<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________________
Commission file number 1-10319
-------
RMI TITANIUM COMPANY
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 31-0875005
------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1000 Warren Avenue, Niles, Ohio 44446
----------------------------------------
(Address of principal executive offices)
(216) 544-7700
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--------- ---------
At November 11, 1994, 15,271,561 shares of common stock of the registrant were
outstanding.
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RMI TITANIUM COMPANY
FORM 10-Q
QUARTER ENDED JUNE 30, 1994
<TABLE>
<CAPTION>
INDEX
Page
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Introduction to Financial Statements........ 2
Consolidated Statement of Operations........ 3
Consolidated Balance Sheet.................. 4
Consolidated Statement of Cash Flows........ 5
Consolidated Statement of Shareholders'
Equity...................................... 6
Selected Notes to Financial Statements...... 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations............................. 11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....... 17
Signatures...................................... 18
</TABLE>
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PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
- ------- --------------------
INTRODUCTION TO FINANCIAL STATEMENTS
------------------------------------
The consolidated financial statements included herein have been prepared by RMI
Titanium Company (the "Company"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. The financial
information presented reflects all adjustments, consisting only of normal
recurring adjustments, which are, in the opinion of management, necessary for a
fair statement of the results for the interim periods presented. The results
for the interim periods are not necessarily indicative of the results to be
expected for the year.
2
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<TABLE>
<CAPTION>
RMI TITANIUM COMPANY
Consolidated Statement of Operations
(Unaudited)
(Dollars in thousands)
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------------ -----------------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales.................................................. $32,842 $32,151 $104,539 $ 95,015
Operating costs:
Cost of sales.......................................... 31,846 32,696 102,323 94,494
Selling, general and
administrative expenses.............................. 2,479 2,249 7,202 7,177
Research, technical and product
development expenses................................. 501 330 1,231 1,108
------- ------- -------- --------
Total operating costs........................... 34,826 35,275 110,756 102,779
Operating loss......................................... (1,984) (3,124) (6,217) (7,764)
Other income (expense)-net............................. (121) 47 (120) 171
Interest expense....................................... (675) (739) (2,395) (1,982)
------- ------- -------- --------
Loss before income taxes
and cumulative effect of
change in accounting principle....................... (2,780) (3,816) (8,732) (9,575)
Provision for income taxes............................. -- (4) -- 1
------- ------- -------- --------
Loss before cumulative effect of
change in accounting principle....................... (2,780) (3,812) (8,732) (9,576)
Cumulative effect of change
in accounting principle.............................. -- -- (1,202) (16,938)
------- ------- -------- --------
Net loss............................................... $(2,780) $(3,812) $ (9,934) $(26,514)
======= ======= ======== ========
Net loss per common share-(Note 3):
Before cumulative effect of
change in accounting principle...................... $ (.21) $ (2.59) $ (1.59) $ (6.53)
Cumulative effect of change in
accounting principle................................ -- -- (0.22) $ (11.54)
------- ------- -------- --------
Net loss..................................... $ (.21) $ (2.59) $ (1.81) $ (18.07)
======= ======= ======== ========
Weighted average shares
outstanding......................................... 13,387,546 1,471,646 5,488,124 1,467,157
========== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of
these Consolidated Financial Statements.
3
<PAGE> 5
<TABLE>
<CAPTION>
RMI TITANIUM COMPANY
Consolidated Balance Sheet
(Dollars in Thousands)
(Unaudited)
September 30 December 31
1994 1993
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 128 $ 293
Receivables - less allowance for doubtful accounts of
$1,147 and $940........................................ 31,116 29,940
Inventories.............................................. 67,806 57,492
Other current assets..................................... 1,515 1,540
-------- --------
Total current assets................................... 100,565 89,265
-------- --------
Property, plant and equipment, net of accumulated
depreciation........................................... 50,443 54,956
Other noncurrent assets.................................. 8,583 8,250
-------- --------
Total assets.......................................... $159,591 $152,471
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt....................... $ 120 $ 120
Accounts payable........................................ 16,256 11,770
Accrued wages and other employee costs.................. 8,237 6,383
Other accrued liabilities............................... 2,563 4,673
-------- --------
Total current liabilities............................. 27,176 22,946
Long-term debt............................................. 51,670 66,660
Other employee benefit liabilities......................... 17,140 15,938
Noncurrent pension liabilities............................. 17,056 17,056
Other noncurrent liabilities............................... 2,010 2,010
-------- --------
Total liabilities..................................... 115,052 124,610
-------- --------
Contingencies (see Note 5).................................
Shareholders' equity:
Preferred Stock, no par value; 5,000,000 shares
authorized; no shares outstanding....................... -- --
Common Stock, $0.01 par value, 30,000,000 shares
authorized; 15,838,661 and 15,312,995 shares issued
(Note 3)................................................ 158 153
Additional paid-in capital (Note 3)...................... 151,058 124,578
Retained deficit......................................... (96,088) (86,154)
Deferred compensation.................................... -- (205)
Minimum pension liability adjustment..................... (7,520) (7,520)
Treasury Common Stock at cost 567,100 and 562,536 shares. (3,069) (2,991)
-------- --------
Total shareholders' equity................................. 44,539 27,861
-------- --------
Total liabilities and shareholders' equity............ $159,591 $152,471
======== ========
</TABLE>
The accompanying notes are an integral part of
these Consolidated Financial Statements.
4
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<TABLE>
<CAPTION>
RMI TITANIUM COMPANY
Consolidated Statement of Cash Flows
(Unaudited)
(Dollars in Thousands)
Nine Months Ended
September 30
------------------------
1994 1993
---- ----
<S> <C> <C>
CASH PROVIDED FROM (USED IN)
OPERATIONS:
Net loss................................................... $ (9,934) $(26,514)
Adjustment for items not affecting funds from operations:
Depreciation............................................. 4,676 4,861
Cumulative effect of change in accounting principle...... 1,202 16,938
Other-net................................................ 1,737 1,111
-------- -------
(2,319) (3,604)
-------- -------
Changes in assets and liabilities (excluding cash):
Receivables................................................ (2,375) (3,354)
Inventories................................................ (10,314) (2,633)
Accounts payable........................................... 4,486 1,657
Other current liabilities.................................. (526) 2,002
Other assets............................................... (136) (1,449)
Other-net.................................................. -- (551)
-------- --------
(8,865) (4,328)
Cash used in operating activities.................... (11,184) (7,932)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of facilities......................... 118 --
Capital expenditures..................................... (281) (801)
Investment in joint venture.............................. (172) (379)
-------- --------
Cash used in investing activities.................... (335) (1,180)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of Common Stock............... 26,422 --
Borrowings under credit agreements....................... 12,650 9,400
Debt repayments.......................................... (27,640) (90)
Common Stock repurchased................................. (78) (22)
-------- --------
Cash provided from financing activities.................. 11,354 9,288
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........... (165) 176
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........... $ 293 $ 270
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................. $ 128 $ 446
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest (net of amounts capitalized)........ $ 2,433 $ 1,893
======== ========
</TABLE>
The accompanying notes are an integral part of
these Consolidated Financial Statements.
5
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<TABLE>
<CAPTION>
RMI TITANIUM COMPANY
Consolidated Statement of Shareholders' Equity
(Unaudited)
(Dollars in Thousands)
Minimum
Add'tl. Retained Treasury Pension
Shares Common Deferred Paid-in Earnings Common Liability
Outstanding Stock Compensation Capital (Deficit) Stock Adjustment
----------- ------ ------------ ------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 14,604,384 $ 152 $(249) $124,306 $(57,261) $(2,969) $ (677)
Compensation expense recognized -- -- 245 -- -- -- --
Shares issued for Restricted
Stock Award Plans 122,700 1 (201) 200 -- -- --
Shares issued in lieu of
Directors' compensation 35,439 -- -- 72 -- -- --
Treasury common stock
purchases-at cost (12,064) -- -- -- -- (22) --
Minimum pension liability
adjustment -- -- -- -- -- -- (6,843)
Net loss -- -- -- -- (28,893) -- --
----------- ----- ----- -------- -------- ------- -------
Balance at December 31, 1993 14,750,459 153 (205) 124,578 (86,154) (2,991) (7,520)
Compensation expense recognized -- -- 205 -- -- -- --
One-for-ten reverse stock split
effective March 31, 1994
(Note 3) (13,275,414) (138) -- 138 -- -- --
Shares issued as result of
Rights Offering (Note 3) 13,775,057 143 -- 26,279 -- -- --
Shares issued in lieu of
Directors' Compensation 25,783 -- -- 59 -- -- --
Treasury Common Stock
purchased at cost (4,564) -- -- -- -- (78) --
Shares issued for Restricted
Stock Award Plans 240 -- -- 4 -- -- --
Net loss -- -- -- -- (9,934) -- --
----------- ----- ----- -------- -------- ------- -------
Balance at September 30, 1994 15,271,561 $ 158 $ -- $151,058 $(96,088) $(3,069) $(7,520)
=========== ===== ===== ======== ======== ======= =======
</TABLE>
The accompanying notes are an integral part of
these Consolidated Financial Statements.
6
<PAGE> 8
RMI TITANIUM COMPANY
SELECTED NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- GENERAL
The consolidated financial statements include the accounts of RMI
Titanium Company and its majority owned subsidiaries. All significant
intercompany transactions are eliminated. The Company's operations are
conducted primarily in one business segment, the production and marketing of
titanium metal and related products.
NOTE 2 -- ORGANIZATION
On April 20, 1990, Quantum Chemical Corporation ("Quantum") and USX
Corporation ("USX") transferred their 50% partnership interests in RMI Company
(the immediate predecessor of the Company) to the Company in exchange for
shares of the Company's common stock (the "Reorganization"). Concurrent with
the Reorganization, Quantum completed a sale of its shares of the Company's
common stock to the public. USX has retained its shares of the Company's
common stock. At September 30, 1994, approximately 54% of the Company's
outstanding common stock was owned by USX (see also Note 3).
NOTE 3 -- REVERSE STOCK SPLIT AND RIGHTS OFFERING
At its Annual Meeting held on March 31, 1994, the Company's shareholders
approved an amendment to the Articles of Incorporation of the Company,
effecting a one-for-ten reverse stock split. A Certificate of Amendment to the
Articles of Incorporation was filed with the Ohio Secretary of State on March
31, 1994, and the reverse split became effective on that date. Pursuant to the
reverse split, each certificate representing shares of common stock outstanding
immediately prior to the reverse split was deemed to represent one-tenth the
number of shares outstanding immediately prior to the reverse split. In order
to supplement its liquidity requirements and provide financing for new titanium
market opportunities, the Board of Directors determined that the Company should
seek to raise up to $30 million by means of a rights offering. Each record
holder of Common Stock at the close of business on June 24, 1994 received five
transferable rights for each share of Common Stock held of record on the record
date. Each right entitled the holder to purchase two shares of RMI Common
Stock for a price of $2.00 per share. The rights offering expired at July 22,
1994. As of the close of business July 22, 1994, approximately 93% of the
total number of rights distributed had been exercised. The exercise of the
rights has resulted in the issuance of 13,775,057 new shares of the Company's
Common Stock. Gross proceeds from the offering were $27.6 million. Net
proceeds increased Shareholders' Equity by approximately $26.4 million. As a
result of the rights offering, USX Corporation beneficially owns approximately
54% of the Company's Common Stock. However, in accordance with the provisions
of a voting trust agreement, USX has placed 1,319,175 shares of RMI stock into
the trust so that the shares of stock held by USX outside the trust do not
exceed the number of shares held by all other holders other than USX and its
affiliates. This arrangement results in USX having a direct voting interest in
RMI of approximately 46%.
7
<PAGE> 9
RMI TITANIUM COMPANY
SELECTED NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
Per share and weighted average share amounts reported herein have been adjusted
to reflect the reverse split and subsequent rights offering. Treasury Common
Stock was not affected by the reverse split or rights offering.
NOTE 4 -- NEW ACCOUNTING STANDARDS
Effective January 1, 1994 the Company adopted the provisions of
Statement of Financial Accounting Standards No. 112 ("SFAS 112"), "Employer's
Accounting for Postemployment Benefits." The results for the nine months ended
September 30, 1994 reflect a one-time charge of $1.2 million representing the
cumulative effect of adopting the new standard. The liabilities pursuant to
SFAS 112 relate principally to workers compensation. Effective January 1, 1993
the Company adopted the provisions of Statement of Financial Accounting
Standards No. 106 ("SFAS 106") "Employers' Accounting for Postretirement
Benefits Other than Pensions." The results for the nine months ended September
30, 1993 reflect a one-time charge of $16.9 million representing the cumulative
effect of recognizing the entire SFAS 106 transition obligation. Additionally,
effective January 1, 1993 the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income
Taxes." Prior to the adoption of SFAS 109, income tax expense was determined
under Statement of Financial Accounting Standards No. 96 ("SFAS 96"),
"Accounting for Income Taxes."
NOTE 5 - CONTINGENCIES:
The Company is involved in investigative or cleanup projects under
federal or state environmental laws at a number of waste disposal sites,
including the Fields Brook Superfund Site. Given the status of the proceedings
with respect to these sites, ultimate investigative and remediation costs
cannot presently be accurately predicted, but could, in the aggregate, be
material. Based on the information available regarding the current ranges of
estimated remediation costs at currently active sites, and what the Company
believes will be its ultimate share of such costs, provisions for
environmental-related costs have been recorded. These provisions are in
addition to amounts which have previously been accrued for the Company's share
of environmental study costs.
With regard to the Fields Brook Superfund Site, the Company, together
with 31 other companies, has been identified by the U. S. Environmental
Protection Agency ("EPA") as a potentially responsible party ("PRP") with
respect to a superfund site defined as the Fields Brook Watershed in Ashtabula,
Ohio, which includes the Company's now closed Ashtabula facilities. The EPA's
1986 estimate of the cost of remediation of the Fields Brook operable sediment
unit was $48 million. However, recent studies show the volume of sediment to
be substantially lower than projected in 1986. These studies, together with
improved remediation technology and redefined cleanup standards
8
<PAGE> 10
RMI TITANIUM COMPANY
SELECTED NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
have resulted in a more recent estimate of the remediation cost of
approximately $25 million. The actual cost of remediation may vary from the
estimate depending upon any number of factors.
The EPA, in March 1989, ordered 22 of the PRP's to conduct a design
phase study for the sediment operable unit and a source control study, which
studies are currently estimated to cost $19 million. The Company, working
cooperatively with fourteen others in accordance with two separate agreements,
is complying with the order. The Company has accrued and has been paying its
portion of the cost of complying with the EPA's order, which includes the
studies. It is anticipated that the studies will be completed no earlier than
mid 1996. Actual cleanup would not commence prior to that time. In connection
with the agreements referred to above, the cooperating companies entered into a
nonbinding arbitration process in an effort to allocate the Phase I (study)
costs among the group. In the final arbitrator's report dated October 11,
1994, the Company's share of the study costs were established at 9.95%. On
November 2, 1994, all 15 of the cooperating companies agreed to be bound by the
allocation recommendations of the arbitrator's report with respect to the study
costs. It is not possible to determine accurately the Company's cost or share
of any final allocation formula with respect to the actual cleanup; however,
based on the results of the allocation of the study costs referred to above,
the Company believes its share of the cleanup costs will be approximately
9.95%.
At September 30, 1994, the amount accrued for future
environmental-related costs was $2.7 million. Based on available information,
RMI believes its share of potential environmental-related costs, before
expected contributions from third parties, is approximately $4.0 million, in
the aggregate. The amount accrued is net of expected contributions from third
parties (other than insurers) of approximately $1.3 million, which the Company
believes are probable. The Company has been receiving contributions from such
third parties for a number of years as partial reimbursement for costs incurred
by the Company. As these proceedings continue toward final resolution, amounts
in excess of those already provided may be necessary to discharge the Company
from its obligations for these projects.
The Company is also the subject of, or a party to, a number of other
pending or threatened legal actions involving a variety of matters.
The ultimate resolution of these foregoing contingencies could,
individually or in the aggregate, be material to the consolidated financial
statements. However, management believes that the Company will remain a viable
and competitive enterprise even though it is possible that these matters could
be resolved unfavorably.
9
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RMI TITANIUM COMPANY
SELECTED NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6 -- INVENTORIES:
<TABLE>
<CAPTION>
(Dollars in thousands)
September 30, 1994 December 31,
(Unaudited) 1993
-------------- ----------
<S> <C> <C>
Raw material and supplies................................. $ 17,349 $ 18,366
Work-in-process and finished goods........................ 63,387 52,151
Adjustments to LIFO values................................ (12,930) (13,025)
-------- --------
$ 67,806 $ 57,492
======== ========
</TABLE>
Inventories are valued at cost as determined by the last-in, first-out
(LIFO) method which, in the aggregate, is lower than market. Inventory costs
generally include materials, labor costs and manufacturing overhead (including
depreciation).
Included in work-in-process are costs relating to a drilling riser
contract and a geothermal pipe contract, which are being accounted for as a
long-term contracts. Contract costs, plus estimated earnings, less progress
billings at September 30, 1994 and December 31, 1993 amounted to $6.9 million
and $1.3 million, respectively.
10
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The following discussion should be read in connection with the
information contained in the Consolidated Financial Statements and Selected
Notes to Financial Statements.
NET SALES
Net sales increased to $32.8 million, an increase of 2%, for the three
months ended September 30, 1994 compared to the corresponding 1993 period.
Sales for the nine months ended September 30, 1994 increased to $104.5 million
from $95.0 million from the same period in 1993, an increase of 10%. These
increases are due primarily to the recognition in 1994 of $2.8 million and $7.8
million in revenue under the titanium drilling riser contract for the three and
nine month periods ended September 30, 1994, respectively. Shipments of
titanium mill products in the three and nine months ended September 30, 1994
increased approximately 2% from comparable 1993 shipments. Because of a less
favorable product mix and a continuation of price competition, average selling
prices of mill products in the first nine months of 1994 decreased by
approximately 1% from average 1993 levels. However, the average selling price
for mill products in the third quarter of 1994 increased approximately 3% from
1993 levels.
GROSS PROFIT
Gross profit amounted to $1.0 million for the quarter ended September 30,
1994 compared to a loss of $.5 million for the quarter ended September 30,
1993. For the nine months ended September 30, 1994 gross profit amounted to
$2.2 million compared to $.5 in 1993. The 1994 results have been favorably
impacted by the titanium drilling riser contract.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses amounted to $2.5 million
for the quarter ended September 30, 1994 compared to $2.3 million in the third
quarter of 1993. Selling, general and administrative expenses amounted to $7.2
million for each of the nine months ended September 30, 1994 and 1993.
Research, technical and product development expenses amounted to $.5 million in
the third quarter of 1994 compared to $.3 million in the third quarter of
1993. Research, technical and product development expensed for the nine
months ended September 30, 1994 amounted to $1.2 million compared to $1.1
million for the comparable period in 1993.
OPERATING LOSS
The operating loss for the three months ended September 30, 1994 and 1993
amounted to $2.0 million and $3.1 million, respectively. The operating loss
for the nine months ended September 30, 1994 amounted to $6.2 million compared
to $7.8 million for the comparable period in 1993.
11
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
NET LOSS
Because of decreased levels of borrowings resulting from application of
proceeds from the rights offering referred to below partially offset by higher
overall interest rates, interest expense decreased by $64 thousand in the third
quarter of 1994 from the comparable period in 1993. Interest expense for the
nine months ended September 30, 1994 amounted to $2.4 million compared to $2.0
million in 1993.
Net loss for the first nine months of 1994 includes a one-time charge of
$1.2 million resulting from the cumulative effect of adopting SFAS No. 112.
The comparable 1993 period includes a one-time charge of $16.9 million
representing the cumulative effect of SFAS No. 106.
BUSINESS OUTLOOK - BACKLOG
Including the remainder of the titanium drilling riser contract, the
Company's total order backlog as of September 30, 1994 was approximately $61
million, compared to $71 million at December 31, 1993. As a result of soft
demand and competitive pressures, the average selling prices on incoming orders
for mill products have been depressed over the last several years. While
incoming orders during the third quarter of 1994 have showed a slight increase
in pricing, it is impossible to predict if this trend will continue into the
future. The Company believes a number of factors are responsible for this
situation. Among these factors are aggressive international competition,
declining military spending, lack of commercial airline profits, and an
uncertain world economy. Many aerospace contractors have adopted just-in-time
inventory practices or have demanded significantly shorter lead times. The
titanium industry is also suffering from excess production capacity, which has
intensified price competition for available business.
NEW DEVELOPMENTS
In November, 1994, the Company was awarded a three year contract to
supply all of the titanium pipe casing required for a geothermal facility in
the Imperial Valley of California. Work on the first phase of the contract
was commenced by the Company in September, 1994. Initial deliveries, valued in
excess of $7.0 million, will be made in the first half of 1995.
LIQUIDITY AND CAPITAL RESOURCES
Working capital amounted to $73.4 million at September 30, 1994 compared
to $66.3 million at December 31, 1993.
For the quarter ended September 30, 1994, the Company's cash flow
requirements for operating losses, capital spending and working capital needs
were funded primarily through borrowings under the
12
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Company's revolving credit agreement. Gross proceeds from the rights offering,
referred to below, were applied against the amounts outstanding under the
revolving credit agreement, which greatly expanded the amount of credit
available thereunder. The Company subsequently reborrowed amounts sufficient
to meet its working capital requirements, including the titanium drilling riser
and new geothermal pipe contract.
On June 13, 1994, the Company reached agreement with the participating
banks, on the terms of an amendment to the $75 million revolving credit
facility. The amendment establishes new financial covenants and relates the
maximum amount of credit available under the facility to a borrowing base
formula. Under the facility, the Company can borrow up to the lesser of $75
million or an amount equal to the sum of the products of the aggregate value of
each of various categories of collateral and an advance rate established by the
banks for each category of collateral, plus an available overadvance. Based on
the values of collateral at September 30, 1994, the Company is able to borrow
the entire $75 million available under the facility. The facility also
contains a covenant to maintain a minimum balance of total shareholders' equity
as of June 30, 1994 and at all times thereafter, based on the balance of total
shareholders' equity at December 31, 1993, as adjusted for new cash equity
investments as a result of the rights offering and certain noncash charges to
equity resulting from the application of certain mandated accounting standards
and other matters. Additionally, if USX were to cease to beneficially own at
least 48% of the Company's voting equity securities, the terms of the facility
would be subject to renegotiation and, in such event, failure by the Company
and the banks to reach agreement on appropriate amendments to the facility
could constitute an event of default.
The Company also received from the banks which are parties to the amended
credit facility a separate commitment to enter into a second revolving credit
facility providing for up to $15 million of borrowings, in addition to amounts
available under the amended credit facility. The second facility would permit
borrowings up to an amount determined pursuant to a borrowing base formula
substantially similar to that used for the amended credit facility, but which
would include only certain collateral related to, or arising out of, the
Company's export sales. The second facility is conditioned upon obtaining a
guarantee by the Export Import Bank of the United States of amounts outstanding
thereunder. The Company applied to the Export Import Bank for such a
guarantee. During October 1994, the Company received tentative approval from
the Export Import Bank for a $5 million guarantee. The Company is currently
negotiating the terms of a definitive agreement for the second revolving credit
facility with the participating banks and the Export Import Bank.
After application of the proceeds of the rights offering referred to
below, at September 30, 1994, the Company had borrowings of $50.7
13
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
million outstanding under the facility, compared to $65.5 at December 31, 1993.
In order to adequately finance development of the new markets while
meeting its current liquidity requirements, the Board of Directors determined
that the Company should seek to raise up to $30 million. The Company decided
to raise this amount through a rights offering to shareholders. In
contemplation of the rights offering, the Board of Directors of the Company
sought shareholders' approval at the Annual Meeting of Shareholders to amend
the Articles of Incorporation of the Company to effect a one-for-ten reverse
stock split.
The reverse split proposal was approved by an affirmative vote of
approximately 90% of the outstanding shares. A Certificate of Amendment to the
Articles of Incorporation was filed with the Ohio Secretary of State on March
31, 1994, and the reverse split became effective on that date. Pursuant to the
reverse split, each certificate representing shares of Common Stock outstanding
immediately prior to the reverse split is deemed to represent one-tenth the
number of shares outstanding immediately prior to the reverse split.
To implement the rights offering, each record holder of Common Stock at
the close of business on June 24, 1994 received five transferable rights for
each share of Common Stock held of record on the record date. Each right
entitled the holder to purchase two shares of RMI Titanium Common Stock for a
price of $2.00 per share. The rights offering expired at July 22, 1994. As of
the close of business July 22, 1994, approximately 93% of the total number of
rights distributed had been exercised. The exercise of the rights resulted in
the issuance of 13,755,057 new shares of the Company's Common Stock. Gross
proceeds from the offering were $27.6 million. After deducting all expenses of
the offering, net proceeds increased Shareholders' Equity by approximately
$26.4 million. As a result of the rights offering, USX Corporation
beneficially owns approximately 54% of the Company's Common Stock. However, in
accordance with the provisions of a voting trust agreement, USX has placed
1,319,175 shares of RMI Common Stock into the trust so that the shares of stock
held by USX outside the trust do not exceed the number of shares held by all
other holders other than USX and its affiliates. This arrangement results in
USX having a direct voting interest in RMI of approximately 46%.
ENVIRONMENTAL MATTERS
The Company is subject to pervasive environmental laws and regulations as
well as various health and safety laws and regulations that are subject to
frequent modifications and revisions. While the costs of compliance for these
matters have not had a material adverse impact on RMI in the past, it is
impossible to predict accurately the ultimate effect these changing laws and
14
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
regulations may have on the Company in the future. During 1994, the Company
spent approximately $.2 million for environmental-related expenditures.
The Company is involved in investigative or cleanup projects under
federal or state environmental laws at a number of waste disposal sites
including a Superfund site. Given the status of the proceedings with respect
to these sites, ultimate investigative and remediation costs cannot presently
be accurately predicted but could, in the aggregate, be material. Based on the
information available regarding the current ranges of estimated remediation
costs at currently active sites, and what the Company believes will be its
ultimate share of such costs, provisions for environmental cleanup costs have
been recorded. These provisions are in addition to amounts which have
previously been accrued for the Company's share of environmental study costs.
With regard to the Fields Brook Superfund Site, the Company, together
with 31 other companies, has been identified by the U. S. Environmental
Protection Agency ("EPA") as a potentially responsible party ("PRP") with
respect to a superfund site defined as the Fields Brook Watershed in Ashtabula,
Ohio, which includes the Company's now closed Ashtabula facilities. The EPA's
1986 estimate of the cost of remediation of the Fields Brook operable sediment
unit was $48 million. However, recent studies show the volume of sediment to
be substantially lower than projected in 1986. These studies, together with
improved remediation technology and redefined cleanup standards have resulted
in a more recent estimate of the remediation cost of approximately $25 million.
The actual cost of remediation may vary from the estimate depending upon any
number of factors.
The EPA, in March 1989, ordered 19 of the PRP's to conduct a design phase
study for the sediment operable unit and a source control study, which studies
are currently estimated to cost $19 million. The Company, working
cooperatively with fourteen others in accordance with two separate agreements,
is complying with the order. The Company has accrued and has been paying its
portion of the cost of complying with the EPA's order, which includes the
studies. It is anticipated that the studies will be completed no earlier than
mid 1996. Actual cleanup would not commence prior to that time. In connection
with the agreements referred to above, the cooperating companies entered into a
nonbinding arbitration process in an effort to allocate the Phase I (study)
costs among the group. In the final arbitrator's report dated October 11,
1994, the Company's share of the study costs were established at 9.95%. On
November 2, 1994, all 15 of the cooperating companies agreed to be bound by the
allocation recommendations of the arbitrator's report with respect to the study
costs. It is not possible to determine accurately the Company's cost or share
of any final allocation formula with respect to the actual cleanup; however,
based on the results of the allocation of the study costs referred to above,
the Company believes its share of the cleanup costs will be
15
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
approximately 9.95%.
At September 30, 1994, the amount accrued for future environment-related
costs was $2.7 million. Based on available information, RMI believes its share
of potential environmental-related costs, before expected contributions from
third parties, is approximately $4.0 million, in the aggregate. The amount
accrued is net of expected contributions from third parties (other than
insurers) of approximately $1.6 million, which the Company believes are
probable. The Company has been receiving contributions from such third parties
for a number of years as partial reimbursement for costs incurred by the
Company. As these proceedings continue toward final resolution, amounts in
excess of those already provided may be necessary to discharge the Company from
its obligations for these projects. In 1992, the EPA proposed a $1.4 million
civil penalty for alleged failure to comply with RCRA. The Company is
contesting the complaint. Based on the preliminary nature of the proceeding
the Company is currently unable to determine the ultimate liability, if any,
that may arise from this matter.
The ultimate resolution of these environmental matters could individually
or in the aggregate, be material to the consolidated financial statements.
However, management believes that the Company will remain a viable and
competitive enterprise even though it is possible that these matters could be
resolved unfavorably.
CAPITAL EXPENDITURES AND JOINT VENTURES
Capital expenditures for the nine months ended September 30, 1994 and
September 30, 1993 amounted to $.3 million and $.8 million, respectively. The
Company has budgeted capital spending of approximately $1.0 million for the
year 1994, which is comparable to actual spending for the year 1993. Although
reduced in order to conserve cash, the Company's capital spending levels are
adequate to maintain its facilities while continuing to improve product
quality. In addition, during the nine month periods ended September 30, 1994
and September 30, 1993, the Company invested $.2 million and $.4 million,
respectively, in its Norwegian joint venture.
16
<PAGE> 18
PART II -- OTHER INFORMATION
----------------------------
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27. Financial Data Schedule, filed herewith
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the
quarter ended September 30, 1994.
17
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RMI TITANIUM COMPANY
--------------------
(Registrant)
Date: November 14, 1994 By: /s/ T. G. RUPERT
------------------------
T. G. Rupert
Senior Vice President and
Chief Financial Officer
18
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