<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 - For the quarter ended March 31, 1997
---------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-28538
---------
Titanium Metals Corporation
----------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-5630895
- --------------------------------- --------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1999 Broadway, Suite 4300, Denver, Colorado 80202
----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 296-5600
-------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-------- ---------
Number of shares of common stock outstanding on April 30, 1997: 31,456,655
------------
<PAGE> 2
FORWARD - LOOKING INFORMATION
The statements contained in this Report on Form 10-Q ("Quarterly Report")
which are not historical facts, including, but not limited to, statements found
in the Notes to Consolidated Financial Statements and under the captions
"Results of Operations" and "Liquidity and Capital Resources", both contained
in Management's Discussion and Analysis of Financial Condition and Results of
Operations, are forward-looking statements or discussions of trends which by
their nature involve substantial risks and uncertainties that could
significantly impact expected results. Actual results could differ materially
from those described in such forward-looking statements. Among the factors that
could cause actual results to differ materially are the risks and uncertainties
discussed in this Quarterly Report, including in the portions referenced above
and those described from time to time in the Company's other filings with the
Securities and Exchange Commission, such as the cyclicality of the Company's
business and its dependence on the aerospace industry, the sensitivity of the
Company's business to global industry capacity, global economic conditions,
changes in product pricing, 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.
<PAGE> 3
TITANIUM METALS CORPORATION
INDEX
-----
<TABLE>
<CAPTION>
Page
number
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - December 31, 1996 and
March 31, 1997 2-3
Consolidated Statements of Operations - Three months
ended March 31, 1996 and 1997 4
Consolidated Statement of Stockholders' Equity - Three
months ended March 31, 1997 5
Consolidated Statements of Cash Flows - Three months
ended March 31, 1996 and 1997 6-7
Notes to Consolidated Financial Statements 8-11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 12-14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 14
Item 6. Exhibits and Reports on Form 8-K. 14
</TABLE>
1
<PAGE> 4
TITANIUM METALS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31, March 31,
ASSETS 1996 1997
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 86,526 $ 78,496
Receivables, net 114,100 135,442
Receivable from related parties 1,676 2,707
Inventories 155,488 161,803
Prepaid expenses 12,510 7,820
Deferred income taxes 718 1,322
---------- ----------
Total current assets 371,018 387,590
---------- ----------
Other assets:
Goodwill 67,430 62,506
Other intangible assets 19,314 18,703
Deferred income taxes 11,618 11,044
Other 14,069 13,271
---------- ----------
Total other assets 112,431 105,524
---------- ----------
Property and equipment:
Land 6,129 6,094
Buildings 32,929 32,508
Equipment 207,046 214,351
Construction in progress 17,513 24,174
---------- ----------
263,617 277,127
Less accumulated depreciation 44,048 49,482
---------- ----------
Net property and equipment 219,569 227,645
---------- ----------
$ 703,018 $ 720,759
========== ==========
</TABLE>
2
<PAGE> 5
TITANIUM METALS CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands)
<TABLE>
<CAPTION>
December 31, March 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1997
---------- ----------
<S> <C> <C>
Current liabilities:
Notes payable $ 7,992 $ 6,092
Current maturities of long-term debt 397 449
Accounts payable 49,628 55,604
Accrued liabilities 46,173 45,250
Payable to related parties 1,649 --
Income taxes 6,638 13,189
Deferred income taxes 348 --
---------- ----------
Total current liabilities 112,825 120,584
---------- ----------
Noncurrent liabilities:
Long-term debt 1,158 1,072
Capital lease obligations 11,562 11,010
Payable to related parties 996 914
Accrued OPEB cost 27,512 27,151
Accrued pension cost 2,743 2,613
Deferred income taxes 10,629 9,844
Other 3,920 2,920
---------- ----------
Total noncurrent liabilities 58,520 55,524
---------- ----------
Minority interest - Company-obligated mandatorily
redeemable preferred securities of subsidiary
trust holding solely subordinated debt securities 201,250 201,250
Other minority interest 4,207 4,586
Stockholders' equity:
Common stock 315 315
Additional paid-in capital 346,133 346,337
Accumulated deficit (25,009) (9,232)
Currency translation adjustment 5,635 2,253
Pension liabilities adjustment (858) (858)
---------- ----------
Total stockholders' equity 326,216 338,815
---------- ----------
$ 703,018 $ 720,759
========== ==========
</TABLE>
Commitments and contingencies (Note 1)
See accompanying notes to consolidated financial statements.
3
<PAGE> 6
TITANIUM METALS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Revenues and other income:
Net sales $107,556 $167,050
Other, net 1,353 875
-------- --------
108,909 167,925
-------- --------
Costs and expenses:
Cost of sales 92,488 130,300
Selling, general, administrative and development 5,531 10,123
Special charges 4,208 --
Interest 3,498 4,028
-------- --------
105,725 144,451
-------- --------
Income before income taxes 3,184 23,474
Income tax expense 657 7,160
Minority interest 411 537
-------- --------
Net income $ 2,116 15,777
======== ========
Fully diluted net income $ 2,116 $ 17,975
======== ========
Net income per common share $ .10 $ .50
Fully diluted earnings per share $ .10 $ .49
Weighted average shares outstanding:
Common shares 20,474 31,457
Fully diluted shares 20,474 36,916
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 7
TITANIUM METALS CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Three months ended March 31, 1997
(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, 1996 31,455 $ 315 $ 346,133 $ (25,009) $ 5,635 $ (858) $ 326,216
Net income -- -- -- 15,777 -- -- 15,777
Adjustments, net -- -- -- -- (3,382) -- (3,382)
Other, net 2 -- 204 -- -- -- 204
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at March 31, 1997 31,457 $ 315 $ 346,337 $ (9,232) $ 2,253 $ (858) $ 338,815
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 8
TITANIUM METALS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three months ended,
March 31,
--------------------
1996 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,116 $ 15,777
Depreciation and amortization 3,939 6,961
Earnings of joint ventures, net of distributions (1,327) 100
Special charges 4,208 --
Deferred income taxes (62) (470)
Minority interest 411 537
Other, net 33 --
-------- --------
9,318 22,905
Change in assets and liabilities, net of acquisitions:
Receivables (25,622) (20,771)
Inventories (10,379) (7,885)
Prepaid expenses (390) 1,490
Accounts payable and accrued liabilities 15,837 3,364
Income taxes 637 7,477
Accounts with related parties (906) (1,803)
Other, net 535 (4)
-------- --------
Net cash provided (used) by operating activities (10,970) 4,773
-------- --------
Cash flows from investing activities:
Capital expenditures (2,415) (10,134)
Business acquisitions (2,250) (476)
Other, net 194 30
-------- --------
Net cash used by investing activities (4,471) (10,580)
-------- --------
Cash flows from financing activities:
Indebtedness:
Borrowings 14,786 --
Reductions (750) (1,352)
Related party debt payments -- (1,036)
-------- --------
Net cash provided (used) by financing activities 14,036 (2,388)
-------- --------
$ (1,405) $ (8,195)
======== ========
</TABLE>
6
<PAGE> 9
TITANIUM METALS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------
1996 1997
--------- ---------
<S> <C> <C>
Net increase (decrease) in cash and equivalents from:
Operating, investing and financing activities $ (1,405) $ (8,195)
Cash acquired 1,901 --
Currency translation (51) 165
--------- ---------
445 (8,030)
Cash and equivalents at beginning of period 24 86,526
--------- ---------
Cash and equivalents at end of period $ 469 $ 78,496
========= =========
Supplemental disclosures:
Cash paid for:
Interest $ 2,270 $ 3,758
Income taxes -- 341
--
Business acquisitions:
Cash and cash equivalents $ 1,901 $ --
Goodwill and other intangibles 11,367 577
Other noncash assets 131,451 3,503
Liabilities (72,469) (3,604)
Common stock issued to IMI (70,000) --
--------- ---------
Cash paid $ 2,250 $ 476
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 10
TITANIUM METALS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of presentation:
The consolidated balance sheet of Titanium Metals Corporation
("TIMET") and subsidiaries (collectively, the "Company") at December 31, 1996
has been condensed from the Company's audited consolidated financial statements
at that date. The consolidated balance sheet at March 31, 1997 and the
consolidated statements of operations, stockholders' equity and cash flows for
the interim periods ended March 31, 1996 and 1997 have been prepared by the
Company without audit. Certain prior year amounts have been reclassified to
conform to the current year presentation. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the consolidated financial position, results of operations and
cash flows have been made. The results of operations for interim periods are
not necessarily indicative of the operating results of a full year or of future
operations.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The accompanying consolidated
financial statements should be read in conjunction with the consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996 (the "1996 Annual Report").
For information concerning certain legal proceedings and certain
contingencies related to the Company, see (i) Item 2 -- "Management's
Discussion and Analysis of Financial Condition and Results of Operations," (ii)
Part II, Item 1 -- "Legal Proceedings," and (iii) the 1996 Annual Report.
Note 2 - Earnings per share:
Net income per common share is based upon the weighted average number
of common shares outstanding after giving effect to the June 1996 65-for-1
stock split. Fully diluted earnings per share reflects an immaterial number of
dilutive common stock options and the assumed conversion of the
Company-obligated mandatorily redeemable preferred securities (the "Convertible
Preferred Securities").
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
per Share," issued in February 1997 is required to be retroactively adopted by
the Company in the fourth quarter of 1997. Had SFAS No. 128 been effective
during 1996 and the first quarter of 1997, (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.
8
<PAGE> 11
Note 3 - Business segment information:
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 and the
Company's products are sold throughout the world.
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------
1996 1997
--------- ---------
(In thousands)
<S> <C> <C>
Net sales $ 107,556 $ 167,050
========= =========
Operating income $ 6,823 $ 26,535
General corporate income (expense), net (141) 967
Interest expense (3,498) (4,028)
--------- ---------
Income before income taxes $ 3,184 $ 23,474
========= =========
</TABLE>
Operating income for the three months ended March 31, 1996 includes
$4.2 million of special charges resulting from the February 1996 acquisition of
the titanium metals business of IMI, plc and related business integration. The
special charges included $3 million of compensation costs and $1.2 million of
integration costs relating to the relocation of personnel and the consolidation
of certain facilities.
Note 4 - Business combinations:
As previously reported, the Company completed certain acquisitions
during 1996 and early 1997, principally IMI's titanium metals business in
February 1996 and the assets of Axel Johnson Metals ("AJM") in October 1996. On
a pro forma basis assuming the IMI and AJM acquisitions had occurred at the
beginning of 1996, net sales for the first quarter of 1996 were $123.9 million,
operating income was $4.3 million, net loss was $1.3 million and net loss per
share was $.05. The pro forma effect of the previously-reported TISTO (July
1996), TIMET Savoie (August 1996), and LASAB (January 1997) transactions is not
material. The above pro forma financial information is not necessarily
indicative of the operating results that might have occurred if the IMI and AJM
acquisitions had actually been completed at the beginning of 1996.
In March 1997, TIMET announced that it had executed definitive
agreements to combine its 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 1997 financial results is not
expected to be material.
9
<PAGE> 12
Note 5 - Inventories:
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997
----------- -----------
(In thousands)
<S> <C> <C>
Raw materials $ 22,806 $ 24,316
In process and finished products 125,137 129,586
Supplies 7,545 7,901
----------- -----------
$ 155,488 $ 161,803
=========== ===========
</TABLE>
The average cost of LIFO inventories exceeded the net carrying amount
of such inventories by approximately $32 million at December 31, 1996 and $34
million at March 31, 1997.
Note 6 - Accrued liabilities:
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997
----------- -----------
(In thousands)
<S> <C> <C>
Postretirement benefit costs $ 2,024 $ 2,024
Pension costs 1,507 1,882
Other employee benefits 21,360 18,649
Environmental costs 1,643 1,643
Taxes, other than income 2,292 4,527
Interest 1,304 1,214
Other 16,043 15,311
----------- -----------
$ 46,173 $ 45,250
=========== ===========
</TABLE>
Note 7 - Notes payable, long-term debt and capital lease obligations:
Notes payable at December 31, 1996 and March 31, 1997 consists of
borrowings under the Company's European bank credit agreements. At March 31,
1997, the Company had approximately $132 million of unused borrowing
availability under its existing U.S. and European bank credit agreements.
Long-term debt at December 31, 1996 and March 31, 1997 consists
principally of notes payable to former TISTO shareholders. Capital lease
obligations relate principally to production facilities in the United Kingdom
held under long-term leases with IMI.
10
<PAGE> 13
Note 8 - Income taxes:
The difference between the Company's provision for income tax expense
and the amounts that would be expected using the U.S. federal statutory income
tax rate of 35% is presented below. The valuation allowance reductions in both
periods relate primarily to current utilization of certain tax carryforwards
not previously recognized.
<TABLE>
<CAPTION>
Three months ended,
March 31,
--------------------------
1996 1997
----------- -----------
(In thousands)
<S> <C> <C>
Expected income tax expense $ 1,114 $ 8,216
Adjustment of deferred tax valuation allowance
related to current year results (332) (822)
U.S. state income taxes, net 25 175
Incremental tax and rate differences on
non-tax group companies (107) (270)
Other, net (43) (139)
----------- -----------
$ 657 $ 7,160
=========== ===========
</TABLE>
Note 9 - Related party transactions:
At March 31, 1997, Tremont Corporation held approximately 30% of
TIMET's outstanding common stock. Contran Corporation and other entities
related to Harold C. Simmons hold an aggregate of approximately 45% 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.
Receivables from related parties principally relate to sales made to
Union Titanium Sponge Corporation ("UTSC"), a 10% shareholder, pursuant to a
long-term titanium sponge supply contract. Noncurrent payables to related
parties are amounts owed to Tremont pursuant to compensation arrangements.
11
<PAGE> 14
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The significant improvement in earnings for the 1997 quarter was
driven by price increases and a 17% increase in mill products volume compared
to the first quarter of 1996. Titanium mill products shipments in the first
quarter were 7.4 million pounds. Selling prices have continued to increase, and
the average price of mill products shipped in 1997 was $16.00 per pound
compared to $13.49 in the first quarter of 1996 and $14.80 in the fourth
quarter of 1996. The Company's operating income margin increased to 15.9% in
the first quarter of 1997, significantly above year-ago levels, and up from
13.6% in the fourth quarter of 1996.
The selling price increases reflect both the pass-through of cost
increases, particularly raw material costs, and real price increases 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. Firm order backlog at March 31, 1997 was approximately $460 million,
up from $440 million at year-end 1996. Average prices on recent orders have
continued to increase relative to 1996 levels.
Operating levels at the Company's plants in 1997 were generally higher
than in the comparable 1996 period and contributed to the better operating
results. However, operating levels at one of the Company's two casting
facilities, which plant primarily produced for the golf market, were well below
levels of late 1996 and negatively impacted earnings. Due to excess capacity
currently existing in the golf club head castings market, TIMET has determined
not to pursue growth in this market at this time. TIMET plans to continue its
strategy of supplying other golf club casters with input stocks. Total worldwide
employment at March 31, 1997 approximated 3,000 compared to 2,950 at year-end
1996 and 2,550 one year ago (proforma for the AJM acquisition).
Operating income in the first quarter of 1996 included special charges
of $4.2 million related to the IMI titanium acquisition. See Note 3 to the
Consolidated Financial Statements.
Interest expense in the first quarter of 1997 includes $3.4 million
related to the Convertible Preferred Securities issued in November 1996.
Interest in the 1996 period relates primarily to indebtedness subsequently
repaid with the proceeds of the Company's June 1996 initial public stock
offering.
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
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.
The Company operates in several tax jurisdictions and is subject to
varying income tax rates. For financial reporting purposes, the Company has
previously recognized substantially all of its net operating loss and other
carryforwards, and, accordingly, its effective income tax rate in 1997 was
higher than in 1996. Such effective rate for the full year 1997 may vary
12
<PAGE> 15
slightly from that in the first quarter due to the combined effects of state
income taxes and varying non-U.S. rates. See Note 8 to the Consolidated
Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial position has significantly improved since the
beginning of 1996 through the combined effects of (i) improved industry
conditions, (ii) acquisitions made during 1996, (iii) the Company's June 1996
initial public stock offering and (iv) the November 1996 issuance of the
Convertible Preferred Securities.
At March 31, 1997, the Company had $78 million of cash and
equivalents and $132 million of borrowing availability under its existing U.S.
and European bank credit lines. 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
$23 million in the 1997 period compared to $9 million in the 1996 period.
Changes in assets and liabilities used approximately $18 million of cash in
1997, about $2 million less than in the first quarter of 1996 despite the
higher levels of working capital necessary to support the higher production and
sales levels. The Company's goal is to better manage working capital such that
both "days sales outstanding" in receivables and "days sales in inventory"
improve in 1997 over year-end 1996.
Investing activities. The Company estimates capital expeditures for
all of 1997 to be about $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 in the second half of 1998.
Capital spending related to the business process/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.
TIMET's strategy for developing new markets and uses for titanium
includes providing funds to third parties to prove out a new use or uses of
titanium. In this regard, during March 1997 the Company agreed to invest up to
approximately $5 million in Titanium Memory Systems, Inc. ("TMS") for an
approximate 20% equity interest in TMS and funded approximately $3 million of
this amount in April 1997. The funds will be used by TMS to continue its
development and initial production of a titanium substrate for use in computer
hard disk drives.
Financing activities. Debt repayments in 1997 related primarily to
reductions in European working capital borrowings, including amounts due to
CEZUS, the 30% minority owner in TIMET Savoie. Borrowings in the first quarter
of 1996 were primarily to fund working capital needs and capital expenditures.
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 and to
lower the cost of borrowings.
13
<PAGE> 16
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 other assets, or take a combination of such steps or other steps to
increase or manage its liquidity and capital resources. In the normal course of
business, the Company may investigate, evaluate and discuss acquisition, joint
venture and other business combination opportunities in the titanium, specialty
metal and related industries, and in this regard the Company has been exploring
a potential strategic relationship with a large titanium producer in Russia. In
the event of any future acquisition or joint venture opportunities, the Company
may consider using available cash, issuing equity securities or incurring
indebtedness.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
Reference is made to the Company's 1996 Annual Report for descriptions
of certain previously reported legal proceedings.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
10.1 Intercorporate Services Agreement by and between TIMET
and NL Industries, Inc. effective as of January 1,
1997, incorporated by reference to Exhibit 10.5 of
NL's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997 (File No. 1-640).
10.2 Intercorporate Services Agreement by and between TIMET
and Tremont effective as of January 1, 1997.
27.1 Financial Data Schedule for the quarter ended March
31, 1997.
(b) Reports on Form 8-K:
Reports on Form 8-K filed by the Registrant for the quarter ended
March 31, 1997 and for the month of April 1997:
January 24, 1997 - Reported Items 5 and 7
March 13, 1997 - Reported Items 5 and 7
March 26, 1997 - Reported Items 5 and 7
April 21, 1997 - Reported Items 5 and 7
14
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TITANIUM METALS CORPORATION
-----------------------------------
(Registrant)
Date: May 14, 1997 By /s/ Joseph S. Compofelice
-----------------------------------
Joseph S. Compofelice
Vice President and Chief Financial
Officer
By /s/ J. Thomas Montgomery, Jr.
-----------------------------------
J. Thomas Montgomery, Jr.
Vice President - Finance and Treasurer
(Chief Accounting Officer)
15
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
10.1 Intercorporate Services Agreement by and between TIMET and NL
Industries, Inc. effective as of January 1, 1997, incorporated by
reference to Exhibit 10.5 of NL's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997 (File No. 1-640).
10.2 Intercorporate Services Agreement by and between TIMET and Tremont
effective as of January 1, 1997.
27.1 Financial Data Schedule for the quarter ended March 31, 1997.
</TABLE>
<PAGE> 1
EXHIBIT 10.2
INTERCORPORATE SERVICES AGREEMENT
This INTERCORPORATE SERVICES AGREEMENT (the "Agreement"), effective as
of January 1, 1997, by and between Titanium Metals Corporation ("TIMET"), a
Delaware corporation, and Tremont Corporation ("Tremont"), a Delaware
corporation.
W I T N E S S E T H :
WHEREAS, employees and agents of TIMET and affiliates of TIMET,
perform certain management, financial, legal and administrative functions for
Tremont; and
WHEREAS, Tremont does not separately maintain the full internal
capability to perform all necessary management, financial, legal and
administrative functions which Tremont requires; and
WHEREAS, the cost of maintaining the additional personnel and
associated costs necessary to perform the functions provided for by this
Agreement would exceed the fee set forth in Section 3 of this Agreement; and
WHEREAS, the terms of this Agreement are no less favorable to Tremont
than could otherwise be obtained from a third party for comparable services;
and
WHEREAS, Tremont desires to continue receiving the management,
financial, legal and administrative services presently provided by TIMET and
affiliates of TIMET, and TIMET is willing to continue to provide such services
under the terms of this Agreement.
NOW, THEREFORE, for and in consideration of the mutual premises,
representations and covenants herein contained, the parties hereto mutually
agree as follows:
1. TIMET Services to be Provided. TIMET agrees to make available to
Tremont, upon request, the following services (the "TIMET Services")
to be rendered by the internal staff of TIMET and affiliates of TIMET:
(a) Consultation and assistance in the development and
implementation of Tremont's corporate business strategies,
plans and objectives.
(b) Consultation and assistance in management and conduct of
corporate affairs and corporate governance consistent with
the Certificate of Incorporation and By-Laws of Tremont.
(c) Consultation and assistance in maintenance of financial
records and controls,
1
<PAGE> 2
including preparation and review of periodic financial
statements and reports to be filed with public and regulatory
entities and those required to be prepared for financial
institutions or pursuant to indentures and credit agreements.
(d) Consultation and assistance in cash management and in
arranging financing necessary to implement the business plans
of Tremont.
(e) Consultation and assistance in tax management and
administration including; preparation and filing of tax
returns, tax reporting, examinations by government
authorities and tax planning.
(f) Consultation and assistance in legal matters.
(g) Administration of retiree benefit plans.
(h) Consultation and assistance in environmental regulation and
remediation.
(i) Such other services as reasonably may be requested by Tremont
and for which TIMET has the necessary staffing and resources.
2. Scope of TIMET Services. The parties hereto contemplate that the TIMET
Services rendered in connection with the conduct of Tremont's business
will be on a scale compared to that existing on the date of this
Agreement, adjusted for internal corporate growth or contraction, but
not for major corporate acquisitions or divestitures, and that
adjustments may be required to the terms of this Agreement in the
event of such major corporate acquisitions, divestitures or special
projects. Tremont will continue to bear all other costs required for
outside services including, but not limited to, the outside services
of attorneys, auditors, trustees, consultants, transfer agents and
registrars, and it is expressly understood that TIMET assumes no
liability for any expenses or services other than those stated in
Section 1. In addition to the fee paid to TIMET by Tremont for the
TIMET Services provided pursuant to this Agreement, Tremont will pay
to TIMET the amount of out-of-pocket costs incurred by TIMET in
rendering such TIMET Services.
3. Fee for Services. Tremont agrees to pay to TIMET a fee of $ 90,961
quarterly, commencing as of January 1, 1997, pursuant to this
Agreement. Tremont will reimburse TIMET for the actual amount of
Services provided through an adjustment payment made within three
months of the close of each fiscal year in accordance with Exhibit A
attached hereto.
4. Term. The term of this Agreement shall be from January 1, 1997 to
December 31, 1997.
5. Extensions. This Agreement shall be extended on a quarter-to-quarter
basis after the expiration of its original term unless written
notification is given by TIMET or Tremont
2
<PAGE> 3
thirty (30) days in advance of the first day of each successive
quarter or unless it is superseded by a subsequent written agreement
of the parties hereto.
6. Limitation of Liability. In providing TIMET Services hereunder, TIMET
shall each have a duty to act, and to cause its agents to act, in a
reasonably prudent manner, but neither TIMET nor any officer,
director, employee or agent of TIMET or its respective affiliates
shall be liable to the other party hereunder for any error of judgment
or mistake of law or for any loss incurred by such party in connection
with the matter to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on
the part of TIMET.
7. Indemnification. Tremont shall indemnify and hold harmless TIMET, its
affiliates and its respective officers, directors and employees from
and against any and all losses, liabilities, claims, damages, costs
and expenses (including reasonable attorneys' fees and other expenses
of litigation) to which TIMET may become subject out of the TIMET
Services provided by TIMET hereunder, provided that such indemnity
shall not protect TIMET against any liability to which TIMET would
otherwise be subject to by reason of willful misfeasance, bad faith or
gross negligence on the part of TIMET.
8. Further Assurances. Each of the parties will make, execute,
acknowledge and deliver such other instruments and documents, and take
all such other actions, as the other party may reasonably request and
as may reasonably be required in order to effectuate the purposes of
this Agreement and to carry out the terms hereof.
9. Notices. All communications hereunder shall be in writing and shall be
addressed, if intended for TIMET, to 1999 Broadway, Suite 4300,
Denver, Colorado 80202, Attention: General Counsel, or such other
address as it shall have furnished to Tremont in writing, and if
intended for Tremont, to 1999 Broadway, Suite 4300, Denver, Colorado
80202, Attention: General Counsel, or such other address as it shall
have furnished to TIMET in writing.
10. Amendment and Modification. Neither this Agreement nor any term hereof
may be changed, waived, discharged or terminated other than by
agreement in writing signed by the parties hereto.
11. Successor and Assigns. This Agreement shall be binding upon and inure
to the benefit of TIMET and Tremont and their respective successors
and assigns, except that neither party may assign its rights under
this Agreement without the prior written consent of the other party.
12. Governing Law. This Agreement shall be governed by, and construed and
interpreted in accordance with, the laws of the State of Colorado.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the date first above written.
TITANIUM METALS CORPORATION
By: /s/ Robert E. Musgraves
--------------------------------------
Robert E. Musgraves
Vice President & General Counsel
TREMONT CORPORATION
By: /s/ J. Landis Martin
--------------------------------------
J. Landis Martin
Chairman of the Board,
President and Chief
Executive Officer
4
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TITANIUM
METALS CORPORATION'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 78,496
<SECURITIES> 0
<RECEIVABLES> 135,484
<ALLOWANCES> 4,871
<INVENTORY> 161,803
<CURRENT-ASSETS> 387,590
<PP&E> 277,127
<DEPRECIATION> 49,482
<TOTAL-ASSETS> 720,759
<CURRENT-LIABILITIES> 120,584
<BONDS> 1,072
0
0
<COMMON> 315
<OTHER-SE> 338,500
<TOTAL-LIABILITY-AND-EQUITY> 720,759
<SALES> 167,050
<TOTAL-REVENUES> 167,050
<CGS> 130,300
<TOTAL-COSTS> 130,392
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 59
<INTEREST-EXPENSE> 4,028
<INCOME-PRETAX> 23,474
<INCOME-TAX> 7,160
<INCOME-CONTINUING> 15,777
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,777
<EPS-PRIMARY> .50
<EPS-DILUTED> .49
</TABLE>
