<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 26, 1996
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
OREGON METALLURGICAL CORPORATION
(Exact name of registrant as specified in its charter)
0-1339
OREGON 93-0448167
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
CARLOS E. AGUIRRE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
530 34TH AVENUE, S.W. 530 34TH AVENUE, S.W.
ALBANY, OREGON 97321 ALBANY, OREGON 97321
(541) 967-9000 (541) 967-9000
(Address, including zip code, and(Name, address, including zip code
telephone number, including area codeand telephone number, including zip code
of registrant's principal executive offices)of agent for service)
COPIES TO:
CARMEN M. CALZACORTA GREGORY K. MILLER
GREGORY W. MALLORY MALU S. MERCADO
SCHWABE, WILLIAMSON & WYATT LATHAM & WATKINS
1211 S.W. FIFTH AVENUE, SUITES 1600-1800 505 MONTGOMERY STREET, SUITE 1900
PORTLAND, OREGON 97204-3795 SAN FRANCISCO, CALIFORNIA 94111-2562
(503) 222-9981 (TELEPHONE) (415) 391-0600 (TELEPHONE)
(503) 796-2900 (FACSIMILE) (415) 395-8095 (FACSIMILE)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable following the effectiveness of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
Title of Each Class of
Securities to be
Registered
Amount
to be
Register
ed(1) Proposed
Maximum
Offering
Price
Per
Share(2) Proposed
Maximum
Aggregate
Offering
Price
Amount
of
Registra
tion Fee Common Stock, $1.00 par
value. . . . . . . . . . 4,025,00
0 shares $28.5625 $114,964,0
60 $39,642.
78
(1)Includes 525,000 shares which the Underwriters have the option to purchase to
cover any over-allotments.
(2)Estimated solely for the purpose of calculating the Registration Fee pursuant
to Rule 457(c) of the General Rules and Regulations under the Securities Act
of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectuses to be used in
connection with the offering of the Shares made hereby, one form of Prospectus
to be used for sales in the United States and Canada and one form of Prospectus
to be used for sales outside of the United States and Canada. The two forms of
Prospectuses will be identical except for the front cover, the back cover, the
section under the caption "Underwriting" and the addition of a section under the
caption "Certain U.S. Tax Considerations for Non-U.S. Holders."
SUBJECT TO COMPLETION
JUNE 26, 1996
PROSPECTUS
3,500,000 SHARES LOGO
OREGON METALLURGICAL CORPORATION
COMMON STOCK
($1.00 PAR VALUE)
All of the shares of common stock, par value $1.00 per share (the "Common
Stock") of Oregon Metallurgical Corporation ("OREMET" or the "Company") offered
hereby, are being issued and sold by the Company. The Common Stock is traded on
the Nasdaq National Market (the "Nasdaq") under the symbol "OREM." On June 25,
1996, the last reported sale price of the Common Stock on the Nasdaq was $29.25
per share.
Of the 3,500,000 shares being offered hereby ("Shares"), 3,000,000 Shares are
being offered in the United States and Canada (the "U.S. Offering") and 500,000
Shares are being offered in a concurrent international offering outside the
United States and Canada (the "International Offering" and, together with the
U.S. Offering, the "Offerings"), subject to transfers between the U.S.
Underwriters and the International Underwriters. The Price to Public and
Underwriting Discount per share will be identical for the U.S. Offering and the
International Offering. See "Underwriting." The closing of the U.S. Offering
and International Offering are conditioned upon each other.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Price to Public Underwriting DiscountProceeds
to Company(1)
Per Share. . . $ $$
Total(2) . . . $ $$
(1) Before deducting offering expenses payable by the Company, estimated to be
approximately $500,000.
(2) The Company has granted to the U.S. Underwriters and the International
Underwriters 30-day options to purchase up to 450,000 and 75,000 additional
shares of Common Stock, respectively, at the Price to Public, less the
Underwriting Discount, solely to cover over-allotments, if any. If the U.S.
Underwriters and the International Underwriters exercise their options in
full, the total Price to Public, Underwriting Discount and Proceeds to
Company will be $ , $ and $ , respectively. See
"Underwriting."
The Shares are offered subject to receipt and acceptance by the Underwriters, to
prior sale and to the Underwriters' right to reject any order in whole or in
part and to withdraw, cancel or modify the offer without notice. It is expected
that delivery of the Shares will be made at the office of Salomon Brothers Inc,
Seven World Trade Center, New York, New York, or through the facilities of The
Depository Trust Company, on or about , 1996.
SALOMON BROTHERS INC
MERRILL LYNCH & CO.
PACIFIC CREST SECURITIES INC.
The date of this Prospectus is , 1996. The information
set forth in this Prospectus under the captions "Prospectus Summary,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act and is subject to the safe
harbor created by that section. Certain factors that could cause results to
differ materially from those projected in the forward-looking statements are
set forth in "Risk Factors" and "Business."
IN CONNECTION WITH THESE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET,
IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED,
MAY BE DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy and information statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy and information statements and other information can be inspected and
copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
following regional offices of the Commission: New York Regional Office, 7 World
Trade Center, New York, New York 10048 and Chicago Regional Office, 1400
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of
such material can be obtained from the Public Reference Section of the
Commission, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. In addition, the aforementioned material can also be
inspected at the offices of the National Association of Securities Dealers, Inc.
at 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a registration statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act").
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information, reference
is made to the Registration Statement, copies of which are available from the
Public Reference Section of the Commission at prescribed rates as described
above. Statements contained herein concerning the provisions of documents filed
with, or incorporated by reference in, the Registration Statement as exhibits
are necessarily summaries of such provisions and documents and each such
statement is qualified in its entirety by reference to the copy of the
applicable document filed with the Commission.
OREMET-Registered Trademark- IS A REGISTERED TRADEMARK OF THE COMPANY.
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
DETAILED INFORMATION SET FORTH ELSEWHERE OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS
ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTIONS. THIS
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE CERTAIN RISKS AND
UNCERTAINTIES. ACTUAL RESULTS AND EVENTS MAY DIFFER SIGNIFICANTLY FROM THOSE
DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH
RESULTS TO DIFFER INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED UNDER THE
HEADING "RISK FACTORS" HEREIN. AS USED IN THIS PROSPECTUS, THE TERMS "OREMET" OR
"COMPANY" MEAN OREGON METALLURGICAL CORPORATION AND ITS CONSOLIDATED
SUBSIDIARIES, TAKEN AS A WHOLE, UNLESS THE CONTEXT INDICATES OTHERWISE.
THE COMPANY
Oregon Metallurgical Corporation ("OREMET" or the "Company") is a leading
U.S. integrated producer of titanium sponge, ingot, mill products and castings
for use in the aerospace, industrial, golf and military markets. The Company's
80% owned subsidiary, Titanium Industries, Inc. ("TI"), operates full-line
titanium metal service centers in the U.S., Canada, U.K. and Germany and
produces small diameter bar, weld wire and fine wire. Since 1993, the Company
has diversified its revenue base, developed new market opportunities for
titanium, expanded its distribution network, increased its production capacity,
and improved its manufacturing efficiency. As a result, management believes
that it is well-positioned to capitalize on improving and emerging markets in
the titanium industry. In 1995, the Company reported net sales of $146.9
million, an operating loss of $0.3 million and a net loss of $2.4 million.
During the first quarter of 1996, the Company reported net sales of $51.3
million, operating income of $5.5 million and net income of $3.3 million.
Titanium is one of the newest specialty metals, having first been
manufactured for commercial use in the 1950s. Titanium is extracted from ore
through a chemical reduction process to form titanium sponge, a porous metallic
material, and melted, along with titanium scrap and various alloying agents, to
form ingots. Ingots are then converted into various mill product shapes and
fabricated products. Titanium's unique combination of corrosion resistance,
elevated-temperature performance and high strength-to-weight ratio makes it
particularly desirable for use in commercial and military aerospace applications
in which these qualities are essential design requirements. While aerospace
applications have historically accounted for a substantial portion of the
worldwide demand for titanium, the number of end-use markets for titanium has
expanded substantially. Today, numerous industrial uses for titanium exist,
including chemical manufacturing equipment, industrial power plants,
desalination plants and pollution control equipment. Demand for titanium is
also increasing in emerging uses such as medical implants, golf clubheads, other
sporting equipment, consumer products such as eyeglass frames and watches,
offshore oil and gas production installations, geothermal facilities and
automotive equipment.
The titanium industry suffered a downturn in the early 1990s, as a result
of a sharp decline in military aerospace consumption and a decline in commercial
aircraft build rates. Since 1995, the titanium industry's prospects have been
improving due to a resurgence in commercial aerospace demand, continuing
industrial demand, an end to customer inventory drawdowns and the emergence of
new uses for titanium, primarily golf clubheads. The total 1995 U.S. industry
mill product shipments, as reported by the U.S. Department of the Interior U.S.
Geological Survey (including its predecessor agency, the U.S. Bureau of Mines,
the "USGS"), were approximately 44 million pounds, an increase of 26% compared
to 1994. Mill product shipments in the first quarter of 1996 totaled
approximately 12 million pounds which represents an increase of 29% over the
first quarter of 1995 as reported by the USGS. Furthermore, the Company
estimates that 1995 U.S. mill product shipments to the commercial aerospace
market were approximately 20 million pounds, an increase of 18% compared to 1994
and that 1995 U.S. mill product shipments to the golf clubhead market were 3.5
million pounds, up from virtually none in 1992.
In 1995, the domestic commercial airline industry reported significantly
higher operating profits than the prior year, and in the second half of 1995
aircraft manufacturers began to increase aircraft build rates. According to
recent published reports, most major carriers are now beginning to invest in
upgrading their fleets. As of March 31, 1996, the estimated firm order backlog
for The Boeing Company, McDonnell Douglas Corporation and Airbus Industries, as
reported by THE AIRLINE MONITOR (an aerospace industry publication), was 1,987
planes versus 1,699 planes on March 31, 1995, an increase of 17%. The newer
wide body planes, such as the Boeing 777 and the Airbus A-330 and A-340, tend to
use a higher percentage of titanium in their airframes, engines and parts (as
measured by total fly weight) than narrow body planes. "Fly weight" is the
empty weight of a finished aircraft with engines but without fuel or passengers.
The Boeing 777, for example, utilizes titanium for approximately 9% of total fly
weight, compared to between 2% and 3% on the older 737, 747 and 767 models.
Firm backlog for the Boeing 777 was 247 as of March 31, 1996, compared to 144 as
of March 31, 1995, an increase of 72%.
The use of titanium in golf clubheads emerged in 1995 as a significant new
market for the titanium industry. The Company first began working with Japanese
golf club manufacturing companies in 1992 to develop drivers that used titanium
golf clubheads. Currently, most major golf club manufacturers, including
Callaway, Cleveland, Cobra, Lynx, Taylor Made, Titleist and Tommy Armour, are
marketing a titanium driver. Several of these major manufacturers are also
using titanium in other clubheads, including fairway woods, irons and putters,
and certain of these companies have recently introduced full sets of titanium
golf clubs. In response to this market demand, a number of golf clubhead
casting companies have announced expansions of their titanium golf clubhead
production facilities. The Company sells titanium mill products directly to
golf clubhead casting companies who, in turn, sell their products to major golf
club manufacturers. In addition, the Company works directly with golf club
manufacturers in new product development projects. The Company believes it is
the market share leader and is supplying in excess of 50% of the titanium sold
to the golf clubhead market. Based on current market conditions and order
rates, management believes that U.S. mill product shipments to the golf market
will increase from 3.5 million pounds in 1995 to over 8 million pounds in 1996.
The Company's twelve-month order backlog has increased to $134 million at
March 31, 1996 from $44 million at December 31, 1994. OREMET's order backlog is
comprised of firm purchase orders scheduled for delivery during the subsequent
twelve-month period. Beginning in the second half of 1995 and continuing to the
present, the Company has experienced a significant increase in requests for
quotations, as well as increased orders and higher prices on accepted orders.
The increase in demand is primarily a result of the recovery in the commercial
aerospace market and the emergence of the golf clubhead market. As a result of
the strong demand, the Company has been increasingly selective in the new orders
that it accepts. In addition, the Company delayed opening its 1997 order book
until early June 1996 in order to better assess future raw material costs. The
Company estimates that of its sales (excluding sponge) in 1996, approximately
50% will be to the aerospace sector and approximately 20% will be to the golf
club industry.
Beginning in 1993, several members of the Company's current executive
management team, including Carlos E. Aguirre, the President and Chief Executive
Officer, joined the Company from other companies within the titanium industry.
The Company's management team intends to continue to focus on the following
strategic objectives to further improve its competitive position:
- MAINTAIN LEADERSHIP IN NEW MARKET APPLICATIONS AND PRODUCTS
OREMET has developed many new and improved applications for titanium
with or for its customers. Sales for non-aerospace applications have
increased from $12.7 million in 1993 to $79.7 million in 1995. OREMET
believes it is currently the largest supplier of titanium to the
growing golf market. It has also established a presence in new
markets such as armor for sale to the military (OREMET supplied
titanium plate for a French aircraft carrier, the CHARLES DEGAULLE)
and high purity sponge for the electronics industry. For the
aerospace industry, OREMET has developed a unique production process
for titanium aluminides. As a result of these efforts, the Company
has diversified its revenue base while maintaining the flexibility to
respond to changing market conditions.
Aerospace related sales represented 46% of 1995 net sales compared to
61% of 1994 net sales and 77% of 1993 net sales. The Company
anticipates that future aerospace industry sales will vary from 40% to
60% of total net sales depending upon demand and profitability.
- BENEFIT FROM VERTICAL INTEGRATION AND SCRAP HANDLING CAPABILITIES
OREMET is one of only two companies in North America which are
vertically integrated in the production of sponge and mill products.
The Company is a large producer of titanium sponge and a large
purchaser and processor of titanium scrap, two key materials used in
the manufacture of mill products. The ability to both produce and
purchase sponge or scrap allows the Company considerable flexibility
in optimizing its mix of raw material purchases and reduces the
Company's exposure to raw material price fluctuations. As of result
of this flexibility, the Company is a low cost producer of ingot.
- EXPAND SERVICE CENTER BUSINESS
The Company's distribution strategy is to establish new titanium metal
service centers in growth markets throughout the world. The Company's
and TI's eight full-line titanium metal service centers located in the
U.S., U.K., France, Germany and Canada significantly enhance OREMET's
distribution capabilities. Historically, TI's service centers have
reported results that are more stable and less cyclical than the
Company's core manufacturing business. These service centers also
provide OREMET with timely feedback from a wide range of customers
which is useful in determining new market applications and product
development. The Company intends to continue expanding its
distribution business with the opening and acquisition of additional
service centers.
- INVEST IN A NEW ELECTRON BEAM FURNACE
The Company intends to use a portion of the proceeds from the
Offerings to build a 20 million pound capacity Electron Beam ("EB")
cold hearth furnace. In addition to the increased melt capacity, the
Company believes that the EB furnace will result in lower production
costs, greater flexibility in using various types of scrap inputs and
a greater range of products. The Company estimates that the EB
furnace will be operational during the first half of 1998.
- IMPROVE FINANCIAL FLEXIBILITY
Management seeks to improve the financial flexibility of the Company
by repaying outstanding indebtedness with proceeds from the Offerings.
The strengthening of the Company's balance sheet will allow the
Company to invest in, improve and expand OREMET's production capacity
and service centers. In addition, upon completion of the Offerings,
the Company intends to enter into a new $50 million U.S. credit
facility to assist with financing its growing operations.
The Company was incorporated in Oregon in 1955 and began operations in
1956. The Company funded its growth internally and through investments by
corporate partners. In December 1987, the Company repurchased its Common Stock
from its major corporate partner 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. At May 31, 1996, the ESOP's ownership interest was
approximately 19%.
OREMET's executive offices and principal manufacturing facilities are
located at 530 34th Avenue, S.W., Albany, Oregon 97321, and its telephone number
is (541) 967-9000.
RISK FACTORS
See "Risk Factors" beginning on page 8 for a discussion of certain factors
that should be considered by prospective purchasers of the Common Stock.
THE OFFERINGS
Common Stock offered:
U.S. Offering . . . . . . . . . .3,000,000 Shares
International Offering. . . . . . 500,000 Shares
Total . . . . . . . . . . . . . . 3,500,000 Shares
Common Stock outstanding after the Offerings(1) 14,916,757 Shares
Estimated proceeds . . . . . . . . . .$96.8 million
Use of proceeds. . . . . . . . . . . . Investment of approximately
$32 million in a new EB furnace,
repayment of approximately $27 million
of certain indebtedness, expansion of
the Company's distribution business by
approximately $15 million, capital
expenditures of approximately $7
million and the remainder for working
capital and general corporate
purposes. See "Use of Proceeds."
Nasdaq National Market symbol. . . . . OREM
_________________________
(1) Excludes at June 25, 1996 approximately 252,000 shares issuable upon
exercise of stock options and approximately 252,000 shares issuable under
the Company's stock compensation plans and stock purchase warrant. Also,
excludes approximately 1,065,000 additional shares reserved for future
issuance under the Company's stock compensation plans. See "Management -
Stock Related Compensation Plans" and "Description of Capital Stock."
SUMMARY SELECTED FINANCIAL DATA
Year Ended Three Months
Ended
December 31,
March 31,
1991 1992(1) 1993 1994(2) 1995 1995 1996
(In thousands, except employee and per share data)(unaudited)
STATEMENT OF OPERATIONS DATA:
Net sales. . . . . . . $54,241$56,785 $55,351$71,166 $146,853$30,838$51,309
Income (loss) from operations(3) (8,498) (5,934)
(6,179). . . . . . . . (2,494) (256) 1,567 5,454
Income (loss) before cumulative
effect of changes in accounting
principles(1). . . . (4,685) (4,122) (4,098)
(2,023). . . . . . . . (2,415) 535 3,345
Income (loss) per common share before
cumulative effect of changes in
accounting principles (.44) (.38) (.38) (.18)
(.22). . . . . . . . . .05 .30
Weighted average common shares
and equivalents outstanding 10,603 10,754 10,839 11,001 11,219
11,055 . . . . . . . . 11,327
BALANCE SHEET DATA:
Working capital. . . . $39,291$37,296 $36,467$49,082 $63,769 $53,972$72,727
Total assets . . . . . 86,520 85,701 83,326111,972 133,077 119,698147,037
Long-term debt, including current
maturities . . . . . 8,250 8,100 4,750 17,177 27,362 20,489 30,050
Shareholders' equity . 68,436 68,402 67,065 67,282 65,887 68,024 71,697
OTHER OPERATING DATA:
EBITDA(4). . . . . . . $(4,306) $ (1,352) $ (1,426) $ 1,882$
3,896. . . . . . . . $ 2,587 $6,610
Cash flows provided by (used in):
Operating activities 961 7,454 841 (4,459)(10,969)
(3,834) . . . . . . (2,559)
Investing activities (3,165)(11,201) (1,974)
(2,680) . . . . . . (2,248) (602) (1,162)
Financing activities (3,592) 2,278 (921) 8,754 12,145 3,332
4,331
Total . . . . . . (5,796) (1,469) (2,054) 1,615
(1,072) . . . . . (1,104) 610
Product shipments (in pounds):
Ingot . . . . . . . 4,297 3,447 2,319 3,517 4,418 888
1,591
Mill Products . . . 2,172 1,892 3,119 3,540 6,705 1,442
2,162
Product sales:
Aerospace . . . . . $39,596 $ 45,428 $ 42,620 $43,254$67,148
$ 12,594. . . . . . $ 19,950
Non-aerospace . . . 14,645 11,357 12,731 27,912 79,705
18,244 . . . . . . . . 31,359
Active employees at period end 354 359 310 482
580 . . . . . . . 500 605
Order backlog at period end(5) $ 33,000 $28,000 $18,000$44,000
$ 105,000 . . . . . $ 48,000 $ 134,000
(1)The cumulative effect of changes in accounting principles reflects the
adoption in 1992 of Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes," which resulted in the
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS,
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE RISK FACTORS SET FORTH BELOW
BEFORE MAKING AN INVESTMENT IN THE COMMON STOCK.
CYCLICALITY; DEPENDENCE ON AEROSPACE INDUSTRY
The aerospace industry, both the commercial and military sectors, has
traditionally consumed the majority of titanium products manufactured in the
United States. Sales to the aerospace industry accounted for approximately 46%
of the Company's sales in 1995, compared to 61% in 1994 and 77% in 1993.
The aerospace industry has been characterized by severe cyclicality, which
has had a significant impact on the sales and profitability of titanium
producers, including OREMET. The last cyclical peak for the titanium industry
occurred in the 1988-1990 period, when domestic industry mill product shipments
averaged over 50 million pounds per year. In 1991, U.S. titanium industry mill
product shipments declined by approximately 35% to 34 million pounds. This
decline was primarily due to lower demand resulting from a slump in commercial
aerospace and the curtailment or cancellation of military programs as the Cold
War ended. The Company has historically experienced a high level of order
cancellation and deferrals in periods of industry downturn. The cyclicality of
the commercial and military aerospace industry has had and may continue to have
a material adverse effect on the Company, its financial condition or its
prospects. In 1995, most major U.S. commercial airline carriers reported
stronger operating profits and, in the second half of 1995, aircraft
manufacturers began to increase aircraft build rates. The Company can give no
assurance as to the extent or duration of any recovery in the aerospace market
or the extent to which such recovery will result in increases in demand for
titanium products.
UNCERTAINTY OF EMERGING GOLF MARKET
The Company believes that the market for golf clubheads has grown to be the
second largest consumer of titanium, after the commercial aerospace market. The
Company estimates that the use of titanium has grown from 1.5 million pounds in
1994 to over 8 million pounds in 1996. The market for the Company's products
sold to golf clubhead producers has only recently begun to emerge as a
significant component of the Company's net sales, and there can be no assurance
that demand for titanium products used in the golf industry or the Company's
products in particular, will continue or that this market will expand as the
Company anticipates. In addition, the Company's major competitors in the
titanium industry have recently begun to supply the golf clubhead market and
there is no assurance that the Company will be able to maintain its leading
market share.
HISTORY OF LOSSES
During the past five years, when the titanium industry was in a severe
downturn, the Company incurred net losses of $4.7 million, $4.2 million, $4.1
million, $2.0 million and $2.4 million in 1991, 1992, 1993, 1994 and 1995,
respectively. For the years 1993 through 1995, the Company's aggregate net
losses were $8.5 million, and the combined losses of the Company and the other
major titanium producers for whom data are publicly available (RMI Titanium
Company ("RMI"), IMI plc, and Titanium Metals Corporation) were $181.3 million.
The Company operated profitably in the first quarter of 1996. Continuing
profitable operations will depend on continued strength in orders from the
aerospace, golf and other markets, favorable pricing and the Company's ability
to control its raw material and other costs.
HIGHLY COMPETITIVE INDUSTRY; SUBSTANTIAL EXCESS PRODUCTION CAPACITY
The titanium industry is highly competitive on a worldwide basis as a
result of many factors, particularly the presence of excess capacity, which has
intensified price competition for available business. Integrated and
non-integrated producers of mill products are located primarily in the U.S.,
Japan, Russia, Europe and China (the Company considers an integrated producer
one that produces at least titanium sponge and ingot). The Company is one of
two integrated producers in the U.S. and one of four in the world. There are
also a number of non-integrated producers that produce mill products from
purchased sponge, scrap or ingot. Furthermore, the Company believes that
approximately 50% of the world's titanium sponge production capacity is located
in the Former Soviet Union ("FSU"). This capacity was developed to serve the
needs of the Soviet military, principally the aerospace and submarine services,
both of which have been sharply curtailed. As a result, significant unused
production capacity, beyond that which is now supplying the FSU's export markets
(including sales to the Company), may exist in this region.
In the U.S. market, the increasing presence of non-U.S. participants has
become a significant competitive factor. Until 1993, imports of foreign
titanium products into the U.S. had not been significant due to relatively
favorable currency exchange rates, tariffs, and with respect to Japan and
Russia, existing and prior duties (including anti-dumping duties). However,
imports of titanium sponge, scrap, and other products, principally from the FSU,
have increased in recent years and have had a significant competitive impact on
the U.S. titanium industry. To the extent the Company has been able to take
advantage of this situation by purchasing such sponge, scrap or intermediate
mill products for use in its own operations during the last three years, the
negative effect of these imports on the Company has been somewhat diminished.
As the participation of non-U.S. companies increases, the competitive
environment for the Company may become more difficult, especially if existing
tariffs are eased and certain market participants are no longer subject to anti-
dumping duties. Currently, imports of titanium ingot and mill products from
countries that receive the most favored nation ("MFN") tariff rate are subject
to a 15% tariff. The tariff rate applicable to imports from countries that do
not receive MFN treatment is 45%. In addition to regular tariffs, imports of
titanium sponge from certain countries in the FSU (Russia, Kazakhstan and
Ukraine) are presently subject to anti-dumping duties of 84%. If these
anti-dumping duties are eased or removed, substantial additional capacity could
enter the market and if the demand for the industry's products is less than its
capacity, the profitability of the industry, including the Company, could be
adversely affected.
The ability of the producers in the FSU to compete in the U.S. has been
enhanced by the elimination of tariffs on most titanium mill products (excluding
titanium ingot, slab and billet, which continued to carry a 15% duty) imported
from certain countries in the FSU. When available at attractive prices, the
Company has purchased titanium sponge and scrap for recycling from these
countries. Given the current political and economic uncertainties in some of
the countries of the FSU, there can be no assurance that this supply of titanium
products will continue to be available to the Company without interruption or at
attractive prices.
SIGNIFICANT INVESTMENT IN ELECTRON BEAM FURNACE
The Company intends to use a substantial portion (approximately $32
million) of the proceeds of the Offerings to construct a new EB cold hearth
furnace to enhance its melting capacity. The Company may experience design and
start-up difficulties, such as cost overruns, operational difficulties, and
significant delays. Axel Johnson Metals, Inc. ("AJM") is the only company which
has successfully applied the electron beam technology to titanium production in
commercial quantities. Although the President of the Company was actively
involved in this technology while he was employed by AJM, there can be no
assurance that the Company can successfully implement this technology into its
operations without the assistance of AJM or its 50% subsidiary, Titanium Hearth
Technologies ("THT"), under a license or joint venture. No such arrangement has
been agreed upon and if either of their assistance does not become available on
an economic basis, the time required to bring the additional capacity on-line,
on a fully operational basis, may extend beyond the eighteen-month period
estimated by the Company and impair or eliminate any benefit from the
investment. In addition, if the Company implements new technology, there is no
assurance that such technology will work or will not result in delays or
difficulties.
The Company may evaluate an investment in a joint venture as an alternative
to constructing an EB furnace. If the Company invests in a joint venture to
build an EB furnace, in addition to the risks described above, it may not have a
controlling interest in such venture and its employees may not operate the EB
furnace. As a result, it may be unable to influence future investment or
strategic decisions relating to the EB furnace.
All North American EB furnaces producing titanium in commercial quantities
are owned by AJM and THT. The Company believes that these furnaces are running
at near capacity. In addition to the Company's plans to invest in EB furnace
technology, additional EB furnaces may be built and may result in excess
capacity. Such an event could have a material adverse effect on the Company,
its financial condition or its prospects.
DEPENDENCE ON ESSENTIAL MACHINERY AND EQUIPMENT
The Company's manufacturing processes are dependent on the reliable
operation of its machinery and equipment. The Company's sponge production and
ingot melting facilities have been operating at near practical capacity for the
last three quarters. The Company has certain critical pieces of machinery and
equipment which may require significant lead times to complete necessary repairs
or replacements and the functions of which may not be easily replaced by an
outside converter. Additionally, given the Company's belief that all other
titanium manufacturers are currently operating at or near production capacity,
there can be no assurance that the Company could locate an outside converter
that has sufficient available capacity to enable the Company to meet its
production demands in a timely manner, or that an agreement could be reached
with any such outside converter on commercially acceptable terms. Any such
event could result in a disruption in the Company's production or distribution
which could have a material adverse effect on the Company, its financial
condition or its prospects. Additionally, although the Company maintains
business interruption insurance to reduce the potential effect of any such loss,
a natural disaster or other catastrophic event occurring at its Albany
manufacturing facilities could have a material adverse effect on the Company,
its financial condition or its prospects.
DEPENDENCE ON LIMITED SUPPLY OF TITANIUM TETRACHLORIDE
The Company purchases all of its titanium tetrachloride, the primary
ingredient in the manufacture of titanium sponge, from SCM Chemicals, Inc.
("SCM") under an exclusive long-term supply contract that expires in 2001.
Although SCM is now the only significant supplier to the Company of titanium
tetrachloride, the Company believes alternative sources of titanium
tetrachloride may be available, if needed, but at a potentially higher cost.
Any extended disruption in the supply from SCM could have a material adverse
effect on the Company's ability to produce titanium sponge and could have a
material adverse effect on the Company, its financial condition or its
prospects.
DEPENDENCE ON OTHERS FOR CERTAIN RAW MATERIAL AND SERVICES
While the Company is one of seven major worldwide producers of titanium
sponge, a basic raw material in the production of titanium ingot and mill
products, under current market conditions it cannot supply all of its needs for
titanium sponge internally and is dependent, therefore, on third parties for a
portion of its titanium sponge needs. The Company obtains sponge from domestic
and foreign producers of sponge, both on a spot purchase basis and pursuant to
short-term sponge contracts. There can be no assurance that the Company will
not experience interruptions in its sponge supplies, which could have a material
adverse effect on the Company, its financial condition or its prospects.
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 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 melting titanium slab
that is further processed into titanium plate and sheet for non-aerospace
applications and titanium electrodes for aerospace applications. Services are
provided by THT in accordance with a three-year agreement ending December 31,
1996, which 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 such term. OREMET and other THT customers have received notice from THT
that it will not renew on the present terms, but that THT intends to negotiate
new supply contracts. Should a renewal of the THT service agreement not be
renegotiated on commercially acceptable terms, OREMET would attempt to obtain
these services from another competitor which has a cold hearth melting furnace.
OREMET believes that the loss of the services provided by THT would result in
production delays and have an adverse effect on the Company, its financial
condition or its prospects.
ABILITY TO RECOVER RAW MATERIAL COST INCREASES
The Company is a major recycler of titanium scrap. Where possible, the
Company utilizes titanium scrap as a cost-effective alternative to titanium
sponge; both materials are used as primary ingredients in the manufacture of
ingots. Much of the titanium scrap which is purchased by the Company originates
from within the FSU. Additionally, the Company purchases low priced titanium
sponge from the FSU. Historically, the Company has sought to recover increases
in titanium scrap and sponge prices through price increases of its products.
The Company has recently added price indices in order to more directly link
changes in raw material costs to its contracts. Any increases in titanium scrap
and sponge prices which are not offset by increases in the Company's sales price
could have a material adverse effect on the Company, its financial condition or
its prospects.
NO ASSURANCE OF NEW PRODUCT DEVELOPMENT
In an effort to lessen the titanium industry's dependence on the aerospace
industry and to increase participation in other markets, the Company, its
competitors and certain end-users of titanium are devoting significant efforts
and resources to developing new markets and applications for titanium, certain
of which are still in the preliminary stages. Developing these emerging
applications involves substantial risk and uncertainties due to the fact that
titanium must compete with less expensive materials in these potential
applications. There can be no assurance that the Company will be able to
develop new markets and applications for its products, or as to the time
required for such development, or as to the extent to which it will face
competition in this regard. If the Company is unable to develop these markets
to a substantial degree, management expects that the Company's business would be
largely dependent on the cyclical aerospace industry and the emerging golf
market.
ENVIRONMENTAL REGULATION
The risk of environmental contamination is ever-present in the Company's
operations. The Company uses and produces substantial quantities of substances,
chemicals and compounds that have been identified as hazardous or toxic under
federal, state and local environmental and worker safety and health laws and
regulations. In addition, at its Albany, Oregon facility, the Company uses
substantial quantities of titanium tetrachloride, which is classified as
extremely hazardous under federal environmental laws. The Company has used such
substances and compounds throughout its history and has undertaken some
remediation to alleviate concerns over past releases or disposal practices.
While the Company takes environmental, safety and health precautions appropriate
for the industry, the Company's operations pose an ongoing risk of accidental
releases of, and worker exposure to, hazardous or toxic substances. In
addition, the Company is subject to a wide range of government environmental
requirements, including the extensive regulation of air and water emissions and
waste management. Environmental regulation or its enforcement may become more
stringent in the future. The Company is also subject to certain consent orders
relating to environmental remedial action. There can be no assurance that the
Company will not face costs and liabilities as a result of environmental
regulation which could have a material adverse effect on the Company, its
financial condition or its prospects.
LABOR; REOPENING OF LABOR CONTRACTS
As of March 31, 1996, all of the hourly production and maintenance workers
(approximately 360) at the Albany, Oregon and Frackville, Pennsylvania
manufacturing facilities of the Company were represented by labor unions. In
August 1994, the Company and the union representing the Albany, Oregon employees
agreed upon a new labor contract which will continue through July 2000. This
contract can be reopened by either party 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. There can be no
assurance that the collective bargaining agreement for the Company's Albany
facility will not be reopened or that the agreements entered into following the
expiration of the existing agreements will not have a material adverse effect on
the Company, its financial condition or its prospects.
DILUTION
Purchasers of Common Stock in the Offerings will experience immediate and
substantial dilution of, and present shareholders will receive a substantial
increase in, the book value of their shares of Common Stock. After the sale of
the Common Stock offered hereby, authorized but unissued shares of Common Stock
may be issued as authorized from time to time by the Company's Board of
Directors without further action by its shareholders.
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS
Certain provisions of the Company's Amended Articles of Incorporation and
Oregon law could discourage potential acquisition proposals and could delay or
prevent a change in control of OREMET. In the election of directors, each
shareholder has cumulative voting rights and is therefore entitled to cast a
number of votes equal to the number of shares held by the shareholder multiplied
by the number of directors to be elected. These votes may all be cast for a
single nominee or distributed in any proportion among any number of nominees.
The Company's Articles provide that in the event that less than 25% of the
outstanding Common Stock of the Company is held by the ESOP and/or the 401(k)
Plan, management's nominees to the Board of Directors must include (i) one
person selected by the union employees and (ii) one person selected by the
non-union employees of OREMET. Furthermore, certain provisions of Oregon law
regulate certain transactions between the Company and certain holders of Common
Stock.
VOLATILITY OF STOCK PRICE AND SHARES ELIGIBLE FOR FUTURE SALE
There have been periods of high volatility in the stock markets, which in
many cases were unrelated to the operating performance of, or announcements
concerning, the issuers of the affected stock. The Common Stock has recently
been traded at a high volume and the prices for the Common Stock have increased
significantly since the beginning of 1996. General market price declines,
market volatility, and factors related to the general economy or the Company in
the future could adversely affect the price of the Common Stock. In addition,
the ESOP was recently amended to allow participants to diversify or withdraw a
greater percentage of Common Stock from their accounts from 40%, in 15% monthly
increments, up to a maximum of 85% (effective July 30, 1996). As of June 25,
1996, the maximum diversification percentage was 70%. ESOP participants can
elect to withdraw shares or transfer the shares into approved investment funds
in which the shares may be held or sold. As of May 31, 1996, the ESOP trust
held 2,182,018 shares of Common Stock for its approximately 300 ESOP
participants.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock being
offered hereby are estimated at approximately $96.8 million. The Company
intends to use approximately $32 million for the construction, equipment and
facility costs for a new EB furnace and related upgrade of scrap reprocessing
facilities, approximately $27 million to repay all outstanding indebtedness
under the Company's U.S. credit facility, approximately $15 million for the
expansion of the Company's distribution business through the opening or
acquisition of service centers in new markets, and approximately $7 million for
capital expenditures. Any excess proceeds are anticipated to be used for
working capital and general corporate purposes. In addition, the Company
intends to seek acquisitions which would further expand its business. Until
applied for the foregoing purposes, net proceeds will be invested in short-term
investments.
The Company intends to construct a new 20 million pound capacity EB furnace
beginning in the third quarter 1996. The construction and production ramp-up
period are expected to take approximately 18 months. In addition to the
increased melt capacity, the Company believes that the EB furnace will result in
lower production costs, greater flexibility in using various types of scrap
inputs and a greater range of products. The Company may evaluate an investment
in a joint venture as an alternative to constructing a new EB furnace. See
"Business - Electron Beam Furnace" and "Risk Factors."
Borrowings under the Company's U.S. credit facility bear interest at a
weighted average interest rate of 8.6% (as of March 31, 1996). The Company has
the option to borrow under this facility at either the bank's reference rate
plus 1.5% or LIBOR plus 2.5%. The facility matures in September 1997 and has
recently been amended to, among other things, increase the borrowing
availability under the facility to a maximum of $35 million and to increase the
annual capital expenditure limit. Upon completion of these Offerings, the
Company intends to enter into a new $50 million U.S. credit facility.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at March 31, 1996 and as adjusted for the sale by the Company of
3,500,000 shares of Common Stock (assuming no exercise of the Underwriters'
over-allotment options) and to reflect (i) receipt by the Company of the
estimated net proceeds from the Offerings (assuming a public offering price of
$29.25 per share for the Common Stock and after deduction of estimated expenses
and underwriting discounts) and (ii) application of a portion of the estimated
proceeds to repay borrowings as discussed herein under "Use of Proceeds." This
table should be read in conjunction with the Company's Consolidated Financial
Statements and the discussion under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" related thereto, included
elsewhere herein.
March 31,
1996 Actual As
Adjusted(1) Debt: (in thousands) Short-term debt (including current portion of
long-term debt). . . . . . . . . . . . . . . . . $1,406 $1,406
Long-term debt (less current portions):
U.S. revolving credit agreement 23,276 -----
Subordinated loan from Kamyr, Inc. 4,200 4,200
Obligations under capital leases 1,015 1,015
County Industrial Development Authority loan
153 153 Total long-term debt . . . .
28,644 5,368 Total debt . . . . . . . . .
30,050 6,774 Shareholders' equity:
Common stock, $1.00 par value; shares
authorized, 25,000; shares issued and
outstanding, 11,214; 14,714 shares issued and
outstanding as adjusted(2). . . . . . . . . .
11,214
14,714 Additional paid-in capital. . . . . . . . 40,653 133,909
Retained earnings 19,890 19,890
Cumulative foreign currency translation
adjustment. . . . . . . . . . . . . . . . . .
(60) (60) Total shareholders' equity
71,697 168,453 Total capitalization . . .
$101,747 $175,227
(1) If the
Underwriters'
over-
allotment
option is
exercised in
full, total
shareholders'
equity and
total
capitalizatio
n, as
adjusted,
would be
$183,041 and
$189,816
respectively.
(2)Does not
include
approximately
252 shares
issuable upon
exercise of
stock options
and
approximately
368 shares
issuable
pursuant to
the Company's
stock
compensation
plan and
stock warrant
agreement.
Also,
excludes
approximately
1,144
additional
shares
reserved for
future
issuance
under the
Company's
stock
compensation
plans. See
"Management -
Stock Related
Compensation
Plans" and
"Description
of Capital
Stock."
DILUTION
At March 31, 1996, the Company had net tangible book value of $70,434, or
$6.28 per share of Common Stock (based on 11,214,000 shares outstanding).
Assuming that the 3,500,000 shares of Common Stock offered hereby had been sold
at March 31, 1996 at a price of $29.25 per share (the last reported sale price
of the Common Stock on the Nasdaq on June 25, 1996), the Company's net tangible
book value would have been $167,190 or $11.36 per share of Common Stock. This
represents an immediate dilution of $17.89 per share to new investors purchasing
Common Stock. Net tangible book value per share is determined by dividing the
difference between tangible assets and liabilities by the number of shares of
Common Stock outstanding. The following table illustrates the per share
dilution:
Assumed public offering price per share . . . . . . $29.25
Net tangible book value per share at March 31, 1996 $ 6.28
Increase in net tangible book value per share after the
Common Stock offered hereby is sold . . . . . 5.08
Pro forma net tangible book value per share after the
Common Stock offered hereby is sold . . . . . . 11.36
Dilution per share to new investors . . . . . . . $17.89
If the Underwriters were to exercise in full their over-allotment options,
the Company's pro forma net tangible book value, assuming the sale of Common
Stock offered hereby, would have been $11.93 per share of Common Stock, which
would result in dilution to new investors of $17.32 per share.
The following table summarizes, on a pro forma basis as of March 31, 1996,
the difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid (before deducting the underwriting
discounts and estimated offering expenses), and the average price per share paid
by the existing shareholders and by the investors purchasing shares of Common
Stock in the Offerings based upon a public offering price of $29.25 per share):
Shares Purchased Total ConsiderationAverage Price
Number Percent Amount Percent Per Share
Existing shareholders 11,214 76.2% $ 51,867 33.6%$4.63
New investors . . . 3,500 23.8% 102,375 66.4% $29.25
Total . . . . . .14,714 100.0% $154,242 100.0%
The foregoing tables assume no exercise of any outstanding stock options or
warrants to purchase Common Stock after March 31, 1996. As of March 31, 1996,
there were approximately 252,000 shares of Common Stock issuable under the
Company's stock option plan at a weighted average exercise price of $30.25 per
share, and 367,539 shares of Common Stock issuable pursuant to the Company's
stock compensation plans and the stock purchase warrant at a weighted average
exercise price of approximately $8.15 per share. The tables do not include
approximately 1,144,000 shares of Common Stock reserved for future issuance
under the Company's stock compensation plans. To the extent that these
outstanding options and warrants are exercised, the dilution would be $17.29 per
share to new investors. See "Management - Stock Related Compensation Plans" and
note 10 to the Company's Consolidated Financial Statements.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is traded on the Nasdaq under the symbol "OREM." The
following table sets forth, for each of the quarterly periods indicated, the
high and low sale prices for the Common Stock as reported on the Nasdaq.
YEAR HIGH LOW
1994
First Quarter $ 6.750 $4.750
Second Quarter 6.375 4.375
Third Quarter 6.250 5.250
Fourth Quarter 8.375 5.625
1995
First Quarter $ 8.250 $ 6.000
Second Quarter 9.625 6.563
Third Quarter 13.500 9.375
Fourth Quarter 12.500 9.125
1996
First Quarter $22.125 $11.000
Second Quarter (through June 25, 1996) 35.00017.625
On May 31, 1996 there were 11,346,668 shares of the Common Stock
outstanding, of which 2,182,018 shares (approximately 19% of the total
outstanding shares) were held of record by the Company's ESOP for the benefit of
its participants.
A recent last reported sale price of the Common Stock on the Nasdaq is set
forth on the cover page of this Prospectus.
The Company has not paid dividends on its Common Stock since 1991. The
declaration of dividends is at the discretion of the Board of Directors of the
Company. Under the terms of the Company's U.S. credit facility, annual cash
dividends are limited to the lesser of 50% of net income or $1.8 million per
year. Upon completion of the Offerings, the Company intends to enter into a new
U.S. credit facility. SELECTED FINANCIAL DATA
The selected financial data for each of the years in the five-year period
ended December 31, 1995 have been derived from the audited consolidated
financial statements of the Company, and the selected financial data for the
three-month periods ended March 31, 1995 and 1996 have been derived from the
unaudited consolidated financial statements of the Company. The Company's
categories of sales, shipments and employee data have been derived from the
Company's reports. The Company uses a fiscal year ending on December 31 of each
year.
The following selected financial data should be read in conjunction with
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements of the
Company (including in each case the notes thereto) included elsewhere in this
Prospectus.
Year Ended Three Months Ended
December 31,
March 31,
1991 1992 1993 1994(1) 1995 1995 1996
(In thousands, except employee and per share data)(unaudited)
STATEMENT OF OPERATIONS DATA:
Net sales:
Sponge . . . . . . $17,221$13,268 $19,391$12,360 $10,558 $2,168 $3,210
Ingot. . . . . . . 20,686 14,955 9,963 14,992 22,315 4,187 9,143
Mill products. . . 6,452 22,412 19,860 22,752 46,839 8,990 18,645
Castings . . . . . 6,480 4,890 4,473 6,442 7,225 1,541 2,160
Distribution . . . ----- ----- ----- 11,517 54,455 13,092 16,660
Other. . . . . . . 3,402 1,260 1,664 3,103 5,461 860 1,491
Total net sales. . 54,241 56,785 55,351 71,166146,853 30,838 51,309
Cost of sales. . . . 57,432 57,770 52,636 64,527131,002 (2) 25,50640,948
Gross profit (loss) (3,191) (985) 2,715 6,639 15,8515,332
10,361
Research, technical and product
development expenses 353 729 773 1,376 1,595 365617
Selling, general and administrative
expenses . . . . . 4,954 4,020 5,124 7,517 14,512 3,400 4,290
Provisions for environmental costs(3) ----- 200 970 240-------
- --- . . . . . .-----
Restructuring costs(4) ----- ----- 2,027 ----- ----- ----- -----
Income (loss) from operations (8,498) (5,934) (6,179)
(2,494). . . . . . . (256) 1,567 5,454
Interest income. . . 1,191 847 816 391 ----- ----- -----
Interest expense . . (477) (689) (532) (606) (2,104) (575)
(634)
Minority interests(1) ----- ----- ----- (29) (480) (106) (225)
Income (loss) before income
taxes and cumulative effect of
changes in accounting principles (7,784)(5,776) (5,895) (2,738)
(2,840). . . . . . 886 4,595
Income tax benefit (expense) 3,099 1,654 1,797 715 425(5)(351)
(1,250)(5)
Income (loss) before cumulative effect
of changes in accounting principles (4,685) (4,122) (4,098)
(2,023). . . . . . (2,415) 535 3,345
Cumulative effect of changes in
accounting principles ----- (69)(6) ----- ----- ------------
- ---
Net income (loss). $(4,685) $(4,191) $(4,098) $(2,023)
$(2,415) . . . . . . $535 $3,345
Per common share:
Income (loss) before cumulative
effect of changes in accounting
principles . . . $(.44) $(.38) $(.38) $(.18) $(.22)
$.05 . . . . . . $.30
Weighted average common shares
and equivalents outstanding 10,603 10,754 10,839 11,001 11,21911,055
11,327 . . . . . . .
Year Ended Three Months Ended
December 31,
March 31,
1991 1992 1993 1994(1) 1995 1995 1996
(In thousands, except employee and per share data)(unaudited)
BALANCE SHEET DATA:
Working capital. . . $39,291$37,296 $36,467$49,082 $63,769 $53,972$72,727
Total assets . . . . 86,520 85,701 83,326111,972133,077 119,698147,037
Long-term debt, including current
maturities . . . . 8,250 8,100 4,750 17,177 27,362 20,489 30,050
Shareholders' equity 68,436 68,402 67,065 67,282 65,887 68,024 71,697
OTHER OPERATING DATA:
EBITDA(7). . . . . . $(4,306) $ (1,352) $ (1,426) $ 1,882$3,896$
2,587. . . . . . . .$ 6,610
Cash flows provided by (used in):
Operating activities 961 7,454 841 (4,459)(10,969) (3,834)
(2,559)
Investing activities (3,165)(11,201) (1,974) (2,680)
(2,248). . . . . . (602) (1,162)
Financing activities (3,592) 2,278 (921) 8,754 12,145 3,3324,331
Total . . . . . (5,796) (1,469) (2,054) 1,615(1,072)
(1,104) . . . . 610
Product shipments
(in pounds):
Ingot. . . . . . . 4,297 3,447 2,319 3,517 4,418 8881,591
Mill Products. . . 2,172 1,892 3,119 3,540 6,705 1,4422,162
Product sales:
Aerospace. . . . . $39,596 $ 45,428 $ 42,620 $43,254$67,148$12,594
$ 19,950
Non-aerospace. . . 14,645 11,357 12,731 27,912 79,70518,244
31,359
Active employees at period end 354 359 310 482 580500
605
Order backlog at period end(8) $ 33,000 $28,000 $18,000$44,000$
105,000. . . . . . .$ 48,000 $ 134,000
(1)Includes Titanium Industries, Inc., after its acquisition by the Company
on September 20, 1994. Minority interests represent the minority
shareholder's 20% interest in the net income of TI.
(2)A provision for a loss on long-term agreements of $4,417 was recorded in
the fourth quarter of 1995. See note 6 to the Consolidated Financial
Statements.
(3)See note 11 to the Company's Consolidated Financial Statements.
(4)See note 13 to the Company's Consolidated Financial Statements.
(5)The Company reported a provision for income taxes of $1.3 million, or an
effective tax rate of 27% for the first quarter of 1996. The difference
between the federal and state combined statutory tax rate of 39% and the
effective tax rate of 27% for the first quarter of 1996 was primarily due to
a change in the Company's deferred tax asset valuation allowance, reflecting
the belief that it is more likely than not that the deferred tax assets will
be realized by the Company. The Company's 1995 effective tax benefit rate on
the net loss before income tax benefit is 15%. The Company's income tax rate
varied from the normally expected statutory rate because the valuation
allowance was established for certain deferred tax assets.
(6)The cumulative effect of changes in accounting principles reflects the
adoption of SFAS No. 109, "Accounting for Income Taxes," which resulted in
the recognition of $0.6 million, or $0.05 per share, of income.
Simultaneously, the Company adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" which resulted in the
recognition of $0.7 million, or $0.06 per share, of expense, net of tax
benefits of $0.4 million. The combined effect of adopting SFAS No.'s 109 and
106 was the recognition of $69, or $0.01 per share, of additional expense.
(7)EBITDA represents income (loss) before cumulative effect of accounting
changes plus income taxes, interest expense, depreciation and amortization.
EBITDA is presented because it is a widely accepted financial indicator of
cash flow and the ability to service debt. EBITDA should not be considered
as an alternative to, or more meaningful than, operating income, net income
or cash flow as an indicator of the Company's performance.
(8)Order backlog is defined as firm purchase orders scheduled for delivery
during the subsequent twelve-month period (which are generally subject to
cancellation by the customer upon payment of specified charges).
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH "SELECTED
FINANCIAL DATA" AND THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO OF
THE COMPANY. THE FOLLOWING INFORMATION CONTAINS FORWARD-LOOKING STATEMENTS
WHICH INVOLVE CERTAIN RISKS AND UNCERTAINTIES. ACTUAL RESULTS AND EVENTS MAY
DIFFER SIGNIFICANTLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS.
FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO,
THOSE DISCUSSED IN "RISK FACTORS."
OVERVIEW
Historically, aerospace applications in both the commercial and military
sectors have accounted for a majority of U.S. titanium consumption. The
aerospace industry has been characterized by severe cyclicality, which has had a
significant impact on the sales and profitability of titanium producers,
including OREMET. The last cyclical peak for the titanium industry occurred in
the 1988-1990 period, when domestic industry mill product shipments averaged
over 50 million pounds per year. In 1991, U.S. titanium industry mill product
shipments declined by approximately 35% to 34 million pounds. This decline was
primarily due to lower demand resulting from a slump in commercial aerospace and
the curtailment or cancellation of military programs as the Cold War ended.
Data reported by the USGS indicate that industry shipments reached approximately
36 million pounds in 1993 but dropped to about 35 million pounds in 1994.
The USGS reported that in 1995, U.S. industry shipments of titanium mill
products increased by 26% over 1994 levels to 44 million pounds, and mill
product shipments in the first quarter of 1996 totaled approximately 12 million
pounds. The improvement in industry shipments was the result of an increase in
demand in the commercial aerospace market and the emergence of new uses of
titanium metal, primarily in golf clubheads. Reported orders for new commercial
aircraft have increased significantly, particularly for wide body planes such as
the Boeing 777, which use a greater percentage of titanium per plane than narrow
body aircraft. The Company believes that industry mill product shipments to the
commercial aerospace market increased by more than three million pounds to 20
million pounds in 1995. While shipments to the military industry have fallen
below delivery levels in the 1980s as a result of reduced defense budgets, this
decline has been offset by demand from new markets. The Company believes that
in 1996, shipments to the golf market, which were 1.5 million pounds in 1994,
will exceed 8 million pounds and be greater than shipments to the entire
military sector.
STRATEGY AND OUTLOOK
Beginning in 1993, several members of the Company's current executive
management team, including Carlos E. Aguirre, the President and Chief Executive
Officer, joined the Company from other companies within the titanium industry.
The new management implemented a plan to: (i) diversify the Company's revenue
base from a market, customer and product perspective, (ii) develop and establish
a major presence in new markets, (iii) expand the Company's distribution and
service center business and (iv) increase production levels while improving
product quality. Commercial aerospace-related sales represented approximately
46% of net sales in 1995, compared to approximately 77% of net sales in 1993.
International sales have increased from 13% of net sales in 1993 to 20% of net
sales in 1995. Sales for non-aerospace applications have increased from $12.7
million in 1993 to $79.7 million in 1995. The Company has devoted significant
resources to develop its presence in new markets.
The Company believes it is the market leader in shipments to the golf
industry, with 1995 shipments of 1.8 million pounds and 1996 shipments
anticipated to be approximately five million pounds. New markets where the
Company has also established a presence include armor for sale to the military
and high purity sponge for the electronics industry. The Company also developed
a process to produce titanium aluminide ingots, primarily for use by the
aerospace industry. In addition, the Company has instituted synchronized
manufacturing techniques and additional programs to improve cycle time and
yield. The Company intends to continue to focus on the following strategic
objectives: (i) maintain leadership in new market applications and products,
(ii) benefit from vertical integration and scrap handling capabilities,
(iii) expand its service center business, (iv) invest in a new EB furnace and
(v) improve financial flexibility.
On September 20, 1994, the Company completed the acquisition of TI for
$13.5 million. TI operates full-line titanium metal service centers in the
U.S., Canada, U.K. and Germany, and also produces small diameter titanium bars,
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. TI sells its products primarily to industrial markets and to
a lesser extent, the commercial aerospace market. Historically, TI's service
centers have reported results that are more stable and less cyclical than the
Company's core manufacturing business. The acquisition of TI has enhanced the
Company's revenue diversification and its ability to identify promising new
market opportunities.
OREMET has historically utilized large amounts of low cost scrap in its
melting operations. The Company believes that the ability to efficiently
consume different types of scrap will become increasingly important as the
demand for titanium increases. In order to meet this increased demand, the
Company intends to construct a new EB furnace which will also reduce production
costs and broaden its product range. The Company estimates that the EB furnace
will be operational during the first half of 1998. See "Business - Electron
Beam Furnace" and "Risk Factors."
The Company's twelve-month order backlog has increased from $44 million as
of December 31, 1994 to $134 million as of March 31, 1996. OREMET's backlog is
based on firm purchase orders scheduled for delivery during the subsequent
twelve-month period. Beginning in the second half of 1995 and continuing to the
present, the Company has experienced a significant increase in requests for
quotations as well as increased orders and prices on accepted orders. The
increase in demand is primarily a result of the recovery in the commercial
aerospace market and the growth of the golf clubhead market. Because of the
strong demand, the Company has been increasingly selective in the new orders
that it accepts. In addition, the Company delayed opening its first quarter
1997 order book until early June 1996 in order to better assess future raw
material costs. The Company expects to commence accepting orders for second
quarter 1997 beginning in early July 1996.
The increase in demand for titanium products has resulted in higher prices
for certain raw materials used by the Company, including titanium scrap,
titanium sponge and alloying materials. During 1995, the Company's
profitability was negatively impacted by higher raw material costs and fixed
price long-term sales agreements with certain customers, primarily in the
commercial aerospace industry. The Company recorded a $4.4 million provision in
the fourth quarter of 1995 to recognize anticipated losses on existing long-term
agreements ("LTAs") as a result of higher raw material costs. Starting with the
first quarter of 1996, the Company added price indices in order to more directly
link changes in raw material costs to its contracts. The Company has also
instituted price increases for certain of its long-term sales agreements which
were entered into prior to 1996. However, there can be no assurance as to the
Company's continuing ability to recover raw material cost increases. The future
profitability of the Company's fixed price LTAs is subject to change based upon
the Company's costs of production.
RESULTS OF OPERATIONS
The following table sets forth certain operating items of the Company's
consolidated results of operations as a percentage of net sales for each of the
years in the five-year period ended December 31, 1995, and for the quarters
ended March 31, 1995 and March 31, 1996.
Year Ended Three Months Ended
December 31,
March 31, (unaudited)
1991 1992 1993 1994 1995 1995 1996
Net sales. . . . . . .100.0% 100.0% 100.0% 100.0% 100.0% 100.0%100.0%
Gross profit (loss)(1) (5.9) (1.7) 4.9 9.3 10.8 17.3 20.2
Income (loss) from operations(1) (15.7) (10.4) (11.2) (3.5) (0.2)5.110.6
Net income . . . . . . (8.6%) (7.4%) (7.4%) (2.8%) (1.6%) 1.7% 6.5%
______________
(1) A provision for a loss on LTAs of $4.4 million was recorded in the fourth
quarter of 1995. Gross profit and income from operations, exclusive of
this provision, as a percentage of net sales would have been 13.8% and 2.8%
in 1995, respectively.
Quarterly Results of Operations
The following table presents the Company's unaudited consolidated quarterly
financial data for fiscal years 1994 and 1995, and the first quarter of 1996.
Although the Company's business is not seasonal, growth rates of sales and
profits have varied from quarter to quarter as a result of the purchase of TI in
September 1994, the timing of new products, industry cyclicality and general
U.S. and international economic conditions.
(in millions)
1994 Quarters 1995 Quarters 1996
Quarters
FirstSecondThirdFourthFirstSecond(1)ThirdFourth(1)First
Net sales. . . .$ 13.3$ 14.5$ 17.0$ 26.4$ 30.8$ 35.1$ 41.2$ 39.7 $51.3
Gross profit . . 0.9 0.7 1.7 3.3 5.3 5.3 4.1 1.1 10.4
Income (loss)
from Operations (1.7) (0.9) (0.6) 0.7 1.6 1.4 0.1 (3.4)5.5
Net income (loss) $ (1.1)$ (0.6)$ (0.4)$ 0.1$ 0.5$ 0.5$ (.4) $ (3.0)$ 3.3
(1)
During the second quarter of 1995, the Company reported a pre-tax charge to
income of $1.3 million to reflect the impact of projected conversion costs on
long-term agreements which were in excess of selling price. During the
fourth quarter of 1995, the Company reported a pre-tax charge to income of
$4.4 million to reflect the impact of increased raw material costs on long-
term agreements.
Comparison of First Quarter 1996 to First Quarter 1995
NET SALES. Net sales were $51.3 million for the first quarter of 1996, an
increase of 66% over the first quarter of 1995 sales of $30.8 million. The
increase in sales was primarily driven by increased demand and higher prices for
both the Company's manufactured and service center products.
TITANIUM SPONGE. During the first quarter of 1996, the Company's
integrated sponge facility operated at near capacity, primarily supplying the
Company's internal demand for titanium sponge as well as sales to RMI under a
long-term titanium sponge conversion agreement. Sales of titanium sponge and
sponge conversion services increased 48% to $3.2 million from $2.2 million for
the first quarter of 1996 compared to the first quarter of 1995. Sponge
shipments increased 26% and the average sponge price per pound increased. The
increase in the average price per pound can be attributed to sales of high
purity sponge, which the Company started commercially producing in limited
quantities in 1995. The Company projects that it will continue to operate its
sponge facility at near capacity with substantially all production being
utilized for internal consumption or for supply to RMI. The Company is
presently supplementing its sponge production with purchases from other
producers.
INGOT. Sales of ingot increased 118% to $9.1 million for the first quarter
of 1996 compared to $4.2 million for the first quarter of 1995. Ingot shipments
increased 79% and the average ingot price per pound increased. The Company
operated its melt facilities at near capacity during the first quarter of 1996
and expects to continue to do so for the remainder of 1996. The Company
produces ingot for both internal use in its mill products division and for sale
primarily to aerospace customers.
MILL PRODUCTS. The Company produces or contracts for outside production of
a variety of mill products including: billet, bar, plate, sheet and engineered
parts. Mill product sales increased 107% to $18.6 million for the first quarter
of 1996 compared to $9.0 million for the first quarter of 1995. Shipments of
mill products increased 46% and the average price per pound increased. Sales to
producers of aerospace components and golf clubheads are responsible for a
substantial portion of the growth in mill product sales.
CASTINGS. Sales of castings increased 40% to $2.2 million for the first
quarter of 1996 compared to $1.5 million for the first quarter of 1995. The
Company is operating at a higher production rate in 1996 and is expanding its
casting facilities.
DISTRIBUTION. The Company's service centers market a wide variety of mill
products including engineered parts that are manufactured by various producers.
During the first quarter of 1996, sales of service center products increased 27%
to $16.7 million compared to $13.1 million for the first quarter of 1995. Both
shipments and pricing for service center products increased in the first quarter
of 1996.
COST OF SALES AND GROSS PROFIT. Cost of sales for the first quarter of
1996 increased 61% to $40.9 million, compared to $25.5 million in the first
quarter of 1995. The primary reasons for the increase in cost of sales were
increased shipments, coupled with rising raw material and conversion costs.
However, the Company's gross profit margin increased to 20.2% for the first
quarter of 1996 from 17.3% for the first quarter of 1995, as a result of higher
prices and improved production efficiencies.
RESEARCH, TECHNICAL AND PRODUCT DEVELOPMENT EXPENSES. Research, technical
and product development expenses ("RT&D") increased by $0.3 million for the
first quarter of 1996 to $0.6 million from the comparable quarter of 1995. The
main focus of RT&D is to develop enhanced production procedures, provide
customers with required technical support and develop new products and markets.
RT&D works jointly on projects with customers, research agencies and
universities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses ("SG&A") increased $0.9 million, or 26%, for the first
quarter of 1996 to $4.3 million from $3.4 million in the comparable quarter of
1995. As a percentage of sales, SG&A decreased to 8.4% in the first quarter of
1996 from 11.0% in the first quarter of 1995.
INTEREST EXPENSE. Interest expense increased $0.1 million to $0.6 million
in the first quarter of 1996 compared to the first quarter of 1995, resulting
from an increase in borrowing needed to fund expanded operating levels.
PROVISION FOR INCOME TAXES. The Company reported a provision for income
taxes of $1.3 million, or an effective tax rate of 27% for the first quarter of
1996 compared to $0.4 million, or an effective tax rate of 40% for the
comparable period in 1995. The difference between the federal and state
combined statutory tax rate of 39% and the effective tax rate of 27% for the
first quarter of 1996 is primarily due to a change in the Company's deferred tax
asset valuation allowance, reflecting the belief that it is more likely than not
that the deferred tax assets will be realized by the Company.
NET INCOME. The Company reported net income of $3.3 million, $0.30 per
share, for the first quarter of 1996 compared to a net income of $0.5 million,
$0.05 per share, for the comparable period in 1995.
Comparison of 1995 and 1994
NET SALES. Net sales increased 106% to $146.9 million in 1995, compared to
$71.2 million in 1994. 1995 represented the first complete year in which TI
results were consolidated with the Company. On a pro forma basis, as if TI had
been included in results for all of 1994, the sales increase in 1995 would have
been 53%. The increase in sales was primarily driven by increased demand and
higher prices for both the Company's manufactured and service center products.
TITANIUM SPONGE. Sales of titanium sponge and sponge conversion services
decreased 15% to $10.6 million in 1995, compared to $12.4 million in 1994.
Sponge shipments decreased 18% and average sponge prices per pound increased.
Sales of titanium sponge have decreased due to greater internal consumption by
the Company. During the second half of 1995, the Company's integrated sponge
facility operated at near capacity, primarily supplying the Company's internal
demand for titanium sponge and sales to RMI under a long-term titanium sponge
conversion agreement.
INGOT. Sales of ingot increased 49% to $22.3 million in 1995, compared to
$15.0 million in 1994. Ingot shipments increased 26% and the average ingot
price per pound also increased. The Company began operating its melt facilities
at near capacity during the second half of 1995. The increase of sales is
primarily due to higher demand from the aerospace industry.
MILL PRODUCTS. Mill product sales increased 106% to $46.8 million in 1995,
compared to $22.8 million in 1994. Shipments of mill products increased 89% and
the average price per pound increased. During 1995, mill products sales
increased across all product lines. Sales to the producers of golf clubheads
had a favorable effect on 1995 mill product sales.
CASTINGS. Sales of castings increased 12% to $7.2 million in 1995,
compared to $6.4 million in 1994. During the fourth quarter of 1995, a
significant competitor of the Company discontinued its casting operations which
had a positive impact on casting orders and sales.
DISTRIBUTION. Sales of service center products were included for a full
year in 1995, compared to approximately three months in 1994. During 1995, both
shipments and pricing for service center products increased. The markets served
by the Company's service centers, which were entered by the Company with the
acquisition of TI, displayed strong growth during 1995.
COST OF SALES AND GROSS PROFIT. Cost of sales for 1995 increased 103% to
$131.0 million, compared to $64.5 million in 1994. TI's cost of sales were
included for a full year in 1995, compared to approximately three months in
1994. The primary reasons for the increase in cost of sales were increased
shipments coupled with rising raw material costs. The Company's gross profit
margin increased to 10.8% in 1995 from 9.3% in 1994.
The Company recorded a provision for loss on LTAs of $4.4 million in the
fourth quarter of 1995 to cover estimated losses on LTAs with certain aerospace
customers. The provision for losses on LTAs was charged to cost of sales. The
Company's most significant unfavorable LTA expires during the third quarter of
1997. In response to the changing market conditions, the Company has negotiated
more favorable terms on many of its LTAs and has instituted raw material cost
indices.
RESEARCH, TECHNICAL AND PRODUCT DEVELOPMENT EXPENSES. RT&D increased $0.2
million to $1.6 million compared to $1.4 million in 1994. RT&D salaries and
related expenses increased in 1995 compared to 1994, reflecting an increase in
technical personnel to support the Company's long-term commitments for research,
development of new products and improvements in operating processes.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A increased $7.0 million,
or 93%, in 1995 to $14.5 million from $7.5 million in 1994. The inclusion of TI
for a full year in the Company's 1995 results is the primary reason for the
increase in the Company's SG&A. In response to an increased activity level, all
departments included in the SG&A category added personnel during 1995. However,
as a percentage of sales, SG&A decreased to 9.9% in 1995 from 10.6% in 1994.
INTEREST EXPENSE. Interest expense increased by $1.5 million to $2.1
million in 1995 compared to $0.6 million in 1994. The increase in interest
expense in 1995 compared to 1994 is the direct result of the purchase of TI in
September 1994 and increased borrowing required to support the Company's
increased operating levels.
INCOME TAX BENEFIT. The Company's 1995 effective tax rate on the net loss
before income tax benefit is 15%. The Company's income tax rate varied from the
normally expected statutory rate due to differences between book and tax income
for which recognition of a deferred tax asset was not considered appropriate.
NET LOSS. The Company reported a net loss of $2.4 million, $0.22 per
share, for 1995 compared to a net loss of $2.0 million, $0.18 per share, for
1994.
Comparison of 1994 to 1993
NET SALES. Net sales increased 29% to $71.1 million in 1994, compared to
$55.4 million in 1993. The Company's 1994 net sales include $11.5 million of
sales attributable to TI. Net sales of ingot, mill products and castings
increased 29% to $44.2 million in 1994 from $34.3 million in 1993. The
expansion in sales across the Company's primary product lines reflected a
strengthening general economy. The increase in revenue for these products was
primarily the result of increased shipments; average prices remained stable
between the two periods. Sales of titanium sponge and sponge conversion
services decreased 36% to $12.4 million in 1994. The decrease in sales and
conversion of titanium sponge was a direct result of competition from lower
priced titanium sponge available principally from the FSU.
COST OF SALES AND GROSS PROFIT. Cost of sales for 1994 increased 22.6% to
$64.5 million compared to $52.6 million in 1993. The change was primarily due
to the increase in volume. As a result, gross profit margin increased to 9.3%
in 1994 from 4.9% in 1993.
RESTRUCTURING COSTS. During 1993 the Company recorded a non-recurring
provision for restructuring costs of $2.0 million as a result of severance
benefits to salaried employees. No additional restructuring charges were
incurred during 1994.
PROVISION FOR ESTIMATED ENVIRONMENTAL COSTS. In 1994, the Company recorded
a provision for estimated environmental costs of $0.2 million, compared to $1.0
million in 1993.
RESEARCH, TECHNICAL AND PRODUCT DEVELOPMENT EXPENSES. RT&D expenses
increased in 1994 to $1.4 million from $0.8 million in 1993 as a result of the
Company's increased emphasis on new product development and technical support.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A increased 47% in 1994
to $7.5 million from $5.1 million in 1993. The addition of TI represented
$1.7 million of the 1994 increase in SG&A. SG&A as a percentage of sales
increased to 10.6% in 1994 from 9.3% in 1993.
INCOME TAX BENEFIT. The Company reported an income tax benefit of $0.7
million, or an effective tax rate of 26% for 1994, compared to a tax benefit of
$1.8 million, or an effective tax rate of 31% for 1993.
NET LOSS. The Company reported a net loss of $2.0 million, $0.18 per
share, for 1994 compared to a net loss of $4.1 million, $0.38 per share, for
1993.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW. Net cash used in operating activities totaled $2.6 million for
the first quarter of 1996, compared to $3.8 million for the comparable period of
1995. Increases in sales and the sales backlog accounted for the increased
levels of accounts receivable and inventory, which represented the primary uses
of cash for the quarter. Net cash used in operating activities totaled $11.0
million in 1995 compared to $4.5 million for 1994. Working capital increases
required to support the sharp increase in operating levels were responsible for
the most significant portion of the cash used by the Company's operating
activities in 1995. The increase in the amount of cash flow used in operating
activities is a trend which began in the second quarter of 1994, consistent with
the Company's experience of increasing sales, sales order backlog and
production.
During the first quarter of 1996, the Company incurred $1.3 million in
expenses relating to its Stock Compensation Plans and Savings Plan. During
1995, the Company incurred $2.7 million in expenses relating to its Stock
Compensation Plans and Savings Plan. Liabilities arising under these plans are
satisfied by issuing shares of the Common Stock. See "Management--Stock Related
Compensation Plans" and note 10 to the Company's Consolidated Financial
Statements.
During the fourth quarter of 1995, the Company incurred a non-cash charge
to earnings of $4.4 million to establish a provision for anticipated future
losses on fixed price LTAs. See note 6 to the Company's Consolidated Financial
Statements.
Net cash used in investing activities totaled $1.2 million for the first
quarter of 1996 compared to $0.6 million for the first quarter of 1995. The
Company had additions to property, plant and equipment of $1.1 million in the
first quarter of 1996. Net cash used in investing activities totaled $2.2
million in 1995 compared to $2.7 million in 1994. The Company had additions to
property, plant and equipment of $1.9 million in 1995 and $1.2 million in 1994.
In 1994, the Company paid $8.2 million, net of cash assumed of $0.8
million, and issued debt to the seller in the amount of $4.5 million for the
purchase of TI.
Net cash provided by financing activities totaled $4.3 million for the
first quarter of 1996, compared to $3.3 million for the comparable period of
1995. For the first quarter of 1996, $4.2 million was provided from net
borrowings on the Company's credit agreements and book overdraft. Net cash
provided by financing activities totaled $12.1 million in 1995, compared to $8.8
million in 1994. For 1995, $11.3 million was provided from net borrowings on
the Company's credit facilities and book overdraft, and $1.0 million from a
capital lease obligation.
REVIEW OF SIGNIFICANT WORKING CAPITAL ACCOUNTS. Inventories increased by
$5.2 million, or 8% during the first quarter of 1996 while they increased $17.0
million, or 35%, to $66.0 million at December 31, 1995, compared to $49.0
million at December 31, 1994. In addition to an increase in finished goods
inventory, increases in raw materials and work-in-process have been made in
support of higher production levels. 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 have increased the
cost of the Company's inventory.
Accounts receivable increased by $7.1 million, or 28% during the first
quarter of 1996, while they increased $5.5 million, or 27%, to $25.9 million at
December 31, 1995, compared to $20.4 million as of December 31, 1994. The
increase in accounts receivable is consistent with the Company's increase in
sales volume.
The Company had a book overdraft at March 31, 1996, December 31, 1995 and
December 31, 1994 of $3.7 million, $2.0 million, and $0.0 million, respectively.
The book overdraft represents Company checks which have been disbursed and are
in transit as of the end of the reporting period. When the checks clear the
Company's bank, they are funded by draws on the Company's U.S. credit facility
to the extent they are not funded by deposits.
Accounts payable at March 31, 1996 and December 31, 1995 were $17.6 million
and $17.0 million, respectively, which are comparable to the December 31, 1994
balance of $16.9 million. Accrued payroll and employee benefits of $6.6 million
at March 31, 1996 was essentially unchanged from the balance at December 31,
1995. These amounts increased by $3.7 million or 126% to $6.7 million at
December 31, 1995, compared to $2.9 million as of December 31, 1994. Amounts
payable in shares of the Common Stock pursuant to the Stock Compensation Plans
and Savings Plan account for $1.8 million of the 1995 increase. The balance of
the 1995 increase of $1.9 million relates to increased levels of activity in
1995.
CREDIT AGREEMENTS. The Company may borrow up to $35 million under the
terms of a U.S. revolving credit agreement with BankAmerica Business Credit,
Inc. ("BABC"). The U.S. credit agreement expires in September 1997. The
balance outstanding under the credit agreement as of March 31, 1996 was $23.3
million. As of March 31, 1996, interest charged under the credit agreement was
calculated based on BABC's reference rate plus 1.5% or a borrowing option based
on LIBOR plus 2.5%.
As of December 31, 1995, the Company was not in compliance with certain of
its financial covenants contained in its BABC credit agreement. The Company
obtained a written waiver from BABC on these matters. The U.S. credit agreement
was amended as of March 14, 1996 and May 1, 1996 to, among other things, modify
the debt to equity ratio covenant and certain other restrictive covenants and to
increase the line from $25 to $35 million. The amendments to the covenants were
needed for the Company to remain in compliance with certain financial covenants
in the U.S. credit agreement in light of increased working capital growth. Upon
completion of the Offerings, the Company intends to seek a new $50 million
credit facility.
Titanium International Limited, a subsidiary of TI, has a short-term credit
facility with Midland Bank plc, in the U.K., permitting borrowings of
approximately $2.3 million. The U.K. credit agreement is subject to renewal on
December 31, 1996. The balance outstanding under the U.K. credit agreement as
of March 31, 1996 was $0.5 million.
CAPITAL EXPENDITURES. The Company anticipates that capital expenditures
during 1996, other than those related to the EB furnace, will approximate $9
million, of which $7 million will be provided by the proceeds of the Offerings.
Capital expenditures required to maintain compliance with applicable
environmental regulations are included in the Company's capital expenditure plan
to the extent that they can be determined. The Company estimates that it will
spend approximately $32 million during 1996, 1997 and 1998 to construct a new EB
furnace and to expand its existing scrap recycling facilities to supply input
material for this new furnace. The Company has no material open commitments
which obligate it to make future capital expenditures. See "Business - Electron
Beam Furnace" and "Risk Factors."
INCOME TAXES. For financial and income tax reporting purposes the Company
incurred net losses for 1991 through 1994. The Company is unable to carry back
any further losses for federal or state tax refunds. In 1995, the Company
reported a loss for financial reporting purposes, but expects to report taxable
income for both federal and state income tax reporting purposes. The Company
anticipates that it will be able to utilize federal and state net operating loss
carryforwards to offset 1995 taxable income, limiting the amount of taxes
actually payable to the taxing jurisdictions where it is subject.
The Company anticipates that in 1996 it will fully utilize its federal net
operating loss carryforwards of $3.6 million and will pay federal taxes on any
remaining balance of its federal taxable income. The Company has a State of
Oregon net operating loss carryforward of $30.0 million which will limit the
amount of state taxes paid in 1996. In addition, the Company pays minimal
franchise and income taxes in various states and foreign jurisdictions.
ADEQUACY OF LIQUIDITY AND CAPITAL RESOURCES. The Company's access to
borrowing facilities, internally generated cash and the net proceeds from the
Offerings are expected to be sufficient to support the Company's operating needs
and to finance its continued growth, capital expenditures and repayment of
long-term debt obligations.
NON-U.S. OPERATIONS AND MONETARY ASSETS. Approximately 11% of the
Company's 1995 net sales were derived from its service centers in the U.K. and
France. 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 on the Company was not significant in 1995.
IMPACT OF INFLATION. Inflation can be expected to have an effect on many
of the Company's operating costs and expenses. Due to worldwide competition in
the titanium industry, the Company may not be able to pass through such
increased costs to its customers. The Company believes, however, that such
effects have not been material to the Company in the first quarter of 1996 or in
the past three years.
BUSINESS
THE FOLLOWING INFORMATION CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE
CERTAIN RISKS AND UNCERTAINTIES. ACTUAL RESULTS AND EVENTS MAY DIFFER
SIGNIFICANTLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS
THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED IN "RISK FACTORS."
THE COMPANY
The Company is a leading U.S. integrated producer of titanium sponge,
ingot, mill products and castings for use in the aerospace, industrial, golf and
military markets. Since 1993, the Company has diversified its revenue base,
developed new market opportunities for titanium, expanded its distribution
network, increased its production capacity, and improved its manufacturing
efficiency. As a result, management believes that it is well-positioned to
capitalize on improving and emerging markets in the titanium industry. In 1995,
the Company reported net sales of $146.9 million, an operating loss of $0.3
million and a net loss of $2.4 million. During the first quarter of 1996, the
Company reported net sales of $51.3 million, operating income of $5.5 million
and net income of $3.3 million.
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., an 80% owned subsidiary of OREMET. TI operates full-line
titanium metal service centers in the U.S., U.K., Germany 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.
The Company was incorporated in Oregon in 1955 and began operations in
1956. The Company funded its growth internally and through investments by
corporate partners. In December 1987, the Company repurchased its Common Stock
from its major corporate partner and immediately sold shares of its Common Stock
to the ESOP. Initially, the ESOP owned approximately 67% of the Common Stock
and at May 31, 1996, the ESOP's ownership interest was approximately 19%.
INDUSTRY OVERVIEW
Titanium was first commercially produced in the 1950s. Titanium's superior
strength-to-weight ratio, stability at high temperatures and corrosion
resistance make it well suited for the aerospace and jet engine market.
Historically, approximately 70% to 80% of U.S. titanium consumption has been for
aerospace applications both in the commercial and 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 mill product
shipments averaged over 50 million pounds per 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 cancellation of military
programs resulting from the end of the Cold War. Data reported by the USGS
indicate that domestic industry mill product shipments increased by
approximately one million pounds per year in 1992 and 1993, while they dropped
to approximately 35 million pounds in 1994. Based on data of the USGS, U.S.
mill product industry shipments were approximately 44 million pounds in 1995.
Mill product shipments in the first quarter of 1996 totaled approximately 12
million pounds which represents an increase of 29% over the first quarter 1995
as reported by the USGS. The improvement in industry shipments is the result of
increased demand from the commercial aerospace industry and from the producers
of golf clubheads.
The aerospace industry is expected to remain the largest 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 steel. Golf
clubhead manufacturers are using titanium because of its strength and low weight
which enables production of clubs with larger heads. 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
biocompatibility also make it an increasingly popular metal for biomedical
products such as medical implants, and consumer products such as eyeglass frames
and bicycles.
PRODUCTION PROCESS
Since it began operations in 1956, OREMET has been a leader in developing
process technologies for the production of titanium. The production of titanium
requires several raw materials, including titanium tetrachloride (a liquid
derivative of rutile ore, coke and chlorine gas), magnesium, titanium scrap and
master alloys, such as vanadium-aluminum. See "Business - Raw Materials."
The flow of the Company's titanium production process is illustrated below.
OREMET Titanium Production Process
The remainder of this page contains a flow chart, with directional arrows,
demonstrating the Company's titanium production process, beginning with the
input of titanium tetrachloride and magnesium to produce titanium sponge. The
flow chart shows that the titanium sponge is then either sold to non-integrated
producers or used internally, along with master alloys and titanium scrap, to
produce ingot. In addition, the flow chart shows that ingot is then either used
to produce mill products, which are sold to aerospace, golf product and
industrial parts manufacturers, used to produce castings, which are sold to
industrial and marine product manufacturers, or used by forgers and mill product
manufacturers.
26
PRODUCTS
Titanium products is the Company's single business segment. A full range
of titanium products is 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.
SPONGE. 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 produces titanium sponge in 15,000 pound batches by
using a modified Kroll process developed by OREMET engineers. Titanium
tetrachloride and magnesium are combined in a horizontal retort and swept with
heated helium in one of the Company's eight sponge reduction furnaces, producing
titanium sponge and magnesium chloride. The magnesium chloride is separated
electrolytically into magnesium and chlorine in OREMET's magnesium recovery
facility. The recovered magnesium is recycled for use in the Company's titanium
sponge manufacturing facility. The chlorine by-product is sold, but does not
produce material revenues for the Company.
OREMET began producing titanium sponge for internal use in 1970 and began
selling it in 1987. The Company sells sponge principally to domestic
non-integrated titanium producers who use the sponge to produce ingot and mill
products. During 1995, the sponge plant operated at approximately 75% of its
practical annual capacity of 13.5 million pounds and is currently operating at
near capacity. See "Risk Factors."
The Company has a contract to supply titanium sponge and certain other
titanium products to RMI through 2003. Sales to RMI accounted for approximately
5%, 13% and 30% of OREMET's net sales in 1995, 1994 and 1993, respectively. No
other customer accounted for more than 10% of OREMET's net sales in any of these
three years.
INGOT. Titanium ingots are cylinders with a weight of up to 20,000 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 scrap, or a combination
of the two, with certain other elements to form titanium alloys. Prior to
melting, the materials are measured by a computerized weighing system to meet
customer specifications and compacted into briquettes that are welded together
to form an electrode. An electrode can also be formed by melting the materials
in the Company's plasma furnace, which allows the Company to combine a larger
percentage and more varied types of titanium scrap. An electrode is then melted
in one of the Company's vertical, water-cooled vacuum arc furnaces. Melting may
be repeated once or twice to produce standard and premium grades of titanium
ingot. The melting process is monitored through computer-operated sensors,
controls and video displays to maintain high levels of quality and consistency.
After melting, samples from finished ingots are analyzed in the Company's
laboratory to ensure proper chemical content and quality. Ingots are converted
in a forge, either by OREMET or by its customers, into semi-finished shapes and
then into finished mill products. The Company produces ingots in a variety of
sizes and grades to meet the customer's specifications. During 1995, the ingot
plant operated at approximately 70% of its estimated annual capacity of 20
million pounds and is currently operating at near capacity. See "Business -
Electron Beam Furnace" and "Risk Factors."
MILL PRODUCTS. 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. OREMET sells its mill products to
manufacturers of aircraft, jet engines, vessels and piping for chemical plants,
prosthetic and orthopedic implants, armor, golf clubheads and other consumer
goods. OREMET produces mill products at its plants in Albany, Oregon and
Frackville, Pennsylvania.
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 THT, an outside processor which is 50%
owned by one of the Company's principal competitors. THT owns and operates a
cold hearth EB furnace which the Company utilizes for melting titanium slab,
that is further processed into titanium plate and sheet for non-aerospace
applications, and titanium electrodes for aerospace applications. 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. This 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 such
term. OREMET has not experienced any delays or problems associated with the
competitor's ownership of THT. OREMET and other THT customers have received
notice from THT that it will not renew on present terms, but that it intends to
negotiate new supply contracts. 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. In order to address its long-term
melting requirements, the Company intends to construct a new EB cold hearth
furnace. See "Business - Electron Beam Furnace" and "Risk Factors."
The Company maintains a process engineering staff which continually
evaluates and identifies potential improvements in the manufacturing process.
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 certified for conformity to specifications and then recorded for future
traceability.
CASTINGS. In 1957, OREMET completed construction of a titanium and
zirconium casting foundry and began producing components in commercial
quantities. Since then, the foundry has continued to develop new technology and
make process improvements. The Company believes that it is the largest producer
of titanium industrial sand castings in the U.S. OREMET produces titanium and
zirconium castings for customers primarily for the non-aerospace industry.
Castings are made by melting metal which is then poured under vacuum into
graphite molds. Castings generally weigh from one pound to 2,000 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. Titanium and zirconium castings are used in a
diversity of applications including offshore oil production, chemical
processing, mining, armor, aerospace, power generation, pulp and paper
manufacturing and marine products. Both titanium and zirconium are recognized
as cost-effective materials for construction because of their light weight,
excellent corrosion resistance, low maintenance, high quality and long life
cycle. As new applications for titanium continue to grow, the Company expects
the demand for castings to follow. To address this increasing demand, the
OREMET foundry is in the process of increasing its production capacity.
OTHER PRODUCTS. OREMET provides services to other titanium producers and
sells by-products of its titanium production process. Non-integrated producers
of titanium ingot and mill products contract with OREMET to melt sponge or
titanium scrap into ingot or to convert ingot into mill products. OREMET also
sells titanium scrap for use as an alloy addition in the production of other
metals such as steel and aluminum.
ELECTRON BEAM FURNACE
The Company intends to expand its melting capabilities by constructing a
new EB cold hearth furnace. This technology offers cost advantages over the
existing production practices and is required to meet the requirements of
certain critical aerospace applications. EB technology offers the advantage of
directly casting semi-finished shapes, thereby reducing the amount and cost of
subsequent conversion operations and processing required prior to shipping the
completed product. In addition, the EB technology will allow the use of
different types and greater amounts of scrap input materials, thus allowing for
cost savings and improved inventory utilization.
The Company estimates that the cost to construct an EB furnace facility
with an annual melting capacity of 20 million pounds, together with a related
expansion of the existing scrap processing facility, would total approximately
$32 million. The Company is currently working with engineers and equipment
suppliers on the design of the EB furnace. The Company estimates that the
facility would be in operation during the first half of 1998. The Company
anticipates that it will have an immediate need for a substantial portion of the
production of the EB furnace and that it will be able to obtain long-term
commitments from others for the furnace capacity which is not utilized by the
Company. The Company is also evaluating other alternatives, including investing
in a joint venture to build a new EB furnace.
RAW MATERIALS
The primary raw materials used by the Company are titanium tetrachloride,
magnesium, titanium scrap 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 scrap and alloying elements.
OREMET purchases its titanium tetrachloride requirements from 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 could have a
material adverse effect on OREMET's ability to produce titanium sponge.
Magnesium is generally available from a number of suppliers.
Titanium scrap is typically available from many sources. The availability
of attractively priced titanium scrap 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 melting process. Certain
of the primary metal compounds used to form master alloys are produced by a
limited number of suppliers. During January 1996, in response to rapidly
increasing scrap costs, the Company added indices to its product prices to
offset the higher costs it was experiencing.
When available at attractive prices, the Company has purchased titanium
sponge and scrap from the FSU. Continued availability of these materials at
attractive prices cannot 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.
MARKETS
AEROSPACE. The Company sells its titanium products to non-integrated
producers and fabricators which process the material for use by the aerospace
industry. While the percentage of its sales to the aerospace industry accounted
for approximately 46% in 1995, compared to 61% in 1994 and 77% in 1993,
aggregate sales to the aerospace industry increased from $42.6 million in 1993
to $67.1 million in 1995. The Company has also expanded its capability to
include more complex alloys and mill products used by the aerospace industry.
The Company anticipates that future aerospace industry sales will vary from 40%
to 60% of total net sales depending upon demand and profitability.
GOLF. The titanium golf clubhead market evolved in 1988 when a few
investment casting houses started producing clubheads for export to markets in
the Far East. At the same time, some companies in Japan started to produce
clubheads by casting and forging. By 1993, the technology and manufacturing
processes were well developed and major U.S. club producers became interested in
producing heads with a larger hitting surface. Since 1993, most of the major
golf club manufacturers have started their own lines of titanium head drivers.
The Company estimates that the use of titanium has grown from 1.5 million pounds
in 1994 to over 8 million pounds in 1996. Golf club manufacturers are now
starting to produce titanium fairway woods, irons and putters. The Company has
excellent relationships with the major golf clubhead casting companies. The
Company believes it is the market share leader and is supplying in excess of 50%
of the titanium sold to the golf market.
ARMOR. Titanium has been studied by the defense industry as a ballistic
protection material. In the mid 1970s, titanium was designed into the A-10
military airplane to provide protection for the pilots performing close-in
ground support missions. As a result of the deficiencies with aluminum
protection systems experienced during the Faulkland's War, titanium was studied
as a replacement material for protecting strategic areas aboard naval fighting
ships.
In order to deploy forces more rapidly, certain military forces turned to
titanium to reduce the weight of vehicles while assuring good ballistic
protection. Since 1992, hatch covers on the Bradley fighting vehicle have been
made with titanium. In 1994 and 1995, OREMET supplied over 300,000 pounds of
plate for ballistic protection on a new French aircraft carrier, the CHARLES
DEGAULLE. OREMET is supplying titanium parts for construction of the Swedish
Leopard II tank and the U.S. M1A2 tank. Military engineers continue to search
for other armor applications that can take advantage of titanium's light weight
and ballistic protection characteristics. Research efforts for armor
applications continue to be a high priority for OREMET. The Company believes
that titanium usage on tanks and on various types of personnel carriers will
increase.
MARKETING, DISTRIBUTION AND SERVICE CENTERS
OREMET markets primarily to manufacturers of titanium metal end products.
The Company also sells its products to non-integrated titanium producers,
regional value-added distributors and other mill product consumers. The
majority of sales are made through the Company's internal sales force. 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 North America and Europe. The
Company believes its 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.
For nearly 25 years, TI, including its predecessor company, has been
supplying and developing titanium applications for industrial and commercial
customers. The Company believes that TI is one of the largest service center
networks established to satisfy the titanium needs of the non-aerospace
industry. TI opened its first service center during 1972 in Fairfield, New
Jersey. In response to the increasing demands of its customers and in order to
provide improved response times, TI established additional service centers
throughout North America. In 1988, TI established a service center in
Birmingham, U.K. and in 1992, expanded its position in the European market by
acquiring an existing service center distribution business, also in Birmingham.
To support the increasing demands for titanium in diverse commercial, consumer,
aerospace and industrial markets, the Company intends to continue to expand its
distribution business geographically. In addition to pursuing growth
opportunities through the establishment of additional service centers, TI
intends to grow through acquisitions of existing service centers and through the
expansion of its participation in the aerospace market. The Company estimates
that approximately 25% of TI's shipments are to the aerospace market, primarily
in Europe. TI is currently evaluating service center opportunities in the
Pacific Rim, Southern Europe and the Northeastern United States.
The Company and TI maintain titanium sales offices and service centers
(which also include sales personnel) in the following locations:
Location Established Function
United States Albany, OR 1956 Sales Office
Parsippany, NJ 1972 Service Center
Chicago, IL 1986 Service Center
Jacksonville, FL 1986 Service Center
Los Angeles, CA 1987 Service Center
Dallas, TX 1989 Sales Office
Pittsburgh, PA 1994 Sales Office
Canada Montreal, Quebec 1973Service Center
Vancouver, B.C. 1989 Sales Office
Europe Birmingham, U.K. 1988Service Center
Paris, France 1994 Service Center
Dusseldorf, Germany1996 Service Center
INTERNATIONAL SALES
International sales, primarily in Europe and Asia, totaled approximately
20%, 14% and 13% of OREMET's net sales in 1995, 1994 and 1993, respectively. In
May 1994, OREMET signed a three-year contract with Aerospatiale Avions, France
for engine pylon parts for the Airbus aircraft, and in the second half of 1994
began supplying product under the contract. The acquisition of TI provided the
Company with a service center located in the U.K. with an established operation.
In 1996, TI opened a service center in Germany. The Company intends to utilize
these facilities to meet its customers' needs in Europe.
BACKLOG
The Company's twelve-month sales order backlog was $134 million at
March 31, 1996, compared to $48 million at March 31, 1995 and $28 million at
March 31, 1994. OREMET produces titanium ingot, mill products and castings in
response to specific customer orders. Production times vary among products and
can be several months or more. The Company includes in its backlog only those
firm purchase orders scheduled for delivery during the subsequent twelve-month
period (which are generally subject to cancellation by the customer). The
Company has historically experienced a high level of order cancellations and
deferrals in periods of industry downturn.
As of the Quarter Ended
March 31 June 30September 30December 31
(in millions)
1996. . . . . . . . $134
1995. . . . . . . . 48 $64 $65 $105
1994. . . . . . . . 28 29 37 44
1993. . . . . . . . 27 25 19 18
During the second half of 1995 and continuing into 1996, the Company has
experienced a significant increase in the volume of incoming orders at increased
prices. In June 1996, the Company recently began booking orders for delivery in
early 1997. The increase in demand has been driven primarily by the recovery in
the commercial aerospace market and the emergence of the golf clubhead market.
As capacity utilization in the titanium industry continues to grow and lead
times lengthen, the Company expects prices on new orders to continue to
strengthen.
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 competes primarily on the basis of price, quality,
delivery time and customer service. In addition, the Company provides
engineered products to customer specifications. 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.
The Company estimates that its share of U.S. sponge capacity is
approximately 30% and that its share of world capacity is about 5%. While
approximately 20% of the world's sponge production capacity is located within
the U.S., up to one half is located within the FSU. 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 increasing quantities. USGS estimates that approximately
11 million pounds of sponge annually were imported into the U.S. from the FSU
during 1994 and 1995, approximately 350% higher than the amount imported during
1993 and representing about 25% of the 1995 consumption by U.S. producers.
The titanium producers in the FSU are currently working with several U.S.
companies to have their "new production" sponge qualified for use in critical
aerospace applications. Currently, FSU sponge is subject to import tariffs of
15% and anti-dumping duties of 84%. A review of the anti-dumping duty by the
U.S. Department of Commerce is pending for the periods after August 1, 1993. An
elimination or reduction of the anti-dumping duties on sponge from the FSU could
result in additional imports of their product which in turn could reduce the
demand for sponge produced by the Company.
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. Imports of titanium ingot from
the FSU totaled just under two million pounds during 1995. While this is an
increase of almost 250% from the quantity imported from the FSU in 1994, it
represents less than 5% of the estimated 1995 production of the U.S. producers.
Continued expansion into the U.S. market by FSU producers could materially
affect the operations of the Company. See "Risk Factors."
EMPLOYEE RELATIONS
As of March 31, 1996, the Company employed 605 employees, of which 60 were
employed outside of the U.S. All of the hourly production and maintenance
workers (approximately 360) at the Albany, Oregon and Frackville, Pennsylvania
manufacturing facilities are represented by labor unions. In August 1994, the
Company and the union representing the 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. Since 1974, the Company has not experienced any
strikes or labor disruption. OREMET considers its relations with its employees
to be good.
RESEARCH, TECHNICAL AND PRODUCT DEVELOPMENT
OREMET's RT&D efforts are focused on improving production processes and
developing new applications and markets for titanium. Production process
improvements have included improving sponge production efficiencies, making
technical improvements to scrap processes, revising vacuum arc melting
techniques, enhancing forging practices and improving overall yield. In
addition, the Company strives to reduce costs by shortening cycle times, by
implementing synchronous manufacturing principles and by eliminating product
rejections.
OREMET's focus on product development has resulted in the development of
high purity sponge for use by the electronics industry, consistent production of
titanium aluminides for aerospace applications and new alloys for armor and golf
applications.
In order to keep abreast of new developments, the Company maintains contact
with university and research facilities, as well as with major end users of
titanium products. These groups assess new applications for titanium and the
need for new or alternative alloys and titanium compositions. OREMET then
develops alloy systems, processes and procedures for the manufacture of new
products.
JOINT VENTURES
OREMET is involved in several joint ventures which, like its RT&D efforts,
utilize shared investment as a means to access technology or capabilities.
OREMET is a 50% partner with Precision Castparts Corporation in a joint
venture which owns a plasma furnace operated by OREMET in Albany, Oregon. The
plasma furnace produces remelt electrodes for both parties' consumption. The
venture started in 1993 and is producing in excess of 2 million pounds of
electrode per year.
OREMET is a 33% member in MZI, LLC, which owns an advanced ultrasonic
inspection system for testing of certain aerospace products. The other members
are Titanium Metals Corporation and Teledyne Allvac. This venture has been in
operation for about 18 months and has inspected 2.5 million pounds of product.
REGULATORY AND ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local statutes and regulations
concerning environmental matters and land use. Although the Company believes it
is in material compliance with these laws, they are frequently modified to be
more restrictive and it is impossible to predict accurately the future effect
that changes in these laws may have on the Company.
Like other titanium producers, the Company generates certain waste
materials and emissions, including materials for which disposal or emission
requires compliance with environmental protection laws. The Company conducts
its operations at industrial sites where hazardous materials have been managed
for many years in connection with its operations, including periods before
careful management of these materials was required or generally believed to be
necessary. Consequently, the Company is subject to various environmental laws
that impose compliance obligations and can create liability for historical
releases of hazardous substances.
The Company entered into a consent order in August 1994 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 its
investigation will result in a determination that at least some remedial action
is necessary, for which an accrual has been made. A neighboring property owner
also is investigating groundwater contamination at its property that has
migrated to OREMET's property and for which OREMET may have legal claims to
recover a portion of its investigation costs.
In February 1995, the Oregon Department of Environmental Quality modified
OREMET's waste water discharge permit. The new permit imposes more stringent
discharge limits according to a specified schedule. OREMET has identified
several feasible alternatives for meeting the new limits, the most expensive of
which would require capital expenditures of approximately $700,000. OREMET is
working with the Department to explore less expensive alternatives.
In connection with the preparation of its application for a new federal
operating permit under Title V of the 1990 Clean Air Act Amendment, the Company
discovered that some of its air emissions may have been greater than previously
recognized. The Company has voluntarily reported these facts to the Oregon
Department of Environmental Quality. To resolve these issues, the Company has
agreed to undertake an evaluation of its emissions that could result in
requirements to install additional pollution control equipment. At this point,
the Company is unable to determine whether additional controls will be required,
but the Company does not believe the cost of such additional controls would have
a material effect on its capital expenditures, earnings or competitive position.
Although no claims have been filed against the Company related to the above
matters, it has completed engineering studies with regards to these
environmental matters. As a result of these studies, which are ongoing, the
Company made provisions for environmental expenses of $0, $240,000 and $970,000
in 1995, 1994 and 1993, respectively, of which approximately $909,000 remains as
of March 31, 1996. These amounts are in addition to recurring environmental
costs which are expensed as incurred and are included in cost of sales. At the
present time, management cannot reasonably predict when these environmental
issues will be resolved. See "Risk Factors."
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 has not been informed of any pending or potentially required actions
which may arise from this investigation.
In conjunction with the sale of TI, Kamyr, Inc. (the seller) has agreed to
undertake specified clean-up activities. In addition, Kamyr, Inc. has agreed to
a limited indemnification of the Company in the event damages arise that result
from conditions which were not in compliance with environmental laws and
regulations as they existed at the time OREMET purchased TI.
FACILITIES AND PROPERTIES
The Company's principal executive office and production facilities are
located in Albany, Oregon on 210 acres of property owned by the Company. The
Company occupies approximately 461,000 square feet in six buildings and uses
approximately 65 acres on the site. The facilities include plants for the
production of titanium sponge, ingot, mill products and castings. The Company
also maintains separate facilities for recovering magnesium and processing
titanium scrap. TI's executive offices are located in Fairfield, New Jersey.
The Company believes that the plants are adequate and suitable for its current
operating needs. Other than the facility in Birmingham, U.K., the service
centers and sales offices which the Company utilizes are leased.
LEGAL PROCEEDINGS
From time to time, the Company is involved in legal proceedings which arise
in the normal course of business. The Company is not currently involved as a
defendant in any pending legal proceedings where the outcome, if determined
adversely, could have a material adverse effect on the business or results of
operations of the Company.
MANAGEMENT
The following table sets forth, as of June 25, 1996, certain information
regarding the Company's directors and executive officers.
NAME AGE POSITION
Carlos E. Aguirre 52 Director; President and Chief Executive Officer
Gilbert E. Bezar 66 Director
Thomas B. Boklund 57 Director
Roger V. Carter 66 Director
Nicholas P. Collins 63 Director
Howard T. Cusic 71 Director; Chairman of the Board
David H. Leonard 49 Director
James S. Paddock 53 Director; Vice President of the Company;
President, Chief Executive Officer and Chief
Operating Officer of Titanium Industries, Inc.
James R. Pate 51 Director
John P. Byrne 44 Vice President, Manufacturing and Engineering
David G. Floyd 53 Vice President, Commercial
Dennis P. Kelly 49 Vice President, Finance; Chief Financial
Officer; Treasurer
Steven H. Reichman 53 Vice President, Technology and Corporate
Development
Orval N. Thompson 81 Secretary and General Counsel
ADDITIONAL INFORMATION CONCERNING DIRECTORS AND OFFICERS
Carlos E. Aguirre, Ph.D., the President and Chief Executive Officer of the
Company, has been a director since June 1993. Mr. Aguirre served as President
of Axel Johnson Metals, Inc. from 1982 to 1993. Prior to that, Mr. Aguirre was
the Vice President of Technology at Ingersoll-Johnson Steel Corporation from
1979 to 1982. Mr. Aguirre obtained a Ph.D. in Metallurgy and Material Sciences
from Carnegie Mellon University. In 1995, Mr. Aguirre was appointed President
of the International Titanium Association, the principal organization of
titanium producers and users dedicated to developing new applications and uses
for titanium.
Gilbert E. Bezar has been a director of the Company since 1983. He was
Vice President, Administration of Armco Inc.'s Strategic Metals Group from 1981
to 1985. He held the similar position with Owens-Corning Fiberglas Corporation
from 1985 until his retirement in 1988.
Thomas B. Boklund has been a director of the Company since April 1996. He
has been employed by Oregon Steel Mills, Inc., since 1973 and was President and
Chief Executive Officer from 1982 to 1992, and, since 1992, Chief Executive
Officer and Chairman of the Board. Mr. Boklund is also a director of New CF&I,
Inc. and Paragon Trade Brands, Inc., and a Trustee of the William G. Gilmore
Foundation.
Roger V. Carter, selected for nomination by the salaried employees, has
been a director of the Company since 1990. He has been an independent metals
technology consulting engineer since 1986. He was employed by the Boeing
Company from 1954 and served as Chief Metallurgist and Manager of Metals
Technology at the time of his retirement in 1986.
Nicholas P. Collins, selected for nomination by the salaried employees, has
been a director of the Company since 1990. He is the Vice Chairman of ESCO
Corporation, a steel technology company, where he has been employed since 1957.
Howard T. Cusic has been a director of the Company since 1980 and is
Chairman of the Board of Directors. He retired as Senior Vice President of
Owens-Corning Fiberglas Corporation in 1989 and was Group Vice President for
Armco, Inc. from 1981 to 1985. From 1973 to 1985, he was also President of
HITCO, which was a wholly owned subsidiary of Owens-Corning Fiberglas
Corporation, from September 1985 to January 1987.
David H. Leonard, selected for nomination by the hourly employees, has been
a director of the Company since 1989. He has been a partner of the Salem,
Oregon law firm of Churchill, Leonard, Brown, Lodine and Hendrie since 1976.
James S. Paddock became a director in September 1994. Since September
1994, he has been a Vice President of the Company and President, Chief Executive
Officer and Chief Operating Officer of TI. From 1986 to 1994 Mr. Paddock was
the President, Chief Executive Officer and Chief Operating Officer of the
predecessor company to TI.
James R. Pate, selected for nomination by the hourly employees, has been a
director of the Company since 1989. He was Manager, Business Services, Oregon
Department of Corrections from 1990 to 1993, and is currently the Financial
Services Manager, Vocational Rehabilitation Division, Oregon Department of Human
Resources.
John P. Byrne has been Vice President, Manufacturing and Engineering, since
March 1995. Mr. Byrne was President of Byrne & Associates, a business
consulting company, in 1994. Mr. Byrne was President and Chief Executive
Officer of TiLine, Inc., and its successor company, IMI Titanium, Inc., from
1986 to 1994. Mr. Byrne has a BS in Metallurgy from Drexel University and an
MBA from the University of Oregon.
David G. Floyd has been Vice President, Commercial, since July 1991.
Mr. Floyd was Managing Director, International Sales for RMI Titanium Company
from 1984 to 1991 and held various positions in RMI's sales organization between
1977 and 1984.
Dennis P. Kelly, CPA, was appointed Vice President, Finance, Chief
Financial Officer and Treasurer of the Company in October 1993. Mr. Kelly was
the Vice President Finance, Chief Financial Officer and Treasurer of Titanium
Metals Corporation from 1985 to 1993.
Steven H. Reichman has been Vice President, Technology and Corporate
Development since November 1993. Mr. Reichman was Director of R & D at
Wyman-Gordon Company from 1983 to 1993. Mr. Reichman has a MS in Metallurgy
from Polytechnic Institute of New York.
Orval N. Thompson has been Secretary and General Counsel for the Company
since 1956 and was Treasurer until April 1988. Mr. Thompson has been a director
of the Company from April 1988 until September 1994, and for various periods
since the Company was incorporated. Mr. Thompson is of counsel to the law firm
of Weatherford, Thompson, Quick & Ashenfelter, P.C., of Albany, Oregon.
STOCK RELATED COMPENSATION PLANS
STOCK COMPENSATION PLANS. The Company established separate stock
compensation plans for the salaried and hourly employees, as groups, during 1995
where all employees, except executive officers, receive one share of Common
Stock for each $100 of compensation earned ("Stock Compensation Plans").
Executive officers of the Company are paid the cash equivalent in lieu of Common
Stock. In June 1996, the plans were amended effective April 1, 1996, such that
when the value of the Common Stock exceeds $20 per share, a partial share
entitlement of Common Stock equal to $20 will be earned for each $100 of
compensation earned.
ESOP AND EXCESS BENEFIT PLANS. The ESOP is a stock ownership plan
qualified under Section 401(a) of the Internal Revenue Code and the trust
holding all the assets of the ESOP is exempt from taxation under Section 501(a)
of the Internal Revenue Code. The Amended and Restated Excess Benefit Plan
("Excess Benefit Plan") is an unfunded plan for participants whose allocations
under the ESOP have been reduced as a result of limitations under federal tax
law. At May 31, 1996, the ESOP trust held 2,182,018 shares (approximately 19%)
of the Common Stock and approximately 87,500 shares were issuable under the
Excess Benefit Plan.
On December 11, 1987, the ESOP acquired 6,267,281 shares of common stock
from the Company for $17 million ($2.71 per share), which funds were loaned to
the ESOP by the Company ("ESOP Loan"). All other shares of common stock of the
Company owned by the ESOP were received through annual contributions by the
Company. In adopting the ESOP and related Excess Benefit Plan, the Board of
Directors stated its belief that participation of employees in the growth and
profits of the Company through the ESOP would be a benefit to the Company.
The ESOP Loan has been repaid in full and no further shares will be
contributed by the Company to the ESOP. All shares under the ESOP and Excess
Benefit Plan were allocated to individual participants' accounts as of the end
of 1994. Participants in the ESOP have the right to direct the ESOP trustee to
vote shares of Common Stock allocated to their individual accounts in any matter
put to a shareholder vote. A participant is entitled to a distribution of all
assets held in his or her ESOP account upon the termination of employment with
the Company.
The ESOP was amended on May 20, 1996 to increase the percentage of
shares held in the ESOP whose participants may withdraw or diversify into
approved investment funds. Prior to the amendment the maximum percentage of
shares which a participant could withdraw or diversify from that
participant's ESOP account was 40%. The amendment increased the maximum
percentage of shares which may be withdrawn or diversified to 85%. The
increase will be implemented in three 15% increments effective May 28, June
25 and July 30, 1996, respectively. The amendment has not been approved by
the Internal Revenue Service but prior requests which were similar in nature
were approved without controversy. The Company estimates that approximately
535,000 shares of Common Stock are currently subject to withdrawal or
diversification and that an additional 475,000 shares will be subject to
withdrawal or diversification by July 30, 1996.
In addition, effective June 11, 1996, certain eligible employees of OREMET
were each granted options to buy 500 shares of Common Stock at the fair market
value at the date of grant. Such options vest 100% on the fourth anniversary of
the grant. The total number of shares subject to options are 252,000.
SAVINGS PLAN. Effective January 1, 1995, the Company adopted a Savings
Plan containing salary reduction features in which executive officers
participate. The Company contributes one share of Common Stock for each day
that an employee works. In June 1996, the Savings Plan was amended effective
April 1, 1996 such that when the value of the Common Stock exceeds $32 per
share, a partial entitlement of Common Stock equal to $32 will be contributed.
As part of such plan, the Company also makes a matching contribution based on
the employee's contribution and the profitability of the Company. In no event
will such match exceed 3% of an employee's compensation.
LONG-TERM INCENTIVE PROGRAM. The Company adopted a Long Term Incentive
Compensation Stock Appreciation Rights Plan ("SAR Plan") in December of 1995
under which stock appreciation rights ("SARs") may be awarded to certain key
executive officers and senior managers. In December 1995, 166,500 SARs were
granted at the fair market price at the date of grant, of which 96,000 were
granted to named executive officers. Grants will be awarded periodically to
executive officers of the Company as determined by the Board of Directors other
than interested directors. The SARs vest as follows: less than second
anniversary of grant ("anniversary"), 0%; second anniversary, 50%; third
anniversary, 75%; and fourth anniversary, 100%. The SARs also fully vest upon
the death or disability of the participant, or upon a change in control of
OREMET. SARs will be forfeited if the participant is terminated for "cause" (as
defined in the SAR Plan). The SARs are payable only in cash, and the employee
receives the difference between the market value of Common Stock on the date of
exercise, less the grant price. The SAR Plan will expire in 2005 unless
extended by the Board of Directors.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 25,000,000 shares of
Common Stock, $1.00 par value per share. As of May 31, 1996, there were
11,416,757 shares of Common Stock outstanding, excluding 1,197,000 shares of
Common Stock reserved for issuance under various employee benefit plans, 252,000
shares issuable upon exercise of stock options and 120,000 shares issuable upon
exercise of the stock purchase warrant. Holders of Common Stock have no
preemptive rights or rights to convert their shares of Common Stock into any
other securities. The Common Stock is not subject to redemption. In the event
of a liquidation, dissolution or winding up of the Company, holders of Common
Stock are entitled to receive pro rata all assets of the Company remaining after
payment of debts and liquidation preferences. All of the shares of Common Stock
issued and outstanding as of the date of this Prospectus are, and the shares of
Common Stock offered hereby will be, fully paid and nonassessable.
Holders of Common Stock are entitled to receive such dividends as may be
declared from time to time by the Board of Directors of the Company out of funds
legally available for the payment of dividends.
VOTING
Each holder of shares of Common Stock is entitled to one vote for each
share upon all matters presented to shareholders except as provided in Section
60.807 of the Oregon Business Corporation Act ("OBCA"). In the election of
directors, the shareholders have cumulative voting rights and are therefore
entitled to cast a number of votes equal to the number of shares held by such
shareholder multiplied by the number of directors to be elected. These votes
may all be cast for a single nominee or distributed in any proportion among any
number of nominees.
The Articles of Incorporation of the Company, as amended, provide that, if
less than 25% of the Company's outstanding stock is held by defined contribution
employee benefit plans which are qualified under Internal Revenue Code Section
401(a), two of the nine members of the Board of Directors shall be nominated as
follows: one shall be nominated by the Company's employees affiliated with the
United Steelworkers of America, Local 7150 and one shall be nominated by the
Company's employees who are not affiliated with the Union, not employed by TI
and not employed outside the U.S. An amendment to the Articles of Incorporation
must be approved by a majority of the votes entitled to be cast on the
amendment.
CERTAIN PROVISIONS OF OREGON LAW
The Company is subject to certain provisions of Oregon law that may
discourage or render more difficult an unsolicited takeover of OREMET.
Generally, Section 60.835 of the OBCA prohibits a publicly held Oregon
corporation from engaging in a "business combination" with an "interested
shareholder" for a period of three years after the date of the transaction in
which the person became an interested shareholder, unless (i) prior to such
date, the board of directors of the corporation approved either the business
combination or the transactions which resulted in a shareholder becoming an
interested shareholder, (ii) upon consummation of the transaction which resulted
in the shareholder becoming an interested shareholder, the interested
shareholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned by (A) persons
who are directors and also officers and (B) employee share plans in which
employee participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer
or (iii) on or subsequent to the date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
shareholders, and not by written consent, by the affirmative vote of at least
66-2/3 percent of the outstanding voting stock which is not owned by the
interested shareholder. A "business combination" includes mergers, asset sales
and other transactions resulting in financial benefit to the interested
shareholder. An "interested shareholder" is, in general, a person (other than
the corporation and any direct or indirect majority-owned subsidiary of the
corporation) who together with affiliates and associates owns (or within three
years, did own if the person is an affiliate or associate of the corporation)
15% or more of the corporation's outstanding voting stock. See "Risk Factors."
Another provision of Oregon law restricts voting rights with respect to
certain shares acquired in an acquisition that causes the voting power of the
acquiring person to exceed certain levels. As permitted by Oregon law, however,
the Company has elected not to be subject to these provisions.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is First Interstate
Bank of Oregon, N.A.
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "U.S. Underwriting Agreement") among the Company and each of the
underwriters named below (the "U.S. Underwriters"), for whom Salomon Brothers
Inc, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Pacific Crest
Securities Inc. are acting as representatives (the "U.S. Representatives"), the
Company has agreed to sell to each of the U.S. Underwriters and each such U.S.
Underwriter has severally agreed to purchase from the Company the number of
shares of Common Stock set forth opposite its name in the table below:
Number
U.S. Underwriters of Shares
Salomon Brothers Inc. . . . . . . . . . . . . . . . . . . .
Merrill Lynch, Pierce, Fenner & Smith
Incorporated. . . . . . . . . . . . . . . .
Pacific Crest Securities Inc. . . . . . . . . . . . . . . .
_______
Total . . . . . . . . . . . . . . . . . . . . . . . . 3,000,000
In addition, the Company has entered into an underwriting agreement (the
"International Underwriting Agreement") with the International Underwriters
named therein ("International Underwriters"), for whom Salomon Brothers
International Limited, Merrill Lynch International and Pacific Crest Securities
Inc. are acting as representatives (the "International Representatives"),
providing for the concurrent offer and sale of shares of Common Stock outside
the U.S. and Canada. The closing with respect to the sale of the shares of
Common Stock pursuant to the International Underwriting Agreement is a condition
to the closing with respect to the sale of the shares of Common Stock pursuant
to the U.S. Underwriting Agreement, and the closing with respect to the sale of
shares of Common Stock pursuant to the U.S. Underwriting Agreement is a
condition to the closing with respect to the sale of the shares of Common Stock
pursuant to the International Underwriting Agreement. The public offering price
and underwriting discounts per share for the U.S. Offering and the International
Offering will be identical.
The U.S. Underwriting Agreement provides that the obligations of the U.S.
Underwriters to purchase the shares of Common Stock listed above are subject to
certain conditions set forth therein. The U.S. Underwriters are committed to
purchase all of the shares of Common Stock offered by this Prospectus (other
than those covered by the over-allotment options described below), if any are
purchased. In the event of default by any U.S. Underwriter, the U.S.
Underwriting Agreement provides that, in certain circumstances, the purchase
commitments of the non-defaulting U.S. Underwriters may be increased or the U.S.
Underwriting Agreement may be terminated.
The U.S. Representatives have advised the Company that the U.S.
Underwriters propose initially to offer the shares of Common Stock offered
hereby to the public at the public offering price set forth on the cover page of
this Prospectus, and to certain dealers at such price less a discount not in
excess of $ per share of Common Stock. The U.S. Underwriters may
allow, and such dealers may reallow, a discount not in excess of $ per
share of Common Stock on sales to certain other dealers. After the Offerings,
the public offering price and such discounts may be changed.
Each U.S. Underwriter has severally agreed that, as part of the
distribution of shares of Common Stock (i) it is not purchasing any shares of
Common Stock for the account of anyone other than a U.S. or Canadian Person (as
defined below) and (ii) it has not offered or sold, and will not offer or sell,
directly or indirectly, any shares of Common Stock or distribute this Prospectus
to any person outside of the U.S. or Canada or to anyone other than a U.S. or
Canadian Person. Each International Underwriter has agreed that, as part of the
distribution of the shares of Common Stock, (i) it is not purchasing any shares
of Common Stock for the account of any U.S. or Canadian Person and (ii) it has
not offered or sold, and will not offer or sell, directly or indirectly, any
shares of Common Stock or distribute the International Prospectus to any person
within the U.S. or Canada or to any U.S. or Canadian Person. The foregoing
limitations do not apply to stabilization transactions or to certain other
transactions specified in the agreement between U.S. Underwriters and
International Underwriters described below. As used herein, "U.S. or Canadian
Person" means any individual who is resident in the U.S. or Canada, or any
corporation, partnership, or other entity organized under or governed by the
laws of the U.S. or any political subdivision thereof (other than a foreign
branch of any U.S. or Canadian Person), any estate or trust the income of which
is subject to U.S. or Canadian federal income taxation, regardless of the source
of its income (other than a foreign branch of any U.S. or Canadian Person), and
includes any U.S. branch of a non-U.S. Person.
Each U.S. Underwriter that will offer or sell shares of Common Stock in
Canada as part of the distribution has severally agreed that such offers and
sales will be made only pursuant to an exemption from the prospectus
requirements in each jurisdiction in Canada in which such offers or sales are
made.
The U.S. Underwriters and the International Underwriters have entered into
an agreement that provides for the coordination of their activities. Pursuant
to such agreement, sales may be made between the U.S. Underwriters and the
International Underwriters of such number of shares of Common Stock as may be
mutually agreed upon. The per share price of any shares so sold shall be the
public offering price set forth on the cover page of this Prospectus, less an
amount not greater than the per share amount of the concession to dealers set
forth above. To the extent there are sales between the U.S. Underwriters and
the International Underwriters, the number of shares of Common Stock initially
available for sale by the U.S. Underwriters or by the International Underwriters
may be more or less than the amount appearing on the cover page of this
Prospectus.
The Company has granted the U.S. Underwriters and the International
Underwriters options to purchase an aggregate of up to an additional 450,000
shares and 75,000 shares, respectively, of Common Stock at the public offering
price less the aggregate underwriting discount, solely to cover over-allotments.
To the extent such options are exercised, each of the U.S. Underwriters and the
International Underwriters will become obligated, subject to certain conditions,
to purchase approximately the same percentage of such additional shares of
Common Stock as the percentage it was obligated to purchase pursuant to the U.S.
Underwriting Agreement or the International Underwriting Agreement, as
applicable.
The U.S. Underwriting Agreement and International Underwriting Agreement
provide that the Company will indemnify the several U.S. Underwriters and
International Underwriters against certain liabilities under the Securities Act,
or contribute to payments the U.S. Underwriters and the International
Underwriters may be required to make in respect thereof.
The Company, certain senior executive officers of the Company and the
directors have each agreed that, without the prior written consent of Salomon
Brothers Inc, they will not, directly or indirectly, offer to sell, contract to
sell, sell or otherwise dispose of, or announce the offering of, any shares of
Common Stock or securities convertible into or exchangeable or exercisable for
shares of Common Stock (except the shares sold to the U.S. Underwriters or
International Underwriters pursuant to the over-allotment options) for a period
of 180 days after the date of the U.S. Underwriting Agreement or International
Underwriting Agreement, respectively, except the Company may issue shares under
the Savings Plan, Excess Benefit Plan and the Stock Compensation Plans. Salomon
Brothers Inc currently does not intend to release any securities subject to such
lock-up agreements, but may, in its sole discretion and at any time without
notice, release all or any portion of the securities subject to such lock-up
agreements.
The U.S. Underwriters and the International Underwriters have informed the
Company that they do not intend to confirm sales of Common Stock for any
customer's account over which they exercise discretionary authority without the
prior written approval of such customer.
LEGAL MATTERS
Certain legal matters in connection with the shares of Common Stock offered
hereby will be passed upon for the Company by Schwabe, Williamson & Wyatt, P.C.,
Portland, Oregon. Latham & Watkins, San Francisco, California will act as
counsel for the U.S. Underwriters and International Underwriters. Latham &
Watkins will rely upon the opinion of Schwabe, Williamson & Wyatt, P.C., as to
certain matters of Oregon law.
EXPERTS
The consolidated balance sheets as of December 31, 1995 and 1994 and the
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1995, incorporated by
reference in this Prospectus, have been included herein in reliance on the
report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the Commission
(file no. 0-1339) are incorporated by reference herein:
(a) Annual Report on Form 10-K for the year ended December 31, 1995.
(b) Quarterly Report on Form 10-Q for the period ended March 31, 1996.
(c) Proxy Statement dated March 15, 1996 for its 1996 Annual Meeting of
Shareholders.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the Offerings made hereby shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of the filing
of such documents. Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus has been
delivered, on written or oral request, a copy of any and all of the documents
incorporated in this Prospectus by reference, other than exhibits to such
documents not specifically incorporated by reference therein. Requests for
such copies should be directed to Oregon Metallurgical Corporation, at its
principal executive offices located at 530 34th Avenue, S.W., Albany, Oregon
97321, Attention: Dennis P. Kelly, Vice President, Finance (telephone: (541)
967-9000). NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATES AS TO WHICH
INFORMATION IS GIVEN IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH SOLICITATION.
TABLE OF CONTENTS
PAGE
Available Information. . . . . 2
Prospectus Summary . . . . . . 3
Risk Factors . . . . . . . . . 8
Use of Proceeds. . . . . . . .12
Capitalization . . . . . . . .13
Dilution . . . . . . . . . . .14
Price Range of Common Stock and Dividend
Policy . . . . . . . . . . .15
Selected Financial Data. . . .16
Management's Discussion and Analysis of
Financial Condition and Results of Operations18
Business . . . . . . . . . . .25
Management . . . . . . . . . .33
Description of Capital Stock .36
Underwriting . . . . . . . . .37
Legal Matters. . . . . . . . .38
Experts. . . . . . . . . . . .38
Incorporation of Certain Documents by
Reference. . . . . . . . . .38
Index to Consolidated Financial StatementsF-1
3,500,000 SHARES
OREGON
METALLURGICAL
CORPORATION
COMMON STOCK
($1.00 PAR VALUE)
LOGO
SALOMON BROTHERS INC
MERRILL LYNCH & CO.
PACIFIC CREST SECURITIES INC.
PROSPECTUS
DATED , 1996
[ALTERNATE PAGE -- INTERNATIONAL PROSPECTUS]
SUBJECT TO COMPLETION
JUNE 26, 1996
PROSPECTUS
3,500,000 SHARES LOGO
OREGON METALLURGICAL CORPORATION
COMMON STOCK
($1.00 PAR VALUE)
All of the shares of common stock, par value $1.00 per share (the "Common
Stock") of Oregon Metallurgical Corporation ("OREMET" or the "Company") offered
hereby, are being issued and sold by the Company. The Common Stock is traded on
the Nasdaq National Market (the "Nasdaq") under the symbol "OREM." On June 25,
1996, the last reported sale price of the Common Stock on the Nasdaq was $29.25
per share.
Of the 3,500,000 shares being offered hereby ("Shares"), 500,000 Shares are
being offered outside the United States and Canada (the "International
Offering") and 3,000,000 Shares are being offered in a concurrent offering in
the United States and Canada (the "U.S. Offering" and, together with the
International Offering, the "Offerings"), subject to transfers between the
International Underwriters and the U.S. Underwriters. The Price to Public and
Underwriting Discount per share will be identical for the International Offering
and the U.S. Offering. See "Underwriting." The closing of the International
Offering and U.S. Offering are conditioned upon each other.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Price to Public Underwriting DiscountProceeds
to Company(1)
Per Share. . . $ $$
Total(2) . . . $ $$
(1) Before deducting offering expenses payable by the Company, estimated to be
approximately $500,000.
(2) The Company has granted to the International Underwriters and the U.S.
Underwriters 30-day options to purchase up to 75,000 and 450,000 additional
shares of Common Stock, respectively, at the Price to Public, less the
Underwriting Discount, solely to cover over-allotments, if any. If the
International Underwriters and the U.S. Underwriters exercise their options
in full, the total Price to Public, Underwriting Discount and Proceeds to
Company will be $ , $ and $ , respectively. See
"Underwriting."
The Shares are offered subject to receipt and acceptance by the Underwriters, to
prior sale and to the Underwriters' right to reject any order in whole or in
part and to withdraw, cancel or modify the offer without notice. It is expected
that delivery of the Shares will be made at the office of Salomon Brothers Inc,
Seven World Trade Center, New York, New York, or through the facilities of The
Depository Trust Company, on or about , 1996.
SALOMON BROTHERS INTERNATIONAL LIMITED
MERRILL LYNCH INTERNATIONAL
PACIFIC CREST SECURITIES INC.
The date of this Prospectus is , 1996.
CERTAIN U.S. TAX CONSIDERATIONS FOR NON-U.S. HOLDERS
GENERAL
The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of Common Stock by a
Non-U.S. Holder. For this purpose, the term "Non-U.S. Holder" is defined as any
person who is, for United States federal income tax purposes, a foreign
corporation, a non-resident alien individual, a foreign partnership or a foreign
estate or trust. This discussion does not address all aspects of U.S. federal
income and estate taxes and does not deal with foreign, state and local
consequences that may be relevant to such Non-U.S. Holders in light of their
personal circumstances. Furthermore, this discussion is based on provisions of
the Internal Revenue Code of 1986, as amended, existing and proposed regulations
promulgated thereunder and administrative and judicial interpretations thereof,
as of the date hereof, all of which are subject to change. Each prospective
purchaser of Common Stock is advised to consult a tax advisor with respect to
current and possible future tax consequences of acquiring, holding and disposing
of Common Stock as well as any tax consequences that may arise under the laws of
any U.S. state, municipality or other taxing jurisdiction.
An individual may, subject to certain exceptions, be deemed to be a resident
alien (as opposed to a non-resident alien) by virtue of being present in the
U.S. on at least 31 days in the calendar year and for an aggregate of at least
183 days during a three-year period ending in the current calendar year
(counting for such purposes all of the days present in the current year, one-
third of the days present in the immediately preceding year, and one-sixth of
the days present in the second preceding year). Resident aliens are subject to
U.S. federal tax as if they were U.S. citizens.
DIVIDENDS
The Company does not currently intend to pay dividends on shares of Common
Stock. See "Price Range of Common Stock and Dividend Policy." In the event
that dividends are paid on shares of Common Stock, dividends paid to a Non-U.S.
Holder of Common Stock will be subject to withholding of U.S. federal income tax
at a 30% rate or such lower rate as may be specified by an applicable income tax
treaty, unless the dividends are effectively connected with the conduct of a
trade or business of the Non-U.S. Holder within the U.S. Dividends that are
effectively connected with the conduct of a trade or business within the U.S.
are subject to U.S. federal income tax on a net income basis at applicable
graduated individual or corporate rates. Any such effectively connected
dividends received by a foreign corporation may, under certain circumstances, be
subject to an additional "branch profits tax" at a 30% rate or such lower rate
as may be specified by an applicable income tax treaty.
Under current U.S. Treasury regulations, dividends paid to an address outside
the U.S. are presumed to be paid to a resident of such country (absent knowledge
that such presumption is not warranted) for purposes of the withholding
discussed above, and under the current interpretation of U.S. Treasury
regulations, for purposes of determining the applicability of a tax treaty rate.
Under proposed U.S. Treasury regulations not currently in effect, however, a
Non-U.S. Holder of Common Stock who wishes to claim the benefit of an applicable
treaty rate would be required to satisfy applicable certification and other
requirements. Certain certification and disclosure requirements must be
complied with in order to be exempt from withholding under the effectively
connected income exemption.
A Non-U.S. Holder of Common Stock eligible for a reduced rate of U.S.
withholding tax pursuant to an income tax treaty may obtain a refund of any
excess amounts withheld by filing an appropriate claim for refund with the
Internal Revenue Service (the "IRS").
GAIN ON DISPOSITION OF COMMON STOCK
In general, a Non-U.S. Holder will not be subject to the U.S. federal
withholding tax in respect of amounts realized on a disposition of Common Stock,
as long as the Common Stock is and continues to be regularly traded on an
established securities market. In addition, except as described below, regular
U.S. federal income tax will not apply to gain realized on the disposition of
Common Stock, provided that:
(i) the gain is not effectively connected with the conduct of a trade or
business of the Non-U.S. Holder in the U.S. (or, if any of certain tax
treaties applies, is not attributable to a U.S. permanent establishment of
the Non-U.S. Holder within the meaning of the applicable treaty),
(ii) in the case of a Non-U.S. Holder who is an individual, if such
individual holds the Common Stock as a capital asset, either he (a) is not
present in the U.S. for 183 or more days in the taxable year of the
disposition (as calculated under certain provisions of the Internal Revenue
Code of 1986, as amended) or (b) if so present in the U.S. such individual's
"tax home" for U.S. federal income tax purposes is not in the U.S. and the
gain is not attributable to an office or other fixed place of business
maintained in the U.S. by such individual, and
(iii) if the Company is or has been a "United States Real Property
Holding Corporation" at any time during the shorter of the holder's holding
period or the five-year period ending on the date of disposition, (a) the
Common Stock is or was during the calendar year of disposition regularly
traded on a domestic established securities market, and (b) the Non-U.S.
Holder has not held, directly or indirectly, at any time during the shorter
of the holder's holding period and the five-year period ending on the date of
disposition, more than 5% of the Common Stock.
The Company has determined that it is not, has not been and is not likely to
become, a "United States Real Property Holding Corporation" for federal income
tax purposes. If a Non-U.S. Holder fails to satisfy clause (i) above, the
Non-U.S. Holder will be taxed on the net gain derived from the sale under
regular graduated U.S. federal income tax rates (and, with respect to corporate
Non-U.S. Holders, may also be subject to the branch profits tax described
above). If an individual Non-U.S. Holder fails to satisfy (ii) above, the
Non-U.S. Holder generally will be subject to 30% tax on the gain derived from
the sale, which gain may be offset by U.S. capital losses recognized within the
same taxable year of such sale.
FEDERAL ESTATE TAX
Common Stock held by an individual Non-U.S. Holder at the time of death will
be included in such holder's gross estate for U.S. federal estate tax purposes,
unless an applicable estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
Under current U.S. Treasury regulations the Company must report annually to
the IRS and to each Non-U.S. Holder the amount of dividends paid to such holder
and the tax withheld with respect to such dividends. These information
reporting requirements apply even if withholding was not required because the
dividends were effectively connected with a trade or business in the U.S. of the
Non-U.S. Holder or withholding was reduced or eliminated by an applicable income
tax treaty. Copies of the information returns reporting such dividends and
withholding may also be made available to the tax authorities in the country in
which the Non-U.S. Holder resides under the provisions of an applicable income
tax treaty.
Backup withholding (which generally is a withholding tax imposed at the rate
of 31% on certain payments to persons that fail to furnish certain information
under the U.S. information reporting requirements) will generally not apply to
dividends paid to Non-U.S. Holders outside the U.S. that are either subject to
the 30% withholding discussed above or that are not so subject because a tax
treaty applies that reduces or eliminates such 30% withholding. In that regard,
under temporary U.S. Treasury regulations, backup withholding will not apply to
dividends paid on Common Stock to a Non-U.S. Holder at an address outside the
U.S. unless the payer has knowledge that the payee is a U.S. person. Backup
withholding and information reporting generally will apply to dividends paid to
addresses inside the U.S. on shares of Common Stock to beneficial owners that
are not "exempt recipients" and that fail to provide in the manner required
certain identifying information.
In general, backup withholding and information reporting will not apply to a
payment of the proceeds of a sale of Common Stock by or through a foreign office
of a broker. If, however, such broker is, for U.S. federal income tax purposes,
a U.S. person, a controlled foreign corporation, or a foreign person that
derives 50% or more of its gross income for certain periods from the conduct of
a trade or business in the U.S., such payments will not be subject to backup
withholding but will be subject to information reporting, unless (i) such broker
has documentary evidence in its records that the beneficial owner is a Non-U.S.
Holder and certain other conditions are met, or (ii) the beneficial owner
otherwise established an exemption. Temporary Treasury regulations provide that
the Treasury is considering whether backup withholding will apply with respect
to such payments that are not currently subject to backup withholding under the
current regulations. Under proposed Treasury regulations not currently in
effect, backup withholding will not apply to such payments absent actual
knowledge that the payee is not a Non-U.S. Holder.
Payment by a U.S. office of a broker of the proceeds of a sale of Common
Stock is subject to both backup withholding and information reporting unless the
beneficial owner certifies under penalties of perjury that it is a Non-U.S.
Holder, or otherwise establishes an exemption. Any amounts withheld under the
backup withholding rules will be allowed as a refund or a credit against such
holder's U.S. federal income tax liability provided the required information is
furnished to the IRS.
The U.S. Treasury has recently issued proposed regulations regarding the
withholding and information reporting rules discussed above. In general, the
proposed regulations do not alter the substantive withholding and information
reporting requirements but unify current certification procedures and forms and
clarify and modify reliance standards. If finalized in their current form, the
proposed regulations would generally be effective for payments made after
December 31, 1997, subject to certain transition rules.
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "International Underwriting Agreement") by and among the Company and each
of the underwriters named below (the "International Underwriters"), for whom
Salomon Brothers International Limited, Merrill Lynch International and Pacific
Crest Securities Inc. are acting as representatives (the "International
Representatives"), the Company has agreed to sell to each of the International
Underwriters and each such International Underwriter has severally agreed to
purchase from the Company the number of shares of Common Stock set forth
opposite its name in the table below:
Number
International Underwriters of Shares
Salomon Brothers International Limited. . . . . . . . . . .
Merrill Lynch International . . . . . . . . . . . . . . . .
Pacific Crest Securities Inc. . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000
In addition, the Company has entered into an underwriting agreement (the
"U.S. Underwriting Agreement") with the U.S. Underwriters named therein, for
whom Salomon Brothers Inc, Merrill Lynch, Pierce, Fenner & Smith Incorporated
and Pacific Crest Securities Inc. are acting as representatives (the "U.S.
Representatives"), providing for the concurrent offer and sale of shares of
Common Stock in the U.S. and Canada. The closing with respect to the sale of
the shares of Common Stock pursuant to the U.S. Underwriting Agreement is a
condition to the closing with respect to the sale of the shares of Common Stock
pursuant to the International Underwriting Agreement, and the closing with
respect to the sale of shares of Common Stock pursuant to the International
Underwriting Agreement is a condition to the closing with respect to the sale of
the shares of Common Stock pursuant to the U.S. Underwriting Agreement. The
public offering price and underwriting discounts per share for the International
Offering and the U.S. Offering will be identical.
The International Underwriting Agreement provides that the obligations of
the International Underwriters to purchase the shares of Common Stock listed
above are subject to certain conditions set forth therein. The International
Underwriters are committed to purchase all of the shares of Common Stock offered
by this Prospectus (other than those covered by the over-allotment options
described below), if any such shares are purchased. In the event of default by
any International Underwriter, the International Underwriting Agreement provides
that, in certain circumstances, the purchase commitments of the non-defaulting
International Underwriters may be increased or the International Underwriting
Agreement may be terminated.
The International Representatives have advised the Company that the
International Underwriters propose initially to offer the shares of Common Stock
offered hereby to the public at the public offering price set forth on the cover
page of this Prospectus, and to certain dealers at such price less a discount
not in excess of $ per share of Common Stock. The International
Underwriters may allow, and such dealers may reallow, a discount not in excess
of $ per share of Common Stock on sales to certain other dealers.
After the Offerings, the public offering price and such discounts may be
changed.
Each International Underwriter has severally agreed that, as part of the
distribution of shares of Common Stock, (i) it is not purchasing any shares of
Common Stock for the account of any U.S. or Canadian Person (as defined below)
and (ii) it has not offered or sold, and will not offer or sell, directly or
indirectly, any shares of Common Stock or distribute this Prospectus to any
person within the U.S. or Canada or to any U.S. or Canadian Person. Each U.S.
Underwriter has agreed that, as part of the distribution of the shares of Common
Stock, (i) it is not purchasing any shares of Common Stock for the account of
any one other than a U.S. or Canadian Person and (ii) it has not offered or
sold, and will not offer or sell, directly or indirectly, any shares of Common
Stock or distribute the U.S. Prospectus to any person outside of the U.S. or
Canada or to anyone other than a U.S. or Canadian Person. The foregoing
limitations do not apply to stabilization transactions or to certain other
transactions specified in the agreement between U.S. and International
Underwriters described below. As used herein, "U.S. or Canadian Person" means
any individual who is resident in the U.S. or Canada, or any corporation,
partnership, or other entity organized under or governed by the laws of the U.S.
or any political subdivision thereof (other than a foreign branch of any U.S. or
Canadian Person), any estate or trust the income of which is subject to U.S. or
Canadian federal income taxation, regardless of the source of its income (other
than a foreign branch of any U.S. or Canadian Person), and includes any U.S.
branch of a non-U.S. Person.
The International Underwriters and the U.S. Underwriters have entered into
an agreement that provides for the coordination of their activities. Pursuant
to such agreement, sales may be made between the International Underwriters and
the U.S. Underwriters of such number of shares of Common Stock as may be
mutually agreed upon. The per share price of any shares so sold shall be the
public offering price set forth on the cover page of this Prospectus, less an
amount not greater than the per share amount of the discount to dealers set
forth above. To the extent there are sales between the International
Underwriters and the U.S. Underwriters, the number of shares of Common Stock
initially available for sale by the International Underwriters or by the U.S.
Underwriters may be more or less than the amount appearing on the cover page of
this Prospectus.
Each International Underwriter has severally represented and warranted to,
and agreed with, the Company that (i) it has not offered or sold and, prior to
the expiry of six months from the closing of the International Offering, will
not offer or sell any shares of Common stock in the U.K. other than to persons
whose ordinary activities involve them in acquiring, holding, managing or
disposing of investments (whether as principal or agent) for the purposes of
their businesses or otherwise in circumstances which have not resulted in and
will not result in an offer to the public within the meaning of the Public
Offers of Securities Regulations 1995; (ii) it has complied and will comply with
all applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the shares of Common Stock in, from or
otherwise involving the U.K.; and (iii) it has only issued or passed on and will
only issue or pass on in the U.K. any document received by it in connection with
the issue of the shares of Common Stock to a person who is of a kind described
in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1995 or is a person to whom such document may otherwise
lawfully be issued or passed on.
The shares of Common Stock may not be offered or sold directly or
indirectly in Hong Kong by means of this document or any other offering material
or document other than to persons whose ordinary business it is to buy or sell
shares or debentures, whether as principal or as agent. Unless permitted to do
so by the securities laws of Hong Kong, no person may issue or cause to be
issued in Hong Kong this document or any amendment or supplement thereto or any
other information, advertisement or document relating to the shares of Common
Stock other than with respect to shares of Common Stock intended to be disposed
of to persons outside Hong Kong or to persons whose business involves the
acquisition, disposal or holding of securities, whether as principal or as
agent.
The shares of Common Stock have not been registered under the Securities
and Exchange Law of Japan and are not being offered and may not be offered or
sold directly or indirectly in Japan or to residents of Japan, except pursuant
to applicable Japanese laws and regulations.
No action has been taken or will be taken in any jurisdiction by the
Company or the International Underwriters that would permit a public offering of
the shares offered pursuant to the Offerings in any jurisdiction where action
for that purpose is required, other than the U.S. Persons into whose possession
this Prospectus comes are required by the Company and the International
Underwriters to inform themselves about and to observe any restrictions as to
the offering of the shares offered pursuant to the Offerings and the
distribution of this Prospectus.
Purchasers of the shares of Common Stock offered hereby may be required to
pay stamp taxes and other charges in accordance with the laws and practices of
the country of purchase in addition to the offering price set forth on the cover
page hereof.
The Company has granted the International Underwriters and the U.S.
Underwriters options to purchase an aggregate of up to an additional 75,000
shares and 450,000 shares, respectively, of Common Stock at the public offering
price less the aggregate underwriting discount, solely to cover over-allotments.
To the extent such options are exercised, each of the International Underwriters
and the U.S. Underwriters will become obligated, subject to certain conditions,
to purchase approximately the same percentage of such additional shares of
Common Stock as the percentage it was obligated to purchase pursuant to the
International Underwriting Agreement or the U.S. Underwriting Agreement, as
applicable.
The International Underwriting Agreement and U.S. Underwriting Agreement
provide that the Company will indemnify the several International Underwriters
and U.S. Underwriters against certain liabilities under the Securities Act, or
contribute to payments the International Underwriters and the U.S. Underwriters
may be required to make in respect thereof.
The Company, certain senior executive officers of the Company and the
directors have agreed that, without the prior written consent of Salomon
Brothers Inc, they will not, directly or indirectly, offer to sell, contract to
sell, sell or otherwise dispose of, or announce the offering of, any shares of
Common Stock or securities convertible into or exchangeable or exercisable for
shares of Common Stock (except the shares sold to the International Underwriters
or the U.S. Underwriters pursuant to the over-allotment options) for a period of
180 days after the date of the International Underwriting Agreement or the U.S.
Underwriting Agreement, respectively, except the Company may issue shares under
the Savings Plan, Excess Benefit Plan and the Stock Compensation Plans. Salomon
Brothers Inc currently does not intend to release any securities subject to such
lock-up agreements, but may, in its sole discretion and at any time without
notice, release all or any portion of the securities subject to such lock-up
agreements.
The International Underwriters and the U.S. Underwriters have informed the
Company that they do not intend to confirm sales of Common Stock for any
customer's account over which they exercise discretionary authority without the
prior written approval of such customer.
LEGAL MATTERS
Certain legal matters in connection with the shares of Common Stock offered
hereby will be passed upon for the Company by Schwabe, Williamson & Wyatt, P.C.,
Portland, Oregon. Latham & Watkins, San Francisco, California will act as
counsel for the U.S. Underwriters and International Underwriters. Latham &
Watkins will rely upon the opinion of Schwabe, Williamson & Wyatt, P.C., as to
certain matters of Oregon law.
EXPERTS
The consolidated balance sheets as of December 31, 1995 and 1994 and the
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1995, incorporated by
reference in this Prospectus, have been included herein in reliance on the
report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the Commission
(file no. 0-1339) are incorporated by reference herein:
(a) Annual Report on Form 10-K for the year ended December 31, 1995.
(b) Quarterly Report on Form 10-Q for the period ended March 31, 1996.
(c) Proxy Statement dated March 15, 1996 for its 1996 Annual Meeting of
Shareholders.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the Offerings made hereby shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of the filing
of such documents. Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company undertakes to provide without charge to each person, including
any beneficial owner, to whom a copy of this Prospectus has been delivered, on
written or oral request, a copy of any and all of the documents incorporated in
this Prospectus by reference, other than exhibits to such documents not
specifically incorporated by reference therein. Requests for such copies should
be directed to Oregon Metallurgical Corporation, at its principal executive
offices located at 530 34th Avenue, S.W., Albany, Oregon 97321, Attention:
Dennis P. Kelly, Vice President, Finance (telephone: (541) 967-9000).
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATES AS TO WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH SOLICITATION.
TABLE OF CONTENTS
PAGE
Available Information. . . . . 2
Prospectus Summary . . . . . . 3
Risk Factors . . . . . . . . . 8
Use of Proceeds. . . . . . . .12
Capitalization . . . . . . . .13
Dilution . . . . . . . . . . .14
Price Range of Common Stock and Dividend
Policy . . . . . . . . . . .15
Selected Financial Data. . . .16
Management's Discussion and Analysis of
Financial Condition and Results of Operations18
Business . . . . . . . . . . .25
Management . . . . . . . . . .33
Description of Capital Stock .36
Certain U.S. Tax Considerations for Non-U.S.
Holders. . . . . . . . . . .38
Underwriting . . . . . . . . .40
Legal Matters. . . . . . . . .42
Experts. . . . . . . . . . . .42
Incorporation of Certain Documents by
Reference. . . . . . . . . .42
Index to Consolidated Financial StatementsF-1
3,500,000 SHARES
OREGON
METALLURGICAL
CORPORATION
COMMON STOCK
($1.00 PAR VALUE)
LOGO
SALOMON BROTHERS
INTERNATIONAL LIMITED
MERRILL LYNCH INTERNATIONAL
PACIFIC CREST SECURITIES INC.
PROSPECTUS
DATED , 1996
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Registrant in connection with
the sale of the Common Stock being registered. All amounts are estimates except
the Registration Fee and Nasdaq filing fee.
Registration Fee. . . . . . . . . . . . . . . . . . . . . . . . . $ 39,643
NASD filing fee and expenses, including legal fees. . . . . . . 11,996
Nasdaq filing fee . . . . . . . . . . . . . . . . . . . . . . . 17,500
Blue Sky fees and expenses, including legal fees. . . . . . . *
Accounting fees and expenses. . . . . . . . . . . . . . . . . *
Legal fees and expenses . . . . . . . . . . . . . . . . . . . *
Transfer agent and registrar fees . . . . . . . . . . . . . . *
Printing and engraving. . . . . . . . . . . . . . . . . . . . *
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . *
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . $500,000
* To be filed by amendment
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Oregon Business Corporation Act (the "OBCA") permits a corporation to
include in its articles of incorporation a provision limiting or eliminating
personal liability of a director to the corporation and its shareholders for
monetary damages for conduct as a director, except for (a) any breach of the
director's duty of loyalty to the corporation or its shareholders; (b) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (c) any unlawful distribution; and (d) any transaction from
which the director derived an improper personal benefit. The OBCA permits
indemnification of officers and directors of the Registrant under certain
conditions and subject to certain limitations. Section 60.411 of the OBCA also
provides that a corporation has the power to purchase and maintain insurance on
behalf of an individual against any liability asserted against or incurred by
the individual who is or was a director, officer, employee or agent of the
corporation or who, while a director, officer, employee or agent of the
corporation, is or was serving at the request of the corporation as a director,
officer, partner, trustee, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, even if the corporation had no power to indemnify the individual
against such liability under the provisions of Sections 60.391 or 60.394.
Article VII of the Articles of Incorporation, as restated and amended, of
the Registrant provides as follows:
A. The Corporation shall have the power to indemnify to
the fullest extent not prohibited by law any person who is
made or threatened to be made a party to, witness in, or
otherwise involved in, any action, suit or proceeding,
whether civil, criminal, administrative, investigative,
legislative, formal or informal, internal or external or
otherwise (including an action, suit or proceeding by or in
the right of the Corporation) by reason of the fact that the
person is or was a director, officer, employee or agent of
the Corporation or a fiduciary within the meaning of the
Employee Retirement Income Security Act of 1974 with respect
to any employee benefit plan of the Corporation, or serves
or served at the request of the Corporation as a director,
officer, employee or agent or as a fiduciary of an employee
benefit plan, or another corporation, partnership, joint
venture, trust, or other enterprise. Any indemnification
provided pursuant to this Article shall not be exclusive of
any rights to which the persons indemnified may otherwise be
entitled under any articles of incorporation, bylaw,
agreement, statute, policy of insurance, vote of
shareholders or Board of Directors, or otherwise, which
exists at or subsequent to the time such person incurs or
becomes subject to such liability and expense.
B. To the fullest extent not prohibited by law, no
director of the Corporation shall be personally liable to
the Corporation or its shareholders for monetary damages for
conduct as a director. No amendment or repeal of this
Article, nor the adoption of any provision of these Articles
of Incorporation inconsistent with this Article, nor a
change in the law, shall adversely affect any right or
protection that is based upon this Paragraph B and pertains
to conduct that occurred prior to the time of such
amendment, repeal, adoption or change. No change in the law
shall reduce or eliminate the rights and protections set
forth in this Paragraph B unless the change in the law
specifically requires such reduction or elimination. If the
Oregon Business Corporation Act is amended after this
Article becomes effective to authorize corporate action
further eliminating or limiting the personal liability of
directors of the Corporation, then the liability of
directors of the Corporation shall be eliminated or limited
to the fullest extent not prohibited by the Oregon Business
Corporation Act as so amended.
Article XXVIII of the Registrant's Bylaws provides for indemnification of
the Registrant's officers and directors to the fullest extent not prohibited by
law. Article XXVIII, Section 8 of the Registrant's Bylaws provides that
Registrant may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to Article XXVIII upon approval by the Board of
Directors of Registrant.
Messrs. Bezar, Cusic, Pate, Leonard, Carter and Collins have entered into
indemnity agreements with the Company relating to their positions as directors
of the Company. The agreements provide generally that the Company will
indemnify the party thereto for liability arising from third-party proceedings,
for proceedings by or in the right of the Company and otherwise to the fullest
extent not prohibited by law, subject to certain exclusions.
The Company maintains liability insurance for directors and officers of the
Company acting within their legally defined capacities. The insurance coverage
is on a "claims made" basis.
ITEM 16. EXHIBITS
1.1 Form of U.S. Underwriting Agreement*
1.2 Form of International Underwriting Agreement*
4.1 Restated Articles of Incorporation (incorporated by reference to
Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993)
4.2 Restated Bylaws (incorporated by reference to Exhibit 3.2 to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1994)
4.3 Amendment to Restated Articles of Incorporation (incorporated by reference
to Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995)
5.1 Opinion of Schwabe, Williamson & Wyatt, P.C.*
23.1 Consent of Coopers & Lybrand L.L.P., independent accountants
23.2 Consent of Schwabe, Williamson & Wyatt, P.C. (included in Exhibit 5.1) *
24.1 Power of Attorney of the directors and certain officers of the Registrant
(included on page II-4 of the Registration Statement)
* To be filed by amendment
All other schedules are omitted because they are not applicable or the
required information is contained in the financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933,
as amended (the "Securities Act"), the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon Rule
430A and contained in a form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the Offerings of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, as amended, (the "Exchange Act") (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the Offerings of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Albany, State of Oregon, on June 26, 1996.
OREGON METALLURGICAL CORPORATION
By: /s/ CARLOS E. AGUIRRE
Carlos E. Aguirre, President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Carlos E. Aguirre and Dennis P.
Kelly, and each of them (with full power to each of them to act alone), his true
and lawful attorneys-in-fact and agents for him and on his behalf and in his
name, place and stead, and in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this registration statement
and any registration statement for the same offering that is to be effective
upon filing pursuant to Rule 462(b) under the Securities Act of 1933 (and any
amendments thereto), and to file the same, with exhibits and any and all other
documents filed with respect thereto, with the Securities and Exchange
Commission (or any other governmental or regulatory authority), granting unto
said attorneys, and each of them, full power and authority to do and to perform
each and every act and thing requisite and necessary to be done in and about the
premises in order to effectuate the same as fully to all intents and purposes as
he himself might or could do if personally present, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the following
capacities effective on June 26, 1996.
SIGNATURE TITLE
/s/ CARLOS E. AGUIRRE President and Chief Executive Officer
(Carlos E. Aguirre) (Principal Executive Officer)
and Director
/s/ DENNIS P. KELLY Vice President, Finance and Treasurer
(Dennis P. Kelly) (Principal Financial Officer and
Principal
Accounting Officer)
/s/ HOWARD T. CUSIC Chairman, Board of Directors
(Howard T. Cusic)
Director
(Gilbert E. Bezar)
/s/ THOMAS B. BOKLUND Director
(Thomas B. Boklund)
/s/ ROGER V. CARTER Director
(Roger V. Carter)
/s/ NICHOLAS P. COLLINS Director
(Nicholas P. Collins)
/s/ DAVID H. LEONARD Director
(David H. Leonard)
Director
(James S. Paddock)
/s/ JAMES R. PATE Director
(James R. Pate) INDEX TO EXHIBITS
Sequentially
Numbered
Page
Exhibit No. Exhibit Number
1.1 Form of U.S. Underwriting Agreement*. . . . . . . . . . .
1.2 Form of International Underwriting Agreement* . . . . . .
4.1 Restated Articles of Incorporation (incorporated by reference to
Exhibit 3.1 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993)
4.2 Restated Bylaws (incorporated by reference to Exhibit 3.2 to the
Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994) . . . . .
4.3 Amendment to Restated Articles of Incorporation (incorporated by reference
to Exhibit 3.1
to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995). . . . . . . . . . . . . . . . . . . . . .
5.1 Opinion of Schwabe, Williamson & Wyatt, P.C.* . . . . . .
23.1 Consent of Coopers & Lybrand L.L.P., independent accountants
23.2 Consent of Schwabe, Williamson & Wyatt, P.C. (included in Exhibit 5.1)*
24.1 Power of Attorney of the directors and certain officers of the Registrant
(included on
page II-4 of the Registration Statement). . . . . . . . .
* To be filed by amendment
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
____
Report of Independent Accountants................................... F - 2
Consolidated Statements of Operations
for the years ended December 31, 1993, 1994 and 1995, and
for the three months ended March 31, 1995 and 1996 (unaudited)...F - 3
Consolidated Balance Sheets
as of December 31, 1994 and 1995, and
as of March 31, 1996 (unaudited).................................F - 4
Consolidated Statements of Shareholders' Equity
for the years ended December 31, 1993, 1994 and 1995, and
for the three months ended March 31, 1996 (unaudited)............F - 5
Consolidated Statements of Cash Flows
for the years ended December 31, 1993, 1994 and 1995, and
for the three months ended March 31, 1995 and 1996 (unaudited)...F - 6
Notes to Consolidated Financial Statements..................F - 7 to F - 19
F - 1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF OREGON
METALLURGICAL CORPORATION
We have audited the accompanying consolidated balance sheets of Oregon
Metallurgical Corporation and subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statements presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Oregon
Metallurgical Corporation and subsidiaries as of December 31, 1995 and 1994, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Eugene, Oregon
February 16, 1996, except for the
second paragraph of Note 8, as to
which the date is March 1, 1996
F - 2
<PAGE>
OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, March 31,
________________________________ ____________________
1993 1994 1995 1995 1996
____ ____ ____ ____ ____
(unaudited)
<S> <C> <C> <C> <C> <C>
Net sales $ 55,351 $ 71,166 $ 146,853 $ 30,838 $ 51,309
Cost of sales, including a provision for loss on
long-term agreements of $4,417 in 1995 52,636 64,527 131,002 25,506 40,948
_________ _________ _________ _________ _________
Gross profit 2,715 6,639 15,851 5,332 10,361
Research, technical and product development expenses 773 1,376 1,595 365 617
Selling, general and administrative expenses 5,124 7,517 14,512 3,400 4,290
Provisions for estimated environmental costs 970 240 ----- ----- -----
Restructuring cost 2,027 ----- ----- ----- -----
_________ _________ _________ _________ _________
Income (loss) from operations (6,179) (2,494) (256) 1,567 5,454
Interest income 816 391 ----- ----- -----
Interest expense (532) (606) (2,104) (575) (634)
Minority interests ----- (29) (480) (106) (225)
_________ _________ _________ _________ _________
Income (loss) before income tax benefit (expense) (5,895) (2,738) (2,840) 886 4,595
Income tax benefit (expense) 1,797 715 425 (351) (1,250)
_________ _________ _________ _________ _________
Net income (loss) $ (4,098) $ (2,023) $ (2,415) $ 535 $ 3,345
========= ========= ========= ========= =========
Net income (loss) per share $ (0.38) $ (0.18) $ (0.22) $ 0.05 $ 0.30
========= ========= ========= ========= =========
Weighted average common shares and equivalents
outstanding 10,839 11,001 11,219 11,055 11,327
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F - 3
<PAGE>
OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
<TABLE>
<CAPTION>
December 31, March 31,
_____________________ ___________
1994 1995 1996
_________ _________ _________
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,636 $ 572 $ 1,154
Accounts receivable, less allowance for
doubtful accounts of $858, $1,257 and $1,181 20,444 25,894 33,038
Inventories 49,023 66,010 71,163
Income taxes receivable 321 ----- -----
Prepayments 1,031 689 1,035
Deferred tax assets 517 3,242 4,201
_________ _________ _________
Total current assets 72,972 96,407 110,591
Property, plant and equipment, net 37,520 35,138 34,973
Other assets, net 1,480 1,532 1,473
_________ _________ _________
TOTAL ASSETS $ 111,972 $ 133,077 $ 147,037
========= ========= =========
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 13 $ 616 $ 1,406
Book overdraft ----- 2,014 3,657
Accounts payable 16,860 16,973 17,603
Accrued payroll and employee benefits 2,944 6,659 6,924
Accrued loss on long-term agreements ----- 2,781 2,781
Other accrued expenses 4,073 3,595 5,793
_________ _________ _________
Total current liabilities 23,890 32,638 38,164
Long-term debt, less current portion 17,164 26,746 28,644
Deferred tax liabilities 1,098 3,149 4,044
Deferred compensation payable 881 678 508
Accrued postretirement benefit 1,457 1,563 1,608
Accrued loss on long-term agreements,
less current portion ----- 1,636 1,353
Minority interests 200 780 1,019
_________ _________ _________
Total liabilities 44,690 67,190 75,340
_________ _________ _________
Commitments and contingencies (Note 11)
SHAREHOLDERS' EQUITY
Common stock, $1.00 par value; shares authorized,
25,000; shares issued and outstanding;
1994 - 10,893; 1995 - 11,018; 1996 - 11,214 10,893 11,018 11,214
Additional paid-in capital 37,445 38,340 40,653
Retained earnings 18,960 16,545 19,890
Cumulative foreign currency translation adjustment (16) (16) (60)
_________ _________ _________
Total shareholders' equity 67,282 65,887 71,697
_________ _________ _________
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 111,972 $ 133,077 $ 147,037
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F - 4
<PAGE>
OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION> Cumulative
Foreign
Additional Currency Note
Common Stock Paid-in Retained Translation Receivable
____________
Shares Amount Capital Earnings Adjustment ESOP Total
______ ______ __________ ________ ___________ __________ _____
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1992 10,827 $ 10,827 $ 37,149 $ 25,081 $ ----- $ (4,655) $ 68,402
Repayment of loan by ESOP ----- ----- ----- ----- ----- 2,429 2,429
Issuance of common stock for:
Employee benefits 8 8 59 ----- ----- ----- 67
Restructuring cost 53 53 212 ----- ----- ----- 265
Net loss ----- ----- ----- (4,098) ----- ----- (4,098)
______ _________ _________ _________ _________ _________ _________
Balances, December 31, 1993 10,888 10,888 37,420 20,983 ----- (2,226) 67,065
Repayment of loan by ESOP ----- ----- ----- ----- ----- 2,226 2,226
Issuance of common stock for
employee benefits 5 5 25 ----- ----- ----- 30
Currency translation adjustment ----- ----- ----- ----- (16) ----- (16)
Net loss ----- ----- ----- (2,023) ----- ----- (2,023)
______ _________ _________ _________ _________ _________ _________
Balances, December 31, 1994 10,893 10,893 37,445 18,960 (16) ----- 67,282
Issuance of common stock for
employee benefits 125 125 895 ----- ----- ----- 1,020
Net loss ----- ----- ----- (2,415) ----- ----- (2,415)
______ _________ _________ _________ _________ _________ _________
Balances, December 31, 1995 11,018 11,018 38,340 16,545 (16) ----- 65,887
Issuance of common stock for
employee benefits (unaudited) 196 196 2,313 ----- ----- ----- 2,509
Currency translation adjustment
(unaudited) ----- ----- ----- ----- (44) ----- (44)
Net income (unaudited) ----- ----- ----- 3,345 ----- ----- 3,345
______ _________ _________ _________ _________ _________ _________
Balances, March 31, 1996
(unaudited) 11,214 $ 11,214 $ 40,653 $ 19,890 $ (60) $ ----- $ 71,697
====== ========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F - 5
<PAGE>
OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, March 31,
____________________________________ _______________________
1993 1994 1995 1995 1996
__________ __________ __________ __________ __________
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (4,098) $ (2,023) $ (2,415) $ 535 $ 3,345
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization 3,937 4,014 4,632 1,126 1,381
Loss on disposition of assets 1,000 ----- ----- ----- -----
Deferred income tax expense (benefit) (403) (1,434) (674) 177 545
Employee benefits paid or payable
in common stock ----- 125 2,666 473 1,307
Provision for loss on long-term agreements ----- ----- 4,417 ----- (283)
Minority interests ----- 29 480 106 225
Changes in current assets and liabilities,
net of effects of acquisition of a business:
Accounts receivable (3,141) (4,158) (5,450) (2,340) (7,144)
Inventories (930) (12,209) (16,987) (7,140) (5,153)
Other current assets 1,174 1,107 663 491 (346)
Accounts payable 1,161 7,198 113 1,897 630
Accrued payroll and employee benefits 211 1,577 2,153 513 760
Other accrued expenses 1,204 920 (478) 283 2,198
Other 726 395 (89) 45 (24)
_________ _________ _________ _________ _________
Net cash provided by (used in) operating activities 841 (4,459) (10,969) (3,834) (2,559)
_________ _________ _________ _________ _________
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of a business, net of cash acquired ----- (8,223) ----- ----- -----
Additions to property, plant and equipment (1,244) (1,929) (1,914) (219) (1,142)
Short-term investments - purchased (15,651) (1,228) ----- ----- -----
Short-term investments - redeemed 14,856 8,811 ----- ----- -----
Other 65 (111) (334) (383) (20)
_________ _________ _________ _________ _________
Net cash used in investing activities (1,974) (2,680) (2,248) (602) (1,162)
_________ _________ _________ _________ _________
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from revolving credit agreements ----- 40,361 107,049 23,537 46,660
Payments on revolving credit agreements ----- (27,865) (97,800) (20,222) (44,118)
Capitalized loan fees and acquisition costs ----- (1,260) (54) ----- -----
Proceeds from long-term debt ----- ----- 990 ----- 177
Payments of long-term debt (3,350) (4,754) (54) (3) (31)
Book overdraft ----- ----- 2,014 ----- 1,643
Proceeds from note receivable - ESOP 2,429 2,226 ----- ----- -----
Other ----- 46 ----- 20 -----
_________ _________ _________ _________ _________
Net cash provided by (used in) financing activities (921) 8,754 12,145 3,332 4,331
_________ _________ _________ _________ _________
Effect of exchange rates on cash and cash equivalents ----- (16) 8 (7) (28)
_________ _________ _________ _________ _________
Net increase (decrease) in cash and cash equivalents (2,054) 1,599 (1,064) (1,111) 582
Cash and cash equivalents, beginning of period 2,091 37 1,636 1,636 572
_________ _________ _________ _________ _________
Cash and cash equivalents, end of period $ 37 $ 1,636 $ 572 $ 525 $ 1,154
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F - 6
<PAGE>
OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
OPERATIONS - Oregon Metallurgical Corporation ("OREMET") and Subsidiaries
(the "Company") is a leading integrated producer of titanium sponge, ingot, mill
products and castings for use in the aerospace, industrial, golf and military
markets. Titanium Industries, Inc. ("TI"), an 80% owned subsidiary, operates
full-line titanium metal service centers in the U.S., Canada, U.K. and Germany
and produces small diameter bar, weld wire and fine wire. As of December 31,
1995 and March 31, 1996, the Company is owned 35% and 32%, respectively, by the
Oregon Metallurgical Corporation Employee Stock Ownership Plan (the "ESOP").
In September 1994, the Company completed the acquisition of the net
operating assets and subsidiaries of Titanium Industries Distribution Group from
Kamyr, Inc. The acquisition cost of approximately $13,502 was funded by $5,000
in cash, $4,002 of bank financing and $4,500 of seller financing. The
acquisition of TI was accounted for as a purchase, with its results included in
the Company's financial statements from the acquisition date.
BASIS OF CONSOLIDATION - The consolidated financial statements include the
accounts of OREMET, TI and another wholly-owned subsidiary. All material
intercompany accounts and transactions are eliminated in consolidation.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS - The Company classifies all cash on deposit with
banks and all highly liquid debt investments purchased with a maturity of 90
days or less as cash and cash equivalents.
CONCENTRATIONS OF CREDIT RISK - Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of cash
and cash equivalents and trade receivables. The Company places its cash and
cash equivalents with high credit quality financial institutions and limits the
amount of credit exposure at any one financial institution. At times, temporary
cash investments may be in excess of the Federal Deposit Insurance Corporation
insurance limit. Management believes that risk of loss on the Company's trade
receivables is significantly reduced by ongoing credit evaluations of customers'
financial condition. Generally, the Company does not require collateral.
INVENTORIES - Inventories are carried at the lower of cost or market. Cost
is determined using the weighted average cost method. Inventory costs generally
include material, labor cost and manufacturing overhead.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are recorded
at historical cost. Depreciation is provided using the straight-line method
over the estimated useful lives of the assets for financial reporting purposes;
and, accelerated methods are used for income tax reporting purposes. The cost
and accumulated depreciation applicable to assets retired are removed from the
accounts and the gain or loss on disposition is recognized in the statement of
operations.
EXCESS OF COST OVER NET ASSETS ACQUIRED - The excess of cost over the fair
value of net assets acquired of TI of $857 is included in other assets and is
being amortized on a straight-line basis over 15 years. Accumulated
amortization was $70 and $13 in 1995 and 1994, respectively.
INCOME TAXES - The Company uses the liability method to record deferred tax
assets and liabilities based on the difference between the financial reporting
and tax bases of assets and liabilities.
FORWARD FOREIGN EXCHANGE CONTRACTS - The Company may enter into forward
foreign exchange contracts as a hedge against fluctuations relating to net
foreign currency transactions and commitments denominated in foreign currencies.
Gains and losses on forward contracts are deferred and offset against foreign
exchange gains or losses on the underlying hedged items.
F - 7
<PAGE>
OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(in thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued:
FOREIGN CURRENCY TRANSLATION - The Company's foreign subsidiaries' accounts
are measured using local currency as the functional currency. Assets and
liabilities are translated at the exchange rate in effect at year end. Revenues
and expenses are translated at the average rate of exchange prevailing during
the year. Translation adjustments arising from differences in exchange rates
from period to period are included in the cumulative adjustment account in
shareholders' equity, net of related deferred income taxes.
NET INCOME (LOSS) PER SHARE - Net income (loss) per share is based on the
weighted average number of shares of common stock and common stock equivalents
outstanding. Common stock equivalents consist of warrants and amounts due to be
settled in shares pursuant to OREMET's benefit plans. Common stock equivalents
are computed using the treasury stock method.
REVENUE RECOGNITION - Revenues from the sale of commercial products are
primarily recognized upon shipment. Revenues from long-term, fixed price
agreements are recognized as the product is shipped. Estimated losses at
completion of agreements are recognized and charged to income in the period such
losses are estimated.
ACCOUNTING STANDARDS PRONOUNCEMENTS - For the year ended December 31, 1995,
the Company has adopted Statement of Financial Accounting Standards ("SFAS")
Board No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." The Standard requires that long-lived
assets and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount on an asset may not be recoverable. The adoption of
SFAS No. 121 had no effect on the Company's financial position or results of
operations.
The Company expects to elect the disclosure alternative proscribed by SFAS
No. 123, "Accounting for Stock-Based Compensation," and account for the
Company's stock-based employee compensation in accordance with Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees" and its various interpretations. Under APB No. 25, no compensation
cost is generally recognized for fixed stock options for which the exercise
price is not less than the market price of the Common Stock on the grant date.
Under the disclosure alternative of SFAS No. 123, the Company will disclose,
starting with its 1996 fiscal year, its respective pro forma net income and
earnings per share as if the fair value based accounting method of SFAS No. 123
had been used to account for stock-based compensation cost for all awards
granted by the Company after January 1, 1996.
RECLASSIFICATIONS - Certain amounts in the 1994 and 1993 financial
statements have been reclassified to conform with the current year's
presentation. The reclassifications do not affect previously reported results
of operations or cash flows.
UNAUDITED INTERIM FINANCIAL INFORMATION - The consolidated balance sheet at
March 31, 1996, the consolidated statement of operations and cash flows for the
three-month interim periods ended March 31, 1995 and 1996, and the consolidated
statement of shareholders' equity for the three-month interim period ended
March 31, 1996 have been prepared by the Company without audit. In the opinion
of management, all adjustments, consisting only of normal recurring adjustments,
necessary to fairly present the interim financial information have been made.
The results of operations for interim periods are not necessarily indicative of
the operating results of a full year or of future years.
F - 8
<PAGE>
OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(in thousands)
2. ADDITIONAL STATEMENT OF CASH FLOWS INFORMATION:
The Company's noncash investing and financing activities and cash payments
for interest and income taxes are as follows:
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, March 31,
__________________________________ ______________________
1993 1994 1995 1995 1996
__________ __________ __________ __________ __________
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash paid (received) for:
Interest $ 523 $ 614 $ 2,253 $ 513 $ 630
Income taxes (refunds, net of
payments) (2,817) (1,327) 9 ----- 178
Noncash investing activities:
Acquisition of business, net of
cash acquired:
Working capital, other than cash $ (9,630)
Property, plant and equipment (3,278)
Long-term debt assumed 185
Note payable issued to seller 4,500
_________
$ (8,223)
=========
</TABLE>
3. INVENTORIES:
<TABLE>
<CAPTION>
December 31, March 31,
______________________
1994 1995 1996
__________ __________ __________
(unaudited)
<S> <C> <C> <C>
Finished goods $ 14,656 $ 18,141 $ 20,243
Work-in-progress 15,288 19,837 21,222
Raw materials 19,079 28,032 29,698
_________ _________ _________
Total $ 49,023 $ 66,010 $ 71,163
========= ========= =========
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT:
<TABLE>
<CAPTION>
December 31, March 31,
______________________
1994 1995 1996
__________ __________ __________
(unaudited)
<S> <C> <C> <C>
Land $ 1,189 $ 1,189 $ 1,189
Buildings and improvements 11,087 11,455 11,431
Machinery and equipment 39,940 42,248 42,453
Integrated sponge facility 45,309 45,641 45,641
Construction in progress 1,976 846 1,737
_________ _________ _________
99,501 101,379 102,451
Less accumulated depreciation 61,981 66,241 67,478
_________ _________ _________
$ 37,520 $ 35,138 $ 34,973
========= ========= =========
</TABLE>
F - 9
<PAGE>
OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(in thousands)
5. OTHER ACCRUED EXPENSES:
<TABLE>
<CAPTION>
December 31, March 31,
______________________
1994 1995 1996
__________ __________ __________
(unaudited)
<S> <C> <C> <C>
Accrual for estimated environmental costs $ 1,150 $ 909 $ 909
Sales returns and allowances 1,050 607 1,384
Income taxes payable 755 478 1,004
Other 1,118 1,601 2,496
_________ _________ _________
$ 4,073 $ 3,595 $ 5,793
========= ========= =========
</TABLE>
6. PROVISION FOR LOSS ON LONG-TERM AGREEMENTS:
The Company has historically entered into long-term agreements ("LTAs")
with certain customers, primarily in the aerospace industry. The LTAs typically
obligate the Company to sell the product at a fixed price for a two or
three-year period. As a result of projected raw materials and processing costs
being higher than anticipated when the LTAs were executed, the Company recorded
a provision for loss on LTA's of $5,717 during 1995, of which $4,417 and $4,134
remains outstanding at December 31, 1995 and March 31, 1996, respectively.
7. INCOME TAXES:
The income tax provision (benefit) consists of the following:
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, March 31,
____________________________________ _______________________
1993 1994 1995 1995 1996
__________ __________ __________ __________ __________
(unaudited)
<S> <C> <C> <C> <C> <C>
Current provision (benefit):
Federal $ (1,583) $ 422 $ (372) $ 18 $ 341
State 18 80 155 39 134
Foreign ----- ----- 466 117 230
Deferred provision (benefit) (232) (1,217) (674) 177 545
_________ _________ _________ _________ _________
Total tax provision (benefit) $ (1,797) $ (715) $ (425) $ 351 $ 1,250
========= ========= ========= ========= =========
</TABLE>
F-11
<PAGE>
The differences between the Company's income tax provision (benefit) and
the federal income tax provision (benefit) at statutory rates are as follows:
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, March 31,
____________________________________ _______________________
1993 1994 1995 1995 1996
__________ __________ __________ __________ __________
(unaudited)
<S> <C> <C> <C> <C> <C>
Federal provision (benefit)
at statutory rates $ (2,004) $ (931) $ (966) $ 301 $ 1,562
State tax provision (benefit) (389) (179) (193) 44 228
Valuation allowance 597 216 1,138 250 (550)
Alternative minimum tax limitation 212 ----- 21 18 -----
Adjustment of prior-year tax accrual ----- ----- (264) (264) -----
Other (213) 179 (161) 2 10
_________ _________ _________ _________ _________
Total $ (1,797) $ (715) $ (425) $ 351 $ 1,250
========= ========= ========= ========= =========
</TABLE>
F - 10
OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(in thousands)
7. INCOME TAXES, Continued:
At December 31, 1995, the Company has net operating loss carryforwards for
federal and state income tax purposes of $3,600 and $30,000, respectively, which
may be used prior to their expiration in 2006 through 2008.
The components of the deferred taxes are as follows:
<TABLE>
<CAPTION>
1994 1995
__________ __________
<S> <C> <C>
Deferred tax assets:
Tax loss and credit carryforwards $ 3,881 $ 4,089
Pension, retirement and other
employment related items 1,722 1,715
Allowance for doubtful accounts 346 455
Safe harbor lease 296 215
Environmental accrual 467 350
Capitalized inventory costs 619 281
Provision for losses on long-term
agreements ----- 1,627
Other 345 871
Less valuation allowance (1,810) (2,948)
_________ _________
5,866 6,655
Deferred tax liabilities:
Accumulated depreciation and
amortization 6,421 6,562
Other 26 -----
_________ _________
6,447 6,562
_________ _________
Net deferred tax assets (liabilities) $ (581) $ 93
========= =========
Balance sheet classification:
Current deferred tax assets $ 517 $ 3,242
Long-term deferred tax liabilities (1,098) (3,149)
_________ _________
Net deferred tax assets (liabilities) $ (581) $ 93
========= =========
</TABLE>
The Company has recorded a valuation allowance with respect to certain
deferred tax assets as a result of the uncertainty of their future realization.
Realization is dependent on generating sufficient taxable income prior to
expiration of net operating loss carryforwards and the reversal of certain
deferred tax credits. The amount of the deferred tax assets considered
realizable, however, could be increased in the near term if estimates of future
taxable income during the carryforward period are increased.
The Company's lower effective tax rate for the three months ended March 31,
1996 is largely due to an adjustment to the deferred tax valuation allowance to
reflect the belief that it is more likely than not that the deferred tax assets
will be realized.
F - 11
<PAGE>
OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(in thousands)
8. LONG-TERM DEBT:
<TABLE>
<CAPTION>
December 31, March 31,
______________________
1994 1995 1996
__________ __________ __________
(unaudited)
<S> <C> <C> <C>
U.S. revolving credit agreement $ 12,496 $ 21,228 $ 23,276
U.K. based credit facility ----- 517 1,011
Subordinated loan from Kamyr, Inc. 4,500 4,500 4,500
Obligations under capital leases
(see Note 11) and other 181 1,117 1,263
_________ _________ _________
17,177 27,362 30,050
Less current maturities 13 616 1,406
_________ _________ _________
$ 17,164 $ 26,746 $ 28,644
========= ========= =========
</TABLE>
U.S. REVOLVING CREDIT AGREEMENT - The Company may borrow up to $28,000
under the terms of a revolving credit agreement with a U.S. bank at an interest
rate of prime (8.5% at December 31, 1995 and 8.25% at March 31, 1996) plus 1.5%,
or LIBOR (6.43% at December 31, 1995 and March 31, 1996) plus 2.5%. The Company
has exercised the LIBOR option. Borrowings under the agreement are
collateralized by accounts receivable, inventories and other intangible assets,
including the Company's stock in TI. The Company must pay a nonuse fee of .5%
annually on the unused portion of the commitment. The credit agreement matures
in September 1997 and can be renewed for one-year periods with the consent of
both parties. The credit agreement contains restrictive covenants with regard
to various financial ratios and imposes limitations on capital expenditures and
dividends. Annual cash dividends are limited to the lesser of fifty percent
(50%) of net income or $1.8 million. See Note 15.
As of December 31, 1995, the Company was not in compliance with certain
covenants principally relating to interest coverage and minimum net worth
requirements. On March 1, 1996, the Company obtained a written waiver from the
lender on these matters. The Company believes that it will be in compliance
with its financial covenants in the future.
U.K. BASED CREDIT FACILITY - On January 19, 1996, Titanium International
Limited ("TIL"), a wholly-owned subsidiary of TI, amended its credit facility
with Midland Bank plc. The facility provides for a credit facility of
approximately $2,300, a foreign exchange facility for $900 and other guarantees
of approximately $450. Aggregate borrowings which include Parent loans cannot
exceed TIL's shareholders' equity less intangible assets. The credit facility
is collateralized by the assets of TIL only. Interest is to be charged at the
rate of 1.5% over Midland Bank's base rate on amounts borrowed up to $1,500 and
2% over Midland Bank's base rate on amounts borrowed in excess of $1,500. The
credit facility has financial covenants pertaining to net worth and prepayment
of a loan to TI. The Bank has the option of terminating the availability of
credit at its discretion and the facility is subject to review on December 31,
1996.
SUBORDINATED LOAN FROM KAMYR, INC. - On September 19, 1994, as part of the
Company's acquisition of TI, TI entered into a subordinated debt agreement with
the seller, Kamyr, Inc., for $4,500, interest at 8%, payable quarterly. The
initial principal payment of $300 is due March 1997, with additional quarterly
installments of $350 through March 2000. The subordinated debt agreement
includes covenants relative to shareholders' equity, the maximum amount of
senior debt, financial ratios and restrictions on dividends, new borrowings and
guarantees and liens. The loan is collateralized by a second lien on the
accounts receivable, inventories, and general intangibles of TI.
F - 12
<PAGE>
OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(in thousands)
8. LONG-TERM DEBT, Continued:
Aggregate contractual maturities of long-term debt approximate the
following at December 31, 1995:
<TABLE>
<S> <C>
1996 $ 616
1997 22,683
1998 1,512
1999 1,518
2000 491
Thereafter 542
_________
$ 27,362
=========
</TABLE>
9. STOCK PURCHASE WARRANTS:
At December 31, 1995, warrants to purchase 200 thousand shares of Common
Stock were outstanding in connection with the Company's acquisition of TI (see
Note 15). The warrants were issued at fair market value and are exercisable at
$6.375 per share, expiring in September 2004. The warrant holder is the
president of TI, who is also an officer and director of the Company.
10. EMPLOYEE BENEFIT PLANS:
PENSION PLANS - OREMET has pension plans covering its eligible hourly and
salaried employees. The cost of these plans was $1,274, $1,287, $1,581 for the
years ended 1993, 1994, and 1995, and $337 and $381 for the three months ended
March 31, 1995 and 1996, respectively. OREMET's hourly employees are covered by
a union pension plan, the contributions for which are based on a fixed rate per
hour established under a negotiated union contract.
F - 13
<PAGE>
OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(in thousands)
10. EMPLOYEE BENEFIT PLANS, Continued:
Salaried employees who have completed at least one year of service and have
reached age 21 are covered by the defined benefit pension plan. The benefits
under this plan are based on years of service and an employee's final average
earnings. The plan's assets consist of interest-bearing obligations and
equities (principally listed securities). The following table sets forth the
amounts recognized in the Company's financial statements for the salaried plan:
<TABLE>
<CAPTION>
Year Ended December 31,
__________________________________
1993 1994 1995
__________ __________ __________
<S> <C> <C> <C>
Pension costs for the year:
Service cost $ 565 $ 522 $ 474
Interest cost 779 859 981
Actual return on plan assets (717) (250) (2,252)
Net amortization of deferral 119 (397) 1,571
_________ _________ _________
Net pension cost $ 746 $ 734 $ 774
========= ========= =========
<CAPTION>
December 31,
______________________
1994 1995
__________ __________
<S> <C> <C>
Plan assets at fair value $ 9,863 $ 12,246
_________ _________
Actuarial value of benefits based on
employment service to date and
present pay levels:
Vested 7,976 10,036
Nonvested 300 528
_________ _________
Accumulated benefit obligation 8,276 10,564
Additional amounts related to projected
compensation increases 2,550 4,443
_________ _________
Projected benefit obligation 10,826 15,007
_________ _________
Projected benefit obligation
in excess of plan assets (963) (2,761)
Unrecognized net obligation 276 237
Unrecognized prior service cost 182 255
Unrecognized net loss from experience
different from actuarial assumptions 76 1,874
_________ _________
Prepaid pension cost (pension liability) $ (429) $ (395)
========= ========= =========
</TABLE>
Assumptions utilized to measure net pension cost and the projected benefit
obligation are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
____ ____ ____
<S> <C> <C> <C>
Weighted average discount rate 6.75% 8.50% 7.25%
Rate of compensation increase 4.50 4.50 4.50
Long-term rate of return on plan assets 8.00 8.00 8.00
</TABLE>
Primarily as a result of the change in the weighted average discount rate
to 7.25% in 1995 from 8.50% in 1994, the Projected Benefit Obligation ("PBO") as
of December 31, 1995 increased $4,181 to $15,007, compared to the 1994 PBO of
$10,826. Similarly, the decrease in the weighted average discount rate was the
principal reason for the increase in the unrecognized net loss to $1,874 at
December 31, 1995, as compared to the unrecognized net loss of $76 at December
31, 1994. The increase in the unrecognized net loss was partially offset by the
returns on plan assets which were more than the assumed 8.0%.
F - 14
<PAGE>
OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS, Continued
(in thousands)
10. EMPLOYEE BENEFIT PLANS, Continued:
The decrease in the PBO and unrecognized net loss at December 31, 1994
compared to 1993 was the result of the increase in the weighted average discount
rate to 8.5% in 1994 from 6.75% in 1993.
During 1993, the Company restructured its workforce, resulting in the
termination of a significant number of employees. The termination resulted in a
partial curtailment of the salaried pension plan and increased the restructuring
cost by $151.
POSTRETIREMENT BENEFIT PLANS OTHER THAN PENSIONS - The Company accrues the
cost of postretirement benefits other than pensions during the period of
employment of the salaried employees. The following table sets forth the plan's
status, reconciled with the amount shown in the Company's balance sheets, as of
December 31:
<TABLE>
<CAPTION>
1994 1995
__________ __________
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 638 $ 611
Fully eligible active plan participants 140 121
Other active plan participants 770 1,190
_________ _________
1,548 1,922
Unrecognized net loss from experience
different from actuarial assumptions (91) (359)
_________ _________
Accrued postretirement benefit cost $ 1,457 $ 1,563
========= =========
</TABLE>
The components of net periodic postretirement benefit costs are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
__________________________________
1993 1994 1995
__________ __________ __________
<S> <C> <C> <C>
Service cost, benefits attributed to employee
service during the year $ 97 $ 96 $ 89
Interest cost on accumulated postretirement
benefit obligation 123 118 119
Net amortization and deferrals 15 15 -----
_________ _________ _________
Net periodic postretirement benefit cost $ 235 $ 229 $ 208
========= ========= =========
</TABLE>
For measurement purposes, a 9% annual increase in the per capita cost of
postretirement medical benefits was assumed for 1995; the rate is assumed to
decrease gradually to 6% for 2001 and remain at that level thereafter. The
health care cost trend rate assumption has a significant affect on the amounts
reported. To illustrate, increasing the assumed health care cost trend rates by
one percentage point in each year would increase the accumulated postretirement
benefit obligation as of December 31, 1995 by $250, and the aggregate of the
service and interest cost components of net periodic postretirement cost for the
year then ended by $36.
The discount rate used in determining the accumulated postretirement
benefit obligation was 7.25%, 8.5% and 7.0% for 1995, 1994 and 1993,
respectively. The changes in the unrecognized net loss reflect the changes in
the discount rate.
During 1993, the Company restructured its workforce, resulting in the
termination of a significant number of employees. The terminations resulted in
a partial curtailment of the postretirement benefit plan and decreased the
unrecognized loss component of the postretirement benefit liability by $210.
DEFINED CONTRIBUTION PLANS - Beginning in 1995, OREMET implemented a
domestic 401(k) retirement savings plan for the benefit of both union and
salaried employees. Under the provisions of the plan, OREMET will contribute
one share of Common Stock for each day worked, or approximately 260 shares a
year for a full-time employee as defined by the plan (see Note 15). OREMET will
also contribute a matching contribution based on the profitability of the
Company. The matching contribution is limited to 3% of the participant's
compensation. OREMET's costs under the plan totaled $1,041 in 1995 and $172 and
$479 for the three months ended March 31, 1995 and 1996. No shares of the
Common Stock were issued under the plan in 1995. As of December 31, 1995,
approximately 110 thousand shares are issuable pursuant to the OREMET savings
plan.
F - 15
<PAGE>
OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(in thousands)
10. EMPLOYEE BENEFIT PLANS, Continued:
TI sponsors a domestic 401(k) retirement savings plan. Under the
provisions of the plan, participants may contribute a percentage of their
compensation not to exceed 12%. TI matches the participants' contributions up
to 3%. Participants are fully vested with regard to TI's contributions and
earnings thereon after one (1) year of service. TI's contributions to the plan
were approximately $64 in 1995 and $21 in 1994.
TIL sponsors a defined contribution pension plan for all employees over the
age of 25 with one (1) year of service. Under the plan, participants may
contribute between 17.5% to 40% of base pay depending upon their age.
Participants are fully vested and TIL matches between 2% and 14% of the
employee's base pay, depending upon employee age and as long as the employee's
contributions are at least 2%. TIL's contributions for 1995 and 1994 were
approximately $51 and $19, respectively.
THE ESOP - In 1987, the Company established The Oregon Metallurgical
Corporation Employee Stock Ownership Plan ("ESOP"), an employee stock ownership
plan covering substantially all employees of OREMET. The ESOP borrowed $17
million from the Company to purchase approximately 6.3 million shares of Common
Stock.
The loan obligation of the ESOP is considered unearned employee benefit
expense and, as such, is recorded as a reduction of shareholders' equity. Both
the loan obligation and the unearned benefit expense have been reduced by loan
repayments made by the ESOP. In December 1994, the note receivable from the
ESOP was fully repaid. As of December 31, 1995, the ESOP owned approximately
3.9 million shares or 35% of the outstanding Common Stock. All of the Common
Stock held in the ESOP has been allocated to OREMET employees. The Company made
no contribution to the ESOP in 1995. The ESOP contribution expense totaled
$2,382 and $2,755 in 1994 and 1993, respectively.
EXCESS BENEFIT PLAN ("EBP") - OREMET maintains an unfunded EBP for
participants whose allocations of Common Stock to the ESOP are reduced as a
result of limitations imposed under federal income tax law. The Company made no
contributions to the EBP in 1995. EBP costs were $332 and $259 in 1994 and
1993, respectively. As of December 31, 1995, the Company had recorded a
liability to the EBP for 115 thousand shares of stock.
STOCK COMPENSATION PLANS - Beginning in 1995, OREMET implemented stock
compensation plans for the benefit of both its union and salaried employees.
Eligible employees earn one share of the Common Stock for every one hundred
dollars earned in salaries and wages. Stock Compensation Plan costs were $1,750
in 1995 and $302 and $790 for the three months ended March 31, 1995 and 1996,
respectively. During 1995, approximately 107 thousand shares were issued, and
as of December 31, 1995 another 62 thousand are issuable under the union and
salaried stock compensation plans.
STOCK APPRECIATION RIGHTS ("SARs") - In December of 1995, the Company
established an incentive SARs plan. At the discretion of the Board of
Directors, SARs may be granted to officers and other key employees. Upon
exercise of a SAR, the holder is entitled to receive cash equal to the amount by
which the market value of the Common Stock on the exercise date exceeds the
market value of the Common Stock on the date of grant. The SARs become fully
exercisable over a four-year vesting period measured from the date of grant; no
SARs are vested as of December 31, 1995. The Board of Directors awarded 166.5
thousand SARs, with a grant price of $10.25 per share, on December 14, 1995
(fair market value at date of award). The SARs plan will expire in 2005 unless
extended by the Board of Directors. Total SARs compensation expense for the
three months ended March 31, 1996 was $192.
F - 16
<PAGE>
OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(in thousands)
11. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES - Minimum annual rental commitments at December 31, 1995,
under noncancelable capital leases and operating leases, principally for
facilities, and equipment are payable as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
_________ _________
<S> <C> <C>
1996 $ 148 $ 802
1997 148 617
1998 148 403
1999 148 368
2000 148 235
Thereafter 499 203
_________ _________
Total minimum lease payments $ 1,239 $ 2,628
=========
Less amounts representing interest 289
_________
Present value of net minimum payments 950
Current portion 85
_________
Long-term capitalized lease obligations
(included in long-term debt) $ 865
=========
</TABLE>
Total rental costs were $951, $533 and $421 in 1995, 1994 and 1993,
respectively.
OTHER - At the time of the acquisition of TI, OREMET entered into an
agreement with the minority shareholder to acquire the remaining 20% interest of
TI, based upon a formula related to the book value of TI, in annual increments
of at least 15% no earlier than 1999 and no later than 2004.
ENVIRONMENTAL MATTERS - The Company is subject to federal, state and local
statutes and regulations concerning environmental matters and land use.
Although the Company believes it is in material compliance with these laws, they
are frequently modified to be more restrictive and it is impossible to predict
accurately the future effect that changes in these laws may have on the Company.
Like all titanium producers, the Company generates certain waste materials
and emissions, including materials for which disposal or emission requires
compliance with environmental protection laws. The Company conducts its
operations at industrial sites where hazardous materials have been managed for
many years in connection with its operations, including periods before careful
management of these materials was generally believed to be necessary or
required. Consequently, the Company is subject to various environmental laws
that impose compliance obligations and can 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. The Company anticipates that its investigation will result in a
determination that at least some remedial action is necessary for which an
accrual has been made. A neighboring property owner also is investigating
groundwater contamination at its property that has migrated to OREMET's property
and for which OREMET may have legal claims to recover a portion of its
investigation costs.
In February 1995, the Oregon Department of Environmental Quality modified
OREMET's waste water discharge permit. The new permit imposes more stringent
discharge limits according to a specified schedule. OREMET has identified
several feasible alternatives for meeting the new limits, the most expensive of
which would require capital expenditures of approximately $700. OREMET is
working with the Department to explore less expensive alternatives.
In connection with the preparation of its application for a new federal
operating permit under Title V of the 1990 Clean Air Act Amendment, the Company
discovered that some of its air emissions may have been greater than previously
recognized. The Company has voluntarily reported these facts to the Oregon
Department of Environmental Quality. To resolve these issues, the Company has
agreed to undertake an evaluation of its emissions that could result in
requirements to install additional pollution control
F - 17
<PAGE>
OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(in thousands)
11. COMMITMENTS AND CONTINGENCIES, Continued:
equipment. At this point, the Company is unable to determine whether additional
controls will be required, but the Company does not believe the cost of such
additional controls would have a material effect on its capital expenditures,
earnings or competitive position.
Although no claims have been filed against the Company related to the above
matters, the Company has completed various engineering studies with regard to
the items. As a result of these studies, which are ongoing, the Company made
provisions for environmental expenses of $0, $240 and $970 in 1995, 1994 and
1993, respectively, of which an accrued liability of $909 remains at December
31, 1995 and March 31, 1996. These amounts are in addition to recurring
environmental costs which are expensed as incurred and are included in cost of
sales. At the present time, management cannot reasonably predict when these
environmental issues will be resolved.
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 has not been informed of any pending or potentially required actions
which may arise from this investigation.
In conjunction with the sale of TI, Kamyr, Inc. (the seller) has agreed to
undertake specified clean-up activities. In addition, Kamyr, Inc. has agreed to
a limited indemnification of the Company in the event damages arise that result
from conditions which were not in compliance with environmental laws and
regulations as they existed at the time OREMET purchased TI.
LEGAL PROCEEDINGS - From time to time, the Company is involved in legal
proceedings which arise in the normal course of business. The Company is not
currently involved as a defendant in any legal proceedings where the outcome, if
determined adversely, could have a material effect on the business or results of
operations of the Company.
12. MAJOR CUSTOMERS AND BUSINESS SEGMENTS:
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 5%, 13% and 30% of the Company's net sales in 1995,
1994 and 1993, respectively.
The Company's operations are conducted primarily in one business segment,
the production and marketing of titanium metal and related products.
International sales approximated $30,000, $10,000 and $7,000, for years ended
December 31, 1995, 1994 and 1993, respectively, primarily to Europe and Asia.
In May 1994, OREMET signed a three-year contract with Aerospatiale Avions,
France for engine pylon parts for the Airbus aircraft, and in the second half of
1994 began supplying product under the contract. The acquisition of TI provided
the Company with a service center located in the U.K. with an established
operation. In 1996, TI opened a service center in Germany. The Company intends
to utilize these facilities to meet its customers' needs in Europe.
13. RESTRUCTURING COST:
In 1993, the Company recorded a provision for restructuring of $2,027 which
includes nonrecurring costs of severance pay and benefits of $1,027, incurred
and substantially all paid in the third and fourth quarters of 1993, and a
write-down, in the fourth quarter of 1993, of construction in progress of $1,000
related to a curtailed expansion of the Titanium Sponge Reduction Plant and the
related Magnesium Recovery Facility. The downsizing and restructuring were done
to reduce fixed costs and to write-off the nonrecoverable portion of funds spent
to increase sponge production capacity.
14. FINANCIAL INSTRUMENTS:
FOREIGN CURRENCY CONTRACTS - The Company enters into forward foreign
exchange contracts to hedge foreign currency transactions on a continuing basis
for periods consistent with its committed exposures. The Company does not enter
into foreign currency contracts for trading or speculative purposes. This
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 generally offset losses and gains on the
assets and liabilities being hedged.
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OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(in thousands)
14. FINANCIAL INSTRUMENTS, Continued:
At December 31, 1995 and 1994, the Company had notional principal amounts
of approximately $490 and $1,813, respectively, in contracts to buy U.S. dollars
in the future, with maturities of less than six months. Net foreign currency
transaction gains occurring in 1995 and 1994 were approximately $121 and $48,
respectively, which have been included in cost of goods sold.
OTHER FINANCIAL INSTRUMENTS - At December 31, 1995 and 1994, the carrying
value of financial instruments classified as current assets or liabilities
approximated their fair values, based on the short-term maturities of these
instruments. Fair value is determined based on future cash flows, discounted at
market interest rates, and other appropriate valuation methodologies. At
December 31, 1995 and 1994, the fair value of long-term debt with fixed interest
terms approximated carrying value. Both periods include long-term borrowing
with variable interest terms, for which the carrying value approximated market.
The fair value of debt is determined by obtaining quotes from financial
institutions.
Exposure to market risk on foreign currency contracts results from
fluctuations in currency rates during the periods the contracts are outstanding.
The counterparties to foreign currency exchange contracts are major financial
institutions. Credit loss from counterparty nonperformance is not anticipated.
15. SUBSEQUENT EVENTS (unaudited):
In May 1996, warrants to purchase 80 shares of common stock were exercised
by an officer and director of the Company (see Note 9).
In May 1996, the Company approved an amendment to their revolving credit
facility increasing its borrowing base to $35 million.
In June 1996, OREMET amended certain of its employee benefit plans such
that (a) when the value of the Common Stock exceeds twenty dollars per share, a
partial share entitlement up to twenty dollars will be paid in stock for every
one hundred dollars of compensation paid to the employee; and (b) under the
401(k) retirement savings plan the Company contributes to eligible participants
one share of Common Stock for each day worked; the contribution to the 401(k)
plan was amended, such that when the value of the Common Stock exceeded thirty
two dollars a partial entitlement up to thirty two dollars of Common Stock will
be contributed. Both amendments are effective April 1, 1996.
In addition, effective June 11, 1996, certain eligible employees of OREMET
were each granted options to buy five hundred shares of Common Stock at the fair
market value at the date of grant for an approximate 252 shares of Common Stock.
Such options vest 100% on the fourth anniversary and expire on the tenth
anniversary of the grant.
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<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-3 of our
report, dated February 16, 1996, except for the second paragraph of Note 8, as
to which the date is March 1, 1996, on our audits of the consolidated financial
statements of Oregon Metallurgical Corporation. We also consent to the
reference to our firm under the caption "Experts."
Coopers & Lybrand L.L.P.
Eugene, Oregon
June 26, 1996
