
and Bylaws is a summary and is qualified in its entirety by the provisions of
the Company's Amended and Restated Certificate of Incorporation and Bylaws,
which are included as exhibits to the Registration Statement of which this
Prospectus is a part.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held
on all matters submitted to a vote of the stockholders, including the election
of directors. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election if they choose to do so. The Amended and Restated
Certificate of Incorporation does not provide for cumulative voting for the
election of directors. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor, and are entitled to receive,
pro rata, all assets of the Company available for distribution to such holders
upon liquidation. Holders of Common Stock have no preemptive, subscription or
redemption rights, except as noted under the heading "Certain Relationships and
Related Transactions--Shareholders' Agreements."
PREFERRED STOCK
Pursuant to the Amended and Restated Certificate of Incorporation, the
Company is authorized to issue "blank check" Preferred Stock, which may be
issued from time to time in one or more series upon authorization by the
Company's Board of Directors. The Board of Directors, without further approval
of the stockholders, is authorized to fix the dividend rights and terms,
conversion rights, voting rights, redemption rights and terms, liquidation
preferences, and any other rights, preferences, privileges and restrictions
applicable to each series of the Preferred Stock. The issuance of Preferred
Stock, while providing flexibility in
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<PAGE> 95
connection with possible acquisitions and other corporate purposes could, among
other things, adversely affect the voting power of the holders of Common Stock
and, under certain circumstances, make it more difficult for a third party to
gain control of the Company, discourage bids for the Company's Common Stock at
a premium or otherwise adversely affect the market price of the Common Stock.
The Company has no current plans to issue any Preferred Stock. The
Company is not aware of any plans by a third party to seek control of the
Company.
DELAWARE GENERAL CORPORATION LAW
The provisions of Section 203 of the Delaware General Corporation Law
do not apply to the Company. Such provisions, if they were to apply to the
Company, would restrict the Company's ability to enter into business
combinations with certain stockholders of the Company and would render an
unsolicited takeover attempt of the Company more difficult.
Any action required to be taken at any annual or special meeting of
the Company's stockholders may be taken without a meeting, without prior notice
and without a vote upon the written consent of the minimum number of
stockholders necessary to authorize such action.
TRANSFER AGENT AND REGISTRAR
First Chicago Trust Company of New York is the Transfer Agent and
Registrar for the Common Stock.
NASDAQ NATIONAL MARKET
The Common Stock is listed on the Nasdaq National Market under the
symbol "TIMT".
UNITED STATES FEDERAL INCOME TAXATION
GENERAL
The following is a summary of certain material United States Federal
income tax consequences of the purchase, ownership and disposition of
Convertible Preferred Securities. Unless otherwise stated, this summary deals
only with Convertible Preferred Securities held as capital assets by holders
who purchase the Convertible Preferred Securities upon original issuance
("Initial Holders"). It does not deal with special classes of holders such as
banks, thrifts, real estate investment trusts, regulated investment companies,
insurance companies, dealers in securities or currencies, tax-exempt investors,
or persons that will hold the Convertible Preferred Securities as a position in
a "straddle," as part of a "synthetic security" or "hedge" or as part of a
"conversion transaction" or other integrated investment. This summary also
does not address the tax consequences to persons that have a functional
currency other than the U.S. Dollar or the tax consequences to shareholders,
partners or beneficiaries of a holder of Convertible Preferred Securities.
Further, it does not include any description of any alternative minimum tax
consequences or the tax laws of any state or local government or of any foreign
government that may be applicable to the Convertible Preferred Securities.
This summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury regulations thereunder and administrative and judicial
interpretations thereof, as of the date hereof, all of which are subject to
change, possibly on a retroactive basis.
CLASSIFICATION OF THE CONVERTIBLE DEBENTURES
In connection with the issuance of the Convertible Debentures,
Kirkland & Ellis, special tax counsel to the Company and the Trust, rendered
its opinion generally to the effect that, under then current law and assuming
full compliance with the terms of the Indenture (and certain other documents),
and based upon certain facts and assumptions contained in such opinion and upon
certain representations made by the Company and the Property Trustee, the
Convertible Debentures held by the Trust will be classified for United States
Federal income tax purposes as indebtedness of the Company.
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<PAGE> 96
CLASSIFICATION OF THE TRUST
In connection with the issuance of the Convertible Preferred
Securities, Kirkland & Ellis, special tax counsel to TIMET and the Trust,
rendered its opinion generally to the effect that, under then current law and
assuming full compliance with the terms of the Declaration and the Indenture
(and certain other documents), and based on certain facts and assumptions
contained in such opinion, the Trust will be classified for United States
Federal income tax purposes as a grantor trust and not as a partnership or
association taxable as a corporation. Accordingly, for United States Federal
income tax purposes, each holder of Convertible Preferred Securities generally
will be considered the owner of an undivided interest in the Convertible
Debentures, and pursuant to the agreement to treat the Convertible Debentures
as indebtedness, each holder will be required to include in its gross income
any OID accrued or other income or gain with respect to its allocable share of
those Convertible Debentures.
ORIGINAL ISSUE DISCOUNT
Because TIMET has the option, under the terms of the Convertible
Debentures, to defer payments of interest for one or more periods of up to 20
consecutive quarters each, all of the stated interest payments on the
Convertible Debentures will be treated as OID. Holders of debt instruments
issued with OID must include that OID in income daily on an economic accrual
basis before the receipt of cash attributable to the interest, regardless of
their method of tax accounting. Generally, all of a holder's taxable interest
income with respect to the Convertible Debentures will be accounted for as OID,
and actual distributions of stated interest will not be separately reported as
taxable income. The amount of OID that accrues in any month will approximately
equal the amount of the interest that accrues on the Convertible Debentures in
that month at the stated interest rate. In the event that the interest payment
is deferred, holders will continue to accrue OID approximately equal to the
amount of the interest payment due at the end of the extended interest payment
period on an economic accrual basis over the length of the extended interest
period.
Because income on the Convertible Debentures will constitute OID,
corporate holders of Convertible Preferred Securities will not be entitled to a
dividends-received deduction with respect to any income recognized with respect
to the Convertible Preferred Securities.
MARKET DISCOUNT AND BOND PREMIUM
Holders of Convertible Preferred Securities that purchase the
Convertible Preferred Securities at a price other than the issue price may be
considered to have acquired their undivided interests in the Convertible
Debentures with market discount or acquisition premium as such phrases are
defined for United States Federal income tax purposes. Such holders are
advised to consult their tax advisors as to the income tax consequences of the
acquisition, ownership and disposition of the Convertible Preferred Securities.
RECEIPT OF CONVERTIBLE DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST
Under certain circumstances, as described under the caption
"Description of the Convertible Preferred Securities--Special Event Redemption
or Distribution," Convertible Debentures may be distributed to holders in
exchange for the Convertible Preferred Securities and in liquidation of the
Trust. Such a distribution, for United States Federal income tax purposes,
would be treated as a non-taxable event to each holder, and each holder would
receive an aggregate tax basis in the Convertible Debentures equal to such
holder's aggregate tax basis in its Convertible Preferred Securities. A
holder's holding period in the Convertible Debentures so received in
liquidation of the Trust would include the period during which the Convertible
Preferred Securities were held by such holder. If, however, the related
special event is a Tax Event which results in the Trust being treated as an
association taxable as a corporation, the distribution would likely constitute
a taxable event to holders of the Convertible Preferred Securities.
Under certain circumstances described herein (see "Description of the
Convertible Preferred Securities"), the Convertible Debentures may be redeemed
or retired for cash and the proceeds of such redemption or retirement
distributed to holders in redemption of their Convertible Preferred Securities.
Such a redemption would, for United States Federal income tax purposes,
constitute a taxable disposition of the redeemed Convertible Preferred
Securities, and a holder could recognize gain or loss as if it sold such
redeemed Convertible Preferred Securities for cash. See "--Sales of
Convertible Preferred Securities" immediately below.
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<PAGE> 97
SALES OF CONVERTIBLE PREFERRED SECURITIES
A holder that sells Convertible Preferred Securities will recognize
gain or loss equal to the difference between (i) the amount realized on the
sale of such Convertible Preferred Securities and (ii) such holder's adjusted
tax basis in the Convertible Preferred Securities. A holder's adjusted tax
basis in the Convertible Preferred Securities generally will be its initial
purchase price increased by OID previously includable in such holder's gross
income to the date of disposition and decreased by payments received on the
Convertible Preferred Securities. Such gain or loss generally will be a
capital gain or loss and generally will be a long-term capital gain or loss if
the Convertible Preferred Securities have been held for more than one year.
A holder who disposes of Convertible Preferred Securities between
record dates for payments of distributions thereon will be required to include
accrued but unpaid interest on the Convertible Debentures through the date of
disposition in income as ordinary OID income, and to add such amount to its
adjusted tax basis in its pro rata share of the underlying Convertible
Debentures deemed disposed of. To the extent the selling price is less than
the holder's adjusted tax basis (which will include, in the form of OID, all
accrued but unpaid interest) a holder will recognize a capital loss. Subject
to certain limited exceptions, capital losses cannot be applied to offset
ordinary income for United States Federal income tax purposes.
CONVERSION OF CONVERTIBLE PREFERRED SECURITIES INTO COMMON STOCK
A holder of Convertible Preferred Securities will not recognize
income, gain or loss upon the conversion, through the Conversion Agent, of
Convertible Debentures into Common Stock. A holder of Convertible Preferred
Securities will, however, recognize gain or loss upon the receipt of cash in
lieu of a fractional share of Common Stock equal to the difference between the
amount of cash received and such holder's tax basis in such fractional share.
Such a holder's tax basis in the Common Stock received upon conversion should
generally be equal to such holder's tax basis in the Convertible Preferred
Securities delivered to the Conversion Agent for exchange less the basis
allocated to any fractional share for which cash is received and such holder's
holding period in the Common Stock received upon conversion should generally
begin on the date such holder acquired the Convertible Preferred Securities
delivered to the Conversion Agent for exchange.
ADJUSTMENT OF CONVERSION PRICE
Treasury Regulations promulgated under section 305 of the Code would
treat holders of Convertible Preferred Securities as having received a
constructive distribution from TIMET in the event the conversion ratio of the
Convertible Debentures were adjusted if (i) as result of such adjustment, the
proportionate interest (measured by the amount of Common Stock into which the
Convertible Debentures are convertible) of the holders of the Convertible
Preferred Securities in the assets or earnings and profits of TIMET were
increased, and (ii) the adjustment was not made pursuant to a bona fide,
reasonable anti- dilution formula. An adjustment in the conversion ratio would
not be considered made pursuant to such a formula if the adjustment were made
to compensate for certain taxable distributions with respect to the Common
Stock. Thus, under certain circumstances, a reduction in the conversion price
for the holders may result in deemed dividend income to holders to the extent
of the current or accumulated earnings and profits of TIMET. Holders of the
Convertible Preferred Securities would be required to include their allocable
share of such deemed dividend in gross income but will not receive any cash
related thereto. Subject to certain limitations, corporate holders would be
entitled to a dividends-received deduction (generally 70%) with respect to such
deemed dividend.
PROPOSED TAX LEGISLATION
Please refer to discussion above under the heading "Description of the
Convertible Debentures--Proposed Tax Legislation."
UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is any
corporation, individual, partnership, estate or trust that is, as to the United
States, a foreign corporation, a non-resident alien individual, a foreign
partnership, or a non-resident fiduciary of a foreign estate or trust.
- 95 -
<PAGE> 98
Under present United States Federal income tax law: (i) payments by
the Trust or any of its paying agents to any holder of a Convertible Preferred
Security who or which is a United States Alien Holder would not be subject to
United States Federal withholding tax; provided that, (a) the beneficial owner
of the Convertible Preferred Security does not actually or constructively own
10% or more of the total combined voting power of all classes of stock of TIMET
entitled to vote, (b) the beneficial owner of the Convertible Preferred
Security is not a controlled foreign corporation that is related to TIMET
through stock ownership, and (c) either (A) the beneficial owner of the
Convertible Preferred Security certifies to the Trust or its agent, under
penalties of perjury, that it is not a United States holder and provides its
name and address or (B) a securities clearing organization, bank or other
financial institution that holds customers' securities in the ordinary course
of its trade or business (a "Financial Institution"), and holds the Convertible
Preferred Security in such capacity, certifies to the Trust or its agent, under
penalties of perjury, that such statement has been received from the beneficial
owner by it or by a Financial Institution between it and the beneficial owner
and furnishes the Trust or its agent with a copy thereof; and (ii) a United
States Alien Holder of a Convertible Preferred Security generally would not be
subject to United States Federal withholding tax on any gain realized upon the
sale or other disposition of a Convertible Preferred Security.
However, a United States Alien Holder of a Convertible Preferred
Security would be subject to United States Federal income tax (including, in
the case of a corporate United States Alien Holder, possibly the branch profits
tax) on gain realized on the sale, exchange or other disposition of the
security if (i) the United States Alien Holder is an individual who is present
in the United States for 183 days or more in the taxable year of disposition,
and certain other conditions apply, (ii) the gain is effectively connected with
the conduct by the United States Alien Holder of a trade or business in the
United States or (iii) the Company is, or during the preceding five years has
been, a "United States real property holding corporation" within the meaning of
Section 897(c)(2) of the Code and either (a) if the Convertible Preferred
Securities are considered to be "regularly traded interests," the United States
Alien Holder beneficially owns (actually or constructively), or during the
preceding five years has beneficially owned (actually or constructively), more
than five percent of the Convertible Preferred Securities or (b) if the
Convertible Preferred Securities are not considered to be regularly traded
interests, the United States Alien Holder beneficially owned (actually or
constructively), on the date it acquired any Convertible Preferred Security,
Convertible Preferred Securities having a fair market value greater than the
fair market value of five percent of the Company's Common Stock.
The Company has not made a determination as to whether it is, or
whether during the last five years it has been, a United States real property
holding corporation. Moreover, there can be no assurance that the Company will
not be a United States real property holding corporation in the future. It is
also unclear whether the Convertible Preferred Securities are now or will
become regularly traded interests. Accordingly, a United States Alien Holder
of an Convertible Preferred Security could be subject to United States Federal
income tax on any gain realized upon a disposition (including, under certain
circumstances, a conversion) of such security if the conditions described above
are satisfied or of any Common Stock received upon conversion. United States
Alien Holders should consult their tax advisors concerning the tax consequences
of such a disposition.
If a United States Alien Holder is treated as receiving a deemed
dividend as a result of an adjustment of the conversion price of the
Convertible Debentures, as described above under "--Adjustment of Conversion
Price," such deemed dividend will be subject to United States Federal
withholding tax at a 30% (or lower treaty) rate.
On April 22, 1996, the Internal Revenue Service proposed regulations
(the "Proposed Regulations") that could affect the procedures to be followed by
a United States Alien Holder in establishing such United States Alien Holder's
non-United States person status. The Proposed Regulations would generally be
effective for payments made after December 31, 1997. United States Alien
Holders should consult their tax advisors regarding the effect, if any, of the
Proposed Regulations on their purchase, ownership, and disposition of the
Convertible Preferred Securities.
INFORMATION REPORTING TO HOLDERS
Subject to the qualifications discussed below, income on the
Convertible Preferred Securities will be reported to holders on Forms 1099,
which forms should be mailed to holders of Convertible Preferred Securities by
January 31 following each calendar year.
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<PAGE> 99
The Trust is obligated to report annually to Cede & Co. and any other
record holders of the Convertible Preferred Securities the OID that accrued on
the Convertible Debentures during the year. The Trust currently intends to
report such information on Form 1099 prior to January 31 following each
calendar year even though the Trust is not legally required to report to record
holders until April 15 following each calendar year. The Initial Purchasers
have indicated to the Trust that, to the extent that they hold Convertible
Preferred Securities as nominees for beneficial holders, they currently expect
to report to such beneficial holders on Forms 1099 by January 31 following each
calendar year. Under current law, holders of Convertible Preferred Securities
who hold as nominees for beneficial holders will not have any obligation to
report information regarding the beneficial holders to the Trust. The Trust,
moreover, does not have any obligation to report to beneficial holders who are
not also record holders. Thus, beneficial holders of Convertible Preferred
Securities who hold their Convertible Preferred Securities through a nominee
account will receive Forms 1099 reflecting the income on their Convertible
Preferred Securities from such nominee holders rather than the Trust.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, the Convertible
Preferred Securities or the Convertible Debentures distributed to holders of
the Convertible Preferred Securities may be subject to a "backup" withholding
tax of 31% unless the holder complies with certain identification requirements.
Any withheld amounts will be allowed as a refund or a credit against the
holder's United States Federal income tax, provided the required information is
provided to the Internal Revenue Service.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS
INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON
A HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS
WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE CONVERTIBLE PREFERRED SECURITIES, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE
EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR OTHER TAX LAWS (WITH POSSIBLE
RETROACTIVE EFFECT).
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the Code impose certain requirements on employee benefit plans
and certain other retirement plans and arrangements, including individual
retirement accounts and annuities, that are subject to ERISA and the Code (all
of which are hereinafter referred to as "Plans") and on persons who are
fiduciaries with respect to such Plans. In accordance with ERISA's general
fiduciary standards, before investing in Convertible Preferred Securities, a
Plan fiduciary should determine whether such an investment is permitted under
the governing Plan instruments and is appropriate for the Plan in view of its
overall investment policy and the composition and diversification of its
portfolio. Other provisions of ERISA and the Code prohibit certain
transactions involving the assets of a Plan and persons who have certain
specified relationships to the Plan ("parties in interest" within the meaning
of ERISA or "disqualified persons" within the meaning of the Code).
Accordingly, any Plan with respect to which TIMET or any of its affiliates
would be considered a party in interest or a disqualified person should not
purchase Convertible Preferred Securities.
In addition, under United States Department of Labor Regulation
Section 2510.3-101 (the "Regulation"), if immediately after any acquisition of
Convertible Preferred Securities, 25% or more of the value of the Convertible
Preferred Securities is held by Plans, employee benefit plans not subject to
ERISA (for example, governmental plans) and entities whose underlying assets
include Plan assets by reason of a Plan's investment in the entity, then the
assets of the Trust would be treated as assets of Plans holding Convertible
Preferred Securities, unless another exemption applied.
ANY PLAN PROPOSING TO PURCHASE CONVERTIBLE PREFERRED SECURITIES SHOULD
CONSULT WITH ITS COUNSEL REGARDING THE APPLICATION OF ERISA, THE CODE AND THE
REGULATION WITH RESPECT TO INVESTMENT IN CONVERTIBLE PREFERRED SECURITIES.
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<PAGE> 100
SELLING HOLDERS
The Convertible Preferred Securities were originally issued by the
Trust and sold by the Initial Purchasers in a transaction exempt from the
registration requirements of the Securities Act, to persons reasonably believed
by such Initial Purchasers to be (i) qualified institutional buyers as defined
in Rule 144A under the Securities Act, (ii) institutional "accredited
investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities
Act), (iii) outside the United States to non-U.S. persons in offshore
transactions in reliance on Regulation S under the Securities Act and (iv) to
(a) executive officers and directors of the Company who are "accredited
investors" as defined in Rule 501(a)(4) under the Securities Act and (b)
certain individuals having relationships with the Company (or an executive
officer or director thereof) who either (x) are "accredited investors" as
defined in Rule 501(a)(5) or (6) under the Securities Act or (y) have such
knowledge and experience in financial and business matters that such
individuals are capable of evaluating the merits and risks of any prospective
investment in the Convertible Preferred Securities. The Selling Holders may
from time to time offer and sell pursuant to this Prospectus any or all of the
Convertible Preferred Securities, any Debentures and Common Stock issued upon
conversion of the Convertible Preferred Securities.
The following table sets forth information with respect to the record
holders of the Convertible Preferred Securities as of December 24, 1996. The
term Selling Holder includes the record holders listed below and the beneficial
owners of the Convertible Preferred Securities and their transferees, pledgees,
donees or other successors.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Selling Holder Number of Convertible Preferred Securities
- -----------------------------------------------------------------------------
<S> <C>
Cede & Co. 3,961,500
- -----------------------------------------------------------------------------
T FINN & Co. (1) 63,500
- -----------------------------------------------------------------------------
Total 4,025,000
- -----------------------------------------------------------------------------
</TABLE>
(1) The Convertible Preferred Securities listed as directly held by T FINN
& Co. include 3,000, 2,000 and 2,000 shares held by J. Landis Martin, the
Company's Chairman and CEO, Joseph S. Compofelice, the Company's Vice President
and Chief Financial Officer and a Regular Trustee of the Trust, and a son-in-law
of Harold C. Simmons, respectively.
None of the Selling Holders has, or within the past three years has
had, any position, office or other material relationship with the Trust or the
Company or any of their affiliates, except as noted above. Because the Selling
Holders may, pursuant to this Prospectus, offer all or some portion of the
Convertible Preferred Securities, the Convertible Debentures or the Common
Stock issuable upon conversion of the Convertible Preferred Securities, no
estimate can be given as to the amount of the Convertible Preferred Securities,
the Convertible Debentures or the Common Stock issuable upon conversion of the
Convertible Preferred Securities that will be held by the Selling Holders upon
termination of any such sales. In addition, the Selling Holders identified
above may have sold, transferred or otherwise disposed of all or a portion of
their Convertible Preferred Securities, since the date on which they provided
the information regarding their Convertible Preferred Securities, in
transactions exempt from the registration requirements of the Securities Act.
SELLING STOCKHOLDERS
The following table sets forth information with respect to ownership
of the Common Stock by the Selling Stockholders as of the date of, and as
adjusted to reflect, the sale of the Offered Common. See footnote 1 to the
table under "Principal Stockholders" for information concerning individuals and
entities which may be deemed to indirectly beneficially own those shares of
Common Stock directly beneficially owned by Tremont.
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<PAGE> 101
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK SHARES OF COMMON STOCK
BENEFICIALLY OWNED BEFORE THE BENEFICIALLY OWNED AFTER THE
SALE OF THE OFFERED COMMON SALE OF THE OFFERED COMMON
- ------------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS OF SELLING STOCKHOLDER Number Percent of Number Percent of
--------------------------------------- Class Class
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tremont Corporation (1) 11,033,075 35.1% 9,525,000 30.3%
- ------------------------------------------------------------------------------------------------------------------------
Union Titanium Sponge Corporation (1) 3,653,230 11.6% 0 --
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The shares of Common Stock shown as beneficially owned by Tremont and
UTSC include 1,508,075 shares and 503,230 shares, respectively,
obtainable within 60 days of the date of this Prospectus upon exercise
of the IMI Option held by Tremont and UTSC. Tremont and UTSC intend
to exercise such option in connection with the sale of the Offered
Common. As a result, the sale of the Offered Common will not result
in any change in the number of shares of Common Stock directly held by
Tremont.
PLAN OF DISTRIBUTION
OFFERED SECURITIES
The Offered Securities may be sold from time to time to purchasers
directly by the Selling Holders. Alternatively, the Selling Holders may from
time to time offer the Offered Securities to or through underwriters,
broker/dealers or agents, who may receive compensation in the form of
underwriting discounts, concessions or commissions from the Selling Holders or
the purchasers of such securities for whom they may act as agents. The Selling
Holders and any underwriters, broker/dealers or agents that participate in the
distribution of Offered Securities may be deemed to be "underwriters" within
the meaning of the Securities Act and any profit on the sale of such securities
and any discounts, commissions, concessions or other compensation received by
any such underwriter, broker/ dealer or agent may be deemed to be underwriting
discounts and commissions under the Securities Act.
The Offered Securities may be sold from time to time in one or more
transactions at fixed prices, at prevailing market prices at the time of sale,
at varying prices determined at the time of sale or at negotiated prices. The
sale of the Offered Securities may be effected in transactions (which may
involve crosses or block transactions) (i) on any national securities exchange
or quotation service on which the Offered Securities may be listed or quoted at
the time of sale, (ii) in the over-the-counter market, (iii) in transactions
otherwise than on such exchanges or in the over-the-counter market or (iv)
through the writing of options. At the time a particular offering of the
Offered Securities is made, a Prospectus Supplement, if required, will be
distributed which will set forth the aggregate amount and type of Offered
Securities being offered and the terms of the offering, including the name or
names of any underwriters, broker/dealers or agents, any discounts, commissions
and other terms constituting compensation from the Selling Holders and any
discounts, commissions or concessions allowed or reallowed or paid to
broker/dealers.
To comply with the securities laws of certain jurisdictions, if
applicable, the Offered Securities must be offered or sold in such
jurisdictions only through registered or licensed brokers or dealers. In
addition, in certain jurisdictions the Offered Securities may not be offered or
sold unless they have been registered or qualified for sale in such
jurisdictions or any exemption from registration or qualification is available
and is complied with.
The Selling Holders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of purchases and sales of any of the Offered Securities by the
Selling Holders. The foregoing may affect the marketability of such securities.
Pursuant to the Registration Agreement, all expenses of the
registration of the Offered Securities will be paid by the Company, including,
without limitation, Commission filing fees and expenses of compliance with
state securities or "blue sky" laws; provided, however, that the Selling
Holders will pay all underwriting discounts and selling commissions, if any.
The Selling Holders will be indemnified by the Company and the Trust, jointly
and severally, against certain civil liabilities, including certain liabilities
under the Securities Act, or will be entitled to contribution in connection
therewith. The Company and the Trust will be indemnified
- 99 -
<PAGE> 102
by the Selling Holders severally against certain civil liabilities, including
certain liabilities under the Securities Act, or will be entitled to
contribution in connection therewith.
OFFERED COMMON
The Offered Common may be sold from time to time by the Selling
Stockholders in transactions executed on the Nasdaq National Market or
otherwise, either directly or through brokers or to dealers, at market prices
prevailing at the time of sale or at prices related to such market prices, or
at such other prices as may be negotiated and agreed to by the Selling
Stockholders and any purchaser. Alternatively, the Selling Stockholders may,
from time to time, offer the Common Stock through underwriters. The Selling
Stockholders, brokers executing selling orders on behalf of the Selling
Stockholders, dealers to whom the Selling Stockholders may sell and any
underwriters may be deemed to be "underwriters" within the meaning of the
Securities Act, in which event any profit represented by the excess of the
selling price over the cost of the shares sold, and any commission, discount or
concession received may be deemed to be an underwriting discount or commission
under the Securities Act. At the time a particular offer of shares of Common
Stock is made, to the extent required, a supplement to this Prospectus will be
distributed which will set forth the number of shares being offered and the
terms of the offering, including the name or names of any underwriters, dealers
or agents, any discounts, commissions and other items constituting compensation
and any discounts, commissions or concessions allowed or reallowed or paid to
dealers, including the proposed selling price to the public. Under contractual
arrangements between the Company and the Selling Stockholders, the Company is
obligated to indemnify the Selling Stockholders and any underwriters of the
shares offered hereby against certain civil liabilities under the Securities
Act.
In connection with this Registration Statement, UTSC agreed with
Salomon Brothers Inc that, prior to the earlier of (i) April 25, 1997, and (ii)
90 days following the effective date of this Registration Statement, UTSC will
not, directly or indirectly, offer, sell, contract to sell, grant any option to
purchase or otherwise dispose of, or announce the offering of, any shares of
Common Stock (other than shares of Common Stock subject to the IMI Option), or
enter into any agreement to do any of the foregoing (other than requesting or
allowing the inclusion of shares of Common Stock owned by UTSC in this
Registration Statement). UTSC has advised the Company that it has no present
plans to sell any Common Stock (other than Common Stock subject to the IMI
Option), but that it requested that its Common Stock be included in this
Registration Statement in order to expedite any future sale should UTSC
determine to sell shares.
LEGAL MATTERS
Certain legal matters regarding the validity of the Convertible
Preferred Securities, Convertible Debentures, the Guarantee and the Common
Stock issuable upon conversion of the Convertible Debentures and the Common
Stock constituting the Offered Common, under laws other than federal or state
securities laws, will be passed upon by Bartlit Beck Herman Palenchar & Scott,
a partnership including professional corporations, Denver, Colorado. Certain
matters related to certain United States federal income taxation matters will
be passed upon for the Company and the Trust by Kirkland & Ellis, a partnership
including professional corporations, New York, New York.
EXPERTS
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated balance sheets of the Company and its subsidiaries as
of January 1, 1995 and December 31, 1995 and the consolidated statements of
operations, stockholders' equity and cash flows for each of the three fiscal
years in the period ended December 31, 1995, included in this Prospectus, have
been included herein in reliance on the reports of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing. With respect to the unaudited consolidated interim
financial information as of September 29, 1996, and for the nine-month periods
ended October 1, 1995 and September 29, 1996, and the unaudited pro forma
condensed consolidated balance sheet as of September 29, 1996 and unaudited
condensed consolidated statements of operations for the year ended December 31,
1995 and the nine-month period ended September 29, 1996, included in this
Prospectus, the independent accountants have reported that they have applied
limited procedures in accordance with professional standards for a review of
such information. However, their separate report on the unaudited pro-forma
consolidated interim financial statements as of September 29, 1996 and for the
nine-month periods ended October 1, 1995 and September 29, 1996, and the
unaudited pro forma condensed consolidated balance sheet as of September 29,
1996 and unaudited pro-forma condensed consolidated statement of operations
for the year ended December 31, 1995 and the nine-month period ended September
29, 1996 included herein, states that they did not audit and they do not
express an opinion on that unaudited consolidated interim financial information
or the pro forma condensed consolidated financial statements. Accordingly, the
degree of reliance on their reports on such information should be restricted in
light of the limited nature of the review procedures applied. The accountants
are not subject to liability provisions of Section 11 of the Securities Act for
their reports on the unaudited consolidated interim financial information and
the unaudited pro-forma condensed consolidated information and the unaudited
pro-forma condensed consolidated information because those reports are not
"reports" or a "part" of the Registration Statement prepared or certified by
the accountants within the meaning of Sections 7 and 11 of the Securities Act.
- 100 -
<PAGE> 103
The combined financial statements of the IMI Titanium Business as of
December 31, 1994 and 1995, and for each of the years in the three year period
ended December 31, 1995 have been included herein in reliance upon the report
of KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
The financial statements of Axel Johnson Metals, Inc. as of December
31, 1995 and for the year then ended, included in this Prospectus, have been so
included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in accounting and
auditing. The financial statements of Titanium Hearth Technologies as of
December 31, 1995 and 1994 and for each of the three years in the period ended
December 31, 1995, included in this Prospectus, have been so included in
reliance on the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in accounting and auditing.
With respect to the unaudited financial information of Axel Johnson
Metals, Inc. as of and for the nine-month period ended September 30, 1996
included (or incorporated by reference) in this Prospectus, Price Waterhouse
LLP reported that they have applied limited procedures in accordance with
professional standards for a review of such information. However, their
separate report dated November 19, 1996, appearing (or incorporated by
reference) herein, states that they did not audit and they do not express an
opinion on that unaudited financial information. Price Waterhouse LLP has not
carried out any significant or additional audit tests beyond those which would
have been necessary had their report not been included. Accordingly, the
degree of reliance on their report on such information should be restricted in
light of the limited nature of the review procedures applied. Price Waterhouse
LLP is not subject to the liability provisions of Section 11 of the Securities
Act of 1933 for their report on the unaudited consolidated financial
information because that report is not a "report" or a "part" of the
registration statement prepared or certified by Price Waterhouse LLP within the
meaning of Section 7 and 11 of the Securities Act.
With respect to the unaudited financial information of Titanium Hearth
Technologies as of and for the nine-month period ended September 30, 1996
included (or incorporated by reference) in this Prospectus, Price Waterhouse LLP
reported that they have applied limited procedures in accordance with
professional standards for a review of such information. However, their
separate report dated November 19, 1996, appearing (or incorporated by
reference) herein, states that they did not audit and they do not express an
opinion on that unaudited financial information. Price Waterhouse LLP has not
carried out any significant or additional audit tests beyond those which would
have been necessary had their report not been included. Accordingly, the degree
of reliance on their report on such information should be restricted in light of
the limited nature of the review procedures applied. Price Waterhouse LLP is
not subject to the liability provisions of Section 11 of the Securities Act of
1933 for their report on the unaudited consolidated financial information
because that report is not a "report" or a "part" of the registration statement
prepared or certified by Price Waterhouse LLP within the meaning of Section 7
and 11 of the Securities Act.
- 101 -
<PAGE> 104
TITANIUM METALS CORPORATION
INDEX TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS:
Unaudited Pro Forma Condensed Consolidated Financial Statements............ PF-2
Report of Independent Accountants.......................................... PF-3
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September
29, 1996.................................................................. PF-4
Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet.......... PF-5
Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the fiscal year 1995................................................. PF-6
Notes to unaudited Pro Forma Condensed Consolidated Statement of Operations
for the fiscal year 1995.................................................. PF-7-9
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the
nine-month period ended September 29, 1996................................ PF-10
Notes to unaudited Pro Forma Condensed Consolidated Statement of Operations
for the nine-month period ended September 29, 1996........................ PF-11
</TABLE>
PF-1
<PAGE> 105
TITANIUM METALS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial
statements reflect the consolidated financial position and results of continuing
operations of the Company as of and for the periods indicated giving effect to
the IMI Titanium Acquisition and the AJM Acquisition under the assumptions and
estimates set forth in the notes thereto. The IMI Titanium Acquisition has been
accounted for by the purchase method of accounting and consolidated in the
Company's historical financial statements effective January 1, 1996. The AJM
Acquisition will be accounted for using the purchase method of accounting
effective October 1, 1996.
These unaudited pro forma financial statements should be read in
conjunction with the historical financial statements of the Company, the IMI
Titanium Business, AJM and THT, and Management's Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere in this
Offering Memorandum. The unaudited pro forma financial statements do not reflect
any incremental sales or cost savings that the Company may achieve from the
combinations. The unaudited pro forma financial statements do not purport to be
indicative of the results which actually would have been obtained if the IMI
Titanium Acquisition and the AJM Acquisition had been effected on the dates
indicated or of the results which may be obtained in the future.
Although information as to the fair values, for purchase accounting
purposes, of the aforementioned acquisitions' individual assets and liabilities
is not complete, a preliminary estimate of the allocation of the purchase price
was made on the basis of available information. The actual allocation of the
purchase price may be different from that reflected in the unaudited pro forma
condensed consolidated financial statements. Such differences would result from
adjustments in the purchase price and refinements in the estimates of fair
values of the net assets acquired. However, the Company does not expect such
adjustments and refinements in estimates to materially affect the pro forma
information as presented.
All financial information reflected in the unaudited pro forma financial
statements is presented in accordance with U.S. generally accepted accounting
principles, is reported in U.S. dollars, and reflects the 1996 Stock Split for
all periods presented as described in Note 9 to the Company's Consolidated
Financial Statements.
PF-2
<PAGE> 106
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Titanium Metals Corporation:
We have reviewed the pro forma adjustments reflecting the transactions
described in the notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements and the application of those adjustments to the historical amounts in
the accompanying Unaudited Pro Forma Condensed Consolidated Balance Sheet of
Titanium Metals Corporation and Subsidiaries ("TIMET") as of September 29, 1996,
and the Unaudited Pro Forma Condensed Consolidated Statements of Operations for
the year ended December 31, 1995 and for the nine-month period ended September
29, 1996. These historical financial statements are derived from the historical
audited and unaudited financial statements of TIMET, which were audited or
reviewed by us, and of the IMI Titanium Business, Axel Johnson Metals, Inc. and
Titanium Hearth Technologies, which were audited or reviewed by other
accountants, appearing elsewhere herein. Such pro forma adjustments are based on
management's assumptions as described in the notes to Unaudited Pro Forma
Condensed Consolidated Financial Statements. Our review was conducted in
accordance with standards established by the American Institute of Certified
Public Accountants.
A review is substantially less in scope than an examination, the objective
of which is the expression of an opinion on management's assumptions, the pro
forma adjustments and the application of those adjustments to historical
financial information. Accordingly, we do not express such an opinion.
The objective of this pro forma financial information is to show what the
significant effects on the historical information might have been had the
transactions described in the notes to Unaudited Pro Forma Condensed
Consolidated Financial Statements occurred at an earlier date. However, the
Unaudited Pro Forma Condensed Consolidated Financial Statements are not
necessarily indicative of the results of operations that would have been
attained had the above-mentioned transactions actually occurred earlier.
Based on our review, nothing came to our attention that caused us to
believe that management's assumptions do not provide a reasonable basis for
presenting the significant effects directly attributable to the transactions
described in the notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements, that the related pro forma adjustments do not give appropriate
effect to those assumptions, or that the pro forma column does not reflect the
proper application of those adjustments to the historical financial statement
amounts in the Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
September 29, 1996, and the Unaudited Pro Forma Condensed Consolidated
Statements of Operations for the year ended December 31, 1995 and for the
nine-month period ended September 29, 1996.
COOPERS & LYBRAND, L.L.P.
Denver, Colorado
November 20, 1996
PF-3
<PAGE> 107
TITANIUM METALS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 29, 1996
(IN MILLIONS)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------- PRO FORMA PRO FORMA
ASSETS TIMET AJM THT ADJUSTMENTS CONSOLIDATED
------ ----- ----- ----------- ------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents............................ $ 2.2 $ -- $ .1 $ -- $ 2.3
Accounts and notes receivable, net................... 99.2 2.6 11.2 -- 113.0
Receivable from related parties...................... 1.4 4.3 1.5 (5.7)(b) 1.5
Inventories.......................................... 140.7 4.1 16.3 3.5 (a) 164.6
Prepaid expenses..................................... 7.5 -- -- -- 7.5
Deferred income taxes................................ 1.4 .5 -- (.5)(a) 1.4
------ ----- ----- ------ ------
Total current assets........................... 252.4 11.5 29.1 (2.7) 290.3
------ ----- ----- ------ ------
Other assets:
Investment in joint ventures......................... 19.9 13.7 -- (19.7)(c) .2
(13.7)(d)
Goodwill, net........................................ 10.1 -- -- 50.9 (a) 59.6
(1.4)(c)
Other................................................ 12.5 .5 -- 13.5 (a) 26.5
------ ----- ----- ------ ------
Total other assets............................. 42.5 14.2 -- 29.6 86.3
------ ----- ----- ------ ------
Property and equipment................................. 220.6 20.7 24.1 (16.3)(a) 249.1
Less accumulated depreciation.......................... 39.2 12.1 4.2 (16.3)(a) 39.2
------ ----- ----- ------ ------
Net property and equipment..................... 181.4 8.6 19.9 -- 209.9
------ ----- ----- ------ ------
$476.3 $34.3 $49.0 $ 26.9 $586.5
====== ===== ===== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable........................................ $ 1.1 $ -- $ -- $ -- $ 1.1
Current maturities of long-term debt................. 1.5 -- 6.3 97.0 (e) 104.8
Payable to related parties........................... 1.5 -- 4.3 (5.7)(b) .1
Accounts payable and accrued liabilities............. 106.8 6.0 3.6 (2.0)(a) 114.4
Deferred income taxes................................ 1.3 -- -- -- 1.3
Income taxes......................................... 7.3 -- -- -- 7.3
------ ----- ----- ------ ------
Total current liabilities...................... 119.5 6.0 14.2 89.3 229.0
------ ----- ----- ------ ------
Noncurrent liabilities:
Long-term debt....................................... 1.5 -- -- -- 1.5
Capital lease obligations to related parties......... 9.8 -- -- -- 9.8
Payable to related parties........................... 1.3 -- -- -- 1.3
Accrued postretirement benefit cost.................. 28.0 -- -- -- 28.0
Accrued pension cost................................. 5.6 -- -- -- 5.6
Deferred income taxes................................ 8.7 2.7 -- (2.7)(a) 8.7
Other................................................ 2.7 .7 -- -- 3.4
------ ----- ----- ------ ------
Total noncurrent liabilities................... 57.6 3.4 -- (2.7) 58.3
------ ----- ----- ------ ------
Minority interest...................................... 3.3 -- -- -- 3.3
------ ----- ----- ------ ------
Stockholders' equity:
Common stock......................................... .3 -- -- -- .3
Additional paid-in capital........................... 345.8 -- 19.0 (19.0)(a) 345.8
Retained earnings (accumulated deficit).............. (49.2) 24.9 15.8 (13.7)(d) (49.2)
(5.9)(a)
(21.1)(c)
Other................................................ (1.0) -- -- -- (1.0)
------ ----- ----- ------ ------
Total stockholders' equity..................... 295.9 24.9 34.8 (59.7) 295.9
------ ----- ----- ------ ------
$476.3 $34.3 $49.0 $ 26.9 $586.5
====== ===== ===== ====== ======
</TABLE>
PF-4
<PAGE> 108
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 29, 1996
(IN MILLIONS)
NOTE 1 -- BASIS OF PRESENTATION:
The unaudited Pro Forma Condensed Consolidated Balance Sheet has been
prepared assuming that the acquisition (the "AJM Acquisition") of Axel Johnson
Metals, Inc. ("AJM") occurred as of September 29, 1996. Prior to this
acquisition, AJM and TIMET both owned a 50% interest in Titanium Hearth
Technologies (THT). As a result of the acquisition, TIMET now owns 100% of THT.
The estimated cost of the AJM Acquisition is summarized below:
<TABLE>
<S> <C>
Costs of the AJM Acquisition:
Cash....................................................................... $96.0
Transaction and other direct costs......................................... 1.0
-----
$97.0
=====
Purchase accounting adjustments:
Historical carrying amount of net assets acquired.......................... $24.9
Purchase accounting adjustments:
Inventories............................................................. 3.5
Intangibles, $5 million for a non-compete agreement and $8.5 million for
patents................................................................ 13.5
Goodwill................................................................ 50.9
Liabilities assumed by AJM's parent company............................. 2.0
Deferred income taxes................................................... 2.2
-----
$97.0
=====
</TABLE>
NOTE 2 -- PRO FORMA ADJUSTMENTS:
(a) Record purchase price and initial allocation to assets acquired and
liabilities assumed.
(b) To eliminate intercompany account balances.
(c) To eliminate the investment in THT recorded by TIMET.
(d) To eliminate the investment in THT recorded by AJM.
(e) To record debt incurred by TIMET for the purchase of AJM.
PF-5
<PAGE> 109
TITANIUM METALS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR FISCAL YEAR 1995
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
IMI IMI ADJUSTMENTS
TITANIUM TITANIUM PRO FORMA AJM/THT PRO FORMA
TIMET BUSINESS (NOTE 2) CONSOLIDATED AJM THT (NOTE 3) CONSOLIDATED
------ -------- ----------- ------------ ----- ----- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues and other income:
Net sales.................. $184.7 $147.2 $ -- $331.9 $23.7 $47.1 $(22.7)(c) $380.0
Equity in earnings of joint
ventures................. 4.8 -- -- 4.8 4.9 -- (8.8)(d) .9
Other, net................. .4 -- -- .4 .4 -- -- .8
------ ------ ----- ------ ----- ----- ------ ------
189.9 147.2 -- 337.1 29.0 47.1 (31.5) 381.7
------ ------ ----- ------ ----- ----- ------ ------
Costs and expenses:
Cost of sales.............. 170.7 167.6(1) 1.1(a) 338.8 20.7 33.2 (21.2)(c)
(.6)(b) 5.3(a) 380.3
3.5(e)
Selling, general,
administrative and
development.............. 14.0 12.3 -- 26.3 2.2 5.4 -- 33.9
Special charges (credit)... (1.2) 5.0 -- 3.8 -- -- -- 3.8
Interest................... 10.4 8.9 (6.0)(c) 14.9 .2 .6 8.7(f) 24.4
1.6(d)
------ ------ ----- ------ ----- ----- ------ ------
193.9 193.8 (3.9) 383.8 23.1 39.2 (3.7) 442.4
------ ------ ----- ------ ----- ----- ------ ------
Income (loss) before
income taxes,
minority interest
and preacquisition
earnings........... (4.0) (46.6) 3.9 (46.7) 5.9 7.9 (27.8) (60.7)
Income tax benefit
(expense).................. (.2) 13.8 (1.6)(e) 12.0 (2.3) -- 2.4(b) 12.1
------ ------ ----- ------ ----- ----- ------ ------
Net income (loss).... $ (4.2) $(32.8) $ 2.3 $(34.7) $ 3.6 $ 7.9 $(25.4) $(48.6)
====== ====== ===== ====== ===== ===== ====== ======
Net loss per common share.... $ (.27) $(1.39) $(1.94)
====== ====== ======
Weighted average common
shares
outstanding................ 15.4 9.6(f) 25.0 25.0
====== ===== ====== ======
</TABLE>
- ---------------
(1) IMI Titanium Business cost of sales includes charges of $16.1 million for
customer contract losses and other charges incurred in 1995.
PF-6
<PAGE> 110
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR FISCAL YEAR 1995
(IN MILLIONS, EXCEPT SHARE DATA)
NOTE 1 -- BASIS OF PRESENTATION:
The unaudited Pro Forma Condensed Consolidated Statement of Operations has
been prepared assuming the following transactions occurred as of the beginning
of fiscal 1995: (i) the IMI Titanium Acquisition, (ii) IMI's December 1995 $80
million capital contribution of related party indebtedness previously owed to
IMI by the IMI Titanium Business, (iii) the IMI Titanium Business entered into
long-term capital leases with IMI principally covering its Witton, England
production facilities, and purchased its previously leased Waunarlwydd, Wales
facility from IMI for $1.6 million, and (iv) the AJM Acquisition. Prior to the
acquisition, AJM and TIMET both owned a 50% interest in Titanium Hearth
Technologies (THT). As a result of the acquisition, TIMET now owns 100% of THT.
The estimated cost of the IMI Titanium Acquisition is summarized below:
<TABLE>
<S> <C>
Costs of the IMI Titanium Acquisition:
Issuance of 9.6 million shares of common stock to IMI...................... $70.0
Cash....................................................................... .1
Transaction and other direct costs......................................... 2.2
-----
$72.3
=====
Purchase accounting adjustments:
Historical carrying amount of net assets acquired.......................... $60.6
Purchase accounting adjustments:
Property and equipment, net............................................. 4.0
Goodwill and intangibles, including $4 million for patents.............. 11.2
Pension liabilities..................................................... (1.0)
Severance and other liabilities......................................... (.5)
Deferred income taxes, net.............................................. (2.0)
-----
$72.3
=====
</TABLE>
The estimated cost of the AJM Acquisition is summarized below:
<TABLE>
<S> <C>
Costs of the AJM Acquisition:
Cash....................................................................... $96.0
Transaction and other direct costs......................................... 1.0
-----
$97.0
=====
Purchase accounting adjustments:
Historical carrying amount of net assets acquired.......................... $24.9
Purchase accounting adjustments:
Inventories............................................................. 3.5
Intangibles, $5 million for a non-compete agreement and $8.5 million for
patents................................................................ 13.5
Goodwill................................................................ 50.9
Liabilities assumed by AJM's parent company............................. 2.0
Deferred income taxes................................................... 2.2
-----
$97.0
=====
</TABLE>
PF-7
<PAGE> 111
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS -- (CONTINUED)
FOR FISCAL YEAR 1995
(IN MILLIONS, EXCEPT SHARE DATA)
NOTE 2 -- PRO FORMA ADJUSTMENTS, IMI TITANIUM ACQUISITION:
(a) Additional depreciation and amortization expense resulting from
purchase accounting basis differences:
<TABLE>
<S> <C>
Intangibles (patents) amortized over their average remaining lives of 9
years.................................................................. $ .4
Depreciation of property and equipment over 15 years..................... .3
Goodwill amortized over 15 years......................................... .4
----
$1.1
====
</TABLE>
(b) Reflects the net effect of (i) increased depreciation expense of $.3
million principally related to the Witton, England facility (leased
under a thirty-year capital lease with IMI entered into in connection
with the IMI Titanium Acquisition), (ii) increased depreciation expense
of $.1 million on the Waunarlwydd, Wales facility (purchased in 1995 in
contemplation of the IMI Titanium Acquisition and depreciated over 15
years), and (iii) reduced rent expense of $1.0 million in respect of
the aforementioned facilities.
(c) Eliminate interest expense associated with the $80 million capital
contribution of related party indebtedness at an average interest rate
of 7.5%.
(d) Interest expense of $2.0 million on $20 million of subordinated debt
issued to IMI at 10.4% and interest expense of $1.0 million related to
the capital lease obligations, offset by elimination of $1.4 million of
interest expense on $20 million of intercompany indebtedness.
(e) Tax effects at the U.K. statutory rate of 33% on other pro forma
adjustments, except for goodwill amortization reflected in (a) above
and U.S. related interest in (d) above which would increase the
Company's U.S. losses for which no associated tax benefit was
available.
(f) Reflects shares issued to IMI in connection with the IMI Titanium
Acquisition.
NOTE 3 -- PRO FORMA ADJUSTMENTS, AJM ACQUISITION:
(a) Additional amortization expense resulting from purchase accounting
basis differences:
<TABLE>
<S> <C>
Intangibles (patents) amortized over their average remaining lives of
10 years............................................................. $ .9
Goodwill amortized over 15 years...................................... 3.4
Amortization of non-compete agreement over 5 years.................... 1.0
----
$5.3
====
</TABLE>
(b) Tax effects differ from the U.S. statutory rate of 35% on pro forma
adjustments due to no benefit being available on losses.
(c) Adjustment to eliminate sales and cost of sales for intercompany sales
between AJM, TIMET and THT.
(d) To eliminate the equity in THT earnings recorded by TIMET and AJM.
PF-8
<PAGE> 112
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS -- (CONTINUED)
FOR FISCAL YEAR 1995
(IN MILLIONS, EXCEPT SHARE DATA)
(e) To record the additional cost of sales applicable to the excess
purchase price allocated to inventories.
(f) To record interest expense (at 9% per annum) applicable to the $97
million of new debt TIMET incurred for the purchase of AJM.
NOTE 4 -- NONRECURRING COSTS:
The unaudited Pro Forma Condensed Consolidated Statement of Operations does
not include non-recurring charges resulting from the IMI Titanium Acquisition
and related integration of the IMI Titanium Business. Certain key executive
officers of the Company received approximately 93,000 shares of the Company's
Class B common stock and cash payments with a combined value of approximately $3
million ($1.5 million common stock and $1.5 million cash) in consideration for
their services in connection with the IMI Titanium Acquisition. The Class B
common stock converted into Common Stock in connection with the Stock Offering.
The Company will also incur integration costs relating to the transfer of
certain manufacturing process technology, relocation of personnel, and
consolidation of certain facilities, including the closure of the Company's
original U.K. facilities. Anticipated integration costs for fiscal 1996 are
summarized as follows:
<TABLE>
<S> <C>
Facilities consolidation.............................................. $ .3
Relocation of personnel............................................... .6
Manufacturing process technology transfer............................. .6
Other................................................................. .5
----
$2.0
====
</TABLE>
Compensation expense related to the aforementioned consideration and
certain integration costs aggregating $4.7 million were recorded as a charge to
the Company's operating income in the first nine months of 1996. Integration
costs are charged to operations as incurred.
PF-9
<PAGE> 113
TITANIUM METALS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 29, 1996
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS
IMI TITANIUM AJM/THT PRO FORMA
TIMET (NOTE 2) AJM THT (NOTE 3) CONSOLIDATED
------ ------------ ----- ----- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues and other income:
Net sales............................ $349.8 $ -- $21.2 $58.1 $ (22.0)(c) $407.1
Equity in earnings of joint
ventures.......................... 6.0 -- 5.9 -- (11.9)(d) --
Other, net........................... .6 -- -- -- -- .6
------ --- ----- ----- ------- ------
356.4 -- 27.1 58.1 (33.9) 407.7
------ --- ----- ----- ------- ------
Costs and expenses:
Cost of sales........................ 294.1 -- 17.9 41.1 (20.1)(c) 337.0
4.0(a)
Selling, general and administrative
and development................... 18.6 -- 2.0 4.6 -- 25.2
Special charges...................... 4.7 -- .9 -- -- 5.6
Interest............................. 7.3 -- .1 .5 6.5(e) 14.4
------ --- ----- ----- ------- ------
324.7 -- 20.9 46.2 (9.6) 382.2
------ --- ----- ----- ------- ------
Income (loss) before income taxes,
minority interest and preacquisition
earnings............................. 31.7 -- 6.2 11.9 (24.3) 25.5
Income tax expense (benefit)........... 7.8 -- 2.4 -- (3.8)(b) 6.4
Preacquisition earnings................ (.4) .4(a) -- -- -- --
------ --- ----- ----- ------- ------
Net Income (loss)............ $ 23.5 $ .4 $ 3.8 $11.9 $ (20.5) $ 19.1
====== === ===== ===== ======= ======
Net income per common share............ $ .89 $ .68
====== ======
Weighted average common shares
outstanding.......................... 26.3 1.6(b) 27.9
====== === ======
</TABLE>
PF-10
<PAGE> 114
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 29, 1996
(IN MILLIONS, EXCEPT SHARE DATA)
NOTE 1 -- BASIS OF PRESENTATION:
The unaudited Pro Forma Condensed Consolidated Statement of Operations has
been prepared assuming the IMI Titanium Acquisition and the AJM Acquisition
occurred at the beginning of fiscal 1995. Prior to the AJM acquisition, AJM and
TIMET both owned a 50% interest in Titanium Hearth Technologies (THT). As a
result of the acquisition, TIMET now owns 100% of THT.
NOTE 2 -- PRO FORMA ADJUSTMENTS IMI TITANIUM:
(a) Elimination of preacquisition earnings.
(b) Adjustment to reflect shares issued to IMI in connection with the IMI
Titanium Acquisition as of the beginning of fiscal 1995.
NOTE 3 -- PRO FORMA ADJUSTMENTS AXEL JOHNSON METALS:
(a) Additional amortization expense resulting from purchase accounting
basis differences:
<TABLE>
<S> <C>
Intangibles (patents) amortized over their average remaining lives of
10 years............................................................ $ .6
Goodwill amortized over 15 years...................................... 2.6
Amortization of non-compete agreement over 5 years.................... .8
----
$4.0
====
</TABLE>
(b) Tax effects differ from the U.S. statutory rate of 35% on pro forma
adjustments due to the effect of net operating loss carryforwards.
(c) Adjustment to eliminate sales and cost of sales for intercompany sales
between AJM, TIMET and THT.
(d) To eliminate the equity in THT earnings recorded by TIMET and AJM.
(e) To record interest expense (at 9% per annum) applicable to the $97
million of new debt TIMET incurred for the purchase of AJM.
NOTE 4 -- NONRECURRING COSTS:
See Note 4 to the unaudited Pro Forma Condensed Consolidated Statement of
Operations for fiscal year 1995 regarding non-recurring charges resulting from
the IMI Titanium Acquisition and related integration of the IMI Titanium
Business.
NOTE 5 -- SUPPLEMENTAL PRO FORMA EARNINGS PER SHARE
Supplemental pro forma earnings per share for the nine months ended
September 29, 1996 would have been approximately $.88 per share assuming the
Offering occurred at the beginning of fiscal 1996 and the Convertible Preferred
Securities were converted into approximately 5.4 million shares of Common Stock.
PF-11
<PAGE> 115
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 116
TITANIUM METALS CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
FINANCIAL STATEMENTS:
Titanium Metals Corporation and Subsidiaries:
Reports of Independent Accountants......................................... F-2/F-3
Consolidated Balance Sheets at September 29, 1996 (unaudited), January 1,
1995 and December 31, 1995................................................ F-4
Consolidated Statements of Operations for the nine month periods ended
October 1, 1995 and September 29, 1996 (unaudited), and fiscal years 1993,
1994 and 1995............................................................. F-5
Consolidated Statements of Stockholders' Equity for the nine month period
ended September 29, 1996 (unaudited) and fiscal years 1993, 1994 and
1995...................................................................... F-6
Consolidated Statements of Cash Flows for the nine month periods ended
October 1, 1995 and September 29, 1996 (unaudited), and fiscal years 1993,
1994 and 1995............................................................. F-7
Notes to Consolidated Financial Statements................................. F-8/F-27
IMI Titanium Business:
Independent Auditors' Report............................................... F-28
Combined Balance Sheets at December 31, 1994 and 1995...................... F-29
Combined Statements of Operations for the years ended December 31, 1993,
1994 and 1995............................................................. F-30
Combined Statements of Stockholders' Equity for the years ended December
31, 1993, 1994 and 1995................................................... F-31
Combined Statements of Cash Flows for the years ended December 31, 1993,
1994 and 1995............................................................. F-32
Notes to Combined Financial Statements..................................... F-33/F-41
Axel Johnson Metals, Inc.:
Report of Independent Accountants.......................................... F-42
Review Report of Independent Accountants................................... F-43
Balance Sheet at December 31, 1995 and September 30, 1996 (unaudited)...... F-44
Statement of Income for the year ended December 31, 1995 and the nine month
period ended September 30, 1996 (unaudited)............................... F-45
Statement of Stockholder's Equity for the year ended December 31, 1995 and
the nine month period ended September 30, 1996 (unaudited)................ F-46
Statement of Cash Flows for the year ended December 31, 1995 and the nine
month period ended September 30, 1996 (unaudited)......................... F-47
Notes to Financial Statements.............................................. F-48/F-56
Titanium Hearth Technologies:
Report of Independent Accountants.......................................... F-57
Review Report of Independent Accountants................................... F-58
Balance Sheets at December 31, 1994 and 1995 and September 30, 1996
(unaudited)............................................................... F-59
Statements of Income for the years ended December 31, 1993, 1994 and 1995
and for the nine months ended September 30, 1996 (unaudited).............. F-60
Statements of Changes in Partners' Capital for the years ended December 31,
1993, 1994 and 1995 and for the nine months ended September 30, 1996
(unaudited)............................................................... F-61
Statements of Cash Flows for the years ended December 31, 1993, 1994
and 1995 and for the nine months ended September 30, 1996 (unaudited).... F-62
Notes to Financial Statements.............................................. F-63/F-68
</TABLE>
F-1
<PAGE> 117
CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of Titanium Metals Corporation:
We have audited the accompanying consolidated balance sheets of Titanium
Metals Corporation and Subsidiaries as of January 1, 1995 and December 31, 1995,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three fiscal years in the period ended December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Titanium Metals
Corporation and Subsidiaries at January 1, 1995 and December 31, 1995, and the
consolidated results of their operations and cash flows for each of the three
fiscal years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
As discussed in Note 12 to the consolidated financial statements, in 1994
the Company changed its method of accounting for postemployment benefits in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 112.
Coopers & Lybrand L.L.P.
Denver, Colorado
March 26, 1996
F-2
<PAGE> 118
CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of Titanium Metals Corporation:
We have reviewed the accompanying consolidated balance sheet of Titanium
Metals Corporation and Subsidiaries ("Company") as of September 29, 1996, and
the related consolidated statements of operations, and cash flows for the nine
month periods ended October 1, 1995 and September 29, 1996, and the related
consolidated statement of stockholders' equity for the nine month period ended
September 29, 1996. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Denver, Colorado
November 9, 1996
F-3
<PAGE> 119
TITANIUM METALS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31, SEPTEMBER 29,
1995 1995 1996
---------- ------------ -------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents.................................... $ -- $ 24 $ 2,220
Accounts and notes receivable, less allowance of $3,143,
$3,620
and $4,440................................................. 26,383 27,932 99,247
Receivable from related parties.............................. 991 3,070 1,400
Inventories.................................................. 53,508 69,134 140,652
Prepaid expenses............................................. 3,468 3,452 7,547
Deferred income taxes........................................ -- -- 1,386
-------- -------- ---------
Total current assets.................................. 84,350 103,612 252,452
-------- -------- ---------
Other assets:
Investment in joint ventures................................. 14,824 13,853 19,938
Prepaid pension cost......................................... 1,345 1,253 1,253
Intangible pension asset..................................... 602 1,424 1,424
Goodwill..................................................... -- -- 10,111
Deferred income taxes........................................ 688 -- --
Other........................................................ 2,150 3,774 9,727
-------- -------- ---------
Total other assets.................................... 19,609 20,304 42,453
-------- -------- ---------
Property and equipment:
Land......................................................... 4,767 4,598 6,032
Buildings.................................................... 17,836 17,783 33,343
Equipment.................................................... 125,705 127,228 171,809
Construction in progress..................................... 3,345 3,120 9,381
-------- -------- ---------
151,653 152,729 220,565
Less accumulated depreciation................................ 15,390 27,861 39,212
-------- -------- ---------
Net property and equipment................................. 136,263 124,868 181,353
-------- -------- ---------
$240,222 $248,784 $ 476,258
======== ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable................................................ $ 214 $ -- 1,139
Current maturities of long-term debt......................... 6,807 45,695 1,497
Payable to related parties................................... 3,531 2,627 1,519
Accounts payable............................................. 19,599 27,136 66,104
Accrued liabilities.......................................... 20,978 20,963 40,679
Income taxes................................................. -- 47 7,281
Deferred income taxes........................................ 1,966 596 1,305
-------- -------- ---------
Total current liabilities............................. 53,095 97,064 119,524
-------- -------- ---------
Noncurrent liabilities:
Long-term debt............................................... 58,214 21,540 1,472
Capital lease obligation to related parties.................. -- -- 9,796
Payable to related parties................................... 26,586 23,942 1,288
Accrued postretirement benefit cost.......................... 29,471 28,152 27,978
Accrued pension cost......................................... 6,125 5,966 5,600
Deferred income taxes........................................ -- 789 8,713
Other........................................................ 1,983 3,203 2,670
-------- -------- ---------
Total noncurrent liabilities.......................... 122,379 83,592 57,517
-------- -------- ---------
Minority interest.............................................. -- -- 3,268
-------- -------- ---------
Stockholders' equity:
Preferred stock, $.01 par value; 1 million shares authorized,
none outstanding........................................... -- -- --
Common stock, $.01 par value; 99 million shares authorized,
15.1 million shares, 15.7 million shares and 31.5 million
shares issued and outstanding, respectively................ 150 157 315
Accumulated deficit.......................................... (68,436) (72,653) (49,180)
Additional paid-in capital................................... 135,709 142,720 345,771
Adjustments:
Currency translation....................................... 160 283 1,422
Pension liabilities........................................ (2,835) (2,379) (2,379)
-------- -------- ---------
Total stockholders' equity............................ 64,748 68,128 295,949
-------- -------- ---------
$240,222 $248,784 $ 476,258
======== ======== =========
</TABLE>
Commitments and contingencies (Notes 3, 13 and 14)
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 120
TITANIUM METALS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEARS --------------------------
------------------------------ OCTOBER 1, SEPTEMBER 29,
1993 1994 1995 1995 1996
-------- -------- -------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues and other income:
Net sales.......................... $151,177 $145,984 $184,723 $ 135,203 $ 349,825
Equity in earnings of joint
ventures........................ 3,540 2,263 4,824 3,828 5,960
Other, net......................... 61 (187) 469 (823) 633
-------- -------- -------- --------- ---------
154,778 148,060 190,016 138,208 356,418
-------- -------- -------- --------- ---------
Costs and expenses:
Cost of sales...................... 153,423 159,958 170,699 127,572 294,153
Selling, general, administrative,
and development................. 11,440 12,462 14,065 9,077 18,614
Special charges (credit)........... 4,700 10,000 (1,200) -- 4,688
Interest........................... 5,729 7,562 10,414 7,867 7,266
-------- -------- -------- --------- ---------
175,292 189,982 193,978 144,516 324,721
-------- -------- -------- --------- ---------
Income (loss) before income taxes,
minority interest, preacquisition
earnings, and cumulative effect of
a change in accounting principle... (20,514) (41,922) (3,962) (6,308) 31,697
Income tax benefit (expense)......... 307 (155) (255) (156) (7,791)
Minority interest.................... -- -- -- -- (22)
Preacquisition earnings.............. -- -- -- -- (411)
-------- -------- -------- --------- ---------
Income (loss) before cumulative
effect of a change in accounting
principle....................... (20,207) (42,077) (4,217) (6,464) 23,473
Cumulative effect of a change in
accounting principle............... -- (1,000) -- -- --
-------- -------- -------- --------- ---------
Net income (loss).................. $(20,207) $(43,077) $ (4,217) $ (6,464) $ 23,473
======== ======== ======== ========= =========
Per common share:
Income (loss) before cumulative
effect of a change in accounting
principle....................... $ (1.78) $ (2.80) $ (.27) $ (.42) $ .89
Cumulative effect of a change in
accounting principle............ -- (.07) -- -- --
-------- -------- -------- --------- ---------
$ (1.78) $ (2.87) $ (.27) $ (.42) $ .89
======== ======== ======== ========= =========
Weighted average common shares
outstanding (Note 2)............... 11,332 15,010 15,383 15,275 26,346
======== ======== ======== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 121
TITANIUM METALS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
ADDITIONAL -------------------------
COMMON COMMON PAID-IN ACCUMULATED CURRENCY PENSION
SHARES STOCK CAPITAL DEFICIT TRANSLATION LIABILITIES TOTAL
------- ------ ---------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 3, 1993.............. 11,337 $113 $ 51,528 $ (5,152) $ 93 $ -- $ 46,582
Net loss................................ -- -- -- (20,207) -- -- (20,207)
Conversion of:
UTSC subordinated debentures.......... 3,729 37 74,963 -- -- -- 75,000
Tremont indebtedness.................. -- -- 8,799 -- -- -- 8,799
Adjustments, net........................ -- -- -- -- (111) (1,081) (1,192)
------ ---- --------- --------- ------- ------- --------
Balance at January 2, 1994.............. 15,066 150 135,290 (25,359) (18) (1,081) 108,982
Net loss................................ -- -- -- (43,077) -- -- (43,077)
Adjustments, net........................ -- -- -- -- 178 (1,754) (1,576)
Cash contribution....................... -- -- 419 -- -- -- 419
------ ---- --------- --------- ------- ------- --------
Balance at January 1, 1995.............. 15,066 150 135,709 (68,436) 160 (2,835) 64,748
Net loss................................ -- -- -- (4,217) -- -- (4,217)
Tremont:
Conversion of subordinated
indebtedness....................... 411 4 7,848 -- -- -- 7,852
Cash contribution..................... 59 1 1,147 -- -- -- 1,148
UTSC interest conversion................ 157 2 2,998 -- -- -- 3,000
Noncash distribution to stockholders.... -- -- (4,982) -- -- -- (4,982)
Adjustments, net........................ -- -- -- -- 123 456 579
------ ---- --------- --------- ------- ------- --------
Balance at December 31, 1995............ 15,693 157 142,720 (72,653) 283 (2,379) 68,128
Net income.............................. -- -- -- 23,473 -- -- 23,473
Common Stock issued:
Stock Offering........................ 6,200 62 132,926 -- -- -- 132,988
Other................................. 1 -- 28 -- -- -- 28
IMI Titanium Acquisition.............. 9,561 96 69,904 -- -- -- 70,000
Other, net............................ -- -- 193 -- -- -- 193
Adjustments, net........................ -- -- -- -- 1,139 -- 1,139
------ ---- --------- --------- ------- ------- --------
Balance at September 29, 1996
(unaudited)........................... 31,455 $315 $ 345,771 $ (49,180) $ 1,422 $(2,379) $295,949
====== ==== ========= ========= ======= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 122
TITANIUM METALS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEARS --------------------------
------------------------------ OCTOBER 1, SEPTEMBER 29,
1993 1994 1995 1995 1996
-------- -------- -------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................... $(20,207) $(43,077) $ (4,217) $ (6,464) $ 23,473
Depreciation and amortization........................ 4,609 8,334 13,218 8,821 12,580
Earnings of joint ventures in excess of
distributions...................................... (2,590) (1,195) (3,824) (3,828) (5,814)
Minority interest and preacquisition earnings........ -- -- -- -- 433
Special charges (credit)............................. 4,700 10,000 (1,200) -- 4,688
Postretirement benefits.............................. 852 626 (393) (383) (174)
Deferred income taxes................................ 4,053 -- -- -- --
Other, net........................................... 606 1,823 307 25 (638)
Cumulative effect of a change in accounting
principle.......................................... -- 1,000 -- -- --
Change in assets and liabilities, net of acquisitions:
Accounts and notes receivable........................ (261) 5,273 (870) (11,503) (33,320)
Inventories.......................................... 4,577 (738) (15,477) (4,749) (24,405)
Prepaid expenses..................................... 993 194 19 (1,005) (3,922)
Accounts payable..................................... 9,420 (1,969) 6,807 7,729 14,269
Accrued liabilities.................................. (640) (621) (771) (974) 3,341
Income taxes......................................... 1,480 (9) 165 156 5,991
Accounts with related parties........................ 4,529 116 (275) (842) (3,892)
Other, net........................................... 315 222 396 2,104 (2,063)
-------- -------- -------- -------- --------
Net cash provided (used) by operating activities... 12,436 (20,021) (6,115) (10,913) (9,453)
-------- -------- -------- -------- --------
Cash flows from investing activities:
Capital expenditures................................. (16,330) (4,609) (2,981) (2,274) (10,836)
Purchase of interest in subsidiaries:
IMI Titanium Business.............................. -- -- -- -- (2,250)
Other.............................................. -- -- -- -- (2,940)
Other, net........................................... 24 40 421 421 149
-------- -------- -------- -------- --------
Net cash used by investing activities.............. (16,306) (4,569) (2,560) (1,853) (15,877)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Notes payable and long-term debt:
Borrowings......................................... 1,641 63,625 9,371 15,322 18,248
Reductions......................................... (6,967) (48,829) (7,371) (3,956) (83,307)
Proceeds from issuance of common stock............... -- -- -- -- 131,488
Capital contributions from related parties........... -- 419 1,148 1,148 --
Loans from related parties........................... 10,000 2,500 5,500 2,500 (42,505)
-------- -------- -------- -------- --------
Net cash provided by financing activities.......... 4,674 17,715 8,648 15,014 23,924
-------- -------- -------- -------- --------
Cash and cash equivalents:
Net increase (decrease) from:
Operating, investing and financing activities...... 804 (6,875) (27) 2,248 (1,406)
Cash acquired, net................................. -- -- -- -- 3,399
Currency translation............................... (3) 146 51 43 203
-------- -------- -------- -------- --------
801 (6,729) 24 2,291 2,196
Balance at beginning of period....................... 5,928 6,729 -- -- 24
-------- -------- -------- -------- --------
Balance at end of period............................. $ 6,729 $ -- $ 24 $ 2,291 $ 2,220
======== ======== ======== ======== ========
Supplemental disclosures:
Cash paid for
Interest, net of amount capitalized................ $ 1,023 $ 6,497 $ 9,970 $ 7,914 $ 6,689
Income taxes (refund).............................. (8,629) 120 112 53 874
Acquisitions:
Cash and cash equivalents.......................... $ -- $ -- $ -- $ -- $ 4,105
Noncash assets..................................... -- -- -- -- 168,491
Liabilities........................................ -- -- -- -- (97,406)
Common stock issued to IMI......................... -- -- -- -- (70,000)
-------- -------- -------- -------- --------
Cash paid........................................ $ -- $ -- $ -- $ -- $ 5,190
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 123
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION:
Titanium Metals Corporation ("TIMET") was a 75%-owned subsidiary of Tremont
Corporation at December 31, 1995. Union Titanium Sponge Corporation ("UTSC"), a
consortium of Japanese companies, held the remaining 25% equity interest in
TIMET at that date. On February 15, 1996, TIMET acquired the titanium businesses
of IMI plc and affiliates ("IMI") and on June 4, 1996 completed an initial
public offering of its common stock (the "Stock Offering") which together
reduced Tremont's ownership in TIMET to 30.3% at September 29, 1996 (See Notes 3
and 9). Contran Corporation holds, directly or through subsidiaries,
approximately 44% of Tremont's outstanding common stock. Substantially all of
Contran's outstanding voting stock is held by trusts established for the benefit
of the children and grandchildren of Harold C. Simmons, of which Mr. Simmons is
the sole trustee. Mr. Simmons may be deemed to control each of Contran, Tremont,
TIMET, and NL Industries, Inc., an indirect subsidiary of Contran.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation
The accompanying consolidated financial statements include the accounts of
TIMET and its wholly-owned subsidiaries (collectively, the "Company"). All
material intercompany accounts and balances have been eliminated. Certain prior
year amounts have been reclassified to conform to the current year presentation.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amount of revenues and expenses during the
reporting period. Ultimate actual results may, in some instances, differ from
previously estimated amounts.
Fiscal year
The Company uses a fiscal year ending on the Sunday closest to December 31
of each year. The fiscal years ended December 31, 1995 ("1995"), January 1, 1995
("1994") and January 2, 1994 ("1993") each reflect the results of operations for
52 weeks. The Company's 1996 fiscal year ends on December 29, 1996.
Translation of foreign currencies
Assets and liabilities of subsidiaries whose functional currency is deemed
to be other than the U.S. dollar are translated at year end rates of exchange
and revenues and expenses are translated at average exchange rates prevailing
during the year. Resulting translation adjustments are accumulated in the
currency translation adjustments component of stockholders' equity, net of
related deferred income taxes. Currency transaction gains and losses, which
include U.S. dollar denominated debt held by subsidiaries whose functional
currency is deemed to be other than the U.S. dollar, are recognized in income
currently.
Cash and cash equivalents
Cash equivalents include highly liquid investments with original maturities
of three months or less.
F-8
<PAGE> 124
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories and cost of sales
Inventories are stated at the lower of cost or market. Timet UK and Timet
Castings use the first-in, first-out ("FIFO") method to determine the cost of
inventories. The last-in, first-out ("LIFO") method is used to determine the
cost of substantially all other inventories (approximately 50% at September 29,
1996).
Net sales
Sales are recognized when products are shipped and processing services
rendered.
Investment in joint ventures
Investments in 20% to 50%-owned joint ventures are accounted for by the
equity method.
Intangible assets and amortization
Goodwill, representing the excess of cost over the fair value of individual
net assets acquired in a business combination accounted for by the purchase
method, is amortized by the straight line method over fifteen years. Other
intangible assets, except for intangible pension assets, are included in other
noncurrent assets and are amortized by the straight-line method over the periods
expected to be benefited of approximately nine years.
Property, equipment and depreciation
Property and equipment are stated at cost. Interest costs related to major,
long-term capital projects are capitalized as a component of construction costs.
Capital expenditures in 1993 of $13.6 million include $3.1 million of
capitalized interest ($2.6 million noncash) and exclude $5.3 million of
previously accrued expenditures. Maintenance, repairs and minor renewals are
expenses. Major improvements are capitalized.
TIMET's vacuum distillation process ("VDP") titanium sponge facility
commenced start-up in 1993 and has a rated annual production capacity of 22
million pounds. Depreciation related to the VDP plant is computed on a
units-of-production method based on the pounds of sponge produced; however, the
amount of depreciation expense recognized in the future periods is not expected
to vary materially from the straight-line method. Depreciation related to other
assets is computed principally on the straight-line method over the estimated
useful lives of 15 to 40 years for buildings and 5 to 18 years for machinery and
equipment.
Research and development
Research and development expense approximated $2 million in each of the
past three years.
Employee benefit plans
Accounting and funding policies for retirement plans and postretirement
benefits other than pensions ("OPEB") are described in Note 11.
Fair value of financial instruments
The estimated fair value of the Company's financial instruments is believed
to approximate their carrying amounts. See Note 8.
Advertising costs
Advertising costs, which are not significant, are expensed as incurred.
Stock split and income (loss) per common share
Common shares outstanding for all periods presented have been adjusted to
reflect the 65-for-1 split (the "Stock Split") of the Company's common stock
effective in connection with the Stock
F-9
<PAGE> 125
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Offering. Income (loss) per common share is based upon the weighted average
number of common shares and equivalents outstanding after giving effect, in all
periods presented, to the Stock Split. Common stock equivalents, consisting of
nonqualified stock options, are excluded from the calculation when their effect
is immaterial or anti-dilutive. See Note 9.
Income taxes
Deferred income tax assets and liabilities are recognized for the expected
future tax consequences of temporary differences between the income tax and
financial reporting carrying amounts of assets and liabilities, including
investments in subsidiaries and unconsolidated affiliates not included in the
consolidated tax group.
TIMET was a member of Tremont's consolidated United States ("U.S.") federal
income tax group (the "Tremont Tax Group") until December 1993 when UTSC
converted $75 million of debentures into 25% of TIMET's outstanding voting
common stock ("UTSC conversion"). While a member of the Tremont Tax Group,
TIMET's federal income tax sharing agreement with Tremont provided that the
Company compute its consolidated provision for U.S. income taxes on a separate
company basis utilizing the tax elections made by Tremont, and that any
resulting U.S. current tax liability or refund be paid to or received from
Tremont.
Unaudited interim financial information
The consolidated balance sheet at September 29, 1996, the consolidated
statements of operations and cash flows for the nine month interim periods ended
October 1, 1995 and September 29, 1996, and the consolidated statement of
stockholders' equity for the nine month interim period ended September 29, 1996
have been prepared by the Company without audit. In the opinion of management,
all adjustments, consisting only of normal recurring adjustments, necessary to
fairly present the interim financial information have been made. The results of
operations for interim periods are not necessarily indicative of the operating
results of a full year or of future years.
NOTE 3 -- BUSINESS COMBINATIONS AND JOINT VENTURES:
Business combination
On February 15, 1996, the Company completed an agreement to acquire IMI's
titanium metals businesses (the "IMI Titanium Acquisition"). IMI previously
conducted its titanium business principally through its wholly owned United
Kingdom subsidiary, IMI Titanium Ltd. (now known as TIMET UK), and its United
States subsidiary, IMI Titanium, Inc. (now known as TIMET Castings). TIMET UK is
Western Europe's leading producer of titanium ingot and mill products for
aerospace and industrial applications. TIMET Castings manufactures titanium
castings for aerospace applications and golf club heads. IMI conveyed all of its
titanium related businesses to the Company in exchange for 9.6 million newly
issued shares of the Company's Class A common stock valued at $70 million, and
the Company issued $20 million of the Company's subordinated debt to IMI in
exchange for a like amount of debt previously owed to IMI by its U.K.
subsidiary. Immediately after the transaction, the Company was owned 46.3% by
Tremont, 37.9% by IMI, 15.4% by UTSC and .4% by management. In connection with
the IMI Titanium Acquisition, Tremont was granted a three year option to
purchase up to an additional 2 million shares of the Company's common stock
(after giving effect to the Stock Split) from IMI for $16 million. Tremont
assigned to UTSC the right to acquire from IMI .5 million shares of the
Company's common stock (after giving effect to the Stock Split) under the
option.
The Company has accounted for the IMI Titanium Acquisition by the purchase
method of accounting. The purchase price of approximately $72 million, including
transaction costs, has been
F-10
<PAGE> 126
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
allocated to the individual assets and liabilities of the IMI Titanium Business
based on preliminary information. The actual allocation of the purchase price
may be different from the preliminary allocation due to adjustments in the
purchase price and refinements in estimates of the fair values of the net assets
acquired. Goodwill approximated $9 million and is being amortized on a
straight-line basis over 15 years. The Company has included the results of
operations of the IMI Titanium Business in its consolidated results of
operations effective at the beginning of fiscal 1996 with preacquisition
earnings of approximately $.4 million of the IMI Titanium Business reflected as
a separate deduction in determining net income for the nine months ended
September 29, 1996. Preacquisition sales of the IMI Titanium Business included
in the Company's consolidated sales for the nine months ended September 29, 1996
were approximately $11.7 million.
The following pro forma financial information has been prepared assuming
the IMI Titanium Acquisition occurred at the beginning of the respective
periods. The pro forma financial information is not necessarily indicative of
the operating results that might have occurred if the transaction had been
completed at such earlier dates or the operating results which may occur in the
future.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------
FISCAL YEAR OCTOBER 1, SEPTEMBER 29,
1995 1995 1996
----------- ---------- -------------
<S> <C> <C> <C>
(UNAUDITED)
(IN MILLIONS)
Revenues........................................ $ 337.1 $243.9 $ 356.4
Net income (loss)............................... (34.7) (22.1) 23.9
Net income (loss) per common share.............. (1.39) (.89) .86
</TABLE>
Axel Johnson Metals Acquisition
On October 1, 1996, the Company acquired (the "AJM Acquisition")
substantially all of the assets and assumed substantially all of the liabilities
of Axel Johnson Metals, Inc. ("AJM") for approximately $96 million cash. The AJM
Acquisition was completed through a newly formed subsidiary, Titanium Hearth
Technologies, Inc. ("THT, Inc."), and included the acquisition of the 50%
partnership interest in Titanium Hearth Technologies ("THT"), a general
partnership, that TIMET did not previously own. The purchase price was funded
through borrowings under TIMET's U.S. credit facility. THT, Inc. and its
subsidiaries operate titanium scrap processing facilities and electron beam cold
hearth melting furnaces. TIMET will account for the AJM Acquisition by the
purchase method and consolidate the financial position and results of operations
of THT, Inc. beginning in the fourth quarter of 1996. TIMET's purchases from THT
approximated $8 million in 1993, $8 million in 1994 and $10 million in 1995.
TISTO
TIMET held a 26% interest in TISTO, a German distributor of titanium
products, on June 30, 1996. In July 1996, TIMET acquired the remaining 74%
equity interest for approximately $2 million in cash and guaranteed
approximately $2 million in existing loans from former TISTO shareholders. TIMET
has consolidated TISTO's results effective July 1, 1996 and TISTO's revenues
approximated $5 million for the three months ended September 29, 1996. The pro
forma effect of the TISTO acquisition would not be material.
CEZUS
Effective August 1, 1996, TIMET and Compagnie Europeenne du
Zirconium-CEZUS, S.A. ("CEZUS") completed an agreement to form a new
jointly-owned French company ("TIMET
F-11
<PAGE> 127
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Savoie") to manufacture and sell titanium products. TIMET Savoie is 70%-owned by
TIMET and 30%-owned by CEZUS. CEZUS contributed cash, equipment and the CEZUS
titanium business to TIMET Savoie, and certain CEZUS employees became employees
of TIMET Savoie. TIMET contributed proprietary technology, all of its interest
in its previously existing France-based distribution businesses and cash valued
at a total of approximately $8 million. TIMET Savoie will manufacture products
inside CEZUS' production facility in Ugine, France both directly, utilizing its
own personnel and equipment, and, for melting and forging and certain other
operations, indirectly by subcontracting to CEZUS under a long-term
manufacturing agreement with CEZUS. The Company consolidated TIMET Savoie
effective August 1, 1996. TIMET Savoie's revenues for the two months ended
September 29, 1996 were approximately $5 million.
Upon formation of TIMET Savoie, CEZUS provided TIMET Savoie with a French
franc denominated credit facility providing, under certain circumstances, for
borrowings up to approximately $13 million. Additionally, CEZUS has the right to
sell their interest in TIMET Savoie to the Company for 30% of TIMET Savoie's
registered capital after TIMET Savoie has had two consecutive years of
profitable operations and all outstanding borrowings to CEZUS have been repaid.
The Company has the right to purchase CEZUS' 30% interest in TIMET Savoie for
30% of TIMET Savoie's equity determined under French accounting principles on or
after December 31, 1997 and following the repayment of all outstanding
borrowings to CEZUS.
F-12
<PAGE> 128
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Joint Venture
Prior to October 1995, TIMET owned (i) a 32% equity interest in Basic
Investments, Inc. ("BII"), which, among other things, provides utility services
in the industrial park where one of TIMET's plants is located, and (ii) a 12%
interest in Victory Valley Land Company L.P. ("VVLC"), which is actively engaged
in efforts to develop certain real estate. BII, through a wholly-owned
subsidiary, owns an additional 50% interest in VVLC. In October 1995, TIMET made
a pro rata distribution to its shareholders consisting of all of its interest in
BII and VVLC, and certain real estate in Nevada. The Company distributed the
assets at their net carrying amount which approximated $5 million.
Summarized combined financial information of the Company's unconsolidated
joint ventures, including THT, is shown below:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEARS --------------------------
--------------------------- OCTOBER 1, SEPTEMBER 30,
1993 1994 1995 1995 1996
------- ------- ------- ---------- -------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income statement:
Revenues........................ $51,513 $43,043 $69,107 $59,180 $58,114
Operating costs and expenses.... 35,681 38,598 54,764 47,620 45,750
Interest and other expenses..... 3,416 582 1,153 1,114 465
------- ------- ------- ------- -------
Net income...................... $12,416 $ 3,863 $13,190 $10,446 $11,899
======= ======= ======= ======= =======
Equity in earnings of joint
ventures..................... $ 3,540 $ 2,263 $ 4,824 $ 3,828 $ 5,960
======= ======= ======= ======= =======
Distributions paid to TIMET from
joint ventures.................. $ 950 $ 1,068 $ 1,000 $ -- $ --
======= ======= ======= ======= =======
Balance sheet:
Current assets.................. $23,098 $23,980
Noncurrent assets............... 44,050 21,190
Current liabilities............. 11,520 4,484
Noncurrent liabilities.......... 21,409 16,099
------- -------
Equity.......................... $34,219 $24,587
======= =======
</TABLE>
F-13
<PAGE> 129
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- BUSINESS AND GEOGRAPHIC SEGMENTS:
The Company's operations are conducted in one business segment, titanium
metals operations. The Company is an integrated producer and distributor of
titanium sponge, ingot, and mill products for aerospace, industrial, and other
applications. The Company's production facilities are located principally in the
U.S., United Kingdom, and France. The Company's products are sold throughout the
world.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEARS --------------------------
------------------------------ OCTOBER 1, SEPTEMBER 29,
1993 1994 1995 1995 1996
-------- -------- -------- ---------- -------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operations
Sales...................... $151,177 $145,984 $184,723 $135,203 $349,825
======== ======== ======== ======== ========
Operating income (loss).... $(16,707) $(34,676) $ 5,378 $ 1,778 $ 38,395
General corporate income
(expense), net........... 1,922 316 1,074 (219) 568
Interest expense........... (5,729) (7,562) (10,414) (7,867) (7,266)
-------- -------- -------- -------- --------
Income (loss) before
income taxes, minority
interest,
preacquisition
earnings and
cumulative effect of a
change in accounting
principle............. $(20,514) $(41,922) $ (3,962) $ (6,308) $ 31,697
======== ======== ======== ======== ========
Operating income (loss)
United States............ $(16,360) $(34,278) $ 4,408 $ 1,194 $ 28,519
Europe................... (347) (398) 970 584 9,876
-------- -------- -------- -------- --------
$(16,707) $(34,676) $ 5,378 $ 1,778 $ 38,395
======== ======== ======== ======== ========
Geographic segments
Net sales -- point of
origin:
United States......... $141,392 $123,485 $174,802 $128,081 $238,798
Europe................ 12,320 30,542 13,862 9,819 121,457
Eliminations.......... (2,535) (8,043) (3,941) (2,697) (10,430)
-------- -------- -------- -------- --------
$151,177 $145,984 $184,723 $135,203 $349,825
======== ======== ======== ======== ========
Net sales -- point of
destination:
United States......... $107,313 $ 89,519 $135,421 $104,768 $178,946
Europe................ 36,403 34,475 33,520 17,594 143,633
Other................. 7,461 21,990 15,782 12,841 27,246
-------- -------- -------- -------- --------
$151,177 $145,984 $184,723 $135,203 $349,825
======== ======== ======== ======== ========
Identifiable assets
United States............ $252,008 $231,048 $235,844 $240,436 $316,345
Europe................... 10,488 9,174 12,940 17,436 159,913
-------- -------- -------- -------- --------
$262,496 $240,222 $248,784 $257,872 $476,258
======== ======== ======== ======== ========
</TABLE>
Export sales from U.S. based operations approximated $27.8 million, $34.6
million, and $39.5 million in 1993, 1994, and 1995, respectively, and $30.4
million and $37.5 million for the nine months ended October 1, 1995 and
September 29, 1996, respectively.
F-14
<PAGE> 130
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Operating income (loss) includes restructuring charges of $4.7 million in
1993, $10 million in 1994 and a restructuring credit of $1.2 million in 1995.
Operating income for the nine months ended September 29, 1996 includes $4.7
million of special charges related to the IMI Titanium Acquisition. See Note 5.
General corporate income (expense), net includes the Company's equity in
earnings of BII and VVLC of $2.1 million in 1993, $.7 million in 1994, and $1.1
million in 1995, and other corporate income and expenses.
See Note 3 regarding the consolidation of sales related to the Company's
agreements with CEZUS prior to 1995.
NOTE 5 -- RESTRUCTURING AND OTHER SPECIAL CHARGES:
Restructuring charges
The Company's restructuring charges in 1993 and 1994 were related to cost
reduction and containment efforts taken in response to depressed industry
conditions existing in those years. In the fourth quarter of 1995, the Company
determined that its restructuring costs would ultimately be less than previously
estimated and reversed $1.2 million of previously accrued restructuring charges.
The following summarizes the Company's restructuring activities:
<TABLE>
<CAPTION>
CHARGE (CREDIT) TO
OPERATING INCOME 1995
---------------------------- AMOUNTS ACCRUAL
1993 1994 1995 TOTAL UTILIZED BALANCE
---- ----- ----- ----- -------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Cash charges (credits):
Workforce related..................... $4.2 $ 3.7 $ (.7) $ 7.2 $ (6.6) $ .6
Excess space and other................ -- 1.3 (.5) .8 (.6) .2
---- ----- ----- ----- ------ ----
4.2 5.0 (1.2) 8.0 (7.2) .8
---- ----- ----- ----- ------ ----
Noncash charges:
Idled assets.......................... .5 4.5 -- 5.0 (5.0) --
Other................................. -- .5 -- .5 (.5) --
---- ----- ----- ----- ------ ----
.5 5.0 -- 5.5 (5.5) --
---- ----- ----- ----- ------ ----
Total......................... $4.7 $10.0 $(1.2) $13.5 $(12.7) $ .8
==== ===== ===== ===== ====== ====
</TABLE>
The Company's restructuring charges were principally related to the
temporary closing of TIMET's Kroll-leach sponge production facility, the closing
of certain sales and service center locations, and costs to reduce TIMET's
workforce. Workforce related items in 1994 included revisions to prior
estimates, a $3.5 million pension curtailment charge, and a $.8 million OPEB
curtailment charge. Both the pension and OPEB charges are reflected in the
related pension and OPEB accruals and are considered utilized when incurred.
Other restructuring related liabilities are considered utilized when facilities
and equipment are idled, as payments to terminated employees are made, and other
criteria are met. During 1994 and 1995, cash costs of $1.2 million and $1.7
million, respectively, were charged to the restructuring accrual.
TIMET has continued to monitor its restructuring activities and related
accruals in light of changing business conditions. Strikes at the Company's
principal production facilities in 1993 and 1994, improved industry conditions
in 1995, and other events required TIMET to both defer and revise certain of the
restructuring actions it previously contemplated. As part of its restructuring
charges, TIMET had expected to reduce its workforce by approximately 350 people.
Since 1993,
F-15
<PAGE> 131
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TIMET's workforce has been reduced by approximately 300 people in connection
with its restructuring activities. However, recently improved market demand for
titanium metal products and other changes in business conditions has resulted in
the Company adding employees in selected areas. The Company restarted production
of titanium sponge at its Kroll-leach facility in the second quarter of 1996.
IMI Titanium Business
During the nine months ended September 29, 1996, TIMET recorded $4.7
million of special charges resulting from the IMI Titanium Acquisition and
related integration of the IMI Titanium Business. Certain key executive officers
of TIMET received approximately 93,000 shares of TIMET Class B common stock and
cash payments with a combined value of approximately $3 million ($1.5 million
common stock and $1.5 million cash) in consideration for their services in
connection with the IMI Titanium Acquisition. TIMET also incurred $1.7 million
of integration and other costs relating principally to the relocation of
personnel and the consolidation of certain facilities. Integration costs are
charged to operations as incurred. Special charges are expected to aggregate $5
million for fiscal 1996. See Note 9.
NOTE 6 -- INVENTORIES:
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31, SEPTEMBER 29,
1995 1995 1996
---------- ------------ -------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C>
Raw materials............................... $ 5,669 $ 7,778 $ 18,155
In process and finished products............ 44,900 57,538 114,847
Supplies.................................... 2,939 3,818 7,650
------- ------- --------
$53,508 $69,134 $140,652
======= ======= ========
</TABLE>
The average cost of LIFO inventories exceeded the net carrying amount of
such inventories by approximately $12 million at January 1, 1995, $19 million at
December 31, 1995 and $30 million at September 29, 1996.
NOTE 7 -- ACCRUED LIABILITIES:
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31, SEPTEMBER 29,
1995 1995 1996
---------- ------------ -------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C>
Postretirement benefit cost..................... $ 1,316 $ 2,240 $ 2,266
Pension cost.................................... 637 1,378 1,948
Other employee benefits......................... 9,043 9,210 18,527
Restructuring cost.............................. 3,731 777 --
Environmental cost.............................. -- 1,143 1,643
Customer contract losses........................ -- -- 3,425
Taxes, other than income........................ 1,269 1,655 2,805
Other........................................... 4,982 4,560 10,065
------- ------- -------
$20,978 $20,963 $40,679
======= ======= =======
</TABLE>
F-16
<PAGE> 132
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- NOTES PAYABLE AND LONG-TERM DEBT:
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31, SEPTEMBER 29,
1995 1995 1996
---------- ------------ -------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C>
Notes payable................................... $ 214 $ -- $ 1,139
======== ======== =======
Long-term debt:
U.S. credit agreement:
Revolver...................................... $ 48,184 $ 42,555 $ 1,357
Term.......................................... 14,750 24,400 --
Other........................................... 2,087 280 1,612
-------- -------- -------
65,021 67,235 2,969
Less current maturities......................... 6,807 45,695 1,497
-------- -------- -------
$ 58,214 $ 21,540 $ 1,472
======== ======== =======
</TABLE>
TIMET's $105 million U.S. credit facility provides for term loans
aggregating $24 million at September 29, 1996 with the balance of the facility
available as a revolving credit/letter of credit facility. Borrowings under the
revolving portion are limited to a formula-determined amount (the "borrowing
base") of accounts receivable and inventories. Interest accrues at the Company's
option at the prime rate plus .75% or LIBOR plus 2.25%. The credit facility
matures on December 31, 1998. The weighted average interest rate on outstanding
revolver and term loan borrowings was 9% at January 1, 1995, 11% at December 31,
1995 and 9% at September 29, 1996. TIMET's bank debt reprices with changes in
market interest rates and, accordingly, the carrying amount of such debt is
believed to approximate market value. Borrowings are collateralized by
substantially all of TIMET's assets. The credit agreement prohibits dividends on
the Company's common stock in excess of 20% of net income in any fiscal year,
limits TIMET's additional indebtedness and transactions with affiliates,
requires the maintenance of certain financial amounts and contains other
covenants customary in transactions of this type. At December 31, 1995 and
September 29, 1996, TIMET had about $18 million and $102 million, respectively,
of borrowings available under its U.S. credit agreement.
TIMET UK has a L10 million ($15 million) overdraft/revolving credit
facility maturing January 31, 1997. The agreement restricts payments of
dividends from TIMET UK, loans and other transactions with related parties and
contains other covenants customary in agreements of this type. Borrowings under
this agreement are collateralized by substantially all of TIMET UK's assets and
accrue interest at the bank's base rate plus 2% (7.75% at September 29, 1996).
There were no borrowings outstanding under this facility at September 29, 1996.
TISTO has Deutsche Mark ("DM") denominated short term bank credit
agreements and notes payable to former TISTO shareholders with outstanding
balances of $1.1 million and $1.5 million, respectively, at September 29, 1996.
Interest accrues at 9.25% and 11%, respectively, at September 29, 1996.
TIMET Savoie has a French franc denominated short term credit facility
available from CEZUS which provides, under certain circumstances, for borrowings
up to $13 million. At September 29, 1996 no amounts were outstanding.
In connection with amendments of the Company's credit facility during 1995,
Tremont advanced TIMET $8 million as additional subordinated TIMET debt ($2.5
million advanced in 1994 and $5.5 million advanced in 1995), guaranteed $5
million of the term loans, collateralized such guarantee with approximately
600,000 shares of NL Industries, Inc. common stock held by Tremont, and agreed
to pledge additional NL shares as necessary to meet certain market value
thresholds.
F-17
<PAGE> 133
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Contran Corporation entered into an agreement with TIMET's lenders whereby
Contran was obligated to purchase the pledged shares from TIMET's lenders under
certain conditions. In connection with the Stock Offering, the security
arrangements between the Company's lenders and Tremont and Contran were
terminated.
See Notes 9 and 13 regarding related party transactions.
NOTE 9 -- STOCKHOLDERS' EQUITY:
Common stock
On June 4, 1996, the Company completed the sale of 6.2 million shares of
its common stock in the Stock Offering pursuant to a registration statement
filed with the Securities and Exchange Commission. In connection with the Stock
Offering, the Company effected the Stock Split, increased its authorized common
shares to 99 million shares, increased its authorized preferred stock to 1
million shares, and reserved up to 3.1 million shares to be issued under the
TIMET Incentive Plan.
The Company's net proceeds from the Stock Offering approximated $131
million. The Company used approximately $42.5 million of the net proceeds to
repay existing indebtedness to stockholders ($22.5 million to Tremont and $20
million to IMI) and $82 million to repay indebtedness under its U.S. credit
facility.
The 1996 Long Term Incentive Plan ("TIMET Incentive Plan") provides for the
discretionary grant of restricted common stock, stock options, stock
appreciation rights and other incentive compensation to officers and other key
employees of the Company. Effective with the Stock Offering, the Company granted
options under the TIMET Incentive Plan to acquire 437,400 shares at a price
equal to or greater than the market price at the date of grant ($23 to $29 per
share). The options vest over five years and expire ten years from date of
grant. Additionally, the Board of Directors authorized, effective with the Stock
Offering, a plan for its nonemployee directors that provides for eligible
directors to annually be granted options to purchase 625 shares of the Company's
common stock at a price equal to the market price on the date of grant and to
receive, as partial payment of the director fee, annual grants of 400 shares of
the Company's common stock. The aggregate number of shares reserved for issuance
under the nonemployee director plan is 62,500.
Certain key executive officers of the Company received shares (the
"Management Shares") of the Company's Class B common stock and cash payments
with a combined value of approximately $3 million in consideration for their
services in connection with the IMI Titanium Acquisition. The Class B Management
Shares were converted into 93,000 shares of the Company's common stock in
connection with the Stock Offering, and no Class B shares are currently
outstanding or authorized.
In connection with the AJM Acquisition, the Company issued options to
purchase up to 80,000 shares to key officers of THT, Inc. under the TIMET
Incentive Plan at an exercise price of $28.5625 per share.
Preferred stock
Effective with the Stock Offering, the Company is authorized to issue 1
million shares of preferred stock. The rights of preferred stock as to, among
other things, dividends, liquidation, redemption, conversions, and voting rights
are determined by the Board of Directors.
F-18
<PAGE> 134
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Convertible Preferred Securities
In November 1996, the Company's Board of Directors authorized the Company
to form the Trust and direct the Trust to issue and sell Convertible Preferred
Securities ("the Offering") as described under the caption "The Offering"
elsewhere in this Offering Memorandum. Net proceeds from the Offering
approximated $192 million. The Company expects to use its net proceeds to repay
all indebtedness (other than capital lease obligations) to the Company's
lenders, and to use the balance for general corporate purposes. Supplemental
earnings per share, assuming the Offering had been completed and the Convertible
Preferred Securities had been converted into the Company's common stock for
fiscal 1995 and for the nine months ended September 29, 1996 would have been
$0.20 and $.90, respectively.
See Note 13 regarding related party transactions.
NOTE 10 -- INCOME TAXES:
Summarized below are (i) the components of income (loss) before income
taxes, preacquisition earnings and cumulative effect of a change in accounting
principle ("pretax income (loss)"), (ii) the difference between the income tax
benefit (expense) attributable to pretax income (loss) and the amounts that
would be expected using the U.S. federal statutory income tax rate of 35%, and
(iii) the components of the income tax benefit (expense) attributable to pretax
income (loss).
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEARS --------------------------
----------------------------- OCTOBER 1, SEPTEMBER 29,
1993 1994 1995 1995 1996
-------- -------- ------- ---------- -------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Expected income tax benefit (expense).. $ 7,180 $ 14,673 $ 1,387 $ 2,208 $ (11,094)
Incremental tax and rate differences on
equity in income of companies not
included in the consolidated tax
group................................ 318 164 1 312 (145)
Adjustment of deferred tax
valuation allowance.................. (6,931) (14,900) (1,502) (2,661) 4,453
Rate change adjustment of deferred
taxes................................ 81 -- -- -- --
U.S. state income taxes, net........... (125) (97) -- -- (669)
Other, net............................. (216) 5 (141) (15) (336)
--------- --------- -------- -------- ---------
$ 307 $ (155) $ (255) $ (156) $ (7,791)
========= ========= ======== ======== =========
Income tax benefit (expense):
Current income taxes:
U.S............................... $ 4,373 $ (149) $ -- $ -- $ (4,895)
Non-U.S........................... (13) (6) (255) (156) (2,631)
--------- --------- -------- -------- ---------
4,360 (155) (255) (156) (7,526)
Deferred income taxes................ (4,053) -- -- -- (265)
--------- --------- -------- -------- ---------
$ 307 $ (155) $ (255) $ (156) $ (7,791)
========= ========= ======== ======== =========
Pretax income (loss):
U.S.................................. $(19,812) $(41,284) $(4,589) $ (6,654) $ 23,874
Non-U.S.............................. (702) (638) 627 346 7,823
--------- --------- -------- -------- ---------
$(20,514) $(41,922) $(3,962) $ (6,308) $ 31,697
========= ========= ======== ======== =========
</TABLE>
F-19
<PAGE> 135
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
JANUARY 1, 1995 DECEMBER 31, 1995
-------------------- --------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------ ----------- ------ -----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Temporary differences relating to net assets:
Inventories............................................ $ -- $ (5.5) $ -- $ (5.0)
Property and equipment................................. -- (2.4) -- (3.8)
Accrued OPEB cost...................................... 11.6 -- 11.7 --
Accrued liabilities and other deductible differences... 9.2 -- 8.3 --
Other taxable differences.............................. -- (3.2) -- (2.5)
Investments in subsidiaries and affiliates not included
in the consolidated tax group....................... -- (1.7) -- (3.2)
Tax loss and credit carryforwards........................ 14.3 -- 15.8 --
Valuation allowance...................................... (23.6) -- (22.7) --
------ ------- ------ -------
Gross deferred tax assets (liabilities).................. 11.5 (12.8) 13.1 (14.5)
Netting.................................................. (10.8) 10.8 (13.1) 13.1
------ ------- ------ -------
Total deferred taxes..................................... .7 (2.0) -- (1.4)
Less current deferred taxes.............................. -- (2.0) -- (.6)
------ ------- ------ -------
Net noncurrent deferred taxes............................ $ .7 $ -- $ -- $ (.8)
====== ======= ====== =======
</TABLE>
The valuation allowance increased in the aggregate (including amounts
allocated to items other than continuing operations) by $7.8 million in 1993 and
$14.7 million in 1994 and decreased by $.9 million in 1995. The Company may
release a portion of its deferred tax asset valuation allowance in 1996,
resulting in a tax benefit, if it concludes that the "more likely than not"
realization criteria of SFAS No. 109 are met.
At December 31, 1995 and September 29, 1996, the Company had, for financial
reporting purposes, U.S. federal income tax net operating loss carryforwards
("NOL") of approximately $40 million and $30 million, respectively, expiring
between 2007 and 2009. The utilization of the Company's NOLs is subject to an
annual limitation. At December 31, 1995, the Company had an alternative minimum
tax credit ("AMT") carryforward of approximately $2 million which can be
utilized to offset regular income taxes payable in future years. The AMT has an
indefinite carryforward period.
NOTE 11 -- EMPLOYEE BENEFIT PLANS:
Variable compensation plans
Substantially all of the Company's employees at December 31, 1995,
including a significant portion of its domestic hourly employees, participate in
compensation programs which provide for variable compensation based upon the
financial performance of the Company and, in certain circumstances, the
individual performance of the employee. Certain domestic hourly employees were
guaranteed a minimum $1,500 award per year through July 1994. The cost of these
plans was $1.1 million in 1993, $.8 million in 1994 and $.3 million in 1995.
Defined contribution plans
All of the Company's domestic salaried and hourly employees at December 31,
1995 are eligible to participate in a contributory savings plan with partial
matching employer contributions based on the Company's profitability.
Substantially all of the Company's domestic salaried employees at December 31,
1995, as well as certain hourly employees, also participate in a defined
contribution pension plan with contributions based upon the profitability of the
Company. Since the Company has reported losses in each of the past three years,
the cost of these pension and savings plans has been insignificant.
F-20
<PAGE> 136
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Defined benefit pension plans
The Company maintains noncontributory defined benefit pension plans
covering most of its domestic hourly employees and a portion of its domestic
salaried workforce. Defined pension benefits are generally based on years of
service and compensation, and the related expense is based upon independent
actuarial valuations. The Company's funding policy is to contribute annually
amounts satisfying the funding requirements of the Employee Retirement Income
Security Act of 1974, as amended. The defined benefit pension plan for salaried
employees was frozen in 1994 so that no further benefit increases accrue. The
defined benefit pension plan for hourly employees at the Company's Henderson,
Nevada facility was closed to new participants during 1994. The defined benefit
pension plan for hourly employees at the Company's Toronto, Ohio facility was
closed to new participants in 1995.
The funded status of the Company's defined benefit pension plans and the
components of net periodic defined benefit pension cost are set forth below. The
rates used in determining the 1995 actuarial present value of benefit
obligations at December 31, 1995 were: (i) discount rate -- 7.5% (8.5% in 1994),
and (ii) rate of increase in future compensation levels -- 3% in 1994 and 1995.
The expected long-term rate of return on assets used was 9% in each of 1994 and
1995. The benefit obligations are sensitive to changes in these estimated rates
and actual results may differ from the
F-21
<PAGE> 137
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
obligations noted below. At December 31, 1995, the assets of the plans are
primarily comprised of U.S. government obligations, corporate stocks and bonds.
<TABLE>
<CAPTION>
ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS
--------------------------- ---------------------------
JANUARY 1, DECEMBER 31, JANUARY 1, DECEMBER 31,
1995 1995 1995 1995
---------- ------------ ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligations............. $ 14,600 $ 16,183 $ 30,381 $ 34,705
Nonvested benefits..................... 835 955 1,358 1,510
-------- -------- -------- --------
Accumulated benefit obligations........ 15,435 17,138 31,739 36,215
Effect of projected salary increases... 85 65 132 110
-------- -------- -------- --------
Projected benefit obligations.......... 15,520 17,203 31,871 36,325
Plan assets at fair value................ 15,641 18,146 24,989 28,884
-------- -------- -------- --------
Plan assets over (under) projected
benefit obligations.................... 121 943 (6,882) (7,441)
Unrecognized net loss from experience
different from actuarial assumptions... 2,337 1,186 4,656 3,837
Unrecognized prior service cost.......... 276 235 602 1,424
Unrecognized net assets being amortized
over 14 years.......................... (1,389) (1,111) (1,685) (1,349)
Adjustment to recognize minimum
liability.............................. -- -- (3,453) (3,815)
-------- -------- -------- --------
Total prepaid (accrued) pension cost..... 1,345 1,253 (6,762) (7,344)
Current portion.......................... -- -- (637) (1,378)
-------- -------- -------- --------
Noncurrent prepaid (accrued) pension
cost................................ $ 1,345 $ 1,253 $ (6,125) $ (5,966)
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEARS
-------------------------------
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost benefits earned................................ $ 750 $ 846 $ 630
Interest cost on projected benefit obligations.............. 3,406 3,457 3,959
Actual return on plan assets................................ (4,677) 1,163 (9,560)
Net amortization and deferrals.............................. 839 (5,254) 5,910
-------- -------- --------
$ 318 $ 212 $ 939
======== ======== ========
</TABLE>
Postretirement benefits other than pensions
The Company provides certain postretirement health care and life insurance
benefits to certain of its eligible retired employees. The Company funds such
benefits as they are incurred, net of any contributions by the retirees. Under
plans currently in effect, substantially all of TIMET's currently
F-22
<PAGE> 138
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
active employees would become eligible for these benefits if they reach normal
retirement age while working for TIMET. These plans have been revised to
discontinue employer-paid health care coverage for future retirees once they
become Medicare-eligible.
The components of the periodic OPEB cost and accumulated OPEB obligations
are set forth below. The rates used in determining the actuarial present value
of the accumulated OPEB obligations at December 31, 1995 were: (i) discount
rate -- 7.5% (8.5% in 1994), (ii) rate of increase in future compensation levels
- -- 3% in 1994 and 1995, and (iii) rate of increase in future health care
costs -- 13% in 1996, gradually declining to 6% in 2016 and thereafter. If the
health care cost trend rate was increased by one percentage point for each year,
OPEB expense would have increased approximately $.2 million in 1995, and the
actuarial present value of accumulated OPEB obligations at December 31, 1995
would have increased approximately $2 million. The accrued OPEB cost is
sensitive to changes in these estimated rates and actual results may differ from
the obligations noted below.
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31,
1995 1995
---------- ------------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of accumulated OPEB obligations:
Retiree benefits................................................. $ 13,058 $ 18,805
Other fully eligible active plan participants.................... 5,696 1,227
Other active plan participants................................... 4,234 5,456
-------- --------
22,988 25,488
Unrecognized net gain from experience different from actuarial
assumptions...................................................... 3,015 730
Unrecognized prior service credits................................. 4,784 4,174
-------- --------
Total accrued OPEB cost............................................ 30,787 30,392
Less current portion............................................... 1,316 2,240
-------- --------
Noncurrent accrued OPEB cost..................................... $ 29,471 $ 28,152
======== ========
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEARS
----------------------------
1993 1994 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost benefits earned................................... $ 428 $ 395 $ 242
Interest cost on accumulated OPEB obligations.................. 1,725 1,791 2,060
Net amortization and deferrals................................. (340) (244) (475)
------ ------ ------
$1,813 $1,942 $1,827
====== ====== ======
</TABLE>
NOTE 12 -- CHANGES IN ACCOUNTING PRINCIPLES:
Postemployment benefits (SFAS No. 112)
The Company adopted SFAS No. 112 ("Employers' Accounting for Postemployment
Benefits") in 1994 and recorded a $1 million charge for this change in
accounting principle.
F-23
<PAGE> 139
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accounting for stock-based compensation (SFAS No. 123)
The Company expects to elect the disclosure alternative proscribed by SFAS
No. 123, "Accounting for Stock-Based Compensation," and account for the
Company's stock-based employee compensation in accordance with Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees" and its various interpretations. Under APB No. 25, no compensation
cost is generally recognized for fixed stock options for which the exercise
price is not less than the market price of the Company's Common Stock on the
grant date. Under the disclosure alternative of SFAS No. 123, the Company will
disclose, starting with its 1996 fiscal year, its respective pro forma net
income and earnings per share as if the fair value based accounting method of
SFAS No. 123 had been used to account for stock-based compensation cost for all
awards granted by the Company after January 1, 1995.
NOTE 13 -- RELATED PARTY TRANSACTIONS:
The Company may be deemed to be controlled by Harold C. Simmons.
Corporations that may be deemed to be controlled by or affiliated with Mr.
Simmons sometimes engage in (i) intercorporate transactions with related
companies such as guarantees, management and expense sharing arrangements,
shared fee arrangements, joint ventures, partnerships, loans, options, advances
of funds on open account, and sales, leases and exchanges of assets, including
securities issued by both related and unrelated parties and (ii) common
investment and acquisition strategies, business combinations, reorganizations,
recapitalizations, securities repurchases, and purchases and sales (and other
acquisitions and dispositions) of subsidiaries, divisions or other business
units, which transactions have involved both related and unrelated parties and
have included transactions which resulted in the acquisition by one related
party of a publicly-held minority equity interest in another related party.
While no transactions of the type described above are planned or proposed with
respect to the Company (except as otherwise disclosed herein), the Company
continuously considers, reviews and evaluates, and understands that Contran,
Tremont and related entities consider, review and evaluate such transactions.
Depending upon the business, tax and other objectives then relevant, it is
possible that the Company might be a party to one or more such transactions in
the future.
It is the policy of the Company to engage in transactions with related
parties on terms which are, in the opinion of the Company, no less favorable to
the Company than could be obtained from unrelated parties.
Effective January 1, 1996 the Company entered into an intercorporate
services agreement with Tremont pursuant to which the Company will provide
certain management, financial and other services to Tremont for approximately
$.4 million in 1996. The term of the agreement is one year, subject to renewal.
Prior to entering into the intercorporate services agreement, charges to (from)
Tremont approximated $.3 million in 1993, nil in 1994 and $(.9) million in 1995
pursuant to similar arrangements for compensation and intercorporate services.
F-24
<PAGE> 140
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Receivables from related parties principally relate to sales to UTSC and
TISTO. Payables to related parties, excluding long term capital lease
obligations (see Note 14), are summarized in the following table.
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31, SEPTEMBER 29,
1995 1995 1996
---------- ------------ -------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C>
Current liabilities:
Tremont Corporation....................... $ 86 $ -- $ 505
IMI....................................... -- -- 65
UTSC -- interest.......................... 1,530 -- --
Other..................................... 1,915 2,627 949
-------- -------- -------
$ 3,531 $ 2,627 $ 1,519
======== ======== =======
Noncurrent liabilities:
Tremont Corporation:
Loans and interest..................... $ 22,933 $ 22,460 $ --
Other.................................. 283 1,482 1,288
UTSC -- interest.......................... 3,370 -- --
-------- -------- -------
$ 26,586 $ 23,942 $ 1,288
======== ======== =======
</TABLE>
Interest expense on related party indebtedness was $1.2 million (net of $.8
million capitalized) in 1993, $2.4 million in 1994, and $2.1 million in 1995.
TIMET completed a recapitalization in 1995 under which, among other things,
(i) Tremont made a $1 million cash capital contribution to TIMET and exchanged
$8 million of TIMET subordinated debt into TIMET common equity, (ii) TIMET made
a $1 million cash prepayment of accrued interest to UTSC, and (iii) UTSC
exchanged $3 million of interest owed by TIMET to UTSC into TIMET common equity.
In connection with the recapitalization, TIMET issued .5 million shares of
common stock pro rata to its existing shareholders.
UTSC made a $.4 million capital contribution to TIMET during 1994.
In December 1993, UTSC exercised its option to convert its $75 million of
subordinated debentures into 25% of TIMET's outstanding voting common stock
("UTSC Conversion"). The debentures provided the majority of the financing for
construction of TIMET's VDP titanium sponge plant and accrued interest at a
weighted average rate of 8.4% through May 1993 when such interest ceased
accruing. In connection with UTSC's conversion of its debentures in 1993,
Tremont made an aggregate $9 million capital contribution of notes and accrued
interest to TIMET.
In connection with the construction and financing of TIMET's VDP plant,
UTSC licensed certain technology to TIMET in exchange for the right, effective
after UTSC Conversion, to acquire up to 20% of TIMET's annual production
capacity of VDP sponge at agreed-upon prices through early 1997 and higher
formula-determined prices thereafter through 2008. TIMET's selling prices to
UTSC are approximately 15% below the cost at which TIMET is currently purchasing
titanium sponge under agreements with third parties. The discount from fair
market value represents TIMET's consideration to UTSC for the licensed
technology. Sales to UTSC in 1993, 1994 and 1995 approximated $1 million, $2
million, and $9 million, respectively.
In connection with the IMI Titanium Acquisition, the Company issued $20
million of TIMET subordinated debt payable to IMI in exchange for a like amount
of debt previously owed to IMI by the IMI Titanium Businesses. The subordinated
debt to both IMI and Tremont accrued interest at 10.4%. See Note 9 regarding,
among other things, the repayment of loans due to IMI and Tremont with proceeds
from the Stock Offering.
F-25
<PAGE> 141
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14 -- COMMITMENTS AND CONTINGENCIES:
Operating leases
The Company leases certain manufacturing and office facilities and various
equipment. Most of the leases contain purchase and/or various term renewal
options at fair market and fair rental values, respectively. In most cases
management expects that, in the normal course of business, leases will be
renewed or replaced by other leases. Net rent expense was approximately $1.4
million in 1993, $1.3 million in 1994 and $1.4 million in 1995.
At December 31, 1995, future minimum payments under noncancellable
operating leases having an initial or remaining term in excess of one year were
as follows:
<TABLE>
<CAPTION>
YEARS AMOUNT
---------------------------------------------------------------------- --------------
(IN THOUSANDS)
<S> <C>
1996.................................................................. $1,330
1997.................................................................. 844
1998.................................................................. 246
1999.................................................................. 11
2000 and thereafter................................................... 3
------
2,434
Less sublease income.................................................. (260)
------
$2,174
======
</TABLE>
Capital leases
In connection with the IMI Titanium Acquisition, the Company entered into
long-term leases with IMI principally covering its production facilities within
England and requiring annual lease payments of approximately $1 million over a
period of up to thirty years with aggregate interest payments approximating $20
million. Included in buildings at September 29, 1996, is $9.8 million of assets
under capital leases, discounted at 10%, and related accumulated depreciation of
$.1 million.
Legal proceedings and contingencies
Cadmus/Sutherin. In May 1995, TIMET received notice of two separate
actions naming TIMET as a defendant, each brought by a former employee alleging
that TIMET intentionally exposed such employee to dangerous levels of certain
chemicals and/or metals during his employment at TIMET's plant in Toronto, Ohio
(Sutherin v. Titanium Metals Corporation, No. 95 CV 00168, Court of Common
Pleas, Jefferson County, Ohio; Cadmus v. Titanium Metals Corporation, No. 94 CV
00469, Court of Common Pleas, Jefferson County, Ohio). The complaints seek
compensatory and punitive damages totaling approximately $2.5 million each. Both
of these cases were subsequently removed to U.S. District Court for the Southern
District of Ohio (Sutherin, No. C2-95-551; Cadmus, No. C2-95-586). The Sutherin
case was dismissed without prejudice by the plaintiff in June 1996. The Cadmus
action is currently in discovery.
Plaintiff's claims in Cadmus are similar to previous claims made by
plaintiff and rejected by the Ohio Industrial Commission (which decision is
currently on appeal in state court in Ohio). TIMET intends to vigorously defend
this action as well. At December 31, 1995 and September 29, 1996, TIMET had not
accrued any amounts related to either of these matters.
Ray Cook Golf. In April 1996, TIMET Castings received a letter from a golf
club manufacturer, Ray Cook Golf Company ("Ray Cook"), claiming breach of
contract and trademark infringement. Ray Cook asserts damages in the approximate
amount of $.6 million for lost profits and delivery delays relating to the
production of golf club heads by TIMET Castings. The Company is continuing
F-26
<PAGE> 142
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to investigate these claims. At September 29, 1996, the Company had not accrued
any amounts related to this matter.
Tungsten contamination. In 1993, TIMET discovered an anomaly in certain
alloyed titanium material manufactured by TIMET for shipment to a jet engine
manufacturer, resulting from tungsten carbide contaminated chromium sold to
TIMET by a third-party vendor and used as an alloying addition to this titanium
material. In June 1996, the Company entered into a settlement agreement with the
purchaser of the material which calls for payment by the Company of an aggregate
$2 million, payable in equal quarterly payments over the next five years. The
Company is currently engaged in discussions with the supplier of the
contaminated chromium regarding reimbursement of the amounts to be paid by the
Company to the purchaser of the titanium material. At December 31, 1995 and
September 29, 1996, TIMET had accrued a $2 million liability related to this
matter and an estimated recovery amount, which is not material, from the
chromium supplier and/or TIMET's insurance carrier. The estimated recovery is
based on management's judgment of the likely outcome based on facts and
circumstances known at the time and is subject to future revisions.
In addition, in 1995 TIMET learned that a jet engine disk that had been in
service since 1989 was discovered during routine inspection to have a high
density inclusion that was not identified during manufacture and testing by
TIMET or the subsequent forger of the material. The inclusion was completely
intact and showed no signs of cracking or fatigue that would suggest that it
posed a safety problem. Subsequent metallurgical inspection identified the
inclusion as pure tungsten, which TIMET believes would have resulted from
contaminated chromium used in the manufacture of the titanium alloy. TIMET
currently believes that the engine manufacturer will require that engines
containing disks manufactured from titanium having a link to the potentially
contaminated lot of chromium be subjected to a higher level of inspection or to
more frequent inspection to assure that there is no safety issue involved. While
TIMET does not currently anticipate that it will incur any material liability in
connection with this matter, no assurances can be given in this regard. At
December 31, 1995 and September 29, 1996, TIMET had not accrued any amount with
respect to this matter.
Environmental matters.
BMI Companies. TIMET and certain other companies, including Kerr-McGee
Chemical Corporation, Chemstar Lime Company and Pioneer Chlor Alkali, Inc.
(successor to Stauffer Chemical Company) operate facilities in a complex (the
"BMI Complex") owned by Basic Management Inc. ("BMI"), adjacent to TIMET's
Henderson, Nevada plant. In 1993, TIMET and each of such companies, along with
certain other companies who previously operated facilities in the common areas
of the BMI Complex (collectively the "BMI Companies") completed a Phase I
environmental assessment of the common areas of the BMI Complex and each of the
individual company sites pursuant to consent agreements with the Nevada Division
of Environmental Protection ("NDEP"). In July 1996, the Company signed a consent
agreement with NDEP regarding implementation of the Phase II assessment of the
Company property within the BMI Complex. A report regarding the Phase II
assessment of the common areas of the BMI Complex was submitted to NDEP in
August 1996. At December 31, 1995 and September 29, 1996, the Company had
accrued $1 million with respect to this matter. Until completion of the sampling
and analysis that will be involved in the Phase II assessment of the Company
property and any further Phase II testing that NDEP may require for the BMI
Complex common areas, it is not possible to provide a reasonable estimate of the
additional remediation costs, if any, or the Company's likely share of any such
costs.
In November 1995, TIMET and other BMI Companies were contacted by a company
proposing to develop a parcel of land adjacent to the BMI Complex, alleging that
the parcel had been
F-27
<PAGE> 143
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
contaminated by the BMI Companies through their operations and threatening legal
action to recover its development costs to date of approximately $2.8 million.
Based on the results of the investigation in late 1995 and early 1996, the
Company does not believe there is any basis for the claim, and the claimants
have not pursued the matter further. At December 31, 1995 and September 29,
1996, TIMET had not accrued any amounts with respect to this matter.
Caldwell Trucking Superfund site. In early 1996, TIMET received notice
that it has been named as a defendant, along with approximately 100 additional
companies, in an action in the United States District Court for the District of
New Jersey in connection with the remediation of a Superfund site located in
Fairfield, New Jersey (Caldwell Trucking PRP Group v. ADT Automotive, Inc., et
al., No. 95-1690 (WGB)). The complaint alleges that TIMET arranged to have
septic and/or industrial waste containing hazardous substances disposed of at
the site from TIMET's former facility in Caldwell, New Jersey. The Company has
been offered the opportunity to participate in "de minimis" settlement
discussions and has offered to settle for a nominal amount. Based upon TIMET's
investigation into this matter and the lack of meaningful evidence linking TIMET
to the site, TIMET does not believe it will incur any material liability in
connection with this matter. At December 31, 1995 and September 29, 1996, TIMET
had not accrued any amount with respect to this matter.
Pomona facility. The Company has conducted an additional study and
assessment work as required by the California Regional Water Quality Control
Board -- Los Angeles Region (the "Water Quality Board") related to soil and
possible groundwater contamination at TIMET Castings' Pomona, California
facility. The site is near an area that has been designated as a U.S.
Environmental Protection Agency "Superfund" site. At September 29, 1996, the
Company had accrued $.6 million related to this matter. Although the Company
does not believe it will incur a material liability in respect of the Pomona
facility, the Water Quality Board has not completed its review.
The Company determines the amount of its accruals for environmental matters
on a quarterly basis by analyzing and estimating the range of possible costs in
light of the available information. It is not possible to estimate the range of
costs for certain sites. The imposition of more stringent standards or
requirements under environmental laws or regulations, the results of future
testing and analysis undertaken by the Company at its operating facilities, or a
determination that the Company is potentially responsible for the release of
hazardous substances at other sites, could result in expenditures in excess of
amounts currently estimated to be required for such matters. No assurance can be
given that actual costs will not exceed accrued amounts or that costs will not
be incurred with respect to sites as to which no problem is currently known or
where no estimate can presently be made. Further, there can be no assurance that
additional environmental matters will not arise in the future.
Other
The Company is involved in various other environmental, contractual,
product liability and other claims and disputes incidental to its business.
The Company currently believes the disposition of all claims and disputes,
individually or in the aggregate, should not have a material adverse effect on
the Company's financial condition, results of operations or liquidity.
Concentration of credit and other risks
Substantially all of the Company's operating income and most of its sales
are derived from U.S. and Europe-based operations. The majority of the Company's
sales are to customers in the
F-28
<PAGE> 144
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
aerospace industry (including airframe and engine construction). Such
concentration of customers may impact the Company's overall exposure to credit
and other risks, either positively or negatively, in that customers may be
similarly affected by economic or other conditions. The Company's ten largest
customers accounted for slightly less than 35% of net sales in each of the past
three years and about 35% of accounts receivable at December 31, 1994 and 1995.
Receivables are generally not collateralized.
At December 31, 1995, TIMET employed about 1,020 employees (compared to 860
at January 1, 1995) with approximately 1,000 in the U.S. and 20 at sites outside
the U.S. Substantially all of the Company's hourly employees were members of
labor unions affiliated with the United Steelworkers of America. The contract
covering about 310 of these hourly employees in Henderson, Nevada expires in
October 1996. The contracts covering approximately 330 of TIMET's hourly workers
at its Toronto, Ohio plant expire in July 1999. TIMET experienced strikes at
each of these plants during 1993 and 1994. While TIMET currently considers its
employee relations to be satisfactory, it is possible that there could be
further work stoppages that could adversely affect sales and earnings to varying
degrees.
F-29
<PAGE> 145
INDEPENDENT AUDITORS' REPORT
To Tremont Corporation:
We have audited the accompanying combined balance sheets of the IMI
Titanium Business (the "Company") as of December 31, 1994 and 1995, and the
related combined statements of operations, stockholders' equity and cash flows
for each of the years in the three year period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the IMI
Titanium Business at December 31, 1994 and 1995, and the combined results of
their operations and cash flows for each of the years in the three year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Denver, Colorado
February 28, 1996
F-30
<PAGE> 146
IMI TITANIUM BUSINESS
COMBINED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 2,013 $ 1,901
Accounts and notes receivable, less allowance of $175 and $451..... 29,223 33,581
Receivables from related parties................................... 7,792 319
Inventories........................................................ 70,282 38,162
Prepaid expenses................................................... 1,852 1,539
-------- --------
Total current assets....................................... 111,162 75,502
-------- --------
Property and equipment:
Land............................................................... 572 598
Buildings.......................................................... 4,089 7,476
Equipment.......................................................... 91,607 87,075
Construction in progress........................................... 3,937 3,276
-------- --------
100,205 98,425
Less accumulated depreciation...................................... 56,164 56,295
-------- --------
Net property and equipment...................................... 44,041 42,130
-------- --------
$155,203 $117,632
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable...................................................... $ 15 $ --
Payable to related parties......................................... 2,175 1,773
Accounts payable................................................... 21,860 14,873
Accrued liabilities................................................ 5,583 15,155
-------- --------
Total current liabilities.................................. 29,633 31,801
-------- --------
Noncurrent liabilities:
Payable to related parties......................................... 105,965 21,150
Deferred income taxes.............................................. 5,818 4,002
-------- --------
Total noncurrent liabilities............................... 111,783 25,152
-------- --------
Stockholders' equity:
Common stock....................................................... 62,088 122,602
Accumulated deficit................................................ (62,482) (95,317)
Additional paid-in capital......................................... 13,021 32,851
Currency translation adjustment.................................... 1,160 543
-------- --------
Total stockholders' equity................................. 13,787 60,679
-------- --------
$155,203 $117,632
======== ========
</TABLE>
Commitments and contingencies (Notes 10 and 11)
See accompanying notes to combined financial statements.
F-31
<PAGE> 147
IMI TITANIUM BUSINESS
COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Net sales............................................... $ 92,846 $110,380 $147,242
--------- --------- ---------
Costs and expenses:
Cost of sales......................................... 92,327 116,207 151,522
Provisions for customer contract losses and other
charges............................................ -- -- 16,089
Selling, general and administrative................... 10,165 9,947 12,296
Restructuring charge.................................. -- -- 5,009
Interest expense -- related parties................... 4,936 6,140 8,968
--------- --------- ---------
107,428 132,294 193,884
--------- --------- ---------
Loss before income taxes........................... (14,582) (21,914) (46,642)
Income tax benefit...................................... 3,375 6,942 13,807
--------- --------- ---------
Net loss........................................... $(11,207) $(14,972) $(32,835)
========= ========= =========
</TABLE>
See accompanying notes to combined financial statements.
F-32
<PAGE> 148
IMI TITANIUM BUSINESS
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL CURRENCY
COMMON PAID-IN ACCUMULATED TRANSLATION
STOCK CAPITAL DEFICIT ADJUSTMENT TOTAL
-------- ---------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1992............ $ 62,088 $ 13,021 $ (36,303) $ (21) $ 38,785
Net loss....................... -- -- (11,207) -- (11,207)
Adjustments.................... -- -- -- (11) (11)
-------- -------- --------- ------ --------
Balance at
December 31, 1993............ 62,088 13,021 (47,510) (32) 27,567
Net loss....................... -- -- (14,972) -- (14,972)
Adjustments.................... -- -- -- 1,192 1,192
-------- -------- --------- ------ --------
Balance at
December 31, 1994............ 62,088 13,021 (62,482) 1,160 13,787
Net loss....................... -- -- (32,835) -- (32,835)
Conversion of related party
indebtedness................. 60,514 19,830 -- -- 80,344
Adjustments.................... -- -- -- (617) (617)
-------- -------- --------- ------ --------
Balance at
December 31, 1995............ $122,602 $ 32,851 $ (95,317) $ 543 $ 60,679
======== ======== ========= ====== ========
</TABLE>
See accompanying notes to combined financial statements.
F-33
<PAGE> 149
IMI TITANIUM BUSINESS
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................................. $(11,207) $(14,972) $(32,835)
Depreciation and amortization......................... 4,239 4,914 5,741
Restructuring charge.................................. -- -- 5,009
Deferred income taxes................................. 925 348 (1,982)
Other, net............................................ 62 47 394
Change in assets and liabilities:
Accounts and notes receivable......................... 678 (10,010) (4,358)
Inventories........................................... (10,573) (6,044) 32,120
Prepaid expenses...................................... (580) 562 729
Accounts payable and accrued liabilities.............. 6,689 6,927 (2,424)
Accounts with related parties......................... 10,070 (6,589) 7,071
Other, net............................................ (33) (19) (270)
-------- -------- --------
Net cash provided (used) by operating activities... 270 (24,836) 9,195
-------- -------- --------
Cash flows from investing activities:
Capital expenditures.................................. (6,888) (5,940) (4,224)
Proceeds from sale of investments..................... 2,715 -- --
Other, net............................................ -- -- (146)
-------- -------- --------
Net cash used by investing activities.............. (4,173) (5,940) (4,370)
-------- -------- --------
Cash flows from financing activities:
Loans from related parties:
Borrowings......................................... 2,805 30,738 1,589
Reductions......................................... -- -- (6,060)
Other, net............................................ (3) 5 (15)
-------- -------- --------
Net cash provided (used) by financing activities... 2,802 30,743 (4,486)
-------- -------- --------
Cash and cash equivalents:
Net increase (decrease) from:
Operating, investing and financing activities...... (1,101) (33) 339
Currency translation............................... (11) (203) (451)
-------- -------- --------
(1,112) (236) (112)
Balance at beginning of year.......................... 3,361 2,249 2,013
-------- -------- --------
Balance at end of year................................ $ 2,249 $ 2,013 $ 1,901
======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-34
<PAGE> 150
IMI TITANIUM BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION:
The IMI Titanium Business (the "Company") includes IMI Titanium Limited,
IMI Titanium (Export) Limited, IMI Titanium GmbH, IMI Titanium SARL and IMI
Titanium Inc. Prior to December 31, 1995, all of the aforementioned companies,
except IMI Titanium, Inc. became subsidiaries of IMI Titanium Limited. The
Company became wholly-owned by Titanium Metals Corporation ("TIMET") on February
15, 1996 when TIMET acquired all the Company's outstanding common stock from IMI
plc and affiliates ("IMI") in exchange for IMI receiving a 38% equity interest
in TIMET, and TIMET issued $20 million of subordinated debt to IMI in exchange
for a like amount of indebtedness previously owed to IMI by the Company (the
"Acquisition").
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of combined financial statements
The accompanying combined financial statements, which were for periods
prior to the Acquisition, include the accounts of the Company on its
pre-Acquisition historical basis of accounting in accordance with generally
accepted accounting principles in the United States ("U.S."). All material
intercompany accounts and balances have been eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amount of revenues and expenses during the
reporting period. Ultimate actual results may, in some instances, differ from
previously estimated amounts.
Translation of foreign currencies
The Company's reporting currency is the U.S. dollar. The Company's
functional currency is the British pound sterling for all entities except IMI
Titanium Inc. whose functional currency is the U.S. dollar. Assets and
liabilities of entities whose functional currency is deemed to be other than the
U.S. dollar are translated at year end rates of exchange and revenues and
expenses are translated at average exchange rates prevailing during the year.
Resulting translation adjustments are accumulated in the currency translation
adjustments component of stockholders' equity. Foreign currency transaction
gains and losses are recognized in income currently. Financial instruments used
to manage the effects of currency fluctuations are described in Note 11.
Cash and cash equivalents
Cash equivalents include highly liquid investments with original maturities
of three months or less.
Inventories and cost of sales
Inventories are stated at the lower of cost or market. The first-in,
first-out ("FIFO") and average cost methods are used to determine the cost of
substantially all inventories.
Net sales
Sales are generally recorded when products are shipped to customers.
F-35
<PAGE> 151
IMI TITANIUM BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Property, equipment and depreciation
Property and equipment are stated at cost. Maintenance, repairs and minor
renewals are expensed; major improvements are capitalized. Depreciation is
computed principally on the straight-line method over the estimated useful lives
of 40 years for buildings and 3 to 20 years for machinery and equipment.
Research and development
Research and development costs are expensed as incurred and approximated
$.8 million in each of 1993 and 1994, and $1 million in 1995.
Employee benefit plans
Accounting and funding policies for retirement plans are described in Note
9.
Advertising costs
Advertising costs, which are insignificant, are generally expensed as
incurred.
Income taxes
Deferred income tax assets and liabilities are recognized for the expected
future tax consequences of temporary differences between the income tax and
financial reporting carrying amounts of assets and liabilities.
Certain entities of the Company were members of IMI's U.S. or United
Kingdom ("U.K.") tax groups prior to the Acquisition. During such periods,
income taxes were computed on a separate company basis with any current tax
liability or refund paid to or received from IMI, in accordance with
intercompany tax sharing arrangements established by IMI.
F-36
<PAGE> 152
IMI TITANIUM BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- BUSINESS AND GEOGRAPHIC SEGMENTS:
The Company's operations are conducted in one business segment, titanium
metals operations. The Company is a producer and distributor of titanium ingot
and mill products for aerospace, industrial and other applications. The
Company's production facilities are located in the U.S. and U.K. although its
products are sold throughout the world.
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Operations
Sales........................................... $ 92,846 $110,380 $147,242
======== ======== ========
Operating loss.................................. $ (9,646) $(15,774) $(37,674)
Interest expense................................ 4,936 6,140 8,968
-------- -------- --------
Loss before income taxes...................... $(14,582) $(21,914) $(46,642)
======== ======== ========
Geographic segments
Net sales -- point of origin:
United Kingdom................................ $ 75,124 $ 89,522 $121,349
United States................................. 17,962 22,538 29,020
Eliminations.................................. (240) (1,680) (3,127)
-------- -------- --------
$ 92,846 $110,380 $147,242
======== ======== ========
Net sales -- point of destination:
United Kingdom................................ $ 43,496 $ 47,504 $ 56,086
Other Europe.................................. 22,036 26,614 31,028
United States................................. 21,186 26,140 40,083
Asia.......................................... 3,289 6,066 16,279
Other......................................... 2,839 4,056 3,766
-------- -------- --------
$ 92,846 $110,380 $147,242
======== ======== ========
Operating loss:
United Kingdom................................ $ (6,709) $(12,455) $(37,559)
United States................................. (2,937) (3,319) (115)
-------- -------- --------
$ (9,646) $(15,774) $(37,674)
======== ======== ========
Identifiable assets:
United Kingdom................................ $110,131 $134,120 $ 94,511
United States................................. 20,899 22,202 24,183
Other Europe.................................. 241 313 388
Eliminations.................................. (126) (1,432) (1,450)
-------- -------- --------
$131,145 $155,203 $117,632
======== ======== ========
</TABLE>
F-37
<PAGE> 153
IMI TITANIUM BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- RESTRUCTURING AND OTHER CHARGES:
Restructuring Charges
During 1995 the Company completed a comprehensive review of its business
and adopted a plan to restructure its activities (the "Plan"). As a result, the
Company recorded a $5 million pre-tax restructuring charge during 1995 related
to certain cost reduction and containment aspects of the Plan. The following
summarizes the Company's restructuring activities:
<TABLE>
<CAPTION>
CHARGE TO 1995
OPERATING AMOUNTS ACCRUAL
INCOME UTILIZED BALANCE
--------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Cash charge:
Workforce related.................................. $3.3 $(2.3) $1.0
Excess space....................................... 1.1 -- 1.1
---- ----- ----
4.4 (2.3) 2.1
Noncash charge -- Idled assets....................... .6 (.6) --
---- ----- ----
Total................................................ $5.0 $(2.9) $2.1
==== ===== ====
</TABLE>
The Company's restructuring charge was principally related to expected
reductions of its workforce from approximately 1,300 employees to 1,100
employees, the write-down of equipment associated with exited product lines and
the consolidation of certain production facilities. During 1995, the Company's
workforce was reduced by approximately 180 people in connection with its
restructuring activities. However, recent improvement in market demand for
titanium metal products has resulted in the Company adding employees in selected
areas. During 1995, cash costs of $2.3 million were charged against the
restructuring accrual. Restructuring related liabilities are considered utilized
when facilities and equipment are idled, as payments to terminated employees are
made, and other criteria are met. The Company continues to monitor its
restructuring activities and related accruals in light of changing business
conditions.
Other Charges
As part of the Plan, the Company also assessed its inventories and expected
profitability of long term customer sales agreements. As a result, the Company
provided an $8 million charge for excess and slow moving inventories and
recorded an additional $8 million charge for losses on certain customer sales
agreements where the Company's future production costs were expected to exceed
its committed selling prices.
NOTE 5 -- INVENTORIES:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Raw materials.................................................. $ 9,209 $ 4,839
Work in process................................................ 36,892 18,774
Finished goods................................................. 24,181 14,549
------- -------
$70,282 $38,162
======= =======
</TABLE>
F-38
<PAGE> 154
IMI TITANIUM BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- ACCRUED LIABILITIES:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Employee benefits.............................................. $ 2,433 $ 2,420
Taxes, other than income....................................... 1,584 3,365
Restructuring costs............................................ -- 2,156
Customer contract losses....................................... -- 4,179
Environmental costs............................................ -- 550
Other.......................................................... 1,566 2,485
------- -------
$ 5,583 $15,155
======= =======
</TABLE>
NOTE 7 -- STOCKHOLDERS' EQUITY:
Common stock reflects the Company's pre-Acquisition ownership and is
comprised of the following at December 31, 1995.
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
IMI Titanium Ltd., L1 par value; 78.3 million shares authorized,
issued and outstanding.............................................. $119,713
IMI Titanium Inc., $1.00 par value; 5.0 million Class A and .1 million
Class B shares authorized; 2.8 million Class A and .1 million Class
B shares issued and outstanding..................................... 2,889
--------
$122,602
========
</TABLE>
NOTE 8 -- INCOME TAXES:
Summarized below are the components of the income tax benefit (expense)
attributable to pretax loss. The Company's income tax benefit in each year was
principally related to its U.K. operations, except for 1993 when $1.5 million of
the tax benefit was related to the U.S. The income tax benefit for 1993 differed
from the amount that would be expected using the U.K. statutory rate of 33%
primarily because of a $1.5 million group limitation reduction in the benefit
realized. The income tax benefit in 1994 and 1995 approximated the U.K.
statutory rate of 33%.
F-39
<PAGE> 155
IMI TITANIUM BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax benefit (expense):
Current....................................... $ 4,300 $ 7,290 $ 11,825
Deferred...................................... (925) (348) 1,982
-------- -------- --------
$ 3,375 $ 6,942 $ 13,807
======== ======== ========
Pretax loss:
United Kingdom................................ $(11,051) $(17,600) $(45,142)
United States................................. (3,531) (4,314) (1,500)
-------- -------- --------
$(14,582) $(21,914) $(46,642)
======== ======== ========
</TABLE>
The components of deferred taxes are summarized below:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------
1994 1995
---------------------- ----------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------ ----------- ------ -----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Temporary differences relating to net assets:
Property and equipment..................... $ -- $(6.9) $ -- $(6.7)
Accrued liabilities and other deductible
differences............................. .2 -- 2.1 --
Tax loss and credit carryforwards............ 1.8 -- 1.8 --
Valuation allowance.......................... (.9 ) -- (1.2 ) --
----- ----- ----- -----
Gross deferred tax assets (liabilities)...... 1.1 (6.9) 2.7 (6.7)
Netting...................................... (1.1 ) 1.1 (2.7 ) 2.7
----- ----- ----- -----
Net noncurrent deferred tax liability........ $ -- $(5.8) $ -- $(4.0)
===== ===== ===== =====
</TABLE>
The valuation allowance increased in the aggregate by $.6 million in 1993,
nil in 1994 and $.3 million in 1995. At December 31, 1995, the Company had a
U.S. federal tax operating loss carryforward of approximately $5 million
expiring between 2001 and 2005.
NOTE 9 -- EMPLOYEE BENEFIT PLANS:
Variable compensation plans
Substantially all of the Company's U.K. employees participate in programs
which provide for variable compensation based on productivity. The cost of these
plans approximated $1.9 million in 1993 and $.6 million in each of 1994 and
1995.
Substantially all of the Company's U.K. employees also participated in an
IMI profit sharing plan. The Company's expense related to the plan approximated
$.4 million in each of the past three years.
The Company's U.K. management employees participate in programs which
provide for variable compensation based on profitability. The cost of these
programs was insignificant during each of the past three years.
F-40
<PAGE> 156
IMI TITANIUM BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Defined contribution plans
Substantially all the Company's U.S. employees were eligible to participate
in a defined contribution plan sponsored by IMI prior to the Acquisition. The
Company's contributions to the plan were insignificant in each of the past three
years.
Defined benefit pension plan
Substantially all of the Company's U.K. employees participated in IMI's
defined benefit pension plan prior to the Acquisition. The Company annually
contributed its actuarially determined share to IMI's pension plan which
approximated $3 million in each of the past three years. The Company has
accounted for its participation in the plan by recording as an expense its
annual contribution to the plan. In connection with the Acquisition, the Company
agreed to establish a separate pension plan for its U.K. employees pursuant to
which IMI will transfer plan assets with estimated fair values approximating the
projected benefit obligation ("PBO") at the Acquisition date. The Company's
unaudited preliminary estimate of the PBO at such date was $50 million and the
Company expects that its annual net periodic pension expense subsequent to the
Acquisition will not be materially different than its annual contribution to
IMI's plan in 1995.
NOTE 10 -- RELATED PARTY TRANSACTIONS:
IMI charged the Company $5.7 million, $5.4 million and $5.1 million in
1993, 1994 and 1995, respectively, for rent, insurance and management services.
Such charges were in addition to employee benefit amounts described above and
were principally pass-through in nature. In the Company's opinion, such charges
are not materially different from those that would have occurred on a stand
alone basis. Interest expense charged from IMI increased the Company's related
party indebtedness to IMI and is considered paid when incurred. Interest expense
charged from IMI approximated $4.9 million, $6.1 million and $9.0 million in
1993, 1994 and 1995, respectively. Cash paid to IMI for income taxes
approximated $.5 million in 1993 and cash received from IMI for income taxes
approximated $1.4 million in 1994 and $19.1 million in 1995.
During 1995, certain land and buildings related to the Company's
Waunarlwydd, Wales production facilities, which had been leased, were purchased
from IMI at their net carrying amount of approximately $1.6 million. The Company
also sold certain equipment to IMI during 1995 at its net carrying amount of
approximately $1 million. In 1993, the Company sold certain investments to IMI
for their net carrying amount of $2.7 million.
At December 31, 1995, directors of the Company held options to purchase
95,095 shares of IMI plc stock and directly held 12,323 shares of IMI plc stock.
Receivables from related parties principally relate to income taxes.
Payables to related parties classified as current liabilities principally
include pass-through charges from IMI as described above. Payables to related
parties classified as noncurrent liabilities include loans from IMI ($106.0
million at December 31, 1994 and $21.2 million at December 31, 1995). In
contemplation of the Acquisition, IMI made a capital contribution to the Company
of loans aggregating $80.3 million during 1995. The loans accrued interest at
IMI's bank lending rate plus .5% -- 1% and the weighted average interest rate on
such loans was 6.5% and 7.7% at December 31, 1994 and December 31, 1995,
respectively. The Company believes the fair value of such loans at December 31,
1995 was not materially different from the carrying amount.
F-41
<PAGE> 157
IMI TITANIUM BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Company had U.K. overdraft borrowing facilities which were part of its
composite arrangements with IMI. Accordingly, the Company, in concert with IMI,
entered into arrangements whereby each has offered a limited guarantee in
respect of the others overdraft borrowings from time to time. The Company's
maximum liability is limited to the aggregate of its current U.K. cash balance
which was nil as of December 31, 1995.
See Notes 1, 9 and 11 regarding other related party transactions.
NOTE 11 -- COMMITMENTS AND CONTINGENCIES:
Leases
The Company leases, from related and unrelated parties, certain
manufacturing and office facilities and various equipment. Most of the leases
contain purchase and/or various term renewal options at fair market and fair
rental values, respectively. In most cases management expects that, in the
normal course of business, leases will be renewed or replaced by other leases.
Net rent expense approximated $1.9 million, $1.8 million and $1.6 million in
1993, 1994, and 1995, respectively.
At December 31, 1995, future minimum payments under operating leases having
an initial or remaining term in excess of one year were as follows:
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
1996........................................................ $1,215
1997........................................................ 1,075
1998........................................................ 1,046
1999........................................................ 1,046
2000........................................................ 1,046
------
$5,428
======
</TABLE>
In connection with the Acquisition, the Company entered into long-term
leases with IMI principally covering its production facilities in Witton,
England and requiring annual lease payments of approximately $1 million over a
period of up to thirty years. These leases replaced previous operating leases on
these facilities with similar annual lease payments that had remaining terms
through the year 2000.
Commitments
In the ordinary course of business, the Company's U.K. based entity (IMI
Titanium Ltd.) enters into foreign currency exchange agreements through IMI
principally to attempt to manage its exposure to the effects of currency
fluctuations related to changes in the value of monetary assets and liabilities,
and raw material purchase and product sales commitments denominated in
currencies other than the British pound sterling, its functional currency. The
Company's principal foreign exchange agreements are for the forward sale of U.S.
dollars and forward purchase of Japanese yen. At December 31, 1995, the Company
had approximately $40 million of foreign exchange agreements outstanding which
mature in 1996. Gains and losses on hedges of monetary assets and liabilities
are recognized in income as offsets of gains and losses on the underlying
transactions. Gains and losses which hedge firm commitments are deferred until
the underlying transactions are recognized. The Company's U.K. entity is exposed
to credit related losses if the counterparty fails to perform their obligations.
The fair value on outstanding foreign exchange agreements approximated $.7
million as of December 31, 1995.
F-42
<PAGE> 158
IMI TITANIUM BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Environmental matters
The Company is conducting additional study and assessment work as required
by the California Regional Water Quality Control Board -- Los Angeles Region
(the "Board") related to soil and possible groundwater contamination at its
Pomona, California facility. The site is located near an area that has been
designated as a U.S. Environmental Protection Agency "superfund" site. At
December 31, 1995, the Company had accrued $.6 million related to this matter.
The Company determines the amount of its accruals for environmental matters
by analyzing and estimating the range of possible costs in light of the
available information. The imposition of more stringent standards or
requirements under environmental laws or regulations, the results of future
testing and analysis undertaken by the Company at its operating facilities, or a
determination that the Company is potentially responsible for the release of
hazardous substances at other sites, could result in expenditures in excess of
amounts currently estimated to be required for such matters. No assurance can be
given that actual costs will not exceed accrued amounts or that costs will not
be incurred with respect to sites as to which no problem is currently known.
Further, there can be no assurance that additional environmental matters will
not arise in the future.
The Company currently believes the disposition of all claims and disputes,
individually or in the aggregate, should not have a material adverse affect on
the Company's financial condition, results of operations or liquidity.
Concentration of credit risk and other
Substantially all of the Company's operating income or loss and most of its
sales are currently derived from its U.K.-based operations. The majority of the
Company's sales are to customers in the aerospace industry (including airframe
and engine construction). Such concentration of customers may impact the
Company's overall exposure to credit and other risks, either positively or
negatively, in that customers may be similarly affected by economic or other
conditions. The Company's ten largest customers accounted for slightly less than
40% of net sales in each of the past three years and about 40% and 35% of
accounts receivable at December 31, 1994 and 1995, respectively. Receivable are
generally not collateralized.
At December 31, 1995, the Company employed about 1,230 employees (compared
to 1,260 at December 31, 1994) with approximately 790 in Europe and 440 in the
U.S. Substantially all of the Company's European salaried and hourly employees
are members of one of three European labor unions with all associated labor
contracts expiring on December 31, 1996. While the Company currently considers
its employee relations to be satisfactory, it is possible that there could be
future work stoppages that could adversely affect sales and earnings to varying
degrees.
F-43
<PAGE> 159
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
Titanium Hearth Technologies, Inc.
In our opinion, the accompanying balance sheet and the related statements
of income, of stockholder's equity and of cash flows present fairly, in all
material respects, the financial position of Axel Johnson Metals, Inc. (a
wholly-owned subsidiary of Axel Johnson Inc.) at December 31, 1995, and the
results of its operations and its cash flows for the year in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards
which 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 audit provides a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Philadelphia, Pennsylvania
November 19, 1996
F-44
<PAGE> 160
REVIEW REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
Titanium Hearth Technologies, Inc.
We have reviewed the accompanying balance sheet and the related statements
of income, of stockholder's equity and of cash flows of Axel Johnson Metals,
Inc. (a wholly-owned subsidiary of Axel Johnson Inc.) as of September 30, 1996,
and for the nine-month period then ended. This financial information is the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial information for it to be in
conformity with generally accepted accounting principles.
PRICE WATERHOUSE LLP
Philadelphia, Pennsylvania
November 19, 1996
F-45
<PAGE> 161
AXEL JOHNSON METALS, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash.......................................................... $ 12 $ 14
Accounts receivable, net...................................... 1,993 2,568
Accounts receivable, joint venture............................ 3,904 4,264
Inventories................................................... 3,039 4,070
Deferred income taxes......................................... 175 544
Prepaid expenses and other current assets..................... 388 113
------- -------
Total current assets.................................. 9,511 11,573
Property, plant and equipment, net.............................. 5,545 8,565
Investment in joint venture..................................... 7,713 13,651
Other assets.................................................... 683 508
------- -------
$23,452 $34,297
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.............................................. $ 1,676 $ 2,841
Accrued expenses.............................................. 1,945 3,158
------- -------
Total current liabilities............................. 3,621 5,999
Deferred income taxes........................................... 2,601 2,678
Other liabilities............................................... 645 710
------- -------
Total liabilities..................................... 6,867 9,387
------- -------
Commitments and contingencies (Note 8)
Stockholder's equity:
Common stock, $1.00 par value, 10,000 shares authorized,
issued and outstanding..................................... 10 10
Retained earnings............................................. 16,575 24,900
------- -------
Total stockholder's equity............................ 16,585 24,910
------- -------
$23,452 $34,297
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-46
<PAGE> 162
AXEL JOHNSON METALS, INC.
STATEMENT OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
Revenues:
Net sales..................................................... $ 12,932 $10,077
Net sales to joint venture.................................... 6,659 7,836
Billings to joint venture..................................... 4,144 3,305
-------- -------
23,735 21,218
-------- -------
Costs and expenses:
Cost of sales................................................. 18,197 16,070
Other operating costs......................................... 2,519 1,860
Selling, general and administrative........................... 2,185 1,968
Restructuring................................................. -- 900
-------- -------
22,901 20,798
-------- -------
Income from operations.......................................... 834 420
Interest income................................................. 202 --
Interest expense -- related party............................... (233) (129)
Other........................................................... 188 --
-------- -------
Income before equity in earnings of joint venture and income
taxes......................................................... 991 291
Equity in earnings of joint venture............................. 4,851 5,938
-------- -------
Income before income taxes...................................... 5,842 6,229
Income taxes.................................................... 2,285 2,434
-------- -------
Net income...................................................... $ 3,557 $ 3,795
======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE> 163
AXEL JOHNSON METALS, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------- RETAINED STOCKHOLDER'S
SHARES AMOUNT EARNINGS EQUITY
------ ------ -------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994......................... 10,000 $ 10 $ 15,070 $15,080
Net income........................................... -- -- 3,557 3,557
Payments to Axel Johnson Inc., net................... -- -- (2,052) (2,052)
------ --- -------- -------
Balance at December 31, 1995......................... 10,000 10 16,575 16,585
Net income (unaudited)............................... -- -- 3,795 3,795
Contributions from Axel Johnson Inc., net
(unaudited)........................................ -- -- 4,530 4,530
------ --- -------- -------
Balance at September 30, 1996 (unaudited)............ 10,000 $ 10 $ 24,900 $24,910
====== === ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-48
<PAGE> 164
AXEL JOHNSON METALS, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income.................................................... $ 3,557 $ 3,795
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Equity in earnings of joint venture in excess of
distributions............................................ (2,229) (5,938)
Depreciation and amortization.............................. 827 648
Deferred income taxes...................................... 83 (292)
Changes in assets and liabilities:
Accounts receivable...................................... 71 (575)
Accounts receivable, joint venture....................... 476 (360)
Inventories.............................................. (263) (1,031)
Prepaid expenses and other current assets................ 1,141 450
Accounts payable......................................... 660 1,165
Accrued expenses and other liabilities................... 672 1,278
-------- -------
Net cash provided by (used in) operating activities... 4,995 (860)
-------- -------
Cash flows from investing activities:
Purchase of property and equipment............................ (1,778) (3,668)
-------- -------
Net cash used in investing activities................. (1,778) (3,668)
-------- -------
Cash flows from financing activities:
Payments on long-term debt.................................... (1,200) --
Payments (to) from Axel Johnson Inc........................... (2,052) 4,530
-------- -------
Net cash provided by (used in) financing activities... (3,252) 4,530
-------- -------
(Decrease) increase in cash..................................... (35) 2
Cash at beginning of period..................................... 47 12
-------- -------
Cash at end of period........................................... $ 12 $ 14
======== =======
Supplemental disclosures:
Cash paid for
Interest................................................... $ 52 $ --
Income taxes............................................... 185 603
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-49
<PAGE> 165
AXEL JOHNSON METALS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY AND A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company
Axel Johnson Metals, Inc. (the "Company") is a wholly-owned subsidiary of
Axel Johnson Inc. ("Axel Johnson") (see Note 9).
The Company operates a titanium scrap processing facility and melts and
refines titanium and other metals for use in high-performance applications in
the aerospace, marine, power generation, chemical processing, pulp and paper,
electronics and petrochemical industries. The Company operates plants in
California and Pennsylvania.
Investment in Joint Venture
The Company has a 50% interest in Titanium Hearth Technologies ("THT" or
the "Partnership"), a partnership with Titanium Metals Corporation ("Timet").
THT owns and operates cold hearth melting furnaces located in Pennsylvania and
Nevada. The Company accounts for the joint venture on the equity method.
Management estimates and assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash
The Company participates in Axel Johnson's centralized cash management
system. In general, the cash funding requirements of the Company have been met
by, and substantially all cash generated by the Company has been transferred to,
Axel Johnson.
Revenue recognition
Revenue from product sales and service revenue derived from the processing
and melting of customer supplied material is recognized upon shipment of the
product.
Inventories
Inventories are stated at the lower of cost, determined using the first-in
first-out method, or market.
Property, plant and equipment
Property, plant and equipment are recorded at cost. Depreciation and
amortization are computed using the straight-line method over the estimated
useful lives of the assets which range from three to twenty five years.
Leasehold improvements are amortized using the straight-line method over the
shorter of the estimated useful lives or the lease term.
The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
effective January 1, 1996. FAS 121 requires that the Company review long-lived
assets and certain intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company annually performs an undiscounted cash flow analysis to
determine if
F-50
<PAGE> 166
AXEL JOHNSON METALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
an asset has been impaired and any impairment would be charged to operations in
the period such determination is made. There was no financial statement effect
of the adoption of FAS 121.
Income taxes
Deferred tax assets and liabilities are recognized for the expected tax
consequences of temporary differences between the tax bases of assets and
liabilities and their financial statement reported amounts. Current tax expense
has been determined as if the Company was a separate taxpayer. Income taxes
currently payable are deemed to have been remitted by the Company to Axel
Johnson in the period that the liability arose. Income taxes currently
receivable are deemed to have been received by the Company from Axel Johnson in
the period that the refund could have been recognized by the Company had the
Company been a separate taxpayer.
Employee benefit plans
Axel Johnson has a noncontributory defined benefit pension plan and an
unfunded retirement restoration plan covering substantially all of the Company's
employees and a postretirement benefit program for employees who meet service
requirements. The Company's retirement benefit costs are limited to amounts
allocated by Axel Johnson. The cost of these plans has been allocated to the
Company based on the compensation of the Company's employees. Amounts allocated
are not necessarily indicative of the costs that would have been incurred if the
Company had been operated as a separate entity.
Other operating costs
Other operating costs include amounts billed to THT under the
administrative services agreement (see Note 5).
Restructuring charge (unaudited)
During 1996, the Company charged $900,000 (unaudited) to operations for
lease termination and site restoration costs related to the closing and
consolidation of its Lionville, Pennsylvania scrap processing operations to new
facilities in Morgantown, Pennsylvania.
Fair value of financial instruments
The estimated carrying value of the Company's financial instruments is
considered to approximate fair value due to the relatively short maturities of
the respective instruments.
Concentrations of credit risk
Financial instruments which subject the Company to concentrations of credit
risk consist primarily of accounts receivable. The Company's accounts receivable
are derived from sales to customers primarily in the United States. The Company
performs ongoing credit evaluations of its customers, and generally requires no
collateral from its customers. The Company maintains reserves for potential
credit losses. At December 31, 1995, receivables from three customers
represented 16%, 12%, and 11% respectively, of gross accounts receivable. At
September 30, 1996, receivables from three customers represented 24%, 16% and
12%(unaudited), respectively, of gross accounts receivable.
F-51
<PAGE> 167
AXEL JOHNSON METALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Unaudited Interim results
The accompanying balance sheet at September 30, 1996, and the related
statements of income, stockholder's equity and cash flows for the nine months
ended September 30, 1996 are unaudited. In the opinion of management, these
statements have been prepared on a consistent basis with the audited financial
statements and include all adjustments, consisting of only normal recurring
adjustments, necessary for a fair statement of the interim period. The
information disclosed in these Notes to Financial Statements as of September 30,
1996 and the nine months ended September 30, 1996 are unaudited. The results of
operations for the interim period are not necessarily indicative of the
operating results of a full year.
NOTE 2 -- BALANCE SHEET COMPONENTS:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
(UNAUDITED)
(IN THOUSANDS)
Accounts receivable:
Gross accounts receivable....................... $ 2,018 $ 2,593
Less: allowance for doubtful accounts........... (25) (25)
-------- ---------
$ 1,993 $ 2,568
======== =========
Inventories:
Raw materials................................... $ 758 $ 297
Work-in-process................................. 2,137 3,038
Finished goods.................................. 144 735
-------- ---------
$ 3,039 $ 4,070
======== =========
Property, plant and equipment, net:
Land............................................ $ 429 $ 429
Buildings....................................... 2,546 2,553
Machinery and equipment......................... 11,849 13,280
Leasehold improvements.......................... 875 875
Furniture and fixtures.......................... 320 320
Computers and software.......................... 310 408
Construction in progress........................ 600 2,858
-------- ---------
16,929 20,723
Less: accumulated depreciation and
amortization................................. (11,384) (12,158)
-------- ---------
$ 5,545 $ 8,565
======== =========
Accrued expenses:
Accrued bonus................................... $ 1,350 $ 1,430
Accrued restructuring costs..................... -- 900
Other current liabilities....................... 595 828
-------- ---------
$ 1,945 $ 3,158
======== =========
</TABLE>
F-52
<PAGE> 168
AXEL JOHNSON METALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- NET SALES
The following table summarizes sales for customers accounting for more than
10% of the Company's net sales:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
(UNAUDITED)
(IN THOUSANDS)
Timet........................................... $1,914 $ 1,618
Customer "A".................................... 1,799 1,373
Customer "B".................................... 1,372 1,129
Customer "C".................................... 1,312 --
</TABLE>
NOTE 4 -- JOINT VENTURE:
Investment in Joint Venture
Summarized financial information of THT, the Company's unconsolidated joint
venture, is shown below:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
(UNAUDITED)
(IN THOUSANDS)
Income statement:
Revenues...................................... $47,091 $58,114
Operating costs and expenses.................. 38,573 45,702
Interest and other expenses, net.............. 626 466
------- -------
Net income.................................... $ 7,892 $11,946
======= =======
Balance sheet:
Current assets................................ $17,992 $29,149
Noncurrent assets............................. 20,263 19,878
Current liabilities........................... 6,386 14,212
Noncurrent liabilities........................ 9,000 --
Equity........................................ 22,869 34,815
</TABLE>
In accordance with the joint venture agreement, the Company is entitled to
a preferred distribution in an amount equal to the excess gross profit of the
joint venture from other than Timet sales over a base amount. The total
preferred distribution payable to the Company is limited to the present value of
$4 million as of the date of the agreement using the prime rate as the discount
rate and has been fully accrued as of December 31, 1995.
F-53
<PAGE> 169
AXEL JOHNSON METALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- RELATED PARTY TRANSACTIONS:
TRANSACTIONS WITH AXEL JOHNSON
Related party transactions with Axel Johnson not disclosed elsewhere in the
financial statements are as follows:
Intercompany balances
Amounts due to or from Axel Johnson consist of cash remittances made by the
Company to Axel Johnson from its operating bank accounts offset by cash advances
and other charges for purchases of property and equipment, acquisitions, current
income tax liabilities, intercompany allocations and other charges, and
fluctuating working capital needs. Neither Axel Johnson nor the Company charged
interest on the balances due. Interest expense was allocated to the Company from
Axel Johnson based on a working capital formula. At the end of each period, the
intercompany balances were charged to equity.
Employee benefit programs
The Company participates in various employee benefit programs which are
sponsored by Axel Johnson. These programs include medical, dental and life
insurance, and workers' compensation. The Company reimburses Axel Johnson for
its proportionate cost of these programs based on historical experience and
relative headcount. The costs reimbursed to Axel Johnson include costs for
reported claims, as well as incurred but not reported claims. The Company
recorded expense related to the reimbursement of these costs of approximately
$277,000 and $217,000 (unaudited) in 1995 and the nine months ended September
30, 1996, respectively. The costs are charged to cost of sales and selling,
general and administrative expense based on the number of employees in each of
these categories. The Company believes the allocation by Axel Johnson of the
proportionate cost is reasonable but is not necessarily indicative of the costs
that would have been incurred had the Company operated on a stand-alone basis.
See Note 7 for other benefit plans.
Administrative services
Axel Johnson provides limited services to the Company, including certain
treasury, accounting, tax, internal audit, legal and human resource functions.
The costs of these functions have been allocated to the Company based primarily
on the Company's revenues. Management believes that such allocations are
reasonable. Such charges and allocations are not necessarily indicative of the
costs that would have been incurred if the Company had been a separate entity.
The allocated cost of these services amounting to $380,000 and $314,000
(unaudited) in 1995 and the nine months ended September 30, 1996, respectively,
have been included in selling, general and administrative expenses in the
statement of operations.
TRANSACTIONS WITH THT
Pursuant to the THT partnership agreement, certain services are provided to
THT at negotiated amounts. Activity under these service agreements for the year
ended December 31, 1995 and nine months ended September 30, 1996 are as follows:
Administrative services agreement
Pursuant to the formation of THT, the Company entered into an agreement to
provide to the Partnership administrative, technical and managerial services, as
defined, through August 31, 1997,
F-54
<PAGE> 170
AXEL JOHNSON METALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
with automatic one year renewals unless either party gives notice of termination
in accordance with the provisions of the agreement. The fee for such services is
based on 90% of a Base Rate, as defined (subject to escalation at a rate of 5%
per annum commencing January 1, 1993), plus all out of pocket expenses incurred
by the Company attributable to performing such services. The fees are subject to
reduction, as defined, in the event the Base Rate exceeds 90% of actual costs
incurred by the Company. The Company charged THT $4,144,000 and $3,305,000
(unaudited) for services and out of pocket expenses under this agreement for the
year ended December 31, 1995 and the nine months ended September 30, 1996,
respectively.
Raw materials supply and processing agreement
Pursuant to the formation of the Partnership, the Company, THT and Timet
entered into an agreement effective through August 31, 1997 whereby the Company
agreed to (a) sell to THT, subject to availability in the market, at the fair
market value, scrap that THT orders from the Company and (b) subject to
available capacity, to provide scrap processing services to THT with respect to
scrap owned by THT and Timet at rates set forth in the agreement. Such rates are
dependent on the relative strength of the titanium market, as defined in the
agreement. This agreement is subject to automatic one year renewals unless the
Company gives THT and Timet one year's prior notice of termination. Amounts
charged to THT by the Company under this agreement totaled $2,824,000 and
$4,482,000 (unaudited) for the year ended December 31, 1995 and the nine months
ended September 30, 1996, respectively.
Reciprocal conversion services agreement
Pursuant to the formation of the Partnership, the Company and THT entered
into an agreement whereby, to the extent of available capacity, each party would
perform cold hearth melting services through August 31, 1997 with automatic one
year renewals unless either party terminates with one year's prior notice. As
amended, this agreement provides that fees for services rendered under the
agreement will be charged at an amount equal to the lesser of either (a) three
times the providing party's Direct Cost, as defined, or (b) in the event the
Company is the providing party, the Company's Direct Cost to provide such
services plus one-half of THT's average gross profit per pound for all of THT's
products for the month in which such services are provided multiplied by the
number of pounds produced with such services, subject to certain adjustments and
conditions per the agreement. The Company charged THT $3,835,000 and $3,354,000
(unaudited) under this agreement for the year ended December 31, 1995 and the
nine months ended September 30, 1996, respectively.
Other
Accounts receivable, joint venture of $3,904,000 and $4,264,000 (unaudited)
as of December 31, 1995 and September 30, 1996, respectively, related to
services performed under the above agreements.
In connection with the formation of the Partnership, the Company
contributed a joint ownership interest in certain patents which are used by the
Partnership.
F-55
<PAGE> 171
AXEL JOHNSON METALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- INCOME TAXES:
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
(UNAUDITED)
(IN THOUSANDS)
Current:
Federal....................................... $1,781 $ 2,205
State......................................... 421 521
------ -------
2,202 2,726
------ -------
Deferred:
Federal....................................... 67 (259)
State......................................... 16 (33)
------ -------
83 (292)
------ -------
Provision for income taxes...................... $2,285 $ 2,434
====== =======
</TABLE>
The following is a reconciliation of the U.S. federal income tax rate to
the Company's effective income tax rate:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
(UNAUDITED)
Provision at statutory rate..................... 34.0% 34.0%
State income taxes, net of federal tax
benefits...................................... 4.9 4.9
Other........................................... .2 .1
---- ----
Effective rate.................................. 39.1% 39.0%
==== ====
</TABLE>
For the nine months ended September 30, 1996, an overall effective rate of
39% was used which reflects the Company's estimate of the effective rate for the
year ending December 31, 1996.
Deferred tax assets/liabilities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
(IN THOUSANDS)
Deferred tax assets:
Accrued expenses................................ $ 296 $ 640
Reserves........................................ 59 128
Other........................................... 57 --
------ -------
412 768
------ -------
Deferred tax liabilities:
Depreciation and amortization................... 2,238 2,385
THT Partnership................................. 513 513
Other........................................... 87 4
------ -------
2,838 2,902
------ -------
Net deferred tax liability........................ $2,426 $ 2,134
====== =======
</TABLE>
F-56
<PAGE> 172
AXEL JOHNSON METALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- EMPLOYEE BENEFIT PLANS:
Thrift plan
The Company participates in an Axel Johnson Thrift Plan qualified under
Section 401(k) of the Internal Revenue Code. The Thrift Plan allows employees to
defer up to 16% of their compensation not to exceed the amount allowed by the
applicable Internal Revenue Service guidelines. The Company matches 60% of
employee contributions made on a pre-tax basis and 30% of employee contributions
made on a post-tax basis, subject to a maximum of 6% of total eligible employee
compensation. Company contributions vest ratably over 5 years of service or 2
years of Plan participation, whichever occurs first. Contributions by the
Company under the Thrift Plan amounted to $157,000 and $137,000 (unaudited) in
1995 and the nine months ended September 30, 1996, respectively.
Pension plan
The Company's employees participate in a noncontributory defined benefit
pension plan sponsored by Axel Johnson. Benefits under the plan are based on
years of service and employees' compensation. The plan's assets are invested
principally in equity and fixed-income securities. It is Axel Johnson's policy
to satisfy the minimum funding requirements of the Employees Retirement Income
Security Act of 1974 (ERISA).
Net periodic pension cost was determined by measuring the Projected Benefit
Obligation ("PBO") for the Company's employees using a discount rate of 8.5% and
7.3% (unaudited), and an assumed long-term rate of compensation of 5.3% and 4.5%
(unaudited) in 1995 and the nine months ended September 30, 1996, respectively.
The PBO for such employees was determined using a discount rate of 7.3% at
December 31, 1995. The PBO so measured was $2,350,000 at December 31, 1995.
Certain elements of pension costs, including expected return on assets
(which was 9% in 1995 and 9.5% for the nine months ended September 30, 1996),
and net amortization, were allocated based on the relationship of the PBO for
the Company to the total PBO of the defined benefit pension plan. The elements
of pension cost allocated to the Company using this method were:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
(UNAUDITED)
(IN THOUSANDS)
Service cost.................................... $ 193 $ 203
Interest cost................................... 165 139
Net amortization................................ (155) (141)
Expected return on assets....................... (181) (135)
------ -----
$ 22 $ 66
====== =====
</TABLE>
The Company's employees are also eligible to participate in the Axel
Johnson retirement restoration plan. This plan is for employees whose benefits
under the defined benefit pension plans are reduced due to limitation under
federal tax laws. The Company's pension expense for this plan, using the same
methodology as described above, was $9,000 and $11,000 (unaudited) in 1995 and
the nine months ended September 30, 1996, respectively. The projected benefit
obligation at December 31, 1995 was $66,000.
F-57
<PAGE> 173
AXEL JOHNSON METALS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Postretirement benefits plan
Company employees, who meet the service requirements, participate in
postretirement benefit programs which provide health care and life insurance
benefits sponsored by Axel Johnson. Axel Johnson funds such benefits as they are
incurred.
Net postretirement benefit cost was determined by measuring the
postretirement projected benefit obligation for the Company's employees using a
discount rate of 8.5% and 7.3% (unaudited), and an assumed rate of increase in
future healthcare costs ranging from 6% to 10.5% and 5.5% to 9.5% (unaudited) in
1995 and the nine months ended September 30, 1996, respectively. The PBO for
such employees was determined using a discount rate of 7.3% at December 31,
1995. The PBO so measured was $565,000 at December 31, 1995.
Certain elements of postretirement benefit cost were allocated based on the
relationship of the PBO for the Company to the total PBO of the plan. The
elements of postretirement benefit cost allocated to the Company using this
method were:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
(UNAUDITED)
(IN THOUSANDS)
Service cost.................................... $ 17 $17
Interest cost................................... 40 31
Net amortization................................ 16 14
---- ---
$ 73 $62
==== ===
</TABLE>
NOTE 8 -- COMMITMENTS:
The Company leases certain of its manufacturing and office facilities.
Total rent expense in 1995 and the nine months ended September 30, 1996 was
$550,000 and $427,000 (unaudited), respectively. Future annual minimum lease
payments under all noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31, AMOUNT
---------------------------------------------- --------------
<S> <C>
(IN THOUSANDS)
1996........................................ $ 592
1997........................................ 438
1998........................................ 184
1999........................................ 130
2000 and thereafter......................... 13
------
$1,357
======
</TABLE>
The Company has accrued $400,000 of future lease payments related to the
closure of its Lionville, Pennsylvania facility as described in Note 1.
The Company is one of the guarantors of a $150 million revolving line of
credit and a $50 million term loan obtained by Axel Johnson.
NOTE 9 -- SUBSEQUENT EVENT:
On October 1, 1996, Timet acquired substantially all of the assets and
assumed substantially all of the liabilities of the Company for approximately
$96 million.
F-58
<PAGE> 174
REPORT OF INDEPENDENT ACCOUNTANTS
To the Management Committee
and Partners of Titanium Hearth Technologies
In our opinion, the accompanying balance sheets and the related statements
of income, of changes in partners' capital and of cash flows present fairly, in
all material respects, the financial position of Titanium Hearth Technologies
(the "Partnership") at December 31, 1994 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Partnership's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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 the opinion expressed
above.
PRICE WATERHOUSE LLP
Philadelphia, Pennsylvania
January 26, 1996
F-59
<PAGE> 175
REVIEW REPORT OF INDEPENDENT ACCOUNTANTS
To the Management Committee and Partners of
Titanium Hearth Technologies
We have reviewed the accompanying balance sheet and the related statements
of income, of changes in partners' capital and of cash flows of Titanium Hearth
Technologies (the "Partnership") as of September 30, 1996, and for the
nine-month period then ended. This financial information is the responsibility
of the Partnership's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial information for it to be in
conformity with generally accepted accounting principles.
PRICE WATERHOUSE LLP
Philadelphia, Pennsylvania
November 19, 1996
F-60
<PAGE> 176
TITANIUM HEARTH TECHNOLOGIES
(A JOINT VENTURE)
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1994 1995 1996
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash.................................................... $ 83 $ 84 $ 94
Accounts receivable..................................... 4,056 5,301 11,204
Accounts receivable, partner............................ 1,915 2,627 1,492
Inventories............................................. 5,770 9,457 16,341
Prepaid expenses........................................ 31 523 18
------- ------- -------
Total current assets.......................... 11,855 17,992 29,149
Machinery and equipment, net............................ 18,465 20,259 19,861
Other assets............................................ 20 4 17
------- ------- -------
Total assets.................................. $30,340 $38,255 $49,027
======= ======= =======
LIABILITIES AND PARTNERS' CAPITAL
Current portion of long-term debt....................... $ -- $ -- $ 6,300
Accounts payable and accrued expenses................... 1,135 2,482 3,648
Accounts payable, partner............................... 920 2,208 4,264
Distributions payable................................... 3,312 1,696 --
------- ------- -------
Total current liabilities..................... 5,367 6,386 14,212
Long-term debt.......................................... 6,300 9,000 --
------- ------- -------
Total liabilities............................. 11,667 15,386 14,212
------- ------- -------
Commitments and contingencies (Note 12)
Contributed capital..................................... 19,000 19,000 19,000
Accumulated earnings (deficit).......................... (327) 3,869 15,815
------- ------- -------
Net partners' capital......................... 18,673 22,869 34,815
------- ------- -------
Total liabilities and partners' capital....... $30,340 $38,255 $49,027
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-61
<PAGE> 177
TITANIUM HEARTH TECHNOLOGIES
(A JOINT VENTURE)
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
------------------------------- SEPTEMBER 30,
1993 1994 1995 1996
------- ------- ------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Product sales................................ $13,421 $10,333 $27,551 $39,490
Service revenues............................. 5,250 7,994 9,516 9,314
Sales to related parties..................... 8,155 7,939 10,024 9,310
------- ------- ------- -------
Net sales.................................... 26,826 26,266 47,091 58,114
Cost of sales................................ 19,375 17,900 33,200 41,055
------- ------- ------- -------
Gross profit................................. 7,451 8,366 13,891 17,059
Selling, general and administrative
expenses................................... 4,159 4,508 5,373 4,647
------- ------- ------- -------
Income from operations....................... 3,292 3,858 8,518 12,412
Interest expense............................. (260) (400) (630) (466)
Interest income.............................. 8 6 4 --
------- ------- ------- -------
Net income................................... $ 3,040 $ 3,464 $ 7,892 $11,946
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-62
<PAGE> 178
TITANIUM HEARTH TECHNOLOGIES
(A JOINT VENTURE)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND NINE MONTHS ENDED
SEPTEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
CONTRIBUTED EARNINGS
CAPITAL (DEFICIT) TOTAL
----------- ----------- -------
<S> <C> <C> <C>
Balance at December 31, 1992.............................. $19,000 $ 806 $19,806
Net income................................................ -- 3,040 3,040
Distributions paid and payable............................ -- (2,244) (2,244)
------- ------- -------
Balance at December 31, 1993.............................. 19,000 1,602 20,602
Net income................................................ -- 3,464 3,464
Distributions paid and payable............................ -- (5,393) (5,393)
------- ------- -------
Balance at December 31, 1994.............................. 19,000 (327) 18,673
Net income................................................ -- 7,892 7,892
Distributions paid and payable............................ -- (3,696) (3,696)
------- ------- -------
Balance at December 31, 1995.............................. 19,000 3,869 22,869
Net income (unaudited).................................... -- 11,946 11,946
------- ------- -------
Balance at September 30, 1996 (unaudited)................. $19,000 $15,815 $34,815
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-63
<PAGE> 179
TITANIUM HEARTH TECHNOLOGIES
(A JOINT VENTURE)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
------------------------------- SEPTEMBER 30,
1993 1994 1995 1996
------- ------- ------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income................................. $ 3,040 $ 3,464 $ 7,892 $11,946
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation............................ 829 909 1,148 1,087
Changes in operating assets and
liabilities:
Accounts receivable................... (1,368) 200 (1,245) (5,903)
Accounts receivable, partner.......... (905) 154 (712) 1,135
Inventories........................... (1,395) (580) (3,687) (6,884)
Prepaid expenses...................... (8) (16) (492) 505
Other assets.......................... 13 20 16 (13)
Accounts payable and accrued
expenses........................... 382 17 1,347 1,166
Accounts payable, partner............. 2,431 (1,819) 1,288 2,056
------- ------- ------- -------
Net cash provided by operating
activities....................... 3,019 2,349 5,555 5,095
------- ------- ------- -------
Cash flows from investing activities:
Purchases of machinery and equipment....... (361) (899) (2,942) (689)
------- ------- ------- -------
Cash flows from financing activities:
Net borrowings under line of credit........ (700) 1,000 2,700 (2,700)
Distributions paid......................... (1,944) (2,381) (5,312) (1,696)
------- ------- ------- -------
Net cash used in financing
activities....................... (2,644) (1,381) (2,612) (4,396)
------- ------- ------- -------
Net change in cash........................... 14 69 1 10
Cash at beginning of period.................. -- 14 83 84
------- ------- ------- -------
Cash at end of period........................ $ 14 $ 83 $ 84 $ 94
======= ======= ======= =======
Supplemental disclosure of cash flow
information:
Cash paid during the period for interest... $ 250 $ 375 $ 590 $ 476
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-64
<PAGE> 180
TITANIUM HEARTH TECHNOLOGIES
(A JOINT VENTURE)
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
1. ORGANIZATION AND OPERATION
Organization and Description of the Business. Titanium Hearth Technologies
(the "Partnership") was formed pursuant to a Joint Venture Agreement (the
"Agreement") between Axel Johnson Metals, Inc. ("AJM") and Titanium Metals
Corporation ("TIMET") on August 31, 1992. (See Notes 8 and 9.)
The Partnership was formed pursuant to the Pennsylvania Uniform Partnership
Act.
The Partnership produces titanium slabs, ingots and alloy electrodes at
plants in Morgantown, Pennsylvania and Verdi, Nevada. The primary application
for titanium has historically been the aerospace industry where it is used in
both air frames and engines. Other major markets for titanium include power
generation, chemical processing, pulp and paper, desalinization, medical
implants and recreational equipment. The primary customers for the Partnership's
products are titanium mill product producers in the United States and abroad.
These producers manufacture semi-finished products such as plates, sheets,
strip, bar, billets and tubing. Secondary customers for the Partnership's
products include a number of smaller fabrication shops and service centers.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
Reclassifications. The Partnership has reclassified certain balances for
comparative purposes.
Revenue Recognition. Sales are recognized at time of shipment of titanium
and titanium alloy products. Sales are also recognized at time of shipment for
service revenues derived from the melting of customer supplied materials.
Cash and Cash Equivalents. For the purposes of the statement of cash flows,
the Partnership considers all highly liquid short term investments with an
original maturity of three months or less to be cash equivalents.
Inventories. Inventories are stated at the lower of cost or market, with
cost determined on the first-in, first-out (FIFO) method. Elements of cost in
inventories include raw materials, direct labor and manufacturing overhead.
Machinery and Equipment. The initial contribution of machinery and
equipment by the partners was recorded at fair market value as determined by an
independent appraisal. (See Note 8.) Subsequent additions to machinery and
equipment are carried at cost. Maintenance, repairs and minor renewals are
charged to expense as incurred. When assets are sold or otherwise disposed of,
the related cost and accumulated depreciation are removed from the accounts, and
any resulting gain or loss is included in the results of operations.
Depreciation of machinery and equipment is computed on the straight-line method
over the estimated useful lives of the assets which range from 5 to 25 years.
Concentrations of Credit Risk. Accounts receivable credit risk is dispersed
across approximately 25 United States customers and several European and
Japanese customers. Over 68%, 76% and 83% of current accounts receivable credit
risk is concentrated between three customers.
F-65
<PAGE> 181
TITANIUM HEARTH TECHNOLOGIES
(A JOINT VENTURE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
UNAUDITED INTERIM RESULTS
The accompanying balance sheet at September 30, 1996, and the related
statements of income, changes in partners' capital and cash flows for the nine
months ended September 30, 1996 are unaudited. In the opinion of management,
these statements have been prepared on a consistent basis with the audited
financial statements and include all adjustments, consisting of only normal
recurring adjustments, necessary for a fair statement of the results for the
interim period. The information disclosed in these Notes to Financial Statements
as of September 30, 1996 and the nine months ended September 30, 1996 are
unaudited. The results of operations for the interim period are not necessarily
indicative of the operating results of a full year.
3. NET SALES
Significant Customers. Included in net sales for the years ended December
31, 1993, 1994 and 1995 are sales to 3, 2 and 3 customers (A, B and C, A and B
and A, B and D, respectively), which amounted to approximately 25%, 29% and 17%,
28% and 30%, and 24%, 21%, and 13% of annual sales, respectively.
Export Sales. Net sales based on point of destination by geographic area
are as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
----------------------------- SEPTEMBER 30,
1993 1994 1995 1996
------- ------- ------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED)
United States................... $24,347 $21,935 $34,668 $43,254
International................... 2,479 4,331 12,423 14,860
------- ------- ------- -------
$26,826 $26,266 $47,091 $58,114
======= ======= ======= =======
</TABLE>
4. INVENTORIES
Inventories comprise:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30,
1994 1995 1996
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Finished goods............................ $1,602 $2,482 $ 4,662
Work-in-process........................... 2,805 5,383 8,658
Raw materials............................. 1,363 1,592 3,021
------ ------ -------
$5,770 $9,457 $16,341
====== ====== =======
</TABLE>
5. MACHINERY AND EQUIPMENT
A summary of machinery and equipment and related accumulated depreciation
is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1994 1995 1996
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Machinery and equipment.................. $20,463 $23,405 $24,094
Less: Accumulated depreciation......... (1,998) (3,146) (4,233)
------- ------- -------
$18,465 $20,259 $19,861
======= ======= =======
</TABLE>
F-66
<PAGE> 182
TITANIUM HEARTH TECHNOLOGIES
(A JOINT VENTURE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
Depreciation expense was $829, $909, $1,148 and $1,087 (unaudited) for the
years ended December 31, 1993, 1994 and 1995 and the nine months ended September
30, 1996, respectively.
6. DEBT
The Partnership has a credit agreement with two banks which provides for
borrowings up to $12,000. The outstanding balance at December 31, 1994 and 1995
and September 30, 1996 was $6,300, $9,000 and $6,300 (unaudited), respectively.
The term of the credit agreement expires on December 29, 1997, as revised.
Borrowings under the agreement bear interest, at the Partnership's option, at
the higher of LIBOR plus 1.25% or the Federal funds rate plus .50% or the prime
rate (7.13% at December 31, 1995 and a weighted average of 7.23% for the year
ended December 31, 1995). During January 1996, the interest rate was revised to
the higher of LIBOR plus .85% or the Federal funds rate plus .50% or the prime
rate. Additionally, the Partnership shall pay a quarterly fee of .125% per annum
on the unborrowed portion of the commitment and shall pay a facility fee on a
quarterly basis of .25% per annum on the aggregate commitment.
The credit line is nonrecourse to either partner but is secured by
substantially all Partnership assets, including accounts receivable, inventory
and certain machinery and equipment.
The credit line agreement contains certain restrictions that require the
Partnership, among other things, to maintain (a) a quick ratio, as defined, of
not less than 2 to 1, (b) a tangible net worth, excluding distributions payable,
of at least $24,180 and (c) a minimum ratio of inventory and accounts receivable
to the loan of 1 to 1 and places limitations on (a) the incurrence of additional
indebtedness, (b) the payment of annual distributions to partners, (c) the
transfer of assets, and (d) the incurrence of capital expenditures. In addition,
for years beginning on and after January 1, 1994, the Partnership is required to
maintain income from operations before interest expense for each year of at
least $3,000.
In July, 1996 the Partnership's credit agreement was revised to provide for
borrowings up to $15,000 (unaudited). See Note 13.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments that are subject to fair value disclosure
requirements are carried in the financial statements at amounts that approximate
fair value. Based on the terms of the line of credit as discussed in Note 6, the
carrying value of the borrowing under the line of credit approximates its fair
value.
8. PARTNERS' CONTRIBUTIONS AND PREFERRED DISTRIBUTIONS
Immediately prior to the formation of the Partnership, AJM sold to TIMET,
for cash and a note, an undivided 50% interest in certain machinery and
equipment with a fair value of approximately $19 million. This machinery and
equipment was contributed to the Partnership at formation.
In accordance with the Agreement, AJM is entitled to a preferred
distribution in an amount equal to the excess gross profit of the Partnership
from other than TIMET sales over a base amount. The total preferred distribution
payable to AJM is limited to the present value of $4,000 as of the date of the
Agreement using the prime rate as the discount rate and has been fully accrued
as of December 31, 1995.
F-67
<PAGE> 183
TITANIUM HEARTH TECHNOLOGIES
(A JOINT VENTURE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
9. RELATED PARTY TRANSACTIONS
Under the Agreement, certain services are provided either to the
Partnership by the partners or to the partners by the Partnership at negotiated
amounts. Activity under these service agreements for the years ended December
31, 1993, 1994 and 1995 and the nine months ended September 30, 1996 was as
follows:
Conversion Services Agreement. Pursuant to the formation of the
Partnership, TIMET and the Partnership entered into an agreement whereby the
Partnership is to provide cold hearth melting services to TIMET through August
31, 1997 with automatic one year renewals unless either party gives one year's
prior written notice to terminate. The pricing for such services are specified
in the agreement, subject to a defined maximum price, and are a function of the
Adjusted Annual Aggregate Melt Volume, as defined, and the relative strength of
the titanium market, as determined in accordance with the agreement. TIMET also
committed to purchase certain minimum volume requirements throughout the term of
the agreement. Titanium conversion services by the Partnership for TIMET
totalled $7,428, $7,800, $10,024 and $9,310 (unaudited) for the years ended
December 31, 1993, 1994 and 1995 and for the nine months ended September 30,
1996, respectively.
Administrative Services Agreement. Pursuant to the formation of the
Partnership, AJM entered into an agreement to provide to the Partnership
administrative, technical and managerial services, as defined, through August
31, 1997, with automatic one year renewals unless either party gives notice of
termination in accordance with the provisions of the agreement. The fee for such
services is based on 90% of a Base Rate, as defined (subject to escalation at a
rate of 5% per annum commencing January 1, 1993), plus all out of pocket
expenses incurred by AJM attributable to performing such services. The fees are
subject to reduction, as defined, in the event the Base Rate exceeds 90% of
actual costs incurred by AJM. AJM charged the Partnership $3,605, $3,873, $4,144
and $3,305 (unaudited) for services and out of pocket expenses under this
agreement for the years ended December 31, 1993, 1994 and 1995 and for the nine
months ended September 30, 1996, respectively.
Raw Materials Supply and Processing Agreement. Pursuant to the formation of
the Partnership, the Partnership, AJM and TIMET entered into an agreement
effective through August 31, 1997 whereby AJM agreed to (a) sell to the
Partnership, subject to availability in the market, at the fair market value,
scrap that the Partnership orders from AJM and (b) subject to available
capacity, to provide scrap processing services to the Partnership with respect
to scrap owned by the Partnership and TIMET, at rates set forth in the
agreement. Such rates are dependent on the relative strength of the titanium
market, as defined in the agreement. This agreement is subject to automatic one
year renewals unless AJM gives the Partnership and TIMET one year's prior notice
of termination. Amounts charged to the Partnership by AJM under this agreement
totalled $6,496, $2,067, $2,824 and $4,482 (unaudited) for the years ended
December 31, 1993, 1994 and 1995 and for the nine months ended September 30,
1996, respectively.
Reciprocal Conversion Services Agreement. Pursuant to the formation of the
Partnership, the Partnership and AJM entered into an agreement whereby, to the
extent of available capacity, each party would perform cold hearth melting
services through August 31, 1997 with automatic one year renewals unless either
party terminates with one year's prior notice. As amended, this agreement
provides that fees for services rendered under the agreement will be charged at
an amount equal to the lesser of either (a) three times the providing party's
Direct Cost, as defined, or (b) in the event AJM is the providing party, AJM's
Direct Cost to provide such services plus one-half of the
F-68
<PAGE> 184
TITANIUM HEARTH TECHNOLOGIES
(A JOINT VENTURE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
Partnership's average gross profit per pound for all of the Partnership's
products for the month in which such services are provided multiplied by the
number of pounds produced with such services, subject to certain adjustments and
conditions per the agreement. The Partnership was charged $2,693, $3,069, $3,835
and $3,354 (unaudited) by AJM under this agreement for the years ended December
31, 1993, 1994 and 1995 and for the nine months ended September 30, 1996,
respectively.
Other. Accounts receivable, partner includes $1,915, $2,627 and $1,492
(unaudited) due from TIMET at December 31, 1994 and 1995 and September 30, 1996,
respectively, related to services performed under the above agreements and
product sales to TIMET. Accounts payable, partner includes $920, $2,208 and
$4,264 (unaudited) due to AJM at December 31, 1994 and 1995 and September 30,
1996, respectively, related to services rendered under the above agreements and
inventory purchases from AJM.
The Partnership has also paid to TIMET $100 per year under a technical
services agreement which expires on December 31, 1996.
In connection with the formation of the Partnership, AJM contributed a
joint ownership interest in certain patents which are used by the Partnership.
See Note 12 regarding facilities leased by the Partnership from AJM.
10. INCOME TAXES
As a Partnership, Titanium Hearth Technologies is not liable for the
payment of taxes on income. Net income is allocated to the respective partners
on an annual basis, and it is the partners' responsibility to pay income taxes,
if any, thereon according to their respective tax positions.
11. EMPLOYEE BENEFITS
Post Retirement Benefits. Employees of the Partnership, meeting the service
requirements, are members of the Axel Johnson Inc. (parent company of AJM)
postretirement benefit program which provides health care benefits and life
insurance benefits to employees. This is treated by the Partnership as a
multiemployer plan under Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions." The
postretirement benefit cost to the Partnership was approximately $1, $2, $2 and
$2 (unaudited) for the years ended December 31, 1993, 1994 and 1995 and for the
nine months ended September 30, 1996, respectively.
Pension Plan. Employees of the Partnership, meeting the service
requirements, are members of the Axel Johnson Inc. defined benefit pension plan.
This is treated by the Partnership as a multiemployer plan under Statement of
Financial Accounting Standards No. 87, "Employers' Accounting for Pensions." The
pension cost to the Partnership was $11, $16, $21 and $34 (unaudited) for the
years ended December 31, 1993, 1994 and 1995 and for the nine months ended
September 30, 1996, respectively.
401(k) Thrift Plan. Employees of the Partnership, meeting the service
requirements, are members of the Axel Johnson Inc. defined contribution 401(k)
thrift plan. The Partnership, on a nondiscretionary basis, will match
participating employees' contributions based on 60% of the first 6% contributed
to the plan by employees. The Partnership's matching contribution was $16, $23,
F-69
<PAGE> 185
TITANIUM HEARTH TECHNOLOGIES
(A JOINT VENTURE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
$41 and $41 (unaudited) for the years ended December 31, 1993, 1994 and 1995 and
for the nine months ended September 30, 1996, respectively.
12. COMMITMENTS AND CONTINGENCIES
Operating Leases. Since its formation, the Partnership has leased building
space used in its Morgantown production facilities from AJM. This lease, which
has been recorded as an operating lease, provides for rental payments of $50 per
year and will remain in effect until August 31, 2021. The terms of this lease
are considered to be favorable to the Partnership as a result of the related
party nature of the participants to this lease. The Partnership also leases
facilities for its Verdi, Nevada operations under an agreement which provides
for rental payments of approximately $65 per year through April, 1998.
Contingencies. The Partnership is not involved in any claims and disputes
which the Partnership's management believes will have a material adverse effect
on the Company's financial condition, results of operations or liquidity.
13. UNAUDITED SUBSEQUENT EVENTS:
On October 1, 1996, Timet acquired substantially all of the assets,
including AJM's share of the Partnership, and assumed substantially all of the
liabilities of AJM for approximately $96,000.
In connection with the sale of AJM, the Partnership's lenders agreed to
continue to make the credit line available through December 31, 1996 at which
time the credit line would need to be renewed or refinanced. Therefore, the
amount due under the credit line is classified as a current liability.
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<PAGE> 186
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER MADE
HEREBY EXCEPT AS CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, NO SUCH
INFORMATION OR REPRESENTATIONS SHOULD BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY OF ITS AGENTS. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN
OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
CONVERTIBLE PREFERRED SECURITIES OR THE COMMON STOCK BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
TABLE OF CONTENTS
PAGE
----
Available Information .................................................... 4
Special Note Regarding Forward Looking Statements ........................ 4
Summary .................................................................. 5
Risk Factors ............................................................. 17
Use of Proceeds .......................................................... 25
Price Range of Common Stock .............................................. 25
Dividend Policy .......................................................... 25
TIMET Capital Trust I .................................................... 25
Accounting Treatment ..................................................... 26
Capitalization ........................................................... 27
Selected Consolidated Historical and Pro Forma Financial Data ............ 28
Management's Discussion and Analysis of Financial Condition and
Results of Operations .................................................. 31
Business ................................................................. 41
The Company .............................................................. 53
Management ............................................................... 53
Principal Stockholders ................................................... 59
Certain Relationships and Related Transactions ........................... 63
Description of the Convertible Preferred Securities ...................... 67
Description of the Guarantee ............................................. 80
Description of the Convertible Debentures ................................ 83
Effect of Obligations Under the Convertible Debentures and the Guarantee . 91
Description of Capital Stock ............................................. 92
United States Federal Income Taxation .................................... 93
Selling Holders .......................................................... 98
Selling Stockholders ..................................................... 98
Plan of Distribution ..................................................... 99
Legal Matters ............................................................ 100
Experts Independent Public Accountants ................................... 100
Index to Unaudited Pro Forma Financial Statements ........................ PF-1
Index to Financial Statements ............................................ F-1
<PAGE> 187
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Expenses of the Registrant in connection with the issuance and
distribution of the securities being registered, other than underwriting
discounts, are estimated to be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee $115,822.10
Printing and Engraving
Legal Fees and Expenses
Accounting Fees and Expenses
Fees of Transfer Agent and Registrar
Miscellaneous Expenses
-----------
Total $
===========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
INDEMNIFICATION OF DIRECTORS AND OFFICERS OF THE COMPANY
Section 102(b)(7) of the General Corporation Law of the State of
Delaware permits a Delaware corporation to limit the personal liability of its
directors in accordance with the provisions set forth therein. The Amended and
Restated Certificate of Incorporation of Titanium Metals Corporation provides
that the personal liability of its directors shall be limited to the fullest
extent permitted by applicable law.
Section 145 of the General Corporation Law of the State of Delaware
contains provisions permitting corporations organized thereunder to indemnify
directors, officers, employees or agents against expenses, judgments and fines
reasonably incurred and against certain other liabilities in connection with
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
person was or is a director, officer, employee or agent of the corporation.
The Amended and Restated Certificate of Incorporation and the By-Laws of
Titanium Metals Corporation provide for indemnification of its directors and
officers to the fullest extent permitted by applicable law.
In addition, Titanium Metals Corporation maintains an officers and
directors liability insurance policy.
INDEMNIFICATION OF DIRECTORS AND OFFICERS OF THE TRUST
The Declaration of the Trust provides that no Trustee, affiliate of
any Regular Trustee, or any officers, directors, shareholders, members,
partners, employees, representatives or agent of the Trust, or any employee or
agent of the trust or its affiliates (each an "Indemnified Person") shall be
liable, responsible or accountable in damages or otherwise to the Trust or any
employee or agent of the trust or its affiliates for any loss, damage or claim
incurred by reason of any act or omission performed or omitted by such
Indemnified Person in good faith on behalf of the Trust and in a manner such
indemnified Person reasonably believed to be within the scope of the authority
conferred on such Indemnified Person by the Declaration or by law, except that
an Indemnified Person shall be liable for any such loss, damage or claim
incurred by reason of such Indemnified Person's gross negligence (or, in the
case of the Trustee, negligence) or willful misconduct with respect to such
acts or omissions. The Declaration of the Trust also provides that to the
fullest extent permitted by applicable law, TIMET shall indemnify and hold
harmless each Indemnified Person from and against any loss, damage or claim
incurred by such Indemnified Person by reason of any act or omission performed
or omitted by such Indemnified Person in good faith on behalf of the Trust and
in a manner such Indemnified Person reasonably believed to be within the scope
of authority conferred on such Indemnified Person by the Declaration, except
that
II - 1
<PAGE> 188
no Indemnified Person shall be entitled to be indemnified in respect of any
loss, damage or claim incurred by such Indemnified Person by reason of gross
negligence (or, in the case of the Trustee, negligence) or willful misconduct
with respect to such acts or omissions. The Declaration of the Trust further
provides that, to the fullest extent permitted by applicable law, expenses
(including legal fees) incurred by an Indemnified Person in defending any
claim, demand, action, suit or proceeding shall, from time to time, be advanced
by TIMET prior to the final disposition of such claim, demand, action, suit or
proceeding upon receipt by or an undertaking by or on behalf of the Indemnified
Person to repay such amount if it shall be determined that the Indemnified
Person is not entitled to be indemnified for the underlying cause of action as
authorized by the Declaration. The directors and officers of TIMET and the
Regular Trustees are covered by insurance policies indemnifying them against
certain liabilities, including certain liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), which might be incurred by them
in such capacities and against which they cannot be indemnified by the Company
or the Trust. The Selling Holders will be indemnified by the Company and the
Trust, jointly and severally, against certain civil liabilities, including
certain liabilities under the Securities Act, or will be entitled to
contribution in connection therewith. The Company and the Trust will be
indemnified by the Selling Holders severally against certain civil liabilities,
including certain liabilities under the Securities Act, or will be entitled to
contribution in connection therewith.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The information contained in the Prospectus relating to the initial
sale of the Convertible Preferred Securities by the Trust to the Initial
Purchasers is hereby incorporated by reference.
Effective June 4, 1996, the Company issued 400 shares of Common Stock
to each of its non-employee directors, Messrs. Hutcheson, Stafford and
Tadokoro, pursuant to the Company's 1996 Non-Employee Director Compensation
Plan. Titanium Metals Corporation believes such transactions, to the extent
they constituted sales of securities, were exempt from the registration
requirements of the Securities Act of 1933 pursuant to Section 4(2) thereof.
On March 29, 1996 and effective as of February 15, 1996, the Company
completed the issuance of certain shares of Common Stock to certain executive
officers as compensation for services. J. Landis Martin, Andrew R. Dixey,
Joseph S. Compofelice, Paul J. Bania, Thomas A. Buck, John P. Monahan, Robert
E. Musgraves and Mark A. Wallace were issued 31,850, 15,925, 12,675, 6,500,
6,500, 6,500, 6,500 and 6,500 shares of Common Stock, respectively. Titanium
Metals Corporation believes such transactions, to the extent they constituted
sales of securities, were exempt from the registration requirements of the
Securities Act of 1933 pursuant to Rule 701 thereunder and Section 4(2)
thereof.
On February 15, 1996, in connection with the IMI Titanium Acquisition,
the Company issued 2,390,310 shares of Common Stock to IMI Americas Inc. and
7,170,995 shares of Common Stock to IMI Kynoch Ltd., in each case in
consideration of the transfer of such entities' titanium business to the
Company as part of the IMI Titanium Acquisition. Titanium Metals Corporation
believes such transactions were exempt from the registration requirements of
the Securities Act of 1933 pursuant to Section 4(2) thereof.
In June 1995, the Company completed a recapitalization under which,
among other things, (i) Tremont exchanged $8 million of intercompany
subordinated debt for 512,525 shares of Common Stock and (ii) UTSC exchanged $3
million of deferred interest owed by the Company to UTSC for 170,755 shares of
Common Stock. Titanium Metals Corporation believes such transactions were
exempt from the registration requirements of the Securities Act of 1933
pursuant to Sections 3(a)(9) and 4(2) thereof.
On December 31, 1993, UTSC exercised its option to convert its $75
million of subordinated debentures issued by the Company. In connection with
such exercise the Company issued UTSC a total 3,729,245 shares of Common Stock.
Titanium Metals Corporation believes such transactions were exempt from the
registration requirements of the Securities Act of 1933 pursuant to Sections
3(a)(9) and 4(2) thereof.
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<PAGE> 189
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
The following exhibits are filed pursuant to Item 601 of Regulation
S-K.
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<CAPTION>
EXHIBIT
NO. DESCRIPTION
--- -----------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of Titanium
Metals Corporation, incorporated by reference to Exhibit 3.1
to Titanium Metals Corporation's Registration Statement on S-1
(No. 333-2940).
3.2 Bylaws of Titanium Metals Corporation, incorporated by
reference to Exhibit 3.2 to Titanium Metals Corporation's
Registration Statement on S-1 (No. 333-2940).
4.1 Specimen Certificate of Common Stock, incorporated by
reference to Exhibit 4.1 to Titanium Metals Corporation's
Registration Statement on S-1 (No. 333-2940).
4.2 Certificate of Trust of TIMET Capital Trust I dated November
13, 1996, incorporated by reference to Exhibit 4.1 to Titanium
Metals Corporation's Current Report on Form 8-K filed with the
Commission on December 5, 1996.
4.3 Amended and Restated Declaration of Trust of TIMET Capital
Trust I, dated as of November 20, 1996 among Titanium Metals
Corporation, as Sponsor, The Chase Manhattan Bank, as Property
Trustee, Chase Manhattan Bank (Delaware), as Delaware Trustee
and Joseph S. Compofelice, Robert E. Musgraves and Mark A.
Wallace, as Regular Trustees, incorporated by reference to
Exhibit 4.2 to Titanium Metals Corporation's Current Report on
Form 8-K filed with the Commission on December 5, 1996.
4.4 Indenture for the 6 5/8% Convertible Subordinated Debentures,
dated as of November 20, 1996 among Titanium Metals
Corporation and The Chase Manhattan Bank, as Trustee,
incorporated by reference to Exhibit 4.3 to Titanium Metals
Corporation's Current Report on Form 8-K filed with the
Commission on December 5, 1996.
4.5 Form of 6 5/8% Convertible Preferred Securities (included in
Exhibit 4.2 above), incorporated by reference to Exhibit 4.4
to Titanium Metals Corporation's Current Report on Form 8-K
filed with the Commission on December 5, 1996.
4.6 Form of 6 5/8% Convertible Subordinated Debentures (included
in Exhibit 4.3 above), incorporated by reference to Exhibit
4.5 to Titanium Metals Corporation's Current Report on Form 8-
K filed with the Commission on December 5, 1996.
4.7 Form of 6 5/8% Trust Common Securities (included in Exhibit
4.3 above), incorporated by reference to Exhibit 4.5 to
Titanium Metals Corporation's Current Report on Form 8-K filed
with the Commission on December 5, 1996.
4.8 Convertible Preferred Securities Guarantee, dated as of
November 20, 1996, between Titanium Metals Corporation, as
Guarantor, and The Chase Manhattan Bank, as Guarantee Trustee,
incorporated by reference to Exhibit 4.6 to Titanium Metals
Corporation's Current Report on Form 8-K filed with the
Commission on December 5, 1996.
5.1 Opinion of Bartlit Beck Herman Palenchar & Scott as to the
legality of the Common Stock, the Convertible Preferred
Securities, Debentures and Convertible Preferred Guarantee
being registered hereby.*
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<PAGE> 190
<TABLE>
<S> <C>
8.1 Opinion of Kirkland & Ellis as to certain tax matters*
9.1 Shareholders' Agreement, dated February 15, 1996, among
Titanium Metals Corporation, Tremont Corporation, IMI plc, IMI
Kynoch Ltd., and IMI Americas, Inc., incorporated by reference
to Exhibit 2.2 to Tremont Corporation's Current Report on Form
8-K (No. 1-10126) filed with the Commission on March 1, 1996.
9.2 Amendment to the Shareholders' Agreement dated March 29, 1996
among Titanium Metals Corporation, Tremont Corporation, IMI
plc, IMI Kynoch Ltd., and IMI Americas Inc., incorporated by
reference to Exhibit 10.30 to Tremont Corporation's Annual
Report on Form 10-K (No. 1-10126) for the year ended
December 31, 1995.
9.3 Investors' Agreement between Union Titanium Sponge
Corporation, Toho Titanium Co., Ltd., Nippon Mining Co., Ltd.,
Mitsui & Co., Ltd., Mitsui & Co. (U.S.A.), Inc., Tremont
Corporation and Titanium Metals Corporation, dated May 30,
1990, incorporated by reference to Exhibit 10.33 of Baroid
Corporation's registration statement on Form 10 (No. 1-10624)
filed with the Commission on August 31, 1990.
9.4 Amendment No. 3 to Investors' Agreement between Union
Titanium Sponge Corporation, Toho Titanium Co., Ltd., Nippon
Mining Co., Ltd., Mitsui & Co., Ltd., Mitsui & Co., (U.S.A.),
Inc., Tremont Corporation and Titanium Metals Corporation,
dated May 30, 1990, incorporated by reference to Exhibit 9.1
to Tremont Corporation's Quarterly Report on Form 10-Q (No.
1-10126) for the quarter ended March 31, 1996.
10.1 Acquisition Agreement, dated February 15, 1996, by and between
Titanium Metals Corporation, IMI Kynoch Ltd., and IMI Americas
Inc., incorporated by reference to Exhibit 2.1 to Tremont
Corporation's Current Report on Form 8-K (No. 1-10126) filed
with the Commission on March 1, 1996.
10.2 Amended and Restated Subordinated Promissory Note, dated as of
January 1, 1996 between Titanium Metals Corporation and
Tremont Corporation, incorporated by reference to Exhibit 10.2
to Titanium Metals Corporation's Registration Statement on S-1
(No. 333-2940).
10.3 $20,000,000 Subordinated Promissory Note issued by Titanium
Metals Corporation to IMI Kynoch Ltd. dated January 1, 1996,
incorporated by reference to Exhibit 10.21 to Tremont
Corporation's Annual Report on Form 10-K (No. 1-10126) for
the year ended December 31, 1995.
10.4 Amended and Restated Subordination Agreement between Tremont
Corporation and Congress Financial Corporation dated
February 15, 1996, incorporated by reference to Exhibit 10.24
to Tremont Corporation's Annual Report on Form 10-K (No.
1-10126) for the year ended December 31, 1995.
10.5 Subordination Agreement between Tremont Corporation and
Titanium Metals Corporation dated February 15, 1996,
incorporated by reference to Exhibit 10.25 to Tremont
Corporation's Annual Report on Form 10-K (No. 1-10126) for
the year ended December 31, 1995.
10.6 Subordination Agreement between IMI Kynoch Ltd. and Titanium
Metals Corporation dated February 15, 1996, incorporated by
reference to Exhibit 10.26 to Tremont Corporation's Annual
Report on Form 10-K (No. 1-10126) for the year ended
December 31, 1995.
10.7 Subordination Agreement between Tremont Corporation and IMI
Kynoch Ltd. dated February 15, 1996, incorporated by
reference to Exhibit 10.27 to Tremont Corporation's Annual
Report on Form 10-K (No. 1-10126) for the year ended
December 31, 1995.
10.8 Subordination Agreement between IMI Kynoch Ltd. and Congress
Financial Corporation dated February 15, 1996, incorporated by
reference to Exhibit 10.28 to Tremont Corporation's Annual
Report on Form 10-K (No. 1-10126) for the year ended
December 31, 1995.
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<PAGE> 191
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10.9 $80,000,000 Amended and Restated Loan Agreement between
Titanium Metals Corporation and Congress Financial Corporation
(Central) dated March 24, 1995, incorporated by reference to
Exhibit 10.4 of Tremont Corporation's Amended Annual Report on
Form 10-K/A (No. 1-10126) for the year ended December 31,
1994.
10.10 Amendment to Amended and Restated Loan and Security Agreement
between Congress Financial Corporation and Titanium Metals
Corporation dated September 29, 1995, incorporated by
reference to Exhibit 10.16 to Tremont Corporation's Annual
Report on Form 10-K (No. 1-10126) for the year ended
December 31, 1995.
10.11 Amendment to Amended and Restated Loan and Security Agreement
between Congress Financial Corporation and Titanium Metals
Corporation dated February 15, 1996, incorporated by reference
to Exhibit 10.17 to Tremont Corporation's Annual Report on
Form 10-K (No. 1-10126) for the year ended December 31, 1995.
10.12 Sponge Purchase Agreement dated May 30, 1990 between Titanium
Metals Corporation and Union Titanium Sponge Corporation and
Amendments No. 1 and 2, incorporated by reference to
Exhibit 10.25 of Tremont Corporation's Annual Report on
Form 10-K (No. 1-10126) for the year ended December 31, 1991.
10.13 Amendment No. 3 to the Sponge Purchase Agreement dated
May 30, 1990 between Titanium Metals Corporation and Union
Titanium Sponge Corporation, incorporated by reference to
Exhibit 10.33 of Tremont Corporation's Annual Report on
Form 10-K (No. 1-10126) for the year ended December 31, 1993.
10.14 General Partnership Agreement of Titanium Hearth Technologies
between Axel Johnson Metals, Inc. and TIMET Hearth Melting
Corporation dated August 31, 1992, incorporated by reference
to Exhibit 10.34 of Tremont Corporation's Annual Report on
Form 10-K (No. 1-10126) for the year ended December 31, 1992.
10.15 Lease Agreement dated January 1, 1996 between Holford Estates
Ltd. and IMI Titanium Ltd. related to the building known as
Titanium Number 2 Plant at Witton, England, incorporated by
reference to Exhibit 10.23 to Tremont Corporation's Annual
Report on Form 10-K (No. 1-10126) for the year ended
December 31, 1995.
10.16 Purchase and Transfer Agreement dated April 27, 1990 between
Titanium Metals Corporation and Timpex AG, West KB--
Westdeutsche Kapitalbeteiligungsgesellschaft mbH, and Michael
H#uttenrauch, incorporated by reference to Exhibit 10.16 to
Titanium Metals Corporation's Registration Statement on S-1
(No. 333-2940).
10.17 Intercorporate Services Agreement between Titanium Metals
Corporation and Tremont Corporation, dated March 28, 1996,
incorporated by reference to Exhibit 10.29 to Tremont
Corporation's Annual Report on Form 10-K (No. 1-10126) for
the year ended December 31, 1995.
10.18 Tax Sharing Agreement between Tremont Corporation and Titanium
Metals Corporation dated March 13, 1990, incorporated by
reference to Exhibit 10.23 to Tremont Corporation's Annual
Report on Form 10-K (No. 1-10126) for the year ended
December 31, 1991.
10.19+ 1996 Long Term Performance Incentive Plan of Titanium Metals
Corporation, incorporated by reference to Exhibit 10.19 to
Titanium Metals Corporation's Registration Statement on S-1
(No. 333-2940).
10.20+ 1996 Non-Employee Director Compensation Plan, incorporated by
reference to Exhibit 10.20 to Titanium Metals Corporation's
Registration Statement on S-1 (No. 333-2940).
10.21+ Employment Agreement between Andrew R. Dixey and Titanium
Metals Corporation, dated February 13, 1996, incorporated by
reference to Exhibit 10.21 to Titanium Metals Corporation's
Registration Statement on S-1 (No. 333-2940).
</TABLE>
<PAGE> 192
<TABLE>
<S> <C>
10.22+ Form of Agreement relating to a grant of Management Shares
between Titanium Metals Corporation and certain executive
officers, effective as of February 15, 1996, incorporated by
reference to Exhibit 10.22 to Titanium Metals Corporation's
Registration Statement on S-1 (No. 333-2940).
10.23 Amendment No. 4 to the Sponge Purchase Agreement dated
May 30, 1990 between Titanium Metals Corporation and Union
Titanium Sponge Corporation, incorporated by reference to
Exhibit 10.1 to Tremont Corporation's Quarterly Report on Form
10-Q (No. 1-10126) for the quarter ended March 31, 1996.
10.24 Agreement, dated June 28, 1995 among Titanium Metals
Corporation, Tremont Corporation and Union Titanium Sponge
Corporation, incorporated by reference to Exhibit 10.24 to
Titanium Metals Corporation's Registration Statement on S-1
(No. 333-2940).
10.25 L10 million short term credit facility of TIMET UK, Ltd with
Lloyd's Bank, incorporated by reference to Exhibit 10.2 to
Tremont Corporation's Quarterly Report on Form 10-Q (No.
1-10126) for the quarter ended March 31, 1996.
10.26 Amendment to Amended and Restated Loan and Security Agreement
between Congress Financial Corporation (Central) and Titanium
Metals Corporation dated May 31, 1996, incorporated by
reference to Exhibit 10.26 to Titanium Metals Corporation's
Registration Statement on S-1 (No. 333-2940).
10.27 Amended and Restated Term Promissory Note in the principal
amount of $10,150,000 issued by Titanium Metals Corporation to
Congress Financial Corporation (Central) dated May 31, 1996,
incorporated by reference to Exhibit 10.27 to Titanium Metals
Corporation's Registration Statement on S-1 (No. 333-2940).
10.28 Amended and Restated Term-B Promissory Note in the principal
amount of $13,000,000 issued by Titanium Metals Corporation to
Congress Financial Corporation (Central) dated May 31, 1996,
incorporated by reference to Exhibit 10.28 to Titanium Metals
Corporation's Registration Statement on S-1 (No. 333-2940).
10.29 First Amendment to Subordination Agreement by and between IMI
Kynoch, Ltd. and Congress Financial Corporation (Central)
dated May 31, 1996, incorporated by reference to Exhibit 10.29
to Titanium Metals Corporation's Registration Statement on S-1
(No. 333-2940).
10.30 First Amendment to Amended and Restated Subordination
Agreement by and between Tremont Corporation and Congress
Financial Corporation (Central) dated May 31, 1996,
incorporated by reference to Exhibit 10.30 to Titanium Metals
Corporation's Registration Statement on S-1 (No. 333-2940).
10.31 Asset Purchase Agreement, dated October 1, 1996, by and
between Titanium Metals Corporation and Axel Johnson Metals,
Inc., incorporated by reference to Exhibit 2.1 to Titanium
Metals Corporation's Current Report on Form 8-K filed with the
Commission on October 16, 1996.
10.32 Purchase Agreement, dated November 20, 1996, between Titanium
Metals Corporation, TIMET Capital Trust I, Salomon Brothers
Inc, Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Morgan Stanley & Co. Incorporated, as Initial Purchasers,
incorporated by reference to Exhibit 99.1 to Titanium Metals
Corporation's Current Report on Form 8-K filed with the
Commission on December 5, 1996.
10.33 Registration Agreement, dated November 20, 1996, between TIMET
Capital Trust I and Salomon Brothers Inc, as Representative of
the Initial Purchasers, incorporated by reference to Exhibit
99.1 to Titanium Metals Corporation's Current Report on Form
8-K filed with the Commission on December 5, 1996.
10.34 Amendment to Amended and Restated Loan and Security Agreement
between Congress Financial Corporation and Titanium Metals
Corporation dated November 26, 1996.
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<PAGE> 193
<TABLE>
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11.1 Statement Regarding Computation of Per Share Income (Loss).
12.1 Statement Regarding Computation of Ratios.
21.1 Subsidiaries of Titanium Metals Corporation.
23.1 Consent of Bartlit Beck Herman Palenchar & Scott is contained
in the opinion filed as Exhibit 5.1.
23.2 Consent of Kirkland & Ellis is contained in the opinion filed
as Exhibit 8.1.
23.3 Consent of Coopers & Lybrand L.L.P.
23.4 Consent of KPMG Peat Marwick LLP.
23.5 Consent of Price Waterhouse LLP.
23.6 Consent of Price Waterhouse LLP.
23.7 Awareness Letter of Coopers & Lybrand L.L.P.
23.8 Awareness Letter of Price Waterhouse LLP.
24.1 Limited Powers of Attorney -- included in Part II of the
Registration Statement.
25.1* Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939, as amended, of The Chase Manhattan Bank, as
Trustee under the 6 5/8% Convertible Subordinated Debentures
Indenture
25.2* Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939, as amended, of The Chase Manhattan Bank, as
Property Trustee under the Amended and Restated Declaration of
Trust
25.3* Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939, as amended, of The Chase Manhattan Bank, as
Guarantee Trustee under the Convertible Preferred Securities
Guarantee
27.1 Financial Data Schedule.
</TABLE>
+ Management contract, compensatory plan or arrangement
* To be filed by Amendment
(b) Financial Statement Schedules.
The following financial statement schedules for each of the three
years in the period ended December 31, 1995 are filed with this Registration
Statement.
Report of Independent Accountants on Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, post-effective amendment to this registration statement:
<PAGE> 194
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof)which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3, Form S-8 or Form
F-3, and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed
by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in
the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities which remain unsold at the termination of the
offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(d) The undersigned registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the trustee to act under subsection
(a) of section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under section 305(b)(2) of the Trust
Indenture Act.
<PAGE> 195
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, Titanium Metals Corporation has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Denver, State of Colorado, as of December 26, 1996.
TITANIUM METALS CORPORATION
By: /s/ ROBERT E. MUSGRAVES
---------------------------------
Its: Vice President - Administration
and General Counsel
--------------------------------
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints J. Landis Martin, Joseph S. Compofelice,
Robert E. Musgraves and J. Thomas Montgomery, Jr., and each of them, his true
and lawful attorneys-in-fact and agents, each with full power of substitution
and resubstitution, for him and in his name, place, and stead, as a director
and in any and all other capacities with Titanium Metals Corporation (the
"Company"), to execute for and on behalf of the undersigned the Registration
Statement on Form S-1 (the "Registration Statement") relating to the 6 5/8%
Convertible Preferred Securities, Beneficial Unsecured Convertible Securities
(BUCS) issued by TIMET Capital Trust I, the shares of Common Stock of the
Company issuable upon conversion thereof, the 6 5/8% Convertible Debentures
issued by the Company, and the guarantee of the Company entered into in
connection therewith, and any and all amendments thereto, and any subsequent
registration statement filed by the Company pursuant to Rule 462(b) of the
Securities Act of 1933, as amended, which relates to this Registration
Statement, and to deliver and file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, and with each exchange on which any class of securities of the
Company is or is to be registered, granting unto said attorney-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ J. LANDIS MARTIN Chairman of the Board and December 26, 1996
- ------------------------------------- Chief Executive Officer
J. Landis Martin
/s/ ANDREW R. DIXEY President, Chief Operating December 26, 1996
- ------------------------------------- Officer and Director
Andrew R. Dixey
/s/ JOSEPH S. COMPOFELICE Vice President, Chief Financial December 26, 1996
- ------------------------------------- Officer and Director
Joseph S. Compofelice (Principal Financial Officer)
/s/ EDWARD C. HUTCHESON, JR. Director December 26, 1996
- -------------------------------------
Edward C. Hutcheson, Jr.
/s/ GENERAL THOMAS P. STAFFORD Director December 26, 1996
- -------------------------------------
General Thomas P. Stafford
/s/ YUKIJI TADOKORO Director December 26, 1996
- -------------------------------------
Yukiji Tadokoro
/s/ J. THOMAS MONTGOMERY, JR. Vice President--Finance and December 26, 1996
- ------------------------------------- Treasurer (Principal Accounting Officer)
J. Thomas Montgomery, Jr.
</TABLE>
<PAGE> 196
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, TIMET Capital Trust I has duly caused this Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Denver, State of Colorado, as of December 26, 1996.
TIMET CAPITAL TRUST I
By: /s/ JOSEPH S. COMPOFELICE
-----------------------------------
Joseph S. Compofelice, Regular Trustee
By: /s/ ROBERT E. MUSGRAVES
-----------------------------------
Robert E. Musgraves, Regular Trustee
By: /s/ MARK A. WALLACE
-----------------------------------
Mark A. Wallace, Regular Trustee
<PAGE> 197
TITANIUM METALS CORPORATION AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
CHARGED
BALANCE AT (CREDITED) TO BALANCE
BEGINNING COST AND AT END OF
OF YEAR EXPENSES DEDUCTIONS YEAR
------- -------- ---------- ----
<S> <C> <C> <C> <C>
Nine-months ended September 29, 1996:
Allowance for doubtful accounts $ 3,620 $ 2,827 $(2,827)(a) $ 3,620
======= ======= ======= =======
Valuation allowance for deferred
income taxes $22,677 $ - $ 4,453 $18,224
======= ======= ======= =======
Reserve for excess and slow moving
inventories $ 6,000 $ - $ 2,500 $ 3,500
======= ======= ======= =======
Year ended December 31, 1995:
Allowance for doubtful accounts $ 3,143 $ 2,453 $ 1,976 (a) $ 3,620
======= ======= ======= =======
Valuation allowance for deferred
income taxes $23,600 $ (923) $ - $22,677
======= ======= ======= =======
Reserve for excess and slow moving
inventories $ 5,000 $ 1,000 $ - $ 6,000
======= ======= ======= =======
Year ended December 31, 1994:
Allowance for doubtful accounts $ 2,143 $ 4,007 $ 3,007 (a) $ 3,143
======= ======= ======= =======
Valuation allowance for deferred
income taxes $ 8,910 $14,690 $ - $23,600
======= ======= ======= =======
Reserve for excess and slow moving
inventories $ - $ 5,000 $ - $ 5,000
======= ======= ======= =======
Year ended December 31, 1993:
Allowance for doubtful accounts $ 1,543 $ 3,723 $ 3,123 (a) $ 2,143
======= ======= ======= =======
Valuation allowance for deferred
income taxes $ 1,101 $ 7,809 $ - $ 8,910
======= ======= ======= =======
Reserve for excess and slow moving
inventories $ - $ - $ - $ -
======= ======= ======= =======
</TABLE>
(a) Amounts written off less recoveries.
<PAGE> 198
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Exhibit Description
- ------- -------------------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of Titanium Metals Corporation, incorporated by reference to Exhibit 3.1
to Titanium Metals Corporation's Registration Statement on S-1 (No. 333-2940).
3.2 Bylaws of Titanium Metals Corporation, incorporated by reference to Exhibit 3.2 to Titanium Metals Corporation's
Registration Statement on S-1 (No. 333-2940).
4.1 Specimen Certificate of Common Stock, incorporated by reference to Exhibit 4.1 to Titanium Metals Corporation's
Registration Statement on S-1 (No. 333-2940).
4.2 Certificate of Trust of TIMET Capital Trust I dated November 13, 1996, incorporated by reference to Exhibit 4.1 to Titanium
Metals Corporation's Current Report on Form 8-K filed with the Commission on December 5, 1996.
4.3 Amended and Restated Declaration of Trust of TIMET Capital Trust I, dated as of November 20, 1996 among Titanium Metals
Corporation, as Sponsor, The Chase Manhattan Bank, as Property Trustee, Chase Manhattan Bank (Delaware), as Delaware
Trustee and Joseph S. Compofelice, Robert E. Musgraves and Mark A. Wallace, as Regular Trustees, incorporated by reference
to Exhibit 4.2 to Titanium Metals Corporation's Current Report on Form 8-K filed with the Commission on December 5, 1996.
4.4 Indenture for the 6 5/8% Convertible Subordinated Debentures, dated as of November 20, 1996 among Titanium Metals
Corporation and The Chase Manhattan Bank, as Trustee, incorporated by reference to Exhibit 4.3 to Titanium Metals
Corporation's Current Report on Form 8-K filed with the Commission on December 5, 1996.
4.5 Form of 6 5/8% Convertible Preferred Securities (included in Exhibit 4.2 above), incorporated by reference to Exhibit 4.4
to Titanium Metals Corporation's Current Report on Form 8-K filed with the Commission on December 5, 1996.
4.6 Form of 6 5/8% Convertible Subordinated Debentures (included in Exhibit 4.3 above), incorporated by reference to Exhibit
4.5 to Titanium Metals Corporation's Current Report on Form 8-K filed with the Commission on December 5, 1996.
4.7 Form of 6 5/8% Trust Common Securities (included in Exhibit 4.3 above), incorporated by reference to Exhibit 4.5 to
Titanium Metals Corporation's Current Report on Form 8-K filed with the Commission on December 5, 1996.
4.8 Convertible Preferred Securities Guarantee, dated as of November 20, 1996, between Titanium Metals Corporation, as
Guarantor, and The Chase Manhattan Bank, as Guarantee Trustee, incorporated by reference to Exhibit 4.6 to Titanium Metals
Corporation's Current Report on Form 8-K filed with the Commission on December 5, 1996.
5.1 Opinion of Bartlit Beck Herman Palenchar & Scott as to the legality of the Common Stock, the Convertible Preferred
Securities, Debentures and Convertible Preferred Guarantee being registered hereby.*
8.1 Opinion of Kirkland & Ellis as to certain tax matters*
9.1 Shareholders' Agreement, dated February 15, 1996, among Titanium Metals Corporation, Tremont Corporation, IMI plc, IMI
Kynoch Ltd., and IMI Americas, Inc., incorporated by reference to Exhibit 2.2 to Tremont Corporation's Current Report on
Form 8-K (No. 1-10126) filed with the Commission on March 1, 1996.
9.2 Amendment to the Shareholders' Agreement dated March 29, 1996 among Titanium Metals Corporation, Tremont Corporation, IMI
plc, IMI Kynoch Ltd., and IMI Americas Inc., incorporated by reference to Exhibit 10.30 to Tremont Corporation's Annual
Report on Form 10-K (No. 1-10126) for the year ended December 31, 1995.
9.3 Investors' Agreement between Union Titanium Sponge Corporation, Toho Titanium Co., Ltd., Nippon Mining Co., Ltd., Mitsui &
Co., Ltd., Mitsui & Co. (U.S.A.), Inc., Tremont Corporation and Titanium Metals Corporation, dated May 30, 1990,
incorporated by reference to Exhibit 10.33 of Baroid Corporation's registration statement on Form 10 (No. 1-10624) filed
with the Commission on August 31, 1990.
9.4 Amendment No. 3 to Investors' Agreement between Union Titanium Sponge Corporation, Toho Titanium Co., Ltd., Nippon Mining
Co., Ltd., Mitsui & Co., Ltd., Mitsui & Co., (U.S.A.), Inc., Tremont Corporation and Titanium Metals Corporation, dated
May 30, 1990, incorporated by reference to Exhibit 9.1 to Tremont Corporation's Quarterly Report on Form 10-Q (No.
1-10126) for the quarter ended March 31, 1996.
</TABLE>
<PAGE> 199
<TABLE>
<CAPTION>
Exhibit
No. Exhibit Description
- ------- -------------------
<S> <C>
10.1 Acquisition Agreement, dated February 15, 1996, by and between Titanium Metals Corporation, IMI Kynoch Ltd., and IMI
Americas Inc., incorporated by reference to Exhibit 2.1 to Tremont Corporation's Current Report on Form 8-K (No. 1-10126)
filed with the Commission on March 1, 1996.
10.2 Amended and Restated Subordinated Promissory Note, dated as of January 1, 1996 between Titanium Metals Corporation and
Tremont Corporation, incorporated by reference to Exhibit 10.2 to Titanium Metals Corporation's Registration Statement on
S-1 (No. 333-2940).
10.3 $20,000,000 Subordinated Promissory Note issued by Titanium Metals Corporation to IMI Kynoch Ltd. dated January 1, 1996,
incorporated by reference to Exhibit 10.21 to Tremont Corporation's Annual Report on Form 10-K (No. 1-10126) for the year
ended December 31, 1995.
10.4 Amended and Restated Subordination Agreement between Tremont Corporation and Congress Financial Corporation dated
February 15, 1996, incorporated by reference to Exhibit 10.24 to Tremont Corporation's Annual Report on Form 10-K (No.
1-10126) for the year ended December 31, 1995.
10.5 Subordination Agreement between Tremont Corporation and Titanium Metals Corporation dated February 15, 1996, incorporated
by reference to Exhibit 10.25 to Tremont Corporation's Annual Report on Form 10-K (No. 1-10126) for the year ended
December 31, 1995.
10.6 Subordination Agreement between IMI Kynoch Ltd. and Titanium Metals Corporation dated February 15, 1996, incorporated by
reference to Exhibit 10.26 to Tremont Corporation's Annual Report on Form 10-K (No. 1-10126) for the year ended
December 31, 1995.
10.7 Subordination Agreement between Tremont Corporation and IMI Kynoch Ltd. dated February 15, 1996, incorporated by reference
to Exhibit 10.27 to Tremont Corporation's Annual Report on Form 10-K (No. 1-10126) for the year ended December 31, 1995.
10.8 Subordination Agreement between IMI Kynoch Ltd. and Congress Financial Corporation dated February 15, 1996, incorporated by
reference to Exhibit 10.28 to Tremont Corporation's Annual Report on Form 10-K (No. 1-10126) for the year ended
December 31, 1995.
10.9 $80,000,000 Amended and Restated Loan Agreement between Titanium Metals Corporation and Congress Financial Corporation
(Central) dated March 24, 1995, incorporated by reference to Exhibit 10.4 of Tremont Corporation's Amended Annual Report on
Form 10-K/A (No. 1-10126) for the year ended December 31, 1994.
10.10 Amendment to Amended and Restated Loan and Security Agreement between Congress Financial Corporation and Titanium Metals
Corporation dated September 29, 1995, incorporated by reference to Exhibit 10.16 to Tremont Corporation's Annual Report on
Form 10-K (No. 1-10126) for the year ended December 31, 1995.
10.11 Amendment to Amended and Restated Loan and Security Agreement between Congress Financial Corporation and Titanium Metals
Corporation dated February 15, 1996, incorporated by reference to Exhibit 10.17 to Tremont Corporation's Annual Report on
Form 10-K (No. 1-10126) for the year ended December 31, 1995.
10.12 Sponge Purchase Agreement dated May 30, 1990 between Titanium Metals Corporation and Union Titanium Sponge Corporation and
Amendments No. 1 and 2, incorporated by reference to Exhibit 10.25 of Tremont Corporation's Annual Report on Form 10-K
(No. 1-10126) for the year ended December 31, 1991.
10.13 Amendment No. 3 to the Sponge Purchase Agreement dated May 30, 1990 between Titanium Metals Corporation and Union Titanium
Sponge Corporation, incorporated by reference to Exhibit 10.33 of Tremont Corporation's Annual Report on Form 10-K (No.
1-10126) for the year ended December 31, 1993.
10.14 General Partnership Agreement of Titanium Hearth Technologies between Axel Johnson Metals, Inc. and TIMET Hearth Melting
Corporation dated August 31, 1992, incorporated by reference to Exhibit 10.34 of Tremont Corporation's Annual Report on
Form 10-K (No. 1-10126) for the year ended December 31, 1992.
</TABLE>
<PAGE> 200
<TABLE>
<CAPTION>
Exhibit
No. Exhibit Description
- ------- -------------------
<S> <C>
10.15 Lease Agreement dated January 1, 1996 between Holford Estates Ltd. and IMI Titanium Ltd. related to the building known as
Titanium Number 2 Plant at Witton, England, incorporated by reference to Exhibit 10.23 to Tremont Corporation's Annual
Report on Form 10-K (No. 1-10126) for the year ended December 31, 1995.
10.16 Purchase and Transfer Agreement dated April 27, 1990 between Titanium Metals Corporation and Timpex AG, West KB--
Westdeutsche Kapitalbeteiligungsgesellschaft mbH, and Michael H#uttenrauch, incorporated by reference to Exhibit 10.16 to
Titanium Metals Corporation's Registration Statement on S-1 (No. 333-2940).
10.17 Intercorporate Services Agreement between Titanium Metals Corporation and Tremont Corporation, dated March 28, 1996,
incorporated by reference to Exhibit 10.29 to Tremont Corporation's Annual Report on Form 10-K (No. 1-10126) for the year
ended December 31, 1995.
10.18 Tax Sharing Agreement between Tremont Corporation and Titanium Metals Corporation dated March 13, 1990, incorporated by
reference to Exhibit 10.23 to Tremont Corporation's Annual Report on Form 10-K (No. 1-10126) for the year ended
December 31, 1991.
10.19+ 1996 Long Term Performance Incentive Plan of Titanium Metals Corporation, incorporated by reference to Exhibit 10.19 to
Titanium Metals Corporation's Registration Statement on S-1 (No. 333-2940).
10.20+ 1996 Non-Employee Director Compensation Plan, incorporated by reference to Exhibit 10.20 to Titanium Metals Corporation's
Registration Statement on S-1 (No. 333-2940).
10.21+ Employment Agreement between Andrew R. Dixey and Titanium Metals Corporation, dated February 13, 1996, incorporated by
reference to Exhibit 10.21 to Titanium Metals Corporation's Registration Statement on S-1 (No. 333-2940).
10.22+ Form of Agreement relating to a grant of Management Shares between Titanium Metals Corporation and certain executive
officers, effective as of February 15, 1996, incorporated by reference to Exhibit 10.22 to Titanium Metals Corporation's
Registration Statement on S-1 (No. 333-2940).
10.23 Amendment No. 4 to the Sponge Purchase Agreement dated May 30, 1990 between Titanium Metals Corporation and Union Titanium
Sponge Corporation, incorporated by reference to Exhibit 10.1 to Tremont Corporation's Quarterly Report on Form 10-Q (No.
1-10126) for the quarter ended March 31, 1996.
10.24 Agreement, dated June 28, 1995 among Titanium Metals Corporation, Tremont Corporation and Union Titanium Sponge
Corporation, incorporated by reference to Exhibit 10.24 to Titanium Metals Corporation's Registration Statement on S-1 (No.
333-2940).
10.25 L10 million short term credit facility of TIMET UK, Ltd with Lloyd's Bank, incorporated by reference to Exhibit 10.2 to
Tremont Corporation's Quarterly Report on Form 10-Q (No. 1-10126) for the quarter ended March 31, 1996.
10.26 Amendment to Amended and Restated Loan and Security Agreement between Congress Financial Corporation (Central) and Titanium
Metals Corporation dated May 31, 1996, incorporated by reference to Exhibit 10.26 to Titanium Metals Corporation's
Registration Statement on S-1 (No. 333-2940).
10.27 Amended and Restated Term Promissory Note in the principal amount of $10,150,000 issued by Titanium Metals Corporation to
Congress Financial Corporation (Central) dated May 31, 1996, incorporated by reference to Exhibit 10.27 to Titanium Metals
Corporation's Registration Statement on S-1 (No. 333-2940).
10.28 Amended and Restated Term-B Promissory Note in the principal amount of $13,000,000 issued by Titanium Metals Corporation to
Congress Financial Corporation (Central) dated May 31, 1996, incorporated by reference to Exhibit 10.28 to Titanium Metals
Corporation's Registration Statement on S-1 (No. 333-2940).
10.29 First Amendment to Subordination Agreement by and between IMI Kynoch, Ltd. and Congress Financial Corporation (Central)
dated May 31, 1996, incorporated by reference to Exhibit 10.29 to Titanium Metals Corporation's Registration Statement on
S-1 (No. 333-2940).
</TABLE>
<PAGE> 201
<TABLE>
<CAPTION>
Exhibit
No. Exhibit Description
- ------- -------------------
<S> <C>
10.30 First Amendment to Amended and Restated Subordination Agreement by and between Tremont Corporation and Congress Financial
Corporation (Central) dated May 31, 1996, incorporated by reference to Exhibit 10.30 to Titanium Metals Corporation's
Registration Statement on S-1 (No. 333-2940).
10.31 Asset Purchase Agreement, dated October 1, 1996, by and between Titanium Metals Corporation and Axel Johnson
Metals, Inc., incorporated by reference to Exhibit 2.1 to Titanium Metals Corporation's Current Report on Form 8-K filed
with the Commission on October 16, 1996.
10.32 Purchase Agreement, dated November 20, 1996, between Titanium Metals Corporation, TIMET Capital Trust I, Salomon Brothers
Inc, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co. Incorporated, as Initial Purchasers,
incorporated by reference to Exhibit 99.1 to Titanium Metals Corporation's Current Report on Form 8-K filed with the
Commission on December 5, 1996.
10.33 Registration Agreement, dated November 20, 1996, between TIMET Capital Trust I and Salomon Brothers Inc, as Representative
of the Initial Purchasers, incorporated by reference to Exhibit 99.1 to Titanium Metals Corporation's Current Report on
Form 8-K filed with the Commission on December 5, 1996.
10.34 Amendment to Amended and Restated Loan and Security Agreement between Congress Financial Corporation and Titanium Metals
Corporation dated November 26, 1996.
11.1 Statement Regarding Computation of Per Share Income (Loss).
12.1 Statement Regarding Computation of Ratios.
21.1 Subsidiaries of Titanium Metals Corporation.
23.1 Consent of Bartlit Beck Herman Palenchar & Scott is contained in the opinion filed as Exhibit 5.1.
23.2 Consent of Kirkland & Ellis is contained in the opinion filed as Exhibit 8.1.
23.3 Consent of Coopers & Lybrand L.L.P.
23.4 Consent of KPMG Peat Marwick LLP.
23.5 Consent of Price Waterhouse LLP.
23.6 Consent of Price Waterhouse LLP.
23.7 Awareness Letter of Coopers & Lybrand L.L.P.
23.8 Awareness Letter of Price Waterhouse LLP.
24.1 Limited Powers of Attorney -- included in Part II of the Registration Statement.
25.1* Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of The Chase Manhattan Bank, as
Trustee under the 6 5/8% Convertible Subordinated Debentures Indenture
25.2* Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of The Chase Manhattan Bank, as
Property Trustee under the Amended and Restated Declaration of Trust
25.3* Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of The Chase Manhattan Bank, as
Guarantee Trustee under the Convertible Preferred Securities Guarantee
27.1 Financial Data Schedule.
+ Management Contract, compensatory plan or arrangement
* To be filed by Amendment
</TABLE>
<PAGE> 1
EXHIBIT 10.34
AMENDMENT TO AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
This AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT (this "Amendment") is dated as of November 26, 1996 and made by and
between Congress Financial Corporation (Central) ("Lender") and Titanium Metals
Corporation ("Borrower").
R E C I T A L S:
WHEREAS, Lender and Borrower are parties to that certain
Amended and Restated Loan and Security Agreement, dated as of March 24, 1995
(as amended as of September 29, 1995, February 15, 1996, May 31, 1996 and
October 1, 1996, the "Loan Agreement"; capitalized terms used and not defined
herein shall have the meanings assigned to them in the Loan Agreement as
amended hereby);
WHEREAS, Borrower desires to issue 6-5/8% Convertible Junior
Subordinated Debentures due 2026 in an aggregate principal amount not to exceed
$207,474,300 pursuant to that certain Indenture, dated as of November 20, 1996,
by and between Borrower, as issuer, and The Chase Manhattan Bank, as trustee
(the "Debt Offering"); and
WHEREAS, Borrower and Lender desire to amend the Loan
Agreement to allow Borrower to accomplish the Debt Offering upon the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
Section 1. Amendment. Immediately upon the satisfaction of
1
<PAGE> 2
each of the conditions precedent set forth in Section 2 of this Amendment, the
Loan Agreement is hereby amended as follows:
(a) Section 9.9. Section 9.9 of the Loan Agreement is hereby
amended as follows:
i) Section 9.9 of the Loan Agreement is hereby
amended by deleting the word "and" that
immediately follows Section 9.9(e) and adding
the following new Sections 9.9(g) and 9.9(h)
immediately after Section 9.9(f) and before
the words "; provided that":
", (g) indebtedness evidenced by
Borrower's 6-5/8% Convertible Junior
Subordinated Debentures (the
"Subordinated Debentures") due 2026 in
an aggregate principal amount not to
exceed $207,474,300, issued pursuant
to that certain Indenture, dated as of
November 20, 1996, by and between
Borrower, as issuer, and The Chase
Manhattan Bank, as trustee (the
"Indenture"), the payment of which
such Subordinated Debentures is
subordinated in all respects to the
prior payment in full in cash of the
Obligations and (h) obligations under
that certain Convertible Preferred
Securities Guarantee Agreement, dated
as of November 20, 1996, by Borrower
and The Chase Manhattan Bank with
respect to those certain 6-5/8%
Convertible Preferred Securities,
Beneficial Unsecured Convertible
Securities (BUCS) in accordance with
the terms of the Indenture (as in
effect on November 26, 1996)";
ii) Subsection (v) of the proviso of Section 9.9
of the Loan Agreement is hereby amended by
deleting the "(e)" that appears therein and
2
<PAGE> 3
replacing it with "(h)"; and
iii) Subsection (vi) of the proviso of Section 9.9
of the Loan Agreement is hereby amended by
deleting the phrase "and (e)" that appears
therein and replacing it with the phrase ",
(e), (f), (g) and (h)".
(b) Section 9.10. Section 9.10(o) of the Loan Agreement and the
word "and" immediately preceding it are hereby deleted in their
entirety and replaced with the following Sections 9.10(o) and (p):
"; (o) creation of TIMET Capital Trust I, a statutory business
trust formed under the laws of the State of Delaware (the
"Trust"), pursuant to the terms of that certain Amended and
Restated Declaration of Trust of TIMET Capital Trust I, dated
as of November 20, 1996, by and among The Chase Manhattan
Bank, as property trustee, Joseph S. Compofelice, Robert E.
Musgraves and Mark A. Wallace, as regular trustees, and Chase
Manhattan Bank (Delaware), as Delaware trustee, and Borrower,
as trust sponsor, and investments in the Trust contemplated by
the Indenture (as in effect on November 26, 1996); and (p)
additional investments after October 1, 1996 that do not
exceed $5,000,000 in the aggregate (including, without
limitation, guarantees of debt in excess of $1,300,000 of
Tisto to one or more of Tisto's existing shareholders).";
Section 2. Conditions to Effectiveness of Amendment. The effectiveness
of this Amendment is subject to the satisfaction of the following conditions
precedent:
3
<PAGE> 4
2.1 Documents.
(a) Amendment. Lender shall have received a duly
executed counterpart of this Amendment from Borrower.
(b) Consent from Guarantors. Lender shall have received
a duly executed counterpart to a consent to this Amendment
from each of Titanium Hearth Technologies, Inc., a Delaware
corporation, TIMET Castings Corporation, an Oregon
corporation, and TIMET Hearth Melting Corporation, a Colorado
corporation.
2.3. Consents, Licenses, Approval, etc. All consents, licenses and
approvals, if any, required in connection with the execution, delivery and
performance by the Borrower of this Amendment or the Loan Agreement, as amended
by this Amendment, or the validity or enforceability thereof, or in connection
with any of the transactions effected pursuant to this Amendment or the Loan
Agreement, as amended by this Amendment, shall be in full force and effect.
(a)
2.4. No Injunction. No law or regulation shall have been adopted, no
order, judgment or decree of any governmental authority shall have been issued,
and no litigation shall be pending or threatened, which in the reasonable
judgment of Lender would enjoin, prohibit or restrain, or impose or result in
the imposition of any material adverse condition upon, the execution, delivery
or performance by the Borrower of this Amendment or the Loan Agreement, as
amended by this Amendment.
Section 3. Representations and Warranties. In order to induce Lender to enter
into this Amendment, Borrower represents and warrants to Lender, upon the
effectiveness of this Amendment, which representations and warranties shall
survive the execution and delivery of this Amendment, that:
3.1. No Default; etc. No Event of Default and no event or condition
which, merely with notice or the passage of
4
<PAGE> 5
time or both, would constitute an Event of Default, has occurred and is
continuing after giving effect to this Amendment or would result from the
execution or delivery of this Amendment or the consummation of the transactions
contemplated hereby.
3.2. Corporate Power and Authority: Authorization. Borrower has the
corporate power and authority to execute and deliver this Amendment and to
carry out the terms and provisions of the Loan Agreement, as amended by this
Amendment, and the execution and delivery by Borrower of the Loan Agreement, as
amended by this Amendment, and the performance by Borrower of its obligations
hereunder and thereunder have been duly authorized by all requisite corporate
action by Borrower.
3.3. Execution and Delivery. Borrower has duly executed and
delivered this Amendment.
3.4 Enforceability. This Amendment and the Loan Agreement, as
amended by this Amendment, constitute the legal, valid and binding obligations
of Borrower, enforceable against Borrower in accordance with their respective
terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' right generally, and by general principles of equity.
3.5. Representations and Warranties. All of the
representations and warranties contained in the Loan Agreement and in the
Financing Agreements (other than those which speak expressly only as of a
different date) are true and correct as of the date hereof after giving effect
to this Amendment, the transactions contemplated hereby. The parties hereto
acknowledge that Section 12 of the Information Certificate has not been revised
in connection with this Amendment to reflect changes that have occurred after
May 31, 1996.
Section 4. Miscellaneous.
5
<PAGE> 6
4.1 Effect; Ratification. The amendment set forth herein is
effective solely for the purposes set forth herein and shall be limited
precisely as written, and shall not be deemed to (i) be a consent to any
amendment, waiver or modification of any other term or condition of the Loan
Agreement or of any other Financing Agreement or (ii) prejudice any right or
rights that Lender may now have or may have in the future under or in
connection with the Loan Agreement or any other Financing Agreement. Each
reference in the Loan Agreement to "this Agreement," "herein," "hereof" and
words of like import and each reference in the other Financing Agreements to
the "Loan Agreement" shall mean the Loan Agreement as amended hereby. This
Amendment shall be construed in connection with and as part of the Loan
Agreement and all terms, conditions, representations, warranties, covenants and
agreements set forth in the Loan Agreement and each other Financing Agreement,
except as herein amended or waived, are hereby ratified and confirmed and shall
remain in full force and effect.
4.2 Counterparts. This Amendment may be executed in any number of
counterparts, each such counterpart constituting an original but all together
one and the same instrument.
4.3 GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
ILLINOIS.
[SIGNATURE PAGE FOLLOWS]
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the date first above written.
CONGRESS FINANCIAL CORPORATION (CENTRAL)
By:
---------------------------------
Title:
------------------------------
TITANIUM METALS CORPORATION
By:
---------------------------------
Title:
------------------------------
<PAGE> 1
EXHIBIT 11.1
TITANIUM METALS CORPORATION AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE INCOME (LOSS)
(in thousands, except per share amounts)
PRIMARY LOSS PER SHARE (1)
<TABLE>
<CAPTION>
Supplemental Earnings per
Share (2)
--------------------------
Nine-Month
period ended
Fiscal Year Fiscal Year Fiscal Year Fiscal Year September 29,
1993 1994 1995 1995 1996
---------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Income (Loss) before cumulative effect of a
change in accounting principle . . . . . . . . $ (20,207) $ (42,077) $ (4,217) $ 4,114 $ 28,923
Cumulative effect of a change in accounting
principle . . . . . . . . . . . . . . . . . . --- (1,000) --- --- ---
---------- ---------- ---------- -------- ----------
Net income (loss) . . . . . . . . . $ (20,207) $ (43,077) $ (4,217) $ 4,114 $ (28,923)
========== ========== ========== ======== ==========
Weighted average shares outstanding (3). . . 11,239 14,917 15,290 20,680 31,642
Common Stock issued to management within
one year of the offering (4) . . . . . . . . . 93 93 93 93 93
---------- ---------- ---------- -------- ----------
Total weighted average shares outstanding . 11,332 15,010 15,383 20,773 31,735
========== ========== ========== ======== ==========
Per common share:
Income (loss) before cumulative effect of a
change in accounting principle . . . . . $ (1.78) $ (2.80) $ (.27) $ .20 $ .90
Cumulative effect of a change in accounting
principle . . . . . . . . . . . . . . . --- (.07) --- --- ---
---------- ---------- ---------- -------- ----------
Net Income (loss) . . . . . . . . . . . . $ (1.78) $ (2.80) $ (.27) $ .20 $ .90
========== ========== ========== ======== ==========
</TABLE>
___________________________
(1) Primary loss per share and fully diluted loss per share are the same.
(2) Gives effect to the offerings as of the beginning of the periods presented
and gives effect to the use of proceeds of the offerings as discussed elsewhere
in this Registration Statement. See Note 9 to the Company's Consolidated
Financial Statements.
(3) Based on the weighted average number of shares of Common Stock outstanding
after giving effect to the stock split effected in connection with the Stock
Offering.
(4) Certain key executive officers of the Company received an aggregate of
approximately 93,000 shares of Common Stock effective February 15, 1996 as
partial consideration for their services in connection with the IMI Titanium
Acquisition.
<PAGE> 1
EXHIBIT 12.1
TITANIUM METALS CORPORATION AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF RATIOS
(in millions)
<TABLE>
<CAPTION>
FISCAL YEARS NINE MONTHS ENDED
------------ -----------------
PRO FORMA OCT. 1, SEPT. 29,
1991 1992 1993 1994 1995 1995(11) 1995 1996(12)
---- ---- ---- ---- ---- -------- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Debt to total capitalization(1) 49.00% 76.00% 41.00% 59.00% 57.00% 58.00% 4.00%
Ratio of EBITDA to interest expense(2) 2.1 1.8 1.2 7.0
Ratio of earnings to fixed charges (3) 3.5
</TABLE>
(1) For purposes of calculating the debt to total capitalization ratio, total
debt is divided by the sum of minority interest plus total stockholder's
equity.
(2) The Company's EBITDA was insufficient to cover interest expense for the
fiscal years ended 1992, 1993 and 1994. The amount of EBITDA deficiency in
1992, 1993 and 1994 was $10.3 million, $18 million and $34.3 million,
respectively.
(3) For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of income from continuing operations before income taxes and
minority interest plus fixed charges (excluding capitalized interest) and
adjustments for certain undistributed equity in earnings. Fixed charges
consist of interest expense, capitalized interest and the estimated interest
factor inherent in operating lease rentals. The Company's earnings were
insufficient to cover fixed charges fro the five fiscal years ended 1995, pro
forma 1995 and pro forma -- as adjusted. The amount of coverage deficiency was
$.1 million, $18.3 million, $25.6 million, $42.4 million, $5.1 million, $61.8
million, and $56.2 million for the fiscal years ended 1991, 1992, 1993, 1994,
1995, pro forma 1995 and pro forma 1995 -- as adjusted, respectively.
(4) Gives pro forma effect to the IMI Titanium and AJM Acquisitions. See "Pro
Forma Condensed Consolidated Financial Statements."
(5) See "Pro Forma Condensed Consolidated Financial Statements" at PF-10 for
pro forma Statement of Operations data for the nine- month period ended
September 29, 1996.
<PAGE> 1
Exhibit 21.1
Subsidiaries of Titanium Metals Corporation
<TABLE>
<CAPTION>
Jurisdiction of
Incorporation or % of Voting
Name of Corporation Organization Securities Held
<S> <C> <C>
Titanium Metals Corporation Delaware
Titanium MC Limited United Kingdom 100
TMCA International, Inc. Delaware 100
TIMET Savoie, S.A. France 57.71
TIMET UK, Ltd United Kingdom 100
TIMET UK (Export) Ltd United Kingdom 100
TIMET Savoie, S.A. France 12.29
TIMET France, S.A.R.L. France 100
TIMET Paris, S.A.R.L. France 100
TIMET Deutschland, GmbH Germany 100
TISTO Titan und Sonderlegierungen,
GmbH Germany 100
TIMET Castings Corporation Oregon 100
Titanium Hearth Technologies, Inc. Delaware 100
Titanium Hearth Technologies Pennsylvania 49.5
TIMET Hearth Melting Corporation Colorado 100
Titanium Hearth Technologies Pennsylvania 50.5
MZI, LLC Oregon 33 1/3
TIMET Capital Trust I Delaware 100
</TABLE>
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-1
of our report dated March 26, 1996, on our audits of the financial statements
of Titanium Metals Corporation. We also consent to the reference to our firm
under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Denver, Colorado
December 20, 1996
<PAGE> 1
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use of our report included herein and to the
reference to our firm under the heading "Experts" in the Prospectus.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Denver, Colorado
December 23, 1996
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of
this Registration Statement on Form S-1 of our report dated November 19, 1996
relating to the financial statements of Axel Johnson Metals, Inc. which appears
in such Prospectus. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Philadelphia, Pennsylvania
December 20, 1996
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of
this Registration Statement on Form S-1 of our report dated January 26, 1996
relating to the financial statements of Titanium Hearth Technologies, which
appears in such Prospectus. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Philadelphia, Pennsylvania
December 20, 1996
<PAGE> 1
EXHIBIT 23.7
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Re: Titanium Metals Corporation
Registration Form S-1
Gentlemen:
We are aware that our report dated November 9, 1996 on our review of
interim financial information of Titanium Metals Corporation (the "Company"),
as of September 29, 1996, and for the nine-month periods ended October 1, 1995
and September 29, 1996, and our report dated November 20, 1996, on our review
of the pro forma adjustment reflecting certain transactions and the application
of those adjustments to the Company's historical balance sheet as of September
29, 1996 and statements of operations for the year ended December 31, 1995 and
the nine-month period ended September 29, 1996, are included in this
registration statement. Pursuant to Rule 436(c) under the Securities Act of
1933, these reports should not be considered a part of the registration
statement prepared or certified by us within the meaning of Sections 7 and 11
of that Act.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Denver, Colorado
December 20, 1996
<PAGE> 1
EXHIBIT 23.8
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Ladies and Gentlemen:
We are aware that Titanium Metals Corporation has included our reports
dated November 19, 1996 on Axel Johnson Metals, Inc. and Titanium Hearth
Technologies (issued pursuant to the provisions of Statement on Auditing
Standards No. 71) in the Prospectus constituting part of its Registration
Statement on Form S-1 to be filed on or about December 23, 1996. We are also
aware of our responsibilities under the Securities Act of 1933.
Yours very truly,
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Philadelphia, Pennsylvania
December 20, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-29-1996
<CASH> 2,220
<SECURITIES> 0
<RECEIVABLES> 105,088
<ALLOWANCES> 4,441
<INVENTORY> 140,652
<CURRENT-ASSETS> 252,452
<PP&E> 220,565
<DEPRECIATION> 39,212
<TOTAL-ASSETS> 476,258
<CURRENT-LIABILITIES> 119,524
<BONDS> 11,268
0
0
<COMMON> 315
<OTHER-SE> 295,634
<TOTAL-LIABILITY-AND-EQUITY> 476,258
<SALES> 349,825
<TOTAL-REVENUES> 356,418
<CGS> 294,153
<TOTAL-COSTS> 294,153
<OTHER-EXPENSES> 4,688
<LOSS-PROVISION> 371
<INTEREST-EXPENSE> 7,266
<INCOME-PRETAX> 31,697
<INCOME-TAX> 7,791
<INCOME-CONTINUING> 23,473
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,473
<EPS-PRIMARY> .89
<EPS-DILUTED> .89
</TABLE>
