<PAGE> 1
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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, 1995
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
(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 9, 1995, 15,326,039 shares of common stock of the registrant
were outstanding.
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RMI TITANIUM COMPANY
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1995
INDEX
<TABLE>
<CAPTION>
PAGE
----
<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 Results of Operations and Financial
Conditions.......................................................................... 10
PART II--OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.............................................. 14
Signatures............................................................................ 15
</TABLE>
<PAGE> 3
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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RMI TITANIUM COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
-------------------- ----------------------
1995 1994 1995 1994
------- ------- -------- --------
<S> <C> <C> <C> <C>
Sales....................................... $42,912 $32,842 $122,636 $104,539
Operating costs:
Cost of sales............................... 40,022 31,846 116,777 102,323
Selling, general and administrative
expenses.................................. 2,407 2,479 7,495 7,202
Research, technical and product development
expenses.................................. 284 501 1,433 1,231
------- ------- -------- --------
Total operating costs.................. 42,713 34,826 125,705 110,756
Operating profit (loss)..................... 199 (1,984) (3,069) (6,217)
Other income (expense)-net.................. 66 (121) (1,640) (120)
Interest expense............................ (1,232) (675) (3,599) (2,395)
------- ------- -------- --------
Loss before income taxes and cumulative
effect of change in accounting
principle................................. (967) (2,780) (8,308) (8,732)
Provision for income taxes.................. -- -- -- --
------- ------- -------- --------
Loss before cumulative effect of change in
accounting principle...................... (967) (2,780) (8,308) (8,732)
Cumulative effect of change in accounting
principle................................. -- -- (5,031) (1,202)
------- ------- -------- --------
Net loss.................................... $ (967) $(2,780) $(13,339) $ (9,934)
======= ======= ======== ========
Net loss per common share-(Note 3):
Before cumulative effect of change in
accounting principle................. $ (0.06) $ (.21) $ (0.54) $ (1.59)
Cumulative effect of change in
accounting principle................. -- -- (0.33) $ (0.22)
------- ------- -------- --------
Net loss.......................... $ (0.06) $ (.21) $ (0.87) $ (1.81)
------- ------- -------- --------
Weighted average shares outstanding.... 15,322,209 13,387,546 15,288,827 5,488,124
========== ========== ========== =========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
3
<PAGE> 5
RMI TITANIUM COMPANY
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30 DECEMBER 31
1995 1994
-------------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................... $ 996 $ 385
Receivables--less allowance for doubtful accounts of $1,613
and $704.................................................... 38,844 28,846
Inventories.................................................. 71,349 72,466
Other current assets......................................... 1,788 1,674
---------- ---------
Total current assets.................................... 112,977 103,371
---------- ---------
Property, plant and equipment, net of accumulated
depreciation................................................ 41,168 50,016
Other noncurrent assets...................................... 6,469 7,423
---------- ---------
Total assets............................................ $ 160,614 $ 160,810
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt............................ $ 120 $ 120
Accounts payable............................................. 13,463 17,832
Accrued wages and other employee costs....................... 8,694 7,238
Other accrued liabilities.................................... 5,784 3,487
---------- ---------
Total current liabilities............................... 28,061 28,677
Long-term debt.................................................... 67,950 54,740
Accrued postretirement benefit cost............................... 17,286 17,286
Noncurrent pension liabilities.................................... 15,501 15,501
Other noncurrent liabilities...................................... 2,010 2,010
---------- ---------
Total liabilities....................................... 130,808 118,214
---------- ---------
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;
15,893,139 shares issued (Note 3)........................... 159 158
Additional paid-in capital................................... 151,606 151,058
Retained deficit............................................. (112,257) (98,918)
Minimum pension liability adjustment......................... (6,633) (6,633)
Treasury Common Stock at cost 567,100 shares................. (3,069) (3,069)
---------- ---------
Total shareholders' equity........................................ 29,806 42,596
---------- ---------
Total liabilities and shareholders' equity.............. $ 160,614 $ 160,810
========== =========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
4
<PAGE> 6
RMI TITANIUM COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
---------------------
1995 1994
-------- -------
<S> <C> <C>
CASH PROVIDED FROM (USED IN) OPERATIONS:
Net loss.............................................................. $(13,339) $(9,934)
Adjustment for items not affecting funds from operations:
Depreciation..................................................... 4,826 4,676
Cumulative effect of change in accounting principle.............. 5,031 1,202
Write-down of joint venture investment........................... 1,901 --
Compensation expense for stock appreciation rights............... 1,465 --
Other--net....................................................... 649 1,737
-------- -------
533 (2,319)
-------- -------
CHANGES IN ASSETS AND LIABILITIES (EXCLUDING CASH):
Receivables........................................................... (10,647) (2,375)
Inventories........................................................... 1,117 (10,314)
Accounts payable...................................................... (4,369) 4,486
Other current liabilities............................................. 2,837 (526)
Other assets.......................................................... (1,061) (136)
-------- -------
(12,123) (8,865)
-------- -------
Cash used in operating activities........................... (11,590) (11,184)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of facilities................................. 130 118
Capital expenditures............................................. (1,139) (281)
Investment in joint venture...................................... -- (172)
-------- -------
Cash used in investing activities........................... (1,009) (335)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of Common Stock....................... -- 26,422
Borrowings under credit agreements............................... 13,300 12,650
Debt repayments.................................................. (90) (27,640)
Common stock repurchased......................................... -- (78)
-------- -------
Cash provided from financing activities.......................... 13,210 11,354
-------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...................... 611 (165)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD...................... $ 385 $ 293
-------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 996 $ 128
======== =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest (net of amounts capitalized).............. $ 3,350 $ 2,433
======== =======
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
5
<PAGE> 7
RMI TITANIUM COMPANY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
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, 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.......................... -- -- -- -- (12,764) -- --
Excess minimum pension
liability....................... -- -- -- -- -- -- 887
---------- ----- ------ -------- --------- -------- ---------
Balance at December 31, 1994...... 15,271,561 $ 158 $ -- $151,058 $ (98,918) $(3,069) $ (6,633)
Shares issued from exercise of
employee stock options.......... 54,478 1 -- 548 -- -- --
Net loss.......................... -- -- -- -- (13,339) -- --
---------- ----- ------ -------- --------- -------- ---------
Balance at September 30, 1995..... 15,326,039 $ 159 $ -- $151,606 $(112,257) $(3,069) $ (6,633)
========== ===== ====== ======== ========= ======= =========
</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 in one
business segment, the production and marketing of titanium metal and related
products.
NOTE 2--ORGANIZATION
The Company is a successor to entities that have been operating in the
titanium industry since 1958. In 1990, USX Corporation ("USX") and Quantum
Chemical Corporation ("Quantum") transferred their entire ownership interests in
the Company's immediate predecessor, RMI Company, an Ohio general partnership,
to the Company in exchange for shares of the Company's Common Stock (the
"Reorganization"). Quantum then sold its shares to the public. USX retained
ownership of its shares. At September 30, 1995, approximately 52% of the
outstanding common stock was owned by USX. For additional information on the
Company's capital structure see 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 immediately after the reverse split. In order to supplement its financial
resources and provide financing for new titanium market opportunities, the Board
of Directors approved a rights offering to raise up to $30 million. 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. 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. Approximately 93% of the
total number of rights were exercised. The exercise of the rights 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. Following completion of the
rights offering, USX Corporation beneficially owned approximately 54% of the
Company's Common Stock (currently 52%). 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 number of shares of stock held by USX and its
affiliates outside the trust does not exceed the number of shares held by all
other holders. This arrangement results in USX having a direct voting interest
in RMI of approximately 44% at September 30, 1995.
NOTE 4--NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("SFAS No. 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
The new standard requires that certain longlived and intangible assets be
written down to fair value whenever an impairment review indicates that the
carrying value of the asset cannot be recovered.
During the quarter ended June 30, 1995, the Company elected to adopt SFAS
121. After completing a review of its assets, the Company impaired the value of
an asset which is being held for disposal consisting of design and engineering
work for a formerly proposed titanium tetrachloride facility. After the
impairment, the asset carrying value has been reduced to zero. In accordance
with the provisions of SFAS 121, the impairment
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has been reported as a cumulative effect of a change in accounting principle.
Accordingly, first quarter 1995 results have been restated as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31, 1995
---------------
<S> <C>
Loss before cumulative effect of change in accounting
principle............................................... $(1,863)
Cumulative effect of change in accounting principle....... (5,031)
-------
Net loss.................................................. $(6,894)
=======
Net loss per common share:
Before cumulative effect of change in accounting
principle............................................... $ (0.12)
Cumulative effect of change in accounting principle....... (0.33)
-------
Net loss.................................................. $ (0.45)
=======
</TABLE>
Effective January 1, 1994 the Company adopted the provisions of Statement
of Financial Accounting Standards No. 112 ("SFAS 112"), "Employers' Accounting
for Postemployment Benefits." The results for the three months ended March 31,
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.
NOTE 5--CONTINGENCIES
In the ordinary course of business, the Company is subject to pervasive
environmental laws and regulations concerning the production, handling, storage,
transportation, emission, and disposal of waste materials and is also subject to
other federal and state laws and regulations regarding health and safety
matters. These laws and regulations are constantly evolving, and it is not
currently possible to predict accurately the ultimate effect these laws and
regulations will have on the Company in the future.
On October 9, 1992 the U.S. Environmental Protection Agency ("EPA") filed a
complaint alleging certain violations of the Resource Conservation and Recovery
Act of 1976, as amended ("RCRA") at the Company's now closed Sodium Plant in
Ashtabula, Ohio. The USEPA's determination is based on information gathered
during inspections of the facility in February, March and June of 1991. Under
the complaint the USEPA proposes to assess a civil penalty of approximately $1.4
million for alleged failure to comply with RCRA. The Company is contesting the
complaint. It is the Company's position that it has complied with the provisions
of RCRA and that the EPA's assessment of penalties is inappropriate. A formal
hearing has been requested and informal discussions with the EPA to settle this
matter are ongoing. Based on the preliminary nature of the proceedings, the
Company is currently unable to determine the ultimate liability, if any, that
may arise from this matter.
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, have resulted in a more recent
estimate of the remediation cost of
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<PAGE> 10
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 PRPs 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. Three additional PRPs were added by
the EPA in 1994. 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 June 21, 1995, the Company and nine others
entered into a Phase 2 (actual cleanup) allocation agreement which assigns 9.44%
of the cost to RMI. However, the actual percentage may be more or less based on
contributions from other parties which are not currently participating in the
Phase 2 allocation agreement.
At September 30, 1995, the amount accrued for future environmental-related
costs was $2.4 million. Based on available information, RMI believes its share
of potential environmental-related costs, before expected contributions from
third parties, is in a range from $3.7 million to $6.3 million, in the
aggregate. The amount accrued is net of expected contributions from third
parties (other than insurers) of approximately $2.1 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.
NOTE 6--INVENTORIES:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
SEPTEMBER 30, 1995 DECEMBER 31,
(UNAUDITED) 1994
------------------- -------------
<S> <C> <C>
Raw material and supplies............................. $ 16,149 $ 13,825
Work-in-process and finished goods.................... 69,993 71,933
Adjustments to LIFO values............................ (14,793) (13,292)
--------- ---------
$ 71,349 $ 72,466
========= =========
</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 long-term contracts. Such
costs, net of amounts recognized to date, were $4.1 million at September 30,
1995 and $8.1 million at December 31, 1994.
9
<PAGE> 11
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 by $10.1 million, or 31%, for the three months ended
September 30, 1995 compared to the corresponding 1994 period. Sales for the nine
months ended September 30, 1995 increased to $122.6 million from $104.5 million
in the same period of 1994, an increase of 17%. These sales increases are due
primarily to increased sales of titanium mill products. Shipments of titanium
mill products for the three and nine month periods ended September 30, 1995
increased by 39% and 23%, respectively, from comparable 1994 shipment levels.
Average selling prices on mill products in the quarter ended September 30, 1995
increased by approximately 9% from the third quarter of 1994, while year-todate
average selling prices increased by approximately 8% from comparable period in
1994. Both volume and prices of incoming orders for titanium mill products
continue to show improvement from 1994 levels. Because of reduced government
funding levels, revenues under the Department of Energy ("DOE") remediation and
restoration contract decreased to $1.4 million in the third quarter of 1995
compared to $2.2 million in the third quarter of 1994. Revenues under the DOE
contract amounted to $4.6 million in the nine months ended September 30, 1995
compared to $7.2 million in the comparable 1994 period. Sales of hot formed
parts and cut shapes during the third quarter of 1995 increased to $4.4 million
from $4.0 million in the third quarter of 1994. Year-to-date sales of hot formed
parts increased to $13.0 million from $10.9 million in the first nine months of
1994, an increase of approximately 19%. With the completion of the titanium
drilling riser contract in March of 1995, sales related to long-term contracts
decreased to $2.2 million in the first nine months of 1995 compared to $7.8
million the first nine months of 1994.
GROSS PROFIT
Gross profit amounted to $2.9 million for the quarter ended September 30,
1995 compared to a gross profit of $1.0 million for the comparable 1994 period.
Gross profit for the nine months ended September 30, 1995 amounted to $5.9
million compared to $2.2 million in the comparable period of 1994. This
improvement results primarily from the increased volume and prices for titanium
mill products partially offset by decreased profits from the DOE remediation and
restoration contract, and reduced activity from long-term contracts. Gross
profit for the nine months ended September 30, 1995 was adversely affected by
approximately $.8 million of compensation expense related to stock appreciation
rights.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses amounted to $2.4 million in
the quarter ended September 30, 1995 compared to $2.5 million in the third
quarter of 1994. Selling, general and administrative expenses for the nine
months ended September 30, 1995 amounted to $7.5 million compared to $7.2
million in the comparable 1994 period. Research, technical and product
development expenses amounted to $0.3 million in the third quarter of 1995
compared to $0.4 million in the third quarter of 1994. Research, technical and
product development expenses for the first nine months of 1995 amounted to $1.4
million compared to $1.2 million in the first nine months of 1994. Selling,
general and administrative expenses together with research, technical and
product development expenses for the nine months ended September 30, 1995
reflect $0.6 million of compensation expense for stock appreciation rights in
connection with the Company's stock option incentive plan.
OPERATING LOSS
The operating profit for the three months ended September 30, 1995 was $0.2
million compared to an operating loss of $2.0 million in the third quarter of
1994. The operating loss for the nine months ended September 30, 1995 was $3.1
million compared to $6.2 million in the comparable period of 1994. The
10
<PAGE> 12
operating loss in the nine months ended September 30, 1995 was adversely
effected by $1.4 million of compensation expense related to stock appreciation
rights.
OTHER INCOME (EXPENSE)
Other income (expense) for the nine months ended September 30, 1995
includes a $1.9 million impairment of the Company's investment in the Permipipe
Titanium AS joint venture.
INTEREST EXPENSE
Because of overall interest rates and borrowing levels, interest expense
increased to $1.2 million in the third quarter of 1995 from $0.7 million in the
third quarter of 1994. Year-to-date interest expense increased to $3.6 million
in 1995 from $2.4 million in 1994.
NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("SFAS No. 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
SFAS No. 121 requires that certain long-lived and intangible assets be written
down to fair value whenever an impairment review indicates that the carrying
value cannot be recovered on an undiscounted cash flow basis. After completing a
review of its assets, the Company elected to adopt SFAS 121 in the second
quarter of 1995, recording a $5.0 million noncash impairment of an asset which
is being held by the Company for disposal consisting of design and engineering
work for a formerly proposed titanium tetrachloride facility. In accordance with
the provisions of SFAS 121, the impairment of the asset held for disposal has
been recorded as a cumulative effect of a change in accounting principle.
Accordingly, first quarter 1995 results were restated to reflect adoption of
SFAS 121 as of the beginning of the year.
NET LOSS
The net loss for the quarter ended September 30, 1995 amounted to $1.0
million compared to a net loss of $2.8 million in the comparable 1994 period.
The net loss for the first nine months of 1995 amounted to $13.3 million
compared to $9.9 in the first nine months of 1994. The loss for the nine months
ended September 30, 1995 reflects the $1.4 million charge for stock appreciation
rights, a $1.9 million charge for impairment of the Company's investment in
Permipipe Titanium AS, and a $5.0 million unfavorable cumulative effect of
adopting SFAS No. 121. The net loss for the nine months ended September 30, 1994
includes the cumulative effect of adopting SFAS No. 112.
OUTLOOK
The Company's total backlog as of September 30, 1995 was approximately $110
million, compared to $67 million at December 31, 1994. The Company has
experienced an increase in mill product orders at increased prices. During the
second half of 1994 and through the third quarter of 1995, aerospace customers
began to replace inventories that had been depleted below working levels.
Additionally, manufacturers of commercial aircraft have forecasted increased
build rates for certain aircraft scheduled for delivery in 1996 and later.
Because of the long manufacturing lead times, orders for materials, including
titanium, would be expected to be placed 12 to 18 months in advance. At the
present time, the Company currently anticipates that the increased demand and
improved pricing for mill products will continue throughout 1995 and into 1996.
The Company has experienced upward pressure on prices for raw materials,
including titanium sponge and scrap. The Company, and others, have announced the
imposition of surcharges and adjusted prices, where appropriate, to recover
these increased costs. As market conditions have improved, the Company has
announced general price increases for mill products.
In an effort to lessen its dependence on the aerospace market and to
increase its participation in commercial applications, the Company has devoted
significant efforts to developing applications and markets in the energy
extraction and chemical process industries. In addition to the contract to
produce the world's first all titanium drilling riser for Conoco Norway, which
was successfully completed in the first quarter of 1995,
11
<PAGE> 13
the Company has obtained a three year contract to supply all of the titanium
pipe casing required by MAGMA Operating Company for a geothermal energy
facility. The Company is currently working with other companies to develop and
expand opportunities for titanium in the energy field.
The Company and its partner Permascand AB of Sweden announced on June 30,
1995 a decision to discontinue the operation of Permipipe Titanium AS, their
joint venture welded pipe operation in Norway. The facility was designed to
produce high-quality welded pipe and related components of titanium primarily
for offshore Norwegian oil and gas projects. RMI will service this emerging
market from its other manufacturing facilities, and will continue to focus its
efforts on energy-related products and markets.
On September 30, 1995, the Company reached a tentative labor agreement with
The United Steelworkers of America Local #2155 which represents production and
maintenance workers at the Niles, Ohio production facility. However, the
agreement failed a ratification vote and a work stoppage commenced October 2,
1995. On October 7, 1995 the Union ratified the terms of a new three year
agreement ending the work stoppage. The terms of the new agreement call for
improvements in both wages and benefits. Neither the work stoppage or the
provisions of the new labor agreement are expected to have a material adverse
effect on the Company's operations or overall financial position.
LIQUIDITY AND CAPITAL RESOURCES
Working capital amounted to $84.9 million at September 30, 1995 compared to
$74.7 million at December 31, 1994.
For the quarter ended September 30, 1995, the Company's cash flow
requirements for capital spending and working capital needs were funded
primarily from borrowings under the Company's revolving credit facility and cash
from operations.
On May 3, 1995, the Company reached agreement with the participating banks
on the terms of an amendment to the $75 million revolving credit facility. The
amendment extends the term of the agreement to March 31, 1997 along with
modifying an existing financial covenant for the requirement of a minimum
balance of total shareholders' equity, and the imposition of a borrowing base
formula. The agreement also provides for payment of increased fees and borrowing
rates.
The Company has also reached agreement with the banks which are parties to
the amended revolving credit facility on the terms of a second revolving credit
facility providing for up to an additional $5 million of borrowings. The second
facility permits borrowings up to an amount determined pursuant to a borrowing
base formula which includes only certain collateral related to, or arising out
of, the Company's export sales. The second facility, which matures September 26,
1996, is guaranteed by the Export Import Bank of the United States.
At September 30, 1995, the Company had $62.1 million outstanding under the
$75 million revolving credit facility, and $5.0 million under the foreign
collateral facility.
Capital expenditures for the nine months ended September 30, 1995 and 1994
amounted to $1.1 million and $0.2 million, respectively. The Company has
budgeted total capital spending for 1995 of $1.3 million compared to total
capital spending of $1.0 million in 1994.
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
regulations may have on the Company in the future.
At September 30, 1995, the amount accrued for future environment-related
costs was $2.4 million. Based on available information, RMI believes its share
of potential environmental-related costs, before expected contributions from
third parties, is in a range from $3.7 million to $6.3 million, in the
aggregate. The amount
12
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accrued is net of expected contributions from third parties (other than
insurers) of approximately $2.1 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.
13
<PAGE> 15
PART II--OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
Reports on Form 8-K filed by the Registrant for the quarter ended
September 30, 1995.
None.
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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 10, 1995
By: /s/ T. G. RUPERT
-------------------------------
T. G. Rupert
Senior Vice President and Chief
Financial Officer
15
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