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UNITED STATES 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 quarterly period ended June 30, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-1339
OREGON METALLURGICAL CORPORATION
(Exact name of registrant as specified in its charter)
Oregon 93-0448167
------------------------------ ----------------------
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification Number)
530 West 34th Avenue, Albany, Oregon 97321
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (503) 926-4281
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NONE
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(Former name or address, if changed since last report
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_____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Outstanding as of August 8, 1995
----------------------------- -------------------------------
Common stock, $1.00 par value 10,911,002
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1
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM I: FINANCIAL STATEMENTS
OREGON METALLURGICAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
Unaudited
<TABLE>
<CAPTION>
Three months Six Months
----------------- ------------------
For the period ended June 30, 1995 1994 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $35,125 $14,503 $65,963 $27,797
Cost of sales 29,834 13,843 55,340 27,048
-------- -------- ------- -------
GROSS PROFIT 5,291 660 10,623 749
Research, technical and
product development expenses 354 451 719 680
Selling, general
and administrative expenses 3,544 1,143 6,944 2,687
------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS 1,393 (934) 2,960 (2,618)
Interest income --- 115 --- 247
Interest expense (465) (92) (1,040) (182)
Minority interest in subsidiary (112) --- (218) ---
------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES 816 (911) 1,702 (2,553)
Provision(benefit)for income taxes 363 (310) 714 (867)
------- ------- ------- -------
NET INCOME (LOSS) $ 453 $ (601) $ 988 $(1,686)
------- ------- ------- -------
------- ------- ------- -------
NET INCOME (LOSS) PER SHARE $ 0.04 $ (0.06) $ 0.09 $ (0.16)
------- ------- ------- -------
------- ------- ------- -------
WEIGHTED AVERAGE SHARES AND
SHARE EQUIVALENTS OUTSTANDING 11,187 10,892 11,132 10,890
------- ------- ------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Unaudited
June 30, December 31,
1995 1994
---------- -----------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 526 $ 1,636
Accounts receivable, net 26,598 20,444
Inventories 59,061 49,023
Income taxes receivable 227 321
Prepayments and other current assets 413 1,031
Deferred income taxes 525 517
--------- -----------
TOTAL CURRENT ASSETS 87,350 72,972
Property, plant and equipment, net 36,118 37,520
Other assets, net 1,749 1,480
--------- -----------
TOTAL ASSETS $125,217 $111,972
--------- -----------
--------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $19,657 $16,860
Accrued payroll and employee benefits 5,076 2,944
Other accrued expenses 4,706 4,073
Note payable to bank 389 ---
Current portion of long-term debt 7 13
--------- -----------
TOTAL CURRENT LIABILITIES 29,835 23,890
Other Liabilities
Note payable to bank 17,942 12,496
Long-term debt, less current portion 4,668 4,668
Deferred income taxes 1,665 1,098
Deferred compensation payable 678 881
Accrued postretirement benefit 1,547 1,457
Minority interest 490 200
--------- -----------
TOTAL LIABILITIES 56,825 44,690
--------- -----------
Shareholders' Equity
Common stock, $1.00 par value;
25,000 shares authorized; shares issued:
1995 - 10,911; 1994 - 10,893 10,911 10,893
Additional paid-in capital 37,463 37,445
Retained earnings 19,948 18,960
Cumulative foreign currency translation
adjustment 70 (16)
--------- -----------
TOTAL SHAREHOLDERS' EQUITY 68,392 67,282
--------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $125,217 $111,972
--------- -----------
--------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Unaudited
<TABLE>
<CAPTION>
Six Months
------------------
FOR THE PERIOD ENDED JUNE 30, 1995 1994
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) . . . . . . . . . . . . . . . . . . . . .$ 988 $(1,686)
Adjustments to reconcile net income (loss) to
cash provided by (used in)
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . 2,329 2,225
Deferred income taxes . . . . . . . . . . . . . . . . . 559 (867)
Minority interest . . . . . . . . . . . . . . . . . . . . 218 ----
DECREASE (INCREASE) IN:
Accounts receivable . . . . . . . . . . . . . . . . . . (6,108) (3,198)
Inventories . . . . . . . . . . . . . . . . . . . . . . (9,953) 1,106
Income taxes receivable . . . . . . . . . . . . . . . . 94 95
Prepayments . . . . . . . . . . . . . . . . . . . . . . 620 435
INCREASE (DECREASE) IN:
Accounts payable. . . . . . . . . . . . . . . . . . . . 2,766 915
Accrued payroll and employee benefits . . . . . . . . . 2,132 673
Other accrued expenses. . . . . . . . . . . . . . . . . 623 271
Other . . . . . . . . . . . . . . . . . . . . . . . . . . (46) 223
-------- --------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . (5,778) 192
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to properties . . . . . . . . . . . . . . . . . (733) (201)
Short-term investments - purchased. . . . . . . . . . . . --- (1,228)
Short-term investments - redeemed . . . . . . . . . . . . --- 2,492
Other . . . . . . . . . . . . . . . . . . . . . . . . . . (429) ---
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . . (1,162) 1,063
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings, note payable to bank. . . . . . . . . . . 5,835 ---
Repayment of long-term debt . . . . . . . . . . . . . . . (6) (1,675)
Payment on note receivable - ESOP . . . . . . . . . . . . --- 1,113
Other . . . . . . . . . . . . . . . . . . . . . . . . . . --- (50)
-------- --------
NET CASH PROVIDED BY(USED IN)FINANCING
ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . . 5,829 (612)
-------- --------
Effect of exchange rates on cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . . . . 1 ---
-------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS. . . . . . . . . . . . . . . . . . . . . . . (1,110) 643
CASH AND CASH EQUIVALENTS:
Beginning of period . . . . . . . . . . . . . . . . . . . 1,636 37
-------- --------
End of period . . . . . . . . . . . . . . . . . . . . . . $ 526 $ 680
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
NOTE 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements of Oregon Metallurgical
Corporation (OREMET) and subsidiaries (the Company) have not been audited by
independent accountants, except for the balance sheet at December 31, 1994.
In the opinion of the Company's management, the financial statements reflect
all adjustments necessary to present fairly the results of operations for the
three-month and six month periods ended June 30,1995 and 1994; the Company's
financial position at June 30, 1995 and December 31, 1994; and the cash flows
for the six month periods ended June 30, 1995 and 1994. These adjustments
are of a normal recurring nature.
Certain notes and other information have been condensed or omitted from the
interim financial statements presented in this Quarterly Report on Form 10-Q.
Therefore, these financial statements should be read in conjunction with the
Company's 1994 Annual Report on Form 10-K.
The results for the first quarter of 1995 are not necessarily indicative of
future financial results.
NOTE 2. ORGANIZATION AND OPERATIONS
The Company is a major producer and distributor of titanium sponge, ingot, mill
products and castings for aerospace, industrial and recreation applications.
As of December 31, 1994, the Company is 41% owned by the Oregon Metallurgical
Corporation Employee Stock Ownership Plan (the ESOP).
On September 20, 1994, the Company completed the acquisition of the net
operating assets and subsidiaries of Titanium Industries Distribution Group
from Kamyr, Inc. The acquired business is being operated under the name of
Titanium Industries Inc., an eighty percent (80%) owned subsidiary of OREMET.
Titanium Industries, Inc. is a full-line service titanium metals distributor
with facilities in the United States, Canada and the United Kingdom.
NOTE 3. BASIS OF CONSOLIDATION
The consolidated financial statements of the Company include the accounts of
its majority-owned subsidiary, Titanium Industries, Inc. (since date of
acquisition) and the Company's wholly-owned subsidiary, OREMET France S.a.r.l.
Titanium Industries, Inc.'s accounts reflect the activities of its wholly-owned
subsidiaries, Titanium International, LTD. and Titanium Wire Corporation.
All material intercompany accounts and transactions have been eliminated in
consolidation.
NOTE 4. STATEMENT OF CASH FLOWS
In accordance with Statement of Financial Accounting Standards No. 95,
STATEMENT OF CASH FLOWS, cash flows from the Company's operations in foreign
countries are calculated based on their reporting currencies. As a result,
amounts related to assets and liabilities reported on the Statement of
Consolidated Cash Flows will not necessarily agree to changes in the
corresponding balances on the Statement of Consolidated Financial Position.
The effect of exchange rate changes on cash balances held in foreign
currencies is reported on a separate line below Cash Flows From Financing
Activities.
<PAGE>
NOTE 5. INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
------- -----------
<S> <C> <C>
Finished goods . . . . . . . . . . . . . $17,198 $14,656
Work-In-process. . . . . . . . . . . . . 21,380 15,288
Raw materials. . . . . . . . . . . . . . 20,483 19,079
------- ----------
$59,061 $49,023
------- ----------
------- ----------
</TABLE>
NOTE 6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are comprised of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
------- -----------
<S> <C> <C>
Land . . . . . . . . . . . . . . . . . . $ 1,189 $ 1,189
Buildings and improvements . . . . . . . 11,123 11,087
Machinery and equipment. . . . . . . . . 41,332 39,940
Integrated sponge facility . . . . . . . 45,641 45,309
Construction in progress . . . . . . . . 979 1,976
------- ----------
100,264 99,501
Less accumulated depreciation. . . . . (64,146) (61,981)
------- ----------
$36,118 $37,520
------- ----------
------- ----------
</TABLE>
<PAGE>
PART 1: FINANCIAL INFORMATION
ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company, and other major U.S. titanium producers reported second quarter
results which indicated, that consistent with the Company's observations,
industry sales are increasing and operating results are continuing to improve
from those reported in the prior quarter. The quarter ended June 30, 1995,
represented the Company's sixth consecutive quarter of increasing sales and
improving operating results. The Company reported net earnings of $.5
million for the second quarter of 1995.
The Company's net sales and twelve-month sales order backlog (sales backlog)
continued to grow at a brisk pace. Net sales in the second quarter of 1995
increased 14% to $35.1 million, compared to $30.8 million for the first
quarter of 1995. The sales backlog was $64 million on June 30, 1995, an
increase of 33% over the March 31, 1995 sales backlog of $48 million.
The twelve-month sales order backlog reflects recent customer order placement
but may not be an accurate indicator of annual or quarterly sales volume.
Orders from the recreation market accounted for a substantial portion of the
increase in the backlog while the commercial aerospace market continues to
display signs of increased activity. Demand for military aerospace
applications continues to be weak; however, the military sector appears to
have a growing interest in utilizing titanium for armor. Additionally, the
decline in value of the U.S. dollar compared to Asian and European currencies
has aided the Company's expansion into international markets.
During the second quarter of 1995, the Company recorded a charge to earnings
of approximately $820,000, net of taxes, or $0.07 per share, to reflect the
impact of higher than anticipated material and conversion costs relating to
certain fixed price long-term sales contracts. The difficulties
encountered in achieving increased operating levels coupled with a larger
number and complexity of end products accounted for a significant portion of
this charge to earnings.
The strong increase in demand for titanium products has begun to strain the
capacity of our industry. The Company, as well as other major titanium
producers, has been quoting ever extending delivery dates. We are exploring
a wide range of possibilities in order to enhance our ability to respond to
present market conditions.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1995 COMPARED TO THE THREE MONTHS ENDED
JUNE 30, 1994:
SALES:
Net sales were $35.1 million for the second quarter of 1995, an increase of
142% over the second quarter of 1994 sales of $14.5 million. The Company's
majority owned subsidiary, Titanium Industries, Inc. (TI) reported net sales
of $13.6 million for the second quarter of 1995. TI was acquired by the
Company in September 1994.
<PAGE>
TITANIUM SPONGE:
Sales of titanium sponge increased 31% for the second quarter of 1995
compared to the second quarter of 1994. Sponge shipments decreased 3% and
average sponge price per pound increased 34%. The increase in the average
price per pound of 34% is attributable to sales of our high purity sponge
which the Company has recently started producing in limited quantities. Sales
of titanium sponge are below historical averages due to competition from
lower-priced material which has been available from producers in the Former
Soviet Union (FSU). The present ability of titanium producers in the FSU to
be reliable long-term suppliers of titanium sponge is uncertain. During the
first half of 1995, the Company's integrated sponge facility operated at a
significant level of capacity, primarily supplying the Company's internal
demand for titanium sponge and sales to RMI Titanium Company under our
long-term titanium sponge supply agreement.
INGOT:
Sales of ingot increased 31% for the second quarter of 1995 compared to the
second quarter of 1994. Ingot shipments increased 19% and average ingot
price per pound increased 11% from the comparable period in 1994.
MILL PRODUCTS:
The Oremet Titanium Division of the Company directly produces or contracts
for outside production a variety of mill products, including billet, bar,
plate, sheet and engineered parts. Oremet Titanium Division mill product
sales increased 110% for the second quarter of 1995 compared to the second
quarter of 1994. Shipments of mill products increased 94% and the average
price per pound increased 8%.
TI markets a wide variety of mill products including engineered parts,
manufactured by various producers. TI reported sales for the second quarter
of 1995 of $13.6 million. Since the acquisition, both shipments and pricing
for TI's products have trended upward.
CASTINGS:
Sales of castings increased 8% for the first quarter of 1995 compared to the
first quarter of 1994.
COST OF SALES:
Cost of sales as a percentage of net sales decreased for the second quarter
of 1995 to 85% from 95% for the comparable period in 1994. The positive
change is due to both increases in volume and pricing of products sold. As a
result, gross profit increased $4.6 million to $5.3 million for the second
quarter of 1995 from $.7 million for the comparable period in 1994. Cost of
sales for the second quarter of 1995 includes a charge of approximately $1.3
million, reflecting the impact of higher than anticipated material and
conversion costs on certain fixed price long-term sales contracts.
Difficulties encountered in achieving increased operating levels coupled with
a larger number and complexity of end products accounts for a significant
portion of this charge.
RESEARCH, TECHNICAL AND PRODUCT DEVELOPMENT EXPENSES:
Research, technical and product development expenses (RT&D) decreased 22% for
the second quarter of 1995 to $.4 million from $.5 million in the comparable
quarter of 1994. Overall costs for this department have decreased due to the
nature of the mix of research and development projects.
<PAGE>
The department's salaries and related costs have increased compared to the
second quarter of 1994, reflecting an increase in technical personnel which
is designed to support the Company's long-term commitment towards research
and the development of new products and improvements in operating processes.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Selling, general and administrative expense (SG&A) increased 210% for the
second quarter of 1995 to $3.5 million from $1.1 million in the comparable
quarter of 1994. The acquisition of Titanium Industries, Inc. is the primary
reason for the increase in SG&A.
INTEREST INCOME:
For the second quarter of 1994, the Company reported interest income of $.1
million, derived from earnings on short-term investments and the ESOP note
receivable. The Company liquidated its portfolio of short-term investments
in the third quarter of 1994 and the ESOP note receivable matured in December
1994. The Company expects that interest income for 1995 and the foreseeable
future should be negligible.
INTEREST EXPENSE:
Interest expense increased to $.5 million in the second quarter of 1995
compared to $.1 million in the comparable quarter of 1994. The increase in
interest expense is the direct result of an increase in borrowings related to
the purchase of TI and working capital needed for the increased operating
levels.
MINORITY INTEREST IN SUBSIDIARY:
The amounts reported as minority interest in subsidiary removes the minority
shareholder's 20% interest in the net income of TI from the Company's
Consolidated Statements of Operations.
PROVISION FOR INCOME TAXES:
The Company reported a provision for income taxes of $.4 million (effective
tax rate of 39%) for the second quarter of 1995 compared to a tax benefit of
$.3 million, or an effective tax rate of 34% for the comparable period in
1994.
NET INCOME:
The Company reported net income of $.5 million ($0.04 per share) for the
second quarter of 1995 compared to a net loss of $.6 million ($.06 per share)
for the comparable period in 1994.
SIX MONTHS ENDED JUNE 30, 1995 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1994:
SALES:
Net sales were $66.0 million for the first six months of 1995, an increase of
137% over sales of $27.8 million for the comparable period of 1994. The
Company's majority owned subsidiary, Titanium Industries, Inc. (TI) reported
net sales of $26.7 million for the first half of 1995. TI was acquired by the
Company in September 1994.
<PAGE>
TITANIUM SPONGE:
Sales of titanium sponge decreased 22% for the first six months of 1995
compared to the comparable period of 1994. Sponge shipments decreased 31%
and average sponge price per pound increased 14%. The increase in the
average price per pound of 14% is attributable to sales of our high purity
sponge which the Company has recently started producing in limited
quantities. During the first half of 1995, the Company's integrated sponge
facility operated at a significant level of capacity, primarily supplying the
Company's internal demand for titanium sponge and sales to RMI Titanium
Company under our long-term titanium sponge supply agreement.
INGOT:
Sales of ingot increased 35% for the first half of 1995 compared to the
comparable period of 1994. Ingot shipments increased 22% and average ingot
price per pound increased 10% from the comparable period in 1994.
MILL PRODUCTS:
The Oremet Titanium Division of the Company directly produces or contracts
for outside production a variety of mill products, including billet, bar,
plate, sheet and engineered parts. Oremet Titanium Division mill product
sales increased 116% for the first half of 1995 compared to the comparable
period of 1994. Shipments of mill products increased 113% and there was no
change to the average price per pound.
TI markets a wide variety of mill products including engineered parts,
manufactured by various producers. TI reported sales for the six month
period of $26.7 million. Since the acquisition, both shipments and pricing
for TI's products have trended upward.
CASTINGS:
Sales of castings increased 20% for the first half of 1995 compared to the
comparable period of 1994.
COST OF SALES:
Cost of sales as a percentage of net sales decreased for the first six months
of 1995 to 84% from 97% for the comparable period in 1994. The positive
change is due to both increases in volume and pricing of products sold. As a
result, gross profit increased $9.9 million to $10.6 million for the first
six months of 1995 from $.7 million for the comparable period in 1994. Cost
of sales for the first six months of 1995 include a charge of
approximately $1.3 million, reflecting the impact of higher than anticipated
material and conversion costs on certain fixed price long-term sales
contracts. Difficulties encountered in achieving increased operating levels
coupled with a larger number and complexity of end products accounts for a
significant portion of this charge.
RESEARCH, TECHNICAL AND PRODUCT DEVELOPMENT EXPENSES:
Research, technical and product development (RT&D) expenses increased 6% for
the first half of 1995 to $.7 million. The cost of RT&D's research and
development projects has decreased during the first six months of 1994
compared to the comparable period of 1995 due to the nature and mix of the
department's projects. RT&D's salaries and related costs have increased
compared to the first half of 1994, reflecting an increase in technical
personnel which is designed to support the Company's long-term commitment
towards research and the development of new products and improvements in
operating processes.
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Selling, general and administrative (SG&A) expense increased 158% for the
first six months of 1995 to $6.9 million from $2.7 million in the comparable
period of 1994. The acquisition of Titanium Industries, Inc. is the primary
reason for the increase in SG&A.
INTEREST INCOME:
For the first six months of 1994, the Company reported interest income of $.2
million, derived from earnings on short-term investments and the ESOP note
receivable. The Company liquidated its portfolio of short-term investments
in the third quarter of 1994 and the ESOP note receivable matured in December
1994. The Company expects that interest income for 1995 and the foreseeable
future should be negligible.
INTEREST EXPENSE:
Interest expense increased to $1.0 million in the first six months of 1995
compared to $.2 million in the comparable period of 1994. The increase in
interest expense is the direct result of an increase in borrowings related to
the purchase of TI and working capital needed for the increased operating
levels.
MINORITY INTEREST IN SUBSIDIARY:
The amounts reported as minority interest in subsidiary removes the minority
shareholder's 20% interest in the net income of TI from the Company's
Consolidated Statements of Operations.
PROVISION FOR INCOME TAXES:
The Company reported a provision for income taxes of $.7 million (effective
tax rate of 37%) for the first six months of 1995 compared to a tax benefit
of $.9 million, or an effective tax rate of 34% for the comparable period in
1994.
NET INCOME:
The Company reported net income of $1.0 million ($0.09 per share) for the
first six months of 1995 compared to a net loss of $1.7 million ($.16 per
share) for the comparable period in 1994.
NON-U.S. OPERATIONS AND MONETARY ASSETS
The Company has two foreign subsidiaries which operate titanium service and
distribution centers located in the United Kingdom and France. Approximately
13% of the Company's revenues for the six-month period ended June 30, 1995
were derived from the Company's European operations. The Company acquired
the service center in the United Kingdom in September 1994, and established
the service center in France in the second quarter of 1994. The service
center in France became operational in January 1995.
Changes in the value of non-U.S. currencies relative to the U.S. dollar cause
fluctuations in U.S. dollar financial position and operating results. The
impact of currency fluctuations, while slightly unfavorable for the six-month
period ended June 30, 1995, were not significant.
<PAGE>
The Company enters into forward exchange contracts to hedge foreign currency
transactions for inventory purchases and product sales on a continuing basis
for periods consistent with its committed exposures. Hedging minimizes the
impact of foreign exchange rate movements on the Company's operating results.
The Company's foreign exchange contracts do not subject the Company's
results of operations to risk due to exchange rate movements because gains
and losses on these contracts offset losses and gains on the assets and
liabilities being hedged.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
Cash flows used in operating activities totaled $5.8 million for the
first-half of 1995 compared with $.2 million provided by operating activities
in the comparable period of 1994. The net cash flow decrease between the two
periods of $6 million is the result of a significant increase in working
capital to support the Company's higher shipment and production levels. The
decrease in the amount of cash flow provided by operating activities is a
trend which began in the second quarter of 1994, the timing of this trend is
consistent with the Company's experience of increasing sales, sales order
backlog and production activity.
Inventories increased $10.0 million, or 20%, to $59.1 million at June 30,
1995, compared to $49.0 million as of December 31, 1994. The increase is in
support of higher production levels in addition to an increase in finished
goods inventory of $2.5 million. In response to a growing sales backlog,
the Company is continuing to raise its production levels. The Company is also
experiencing higher raw material and conversion costs which, combined, have
increased the value of inventory the Company has on hand.
Accounts receivable increased $6.1 million, or 30%, to $26.6 million at June
30, 1995, compared to $20.0 million as of December 31, 1994. The increase in
accounts receivable is consistent with the Company's increase in sales volume.
Accounts payable and other current liabilities increased $5.9 million, or
25%, to $29.8 million at June 30, 1995, compared to $23.9 million as of
December 31, 1994. The increase in current liabilities is a result of the
Company's higher production levels.
The Company's investing activities used $1.2 million of cash in the first
half of 1995. Additions to properties totaled $.7 million. The Company also
made an investment of $.3 million in a start-up company, which will perform
sonic testing on behalf of the Company and its other two investors. During
the first-half of 1994, investing activities generated $1.1 million in cash,
principally from the net redemption of short-term investments which were
liquidated to meet the operating requirements of the Company.
The Company's financing activities for the first-half of 1995 principally
consisted of net borrowings on its revolving credit agreements of $5.8
million. The net borrowings were used to fund the Company's increased levels
of operations. For the first six months of 1994, the Company's financing
activities used $.6 million in cash comprised of payments on the Company's
long-term debt net of reductions in the note receivable from the ESOP.
WORKING CAPITAL:
Working capital increased $8.4 million to $57.5 million as of June 30, 1995,
compared to $49.1 million as of December 31, 1994. The growth in working
capital is principally attributable to increases in accounts receivable and
inventories during the first six months of 1995. The increase in working
capital was partially funded by a $5.4 million increase in the note
payable to bank which is reported as a long-term liability on the Company's
consolidated balance sheet.
<PAGE>
CREDIT AGREEMENT (NOTE PAYABLE TO BANK):
The Company may borrow up to $25 million under the terms of a revolving
credit agreement with BankAmerica Business Credit, Inc. (BABC) which was
amended as of June 30, 1995. The credit agreement expires in September 1997.
The balance outstanding under the credit agreement as of June 30, 1995 is
$17.9 million.
As of June 30, 1995, interest charged under the credit agreement is at BABC's
reference rate (8.75%) plus 1%. The terms of the credit facility provide for
a LIBOR based borrowing option which the Company has exercised.
CAPITAL EXPENDITURES:
The Company has no material open commitments which obligate it to make future
capital expenditures. The Company's capital plan anticipates that 1995
capital expenditures may approximate $3 million. The Company's capital
expenditures will be funded by a combination of internally generated cash and
external financings.
The Company's recent capital expenditure history is as follows
(dollars in millions):
<TABLE>
<CAPTION>
Six Month
Ended Year Ended
June 30, December 31,
----------- ---------------
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Additions to Properties $0.7 $0.2 $1.9 $1.2 $4.4
</TABLE>
The Company's revolving credit facility with BankAmerica Business Credit,
Inc. provides that capital expenditures may not exceed $5 million for any
fiscal year.
ADEQUACY OF LIQUIDITY AND CAPITAL RESOURCES:
The Company's access to borrowing facilities, internally generated cash and
to capital markets are expected to be sufficient to provide the resources
necessary to support increased operating needs and to finance continued
growth, capital expenditures and repayment of long-term debt obligations.
<PAGE>
PART II: OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) An Annual Meeting of Shareholders was held on April 27, 1995.
(b) Carlos E. Aguirre, Gilbert E. Bezar, Robert P. Booth, Roger V.
Carter, Nicholas P. Collins, Howard T. Cusic, David H. Leonard, James S.
Paddock and James R. Pate were elected as directors of the Company.
(c) The matters voted upon at the Annual Meeting of Shareholders were:
i. The election of nine directors. The results of the election
were as follows;
NOMINEE VOTES FOR
Carlos E. Aguirre 8,534,750
---------
Gilbert E. Bezar 6,489,419
---------
Robert P. Booth 6,387,088
---------
Roger V. Carter 7,621,611
---------
Nicholas P. Collins 7,911,156
---------
Howard T. Cusic 6,585,038
---------
David H. Leonard 15,400,399
---------
James S. Paddock 7,059,363
----------
James R. Pate 16,562,560
----------
ii. Amendment to the Restated Articles of Incorporation regarding
rights of employees to nominate persons to the Board of Directors. The
number of votes cast with regard to the amendment was 3,746,286 for, 713,661
against/withheld, 164,945 abstaining and 2,365,944 broker non-votes.
(d) None."
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
3.1 Amendment to Restated Articles of Incorporation, dated
April 28, 1995
10.1 Amendment No. 2 Dated as of June 30, 1995, to Loan and
Security Agreement with Oregon Metallurgical Corporation and
Titanium Industries, Inc., Dated as of September 19, 1994
11.1 Statement re: computation of per share earnings.
27.1 Financial Data Schedule
B. FORMS 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended June 30, 1995
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.
OREGON METALLURGICAL CORPORATION
--------------------------------
Registrant
Date: August 10, 1995
----------------- -----------------------------
Dennis P. Kelly
Vice President, Finance and
Chief Financial Officer
Signing on behalf of the Registrant
and as Chief Accounting Officer
<PAGE>
EXHIBIT 3.1
FILED
APR 8
Secretary of State
SUBMIT THE ORIGINAL SECRETARY OF STATE THIS SPACE FOR
AND ONE TRUE COPY. CORPORATION DIVISION - BUSINESS REGISTRY OFFICE USE ONLY
$10.00 PUBLIC SERVICE BUILDING
REGISTRY NUMBER: 255 CAPITOL ST. NE SUITE 151
056193-17 SALEM, OR 97310-1327
(503)956-2200 FACSIMILE (503)378-4381
ARTICLES OF AMENDMENT
BUSINESS CORPORATION
1. Name of the corporation prior to amendment:
OREGON METALLURGICAL CORPORATION
--------------------------------------------------------------------------
2. State the article number(s) and set forth the article(s) as it is amended
to read, or attach a separate sheet.
The second paragraph of Article V, paragraph B, submitted as set out on
Attachment.
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
3. The amendment(s) was/were adopted on April 27, 1995
----------------------------------------
(If more that one amendment was adopted, identify the date of
adoption of each amendment)
4. Check the appropriate statement:
X Shareholder action was required to adopt the amendment(s). The vote
--- was follows:
Class or series of shares Common
---------------
No. of shares outstanding
---------------
No. of votes needed to be cast
---------------
No. of votes cast for 3,746,784
---------------
No. of votes cast against 713,661
---------------
Shareholder action was not required to adopt the amendment(s). The
amendment(s) was/were adopted by the board of directors without
shareholder action.
---
The corporation has not issued any shares of stock. Shareholder
action was not required to adopt the amendment(s). The amendment(s)
was/were adopted by the incorporators or by the board of directors.
---
Execution:/s/Orval N. Thompson Orval N. Thompson Secretary
----------------------------------------------------------------------
SIGNATURE PRINTED NAME TITLE
----------------------------------------------------------------------
SIGNATURE PRINTED NAME TITLE
----------------------------------------------------------------------
SIGNATURE PRINTED NAME TITLE
Person to contact about
this filing: Thomas L. Black (503)926-2255
---------------------------------------------
Name DAYTIME PHONE
MAKE CHECKS PAYABLE TO THE CORPORATION DIVISION. SUBMIT THE COMPLETED FORM AND
FEE TO THE ABOVE ADDRESS OR INCLUDE YOUR VISA OR MASTERCARD NUMBER AND
EXPIRATION DATE. SUBMIT THE COMPLETED FORM AND FEE TO THE ABOVE ADDRESS OR FAX
TO (503) 378-4381.
<PAGE>
PROPOSAL TO AMEND
RESTATED ARTICLES OF INCORPORATION
The Board of Directors of Oremet has unanimously adopted the following
resolutions approving and recommending to shareholders for their approval the
stated amendments to the Restated Articles of Incorporation.
RESOLVED: That the Board of Directors hereby proposes the following
amendment to the Corporation's Articles of Incorporation for approval of
the shareholders of the Corporation at the next annual meeting:
That the second paragraph of Article V. B of the Corporation's Articles of
Incorporation be amended to read in its entirety as follows:
(a) As long as 25% of the Corporation's outstanding stock is held by
defined contribution employee benefit plans which are qualified under
Internal Revenue Code Section 401(a) (including, without limitation, the
Oregon Metallurgical Corporation Employees Stock Ownership Plan and the
Oregon Metallurgical Corporation Employees Savings Plan), four (4) of the
nine (9) members of the Board of Directors of the Corporation shall be
nominated as follows: Two (2) of said Directors shall be nominated by the
Corporation's employees affiliated with the United Steelworkers of America,
Local 7150 (the "Union Employees"), and two (2) of said Directors shall be
nominated by the Corporation's employees who are not affiliated with the
United Steelworkers of America, Local 7150 (the "Salaried Employees");
and
(b) In the event that less than 25% of the Corporation's outstanding
stock is held by such defined contribution employee benefit plans which are
qualified under Internal Revenue Code 401(a), two (2) of the nine (9)
members of the Board of Directors of the Corporation shall be nominated as
follows: One (1) of said Directors shall be nominated by the Corporation's
Union Employees, and one (1) of said Directors shall be nominated by the
Corporation's Salaried Employees; and
(c) Such proportional representation of defined contribution employee
benefit plans which are qualified under Internal Revenue Code 401(a) shall
be maintained if the number of directors is increased of decreased.
<PAGE>
EXHIBIT 10.1
AMENDMENT NO. 2
TO
LOAN AND SECURITY AGREEMENT
WITH
OREGON METALLURGICAL CORPORATION
AND
TITANIUM INDUSTRIES INC.
DATED AS OF SEPTEMBER 19, 1995
THIS AMENDMENT NO. 2 TO LOAN AND SECURITY AGREEMENT ("Amendment") is
dated as of June 30, 1995, by and between OREGON METALLURGICAL CORPORATION,
an Oregon corporation ("Oremet"), TITANIUM INDUSTRIES, INC., an Oregon
corporation formerly known as New TI, Inc. ("TI" and, together with Oremet
sometimes hereinafter referred to collectively as the "Borrowers") and
BANKAMERICA BUSINESS CREDIT, INC., a Delaware corporation, as
successor-in-interest to Bank of America Illinois, an Illinois banking
corporation ("Lender"). Capitalized terms used herein but not otherwise
defined herein shall have the respective meanings assigned to such terms in
the "Loan Agreement" (as defined below).
WITNESSETH:
WHEREAS, Borrowers and Lender have entered into that certain Loan and
Security Agreement dated as of September 19, 1994, as amended (the "Loan
Agreement"), pursuant to which Lender has agreed to make certain loans and
other financial accommodations to Borrowers; and
WHEREAS, Borrowers and Lender have agreed to further amend the Loan
Agreement, on the terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises set forth above, the
terms and conditions contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the respective parties hereto hereby agree as follows:
1. AMENDMENT TO LOAN AGREEMENT. Effective as of the date hereof, upon
satisfaction of the conditions precedent set forth in SECTION 3 below, and in
reliance upon the representations and warranties of Borrowers set forth
herein, the Loan Agreement is hereby amended as follows:
1.1 The following defined terms are hereby added to SECTION 1.1 of the
Loan Agreement in the appropriate alphabetical order:
"PP&L INDEBTEDNESS" means Indebtedness of OREMET to Pacific Power and
Light (or some other supplier of energy) incurred to finance the purchase
and installation by OREMET of certain fixed assets in connection with
various energy saving projects.
<PAGE>
"ROLLER HEARTH SALE/LEASEBACK" means the sale and subsequent leaseback
by OREMET of property consisting of OREMET's roller hearth furnace and
planer mill, provided, that the aggregate amount payable under the lease
or leases executed and delivered in connection therewith shall not
exceed $1,400,000.
1.2 SECTION 2.1.3 of the Loan Agreement is hereby deleted in its
entirety and the following language is hereby substituted therefor:
2.1.3 MAXIMUM OUTSTANDING LOANS. Notwithstanding any other provision
of this Agreement, the aggregate outstanding principal balance of the
Loans plus Letter of Credit Obligations shall not exceed at any time (A)
in the case of OREMET, $20,000,000, (B) in the case of TI, $7,000,000
and (C) in the case of both Borrowers in the aggregate $25,000,000;
PROVIDED, HOWEVER, that the foregoing shall not limit the right of Lender
to advance Revolving Loans to either of the Borrowers pursuant to the
provisions of SECTIONS 2.2(b), 2.2(c), 2.2(e), 3.2(c), 5.5, 5.6, 7.4, 11.3,
11.4 or any other provision of this Agreement or any Related Agreement
that permits Lender to advance Revolving Loans to such Borrower.
1.3 The first sentence of SECTION 2.15 of the Loan Agreement is
hereby deleted and the following language is hereby substituted therefor:
OREMET agrees to pay to Lender a fee equal to one-half of one percent
(0.5%) per annum on the daily average amount by which $25,000,000 exceeds
the aggregate outstanding principal balance of the Revolving Loans plus
the Letter of Credit Obligations, in each case of each of the Borrowers.
1.4 The words "for property of OREMET subject to the Roller Hearth
Sale/Leaseback and except," are hereby inserted in SECTION 4.15 of the Loan
Agreement, immediately following the word "Except" appearing in the ninth
line thereof.
1.5 The words "for property of OREMET subject to the Roller Hearth
Sale/Leaseback and except," are hereby inserted in SECTION 5.13 of the Loan
Agreement, immediately following the word "except" appearing in the third
line thereof.
1.6 SECTION 5.16 of the Loan Agreement is hereby deleted in its
entirety and the following language is hereby substituted therefor:
5.16 INDEBTEDNESS. Not, and not permit any Subsidiary of such
Borrower to, incur or permit to exist any Indebtedness (including
but not limited to Indebtedness as lessee under capitalized Leases),
except: (a) Indebtedness under the terms of this Agreement; (b) in
the case of TI, the Subordinated
-2-
<PAGE>
indebtedness and indebtedness to OREMET to the extent permitted pursuant
to SECTION 5.19(F) (c) in the case of TI Wire, indebtedness to TI to the
extent permitted pursuant to SECTION 5.19(Q); (d) in the case of TIL UK,
indebtedness to TI to the extent permitted pursuant to SECTION 5.19(H);
(e) other Indebtedness outstanding on the date hereof and listed on
SCHEDULE 5.16; (f) in the case of OREMET, PP&L Indebtedness, in an
aggregate amount not exceeding $1,000,000, (g) Indebtedness hereafter
incurred in connection with Liens permitted under SECTION 5.17(D); (h)
Indebtedness incurred as lessee under Capitalized Leases, to the extent
permitted pursuant to Section 4.3 of Supplement A; (i) Indebtedness
incurred in connection with the Roller Hearth Sale/Leaseback):; and (j)
other Indebtedness approved in writing by Lender.
1.7 SECTION 5.19(J) of the Loan Agreement is hereby deleted in its
entirety and the following language is hereby substituted therefor:
(j) investments in MZI, LLC, a corporation formed for the
purpose of providing sonic testing services to OREMET and other
Persons, in an aggregate amount not exceeding $320,000;
1.8 SCHEDULE 5.16 of the Loan Agreement is hereby amended and
restated in its entirety in the form attached as EXHIBIT A.
1.9 SUPPLEMENT A to the Loan Agreement is hereby amended and restated
in its entirety in the form attached as EXHIBIT B. ("Second Amended and
Restated Supplement A").
2. CONSENT. Effective as of March 8, 1995, upon satisfaction of the
conditions precedent set forth in SECTION 3 below, and in reliance upon the
representations and warranties of Borrowers set forth herein, Lender hereby
consents to a contribution to the capital of MZI, LLC by Borrowers, in an
amount not exceeding $270,000.
3. CONDITIONS PRECEDENT. This Amendment shall become effective as of the
date hereof, upon satisfaction of each of the following conditions:
(a) As of the date first above written (after giving effect to this
Amendment) no Unmatured Event of Default or Event of Default shall have
occurred and be continuing.
(b) Lender shall have received the following, each duly executed where
appropriate and dated as of the date hereof and in form and substance
reasonably satisfactory to Lender:
(1) RESOLUTIONS. A copy, duly certified by the secretary or
an assistant secretary of each of the Borrowers of (i) resolutions
of the Executive Committee of the Board of Directors of such
Borrower authorizing
-3-
<PAGE>
of this Amendment, (ii) all documents evidencing any other necessary
corporate action with respect to this Amendment, and (3) all
approvals or consents, if any, with respect to this Amendment.
(2) LEGAL OPINIONS. A legal opinion from counsel for each of the
Borrowers in form and substance satisfactory to Tender.
(3) AMENDMENT; SUPPLEMENT A. Two (2) copies of this Amendment
and the Second Amended and Restated Supplement A, in each case duly
executed by each of the Borrowers.
(c) OREMET shall have paid to Lender a non-refundable fee in the
amount of $50,000, the amount of which fee shall be advanced to OREMET
as a Revolving Loan.
4. REPRESENTATIONS. WARRANTIES AND COVENANTS.
4.1 Each of the Borrowers hereby represents and warrants that:
(a) this Amendment and the Loan Agreement (including the Second
Amended and Restated Supplement A) as amended hereby, constitute legal,
valid and binding obligations of the respective Borrowers and are
enforceable against each of the Borrowers in accordance with their
respective terms;
(b) before and after giving effect to this Amendment, no Unmatured
Event of Default or Event of Default has occurred and is continuing; and
(c) the execution and delivery by each of the Borrowers of this
Amendment does not require the consent or approval of any Person.
4.2 Each of the Borrowers hereby reaffirms all agreements,
covenants, representations and warranties made by such Borrower in the Loan
Agreement and each of the Related Agreements to the extent the same are
not amended hereby and agrees that all such agreements, covenants,
representations and warranties shall be deemed to have been remade as of the
date hereof and the effective date of this Amendment.
5. REFERENCE TO AND EFFECT ON THE LOAN AGREEMENT AND RELATED
AGREEMENTS.
5.1 Upon the effectiveness of this Amendment, each reference in the
Loan Agreement to "this Agreement", "hereunder", "hereof", "herein" or words
of like import, and each reference in each of the Related Agreements to the
"Loan Agreement," shall in each case mean and be a reference to the Loan
Agreement as amended hereby.
-4-
<PAGE>
5.2 Except as expressly set forth herein, (i) the execution and
delivery of this Amendment shall in no way affect any right, power or remedy
of Lender with respect to any Event of Default nor constitute a waiver of any
provision of the Loan Agreement or any of the Related Agreements and (ii) all
terms and conditions of the Loan Agreement, the Related Agreements and all
other documents, instruments, amendments and agreements executed and/or
delivered by either or both of the Borrowers pursuant thereto or in
connection therewith shall remain in full force and effect and are hereby
ratified and confirmed in all respects. The execution and delivery of this
Amendment by Lender shall in no way obligate Lender, at any time hereafter,
to consent to any other amendment or modification of any term or provision of
the Loan Agreement or any of the Related Agreements.
6. GOVERNING LAW. This Amendment shall be governed by and construed
in accordance with the internal laws (as opposed to conflicts of law
provisions) of the State of Illinois.
7. HEADINGS. Section headings in this Amendment are included herein
for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.
8. COUNTERPARTS. This Amendment may be executed by the parties
hereto on separate counterparts and each of said counterparts taken together
shall be deemed to constitute one and the same instrument.
(SIGNATURE PAGE FOLLOWS)
-5-
<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly executed as of the
day and year first written above.
OREGON METALLURGICAL CORPORATION
By: _____________________________
Title: Vice President
TITANIUM INDUSTRIES, INC.
By:_______________________________
Title: Assistant Treasurer
BANKAMERICA BUSINESS CREDIT, INC.
By: ______________________________
Title: Vice president
SUPPLEMENTS, EXHIBITS AND SCHEDULES ARE INTENTIONALLY OMITTED. REGISTRANT
WILL FURNISH SUPPLEMENTALLY A COPY TO THE COMMISSION UPON REQUEST.
<PAGE>
OREGON METALLURGICAL CORPORATION
EXHIBIT 11.1
Earnings per share computation
<TABLE>
<CAPTION>
Three Months Ended Six Month Ended
June 30, June 30,
-------------------- ----------------
(in thousands except per share data)
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income (loss) $ 453 $ (601) $ 988 $(1,686)
------- ------- ------- -------
------- ------- ------- -------
Weighted average shares outstanding 10,908 10,892 10,902 10,890
Weighted average share equivalents assumed
issued from Excess Benefit Plan 118 --- 128 ---
Weighted average share equivalents
assumed issued from exercise of warrants 62 --- 36 ---
Weighted average share equivalents assumed
issued as part of Employee Compensation Policy 99 --- 66 ---
------- ------- ------- -------
Weighted average share and share
equivalents outstanding 11,187 10,892 11,132 10,890
------- ------- ------- -------
------- ------- ------- -------
Net income (loss) per share $ 0.04 $ (0.06) $ 0.09 $ (0.16)
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
Earnings per share computed on both the primary and fully diluted bases
are the same.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Oregon
Metallurgical Corporation and subsidiaries Consolidated Balance Sheets as of
June 30, 1995 and the related Consolidated Statements of Operations for the six
months then ended and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 526
<SECURITIES> 0
<RECEIVABLES> 27,488
<ALLOWANCES> (890)
<INVENTORY> 59,061
<CURRENT-ASSETS> 87,350
<PP&E> 100,264
<DEPRECIATION> (64,146)
<TOTAL-ASSETS> 125,217
<CURRENT-LIABILITIES> 29,835
<BONDS> 22,610
<COMMON> 10,911
0
0
<OTHER-SE> 57,481
<TOTAL-LIABILITY-AND-EQUITY> 125,217
<SALES> 65,963
<TOTAL-REVENUES> 65,963
<CGS> 55,340
<TOTAL-COSTS> 55,340
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,040
<INCOME-PRETAX> 1,702
<INCOME-TAX> 714
<INCOME-CONTINUING> 988
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 988
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
