<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 - For the quarter ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-28538
Titanium Metals Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-5630895
- --------------------------------------- -----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1999 Broadway, Suite 4300, Denver, Colorado 80202
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 296-5600
---------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes No X
-------- ---------
Number of shares of common stock outstanding on July 31, 1996: 31,455,455
------------------
<PAGE> 2
TITANIUM METALS CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
number
------------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - December 31, 1995 and 3-4
June 30, 1996
Consolidated Statements of Operations - Three months and six 5
months ended July 2, 1995 and June 30, 1996
Consolidated Statement of Stockholders' Equity - Six months ended 6
June 30, 1996
Consolidated Statements of Cash Flows - Six months ended 7-8
July 2, 1995 and June 30, 1996
Notes to Consolidated Financial Statements 9-16
Item 2. Management's Discussion and Analysis of Financial Condition 17-21
and Results of Operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 22
Item 6. Exhibits and Reports on Form 8-K. 22
</TABLE>
2
<PAGE> 3
TITANIUM METALS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31, June 30,
ASSETS 1995 1996
----------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 24 $ 7,179
Accounts and notes receivable, net 27,932 93,142
Receivable from related parties 3,070 3,224
Inventories 69,134 116,994
Prepaid expenses 3,452 6,518
Deferred income taxes -- 1,466
-------- --------
Total current assets 103,612 228,523
-------- --------
Other assets:
Investment in joint ventures 13,853 17,734
Prepaid pension cost 1,253 1,253
Intangible pension asset 1,424 1,424
Goodwill -- 7,169
Other 3,774 7,553
-------- --------
Total other assets 20,304 35,133
-------- --------
Property and equipment:
Land 4,598 6,024
Buildings 17,783 31,866
Equipment 127,228 166,318
Construction in progress 3,120 10,623
-------- --------
152,729 214,831
Less accumulated depreciation 27,861 35,431
-------- --------
Net property and equipment 124,868 179,400
-------- --------
$248,784 $443,056
======== ========
</TABLE>
3
<PAGE> 4
TITANIUM METALS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands)
<TABLE>
<CAPTION>
December 31, June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1996
------------ ---------
<S> <C> <C>
Current liabilities:
Notes payable $ -- $ 679
Current maturities of long-term debt 45,695 399
Payable to related parties 2,627 3,126
Accounts payable 27,136 49,439
Accrued liabilities 20,963 44,334
Income taxes 47 3,229
Deferred income taxes 596 393
--------- ---------
Total current liabilities 97,064 101,599
--------- ---------
Noncurrent liabilities:
Long-term debt 21,540 --
Capital lease obligation to related parties -- 9,742
Payable to related parties 23,942 1,293
Accrued postretirement benefit cost 28,152 27,929
Accrued pension cost 5,966 6,606
Deferred income taxes 789 9,219
Other 3,203 3,518
--------- ---------
Total noncurrent liabilities 83,592 58,307
--------- ---------
Stockholders' equity:
Common stock 157 315
Additional paid-in capital 142,720 346,462
Accumulated deficit (72,653) (62,468)
Adjustments:
Currency translation 283 1,220
Pension liabilities (2,379) (2,379)
--------- ---------
Total stockholders' equity 68,128 283,150
--------- ---------
$ 248,784 $ 443,056
========= =========
</TABLE>
Commitments and contingencies (Note 11)
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
TITANIUM METALS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------------ ------------------------
July 2, June 30, July 2, June 30,
1995 1996 1995 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues and other income:
Net sales $ 45,568 $ 118,834 $ 87,292 $ 226,390
Equity in earnings of joint ventures 1,367 2,354 2,151 3,756
Other, net (254) 575 (161) 526
---------- ---------- ---------- ----------
46,681 121,763 89,282 230,672
---------- ---------- ---------- ----------
Costs and expenses:
Cost of sales 42,775 100,743 83,905 193,231
Selling, administrative, and development 3,176 6,624 6,118 12,155
Special charges -- 100 -- 4,308
Interest 2,813 3,354 5,304 6,852
---------- ---------- ---------- ----------
48,764 110,821 95,327 216,546
---------- ---------- ---------- ----------
Income (loss) before income taxes
and preacquisition earnings (2,083) 10,942 (6,045) 14,126
Income tax expense 99 2,873 99 3,530
Preacquisition earnings -- -- -- (411)
---------- ---------- ---------- ----------
Net income (loss) $ (2,182) $ 8,069 $ (6,144) $ 10,185
========== ========== ========== ==========
Net income (loss) per common share $ (.14) $ .30 $ (.41) $ .43
========== ========== ========== ==========
Weighted average common shares
outstanding (Note 2) 15,122 27,094 15,066 23,784
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
TITANIUM METALS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Six months ended June 30, 1996
(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 December 31, 1995 15,693 $157 $142,720 $(72,653) $ 283 $(2,379) $ 68,128
Net income -- -- -- 10,185 -- -- 10,185
Common stock issued:
IMI Titanium Acquisition (Note 3) 9,561 96 69,904 -- -- -- 70,000
Offerings (Note 8) 6,200 62 133,626 -- -- -- 133,688
Other 1 -- 28 -- -- -- 28
Other, net -- -- 184 -- -- -- 184
Adjustments, net -- -- -- -- 937 -- 937
------ ---- -------- -------- ------ ------- --------
Balance at June 30, 1996 31,455 $315 $346,462 $(62,468) $1,220 $(2,379) $283,150
====== ==== ======== ======== ====== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
TITANIUM METALS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six months ended
---------------------
July 2, June 30,
1995 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (6,144) $ 10,185
Depreciation and amortization 5,658 8,357
Earnings of joint ventures in excess of distributions (2,151) (3,610)
Preacquisition earnings -- 411
Special charges -- 4,308
Postretirement benefits (160) (223)
Other, net 41 (419)
Change in assets and liabilities, net of acquisition:
Accounts and notes receivable (8,933) (30,482)
Inventories 155 (9,801)
Prepaid expenses (646) (2,788)
Accounts payable 2,991 7,042
Accrued liabilities (118) 7,886
Income taxes 99 3,366
Accounts with related parties (1,071) (4,370)
Other, net 1,063 365
-------- --------
Net cash used by operating activities (9,216) (9,773)
-------- --------
Cash flows from investing activities:
Capital expenditures (1,747) (6,412)
Purchase of IMI Titanium Business -- (2,250)
Other, net 421 147
-------- --------
Net cash used by investing activities (1,326) (8,515)
-------- --------
</TABLE>
7
<PAGE> 8
TITANIUM METALS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
<TABLE>
<CAPTION>
Six months ended
-------------------------
July 2, June 30,
1995 1996
---------- ----------
<S> <C> <C>
Cash flows from financing activities:
Notes payable and long-term debt:
Borrowings $ 10,043 $ 17,150
Reductions (2,990) (83,307)
Proceeds from issuance of common stock, net -- 132,126
Capital contribution from related party 1,148 --
Related parties loans (repayments) 2,500 (42,489)
---------- ----------
Net cash provided by financing activities 10,701 23,480
---------- ----------
Cash and cash equivalents:
Net increase from:
Operating, investing and financing activities 159 5,192
Cash acquired, net -- 1,901
Currency translation 49 62
---------- ----------
208 7,155
Balance at beginning of period -- 24
---------- ----------
Balance at end of period $ 208 $ 7,179
========== ==========
Supplemental disclosures:
Cash paid for:
Interest $ 5,863 $ 6,232
Income taxes 28 150
Acquisition of IMI Titanium Business:
Cash and cash equivalents $ -- $ 1,165
Noncash assets -- 143,554
Liabilities -- (72,469)
Common stock issued to IMI -- (70,000)
---------- ----------
Cash paid $ -- $ 2,250
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE> 9
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization and basis of presentation:
Titanium Metals Corporation ("TIMET") was 30%-owned by Tremont Corporation
at June 30, 1996. 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.
The consolidated balance sheet of TIMET and subsidiaries (collectively the
"Company") at December 31, 1995 has been condensed from the Company's audited
consolidated financial statements at that date. The consolidated balance sheet
at June 30, 1996 and the consolidated statements of operations and cash flows
for the three and six month interim periods ended July 2, 1995 and June 30,
1996, and the consolidated statement of stockholders' equity for the six month
interim period ended June 30, 1996 have been prepared by the Company without
audit. In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the consolidated financial
position, results of operations and cash flows 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 operations.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The accompanying consolidated
financial statements should be read in conjunction with the consolidated
financial statements included in the Company's Registration Statement on Form
S-1, as amended (File No. 333-2940), for the year ended December 31, 1995 and
the three months ended March 31, 1996.
Note 2 - Income (loss) per common share:
Common shares outstanding for all periods presented have been adjusted to
reflect the 65-for-1 stock split effective June 4, 1996 (the "Stock Split").
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 computation when their effect
is immaterial or anti-dilutive. See Note 8.
9
<PAGE> 10
Note 3 - Business combination and joint ventures:
Business combination
On February 15, 1996, the Company acquired the titanium metals businesses
of IMI plc ("IMI") (the "IMI Titanium Acquisition"). IMI previously conducted
its titanium businesses (the "IMI 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 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. In connection with the IMI Titanium Acquisition, Tremont, which
currently owns 30% of TIMET, was granted an option expiring February 15, 1999
to purchase up to an additional 2 million shares of the Company's common stock
from IMI for $16 million. Tremont assigned to UTSC the right to acquire from
IMI for $4 million up to .5 million shares of the Company's common stock under
the option.
The Company accounted for the IMI Titanium Acquisition by the purchase
method of accounting. The purchase price of approximately $72 million,
including transaction costs, has been 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
$7 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 six months ended June 30, 1996. Preacquisition sales of the IMI
Titanium Business included in the Company's consolidated sales for the six
months ended June 30, 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>
Six months ended
----------------------
July 2, June 30,
1995 1996
---------- ----------
(unaudited)
(In millions, except per share data)
<S> <C> <C>
Revenues $ 157.3 $ 230.7
Net income (loss) (18.1) 10.6
Net income (loss) per common share (.73) .40
</TABLE>
10
<PAGE> 11
Joint ventures
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
------------ ------------
(In thousands)
<S> <C> <C>
THT joint venture $ 13,853 $ 17,609
Other -- 125
------------ ------------
$ 13,853 $ 17,734
============ ============
</TABLE>
Titanium Hearth Technologies
TIMET has a 50% interest in a partnership with Axel Johnson Metals, Inc.
conducted under the name Titanium Hearth Technologies ("THT"). THT owns and
operates cold hearth melting furnaces located in Pennsylvania and Nevada.
Summarized financial information of THT is shown below:
<TABLE>
<CAPTION>
Six months ended
---------------------------
July 2, June 30,
1995 1996
------------ ------------
(In thousands)
<S> <C> <C>
Income statement:
Revenues $ 20,687 $ 40,128
Operating costs and expenses 16,392 32,132
Interest and other expenses 282 338
------------ ------------
Net income $ 4,013 $ 7,658
============ ============
Equity in earnings of THT $ 1,746 $ 3,756
============ ============
Distributions paid to TIMET from THT $ -- $ --
============ ============
</TABLE>
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.
TISTO's unaudited revenues approximated $20 million in calendar 1995 and $14
million for the first six months of 1996.
11
<PAGE> 12
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 Savoie") to manufacture and sell titanium
products. TIMET Savoie is 70%-owned by TIMET and 30%-owned by CEZUS. TIMET and
CEZUS contributed to TIMET Savoie inventory, technology, and equipment and
certain CEZUS employees became employees of TIMET Savoie. TIMET contributed
proprietary technology and all of its interest in its previously existing
France-based distribution businesses valued at approximately $8 million. The
jointly-owned company will manufacture products inside CEZUS' production
facility in Ugine, France under a separate manufacturing agreement with CEZUS.
The Company intends to consolidate TIMET Savoie effective August 1, 1996.
Note 4 - Business segment information:
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 and cast products for aerospace, industrial,
and other applications.
<TABLE>
<CAPTION>
Three months ended Six months ended
--------------------- ---------------------
July 2, June 30, July 2, June 30,
1995 1996 1995 1996
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Net sales $ 45,568 $118,834 $ 87,292 $226,390
======== ======== ======== ========
Operating income (loss) $ 1,014 $ 13,748 $ (547) $ 20,571
General corporate income (expense), net (284) 548 (194) 407
Interest expense 2,813 3,354 5,304 6,852
-------- -------- -------- --------
Income (loss) before income taxes
and preacquisition earnings $ (2,083) $ 10,942 $ (6,045) $ 14,126
======== ======== ======== ========
</TABLE>
Operating income for three months and six months ended June 30, 1996
includes special charges of $.1 million and $4.3 million, respectively,
resulting from the IMI Titanium Acquisition and related integration of the IMI
Titanium Business. The special charges include $3 million of compensation costs
and $1.3 million of integration costs relating 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 the full year. See Note 8.
12
<PAGE> 13
Note 5 - Inventories:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
------------ ----------
(In thousands)
<S> <C> <C>
Raw materials $ 7,778 $ 13,362
In process and finished products 57,538 97,139
Supplies 3,818 6,493
---------- ----------
$ 69,134 $ 116,994
========== ==========
</TABLE>
The average cost of LIFO inventories exceeded the net carrying amount of
such inventories by approximately $19 million at December 31, 1995 and $22
million at June 30, 1996.
Note 6 - Accrued liabilities:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
------------ ----------
(In thousands)
<S> <C> <C>
Postretirement benefit costs $ 2,240 $ 2,266
Pension costs 1,378 1,712
Other employee benefits 9,210 17,305
Restructuring costs 777 135
Environmental costs 1,143 1,698
Customer contract losses -- 3,710
Taxes, other than income 1,655 6,774
Other 4,560 10,734
---------- ----------
$ 20,963 $ 44,334
========== ==========
</TABLE>
13
<PAGE> 14
Note 7 - Notes payable and long-term debt:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
------------ ------------
(In thousands)
<S> <C> <C>
Notes payable - U.K. credit agreement $ -- $ 679
============ ============
Long-term debt:
U.S. credit agreement:
Revolver $ 42,555 $ 259
Term 24,400 --
Other 280 140
------------ ------------
67,235 399
Less current maturities 45,695 399
------------ ------------
$ 21,540 $ --
============ ============
</TABLE>
TIMET's U.S. credit facility provides for revolving loans/letters of
credit aggregating up to $105 million at June 30, 1996. Borrowings under the
revolving loan are limited to a formula-determined amount of accounts
receivable and inventories (the "borrowing base"). Interest accrues at the
prime rate plus .75% or, at the Company's option, at LIBOR plus 2.25% (7.92% at
June 30, 1996) and the credit facility matures on December 31, 1998. 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 TIMET's additional
indebtedness and contains other covenants customary in agreements of this type.
At June 30, 1996, TIMET had $86 million of borrowings available under its U.S.
credit agreement.
TIMET UK has a L.10 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 June 30, 1996). Borrowings outstanding
under this facility were $.7 million at June 30, 1996.
Note 8 - Stockholders' equity:
On June 4, 1996, the Company completed the sale of 6.2 million shares of
its common stock to the public (the "Offerings") pursuant to a registration
statement filed with the Securities and Exchange Commission. In connection with
the Offerings, the Company effected a Stock Split of its common stock,
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 newly adopted 1996 Long Term Performance
Incentive Plan.
The Company's net proceeds from the Offerings approximated $132 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.
Supplemental earnings (loss) per share for the 1995
14
<PAGE> 15
and 1996 six-month interim periods, assuming the Offerings had been completed
at the beginning of fiscal year 1995, would have been $(.04) and $.49,
respectively.
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 Offerings, and no Class B shares are currently
outstanding or authorized.
Note 9 - Income taxes:
The difference between the income tax expense (benefit) attributable to
the Company's income (loss) before income taxes and preacquisition earnings and
the amounts that would be expected using the U.S. federal statutory income tax
rate of 35% is presented below.
<TABLE>
<CAPTION>
Six months ended
----------------------------
July 2, June 30,
1995 1996
------------ ------------
(In thousands)
<S> <C> <C>
Expected income tax expense (benefit) $ (2,116) $ 4,944
Incremental tax and rate differences on equity
in income of companies not included in the
consolidated tax group (118) (210)
Adjustment of deferred tax
valuation allowance 2,329 (1,160)
U.S. state income taxes, net -- 49
Other, net 4 (93)
------------ ------------
$ 99 $ 3,530
============ ============
</TABLE>
At June 30, 1996, the Company had, for financial reporting purposes, U.S.
net operating loss ("NOL") carryforwards of approximately $34 million. The
utilization of the Company's NOL's is subject to an annual limitation of
approximately $15 million.
15
<PAGE> 16
Note 10 - Related party transactions:
Receivables from related parties at December 31, 1995 and June 30, 1996
principally relate to sales to UTSC and TISTO. Payables to related parties,
excluding long-term capital lease obligations to IMI, are summarized below.
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
------------ --------
(In thousands)
<S> <C> <C>
Current liabilities:
Tremont $ -- $ 312
IMI -- 63
THT 2,627 2,751
------- -------
$ 2,627 $ 3,126
======= =======
Noncurrent liabilities:
Tremont:
Loans and interest $22,460 $ --
Other 1,482 1,293
------- -------
$23,942 $ 1,293
======= =======
</TABLE>
Note 11 - Commitments and contingencies:
For information concerning certain legal proceedings and certain
contingencies related to the Company, see (i) Item 2 -- "Management's
Discussion and Analysis of Financial Condition and Results of Operations," (ii)
Part II, Item 1 -- "Legal Proceedings," and (iii) TIMET's Registration
Statement on Form S-1, as amended (File No. 333-2940).
16
<PAGE> 17
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The results of operations for 1996 include the results of the IMI Titanium
Business acquired on February 15, 1996. All price and volume comparisons are
proforma assuming the IMI Titanium Acquisition occurred at the beginning of
fiscal 1995.
<TABLE>
<CAPTION>
Three months ended Six months ended
--------------------- ----------------------
July 2, June 30, July 2, June 30,
1995 1996 Change 1995 1996 Change
-------- --------- -------- -------- --------- ---------
(In millions, except percentages and price data)
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 45.6 $ 118.8 $ 73.2 $ 87.3 $ 226.4 $ 139.1
======== ========= ======== ======== ========= =========
Operating income (loss) $ 1.0 $ 13.7 $ 12.7 $ (.5) $ 20.6 $ 21.1
General corporate
income (expense), net (.3) .5 .8 (.2) .4 .6
Interest expense 2.8 3.3 (.5) 5.3 6.9 (1.6)
-------- --------- -------- -------- --------- ---------
Income (loss) before
income taxes and
preacquisition earnings $ (2.1) $ 10.9 $ 13.0 $ (6.0) $ 14.1 $ 20.1
======== ========= ======== ======== ========= =========
Mill products:
Sales volume (in pounds) 5.2 6.2 1.0 10.4 12.5 2.1
Average price per pound $ 12.50 $ 14.54 $ 2.04 $ 11.89 $ 14.01 $ 2.12
Percent changes:
Mill product sales volume +19% +20%
Average selling prices +22% +20%
</TABLE>
The Company's operating income in the second quarter and first half of 1996
improved significantly from the comparable periods in 1995. The improvement was
principally driven by price and volume increases in the commercial aerospace
market, as well as continuing growth in demand for titanium products across all
market segments. For the first half of 1996, sales volume of titanium mill
products increased to 12.5 million pounds compared to 10.4 million pounds in the
year-ago period. Average selling prices in the first half of 1996 were up
approximately 20% over the first half of 1995 and second quarter average selling
prices were approximately 5% higher than the first quarter of 1996.
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. Average selling prices per mill product pound is also
effected by changes in product mix. 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 and the Company expects this trend to continue
through 1996. The Company's backlog of firm orders increased to $341 million at
June 30, 1996, from $213 million at December 31, 1995 (including $78 million
related to the IMI Titanium Business).
Operating levels at the Company's plants in the first half of 1996 were
higher than the same period in 1995 and contributed to the better operating
results. The VDP titanium sponge plant operated near its practical capacity of
20 million pounds annually in the first half of 1996
17
<PAGE> 18
compared to about 75% of practical capacity in 1995. The Company presently
expects its VDP plant to operate near practical capacity in 1996 if current
conditions continue. The Company restarted production of titanium sponge at its
original Kroll-leach facility during July in response to demand for certain
grades of titanium sponge. TIMET presently intends to increase Kroll-leach
titanium sponge production to at least 4 million pounds of annual production.
Costs to restart the Kroll-leach facility were $1 million in the first half of
1996 and are expected to aggregate $1.8 million for the full year. The
Company's overall mill product capacity utilization for the first six months of
1996 approximated 75%. Depreciation expense increased $2.7 million in the first
half 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
$15.4 million for the second quarter of 1996 and $26.1 million for the first
half of 1996. Operating income for TIMET Castings was $2.1 million for the
second quarter and $2.9 million for the first half of 1996. The Company's
operating income in the first half of 1996 included $3.8 million related to
equity in earnings of THT compared to $1.7 million in the year-ago period.
The Company recorded special charges of $.1 million and $4.3 million in the
second quarter and first half of 1996, respectively, related to the IMI
Titanium Acquisition. Such charges included $3 million ($1.5 million common
stock and $1.5 million cash) related to compensation of certain of the
Company's officers in consideration for their services in connection with the
IMI Titanium Acquisition, and $1.3 million related to integration costs. The
Company expects integration related special charges during the balance of 1996
to be less than $1 million.
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.
Interest expense in the second quarter and first half of 1996 was higher
than the year-ago periods principally due to higher average borrowings under
TIMET's U.S. credit agreement and the $20 million of subordinated debt issued
to IMI in connection with the IMI Titanium Acquisition. Interest expense is
expected to be substantially reduced in the last half of 1996 compared to the
first half of the year due to completion of the Offerings.
See Note 3 to the Consolidated Financial Statements regarding the IMI
Titanium Acquisition and Note 8 regarding the Offerings.
INCOME TAXES
The Company's income tax rate in the first half 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 half 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. NOL's 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
18
<PAGE> 19
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
three most recent fiscal quarters, the Company does not believe the weight of
evidence yet supports release of any of its valuation allowance at June 30,
1996 in excess of NOL's expected to be utilized in 1996. The Company may
further release a portion of its deferred tax asset valuation allowance later
in 1996, 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 June 30, 1996.
At June 30, 1996, the Company had, for financial reporting purposes, U.S.
NOL's of approximately $34 million. The utilization of the Company's NOL's is
subject to an annual limitation of approximately $15 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated cash flows from operating, investing, and
financing activities for the six months ended July 2, 1995 and June 30, 1996
are presented below.
<TABLE>
<CAPTION>
Six months ended
--------------------
July 2, June 30,
1995 1996
------- ---------
(In millions)
<S> <C> <C>
Net cash provided (used) by:
Operating activities $ (9.2) $ (9.8)
Investing activities (1.3) (8.5)
Financing activities 10.7 23.5
------- -------
$ 0.2 $ 5.2
======= =======
</TABLE>
The Company's 1996 earnings have improved significantly compared to the
losses it incurred in recent years. The Company's results include significant
noncash items. Depreciation expense increased to $8.4 million in the first half
of 1996 compared to $5.7 million for the year-ago period principally as a result
of the IMI Titanium Acquisition. The Company recorded $4.3 million of special
charges in the first half 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 $1.7 million and $3.8 million for the first half
of 1995 and 1996, respectively, while THT made no distributions in either
period. Cash flow from operations in the first half of 1995 was reduced by
increases in accounts receivable, which were partially offset by increases in
accounts payable. Cash flow from operations in the first half of 1996 was
reduced by increases in inventories and accounts receivable, which were
partially offset by increases in accounts payable and accrued liabilities.
19
<PAGE> 20
The Company's capital expenditures in the first half of 1996 were $6.4
million compared to $1.7 million in the year-ago period. The Company estimates
capital expenditures in 1996 will be approximately $20 million, including
approximately $10 million relating to the IMI Titanium Business. Substantially
all capital expenditures are expected to be funded by cash flow from operating
activities.
The Company completed the Offerings on June 4, 1996. The Company's net
proceeds from the Offerings approximated $132 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 Company's U.S. credit facility provides for revolving loans/letters of
credit aggregating up to $105 million at June 30, 1996. Borrowings are limited
to a formula-determined amount of accounts receivable and inventories (the
"borrowing base"). Interest accrues at the prime rate plus .75% or, at the
Company's option, LIBOR plus 2.25% (7.92% at June 30, 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 transactions of this
type. At June 30, 1996, the Company had $86 million of borrowings available
under its U.S. credit agreement.
TIMET UK has a L10 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 June 30, 1996). Borrowings outstanding
under this facility were $.7 million at June 30, 1996.
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.
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. TIMET and CEZUS contributed to
TIMET Savoie inventory, technology, and equipment and certain CEZUS employees
became employees of TIMET Savoie. TIMET contributed proprietary technology and
all of its interest in its previously existing France-based distribution
businesses valued at approximately $8 million. CEZUS provided approximately
$13 million of working capital financing upon formation of the joint venture.
20
<PAGE> 21
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, and in this
regard the Company has been exploring a potential strategic relationship with a
large titanium producer in Russia. In the event of any future acquisition or
joint venture opportunities, the Company may consider using available cash,
issuing equity securities or incurring indebtedness.
The statements contained in this Report on Form 10-Q ("Quarterly Report")
which are not historical facts, including, but not limited to, statements found
under the captions "Results of Operations" and "Liquidity and Capital
Resources", both contained in Management's Discussion and Analysis of Financial
Condition and Results of Operations, are forward-looking statements that
involve a number of risks and uncertainties. The actual results of the future
events described in such forward-looking statements in this Quarterly Report
could differ materially from those stated in such forward-looking statements.
Among the factors that could cause actual results to differ materially are the
risks and uncertainties discussed in the Quarterly Report, including, without
limitation, the portions of such reports under the captions referenced above
and in the Company's Registration Statement on Form S-1, as amended (File No.
333-2940), and the uncertainties set forth from time to time in TIMET's filings
with the Securities and Exchange Commission, and other public statements.
21
<PAGE> 22
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
Reference is made to the Company's Registration Statement on Form S-1, as
amended (File No. 333-2940), for descriptions of certain previously reported
legal proceedings.
In the previously reported matter of Sutherin vs. Titanium Metals
Corporation, No. 95CV00168, Court of Common Pleas, Jefferson County, Ohio, the
plaintiff in June 1996 dismissed this matter without prejudice.
As previously reported, 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. Such liability was accrued in the Company's
financial statements at December 31, 1995 and June 30, 1996.
As previously reported, 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 July 1996, the Company signed a
consent agreement with the Nevada Division of Environmental Protection
regarding the Phase II assessment of the Company property within the BMI
Complex. At December 31, 1995 and June 30, 1996, the Company had accrued $1
million with respect to this matter. Until the sampling and analysis that will
be involved in this Phase II assessment is completed, 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.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
27.1 Financial Data Schedule for the six-month period ended June 30,
1996.
(b) Reports on Form 8-K:
Reports on Form 8-K filed by the Registrant for the quarter ended June
30, 1996 and for the month of July 1996:
June 14, 1996 - Reported Items 5 and 7
July 22, 1996 - Reported Items 5 and 7
July 22, 1996 - Reported Items 5 and 7
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TITANIUM METALS CORPORATION
-----------------------------------------
(Registrant)
Date: August 13, 1996 By /s/ JOSEPH S. COMPOFELICE
-----------------------------------------
Joseph S. Compofelice
Vice President and
Chief Financial Officer
By /s/ MARK A. WALLACE
-----------------------------------------
Mark A. Wallace
Vice President - Finance
(Chief Accounting Officer)
23
<PAGE> 24
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE NO.
- ------- ----------- --------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 7,179
<SECURITIES> 0
<RECEIVABLES> 100,631
<ALLOWANCES> 4,265
<INVENTORY> 116,994
<CURRENT-ASSETS> 228,523
<PP&E> 214,831
<DEPRECIATION> 35,431
<TOTAL-ASSETS> 443,056
<CURRENT-LIABILITIES> 101,599
<BONDS> 0
0
0
<COMMON> 315
<OTHER-SE> 282,835
<TOTAL-LIABILITY-AND-EQUITY> 443,056
<SALES> 226,390
<TOTAL-REVENUES> 230,672
<CGS> 193,231
<TOTAL-COSTS> 193,231
<OTHER-EXPENSES> 4,308
<LOSS-PROVISION> 195
<INTEREST-EXPENSE> 6,852
<INCOME-PRETAX> 14,126
<INCOME-TAX> 3,530
<INCOME-CONTINUING> 10,185
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,185
<EPS-PRIMARY> .43
<EPS-DILUTED> .43
</TABLE>
