<PAGE> 1
As filed with the Securities and Exchange Commission on May 1, 1997
Registration No. 333-18829
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
Amendment No. 2
to
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 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 $47.25(1)(2) $190,181,250(1)(2) $57,631(3)
Securities of TIMET
Capital Trust I
- --------------------------------------------------------------------------------------------------------------------
Convertible Junior (4) -- -- --
Subordinated Debentures
of Titanium Metals
Corporation
- --------------------------------------------------------------------------------------------------------------------
Common Stock of 5,161,305(5) $26.25(1) $135,484,256.25(1) $41,056(3)
Titanium Metals
Corporation
- --------------------------------------------------------------------------------------------------------------------
Convertible Preferred -- -- -- --
Securities Guarantee(6)
- --------------------------------------------------------------------------------------------------------------------
Total -- -- -- $98,687(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. $115,822.10 was paid with the initial filing of
this Registration Statement.
(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.
<PAGE> 3
SUBJECT TO COMPLETION DATED MAY 1, 1997
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 May __, 1997.
<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 became convertible, at the option
of the holder thereof, on February 24, 1997 and will remain convertible prior to
redemption. The Convertible Preferred Securities are convertible 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 April 29, 1997, the last reported
sale price of the Common Stock on the Nasdaq National Market was $26.25.
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 payable quarterly in arrears
on March 1, June 1, September 1 and December 1 of each year. Such distributions
began accumulating on November 26, 1996 for the distribution paid 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 31, 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
December 31, 1996, the total indebtedness and other liabilities of such
subsidiaries aggregated approximately $80 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 Securities and Exchange Commission (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 could differ
materially from those described in such forward-looking statements depending on
a variety of factors, including those detailed under the caption "Risk
Factors," under the captions noted above and elsewhere in this Prospectus. Such
factors include the cyclicality of the Company's business and its dependence on
the aerospace industry, the sensitivity of the Company's business to industry
capacity, the possibility of labor disruptions, control by certain stockholders
and possible conflicts of interest, potential difficulties in integrating
acquisitions, uncertainties associated with new product development and the
supply of raw materials and services.
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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"), and (ii) include the assets
acquired by the Company from Axel Johnson Metals, Inc. ("AJM") pursuant to an
acquisition completed on October 1, 1996 (the "AJM Acquisition"). See "--1996
Acquisitions," and "Business--Recent Acquisitions and Capital Transactions."
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, and such references for periods prior to October 1,
1995, except where otherwise indicated, exclude the businesses acquired in the
AJM Acquisition.
OVERVIEW
Titanium Metals Corporation ("TIMET" or the "Company") is one of the
world's leading integrated producers of titanium sponge and mill products, has
the largest sales volume worldwide and is the largest supplier of titanium to
the aerospace and industrial markets. The Company believes it is the low-cost
producer of titanium sponge and melt products. Due to its economies of scale,
manufacturing expertise and past investment in technology, TIMET believes that
it is well-positioned to capitalize on the improved 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 tubing and pipe), extrusions, wire and castings.
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 1996), the number of end-use markets for titanium has
expanded substantially. Today, numerous industrial uses for titanium exist,
including chemical plants, 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 possible automotive and computer uses.
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 1990's, and in
each of 1991 to 1995 the Company reported a net loss. The cyclical nature of
the aerospace industry has historically been the principal cause of the
fluctuations in performance of titanium companies with cyclical peaks in mill
products shipments in 1980 and 1989, and with cyclical lows in 1983 and 1991.
Industry shipments remained relatively flat from 1991 to 1994.
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<PAGE> 8
Since 1995, the titanium industry has improved due to a combination of
factors including a resurgence in commercial aerospace demand, continuing and
stable industrial demand and the emergence of new uses for titanium, including
golf club heads. U.S. industry mill product shipments in 1995 increased 26%
from 1994. In 1996, U.S. industry mill product shipments were an estimated 57
million pounds, up 31% from 1995 with U.S. shipments to the commercial
aerospace market an estimated 25 million pounds, up 40% from the prior year. In
addition, U. S. industry mill product shipments to the golf club market in 1996
were approximately 8 to 10 million pounds compared to virtually none in 1994.
While worldwide industry shipments are not as readily tracked as U.S. shipments
(in large part due to uncertainties of shipments by companies located in the
former Soviet Union), the Company believes U.S. trends are a reasonable proxy
for worldwide trends.
Aerospace demand for titanium products, which includes both jet
engines and air frames, 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. 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. Due to improved fundamentals, the
commercial airline industry reported operating profits of over $16 billion
(estimated) in 1996, $6 billion in 1995 and $2 billion in 1994 compared to
cumulative losses in excess of $5 billion in the 1990 to 1993 period. Most
major carriers are investing in upgrading and expanding their fleets. 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 increased demand for titanium products.
Since titanium's initial aerospace applications, the number of end-use
markets for titanium has expanded substantially. Existing industrial uses for
titanium include chemical plants, 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 and computer uses. Several of
these applications represent potential growth opportunities that may reduce the
industry's historical dependence on the aerospace market.
The Company's order backlog was approximately $440 million at December
31, 1996 compared to a combined TIMET/IMI/AJM backlog of $226 million at
December 31, 1995. Approximately 95% of the 1996 year end backlog is expected
to be delivered during 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.
As of December 31, 1996, the estimated firm order backlog for Boeing,
McDonnell Douglas and Airbus, as reported by The Airline Monitor, was 2,370
planes versus 1,869 planes on December 31, 1995, an increase of 27%. The newer
wide body planes, such as the Boeing 777, 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. The estimated firm order backlog for wide body planes at year end 1996
was 767 (32% of total backlog) compared to 682 at the end of 1995. Growth in
firm order backlog for narrow body aircraft has also been strong, having
increased 35% during 1996 to 1,603.
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.
- 6 -
<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.
o Invest in Technology and innovative projects aimed at reducing
costs and enhancing productivity, quality and production
capacity. During the five years ended December 31, 1996, TIMET
invested over $140 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.
In October 1996, TIMET acquired the 50% interest in Titanium
Hearth Technologies ("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 Lower the cost of sourcing raw materials. 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 30 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 Invest in strategic alliances, new markets, applications and
products and acquisitions. 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 Maintain a Strong Balance Sheet. Because the Company operates
in a cyclical industry, management is seeking to maintain a
strong balance sheet. 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 Western Europe's largest producer of
titanium ingot and mill products for aerospace and industrial application. In
addition, the IMI Titanium Business has 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 (since
repaid). 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."
During the summer of 1996, the Company completed strategic
transactions with Compagnie Europeenne du Zirconium--CEZUS, S.A. ("CEZUS") in
France (forming TIMET Savoie, S.A. ("TIMET Savoie")) and TISTO Titan und
Sonderlegierungen GmbH ("TISTO") in Germany, which enhanced TIMET's
manufacturing and distribution capabilities in Europe. In addition, in early
1997, the Company completed a strategic investment in Titanium Memory Systems,
Inc. ("TMS"), a development stage manufacturer of titanium substrates for
computer hard drives. See "Business--Recent Acquisitions and Capital
Transactions" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
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 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 April 29,
1997 was $26.25 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 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): 31,456,655 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 31, 1996.
Does not include 5,389,475 shares of Common Stock reserved for issuance upon
conversion of the Convertible Preferred Securities and 537,275 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, 1996 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 fiscal year 1996 give pro forma effect to the IMI
Titanium Acquisition and the AJM Acquisition, as if they had been consummated
at the beginning of fiscal 1996. 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
Condensed Consolidated Statement of Operations 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 and THT (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
----------------------------------------------------------------
Pro Forma
1992 1993 1994 1995 1996 1996(1)
(UNAUDITED)
--------- --------- --------- --------- --------- -----------
(IN MILLIONS, EXCEPT EMPLOYEE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $ 153.9 $ 151.2 $ 146.0 $ 184.7 $ 507.1 $ 564.4
Operating income (loss)(2) (9.7) (16.7) (34.7) 5.4 59.8 59.8
Income (loss) before cumulative
effect of changes in accounting
principles (9.7) (20.2) (42.1) (4.2) 47.6 43.2
Income (loss) per common share
before cumulative effect of
changes in accounting principles(3) (.86) (1.78) (2.80) (.27) 1.72 1.50
Weighted average common shares
outstanding(3) 11.3 11.3 15.0 15.4 27.6 28.8
Ratio of earnings to fixed charges(4) 5.5 3.4
PRO FORMA--AS ADJUSTED(5):
Operating income $ 59.8 $ 59.8
Interest expense 15.2 17.1
Net income 43.9 43.4
Net income per common share 1.59 1.51
Ratio of earnings to fixed charges(4) 3.8 3.5
BALANCE SHEET DATA:
Working capital(6) $ 62.0 $ 44.6 $ 38.0 $ 52.3 $ 258.7
Total assets 267.0 262.5 240.2 248.8 703.0
Indebtedness(7) 149.3 75.0 92.9 89.6 22.1
Minority interest - Company-
obligated mandatorily redeemable
preferred securities -- -- -- -- 201.2
Stockholders' equity 46.6 109.0 64.7 68.1 326.2
OTHER OPERATING DATA:
EBITDA(8) $ (6.1) $ (12.3) $ (26.7) $ 18.6 $ 79.8
Cash flows provided (used) by:
Operating activities (3.6) 12.4 (20.0) (6.1) (1.3)
Investing activities (71.3) (16.3) (4.6) (2.5) (131.4)
Financing activities 70.1 4.7 17.7 8.6 215.7
--------- --------- --------- --------- --------
Total (4.8) .8 (6.9) (--) 83.0
Debt to total capitalization 76% 41% 59% 57% 40%
Ratio of EBITDA to interest expense(9) 1.8 7.8
Mill product shipments
(millions of pounds) 10.8 11.2 10.5 12.2 27.2
Active employees at period end 1,170 1,070 880 1,020 2,950
Order backlog at period end(10) $ 90.0 $ 80.0 $ 85.0 $ 125.0 $ 440.0
Capital expenditures 67.3 16.3 4.6 3.0 21.7 $ 26.0
</TABLE>
(1) Gives pro forma effect to the IMI Titanium Acquisition and AJM
Acquisition. See "Unaudited Pro Forma Condensed Consolidated Statement
of Operations."
(2) Operating income (loss) includes restructuring and other special
charges (credit) of $4.7 million in 1993, $10 million in 1994, ($1.2
million) in 1995 and $4.8 million in 1996 and in pro forma 1996. See
Note 5 to the Company's Consolidated Financial Statements.
(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 Notes 2 and 11 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 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 four fiscal
years ended 1995. The amount of coverage deficiency was $18.3 million
in 1992, $25.6 million in 1993, $42.4 million in 1994 and $5.1 million
in 1995.
- 15 -
<PAGE> 18
(5) Reflects sale of the Convertible Preferred Securities to the Initial
Purchasers as if such sale had occurred at the beginning of 1996 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 bank and other debt, capital lease obligations and loans and
interest to related parties.
(8) EBITDA represents income (loss) before cumulative effect of accounting
changes plus minority interest, 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 was $10.3 million in 1992, $18 million in 1993 and
$34.3 million in 1994.
(10) "Order backlog" is defined as firm purchase orders (which are
generally subject to cancellation by the customer upon payment of
specified charges).
- 16 -
<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 70%, 60%, 60%, 62% and 60% of the Company's total sales in
1992, 1993, 1994, 1995 and 1996, 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 PRIOR TO 1996; DEFICIENCY OF EARNINGS AVAILABLE TO COVER
FIXED CHARGES
During the early 1990s, 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.
On a pro forma basis, giving effect to the IMI Titanium Acquisition and the AJM
Acquisition, the Company incurred a net loss of $48.6 million in 1995, including
restructuring and other special charges. From 1993 to 1995 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 was $.1 million in 1991, $18.3
million in 1992, $25.6 million in 1993, $42.4 million in 1994 and $5.1 million
in 1995.
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."
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), 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 March 31, 1997, TIMET had no
Senior Indebtedness outstanding 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 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 February 6, 1997, as part of President Clinton's Fiscal 1998 Budget
Proposal, the Treasury Department proposed legislation (the "Proposed
Legislation") that, among other things, would treat as equity certain debt
instruments having a maximum term of more than 15 years and not shown as
indebtedness on the separate balance sheet of the issuer. According to the
Joint Committee on Taxation Staff's Description and Analysis of Certain
Revenue-Raising Provisions Contained in the President's Fiscal Year 1998 Budget
Proposal (JCS-10-97), issued April 16, 1997 (the "JCT Staff Description"), the
Proposed Legislation would be effective generally for instruments issued on or
after the date of first committee action. Based upon the JCT Staff Description,
it is expected that if the Proposed Legislation were enacted, such legislation
would not apply to the Convertible Debentures. However, there can be no
assurances that the effective date guidance contained in the JCT Staff
Description 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, the Trust might distribute the Convertible Debentures
to holders of the Convertible Preferred Securities or, in certain
circumstances, TIMET might redeem the Convertible Debentures, in which case the
Trust would distribute 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 December 31, 1996, approximately 50% of the Company's employees
worked under collectively bargained agreements. In September 1996 the Company
entered into a four-year agreement expiring in October 2000 with the United
Steelworkers of America ("USWA"), which represents approximately 390 hourly
workers at the Company's Nevada facility. The Company's four-year agreement
with the USWA relating to approximately 400 hourly workers at the Company's
Ohio plant expires in June 1999. All of the collective bargaining agreements in
place at the Company's two U.K. facilities, which cover substantially all of the
approximately 750 salaried and hourly workers, have one-year terms expiring on
December 31, 1997.
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 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, 10.0% by UTSC, 6.4% by IMI 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's
option applies to approximately 75% of such shares and UTSC's option applies 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 or less. 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. See
"Management--Directors and Executive Officers" and "Certain Relationships and
Related Transactions--Shareholders' Agreements."
Tremont may be deemed to control the Company. Approximately 40% 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 and early 1997, the Company acquired the IMI Titanium
Business, the assets of AJM and three 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 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.
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<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 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 limited number of processors
to perform certain rolling steps with respect to some of its plate, sheet, and
strip products, and upon a single processor to perform certain finishing and
conditioning steps with respect to its THT slab products. 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 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>
1996
Second Quarter (beginning June 4, 1996) $25.875 $24.375
Third Quarter 30.500 22.500
Fourth Quarter 35.875 28.250
1997
First Quarter 33.625 25.000
Second Quarter (through April 29, 1997) 29.000 25.375
</TABLE>
On April 29, 1997, the last reported sale price of the Common Stock,
as reported on the Nasdaq National Market, was $26.25 per share. As of
December 31, 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, 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 are consolidated with the
Company's financial statements. The Convertible Preferred Securities are shown
on the Company's consolidated financial statements as "Minority interest-
- -Company-obligated mandatorily redeemable preferred securities of subsidiary
trust holding solely subordinated debt securities." See "Capitalization."
- 26 -
<PAGE> 29
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of December 31, 1996. This table should be read in conjunction with
the historical financial statements of the Company, and the notes thereto,
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
(IN MILLIONS)
<S> <C>
Cash and cash equivalents $ 86.5
========
Short-term debt(1) $ 9.4
--------
Long-term debt, net of current portion:
Capital lease obligations payable to related parties 11.6
Other 1.1
--------
Total long-term debt 12.7
--------
Minority interest--Company-obligated mandatorily
redeemable preferred securities of subsidiary trust
(TIMET Capital Trust I) holding solely subordinated
debt securities (2) 201.2
Other 4.2
--------
205.4
--------
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
Additional paid-in capital 346.1
Accumulated deficit (25.0)
Currency translation and pension adjustments 4.8
--------
Total stockholders' equity 326.2
--------
Total capitalization $ 553.7
========
</TABLE>
(1) Includes current portion of long-term debt and obligations to related
parties.
(2) 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.
- 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, 1996 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 pro
forma financial data for the fiscal year 1996 give pro forma effect to the IMI
Titanium Acquisition and the AJM Acquisition as if they had been consummated at
the beginning of fiscal 1996. 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 Condensed Consolidated Statement of Operations 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 and THT (including in each case the notes thereto) included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEARS
----------------------------------------------------- Pro Forma
1992 1993 1994 1995 1996 1996(1)
(UNAUDITED)
--------- -------- -------- -------- -------- -----------
(IN MILLIONS, EXCEPT EMPLOYEE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales:
Mill and ingot products $ 145.6 $ 143.1 $ 138.3 $ 164.9 $ 417.8 $ 417.8
VDP sponge(2) -- .6 2.6 10.6 12.4 12.4
Castings -- -- -- -- 51.5 51.5
Other 8.3 7.5 5.1 9.2 25.4 82.7
--------- -------- -------- -------- -------- --------
Total net sales 153.9 151.2 146.0 184.7 507.1 564.4
Cost of sales 151.5 153.4 160.0 170.7 418.8 461.7
--------- -------- -------- -------- -------- --------
Gross profit (loss) 2.4 (2.2) (14.0) 14.0 88.3 102.7
Selling, general and administrative
expenses 9.9 9.5 10.9 12.2 27.6 34.2
Research and development costs 2.4 1.9 1.5 1.8 2.3 2.3
Equity in earnings of joint ventures(3) .2 1.4 1.6 3.7 6.2 .2
Other income (expense) -- .2 .1 .5 -- (.9)
Restructuring and other special
(charges) credit(4) -- (4.7) (10.0) 1.2 (4.8) (5.7)
--------- -------- -------- -------- -------- --------
Operating income (loss)(4) (9.7) (16.7) (34.7) 5.4 59.8 59.8
General corporate income
(expense), net(3) .2 1.9 .3 1.0 1.0 1.9
Interest expense 4.2 5.7 7.6 10.4 10.2 17.3
--------- -------- -------- -------- -------- --------
Income (loss) before income
taxes, preacquisition earnings,
and cumulative effect of changes
in accounting principles (13.7) (20.5) (42.0) (4.0) 50.6 44.4
Income tax benefit (expense) 4.0 .3 (.1) (.2) (1.9) (.5)
Preacquisition earnings -- -- -- -- (1.1) (.7)
--------- -------- -------- -------- -------- --------
Income (loss) before cumulative
effect of changes in accounting
principles (9.7) (20.2) (42.1) (4.2) 47.6 43.2
Cumulative effect of changes in
accounting principles(5) (16.0) -- (1.0) -- -- --
--------- -------- -------- -------- -------- --------
Net income (loss) $ (25.7) $ (20.2) $ (43.1) $ (4.2) $ 47.6 $ 43.2
========= ======== ======== ======== ======== ========
Per common share(6):
Income (loss) before cumulative
effect of changes in accounting
principles $ (.86) $ (1.78) $ (2.80) $ (.27) $ 1.72 $ 1.50
========= ======== ======== ======== ======== ========
Cash dividends -- -- -- -- -- --
Weighted average common shares
outstanding(6) 11.3 11.3 15.0 15.4 27.6 28.8
Ratio of earnings to fixed charges(7) 5.5 3.4
</TABLE>
- 28 -
<PAGE> 31
<TABLE>
<CAPTION>
FISCAL YEARS
------------------------------------------------------------ Pro Forma
1992 1993 1994 1995 1996 1996(1)
(UNAUDITED)
---------- ---------- -------- ---------- ---------- -----------
(IN MILLIONS, EXCEPT EMPLOYEE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA--AS ADJUSTED(8):
Operating income $ 59.8 $ 59.8
Interest expense 15.2 17.1
Net income 43.9 43.4
Net income per common share 1.59 1.51
Ratio of earnings to fixed charges(7) 3.8 3.5
BALANCE SHEET DATA:
Working capital(9) $ 62.0 $ 44.6 $ 38.0 $ 52.3 $ 258.7
Total assets 267.0 262.5 240.2 248.8 703.0
Indebtedness (10) 149.3 75.0 92.9 89.6 22.1
Minority Interest - Company-
obligated mandatorily redeemable
preferred securities -- -- -- -- 201.2
Stockholders' equity 46.6 109.0 64.7 68.1 326.2
OTHER OPERATING DATA:
EBITDA(11) $ (6.1) $ (12.3) $ (26.7) $ 18.6 $ 79.8
Cash flows provided (used) by:
Operating activities (3.6) 12.4 (20.0) (6.1) (1.3)
Investing activities (71.3) (16.3) (4.6) (2.5) (131.4)
Financing activities 70.1 4.7 17.7 8.6 215.7
---------- ---------- -------- ---------- ----------
Total (4.8) .8 (6.9) (--) 83.0
Debt to total capitalization 76% 41% 59% 57% 40%
Ratio of EBITDA to interest expense(12) 1.8 7.8
Mill product shipments
(millions of pounds) 10.8 11.2 10.5 12.2 27.2
Active employees at period end 1,170 1,070 880 1,020 2,950
Order backlog at period end(13) $ 90.0 $ 80.0 $ 85.0 $ 125.0 $ 440.0
Capital expenditures 67.3 16.3 4.6 3.0 21.7 $ 26.0
</TABLE>
(1) Gives pro forma effect to the IMI Titanium Acquisition and AJM
Acquisition. See "Unaudited Pro Forma Condensed Consolidated Statement
of Operations."
(2) Principally represents sales to UTSC.
(3) Equity in earnings of THT is included in operating income through
October 1, 1996 (the date of the AJM Acquisition) while equity in
earnings of substantially all other joint ventures is included in
general corporate income (expense), net. See "Unaudited Pro Forma
Condensed Consolidated Statement of Operations" and Note 4 to the
Company's Consolidated Financial Statements.
(4) Operating income (loss) includes restructuring and other special
charges (credit) of $4.7 million in 1993, $10 million in 1994, ($1.2
million) in 1995 and $4.8 million in 1996 and in pro forma 1996. See
Note 5 to the Company's Consolidated Financial Statements.
(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 14
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 Notes 2 and 11 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 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 four fiscal
years ended 1995. The amount of coverage deficiency was $18.3 million
in 1992, $25.6 million in 1993, $42.4 million in 1994 and $5.1 million
in 1995.
(8) Reflects sale of the Convertible Preferred Securities to the Initial
Purchasers as if such sale had occurred at the beginning of 1996 and
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.
- 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 bank and other debt, capital lease obligations and loans and
interest to related parties.
(11) EBITDA represents income (loss) before cumulative effect of accounting
changes plus minority interest, 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 was $10.3 million in 1992, $18 million in 1993 and
$34.3 million in 1994.
(13) "Order backlog" is defined as firm purchase orders (which are
generally subject to cancellation by the customer upon payment of
specified charges).
RECENT DEVELOPMENTS - FIRST QUARTER RESULTS
The Company reported 1997 first quarter net income of $15.8 million,
or $.49 per fully diluted share, compared to net income of $2.1 million, or
$.10 per share, in 1996. Operating income for the 1997 first quarter was
$26.5 million, up from $6.8 million in 1996. The significant improvement in
TIMET's earnings was driven by price increases and a 17% increase in mill
product volume compared to the first quarter of 1996.
Sales were $167 million in the 1997 quarter, up 35% from last year
(percentage comparison proforma for the effect of the AJM Acquisition). Mill
product shipments in the first quarter of 1997 were 7.4 million pounds. Selling
prices have continued to increase, and the average price of mill products
shipped during the first quarter of 1997 was $16.00.
SUMMARY OF CONSOLIDATED OPERATIONS
Three months ended March 31, 1996 and 1997
(In millions, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Net sales $ 107.6 $ 167.0
Cost of sales 92.5 130.3
Selling, administrative and development costs 5.5 10.1
Earnings of joint ventures and other (expense) 1.4 (.1)
Special charges 4.2 --
--------- ---------
Operating income 6.8 26.5
General corporate income (expense) (.1) 1.0
Interest expense 3.5 4.0
--------- ---------
Pretax income 3.2 23.5
Income tax expense (benefit) (.7) 7.1
Minority interest .4 .6
--------- ---------
Net income $ 2.1 $ 15.8
========= =========
Fully diluted net income $ 2.1 $ 18.0
========= =========
Earnings per common share $ .10 $ .50
========= =========
Fully diluted earnings per share $ .10 $ .49
========= =========
Average common shares outstanding 20.5 31.5
========= =========
Average fully diluted shares outstanding 20.5 36.9
========= =========
</TABLE>
- 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) include the AJM Acquisition
effective October 1, 1996, and (iii) include the 50% partnership interest in
THT owned by TIMET prior to the AJM Acquisition. See "Business--Recent
Acquisitions and Capital Transactions." 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 and the AJM
Acquisition. 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
General
In 1995, the Company and the worldwide titanium industry began
recovering from the depressed industry conditions that existed during the prior
several years. The aerospace industry in recent history has accounted for
approximately 65% of U.S. and 40% of worldwide 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, weak demand, 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% and further increased
31% in 1996 to approximately 57 million pounds. Industry shipments had
previously remained relatively flat in the period between 1991 and 1994. The
Company also estimates that U.S. industry mill products shipments to the
commercial aerospace market in 1996 approximated 25 million pounds, a 40%
increase over 1995 levels following an 18% increase in 1995 over 1994. While
worldwide industry shipments are not as readily tracked as U.S. shipments (in
large part due to uncertainties of shipments by companies located in the former
Soviet Union), the Company believes U.S. trends are a reasonable proxy for
worldwide trends.
- 31 -
<PAGE> 34
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, including golf club heads. The
economic health of the commercial airline industry, the largest end market for
titanium, has improved significantly. 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.
The Company's order backlog increased to approximately $440 million at
December 31, 1996, from $226 million at December 31, 1995 (which amount is pro
forma for the IMI Titanium and AJM Acquisitions). The Company defines "order
backlog" as firm purchase orders (which are generally subject to cancellation
by the customer upon payment of specified charges).
Beginning during the second half of 1995 and continuing into 1997, the
Company experienced a significant increase in requests for quotations,
increased orders and increased prices on accepted orders. The Company estimates
that as of December 31, 1996, orders for over half of its anticipated 1997
shipments have been booked at average selling prices (contracted or anticipated
based upon current negotiations) approximately 10% higher than its 1996 average
selling prices. 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 industry demand has been driven primarily by the
recovery in the commercial aerospace market. 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 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 over 30
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 1997 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
1997, although there can be no assurance that recent price increases will
continue or not be reversed.
The Company's castings sales to the golf club market were
approximately 5% of its pro forma 1996 sales. In December 1996, TIMET Castings
laid off approximately one-half of its production employees at its Pomona,
California facility following a reduction in demand from one of its major golf
club manufacturing customers. The reduction in golf club business and the
related layoffs are not expected to have a material adverse effect on the
Company.
- 32 -
<PAGE> 35
The Company's 1996 results include the effects of acquisitions
accounted for by the purchase method and, accordingly, are not directly
comparable to results for 1995. See Note 4 to the Consolidated Financial
Statements.
Sales and Operating Income
1996 compared to 1995. All 1996 to 1995 mill products price and volume
comparisons in this discussion are pro forma assuming the IMI Titanium
Acquisition and the AJM Acquisition occurred at the beginning of 1995. The pro
forma effect of TISTO and TIMET Savoie on price and volume information is not
material.
The significant improvement in sales and operating income in 1996 was
driven by price and volume increases for titanium products in both commercial
aerospace and other markets. Sales volume of titanium mill products increased
27% to 27.2 million pounds while average selling prices in 1996 were up
approximately 16% over 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 have more than offset those
cost increases. Prices on recent orders for titanium products have continued to
increase relative to 1996 levels although there can be no assurance that this
trend will continue.
Operating levels at the Company's plants in 1996 were higher than in
1995 and contributed to the better operating results. The VDP titanium sponge
plant operated at approximately 85% of its annual practical capacity of 20
million pounds in 1996 compared to about 75% of capacity in 1995. The Company
presently expects its VDP plant to operate at about 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 of 1996
in response to demand for certain grades of titanium sponge. TIMET presently
intends to increase Kroll-leach titanium sponge production in 1997 to
approximately 10 million pounds of annual production. Costs to restart the
Kroll-leach facility in 1996 approximated $2 million. In 1996, the Company's
worldwide mill product capacity utilization approximated 80%.
Operating income in 1996 also included a special charge of $4.8
million compared to a restructuring credit of $1.2 million in 1995. See Note 5
to the Consolidated Financial Statements.
The Company has substantial operations and assets located in Europe,
principally the United Kingdom. The U.S. dollar value of the Company's foreign
sales and operating costs are subject to currency exchange rate fluctuations
which may slightly impact reported earnings and may affect the comparability of
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period-to-period operating results. Approximately one-half of the Company's
European sales are denominated in currencies other than the U.S. dollar,
principally major European currencies. Certain purchases of raw materials,
principally titanium sponge, for the Company's European operations are
denominated in U.S. dollars while labor and other production costs are
primarily denominated in local currencies.
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. 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. The Company's dollar
denominated export sales benefited during 1995 from the relative weakness in
the value of the U.S. dollar versus certain other currencies.
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.
The Company's operating income in 1995 includes $3.7 million of equity
in earnings of then 50%-owned THT, more than double the $1.6 million in 1994.
Operating income in 1995 also included a restructuring credit of $1.2
million compared to a $10 million charge in 1994. See Note 5 to the
Consolidated Financial Statements.
Interest Expense
Interest expense in 1996 was slightly lower than in 1995 principally
due to relative average borrowing levels. Annual interest expense related to
the Convertible Preferred Securities issued in November 1996 approximates $13.6
million, including amortization of financing costs.
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.
Income Taxes
The Company's income tax rate in 1996 varied from the U.S. statutory
rate principally due to a $7 million reduction in the deferred tax valuation
allowance to reflect the utilization of a portion of its U.S. net operating
loss carryforwards ("NOLs") in 1996 and a $10 million reduction in the deferred
tax valuation allowance resulting from a change in estimate of the NOL and
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alternative minimum tax carryforwards that will more likely than not be
realized in the future. The Company's effective income tax rates in each of
1994 and 1995 varied from the U.S. statutory rate due to losses for which
recognition of a deferred tax asset was not considered appropriate at the time.
See Note 12 to the Consolidated Financial Statements.
The Company operates in several tax jurisdictions and is subject to
varying income tax rates. For financial reporting purposes, the Company has
recognized substantially all of its carryforwards, except for certain U.S. State
NOLs expected to be recognized in 1997, and, accordingly, the Company expects
that its effective income tax rate in 1997 will be higher than in 1996. Such
effective rate for all of 1997 may vary slightly from that in the first quarter
of 1997 due to the combined effects of state income taxes and varying non-U.S.
rates.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial position was significantly improved during
1996 through the combined effects of (i) improved industry conditions, (ii)
acquisitions made during the year, (iii) the Stock Offering, and (iv) issuance
of the Convertible Preferred Securities.
At December 31, 1996, the Company had $87 million of cash and
equivalents and $110 million of borrowing availability under its U.S. and
European bank credit lines. The Company also has availability of 65 million
French francs under a facility provided by CEZUS. Indebtedness consisted
primarily of capital lease obligations related to certain of its European
manufacturing facilities and a relatively nominal amount of European working
capital borrowings. The Convertible Preferred Securities do not require
principal amortization and the Company has the right to defer interest payments
for one or more periods of up to 20 consecutive quarters each.
Operating Activities. Reflecting improved operating results, cash
provided by operating activities (before changes in assets and liabilities) was
$53 million in 1996 compared to $4 million provided in 1995 and $22 million
used in 1994. Changes in assets and liabilities used $54 million of cash in
1996 compared to $10 million in 1995 and $2 million provided in 1994. While
receivable and inventory levels (excluding acquisitions) increased an aggregate
of $43 million in 1996 as a result of the higher levels of working capital
necessary to support the higher production and sales levels, days sales
outstanding ("DSO") in receivables and days sales in inventory ("DSI") did not
increase significantly. The Company's goal is to better manage working capital
such that both DSO and DSI improve in 1997 over 1996.
Investing Activities. The Company's capital expenditures in 1996
approximated $22 million compared to $3 million in 1995 and $5 million in 1994.
The companies acquired during 1996 accounted for $10 million of the increase
with much of the remaining $9 million increase resulting from projects deferred
in prior years. The Company estimates capital expenditures in 1997 to be $55
million to $60 million, including capacity expansion and a major project to
redesign business processes and implement integrated information systems
throughout TIMET. About one-third of planned capital expenditures in 1997
relate to capacity expansion projects, the largest of which is a 20 million
pound electron beam furnace to be completed by THT in the second half of 1998.
Capital
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spending related to the business processes/information systems project is
currently estimated at over $30 million during the next few years, about
one-half of which is expected to be incurred in 1997.
Acquisitions aggregated $180 million in 1996 ($110 million cash; $70
million stock). The Company believes the IMI Titanium Acquisition, along with
other smaller European acquisitions, among other things, augmented the
Company's scale and geographic reach and increased its production flexibility.
In addition, the acquisition of the AJM scrap processing business enhanced the
Company's flexibility in optimizing its mix of its raw material purchases.
Financing Activities. The Company's net proceeds from the June 1996
Stock Offering approximated $131 million. The Company used approximately $125
million of such net proceeds to repay existing indebtedness ($23 million to
Tremont, $20 million to IMI and $82 million under its U.S. credit facility).
The Company received net proceeds from the Trust's sale of the
Convertible Preferred Securities of approximately $192 million. The Company
used approximately $96 million of such net proceeds to prepay indebtedness
incurred in conjunction with the AJM Acquisition with the rest for general
corporate purposes.
Reductions of indebtedness in 1995 include approximately $5 million of
installments on the term loan portion of the Company's U.S. credit facility and
payment of the final $2 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 is negotiating to increase its borrowing availability, and
expects, among other things, to be able to reduce current restrictions on use
of borrowed proceeds in order to further enhance its financial flexibility.
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, modify its dividend policy, restructure ownership
interests, refinance or restructure indebtedness, repurchase shares of capital
stock, 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, discuss and engage in acquisition, joint venture and other business
combination opportunities in the titanium and specialty metal industries. In
the event of any future acquisition or joint venture opportunities, the Company
may consider using available cash, issuing equity securities or incurring
indebtedness.
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ENVIRONMENTAL MATTERS
See "Business--Regulatory and Environmental Matters" for a discussion
of environmental matters and Note 16 to the Consolidated Financial Statements
for a discussion of environmental matters.
BUSINESS
General. The Company is one of the world's leading integrated
producers of titanium sponge and mill products, has the largest sales volume
worldwide and is the largest supplier of titanium to the aerospace and
industrial markets. The Company believes it is the low-cost producer of
titanium sponge and melt products. Due to its economies of scale, manufacturing
expertise and past investment in technology, TIMET believes that it is
well-positioned to capitalize on the improved 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 tubing and pipe), extrusions, wire and castings.
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 1996), the number of end-use markets for titanium has
expanded substantially. Today, numerous industrial uses for titanium exist,
including chemical plants, 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 possible automotive and computer uses.
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 Acquisitions and Capital Transactions. At the beginning of
1996, the Company was owned by Tremont Corporation (75%) and Union Titanium
Sponge Corporation ("UTSC") (25%), and its operations were conducted primarily
in the United States.
In February 1996, the Company acquired its TIMET UK, Ltd. ("TIMET UK")
and TIMET Castings Corporation ("TIMET Castings") in 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
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aerospace applications and golf club heads. In connection with the IMI Titanium
Acquisition, the Company issued (i) 9.6 million shares of common stock to IMI
valued at $70 million at the date of issue and (ii) $20 million of the
Company's subordinated debt to IMI in exchange for a like amount of debt
previously owed to IMI by its UK titanium subsidiary. In addition, Tremont and
UTSC received an option to acquire from IMI a portion of the common stock
issued to IMI.
In June 1996, the Company completed the Stock Offering pursuant to
which the Company sold 6.2 million shares of common stock, and its shareholders
(Tremont, UTSC and IMI) sold an additional 10.5 million shares of common stock.
The price to the public in the Stock Offering was $23 per share. Following the
Stock Offering, approximately 54% of TIMET's outstanding common stock was held
by the public, 6% by IMI, 10% by UTSC and 30% by Tremont. Tremont and UTSC have
the option to acquire the shares currently held by IMI. The Company's net
proceeds from the Stock Offering approximated $131 million and were used
primarily to repay indebtedness, including all amounts owed to Tremont and IMI.
In October 1996, the Company completed the AJM Acquisition. The assets
acquired in the AJM Acquisition included the 50% interest in THT not already
owned by the Company and AJM's titanium scrap business. The purchase price of
the AJM Acquisition, including transaction costs, was $97 million cash, which
was funded by borrowings under the Company's U.S. credit facility.
In November 1996, the Company, through the Trust, issued the
Convertible Preferred Securities and used a portion of the proceeds to repay
the borrowings incurred in conjunction with the AJM Acquisition. The remaining
proceeds will be used for general corporate purposes. The Convertible Preferred
Securities are convertible, subject to certain limitations, into an aggregate
of 5.4 million shares of common stock.
In addition, the Company completed acquisitions of 70% of TIMET Savoie
in France (August 1996) and 100% of TISTO (July 1996) and LASAB (January 1997)
in Germany to enhance TIMET's titanium manufacturing, distribution and
technology capabilities in Europe.
The Company intends to focus on the following strategic objectives:
o Maximize its participation in the aerospace industry recovery by
focusing on the Company's basic strengths of sponge production,
melting, forging and casting of various shapes of titanium
products.
o Invest in technology and innovative projects aimed at reducing
costs and enhancing productivity, quality and production
capacity.
o Lower the cost of sourcing raw materials.
o Invest in strategic alliances, new markets, applications and
products as well as acquisitions.
o Maintain a strong balance sheet.
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Recent Industry Recovery. The titanium industry suffered a downturn in
the early 1990's, and in each of 1991 to 1995 the Company reported a net loss.
The cyclical nature of the aerospace industry has historically been the
principal cause of the fluctuations in performance of titanium companies with
cyclical peaks in mill products shipments in 1980 and 1989, and with cyclical
lows in 1983 and 1991. Industry shipments remained relatively flat from 1991 to
1994.
Since 1995, the titanium industry has improved due to a combination of
factors including a resurgence in commercial aerospace demand, continuing and
stable industrial demand and the emergence of new uses for titanium, including
golf club heads. U.S. industry mill product shipments in 1995 increased 26%
from 1994. In 1996, U.S. industry mill product shipments were an estimated 57
million pounds, up 31% from 1995 with U.S. shipments to the commercial
aerospace market an estimated 25 million pounds, up 40% from the prior year. In
addition, U. S. industry mill product shipments to the golf club market in 1996
were approximately 8 to 10 million pounds compared to virtually none in 1994.
While worldwide industry shipments are not as readily tracked as U.S. shipments
(in large part due to uncertainties of shipments by companies located in the
former Soviet Union), the Company believes U.S. trends are a reasonable proxy
for worldwide trends.
Aerospace demand for titanium products, which includes both jet
engines and air frames, 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. 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. Due to improved fundamentals, the
commercial airline industry reported operating profits of over $16 billion
(estimated) in 1996, $6 billion in 1995 and $2 billion in 1994 compared to
cumulative losses in excess of $5 billion in the 1990 to 1993 period. Most
major carriers are investing in upgrading and expanding their fleets. 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 increased demand for titanium products.
Since titanium's initial aerospace applications, the number of end-use
markets for titanium has expanded substantially. Existing industrial uses for
titanium include chemical plants, 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 and computer 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
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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 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 crushed,
while the residual magnesium chloride is electrolytically separated and
recycled. The balance of the Company's sponge production capacity uses the
original Kroll-leach process, using 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 for ingots and slabs 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 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.
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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,
mechanical testing, 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 upon a single processor to perform certain finishing and
conditioning steps with respect to its THT slab products. 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 business, results of operations, financial
condition and cash flows in the short term.
In 1996, proforma for the IMI Titanium and AJM Acquisitions, over 90%
of the Company's sales were generated from the sale of titanium ingot, slab, a
wide variety of mill products and castings with the balance from sales of
titanium tetrachloride, sponge and other by-products.
Raw Materials. The principal raw materials used in the production of
titanium mill and cast products are titanium sponge, titanium scrap and
alloying materials. 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. In 1996, the Company produced 18 million pounds of
sponge, of which 4.4 million pounds were sold to UTSC pursuant to a sponge
purchase agreement and the remainder of which was used internally.
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 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
contracts that permitted 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
such suppliers for approximately 25 million pounds of sponge in 1997. 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. Market conditions have generally
enabled the Company to pass such increases to its customers.
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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 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. About 65% of the Company's 1996 sales were
to customers within North America, with about 30% to European customers and the
balance to other regions. No single customer represents more than 10% of the
Company's direct sales. However, in 1996 about 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 while a majority of its 1997 sales
will also be to the aerospace sector, industrial and consumer goods markets
will continue to represent a significant portion of sales.
The aerospace industry is dominated by three major manufacturers of
commercial aircraft (two of which, Boeing and McDonnell Douglas, are proposing
to combine) 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 1994
through 1996, 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 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's order backlog was approximately $440 million at December
31, 1996 compared to a combined TIMET/IMI/AJM backlog of $226 million at
December 31, 1995. Approximately 95% of the 1996 year end backlog is expected
to be delivered during 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.
As of December 31, 1996, the estimated firm order backlog for Boeing,
McDonnell Douglas and Airbus, as reported by The Airline Monitor, was 2,370
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planes versus 1,869 planes on December 31, 1995, an increase of 27%. The newer
wide body planes, such as the Boeing 777, 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. The estimated firm order backlog for wide body planes at year end 1996
was 767 (32% of total backlog) compared to 682 at the end of 1995. Growth in
firm order backlog for narrow body aircraft has also been strong, having
increased 35% during 1996 to 1,603.
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 development, 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. In this regard, the
Company has, among other things, 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, would entail significant
uncertainty and would be subject to various conditions. No assurances can be
given that the relationship will be formed or, if formed, as to the nature of
the relationship. In connection with the Company's efforts to establish such a
relationship, the Company purchased 2.8 million pounds of intermediate and
finished mill products from such producer in 1995 and 3 million pounds in 1996.
TIMET's strategy for investing in new markets and uses for titanium
includes investing in promising ventures and capital opportunities. In this
regard, during March 1997 the Company entered into definitive agreements to
invest up to $5 million in TMS for an equity interest in TMS of approximately
20%. The funds will be used by TMS to continue its development and production
of a titanium substrate for use in computer hard disk drives.
In March 1997, TIMET announced that it had executed definitive
agreements in another strategic alliance to combine the Company's welded tubing
operations with those of Valinox Welded, a French manufacturer of welded
tubing, principally stainless steel and titanium, with operations in France and
China. The joint venture, "Valtimet", would be 46% owned by TIMET and 54% owned
by Valinox Welded. TIMET will supply titanium strip product to Valtimet under a
long-term contract as the preferred supplier. The transaction is expected to
close during the second quarter of 1997. The effect of the transaction on
TIMET's near-term financial results is not expected to be material.
Competition. The titanium metals industry is highly competitive on a
worldwide basis as a result of many factors, particularly the presence of
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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 four
integrated producers 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.
The Company estimates that in 1996 it accounted for approximately 15%
of world sponge capacity and 24% of worldwide shipments of titanium mill
products. The Company's principal competitors include RMI, Oremet, and
Allegheny Teledyne Allvac. The Company's principal competitors in its U.S.
castings business are Precision Cast Parts, Howmet, Selmet and Coastcast. The
Company competes primarily on the basis of price, quality of products,
technical support and the availability of products to meet customers' delivery
schedules.
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 mill
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.
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%.
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. In November 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.
- 44 -
<PAGE> 47
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). 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 or otherwise
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.
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, TIMETAL(R)21S, 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 the majority of its 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. Additional
research and development activities are performed at the Witton, England
facility. The Company's research and development expenditures have approximated
$2 million during each of the past three years and are expected to be
approximately $3 million in 1997.
Patents and Trademarks. The Company holds U.S. and non-U.S. 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 TIMET(R) and TIMETAL,
which are protected by registration in the U.S. and other countries, are
significant to its business.
- 45 -
<PAGE> 48
Employees. As of December 31, 1996, the Company employed approximately
2070 persons in the U.S. and approximately 880 persons in Europe. The Company's
production and maintenance workers in Henderson, Nevada and its production,
maintenance, clerical and technical workers in Toronto, Ohio are represented by
the USWA under contracts expiring in October 2000 and June 1999, respectively.
Employees at the Company's other U.S. facilities are not covered by collective
bargaining agreements. In February 1997, employees at TIMET Castings' Albany,
Oregon facility voted to not be represented by the USWA.
Substantially all of the salaried and hourly employees at the
Company's European facilities are members of various European labor unions. In
January 1997, new one-year agreements covering the U.K. and French union
employees were entered into, providing for modest wage increases in 1997.
The USWA engaged in a nine month work stoppage at the Company's
Henderson facility in 1993 - 1994 and in a three month stoppage at the Toronto
facility in 1994. While the Company currently considers its employee relations
to be satisfactory, it is possible that there could be future work stoppages
that could materially and adversely affect the Company's business, financial
condition, results of operations or cash flows.
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 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.
The Company's operations in Europe 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.
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
- 46 -
<PAGE> 49
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.
See Note 16 to the Consolidated Financial Statements - "Commitments
and Contingencies - Environmental Matters," which information is incorporated
herein by reference. 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 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. The Company expects to adopt the recognition and disclosure
requirements of AICPA's Statement of Position No. 96-1, "Environmental
Remediation Liabilities" in 1997. The new rule, among other things, expands the
types of costs which must be considered in determining environmental
remediation accruals. The effect of adopting this new Statement of Position is
not expected to be material. The Company currently believes the disposition of
all known 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.
Properties. Set forth below is a listing of the Company's
manufacturing facilities. In addition to its U.S. sponge capacity discussed
below, the Company's current worldwide rated melting capacity aggregates
approximately 84 million pounds, and its rated mill products and castings
capacity aggregates approximately 36 million pounds.
<TABLE>
<CAPTION>
Manufacturing Location Products Manufactured
- ---------------------- ---------------------
<S> <C>
Henderson, Nevada+ Sponge, Ingot
Morgantown, Pennsylvania+ Slab, Ingot, Raw Materials Processing
Vallejo, California* Slab, Ingot (including non-titanium
superalloys)
Verdi, Nevada* Slab, Ingot
Toronto, Ohio+ Billet, Bar, Plate, Sheet, Strip, Tube, Pipe
Morristown, Tennessee+ Tube, Sheet, Plate
Albany, Oregon+ Castings
Pomona, California* Castings
Witton, England* Ingot, Billet, Wire, Extrusions
Ugine, France* Ingot, Bar, Billet, Wire, Extrusions
Waunarlwydd (Swansea), Wales+ Bar, Plate, Sheet
</TABLE>
- ----------------
+ Owned facilities
* Leased facilities
- 47 -
<PAGE> 50
TIMET UK's Witton facilities are leased from IMI pursuant to long-term
capital leases. TIMET Savoie has the right, on a long-term basis, to utilize
portions of CEZUS' plant in Ugine. The Company's raw materials processing
operations are currently being relocated from leased facilities to the
company-owned facility in Morgantown.
United States Production. The Company's VDP sponge facility operated
at approximately 85% of its annual practical capacity of 20 million pounds
during 1996, up from 75% in 1995. 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 THT cold hearth melting
facilities. Titanium mill products are principally produced at a forging and
rolling facility in 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. Certain mill products are also
produced at the Tennessee finishing facility.
The Company's Henderson melting facility operated at about 65% of
capacity in 1996 (1995 - 45%). The Ohio and Tennessee facilities each operated
at about 80% of capacity in 1996, compared to about 40% and 60%, respectively,
in 1995. 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
reopened its original Kroll-leach plant, producing approximately 1.4 million
pounds in 1996. The Company expects to increase Kroll-leach production during
1997 to an annual rate of approximately 10 million pounds. Costs to restart the
Kroll-leach facility approximated $2 million in 1996.
THT operates four electron beam cold hearth melting furnaces
(aggregate 31.5 million pound annual capacities) located in Pennsylvania (two),
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. TIMET Castings, with plants located in
California and Oregon, produces titanium castings used principally for
- 48 -
<PAGE> 51
aerospace applications and golf club heads. THT operated at approximately 95%
of aggregate capacity in 1996 while TIMET Castings operated at approximately
65% of aggregate capacity.
European Production. TIMET UK 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 its forging and rolling
operations in Witton, which process the ingots principally into billet and
wire. TIMET UK's Witton facility also provides stock to its 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. The Witton facility operated at
approximately 90% of capacity in 1996, while the Wales facility operated at
approximately 60%.
Capacity of TIMET Savoie in Ugine, France is to a certain extent
dependent upon the level of activity in CEZUS' zirconium business, which may
from time to time provide TIMET Savoie with capacity in excess of that
contractually required to be provided by CEZUS. During 1996, TIMET Savoie
operated at approximately 100% of the capacity required to be provided by
CEZUS.
Distribution. The Company's marketing and distribution system includes
seven Company-owned service centers (four in the U.S. and three in Europe)
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 sheet and strip. The Company believes its service 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.
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. Certain contingencies are
described below and in Note 16 of the Company's Consolidated Financial
Statements.
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
- 49 -
<PAGE> 52
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, 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 asserted 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. In March 1997, the
Company received notice that Ray Cook had filed (but not yet served) an action
claiming damages in excess of $5 million with respect to this matter. The
Company believes that this action is without merit, intends to continue to deny
all allegations of liability and to defend this action vigorously. The Company
has 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; a $.2 million lump-sum payment with the
balance payable in equal quarterly payments ($1.5 million unpaid and accrued at
December 31, 1996). The Company has filed an action against the chromium
supplier (Titanium Metals Corp. v. Elkem Metals, Case No. 97-0369, W.D. Pa.)
seeking recovery of the cost to TIMET to settle with its customer plus related
costs. The Company's estimate of any recovery from the chromium supplier and/or
TIMET's insurance carrier 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, 1996, TIMET had not accrued any amount with respect to
this matter.
- 50 -
<PAGE> 53
Matters involving Certain Directors. In September 1996, a purported
stockholder derivative suit was filed in the Chancery Division of the New
Jersey Superior Court, Bergen County (Seinfeld v. Simmons et al., Civ. Action
No. C-336-96) challenging NL's 1991 purchase of approximately 10.9 million
shares of NL common stock from Valhi, Inc. ("Valhi") in connection with a dutch
auction tender offer to all stockholders. The complaint names as defendants NL,
Valhi, and seven persons who served on NL's Board of Directors in 1991,
including J. Landis Martin, the Company's Chairman and Chief Executive Officer.
The complaint alleges that NL's purchase of the shared in the dutch auction
constituted a breach of the defendants fiduciary duties to NL's stockholders.
The complaint seeks rescission of the purchase from Valhi and monetary damages.
NL and the other defendants have answered the complain and have denied all
allegations of wrongdoing. The Company understands that each of the defendants
intend to defend the action vigorously. Trial is scheduled to begin in November
1997.
In November 1991, a purported derivative complaint was filed in the
Court of Chancery of the State of Delaware, New Castle County (Kahn v. Tremont
Corp., et al., No. 12339), in connection with Tremont's purchase of 7.8 million
shares of NL common stock form Valhi in 1991. The complaint named as defendants
Valhi and all the members of the Board of Directors of Tremont, including Mr.
Martin and Gen. Stafford, and alleged that Tremont's purchase of the NL common
stock constituted a waste of Tremont's assets and a breach of fiduciary duties
by Tremont's board. A trial in this matter was held in June 1995 and in March
1996, the Court issued its opinion ruling in favor of the defendants concluding
that the purchase of the interest in NL was entirely fair to Tremont. Plaintiff
has appealed the decision to the Delaware Supreme Court, which has not yet
ruled on the matter.
The Company is not a party to either of the foregoing actions.
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 40% 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.
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<PAGE> 54
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors, nominees for director 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 48 Vice President, Chief Financial Officer
and Director
Edward C. Hutcheson, Jr. 50 Director
Hiroomi Mikami 57 Nominee for 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
Leslie P. Lundberg 39 Vice President--Human Resources
John P. Monahan 51 Vice President--Sales and Marketing
J. Thomas Montgomery, Jr. 50 Vice President--Finance and Treasurer
Robert E. Musgraves 42 Vice President, General Counsel and Secretary
Mark A. Wallace 39 Vice President--Strategic Change
</TABLE>
Pursuant to the terms and conditions of the Company's bylaws and the
Investors' Agreement among the Company, Tremont and UTSC, the number of
directors is fixed at six 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 and a director since
1987 and Chief Executive Officer of the Company since 1995. He also served as
President of the Company from 1995 to 1996. Mr. Martin has served as Chairman
of Tremont since 1990, as Chief Executive Officer and a director of Tremont
since 1988, and except for a period in 1990, President of Tremont since 1987.
Mr. Martin has served as President and Chief Executive Officer of NL, a
manufacturer of titanium dioxide pigment and 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
- 52 -
<PAGE> 55
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 1995, Managing Director of IMI Titanium Ltd. ("IMI Titanium"),
where he had responsibility for the titanium interests of IMI 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 1971 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 1996 and has been a director of the Company since
1994 (except for the period from March 1996 to July 1996). Since 1994, he has
also 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 component products and
waste control and, through NL, in the titanium dioxide pigment and specialty
chemicals industries. From 1990 until 1993, Mr. Compofelice was Vice President
and Chief Financial Officer of Baroid.
EDWARD C. HUTCHESON, JR. has been a director of the Company since
April 1996. Mr. Hutcheson is co-founder and a director of Castle Tower
Corporation ("Castle Tower"), an owner and manager of wireless communication
antenna sites and transmission facilities, since October 1994. He served as
Chairman of the Board of Castle Tower from October 1996 to April 1997 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.
HIROOMI MIKAMI has been Associate Director and General Manager of the
Investment Planning and Administration Department, Corporate Planning Division
of Mitsui & Co., Ltd. since 1996. From 1994 to 1996, Mr. Mikami was General
Manger of the Investment Planning and Administration Department, Corporate
Planning Division of Mitsui & Co., Ltd. From 1992 to 1994, Mr. Mikami was
General Manager of the Newer Metals Division, Non-Ferrous Metals Group of
Mitsui & Co., Ltd.
GENERAL THOMAS P. STAFFORD (retired) has been a director of the
Company since April 1996. Gen. Stafford has served as co-founder of Stafford,
Burke and Hecker, Inc., a Washington-based consulting firm, since 1982. Gen.
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, Gen. 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
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<PAGE> 56
company, and served in that position until 1984, when he joined General
Technical Services, Inc., a consulting firm. Gen. Stafford has served as a
director of Tremont since 1989. Gen. Stafford is also 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 State 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.
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<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.
LESLIE P. LUNDBERG has been Vice President--Human Resources since
1997. From 1995 until joining the Company, she was Vice President, Human
Resources for Dade International, Inc., a distributor of diagnostic equipment
for use in clinical laboratories, and from 1991 until 1995 she was Vice
President, Human Resources for the Edwards CVS division of Baxter Healthcare
International, a manufacturer of heart valves and angioplasty rings.
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 1987.
ROBERT E. MUSGRAVES has been Vice President and General Counsel of the
Company since 1990. 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 in person a meeting of the Board of Directors
or a committee of the Board of Directors ($350 for telephonic participation).
Directors are also reimbursed for reasonable expenses incurred in attending
Board of Directors and committee meetings.
The Company has adopted a non-employee 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). Non-employee
directors were also granted an option to acquire 625 shares on December 30,
1996 at $32.875 per share, and commencing in 1998 will be granted annually on
the third trading day after the Company's earnings release for its previous
fiscal year, an option to acquire 1,500 shares at the last reported sales price
of Common Stock on the Nasdaq National Market on such date.
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<PAGE> 58
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation of Executive Officers
The following table sets forth certain information regarding the
compensation paid by the Company to (i) the Company's Chief Executive Officer
and (ii) the Company's four other most highly compensated executive officers,
in each case for services rendered during the fiscal year ended December 29,
1996.
Summary Compensation Table(1)
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
Awards
Securities
Underlying All Other
Salary Bonus(5)(6) Options Compensation(7)(8)
Name and Position Year ($) ($) (#) ($)
<S> <C> <C> <C> <C> <C>
J. Landis Martin 1996 225,000 940,331 54,000 21,028
Chairman of the Board and 1995 120,000 -0- -0- 2,650
Chief Executive Officer(2)
Andrew R. Dixey 1996 218,750 636,415 45,000 86,600
President and 1995 -- -- -- --
Chief Operating Officer(3)
Joseph S. Compofelice 1996 120,000 410,969 25,500 14,263
Vice President and 1995 90,000 100,000 -0- 4,476
Chief Financial Officer(2)(4)
Robert E. Musgraves 1996 160,000 277,092 18,000 15,338
Vice President, General 1995 120,000 31,200 -0- 5,018
Counsel and Secretary(2)
John P. Monahan 1996 150,000 259,292 18,000 16,896
Vice President- 1995 120,000 31,200 -0- 5,160
Sales and Marketing
</TABLE>
(1) Columns required by the regulations of the Commission which would contain
no entries have been omitted. Amounts are shown only for 1995 and 1996 in
accordance with regulations of the Commission based upon the timing of the
Stock Offering.
(2) J. Landis Martin, the Company's Chairman and Chief Executive Officer,
Joseph S. Compofelice, the Company's Vice President and Chief Financial
Officer, Robert E. Musgraves, the Company's Vice President and General Counsel,
and Mark A. Wallace, the Company's Vice President-Strategic Change, also serve
as officers of Tremont. 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 on behalf of TIMET and Tremont during
1995 and 1996. Pursuant to an intercorporate services arrangement, Tremont
reimbursed the Company for approximately 50% of such amounts in 1995. Mr.
Compofelice was not an executive officer of the Company during 1995. In 1996,
pursuant to an intercorporate services agreement, Tremont reimbursed (or will
reimburse) TIMET for approximately $120,000, $64,000, and $72,000 of the
compensation paid to Messrs. Martin, Compofelice and Musgraves, respectively.
The amounts shown for Mr. Martin do not include a special bonus of $2 million
awarded by Tremont in 1996. Of this amount, $955,000 was paid by Tremont to Mr.
Martin in 1996 and the balance was deferred for future payment (with interest
on the unpaid balance at 8.75% per annum).
- 56 -
<PAGE> 59
The Company expects that each of Messrs. Martin, Compofelice and Musgraves will
each devote approximately 10% of his total TIMET/Tremont time during 1997 to
Tremont matters. Accordingly, Tremont will reimburse the Company for such
proportionate percentage of the 1997 salary and bonus paid by TIMET to such
individuals (plus a share of applicable estimated fringe benefits and overhead
expense for each) pursuant to an intercorporate services agreement. See
"Certain Relationships and Related Transactions-Contractual Relationships."
Messrs. Martin and Compofelice also serve as officers of NL and are compensated
directly by NL for such services. Mr. Compofelice also serves as an executive
officer of Valhi, which reimburses NL for a proportionate part of Mr.
Compofelice's NL compensation.
(3) Mr. Dixey commenced employment with the Company effective February 15,
1996. The amounts shown represent amounts paid or accrued either by the Company
or the Company's wholly owned subsidiary, TIMET UK. The portion of Mr. Dixey's
compensation paid by TIMET UK was paid in British Pounds Sterling.
The exchange rate used was L1 = $1.62.
(4) Based upon the recommendation of the Chief Executive Officer and TIMET's
and Tremont's Management 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) Under the Company's variable incentive compensation plan applicable to
Messrs. Musgraves and Monahan (the "Employee Cash Incentive Plan"), a portion
of the compensation payable to the Company's officers who participate in the
Employee Cash Incentive Plan is based upon the Company's financial performance.
The balance of the compensation payable to the Company's officers under the
Employee Cash Incentive Plan is based on the assessed performance of the
individual officer.
Based on the Company's 1995 financial results, all compensation paid under the
Employee Cash Incentive Plan to Messrs. Musgraves and Monahan for such year
related solely to individual performance and no compensation was payable with
respect to the Company's performance. For 1996, the payments under the Employee
Cash Incentive Plan to Messrs. Musgraves and Monahan ($140,800 and $123,000,
respectively) were based upon a combination of Company performance and assessed
individual performance. None of Messrs. Martin, Dixey or Compofelice has
participated in the Employee Cash Incentive Plan. In February 1996, the
Company's Board adopted the Senior Executive Cash Incentive Plan (the "Senior
Executive Cash Incentive Plan"), which is currently applicable to Messrs.
Martin, Dixey and Compofelice. Such plan provides for payments based solely
upon Company performance. For 1996, awards of $272,500, $302,500, and $145,200
were made to Messrs. Martin, Dixey and Compofelice under this plan, which
amounts are included in the "Bonus" column.
(6) In February 1996, in connection with the IMI Titanium Acquisition, the
Company made special cash and stock bonus (the "Management Shares") awards to
certain of its executive officers. Applying the fair value of Common Stock at
the effective date of grant of the Management Shares, aggregate cash and stock
awards totaling $667,831, $333,915, $265,769, $136,292, and $136,292 were made
to Messrs. Martin, Dixey, Compofelice, Musgraves and Monahan, respectively.
Such amounts are included in the "Bonus" column.
- 57 -
<PAGE> 60
(7) Such amounts represent (i) matching contributions made or accrued by the
Company pursuant to the savings feature of the Company's Thrift/Retirement
Plan, (ii) retirement contributions made or accrued by the Company pursuant to
the Thrift/Retirement Plan and (iii) life insurance premiums paid by the
Company, as follows:
<TABLE>
<CAPTION>
Savings Match Retirement Contribution Life Insurance
1995 1996 1995 1996 1995 1996
<S> <C> <C> <C> <C> <C> <C>
Martin $ 150 $ 13,378 $ 2,400 $ 7,650 -0- -0-
Dixey -- -- -- -- -- --
Compofelice 900 7,237 3,000 6,450 576 576
Musgraves 1,230 9,000 3,000 5,550 576 788
Monahan 1,200 8,286 3,000 7,650 960 960
</TABLE>
(8) The amount for Mr. Dixey represents the amount contributed or accrued by
TIMET UK with respect to Mr. Dixey's TIMET UK pension and supplemental pension
plans. See "Pension Plans" below.
Pension Plans
The Defined Benefit Retirement Plan for Salaried Employees of Titanium
Metals Corporation (the "TIMET Defined Benefit 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 Defined Benefit
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 Defined Benefit Retirement Plan. Effective April 2, 1994, employees
also ceased accruing additional credit for increases in salary under such plan.
John P. Monahan, the only individual named in the Summary Compensation Table
above who participated in the TIMET Defined Benefit Retirement Plan, will be
entitled to receive annual payments of approximately $24,000 pursuant to the
TIMET Defined Benefit Retirement Plan upon reaching age 65.
The TIMET UK Limited Pension Plan (the "TIMET UK Pension Plan") covers
substantially all of TIMET UK's senior salaried employees. Such employees
generally became eligible to receive a retirement benefit under such plan after
completion of two years of service. Benefits under the TIMET UK Pension Plan
are generally formulated on the basis of a straight life annuity based upon the
number of years of pensionable service credited to the participant, up to a
maximum of 32 years, divided by 48 years and multiplied by the final
pensionable pay of the participant after deducting a basic state pension
offset. Final pensionable pay is calculated using the average pay during the
highest three years of employment. The following table lists annual benefits
under the TIMET UK Pension Plan for the pensionable pay and years of
pensionable service set forth below:
- 58 -
<PAGE> 61
<TABLE>
<CAPTION>
Years of Pensionable Service
15 20 25 30 35
<S> <C> <C> <C> <C> <C>
Final Pensionable Pay
L82,200 L41,100 L54,800 L54,800 L54,800 L54,800
</TABLE>
Final pensionable pay pursuant to the TIMET UK Pension Plan is capped
at L82,200. As of December 31, 1996, Andrew R. Dixey is the only executive
named in the Summary Compensation Table who participates in the TIMET UK
Pension Plan. Because Mr. Dixey's compensation exceeds the earnings cap under
the TIMET UK Pension Plan, his pensionable pay under the TIMET UK Pension Plan
is equal to the earnings cap. As of December 31, 1996, Mr. Dixey was credited
with 1.25 years of pensionable service under the TIMET UK Pension Plan.
In addition to the TIMET UK Pension Plan, Mr. Dixey participates in a
supplemental pension plan through TIMET UK. The TIMET UK supplemental plan
requires monthly contributions by TIMET UK of 1/12 of 20% of Mr. Dixey's basic
monthly salary over the TIMET UK Pension Plan earnings cap and 20% of Mr.
Dixey's bonus paid during such month in excess of the earnings cap. Upon Mr.
Dixey's retirement, TIMET UK's contributions to the plan are required to be
paid to Mr. Dixey.
Stock Option/SAR Grants in Last Fiscal Year
The following table provides information, with respect to the
executive officers of the Company named in the Summary Compensation Table
above, concerning the grant of stock options under the TIMET Stock Incentive
Plan during fiscal year 1996. No stock appreciation rights ("SARs") have been
granted under the TIMET Stock Incentive Plan.
<TABLE>
<CAPTION>
Potential Realizable
Number of Percent of Value at Assumed Annual
Securities Total Options Rate of Stock Price
Underlying Granted to Exercise or Appreciation for Option
Options Employees in Base Price Expiration Term(5) ($)
Name Granted(1) Fiscal Year ($/share) Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
J. Landis Martin 18,000 10.1% 23.00(2) 6/4/2006 260,362 659,809
18,000 26.00(3) 6/4/2006 206,362 605,809
18,000 29.00(4) 6/4/2006 152,362 551,809
Andrew R. Dixey 15,000 8.4% 23.00(2) 6/4/2006 216,969 549,841
15,000 26.00(3) 6/4/2006 171,969 504,841
15,000 29.00(4) 6/4/2006 126,969 459,841
Joseph S. Compofelice 8,500 4.8% 23.00(2) 6/4/2006 122,949 311,577
8,500 26.00(3) 6/4/2006 97,449 286,077
8,500 29.00(4) 6/4/2006 71,949 260,577
Robert E. Musgraves 6,000 3.4% 23.00(2) 6/4/2006 86,787 219,936
6,000 26.00(3) 6/4/2006 68,787 201,936
6,000 29.00(4) 6/4/2006 50,787 183,936
John P. Monahan 6,000 3.4% 23.00(2) 6/4/2006 86,787 219,936
6,000 26.00(3) 6/4/2006 68,787 201,936
6,000 29.00(4) 6/4/2006 50,787 183,936
</TABLE>
- 59 -
<PAGE> 62
(1) Options become exercisable 40% on the second anniversary of the date of
grant and 20% on each of the third, fourth, and fifth anniversaries.
(2) Exercise price is the market value of Common Stock on the grant date,
calculated as the price to the public in the Stock Offering (the "IPO Price")
on such date.
(3) Exercise price is equal to the IPO Price plus $3.00.
(4) Exercise price is equal to the IPO Price plus $6.00.
(5) Pursuant to the rules of the Commission, these amounts reflect the
calculations at assumed 5% and 10% appreciation rates from the IPO Price on the
date of grant. Such calculations are not intended to forecast future
appreciation, if any, and do not necessarily reflect the actual value, if any,
that may be realized. The actual value of such options, if any, would be
realized only upon the exercise of such options and will depend upon the actual
future performance of Common Stock. No assurance can be made that the amounts
reflected in these columns will be achieved. The potential realizable value was
computed as the difference between the appreciated value (at the end of the
ten-year term of the options) of Common Stock into which the listed options are
exercisable and the aggregate exercise price of such options. The appreciated
value per share at the end of the ten-year term would be $37.46 and $59.66 at
the assumed 5% and 10% rates, respectively.
Stock Option Exercises and Holdings
No TIMET stock options were exercised (or exercisable) during the last
fiscal year and no SARs have been granted. Accordingly, the table showing
information concerning the exercise of stock options during the last fiscal
year and the value of unexercised options at the end of the fiscal year has
been omitted.
Agreements with Executives
In connection with the employment of Andrew R. Dixey by the Company in
February 1996, the Company entered into an agreement with Mr. Dixey which
provides, among other things, that Mr. Dixey may be terminated by the Company
at any time. In the event that such termination is without cause (as defined in
the agreement), the Company has agreed to pay Mr.
Dixey one year's base salary upon termination.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to July 1996, the Company's Management Development and
Compensation Committee included, at various times, former directors Susan E.
Alderton, Dr. Ralph L. Cotton, and R. Barry Pointon, along with J. Landis
Martin, the Company's Chairman and Chief Executive Officer. Since July 1996,
the Committee has been composed of Edward C. Hutcheson, Jr. (Chairman) and Gen.
Thomas P. Stafford.
During 1996, J. Landis Martin served as President and Chief Executive
Officer and a director of NL, Joseph S. Compofelice, the Company's Vice
President and Chief Financial Officer and a director, served as Vice President
and Chief Financial Officer and a director of NL, and Susan E. Alderton, a
director of the Company, served as Vice President and Treasurer of NL. See
Certain Relationships and Transactions-Relationships with Related Parties. In
addition, during 1996, Mr. Martin served as a director of Castle Tower and a
member of the compensation committee of that company's board. For a portion of
1996, Mr. Hutcheson served as President and Chief Executive Officer of Castle
Tower.
- 60 -
<PAGE> 63
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.
- 61 -
<PAGE> 64
PRINCIPAL STOCKHOLDERS
The following table and notes set forth, as of March 19, 1997, the
beneficial ownership, as defined by the regulations of the Commission, of
Common Stock held by (a) each person or group of persons known to TIMET to
beneficially own more than 5% of the outstanding shares of Common Stock, (b)
each director or nominee for director of TIMET, (c) each executive officer of
TIMET listed in the Summary Compensation Table above who is not a director or
nominee for director of TIMET ("Named Executive Officers") and (d) all current
executive officers and directors of TIMET as a group. 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 under the heading
"Ownership of Tremont Common Stock" below. Except as set forth in footnote 6
below and under the heading "Ownership of TIMET Trust Securities" below, no
securities of TIMET's subsidiaries or less than majority owned affiliates are
beneficially owned by any director, nominee for director or executive officer
of TIMET. All information is taken from or based upon ownership filings made by
such persons with the Commission or upon information provided by such persons
to TIMET.
<TABLE>
<CAPTION>
Common Stock
Name and Address of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership Common Stock
<S> <C> <C>
Greater than 5% Stockholders
Tremont Corporation(1)(2) 11,033,075 35.1%
1999 Broadway, Suite 4300
Denver, Colorado 80202
Union Titanium Sponge
Corporation(2) 3,653,230 11.6%
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
Alliance Capital Management L.P. and
The Equitable Companies Incorporated(4)
787 7th Avenue
New York, New York 10019 1,817,000 5.7%
Directors and Nominee
J. Landis Martin(6) 41,267 *
Joseph S. Compofelice(6) 22,353 *
Andrew R. Dixey 17,925 *
Edward C. Hutcheson, Jr 1,800 *
Hiroomi Mikami -0-
Gen. Thomas P. Stafford 1,100 *
Yukiji Tadokoro -0-
Named Executive Officers(5)
John P. Monahan 7,100 *
Robert E. Musgraves 8,500 *
All Directors and Executive Officers as a
group (16 persons)(5)(6) 123,945 *
</TABLE>
- 62 -
<PAGE> 65
(1) As of March 19, 1997, Contran was the holder of approximately 3.2% of
Tremont's outstanding common stock, $1.00 par value per share ("Tremont Common
Stock"). As of March 19, 1997, Valhi Group, Inc. ("VGI") and National City
Lines, Inc. ("National") were the holders of approximately 31.5% and 4.7%,
respectively, of the outstanding Tremont Common Stock. In addition, as of the
March 19, 1997, NL and Valmont Insurance Company ("Valmont") were the holders
of 36,167 and 30,490 shares, respectively, of Tremont Common Stock,
representing 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 55.6% and 17.7%, respectively, of
the outstanding common stock of NL and together may be deemed to control NL.
VGI, National and Contran are the holders of approximately 74.9%, 10.0% and
6.8%, respectively, of the outstanding common stock of Valhi, and The Combined
Master Retirement Trust (the "Master Trust") is the holder of approximately
0.1% 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 the 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 "CDC 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 is owes to Harold C.
Simmons. If the CDCT No. 2 assets are insufficient to satisfy such obligations,
- 63 -
<PAGE> 66
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 CDC 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, Chairman of the Board and Chief Executive Officer of Dixie Rice and
Southwest, and a director of Tremont. By virtue of the holding of the offices,
the stock ownership and his service as trustee, all as described above, Mr.
Simmons may be deemed to control these entities, and Mr. Simmons and certain of
such entities may be deemed to possess indirect beneficial ownership of the
Common Stock directly held by Tremont and the Tremont Common Stock held by
certain of such other entities. However, Mr. Simmons disclaims beneficial
ownership of the shares of Common Stock and Tremont Common Stock beneficially
owned, directly and indirectly, by any of such entities.
In addition, 3,747 shares of Tremont Common Stock are held by Mr. Simmon's
spouse, 3,506 shares of Tremont Common Stock are held by the Master Trust, and
250,000 shares of Tremont Common Stock are held by The Harold Simmons
Foundation, Inc. (the "Foundation"). The Foundation is a tax exempt foundation
organized and existing exclusively for charitable purposes, of which Mr.
Simmons is Chairman of the Board and Chief Executive Officer. Mr. Simmons
disclaims beneficial ownership of all such shares of Tremont Common Stock
(except to the extent of his individual vested beneficial interest in the
assets held by the Master Trust).
(2) 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 March 19, 1997 upon exercise of an option (the "IMI 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
at an exercise price of $7.95 per share. In connection with the Stock Offering,
Tremont relinquished its right to acquire 1,615 shares under the IMI Option,
which were sold by IMI in the Stock Offering. UTSC's portion of the IMI Option
reverts to Tremont if not exercised by UTSC on or prior to February 11, 1999.
If all Offered Common were sold pursuant to this Registration Statement,
Tremont would hold 9,525,000 shares, or approximately 30.3% of the outstanding
Common Stock as of March 19, 1997, and UTSC would cease to hold any shares.
UTSC is a Delaware corporation, the stockholders 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 stockholders of UTSC may be deemed to share
beneficial ownership of the Common Stock held of record by UTSC by virtue of
being stockholders 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.
- 64 -
<PAGE> 67
(3) All of the outstanding capital stock of IMI Americas Inc. is held, directly
or indirectly, by IMI.
(4) As reported in a Statement on Schedule 13G as filed with the Commission on
February 12, 1997, on behalf of Alliance Capital Management L.P., The Equitable
Companies Inc. and related companies.
(5) 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 (i) 1,000
shares held by Mr. Musgraves and his wife as joint tenants, and (ii) 1,000
shares held by Mr. Musgraves' mother-in-law, beneficial ownership of which is
disclaimed by Mr. Musgraves.
(6) Mr. Martin and Mr. Compofelice are the holders of 3,000 and 2,000,
respectively, Convertible Preferred Securities. See "Ownership of Trust
Securities" below. Such Convertible Preferred Securities are convertible into
4,017 and 2,678 shares of Common Stock, respectively, which amounts are
included in the Common Stock ownership numbers shown for Mr. Martin and Mr.
Compofelice. No other director or executive officer of the Company holds any
Trust Securities.
Ownership of Tremont Common Stock
The following table and notes set forth the beneficial ownership, as
of March 19, 1997, of Tremont Common Stock held by (i) each director or
nominee for director of TIMET, (ii) each Named Executive Officer and (iii) all
executive officers and directors of TIMET as a group. 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.
<TABLE>
<CAPTION>
Tremont Common Stock
Name of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership Tremont Common Stock
<S> <C> <C>
Directors and Nominee
J. Landis Martin(1) 190,918 2.5%
Joseph S. Compofelice(2) 25,000 *
Andrew R. Dixey -0-
Edward C. Hutcheson, Jr. -0-
Hiroomi Mikami -0-
Gen. Thomas P. Stafford(2) 2,000 *
Yukiji Tadokoro -0-
Named Executive Officers
John P. Monahan(2) 14,000 *
Robert E. Musgraves(2) 18,010 *
All directors and executive officers as
a group (16 persons)(1)(2) 243,800 3.3%
</TABLE>
(1) The shares of Tremont Common Stock shown as beneficially owned by J. Landis
Martin include 60,000 shares which Mr. Martin has the right to acquire by
exercise of options within 60 days of March 19, 1997 under the Tremont 1988
Long Term Performance Incentive Plan (the "Tremont Stock Incentive Plan") 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 of which Mr.
Martin is trustee, and 100 shares held by one of Mr. Martin's daughters, with
respect to all of which shares beneficial ownership is disclaimed by Mr.
Martin.
(2) The shares of Tremont Common Stock shown as beneficially owned by Gen.
Thomas P. Stafford, Joseph S. Compofelice, John P. Monahan and Robert E.
Musgraves and all directors and executive officers as a group include 2,000,
15,000, 14,000, 18,000, and 96,500 shares, respectively, which such persons
have the right to acquire by the exercise of options granted pursuant to the
Tremont Corporation 1992 Non-Employee Director Stock Option Plan, in the case
of Gen. Stafford, and under the Tremont Stock Incentive Plan, in the case of
the others, within 60 days of March 19, 1997. In the case of Mr. Musgraves,
such number also includes 10 shares held by his mother-in-law, beneficial
ownership of which is disclaimed by Mr. Musgraves. See "Certain Relationships
and Transactions - Contractual Relationships."
Ownership of Trust Securities
All of the Trust Common Securities are held by the Company. Except as
set forth in footnote 6 to the table under the heading Ownership of Common
Stock no director, nominee for director or executive officer of TIMET are known
to own any Trust Securities.
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 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 may similarly consider such acquisitions of shares of
Common Stock and acquisition or disposition of securities issued by related
parties. Neither Tremont nor the Company presently intends 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.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Relationships with Related Parties
As set forth under the caption "Security Ownership," the Company may
be deemed to be controlled by Harold C. Simmons. The companies and other
entities that may be deemed to be controlled by or related to 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 or 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, Vice President and Chief Financial Officer and a
director of NL and Executive Vice President of Valhi. Robert E. Musgraves, Vice
President 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
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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.
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,
including provision for the reimbursement by Tremont to TIMET for payments for
salary, bonus and stock-based compensation for executive officers of Tremont.
The term of the agreement is one year, subject to renewal on a quarterly basis.
The Company charged Tremont a net amount of approximately $.4 million under the
intercorporate services agreement in 1996. Tremont expects to pay TIMET a net
amount of approximately $.4 million for services in 1997.
TIMET expects to enter into an intercorporate services agreement with
NL in 1997 for the provision of certain financial risk management, tax and
administrative services. TIMET expects to pay to NL approximately $.4 million
for such services provided to TIMET by NL.
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 1996 in connection with the Stock Offering, IMI and UTSC entered
into separate agreements with the Company and Tremont whereby IMI and UTSC each
agreed to reimburse Tremont for a portion of the cost to Tremont associated
with the exercise of certain Tremont stock options issued to employees of TIMET
pursuant to the Tremont Stock Incentive Plan. The payments are calculated by
multiplying (x) the number of Tremont Common Stock covered by such exercised
option by (y) the difference between (i) the closing sale price of Tremont
Common Stock on the NYSE Composite Tape on the date of exercise not to exceed
$34 minus (ii) $16.625 and multiplying the resulting product by (z) 0.16 in the
case of UTSC and 0.34 in the case of IMI. The maximum aggregate payments to be
made by IMI and UTSC to Tremont under such agreements are limited to $1.1
million and $520,000, respectively.
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 1996, the aggregate amount paid by the Company to BII was less than $1
million. A company 75%-owned by Tremont and 25%-owned by UTSC owns
approximately 32% of BII.
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.
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TIMET UK leases its manufacturing facility in Witton, England from an
affiliate of 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 in Henderson, Nevada, UTSC licensed certain technology to the Company and
received, among other consideration, the right to acquire 4.4 million pounds
(5.4 million pounds in 2008) 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 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, 1995 and 1996
were $1 million, $2 million, $9 million and $12 million, respectively.
Toho Titanium Company, Ltd., a stockholder of UTSC, through an
intermediary trading company, is a party to a contract with TIMET UK pursuant
to which TIMET UK purchases titanium sponge. TIMET UK's purchases of sponge
under such contract in 1996 was 4.3 million pounds; and in 1997, the contract
covers purchases of 4 million pounds of sponge at firm prices.
The Company believes that the terms of the foregoing intercorporate
services agreement and other transactions with related parties were no less
favorable to the Company than it might have obtained from unaffiliated third
parties.
Shareholder 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 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 or fewer 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 the 92,950 Management 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.
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<PAGE> 71
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 certain
proposed transfers 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
Shareholders' 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 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
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<PAGE> 72
assigned to UTSC certain rights to acquire 503,230 shares of Common Stock from
IMI. See "Security Ownership" above.
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, 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 TIMET Common
Stock) and, pursuant to the IMI Option, has the right to acquire an additional
503,230 shares of Common Stock 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 has requested registration of 3,653,230 shares of Common
Stock (consisting of shares currently held by UTSC and shares UTSC can obtain
upon exercise of the IMI Option) in connection with the Registration Statement
of which this Prospectus is a part.
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
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their affiliates have the right to request the Company to include in such
registration 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
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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."
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 are cumulative
and will be payable quarterly in arrears on each March 1, June 1, September 1
and December 1, when, as and if available for payment, by the
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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
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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 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
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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.
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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."
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
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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
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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 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.
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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
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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 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,
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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.
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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
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.
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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
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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
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
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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,
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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 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
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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.
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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 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.
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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 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).
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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.
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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 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
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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
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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.
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.
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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
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<PAGE> 101
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 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 March 31, 1997, the Company had no Senior
Indebtedness outstanding 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
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<PAGE> 102
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 is
negotiating to iincrease its borrowing availability.
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<PAGE> 103
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 bears interest at the rate of 6.625% per
annum (subject to adjustment as described under "Description of the Convertible
Preferred Securities--Registration Rights"), payable quarterly in arrears on
March 1, June 1, September 1 and December 1 of each year (each an "Interest
Payment Date"), 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. Interest accrued from
November 26, 1996 for the payment made on March 1, 1997. 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.
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<PAGE> 104
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.
PROPOSED TAX LEGISLATION
On February 6, 1997, as part of President Clinton's Fiscal 1998 Budget
Proposal, the Treasury Department proposed legislation that, among other things,
would treat as equity certain debt instruments having a maximum term of more
than 15 years and not shown as indebtedness on the separate balance sheet of the
issuer. According to the JCT Staff Description, the Proposed Legislation would
be effective generally for instruments issued on or after the date of first
committee action. Based upon the JCT Staff Description, it is expected that if
the Proposed Legislation were enacted, such legislation would not apply to the
Convertible Debentures. However, there can be no assurances that the effective
date guidance contained in the JCT Staff Description 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, the Trust might distribute the
Convertible Debentures to holders of the Convertible Preferred Securities or, in
certain circumstances, TIMET might redeem the Convertible Debentures, in which
case the Trust would distribute the resulting cash in redemption of the
Convertible Preferred Securities. See "Description of the Convertible Preferred
Securities -- Special Event Redemption or Distribution."
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<PAGE> 105
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> 106
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.
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<PAGE> 107
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 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).
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<PAGE> 108
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
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<PAGE> 109
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 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
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<PAGE> 110
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
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<PAGE> 111
amount thereof, or reduce the rate or extend the time of payment of interest
thereon, or reduce any premium payable 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.
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<PAGE> 112
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.
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,
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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.
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<PAGE> 114
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
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.
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<PAGE> 115
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 31,456,655 shares
were issued and outstanding as of March 19, 1997, 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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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
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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.
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
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<PAGE> 118
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
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<PAGE> 119
redeemed Convertible Preferred Securities for cash. See "--Sales of
Convertible Preferred Securities" immediately below.
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.
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<PAGE> 120
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.
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
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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
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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.
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
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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.
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
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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 holders
of the Convertible Preferred Securities received by the Company as of the date
of this Prospectus. The term Selling Holder includes the 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>
Allstate Insurance Company 50,000
- -------------------------------------------------------------------------------
Ameritech Pension Plan 100,000
- -------------------------------------------------------------------------------
Argent Classic Convertible Arbitrage Fund (Bermuda) L.P. 64,500
- -------------------------------------------------------------------------------
Austin Firefighters Convertible 1,300
- -------------------------------------------------------------------------------
Baptist Hospital of Miami 1,300
- -------------------------------------------------------------------------------
Boston College Endowment 4,800
- -------------------------------------------------------------------------------
Boston Museum of Fine Arts 600
- -------------------------------------------------------------------------------
Carrigaholt Capital (Bermuda) L.P. 10,000
- -------------------------------------------------------------------------------
Castle Convertible Fund, Inc. 10,000
- -------------------------------------------------------------------------------
Chrysler Corp Employee Pension Plan (Bankers Trust Company TTEE) 52,000
- -------------------------------------------------------------------------------
</TABLE>
- 122 -
<PAGE> 125
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
Commonwealth Life Ins. Company - Stock TRAC (Teamsters I) 20,000
- -------------------------------------------------------------------------------
Compofelice, Joseph S. 2,000
- -------------------------------------------------------------------------------
Delaware State Retirement Fund 14,500
- -------------------------------------------------------------------------------
Delta Air Lines Master Trust 39,000
- -------------------------------------------------------------------------------
Employers' Reinsurance Corporation 15,000
- -------------------------------------------------------------------------------
Engineers Joint Pension Fund 2,100
- -------------------------------------------------------------------------------
Epstein, James C. and Lisa Simmons 2,000
- -------------------------------------------------------------------------------
Equi-Select Growth & Income Portfolio 7,500
- -------------------------------------------------------------------------------
Evergreen American Retirement Fund 20,000
- -------------------------------------------------------------------------------
Evergreen Foundation Fund 100,000
- -------------------------------------------------------------------------------
Evergreen Total Return Fund 120,000
- -------------------------------------------------------------------------------
FCF - Franklin Income Series 714,500
- -------------------------------------------------------------------------------
FVF - Income Securities Fund 61,500
- -------------------------------------------------------------------------------
Forest Fulcrum Fd Ltd 22,500
- -------------------------------------------------------------------------------
Forest Fulcrum Fund LP 47,500
- -------------------------------------------------------------------------------
Franklin Investors Securities Trust Convertible Securities Fund 20,000
- -------------------------------------------------------------------------------
Franklin Strategic Series - Natural Resource Fund 20,800
- -------------------------------------------------------------------------------
Greyhound Lines, Inc. Pension Fund 5,000
- -------------------------------------------------------------------------------
Hartford Fire Insurance Company 10,240
- -------------------------------------------------------------------------------
Hawaiian Airlines Employee Retirement IAM 1,500
- -------------------------------------------------------------------------------
Hawaiian Airlines Pilot Retirement 2,500
- -------------------------------------------------------------------------------
Highbridge Capital Corporation 27,500
- -------------------------------------------------------------------------------
Hughes Aircraft Company Master Retirement Trust 21,700
- -------------------------------------------------------------------------------
IBM Corp Retirement Plan Tr. (Chase Manhattan Bank TTEE) 78,000
- -------------------------------------------------------------------------------
ICI American Holdings Pension 5,800
- -------------------------------------------------------------------------------
</TABLE>
- 123 -
<PAGE> 126
<TABLE>
<S> <C>
IDEX II Equity Income Portfolio 4,600
- -------------------------------------------------------------------------------
J. P. Morgan & Co. Incorporated (including J. P. Morgan 100,000
Investment Management, Inc. And Morgan Guaranty Trust
Company of New York)
- -------------------------------------------------------------------------------
Kapiolani Medical Center 3,000
- -------------------------------------------------------------------------------
LB Series Fund, Inc. - High Yield Portfolio 75,000
- -------------------------------------------------------------------------------
LDG Limited Fund 7,500
- -------------------------------------------------------------------------------
LLT Limited 5,000
- -------------------------------------------------------------------------------
Lincoln National Convertible Securities Fund 48,690
- -------------------------------------------------------------------------------
Lincoln National Life Insurance 119,080
- -------------------------------------------------------------------------------
Lipper Convertibles, L.P. 75,000
- -------------------------------------------------------------------------------
Lutheran Brotherhood High Yield Fund 50,000
- -------------------------------------------------------------------------------
Martin, J. Landis 3,000
- -------------------------------------------------------------------------------
McMahan Securities Co. L.P. 12,500
- -------------------------------------------------------------------------------
MFS Convertible Securities Fund 200
- -------------------------------------------------------------------------------
MFS Equity Income Fund 170
- -------------------------------------------------------------------------------
MFS Sun Life Series Trust Total Return Series 43,600
- -------------------------------------------------------------------------------
Museum of Fine Arts, Boston 2,070
- -------------------------------------------------------------------------------
Nalco Chemical Retirement 2,500
- -------------------------------------------------------------------------------
New Hampshire State Retirement System 12,715
- -------------------------------------------------------------------------------
New York Life Insurance Company 150,000
- -------------------------------------------------------------------------------
Nicholas-Applegate Income & Growth Fund 12,400
- -------------------------------------------------------------------------------
Northwestern Mutual Life Insurance Company 165,000
- -------------------------------------------------------------------------------
Northwestern Mutual Life Insurance Company Group Annuity
Separate Account 10,000
- -------------------------------------------------------------------------------
Occidental College 1,100
- -------------------------------------------------------------------------------
OCM Convertible Limited Partnership 3,700
- -------------------------------------------------------------------------------
OCM Convertible Trust 63,400
- -------------------------------------------------------------------------------
</TABLE>
- 124 -
<PAGE> 127
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
Oregon Equity Fund 50,000
- -------------------------------------------------------------------------------
Pacific Mutual Life Insurance Company 10,000
- -------------------------------------------------------------------------------
Paine Webber Series Trust - Growth and Income Portfolio 1,000
- -------------------------------------------------------------------------------
Paine Webber Master Series, Inc. -- Paine Webber Balanced Fund 13,000
- -------------------------------------------------------------------------------
Paine Webber America Fund - Paine Webber Growth & Income Fund 60,000
- -------------------------------------------------------------------------------
Paine Webber Series Trust - Balanced Portfolio 1,000
- -------------------------------------------------------------------------------
Phoenix Duff & Phelps -- Phoenix Equity Opportunity Fund/
Phoenix Convertible Fund 50,000
- -------------------------------------------------------------------------------
PRIM Board 22,500
- -------------------------------------------------------------------------------
Promutual 10,630
- -------------------------------------------------------------------------------
Putnam Balanced Retirement Fund 5,000
- -------------------------------------------------------------------------------
Putnam Convertible Income-Growth Trust 70,000
- -------------------------------------------------------------------------------
Putnam Convertible Opportunities and Income Trust 9,545
- -------------------------------------------------------------------------------
Robertson Stephens Growth & Income Fund 45,000
- -------------------------------------------------------------------------------
SAIF Corporation 40,000
- -------------------------------------------------------------------------------
Salomon Brothers Inc 81,680
- -------------------------------------------------------------------------------
San Diego City Retirement 3,900
- -------------------------------------------------------------------------------
San Diego County Convertible 14,200
- -------------------------------------------------------------------------------
Sherperd Investments International, Ltd. 78,975
- -------------------------------------------------------------------------------
Stark International 99,525
- -------------------------------------------------------------------------------
Starvest 6,000
- -------------------------------------------------------------------------------
State Employees' Retirement Fund of the State of Delaware 15,900
- -------------------------------------------------------------------------------
State of Connecticut Combined Investment Funds 49,300
- -------------------------------------------------------------------------------
State Street Bank & Trust C/F GE Pension Trust 20,000
- -------------------------------------------------------------------------------
TQA Leverage Fund, L.P. 10,000
- -------------------------------------------------------------------------------
TQA Vantage Fund, L.P. 12,500
- -------------------------------------------------------------------------------
</TABLE>
- 125 -
<PAGE> 128
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
The Class 1C Company Ltd. 10,000
- -------------------------------------------------------------------------------
United National Life Insurance 12,180
- -------------------------------------------------------------------------------
Value Line Convertible Fund 15,000
- -------------------------------------------------------------------------------
Van Kampen American Capital Convertible Securities Fund 8,700
- -------------------------------------------------------------------------------
Van Kampen American Capital Harbor Fund 49,000
- -------------------------------------------------------------------------------
Vanguard Convertible Securities Fund, Inc. 39,000
- -------------------------------------------------------------------------------
Wake Forest University 3,100
- -------------------------------------------------------------------------------
Walker Art Center 6,300
- -------------------------------------------------------------------------------
Weirton Trust 13,750
- -------------------------------------------------------------------------------
Zeneca Holdings Pension 5,800
- -------------------------------------------------------------------------------
Total 3,578,350
- -------------------------------------------------------------------------------
</TABLE>
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 with respect to J. Landis Martin,
the Company's Chairman and CEO and Joseph S. Compofelice, the Company's Vice
President and Chief Financial Officer and a Regular Trustee of the Trust. In
addition, James O. Epstein and Lisa Simmons are the son-in-law and daughter,
respectively, of Harold C. Simmons. 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.
- 126 -
<PAGE> 129
<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 pursuant to this Prospectus or Rule 144 under
the Securities Act. 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
- 127 -
<PAGE> 130
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 Company is not aware of any
Selling Holder who plans or intends to engage in any offering of Offered
Securities.
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
- 128 -
<PAGE> 131
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.
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 December 31, 1995 and 1996 and the consolidated statements of
- 129 -
<PAGE> 132
operations, stockholders' equity and cash flows for each of the three fiscal
years in the period ended December 31, 1996, 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.
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
- 130 -
<PAGE> 133
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.
- 131 -
<PAGE> 134
TITANIUM METALS CORPORATION
INDEX TO UNAUDITED PRO FORMA FINANCIAL STATEMENT
<TABLE>
<S> <C>
Unaudited Pro Forma Condensed Consolidated Financial Statement ......... PF-2
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the year ended December 31, 1996....................... PF-3
Notes to Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the year ended December 31, 1996..................... PF-4/PF-5
</TABLE>
PF-1
<PAGE> 135
TITANIUM METALS CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENT
The following Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the year ended December 31, 1996 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 Prospectus. The
Unaudited Pro Forma Condensed Consolidated Statement of Operations does not
reflect any incremental sales or cost savings that the Company may achieve from
the combinations. The Unaudited Pro Forma Condensed Consolidated Statement of
Operations does 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 at the beginning of 1996 or of the results
which may be obtained in the future.
All financial information reflected in the Unaudited Pro Forma
Condensed Consolidated Statement of Operations is presented in accordance with
U.S. generally accepted accounting principles, is reported in U.S. dollars, and
reflects the 1996 Stock Split as described in Note 2 to the Company's
Consolidated Financial Statements.
PF-2
<PAGE> 136
TITANIUM METALS CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Pro Forma Adjustments
Historical ---------------------------
------------------------- IMI Titanium AJM/THT Pro Forma
TIMET AJM* THT* (Note 2) (Note 3) Consolidated
----- --- --- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues and other income:
Net sales $507.1 $21.2 $58.1 $ - $ (22.0)(c) $564.4
Equity in earnings of joint ventures 6.2 5.9 - - (11.9)(d) .2
Other, net 1.0 - - - - 1.0
------ ----- ----- ------- ------- ------
514.3 27.1 58.1 - (33.9) 565.6
------ ----- ----- ------- ------- ------
Costs and expenses:
Cost of sales 418.8 17.9 41.1 - (20.1)(c) 461.7
- 4.0 (a)
Selling, general, administrative and
development 29.9 2.0 4.6 - - 36.5
Special charges 4.8 .9 - - - 5.7
Interest 10.2 .1 .5 - 6.5(e) 17.3
------ ----- ----- ------- ------- ------
463.7 20.9 46.2 - (9.6) 521.2
------ ----- ----- ------- ------- ------
Income (loss) before income taxes,
minority interest and preacquisition
earnings 50.6 6.2 11.9 - (24.3) 44.4
Income tax expense (benefit) 1.9 2.4 - - (3.8)(b) .5
Minority interest and preacquisition
earnings (1.1) - - .4(a) - (.7)
------ ----- ----- ------- ------- ------
Net income (loss) $ 47.6 $ 3.8 $11.9 .4 $ (20.5) $ 43.2
====== ===== ===== ======= ======= ======
Net income per common share $ 1.72 $ .4 $ 1.50
====== ======= ======
Weighted average common shares
outstanding 27.6 1.2(b) 28.8
====== ======= ======
</TABLE>
* Nine months ended September 30, 1996.
PF-3
<PAGE> 137
TITANIUM METALS CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN MILLIONS, EXCEPT PER 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 1996. The IMI Titanium Acquisition and AJM
Acquisition have been accounted for by the purchase method of accounting and
consolidated in the Company's historical financial statements effective January
1, 1996 and October 1, 1996, respectively. 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. The estimated cost of
the AJM Acquisition of $96.8 million has been allocated to the assets acquired
and liabilities assumed and is reflected in the Company's Consolidated
Financial Statements.
PF-4
<PAGE> 138
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 1996.
NOTE 3 -- PRO FORMA ADJUSTMENTS AXEL JOHNSON METALS:
(a) Additional amortization expense for the nine months ended
September 30, 1996 resulting from purchase accounting basis
differences:
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
====
(b) Tax benefit effects are less than 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) for the nine months
ended September 30, 1996 applicable to the approximately $97
million of borrowings TIMET incurred for the purchase of AJM.
NOTE 4 -- SPECIAL CHARGES (NONRECURRING COSTS):
See Note 5 to the Company's Consolidated Financial Statements for
1996 regarding special 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 1996 would have been
approximately $1.57 per share assuming the Offering occurred at the beginning
of 1996 and the Convertible Preferred Securities were converted into
approximately 5.4 million shares of Common Stock.
PF-5
<PAGE> 139
TITANIUM METALS CORPORATION
INDEX OF FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Financial Statements:
Titanium Metals Corporation:
Report of Independent Accountants................................................... F-2
Consolidated Balance Sheets at December 31, 1995 and 1996........................... F-3/F-4
Consolidated Statements of Operations for the Years ended
December 31, 1994, 1995 and 1996................................................. F-5
Consolidated Statements of Stockholders' Equity for the Years ended
December 31, 1994, 1995 and 1996................................................. F-6
Consolidated Statements of Cash Flows for the Years ended
December 31, 1994, 1995 and 1996................................................. F-7/F-8
Notes to Consolidated Financial Statements.......................................... F-9/F-30
IMI Titanium Business:
Independent Auditors' Report........................................................ F-31
Combined Balance Sheets at December 31, 1994 and 1995............................... F-32
Combined Statements of Operations for the years ended December 31, 1993, 1994
and 1995........................................................................... F-33
Combined Statements of Stockholders' Equity for the years ended December 31,
1993, 1994 and 1995................................................................ F-34
Combined Statements of Cash Flows for the years ended December 31,
1993, 1994, and 1995............................................................... F-35
Notes to Combined Financial Statements.............................................. F-36/F-44
Axel Johnson Metals, Inc.:
Report of Independent Accountants.................................................... F-45
Review Report of Independent Accountants............................................ F-46
Balance Sheet at December 31, 1995 and September 30, 1996 (unaudited)............... F-47
Statement of Income for the year ended December 31, 1995 and the nine month
period ended September 30, 1996 (unaudited)....................................... F-48
Statement of Stockholder's Equity for the year ended December 31, 1995
and the nine month period ended September 30, 1996 (unaudited).................... F-49
Statement of Cash Flows for the year ended December 31, 1995 and the nine month
period ended September 30, 1996 (unaudited)....................................... F-50
Notes to Financial Statements....................................................... F-51/F-59
Titanium Health Technologies:
Report of Independent Accountants................................................... F-60
Review Report of Independent Accountants............................................ F-61
Balance Sheets at December 31, 1994 and 1995 and September 30, 1996
(unaudited)....................................................................... F-62
Statements of Income for the years ended December 31, 1993, 1994 and 1995 and
for the nine months ended September 30, 1996 (unaudited).......................... F-63
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-64
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-65
Notes to Financial Statements....................................................... F-66/F-71
</TABLE>
F-1
<PAGE> 140
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 as of December 31, 1995 and 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1996. 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 as of December 31, 1995 and 1996, and the
consolidated results of their operations and cash flows for each of the three
years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
As discussed in Note 14 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 No. 112.
COOPERS & LYBRAND L.L.P.
Denver, Colorado
January 21, 1997
F-2
<PAGE> 141
TITANIUM METALS CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1996
(In thousands, except per share data)
<TABLE>
<CAPTION>
ASSETS 1995 1996
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 24 $ 86,526
Accounts and other receivables, less
allowance of $3,620 and $4,788 27,932 114,100
Receivable from related parties 3,070 1,676
Inventories 69,134 155,488
Prepaid expenses 3,452 12,510
Deferred income taxes -- 718
-------- --------
Total current assets 103,612 371,018
-------- --------
Other assets:
Investment in joint ventures 13,853 270
Goodwill -- 67,430
Other intangible assets 1,424 19,314
Other 5,027 13,799
Deferred income taxes -- 11,618
-------- --------
Total other assets 20,304 112,431
-------- --------
Property and equipment:
Land 4,598 6,129
Buildings 17,783 32,929
Equipment 127,228 207,046
Construction in progress 3,120 17,513
-------- --------
152,729 263,617
Less accumulated depreciation 27,861 44,048
-------- --------
Net property and equipment 124,868 219,569
-------- --------
$248,784 $703,018
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 142
TITANIUM METALS CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
December 31, 1995 and 1996
(In thousands, except per share data)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1996
--------- -------
<S> <C> <C>
Current liabilities:
Notes payable $ -- $ 7,992
Current maturities of long-term debt 45,695 397
Payable to related parties 2,627 1,649
Accounts payable 27,136 49,628
Accrued liabilities 20,963 46,173
Income taxes 47 6,638
Deferred income taxes 596 348
--------- ---------
Total current liabilities 97,064 112,825
--------- ---------
Noncurrent liabilities:
Long-term debt 21,540 1,158
Capital lease obligations to related parties -- 11,562
Payable to related parties 23,942 996
Accrued OPEB cost 28,152 27,512
Accrued pension cost 5,966 2,743
Deferred income taxes 789 10,629
Other 3,203 3,920
--------- ---------
Total noncurrent liabilities 83,592 58,520
--------- ---------
Minority interest - Company-obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely
subordinated debt securities -- 201,250
Other minority interest -- 4,207
Stockholders' equity:
Preferred stock, $.01 par value; 1 million shares
authorized, none outstanding -- --
Common stock, $.01 par value; 99 million shares
authorized, 15.7 million and 31.5 million shares
issued and outstanding 157 315
Additional paid-in capital 142,720 346,133
Accumulated deficit (72,653) (25,009)
Currency translation adjustment 283 5,635
Pension liabilities adjustment (2,379) (858)
--------- ---------
Total stockholders' equity 68,128 326,216
--------- ---------
$ 248,784 $ 703,018
========= =========
</TABLE>
Commitments and contingencies (Notes 15 and 16)
F-4
<PAGE> 143
TITANIUM METALS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1994, 1995 and 1996
(In thousands, except per share data)
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenues and other income:
Net sales $ 145,984 $ 184,723 $ 507,074
Equity in earnings of joint ventures 2,263 4,824 6,237
Other, net (187) 469 1,049
--------- --------- ---------
148,060 190,016 514,360
--------- --------- ---------
Costs and expenses:
Cost of sales 159,958 170,699 418,775
Selling, general, administrative and development 12,462 14,065 29,917
Special charges (credit) 10,000 (1,200) 4,824
Interest 7,562 10,414 10,223
--------- --------- ---------
189,982 193,978 463,739
--------- --------- ---------
Income (loss) before income taxes (41,922) (3,962) 50,621
Income tax expense 155 255 1,892
Minority interest and preacquisition earnings -- -- 1,085
--------- --------- ---------
Income (loss) before cumulative effect of a
change in accounting principle (42,077) (4,217) 47,644
Change in accounting principle (1,000) -- --
--------- --------- ---------
Net income (loss) $ (43,077) $ (4,217) $ 47,644
========= ========= =========
Per common share:
Income (loss) before cumulative effect of
a change in accounting principle $ (2.80) $ (.27) $ 1.72
Change in accounting principle (.07) -- --
--------- --------- ---------
Net income (loss) $ (2.87) $ (.27) $ 1.72
========= ========= =========
Weighted average common shares outstanding 15,010 15,383 27,623
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 144
TITANIUM METALS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1994, 1995 and 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, 1993 15,066 $ 150 $ 135,290 $ (25,359) $ (18) $ (1,081) $ 108,982
Net loss -- -- -- (43,077) -- -- (43,077)
Cash contribution -- -- 419 -- -- -- 419
Adjustments, net -- -- -- -- 178 (1,754) (1,576)
------ --------- --------- --------- --------- --------- ---------
Balance at December 31, 1994 15,066 150 135,709 (68,436) 160 (2,835) 64,748
Net loss -- -- -- (4,217) -- -- (4,217)
Conversion of stockholder indebtedness 568 6 10,846 -- -- -- 10,852
Cash contribution 59 1 1,147 -- -- -- 1,148
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 -- -- -- 47,644 -- -- 47,644
Common stock issued:
IMI Titanium Acquisition (Note 4) 9,561 96 69,904 -- -- -- 70,000
Stock Offering (Note 11) 6,200 62 132,926 -- -- -- 132,988
Other 1 -- 28 -- -- -- 28
Other, net -- -- 555 -- -- -- 555
Adjustments, net -- -- -- -- 5,352 1,521 6,873
------ --------- --------- --------- --------- --------- ---------
Balance at December 31, 1996 31,455 $ 315 $ 346,133 $ (25,009) $ 5,635 $ (858) $ 326,216
====== ========= ========= ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 145
TITANIUM METALS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1994, 1995 and 1996
(In thousands)
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (43,077) $ (4,217) $ 47,644
Depreciation and amortization 8,334 13,218 18,974
Earnings of joint ventures in excess of distributions (1,195) (3,824) (5,992)
Special charges (credit) 10,000 (1,200) 4,824
Deferred income taxes -- -- (10,416)
Minority interest and preacquisition earnings -- -- 1,085
Other, net 3,449 (86) (3,071)
--------- --------- ---------
(22,489) 3,891 53,048
Change in assets and liabilities, net of acquisitions:
Accounts and other receivables 5,273 (870) (29,998)
Inventories (738) (15,477) (13,309)
Prepaid expenses 194 19 (6,786)
Accounts payable and accrued liabilities (2,590) 6,036 (106)
Income taxes (9) 165 4,521
Accounts with related parties 116 (275) (8,412)
Other, net 222 396 (269)
--------- --------- ---------
Net cash used by operating activities (20,021) (6,115) (1,311)
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures (4,609) (2,981) (21,679)
Business acquisitions:
IMI Titanium Acquisition -- -- (2,250)
AJM Acquisition -- -- (96,799)
Other -- -- (10,885)
Other, net 40 421 213
--------- --------- ---------
Net cash used by investing activities (4,569) (2,560) (131,400)
--------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 146
TITANIUM METALS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31, 1994, 1995 and 1996
(In thousands)
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from financing activities:
Indebtedness:
Borrowings $ 63,625 $ 9,371 $ 113,793
Reductions (48,829) (7,371) (179,480)
Proceeds from issuance of common stock, net -- -- 131,488
Proceeds from issuance of Company-obligated
mandatorily redeemable preferred securities, net -- -- 192,409
Capital contributions from related parties 419 1,148 --
Related parties loans (repayments) 2,500 5,500 (42,521)
--------- --------- ---------
Net cash provided by financing activities 17,715 8,648 215,689
--------- --------- ---------
Cash and cash equivalents:
Net increase (decrease) from:
Operating, investing and financing activities (6,875) (27) 82,978
Cash acquired -- -- 3,053
Currency translation 146 51 471
--------- --------- ---------
(6,729) 24 86,502
Balance at beginning of year 6,729 -- 24
--------- --------- ---------
Balance at end of year $ -- $ 24 $ 86,526
--------- --------- ---------
Supplemental disclosures:
Cash paid for:
Interest expense $ 6,497 $ 9,970 $ 8,958
Income taxes 120 112 6,348
Acquisitions:
Cash and cash equivalents $ -- $ -- $ 3,053
Goodwill and other intangibles -- -- 85,158
Other noncash assets -- -- 180,847
Liabilities -- -- (89,124)
Common stock issued to IMI -- -- (70,000)
--------- --------- ---------
Cash paid $ -- $ -- $ 109,934
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 147
TITANIUM METALS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1--Organization:
Titanium Metals Corporation ("TIMET") was a 75%-owned subsidiary of
Tremont Corporation during 1994 and 1995 with the remaining 25% held by Union
Titanium Sponge Corporation ("UTSC"), a consortium of Japanese companies. In
February 1996, TIMET acquired the titanium businesses of IMI plc and affiliates
("IMI") for stock and in June 1996 completed an initial public offering of
common stock (the "Stock Offering") which together reduced Tremont's ownership
in TIMET to 30% and UTSC's ownership to 10%. 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 and TIMET.
Note 2--Summary of significant accounting policies:
Principles of consolidation. The accompanying consolidated financial
statements include the accounts of TIMET and its majority-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. Each of the past three fiscal years
reflect the results of operations for 52 weeks.
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 are recognized in income currently.
Net sales. Sales are recognized when products are shipped.
Inventories and cost of sales. Inventories are stated at the lower of
cost or market. The first-in, first-out ("FIFO") method is used to determine
the cost of approximately 50% of inventories at December 31, 1996 with the
last-in, first-out ("LIFO") method used to determine the cost of other
inventories.
Cash and cash equivalents. Cash equivalents include highly liquid
investments with original maturities of three months or less.
Investment in joint ventures. Investments in 20% to 50%-owned joint
ventures are accounted for by the equity method.
F-9
<PAGE> 148
Intangible assets and amortization. Goodwill, representing the excess
of cost over the fair value of individual net assets acquired in business
combinations accounted for by the purchase method, is amortized by the straight
line method over 15 years and is stated net of accumulated amortization of $1.6
million at December 31, 1996. Patents and other intangible assets, except
intangible pension assets, are amortized by the straight-line method over the
periods expected to be benefited, generally approximately nine years.
Property, equipment and depreciation. Property and equipment are
stated at cost. Maintenance, repairs and minor renewals are expensed; major
improvements are capitalized. Interest costs related to major, long-term
capital projects are capitalized as a component of construction costs and were
nil in each of the past three years. Software development and conversion costs
(excluding training) are capitalized and amortized over the software's
estimated useful life.
Depreciation related to TIMET's vacuum distillation process ("VDP")
titanium sponge facility is computed on a units-of-production method based on
the pounds of sponge produced and a rated annual production capacity of 22
million pounds. The amount of depreciation expense recognized in the future
periods related to VDP is not expected to vary materially from the
straight-line method. Other depreciation is computed principally on the
straight-line method over the estimated useful lives of 15 to 40 years for
buildings and 3 to 25 years for machinery and equipment.
Employee benefit plans. Accounting and funding policies for retirement
plans and postretirement benefits other than pensions ("OPEB") are described in
Note 13.
Stock-based compensation. The Company has elected the disclosure
alternative proscribed by Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation," and to 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. See Note 11.
Research and development. Research and development expense
approximated $2 million in each of the past three years.
Advertising costs. Advertising costs, which are not significant, are
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, including investments in subsidiaries not included in TIMET's
consolidated U.S. tax group.
Stock split and earnings per 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 effected in connection with the Stock
Offering. Earnings per share is based upon the weighted average number of
common shares outstanding after giving effect to the Stock Split. Common stock
equivalents are excluded from the calculation because the effect for each of
the past three years is either antidilutive or not material. See Note 17.
F-10
<PAGE> 149
Fair value of financial instruments. The Company's bank debt reprices
with changes in market interest rates and, accordingly, the carrying amount
of such debt is believed to approximate market value. See Note 9. At
December 31, 1996, the fair value of Company-obligated mandatorily redeemable
preferred securities (see Note 10) approximated $220 million based on quoted
market prices (book value - $201 million).
At December 31, 1996, the fair value of the Company's common equity,
based on a quoted market price at that date of $32.875 per share, was
approximately $1 billion (book value - $326 million).
Note 3--Business and geographic segments:
The Company's operations are conducted in one business segment,
titanium metals operations. The Company is a vertically integrated producer of
titanium sponge, ingot, slab and mill forged or cast products for aerospace,
industrial, and other applications. The Company's production facilities are
located principally in the United States, United Kingdom, and France with its
products sold throughout the world.
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Sales $ 145,984 $ 184,723 $ 507,074
========= ========= =========
Operating income (loss) $ (34,676) $ 5,378 $ 59,849
General corporate income, net 316 1,074 995
Interest expense (7,562) (10,414) (10,223)
--------- --------- ---------
Income (loss) before income taxes $ (41,922) $ (3,962) $ 50,621
========= ========= =========
Geographic segments
Net sales - point of origin:
United States $ 123,485 $ 174,802 $ 354,651
Europe 30,542 13,862 186,063
Eliminations (8,043) (3,941) (33,640)
--------- --------- ---------
$ 145,984 $ 184,723 $ 507,074
========= ========= =========
Net sales - point of destination:
United States $ 89,519 $ 135,421 $ 312,640
Europe 34,475 33,520 155,364
Other 21,990 15,782 39,070
--------- --------- ---------
$ 145,984 $ 184,723 $ 507,074
========= ========= =========
Operating income (loss):
United States $ (34,278) $ 4,408 $ 39,014
Europe (398) 970 20,835
--------- --------- ---------
$ (34,676) $ 5,378 $ 59,849
========= ========= =========
Identifiable assets:
United States $ 227,361 $ 235,844 $ 442,163
Europe 9,174 12,940 173,210
General corporate - U.S. 3,687 -- 87,645
--------- --------- ---------
$ 240,222 $ 248,784 $ 703,018
========= ========= =========
</TABLE>
F-11
<PAGE> 150
Operating income (loss) includes restructuring charges of $10 million
in 1994, a restructuring credit of $1.2 million in 1995 and $4.7 million of
special charges related to the IMI Titanium Acquisition in 1996. See Note 5.
General corporate income includes the Company's equity in earnings of
Basic Investments, Inc. ("BII") and Victory Valley Land Company L.P. ("VVLC")
of $.7 million in 1994 and $1.1 million in 1995, and interest income of $.4
million in 1996 on general corporate cash equivalents.
Export sales from U.S. based operations approximated $35 million in
1994, $40 million in 1995 and $58 million in 1996. At December 31, 1996, the
net assets of non-U.S. subsidiaries included in consolidated net assets
approximated $73 million.
Note 4--Business combinations and joint ventures:
IMI Titanium Acquisition. In February 1996, the Company acquired 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 U.S.
subsidiary, IMI Titanium, Inc. (now known as TIMET Castings). IMI conveyed all
of its titanium related businesses to the Company in exchange for 9.6 million
newly issued shares of 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 was granted a three year
option to purchase up to 2 million shares of the Company's common stock from
IMI for $16 million. Tremont assigned to UTSC the right to acquire from IMI .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 (purchase price approximately $72 million, including
transaction costs). The Company has included the results of operations of the
IMI titanium business in its consolidated results of operations effective at
the beginning of 1996 with preacquisition earnings of approximately $.4 million
deducted in determining net income for 1996. Preacquisition sales of the IMI
titanium business included in consolidated sales for 1996 approximated $11.7
million.
Axel Johnson Metals Acquisition. In October 1996, the Company acquired
substantially all of the assets and assumed substantially all of the
liabilities of Axel Johnson Metals, Inc. ("AJM") for approximately $97 million
cash (the "AJM Acquisition"). 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") that TIMET did not previously own. THT, Inc. and
subsidiaries operate titanium scrap processing facilities and electron beam
cold hearth melting furnaces.
The Company accounted for the AJM Acquisition by the purchase method
and consolidated THT, Inc.'s results effective October 1, 1996; revenues for
the fourth quarter of 1996 approximated $21 million. TIMET's purchases from THT
approximated $8 million in 1994, $10 million in 1995, and $9 million in 1996
prior to the acquisition.
TISTO. The Company held a 26% interest in TISTO, a German distributor
of titanium products, prior to June 30, 1996. In July 1996, the Company
purchased the remaining 74% equity interest for approximately $2 million in
cash and TIMET UK guaranteed approximately $2 million in existing loans from
former TISTO shareholders ($1.4 million outstanding at December 31, 1996). See
Note 9. TISTO's results were consolidated effective July 1, 1996; revenues
approximated $10 million for the six months ended December 31, 1996.
F-12
<PAGE> 151
TIMET Savoie. In August 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. 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 and purchased inventory of $8 million from CEZUS.
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; revenues for
the five months ended December 31, 1996 were approximately $18 million.
LASAB. In January 1997, the Company purchased LASAB Laser
Applications-und Bearbeitungs GmbH ("LASAB") for less than $1 million cash and
guaranteed, through its wholly-owned subsidiary, TIMET Deutschland,
approximately $1 million of LASAB outstanding bank indebtedness. LASAB is in
the titanium and stainless steel laser-welded tube and pipe and laser cutting
business.
Proforma financial information (unaudited). The following unaudited
proforma financial information has been prepared assuming the IMI Titanium
Acquisition and the AJM Acquisition occurred at the beginning of 1995. The
proforma effect of the TISTO, TIMET Savoie and LASAB transactions is not
material. The proforma financial information is not necessarily indicative of
the operating results that might have occurred if the transactions had been
completed at such earlier dates or the operating results which may occur in the
future.
<TABLE>
<CAPTION>
1995 1996
------- -------
(In millions, except per share amounts)
<S> <C> <C>
Sales $ 380.0 $ 564.4
Operating income (loss) (37.7) 59.8
Interest expense 24.4 17.3
Net income (loss) (48.6) 43.2
Earnings per common share $ (1.94) $ 1.50
Weighted average shares outstanding 25.0 28.8
</TABLE>
Joint ventures. The Company's investment in joint ventures at December
31, 1996 consisted of its one-third interest in MZI, LLC, which owns a
technologically advanced ultrasonic unit for inspecting titanium billet.
Prior to the October 1996 AJM Acquisition discussed above, the Company
accounted for its 50% interest in THT by the equity method.
Prior to October 1995, TIMET owned (i) a 32% equity interest in 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 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 its
interest in BII and VVLC, and certain real estate. The Company distributed the
assets at their net carrying amount, which approximated $5 million.
F-13
<PAGE> 152
Summarized 1996 financial information of unconsolidated joint ventures
for 1996 is omitted because (i) THT is now consolidated by the Company and
proforma consolidated financial information is presented above and (ii) other
joint ventures are insignificant. Summarized combined financial information of
unconsolidated joint ventures for 1994 and 1995, principally THT, is shown
below.
<TABLE>
<CAPTION>
1994 1995
------- -------
(In thousands)
<S> <C> <C>
Income statement data:
Revenues $43,043 $69,107
Operating costs and expenses 38,598 54,764
Interest and other expenses 582 1,153
------- -------
Net income $ 3,863 $13,190
======= =======
Balance sheet data:
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>
Note 5-- Special charges (credit):
IMI titanium business. During 1996, TIMET recorded $4.7 million of
special charges resulting from the IMI Titanium Acquisition and related
integration of the operations acquired. Certain key executive officers of TIMET
received 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.
F-14
<PAGE> 153
Restructuring charges. The Company's restructuring charges in 1994 and
prior years 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. At December 31, 1996 all amounts were
utilized and no restructuring charges remained accrued. Cash costs charged to
the restructuring accrual were $1.2 million in 1994, $1.7 million in 1995 and
$.8 million in 1996.
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
(In millions)
<S> <C> <C> <C>
Special charges (credit) to operating income:
IMI titanium business $ -- $ -- $ 4.7
Workforce related 3.7 (.7) --
Excess space and other 1.3 (.5) .1
Idled assets 4.5 -- --
Other .5 -- --
------ ------ ------
$ 10.0 $ (1.2) $ 4.8
====== ====== ======
</TABLE>
Note 6--Inventories:
<TABLE>
<CAPTION>
December 31,
---------------------
1995 1996
-------- --------
(In thousands)
<S> <C> <C>
Raw materials $ 7,778 $ 22,806
In process and finished products 57,538 125,137
Supplies 3,818 7,545
-------- --------
$ 69,134 $155,488
======== ========
</TABLE>
The average cost of LIFO inventories exceeded the net carrying amount
of such inventories by approximately $19 million at December 31, 1995 and $32
million at December 31, 1996.
F-15
<PAGE> 154
Note 7-- Intangible and other noncurrent assets:
<TABLE>
<CAPTION>
December 31,
-------------------
1995 1996
------- -------
(In thousands)
<S> <C> <C>
Intangible assets:
Patents $ -- $14,103
Convenants not to compete -- 5,000
Intangible pension assets 1,424 1,199
------- -------
1,424 20,302
Less accumulated amortization -- 988
------- -------
$ 1,424 $19,314
======= =======
Other noncurrent assets:
Deferred financing costs $ -- $ 8,775
Prepaid pension costs 1,253 1,340
Other 3,774 3,684
------- -------
$ 5,027 $13,799
======= =======
</TABLE>
Note 8--Accrued liabilities:
<TABLE>
<CAPTION>
December 31,
-------------------
1995 1996
------- -------
(In thousands)
<S> <C> <C>
OPEB cost $ 2,240 $ 2,024
Pension cost 1,378 1,507
Other employee benefits 9,210 21,360
Environmental cost 1,143 1,643
Taxes, other than income 1,655 2,292
Interest 3 1,304
Other 5,334 16,043
------- -------
$20,963 $46,173
======= =======
</TABLE>
F-16
<PAGE> 155
Note 9--Notes payable, long-term debt and capital lease obligations to related
parties:
<TABLE>
<CAPTION>
December 31,
-------------------
1995 1996
------- -------
(In thousands)
<S> <C> <C>
Notes payable - non U.S. credit agreements $ -- $ 7,992
======= =======
Long-term debt:
U.S. credit agreement $66,955 $ --
Former TISTO shareholders -- 1,415
Other 280 140
------- -------
67,235 1,555
Less current maturities 45,695 397
------- -------
$21,540 $ 1,158
======= =======
Capital lease obligations to related parties:
IMI $ -- $10,671
CEZUS -- 963
------- -------
-- 11,634
Less current maturities -- 72
------- -------
$ -- $11,562
======= =======
</TABLE>
U.S. credit agreement. TIMET's $105 million U.S. credit facility
provides for term loans aggregating $24 million 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 11% at December 31,
1995 (none outstanding at December 31, 1996). 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 year,
limits 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, 1996, the Company had about $102
million of borrowing availability under this credit agreement.
Non-U.S. credit agreements. At December 31, 1996, TIMET UK had a
(pound)10 million ($15 million) overdraft/revolving bank credit facility. 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 are collateralized by substantially all of
TIMET UK's assets and bear interest generally at the bank's base rate plus 2%
(8% at December 31, 1996). Borrowings of approximately $2.9 million were
outstanding at December 31, 1996. The TIMET UK facility was revised in 1997 to,
among other things, increase the facility to (pound)21 million ($35 million),
reduce the interest rate by up to .75% and extend the agreement through March
1998.
F-17
<PAGE> 156
TISTO has Deutsche mark ("DM") denominated short-term bank credit
agreements with outstanding balances of $1.2 million at December 31, 1996.
Interest accrues based on a variable rate (9.25% at December 31, 1996).
TIMET Savoie has French franc denominated short-term bank credit
facilities providing for aggregate borrowings of approximately $3.8 million.
Interest accrues at PIBOR plus .6% (4% at December 31, 1996) and outstanding
borrowings approximated $3.8 million at December 31, 1996. TIMET UK has
guaranteed outstanding indebtedness under these facilities. In addition, TIMET
Savoie has a $6 million factoring agreement with a French finance company.
During 1996, TIMET Savoie factored trade receivables approximating $7.2 million
and at December 31, 1996 was contingently liable for receivables factored with
recourse of approximately $1.6 million. Under the terms of the factoring
agreement, TIMET Savoie pays a fee equal to .2% of the amount factored and
interest accrues at PIBOR plus .45%. TIMET UK has guaranteed payment on
factored amounts. See Note 15 for a related party credit agreement TIMET Savoie
has with CEZUS.
At December 31, 1996, unused borrowing availability under the
Company's non-U.S. bank credit agreements approximated $8 million.
Capital lease obligations. In connection with the IMI Titanium
Acquisition, the Company entered into long-term leases with IMI principally
covering its production facilities within England and in connection with the
TIMET Savoie transaction, entered into long-term leases with CEZUS covering
machinery and equipment. The terms of these capital leases range from 10 to 30
years. The UK rentals are subject to adjustment every five years based on
changes in certain published price indexes. TIMET has guaranteed TIMET UK's
obligations under its leases. Assets held under capital leases included in
buildings and equipment at December 31, 1996 were $10.7 million and $1 million,
respectively, with related accumulated depreciation of $.3 million.
Aggregate maturities of long-term debt and capital lease obligations:
<TABLE>
<CAPTION>
Capital Long-term
Leases Debt
-------- --------
(In thousands)
<S> <C> <C>
Years ending December 31,
1997 $ 1,219 $ 397
1998 1,219 1,158
1999 1,219 --
2000 1,219 --
2001 1,219 --
2002 and thereafter 26,750 --
Less amounts representing interest (21,211) --
-------- --------
$ 11,634 $ 1,555
======== ========
</TABLE>
F-18
<PAGE> 157
Note 10--Minority interest - Company-obligated mandatorily redeemable preferred
securities:
In November 1996, TIMET Capital Trust I (the "Trust"), a wholly-owned
subsidiary of TIMET, issued $201 million of 6.625% Company-obligated
mandatorily redeemable preferred securities (the "Convertible Preferred
Securities") and $6 million of 6.625% common securities. TIMET holds all of the
outstanding common securities of the Trust. The Trust used the proceeds from
such issuance to purchase from the Company $207 million principal amount of
TIMET's 6.625% convertible junior subordinated debentures due 2026 (the
"Subordinated Debentures") and, in the aggregate, constitute a full and
unconditional guarantee by the Company of the Trust's obligations under the
Convertible Preferred Securities. The sole assets of the Trust are the
Subordinated Debentures. The Convertible Preferred Securities represent
undivided beneficial ownership interests in the Trust, are entitled to
cumulative preferred distributions from the Trust of 6.625% per annum,
compounded quarterly, and are convertible, at the option of the holder, into
TIMET common stock at the rate of 1.339 shares of common stock per Convertible
Preferred Security (an equivalent price of $37.34 per share), for an aggregate
of 5.4 million common shares if fully converted.
The Convertible Preferred Securities mature December 2026 and are
redeemable at the Company's option beginning December 1999, initially at
approximately 104.6% of principal amount declining to 100% from December 2006.
The Company has the right to defer interest payments for up to 20 consecutive
quarters ("Extension Period") on one or more occasions. In the event the
Company exercises this right, it would be unable during any Extension Period
to, among other things, pay dividends on or reacquire its capital stock.
Note 11--Stockholders' equity:
Common stock. In June 1996, the Company completed the sale of 6.2
million shares of its common stock in the Stock Offering at an initial price to
the public of $23 per share. 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 1996 Long Term
Incentive Plan (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 agreement. Supplemental earnings
per common share, assuming the stock offering had been completed at the
beginning of 1996, would have been $1.75 per share.
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.
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.
Common stock options. The 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, options were
granted to acquire 437,400 shares at prices equal to or greater than the market
price at the date of grant ($23 to $29 per share). Other options granted in
1996, principally in conjunction with the AJM Acquisition, aggregated 98,000
shares at market prices
F-19
<PAGE> 158
ranging from $28.56 to $31.25. 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 receive 625 options effective with the Stock Offering and 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 director fees, annual grants of 400 shares of common
stock. In 1996, options to purchase 3,750 shares of the Company's common stock
were granted to nonemployee directors of the Company at exercise prices ranging
from $23 to $32.875 per share. Options granted to nonemployee directors vest in
one year and expire five years from date of grant. In February 1997, the
non-eligible members of the Board of Directors amended this plan to increase
the number of shares granted under options to 1,500 per year beginning in 1998,
and to increase the term of future options to ten years.
At December 31, 1996, 538,150 options were outstanding at prices
ranging from $23 to $32.875 ($13.8 million aggregate amount payable upon
exercise), no options were exercisable, and 1,875 nonemployee director options
become exercisable in 1997. At December 31, 1996, 1,964,600 shares and 58,750
shares were available for future grant under the TIMET Incentive Plan and the
nonemployee director plan, respectively.
The following table summarizes information about the Company's stock
options outstanding at December 31, 1996. Weighted average fair values were
estimated using the Black-Scholes model and assumptions listed below.
<TABLE>
<CAPTION>
Weighted Average
----------------------------------
Option Exercise Exercise Fair Remaining
Grants Shares Prices Price Value Life (years)
------ ------- ----------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
At market 371,150 $23-$32.875 $ 24.64 $ 12.47
Above market 167,000 $26-$29 27.50 10.22
------- ----------- --------- ---------
538,150 $23-$32.875 $ 25.53 $ 11.77 9.5
======= =========== ========= ========= ======
</TABLE>
<TABLE>
<S> <C>
Assumptions:
Expected life (years) 6
Risk-free interest rate 6.67%
Volatility 40%
Dividend yield 0%
</TABLE>
Had stock-based compensation cost been determined based on the
estimated fair values of options granted and recognized as compensation expense
over the vesting period of the grants in accordance with SFAS No. 123, the
Company's pretax income, net income and earnings per share for 1996 would have
been reduced by $1.1 million, $.7 million and $.03 per share, respectively.
F-20
<PAGE> 159
Note 12--Income taxes:
Summarized below are (i) the components of income (loss) before income
taxes, minority interest, preacquisition earnings and cumulative effect of a
change in accounting principle ("pretax income (loss)"), (ii) the difference
between the income tax expense (benefit) 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 expense (benefit)
attributable to pretax income (loss).
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Expected income tax expense (benefit) $(14,673) $ (1,387) $ 17,717
Adjustment of deferred tax valuation allowance:
Related to current year results 14,900 1,502 (6,519)
Change in estimate of future realization -- -- (10,000)
Incremental tax on non-tax group companies (164) (1) (46)
U.S. state income taxes, net 97 -- 848
Other, net (5) 141 (108)
-------- -------- --------
$ 155 $ 255 1,892
======== ======== ========
Income tax expense:
Current income taxes:
U.S $ 149 $ -- $ 6,072
Non-U.S 6 255 6,236
-------- -------- --------
155 255 12,308
-------- -------- --------
Deferred income taxes (benefit):
U.S -- -- (10,809)
Non-U.S -- -- 393
-------- -------- --------
-- -- (10,416)
-------- -------- --------
$ 155 $ 255 $ 1,892
======== ======== ========
Pretax income (loss):
U.S $(41,284) $ (4,589) $ 32,671
Non-U.S (638) 627 17,950
-------- -------- --------
$(41,922) $ (3,962) $ 50,621
======== ======== ========
Comprehensive tax provision allocable to:
Pretax income $ 155 $ 255 $ 1,892
Stockholders' equity, principally deferred taxes
allocable to adjustment components -- -- 2,500
-------- -------- --------
$ 155 $ 255 $ 4,392
======== ======== ========
</TABLE>
F-21
<PAGE> 160
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1995 1996
--------------------- ----------------------
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
(In millions)
<S> <C> <C> <C> <C>
Temporary differences relating to net assets:
Inventories $ -- $ (5.0) $ -- $ (4.9)
Property and equipment -- (3.8) -- (13.0)
Accrued OPEB cost 11.7 -- 11.4 --
Accrued liabilities and other deductible differences 8.3 -- 10.9 --
Other taxable differences -- (2.5) -- (5.5)
Investments in subsidiaries and affiliates not
included in the consolidated tax group -- (3.2) -- (3.0)
Tax loss and credit carryforwards 15.8 -- 11.7 --
Valuation allowance (22.7) -- (6.2) --
------- ------- ------- -------
Gross deferred tax assets (liabilities) 13.1 (14.5) 27.8 (26.4)
Netting (13.1) 13.1 (15.5) 15.5
------- ------- ------- -------
Total deferred taxes -- (1.4) 12.3 (10.9)
Less current deferred taxes -- (.6) 0.7 (.3)
------- ------- ------- -------
Net noncurrent deferred taxes $ -- $ (.8) $ 11.6 $ (10.6)
======= ======= ======= =======
</TABLE>
The Company's valuation allowance increased in the aggregate
(including amounts allocated to items other than continuing operations) by
$14.7 million in 1994 and decreased by $.9 million in 1995 and $16.5 million in
1996. The 1996 valuation allowance reduction included $10 million due to a
change in estimate of the future tax benefits of certain tax net operating loss
carryforwards ("NOLs") and alternative minimum tax credit ("AMT") carryforwards
that will more likely than not be realized.
At December 31, 1996, the Company had, for U.S. federal income tax
purposes, NOLs of approximately $24 million expiring in 2008 and 2009. The
utilization of the Company's NOLs is subject to an annual limitation. At
December 31, 1996, the Company had an AMT carryforward of approximately $3
million, which can be utilized to offset regular income taxes payable in future
years. The AMT carryforward has an indefinite carryforward period.
Note 13--Employee benefit plans:
Variable compensation plans. Approximately 85% of the Company's total
worldwide employees, 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. The cost of
these plans was $.8 million in 1994, $.3 million in 1995 and $12 million in
1996.
Defined contribution plans. All of the Company's domestic hourly and
salaried employees (70% of total worldwide employees at December 31, 1996) are
eligible to participate in contributory savings plans with partial matching
employer contributions. Company matching contributions are based on company
profitability for 60% of eligible employees. Approximately 40% of the Company's
total employees at December 31, 1996 also participate in a defined contribution
pension plan with contributions based, beginning in 1996, upon a fixed
percentage of the employee's eligible earnings. The cost of these pension and
savings plans was $3 million in 1996 and was insignificant in 1994 and 1995 due
to the Company reporting net losses in those years.
F-22
<PAGE> 161
Defined benefit pension plans. The Company maintains contributory and
noncontributory defined benefit pension plans covering approximately 50% of
employees at December 31, 1996 (substantially all European employees and
one-third of its domestic 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 for U.S.
plans is to contribute annually amounts satisfying the funding requirements of
the Employee Retirement Income Security Act of 1974, as amended. Non-U.S.
defined benefit pension plans are funded in accordance with applicable
statutory requirements. The defined benefit pension plans for domestic
employees were closed to new participants prior to 1996 and, in addition with
respect to salaried employees, benefit levels have been frozen.
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 actuarial present value of benefit
obligations at December 31, 1996 were: (i) discount rates -- 7% to 8.75% (7.5%
in 1995), and (ii) rates of increase in future compensation levels -- 3% to
6.5% (3% in 1995). The expected long-term rates of return on assets used was 7%
to 9.75% in 1996 and 9% in 1995. The benefit obligations are sensitive to
changes in these estimated rates and actual results may differ from the
obligations noted below. At December 31, 1996, the assets of the plans are
primarily comprised of U.S. government obligations, corporate stocks and bonds.
<TABLE>
<CAPTION>
Assets Exceed Accumulated Benefits
Accumulated Benefits Exceed Assets
------------------------- -------------------------
December 31, December 31,
1995 1996 1995 1996
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligations $ 16,183 $ 47,733 $ 34,705 $ 34,424
Nonvested benefits 955 3,040 1,510 1,448
-------- -------- -------- --------
Accumulated benefit obligations 17,138 50,773 36,215 35,872
Effect of projected salary increases 65 27,766 110 114
-------- -------- -------- --------
Projected benefit obligations 17,203 78,539 36,325 35,986
Plan assets at fair value 18,146 82,118 28,884 31,624
-------- -------- -------- --------
Plan assets over (under) projected benefit
obligations 943 3,579 (7,441) (4,362)
Unrecognized net loss from experience
different from actuarial assumptions 1,186 (2,674) 3,837 1,981
Unrecognized prior service cost 235 1,269 1,424 1,199
Unrecognized net assets being amortized
over 14 years (1,111) (834) (1,349) (1,011)
Adjustment to recognize minimum liability -- -- (3,815) (2,057)
-------- -------- -------- --------
Total prepaid (accrued) pension cost 1,253 1,340 (7,344) (4,250)
Current portion -- -- (1,378) (1,507)
-------- -------- -------- --------
Noncurrent prepaid (accrued) pension cost $ 1,253 $ 1,340 $ (5,966) $ (2,743)
======== ======== ======== ========
</TABLE>
F-23
<PAGE> 162
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Service cost benefits earned $ 846 $ 630 $ 3,260
Interest cost on projected benefit obligations 3,457 3,959 7,696
Actual return on plan assets 1,163 (9,560) (7,256)
Net amortization and deferrals (5,254) 5,910 (1,951)
------- ------- -------
Net pension expense $ 212 $ 939 $ 1,749
======= ======= =======
</TABLE>
Postretirement benefits other than pensions. The Company provides
certain postretirement health care and life insurance benefits to certain of
its domestic eligible retired employees. The Company funds such benefits as
they are incurred, net of any contributions by the retirees. Under plans
currently in effect, a majority of TIMET's active domestic 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, 1996 were:
(i) discount rate--7.75% (7.5% in 1995), (ii) rate of increase in future
compensation levels -- 3% and (iii) rate of increase in future health care
costs--11% in 1997, 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 1996, and
the actuarial present value of accumulated OPEB obligations at December 31,
1996 would have increased approximately $1.5 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>
December 31,
----------------------
1995 1996
------- -------
(In thousands)
<S> <C> <C>
Actuarial present value of accumulated OPEB obligations:
Retiree benefits $18,805 $16,266
Other fully eligible active plan participants 1,227 1,236
Other active plan participants 5,456 3,750
------- -------
25,488 21,252
Unrecognized net gain from experience different from
actuarial assumptions 730 4,536
Unrecognized prior service credits 4,174 3,748
------- -------
Total accrued OPEB cost 30,392 29,536
Less current portion 2,240 2,024
------- -------
Noncurrent accrued OPEB cost $28,152 $27,512
======= =======
</TABLE>
F-24
<PAGE> 163
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Service cost benefits earned $ 395 $ 242 $ 407
Interest cost on accumulated OPEB obligations 1,791 2,060 1,567
Net amortization and deferrals (244) (475) (653)
------- ------- -------
Net OPEB expense $ 1,942 $ 1,827 $ 1,321
======= ======= =======
</TABLE>
Note 14--Changes in accounting principles:
In 1994, the Company adopted SFAS No. 112, "Employers' Accounting for
Postemployment Benefits" and recorded a $1 million charge for this change in
accounting principle.
SFAS No. 128, "Earnings per Share," issued in February 1997 is
effective for the Company in 1997. Had SFAS No. 128 been effective during
1994, 1995 and 1996, (i) "Basic earnings per share" under SFAS No. 128 would
have been the same as earnings per common share reported by the Company and
(ii) "Dilutive earnings per share" under SFAS No. 128 would have been the same
as fully diluted earnings per share reported by the Company.
Note 15--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. 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.
The Company has an intercorporate services agreement with Tremont
whereby the Company will provide certain management, financial and other
services to Tremont for approximately $.4 million in 1996, subject to renewal
for future years. Charges to (from) Tremont approximated nil in 1994 and $(.9)
million in 1995 pursuant to similar arrangements for compensation and
intercorporate services.
The Company purchases certain utility services from BMI. The amount
paid to BMI approximated $1 million in each of the past three years.
Receivables from related parties relate principally to sales to UTSC.
Current payables to related parties include current portions of capital leases
and loans from CEZUS. Noncurrent
F-25
<PAGE> 164
payables to related parties, excluding long-term capital lease obligations (see
Note 9), are summarized below.
<TABLE>
<CAPTION>
December 31,
----------------------
1995 1996
------- -------
(In thousands)
<S> <C> <C>
Noncurrent liabilities - Tremont:
Loans and interest $22,460 $ --
Other 1,482 996
------- -------
$23,942 $ 996
======= =======
</TABLE>
Interest expense on related party indebtedness was $2.4 million in
1994, $2.1 million in 1995 and $2.9 million in 1996. 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 11 regarding, among other things, the
repayment of loans due to IMI and Tremont with proceeds from the Stock
Offering.
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. Interest accrues at a weighted average rate
published by Banque de France plus .125% (4% at December 31, 1996). At December
31, 1996 approximately $1 million was outstanding under this agreement.
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.
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 then-existing shareholders.
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. NL is an indirect subsidiary of Contran. Contran 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.
UTSC made a $.4 million capital contribution to TIMET during 1994.
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's conversion of debt into TIMET common stock, 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
F-26
<PAGE> 165
thereafter through 2008. TIMET's December 1996 selling prices to UTSC were
approximately 15% below the cost at which TIMET was 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 approximated $2 million in 1994, $9 million in 1995 and $12 million in
1996.
Note 16--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 $1.3 million in 1994, $1.4 million in 1995 and $2.7 million
in 1996.
At December 31, 1996, future minimum payments under noncancellable
operating leases having an initial or remaining term in excess of one year were
as follows:
<TABLE>
<CAPTION>
Amount
------
(In thousands)
Years ending December 31,
- -------------------------
<S> <C>
1997 $3,003
1998 1,701
1999 832
2000 339
2001 189
------
6,064
LESS SUBLEASE INCOME 614
------
$5,450
======
</TABLE>
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, 1996, TIMET had not accrued any amounts
related to either of these matters.
F-27
<PAGE> 166
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 asserted 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. In March 1997, the
Company received notice that Ray Cook had filed (but not yet served) an action
claiming damages in excess of $5 million with respect to this matter. The
Company believes that this action is without merit, intends to continue to deny
all allegations of liability and to defend this action vigorously. The Company
has 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; a $.2 million lump-sum payment with the
balance payable in equal quarterly payments ($1.5 million unpaid and accrued at
December 31, 1996). The Company has filed an action against the chromium
supplier (Titanium Metals Corp. v. Elkem Metals, Case No. 97-0369, W.D. Pa.)
seeking recovery of the cost to TIMET to settle with its customer plus related
costs. The Company's estimate of any recovery from the chromium supplier and/or
TIMET's insurance carrier 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, 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 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, 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
F-28
<PAGE> 167
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 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, 1996, TIMET had not accrued any amounts with respect
to this matter. The parties are currently negotiating a complete settlement of
this matter in connection with a sale of certain other properties by VVLC to
the claimant.
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 December 31, 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 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 such customers may be
similarly affected by economic or other conditions. The Company's ten largest
customers accounted for about one-third of net sales in each of the past three
years and about one-third of accounts receivable at December 31, 1995 and 1996.
Receivables are generally not collateralized.
At December 31, 1996, substantially all of the Company's cash and cash
equivalents were held by one financial institution.
F-29
<PAGE> 168
Note 17--Quarterly results of operations (unaudited):
<TABLE>
<CAPTION>
Quarters ended
---------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
--------- --------- --------- ---------
(In millions, except per share data)
<S> <C> <C> <C> <C>
Year ended December 31, 1996:
Net sales $ 107.6 $ 118.8 $ 123.4 $ 157.3
Operating income 6.8 13.8 17.8 21.4
Net income $ 2.1 $ 8.1 $ 13.3 $ 24.1
Net income per common share .10 .30 .42 .77
Fully diluted net income per share .75
Year ended December 31, 1995:
Net sales $ 41.7 $ 45.6 $ 47.9 $ 49.5
Operating income (loss) (1.6) 1.1 2.3 3.6
Net income (loss) $ (4.0) $ (2.2) $ (.3) $ 2.3
Net income (loss) per common share (.26) (.14) (.02) .14
</TABLE>
Due to the timing of the issuance of common stock, such as the Stock
Offering, the sum of 1996 quarterly earnings per share is different than
earnings per share for the full year. Fully diluted earnings per share is not
presented for periods prior to the fourth quarter of 1996 as, prior to the
issuance of the Convertible Preferred Securities in November 1996 (see Note
10), the dilutive effect was nil.
F-30
<PAGE> 169
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.
/s/ KPMG Peat Marwick LLP
Denver, Colorado
February 28, 1996
F-31
<PAGE> 170
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-32
<PAGE> 171
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-33
<PAGE> 172
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-34
<PAGE> 173
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-35
<PAGE> 174
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-36
<PAGE> 175
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-37
<PAGE> 176
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-38
<PAGE> 177
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-39
<PAGE> 178
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-40
<PAGE> 179
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-41
<PAGE> 180
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-42
<PAGE> 181
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-43
<PAGE> 182
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-44
<PAGE> 183
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.
/s/ PRICE WATERHOUSE LLP
Philadelphia, Pennsylvania
November 19, 1996
F-45
<PAGE> 184
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.
/s/ PRICE WATERHOUSE LLP
Philadelphia, Pennsylvania
November 19, 1996
F-46
<PAGE> 185
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-47
<PAGE> 186
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-48
<PAGE> 187
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-49
<PAGE> 188
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-50
<PAGE> 189
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-51
<PAGE> 190
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-52
<PAGE> 191
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-53
<PAGE> 192
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-54
<PAGE> 193
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-55
<PAGE> 194
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-56
<PAGE> 195
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-57
<PAGE> 196
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-58
<PAGE> 197
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-59
<PAGE> 198
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.
/s/ PRICE WATERHOUSE LLP
Philadelphia, Pennsylvania
January 26, 1996
F-60
<PAGE> 199
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.
/s/ PRICE WATERHOUSE LLP
Philadelphia, Pennsylvania
November 19, 1996
F-61
<PAGE> 200
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-62
<PAGE> 201
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-63
<PAGE> 202
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-64
<PAGE> 203
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-65
<PAGE> 204
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-66
<PAGE> 205
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-67
<PAGE> 206
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.
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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
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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,
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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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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
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PAGE
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<S> <C>
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 ................................................................. 37
The Company .............................................................. 51
Management ............................................................... 52
Principal Stockholders ................................................... 62
Certain Relationships and Related Transactions ........................... 66
Description of the Convertible Preferred Securities ...................... 71
Description of the Guarantee ............................................. 94
Description of the Convertible Debentures ................................ 98
Effect of Obligations Under the Convertible Debentures and the Guarantee . 111
Description of Capital Stock ............................................. 113
United States Federal Income Taxation .................................... 114
Selling Holders .......................................................... 121
Selling Stockholders ..................................................... 126
Plan of Distribution ..................................................... 127
Legal Matters ............................................................ 129
Experts Independent Public Accountants ................................... 129
Index to Financial Statements ............................................ F-1
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<PAGE> 211
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:
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<S> <C>
Securities and Exchange Commission Registration Fee $ 115,822.10
Printing and Engraving 450,000.00
Legal Fees and Expenses 550,000.00
Accounting Fees and Expenses 450,000.00
Miscellaneous Expenses 735,000.00
-------------
Total $2,300,822.10
=============
</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
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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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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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EXHIBIT
NO. DESCRIPTION
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<S> <C>
1.1* Form of Underwriting Agreement
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
Annual Report on Form 10-K for the year ended December 31, 1996.
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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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.
9.5* Amendment No. 4 to Investors' Agreement among 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 Motals Corporation, dated
February 21, 1997.
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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10.9 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 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.
10.15 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.
10.16+ 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).
10.17*+ 1996 Non-Employee Director Compensation Plan.
10.18+ 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>
II - 5
<PAGE> 216
<TABLE>
<S> <C>
10.19+ 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).
10.20 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.
10.21 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).
10.22 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).
10.23 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).
10.24 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).
10.25 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).
10.26 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).
10.27 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.
10.28 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.
10.29 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.
10.30* Amendment to Amended and Restated Loan and Security Agreement
between Congress Financial Corporation and Titanium Metals
Corporation dated November 26, 1996.
</TABLE>
II - 6
<PAGE> 217
<TABLE>
<S> <C>
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 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, Property Trustee under the Amended and Restated
Declaration of Trust and Guarantee Trustee under the
Convertible Preferred Securities Guarantee
27.1 Financial Data Schedule.
</TABLE>
+ Management contract, compensatory plan or arrangement
* Previously filed
(b) Financial Statement Schedules.
The following financial statement schedules for each of the three
years in the period ended December 31, 1996 are filed with this Registration
Statement.
Report of Independent Accountants on Financial Statement S-1
Schedules
Schedule I--Condensed financial information of Registrant. S-2/S-6
Schedule II--Valuation and Qualifying Accounts. S-7
Schedules III and IV are omitted because they are not applicable.
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:
II - 7
<PAGE> 218
(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.
II - 8
<PAGE> 219
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 May 1, 1997.
TITANIUM METALS CORPORATION
By: /s/ ROBERT E. MUSGRAVES
---------------------------------
Its: Vice President and General
Counsel
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>
* Chairman of the Board and May 1, 1997
- ----------------------------- Chief Executive Officer
J. Landis Martin
* President, Chief Operating May 1, 1997
- ----------------------------- Officer and Director
Andrew R. Dixey
/s/ JOSEPH S. COMPOFELICE Vice President, Chief Financial May 1, 1997
- ----------------------------- Officer and Director
Joseph S. Compofelice (Principal Financial Officer)
* Director May 1, 1997
- -----------------------------
Edward C. Hutcheson, Jr.
* Director May 1, 1997
- -----------------------------
General Thomas P. Stafford
* Director May 1, 1997
- -----------------------------
Yukiji Tadokoro
/s/ J. THOMAS MONTGOMERY, JR. Vice President--Finance and May 1, 1997
- ----------------------------- Treasurer (Principal Accounting
J. Thomas Montgomery, Jr. Officer)
</TABLE>
* By /s/ ROBERT E. MUSGRAVES
--------------------------------
Robert E. Musgraves, Attorney-in-Fact
II - 9
<PAGE> 220
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 May 1, 1997.
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
II - 10
<PAGE> 221
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
To the Stockholders and Board of Directors of Titanium Metals Corporation:
Our report on the consolidated financial statements of Titanium Metals
Corporation as of December 31, 1995 and 1996 and for each of the three years in
the period ended December 31, 1996 is included on page F-2. As discussed in
Note 14 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 No. 112. In connection with our
audits of such financial statements, we have also audited the related financial
statement schedules listed in Item 16(b).
In our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Denver, Colorado
January 21, 1997
S-1
<PAGE> 222
TITANIUM METALS CORPORATION
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Condensed Balance Sheets
December 31, 1995 and 1996
(In thousands)
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 24 $ 82,846
Accounts receivable, net 27,932 50,421
Receivable from subsidiaries and related parties 3,070 12,476
Inventories 69,134 76,318
Prepaid expenses 3,452 5,563
Income taxes receivable -- 467
-------- --------
Total current assets 103,612 228,091
-------- --------
Other assets:
Investment in subsidiaries and joint ventures 13,853 217,207
Notes receivable from subsidiaries -- 25,000
Deferred income taxes -- 11,618
Other 6,451 15,069
-------- --------
Total other assets 20,304 268,894
-------- --------
Property and equipment, net 124,868 126,295
-------- --------
$248,784 $623,280
======== ========
Current liabilities:
Current maturities of long-term debt $ 45,695 $ 140
Accounts payable and accrued liabilities 48,146 50,023
Payable to subsidiaries and related parties 2,627 3,984
Deferred income taxes 596 348
-------- --------
Total current liabilities 97,064 54,495
-------- --------
Noncurrent liabilities:
Long-term debt 21,540 --
Payable to related parties:
6 5/8% convertible junior subordinated debentures
payable to TIMET Capital Trust I 207,474
Other 23,942 997
Accrued postretirement benefit cost 28,152 27,512
Deferred income taxes 789 1,385
Other 9,169 5,202
-------- --------
83,592 242,570
-------- --------
Stockholders' equity 68,128 326,215
-------- --------
$248,784 $623,280
======== ========
</TABLE>
S-2
<PAGE> 223
TITANIUM METALS CORPORATION
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
Condensed Statements of Operations
Years ended December 31, 1994, 1995 and 1996
(In thousands)
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenues and other income:
Net sales $ 145,984 $ 184,723 $ 289,390
Other, net 2,076 5,293 8,170
--------- --------- ---------
148,060 190,016 297,560
--------- --------- ---------
Costs and expenses:
Cost of sales 159,958 170,699 239,681
Selling, general, administrative
and development 12,462 14,065 16,113
Special charges (credit) 10,000 (1,200) 3,928
Interest 7,562 10,414 8,028
--------- --------- ---------
189,982 193,978 267,750
--------- --------- ---------
(41,922) (3,962) 29,810
Equity in earnings of consolidated subsidiaries -- -- 10,567
--------- --------- ---------
Income (loss) before income taxes (41,922) (3,962) 40,377
Income tax expense (benefit) 155 255 (7,267)
--------- --------- ---------
Income (loss) before cumulative effect of a
change in accounting principle (42,077) (4,217) 47,644
Change in accounting principle (1,000) -- --
--------- --------- ---------
Net income (loss) ($ 43,077) $ (4,217) $ 47,644
========= ========= =========
</TABLE>
S-3
<PAGE> 224
TITANIUM METALS CORPORATION
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
Condensed Statements of Cash Flows
Years ended December 31, 1994, 1995 and 1996
(In thousands)
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (43,077) $ (4,217) $ 47,644
Depreciation and amortization 8,334 13,218 9,525
Earnings of subsidiaries and joint
ventures in excess of distributions (1,195) (3,824) (16,559)
Deferred income taxes -- -- (11,032)
Other, net 13,449 (1,286) 1,318
Change in assets and liabilities, net 2,468 (10,006) (48,070)
--------- --------- ---------
Net cash used by operating activities (20,021) (6,115) (17,174)
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures (4,609) (2,981) (11,897)
Purchase of interest in subsidiaries -- -- (98,049)
Other, net 40 421 (12)
--------- --------- ---------
Net cash used by investing activities (4,569) (2,560) (109,958)
--------- --------- ---------
Cash flows from financing activities:
Indebtedness:
Borrowings 63,625 9,371 100,264
Reductions (48,829) (7,371) (167,359)
Proceeds from issuance of common stock, net -- -- 131,488
Proceeds from issuance of convertible
junior subordinated debentures, net -- -- 192,409
Capital contributions from related parties 419 1,148 --
Related parties loans (repayments) 2,500 5,500 (42,460)
--------- --------- ---------
Net cash provided by financing activities 17,715 8,648 214,342
--------- --------- ---------
Cash and cash equivalents:
Net increase (decrease) from:
Operating, investing and financing activities (6,875) (27) 87,210
Cash acquired, net -- -- (4,420)
Currency translation 146 51 32
--------- --------- ---------
(6,729) 24 82,822
Balance at beginning of year 6,729 -- 24
--------- --------- ---------
Balance at end of year $ -- $ 24 $ 82,846
========= ========= =========
Supplemental disclosures - cash paid for:
Interest expense $ 6,497 $ 9,970 $ 7,596
Income taxes 120 112 5,056
</TABLE>
S-4
<PAGE> 225
TITANIUM METALS CORPORATION
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
Notes to Condensed Financial Information
Note 1 - Basis of presentation:
The Consolidated Financial Statements of Titanium Metals Corporation
(the "Company") and the related Notes to Consolidated Financial Statements are
incorporated herein by reference. The Company is primarily an operating
company, however certain operations, principally acquired in 1996 (See Note 4
to the Consolidated Financial Statements), are conducted through subsidiaries.
Condensed financial information for all periods presented is classified based
on the Company's organizational structure as of December 31, 1996.
At December 31, 1996, net assets of subsidiaries subject to
restrictions aggregated $92 million. Commitments and contingencies are
discussed in Note 16 to the Consolidated Financial Statements.
Note 2 - Investment in subsidiaries and joint ventures:
<TABLE>
<CAPTION>
December 31,
-----------------------
1995 1996
-------- --------
(In thousands)
<S> <C> <C>
Timet UK, Ltd. $ -- $ 72,811
Timet Castings Corporation -- 19,659
Titanium Hearth Technologies 13,853 118,243
TIMET Capital Trust I -- 6,224
Other -- 270
-------- --------
$ 13,853 $217,207
======== ========
</TABLE>
Note 3 - Inventories:
<TABLE>
<CAPTION>
December 31,
---------------------
1995 1996
------- -------
(In thousands)
<S> <C> <C>
Raw materials $ 7,778 $10,332
In process and finished products 57,538 61,259
Supplies 3,818 4,727
------- -------
$69,134 $76,318
======= =======
</TABLE>
The average cost of LIFO inventories exceeded the net carrying amount
of such inventories by approximately $19 million at December 31, 1995 and $32
million at December 31, 1996.
S-5
<PAGE> 226
Note 4 - Net receivable from (payable to) subsidiaries and related parties:
<TABLE>
<CAPTION>
December 31,
------------------------
1995 1996
-------- --------
(In thousands)
<S> <C> <C>
Current:
UTSC $ 3,070 $ 1,676
Tremont -- (624)
Subsidiaries (2,627) 7,440
-------- --------
$ 443 $ 8,492
======== ========
Noncurrent:
Notes receivable from subsidiaries:
TIMET UK $ -- $ 20,000
TIMET Castings -- 5,000
-------- --------
-- 25,000
Tremont (23,942) (997)
-------- --------
$(23,942) $ 24,003
======== ========
</TABLE>
Note 5 - Convertible junior subordinated debentures:
In November 1996, the Company issued to TIMET Capital Trust I $207
million principal amount of TIMET's 6.625% convertible junior subordinated
debentures due 2026 and, in the aggregate, constitute a full and unconditional
guarantee by the Company of the Trust's obligation under the Convertible
Preferred Securities. See Note 10 to the Consolidated Financial Statements.
Note 6 - Long-term debt:
<TABLE>
<CAPTION>
December 31,
---------------------
1995 1996
------- -------
(In thousands)
<S> <C> <C>
US credit agreement $66,955 $ --
Other 280 140
------- -------
67,235 140
Less current maturities 45,695 140
------- -------
$21,540 $ --
======= =======
</TABLE>
S-6
<PAGE> 227
TITANIUM METALS CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
ADDITIONS
CHARGED
BALANCE AT (CREDITED) TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS OTHER OF YEAR
----------- --------- -------- ---------- ----- -------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996:
Allowance for doubtful accounts $ 3,620 $ 4,695 $ (4,598) (a) $ 1,071 (b) $ 4,788
======== ======== ======== ======= ========
Valuation allowance for deferred
income taxes $ 22,677 $(16,519) $ -- $ -- $ 6,158
======== ======== ======== ======= ========
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 $ 23,599 $ (922) $ -- $ -- $ 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 $ 14,689 $ -- $ -- $ 23,599
======== ======== ======== ======= ========
Reserve for excess and
slow moving inventories $ -- $ 5,000 $ -- $ -- $ 5,000
======== ======== ======== ======= ========
</TABLE>
- -----------------------------
(a) Amounts written off, less recoveries.
(b) Represents the effect of the IMI Titanium Acquisition and the AJM
Acquisition.
S-7
<PAGE> 228
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Exhibit Description
- ------- -------------------
<S> <C>
1.1* Form of Underwriting Agreement
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
Annual Report on Form 10-K for the year ended December 31,
1996.
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.
9.5* Amendment No. 4 to Investors' Agreement among Union Titanium
Sponge Corporation, Toho Titanium Co., Ltd., Nippon Mining Co.,
Ltd., Mitsui & Co., Ltd., Mitsui & Co. (USA), Inc., Tremont
Corporation and Titanium Metals Corporation, dated February 21,
1997.
</TABLE>
<PAGE> 229
<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 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.
</TABLE>
<PAGE> 230
<TABLE>
<CAPTION>
Exhibit
No. Exhibit Description
- ------- -------------------
<S> <C>
10.14 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.
10.15 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.
10.16+ 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).
10.17*+ 1996 Non-Employee Director Compensation Plan
10.18+ 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).
10.19+ 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).
10.20 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.
10.21 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).
10.22 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).
10.23 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).
10.24 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).
10.25 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> 231
<TABLE>
<CAPTION>
Exhibit
No. Exhibit Description
- ------- -------------------
<S> <C>
10.26 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).
10.27 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.
10.28 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.
10.29 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.
10.30* 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 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, Property Trustee
under the Amended and Restated Declaration of Trust, Guarantee Trustee
under the Convertible Preferred Securities Guarantee
27.1 Financial Data Schedule.
</TABLE>
+ Management Contract, compensatory plan or arrangement
* Previously filed
<PAGE> 1
EXHIBIT 11.1
TITANIUM METALS CORPORATION
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
EARNINGS PER COMMON SHARE(1)
<TABLE>
<CAPTION>
As adjusted
Years ended December 31, ---------------- Supplemental
------------------------------ Pro Forma Pro Forma Pro Forma
1994 1995 1996 1996 1996 1996 1996
-------- -------- -------- ---- ---- ---- ----
(In thousands, except (In millions, except)
per share amounts) per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before cumulative effect of a
change in accounting principle $(42,077) $ (4,217) $ 47,644 $43.2 $47.6 $43.2 $43.2
Cumulative effect of a change in accounting principle (1,000) -- -- -- -- -- --
Interest and fees, net of tax (2) -- -- -- -- (3.7) .2 10.4
-------- -------- -------- ----- ----- ----- -----
Net income (loss) $(43,077) $ (4,217) $ 47,644 $43.2 $43.9 $43.4 $53.6
======== ======== ======== ===== ===== ===== =====
Weighted average shares outstanding (3) 14,916 15,289 27,611 27.6 27.6 27.6 27.6
Common stock issued within one year of Stock Offering (4) 94 94 12 -- -- -- --
IMI Titanium Acquisition(5) -- -- -- 1.2 -- 1.2 1.2
Convertible Preferred Securities(6) -- -- -- -- -- -- 5.4
-------- -------- -------- ----- ----- ----- -----
Total weighted average shares outstanding 15,010 15,383 27,623 28.8 27.6 28.8 34.2
======== ======== ======== ===== ===== ===== =====
Per common share:
Income (loss) before cumulative effect of a
change in accounting principle $ (2.80) $ (.27) $ 1.72 $1.50 $1.59 $1.51 $1.57
Cumulative effect of a change in accounting principle (.07) -- -- -- -- -- --
-------- -------- -------- ----- ----- ----- -----
Net income (loss) $ (2.87) $ (.27) $ 1.72 $1.50 $1.59 $1.51 $1.57
======== ======== ======== ===== ===== ===== =====
</TABLE>
- ----------------
(1) Earnings per common share and fully diluted earnings per common share are
the same.
(2) Reflects change in interest expense assuming sale of the Convertible
Preferred Securities had occurred at the beginning of 1996 and the
application of the Company's net proceeds therefrom. Supplemental Pro
Forma 1996 amount also assumes Convertible Preferred Securities were
converted into Common Stock at the beginning of 1996.
(3) Reflects the 52-for-1 stock split effected in 1996.
(4) Certain key executive officers received an aggregate of 94,000 shares
effective February 15, 1996 as partial consideration for their services in
connection with the IMI Titanium Acquisition.
(5) Adjustment to reflect shares issued to IMI in connection with the IMI
Titanium Acquisition as of the beginning of 1996.
(6) Assumes the sale of Convertible Preferred Securities had occurred at the
beginning of 1996 and the conversion of such securities into 5.4 million
shares of Common Stock.
<PAGE> 1
EXHIBIT 12.1
TITANIUM METALS CORPORATION AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF RATIOS
<TABLE>
<CAPTION>
FISCAL YEARS
------------
PRO FORMA
1992 1993 1994 1995 1996 1996(5)
---- ---- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Debt to total capitalization (1) 76% 41% 59% 57% 40%
Ratio of EBITDA to interest expense (2) 1.8 7.8
Ratio of earnings to fixed charges (3) 5.5 3.4
Ratio of earnings to fixed
charges -- as adjusted (4) 3.8 3.5
</TABLE>
(1) For purposes of calculating the debt to total capitalization ratio, total
debt (including Convertible Preferred Securities) is divided by the sum of
total debt (including Convertible Preferred Securities), minority interest and
total stockholders' 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 was
$10.3 million in 1992, $18 million in 1993 and $34.3 million in 1994.
(3) For purposes of calculating the ratio of earnings to fixed charges, earnings
consist of income from continuing operations before income taxes 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 four fiscal years ended 1995. The amount of coverage deficiency was
$18.3 million in 1992, $25.6 million in 1993, $42.4 million in 1994 and
$5.1 million in 1995.
(4) Gives pro forma effect to the sale of Convertible Preferred Securities to
the Initial Purchasers and the application of the Company's net proceeds
therefrom.
(5) Gives pro forma effect to the IMI Titanium and AJM Acquisitions. See
"Unaudited Pro Forma Condensed Consolidated Statement of Operations".
<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
TIMET UK, Ltd United Kingdom 100
TIMET UK (Export) Ltd United Kingdom 100
TIMET Savoie, S.A France 70
TIMET Deutschland, GmbH Germany 100
TISTO Titan und Sonderlegierungen,
GmbH Germany 100
LASAB Laser Aplikations, GmbH Germany 100
TIMET Castings Corporation Oregon 100
Titanium Hearth Technologies, Inc. Delaware 100
Titanium Hearth Technologies Pennsylvania 49.5
Titanium Hearth Melting Corporation Colorado 100
Titanium Hearth Technologies Pennsylvania 50.5
MZI, LLC Oregon 33 1/3
TIMET Capital Trust I Delaware 100
TIMET FSC, Ltd Barbados 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 reports dated January 21, 1997 on our audits of the consolidated
financial statements and financial statement schedules of Titanium Metals
Corporation as of December 31, 1995 and 1996 and for each of the three years in
the period ended December 31, 1996. 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
April 30, 1997
<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
April 29, 1997
<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 Titanium Metals Corporation 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
April 29, 1997
<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 Titanium Metals Corporation 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
April 29, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 86,526
<SECURITIES> 0
<RECEIVABLES> 113,980
<ALLOWANCES> 4,788
<INVENTORY> 155,488
<CURRENT-ASSETS> 371,018
<PP&E> 263,617
<DEPRECIATION> 44,048
<TOTAL-ASSETS> 703,018
<CURRENT-LIABILITIES> 112,825
<BONDS> 1,158
0
0
<COMMON> 315
<OTHER-SE> 325,901
<TOTAL-LIABILITY-AND-EQUITY> 703,018
<SALES> 507,074
<TOTAL-REVENUES> 507,128
<CGS> 418,775
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,824
<LOSS-PROVISION> 660
<INTEREST-EXPENSE> 10,223
<INCOME-PRETAX> 50,621
<INCOME-TAX> 1,892
<INCOME-CONTINUING> 47,644
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 47,644
<EPS-PRIMARY> 1.72
<EPS-DILUTED> 1.72
</TABLE>
