=============================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1996
_____________
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-1339
______
OREGON METALLURGICAL CORPORATION
(Exact name of registrant as specified in its charter)
Oregon 93-0448167
_______________________________________ ___________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
530 34th Avenue S.W. 97321
________________________________________ ___________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (541) 967-9000
______________
NONE
______________________________________________________
(Former name or address, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
___ ___
Indicate the number of shares of each of the issuer's classes of common
stock, as of the latest practicable date:
Class Outstanding as of July 31, 1996
_____________________________ _______________________________
Common stock, $1.00 par value 11,417,002
=============================================================================
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Unaudited
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
__________________ ________________
1996 1995 1996 1995
____ ____ ____ ____
<S> <C> <C> <C> <C>
Net sales $ 58,760 $ 35,125 $110,069 $ 65,963
Cost of sales, including a
provision for future losses
on long-term agreements of
$1,300 for June 30, 1995 44,492 29,834 85,440 55,340
________ ________ ________ ________
GROSS PROFIT 14,268 5,291 24,629 10,623
Research, technical and product
development expenses 326 354 943 719
Selling, general and administrative
expenses 4,868 3,544 9,158 6,944
________ ________ ________ ________
INCOME FROM OPERATIONS 9,074 1,393 14,528 2,960
Interest expense (701) (465) (1,335) (1,040)
Minority interests (245) (112) (470) (218)
________ ________ ________ ________
INCOME BEFORE INCOME TAXES 8,128 816 12,723 1,702
Provision for income taxes 2,942 363 4,192 714
________ ________ ________ ________
NET INCOME $ 5,186 $ 453 $ 8,531 $ 988
======== ======== ======== ========
Net income per share $ 0.45 $ 0.04 $ 0.75 $ 0.09
======== ======== ======== ========
Weighted average common
shares and equivalents
outstanding 11,553 11,187 11,418 11,132
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
<TABLE>
<CAPTION>
Unaudited
June 30, December 31,
1996 1995
_________ ___________
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,071 $ 572
Accounts receivable, net 34,697 25,894
Inventories 81,297 66,010
Prepayments 601 689
Deferred tax assets 2,536 3,242
________ ________
Total current assets 120,202 96,407
Property, plant and equipment, net 34,512 35,138
Other assets, net 1,438 1,532
________ ________
Total Assets $156,152 $133,077
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 2,250 $ 616
Book overdraft 2,331 2,014
Accounts payable 16,829 16,973
Accrued payroll and employee benefits 9,016 6,659
Accrued loss on long-term agreements 2,781 2,781
Other accrued expenses 4,282 3,595
________ ________
Total current liabilities 37,489 32,638
Long-term debt, less current portion 31,103 26,746
Deferred tax liabilities 3,433 3,149
Deferred compensation payable 243 678
Accrued postretirement benefit 1,638 1,563
Accrued loss on long-term agreements,
less current portion 1,059 1,636
Minority interests 1,299 780
________ ________
Total liabilities 76,264 67,190
======== ========
Shareholders' equity:
Common stock, $1.00 par value;
25,000 shares authorized; shares issued:
1996 11,417; 1995, 11,018 11,417 11,018
Additional paid-in capital 43,409 38,340
Retained earnings 25,076 16,545
Cumulative foreign currency translation adjustment (14) (16)
________ ________
Total shareholders' equity 79,888 65,887
________ ________
Total liabilities and shareholders' equity $156,152 $133,077
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
Unaudited
<PAGE>
<TABLE>
<CAPTION>
Cumulative
Foreign
Additional Currency
Common Stock Paid-in Retained Translation
____________
Shares Amount Capital Earnings Adjustment Total
______ ______ _______ ________ __________ _____
<S> <C> <C> <C> <C> <C> <C>
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 319 319 3,136 ---- ---- 3,455
Exercise of stock purchase warrants 80 80 430 ---- ---- 510
Tax benefits on issuance of common
stock for employee benefits ---- ---- 1,503 ---- ---- 1,503
Currency translation adjustment ---- ---- ---- ---- 2 2
Net income ---- ---- ---- 8,531 ---- 8,531
______ ________ ________ ________ ________ ________
Balance, June 30, 1996 11,417 $ 11,417 $ 43,409 $ 25,076 $ (14) $ 79,888
====== ======== ======== ======== ======== ========
</TABLE>
<PAGE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Unaudited
<TABLE>
<CAPTION>
Six Months Ended
June 30,
________________
1996 1995
____ ____
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 8,531 $ 988
Adjustments to reconcile net income
to cash used in operating activities:
Depreciation and amortization 2,295 2,329
Deferred income tax expense 990 559
Employee benefits paid or payable in
common stock 3,490 1,107
Provision for loss on long-term agreements (577) 1,300
Minority interests 470 218
Decrease (increase) in:
Accounts receivable (8,803) (6,108)
Inventories (15,287) (11,253)
Prepayments 88 714
Increase (decrease) in:
Accounts payable (144) 2,766
Accrued payroll and employee benefits 2,003 1,025
Other accrued expenses 2,190 623
Other 8 (46)
________ ________
Net cash used in operating activities (4,746) (5,778)
________ ________
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (1,535) (733)
Other (40) (429)
________ ________
Net cash used in investing activities (1,575) (1,162)
________ ________
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from revolving credit agreements 103,865 58,439
Payments on revolving credit agreements (97,980) (52,604)
Proceeds from long-term debt 177 ----
Payments on long-term debt (71) (6)
Book overdraft 317 ----
Proceeds from exercise of stock purchase warrant 510 ----
Net cash provided by financing activities 6,818 5,829
________ ________
Effect of exchange rates on cash and
cash equivalents 2 1
________ ________
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 499 (1,110)
CASH AND CASH EQUIVALENTS:
Beginning of period 572 1,636
________ ________
End of period $ 1,071 $ 526
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1. BASIS OF PRESENTATION
The interim consolidated financial statements have been prepared by Oregon
Metallurgical Corporation ("OREMET") and its subsidiaries (the "Company")
without audit. In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the Company's
results of operations, for the three and six month periods ended June 30,
1996 and 1995; financial position as of June 30,1996, and December 31, 1995,
and the cash flows of the Company for the six months ended June 30, 1996 and
1995. The interim consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes
thereto appearing in the Company's Annual Report to Shareholders.
The results of operations in term periods are not necessarily indicative of
the operating results of a full year or future year.
NOTE 2. ORGANIZATION AND OPERATIONS
The Company is one of two U.S. integrated producers and distributors of
titanium sponge, ingot, mill products and castings for use in the aerospace,
industrial, golf and military markets. As of June 30, 1996, the Company is
14% owned by the Oregon Metallurgical Corporation Employee Stock Ownership
Plan (the "ESOP").
NOTE. 3 BASIS OF CONSOLIDATION
Titanium Industries, Inc. ("TI") an eighty percent (80%) owned subsidiary
opearates full-line titanium metal service centers in the United States,
Canada, United Kingdom and Germany and produces small diameter bar, weld wire
and fine wire. The consolidated financial statements of the Company include
the accounts of TI, and the Company's wholly-owned subsidiary, OREMET France
S.a.r.l. TI's accounts reflect the activities of its wholly-owned
subsidiaries, Titanium International, LTD., Titanium Wire Corporation and
Titanium International GmbH. All material intercompany accounts and
transactions have been eliminated in consolidation.
NOTE 4. INVENTORIES
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
________ ____________
<S> <C> <C>
Finished goods $ 21,118 $ 18,141
Work-in-progress 26,053 19,837
Raw materials 34,126 28,032
________ ________
Total $ 81,297 $ 66,010
======== ========
</TABLE>
6
<PAGE>
NOTE 5. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
________ ____________
<S> <C> <C>
Land $ 1,189 $ 1,189
Buildings and improvements 11,455 11,455
Machinery and equipment 42,592 42,248
Integrated sponge facility 45,660 45,641
Construction in progress 1,966 846
________ ________
102,862 101,379
Less accumulated depreciation (68,350) (66,241)
________ ________
$ 34,512 $ 35,138
======== ========
</TABLE>
NOTE 6. STOCK PURCHASE WARRANTS:
At December 31, 1995, warrants to purchase 200 thousand shares of the
Company's common stock were outstanding in connection with the Company's
acquisition of TI. 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. In May 1996, warrants were exercised to purchase 80 thousand shares
of common stock for $510. As of June 30, 1996, 120 thousand stock purchase
warrants remain outstanding, none are exercisable at June 30, 1996.
NOTE 7. STOCK OPTIONS:
Effective June 11, 1996, substantially all employees of OREMET were each
granted options to purchase five hundred shares of common stock for $30.25 a
share the fair market value on the date of grant. At June 30, 1996, options
to purchase 252 thousand shares of Company common stock are outstanding.
Such options vest 100% on the fourth anniversary and expire on the tenth
anniversary of the grant. No options are presently exercisable.
7
<PAGE>
NOTE. 8 EMPLOYEE BENEFIT PLANS
OREMET Savings Plan - Beginning in 1995, OREMET implemented a domestic 401(k)
retirement savings plan for the benefit of both union and salaried employees.
Under the provision 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. Effective April 1, 1996, the Company's
contribution to the 401(k) plan was amended, such that when the value of the
common stock exceeds thirty two dollars, a partial entitlement up to thirty
two dollars of common stock will be contributed. 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.
Costs under the plan totaled $431 and $1,642 for the six months ended June
30, 1996 and 1995, respectively.
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 Company's common stock for every one
hundred dollars in salaries and wages. Effective April 1, 1996, the
Company's obligation under the Stock Compensation Plans was amended, such
that when the value of the common stock exceeds twenty dollars per share, a
partial share entitlement up to twenty dollars will be paid in common stock
for every one hundred dollars of eligible compensation earned. Costs under
the plans totaled $676 and $1,762 for the six months ended June 30, 1996 and
1995, respectively.
8
<PAGE>
PART 1: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Company's 1995 Annual Report on Form 10-K 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, dependence on aerospace industry,
uncertainty of emerging golf market, highly competitive industry, substantial
excess production capacity, planned significant investment in electron beam,
furnace, dependence on essential machinery and equipment, dependence on raw
materials and services.
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 U.S.
Department of the Interior U.S. Geological Survey ("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 be approximately
9 million pounds and be greater than shipments to the entire military sector.
The Company's twelve-month order backlog has increased from $64 million
as of June 30, 1995 to $141 million as of June 30, 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 started accepting orders for second
quarter 1997 beginning in early July 1996.
In 1995, 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. During the first six months of 1996, the Company incurred losses of
$0.6 million on certain of its LTA's, reducing its accrual for future losses
to $3.8 million at June 30, 1996. Starting with the first quarter of 1996,
the Company added raw material surcharges 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.
9
<PAGE>
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 six
months ended June 30, 1995 and 1996.
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, June 30,
____________________________________ ____________________
1991 1992 1993 1994 1995 1995 1996
____ ____ ____ ____ ____ ____ ____
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit
(loss)(1) (5.9) (1.0) 4.9 9.3 10.8 16.1 22.4
Income (loss)
from opera-
tions(1) (15.7) (10.4) (11.2) (3.5) (0.2) 4.5 13.2
Net income (8.6)% (7.4)% (7.4)% (2.8)% (1.6)% 1.5% 7.8%
______________
<FN>
<F1> A provision for a loss on LTAs of $1.3 million and $4.4 million was
recorded in the second and fourth quarters of 1995, respectively. 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, and 18.1% and 6.5% for the six months ended June 30, 1995,
respectively.
</FN>
</TABLE>
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 and
second quarters of 1996. Although the Company's business is not seasonal,
growth rates of sales 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.
<PAGE>
<TABLE>
<CAPTION>
1994 Quarters 1995 Quarters 1996 Quarters
____________________________________ _______________________________________ ________________
First Second Third Fourth First Second(1) Third Fourth(1) First Second
_____ ______ _____ ______ _____ _________ _____ _________ _____ ______
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 13.3 $ 14.5 $ 17.0 $ 26.4 $ 30.8 $ 35.2 $ 41.2 $ 39.7 $ 51.3 $ 58.8
Gross profit 0.1 0.6 1.7 4.2 5.3 5.3 4.1 1.2 10.4 14.2
Income (loss)
from operations (1.7) (0.9) (0.6) 0.7 1.6 1.4 0.1 (3.4) 5.5 9.0
Net income (loss) $ (1.1) $ (0.6) $ (0.4) $ 0.1 $ 0.5 $ 0.5 $ (0.4) $ (3.0) $ 3.3 $ 5.2
__________________
<PAGE>
<FN>
<F1> 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.
</FN>
</TABLE>
COMPARISON OF SECOND QUARTER OF 1996 TO SECOND QUARTER OF 1995
______________________________________________________________
NET SALES. Net sales increased $23.6 million, or 67% to $58.8 million
for the second quarter of 1996, compared to $35.1 million in the second
quarter of 1995. The increase in sales was primarily driven by increased
demand and higher prices for both the Company's manufactured and service
center products. Of the $23.6 million net sales increase, $8.9 million was
the result of volume increases and $14.7 million from higher average selling
prices.
TITANIUM SPONGE. During the second 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 129% to $4.6 million from $2.0 million
for the second quarter of 1996 compared to the second quarter of 1995.
Sponge shipments increased 96% and the average sponge price per pound
increased 17% due to a change in product mix.
INGOT. Sales of ingot increased 130% to $12.5 million for the second
quarter of 1996 compared to $5.4 million for the second quarter of 1995.
Ingot shipments increased 79% and the average ingot price per pound increased
29%.
10
<PAGE>
MILL PRODUCTS. Mill product sales increased 81% to $19.7 million for
the second quarter of 1996 compared to $10.9 million for the second quarter
of 1995. Shipments of mill products increased 14% and the average price per
pound increased 57%. 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 72% to $2.5 million for the
second quarter of 1996 compared to $1.5 million for the second quarter of
1995. The Company is operating at a higher production rate in 1996 and is
expanding its casting facilities.
DISTRIBUTION. During the second quarter of 1996, sales of service
center products increased 33% to $18.0 million compared to $13.6 million for
the second quarter of 1995. The increase in sales was due to increased
shipments and favorable pricing and product mix.
COST OF SALES AND GROSS PROFIT. Cost of sales for the second quarter
of 1996 increased 49% to $44.5 million, compared to $29.8 million in the
second quarter of 1995. The primary reason for the increase in cost of sales
were increased shipments. However, the Company's gross profit margin
increased to 24.3% for the second quarter of 1996 from 15.1% for the second
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") remained substantially
unchanged for the second quarter of 1996 as compared to the comparable
quarter of 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses ("SG&A") increased $1.3 million, or 37%, for the
second quarter of 1996 to $4.9 million from $3.5 million in the comparable
quarter of 1995. As a percentage of sales, SG&A decreased to 8.3% in the
second quarter of 1996 from 10.1% in the second quarter of 1995.
INTEREST EXPENSE. Interest expense increased $0.2 million to $0.7
million in the second 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 $2.9 million, or an effective tax rate of 35% (on income before
income taxes and minority interests) for the second quarter of 1996 compared
to $0.4 million, or an effective tax rate of 39% for the comparable period in
1995. The difference between the federal and state combined statutory tax
rate of 39.5% and the effective tax rate of 35% for the second 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 $5.2 million, $0.45 per
share, for the second quarter of 1996 compared to net income of $0.5 million,
$0.04 per share, for the comparable period in 1995.
COMPARISON OF FIRST SIX MONTHS OF 1996 TO FIRST SIX MONTHS OF 1995
__________________________________________________________________
NET SALES. Net sales increased $44.1 million, or 67% to $110.1 million
in the first six months of 1996, compared to $66.0 million in 1995. The
increase in sales was primarily driven by increased demand and higher prices
for both the Company's manufactured and service center products. Of the
$44.1 million sales increase, $18.5 million was the result of volume
increases and $25.6 milion from higher average selling prices.
TITANIUM SPONGE. During the first six months 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 87% to $7.8 million from $4.2 million
for the first six months of 1996 compared to the first six months of 1995.
Sponge shipments increased 70% and the average sponge price per pound
increased 10%. 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 125% to $21.7 million for the first
six months of 1996 compared to $9.6 million for the first six months of 1995.
Ingot shipments increased 79% and the average ingot price per pound increased
26%. The Company operated its melt facilities at near capacity during the
first six months 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.
11
<PAGE>
MILL PRODUCTS. The Company produces or contracts for outside
production a variety of mill products including: billet, bar, plate, sheet and
engineered parts. Mill product sales increased 93% to $38.3 million for the
first six months of 1996 compared to $19.9 million for the first six months
of 1995. Shipments of mill products increased 29% and the average price per
pound increased 50%. 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 56% to $4.7 million for the
first six months of 1996 compared to $3.0 million for the first six months 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 six months of 1996, sales of service center
products increased 30% to $34.7 million compared to $26.7 million for the
first six months of 1995. The increase in sales was due to increased
shipments and favorable pricing and product mix.
COST OF SALES AND GROSS PROFIT. Cost of sales for the first six months
of 1996 increased 54% to $85.4 million, compared to $55.3 million in the
first six months of 1995. The primary reason for the increase in cost of
sales was increased shipments. The Company's gross profit margin increased to
22.4% for the first six months of 1996 from 16.1% for the first six months of
1995, as a result of higher prices and improved production efficiencies.
RESEARCH, TECHNICAL AND PRODUCT DEVELOPMENT EXPENSES. RT&D increased
by $0.2 million for the first six months of 1996 to $0.9 million from the
comparable six month period 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. SG&A increased $2.2
million, or 32%, for the first six months of 1996 to $9.2 million from $6.9
million in the comparable six month period of 1995. The increase is
primarily a resultof additional employees hired to support the increase in
operating activity. As a percentage of sales, SG&A decreased to 8.3% in the
first six months of 1996 from 10.5% in the first six months of 1995.
INTEREST EXPENSE. Interest expense increased $0.3 million to $1.3
million in the first six months of 1996 compared to the first six months 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 $4.2 million, or an effective tax rate of 32% (on income before
income taxes and minority interests) for the first six months of 1996
compared to $0.7 million, or an effective tax rate of 37% for the comparable
period in 1995. The difference between the federal and state combined
statutory tax rate of 39.5% and the effective tax rate of 32% for the first
six months 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 $8.5 million, $0.75 per
share, for the first six months of 1996 compared to net income of $1.0
million, $0.09 per share, for the comparable period in 1995.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW.
_________
Net cash used in operating activities totaled $4.7 million for the
first six months of 1996, compared to $5.8 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 six month period. 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.
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 six months of 1996 and 1995, the Company incurred $3.5
million and $1.1 million in expenses relating to its Stock Compensation Plans
and Savings Plan. Liabilities arising under these plans are satisfied by
issuing shares of the Company's common stock. Increases in the average
market value of the Company's common stock and in the number of eligible
employees are the primary factors for the 1996 increase.
12
<PAGE>
Net cash used in investing activities totaled $1.6 million for the
first six months of 1996 compared to $1.2 million for the first six months of
1995. The Company had additions to property, plant and equipment of $1.5
million and $0.7 million in the first six months of 1996 and 1995,
respectively.
Net cash provided by financing activities totaled $6.8 million for the
first six months of 1996, compared to $5.8 million for the comparable period
of 1995. For the first six months of 1996, $6.2 million was provided from
net borrowings on the Company's credit agreements and book overdraft compared
to $5.8 million in 1995.
REVIEW OF SIGNIFICANT WORKING CAPITAL ACCOUNTS.
_______________________________________________
INVENTORIES. Inventories increased by $15.3 million, or 23% during the
first six months of 1996, to $81.3 million, while they increased $10.0
million, or 20%, to $59.1 million during the comparable period of 1995. 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. Accounts receivable increased by $8.8 million, or
34%, during the first six months of 1996 to $34.7 million, while they
increased by $6.2 million, or 30% to $26.6 million during the comparable
period of 1995. The increase in accounts receivable is consistent with the
Company's increase in sales volume.
BOOK OVERDRAFT. The Company had a book overdraft at June 30, 1996,
December 31, 1995 and June 30, 1995 of $2.3 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. Accounts payable at June 30, 1996 and December 31,
1995 were $16.8 million and $17.0 million, respectively, which are less than
the June 30, 1995 balance of $19.7 million. The decrease in accounts payable
was funded by increased borrowings on the Companies U.S. credit agreement.
ACCRUED PAYROLL AND RELATED LIABILITIES. Accrued payroll and employee
benefits increased by $2.4 million, or 35% during the first six months of
1996 to $9.0 million, while they increased by $2.1 million, or 72% to $5.1
million during the comparable period of 1995. For the first six months of
1996, accruals related to the Company's Cash Bonus Program and Stock
Appreciation Rights Plan accounted for a substantial portion of the increase.
For the first six months of 1995, accruals related to the Company's Stock
Compensation Plan and Savings Plans accounted for a substantial portion of
the increase.
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 June 30, 1996 was $26.1 million. As of June
30, 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%.
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 Offering (see below), the Company intends to seek a new $50 million U.S.
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 L2.3 million ($3.6 million at current exchange rates). The
U.K. credit agreement is subject to renewal on December 31, 1996. The
balance outstanding under the U.K. credit agreement as of June 30, 1996 was
$1.5 million (at current exchange rates).
THE OFFERING.
______________
On June 26, 1996, the Company filed a registration statement with the
United States Securities and Exchange Commission to register for sale to the
public approximately 4,025 thousand shares of Common Stock. The Company
intends to use the proceeds from the Offering to (i) build or invest in an
electron beam furnace, (ii) repay certain indebtedness, (iii) expand the
Company's distribution business, and (iv) provide funds for working capital
and general corporate purposes.
13
<PAGE>
CAPITAL EXPENDITURES.
_____________________
The Company intends to use approximately $32 million of the net
proceeds from the Offering for the construction, equipment and facility costs
for a new EB furnace and related upgrade of scrap reprocessing facilities. The
construction and production ramp-up periods are expencted to take
approximately 18 months with approximately $4 million expended in 1996
(design and procurement phases), $20 milion in 1997 (construction phase) and
approximately $8 million in 1998 (testing phase).
The Company also intends to use approximately $15 million of the net
proeeds from the Offering to establish or purchase additional service centers
in the Pacific Rim, Northeastern United States and Southern Europe by the end
of 1997. Currently, no potential acquisitions have been identified.
The Company anticipates that capital expenditures during 1996, other
than those related to the EB furnace (see the Offering, above), will
approximate $9 million which will be provided by internally generated funds
or credit facilities. 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 has no material open commitments which obligate it to make future
capital expenditures.
INCOME TAXES.
_____________
The Company anticipates that in 1996 it will fully utilize its federal
net operating loss carryforwards of $3.5 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 other 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 Offering 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 9% of the Company's net sales for the first six months of
1996 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 the
first six months of 1996.
CHANGES IN ACCOUNTING PRINCIPLES
The Company expects to elect the disclosure alternative prescribed by
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," and to account for stock-based employee
compensation with respect to the Common Stock 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 in which
the exercise price is not less than the market price on the grant date.
Under the disclosure alternative 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.
14
<PAGE>
PART 2: OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
___________________________________________________
(A) An Annual Meeting of Shareholders was held on April 25, 1996.
(B) Carlos E. Aguirre, Gilbert E. Bezar, Thomas B. Boklund, Roger
V. Carter, Nicholas P. Collins, Howard T. Cusic, David H.
Leonard, James S. Paddock and James R. Pate were elected as
directors of the Company.
(C) The matters voted upon at the Annual Meeting of Shareholders
were:
i. The election of nine directors. The results of the
election were as follows:
Nominee Votes For
_______ _________
Carlos. E. Aguirre 9,484,868
Gilbert E. Bezar 7,838,138
Thomas B. Boklund 7,713,908
Robert V. Carter 9,131,382
Nicholas P. Collins 8,228,528
Howard T. Cusic 8,454,679
David H. Leonard 13,919,849
James S. Paddock 7,856,276
James R. Pate 14,969,223
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
________________________________
A. Exhibits
10.1 Amendment No. 3 Dated as of March 14, 1996 to Loan
and Security Agreement with Oregon Metallurgical
Corporation and Titanium Industries, Inc., Dated as
of September 19, 1994.
10.2 Amendment No. 4 Dated as of May 1, 1996 to Loan and
Security Agreement with Oregon Metallurgical
Corporation and Titanium Industries, Inc., Dated as
of September 19, 1994.
11.1 Statement re: computation of per share earnings.
27.1 Financial Data Schedule.
B. Forms 8-K
No reports on Form 8-K were filed by the company during the
quarter ended June 30, 1996.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OREGON METALLURGICAL CORPORATION
Registrant
Date: August 5, 1996 /s/ Dennis P. Kelly
______________________________________
Dennis P. Kelly
Vice President, Finance and
Chief Financial Officer
Signing on behalf of the Registrant and
as Chief Accounting Officer
15
AMENDMENT NO. 3
TO
LOAN AND SECURITY AGREEMENT
WITH
OREGON METALLURGICAL CORPORATION
AND
TITANIUM INDUSTRIES, INC.
DATED AS OF SEPTEMBER 19, 1994
THIS AMENDMENT NO. 3 TO LOAN AND SECURITY AGREEMENT ("AMENDMENT") is
dated as of March 14, 1996, by and between OREGON METALLURGICAL CORPORATION,
an Oregon corporation ("OREMET"), TITANIUM INDUSTRIES, INC., an Oregon
corporation formerly know as New TI, Inc. ("TI" and, together with Oremet
sometimes hereinafter referred to collectively as the "BORROWERS"), and
BANKAMERICA BUSINESS CREDIT, INC., a Delaware corporation, as successor-in-
interest to Bank of America Illinois, an Illinois banking corporation
("LENDER"). Capitalized terms used herein but not otherwise defined herein
shall have the respective meanings assigned to such terms in the "Loan
Agreement" (as defined below).
WITNESSETH:
__________
WHEREAS, Borrowers and Lender have entered into that certain Loan and
Security Agreement dated as of September 19, 1994, as amended (the "THE LOAN
AGREEMENT"), pursuant to which Lender has agreed to make certain loans and
other financial accommodations to Borrowers; and
WHEREAS, Borrowers and Lender have agreed to further amend the Loan
Agreement, on the terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises set forth above, the
terms and conditions contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the respective parties hereto hereby agree as follows:
1. Amendment to Loan Agreement.
___________________________ Effective as of the date hereof, upon
satisfaction of the conditions precedent set forth in Section 3
_________ below, and in
reliance upon the representations and warranties of Borrowers set forth
herein, the Loan Agreement is hereby amended as follows:
1.1 Section 2.1.3
_____________ of the Loan Agreement is hereby deleted in its
entirety and the following language is hereby substituted therefor:
OREMET.AM3:11911
2/15/96 -1-
<PAGE>
"2.1.3 MAXIMUM OUTSTANDING LOANS. Notwithstanding any
other provision of this Agreement, the aggregate outstanding
principal balance of the Loans plus Letter of Credit Obligations
shall not exceed at any time (A) in the case of OREMET, $21,000,000,
(B) in the case of TI, $7,000,000, and (C) in the case of both
Borrowers in the aggregate, $28,000,000; provided, however,
_________________ that the
foregoing shall not limit the right of Lender to advance Revolving
Loans to either of the Borrowers pursuant to the provisions of
Sections 2.2(b), 2.2(c), 2.2(e), 3.2(c), 5.5, 5.6, 7.4, 11.3, 11.4,
__________________________________________________________________
or any other provision of this Agreement or any Related Agreement
that permits Lender to advance Revolving Loans to such Borrower."
1.2 The first sentence of Section 2.15
____________ of the Loan Agreement is
hereby deleted and the following language is hereby substituted therefor:
"OREMET agrees to pay to Lender a fee equal to one-half of one
percent (0.5%) per annum on the daily average amount by which
$28,000,000 exceeds the aggregate outstanding principal balance of
the Revolving Loans plus the Letter of Credit Obligations, in each
case of each of the Borrowers."
1.3 Section 2.1 of Supplement A
___________________________ of the Loan Agreement is hereby
deleted and the following language is hereby substituted therefor:
"2.1 Revolving Credit Amounts.
________________________ The maximum amount of
Revolving Loans which Lender will make available to each Borrower
(such amount is hereinafter called, with respect to each Borrower,
such Borrower's `REVOLVING CREDIT AMOUNT') is (i) in the case of
OREMET, $21,000,000 and (ii) in the case of TI, $7,000,000 (in each
case, unless such amount is reduced or increased by Lender in its
sole discretion)."
2. Conditions Precedent.
____________________ This Amendment shall become effective as of
the date hereof, upon the Lender's receipt of (a) this Amendment duly
executed and delivered and (b) a copy, duly certified by the secretary or
assistant secretary of each of the Borrowers of (i) resolutions of the
Executive Committee of the Board of Directors of such Borrower authorizing
this Amendment, (ii) all documents evidencing any other necessary corporate
action with respect to this Amendment, and (iii) all approvals, consents, if
any, with respect to this Amendment.
3. Representations, Warranties, and Covenants.
__________________________________________
3.1 Each of the Borrowers hereby represents and warrants that:
(a) this Amendment and the Loan Agreement, as amended hereby,
constitute legal, valid, and binding obligations of the respective Borrowers
and are enforceable against each of the Borrowers in accordance with their
respective terms;
OREMET.AM3:11911
2/15/96 -2-
<PAGE>
(b) before and after giving effect to this Amendment, no
Unmatured Event of Default or Event of Default has occurred and is
continuing; and
(c) the execution and delivery by each of the Borrowers of
this Amendment does not require the consent or approval of any Person, other
than the Borrower.
3.2 Each of the Borrowers hereby reaffirms all agreements,
covenants, representations, and warranties made by such Borrower in the Loan
Agreement and each of the Related Agreements to the extent the same are not
amended hereby and agrees that all such agreements, covenants, representation
and warranties shall be deemed to have been remade as of the date hereof and
the effective date of this Amendment.
4. Reference to and Effect on the Loan Agreement and Related
_________________________________________________________
Agreements.
__________
4.1 Upon the effectiveness of this Amendment, each reference in
the Loan Agreement to "this Agreement," "hereunder," "hereof," "herein," or
words of like import, and each reference in each of the Related Agreements to
the "Loan Agreement," shall in each case mean and be a reference to the Loan
Agreement as amended hereby.
4.2 Except as expressly set forth herein, (i) the execution and
delivery of this Amendment shall in no way affect any right, power, or remedy
of Lender with respect to any Event of Default nor constitute a waiver of any
provision of the Loan Agreement or any of the Related Agreements, and
(ii) all terms and conditions of the Loan Agreement, the Related Agreements,
and all other documents, instrument, amendments, and agreements executed
and/or delivered by either or both of the Borrowers pursuant thereto or in
connection therewith shall remain in full force and effect and are hereby
ratified and confirmed in all respects. The execution and delivery of this
Amendment by Lender shall in no way obligate Lender, at any time hereafter,
to consent to any other amendment or modification of any term or provision of
the Loan Agreement or any of the Related Agreements.
5. Governing Law.
_____________ This Amendment shall be governed by and construed
in accordance with the internal laws (as opposed to conflicts of law
provisions) of the state of Illinois.
6. Headings.
________ Section headings in this Amendment are included herein
for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.
7. Counterparts.
____________ This Amendment may be executed by the parties hereto
on separate counterparts and each of said counterparts taken together shall
be deemed to constitute one and the same instrument.
OREMET.AM3:11911
2/15/96 -3-
<PAGE>
8. Expenses.
________ The Borrowers shall pay to the Lender all fees and
expenses incurred in the negotiation and preparation of this Amendment
(including the allocated costs of the Lender's in-house counsel).
IN WITNESS WHEREOF this Amendment has been duly executed as of the day
and year first written above.
OREGON METALLURGICAL CORPORATION
By: /s/ Dennis P. Kelly
________________________________________
Name: Dennis P. Kelly
______________________________________
Title: Vice President - Treasurer
_____________________________________
TITANIUM INDUSTRIES, INC.
By: /s/ Dennis P. Kelly
________________________________________
Name: Dennis P. Kelly
______________________________________
Title: Assistant Treasurer
_____________________________________
BANKAMERICA BUSINESS CREDIT, INC.
By: /s/ Margaret E. Lambka
________________________________________
Name: Margaret E. Lambka
______________________________________
Title: Vice President
_____________________________________
OREMET.AM3:11911
2/15/96 -4-
AMENDMENT NO. 4
TO
LOAN AND SECURITY AGREEMENT
WITH
OREGON METALLURGICAL CORPORATION
AND
TITANIUM INDUSTRIES, INC.
THIS AMENDMENT NO. 4 TO LOAN AND SECURITY AGREEMENT ("AMENDMENT") is
dated as of May 1st, 1996, by and between OREGON METALLURGICAL CORPORATION,
an Oregon corporation ("OREMET"), TITANIUM INDUSTRIES, INC., an Oregon
corporation formerly know as New TI, Inc. ("TI" and, together with OREMET
sometimes hereinafter referred to collectively as the "BORROWERS"), and
BANKAMERICA BUSINESS CREDIT, INC., a Delaware corporation ("LENDER"), as
successor-in-interest to Bank of America Illinois. Capitalized terms used
herein but not otherwise defined herein shall have the meanings assigned to
such terms in the "Loan Agreement" (as defined below).
WITNESSETH:
__________
WHEREAS, Borrowers and Lender have entered into that certain Loan and
Security Agreement dated as of September 19, 1994, as amended (the "THE LOAN
AGREEMENT"), pursuant to which Lender has agreed to make certain loans and
other financial accommodations to Borrowers; and
WHEREAS, Borrowers and Lender have agreed to further amend the Loan
Agreement, on the terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises set forth above, the
terms and conditions contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the respective parties hereto hereby agree as follows:
1. Amendment to Loan Agreement.
___________________________ Effective as of the date hereof, upon
satisfaction of the conditions precedent set forth in Section 2
_________ below, and in
reliance upon the representations and warranties of Borrowers set forth
herein, the Loan Agreement is hereby amended as follows:
1.1 Section 1 of the Loan Agreement
_______________________________ is hereby amended by deleting
items (10) and (19) under the definition of Eligible Account Receivable and
inserting in lieu thereof the following:
"(10) the Account Debtor with respect thereto is a resident
or citizen of, and is located within, the United States of America,
or the Account Debtor with respect thereto is a resident or citizen
of a foreign country ("Foreign Account Debtor), provided, however,
the Revolving Loans based on Eligible Account Receivables owing by
Foreign Account Debtors shall not exceed the lesser of
(i) $2,000,000 and (ii) ten percent (10%) of the Revolving Loans
based on all Eligible Account Receivables (excluding Eligible
Account Receivables owing by Foreign Account Debtors) and,
(OREMET.AM4)
5/15/96 -1-
<PAGE>
provided further, Lender reserves the right to approve the extension
of credit to each Foreign Account Debtor, individually.
(19) it is due and payable in full within sixty (60) days of
the date of the invoice evidencing such Account Receivable and is
not unpaid on the date that is ninety (90) days after the date of
such invoice; and"
1.2 Section 2.1.3 of the Loan Agreement
___________________________________ is hereby deleted in its
entirety and the following language is hereby substituted therefor:
"2.1.3 Maximum Outstanding Loans.
_________________________ Notwithstanding any
other provision of this Agreement, the aggregate outstanding
principal balance of the Loans plus Letter of Credit Obligations
shall not exceed at any time (A) in the case of OREMET, $27,000,000,
(B) in the case of TI $10,000,000, and (C) in the case of both
Borrowers in the aggregate, $35,000,000; provided, however,
________, _______ that the
foregoing shall not limit the right of Lender to advance Revolving
Loans to either of the Borrowers pursuant to the provisions of
Sections 2.2(b), 2.2(c), 2.2(e), 3.2(c), 5.5, 5.6, 7.4, 11.3, 11.4,
__________________________________________________________________
or any other provision of this Agreement or any Related Agreement
that permits Lender to advance Revolving Loans to such Borrower."
1.3 Section 2.15 of the Loan Agreement
__________________________________ is hereby amended by
deleting the first sentence of Section 2.15 and inserting in lieu thereof the
following:
"OREMET agrees to pay to Lender a fee equal to one-half
of one percent (0.5%) per annum on the daily average amount by
which $35,000,000 exceeds the aggregate outstanding principal
balance of the Revolving Loans plus the Letter of Credit
Obligations, in each case of each of the Borrowers."
1.4 Section 2.1 of Supplement A
___________________________ of the Loan Agreement is hereby
deleted and the following language is hereby substituted therefor:
"2.1 Revolving Credit Amounts.
________________________ The maximum amount of
Revolving Loans which Lender will make available to each Borrower
(such amount is hereinafter called, with respect to each Borrower,
such Borrower's `REVOLVING CREDIT AMOUNT') is (i) in the case of
OREMET, $27,000,000 and (ii) in the case of TI, $10,000,000 (in each
case, unless such amount is reduced or increased by Lender in its
sole discretion)."
1.5 Section 2.2 of Supplement A
___________________________ of the Loan Agreement is hereby
deleted and the following language is hereby substituted therefor:
"2.2 Borrowing Bases.
_______________ The term "Borrowing Base", as used
herein with respect to each Borrower, shall mean:
(i) an amount (with respect to each Borrower, such
Borrower's "Accounts Receivable Availability") of up
to eighty percent (80%) of the net amount (after
deduction of such reserves and allowances as Lender
deems proper and necessary) of such
(OREMET.AM4)
5/15/96 -2-
<PAGE>
Borrower's Eligible Accounts Receivable, plus
____
(ii) an amount of up to the least of:
(A) the sum of: (1) 50% of the net value (as
determined by Lender and after deduction of such
reserves and allowances as Lender deems proper
and necessary) of Eligible Inventory of such
Borrower consisting of finished goods; (2) in the
case of OREMET only, 50% of the net value (as
determined by Lender and after deduction of such
reserves and allowances as Lender deems proper
and necessary) of Eligible Inventory of such
Borrower consisting of green tag scrap, sponge,
tic14 alloys and mill products work-in-process;
and (3) in the case of OREMET only, 30% of the
net value (as determined by Lender and after
deduction of such reserves and allowances as
Lender deems proper and necessary) of Eligible
Inventory of such Borrower consisting of usable
remelt scrap;
(B) an amount equal to (1) in the case of OREMET,
$16,000,000 and (2) in the case of TI,
$5,000,000; or
(C) an amount (with respect to each Borrower) not
exceeding one hundred twenty percent (120%) at
any time of such Borrower's Accounts Receivable
Availability at such time."
1.6 Section 3.1 of Supplement A
___________________________ of the Loan Agreement is hereby
amended by deleting the words, "(i) the Liabilities to Net Worth Ratio is
equal to or greater than 1.00 to 1.00" and inserting in lieu thereof the
words, "(i) the Liabilities to Net Worth Ratio is equal to or greater than
1.25 to 1.00."
1.7 Section 4.1(a) of Supplement A
______________________________ of the Loan Agreement is hereby
deleted and the following language is hereby substituted therefor:
"(a) Not permit the Liabilities to Net Worth Ratio of
OREMET to exceed 1.25 to 1.00; and"
1.8 Section 4.3 of Supplement A
___________________________ of the Loan Agreement is hereby
deleted and the following language is hereby substituted therefor:
"4.3 Capital Expenditures.
____________________ Not, and not permit any
Subsidiary of such Borrower to, purchase or otherwise acquire
(including, without limitation, acquisition by way of Capitalized
Lease), or commit to purchase or otherwise acquire, any fixed asset
if, after giving effect to such purchase or other acquisition, the
aggregate cost of all fixed assets purchased or otherwise acquired
(i) by OREMET and
(OREMET.AM4)
5/15/96 -3-
<PAGE>
its Subsidiaries (other than TI and its Subsidiaries) on a
consolidated basis in any one fiscal year would exceed $7,000,000 or
(ii) by TI and its Subsidiaries on a consolidated basis in any one
fiscal year would exceed $500,000."
2. Conditions Precedent.
____________________ This Amendment shall become effective as of
the date hereof, upon the Lender's receipt of (a) this Amendment duly
executed and delivered, (b) a copy, duly certified by the secretary or
assistant secretary of each of the Borrowers of resolutions of the Executive
Committee of the Board of Directors or Board of Directors of such Borrower
authorizing this Amendment and (c) an Amendment Fee payable by OREMET in the
amount of $50,000, which Lender is authorized to charge to OREMET's loan
account.
3. Representations, Warranties, and Covenants.
__________________________________________
3.1 Each of the Borrowers hereby represents and warrants that:
(a) this Amendment and the Loan Agreement, as amended hereby,
constitute the legal, valid, and binding obligations of the respective
Borrowers and are enforceable against each of the Borrowers in accordance
with their respective terms;
(b) before and after giving effect to this Amendment, no
Unmatured Event of Default or Event of Default has occurred and is
continuing; and
(c) the execution and delivery by each of the Borrowers of
this Amendment does not require the consent or approval of any Person, other
than the Borrower.
3.2 Each of the Borrowers hereby reaffirms all agreements,
covenants, representations, and warranties made by such Borrower in the Loan
Agreement and each of the Related Agreements to the extent the same are not
amended hereby and agrees that all such agreements, covenants, representation
and warranties shall be deemed to have been remade as of the date hereof and
the effective date of this Amendment.
4. Reference to and Effect on the Loan Agreement and Related
_________________________________________________________
Agreements.
__________
4.1 Upon the effectiveness of this Amendment, each reference in
the Loan Agreement to "this Agreement," "hereunder," "hereof," "herein," or
words of like import, and each reference in each of the Related Agreements to
the "Loan Agreement," shall in each case mean and be a reference to the Loan
Agreement as amended hereby.
4.2 Except as expressly set forth herein, (i) the execution and
delivery of this Amendment shall in no way affect any right, power, or remedy
of Lender with respect to any Event of Default nor constitute a waiver of any
provision of the Loan Agreement or any of the Related Agreements, and
(ii) all terms and conditions of the Loan Agreement, the Related Agreements,
and all other documents, instrument, amendments, and agreements executed
and/or delivered by either or both of the Borrowers pursuant thereto or in
connection therewith shall remain in full force and effect and are hereby
ratified and confirmed in all respects. The execution and delivery of this
Amendment by Lender shall in no way obligate Lender, at any time hereafter,
to consent to any other amendment or
(OREMET.AM4)
5/15/96 -4-
<PAGE>
modification of any term or provision of the Loan Agreement or any of the
Related Agreements.
5. Governing Law.
_____________ This Amendment shall be governed by and construed
in accordance with the internal laws (as opposed to conflicts of law
provisions) of the state of Illinois.
6. Headings.
________ Section headings in this Amendment are included herein
for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.
7. Counterparts.
____________ This Amendment may be executed by the parties hereto
on separate counterparts and each of said counterparts taken together shall
be deemed to constitute one and the same instrument.
8. Expenses.
________ The Borrowers shall pay to the Lender all fees and
expenses incurred in the negotiation and preparation of this Amendment
(including the allocated costs of the Lender's in-house counsel).
IN WITNESS WHEREOF, this Amendment has been duly executed as of the day
and year first written above.
OREGON METALLURGICAL CORPORATION
By: /s/ Dennis P. Kelly
________________________________________
Name: Dennis P. Kelly
______________________________________
Title: Vice President - Finance
_____________________________________
TITANIUM INDUSTRIES, INC.
By: /s/ Dennis P. Kelly
________________________________________
Name: Dennis P. Kelly
______________________________________
Title: Assistant Treasurer
_____________________________________
BANKAMERICA BUSINESS CREDIT, INC.
By:
________________________________________
Name:
______________________________________
Title:
_____________________________________
(OREMET.AM4)
5/15/96 -5-
OREGON METALLURGICAL CORPORATION
EXHIBIT 11.1
Earnings per share computation
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
__________________ ________________
(in thousands except per share data)
1996 1995 1996 1995
____ ____ ____ ____
<S> <C> <C> <C> <C>
Net income $ 5,186 $ 453 $ 8,531 $ 988
======== ======== ======== ========
Weighted average shares
outstanding 11,316 10,908 11,187 10,902
Weighted average share
equivalents assumed
issued from Excess
Benefit Plan 76 118 92 128
Weighted average share
equivalents assumed issued
from exercise of warrants
and stock options 93 62 85 36
Weighted average share
equivalents assumed
issued as part of Employee
Compensation Plans 68 99 54 66
________ ________ ________ ________
Weighted average share and share
equivalents outstanding 11,553 11,187 11,418 11,132
======== ======== ======== ========
Net income (loss) per share $ 0.45 $ 0.04 $ 0.75 $ 0.09
======== ======== ======== ========
</TABLE>
Earnings per share computed on both the primary and fully diluted bases are
the same.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's report on Form 10-Q for the period ended June 30, 1996, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 1,071
<SECURITIES> 0
<RECEIVABLES> 36,604
<ALLOWANCES> (1,907)
<INVENTORY> 81,297
<CURRENT-ASSETS> 120,202
<PP&E> 102,862
<DEPRECIATION> (68,350)
<TOTAL-ASSETS> 156,152
<CURRENT-LIABILITIES> 37,489
<BONDS> 31,103
0
0
<COMMON> 11,417
<OTHER-SE> 68,471
<TOTAL-LIABILITY-AND-EQUITY> 156,152
<SALES> 110,069
<TOTAL-REVENUES> 110,069
<CGS> 85,440
<TOTAL-COSTS> 85,440
<OTHER-EXPENSES> 10,571
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,335
<INCOME-PRETAX> 12,723
<INCOME-TAX> 4,192
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,531
<EPS-PRIMARY> 0.75
<EPS-DILUTED> 0.75
</TABLE>
