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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K/A
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
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 0-1339
OREGON METALLURGICAL CORPORATION
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(Exact name of registrant as specified in its charter)
OREGON 93-0448167
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
530 34th AVE. S.W., ALBANY, OR 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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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class which is registered
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None None
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Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $1.00 PAR VALUE
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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
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Indicate by check mark if the disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
Based on the closing sales price of the Common Stock on March 16, 1995 as
reported on the NASDAQ National Market System, the aggregate market value of
the voting stock held by nonaffiliates of the registrant was $73,545,327.
The number of shares outstanding of the registrant's common stock, $1.00 par
value was 10,895,604 at March 16, 1995.
DOCUMENTS INCORPORATED BY REFERENCE
Oregon Metallurgical Corporation Annual Report to Shareholders for 1994 is
incorporated by reference in Parts II and IV of Form 10-K as stated herein.
The Oregon Metallurgical Corporation Proxy Statement for the Annual Meeting
of Shareholders to be held April 27, 1995, is incorporated by reference in
Part III of Form 10-K as stated herein.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
1. FINANCIAL STATEMENTS: The following Financial Statements of Oregon
Metallurgical Corporation and Report of Independent Accountants are
incorporated by reference from pages 16 through 26 of the
Registrant's 1994 Annual Report to Shareholders:
Consolidated Statements of Operations - For The Years Ended
December 31, 1994, 1993 and 1992.
Consolidated Balance Sheets - December 31, 1994 and 1993.
Consolidated Statements of Shareholders' Equity - For The Years
Ended December 31, 1994, 1993 and 1992.
Consolidated Statements of Cash Flows - For The Years Ended
December 31, 1994, 1993 and 1992.
Notes to Consolidated Financial Statements.
Report of Independent Accountants.
2. FINANCIAL STATEMENT SCHEDULES: The following financial statement
schedule of Oregon Metallurgical Corporation for the years ended
December 31, 1994, 1993 and 1992 is filed as part of this Report
and should be read in conjunction with the Consolidated Financial
Statements of Oregon Metallurgical Corporation:
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Page
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Report of Independent Accountants on Financial Statement
Schedules ................................................. S-1
II Valuation and Qualifying Accounts .................... S-2
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Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set
forth therein is included in the Consolidated Financial Statements
or Notes thereto.
3. EXHIBITS
The Exhibit Index on pages 12 and 13 of this Annual Report on Form
10-K lists the exhibits that are filed as part of this Report.
(b) Reports on form 8-K:
With regard to the Company's acquisition of Titanium Industries, Inc.,
the Company filed the following current Reports on Form 8-K during the
quarter ended December 31, 1994:
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Date Date
Form of Report Filed with SEC
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<S> <C> <C>
8-K September 20, 1994 October 5, 1994
8-K/A September 20, 1994 November 2, 1994
8-K/A-2 September 20, 1994 December 2, 1994
</TABLE>
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
OREGON METALLURGICAL CORPORATION
Date: June 20, 1995 /s/ Carlos F. Aguirre
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Carlos F. Aguirre, President, Chief
Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
PRINCIPAL FINANCIAL OFFICER,
AND PRINCIPAL ACCOUNTING OFFICER
Date: June 20, 1995 /s/ Dennis P. Kelly
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Dennis P. Kelly, Vice President, Finance
PRINCIPAL EXECUTIVE OFFICER
Date: June 20, 1995 /s/ Carlos F. Aguirre
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Carlos F. Aguirre, President, Chief
Executive Officer and Director
BOARD OF DIRECTORS
Date: June 6, 1995 /s/ Howard T. Cusic
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Howard T. Cusic, Chairman, Board of
Directors
Date: June 8, 1995 /s/ Gilbert E. Bezar
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Gilbert E. Bezar, Director
Date: June 8, 1995 /s/ Robert P. Booth
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Robert P. Booth, Director
Date: June 5, 1995 /s/ Roger V. Carter
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Roger V. Carter, Director
Date: June 6, 1995 /s/ Nicholas P. Collins
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Nicholas P. Collins, Director
Date:
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David H. Leonard, Director
Date:
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James S. Paddock, Director
Date: June 20, 1995 /s/ James R. Pate
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James R. Pate, Director
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EXHIBIT INDEX
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EXHIBIT
NO. DESCRIPTION
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2.1 Stock and Asset Purchase Agreement between Kamyr, Inc. and New
TI, Inc. (Filed as exhibit (2)-1 to Form 8-K dated September 20,
1994).
3.1 Restated Articles of Incorporation. (Filed as exhibit (3) to Form
10-K for the year ended December 31,1993).
3.2 Restated Bylaws.
4.1 Specimen Common Stock Certificate. (Previously filed).
4.2 Warrant Agreement (Nontransferable Warrant) between James S.
Paddock and the Company, dated September 19, 1994. (Filed as
exhibit (4)-1 to Form 8-K/A-2 dated September 20, 1994).
10.1 Employee Stock Ownership Plan of the Company. (Filed as exhibit
4.3 to Form S-8 Registration Statement 33-18650).*
10.2 Employee Stock Ownership Trust Agreement of the Company. (Filed
as exhibit 4.4 to Form S-8 Registration Statement 33-18650).*
10.3 Employment Agreement dated June 28, 1993 between the Company and
Carlos Aguirre.*
10.4 Employment Agreement dated October 11, 1993 between the Company
and Dennis P. Kelly.*
10.5 Employment Agreement dated October 8, 1993 between the Company
and Steven H. Reichman.*
10.6 Employment Agreement dated February 20, 1995 between the Company
and John P. Byrne.*
10.7 Loan and Security Agreement dated as of September 19, 1994 among
the Company, New TI, Inc. and Bank of America Illinois.
10.8 Sales Agreement between RMI Titanium Company and the Company
(Filed as exhibit (10) to Form 10-Q for the period ended
September 30, 1994).
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<TABLE>
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<C> <S>
10.9 Corporate Organization and Shareholders Agreement Among James S.
Paddock, the Company and New TI, Inc., dated September 19, 1994.
(Filed as exhibit (10)-1 to the Form 8-K/A-2 dated September 20,
1994).*
10.10 OREMET Employment Agreement between James S. Paddock and the
Company, dated September 19, 1994. (Filed as exhibit (10)-2 to the
Form 8-K/A-2 dated September 20, 1994).*
10.11 Employment Agreement between James S. Paddock and New TI, Inc.,
dated September 19, 1994. (Filed as exhibit (10)-3 to the
Form 8-K/A-2 dated September 20, 1994).*
10.12 Noncompetition and Confidentiality Agreement between James S.
Paddock and the Company, dated September 19, 1994. (Filed as
exhibit (10)-4 to the Form 8-K/A-2 dated September 20, 1994).*
10.13 Noncompetition and Confidentiality Agreement between James S.
Paddock and New TI, Inc., dated September 19, 1994. (Filed as
exhibit (10)-5 to the Form 8-K/A-2 dated September 20, 1994).*
10.14 Titanium Tetrachloride Agreement between SCM Chemicals, Inc. and
the Company, dated August 11, 1990.
10.15 Subordinated promissory note between New TI, Inc. and the former
Titanium Industries, Inc., dated September 19, 1994.
11.1 Statement re: Computation of Per Share Earnings.
13.1 1994 Annual Report to Shareholders. Except for the portions
expressly incorporated by reference, this Report is not deemed to
be filed as part of this Annual Report on Form 10-K.
21.1 Subsidiaries of the Company.
23.1 Consent of Independent Accountants.
27 Financial Data Schedule (filed electronically only).
<FN>
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* Management contract or compensatory plan.
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REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Oregon Metallurgical Corporation
Our report on the consolidated financial statements of Oregon Metallurgical
Corporation has been incorporated by the reference in this Form 10K from page
26 of the 1994 Annual Report to Shareholders of Oregon Metallurgical
Corporation. In connection with our audits of such financial statements, we
have also audited the related financial statement schedule listed in item
14(a) of this form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND, L.L.P.
Eugene, Oregon
February 3, 1995
S-1
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OREGON METALLURGICAL CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
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(In thousands)
<TABLE>
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ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS OF YEAR
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<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1994 $117 $962 $(55)(a) $1,024
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Year ended December 31, 1993 $110 $ 39 $(32)(a) $ 117
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Year ended December 31, 1992 $-0- $120 $(10)(a) $ 110
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<FN>
(a) Amounts written off, less recoveries.
</TABLE>
S-2
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PART I
ITEM 1. BUSINESS
THE COMPANY
Oregon Metallurgical Corporation ("OREMET" or the "COMPANY") was
incorporated in Oregon in 1955 and began operations in 1956. OREMET is a major
producer and distributor of titanium sponge, ingot, mill products and castings
for aerospace, industrial and commercial applications.
The Company built its business in the 1950's and 1960's by capitalizing
on the demand for titanium from the United States Air Force and other military
programs and from the emerging commercial aerospace industry. During this
period, the Company funded its growth internally and through investments by
corporate partners. In 1968, one partner, Armco Inc. ("Armco"), a major steel
manufacturer, made a substantial investment in the Company and by the end of
1982 owned approximately 80% of the Company's common stock. In 1985, Armco sold
its interest in the Company to Owens-Corning Fiberglas Corporation ("Owens-
Corning"). In December 1987, the Company repurchased its common stock from
Owens-Corning and immediately sold shares of its common stock to the newly
created Oregon Metallurgical Corporation Employee Stock Ownership Plan (the
"ESOP"). Initially, the ESOP owned approximately 67% of the Company's
outstanding common stock while at December 31, 1994, the ESOP's ownership
interest is approximately 41%.
On September 20, 1994, the Company completed the acquisition of the net
assets and subsidiaries of the Titanium Industries Distribution Group from
Kamyr, Inc. The acquired business is being operated under the name of Titanium
Industries, Inc. ("TI"), an 80% owned subsidiary of OREMET. TI operates full-
line titanium metal service centers in the U.S., U.K. and Canada and it produces
small diameter titanium bar, weld wire and fine wire. The acquisition was
accounted for as a purchase, with the results of TI included in the Company's
financial statements from the acquisition date.
INDUSTRY OVERVIEW
Titanium was first commercially produced in the 1950's. Titanium's
superior strength-to-weight ratio, stability at high temperatures and corrosion
resistance made it well suited for the aerospace and jet engine market.
Historically, approximately 75-80% of the U.S. titanium consumption has been for
aerospace applications both in the commercial and the military sectors.
The aerospace industry has historically been characterized by severe
cyclicality, which has had a significant impact on the sales and profitability
of titanium producers, including OREMET. The last peak in the titanium industry
cycle occurred in the 1988-1990 period when domestic industry shipments exceeded
50 million pounds in each year. In 1991, U.S. titanium industry shipments
declined by approximately 35% to 34 million pounds. This decline was primarily
due to lower demand resulting from a slump in the commercial aerospace industry
and the curtailment or
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cancellation of military programs resulting from the end of the Cold War. Data
reported by the U.S. Bureau of Mines indicates that industry shipments increased
by approximately 1 million pounds per year in 1992 and 1993, while they dropped
to approximately 35 million pounds for 1994.
The aerospace industry is expected to continue to be the primary source
of demand for titanium products. However, many opportunities exist in the non-
aerospace markets where the characteristics of titanium metal provide advantages
over competing materials, such as aluminum, nickel and stainless steels.
Titanium's resistance to the effects of atmospheric conditions and a variety of
chemicals and acids make it an attractive metal for marine and other industrial
applications where corrosion is of critical concern. As a result, titanium is
used increasingly in pollution control equipment, offshore oil installations,
mining operations and waste storage facilities. Its favorable strength-to-
weight ratio and bio-compatibility make it an increasingly popular metal for
biomedical products, such as medical implants, and consumer products, such as
golf clubs, eyeglass frames and bicycles.
PRODUCTS AND OPERATIONS
Titanium products is the Company's single business segment. A full
range of titanium products are produced for applications in both the aerospace
and non-aerospace markets. The principal product forms are titanium sponge;
titanium ingots; titanium mill products; and castings.
Titanium sponge is the commercially pure, elemental form of titanium
metal. Titanium sponge is produced by OREMET at its facility in Albany, Oregon
by reducing titanium tetrachloride using magnesium as the reduction agent.
OREMET began producing titanium sponge for internal use in 1970 and began
selling it in 1987. The Company sells sponge principally to the domestic non-
integrated titanium producers, who use the sponge to produce ingot and mill
products. During 1994, the sponge plant operated at approximately 75% of its
practical annual capacity of 12 million pounds.
Titanium ingots are cylinders with a weight of up to 20 thousand pounds
and a diameter of up to 36 inches. Titanium ingots are made by OREMET at its
facility in Albany, Oregon by melting sponge or titanium recycle, or a
combination of the two, with certain other elements to form titanium alloys.
Ingot is converted in a forge, either by OREMET or by its customers, into semi-
finished shapes and then into finished mill products. The Company produces
ingot in response to specific customer orders and in a variety of sizes and
grades to meet the customer's specifications. During 1994, the ingot plant
operated at approximately 60% of its rated annual capacity of 16 million pounds.
Titanium mill products result from the forging, rolling, drawing and/or
extruding of titanium ingots or slabs. OREMET produces titanium billet, bar,
rod, wire, plate and sheet. The Company is dependent on the services of outside
processors to perform certain important processing functions. For some of its
products, OREMET is dependent on the services provided by Titanium Hearth
Technologies ("THT"), an outside processor which is 50% owned by one of the
Company's principal competitors. THT owns and operates a cold hearth melting
furnace which the Company utilizes for
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melting titanium slab that is further processed into titanium plate and sheet
for non-aerospace applications. General Electric Company, a major jet engine
manufacturer, has also specified that a cold hearth melting furnace be used
for melting one of the products it purchases. Other than for those provided
by THT, the services performed by the outside processors are typically
available from multiple sources. Services are provided by THT in accordance
with a three-year agreement ending December 31, 1996 which agreement is
renewed automatically for successive one-year terms unless either party has
given the other not less than six months notice of its desire not to renew.
OREMET has not experienced any delays or other problems associated with the
competitor's 50% ownership of THT. Should the THT services agreement not be
renewed, OREMET would attempt to obtain these services from another competitor
which has a cold hearth melting furnace, or, if financially justified, build a
separate furnace for OREMET's own use. OREMET believes that the loss of the
services provided by the existing outside processors would result in production
delays and have an adverse effect on operations.
OREMET sells its mill products to manufacturers of aircraft, jet
engines, vessels and piping for chemical plants, prosthetic and orthopedic
implants, golf clubs and other consumer goods. OREMET produces mill products at
its plant in Albany, Oregon and at a plant in Frackville, Pennsylvania.
OREMET produces titanium and zirconium castings for customers outside of
the aerospace industry. Castings are made by melting metal which is then poured
under vacuum into graphite molds. Castings generally weigh from 1 to 1 thousand
pounds. OREMET's castings are made at its Albany, Oregon plant to customer
specifications and are used in marine and other industrial applications where
corrosion is of critical concern.
RAW MATERIALS
The primary raw materials used by the Company are titanium
tetrachloride, magnesium, titanium recycle and certain combinations of primary
metals that form master alloys. Titanium tetrachloride and magnesium are the
principal materials used in the production of titanium sponge. The principal
materials used in the production of titanium ingot are sponge, titanium recycle,
other metallic elements and master alloys.
OREMET purchases its titanium tetrachloride requirements from SCM
Chemicals Inc. ("SCM") under a long term contract that expires in 2001. While
the Company believes it could obtain commercial quantities of sufficiently pure
titanium tetrachloride from other sources, any extended disruption in the supply
from SCM would have a material adverse effect on OREMET's ability to produce
titanium sponge. Magnesium is generally available from a number of suppliers.
Titanium recycle is typically available from many sources. The
availability of attractively priced titanium recycle varies due to the
fluctuations in the size of the titanium market from year to year and due to
demands from other industries, such as steel, where it is consumed in the
process. Certain of the primary metal compounds used to form master alloys are
produced by a limited number of suppliers. During January 1995, in response to
rapidly increasing costs, the Company and other primary titanium producers
imposed surcharges on their product prices for master alloys.
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When available at attractive prices, the Company has purchased titanium
sponge and recycle from the Former Soviet Union ("FSU"). Continued availability
of these materials at attractive prices can not be assured due to the
uncertainties concerning the manufacturing capabilities of the FSU titanium
producers and the potential for political and economic instability within the
FSU.
MARKETING AND DISTRIBUTION
OREMET markets its products primarily to non-integrated titanium
producers and manufacturers of titanium metal end products. The Company also
sells its mill products to regional value-added distributors who convert the
mill products to smaller lengths or sizes for resale to machine shops and other
mill product producers. The majority of sales are made through the Company's
internal sales organization. OREMET also uses independent sales representatives
for the sale of products outside of North America.
Shipments to customers may be made directly from one of the Company's
mills in Albany, Oregon or Frackville, Pennsylvania; from an outside processor;
or from one of the Company's service centers in the U.S., Canada, the U.K., or
France. The service centers maintain one of the world's largest inventories of
titanium mill products available for rapid delivery to points around the globe.
A complete line of first stage processing equipment is available and outside
machining can be arranged by the service centers to meet the needs of their
customers.
The Company estimates that its sales to the aerospace industry totaled
approximately 60%, 70% and 80% of its net sales in 1994, 1993 and 1992,
respectively. OREMET believes that its sales to the non-aerospace industry, as
a percent of total sales, will continue to increase in 1995. Industrial and
commercial applications for titanium are continuing to grow and the Company's
presence in these markets is further enhanced by the acquisition of TI in 1994.
For nearly 25 years, TI has been in the forefront of supplying and developing
titanium applications for industrial and commercial customers.
The Company has a contract to supply titanium sponge and certain other
titanium products to RMI Titanium Company ("RMI") through 2003. Sales to RMI
accounted for approximately 13%, 30% and 25% of OREMET's net sales in 1994, 1993
and 1992, respectively. No other customer accounted for more than 10% of
OREMET's net sales in any of these three years.
EXPORTS
Export sales, primarily to Europe and Asia, totaled approximately 12%,
9% and 7% of OREMET's net sales in 1994, 1993 and 1992, respectively. In May
1994, OREMET signed a three year contract with, and in the second half of 1994
began supplying product to, Aerospatiale Avions, France for engine pylons on
Airbus aircraft. In addition, the Company has a contract to supply titanium
armor to the French navy in 1995. To assist in the implementation of these
contracts and to establish a basis for a sustained presence in this sector of
Europe, the Company formed a subsidiary, OREMET France S.a.r.l., during 1994 to
operate a service center in France. The acquisition of TI provided the Company
with a service center located in the U.K. with an established operation. The
Company intends to utilize these facilities to meet its customers' needs in
Europe.
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BACKLOG
The Company's twelve month sales order backlog totaled approximately $44
million at December 31, 1994 and $18 million at December 31, 1993.
Approximately $8 million of the backlog at December 31, 1994 is applicable to TI
which was acquired in September 1994.
COMPETITION
Although OREMET's sales are predominately to the domestic market, the
titanium industry is competitive on a worldwide basis. In each of the Company's
major product lines, OREMET believes it competes primarily on the basis of
price, quality, delivery time and customer service. OREMET's principal
competitors are other integrated and non-integrated producers of titanium
located primarily in the U.S., Europe, Japan, China and the FSU.
An integrated producer makes titanium sponge in addition to ingot and
mill products. The Company estimates that its share of U.S. sponge capacity is
approximately 35% and that its share of world capacity is about 6%. While
approximately 20% of the world's sponge production capacity is located within
the U.S., approximately 50% is located within the FSU. The Company also
competes with non-integrated producers who produce titanium products from
sponge, recycle, ingot, slab and mill products purchased from OREMET and from
others.
After the end of the Cold War, sponge produced in the FSU became
available and has been imported into the U.S. at low prices in ever increasing
quantities. Industry sources estimate that approximately 11 million pounds of
sponge were imported into the U.S. from the FSU during 1994. This is about 350%
higher than the amount imported during 1993 and it is about 50% of the estimated
1994 production of the U.S. producers.
The titanium producers in the FSU are currently working with several
U.S. companies to have their "new production" material qualified for use in
critical aerospace applications. Current pricing for FSU sponge, before
consideration of import tariffs and dumping duties, is less than the variable
cost of manufacture for U.S. producers. While the FSU producers have not been
significant participants in the U.S. market for mill products, it is believed
that they have the largest titanium mill products production capacity in the
world. Their entry into the U.S. market could materially effect the operations
of the Company.
In September 1993, an Executive Proclamation was issued by President
Clinton which had the effect of reducing or eliminating tariffs on certain
titanium products produced in the FSU. OREMET and others in the metals industry
are working together to bring the problems caused by the FSU producers selling
at prices which do not reflect the true economic cost of production to the
attention of the appropriate government agencies and elected officials.
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EMPLOYEE RELATIONS
As of December 31, 1994, the Company employed 482 employees, of which 45
were employed outside of the U.S. All of the hourly production and maintenance
workers (approximately 285) at the Albany, Oregon and Frackville, Pennsylvania
manufacturing facilities are represented by labor unions. In August 1994, the
Company and the union representing Albany, Oregon employees agreed upon a new
labor contract which will continue through July 2000. This contract can be re-
opened after three years to address economic issues. The contract covering the
Frackville, Pennsylvania employees was negotiated in September 1994, and will
continue for three years. OREMET considers its relations with its employees to
be good.
RESEARCH, TECHNICAL AND DEVELOPMENT
The Company has a modest research and development staff which maintains
contact with university and government research facilities and with major end-
users of its products to assess new applications for titanium and the need for
new or alternative alloys and titanium compositions. The Company develops
titanium alloy systems, processes and procedures for the manufacture of
experimental metal and new products. The Company also maintains a staff of
employees dedicated to process engineering. This process engineering group
continually evaluates and identifies potential improvements in the manufacturing
process. The amount of money spent on research, technical and development
activities totaled approximately $1.4 million in 1994 and approximately $0.8
million in both 1993 and 1992.
OREMET's quality control group tests products for compliance with
customer specifications, including detailed metallurgical and chemical analyses,
sonic tests and mechanical capability and property tests. The results of these
tests are often then certified for conformance to specifications and then
recorded for future traceability.
PATENTS AND TRADEMARKS
The Company possesses a substantial body of trade secrets and know-how.
While no individual trade secret, patent or item of know-how is thought to be
material to the operations of the Company, in total this body of knowledge is
important to OREMET's business.
ENVIRONMENTAL
The Company is subject to federal, state and local statutes and
regulations concerning environmental matters and land use. These laws are
frequently modified to be more restrictive and it is impossible to predict
accurately the future effect changes in these laws may have on the Company.
Like all titanium producers, the Company generates certain waste
materials and emissions, including substances for which disposal or emission
requires compliance with environmental laws. The Company conducts its
operations at industrial sites where hazardous substances have been managed for
many years in connection with its operations, including periods before the
increased
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management of these substances was required by law. Consequently, the Company
is subject to various environmental laws that impose compliance obligations and
may create liability for historical releases of hazardous substances.
The Company has entered into a consent order with the Oregon Department
of Environmental Quality pursuant to which the Company is conducting an
investigation of hazardous substances in portions of the soil and groundwater at
its plant site in Albany, Oregon. The Company anticipates that the
investigation will result in a determination that at least some remedial action
is necessary. While the Company has reserved $1 million, the total cost of any
remedial action depends on the eventual requirements of the relevant
authorities. A neighboring property owner also is investigating groundwater
contamination at their property that may have migrated to OREMET's property and
for which OREMET may have legal claims to recover a portion of its investigation
and remedial costs.
In the past, the Company utilized off-site disposal of various wastes
generated from operations. Although the Company believes that disposal was
conducted in compliance with laws in effect at the time, a facility to which the
Company sent its wastes has been determined to be environmentally unsound under
current law. Pursuant to a final agreement with the Oregon Department of
Environmental Quality, the Company will relocate these waste materials to an
approved facility. The Company has reserved $.4 million for these relocation
costs.
In February 1995, the Oregon Department of Environmental Quality
modified OREMET's waste water discharge permit. The modified permit accelerates
the implementation of more stringent water quality standards than those
contained in OREMET's original permit. OREMET is reviewing its waste water
management practices and has developed a number of feasible alternatives which
can be implemented to maintain the Company's compliance with the terms of the
modified permit and proposed implementation schedule.
In 1991 and in 1993, the Pennsylvania Department of Environmental
Regulation and the Environmental Protection Agency (EPA) performed site
inspections, including soil and water sampling, at TI's site in Frackville,
Pennsylvania, in connection with a regional groundwater investigation of the
Frackville, Pennsylvania area. While the EPA's investigation is ongoing,
management is not aware of any pending or required actions which may arise from
this investigation.
In conjunction with the purchase of TI, Kamyr agreed to undertake
specified clean-up activities on the Frackville location. In addition, Kamyr
agreed to a specific indemnification of the Company in the event damages arise
which result from the conditions which were not in compliance with environmental
laws and regulations as they existed at the time of the sale of TI.
The Company made provisions for environmental expenses of $0.2, $1.0 and
$0.2 million in 1994, 1993 and 1992, respectively. These amounts are in
addition to recurring environmental costs which are expensed as incurred and are
included in cost of sales.
7
<PAGE>
Although the Company has established certain reserves for environmental
issues as described above, there can be no assurance regarding the costs that
eventually may be required to be expended or that additional environmental
claims may not be asserted. Accordingly, the costs may exceed the amounts so
reserved.
ITEM 2. PROPERTIES
The Company's principal executive office is located in Albany, Oregon.
Manufacturing facilities in Albany, Oregon and Frackville, Pennsylvania are
owned and described in the Products and Operations portion of Item 1, Section 1.
The Company believes that the plants are adequate and suitable for its operating
needs. Other than the facility in Birmingham, U.K., the service centers and
sales offices which the Company utilizes are leased.
8
<PAGE>
OREGON METALLURGICAL CORPORATION
EXHIBIT 11.1
Earnings per share computation
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
(in thousands except per share data)
1994 1993 1992
<S> <C> <C> <C>
Loss before change in accounting method $(2,023) $(4,098) $(4,122)
Net loss $(2,023) $(4,098) $(4,191)
Weighted average shares outstanding 10,997 10,839 10,754
Weighted shares assumed issued from exercise
of warrants 4 -- --
Shares for EPS calculation 11,001 10,839 10,754
Loss per share before change in accounting
method $ (0.18) $ (0.38) $ (0.38)
Net loss per share $ (0.18) $ (0.38) $ (0.39)
</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
SHEET AS OF DECEMBER 31, 1994 AND THE RELATED CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE YEAR THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 1,636
<SECURITIES> 0
<RECEIVABLES> 21,468
<ALLOWANCES> (1,024)
<INVENTORY> 49,023
<CURRENT-ASSETS> 72,972
<PP&E> 99,501
<DEPRECIATION> 61,981
<TOTAL-ASSETS> 111,972
<CURRENT-LIABILITIES> 23,890
<BONDS> 17,164
<COMMON> 10,893
0
0
<OTHER-SE> 56,389
<TOTAL-LIABILITY-AND-EQUITY> 111,972
<SALES> 71,166
<TOTAL-REVENUES> 71,166
<CGS> 64,527
<TOTAL-COSTS> 64,527
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 606
<INCOME-PRETAX> (2,738)
<INCOME-TAX> (715)
<INCOME-CONTINUING> (2,023)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,023)
<EPS-PRIMARY> $(0.18)
<EPS-DILUTED> $(0.18)
</TABLE>
