<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________to ____________
Commission file number 001-14437
RTI INTERNATIONAL METALS, INC.
(Exact name of registrant as specified in its charter)
OHIO 52-2115953
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1000 WARREN AVENUE, NILES, OHIO 44446
(Address of principal executive offices)
(330) 544-7700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO __
At August 1, 2000, 20,858,451 shares of common stock of the registrant were
outstanding.
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RTI INTERNATIONAL METALS, INC.
FORM 10-Q
QUARTER ENDED JUNE 30, 2000
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I--FINANCIAL INFORMATION............................... 2
Item 1. Consolidated Financial Statements:
Introduction to Consolidated Financial Statements...... 2
Consolidated Statement of Income....................... 3
Consolidated Balance Sheet............................. 4
Consolidated Statement of Cash Flows................... 5
Consolidated Statement of Changes in Shareholders'
Equity................................................ 6
Selected Notes to Consolidated Financial Statements.... 7
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition........................ 11
Item 3. Quantitative and Qualitative Disclosures about
Market Risk............................................... 16
PART II--OTHER INFORMATION.................................. 16
Item 4. Submission of Matters to a Vote of Security
Holders................................................... 16
Item 6. Exhibits and Reports on Form 8-K.................... 17
Signatures.................................................. 18
</TABLE>
<PAGE> 3
PART I--FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
INTRODUCTION TO CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements included herein have been prepared by
RTI International Metals, Inc. (the "Company"), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. The financial
information presented reflects all adjustments, consisting only of normal
recurring adjustments, which are, in the opinion of management, necessary for a
fair statement of the results for the interim periods presented. The results for
the interim periods are not necessarily indicative of the results to be expected
for the year.
2
<PAGE> 4
RTI INTERNATIONAL METALS, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS
JUNE 30 ENDED JUNE 30
------------------------- -------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales..................................... $ 63,345 $ 59,186 $ 133,853 $ 126,636
Operating costs:
Cost of sales............................. 54,419 51,413 114,167 105,525
Selling, general and administrative
expenses................................ 6,791 6,280 13,935 12,299
Research, technical and product
development expenses.................... 356 1,046 749 2,074
----------- ----------- ----------- -----------
Total operating costs................ 61,566 58,739 128,851 119,898
Operating income (Note 5)................. 1,779 447 5,002 6,738
Other income-net.......................... 6,504 344 6,653 676
Interest expense.......................... 363 487 1,136 1,170
----------- ----------- ----------- -----------
Income before income taxes................ 7,920 304 10,519 6,244
Provision for income taxes (Note 3)....... 3,085 100 4,099 2,298
----------- ----------- ----------- -----------
Net income................................ $ 4,835 $ 204 $ 6,420 $ 3,946
=========== =========== =========== ===========
Net income per common share (Note 4):
Basic................................ $ 0.23 $ 0.01 $ 0.31 $ 0.19
=========== =========== =========== ===========
Diluted.............................. $ 0.23 $ 0.01 $ 0.31 $ 0.19
=========== =========== =========== ===========
Weighted average shares outstanding:
Basic................................ 20,853,240 20,758,186 20,844,583 20,751,096
=========== =========== =========== ===========
Diluted.............................. 21,028,302 20,908,084 20,956,982 20,834,404
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
3
<PAGE> 5
RTI INTERNATIONAL METALS, INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,272 $ 3,664
Receivables--less allowance for doubtful accounts of
$1,511 and $1,467...................................... 52,956 56,050
Inventories, net (Note 6)................................. 168,264 175,783
Deferred income taxes..................................... 6,766 6,764
Other current assets...................................... 10,075 10,508
-------- --------
Total current assets................................... 239,333 252,769
Property, plant and equipment, net........................ 96,845 96,524
Deferred income taxes..................................... 2,274 2,274
Goodwill.................................................. 36,548 37,366
Other noncurrent assets................................... 11,743 11,310
-------- --------
Total assets........................................... $386,743 $400,243
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 16,967 $ 20,271
Accrued wages and other employee costs.................... 12,339 16,560
Other accrued liabilities................................. 10,225 6,764
-------- --------
Total current liabilities.............................. 39,531 43,595
Long-term debt (Note 8)..................................... 19,900 36,200
Accrued postretirement benefit cost......................... 19,586 19,383
Other noncurrent liabilities................................ 5,192 5,461
-------- --------
Total liabilities...................................... 84,209 104,639
-------- --------
Commitments and Contingencies (Note 5)
Shareholders' equity:
Common Stock, $0.01 par value, 50,000,000 shares
authorized; 20,925,806 and 20,860,599 shares issued and
20,863,506 and 20,798,299 outstanding.................. 208 208
Additional paid-in capital................................ 240,284 239,812
Deferred compensation..................................... (2,622) (2,660)
Treasury Stock, at cost; 62,300 and 62,300 shares......... (440) (440)
Accumulated earnings...................................... 65,104 58,684
-------- --------
Total shareholders' equity.................................. 302,534 295,604
-------- --------
Total liabilities and shareholders' equity............. $386,743 $400,243
======== ========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
4
<PAGE> 6
RTI INTERNATIONAL METALS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
-------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 6,420 $ 3,946
Adjustment for items not affecting funds from operations:
Depreciation and amortization............................. 5,847 4,658
Deferred taxes............................................ (2) --
Other-net................................................. 429 235
CHANGES IN ASSETS AND LIABILITIES (EXCLUDING CASH):
Receivables................................................. 3,094 10,563
Inventories................................................. 7,519 (3,269)
Accounts payable............................................ (3,304) (1,473)
Other current liabilities................................... (760) 4,623
Other assets and liabilities................................ (74) 699
-------- --------
Cash provided by operating activities................ 19,169 19,982
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (5,342) (15,107)
-------- --------
Cash used in investing activities.................... (5,342) (15,107)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of employee stock options........................ 81 18
Net borrowings and repayments under revolving credit
agreement.............................................. (16,300) 16,420
Repayment of notes payable................................ -- (16,000)
-------- --------
Cash provided by (used in) financing activities........... (16,219) 438
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ (2,392) 5,313
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 3,664 11,075
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 1,272 $ 16,388
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest, net of amounts capitalized........ $ 1,685 $ 752
Cash paid for income taxes................................ $ 888 $ 766
Noncash financing activities
Issuance of common stock for restricted stock awards... $ 391 $ 451
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
5
<PAGE> 7
RTI INTERNATIONAL METALS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
ADDT'L.
SHARES COMMON PAID-IN DEFERRED TREASURY RETAINED COMPREHENSIVE
OUTSTANDING STOCK CAPITAL COMPENSATION STOCK EARNINGS TOTAL INCOME
----------- ------ -------- ------------ -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1999......................... 20,798,299 $208 $239,812 $(2,660) (440) $58,684 295,604 --
Shares issued for restricted
stock award plans............ 53,500 -- 391 (391) -- -- -- --
Compensation expense
recognized................... -- -- -- 429 -- -- 429 --
Shares issued from exercise of
employee stock options....... 11,707 -- 81 -- -- -- 81
Net income..................... -- -- -- -- -- 6,420 6,420 6,420
------
Comprehensive income........... -- -- -- -- -- -- -- $6,420
---------- ---- -------- ------- ----- ------- -------- ======
Balance at June 30, 2000....... 20,863,506 $208 $240,284 $(2,622) $(440) $65,104 $302,534
========== ==== ======== ======= ===== ======= ========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
6
<PAGE> 8
RTI INTERNATIONAL METALS, INC.
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1--GENERAL
The consolidated financial statements include the accounts of RTI
International Metals, Inc. and its majority owned subsidiaries. All significant
intercompany transactions have been eliminated.
NOTE 2--ORGANIZATION
On September 30, 1998, the shareholders of RMI Titanium Company approved
the formation of an Ohio holding company named RTI International Metals, Inc.
Under the terms of a restructuring agreement, RTI exchanged its shares of common
stock on a one-for-one basis for all of the outstanding common stock of RMI
Titanium Company, which immediately became a wholly owned subsidiary of RTI.
Shares of RTI began trading on the New York Stock Exchange on October 1, 1998.
The Company is a successor to entities that have been operating in the
titanium industry since 1951. In 1990, USX Corporation ("USX") and Quantum
Chemical Corporation ("Quantum") transferred their entire ownership interest in
the Company's immediate predecessor, RMI Company, an Ohio general partnership,
to the Company in exchange for shares of the Company's Common Stock (the
"Reorganization"). Quantum then sold its shares to the public. USX retained
ownership of its shares.
In November, 1996, USX Corporation completed a public offering of its
6 3/4% notes (the "Notes") which were exchangeable in February, 2000, for
5,483,600 shares of RTI Common Stock owned by USX. On March 31, 1999, USX
announced that it terminated its ownership interest in the Company. USX
irrevocably deposited with Chase Manhattan Trust Company, NA ("Chase"), all of
the 5,483,600 shares of the Company's common stock it previously owned. The
deposit of the shares was in full satisfaction of the Notes. Chase was the
trustee under the note indenture and held the shares in trust for the benefit of
the holders of the Notes until the shares were exchanged for the Notes on the
maturity date.
On February 1, 2000, Chase delivered 5,483,000 of RTI common shares to the
note holders in exchange for the Notes.
NOTE 3--INCOME TAXES
In the six months ended June 30, 2000, the Company recorded an income tax
expense of $4.1 million, or 39.0% of pre-tax income. The effective tax rate for
the six month period ended June 30, 2000 of 39.0% exceeded the federal statutory
rate of 35% primarily as a result of state income taxes and non-deductible
goodwill amortization.
7
<PAGE> 9
NOTE 4--EARNINGS PER SHARE
A reconciliation of the income and weighted average number of outstanding
common shares used in the calculation of basic and diluted earnings per share
for the quarters and six months ended June 30, 2000 and 1999 are as follows (in
thousands except number of shares and per share amounts):
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
------------------------------- -------------------------------
NET EARNINGS NET EARNINGS
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
------ ---------- --------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
For the periods ended June 30, 2000
Basic EPS.......................... $4,835 20,853,240 $0.23 $6,420 20,844,583 $0.31
Effect of potential common stock:
Stock options.................... -- 175,062 -- -- 112,399 --
------ ---------- ----- ------ ---------- -----
Diluted EPS........................ $4,835 21,028,302 $0.23 $6,420 20,956,982 $0.31
====== ========== ===== ====== ========== =====
For the periods ended June 30, 1999
Basic EPS.......................... $ 204 20,758,186 $0.01 $3,946 20,751,096 $0.19
Effect of potential common stock:
Stock options.................... -- 149,898 -- -- 83,308 --
------ ---------- ----- ------ ---------- -----
Diluted EPS........................ $ 204 20,908,084 $0.01 $3,946 20,834,404 $0.19
====== ========== ===== ====== ========== =====
</TABLE>
NOTE 5--COMMITMENTS AND CONTINGENCIES
In connection with the 1990 Reorganization, the Company agreed to indemnify
USX and Quantum against liabilities related to their ownership of RMI and its
immediate predecessor, Reactive Metals, Inc., which was formed by USX and
Quantum in 1964.
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. Given the
critical nature of many of the aerospace end uses for the Company's products,
including specifically their use in critical rotating parts of gas turbine
engines, the Company maintains aircraft products liability insurance of $250
million, which includes grounding liability.
Environmental Matters
In the ordinary course of business, the Company is subject to environmental
laws and regulations concerning the production, handling, storage,
transportation, emission, and disposal of waste materials and is also subject to
other federal and state laws and regulations regarding health and safety
matters. These laws and regulations are constantly evolving, and it is not
currently possible to predict accurately the ultimate effect these laws and
regulations will have on the Company in the future.
The Company is involved in investigative or cleanup projects under federal
or state environmental laws at a number of waste disposal sites, including the
Fields Brook Superfund Site. Given the status of the proceedings with respect to
these sites, ultimate investigative and remediation costs cannot presently be
accurately predicted, but could, in the aggregate, be material. Based on the
information available regarding the current ranges of estimated remediation
costs at currently active sites, and what the Company believes will be its
ultimate share of such costs, provisions for environmental-related costs have
been recorded. These provisions are in addition to amounts which have previously
been accrued for the Company's share of environmental study costs.
With regard to the Fields Brook Superfund Site, the Company, together with
31 other companies, has been identified by the EPA as a potentially responsible
party ("PRP") under the Comprehensive Environmental Response, Compensation
Liability Act ("CERCLA") with respect to a superfund site defined as the Fields
Brook Watershed in Ashtabula, Ohio, which includes the Company's now closed
Ashtabula facilities. The current estimate of the cost of remediation of Fields
Brook is approximately $15 million.
8
<PAGE> 10
The Company and twelve others entered into a Phase 2 (actual cleanup)
allocation agreement which assigns 9.44% of the cost to RMI. However, the actual
percentage may be more or less based on contributions from other parties which
are not currently participating in the Phase 2 allocation agreement.
At June 30, 2000, the amount accrued for future environmental-related costs
were $2.6 million. Based on available information, RMI believes its share of
potential environmental-related costs, before expected contributions from third
parties, is in a range from $4.2 million to $7.0 million, in the aggregate. The
amount accrued is net of expected contributions from third parties (which does
not include any amounts from insurers) of approximately $2.1 million, which the
Company believes are probable. The Company has been receiving contributions from
such third parties for a number of years as partial reimbursement for costs
incurred by the Company. As these proceedings continue toward final resolution,
amounts in excess of those already provided may be necessary to discharge the
Company from its obligations for these projects.
Gain Contingency
In 1999, RTI made claim against Boeing Commercial Airplane Group of
approximately $7 million for contractual amounts due in connection with the
terms of their long-term supply agreement. Under the terms of the contract,
Boeing was required to order a minimum of 3.25 million pounds of titanium during
1999. Actual shipments were less than one million pounds. This claim was treated
as a gain contingency under SFAS No. 5, "Accounting for Contingencies",
deferring the realization of income until Boeing satisfied the claim.
On April 26, 2000, Boeing satisfied the above mentioned contractual claim
for approximately $6 million. The financial impact of this settlement was
reflected in Other income-net for the quarter ending June 30, 2000.
Other
The company is also the subject of, or a party to, a number of other
pending or threatened legal actions involving a variety of matters incidental to
the business.
The ultimate resolution of these foregoing contingencies could,
individually or in the aggregate, be material to the consolidated financial
statements. However, management believes that the Company will remain a viable
and competitive enterprise even though it is possible that these matters could
be resolved unfavorably.
NOTE 6--INVENTORIES:
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
------------- -----------------
<S> <C> <C>
Raw material and supplies....................... $ 58,767 $ 65,468
Work-in-process and finished goods.............. 123,587 128,140
Adjustments to LIFO values...................... (14,090) (17,825)
-------- --------
$168,264 $175,783
======== ========
</TABLE>
9
<PAGE> 11
NOTE 7--SEGMENT REPORTING:
The Company's reportable segments are the Titanium Group and the
Fabrication and Distribution Group. Segment information for the quarterly
periods ended June 30, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------ -------------------
2000 1999 2000 1999
-------- ------- -------- --------
<S> <C> <C> <C> <C>
NET SALES:
Titanium
Trade.............................................. $ 30,309 $32,162 $ 67,644 $ 64,401
Intersegment....................................... 13,395 4,012 27,042 18,142
-------- ------- -------- --------
43,704 36,174 94,686 82,543
Fabrication and Distribution
Trade.............................................. 28,958 22,929 58,102 53,169
Intersegment....................................... 23 -- 198 --
-------- ------- -------- --------
28,981 22,929 58,300 53,169
Other operations..................................... 4,078 4,095 8,107 9,066
Adjustments and eliminations......................... (13,418) (4,012) (27,240) (18,142)
-------- ------- -------- --------
Total net sales................................. $ 63,345 $59,186 $133,853 $126,636
======== ======= ======== ========
OPERATING INCOME:
Titanium........................................... $ 1,257 $ 944 $ 4,182 $ 5,685
Fabrication and distribution....................... 322 (815) 413 58
Other operations................................... 200 318 407 995
-------- ------- -------- --------
Total operating income.......................... 1,779 447 5,002 6,738
RECONCILIATION OF OPERATING INCOME TO REPORTED INCOME
BEFORE TAXES:
Other income--net.................................. 6,504 344 6,653 676
Interest expense................................... 363 487 1,136 1,170
-------- ------- -------- --------
Reported income before taxes.................... $ 7,920 $ 304 $ 10,519 $ 6,244
======== ======= ======== ========
</TABLE>
NOTE 8--CREDIT AGREEMENT
RTI entered into a credit agreement dated September 30, 1998 ("the Credit
Facility") to replace RMI's existing credit facilities. This agreement provided
for $125 million five-year and $25 million one-year borrowings, on an unsecured
revolving basis, of up to the lesser of $150 million or a borrowing base equal
to the sum of 85% of qualifying accounts receivable and 60% of qualifying
inventory. Total borrowings were subject to a maximum leverage test in
accordance with the agreement.
On May 11, 2000, the Company amended the agreement reducing the $125
million facility to $100 million. terminating the $25 million facility,
increasing the leverage covenant, and increasing certain LIBOR borrowing spreads
by .25%. The Company can now borrow up to the lesser of $100 million or a
borrowing base equal to the sum of 85% of qualifying accounts receivable and 60%
of qualifying inventory.
Under the terms of the Credit Facility, the Company, at its option, will be
able to borrow at (a) a base rate (which is the higher of PNC Bank's prime rate
or the Federal Funds Effective Rate plus 0.5% per annum), or (b) LIBOR plus a
spread (ranging from .75% to 1.75%) determined by the ratio of the Company's
consolidated total indebtedness to consolidated earnings before interest, taxes,
depreciation and amortization. At June 30, 2000, the Company was in compliance
with all covenants under this agreement, and, under the leverage covenant, had
additional borrowing capacity of approximately $66.0 million. At June 30, 2000,
$19.9 million was outstanding under the facility.
10
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion should be read in connection with the information
contained in the Consolidated Financial Statements and Selected Notes to
Consolidated Financial Statements. The following information contains
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, and are subject to the safe harbor created by
that Act. Such forward-looking statements include, without limitation,
statements regarding the future availability and prices of raw materials,
competition in the domestic and international titanium and specialty metals
industries, the impact of e-commerce, demand for the Company's products, the
historic cyclicality of the aerospace, chemical processing and the oil and gas
industries, uncertain defense spending, the enforceability of long-term supply
agreements, difficulties associated with new market development, global economic
conditions, the Company's order backlog and the conversion of that backlog into
revenue, labor relations, and other statements contained herein that are not
historical facts. Because such forward-looking statements involve risks and
uncertainties, there are important factors that could cause actual results to
differ materially from those expressed or implied by such forward-looking
statements. These and other risk factors are set forth below in the "Outlook"
section, as well as being described in the Company's other filings with the
Securities and Exchange Commission ("SEC") over the last 12 months, copies of
which are available from the SEC or may be obtained upon request from the
Company.
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
NET SALES
Net sales increased to $63.3 million for the three months ended June 30,
2000 compared to net sales of $59.2 million in the corresponding 1999 period.
Sales for the Company's Titanium Group and Other operations amounted to $34.4
million in the first three months of 2000 compared to $36.2 million in the same
period of 1999. Titanium Group net sales decreased as its aerospace customers
continued to liquidate excess titanium inventories during the quarter. Average
net selling prices also decreased as product mix shifted to lower priced
products. Shipments of titanium mill products were 2.4 million pounds in the
second quarter of 2000 compared to 2.1 million pounds for the same period in
1999. The increase in second quarter 2000 mill product shipments reflects
increased sales to companies in the Fabrication and Distribution Group
(intercompany), as well as the impact of the six-month strike at the Company's
largest production facility which ended April 12, 1999. Average selling prices
on mill products in the second quarter of 2000 decreased to $15.74 per pound
from $16.18 per pound in the second quarter of 1999. The decrease in average
selling prices for mill products results primarily from an increase of lower
value-added forged products in product mix when compared to 1999. Sales for the
Company's Fabrication and Distribution Group amounted to $29.0 million in the
three months ended June 30, 2000 compared to $22.9 million in the same period of
1999. This increase reflects continued improvements in demand in distribution
sales in the United States and Europe.
GROSS PROFIT
Gross profit amounted to $8.9 million, or 14.1% of sales for the quarter
ended June 30, 2000 compared to a gross profit of $7.8 million or 13.1% for the
comparable 1999 period. This increase primarily reflects increased sales at the
Company's distribution businesses, improved profitability at the Company's newly
expanded Galt Alloys facility which incurred start up costs in the same period
in 1999 and the comparative increase in mill product shipments due to the strike
by the United Steelworkers of America at the company's Niles, Ohio facility in
1999, partially offset by reduced sales to aerospace customers and an
unfavorable impact in product mix of lower value-added forged mill products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses amounted to $6.8 million for
the quarter ended June 30, 2000 compared to $6.3 million for the same quarter in
1999. Research, technical and product development expenses amounted to $0.4
million in the first quarter of 2000 compared to $1.0 million in the second
quarter of 1999. The increase in selling, general and administrative expenses is
primarily offset by the decrease in research, technical
11
<PAGE> 13
and product development expenses as costs incurred by RTI Energy Systems shifted
from product development to sales and administrative in nature.
OPERATING INCOME
Operating income for the three months ended June 30, 2000 amounted to $1.8
million, or 2.8% of sales compared to $0.4 million or 0.8% of sales in the same
period of 1999. This change consists of an increase in operating income from the
Titanium Group and Other operations of $0.2 million primarily due to improved
profitability at the Company's newly expanded Galt Alloys facility which
incurred start up costs in the same period of 1999, and an increase in mill
product shipments due to the strike by the United Steelworkers of America at the
company's Niles, Ohio facility in 1999, partially offset by an unfavorable
product mix of lower value-added forged mill products, and reduced sales to
aerospace customers. The change also reflects an increase in operating income in
the Fabrication and Distribution Group of $1.1 million as distribution sales
increased and losses were reduced in the energy sector.
OTHER INCOME
Other income for the three months ended June 30, 2000 amounted to $6.5
million, or 10.3% of sales compared to $0.3 million, or 0.6% of sales in the
same period of 1999. The increase is primarily the result of the April 26, 2000
financial settlement of approximately $6.0 million between RTI and Boeing
Commercial Airplane Group whereby Boeing compensated RTI for failure to meet
minimum order quantities during 1999 under terms of their long-term supply
agreement. The remainder of the increase reflects income on the sale of a
portion of RMI's now closed Ashtabula, Ohio facilities.
INCOME TAXES
In the second quarter of 2000, the Company recorded an income tax provision
of $3.1 million compared to a $0.1 million provision recorded in the second
quarter of 1999. The effective tax rate for the second quarter of 2000 was
approximately 39%. The effective tax rate for the second quarter of 1999 was
approximately 37%. The effective tax rate for the three month period ended June
30, 2000 of 39.0% was greater than the Federal statutory rate of 35% primarily
due to state income taxes and non-deductible goodwill amortization.
NET INCOME
Net income for the quarter ended June 30, 2000 amounted to $4.8 million or
7.6% of sales, compared to $0.2 million or 0.3% of sales in the comparable 1999
period. This increase reflects the financial settlement from Boeing relating to
its failure to meet minimum order requirements under terms of its long-term
agreement in 1999, improvements in profitability at the Company's distribution
and Galt Alloys facilities, and increased mill product shipments due to the
strike by the United Steelworkers of America at the Company's Niles, Ohio
facility in 1999, partially offset by reduced revenues in aerospace and
unfavorable mix changes from lower value-added forged mill products.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
NET SALES
Net sales increased to $133.9 million for the six months ended June 30,
2000 compared to net sales of $126.6 million in the corresponding 1999 period.
Sales for the Company's Titanium Group and Other operations amounted to $75.8
million in the first six months of 2000 compared to $73.5 million in the same
period of 1999. This sales increase is due primarily to increased shipments of
titanium mill products partially offset by a decrease in average selling prices.
Shipments of titanium mill products were 5.2 million pounds in the first six
months of 2000 compared to 4.3 million pounds for the same period in 1999. The
increase in mill product shipments in the first six months of 2000 reflects the
impact of the strike at the Company's largest production facility which lasted
until April 12, 1999, as well as increased shipments to companies in the
Fabrication and Distribution Group (intercompany). Average selling prices on
mill products in the first six months of 2000 decreased to $16.20 per pound from
$16.92 per pound in the first six months of 1999. The decrease in average
selling prices for mill
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products results primarily from an increase in product mix of lower value-added
forged products when compared to 1999, as well as reduced shipments of aerospace
and energy products. Sales for the Company's Fabrication and Distribution Group
amounted to $58.1 million in the six months ended June 30, 2000 compared to
$53.2 million in the same period of 1999. The primary reason for this increase
is due to increased shipments for the Company's distribution products in the
U.S. and Europe.
GROSS PROFIT
Gross profit amounted to $19.7 million, or 14.7% of sales for the six
months ended June 30, 2000 compared to a gross profit of $21.1 million or 16.7%
for the comparable 1999 period. This decrease primarily reflects the unfavorable
impact of an increase of lower value-added forged mill products in product mix
and reduced sales to aerospace and energy customers. These decreases were
partially offset by an increase in mill product shipments due to the strike by
the United Steelworkers of America at the company's Niles, Ohio facility in
1999, and increases in sales at the Company's distribution and Galt Alloys
facilities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses amounted to $13.9 million for
the six months ended June 30, 2000 compared to $12.2 million for the same period
in 1999. Research, technical and product development expenses amounted to $0.7
million in the first six months of 2000 compared to $2.1 million in the first
six months of 1999. The increase in selling, general and administrative expenses
was primarily offset by the decrease in research, technical and product
development expenses as costs incurred by RTI Energy Systems have shifted from
product development to sales and administrative in nature. The remainder of the
increase in selling, general and administrative expense is primarily due to one
time pension expense related to an executive retirement in the first quarter of
2000.
OPERATING INCOME
Operating income for the six months ended June 30, 2000 amounted to $5.0
million, or 3.7% of sales compared to $6.7 million or 5.3% of sales in the same
period of 1999. This change consists of a decrease in operating income in the
Titanium Group and other operations of $2.1 million primarily due to the
unfavorable impact of an increase of lower value-added forged mill products in
the product mix and reduced sales to aerospace customers as a result of excess
titanium inventory existing at these customers. Partially offsetting was an
increase in mill product shipments due to the strike by the United Steelworkers
of America at the company's Niles, Ohio facility in 1999. The change also
reflects an increase in operating income in the Fabrication and Distribution
Group of $0.4 million due to increases in sales at the Company's distribution
businesses.
INCOME TAXES
In the first quarter of 2000, the Company recorded an income tax provision
of $4.1 million compared to a $2.3 million provision recorded in the first six
months of 1999. The effective tax rate for the first six months of 2000 was
approximately 39%. The effective tax rate for the first six months of 1999 was
approximately 37%. The effective tax rate for the six-month period ended June
30, 2000 of 39.0% was greater than the Federal statutory rate of 35% due to
state income taxes and non-deductible goodwill amortization.
OTHER INCOME
Other income for the six months ended June 30, 2000 amounted to $6.7
million, or 5.0% of sales compared to $0.7 million, or 0.5% of sales in the same
period of 1999. The increase is primarily the result of the April 26, 2000
financial settlement of approximately $6.0 million between RTI and Boeing
Commercial Airplane Group whereby Boeing compensated RTI for failure to meet
minimum order quantities during 1999 under terms of their long-term supply
agreement. The remainder of the increase reflects income on sale of a portion of
RMI's now closed Ashtabula, Ohio facilities offset by reduced investment income
on short-term securities.
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<PAGE> 15
NET INCOME
Net income for the six months ended June 30, 2000 amounted to $6.4 million
or 4.8% of sales, compared to $3.9 million or 3.1% of sales in the comparable
1999 period. This increase reflects the financial settlement from Boeing related
to its failure to meet minimum order requirements under terms of its long-term
agreement with RTI in 1999, improvements in profitability at the Company's
distribution and Galt Alloys companies and an increase in mill product shipments
due to the strike by the United Steelworkers of America at the Company's Niles,
Ohio facility which began October 1, 1998 and ended April 12, 1999. Partially
offsetting was an unfavorable impact of an increase of lower value-added forged
mill products in product mix and reduced revenue from aerospace and energy
customers.
OUTLOOK
Last year Boeing announced lower production rates for 2000 and 2001 due to
lower demand, principally from the Asian market, and its own production
difficulties. The latest Boeing forecast indicates an aircraft build rate change
from 620 in 1999 to 490 in 2000, and approximately 450 to 475 in 2001. Aerospace
contractors have adjusted production to accommodate the lower rates from Boeing
and, therefore, a need to adjust inventory requirements downward from peak
levels in 1999. Recently Boeing announced that the lower production levels could
be improved by 5% to 10% for 2001 and 2002. The Company has adjusted its
production to accommodate the lower demand levels from the Boeing rate change
which is expected to continue for the next 2 or 3 quarters. However, increased
demand from increasing Airbus production rates, and increased military spending
should help to offset the effect of the rate change in Boeing Commercial
Aircraft production. Based on currently available information the Company
anticipates that the U.S. titanium industry's total shipments may improve
somewhat from 1999 levels, although the amount of increase, if any, cannot be
accurately predicted. If worldwide economic conditions cause commercial airlines
to cancel or delay aircraft production further, titanium demand and pricing
could come under further pressure.
On January 28, 1998, RMI entered into an agreement with Boeing Commercial
Airplane Group whereby RMI would supply Boeing and its family of commercial
suppliers with up to 4.5 million pounds of titanium products annually. The
agreement, which began in 1999, has an initial term of five years and, subject
to review by the parties in the fourth year, could be extended for an additional
five years. Under the accord, Boeing receives firm prices in exchange for RMI
receiving a minimum volume commitment of 3.25 million pounds per year. If
volumes drop below the minimum commitment, the contract contains provisions for
financial compensation. In accordance with the agreement, a demand notice of
approximately $7.0 million was presented to Boeing Commercial Airplane Group for
such compensation since 1999 shipments amounted to only 900,000 pounds. On April
26, 2000, Boeing satisfied the above mentioned contractual claim for
approximately $6 million. The financial impact of this settlement was reflected
in Other income-net for the quarter ending June 30, 2000.
In another accord, RMI, through its French affiliate, Reamet, was chosen by
Aerospatiale as the major supplier of the titanium flat rolled products required
for its Airbus programs which began in 1999 and extend through 2001.
Requirements are principally for flat rolled products, including value added
cut-to-size shapes.
During the second quarter of 1998, RMI was designated the sole supplier of
titanium mill products for the Air Force F-22 fighter being built by Lockheed
Martin and Boeing. The new contract began in 1998 and will continue through the
life of the program with approximately 339 aircraft forecast to be produced by
the year 2012. The value of this contract could potentially total $340 million.
RMI was also selected by military aircraft producers Boeing and Northrop as
the principal supplier of titanium alloy plate and alloy sheet including
just-in-time, cut-to-size products, for the C-17 Transport and the F/ A-18
Hornet programs. The Hornet program includes the new E/F version which utilizes
considerably more titanium than earlier C/D models. The agreement began in May
1999 and runs through December 2003.
RMI is also the principal supplier of alloy sheet to B.F. Goodrich
Aerospace Aerostructures Group, which designs and manufactures engine nacelle
systems for large commercial and military aerospace applications. RMI has
contracts with Construcciones Aeronauticas S.A. (CASA) of Spain and Daimler-Benz
Aerospace AG of Germany for their alloy plate and sheet requirements in
connection with the Airbus and Eurofighter programs. All
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<PAGE> 16
three contracts, with potential revenues totaling $60 million, began in 1999 and
extend for a minimum of three years.
As a result of continuing softening aerospace demand, and the aerospace
inventory adjustments referred to above, the Company's total order backlog as of
June 30, 2000 was approximately $114 million, compared to $150 million at
December 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows from operating activities totaled $19.2 million in the first
six months of 2000 compared to $20.0 million in the first six months of 1999.
The change in net cash flows from operating activities in the first six months
of 2000 compared to the same period in 1999 was due primarily to a slower rate
of reductions in working capital, partially offset by increased income. Working
capital was reduced in the first six months of 2000 as the Company's inventory
reduction efforts resulted in a $7.5 million reduction and accounts receivable
were reduced by $3.1 million primarily from energy business customers. Partially
offsetting these favorable impacts was a reduction in accounts payable of $3.3
million. The Company's working capital ratio was 6.1 to 1 at June 30, 2000.
During the first six months of 2000, the Company's cash flow requirements
for capital expenditures were funded with cash provided by operations and cash
on hand. During the comparable 1999 period, the Company's cash flow requirements
for capital expenditures were funded by cash provided from operating activities.
The Company anticipates that it will be able to fund its 2000 capital
expenditures with funds generated by operations.
On September 9, 1999, RTI filed a universal shelf registration with the
Securities and Exchange Commission. This registration would permit RTI to issue
up to $100 million of debt and/or equity securities at an unspecified future
date. The proceeds of any such issuance could be utilized to finance
acquisitions, capital investments or other general purposes; however, RTI has
not issued any securities to date and has no immediate plans to do so.
CREDIT AGREEMENT
RTI entered into a credit agreement dated September 30, 1998 ("the Credit
Facility") to replace RMI's existing credit facilities. This agreement provided
for $125 million five-year and $25 million one-year borrowings, on an unsecured
revolving basis, of up to the lesser of $150 million or a borrowing base equal
to the sum of 85% of qualifying accounts receivable and 60% of qualifying
inventory. Total borrowings were subject to a maximum leverage test in
accordance with the agreement.
On May 11, 2000, the Company amended the agreement reducing the $125
million facility to $100 million, terminating the $25 million facility,
increasing the leverage covenant, and increasing certain LIBOR borrowing spreads
by .25%. The Company can now borrow up to the lesser of $100 million or a
borrowing base equal to the sum of 85% of qualifying accounts receivable and 60%
of qualifying inventory.
Under the terms of the Credit Facility, the Company, at its option, will be
able to borrow at (a) a base rate (which is the higher of PNC Bank's prime rate
or the Federal Funds Effective Rate plus 0.5% per annum), or (b) LIBOR plus a
spread (ranging from .75% to 1.75%) determined by the ratio of the Company's
consolidated total indebtedness to consolidated earnings before interest, taxes,
depreciation and amortization. At June 30, 2000, the Company was in compliance
with all covenants under this agreement, and, under the leverage covenant, had
additional borrowing capacity of approximately $66.0 million. At June 30, 2000,
$19.9 million was outstanding under the facility.
ENVIRONMENTAL MATTERS
The Company is subject to environmental laws and regulations as well as
various health and safety laws and regulations that are subject to frequent
modifications and revisions. While the costs of compliance for these
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<PAGE> 17
matters have not had a material adverse impact on the Company in the past, it is
impossible to predict accurately the ultimate effect these changing laws and
regulations may have on the Company in the future.
At June 30, 2000, the amount accrued for future environment-related costs
were $2.6 million. Based on available information, RMI believes its share of
potential environmental-related costs, before expected contributions from third
parties, is in a range from $4.2 million to $7.0 million, in the aggregate. The
amount accrued is net of expected contributions from third parties (which does
not include any amounts from insurers) of approximately $2.1 million, which the
Company believes are probable. The Company has received contributions from such
third parties for a number of years as partial reimbursement for costs incurred
by the Company. As these proceedings continue toward final resolution, amounts
in excess of those already provided may be necessary to discharge the Company
from its obligations for these projects.
The ultimate resolution of these environmental matters could individually,
or in the aggregate, be material to the consolidated financial statements.
However, management believes that the Company will remain a viable and
competitive enterprise even though it is possible that these matters could be
resolved unfavorably.
CAPITAL EXPENDITURES
Gross capital expenditures for the first six months of 2000 and 1999
amounted to $5.3 and $15.1 million, respectively. The Company has anticipated
capital spending of approximately $15 million in 2000. Based upon a number of
factors, including profitability, demand for the Company's products and
conditions in the commercial aerospace industry, the amount and or timing of
capital spending could be affected.
NEW ACCOUNTING STANDARDS
The FASB issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" in June 1998. SFAS No. 133 requires all derivatives to be
recognized as either assets or liabilities on the balance sheet and be measured
at fair value. Changes in such fair value will be recognized in income
immediately if the derivatives are deemed not to be effective hedges. SFAS No.
133 is effective for fiscal years beginning after June 15, 2000. The Company
does not believe the adoption of SFAS No. 133 will have a material financial
impact.
In December 1999, the staff of the SEC issued Staff Accounting Bulletin
("SAB") 101, "Revenue Recognition in Financial Statements." SAB 101 outlines the
basic criteria that must be met to recognize revenue, and provides guidelines
for disclosure related to revenue recognition policies. This guidance is
required to be implemented in the fourth quarter of 2000. The Company is
currently reviewing this guidance in order to determine the impact of its
provisions, if any, on the consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information has not been included as it is not material to the Company.
PART II--OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
<TABLE>
<S> <C>
3.1 Amended and Restated Articles of Incorporation of the
Company, effective April 29, 1999, incorporated by reference
to Exhibit 3.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1999.
3.2 Amended Code of Regulations of the Company, incorporated by
reference to Exhibit 3.3 to the Company's Registration
Statement on Form S-4 No. 333-61935.
27 Financial Data Schedule
</TABLE>
(b) On April 6, 2000, the Company filed a report on Form 8-K reporting Item 5,
Other Events, Settlement of Claim against Boeing Commercial Airplane Group.
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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.
RTI INTERNATIONAL METALS, INC.
--------------------------------------
(Registrant)
Date: August 14, 2000
By: /s/ L. W. JACOBS
------------------------------------
L. W. Jacobs
Vice President & Chief Financial
Officer
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