<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 2, 1996
REGISTRATION NO. 333-01553
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 4
TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------
RMI TITANIUM COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OHIO 31-0875005
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1000 WARREN AVENUE, NILES, OHIO 44446 (330) 544-7604
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
TIMOTHY G. RUPERT
SENIOR VICE PRESIDENT & CHIEF FINANCIAL OFFICER
1000 WARREN AVENUE
NILES, OHIO 44446
(330) 544-7700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
R. E. HILTON, ESQ. RAYMOND W. WAGNER, ESQ.
ASSISTANT GENERAL COUNSEL--U.S. STEEL GROUP SIMPSON THACHER & BARTLETT
USX CORPORATION 425 LEXINGTON AVENUE
600 GRANT STREET NEW YORK, NEW YORK 10017
PITTSBURGH, PENNSYLVANIA 15219-4776 (212) 455-2568
(412) 433-2868
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Amount Maximum Maximum Amount of
Title of each class of to be Offering Price Aggregate Registration
Securities to be Registered Registered(2) Per Unit(1) Offering Price(1)(2) Fee(3)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share.............. 6,900,000 shares $20.19 $139,311,000 $35,048
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933.
(2) Includes shares of Common Stock that the Underwriters have the option to
purchase solely to cover over-allotment options, if any.
(3) $19,035 previously paid with respect to 4,600,000 shares of Common Stock
based on a proposed maximum offering price per unit of $12.00 calculated in
accordance with Rule 457 under the Securities Act of 1933.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
PROSPECTUS
6,000,000 Shares
LOGO
Common Stock
---------------------------
Of the 6,000,000 shares of common stock, par value $.01 per share (the
"Common Stock") of RMI Titanium Company (the "Company" or "RMI") offered hereby,
4,000,000 shares are being sold by the Company and 2,000,000 shares are being
sold by USX Corporation ("USX" or the "Selling Shareholder"). The Company will
not receive any of the proceeds from the sale of Common Stock by the Selling
Shareholder. Upon completion of the sale of Common Stock offered hereby, the
Selling Shareholder, which owns approximately 51% of the currently outstanding
Common Stock, will own approximately 30% of the Company's outstanding Common
Stock (27% if the Underwriters' over-allotment option is exercised in full). See
"Selling Shareholder."
The Common Stock is traded on the New York Stock Exchange, Inc. ("NYSE")
under the symbol "RTI." On May 1, 1996, the last reported sale price of the
Common Stock on the NYSE Composite Tape was $19.75 per share. See "Price Range
of Common Stock and Dividends."
---------------------------
SEE "RISK FACTORS" ON PAGES 9 THROUGH 13 FOR A DISCUSSION OF CERTAIN RISKS
WHICH SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=================================================================================================================
PROCEEDS
UNDERWRITING TO THE
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDER(3)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............................. $18.50 $.95 $17.55 $17.55
- -----------------------------------------------------------------------------------------------------------------
Total(4).............................. $111,000,000 $5,700,000 $70,200,000 $35,100,000
=================================================================================================================
</TABLE>
(1) RMI and the Selling Shareholder have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by RMI estimated at $335,000.
(3) Before deducting expenses payable by the Selling Shareholder estimated at
$165,000.
(4) RMI and the Selling Shareholder have granted the Underwriters a 30-day
option to purchase up to 600,000 additional shares of Common Stock and
300,000 additional shares of Common Stock, respectively, on the same
terms and conditions as set forth above solely to cover over-allotments,
if any. If such option is exercised in full, the Total Price to Public,
Underwriting Discounts and Commissions, Proceeds to Company and Proceeds
to the Selling Shareholder will be $127,650,000, $6,555,000, $80,730,000
and $40,365,000, respectively. See "Underwriting."
---------------------------
The shares of Common Stock offered by this Prospectus are offered by the
Underwriters subject to prior sale, to withdrawal, cancellation or modification
of the offer without notice, to delivery to and acceptance by the Underwriters
and to certain further conditions. It is expected that delivery of the shares
will be made at the offices of Lehman Brothers Inc., New York, New York on or
about May 7, 1996.
---------------------------
LEHMAN BROTHERS SALOMON BROTHERS INC
May 2, 1996
<PAGE> 3
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NYSE, IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
RMI is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith,
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy and information
statements and other information filed by RMI can be inspected and copied at
prescribed rates at the Public Reference Section of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the public
reference facilities maintained by the Commission at Seven World Trade Center,
New York, New York 10048, and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. The Common Stock is listed on the NYSE, and such
reports, proxy statements and other information can also be inspected at the
offices of the NYSE, 20 Broad Street, New York, New York 10005.
RMI has filed a Registration Statement on Form S-3 (the "Registration
Statement") with the Commission pursuant to the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the shares of Common Stock
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement and the exhibits thereto, to which reference is
hereby made.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by RMI with the Commission (file
no. 1-10319) are incorporated herein by reference:
(a) Annual Report on Form 10-K for the year ended December 31, 1995, as
amended by Form 10-K/A filed on April 29, 1996.
(b) The description of the Registrant's Common Stock contained in the
Registration Statement of RMI on Form 8-A filed on September 1, 1989.
All documents filed by RMI pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date of this Prospectus and prior to the
termination of the offering of the Common Stock offered hereby shall be deemed
to be incorporated by reference into this Prospectus and to be a part hereof
from the respective dates of filing of such documents. Any statement contained
in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein or in any other subsequently filed
document which also is incorporated or deemed to be incorporated by reference
herein modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
RMI undertakes to provide without charge to each person, including any
beneficial owner, to whom a Prospectus is delivered, on the written or oral
request of such person, a copy of any or all of the information incorporated by
reference in this Prospectus, other than exhibits to such information (unless
such exhibits are specifically incorporated by reference into the information
that this Prospectus incorporates). Requests for such copies should be directed
to the Director-Investor Relations, RMI Titanium Company, 1000 Warren Avenue,
Niles, Ohio 44446 (telephone 330-544-7622).
------------------------
As used in this Prospectus, the terms "RMI" and "Company" mean RMI Titanium
Company, its predecessors and consolidated subsidiaries, taken as a whole,
unless the context indicates otherwise.
3
<PAGE> 4
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information set forth elsewhere or incorporated by reference in this
Prospectus. Unless otherwise indicated, all information in this Prospectus (1)
has been adjusted to give effect to RMI's one-for-ten reverse split of Common
Stock on March 31, 1994 and (2) assumes no exercise of the Underwriters'
over-allotment option. This Prospectus contains forward-looking statements which
involve certain risks and uncertainties. Actual results and events may differ
significantly from those discussed in the forward-looking statements. Factors
that might cause such a difference include, but are not limited to, those
discussed in "Risk Factors."
THE COMPANY
RMI is a leading U.S. producer of titanium mill and fabricated products for
the global market. The Company's mill products, which include ingot, slab,
bloom, billet, bar, plate, sheet, strip and welded tube, are processed by RMI's
customers to provide products for use in the aerospace industry and other
industrial markets, including, most recently, golf club manufacturing. The
Company's fabricated products, which include pipe, tube and cut shapes, are used
primarily in the aerospace, oil and gas, geothermal energy production and
chemical process industries as well as for a number of other industrial
applications. Sales to the commercial and military aerospace industries
accounted for approximately 53% and 15%, respectively, of RMI's 1995 sales. In
1995, RMI reported sales of $171.2 million, an operating loss of $5.2 million
(including a $5.0 million asset impairment charge) and a net loss of $4.6
million (which reflects a $7.2 million tax benefit and such charge). During the
fourth quarter of 1995, RMI reported sales of $48.5 million, operating income of
$2.9 million and net income of $8.7 million (which reflects the $7.2 million tax
benefit), the first fiscal quarter since 1991 in which RMI has reported
operating profit and net income. During the first quarter of 1996, RMI reported
sales of $54.6 million, operating income of $6.4 million and net income of $4.6
million. The foregoing quarterly data is unaudited.
Titanium is one of the newest industrial metals. Its physical
characteristics include high strength-to-weight ratio, high temperature
performance and superior corrosion and erosion resistance. Titanium is extracted
from ore through a chemical reduction process to form titanium sponge, a porous
metallic material which is purchased by RMI and melted, along with titanium
scrap and various alloying agents, to form ingots. Ingots are then converted
into various mill product shapes and fabricated products.
Historically, commercial and military aerospace have been the major markets
for RMI as sophisticated aircraft have required high performance metals such as
titanium for use in bulkheads, tail sections, wing supports and various engine
components and other sub-assemblies. Based on data of the U.S. Geological Survey
(including its predecessor agency, the U.S. Bureau of Mines, the "USGS"), total
domestic titanium industry mill product shipments declined from 55 million
pounds in 1989 to 34 million pounds in 1991. Such shipments only recovered
modestly during the years 1991 through 1994. This pattern reflected a sharp
decline in military aerospace consumption, which continues to the present, and a
decline in commercial aircraft build rates which continued through the first
half of 1995. See "Business--Industry Overview."
In 1995, most major U.S. airline carriers reported stronger operating
profits and in the second half of 1995 aircraft manufacturers began to increase
aircraft build rates. The firm order backlog for Boeing, McDonnell Douglas and
Airbus Industrie, as reported by The Airline Monitor, increased to 1,869 planes
at year end 1995 from 1,742 planes at year end 1994 and includes a significant
number of wide body designs which have higher titanium requirements. RMI sells
titanium products to each of such aircraft manufacturers and to subcontractors
in the commercial aerospace industry. No single customer of RMI accounted for
more than 10% of RMI's sales in any of its last three fiscal years.
The use of titanium in golf clubs emerged in 1995 as an important
nonaerospace market for the titanium industry. Management believes this market
accounted for approximately 8% of U.S. titanium industry mill product shipments
in 1995. Almost every major golf club manufacturer, including Callaway,
Cleveland, Cobra, Lynx, Taylor Made, Titleist and Tommy Armour, is currently
marketing a titanium driver, and several of the major manufacturers are using
titanium in club heads for other clubs, including woods, irons and
4
<PAGE> 5
putters. Certain golf club manufacturing companies have introduced full sets of
titanium golf clubs. In response to this market demand, a number of golf club
head casting companies have announced expansions of their titanium golf club
head production facilities. The Company sells titanium mill products directly to
golf club head casting companies who, in turn, sell their products to major golf
club manufacturers. The golf club market also benefits RMI indirectly by
increasing prices for titanium mill products industry-wide.
The increase in aircraft build rates and the emergence of the golf club
market in 1995 have resulted in increased demand for titanium mill products.
Based on USGS data, U.S. industry mill product shipments in 1995 were 44 million
pounds, an increase of 26% compared to 1994. RMI estimates that U.S. industry
mill product shipments to the commercial aerospace market in 1995 were
approximately 20 million pounds, 18% higher compared to 1994, and that 1995 U.S.
industry mill product shipments to the golf club market were approximately 3.5
million pounds. Although no assurance can be provided, based on current market
conditions, management believes that 1996 U.S. industry mill product shipments
to the commercial aerospace market will increase to 23 million pounds and that
shipments to the golf club market will increase to 8 million pounds. See "Risk
Factors--Dependence on Cyclical Aerospace Markets" and "--No Assurances as to
New Product and Market Development."
RMI's shipments of titanium mill products in 1995 were approximately 14.4
million pounds, an increase of 26% compared to 1994. RMI's average realized mill
product sales price increased to $10.23 per pound in 1995, 6% higher than in
1994, and to $11.31 per pound in the first quarter of 1996 as demand from the
commercial aerospace and golf club markets continued to strengthen. Reflecting
these trends, RMI's order backlog increased to $194 million at March 31, 1996
from $134 million at year-end 1995, $83 million at June 30, 1995 and $67 million
at year-end 1994. As of March 31, 1996, orders for over 90% of RMI's anticipated
1996 shipments had been booked or shipped. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Outlook."
RMI's strategy is to build on its leading position in the worldwide
titanium industry while maintaining a strong financial condition and stringent
quality, safety and environmental standards. RMI is emphasizing higher margin
products in its traditional markets, while continuing to develop new markets and
products such as seamless tubulars for oil and gas and geothermal energy
production and the use of billet for golf club applications. Sales to the oil
and gas and geothermal energy production industries were 3% of RMI's sales in
1995 compared to 9% in 1994, the last year RMI received revenues under the
titanium drilling riser contract referred to below. Sales to the emerging golf
club market were less than 1% of RMI's sales in 1995 and 1994. See "Risk
Factors--No Assurances as to New Product and Market Development."
As part of its strategy and in response to the depressed industry
conditions that existed in 1991, RMI closed facilities and began to develop new
markets for titanium. RMI completed delivery in 1995 of the world's first
titanium drilling riser for the Conoco Heidrun project in the North Sea, one of
the world's largest floating, deep-water oil and gas production platforms. The
Company has also entered into a three-year contract to supply seamless titanium
pipe for a number of geothermal energy production facilities in California. In
addition, RMI has entered into several cooperative ventures to encourage and
develop titanium products for use in the oil and gas industry, including a
teaming arrangement to market, engineer, fabricate and install titanium
production risers, flow lines and other titanium subsea systems.
RMI's principal manufacturing plant is located in Niles, Ohio. Other
manufacturing operations are located in Ashtabula, Ohio; Hermitage,
Pennsylvania; Sullivan and Washington, Missouri; and Salt Lake City, Utah. RMI's
equipment, facilities and its products meet the most stringent quality
standards, including ISO-9002. RMI's products are marketed worldwide through its
own sales organization and a network of independent distributors.
RMI's principal executive offices are located at 1000 Warren Avenue, Niles,
Ohio 44446, and its telephone number is (330) 544-7622.
5
<PAGE> 6
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the
Company: 4,000,000 shares(1)
Common Stock Offered by the
Selling Shareholder: 2,000,000 shares(2)
Common Stock to be Outstanding
after the Offering: 19,443,876 shares(3)
Use of Proceeds: The net proceeds to the Company from the sale of the
shares of Common Stock offered hereby by the Company
(after deducting underwriting discounts and
commissions and offering expenses) to be approximately
$69.9 million (approximately $80.4 million if the
Underwriters' over-allotment option is exercised in full),
based on the offering price of $18.50 per share. The
Company intends to use the net proceeds to repay
outstanding indebtedness under the Existing Credit
Facilities (as defined herein) and to use the amount of
such proceeds in excess of such of indebtedness for
general corporate purposes. As of March 31, 1996, the
Company had approximately $63.9 million of indebtedness
outstanding under the Existing Credit Facilities with a
weighted average interest rate of 7.28%. The Company will
not receive any proceeds from the sale of Common Stock by
the Selling Shareholder. See "Use of Proceeds."
NYSE Symbol...................... RTI
</TABLE>
- ---------
(1) 4,600,000 shares if the Underwriters' over-allotment option is exercised in
full.
(2) 2,300,000 shares if the Underwriters' over-allotment option is exercised in
full.
(3) Based on the number of shares outstanding as of March 31, 1996. Excludes
562,189 shares of Common Stock issuable upon the exercise of employee stock
options and shares to be sold by the Company subject to the Underwriters'
over-allotment option.
RISK FACTORS
Prospective purchasers of shares of the Common Stock offered hereby should
carefully consider the factors set forth in "Risk Factors."
6
<PAGE> 7
RMI TITANIUM COMPANY
SUMMARY SELECTED FINANCIAL INFORMATION
The following summary selected financial information has been derived from
the Consolidated Financial Statements of RMI for each of the five years during
the period ended December 31, 1995. The information set forth below should be
read in connection with the Consolidated Financial Statements included elsewhere
herein and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE AND PRICE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales:
Commercial aerospace.................. $ 91,117 $ 54,366 $ 56,059 $ 68,872 $ 87,187
Military aerospace.................... 26,174 23,869 24,238 25,629 30,099
Nonaerospace.......................... 53,875 65,157 47,100 41,106 48,282
-------- -------- -------- -------- --------
Total sales....................... 171,166 143,392 127,397 135,607 165,568
Operating loss.......................... (5,220) (7,971) (10,764) (11,387) (52,712)
Operating loss includes:
Asset impairment charge............. 5,031 -- -- -- --
Plant closure costs................. -- -- -- -- 37,123
Loss before cumulative effect of change
in accounting principle............... (4,608)(1) (11,562) (11,955) (14,062) (57,085)
Cumulative effect of change in
accounting principle.................. -- (1,202)(2) (16,938)(3) -- --
Net loss................................ (4,608)(1) (12,764) (28,893) (14,062) (57,085)
Net loss per common share before
cumulative effect of change in
accounting principle.................. $ (0.30)(1) $ (1.45) $ (8.14) $ (9.66) $ (39.17)
Net loss per common share............... (0.30)(1) (1.60) (19.67) (9.66) (39.17)
Cash dividends per common share......... -- -- -- -- .75
BALANCE SHEET DATA: (at end of period)
Working capital......................... $ 86,738 $ 74,694 $ 66,319 $ 72,229 $ 79,820
Total assets............................ 171,559 160,810 152,471 153,257 173,888
Long-term debt.......................... 64,020 54,740 66,660 62,280 58,800
Total shareholders' equity.............. 36,889 42,596 27,861 63,302 77,705
OPERATING AND OTHER FINANCIAL DATA:
Sales:
Mill products......................... $138,077 $103,790 $ 96,453 $110,509 $128,803
Fabricated products and other
services............................ 26,904 31,134 20,512 16,745 17,260
Other(4).............................. 6,185 8,468 10,432 8,353 19,505
-------- -------- -------- -------- --------
Total sales....................... $171,166 $143,392 $127,397 $135,607 $165,568
Mill product shipments
(thousands of pounds):
Aerospace............................. 10,526 8,109 7,619 8,699 9,379
Nonaerospace.......................... 3,884 3,370 3,406 2,585 1,938
-------- -------- -------- -------- --------
Total shipments................... 14,410 11,479 11,025 11,284 11,317
Average realized mill product sales
price (per pound)..................... $ 10.23 $ 9.63 $ 9.60 $ 10.20 $ 11.69
EBITDA (5).............................. $ 4,632 $ (2,122) $ (2,912) $ (4,703) $ (5,535)
Cash flows (used in) provided from:
Operating activities.................. $ (7,725) $(13,217) $ (4,229) $ (2,562) $ 15,049
Investing activities.................. (1,422) (1,115) (106) (2,444) (8,799)
Financing activities.................. 9,271 14,424 4,358 3,398 (4,818)
-------- -------- -------- -------- --------
Total............................... $ 124 $ 92 $ 23 $ (1,608) $ 1,432
Order backlog at December 31(6)......... $134,000 $ 67,000 $ 70,000 $ 53,000 $ 82,000
Active employees at December 31......... 844 817 782 843 1,172
</TABLE>
- ---------
(1) Includes a $7.2 million income tax benefit. See Note 8 to the Consolidated
Financial Statements.
(2) Reflects the adoption of SFAS No. 112. See Note 11 to the Consolidated
Financial Statements.
(3) Reflects immediate recognition of the transition obligation determined as of
the January 1, 1993 adoption of SFAS No. 106. See Note 11 to the
Consolidated Financial Statements.
(4) Includes sales of discontinued products of $2.6 million and $13.2 million in
1992 and 1991, respectively.
(5) EBITDA consists of income before interest expense, income taxes,
depreciation and amortization and the charges related to changes in
accounting principles in 1995, 1994 and 1993, and a plant closing in 1991.
Management believes EBITDA is useful in measuring the Company's ability to
service its debt. EBITDA should not be considered as an alternative to, or
more meaningful than, operating income or cash flow, as determined in
accordance with generally accepted accounting principles, as an indicator of
the Company's operating performance.
(6) "Order backlog" is defined as firm purchase orders generally subject, upon
payment of specified charges, to cancellation by the customer.
7
<PAGE> 8
FIRST QUARTER 1996 FINANCIAL INFORMATION
The following table summarizes certain financial information of the Company
for the three month periods ended March 31, 1996 and 1995. The data for such
periods has been derived from unaudited financial statements which, in the
opinion of management, reflect all adjustments, consisting only of normally
recurring adjustments necessary to a fair statement of results for the periods
covered.
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31
------------------------
1996 1995
------- -------
(DOLLARS IN THOUSANDS
EXCEPT FOR PER SHARE
DATA)--UNAUDITED
<S> <C> <C>
Net sales............................................................. $54,597 $40,103
Operating profit (loss)............................................... 6,432 (877)
Income (loss) before income taxes..................................... 5,207 (1,863)
Provision for income taxes............................................ 651 --
------- -------
Net income (loss)..................................................... $ 4,556 $(1,863)
======= =======
Net income (loss) per common share.................................... $ 0.30 $ (0.12)
======= =======
</TABLE>
Net sales increased by $14.5 million, or 36%, for the three months ended
March 31, 1996 compared to the corresponding 1995 period. Net sales increased by
$6.1 million, or 13%, for the three months ended March 31, 1996 compared to the
three months ended December 31, 1995. These increases are due primarily to
increases in sales of titanium mill products. Titanium mill product shipments
increased in the first quarter of 1996 to 4.2 million pounds from 3.8 million
pounds in the fourth quarter of 1995 and from 3.3 million pounds in the first
quarter of 1995. The Company's average realized mill products sales price in the
first quarter of 1996 increased to $11.31 per pound, up from $10.49 per pound in
the fourth quarter of 1995, and up from $10.13 per pound in the first quarter of
1995. The Company's total order backlog at March 31, 1996 increased to $194
million from $134 million at December 31, 1995. At March 31, 1996, orders for
over 90% of RMI's 1996 anticipated shipments had been booked or shipped. The
Company is continuing to experience increased levels of order activity at
increased transaction prices. The Company is selectively taking orders to fill
out the balance of 1996 deliveries as well as booking orders for 1997 and later
delivery.
The Company's effective tax rate for the first quarter of 1996 was 12.5%.
The difference between the statutory tax rate of 35% and the effective tax rate
for the first quarter of 1996 is principally due to an adjustment of
approximately $1.2 million to the deferred tax asset valuation allowance which
existed at December 31, 1995. The Company currently expects improved
profitability in 1996 as a result of increased sales, product pricing and gross
margins, when compared to the expectations inherent in the December 31, 1995
valuation allowance. Accordingly, the valuation allowance was adjusted for the
difference between such revised future income expectations and those inherent in
the valuation allowance at December 31, 1995. There have been no changes in
income expectations for periods subsequent to 1996. Further, subject to the
effects, if any, of the limitation described under "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Income Tax
Considerations," the amount of current taxes expected to be paid in 1996 is
minimal.
Certain of the foregoing information is forward-looking. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Outlook."
SUMMARY CAPITALIZATION
The following table sets forth in summary form the consolidated
capitalization of RMI as of March 31, 1996 and as adjusted for the sale of the
Common Stock offered hereby by the Company (assuming the Underwriters'
over-allotment option is not exercised) and the application of the net proceeds
therefrom to repay $63.9 million of indebtedness under the Existing Credit
Facilities.
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------------------------
ACTUAL AS ADJUSTED (1)
----------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Total debt (including current maturities)......... $ 64,810 61% $ 910 1%
Total shareholders' equity........................ 42,172 39 112,037 99
-------- --- -------- ---
Total capitalization............................ $106,982 100% $112,947 100%
======== === ======== ===
</TABLE>
- ---------
(1) If the Underwriters' over-allotment option is exercised in full, Total
shareholders' equity and Total capitalization, as adjusted, would be
$122,567 and $123,477, respectively, and the percentage of Total debt to
Total capitalization would be 1%.
8
<PAGE> 9
RISK FACTORS
A purchase of Common Stock involves substantial risks. Potential purchasers
of Common Stock should carefully consider, in addition to the other information
set forth or incorporated herein, the following risk factors:
DEPENDENCE ON CYCLICAL AEROSPACE MARKETS
The U.S. titanium industry, including RMI, is dependent on the aerospace
industry, which has traditionally consumed the majority of titanium mill
products produced in the U.S. Sales to the aerospace industry accounted for
approximately 68% of RMI's sales in 1995, compared to 54% in 1994 and 63% in
1993.
The cyclical nature of the aerospace industry has been the principal cause
of the fluctuations in performance of companies in the titanium industry. Prior
to the years 1989 and 1990, the last peak in the titanium industry cycle
occurred during the years 1979 through 1982. While U.S. industry mill products
shipment volumes, as reported by the USGS, averaged approximately 52 million
pounds for the years 1988 through 1990, such shipments dropped to an average of
approximately 35 million pounds for the years 1991 through 1994. The declining
U.S. military budget and production cutbacks at Boeing, McDonnell Douglas and
Airbus Industrie resulting from reduced commercial airline demand for new
aircraft negatively affected demand and prices for titanium products until 1995,
when demand for titanium products used in the production of commercial aircraft
began to increase. See "History of Losses" below and "Business--Industry
Overview," "--Products and Markets" and "--Mill Products." In 1995, most major
U.S. commercial airline carriers reported stronger operating profits and, in the
second half of 1995, aircraft manufacturers began to increase aircraft build
rates. RMI can give no assurance as to the extent or duration of any recovery in
the commercial aerospace market or the extent to which such recovery will result
in increases in demand for titanium products.
HISTORY OF LOSSES
RMI's results of operations for the years 1991 through 1995 reflect the
severe downturn in market conditions experienced generally by the titanium
industry over that period. RMI incurred net losses of $117.4 million from 1991
through 1995, including $18.2 million in charges relating to accounting changes,
a $37.1 million charge in 1991 for closure of its sponge facilities and a $5.0
million asset impairment charge in 1995. Excluding the effects of these items,
for the years 1991 through 1995, RMI's aggregate net losses were $57.1 million.
The Company operated profitably in the last quarter of 1995 and in the first
quarter of 1996. Continuing profitable operations will depend on continued
strength in orders from aerospace markets, favorable pricing and the Company's
ability to control its raw material and other costs. See "Selected Financial
Data" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
POTENTIAL LIMITATIONS ON ACCESS TO CAPITAL
RMI believes that if the titanium industry experiences an extended
downturn, RMI may require additional capital to maintain its operations and
competitive position. RMI can give no assurance that it will have access to such
capital when required. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
The New Credit Facility contains covenants requiring, among other things,
that the Company maintain a minimum ratio of consolidated earnings before
interest and taxes to consolidated interest expense and a minimum consolidated
net worth. The Company believes that continuation of profitable operations
experienced in the last two calendar quarters and its planned reduction in
outstanding indebtedness will permit it to comply with these covenants. However,
if the Company is unable to comply with these covenants, the loan may be called
and the Company's ability to obtain capital may be impaired. See
"Capitalization--New Credit Facility".
9
<PAGE> 10
DEPENDENCE ON OTHERS FOR RAW MATERIALS AND CERTAIN CONVERSION SERVICES
RMI is dependent on third parties for titanium sponge, its basic raw
material. RMI is party to two long-term contracts, one of which is with a
competing producer of mill products, that permit RMI to purchase eleven million
pounds of sponge per year through 1999 and seven million pounds per year
thereafter through 2003. Prices, which are set annually, are a function of the
volume purchased and following 1996 are, at RMI's option, at market price or the
price in effect for specified years plus changes in certain of the suppliers'
costs such as labor, electricity and materials. Each contract is subject to
renegotiation or termination if certain events occur. One of the contracts
guarantees an additional two million pounds of availability per year at a
negotiated price. See "Business--Raw Materials." The Company purchases the
balance of its sponge requirements at negotiated prices from a number of
suppliers.
If demand for titanium products continues to increase, it is possible that
supplies of titanium sponge could become limited or that prices could increase
substantially, or both, and, as a result, that the Company's costs could rise
accordingly. To the extent that the Company is unable to recover its increased
costs, operating results may be adversely affected.
The Company is dependent upon the services of outside converters to perform
important conversion services with respect to certain of its products. An
interruption in these functions could have an adverse effect on the Company's
business in the short term. See "Business--Conversion Services."
UNDERFUNDED PENSION AND POSTRETIREMENT OBLIGATIONS
RMI has substantial underfunded obligations related to its pension and
other postretirement benefit programs, as indicated in Notes 10 and 11 to the
Consolidated Financial Statements included elsewhere herein. As of December 31,
1995, the actuarial present value of the accumulated benefit obligation for the
defined benefit pension plans of RMI was approximately $71.6 million, and the
fair market value of the pension fund assets available to pay such benefit
obligation was approximately $52.3 million. Also, as of December 31, 1995, RMI's
unfunded accumulated postretirement benefit obligations were $21.7 million.
ENVIRONMENTAL CONTINGENCIES
RMI 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 the Company in the past, it is
impossible to predict accurately the ultimate effect these changing laws and
regulations, and the enforcement thereof, may have on it in the future. RMI is
involved in investigative or cleanup projects under federal or state
environmental laws at a number of waste disposal sites, including a Superfund
site. RMI can give no assurance that additional environmental investigation or
remediation obligations at other locations will not be asserted against it or
entities for which it may be responsible, whether by contract (including
indemnity agreements relating to environmental matters) or by operation of law.
The Company is one of 31 companies identified by the U.S. Environmental
Protection Agency (the "EPA") as a potentially responsible party ("PRP") under
the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") with respect to a superfund site in Ashtabula, Ohio. Recent studies
have estimated the cost of remediation of this site to be approximately $25
million. Under CERCLA, a PRP's liability can be joint and several and,
therefore, the Company could be liable for the entire amount. Under allocation
agreements with other PRP's, RMI's share has been established at approximately
10%. Actual percentages may be more or less.
At December 31, 1995, RMI had accrued $2.4 million for future
environmental-related costs. Based on available information, RMI believes that
its share of potential environmental-related costs will be in the range of $3.7
to $6.3 million in the aggregate, before expected contributions from third
parties (which does not include any amounts from insurers) of $2.1 million which
the Company believes are probable. As these proceedings continue toward final
resolution, amounts in excess of those already provided may be necessary to
discharge RMI from its obligations for these projects. See "Business--Legal
Proceedings--Environmental"
10
<PAGE> 11
and Note 15 to the Consolidated Financial Statements included elsewhere herein.
The ultimate resolution of environmental matters could, individually or in the
aggregate, be material to the consolidated financial statements.
NO ASSURANCES AS TO NEW PRODUCT AND MARKET DEVELOPMENT
In an effort to lessen its dependence on the aerospace market and to
increase its participation in other markets, RMI has been devoting significant
resources to developing new markets and applications for its products,
principally in the oil and gas and geothermal energy production industries.
Other new markets, particularly golf clubs, have developed. RMI cannot give any
assurances as to the extent to which it will be able to develop new markets for
its products, the time required for such development or the level of demand for
such products. The consequence of failure to develop these new markets would be
that the Company's dependence on the cyclical aerospace industry would not be
reduced. See "Business--Mill Products" and "--Related Products and Services."
TITANIUM INDUSTRY HIGHLY COMPETITIVE
The titanium industry is highly competitive on a worldwide basis.
Competition is primarily on the basis of price, quality and timely delivery. In
recent years the industry has been suffering from excess production capacity,
which has intensified price competition for available business. Integrated and
nonintegrated producers of mill products are located primarily in the U.S.,
Japan, the former Soviet Union, Europe and China. Following closure of RMI's
sponge facilities in 1992, there are two remaining integrated producers in the
U.S. There are a small number of domestic non-integrated producers which produce
mill products from purchased sponge, scrap or ingot. RMI is the largest such
non-integrated producer. RMI currently obtains a significant portion of its
supply of sponge from a competing producer of mill products. Disruption of this
supply could have a material adverse effect on RMI. See "Business--Raw
Materials."
Imports of titanium mill products from countries that receive the
most-favored-nation tariff rate ("MFN") are subject to a 15% tariff. The tariff
rate applicable to imports from countries that do not receive MFN treatment is
45%. Japanese producers, which benefit from MFN treatment, participate
significantly in the European market, but historically have not been a major
factor in the U.S. mill products market. The United States does not currently
grant MFN treatment to imports, including titanium mill product imports, from
the former Soviet Union countries, except Russia. In 1995, a Russian producer
began to participate in the U.S. market for titanium products. This titanium
producer has the largest rated capacity in the world (although management
believes practical capacity is substantially less) and could materially affect
competition if its exports of titanium mill products were to increase
significantly. See "Business--Competition."
DILUTION
Purchasers of shares of Common Stock offered hereby will experience
immediate dilution of $13.03 in net tangible book value per share of Common
Stock from the public offering price of $18.50 per share. See "Dilution." After
the sale of the shares of Common Stock offered hereby, authorized but unissued
shares of Common Stock may be issued as authorized by the Board of Directors of
RMI without further action by shareholders. Such issuance of Common Stock may be
at prices which could dilute the equity interest of existing shareholders.
PRINCIPAL SHAREHOLDER
The Selling Shareholder was the owner as of March 31, 1996 of 7,783,600
shares of Common Stock, constituting approximately 51% of the outstanding shares
of Common Stock. Assuming the sale of the shares of Common Stock offered hereby
had been consummated at March 31, 1996, the Selling Shareholder would have owned
5,783,600 shares of Common Stock, or approximately 30% of the outstanding shares
of Common Stock (27% if the Underwriters' over-allotment option were exercised
in full). Following such sale, USX may still be able to exercise effective
control over the Company through its representation on the Board of Directors of
RMI and by reason of its substantial voting power with respect to the election
of directors and
11
<PAGE> 12
actions requiring shareholder approval. See "--Potential Conflicts of Interest,"
"--Limitation on Use of Tax Losses" and "Shares Available for Sale" below.
POTENTIAL CONFLICTS OF INTEREST
Of the eight members of RMI's Board of Directors, three are officers,
employees and/or directors of USX. For information concerning positions held by
directors and officers of RMI with USX, see "Management." These individuals owe
fiduciary duties to RMI and/or USX, as the case may be, and it is possible that
the interests of one entity may differ from the interests of the other. Members
of the Company's Board of Directors have been advised generally to abstain from
voting on matters where they may have a conflict of interest. If a director were
to vote in spite of a potential conflict of interest, there is a possibility
that such director may not vote consistent with RMI's best interest. Possible
differing interests could include future equity transactions by the Selling
Shareholder which could trigger a change in ownership in RMI as provided under
Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"). The
likelihood of such a change in ownership will significantly increase as a result
of the sale of the Common Stock offered hereby. See "Limitation on Use of Tax
Losses" and "Shares Available for Sale" below.
LIMITATION ON USE OF TAX LOSSES
At December 31, 1995, RMI had net operating loss carryforwards of
approximately $104 million, the ultimate realization of which depends on the
Company's ability to generate sufficient future taxable income prior to the
expiration dates of the loss carryforwards. Further, the loss carryforwards
could be subject to an annual limitation on their deductibility if a change in
its ownership should occur over any three-year period, as provided under Section
382 of the Code. The potential annual limitation under Section 382 with respect
to these tax attributes could restrict RMI's ability to use them to reduce
future income tax liabilities. Although it is not expected that the sale of the
shares of Common Stock offered hereby will cause an ownership change to occur,
future equity transactions by RMI, USX or by either of these companies'
significant current or future shareholders (some of which will not be within the
control of RMI or USX), could cause an ownership change to occur. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Income Tax Considerations."
SHARES AVAILABLE FOR SALE
The Company, its directors (excluding Mr. L. Frederick Gieg, Jr., President
and Chief Executive Officer) and USX have agreed not to offer, sell or otherwise
dispose of any shares of Common Stock (other than the shares of Common Stock
offered hereby) for a period of 180 days following the date of this Prospectus,
without the prior consent of the Representatives (defined herein) of the
Underwriters. USX has previously indicated an intent to dispose of its remaining
interest in RMI and may do so, subject to such agreement, either publicly or
privately, as market conditions warrant. Certain officers, including Mr. Gieg,
have agreed not to offer, sell or otherwise dispose of any shares of Common
Stock for a period of 90 days following the date of this Prospectus without the
prior consent of the Representatives of the Underwriters. See "Principal
Shareholder" above. USX acquired its shares in April 1990 in connection with the
Company's initial public offering and in July 1994 in connection with the
exercise of rights acquired pursuant to the Company's rights offering made to
all of RMI's shareholders. Since 1994, USX has sold 466,400 shares of Common
Stock in the public market.
Following the expiration of the 180 day period, referred to above, shares
owned by USX may be sold in the public market only if registered under the
Securities Act or if such sales qualify for an exemption from registration under
the Securities Act, such as pursuant to Rule 144 thereunder. RMI's Board of
Directors has authorized the Company to enter into one or more agreements with
USX obligating RMI to file one or more registration statements under the
Securities Act for the registration of shares of Common Stock owned by USX.
RMI's obligation to register the USX shares will be conditioned upon USX's
agreement not to transfer any shares of Common Stock (other than those
being offered hereby) prior to July 24, 1997 without RMI's consent. In general,
under Rule 144 as currently in effect, a person (or persons whose shares must be
aggregated) who has beneficially owned "restricted shares" (as defined by Rule
144) for at least two years,
12
<PAGE> 13
including any person who may be deemed an "affiliate" (as defined) of the
Company, is entitled to sell within any three-month period that number of shares
that does not exceed the greater of one percent of the then outstanding shares
of Common Stock, or the average weekly trading volume of the then outstanding
shares for the four weeks preceding each such sale. Sales under Rule 144 are
also subject to certain other conditions. A person who is not deemed to have
been an affiliate of the Company at any time during the 90 days preceding a sale
and who has beneficially owned the shares proposed to be sold for at least three
years is entitled to sell such shares without complying with the volume
limitation and certain other conditions of Rule 144. The Commission has proposed
to amend the holding period required by Rule 144 to permit sales of "restricted
securities" after one year rather than two years (and to permit sales without
any volume limitation after two years, rather than three years, for
non-affiliates). If such amendment were adopted, a portion of the "restricted
securities" held by USX may (following the expiration of such 180 day period)
become freely tradeable at an earlier date.
The sale of a substantial number of shares of Common Stock by USX or RMI
could reduce the market price of the Common Stock.
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS
Certain provisions of RMI's Amended Articles of Incorporation and its Code
of Regulations (the "Regulations"), the New Credit Facility (as defined below)
and Ohio law could discourage potential acquisition proposals and could delay or
prevent a change in control of RMI. RMI is authorized to issue up to five
million shares of Preferred Stock, the relative rights and preferences of which
may be fixed by RMI's Board of Directors (subject to the provisions of the
Amended Articles of Incorporation), without shareholder approval. While RMI has
no present plans to issue any shares of Preferred Stock, the future issuance
thereof may have the effect of delaying, deferring or preventing a change in
control of RMI or the payment of dividends on Common Stock. The issuance of
Preferred Stock could also adversely affect the voting power of the holders of
Common Stock, including the loss of voting control to others. RMI's Amended
Articles of Incorporation provide that certain extraordinary transactions, such
as certain mergers and consolidations, a sale or disposition of all or
substantially all of the assets, a dissolution of RMI and any amendment to the
Amended Articles of Incorporation, require a two-thirds vote of the
shareholders. Other provisions of the Regulations provide that directors may be
removed only for cause and special meetings may be called only by a shareholder
or shareholders holding 50% of the shares of stock entitled to vote. The
acquisition by any person or group (other than USX) of beneficial ownership of
25% or more of the voting capital stock of RMI and, within any twelve month
period, individuals who were directors of RMI ceasing to constitute a majority
of the Board of Directors of RMI will constitute events of default under the New
Credit Facility entitling the banks to accelerate the maturity of RMI's
borrowings thereunder. In addition, certain provisions of Ohio law regulate
certain transactions between RMI and certain holders of Common Stock. See
"Capitalization--New Credit Facility" and "Description of Capital Stock."
13
<PAGE> 14
USE OF PROCEEDS
RMI will use the net proceeds of the shares of Common Stock offered by RMI
hereby, estimated at $69.9 million ($80.4 million if the Underwriters'
over-allotment option is exercised in full), to repay indebtedness outstanding
under RMI's Existing Credit Facilities (defined below). As of March 31, 1996,
the total principal amounts outstanding under its $75 million credit facility
(the "Existing Bank Credit Facility") and its $5 million bank credit facility
guaranteed by the Export-Import Bank of the United States (the "EXIM Bank Credit
Facility") were approximately $58.9 million and $5 million, respectively. The
Company intends to apply the net proceeds from the sale of the shares of Common
Stock offered hereby to repay the entire amounts outstanding under the Existing
Credit Facilities and to use the balance of such net proceeds for general
corporate purposes.
The indebtedness outstanding under the Existing Bank Credit Facility and
the EXIM Bank Credit Facility (together the "Existing Credit Facilities") bears
interest at floating rates based on several interest rate calculations selected
by the Company. At March 31, 1996, the weighted average interest rate in effect
under the Existing Bank Credit Facility was 7.34% per annum and the interest
rate in effect under the EXIM Bank Credit Facility was 6.58% per annum. Amounts
borrowed under the Existing Bank Credit Facility must be repaid upon termination
of that facility on March 31, 1997. Amounts outstanding under the EXIM Bank
Credit Facility mature on September 27, 1996. See "Capitalization" and
"Management's Discussion and Analysis of the Financial Condition and Results of
Operations--Liquidity and Capital Resources."
The Company has entered into a new three-year credit agreement (the "New
Credit Facility") which will replace the Existing Bank Credit Facility and is
expected to provide for lower interest rates. See "Capitalization--New Credit
Facility." Based upon the amount of indebtedness to be outstanding as a result
of the use of the net proceeds of the shares of Common Stock offered by RMI
hereby to repay indebtedness and the lower borrowing rates afforded by the New
Credit Facility, the Company anticipates that its interest expense will be
significantly reduced.
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Shareholder.
14
<PAGE> 15
CAPITALIZATION
The following table sets forth the consolidated capitalization of RMI as of
March 31, 1996, and as adjusted for the sale by the Company of 4,000,000 shares
of Common Stock (assuming no exercise of the Underwriters' over-allotment
option) and the application of the net proceeds therefrom as set forth under
"Use of Proceeds." The data should be read in conjunction with the Consolidated
Financial Statements and the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" related thereto, included elsewhere herein.
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------
ACTUAL AS ADJUSTED (1)
--------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Debt (including current maturities)
Existing Bank Credit Facility................................ $ 58,900 $ --
EXIM Bank Credit Facility.................................... 5,000 --
Industrial revenue bond...................................... 910 910
--------- ---------
Total debt.............................................. 64,810 910
--------- ---------
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; 16,012,074 shares issued....................... 159 199
Additional paid-in capital................................... 152,442 222,267
Accumulated deficit.......................................... (98,970) (98,970)
Excess minimum pension liability............................. (8,381) (8,381)
Treasury Common Stock, at cost; 568,198 shares............... (3,078) (3,078)
--------- ---------
Total shareholders' equity.............................. 42,172 112,037
--------- ---------
Total capitalization.............................................. $ 106,982 $ 112,947
========= =========
</TABLE>
- ---------
(1) If the Underwriters' over-allotment option is exercised in full, Total
shareholders' equity and Total capitalization, as adjusted, would be
$122,567 and $123,477, respectively.
NEW CREDIT FACILITY
The Company has entered into a Credit Agreement, dated as of April 15, 1996
(the "New Credit Facility"), with PNC Bank, N.A. as agent, to replace the
Existing Credit Facilities. The Company's ability to borrow under the New Credit
Facility is conditioned, among other things, upon receipt by the Company of at
least $25 million of net proceeds from the sale of Common Stock offered hereby.
The New Credit Facility has a term of three years and permits borrowings, on a
revolving basis, of up to the lesser of $50 million or a borrowing base equal to
the sum of 85% of qualified accounts receivable and 50% of qualified inventory.
The Company believes it had sufficient accounts receivable and inventory at
March 31, 1996, to borrow the entire $50 million. Amounts available under the
New Credit Facility will be used to repay amounts outstanding under the Existing
Credit Facilities and for general corporate purposes.
Under the New Credit Facility, the Company will be able to borrow at (a) a
base rate (which is the higher of PNC Bank's prime rate or the Federal Funds
Effective Rate plus 1/2% per annum), or (b) LIBOR or the Federal Funds
Effective Rate, plus a spread determined by the ratio of the Company's
consolidated earnings before interest and taxes to consolidated interest
expense. If such ratio is greater than or equal to 2.5 to 1 but less than 3.5 to
1, the spread would be 1%. If such ratio is greater than or equal to 3.5 to 1
but less than 4.5 to 1, the spread would be 3/4 of 1%. If such ratio is greater
than or equal to 4.5 to 1, the spread would be 1/2 of 1%.
At any time when the Company's ratio of total liabilities to net worth is
greater than or equal to 1.4 to 1, the spread for LIBOR and Federal Funds
Effective Rate borrowings will be increased by 1/2 of 1%. Assuming the sale of
the shares of Common Stock offered hereby had been consummated on March 31,
1996, the application of the proceeds therefrom as set forth under "Use of
Proceeds" and the Underwriters' over-allotment option is not exercised, the
ratio of total liabilities to net worth would have been .61 to 1.
15
<PAGE> 16
Borrowings under the New Credit Facility will initially be secured by the
Company's accounts receivable, inventory, other personal property and cash and
cash equivalents (the "Collateral"). The Collateral will be released if the
Company: (a) obtains at least $35 million in net proceeds from the sale of the
Common Stock offered hereby and complies in all respects with all the financial
covenants under the New Credit Facility for four consecutive quarters, or (b)
complies with all the financial covenants under the New Credit Facility in all
respects for eight consecutive quarters.
The New Credit Facility contains the following financial covenants:
(i) The Company shall not permit its consolidated net worth to be less
than the sum of $36,889,000 plus the net proceeds from the sale of the
Common Stock offered hereby, plus 50% of the Company's consolidated net
income for each fiscal quarter in which net income was earned beginning
January 1, 1996;
(ii) The Company shall not permit the ratio of consolidated earnings
before interest and taxes to consolidated interest expense to be less than
2.5 to 1.0; and
(iii) Capital expenditures, including assets acquired under
capitalized leases, shall not exceed $10 million per year.
An event of default under the New Credit Facility shall occur, among other
things, if: (a) certain defaults or events of default occur under the New Credit
Facility (including the failure to observe its financial covenants) or other
indebtedness in excess of $10 million in the aggregate, (b) certain final
judgments are rendered against the Company or there shall occur any material
uninsured damage to or loss, theft or destruction of the Collateral each in
excess of $10 million, (c) within a period of 12 consecutive calendar months,
individuals who were members of the Board of Directors of the Company on the
first day of such period cease to constitute a majority of the Board of
Directors, (d) any person or group of persons other than USX shall have acquired
beneficial ownership of 25% or more of the voting stock of the Company, or (e)
certain events of bankruptcy, insolvency or reorganization occur.
The New Credit Facility contains additional terms, covenants and
restrictions which are typical for other similar facilities.
DILUTION
At March 31, 1996, the Company had net tangible book value of $36.5
million, or $2.36 per share of Common Stock (based on 15,443,876 shares
outstanding). Assuming that the four million shares of Common Stock offered
hereby by the Company had been sold at March 31, 1996, the Company's net
tangible book value would have been $106.4 million, or $5.47 per share of Common
Stock. This represents an immediate dilution of $13.03 per share to new
investors purchasing Common Stock. Net tangible book value per share is
determined by dividing the difference between tangible assets and liabilities by
the number of shares of Common Stock outstanding. The following table
illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share........................ $ 18.50
Net tangible book value per share at March 31, 1996......... $ 2.36
Increase in net tangible book value per share after the
Common Stock offered hereby is sold....................... 3.11
------
Pro forma net tangible book value per share after the Common Stock
offered hereby is sold............................................... 5.47
-------
Dilution per share to new investors.................................... $ 13.03
=======
</TABLE>
If the Underwriters were to exercise in full their over-allotment option,
the Company's pro forma net tangible book value would have been $5.83 per
share of Common Stock, which would result in dilution to new investors of
$12.67 per share.
16
<PAGE> 17
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock is traded on the NYSE under the symbol "RTI." The
following table sets forth, for each of the quarterly periods indicated, the
high and low sales price for the Common Stock, as reported on the NYSE Composite
Tape and as adjusted for a 1-for-10 reverse stock split effective March 31,
1994.
<TABLE>
<CAPTION>
1994
QUARTER HIGH LOW
------- ---- ---
<S> <C> <C>
First............................................. $21 1/4 $15
Second............................................ 17 5/8 2 3/8
Third............................................. 2 3/4 2
Fourth............................................ 5 5/8 2 1/2
</TABLE>
<TABLE>
<CAPTION>
1995
QUARTER
-------
<S> <C> <C>
First............................................. $ 5 1/2 $3 1/8
Second............................................ 9 3/4 3 3/4
Third............................................. 10 3/8 6 3/4
Fourth............................................ 9 7/8 6 1/2
</TABLE>
<TABLE>
<CAPTION>
1996
QUARTER
-------
<S> <C> <C>
First............................................. $16 1/2 $ 7 3/8
Second (through April 29)......................... $24 3/4 $14
</TABLE>
In June 1994, the Company commenced a rights offering pursuant to which
each holder of Common Stock was entitled to subscribe for shares of Common Stock
at a price of $2 per share. In July 1994, the Company issued approximately 13.8
million shares of Common Stock in that offering.
On May 1, 1996, the reported last sale price of the Common Stock on the
NYSE Composite Tape was $19.75 per share.
As of March 31, 1996, the Common Stock was held by 858 holders of record.
RMI has not paid dividends on its Common Stock since the second quarter of
1991. The declaration of dividends is at the discretion of the Board of
Directors of the Company. The declaration and payment of future dividends and
the amount thereof will be dependent upon the Company's results of operations,
financial condition, cash requirements for its business, future prospects and
other factors deemed relevant by the Board of Directors.
The New Credit Facility does not contain any restrictions on the payment of
dividends other than a financial covenant which requires RMI to maintain a
minimum consolidated net worth. See "Capitalization--New Credit Facility."
17
<PAGE> 18
BUSINESS
The following information contains forward-looking statements which involve
certain risks and uncertainties. Actual results and events may differ
significantly from those discussed in the forward-looking statements. Factors
that might cause such a difference include, but are not limited to, those
discussed in "Risk Factors."
THE COMPANY
The Company is a leading U.S. producer of titanium mill and fabricated
products for the global market. The Company's mill products are processed by
RMI's customers to provide products for use in the aerospace industry and other
industrial markets, including, most recently, golf club manufacturing. The
Company's fabricated products are used primarily in the aerospace, oil and gas,
geothermal energy production and chemical process industries as well as for a
number of other industrial applications. The Company also provides fabrication
and conversion services for other titanium and specialty metals producers.
The Company is a successor to entities that have been operating in the
titanium industry since 1958. In 1990, USX and Quantum Chemical Corporation
("Quantum") transferred their entire ownership interest in the Company's
immediate predecessor, RMI Company, an Ohio general partnership, to the Company
in exchange for shares of Common Stock (the "Reorganization"). Quantum sold its
shares of Common Stock to the public while USX retained ownership of its shares.
At March 31, 1996, USX owned approximately 51% of the outstanding Common Stock.
INDUSTRY OVERVIEW
Titanium is one of the newest industrial metals. Its physical
characteristics include high strength-to-weight ratio, high temperature
performance and superior corrosion and erosion resistance. The first major
commercial application of titanium occurred in the early 1950's when it was used
as a component in aircraft gas turbine engines. Subsequent applications were
developed to use the material in other aerospace component parts and in airframe
construction.
Historically, a majority of the U.S. titanium industry's output has been
used in aerospace applications. In recent years, increased quantities of the
industry's output have been used in nonaerospace applications. Based on data
published by the USGS, the Company estimates that, more than 35% of the total
1995 U.S. market shipments, including exports, were made to nonaerospace
markets, including the oil and gas, geothermal energy production and chemical
process industries and golf club manufacturing.
Aerospace demand originates from two sectors: commercial and military.
Since 1987, commercial aerospace has become the dominant factor in titanium
demand. The commercial aerospace sector is expected to continue to dominate the
demand for titanium as a result of the expected growth of worldwide airline
traffic and the need to repair and replace aging commercial airline fleets and
continuing depressed military aerospace markets.
The cyclical nature of the aerospace industry has been the principal cause
of the fluctuations in performance of companies engaged in the titanium
industry. Over the past 19 years, U.S. titanium mill product shipments
registered cyclical peaks of 54 million pounds in 1980 and 55 million pounds in
1989. Beginning in 1991, the industry experienced a dramatic downturn in demand
for mill products. Domestic industry shipments fell from 53 million pounds in
1990 to 34 million pounds in 1991, a decrease of 35%, the largest single one
year decrease in the history of the industry. Domestic industry shipments only
recovered modestly during the years 1991 through 1994. This most recent decline
in industry shipments reflected a sharp decline in military aerospace demand,
which continues to the present, and a decline in commercial aircraft build rates
due in part to significant financial losses suffered by commercial airline
carriers. RMI's average realized mill product selling prices also deteriorated
throughout this period reaching lows during the years 1993 and 1994 that were
approximately 30% below 1990.
18
<PAGE> 19
The following table highlights the cyclical nature of the titanium industry
by setting forth the total pounds of U.S. mill products shipped during the years
1977 through 1995 and the Company's shipments and average mill product prices
during such period.
SHIPMENT AND MILL PRODUCT PRICE HISTORY
<TABLE>
<CAPTION>
Measurement RMI Ship- Industry RMI Avg.
Period ments Shipments Price
- ----------- --------- --------- --------
<S> <C> <C> <C>
'77 9.6 21.4 5.0
'78 11.3 30.7 5.5
'79 13.0 33.0 8.1
'80 14.0 39.5 12.2
'81 15.0 35.0 15.7
'82 10.0 28.0 16.3
'83 8.5 23.5 10.5
'84 13.7 31.3 10.0
'85 13.7 31.3 10.2
'86 13.0 29.0 9.6
'87 13.7 30.3 9.3
'88 14.5 34.5 10.7
'89 16.0 38.0 12.2
'90 16.5 34.5 13.1
'91 11.5 21.5 12.2
'92 11.5 23.5 11.3
'93 11.3 24.7 10.6
'94 11.6 23.4 9.9
'95 14.4 28.6 10.9
</TABLE>
Sources: RMI and Titanium Development Association.
Although military aerospace markets remain depressed, commercial aerospace
markets have shown a recent increase in demand. In 1995, most major U.S.
commercial airline carriers reported stronger operating profits, and in the
second half of 1995 the commercial aerospace industry began to restore depleted
inventories of titanium mill products and aircraft manufacturers began to
increase build rates. RMI estimates, based on USGS data, that domestic industry
mill product shipments to the commercial aerospace market in 1995 were
approximately 20 million pounds, an increase of approximately 18% compared to
1994. Based on USGS data, total industry shipments in 1995 were 44 million
pounds, an increase of 26% compared to 1994.
The following data illustrates the cyclical profitability of worldwide
members of the International Civil Aviation Organization (excluding countries of
the former Soviet Union) and the relationship between their profitability and
firm aircraft orders. RMI can give no assurance as to the extent or duration of
any recovery in
19
<PAGE> 20
the commercial aerospace market or the extent to which such recovery will result
in increases in demand for titanium products. See "Risk Factors--Dependence on
Cyclical Aerospace Markets."
AIRLINE PROFITABILITY AND FIRM AIRCRAFT ORDERS
<TABLE>
<CAPTION>
Measurement
Period Operating Income Industry Shipments
- ----------- ---------------- ------------------
<S> <C> <C>
'77 2629 348
'78 3070 659
'79 736 530
'80 -634 397
'81 -692 269
'82 -160 183
'83 2000 282
'84 5100 360
'85 4100 685
'86 4600 634
'87 7200 631
'88 10200 1,021
'89 7600 1,345
'90 -1500 907
'91 -500 462
'92 -1800 464
'93 2300 407
'94 8000 369
'95 11000 697
</TABLE>
* Source: Airline Monitor.
PRODUCTS AND MARKETS
Titanium mill products consist of products such as ingot, slab, bloom,
billet, bar, plate, sheet, strip and welded tube. Fabricated products include
pipe, engineered tubular products, hot-formed and superplastically formed parts
for aerospace applications, cut shapes and titanium metal powders. Other
services include conversion and fabrication services for other titanium and
specialty metal producers and project management. In addition, the Company acts
as contractor for the U.S. Department of Energy ("DOE") for the remediation and
restoration of the Company's closed facilities in Ashtabula, Ohio.
The amount of the Company's consolidated sales and the percentage of
consolidated sales represented by each class of product during the five years
ended December 31, 1995 were as follows:
<TABLE>
<CAPTION>
SALES
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------- ------------- ------------- ------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mill products............. $138.1 81% $103.8 72% $ 96.5 76% $110.5 81% $128.8 78%
Fabricated products and
other services.......... 26.9 16 31.1 22 20.5 16 16.7 13 17.3 10
Other(1).................. 6.2 3 8.5 6 10.4 8 5.8 4 6.3 4
Discontinued
products(2)............. -- -- -- -- -- -- 2.6 2 13.2 8
------ --- ------ --- ------ --- ------ --- ------ ---
Total................... $171.2 100% $143.4 100% $127.4 100% $135.6 100% $165.6 100%
====== === ====== === ====== === ====== === ====== ===
</TABLE>
- ---------
(1) Includes DOE remediation and restoration contract.
(2) Discontinued products includes titanium sponge, sodium chloride, sodium
hypochlorite and metallic sodium, which are no longer manufactured by the
Company.
20
<PAGE> 21
The following table summarizes consolidated sales and the percentage of
consolidated sales represented by market during the five years ended December
31, 1995:
<TABLE>
<CAPTION>
SALES
YEAR ENDED DECEMBER 31
-------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------- ------------- ------------- ------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial aerospace..... $ 91.1 53% $ 54.4 38% $ 56.1 44% $ 68.9 51% $ 87.2 53%
Military aerospace....... 26.2 15 23.9 17 24.2 19 25.6 19 30.1 18
Nonaerospace............. 53.9 32 65.1 45 47.1 37 41.1 30 48.3 29
------ --- ------ --- ------ --- ------ --- ------ ---
Total................ $171.2 100% $143.4 100% $127.4 100% $135.6 100% $165.6 100%
====== === ====== === ====== === ====== === ====== ===
</TABLE>
MILL PRODUCTS
The Company produces a full range of titanium mill products which are used
in both the aerospace and nonaerospace markets.
Aerospace. Mill product sales to the commercial and military aerospace
industries accounted for approximately 64% and 11%, respectively, of RMI's 1995
mill product sales compared to approximately 50% and 13% of RMI's 1994 mill
product sales. RMI sells titanium mill products to major aircraft manufacturers
and to subcontractors in the commercial and military aerospace industries. The
Company's products are certified and approved for use by all major domestic and
most international manufacturers of commercial and military aircraft and jet
engines. Products such as sheet, plate, strip, bar, billet and ingot are
utilized in aircraft bulkheads, tail sections, wing supports and carry-through
structures and various engine components including rotor blades, vanes, discs,
rings and engine cases.
As of December 31, 1995, the leading manufacturers of commercial aircraft,
Boeing Company, McDonnell Douglas Corporation and Airbus Industrie, reported an
aggregate of approximately 1,869 planes under firm order and deliverable over
the next five years. The comparable backlogs as of December 31, 1994 and 1993
were 1,742 planes and 2,022 planes, respectively. Included in this backlog for
1995 are 230 firm orders for the new Boeing 777 wide-body aircraft, which
requires more titanium than any other commercial aircraft. Deliveries of
commercial aircraft by these three manufacturers totaled 380 in 1995, 432 in
1994, and 546 in 1993. Because it typically takes from 12 to 18 months from
placement of an order until delivery of a commercial aircraft, realized delivery
rates generally lag behind announced backlog estimates. In addition, changing
economic conditions and instability in the domestic commercial airline industry
may cause manufacturers to re-evaluate aircraft orders and options, thus
affecting realized aircraft delivery rates.
21
<PAGE> 22
The following table presents RMI's estimates, based on information from the
aircraft manufacturers, of the titanium mill product requirements of selected
commercial and military aircraft:
ESTIMATED TITANIUM MILL PRODUCT REQUIREMENTS
PER AIRCRAFT
(in thousands of pounds)
<TABLE>
<S> <C>
Commercial:
Airbus Industrie BUY-WEIGHT(1)(2)
A319/A320/A321............ 10-15
A330...................... 18-44
A340...................... 32
Boeing
737....................... 17-22
747....................... 60-82
757....................... 33-37
767....................... 26-38
777....................... 80-105
McDonnell Douglas
MD-11..................... 63-64
Military:
General Dynamics BUY-WEIGHT(1)(2)
F-16 Falcon............... 6-10
McDonnell Douglas
F-15 Eagle................ 62
F/A-18 Hornet............. 16
C-17...................... 193
F-22...................... 120
Sikorsky
Blackhawk................. 6
Super Stallion............ 19
Seahawk................... 5
</TABLE>
- ---------
(1) Due to yield loss during milling and fabrication of parts, a smaller portion
of the titanium buy-weight is ultimately used in the aircraft and engines.
(2) Ranges refer to aircraft with variable engine configurations.
Nonaerospace. Principal nonaerospace mill products include commercially
pure (unalloyed) strip, welded tube and plate used for oil and gas and
geothermal energy production, chemical processing and pulp and paper equipment.
Bar is sold for the production of medical implants and high-performance
automotive engine parts. The Company is also a leading supplier of commercially
pure titanium plate and strip, which offers superior corrosion resistance and
ductility for critical forming and metal expansion required in applications such
as heat exchangers and anodes for the chlorine industry. Nonaerospace sales
accounted for approximately 25% of the Company's mill product sales in 1995 and
37% of such sales in 1994. Since the Company's entry into strip production in
1984 and tube production in 1986, sales of these two products have grown to a
majority of the Company's total nonaerospace mill product sales.
The use of titanium in golf club heads emerged in 1995 as an important
nonaerospace product application for the titanium industry. Titanium was first
used in golf club manufacturing in the U.S. in 1988, and management believes the
market grew in 1995 to approximately 3.5 million pounds, or approximately 8%, of
U.S. industry mill product shipments. While titanium golf clubs have been used
in Japan for over six years, with titanium woods currently commanding
approximately 60% of the Japanese market, they have only recently gained
significant popularity in the U.S. market. Titanium golf clubs have developed as
the latest of several technological innovations in the golf industry in the last
25 years.
Titanium has become a desirable material for golf clubs due to its superior
strength-to-weight ratio as compared to steel. This characteristic allows club
manufacturers to create a larger club head without increasing the weight of the
club and to distribute weight more strategically around the club while
maintaining the club's structural integrity. Titanium also has a higher elastic
deformation than steel, providing optimal energy transfer at impact with the
ball and improved carry and distance. Titanium clubs have attracted the
attention of Professional Golf Association ("PGA"), Ladies PGA and Senior PGA
tour members, many of whom now use a titanium driver.
Almost every major golf club manufacturer, including Callaway, Cleveland,
Cobra, Lynx, Taylor Made, Titleist and Tommy Armour, is currently marketing a
titanium driver, and several of the major manufacturers are using titanium in
club heads for other clubs, including woods, irons and putters. Certain golf
club
22
<PAGE> 23
manufacturing companies have introduced full sets of titanium golf clubs. A
number of golf club head casting companies have announced expansions of their
golf club head production facilities. The Company sells titanium mill products
directly to golf club head casting companies who, in turn, sell their products
to major golf club manufacturers. Sales to the emerging golf club market were
not significant in 1995 and 1994.
FABRICATED PRODUCTS AND OTHER SERVICES
Fabricated products include pipe, engineered tubular products for the oil
and gas and geothermal energy production industries, hot-formed and
superplastically formed parts and cut shapes for aerospace applications and
titanium metal powders. Titanium powders are used for alloy additions,
superconductors, grain refinement of other metals and titanium powder metal
parts. Other services include conversion and fabrication services for other
titanium and specialty metals producers and project management. Revenues from
fabricated products and other services accounted for 16% of RMI's sales in 1995
and 22% in 1994. Sales to the aerospace market represented 51% and 41% of such
revenues in 1995 and 1994, respectively, with sales to the nonaerospace market
representing the balance.
The Company has devoted significant resources, the costs of which have been
expensed, to develop new applications and markets for titanium in the oil and
gas and geothermal energy production industries. Sales to the oil and gas and
geothermal energy production industries were 3% of RMI's sales in 1995 compared
to 9% in 1994.
During 1995, the Company completed shipment of the world's first
high-pressure titanium drilling riser for use in the Conoco Heidrun project
located in the Norwegian sector of the North Sea (one of the world's largest
floating, deep-water oil and gas production platforms). During 1995, the Company
was awarded a contract, valued in excess of $3 million, to supply titanium
stress joints for use in the Oryx Energy Neptune Production Riser System in the
Gulf of Mexico.
In late 1994, the Company was awarded a three-year contract to supply all
of the seamless titanium pipe required for a number of geothermal energy
production facilities located in the Imperial Valley of California. The initial
order under the contract is valued in excess of $7 million. Deliveries commenced
in late 1995 and are continuing in 1996. The Company expects to receive a second
order to be produced and shipped during 1996 and 1997.
The Company continues to work closely with several oil companies and
engineering concerns to develop other titanium projects or applications in the
oil and gas and geothermal energy production industries. RMI has entered into
several cooperative ventures to encourage and develop titanium products for use
in the oil and gas industry. For example, in January 1995, the Company entered
into an agreement with Stolt Comex Seaway SA ("Stolt Comex"), a Norwegian-based
diversified contractor to the offshore oil and gas industry, to combine RMI's
and Stolt Comex's expertise to market, engineer, fabricate and install titanium
production risers, flow lines and other titanium subsea systems. Pursuant to
this agreement, the parties have entered into discussions to form a joint
venture if a commercial market for such subsea systems is proven to exist. In
addition, in February 1996, the Company, Stolt Comex and Kvaerner Oilfield
Products Ltd., a Norwegian engineering concern, entered into an agreement
pursuant to which the parties agreed to submit joint bids for titanium riser
systems.
OTHER
The Company has a long-term agreement with the DOE covering the remediation
and restoration of the Company's closed facilities in Ashtabula, Ohio, for which
the DOE is responsible as a result of work performed there by the Company for
the U.S. government. The Company is serving as the prime contractor during the
remediation and restoration period. Year-to-year revenues and the time of
completion of the project will depend on DOE funding. In 1995, the Company
recognized $6.2 million in such revenues compared to $8.5 million in 1994 and
$10.4 million in 1993. As the prime contractor, the Company provides management
services necessary to complete assessment, clean-up and remediation activities.
23
<PAGE> 24
EXPORTS
Most of the Company's exports, with the exception of the drilling riser
discussed above under "Products and Markets--Fabricated Products and Other
Services," have consisted of titanium mill products used in aerospace markets.
Other exports include slab, commercially pure strip, plate and welded tubing
used in nonaerospace markets. The Company's export sales in 1995 were
approximately $30.1 million, or 18% of sales. Such sales were made primarily to
the European market, where the Company believes it is a leader in supplying
alloy flat-rolled titanium mill products as well as rotating-quality billet. The
Company's export sales were $39.8 million, or 27% of sales, and $24.2 million,
or 19% of sales, in 1994 and 1993, respectively. Export sales in 1994 and 1993
include revenues recognized in connection with the titanium drilling riser
contract. Most of the Company's export sales are made in U.S. dollars, which
minimizes exposure to foreign currency fluctuations.
As a leading supplier of alloy flat-rolled titanium mill products to the
European market, the Company has worked through its distributors to secure
contracts to furnish mill products to the major European aerospace
manufacturers. As a result, the Company has significant export sales to
customers in France, the United Kingdom and Germany. In order to enhance its
presence in the European market, in 1992 the Company acquired a 40% ownership
interest in its French distributor, Reamet, SA. In addition, the Company has
expanded its operations in the United Kingdom to include a distribution and
service center facility in Birmingham, England. Operations at the facility
commenced during the second quarter of 1995. Recently, the Company became a
qualified supplier to Rolls Royce Plc and received an order to supply material
from the Birmingham facility for use in fan blades and other critical rotating
parts in Rolls Royce's family of jet engines.
RAW MATERIALS
The principal raw materials used in the production of titanium mill
products are titanium sponge, a porous metallic material; titanium scrap; and
alloying agents. RMI acquires its raw materials from a number of suppliers, both
domestic and foreign, under long-term contracts and other negotiated
transactions. In 1995, the Company purchased approximately 14 million pounds of
titanium sponge. Requirements for sponge vary based upon product mix and the
level of scrap usage.
Following the closure of its sponge production facilities in 1992, the
Company began purchasing its titanium sponge from outside sources. The Company
has entered into two long-term sponge supply arrangements, each with pricing
below the cost of sponge which was produced at the Company's own facilities
prior to their closure. In addition, the Company has supplemented its metal
requirements with additional sponge and raw material purchases, including
titanium scrap, from other U.S. and foreign suppliers.
One of the sponge contracts, which is with a competing producer of mill
products, permits the Company to purchase up to seven million pounds per year at
specified prices per pound during 1996, depending on the volume of sponge
purchased, and thereafter through 2003 at the Company's option at either market
price (but not below the supplier's cost) or the price in effect under the
contract for 1996 plus adjustments for changes in certain of the supplier's
costs, such as labor, electricity and materials. The other contract, which is
with a Japanese supplier, permits the Company to purchase up to four million
pounds of sponge per year through 1999, either at market price or a 1994 base
price plus changes in certain of the supplier's costs, such as labor,
electricity and materials. In addition, this contract permits the Company to
purchase up to an additional two million pounds of sponge at negotiated prices.
These contracts are subject to renegotiation or termination under certain
circumstances. The Company purchases the balance of its sponge requirements
pursuant to short-term agreements or at negotiated prices. Prices for the
Company's 1996 requirements have already been set under these contracts and
other short-term arrangements. In addition, RMI has negotiated at firm prices
approximately one-third of its anticipated sponge requirements for customer
orders scheduled for delivery in 1997. See "Risk Factors--Dependence on Others
for Raw Materials."
The Company purchases titanium tetrachloride, the primary raw material used
in the manufacture of titanium sponge, from SCM Chemicals, Inc. pursuant to a
long-term supply agreement expiring in 2003.
24
<PAGE> 25
Titanium tetrachloride is shipped to one of the Company's long-term sponge
suppliers where it is used in providing sponge for the Company.
The Company believes it has adequate sources for titanium sponge, scrap,
alloying agents and other raw materials.
COMPETITION AND OTHER MARKET FACTORS
The titanium metals industry is highly competitive on a worldwide basis.
Competition is primarily on the basis of price, quality and timely delivery.
Titanium also competes with other metals such as stainless steel and nickel
based corrosion resistant alloys. A metal manufacturing company with rolling and
finishing facilities could participate in the mill product segment of the
titanium industry. However, entry into the titanium industry as an integrated
producer would require a significant investment of capital and extensive
technical expertise.
Producers of titanium mill products are located primarily in the U.S.,
Japan, the former Soviet Union, Europe and China. Following closure of the
Company's sponge facilities in 1992, Oregon Metallurgical Corporation (Oremet)
and Titanium Metals Corporation of America (Timet) are the two remaining U.S.
integrated producers that produce their own sponge. There are also a small
number of domestic nonintegrated producers that, along with the Company, produce
mill products from purchased sponge, scrap or ingot. The Company does not
believe, however, that any of its nonintegrated U.S. competitors produce as full
a line of mill products as does RMI.
Imports of titanium mill products from countries that receive the
most-favored-nation ("MFN") tariff rate are subject to a 15% tariff. The tariff
rate applicable to imports from countries that do not receive MFN treatment is
45%. Japanese producers, which benefit from MFN treatment, participate
significantly in the European market, but historically have not been a major
factor in the U.S. mill products market. The United States currently does not
grant MFN treatment to imports, including titanium mill product imports, from
the former Soviet Union countries, except Russia. In 1995, a Russian producer
began to participate in the U.S. market for titanium mill products. This
titanium producer has the largest rated capacity in the world (although
management believes practical capacity is substantially less) and could
materially affect competition if its exports of titanium mill products were to
increase significantly.
MARKETING AND DISTRIBUTION
RMI markets its titanium mill products and related products and services
worldwide. Approximately 80% of the Company's sales are made through its own
sales force and the balance through independent distributors. RMI's domestic
sales force has offices in Niles, Ohio; Houston, Texas; Brea, California;
Washington, Missouri; and Salt Lake City, Utah. Technical marketing personnel
are available to service these offices and to assist in new product applications
and development. In addition, the Company's Customer Technical Service and
Research and Development Departments, both located in Niles, Ohio, provide
extensive customer support.
In the U.S., RMI has expanded its market share by establishing
relationships with several specialized distributors that allow for a targeted
marketing approach to large customers that require a full-service distribution
supply. RMI also provides a direct distribution service on cut-to-size parts out
of its TRADCO, Inc. subsidiary in Washington, Missouri.
Internationally, RMI maintains a sales office and distribution warehouse in
Birmingham, England. In December 1992, the Company completed an acquisition of a
40% ownership interest in its French distributor, Reamet, SA. The Company also
has independent distributors covering The Netherlands, Italy, Israel, Norway,
Spain, Sweden, Brazil, Belgium, Germany, Switzerland, Korea, Philippines,
Taiwan, South Africa, India and Australia.
25
<PAGE> 26
MANUFACTURING FACILITIES
The Company has over 728,000 square feet of manufacturing facilities
exclusive of office space, located primarily in Niles, Ohio. The Company's
principal manufacturing plants, the principal products produced at such plants
and their aggregate capacities are set forth below.
MANUFACTURING FACILITIES
<TABLE>
<CAPTION>
ANNUAL RATED ANNUAL PRACTICAL
LOCATION PRODUCT CAPACITY CAPACITY(1)
-------- ------- -------- ----------
<S> <C> <C> <C>
Niles, Ohio Ingot (Million Pounds)................ 36 30
Niles, Ohio Mill Products (Million Pounds)........ 22 20
Hermitage, Pennsylvania Tube (Thousand Pounds)................ 780 780
Washington, Missouri Hot-Formed and Superplastically Formed
Sullivan, Missouri Components (Thousand Press Hours).... 21 21
Salt Lake City, Utah Powders (Million Pounds).............. 1.5 1.5
</TABLE>
- ---------
(1) Practical capacity is based on current product mix and yields.
The Company owns all of the foregoing facilities, except for the Sullivan,
Missouri facility and certain buildings and property at Washington, Missouri,
all of which are leased. The plants have been constructed at various times over
a long period, many of the buildings have been remodeled or expanded and
additional buildings have been constructed from time to time.
CONVERSION SERVICES
The Company utilizes third-party converters to melt and/or finish
approximately 35% of its mill products. The use of these converters raises the
Company's effective processing capacity. Certain mill products, such as hot band
and cold rolled strip and oversized plate, are produced entirely by such
converters using semi-finished titanium mill products supplied by the Company.
The Company, however, is responsible for inspecting and delivering these
products to customers. The Company maintains long-term relationships with many
of these conversion companies. The Company believes that, if necessary, it could
obtain alternative sources for conversion services.
RESEARCH, TECHNICAL AND PRODUCT DEVELOPMENT
The Company conducts research, technical and product development activities
at facilities in Niles, Ohio. The principal goals of the Company's research
program are maintaining technical expertise in the production of titanium mill
and fabricated products and providing technical support in the development of
new markets and products. In addition to the Company's own funding, certain
major customers have assisted in funding the Company's development of specific
titanium applications. Research, technical and product development costs totaled
$3.4 million in 1995, $3.3 million in 1994 and $2.4 million in 1993. Customer
assisted funding, which is treated as a reduction of research and development
spending, reduced the Company's portion of research and development expense to
$1.8 million in 1995 and $1.5 million in each of 1994 and 1993.
The Company has research laboratories in Niles with melting, metal
processing and metal testing facilities and a corrosion laboratory for support
of nonaerospace markets.
PATENTS AND TRADEMARKS
The Company possesses a substantial body of technical know-how and trade
secrets and owns a number of U.S. patents applicable primarily to product
formulations and uses. The Company considers its know-how, trade secrets and
patents important to conduct its business, although no individual item is
considered to be material to the Company's current business.
26
<PAGE> 27
EMPLOYEES
As of December 31, 1995, the Company and its subsidiaries employed 844
persons, 180 of whom were classified as administrative and sales personnel. At
December 31, 1995, approximately 62 of the 844 employees were directly involved
with the DOE remediation and restoration contract at the Company's now closed
facilities in Ashtabula, Ohio.
The United Steelworkers of America ("USWA") represents approximately 440 of
the hourly and clerical and technical employees at the Company's plant in Niles,
Ohio and the hourly employees at the closed facilities in Ashtabula, Ohio. Other
than six hourly workers at the Ashtabula facilities, who are represented by the
Oil, Chemicals and Atomic Workers Union, the Company's other employees are not
represented by a union. In October 1995, following a five day work stoppage, a
three-year labor agreement was reached with the USWA represented employees at
Niles. The hourly employees at the facilities in Ashtabula agreed to a five-year
contract on January 15, 1996.
LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. Given the
critical nature of many of the aerospace end uses for the Company's products,
including specifically their use in critical rotating parts of gas turbine
engines, the Company maintains aircraft products liability insurance of $250
million, which includes grounding liability.
In connection with the closing of the Company's facilities in Ashtabula,
Ohio, the Oil, Chemical and Atomic Workers Union, Local 729, commenced an action
in 1992 in the U.S. District Court for the Northern District of Ohio, captioned
OCAW, Local 7-629, AFL-CIO, et al. vs. RMI Titanium Company, against the Company
alleging violation of the notification provisions of the Worker Adjustment and
Retraining Notification Act ("WARN"). Three classes of former employees at such
facilities have alleged that they did not receive appropriate notice of their
pending layoffs or terminations as required under WARN and are seeking back pay
for the notification period. The Company believes that it has complied with the
provisions of WARN and that the claims are without merit.
ENVIRONMENTAL
The Company is subject to extensive federal, state and local laws and
regulations concerning environmental matters. During each of 1995 and 1994, the
Company spent approximately $0.6 million for environmental-related expenditures.
Such expenditures totaled $0.9 million in 1993. The Company broadly estimates
environmental-related expenditures, including capital items and compliance
costs, will total approximately $3.4 million during the 1996-1997 period.
In connection with the Reorganization, the Company assumed all
responsibility for environmental matters relating to RMI Company and its
immediate predecessor, Reactive Metals, Inc., which commenced business on April
1, 1964, and agreed to indemnify Quantum and USX against any liability relating
to such environmental matters. Quantum and USX have been named as potentially
responsible parties in connection with the Fields Brook Superfund site discussed
below. In addition, Quantum initially acquired the Company's now closed
Ashtabula facilities in 1950, which it owned until 1964, when they were acquired
by Reactive Metals, Inc. Although the Company believes it may have claims with
respect to possible remediation and other costs against Quantum for the pre-1964
period, ultimate apportionment of any liability between the Company and Quantum
has not been finally agreed upon.
Active Investigative or Cleanup Sites. The Company is involved in
investigative or cleanup projects at certain waste disposal sites, including
those discussed below.
Fields Brook Superfund Site. The Company, together with 31 other
companies, has been identified by the EPA as a PRP under CERCLA 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 sediment operable unit was $48
million. Recent studies, together with improved remediation technology and
redefined cleanup standards, have resulted in a more recent
27
<PAGE> 28
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, beginning in March 1989, ordered 22 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. The Company, working
cooperatively with fourteen others, is complying with the order and has accrued
and has been paying its portion of the cost of such compliance. It is
anticipated that the studies will be completed no earlier than late 1996. Actual
cleanup is not expected to commence prior to mid-year 1997. The Company's share
of the study costs has been established at 9.95%. In June, 1995, the Company and
twelve others entered into a Phase 2 (actual cleanup) allocation agreement which
assigns 9.44% of the cost to RMI. However, actual percentages may be more or
less based on contributions from other parties which are not currently
participating in the Phase 2 allocation agreement.
The Ohio Environmental Protection Agency (the "Ohio EPA") has notified the
PRPs of its intention to undertake a Natural Resource Damage Assessment ("NRDA")
for the Fields Brook site which could lead to a Natural Resource Damage Claim
("NRDC") against the PRPs. The NRDA cannot be completed until the remediation of
the Fields Brook watershed is complete. It is not possible to predict, at this
time, the cost to the Company, if any, as a result of the NRDA and any NRDC that
might be brought.
Resource Conservation and Recovery Act of 1975 ("RCRA")
Proceedings-Ashtabula Sodium Plant. The Company, through its independent
environmental consultant, has identified and reported to the EPA the presence of
metals and hazardous organic materials on portions of its closed facilities in
Ashtabula, Ohio. As to the organic material, the consultant has determined it
originates from an off-site source, and the Company does not anticipate it will
be required to clean up this material.
A Corrective Measures Study report prepared for the Company by the
consultant states that the presence of metals would not be expected to have an
adverse impact on humans or the environment, and, after conducting a detailed
analysis of cleanup alternatives, the study recommended that metals contaminated
material be consolidated at an on-site landfill and contained in place, at an
estimated cost of $1 million. The EPA has approved the Corrective Measures Study
but has not yet selected a cleanup alternative. The Company has accrued an
amount for this matter.
Ashtabula River. The Ashtabula River and Harbor has been designated one of
43 Areas of Concern on the Great Lakes by the International Joint Commission.
Fields Brook empties into the Ashtabula River, which in turn flows into Lake
Erie. The State of Ohio has appropriated $7 million in state funds to the
Ashtabula River dredging project to assist in securing federal funds needed to
conduct the dredging.
The Company believes it is most appropriate to use public funds to cleanup
a site with regional environmental and economic development implications such as
the Ashtabula River and Harbor. The Ashtabula River Partnership ("ARP"), a
voluntary group of public and private entities including, among others, the
Company, the EPA, and the Ohio EPA, was formed in July 1994 to bring about the
remediation of the river. The ARP is working both to design a cost-effective
remedy and to secure public funding. Phase 1, the Comprehensive Management Plan,
is well underway and is completely funded with public money. To fund Phase 2,
the Detailed Design, the Company and at least three other private parties have
pledged a voluntary contribution of up to $100,000 each, contingent upon
receiving matching federal funds. It is possible that the EPA could determine
that the Ashtabula River and Harbor should be designated as an extension of the
Fields Brook Superfund site, or, alternatively, as a separate Superfund site. It
is not possible at this time to predict the methods or responsibility for any
remediation and whether the Company will have any liability for any costs
incurred in cleaning up the Ashtabula River and Harbor.
With respect to each of the above sites, all of which are located in Ohio,
the State of Ohio may assert its interests and rights independent of those of
the EPA. The Company has notified all its insurers relative to the environmental
claims reported above and has demanded that the insurers assume the Company's
defense of such claims and indemnify the Company against such claims. During
1993, the Company settled a claim with one insurer for $0.4 million. None of the
remaining insurers have agreed to defend or indemnify the Company, and several
have denied coverage. However, the Company continues to pursue these claims with
its insurers.
28
<PAGE> 29
Alleged RCRA Violations. On October 9, 1992, the EPA filed a complaint
alleging certain violations of RCRA at the Company's now closed facilities in
Ashtabula, Ohio. The EPA's determination is based on information gathered during
inspections of the facility in 1991. Under the complaint the EPA proposed 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.
Given the status of the proceedings at certain of these sites, and the
evolving nature of environmental laws, regulations, and remediation techniques,
the Company's ultimate obligation for investigative and remediation costs cannot
be predicted. It is the Company's policy to recognize in its financial
statements environmental costs as an obligation becomes probable and a
reasonable estimate of exposure can be determined. At December 31, 1995, the
amount accrued for future environmental-related costs was $2.4 million. Based on
available information, RMI believes that its share of potential
environmental-related costs, before expected contributions from third parties,
is in a range from $3.7 to $6.3 million in the aggregate. The amount accrued is
net of expected contributions from third parties (which does not include any
amounts from 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 sites.
The ultimate resolution of the foregoing contingencies could, individually
or in the aggregate, be material to the consolidated financial statements.
However, management believes that RMI will remain a viable and competitive
enterprise even though it is possible these matters could be resolved
unfavorably.
29
<PAGE> 30
RMI TITANIUM COMPANY
SELECTED FINANCIAL DATA
The following selected financial data has been derived from the Consolidated
Financial Statements of RMI for each of the five years during the period ended
December 31, 1995. The information set forth below should be read in connection
with the Consolidated Financial Statements included elsewhere herein and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE AND PRICE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales:
Mill products............................... $138,077 $103,790 $ 96,453 $110,509 $128,803
Fabricated products and other services...... 26,904 31,134 20,512 16,745 17,260
Other(1).................................... 6,185 8,468 10,432 8,353 19,505
-------- -------- -------- -------- --------
Total sales............................. 171,166 143,392 127,397 135,607 165,568
Cost of sales................................. 164,949(2) 140,289 127,486 135,985 204,086 (3)
-------- -------- -------- -------- --------
Gross profit (loss)......................... 6,217(2) 3,103 (89) (378) (38,518)(3)
Selling, general and administrative
expenses.................................... 9,576 9,531 9,133 9,365 10,687
Research, technical and product development
expenses.................................... 1,861 1,543 1,542 1,644 3,507
-------- -------- -------- -------- --------
Operating loss................................ (5,220)(2) (7,971) (10,764) (11,387) (52,712)(3)
Other (expense) income, net................... (1,622) (291) 1,554 178 (735)
Interest expense.............................. (4,966) (3,300) (2,745) (2,746) (3,538)
-------- -------- -------- -------- --------
Loss before income taxes...................... (11,808)(2) (11,562) (11,955) (13,955) (56,985)(3)
Provision (credit) for income taxes........... (7,200) -- -- 107 100
-------- -------- -------- -------- --------
Loss before cumulative effect of change in
accounting principle........................ (4,608) (11,562) (11,955) (14,062) (57,085)
Cumulative effect of change in accounting
principle................................... -- (1,202)(4) (16,938)(5) -- --
-------- -------- -------- -------- --------
Net loss...................................... $ (4,608) $(12,764) $(28,893) $(14,062) $(57,085)
======== ======== ======== ======== ========
Net loss per common share before cumulative
effect of change in accounting principle.... $ (0.30) $ (1.45) $ (8.14) (9.66) (39.17)
Net loss per common share..................... (0.30) (1.60) (19.67) (9.66) (39.17)
BALANCE SHEET DATA: (at end of period)
Working capital............................... $ 86,738 $ 74,694 $ 66,319 $ 72,229 $ 79,820
Total assets.................................. 171,559 160,810 152,471 153,257 173,888
Long-term debt................................ 64,020 54,740 66,660 62,280 58,800
Total shareholders' equity.................... 36,889 42,596 27,861 63,302 77,705
OPERATING AND OTHER FINANCIAL DATA:
Mill product shipments (thousands of pounds):
Aerospace................................... 10,526 8,109 7,619 8,699 9,379
Nonaerospace................................ 3,884 3,370 3,406 2,585 1,938
-------- -------- -------- -------- --------
Total shipments......................... 14,410 11,479 11,025 11,284 11,317
Average realized mill product sales price (per
pound)...................................... $ 10.23 $ 9.63 $ 9.60 $ 10.20 $ 11.69
EBITDA (6).................................... $ 4,632 $ (2,122) $ (2,912) $ (4,703) $ (5,535)
Cash flows (used in) provided from:
Operating activities........................ $ (7,725) $(13,217) $ (4,229) $ (2,562) $ 15,049
Investing activities........................ (1,422) (1,115) (106) (2,444) (8,799)
Financing activities........................ 9,271 14,424 4,358 3,398 (4,818)
-------- -------- -------- -------- --------
Total..................................... $ 124 $ 92 $ 23 $ (1,608) $ 1,432
Order backlog at December 31 (7).............. $134,000 $ 67,000 $ 70,000 $ 53,000 $ 82,000
Active employees at December 31............... 844 817 782 843 1,172
</TABLE>
30
<PAGE> 31
- ---------
(1) Includes sales of discontinued products of $2.6 million and $13.2 million in
1992 and 1991, respectively.
(2) Includes a charge of $5.0 million reflecting the June 30, 1995 adoption of
SFAS No. 121. See Note 7 to the Consolidated Financial Statements.
(3) Includes a charge of $37.1 million relating to the closing of RMI's titanium
sponge production facilities.
(4) Reflects the adoption of SFAS No. 112. See Note 11 to the Consolidated
Financial Statements.
(5) Reflects immediate recognition of the transition obligation determined as of
the January 1, 1993 adoption of SFAS No. 106. See Note 11 to the
Consolidated Financial Statements.
(6) EBITDA consists of income before interest expense, income taxes,
depreciation and amortization and the charges related to changes in
accounting principles in 1995, 1994 and 1993, and a plant closing in 1991.
Management believes EBITDA is useful in measuring the Company's ability to
service its debt. EBITDA should not be considered as an alternative to, or
more meaningful than, operating income or cash flow, as determined in
accordance with generally accepted accounting principles, as an indicator of
the Company's operating performance.
(7) "Order backlog" is defined as firm purchase orders generally subject, upon
payment of specified charges, to cancellation by the customer.
31
<PAGE> 32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Financial Data" and the Consolidated Financial Statements and Notes thereto of
the Company included elsewhere herein. The following information contains
forward-looking statements which involve certain risks and uncertainties. Actual
results and events may differ significantly from those discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in "Risk Factors."
OVERVIEW
Historically, a majority of the U.S. titanium industry's output has been
used in aerospace applications. The cyclical nature of the aerospace industry
has been the principal cause of the fluctuations in performance of companies
engaged in the titanium industry. Over the past 19 years, titanium mill products
shipments registered cyclical peaks of 54 million pounds in 1980 and 55 million
pounds in 1989. Beginning in 1991, the industry experienced a dramatic downturn
in demand for mill products. Domestic industry shipments fell from 53 million
pounds in 1990 to 34 million pounds in 1991, a decrease of 35%, the largest
single one year decrease in the history of the industry. This most recent
decline in industry shipments reflects a sharp decline in military aerospace
demand, which continues to the present, and a decline in commercial aircraft
build rates due in part to significant financial losses suffered by U.S.
commercial airline carriers. RMI's average realized mill product selling prices
deteriorated during the years 1993 and 1994 and were approximately 30% below
1990 levels.
Although military aerospace markets remain at historically low levels,
commercial aerospace markets have shown a recent increase in demand. In 1995,
most major commercial airlines reported stronger operating profits and, in the
second half of 1995, the commercial aerospace industry began to restore depleted
inventories of titanium mill products and aircraft manufacturers began to
increase build rates. RMI estimates, based on USGS data, that industry mill
products shipments to the commercial aerospace market in 1995 were 20 million
pounds, an increase of approximately 18% compared to 1994. Based on USGS data,
total industry shipments in 1995 were approximately 44 million pounds, an
increase of 26% compared to 1994. RMI can give no assurance as to extent or
duration of any recovery in the commercial aerospace market or the extent to
which such recovery will result in increases in demand for titanium products.
See "Risk Factors--Dependence on Cyclical Aerospace Markets."
During 1995, the use of titanium in golf clubs emerged as an important
nonaerospace market for the U.S. titanium industry. See "Business--Products and
Markets--Mill Products." The Company believes that titanium shipments for use in
golf clubs amounted to approximately 8% of U.S. industry mill product shipments
in 1995. Based on industry estimates, RMI believes that U.S. industry mill
product shipments to the golf club market could increase to eight million pounds
in 1996. See "Risk Factors--No Assurance as to New Product and Market
Development." The golf club market benefits RMI indirectly by increasing prices
for titanium mill products industry-wide. Although demand for titanium scrap for
the golf club manufacturing market has placed upward pressure on the Company's
raw material costs, this pressure has been more than offset to date by higher
selling prices for the Company's mill products.
In response to industry-wide conditions the Company closed its sponge
production facilities in early 1992, which allowed the Company to stem
immediately significant losses generated at these plants, as well as maintain
the flexibility to purchase titanium sponge and other raw materials, such as
foreign or domestic scrap at favorable prices. The Company entered into two
long-term titanium sponge supply arrangements which assure a supply of a
substantial portion of the Company's expected sponge requirements. Prices for
the Company's 1996 requirements, have already been set under these contracts and
other short term arrangements. In addition, RMI has negotiated at firm prices
approximately one-third of its anticipated sponge requirements for customer
orders scheduled for delivery in 1997. These actions reduced the Company's raw
material costs during the years 1993 through 1995, compared to the cost of
titanium sponge produced by the Company during the last year it operated its
sponge production facility. See "Risk Factors--Dependence on Others for Raw
Materials" and "Business--Raw Materials." Raw material prices are a significant
factor in the
32
<PAGE> 33
overall cost of production of the Company's titanium mill products. RMI has
instituted raw material escalator and surcharge clauses on all of its new
incoming orders. These escalators and surcharges are linked directly to current
raw material prices for titanium sponge, alloys and scrap. However, because of
the cyclical nature of the titanium industry and the effect that overall demand
for titanium mill products may have on future pricing, the Company can give no
assurances as to the continuing ability to recover raw material cost increases.
RMI's strategy is to build on its leading position in the worldwide
titanium industry while maintaining a strong financial condition and stringent
quality, safety and environmental standards. RMI is emphasizing higher margin
products in its traditional markets, while continuing to develop new markets and
products such as seamless tubulars for oil and gas and geothermal energy
production and the use of billet for golf club applications. See "Risk
Factors--No Assurance as to New Product and Market Development" and
"Business--Fabricated Products and Other Services."
RESULTS OF OPERATIONS
Net Sales. Net sales in 1995 increased by $27.8 million, or 19%, compared
to 1994. This increase resulted primarily from an increase in the volume of mill
product shipments and higher average selling prices, partially offset by
decreased revenues from fabricated products and other services and other sales.
Shipments of mill products in 1995 increased to 14.4 million pounds, 25% higher
than in 1994, reflecting an increase in demand for mill products from commercial
aerospace and other industrial markets. The majority of this increase occurred
in the second half of 1995, reflecting strengthening business conditions as the
year progressed. Approximately 75% of RMI's 1995 mill product sales were
aerospace related compared with approximately 63% in 1994. The Company's average
realized mill product selling price increased to $10.23 per pound in 1995,
approximately 6% higher than in 1994, and increased to $10.49 per pound in the
fourth quarter of 1995. Realized prices were favorably affected in 1995 by
increasing demand from the golf club market. See "Overview" above. Because the
titanium drilling riser for the Conoco Heidrun project was substantially
completed in 1994, sales of fabricated products and other services declined to
$26.9 million in 1995 from $31.1 million in 1994. Other sales decreased by $2.3
million, or 27%, compared to 1994, due to decreased funding for the DOE
remediation and restoration contract.
Net sales in 1994 increased by $16.0 million, a 12% increase, compared to
1993. This increase resulted primarily from increased revenues recognized in
connection with the titanium drilling riser contract and an increase in mill
product shipments. Shipments of mill products increased in 1994 to 11.5 million
pounds, 4% higher than in 1993. The Company's average realized selling price for
mill products of $9.63 per pound, however, remained virtually unchanged in 1994
compared to 1993. Prices on orders in 1994, while showing slight improvement,
reflected soft demand for titanium mill products. Sales of related products and
other services increased to $31.1 million in 1994 compared to $20.5 in 1993
primarily as a result of revenues recognized in connection with the titanium
drilling riser. Revenue recognized under the DOE remediation and restoration
contract decreased from $10.4 million to $8.5 million in 1994 due to decreased
DOE funding levels.
Gross Profit. Gross profit in 1995 improved to $6.2 million, an increase
of 100%, compared to $3.1 million in 1994. This improvement relates primarily to
increased shipments of titanium mill products and higher realized mill product
selling prices, partially offset by a reduction in sales of fabricated products
and other services, increases in raw material costs and an asset impairment
charge of $5.0 million following the adoption of 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."
Gross profit in 1994 improved to a profit of $3.1 million compared to a
loss of $0.1 million in 1993. This improvement related primarily to the titanium
drilling riser contract as well as the favorable impact of increased mill
product shipments.
Selling, General and Administrative Expenses ("SG&A"). SG&A expenses of
$9.5 million in 1995 remained virtually flat compared to 1994, despite increased
sales in 1995, as a result of the Company's efforts to contain costs. SG&A
expenses increased by $0.4 million in 1994 compared to 1993 primarily as a
result of
33
<PAGE> 34
increased levels of business activity. As a percentage of sales, SG&A expenses
were 5.6% in 1995, 6.6% in 1994 and 7.2% in 1993.
Research, Technical and Product Development Expenses. The Company's total
research spending amounted to $3.4 million in 1995, $3.3 million in 1994 and
$2.4 million in 1993. The Company's major research objectives are to maintain
its technical expertise in titanium production, provide customer technical
support and develop new products and markets. Certain major customers have
assisted in funding the Company's overall product development effort. Such
funding, which is included as a reduction of research expense, reduced the
Company's portion of research expense to $1.9 million in 1995 and $1.5 million
in each of 1994 and 1993, respectively.
Operating Loss. The operating loss for 1995 amounted to $5.2 million
compared to an $8.0 million loss in 1994. This improvement resulted primarily
from increased shipments of mill products and higher realized mill product
selling prices, partially offset by a $5.0 million asset impairment charge
following the adoption of SFAS No. 121. Both shipments and selling prices were
favorably impacted by a general increase in demand for titanium mill products.
The operating loss for 1994 of $8.0 million compared to a loss of $10.7
million in 1993. The improved results in 1994 reflect profit recognized in
connection with the titanium drilling riser contract combined with an increase
in mill product shipments.
Other Income (Expense). Other income (expense) for 1995 included a $1.9
million charge for impairment of the Company's investment in a joint venture. In
June 1995, the Company and Permascand AB of Sweden decided, for economic
reasons, to discontinue operations of Permipipe Titanium AS, their welded
titanium pipe joint venture in Norway. Amounts in 1993 include a $1.4 million
gain on sales and retirements of equipment and facilities.
Interest Expense. Net interest expense amounted to $5.0 million in 1995,
$3.3 million in 1994 and $2.7 million in 1993. Interest expense increased in
1995 from 1994 due to higher levels of borrowing to support increased business
levels and higher overall interest rates. Interest expense increased in 1994
from 1993 due to significantly higher overall interest rates partially offset by
lower levels of borrowing.
Income Taxes. In 1995, an income tax benefit of $7.2 million was recorded
to recognize a portion of the Company's deferred tax assets believed more likely
than not to be realized under the provisions of SFAS No. 109, "Accounting for
Income Taxes." For additional information, including a potential Section 382
limitation due to a change in control, see "Income Tax Considerations" below. No
tax provision or benefit was recorded in either 1994 or 1993.
Net Loss. In 1995, the Company reported a net loss of $4.6 million
compared to a net loss of $12.8 million in 1994 and $28.9 million in 1993. The
1995 results were adversely affected by a $5.0 million charge resulting from the
adoption of SFAS No. 121. The 1994 results were adversely affected by a $1.2
million charge representing the cumulative effect of adopting the provisions of
SFAS No. 112, "Employers' Accounting for Postretirement Benefits," while the
1993 results were adversely affected by a $16.9 million charge representing the
cumulative effect of adopting the provisions of SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions."
QUARTERLY RESULTS OF OPERATIONS AND OTHER FINANCIAL AND OPERATING DATA
The following table presents certain unaudited consolidated quarterly
financial data for 1995 and 1994. In the opinion of the Company's management,
this information includes all adjustments (consisting only of
34
<PAGE> 35
normal recurring adjustments) necessary to present fairly the unaudited
quarterly results set forth herein. The operating results for any quarter are
not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 YEAR ENDED DECEMBER 31, 1994
------------------------------------------ ----------------------------------------
4TH 3RD 2ND 1ST 4TH 3RD 2ND 1ST
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS EXCEPT FOR PRICE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales................ $48,530 $42,912 $39,621 $40,103 $38,853 $32,842 $35,337 $36,360
Gross profit......... 5,389 2,890 (3,999)(1) 1,937 887 996 693 527
Operating income
(loss)............. 2,880 199 (7,422) (877) (1,754) (1,984) (2,017) (2,216)
Cumulative effect of
change in
accounting
principle.......... -- -- -- -- -- -- -- (1,202)
Net income (loss).... 8,731(2) (967) (10,509) (1,863) (2,830) (2,780) (3,023) (4,131)
Mill product
shipments
(thousands of
pounds)............ 3,775 3,762 3,568 3,304 2,849 2,715 3,071 2,843
Average realized mill
product sales price
(per pound)........ $ 10.49 $ 10.31 $ 9.93 $ 10.19 $ 10.37 $ 9.43 $ 9.29 $ 9.46
</TABLE>
- ---------
(1) Includes a $5.0 million asset impairment charge following the adoption of
SFAS No. 121.
(2) Includes a $7.2 million tax benefit.
OUTLOOK
RMI's order backlog increased to $194 million at March 31, 1996 from $134
million at year-end 1995, $83 million at June 30, 1995 and $67 million at
year-end 1994. The following table summarizes the Company's quarterly order
backlog at March 31, 1996 and for the three years ended December 31, 1995. The
Company defines "order backlog" as firm purchase orders generally subject, upon
payment of specified charges, to cancellation by the customer. The Company has
historically experienced a high level of order cancellation and deferrals in
periods of industry downturns.
<TABLE>
<CAPTION>
AS OF THE QUARTER ENDED
--------------------------------------------------
DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
----------- ------------ ------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
1996............................ $194
1995............................ $134 $110 $83 86
1994............................ 67 61 61 70
1993............................ 70 72 58 59
</TABLE>
During the second half of 1995 and continuing into 1996, the Company has
experienced a significant increase in the volume of incoming orders at increased
prices. The Company estimates that as of March 31, 1996, orders for over 90% of
its anticipated 1996 shipments have been booked or shipped at average prices
approximately 15% higher than its 1995 average realized mill product selling
price of $10.23 per pound. The Company's average realized mill product selling
price increased to $11.31 per pound in the first quarter of 1996. The Company is
currently booking orders for titanium mill products for delivery in early 1997
at prices greater than $12 per pound. The increase in demand has been driven
primarily by the recovery in the commercial aerospace market and the emergence
of the golf club market. As facility utilization in the titanium industry
continues to grow and lead times lengthen, the Company expects prices on new
orders to continue to strengthen.
The increase in demand for titanium products has put upward pressure on
prices for certain raw materials used by the Company. Prices paid by the Company
for titanium sponge have remained relatively stable due to
35
<PAGE> 36
the Company's long term supply arrangements. Prices for titanium sponge under
the terms of the Company's long-term supply contracts are fixed for 1996, based
on the quantity purchased. Purchases of sponge above the quantities available
under the contracts would likely be purchased from other sources at higher
prices. Due to increased demand resulting primarily from the emerging golf club
market, current prices for titanium scrap, which accounts for approximately 40%
of the Company's raw material requirements, have increased approximately 46%
from first quarter 1995 prices. Prices of certain alloying agents have also
increased as a result of increased demand. The Company, and others, have
announced increased prices and surcharges to recover these increased costs.
The information included in this "Outlook" section is forward-looking and
involves risks and uncertainties that could significantly impact expected
results. The Company's outlook is significantly dependent upon the continued
growth of the commercial aerospace and golf club markets, its ability to recover
its raw material costs in the pricing of its products, the extent to which the
Company is able to develop new markets for its products, the time required for
such development and the level of demand for such products. See "Risk
Factors--Dependence on Cyclical Aerospace Markets" and "--No Assurance as to New
Product and Market Development." Other factors include those discussed under
"Risk Factors."
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows used in operating activities totaled $7.7 million in 1995,
$13.2 million in 1994 and $4.2 million in 1993. The change in net cash flows
used in operating activities in 1995 compared to 1994 was due primarily to
improved results of operations partially offset by an increase in accounts
receivable and noncash deferred tax assets. The increase in net cash flows used
in operating activities in 1994 compared to 1993 was primarily the result of
increased inventory levels required for the Company's long-term contract for the
titanium drilling riser. Working capital amounted to $86.7 million at December
31, 1995, compared to $74.7 million at December 31, 1994. The increase in
working capital in 1995 compared to 1994 reflects an increase in inventories and
accounts receivable. The Company's working capital ratio was 3.73 to 1 at
December 31, 1995 compared to 3.60 to 1 at December 31, 1994.
In 1995, the Company's cash flow requirements for operating losses, capital
expenditures and working capital were funded by borrowings under the Existing
Credit Facilities. In 1994, the Company's cash flow requirements for operating
losses, capital expenditures and working capital were funded through proceeds
from a rights offering to holders of Common Stock.
At December 31, 1995, the Company had borrowings of $58.2 million under the
Existing Bank Credit Facility and $5.0 million under the EXIM Bank Credit
Facility. Other long-term debt of $0.9 million consisted of industrial revenue
bonds. At December 31, 1995, RMI's percentage of total debt to total
capitalization was 63%. For information concerning the Company's indebtedness
outstanding at March 31, 1996, and the effect thereon of the sale of Common
Stock offered hereby, see "Capitalization."
The Company has negotiated the New Credit Facility to replace the Existing
Credit Facilities. See "Capitalization--New Credit Facility." For additional
information concerning the Existing Credit Facilities, see Note 9 to the
Consolidated Financial Statements included elsewhere herein.
In 1994 the Company raised working capital through a rights offering to
shareholders. After deducting expenses of the offering, net proceeds increased
total shareholders' equity by approximately $26.4 million.
The Company anticipates that it will be able to fund its 1996 working
capital requirements and its capital expenditures primarily from funds generated
by operating activities and, to the extent necessary, from borrowings under the
New Credit Facility. The Company's long-term liquidity requirements, including
capital expenditures, are expected to be financed by a combination of internally
generated funds, additional borrowings and other sources of external financing
as needed.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." SFAS No. 123 established
standards for accounting for stock-based compensa-
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tion but also allows companies to continue to account for stock-based
compensation under the provisions of Accounting Principles Board ("APB") Opinion
No. 25 "Accounting for Stock Issued to Employees" and make certain additional
disclosures in the notes to their financial statements. The new standard is
effective for fiscal years beginning after December 15, 1995. It is the
Company's intention to continue to account for stock-based compensation in
accordance with APB Opinion No. 25 and provide the additional required
disclosure in the notes to the consolidated financial statements.
INCOME TAX CONSIDERATIONS
Section 382 Limitation. At December 31, 1995, the Company had net
operating loss carryforwards of approximately $104 million available to reduce
federal taxable income through 2010. If an "ownership change" were to occur
within the meaning of Section 382 of the Code, the utilization of net operating
loss carryforwards would be subject to an annual limitation. Generally, an
"ownership change" occurs with respect to a corporation if shareholders who own,
directly or indirectly, 5% or more of the capital stock of the corporation
increase their aggregate percentage ownership of such stock by more than 50
percentage points over the lowest percentage of such stock owned by such
shareholders at any time during a prescribed testing period. The sale of the
shares of Common Stock offered hereby is not expected to result in an ownership
change that would cause the annual limitation to apply. In the event the
offering does not cause such an ownership change, an ownership change could
result from other equity transactions immediately following the sale, including
transactions such as exercises of stock options, purchases or sales of Common
Stock by certain stockholders, including USX, and other issuances of Common
Stock by the Company. If the annual limitation were to apply, the amount of the
limitation would generally equal the product of (i) the fair market value of the
Company's equity immediately prior to the ownership change, with certain
adjustments, including a possible adjustment to exclude certain capital
contributions made in the two years preceding the date of the ownership change,
and (ii) a long-term tax exempt bond rate of return published monthly by the
Internal Revenue Service. Should the annual limitation apply, the Company
believes that it would not materially affect the potential use of the net
operating loss carryforwards to reduce any future income tax liabilities over
time; however, it is possible that the Company's results in a particular year
could exceed the annual limitation, in which case such excess would not be
reduced by the net operating loss carryforward and the Company's tax liability
would be correspondingly higher. The foregoing summary has been prepared with
the advice of J.T. Mills, Vice President--Tax of USX who has acted as special
tax counsel to RMI in connection with this matter.
SFAS No. 109 Effects. SFAS No. 109 requires a valuation allowance when it
is more likely than not that some portion or all of the deferred tax assets will
not be realized. It further states that forming a conclusion that a valuation
allowance is not needed is difficult when there is negative evidence such as
cumulative losses in recent years. The ultimate realization of all or part of
the Company's deferred income tax assets depends on the Company's ability to
generate sufficient taxable income in the future.
In making an assessment of realizability at December 31, 1995, the Company
considered a number of factors, including the return to profitability in the
fourth quarter of 1995, a substantial and growing backlog of profitable orders
and a general improvement in overall industry operating conditions and business
fundamentals in the Company's key market sectors. The Company concluded that it
was appropriate to recognize a portion of its deferred tax assets, corresponding
to the level of income which could reasonably be expected over the course of a
historical titanium industry business cycle of approximately three years.
Accordingly, a portion of the valuation allowance provided in previous years was
released, resulting in a credit to income tax expense in 1995 of $7.2 million.
The remaining valuation allowance was retained, in light of the requirement in
SFAS No. 109 to give weight to objective evidence such as recent losses and the
historical titanium industry business cycle.
When preparing 1996 and future periods' interim and annual financial
statements, the Company will periodically evaluate its strategic and business
plans, in light of evolving business conditions, and the valuation allowance
will be adjusted for future income expectations resulting from that process, to
the extent different from those inherent in the valuation allowance established
as of December 31, 1995.
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<PAGE> 38
As a result, the application of the SFAS No. 109 valuation allowance
determination process could result in recognition of significant income tax
provisions or benefits in a single interim or annual period due to changes in
income expectations over a horizon that may span several years. Such tax
provision or benefit effect would likely be material in the context of the
specific interim or annual reporting period in which changes in judgment about
more extended future periods are reported. This effect is a consequence of the
application of the SFAS No. 109 valuation allowance determination process, which
is a balance sheet oriented model and which does not have periodic matching of
pretax income or loss and the related tax effects as an objective.
The Section 382 limitation described above could, if applicable, adversely
impact the income tax provision or benefit in a particular year as a result of
the application of the SFAS No. 109 valuation allowance determination process;
however, it is not expected to have an adverse impact over time.
If the Company's principal markets continue to exhibit improvement, and
such improvement is manifested in positive trends in the value and profitability
of customer orders and backlog, additional tax benefits may be reported in
future periods as the valuation allowance is further reduced. Alternatively, to
the extent that the Company's future profit expectations remain static or are
diminished, tax provisions may be charged against pretax income. In either
event, such valuation allowance-related tax provisions or benefits should not
necessarily be viewed as recurring. Further, subject to the effects, if any, of
the limitation described above, the amount of current taxes that the Company
expects to pay for the foreseeable future is minimal, and the Company's
carryforward tax attributes are viewed by management as a significant
competitive advantage to the extent that profits can be sheltered effectively
from tax and re-employed in the growth of the business.
ENVIRONMENTAL MATTERS
The Company is subject to 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. During each of 1995 and 1994, the Company
spent approximately $0.6 million for environmental-related expenditures, such
expenditures having totaled $0.9 million in 1993.
At December 31, 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 accrued is net of expected contributions from third
parties (which does not include any amounts from 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 filed a complaint and 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.
For a further discussion of environmental matters, see "Business--Legal
Proceedings--Environmental."
CAPITAL EXPENDITURES
Gross capital expenditures in 1995 and 1994 amounted to $1.6 million and
$1.1 million, respectively. The Company has budgeted capital spending of
approximately $5.0 million in 1996. RMI anticipates that it can fund this
spending using cash provided from operations.
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SELLING SHAREHOLDER
The Selling Shareholder owns 7,783,600 shares of Common Stock, constituting
approximately 51% of the shares of Common Stock currently outstanding. Of the
6,000,000 shares of Common Stock offered hereby, 4,000,000 shares are being sold
by the Company (4,600,000 shares if the Underwriters' over-allotment option is
exercised in full) and 2,000,000 shares are being sold by the Selling
Shareholders (2,300,000 shares if the Underwriters' over-allotment
option is exercised in full). The Company will not receive any proceeds from the
sale of Common Stock by the Selling Shareholder. Upon completion of the sale of
Common Stock offered hereby, the Selling Shareholder will own approximately 30%
of the outstanding shares of Common Stock (27% if the Underwriters'
over-allotment option were exercised in full).
The Selling Shareholder has agreed not to offer, sell or otherwise dispose
of any shares of Common Stock for a period of 180 days following the date of
this Prospectus, without the prior consent of the Representatives of the
Underwriters. See "Risk Factors--Shares Available for Sale."
As a result of the Selling Shareholder's ownership of shares of Common
Stock, the Selling Shareholder may be able to exercise effective control over
the Company through its representation on the Board of Directors and by reason
of its substantial voting power with respect to the election of directors and
actions requiring shareholder approval. Of the eight members of RMI's Board of
Directors, three are officers, employees and/or directors of the Selling
Shareholder. For information concerning positions held by directors and officers
of RMI with the Selling Shareholder, see "Risk Factors--Potential Conflicts of
Interest" and "Management."
The Company, in the ordinary course of business, purchases goods and
services from the Selling Shareholder. The costs of such transactions to the
Company in 1995 amounted to approximately $1,275,000.
MANAGEMENT
The following table sets forth, as of May 1, 1996, certain information
regarding RMI's directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Craig R. Andersson................. 58 Director
Neil A. Armstrong.................. 65 Director
Daniel I. Booker................... 48 Director
Ronald L. Gallatin................. 51 Director
Charles C. Gedeon.................. 55 Director
L. Frederick Gieg, Jr. ............ 64 Director, President and Chief Executive
Officer
Robert M. Hernandez................ 51 Director, Chairman of the Board
John H. Odle....................... 53 Senior Vice President--Commercial
Timothy G. Rupert.................. 49 Senior Vice President and Chief Financial
Officer
Wesley W. von Schack............... 52 Director
</TABLE>
At the 1996 Annual Meeting held on April 25, 1996, all directors were
elected for terms of one year and until their successors are elected and
qualified.
ADDITIONAL INFORMATION CONCERNING DIRECTORS AND OFFICERS
Mr. Andersson has been a director since 1990. Mr. Andersson retired as a
director and Vice-Chairman of Aristech Chemical Corporation on April 30, 1995.
Previously, he was President and Chief Operating Officer, a position he had held
since December 4, 1986. Mr. Andersson was President of USS Chemicals Division of
USX (the predecessor of Aristech) from 1985. He is a director of Albermarle
Corporation. He has a B.S. degree in chemical engineering from the University of
Minnesota.
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<PAGE> 40
Mr. Armstrong has been a director since 1990. For 17 years he served with
the National Aeronautics and Space Administration and its predecessor agency as
an engineer, test pilot, astronaut and administrator. From 1971 to 1979 he was
professor of aerospace engineering at the University of Cincinnati. He became
Chairman of Cardwell International, Ltd. in 1980; Chairman of CTA, Inc. in 1982;
and Chairman of AIL Systems, Inc. in 1989. He is a director of Cinergy
Corporation, Cincinnati Milacron, Inc., Eaton Corporation, Thiokol Corp., and
USX. He has a B.S. degree in aeronautical engineering from Purdue University and
an M.S. in aeronautical engineering from the University of Southern California.
Mr. Booker has been a director since 1995. He is a partner of the law firm
of Reed Smith Shaw & McClay, headquartered in Pittsburgh, Pennsylvania. Since
1992, he has been Managing Partner, or chief executive, of Reed Smith. He
received an undergraduate degree from the University of Pittsburgh and a law
degree from the University of Chicago.
Mr. Gallatin has been a director since 1996. He served as a Managing
Director of Lehman Brothers Inc., where he was a member of the firm's Operating
Committee and its Director of Corporate Strategy and Product Development until
his retirement on December 31, 1995. He is currently a Senior Advisor to Lehman
Brothers Inc. and a director of Gabelli Securities, Inc. A graduate of New York
University, and both Brooklyn and New York University Law Schools, Mr. Gallatin
has B.S., J.D. and L.L.M. (Taxation) degrees and is a Certified Public
Accountant.
Mr. Gedeon has been a director since 1991. He is Executive Vice
President-Raw Materials & Diversified Businesses of the U.S. Steel Group of USX.
From 1983 until he joined USX in 1986, Mr. Gedeon had been Vice
President-Operations of National Steel Corporation. Mr. Gedeon is a director of
the U.S. Steel Group of USX Corporation.
Mr. Gieg has been a director and President and Chief Executive Officer of
the Company since 1990 and was President and Chief Executive Officer of its
predecessor since September 1, 1982. Previously, Mr. Gieg had been Vice
President and General Manager of the Western Steel Division of what is now the
U.S. Steel Group of USX. He began his career with USX in June 1953. He has a
B.A. degree from Dartmouth College and a degree from the Advanced Management
Program at Harvard University.
Mr. Hernandez has been Chairman and a director since 1990. He is Vice
Chairman and Chief Financial Officer of USX and has been a director of USX since
1991. Mr. Hernandez has an undergraduate degree from the University of
Pittsburgh and an M.B.A. from the Wharton Graduate School of the University of
Pennsylvania. He is a director of ACE Limited, Compass Capital Fund and
Marinette Marine Corporation. Mr. Hernandez is also a director of the
United States Steel and Carnegie Pension Fund.
Mr. Odle has been Senior Vice President--Commercial of RMI and its
predecessor since 1989 and served as Vice President-Commercial from 1978 until
1989. Prior to that, Mr. Odle served as General Manager-Sales. He has 18 years
of service with RMI and its predecessor and began his career as a commercial
management trainee in 1964 with USX. Mr. Odle is a graduate of Miami University,
Oxford, Ohio.
Mr. Rupert was appointed Senior Vice President and Chief Financial Officer
in March 1994 and had served as Vice President and Chief Financial Officer since
September 1991. Prior to joining RMI, Mr. Rupert was employed by USX for 23
years in various accounting and finance positions.
Mr. von Schack has been a director since 1991. He has been a director of
DQE, Inc. since 1989 and of Duquesne Light Company since 1986 and is Chairman of
the Board, President and Chief Executive Officer of DQE and of Duquesne Light.
DQE is the parent company of Duquesne Light. He is also a director of Mellon
Bank Corporation and Mellon Bank, N.A.
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<PAGE> 41
DESCRIPTION OF CAPITAL STOCK
RMI is authorized to have outstanding 30,000,000 shares of Common Stock,
$.01 par value per share, and 5,000,000 shares of Preferred Stock, no par value
("Preferred Stock"). As of March 31, 1996, there were 15,443,876 shares of
Common Stock outstanding. All of the shares of Common Stock issued and
outstanding as of the date of this Prospectus are, and the shares of Common
Stock offered hereby by the Company will be, fully paid and nonassessable. The
Preferred Stock is issuable in one or more series, with such designations,
dividend rates, dates at which dividends shall be payable and from which they
shall be cumulative, redemption rights and prices, sinking fund requirements,
liquidation prices, conversion rights and restrictions as the Board of Directors
shall fix, subject to any limitations prescribed by law and to the provisions of
the Amended Articles of Incorporation. No shares of Preferred Stock have been
issued.
Each holder of shares of Common Stock is entitled to one vote for each
share upon all matters presented to shareholders. Each holder of Preferred Stock
is entitled to one vote for each share thereof and generally votes together with
the Common Stock as one class on all matters, except that Preferred Stock is
entitled to vote separately to elect two additional Directors in the event of a
default in the payment in six quarters of dividends on any series of such class
until no quarterly dividend is in arrears. In addition, under Ohio law, holders
of Preferred Stock have the right to vote separately as a class on specified
matters.
The Common Stock is not subject to redemption and has no conversion rights.
Upon liquidation, holders of Common Stock are entitled to receive pro rata all
assets of RMI remaining after payment of debts and liquidation preferences and
accrued and unpaid dividends relating to the Preferred Stock.
No holder of Common Stock or Preferred Stock has any preemptive rights or
cumulative voting rights.
Holders of Common Stock are entitled to receive such dividends as may be
declared from time to time by the Board of Directors of RMI out of funds legally
available for the payment of dividends. Dividends on Preferred Stock may be
cumulative in preference to holders of Common Stock at such rates and from such
dates as shall be set by the Directors. Dividend payments are prohibited to the
holders of Common Stock, unless all accrued and unpaid dividends have been paid
to the holders of the Preferred Stock.
RMI's Amended Articles of Incorporation may be amended by the affirmative
vote of at least two-thirds of the voting power of the Company and, if required
by applicable law, at least two-thirds of the outstanding Preferred Stock.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
Under RMI's Amended Articles of Incorporation on March 31, 1996, there were
14,556,124 authorized and unissued shares of Common Stock and five million
shares of undesignated Preferred Stock. The unissued shares of Common Stock, to
the extent not reserved for issuance pursuant to RMI's stock option and stock
plans, may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital or to make corporate acquisitions.
Except for the issuance of Common Stock pursuant to certain director and
employee benefit plans, RMI does not currently have any plans to issue
additional shares of Common Stock or any shares of Preferred Stock.
One of the effects of the existence of unissued and unreserved Common Stock
and undesignated Preferred Stock may be to enable the Board of Directors to
render more difficult or to discourage an attempt to obtain control of the
Company by means of a merger, tender offer, proxy contest or otherwise, and
thereby to protect the continuity of RMI's management. If, in the due exercise
of its fiduciary obligations, for example, the Board of Directors were to
determine that a takeover proposal was not in RMI's best interest, such shares
could be issued by the Board of Directors without shareholder approval in one or
more private placements or other transactions that might prevent or render more
difficult or costly the completion of the takeover transaction by diluting the
voting or other rights of the proposed acquiror or insurgent shareholder group,
by creating a substantial voting block in institutional or other hands that
might undertake to support the position of the incumbent Board of Directors, by
effecting an acquisition that might complicate or preclude the takeover, or
otherwise. In this regard, except with respect to voting rights, RMI's Amended
Articles of Incorporation grants the Board of Directors broad power to establish
the rights and preferences of the
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<PAGE> 42
authorized and unissued Preferred Stock, including the power to convert
Preferred Stock into a larger number of shares of Common Stock or other
securities, to demand redemption at a specified price under prescribed
circumstances related to a change of control, or to exercise other powers to
impede a takeover. The issuance of shares of Preferred Stock pursuant to the
Board of Director's authority described above may adversely affect the rights of
the holders of the Common Stock. It should be noted that, although Ohio law and
RMI's Amended Articles of Incorporation would not require shareholder approval
to issue authorized shares, historically the NYSE on which the Common Stock is
listed, has prohibited certain issuances and has required shareholder approval
of certain other issuances as a condition of listing the additional shares or,
in some instances, of continued listing of the outstanding shares.
In addition, certain other charter provisions, which are described below,
may have the effect, alone or in combination with each other or with the
existence of authorized but unissued capital stock, of rendering more difficult
or discouraging an acquisition of RMI deemed undesirable by the Board of
Directors.
CERTAIN PROVISIONS OF RMI'S ARTICLES OF INCORPORATION AND REGULATIONS
Board of Directors. At the Annual Meeting held on April 25, 1996 all
directors were elected to serve terms expiring at the next annual meeting of
shareholders.
Size of Board of Directors; Removal of Directors; Filling of Vacancies on
the Board of Directors. RMI's Regulations provide that the number of directors
may be changed from time to time, by the directors or at a meeting of
shareholders called for the purpose of electing directors, but shall not be
fewer than three nor more than twelve. Under Ohio law, unless the articles of
incorporation or regulations otherwise provide, a director may be removed by the
shareholders with or without cause. RMI's Regulations specifically provide that
directors may be removed only for cause. RMI's Regulations also provide that
vacancies on the Board of Directors that may occur between annual meetings shall
be filled only by the Board of Directors. In addition, these provisions specify
that any director elected to fill a vacancy on the Board will serve for the
balance of the term of the replaced director.
Calling of Meetings of Shareholders. RMI's Regulations provide that
special meetings of shareholders may be called by a shareholder or shareholders
only if they hold 50% of the shares of stock entitled to vote.
Certain Voting Provisions. RMI's Amended Articles of Incorporation provide
that the approval of holders of at least two-thirds of the voting power of RMI
(and, if required by applicable law, a class vote of preferred holders) is
required to approve a merger or consolidation if under Ohio law such merger or
consolidation would have to be submitted to RMI's shareholders, a sale or
disposition of all or substantially all the assets of RMI or a dissolution of
RMI.
CERTAIN PROVISIONS OF OHIO LAW
RMI is subject to certain provisions of Ohio law that may discourage or
render more difficult an unsolicited takeover of RMI. The Merger Moratorium Act
prohibits certain mergers, sales of assets, issuances or purchases of
securities, liquidation or dissolution, or reclassifications of the
then-outstanding shares of an Ohio corporation involving, or for the benefit of,
certain beneficial holders of stock representing 10% or more of the voting power
of the corporation (a "10% shareholder"), unless (i) the transaction is approved
by the directors prior to the time that the 10% shareholder became a 10%
shareholder (the "Shareholder Acquisition Date"), (ii) the acquisition of 10% of
the voting power is approved by the directors prior to the Shareholder
Acquisition Date or (iii) the transaction involves a 10% shareholder that has
been such for at least three years and (a) the transaction is approved by
holders of two-thirds of the voting power of the corporation and the holders of
a majority of the voting power not owned by 10% shareholders, or (b) certain
minimum price and form of consideration requirements are met.
The Control Share Act provides that the acquisition of shares entitling the
holder to exercise voting power in certain ranges (one-fifth or more, one-third
or more, or a majority) can be made only with the prior authorization of (i) the
holders of at least a majority of the total voting power and (ii) the holders of
at least a majority of the total voting power held by shareholders other than
the proposed acquirer, officers of the
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<PAGE> 43
corporation elected or appointed by the directors, and directors of the
corporation who are also employees and excluding certain shares that are
transferred after the announcement of the proposed acquisition and prior to the
vote with respect to the proposed acquisition. The Control Share Act does not
specify a remedy for violation of the Act. However, in at least one situation, a
court has set aside an acquisition made in violation of the Control Share Act.
The Profit Disgorgement Act, which is contained in Section 1707.043 of the Ohio
Revised Code, provides Ohio corporations, or in certain circumstances the
shareholders of an Ohio corporation, a cause of action to recover profits
realized under certain circumstances by persons who dispose of securities of a
corporation within 18 months of proposing to acquire such corporation.
CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
The following is a discussion of certain anticipated United States income
and estate tax consequences of the ownership and disposition of the Common Stock
applicable to Non-United States Holders of such Common Stock. For the purpose of
this discussion, a "Non-United States Holder" is any corporation, individual,
partnership, estate or trust that is, as to the United States, a foreign
corporation, a non-resident alien individual, a foreign partnership or a foreign
estate or trust as such terms are defined in the Code. This discussion does not
deal with all aspects of United States income and estate taxation and does not
deal with foreign, state and local tax consequences that may be relevant to
Non-United States Holders in light of their personal circumstances. Furthermore,
the following discussion is based on current provisions of the Code and
administrative and judicial interpretations as of the date hereof, all of which
are subject to change. EACH PROSPECTIVE PURCHASER OF COMMON STOCK IS URGED TO
CONSULT A TAX ADVISOR REGARDING CURRENT AND POSSIBLE FUTURE UNITED STATES
FEDERAL, STATE, LOCAL AND NON-UNITED STATES INCOME AND OTHER TAX CONSEQUENCES OF
ACQUIRING, HOLDING AND DISPOSING OF COMMON STOCK.
DIVIDENDS
Generally, any dividend paid to a Non-United States Holder of Common Stock
will be subject to United States withholding tax at a rate of 30% of the gross
amount of the dividend, or at a lesser applicable treaty rate. Dividends
received by a Non-United States Holder that are effectively connected with a
United States trade or business conducted by such Non-United States Holder are
exempt from such withholding tax. However, such effectively connected dividends,
net of certain deductions and credits, are taxed at the same graduated rates
applicable to United States persons.
In addition to the graduated tax described above, dividends received by a
corporate Non-United States Holder that are effectively connected with a United
States trade or business of the corporate Non-United States Holder may also be
subject to a branch profits tax at a rate of 30% or at a lesser applicable
treaty rate.
Under current United States Treasury regulations, dividends paid to an
address outside the United States are presumed to be paid to a resident of such
country (unless the payor has knowledge to the contrary) for purposes of the
withholding discussed above and, under the current interpretation of United
States Treasury regulations, for purposes of determining the applicability of a
tax treaty rate. However, under proposed United States Treasury regulations not
currently in effect, a Non-United States Holder of Common Stock who wishes to
claim the benefit of an applicable treaty rate would be required to satisfy
applicable certification and other requirements. A Non-United States Holder may
claim exemption from withholding under the effectively connected income
exception by filing Form 4224 (Statement Claiming Exemption from Withholding of
Tax on Income Effectively Connected With the Conduct of Business in the United
States) with RMI or its paying agent.
A Non-United States Holder of Common Stock eligible for a reduced rate of
United States withholding tax pursuant to a tax treaty may obtain a refund of
any excess amounts currently withheld by filing an appropriate claim for refund
with the United States Internal Revenue Service (the "IRS").
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SALE OF COMMON STOCK
A Non-United States Holder generally will not be subject to United States
federal income tax on any gain realized upon the sale or other disposition of
its Common Stock unless (i) such gain is effectively connected with a United
States trade or business of the Non-United States Holder, (ii) the Non-United
States Holder is an individual who holds the Common Stock as a capital asset and
is present in the United States for a period or periods aggregating 183 days or
more during the calendar year in which such sale or other disposition occurs and
certain other conditions are met or (iii) RMI is or has been a "United States
real property holding corporation" for federal income tax purposes.
RMI has not determined whether it is a "United States real property holding
corporation" for federal income tax purposes. If RMI is or becomes a "United
States real property holding corporation," so long as the Common Stock continues
to be regularly traded on an established securities market, only a Non-United
States Holder who holds or held (during the five year period preceding such
disposition) more than 5% of the Common Stock will be subject to federal income
tax on the sale or other disposition of such stock.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Payments of dividends to a Non-United States Holder at an address outside
the United States will generally not be subject to information reporting and
backup withholding (unless the payor has actual knowledge that the payee is a
United States person). The payment of the proceeds of the disposition of Common
Stock to or through the United States office of a broker is subject to
information reporting and backup withholding at a rate of 31% unless the
beneficial owner certifies its non-United States status under penalties of
perjury or otherwise establishes an exemption. The payment of the proceeds of
the disposition by a Non-United States Holder of Common Stock to or through a
foreign office of a broker will not be subject to backup withholding. The IRS
has indicated, however, that it is studying the possible application of backup
withholding in the case of a foreign office of a broker that is (a) a United
States person, (b) a United States controlled foreign corporation or (c) a
foreign person 50% or more of whose gross income for certain periods is from a
United States trade or business. Moreover, in the case of foreign offices of
such brokers, information reporting will apply to such payments of proceeds
unless (1) such broker has documentary evidence in its files of the beneficial
owner's foreign status and does not have actual knowledge to the contrary or (2)
the beneficial owner otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against such holder's U.S. federal income tax liability
provided the required information is furnished to the IRS.
ESTATE TAX
Common Stock owned, or treated as owned, by a nonresident alien individual
at the time of his death will be included in such holder's gross estate for
United States federal estate tax purposes, unless an applicable estate tax
treaty provides otherwise.
44
<PAGE> 45
UNDERWRITING
Under the terms of, and subject to the conditions contained in, the
Underwriting Agreement, the form of which is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part, the Underwriters
named below, for whom Lehman Brothers Inc. and Salomon Brothers Inc are acting
as representatives (the "Representatives"), have severally agreed to purchase
from the Company and the Selling Shareholder, and the Company and the Selling
Shareholder have agreed to sell to each Underwriter, the aggregate number of
shares of Common Stock set forth opposite the name of each such Underwriter
below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Lehman Brothers Inc. ......................................................... 2,017,500
Salomon Brothers Inc ......................................................... 2,017,500
Bear, Stearns & Co. Inc. ..................................................... 127,500
CS First Boston Corporation .................................................. 127,500
A.G. Edwards & Sons, Inc. .................................................... 127,500
Everen Securities, Inc. ...................................................... 127,500
Morgan Stanley & Co. Incorporated ............................................ 127,500
Oppenheimer & Co., Inc. ...................................................... 127,500
PaineWebber Incorporated ..................................................... 127,500
Prudential Securities Incorporated ........................................... 127,500
The Buckingham Research Group Incorporated ................................... 67,500
Legg Mason Wood Walker, Incorporated ......................................... 67,500
McDonald & Company Securities, Inc. .......................................... 67,500
The Ohio Company ............................................................. 67,500
Pacific Securities, Inc. ..................................................... 67,500
Piper Jaffray Inc. ........................................................... 67,500
Pryor, McClendon, Counts & Co., Inc. ......................................... 67,500
Ragen MacKenzie Incorporated ................................................. 67,500
Sands Brothers & Co., Ltd. ................................................... 67,500
Adam Smith & Company, Inc. ................................................... 67,500
Stifel, Nicolaus & Company, Incorporated ..................................... 67,500
Sutro & Co. Incorporated ..................................................... 67,500
Tucker Anthony Incorporated .................................................. 67,500
Wheat, First Securities, Inc. ................................................ 67,500
---------
Total .............................................................. 6,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase shares of Common Stock are subject to certain
conditions, and that if any of the shares of Common Stock offered hereby are
purchased by the Underwriters pursuant to the Underwriting Agreement, all of the
shares of Common Stock agreed to be purchased by the Underwriters pursuant to
the Underwriting Agreement must be so purchased.
The Company and the Selling Shareholder have been advised that the
Underwriters propose to offer the shares of Common Stock offered hereby directly
to the public initially at the public offering price set forth on the cover page
of this Prospectus, and to certain selected dealers (who may include the
Underwriters) at such initial public offering price less a selling concession
not in excess of $.57 per share. The selected dealers may reallow a concession
not in excess of $.10 per share to certain brokers and dealers. After the
initial offering of the Common Stock, the public offering price, the concession
to selected dealers and the reallowance may be changed by the Underwriters.
The Company and the Selling Shareholder have granted to the Underwriters an
option to purchase up to an additional 600,000 shares of Common Stock and an
additional 300,000 shares of Common Stock, respectively, at the initial public
offering price less the aggregate underwriting discounts and commissions
45
<PAGE> 46
shown on the cover page of this Prospectus, solely to cover over-allotments, if
any. The option may be exercised at any time up to 30 days after the date of
this Prospectus. To the extent that the Underwriters exercise such option, each
of the Underwriters will be committed, subject to certain conditions, to
purchase, on a pro rata basis from the Company and the Selling Shareholder, a
number of option shares proportionate to such Underwriter's initial commitment.
The Company, its directors (excluding Mr. L. Frederick Gieg, Jr., President
and Chief Executive Officer) and the Selling Shareholder have agreed not to
offer, sell or otherwise dispose of any shares of Common Stock for a period of
180 days following the date of this Prospectus, without the prior consent of the
Representatives of the Underwriters. Certain officers of the Company, including
Mr. Gieg, have agreed not to offer, sell or otherwise dispose of any shares of
Common Stock for a period of 90 days following the date of this Prospectus
without the prior consent of the Representatives of the Underwriters.
The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments that the Underwriters may be
required to make in respect thereof.
Ronald L. Gallatin, a director of the Company, is a Senior Advisor to
Lehman Brothers Inc.
Lehman Brothers Inc. and Salomon Brothers Inc, and certain of their
affiliates, have from time to time provided investment banking, financial
advisory and other services to the Company and to USX and its affiliates in the
ordinary course of their respective businesses.
LEGAL MATTERS
The validity of the shares of the Common Stock offered hereby by the
Company will be passed upon for RMI by D. D. Sandman, Esq., General Counsel and
Secretary of USX. The Law Department of the U.S. Steel Group of USX acts as
counsel to RMI. Certain legal matters will be passed upon for the Selling
Shareholder by D. D. Sandman. Mr. Sandman, in his capacity as General Counsel,
Secretary and Senior Vice President-Human Resources of USX, is paid a salary by
USX and participates in various employee benefit plans offered to officers of
USX generally. Certain legal matters will be passed upon for the Underwriters by
Simpson Thacher & Bartlett (a partnership which includes professional
corporations), 425 Lexington Avenue, New York, New York 10017. Simpson Thacher &
Bartlett will rely upon the opinion of D. D. Sandman as to certain matters of
Ohio law. Simpson Thacher & Bartlett is acting as counsel in certain matters for
a subsidiary of USX.
EXPERTS
The financial statements as of December 31, 1995 and 1994 and for each of
the three years in the period ended December 31, 1995 included in this
Prospectus have been so included and in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
46
<PAGE> 47
RMI TITANIUM COMPANY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants................................................. F-2
Consolidated Statement of Operations for the years ended
December 31, 1995, 1994 and 1993................................................ F-3
Consolidated Balance Sheet at December 31, 1995 and 1994.......................... F-4
Consolidated Statement of Cash Flows for the years ended
December 31, 1995, 1994 and 1993................................................ F-5
Consolidated Statement of Shareholders' Equity for the years ended
December 31, 1995, 1994 and 1993................................................ F-6
Notes to Consolidated Financial Statements........................................ F-7
</TABLE>
F-1
<PAGE> 48
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of RMI Titanium Company
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of RMI Titanium Company and its subsidiaries at December 31, 1995 and
1994, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 2 to the financial statements, in 1995 the Company
adopted Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
As discussed in Note 11 to the financial statements, in 1994 the Company adopted
Statement of Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits." As discussed in Note 11 to the financial statements,
in 1993 the Company adopted Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions."
PRICE WATERHOUSE LLP
Pittsburgh, Pennsylvania
January 26, 1996
F-2
<PAGE> 49
RMI TITANIUM COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Sales.................................................... $ 171,166 $ 143,392 $ 127,397
Operating costs:
Cost of sales (Note 7)................................... 164,949 140,289 127,486
Selling, general and administrative expenses............. 9,576 9,531 9,133
Research, technical and product development expenses..... 1,861 1,543 1,542
---------- --------- ---------
Total operating costs.......................... 176,386 151,363 138,161
---------- --------- ---------
Operating loss........................................... (5,220) (7,971) (10,764)
Other (expense) income--net.............................. (1,622) (291) 1,554
Interest expense......................................... (4,966) (3,300) (2,745)
---------- --------- ---------
Loss before income taxes................................. (11,808) (11,562) (11,955)
Provision (credit) for income taxes (Note 8)............. (7,200) -- --
---------- --------- ---------
Loss before cumulative effect of change in accounting
principle.............................................. (4,608) (11,562) (11,955)
Cumulative effect of change in accounting principle
(Note 11).............................................. -- (1,202) (16,938)
---------- --------- ---------
Net loss................................................. $ (4,608) $ (12,764) $ (28,893)
========== ========= =========
Net loss per common share:
Before cumulative effect of change in accounting
principle........................................... $ (0.30) $ (1.45) $ (8.14)
Cumulative effect of change in accounting principle.... -- (0.15) (11.53)
---------- --------- ---------
Net loss................................................. $ (0.30) $ (1.60) $ (19.67)
========== ========= =========
Weighted average shares outstanding (Note 4)............. 15,301,854 7,958,395 1,468,885
========== ========= =========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-3
<PAGE> 50
RMI TITANIUM COMPANY
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................ $ 509 $ 385
Receivables, less allowance for doubtful accounts of $1,670 and
$704............................................................... 41,251 28,846
Inventories.......................................................... 74,053 72,466
Deferred tax asset................................................... 1,036 --
Other current assets................................................. 1,656 1,674
--------- ---------
Total current assets............................................ 118,505 103,371
Property, plant and equipment, net of accumulated depreciation....... 39,964 50,016
Noncurrent deferred tax asset........................................ 6,164 --
Other noncurrent assets.............................................. 6,926 7,423
--------- ---------
Total assets.................................................... $ 171,559 $ 160,810
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt.................................... $ 120 $ 120
Accounts payable..................................................... 17,646 17,832
Accrued wages and other employee costs............................... 7,237 7,238
Other accrued liabilities............................................ 6,764 3,487
--------- ---------
Total current liabilities....................................... 31,767 28,677
Long-term debt....................................................... 64,020 54,740
Accrued postretirement benefit cost.................................. 18,795 17,286
Noncurrent pension liabilities....................................... 18,078 15,501
Other noncurrent liabilities......................................... 2,010 2,010
--------- ---------
Total liabilities............................................... 134,670 118,214
--------- ---------
Contingencies (see Note 15)..........................................
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;
15,908,091 and 15,838,661 shares issued (Note 4)................... 159 158
Additional paid-in capital (Note 4).................................. 151,715 151,058
Accumulated deficit.................................................. (103,526) (98,918)
Excess minimum pension liability..................................... (8,381) (6,633)
Treasury Common Stock, at cost (shares: 1995-568,198;
1994-567,100)...................................................... (3,078) (3,069)
--------- ---------
Total shareholders' equity...................................... 36,889 42,596
--------- ---------
Total liabilities and shareholders' equity...................... $ 171,559 $ 160,810
========= =========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-4
<PAGE> 51
RMI TITANIUM COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH PROVIDED FROM (USED IN) OPERATIONS:
Net loss................................................... $ (4,608) $(12,764) $(28,893)
Adjustment for items not affecting funds from operations:
Asset impairment charge.................................. 5,031 -- --
Change in accounting principle........................... -- 1,202 16,938
Compensation expense for stock appreciation rights....... 1,465 -- --
Depreciation............................................. 6,443 6,140 6,298
Deferred income taxes.................................... (7,200) -- --
Impairment of joint venture investment................... 1,901 -- --
Other-noncash charges--net............................... 2,137 1,757 (493)
-------- -------- --------
5,169 (3,665) (6,150)
-------- -------- --------
CHANGES IN ASSETS AND LIABILITIES (EXCLUDING CASH):
Receivables................................................ (13,159) (248) (3,792)
Inventories................................................ (1,587) (14,974) 1,332
Accounts payable........................................... (186) 6,062 2,881
Other current liabilities.................................. 2,469 (331) 2,475
Other assets and liabilities............................... (732) 197 (883)
Other...................................................... 301 (258) (92)
-------- -------- --------
(12,894) (9,552) 1,921
-------- -------- --------
Cash used in operating activities................ (7,725) (13,217) (4,229)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in joint ventures............................ -- (172) (1,216)
Proceeds from sale of facilities......................... 130 120 2,124
Capital expenditures..................................... (1,552) (1,063) (1,014)
-------- -------- --------
Cash used in investing activities................ (1,422) (1,115) (106)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of Common Stock............... -- 26,422 --
Net borrowings under revolving credit agreements......... 9,400 15,750 4,500
Debt repayments.......................................... (120) (27,670) (120)
Treasury Common Stock repurchased........................ (9) (78) (22)
-------- -------- --------
Cash from financing activities................... 9,271 14,424 4,358
-------- -------- --------
Increase in cash and cash equivalents...................... 124 92 23
Cash and cash equivalents at beginning of period........... 385 293 270
-------- -------- --------
Cash and cash equivalents at end of period................. $ 509 $ 385 $ 293
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest (net of amounts capitalized)........ $ 4,320 $ 3,283 $ 2,548
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-5
<PAGE> 52
RMI TITANIUM COMPANY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
EXCESS
ADDT'L. RETAINED TREASURY MINIMUM
SHARES COMMON DEFERRED PAID-IN EARNINGS COMMON PENSION
OUTSTANDING STOCK COMPENSATION CAPITAL (DEFICIT) STOCK LIABILITY
----------- ------ ------------ -------- --------- -------- ---------
<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 Plans... 122,700 1 (201) 200 -- -- --
Shares issued for
Directors'
Compensation............. 35,439 -- -- 72 -- -- --
Treasury Common Stock
purchased at cost........ (12,064) -- -- -- -- (22) --
Net loss................... -- -- -- -- (28,893) -- --
Excess minimum pension
liability................ -- -- -- -- -- -- (6,843)
----------- ------ ------ -------- --------- ------- -------
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 4)............ (13,275,414) (138 ) -- 138 -- -- --
Shares issued as result of
Rights Offering (Note
4)....................... 13,775,057 143 -- 26,279 -- -- --
Shares issued for
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 for
Directors'
Compensation............. 4,952 -- -- 38 -- -- --
Treasury Common Stock
purchased at cost........ (1,098) -- -- -- -- (9) --
Shares issued for
Restricted Stock Award
Plans.................... 10,000 -- -- 71 -- -- --
Shares issued from exercise
of employee stock
options.................. 54,478 1 -- 548 -- -- --
Net loss................... -- -- -- -- (4,608) -- --
Excess minimum pension
liability................ -- -- -- -- -- -- (1,748)
----------- ----- ------ -------- --------- ------- -------
Balance at December 31,
1995..................... 15,339,893 $ 159 $ -- $151,715 $(103,526) $(3,078) $(8,381)
=========== ===== ====== ======== ========= ======= =======
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-6
<PAGE> 53
RMI TITANIUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1--ORGANIZATION AND OPERATIONS:
The consolidated financial statements of RMI Titanium Company (the
"Company") include the financial position and results of operations for the
Company and its subsidiaries.
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 interest 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 December 31, 1995, approximately 50.7% of the
outstanding Common Stock was owned by USX. For additional information on the
Company's capital structure, see Note 4.
The Company's operations are conducted primarily in one business segment,
the production and marketing of titanium metal and related products. In 1995, no
single customer accounted for more than 10% of consolidated revenues. In the
years ended December 31, 1995, 1994 and 1993, export sales were $30.1 million,
$39.8 million, and $24.2 million, respectively, principally to customers in
Western Europe.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation:
The consolidated financial statements include the accounts of RMI Titanium
Company and its majority owned subsidiaries. All significant intercompany
accounts and transactions are eliminated.
Use of estimates:
Generally accepted accounting principles require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at year-end and
the reported amounts of revenues and expenses during the year.
Inventories:
Inventories are primarily 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).
Depreciation and amortization:
In general, depreciation and amortization of properties is determined using
the straight-line method over the estimated useful lives of the various classes
of assets. For financial accounting purposes, depreciation and amortization are
provided over the following useful lives:
<TABLE>
<S> <C>
Buildings and improvements................... 20-25 years
Machinery and equipment...................... 10-14 years
Furniture and fixtures....................... 3-10 years
</TABLE>
Retirement and disposal of properties:
The cost of properties retired or otherwise disposed of, together with the
accumulated depreciation provided thereon, is eliminated from the accounts. The
net gain or loss is recognized in other income and expense.
F-7
<PAGE> 54
Maintenance and repairs:
Routine maintenance, repairs and replacements are charged to operations.
Expenditures that materially increase values, change capacities or extend useful
lives are capitalized.
Long-lived assets:
Effective June 30, 1995, the Company adopted 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 long-lived and intangible assets be written down to fair
value whenever an impairment review indicates that the carrying value of the
asset cannot be recovered. (See Note 7).
Revenue and cost recognition:
Revenues from the sale of commercial products are recognized upon passage
of title to the customer, which in most cases coincides with shipment. Revenues
from long-term, fixed-price contracts are recognized on the
percentage-of-completion method, measured based on the achievement of certain
milestones in the production and fabrication process. Such milestones have been
weighted based on the critical nature of the operation performed, which
management believes is the best available measure of progress on these
contracts. Revenues related to cost-plus-fee contracts are recognized on the
basis of costs incurred during the period plus the fee earned.
Contract costs comprise all direct material and labor costs, including
outside processing fees, and those indirect costs related to contract
performance. Provisions for estimated losses on uncompleted contracts are made
in the period in which such losses are determined.
Contract costs and estimated earnings on uncompleted contracts, net of
progress billings, are included in the consolidated balance sheet under
"Inventories."
Pensions:
The Company and its subsidiaries have a number of noncontributory pension
plans which cover substantially all employees. Most employees are covered by
defined benefit plans in which benefits are based on years of service and annual
compensation. Contributions to the defined benefit plans, as determined by an
independent actuary in accordance with regulations, provide not only for
benefits attributed to date but also for those expected to be earned in the
future.
The Company's policy is to fund pension costs at amounts equal to the
minimum funding requirements of ERISA plus additional amounts as may be approved
from time to time.
Postretirement benefits:
The Company provides certain health care benefits and life insurance
coverage for certain of its employees and their dependents. Under the Company's
current plans, certain of the Company's employees will become eligible for those
benefits if they reach retirement age while working with the Company.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106 ("SFAS No. 106"), "Employers' Accounting for
Postretirement Benefits Other Than Pensions". The new standard requires accrual
accounting for postretirement benefits, similar to accounting for pensions,
rather than recognizing cost as claims are paid, which was the method the
Company previously used. As permitted by SFAS No. 106, the Company elected to
recognize the accumulated postretirement benefit obligation at adoption
(transition obligation) immediately as a cumulative effect of a change in
accounting principle.
The Company does not prefund postretirement benefit costs, but rather pays
claims as presented.
F-8
<PAGE> 55
Income tax:
In connection with the Reorganization, the tax basis of the Company's
assets at that time reflected the fair market value of the Common Stock then
issued by the Company. The new tax basis was allocated to all assets of the
Company based on federal income tax rules and regulations, and the results of an
independent appraisal. For financial statement purposes, the Company's assets
are carried at historical cost. As a result, the tax basis of a significant
portion of the Company's assets exceeds the related book values and depreciation
and amortization for tax purposes exceeds the corresponding financial statement
amounts.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 ("SFAS No. 109"), "Accounting for Income Taxes."
Under the liability method specified by SFAS No. 109, deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities as measured by the enacted tax
rates which will be in effect when these differences reverse. Prior to the
adoption of SFAS No. 109, the Company accounted for income taxes pursuant to
Statement of Financial Accounting Standards No. 96 ("SFAS No. 96"), "Accounting
for Income Taxes." The change from SFAS No. 96 to SFAS No. 109 did not have a
material effect on the financial position, results of operations or cash flows
of the Company.
Stock-based compensation:
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for
Stock-Based Compensation." The statement established standards for accounting
for stock-based compensation but also allows companies to continue to account
for stock-based compensation under the provisions of Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and make
certain additional disclosures in the notes to financial statements. The new
standard is effective for fiscal years beginning after December 15, 1995. It is
the Company's intention to continue to account for stock-based compensation in
accordance with APB Opinion No. 25 and provide the additional required
disclosure pursuant to the provisions of SFAS No. 123 in the notes to the
financial statements.
Cash flows:
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
NOTE 3--LONG-TERM CONTRACTS:
During 1993, the Company executed an agreement to supply all the titanium
components for the world's first high-pressure drilling riser for use by a major
oil company in development of a project in the Norwegian sector of the North Sea
(the "Riser Contract"). Work commenced on the Riser Contract during the third
quarter of 1993, and is now completed with final shipments of the riser joints
having been made in the first quarter of 1995. During the fourth quarter of
1994, the Company was awarded a three-year contract to supply all of the
titanium pipe casing required for a geothermal energy facility located in the
Imperial Valley of California. The initial release under the contract was
delivered in late 1995 and early 1996.
During 1995, 1994 and 1993, the Company recorded estimated revenues earned
under the above referenced contracts of $5.8 million, $13.2 million and $4.3
million, respectively. At December 31, 1995 and 1994, there were $2.5 million
and $8.1 million, respectively, included in the consolidated balance sheet under
"Inventories," which represents the amount of cost incurred on the contracts,
plus estimated earnings, less progress billings. (See Notes 5 and 6).
In October 1993, the Company executed a long-term contract with the U.S.
Department of Energy ("DOE") covering the remediation and restoration of the
Company's former Extrusion Plant in Ashtabula, Ohio. The contract calls for the
Company to earn fees on cost-plus-fee basis, and acknowledges the DOE's
responsibility for the remediation of the site. During 1995, 1994 and 1993, the
Company recognized revenues,
F-9
<PAGE> 56
including fees, of $6.2 million, $8.5 million and $10.4 million, respectively,
under the contract. Total estimated revenues under this contract are not
determinable.
NOTE 4--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
after the reverse split was deemed to represent one-tenth the number of shares
it represented immediately prior to 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 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 rights offering were $27.6 million. Net proceeds
increased Shareholders' Equity by approximately $26.4 million. As of December
31, 1995, USX Corporation beneficially owns approximately 50.7% 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 number of shares of stock held by USX and its affiliates outside the
trust do not exceed the number of shares held by all other holders. This
arrangement resulted in USX (exclusive of its affiliates) having a direct voting
interest in RMI as of December 31, 1995 of approximately 42%. 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 5--INVENTORIES:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1995 1994
---- ----
<S> <C> <C>
Raw materials and supplies................................... $ 22,609 $ 13,825
Work-in-process and finished goods........................... 71,290 71,933
Adjustment to LIFO values.................................... (19,846) (13,292)
-------- --------
$ 74,053 $ 72,466
======== ========
</TABLE>
Included in inventories are costs relating to the Riser Contract and
geothermal pipe contract. Such costs, net of amounts recognized to date,
amounted to $2.5 million in 1995 and $8.1 million in 1994.
During 1993 LIFO inventory quantities, which were carried at lower costs
than those prevailing in prior years, were reduced. The effect of this reduction
was to reduce cost of sales for 1993 by $128.
NOTE 6--ACCOUNTS RECEIVABLE:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1995 1994
---- ----
<S> <C> <C>
Trade and commercial customers................................. $39,655 $29,127
Progress billings on uncompleted contracts..................... 2,604 --
U. S. Government-DOE........................................... 662 423
------- -------
$42,921 $29,550
Less allowance for doubtful accounts........................... (1,670) (704)
------- -------
$41,251 $28,846
======= =======
</TABLE>
F-10
<PAGE> 57
NOTE 7--PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment is stated at cost and consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1995 1994
---- ----
<S> <C> <C>
Land......................................................... $ 659 $ 659
Buildings and improvements................................... 36,451 36,443
Machinery and equipment...................................... 77,409 79,460
Other........................................................ 13,684 13,607
Construction in progress..................................... 5,541 7,326
-------- --------
133,744 137,495
Less -- Accumulated depreciation............................. 93,780 87,479
-------- --------
$ 39,964 $ 50,016
======== ========
</TABLE>
The Company elected to adopt SFAS No. 121 effective June 30, 1995. After
completing a review of its assets, the Company impaired the value of an asset
consisting of design and engineering work for a proposed titanium tetrachloride
facility. This asset was impaired due to recent market developments, the
conclusion of certain joint venture negotiations and the determination that such
a facility was not likely to be constructed in the near future. The asset
carrying value has been reduced from $5.0 million to a nominal amount reflecting
a fair value determination under SFAS No. 121 versus a determination of ultimate
net realizable value under the Company's previous impairment approach.
NOTE 8--INCOME TAXES:
As discussed in Note 2, effective January 1, 1993, the Company adopted the
provisions of SFAS No. 109.
Deferred taxes result from the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1995 1994
---- ----
<S> <C> <C>
Deferred taxes assets:
Loss carryforwards ($104,133 expiring in 2006 through
2010)................................................... $ 37,488 $ 31,838
Inventories................................................ 5,929 5,590
Property, plant and equipment.............................. 6,223 5,494
Intangible assets.......................................... 1,514 2,243
Other postretirement benefit costs......................... 6,522 6,090
Other employment related items............................. 2,771 2,001
Other...................................................... 2,789 1,410
Valuation allowance........................................ (56,036) (54,666)
-------- --------
Total deferred tax assets............................... 7,200 --
-------- --------
Deferred tax liabilities..................................... -- --
-------- --------
Net deferred taxes...................................... $ 7,200 $ --
======== ========
</TABLE>
SFAS No. 109 requires a valuation allowance when it is "more likely than
not that some portion or all of the deferred tax assets will not be realized."
It further states that "forming a conclusion that a valuation allowance is not
needed is difficult when there is negative evidence such as cumulative losses in
recent years." The ultimate realization of this deferred income tax asset
depends on the Company's ability to generate sufficient taxable income in the
future prior to the expiration of the loss carryforwards. The Company has
evaluated the available evidence supporting the realization of future taxable
income and, based upon that evaluation, believes it is more likely than not at
this time that a portion of its deferred tax assets will be realized. Factors
considered in the evaluation process included the return to profitability during
the fourth quarter of 1995, a substantial and growing backlog of profitable
orders and a general improvement in overall titanium industry operating
conditions. Accordingly, a portion of the valuation allowance was released,
resulting in a credit to income tax expense in the fourth quarter of 1995. The
remaining valuation allowance
F-11
<PAGE> 58
was retained, in light of the requirement in SFAS No. 109 to give weight to
objective evidence such as recent losses and the historical titanium industry
business cycle.
When preparing 1996 and future periods' interim and annual financial
statements, the Company will periodically evaluate its strategic and business
plans, in light of evolving business conditions, and the valuation allowance
will be adjusted for future income expectations resulting from that process, to
the extent different from those inherent in the valuation allowance established
as of December 31, 1995.
As a result, the application of the SFAS No. 109 valuation allowance
determination process could result in recognition of significant income tax
provisions or benefits in a single interim or annual period due to changes in
income expectations over a horizon that may span several years. Such tax
provision or benefit effect would likely be material in the context of the
specific interim or annual reporting period in which changes in judgment about
more extended future periods are reported.
If an "ownership change" were to occur within the meaning of Section 382 of
the Internal Revenue Code of 1986, as amended, the utilization of net operating
loss carryforwards would be subject to an annual limitation. Should the annual
limitation apply, the Company believes that it would affect the timing of the
use of, but not the ultimate ability of the Company to use, the net operating
loss carryforwards to reduce future income tax liabilities.
The difference between the statutory tax rate of 35% applied to the pretax
loss and the effective tax rate for the year ended December 31, 1995 is due
principally to the release of $7.2 million of the valuation allowance.
NOTE 9--LONG-TERM DEBT:
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
new agreement extends the maturity of the loan from March 15, 1996 to March 31,
1997. The amendment also modifies an existing financial covenant for the
requirement to maintain a minimum balance of shareholders' equity, and
provisions requiring the imposition of a borrowing base formula. Under the
borrowing base formula, the Company can borrow up to the lesser of $75 million
or an amount equal to 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. The agreement also
contains a provision that if USX were to cease to beneficially own at least 48%
of the Company's voting equity securities, the terms of the agreement 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. As of December 31, 1995 the Company was in
compliance with the covenants and terms of the amended revolving credit
facility. At December 31, 1995, the available and unused portion of the facility
was $16.8 million. The Company is currently negotiating with certain of the
participating banks to replace this agreement.
The Company and the banks which are parties to the amended revolving credit
facility are also parties to a second revolving credit facility which provides
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 on September 26, 1996, is
guaranteed by the Export Import Bank of the United States. This facility
F-12
<PAGE> 59
continues to be classified as long-term debt at December 31, 1995 based on the
company's intent and ability to refinance at maturity through the use of its $75
million revolving credit facility.
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1995 1994
---- ----
<S> <C> <C>
Credit Agreement, dated May 3, 1995, final maturity March 31, 1997,
bearing interest at rates ranging from 7.93% to 8.11% at December 31,
1995 and 7.44% to 7.83% at December 31, 1994........................... $58,200 $53,800
Foreign Loan Agreement, dated May 3, 1995, final maturity September 26,
1996 bearing interest at 7.18% at December 31, 1995.................... 5,000 --
Industrial revenue bond bearing interest at a floating rate based on
weekly tax exempt market rates (5.5% and 6.1% at December 31, 1995 and
1994, respectively) repayable in annual sinking fund payments of $120
over 15 years from October 1988........................................ 940 1,060
Current portion of long-term debt........................................ (120) (120)
------- -------
$64,020 $54,740
======= =======
</TABLE>
The minimum principal payments on long-term debt outstanding at December
31, 1995 for the succeeding five years are as follows:
<TABLE>
<S> <C>
1996........................................... $ 120
1997........................................... 63,320
1998........................................... 120
1999........................................... 120
2000........................................... 120
</TABLE>
NOTE 10--PENSION PLANS:
Pension expense was determined assuming an expected rate of return on plan
assets of 9% for 1995 and 1994 and 10% in 1993. The components of pension
expense for the three years ended December 31, 1995 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------------ ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Service cost....................... $ 1,063 $ 1,242 $ 1,092
Interest cost...................... 5,064 4,755 4,940
Return on plan assets:
Actual........................... (10,598) 809 (3,460)
Deferred gain (loss)............. 6,095 (4,503) (5,422) (4,613) (1,595) (5,055)
------- ------ ------
Net amortization and deferral...... 606 693 611
------- ------- -------
Pension expense.................... $ 2,230 $ 2,077 $ 1,588
======= ======= =======
</TABLE>
F-13
<PAGE> 60
Funds' status--The benefit obligations at December 31, 1995 and 1994 were
determined using discount rates of 7.0% and 8.25%, respectively, and an assumed
rate of compensation increase of 5.75% for both years.
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1995 1994
---- ----
<S> <C> <C>
Fair value of plan assets...................................... $ 52,292 $ 44,465
Projected benefit obligation (PBO)............................. (75,175) (64,231)
-------- --------
Plan assets less than PBO...................................... (22,883) (19,766)
Unrecognized net loss.......................................... 12,277 9,967
Unrecognized transition obligation............................. 1,484 1,791
Unrecognized prior service cost................................ 3,903 2,579
Adjustment required to recognize minimum liability............. (14,068) (11,366)
-------- --------
Net pension liability........................................ $(19,287) $(16,795)
======== ========
Accumulated benefit obligation................................. $(71,579) $(61,260)
======== ========
Vested benefit obligation...................................... $(66,810) $(57,962)
======== ========
</TABLE>
As of December 31, 1995, approximately 51% of the plans' assets are
invested in equity securities, and 39% in government debt instruments and the
balance in cash equivalents or debt securities.
Pursuant to the provisions of Statement of Financial Accounting Standards
No. 87 "Employers Accounting for Pensions," the Company recorded in other
noncurrent liabilities an additional minimum pension obligation of $14.1 million
and $11.4 million as of December 31, 1995 and 1994, respectively, representing
the amount by which the accumulated benefit obligation exceeded the fair value
of plan assets plus accrued amounts previously recorded.
NOTE 11--POSTRETIREMENT HEALTH CARE BENEFITS AND OTHER EMPLOYEE BENEFITS:
As discussed in Note 2, RMI adopted SFAS No. 106 effective January 1, 1993.
The Company elected to recognize immediately the transition obligation
determined at the date of adoption of the new accounting standard. The
cumulative effect of this change in accounting principle resulted in a charge of
$16.9 million to the Company's 1993 results.
Net periodic postretirement benefit cost for the three years ended December
31, 1995 included the following components (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Service cost..................................... $ 266 $ 357 $ 316
Interest cost.................................... 1,543 1,533 1,337
Net amortization and deferrals................... 119 254 --
------ ------ ------
$1,928 $2,144 $1,653
====== ====== ======
</TABLE>
The following table sets forth the plans' status reconciled with the amount
reported in the Company's balance sheet at December 31, 1995 and 1994 (in
thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Accumulated Postretirement Benefit Obligation ("APBO")
attributable to:
Retirees.................................................... $(13,020) $(11,867)
Active participants......................................... (8,692) (7,242)
-------- --------
Total APBO................................................ $(21,712) $(19,109)
======== ========
Accrued liability included in balance sheet, including
transition
obligation................................................... $(18,199) $(17,768)
Unrecognized net loss.......................................... (3,513) (1,341)
-------- --------
Total APBO................................................ $(21,712) $(19,109)
======== ========
</TABLE>
F-14
<PAGE> 61
For measurement purposes, a 5% annual rate of increase in the per capita
cost of postretirement medical benefits was assumed beginning in 1996 and
declining to 0% in 2004. The ultimate costs of certain of the Company's retiree
health care plans are capped at contractually determined out-of-pocket spending
limits. The annual rate of increase in the per capita costs for these plans is
limited to the contractually determined spending cap. The health care cost trend
assumption has a significant effect on the amounts reported. For example,
increasing the health care cost trend rate by one percentage point in each year
would increase the accumulated postretirement benefit obligation at December 31,
1995 by $2.3 million and increase net periodic expense by $0.2 million. The
discount rate used in determining the accumulated postretirement benefit
obligation at December 31, 1995 and 1994 was 7.0% and 8.25%, respectively.
Effective January 1, 1994 the Company adopted the provisions of Statement
of Financial Accounting Standards No. 112 ("SFAS No. 112"), "Employer's
Accounting for Postemployment Benefits." The results for the year ended December
31, 1994 reflect a one-time charge of $1.2 million representing the cumulative
effect of adopting the new standard. The liabilities recorded pursuant to SFAS
No. 112 relate principally to workers' compensation.
NOTE 12--OPERATING LEASES:
The Company and its subsidiaries have entered into various operating leases
for the use of certain equipment, principally office equipment and vehicles. The
leases generally contain renewal options and provide that the lessee pay
insurance and maintenance costs. The total rental expense under operating leases
amounted to $1.3 million in 1995, $1.3 million in 1994, and $1.4 million in
1993. Future commitments under operating leases are considered to be immaterial
by management of the Company.
NOTE 13--TRANSACTIONS WITH RELATED PARTIES:
The Company, in the ordinary course of business, purchases goods and
services, including conversion services, from USX and related companies. The
cost of such transactions to the Company amounted to approximately $1.3 million
in 1995, $0.7 million in 1994 and $0.1 million in 1993. The cost of these
transactions were on terms no less favorable to the Company than those obtained
from other parties. On August 2, 1993 the United States Steel and Carnegie
Pension Fund (the "Pension Fund") was appointed as trustee of the Company's
pension plans. The Pension Fund has for many years acted as trustee of USX
Corporation employee benefit plans. The Pension Fund is a registered investment
advisor under the Investment Advisors Act of 1940, and receives a negotiated fee
for such services. Other transactions with related parties are incidental to the
Company's business and are not significant.
NOTE 14--OTHER INCOME STATEMENT INFORMATION:
Costs incurred for repairs and maintenance of plant and equipment totaled
$4.8 million, $3.3 million, and $2.8 million, for the years ended December 31,
1995, 1994, and 1993, respectively.
Real and personal property taxes amounted to $1.8 million, $1.7 million,
and $1.5 million, for the years ended December 31, 1995, 1994, and 1993,
respectively.
Other income (expense) for 1995 includes a $1.9 million impairment of the
Company's investment in the Permipipe Titanium AS joint venture. 1993 amounts
include a $1.4 million gain on sales and retirements of equipment and
facilities.
NOTE 15--CONTINGENCIES:
In connection with the Reorganization, the Company has agreed to indemnify
USX and Quantum against liabilities related to their ownership of RMI Company
and its immediate predecessor, Reactive Metals, Inc., which was formed by USX
and Quantum in 1964.
The Company is the subject of, or a party to, a number of pending or
threatened legal actions involving a variety of matters.
F-15
<PAGE> 62
AIRCRAFT PRODUCT LIABILITY
The Company was named as a defendant in a number of cases arising from the
aircraft crash at Sioux City, Iowa, which occurred on July 19, 1989. In its
final report, issued November 1, 1990, the National Transportation Safety Board
("NTSB") concluded that the titanium used to manufacture the fan disc which
ultimately failed, leading to the crash, was supplied by a major competitor of
the Company. In November, 1995 the Company was granted summary judgement in this
matter dismissing it from all cases.
ENVIRONMENTAL MATTERS
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 EPA's determination is based on information
gathered during inspections of the facility in February, March and June of 1991.
Under the complaint the EPA 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 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. Recent 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 22 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. 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 late 1996. Actual
cleanup would not commence prior to that time. The Company's share of the design
cost has been established at 9.95%. On June 21, 1995, the Company and twelve
others entered into a Phase 2 (actual cleanup) allocation agreement which
assigns 9.44% of the cost to the Company. 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.
F-16
<PAGE> 63
At December 31, 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 (which does not include any amounts from 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.
For a more detailed discussion of environmental matters, see
"Business--Legal Proceedings-- Environmental."
NOTE 16--STOCK OPTION AND RESTRICTED STOCK AWARD PLANS:
STOCK OPTION INCENTIVE PLAN:
The 1989 Stock Option Incentive Plan authorized the granting of options to
purchase up to 775,500 shares of Common Stock to eligible officers and key
management employees at not less than the market value on the date the options
are granted. Options granted included stock appreciation rights. The option
period may not exceed ten years from the date of the grant. During 1995
substantially all option holders voluntarily relinquished their stock
appreciation rights. No further grants will be made under the plan.
The following table presents a summary of stock option transactions under
the 1989 Stock Option Incentive Plan: (as adjusted for the one-for-ten reverse
stock split and rights offering)
<TABLE>
<CAPTION>
SHARES PRICE
------- -------------
<S> <C> <C>
Balance December 31, 1992................................. 332,151 $4.13 - 13.32
Granted................................................... 103,390 2.80
Exercised................................................. -- --
Forfeited................................................. (73,714) 4.13 - 13.32
------- -------------
Balance December 31, 1993................................. 361,827 $2.80 - 13.32
Granted................................................... 370,000 4.06
Exercised................................................. -- --
Forfeited................................................. (44,083) 2.80 - 13.32
------- -------------
Balance December 31, 1994................................. 687,744 $2.80 - 13.32
Granted................................................... -- --
Exercised................................................. (54,478) 2.80 - 6.91
Forfeited................................................. (18,094) 2.80 - 13.32
------- -------------
Balance December 31, 1995................................. 615,172 $2.80 - 13.32
======= =============
</TABLE>
1989 EMPLOYEE RESTRICTED STOCK AWARD PLAN:
The 1989 Restricted Stock Award Plan authorized the granting of shares of
Common Stock to employees who have made significant contribution to the success
of the Company. The plan authorized the award of up to 300,000 shares of Common
Stock, subject to adjustment in certain circumstances. Shares awarded are
subject to restrictions.
F-17
<PAGE> 64
In 1995 and 1993, respectively, 10,000 and 134,000 shares of Common Stock
were awarded under the plan. No grants were made in 1994. Compensation expense
equivalent to the fair market value of the shares on the date of the grant is
being recognized over the vesting periods during which the restrictions lapse.
All restrictions on the 1993 grants were removed as of April 4, 1994. No further
grants will be made under the plan.
NON-EMPLOYEE DIRECTOR RESTRICTED STOCK AWARD PLAN:
The Non-Employee Director Restricted Stock Award Plan authorized the
granting of up to 15,000 shares of Common Stock to directors who are not and
have never been officers or employees of the Company. Shares awarded are subject
to a restriction providing that a participant shall not be permitted to sell,
transfer, pledge or assign awarded shares during the period commencing with the
date of an award and ending upon the participant retiring from the Board of
Directors. On the date of the Company's Annual Meeting of Shareholders each
calendar year, each eligible director was awarded 300 restricted shares. No
grant of such shares may be made after December 31, 1994.
1995 STOCK PLAN
The RMI Titanium Company 1995 Stock Plan, which was approved by a vote of
the Company's shareholders at the 1995 Annual Meeting of Shareholders, replaced
both the 1989 Stock Option Incentive Plan and the 1989 Employee Restricted Stock
Award Plan. The plan permits the grant of any or all of the following types of
awards in any combination: Stock Options, Stock Appreciation Rights and
Restricted Stock. Up to 2% of the outstanding Common Stock as determined on
December 31 of the preceding year may be granted in the form of such awards. The
Stock Plan Committee, appointed by the Board of Directors, administers the plan,
and determines the type or types of grants to be made under the plan and shall
set forth in each such grant the terms, conditions and limitations applicable to
grants, including provisions relating to a possible change in control of the
Company.
As of December 31, 1995, no grants had been made under the Plan.
F-18
<PAGE> 65
NOTE 17--SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
The following table sets forth selected quarterly financial data for 1995
and 1994.
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
1995 QUARTER(1) QUARTER(1) QUARTER QUARTER(2)
- ---- --------- --------- ------- ---------
<S> <C> <C> <C> <C>
Sales............................................... $40,103 $39,621 $42,912 $48,530
Gross profit........................................ 1,937 (3,999) 2,890 5,389
Operating profit (loss)............................. (877) (7,422) 199 2,880
Net income (loss)................................... (1,863) (10,509) (967) 8,731
Net income (loss) per share......................... (0.12) (0.69) (0.06) 0.57
</TABLE>
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
1994 QUARTER QUARTER QUARTER QUARTER
- ---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales............................................... $36,360 $35,337 $32,842 $38,853
Gross profit........................................ 527 693 996 887
Operating loss...................................... (2,216) (2,017) (1,984) (1,754)
Cumulative effect of change in accounting
principle......................................... (1,202) -- -- --
Net loss............................................ (4,131) (3,023) (2,780) (2,830)
Net loss per common share before change in
accounting principle.............................. (1.99) (2.05) (0.21) (0.18)
Net loss per share.................................. (2.80) (2.05) (0.21) (0.18)
</TABLE>
- ---------
(1) The effect of adopting SFAS No. 121 amounting to $5,031, previously reported
as a cumulative effect of a change in accounting principle in the first
quarter of 1995, has been adjusted to reflect such affect as an element of
operating income in the second quarter of 1995.
(2) Net income in the fourth quarter of 1995 was favorably affected by the
recognition of a $7,200 income tax benefit.
F-19
<PAGE> 66
---------------------------------------------------------
---------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDER OR ANY OF
THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
---------------------------------------------------------
Available Information.................... 3 ---------------------------------------------------------
Incorporation of Certain Documents by
Summary.................................. 4
Risk Factors............................. 9 6,000,000 SHARES
Use of Proceeds.......................... 14
Capitalization........................... 15
Dilution................................. 16
Price Range of Common Stock LOGO
and Dividends.......................... 17
Business................................. 18 COMMON STOCK
Selected Financial Data.................. 30
Management's Discussion and Analysis
of Financial Condition and Results --------------------
of Operations.......................... 32
Selling Shareholder...................... 39
Management............................... 39 PROSPECTUS
Certain United States Tax Consequences to MAY 2, 1996
Non-United States Holders.............. 43 --------------------
Underwriting............................. 45
Legal Matters............................ 46
Experts.................................. 46 LEHMAN BROTHERS
Index to Consolidated Financial
Statements............................. F-1
SALOMON BROTHERS INC
- ---------------------------------------------- ---------------------------------------------------------
- ---------------------------------------------- ---------------------------------------------------------
</TABLE>
<PAGE> 67
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
An itemized statement of the estimated amount of all expenses in connection
with the distribution of securities registered hereby, 67% of which will be
paid by the Company and 33% by the Selling Shareholder, is as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 35,048
NASD fee........................................................ 10,275
Blue Sky fees and expenses...................................... 10,000*
Costs of printing............................................... 135,000*
Legal fees and expenses......................................... 100,000*
Accounting fees and expenses.................................... 135,000*
Stock Exchange listing fee...................................... 45,000*
Miscellaneous expenses.......................................... 29,677*
--------
Total...................................................... $500,000
========
</TABLE>
- ---------
* Estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Ohio law contains numerous provisions concerning the responsibilities of
the officers and directors of Ohio corporations, such as the Company, including
provisions that have the effect of limiting the potential liability of such
officers and directors. The latter provisions are discussed below.
In general terms and subject to certain limitations, under Ohio law an Ohio
corporation is explicitly authorized to indemnify its directors, officers,
employees and agents who are parties or threatened to be made parties to any
threatened, pending or completed civil, criminal, administrative or
investigative action, suit or proceeding against expenses, including attorney's
fees, or any judgment, fines or settlement amounts issued against or incurred by
them, provided that they acted in good faith and in a manner reasonably believed
to be in or not opposed to the corporation's best interests. An Ohio corporation
is also specifically authorized (1) to provide indemnification to an even
greater extent than that described above, and (2) to purchase and maintain
insurance for or on behalf of its directors, officers, employees and agents
against liability arising out of their service, even if indemnification would
not be permitted under the circumstances. Ohio law concerning director
responsibilities was amended in 1990 to provide that a director shall be liable
in damages only if it is proved by clear and convincing evidence that his action
or failure to act arose out of deliberate intent to harm the corporation or out
of reckless disregard for the corporation's best interests, subject to certain
limitations and exceptions. Moreover, Ohio law makes clear that directors may
legitimately consider the interests of persons and groups such as employees and
local and national economic and other interests, in addition to interests of
shareholders, in connection with matters on which they may act.
The Company's Regulations provide that its directors and officers shall be
indemnified to the full extent permitted by law against liability and expenses.
In addition, the Company has obtained insurance covering liability of its
directors and officers for their actions as such. The Company will essentially
be a self-insurer with respect to any director and officer indemnification claim
not covered by the insurance policy.
In the Underwriting Agreement, the Underwriters have agreed to indemnify
the officers and directors of the Company for certain liabilities, including
liabilities under the Securities Act.
II-1
<PAGE> 68
ITEM 16. EXHIBITS
EXHIBITS
<TABLE>
<S> <C>
1.1 --Form of Underwriting Agreement*
3.2 --Articles of Incorporation of the Company, as amended March 31, 1994 (incorporated by
reference to the Company's Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1994).
3.3 --Amended Code of Regulations of the Company (incorporated by reference to Exhibit 3.2
to the Company's Annual Report on Form 10-K for the year ended December 31, 1993,
and the shareholder approved amendment to RMI's Amended Code of Regulations
(incorporated by reference to the Company's Notice of Annual Meeting of Shareholders
and Proxy Statement for the April 26, 1995 Shareholder meeting), such amendment to
be effective as of the 1996 Annual Meeting of Shareholders.
4.1 --Credit Agreement dated as of April 15, 1996 by and among RMI Titanium Company, an
Ohio corporation, and PNC Bank, National Association, as agent for the Banks.**
4.2 --Specimen Common Stock Certificate of the Company**
5 --Opinion of D. D. Sandman, Esq., General Counsel and Secretary of USX Corporation,
regarding legality of the securities being offered by RMI**
5.1 --Opinion of D. D. Sandman, Esq., General Counsel and Secretary of USX Corporation,
regarding legality of the securities being offered by the Selling Shareholder.*
23.1 --Consent of Price Waterhouse LLP*
23.2 --Consent of D. D. Sandman, Esq., General Counsel and Secretary of USX Corporation
(included in Exhibits 5 and 5.1)**
23.3 --Consent of J. T. Mills, Vice President--Tax of USX Corporation.**
24 --Powers of Attorney.**
</TABLE>
- ---------
* filed herewith
** previously filed
All other schedules are omitted because they are not applicable or the
required information is contained in the financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for purposes of
determining liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in such Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-2
<PAGE> 69
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of a registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 70
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT TO THE
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN THE CITY OF PITTSBURGH, COMMONWEALTH OF PENNSYLVANIA, ON
MAY 2, 1996.
RMI TITANIUM COMPANY
By *
-----------------------------
L. Frederick Gieg, Jr.
President and Chief
Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON MAY 2, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* President and Chief Executive Officer and Director
- ------------------------------------------------
L. Frederick Gieg, Jr.
/s/ T. G. RUPERT Senior Vice President and Chief Financial Officer;
- ------------------------------------------------ Chief Accounting Officer
Timothy G. Rupert
* Director
- ------------------------------------------------
Craig R. Andersson
* Director
- ------------------------------------------------
Neil A. Armstrong
* Director
- ------------------------------------------------
Daniel I. Booker
* Director
- ------------------------------------------------
Ronald L. Gallatin
* Director
- ------------------------------------------------
Charles C. Gedeon
* Chairman of the Board and Director
- ------------------------------------------------
R. M. Hernandez
* Director
- ------------------------------------------------
Wesley W. von Schack
* Director
- ------------------------------------------------
Louis A. Valli
*By: /s/ T. G. RUPERT
-------------------------------------------
T. G. Rupert
Attorney-in-fact
</TABLE>
II-4
<PAGE> 71
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<C> <S>
1.1 Form of Underwriting Agreement
5.1 Opinion of D. D. Sandman, Esq., General Counsel and Secretary
of USX Corporation, regarding legality of the securities
being offered by the Selling Shareholder.*
23.1 Consent of Price Waterhouse LLP
</TABLE>
<PAGE> 1
Exhibit 1.1
6,000,000 Shares
RMI TITANIUM COMPANY
COMMON STOCK
UNDERWRITING AGREEMENT
May 2, 1996
Lehman Brothers Inc.
Salomon Brothers Inc,
As Representatives of the several
Underwriters named in Schedule 1,
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Ladies and Gentlemen:
RMI Titanium Company, an Ohio corporation (the "Company"), and USX
Corporation, a Delaware corporation (the "Selling Shareholder"), propose to sell
an aggregate of 6,000,000 shares (the "Firm Stock") of the Company's common
stock, par value $.01 per share (the "Common Stock"). Of the 6,000,000 shares
of Firm Stock, 4,000,000 are being sold by the Company and 2,000,000 by the
Selling Shareholder. In addition, the Company and the Selling Shareholder
propose to grant to the Underwriters named in Schedule 1 hereto (the
"Underwriters") an option to purchase up to an additional 900,000 shares of the
Common Stock on the terms and for the purposes set forth in Section 3 (the
"Option Stock"). The Firm Stock and the Option Stock, if purchased, are
hereinafter collectively called the "Stock." This is to confirm the agreement
concerning the purchase of the Stock from the Company and the Selling
Shareholder by the Underwriters.
1. Representations, Warranties and Agreements of the Company. The Company
represents, warrants, and agrees that:
(a) A registration statement on Form S-3, and amendments thereto,
with respect to the Stock have (i) been prepared by the Company in conformity
with the requirements of the Securities Act of 1933 (the "Securities Act") and
the rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder and (ii) been filed with the
Commission under the Securities Act; no other document (other than
correspondence) with respect to such registration statement (or document
incorporated by reference therein) has heretofore been filed with the
Commission; and a fourth amendment to such registration statement, including a
final prospectus as part thereof, is now proposed to be filed with the
Commission. Copies of such registration statement, the amendments thereto and
the form of such final prospectus have been delivered by the Company to you as
the representatives (the "Representatives") of the Underwriters. As used in
this Agreement, "Effective Time" means the date and the time as of which such
registration statement is declared effective by the Commission; "Effective Date"
means the date of the Effective Time; "Preliminary Prospectus" means each
prospectus included in such registration statement, or amendments thereof,
before it becomes effective under the Securities Act and any prospectus filed by
the Company with the consent of the Representatives pursuant to Rule 424(a) of
the Rules and Regulations; "Registration Statement" means such registration
statement, as amended at the Effective Time, including any documents
incorporated by reference therein at such time; and "Prospectus" means such
final prospectus, with any changes thereto made by the Company with the consent
of the Representatives. Reference made herein to any Preliminary Prospectus or
to the Prospectus shall be deemed to refer to and include any documents
incorporated by reference therein pursuant to Item 12 of Form S-3 under the
Securities Act, as of the date of such Preliminary Prospectus or the Prospectus,
as the case may
<PAGE> 2
be, and any reference to any amendment or supplement to any Preliminary
Prospectus or the Prospectus shall be deemed to refer to and include any
document filed under the Securities Exchange Act of 1934 (the "Exchange Act")
after the date of such Preliminary Prospectus or the Prospectus, as the case
may be, and incorporated by reference in such Preliminary Prospectus or the
Prospectus, as the case may be. The Commission has not issued any order
preventing or suspending the use of any Preliminary Prospectus.
(b) The Registration Statement and the Prospectus and any further
amendments or supplements thereto will, when they become effective or are filed
with the Commission, as the case may be, conform in all respects to the
requirements of the Securities Act and the Rules and Regulations and will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading; provided that no representation or warranty is made as to
information contained in or omitted from the Registration Statement or the
Prospectus in reliance upon and in conformity with written information
furnished to the Company through the Representatives by or on behalf of any
Underwriter specifically for inclusion therein.
(c) The documents incorporated by reference in the Prospectus,
including any amendment thereto, when they became effective or were filed with
the Commission, as the case may be, conformed in all material respects to the
requirements of the Exchange Act and the rules and regulations of the Commission
thereunder, and none of such documents contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading; and any
further documents so filed and incorporated by reference in the Prospectus, when
such documents are filed with the Commission will conform in all material
respects to the requirements of the Exchange Act and the rules and regulations
of the Commission thereunder and will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading.
(d) The Company and each of its subsidiaries (as defined in Section )
have been duly incorporated and are validly existing as corporations in good
standing under the laws of their respective jurisdictions of incorporation, are
duly qualified to do business and are in good standing as foreign corporations
in each jurisdiction in which their respective ownership or lease of property or
the conduct of their respective businesses requires such qualification (other
than those jurisdictions in which the failure to so qualify would not have a
material adverse effect on the Company or the Company and its subsidiaries taken
as a whole), and have all power and authority necessary to own or hold their
respective properties and to conduct the businesses in which they are engaged;
and none of the subsidiaries of the Company is a "significant subsidiary", as
such term is defined in Rule 405 of the Rules and Regulations.
(e) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable
and conform to the description thereof contained in the Prospectus; and all of
the issued shares of capital stock of each subsidiary of the Company have been
duly and validly authorized and issued and are fully paid and non-assessable and
are owned directly or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims (other than those existing pursuant to the
Existing Credit Facilities (as defined in the Prospectus)).
(f) The unissued shares of the Stock to be issued and sold by the
Company to the Underwriters hereunder have been duly and validly authorized and,
when issued and delivered against payment therefor as provided herein, will be
duly and validly issued, fully paid and non-assessable; and the Stock will
conform to the description thereof contained in the Prospectus.
<PAGE> 3
(g) The execution, delivery and performance of this Agreement by the
Company and the consummation of the transactions contemplated hereby will not
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which the Company or
any of its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the properties or assets of the Company
or any of its subsidiaries is subject, nor will such actions result in any
violation of the provisions of the Amended Articles of Incorporation or Amended
Code of Regulations of the Company or the charter or by-laws any of its
subsidiaries or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their properties or assets; and except for the
registration of the Stock under the Securities Act and such consents, approvals,
authorizations, registrations or qualifications as may be required under the
Exchange Act and applicable state or foreign securities laws in connection with
the purchase and distribution of the Stock by the Underwriters, no consent,
approval, authorization or order of, or filing or registration with, any such
court or governmental agency or body is required for the execution, delivery and
performance of this Agreement by the Company and the consummation of the
transactions contemplated hereby.
(h) Except for an intent to enter into an agreement or agreements
with USX Corporation and/or the USX Pension Plan with respect to shares of
Common Stock owned by USX Corporation, such intent evidenced by an act of the
Company's Board of Directors authorizing such action, there are no contracts,
agreements or understandings between the Company and any person granting such
person the right to require the Company to file a registration statement under
the Securities Act with respect to any securities of the Company owned or to be
owned by such person or to require the Company to include such securities in the
securities registered pursuant to the Registration Statement or in any
securities being registered pursuant to any other registration statement filed
by the Company under the Securities Act.
(i) Except as described in the Prospectus, the Company has not sold
or issued any shares of Common Stock during the six-month period preceding the
date of the Prospectus, including any sales pursuant to Rule 144A under, or
Regulations D or S of the Securities Act, other than shares issued pursuant to
employee benefit plans, stock options plans or other employee compensation plans
or pursuant to outstanding options, rights or warrants.
(j) Neither the Company nor any of its subsidiaries has sustained,
since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus, any material loss or interference
with its business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental action,
order or decree, otherwise than as set forth or contemplated in the Prospectus;
and, since such date, there has not been any change in the capital stock (other
than the grant and exercise of options pursuant to the Company's stock option
plans) or changes in long-term debt (other than under the Company's Existing
Credit Facilities or the New Credit Facility) of the Company or any of its
subsidiaries or any material adverse change, or any development involving a
prospective material adverse change, in or affecting the management, financial
position, shareholders' equity, or results of operations or prospects of the
Company and its subsidiaries, otherwise than as set forth or contemplated in the
Prospectus.
(k) The financial statements (including the related notes and
supporting schedules) filed as part of the Registration Statement or included or
incorporated by reference in the Prospectus present fairly the financial
condition and results of operations of the entities purported to be shown
thereby, at the dates and for the periods indicated, and have been prepared in
conformity with generally accepted accounting principles applied on a consistent
basis throughout the periods involved.
<PAGE> 4
(l) Price Waterhouse LLP, who have certified certain financial
statements of the Company, whose report appears in the Prospectus and is
incorporated by reference therein and who have delivered the initial letter
referred to in Section hereof, are independent public accountants as required
by the Securities Act and the Rules and Regulations.
(m) The Company and each of its subsidiaries have good and sufficient
title in fee simple to all real property and good and sufficient title to all
personal property owned by them, in each case free and clear of all liens,
encumbrances and defects except those that (i) are described in the Prospectus,
(ii) exist as a result of the Existing Credit Facilities, or (iii) do not
materially affect the value of such property and do not materially interfere
with the use made or proposed to be made of such property by the Company and its
subsidiaries; and all real property and buildings held under lease by the
Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases, with such exceptions as are not material and do not
interfere with the use made or proposed to be made of such property and
buildings by the Company and its subsidiaries.
(n) The Company and each of its subsidiaries carry, or are covered
by, insurance in such amounts and covering such risks as is, in the reasonable
judgment of the Company, adequate for the conduct of their respective businesses
and the value of their respective properties.
(o) The Company and each of its subsidiaries own or possess adequate
rights to use all material patents, patent applications, trademarks, service
marks, trade names, trademark registrations, service mark registrations,
copyrights and licenses necessary for the conduct of their respective businesses
and have no reason to believe that the conduct of their respective businesses
will conflict with, and have not received any notice of any claim of conflict
with, any such rights of others, in any material respect.
(p) Except as described in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its subsidiaries
is a party or of which any property or asset of the Company or any of its
subsidiaries is the subject which, if determined adversely to the Company or any
of its subsidiaries, might have a material adverse effect on the consolidated
financial position, stockholders' equity, results of operations, business or
prospects of the Company and its subsidiaries; and to the best of the Company's
knowledge, no such proceedings are threatened or contemplated by governmental
authorities or threatened by others.
(q) The conditions for use of Form S-3, as set forth in the General
Instructions thereto, have been satisfied.
(r) There are no contracts or other documents which are required to
be described in the Prospectus or filed as exhibits to the Registration
Statement by the Securities Act or by the Rules and Regulations which have not
been described in the Prospectus or filed as exhibits to the Registration
Statement or incorporated therein by reference as permitted by the Rules and
Regulations.
(s) No relationship, direct or indirect, exists between or among the
Company on the one hand, and the directors, officers, stockholders, customers or
suppliers of the Company on the other hand, which is required to be described in
the Prospectus which is not so described.
(t) No labor disturbance by the employees of the Company exists or,
to the knowledge of the Company, is imminent which might be expected to have a
material adverse effect on the consolidated financial position, shareholders'
equity, results of operations, business or prospects of the Company and its
subsidiaries.
(u) The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security Act
of 1974, as amended, including the
<PAGE> 5
regulations and published interpretations thereunder ("ERISA"); no "reportable
event" (as defined in ERISA) has occurred with respect to any "pension plan"
(as defined in ERISA) for which the Company would have any liability; the
Company has not incurred and does not expect to incur liability under (i) Title
IV of ERISA with respect to termination of, or withdrawal from, any "pension
plan" or (ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as
amended, including the regulations and published interpretations thereunder
(the "Code"); and each "pension plan" for which the Company would have any
liability that is intended to be qualified under Section 401(a) of the Code is
so qualified in all material respects and nothing has occurred, whether by
action or by failure to act, which would cause the loss of such qualification.
(v) The Company has filed all federal, state and local income and
franchise tax returns required to be filed through the date hereof and has paid
all taxes due thereon, and no tax deficiency has been determined adversely to
the Company or any of its subsidiaries which has had (nor does the Company have
any knowledge of any tax deficiency which, if determined adversely to the
Company or any of its subsidiaries, might have) a material adverse effect on the
consolidated financial position, shareholders' equity, results of operations,
business or prospects of the Company and its subsidiaries.
(w) The Company (i) makes and keeps accurate books and records and
(ii) maintains internal accounting controls which provide reasonable assurance
that (A) transactions are executed in accordance with management's
authorization, (B) transactions are recorded as necessary to permit preparation
of its financial statements and to maintain accountability for its assets, (C)
access to its assets is permitted only in accordance with management's
authorization and (D) the reported accountability for its assets is compared
with existing assets at reasonable intervals.
(x) Neither the Company nor any of its subsidiaries (i) is in
violation of its charter or by-laws in any material respect, (ii) is in default
in any material respect, and no event has occurred which, with notice or lapse
of time or both, would constitute such a default, in the due performance or
observance of any term, covenant or condition contained in any material
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which it is a party or by which it is bound or to which any of its
properties or assets is subject or (iii) is in violation in any material respect
of any law, ordinance, governmental rule, regulation or court decree to which it
or its properties or assets may be subject or has failed to obtain any material
license, permit, certificate, franchise or other governmental authorization or
permit ("Permit") necessary to the ownership of its properties or assets or to
the conduct of its business, or has received notice of any attempt to revoke or
modify any such Permit, or has any reason to believe that any such Permit will
not be granted or renewed.
(y) Except as described in the Prospectus, there has been no storage,
disposal, generation, manufacture, refinement, transportation, handling,
treatment, discharge, emission, or any other release of toxic wastes, medical
wastes, hazardous wastes or hazardous substances by the Company or any of its
subsidiaries (or, to the knowledge of the Company, any of their predecessors in
interest or any other entity for whose acts or omissions the Company or any
subsidiary is or may be liable) at, upon or from any of the properties now or
previously owned or leased by the Company or its subsidiaries, or, to the
knowledge of the Company, at, upon or from any other properties, in violation of
any applicable law, ordinance, rule (including, without limitation, the rule of
common law), regulation, order, judgment, decree or permit or which would give
rise to any liability under any applicable law, ordinance, rule, regulation,
order, judgment, decree or permit, except for any violation or liability which
would not have, or could not be reasonably likely to have, singularly or in the
aggregate with all such violations and remedial actions, a material adverse
effect on the financial position, stockholders' equity, results of operations or
prospects of the Company and its subsidiaries; except as disclosed in the
Prospectus, there has been no material spill, discharge, leak, emission,
injection, escape, dumping or release of any kind onto such property or into the
environment surrounding such property of any toxic wastes, medical wastes,
<PAGE> 6
solid wastes, hazardous wastes, hazardous substances or other substances, with
respect to which the Company or any of its subsidiaries have knowledge, except
for any such spill, discharge, leak, emission, injection, escape, dumping or
release which would not have or would not be reasonably likely to have,
singularly or in the aggregate with all such spills, discharges, leaks,
emissions, injections, escapes, dumpings and releases, a material adverse
effect on the financial position, stockholders' equity, results of operations
or prospects of the Company and its subsidiaries; and the terms "hazardous
wastes", "toxic wastes", "hazardous substances" and "medical wastes" shall have
the meanings specified in any applicable local, state, federal and foreign laws
or regulations with respect to environmental protection.
2. Representations, Warranties and Agreements of the Selling Shareholder.
The Selling Shareholder represents, warrants and agrees that:
(a) The Selling Shareholder has, and immediately prior to the First
Delivery Date (as defined in Section 5 hereof) the Selling Shareholder will
have, good and valid title to the shares of Stock to be sold by the Selling
Shareholder hereunder on such date, free and clear of all liens, encumbrances,
equities or claims; and upon delivery of such shares and payment therefor
pursuant hereto, good and valid title to such shares, free and clear of all
liens, encumbrances, equities or claims, will pass to the several Underwriters.
(b) The Selling Shareholder has full right, power and authority to
enter into this Agreement; the execution, delivery and performance of this
Agreement by the Selling Shareholder and the consummation by the Selling
Shareholder of the transactions contemplated hereby will not conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Selling Shareholder is a
party or by which the Selling Shareholder is bound or to which any of the
property or assets of the Selling Shareholder is subject, nor will such actions
result in any violation of the provisions of the charter or by-laws of the
Selling Shareholder or any statute or any order, rule or regulation of any court
or governmental agency or body having jurisdiction over the Selling Shareholder
or the property or assets of the Selling Shareholder; and, except for the
registration of the Stock under the Securities Act and such consents, approvals,
authorizations, registrations or qualifications as may be required under the
Exchange Act and applicable state securities laws in connection with the
purchase and distribution of the Stock by the Underwriters, no consent,
approval, authorization or order of, or filing or registration with, any such
court or governmental agency or body is required for the execution, delivery and
performance of this Agreement by the Selling Shareholder and the consummation by
the Selling Shareholder of the transactions contemplated hereby.
(c) To the extent that any statements or omissions made in the
Registration Statement, the Prospectus or any amendment or supplement thereto
are made in reliance upon and in conformity with written information furnished
to the Company by the Selling Shareholder specifically for use therein, the
Registration Statement and the Prospectus and any amendments or supplements to
the Registration Statement or the Prospectus will not, when they become
effective or are filed with the Commission, as the case may be, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading;
and no facts have come to the attention of the Selling Shareholder which lead
the Selling Shareholder to believe, or should lead it to believe, that the
Registration Statement or the Prospectus or any amendments or supplements to the
Registration Statement or the Prospectus will, when they become effective or are
filed with the Commission, as the case may be, contain any untrue statement of
any other material fact or omit to state any other material fact required to be
stated therein or necessary to make the statements therein not misleading.
<PAGE> 7
(d) The Selling Shareholder has not taken and will not take, directly
or indirectly, any action which is designed to or which has constituted or which
might reasonably be expected to cause or result in the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the shares of the Stock.
3. Purchase of the Stock by the Underwriters. On the basis of the
representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, the Company agrees to sell 4,000,000 shares of
the Firm Stock and the Selling Shareholder agrees to sell 2,000,000 shares of
the Firm Stock to the several Underwriters and each of the Underwriters,
severally and not jointly, agrees to purchase the number of shares of the Firm
Stock set opposite that Underwriter's name in Schedule 1 hereto. Each
Underwriter shall be obligated to purchase from the Company and from the Selling
Shareholder that number of shares of the Firm Stock which represents the same
proportion of the number of shares of the Firm Stock to be sold by the Company,
and by the Selling Shareholder, as the number of shares of the Firm Stock set
forth opposite the name of such Underwriter in Schedule 1 represents of the
total number of shares of the Firm Stock to be purchased by all of the
Underwriters pursuant to this Agreement. The respective purchase obligations of
the Underwriters with respect to the Firm Stock shall be rounded among the
Underwriters to avoid fractional shares, as the Representatives may determine.
In addition, the Company grants to the Underwriters an option to purchase
up to 600,000 shares of Option Stock and the Selling Shareholder grants the
Underwriters an option to purchase up to 300,000 shares of Option Stock. Such
option is granted solely for the purpose of covering over-allotments in the sale
of Firm Stock and is exercisable as provided in Section hereof. Shares of
Option Stock shall be purchased severally from the Company and the Selling
Shareholder on a pro rata basis for the account of the Underwriters. Each
Underwriter shall be obligated to purchase from the Company and from the Selling
Shareholder that number of shares of the Option Stock to be sold which
represents the same proportion of the number of shares of the Option Stock to be
sold by the Company and by the Selling Shareholder as the number of shares of
the Firm Stock set forth opposite the name of such Underwriter in Schedule 1
represents of the total number of shares of the Firm Stock to be purchased by
all of the Underwriters pursuant to this Agreement. The respective purchase
obligations of each Underwriter with respect to the Option Stock shall be
adjusted by the Representatives so that no Underwriter shall be obligated to
purchase Option Stock other than in 100 share amounts.
The price of both the Firm Stock and any Option Stock shall be $18.50 per
share.
The Company and the Selling Shareholder shall not be obligated to deliver
any of the Stock to be delivered on the First Delivery Date or the Second
Delivery Date (as hereinafter defined), as the case may be, except upon payment
for all the Stock to be purchased on such Delivery Date as provided herein.
4. Offering of Stock by the Underwriters. Upon authorization by the
Representatives of the release of the Firm Stock, the several Underwriters
propose to offer the Firm Stock for sale upon the terms and conditions set forth
in the Prospectus.
5. Delivery of and Payment for the Stock. Delivery of and payment for the
Firm Stock shall be made at the office of Simpson Thacher & Bartlett at 425
Lexington Avenue, New York, New York 10017, at 10:00 A.M., New York City time,
on the third full business day following the Effective Date or at such other
date or place as shall be determined by agreement among the Representatives, the
Company and the Selling Shareholder. This date and time are sometimes referred
to as the "First Delivery Date." On the First Delivery Date, the Company and
the Selling Shareholder shall deliver or cause to be delivered certificates
representing the Firm Stock to the Representatives for the account of each
Underwriter against payment to the Company and the Selling Shareholder of the
purchase price by wire transfer in same day funds, to accounts specified by the
Company and the Selling Shareholder. Time shall be of the essence, and delivery
at the time and place specified pursuant to this Agreement is a further
condition of the obligation of each Underwriter hereunder. Upon delivery, the
Firm Stock shall be registered in such names and in such denominations as the
Representatives shall request in writing not less than two full business days
prior to the First Delivery Date. For the purpose of expediting the checking
and packaging of the certificates for the Firm Stock, the Company and the
Selling Shareholder shall make the certificates representing the
<PAGE> 8
Firm Stock available for inspection by the Representatives in New York, New
York, not later than 2:00 P.M., New York City time, on the business day prior
to the First Delivery Date.
At any time on or before the thirtieth day after the Effective Date, the
option granted in Section 2 may be exercised by written notice being given to
the Company and the Selling Shareholder by the Representatives. Such notice
shall set forth the aggregate number of shares of Option Stock as to which the
option is being exercised, the names in which the shares of Option Stock are to
be registered, the denominations in which the shares of Option Stock are to be
issued and the date and time, as determined by the Representatives, when the
shares of Option Stock are to be delivered; provided, however, that this date
and time shall not be earlier than the First Delivery Date nor earlier than the
second business day after the date on which the option shall have been exercised
nor later than the fifth business day after the date on which the option shall
have been exercised. The date and time the shares of Option Stock are delivered
are sometimes referred to as the "Second Delivery Date" and the First Delivery
Date and the Second Delivery Date are sometimes each referred to as a "Delivery
Date".
Delivery of and payment for the Option Stock shall be made at the place
specified in the first sentence of the first paragraph of this Section 4 (or at
such other place as shall be determined by agreement among the Representatives,
the Company and the Selling Shareholder) at 10:00 A.M., New York City time, on
the Second Delivery Date. On the Second Delivery Date, the Company and the
Selling Shareholder shall deliver or cause to be delivered the certificates
representing the Option Stock to the Representatives for the account of each
Underwriter against payment to the Company and the Selling Shareholder of the
purchase price by wire transfer in same day funds to accounts specified by the
Company and the Selling Shareholder. Time shall be of the essence, and delivery
at the time and place specified pursuant to this Agreement is a further
condition of the obligation of each Underwriter hereunder. Upon delivery, the
Option Stock shall be registered in such names and in such denominations as the
Representatives shall request in the aforesaid written notice. For the purpose
of expediting the checking and packaging of the certificates for the Option
Stock, the Company and the Selling Shareholder shall make the certificates
representing the Option Stock available for inspection by the Representatives in
New York, New York, not later than 2:00 P.M., New York City time, on the
business day prior to the Second Delivery Date.
6. Further Agreements of the Company. The Company agrees with the
Underwriters and, solely with respect to Paragraphs 6(a), (b), (d) and (e), the
Selling Shareholder:
(a) To make no further amendment or any supplement to the
Registration Statement prior to the Second Delivery Date except as permitted
herein; to advise the Representatives and the Selling Shareholder, promptly
after it receives notice thereof, of the time when the Registration Statement,
or any amendment thereto, has been filed or becomes effective or any supplement
to the Prospectus or any amended Prospectus has been filed and to furnish the
Representatives and the Selling Shareholder with copies thereof; to file
promptly all reports and any definitive proxy or information statements required
to be filed by the Company with the Commission pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of the Prospectus and for
so long as the delivery of a prospectus is required in connection with the
offering or sale of the Stock; to advise the Representatives and the Selling
Shareholder, promptly after it receives notice thereof, of the issuance by the
Commission of any stop order or of any order preventing or suspending the use of
any Preliminary Prospectus or the Prospectus, of the suspension of the
qualification of the Stock for offering or sale in any jurisdiction, of the
initiation or threatening of any proceeding for any such purpose, or of any
request by the Commission for the amending or supplementing of the Registration
Statement or the Prospectus or for additional information; and, in the event of
the issuance of any stop order or of any order preventing or suspending the use
of any Preliminary Prospectus or the Prospectus or suspending any such
qualification, to use promptly its best efforts to obtain its withdrawal;
(b) To furnish promptly to each of the Representatives and the
Selling Shareholder and to counsel for the Underwriters and to counsel for the
Selling Shareholder a signed copy of the Registration Statement as originally
filed with the Commission, and each amendment thereto filed with the Commission,
including all consents and exhibits filed therewith;
<PAGE> 9
(c) To deliver promptly to the Representatives in New York City such
number of the following documents as the Representatives shall request: (i)
conformed copies of the Registration Statement as originally filed with the
Commission and each amendment thereto (in each case excluding exhibits other
than this Agreement), (ii) each Preliminary Prospectus, the Prospectus (not
later than 10:00 A.M., New York City time, of the day following the execution
and delivery of this Agreement) and any amended or supplemented Prospectus (not
later than 10:00 A.M., New York City time, on the day following the date of such
amendment or supplement) and (iii) any document incorporated by reference in the
Prospectus (excluding exhibits thereto); and, if the delivery of a prospectus is
required at any time after the Effective Time of the Registration Statement in
connection with the offering or sale of the Stock (or any other securities
relating thereto) and if at such time any event shall have occurred as a result
of which the Prospectus as then amended or supplemented would include any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made when such Prospectus is delivered, not misleading, or, if
for any other reason it shall be necessary to amend or supplement the Prospectus
or to file under the Exchange Act any document incorporated by reference in the
Prospectus in order to comply with the Securities Act or the Exchange Act, to
notify the Representatives and to file such document and, upon their request, to
prepare and furnish without charge to each Underwriter and to any dealer in
securities as many copies as the Representatives may from time to time request
of an amended or supplemented Prospectus which will correct such statement or
omission or effect such compliance, and in case any Underwriter is required to
deliver a prospectus in connection with sales of any of the Stock at any time
nine months or more after the Effective Time of the Primary Registration
Statement, upon the request of the Representatives but at the expense of such
Underwriter, to prepare and deliver to such Underwriter as many copies as the
Representatives may from time to time request of an amended or supplemented
Prospectus complying with Section 10(a)(3) of the Securities Act;
(d) To file promptly with the Commission any amendment to the
Registration Statement or the Prospectus or any supplement to the Prospectus
that may, in the judgment of the Company, the Representatives or the Selling
Shareholder, be required by the Securities Act or requested by the Commission;
(e) Prior to filing with the Commission any (i) Preliminary
Prospectus, (ii) amendment to the Registration Statement or supplement to the
Prospectus or any document incorporated by reference in the Prospectus or (iii)
any Prospectus pursuant to Rule 424 of the Rules and Regulations, to furnish a
copy thereof to the Representatives and counsel for the Underwriters and to the
Selling Shareholder and counsel to the Selling Shareholder and allow the
Representatives and counsel for the Underwriters the opportunity to comment on
any such amendment, supplement or document incorporated by reference in the
Prospectus;
(f) As soon as practicable after the Effective Date of the
Registration Statement, to make generally available to the Company's security
holders and to deliver to the Representatives and the Selling Shareholder an
earnings statement of the Company and its subsidiaries (which need not be
audited) complying with Section 11(a) of the Securities Act and the Rules and
Regulations (including, at the option of the Company, Rule 158);
(g) For a period of five years following the Effective Date of the
Registration Statement, to furnish to the Representatives copies of all
materials furnished by the Company to its shareholders and all public reports
and all reports and financial statements furnished on behalf of the Company to
the principal national securities exchange upon which the Common Stock may be
listed pursuant to requirements of or agreements with such exchange or to the
Commission pursuant to the Exchange Act or any rule or regulation of the
Commission thereunder;
<PAGE> 10
(h) Promptly from time to time to take such action as the
Representatives may reasonably request to qualify the Stock for offering and
sale under the securities laws of such jurisdictions as the Representatives may
request and to comply with such laws so as to permit the continuance of sales
and dealings therein in such jurisdictions for as long as may be necessary to
complete the distribution of the Stock;
(i) For a period of 180 days from the date of this Agreement, not to,
directly or indirectly, offer for sale, sell or otherwise dispose of (or enter
into any transaction or device which is designed to, or could be expected to,
result in the disposition or purchase by any person at any time in the future
of) any shares of Common Stock (other than the Stock and shares issued pursuant
to employee benefit plans, stock option plans or other employee compensation
plans existing on the date hereof or pursuant to currently outstanding options,
warrants or rights), or sell or grant options, rights or warrants with respect
to any shares of Common Stock (other than the grant of options pursuant to
option plans existing on the date hereof), without the prior written consent of
the Representatives; and to cause each executive officer and director of the
Company to furnish to the Representatives, prior to the First Delivery Date, a
letter or letters, in form and substance satisfactory to counsel for the
Underwriters, pursuant to which each such person shall agree not to, directly or
indirectly, offer for sale, sell or otherwise dispose of, (or enter into any
transaction or device which is designed to, or could be expected to, result in
the disposition or purchase by any person at any time in the future of), any
shares of Common Stock (other than (x) transfers of securities by will or the
laws of descent and distribution or (y) bona fide gifts so long as the recipient
of that gift agrees to be bound by the terms of this section) for a period of
180 days from the date of this Agreement without the prior written consent of
the Representatives; provided that, for Mr. L. Frederick Gieg, Jr., John H. Odle
and Timothy G. Rupert, the period described in the preceding clause shall be 90
days from the date of this Agreement; and
(j) To apply the net proceeds from the sale of the Stock being sold
by the Company as set forth in the Prospectus.
7. Further Agreements of the Selling Shareholder. The Selling Shareholder
agrees:
(a) For a period of 180 days from the date of this Agreement, not to,
directly or indirectly, offer for sale, sell or otherwise dispose of (or enter
into any transaction or device which is designed to, or could be expected to,
result in the disposition or purchase by any person at any time in the future
of) any shares of Common Stock (other than the Stock), without the prior written
consent of the Representatives.
(b) To deliver to the Representatives prior to the First Delivery
Date a properly completed and executed United States Treasury Department
Form W-9.
8. Expenses. The Company and the Selling Shareholder agree to pay (a) the
costs incident to the authorization, issuance, sale and delivery of the Stock
and any taxes payable in that connection; (b) the costs incident to the
preparation, printing and filing under the Securities Act of the Registration
Statement and any amendments and exhibits thereto; (c) the costs of distributing
the Registration Statement as originally filed and each amendment thereto and
any post-effective amendments thereof (including, in each case, exhibits), any
Preliminary Prospectus, the Prospectus and any amendment or supplement to the
Prospectus or any document incorporated by reference therein, all as provided in
this Agreement; (d) the costs of reproducing and distributing this Agreement;
(e) the costs of distributing the terms of agreement relating to the
organization of the underwriting syndicate and selling group to the members
thereof by mail, telex or other means of communication; (f) the filing fees
incident to securing any required review by the National Association of
Securities Dealers, Inc. of the terms of sale of the Stock; (g) any applicable
listing or other fees; (h) the fees and expenses of qualifying the Stock under
the securities laws of the several jurisdictions as provided in Section and of
preparing, printing and distributing a Blue Sky Memorandum (including related
fees and expenses of counsel to the Underwriters); and (i) all other costs and
expenses incident to the performance of the obligations of the Company under
this Agreement; provided that, except as provided in
<PAGE> 11
this Section 8 and in Section 13, the Underwriters shall pay their own costs
and expenses, including the costs and expenses of their counsel, any transfer
taxes on the Stock which they may sell and the expenses of advertising any
offering of the Stock made by the Underwriters, and the Selling Shareholder
shall pay any transfer taxes payable in connection with its respective sales of
Stock to the Underwriters and shall reimburse the Company, to the extent that
expenses are not paid by the Selling Shareholder, for its pro rata share of the
fees and expenses paid by the Company in connection with the offering of the
Stock.
9. Conditions of Underwriters' Obligations. The respective obligations of
the Underwriters hereunder are subject to the accuracy, when made and on each
Delivery Date, of the representations and warranties of the Company and the
Selling Shareholder contained herein, to the performance by the Company and the
Selling Shareholder of their respective obligations hereunder, and to each of
the following additional terms and conditions:
(a) The Registration Statement shall have become effective and the
Representatives shall have received notice thereof, not later than the first
full business day next following the date of this Agreement or such later date
as shall be consented to in writing by the Representatives; no stop order
suspending the effectiveness of the Registration Statement or any part thereof
shall have been issued and no proceeding for that purpose shall have been
initiated or threatened by the Commission; and any request of the Commission for
inclusion of additional information in the Registration Statement or the
Prospectus or otherwise and not understood by the Company to have been withdrawn
shall have been complied with.
(b) No Underwriter shall have discovered and disclosed to the Company
on or prior to such Delivery Date that the Registration Statement or the
Prospectus or any amendment or supplement thereto contains any untrue statement
of a fact which, in the opinion of Simpson Thacher & Bartlett, counsel for the
Underwriters, is material or omits to state any fact which, in the opinion of
such counsel, is material and is required to be stated therein or is necessary
to made the statements therein not misleading.
(c) All corporate proceedings and other legal matters incident to the
authorization, form and validity of this Agreement, the Stock, the Registration
Statement and the Prospectus, and all other legal matters relating to this
Agreement and the transactions contemplated hereby shall be satisfactory in all
respects to counsel for the Underwriters, and the Company and the Selling
Shareholder shall have furnished to such counsel all documents and information
that they may reasonably request to enable them to pass upon such matters.
(d) D.D. Sandman, General Counsel and Secretary of USX Corporation
and special counsel to the Company, shall have furnished to the Underwriters his
written opinion, as special counsel to the Company, addressed to the
Underwriters and dated such Delivery Date, in form and substance satisfactory to
the Underwriters, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of Ohio,
is duly qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which its ownership or lease of property or
the conduct of its business requires such qualification (other than those
jurisdictions in which the failure to so qualify would not have a material
adverse effect on the Company or the Company and its subsidiaries taken as a
whole), and has all power and authority necessary to own or hold its respective
properties and conduct the businesses in which it is engaged;
(ii) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of the Company
(including the shares of Stock being delivered on such Delivery Date) have been
duly and validly authorized and issued, are fully paid and non-assessable and
conform to the description thereof contained in the Prospectus;
<PAGE> 12
(iii) There are no preemptive or other rights to subscribe for
or to purchase, nor any restriction upon the voting or transfer of, any shares
of the Stock pursuant to the Company's Amended Articles of Incorporation or
Amended Code of Regulations or any agreement or other instrument known to such
counsel;
(iv) To such counsel's knowledge after due inquiry and other
than as set forth in the Prospectus, there are no legal or governmental
proceedings pending to which the Company or any of its subsidiaries is a party
or of which any property or asset of the Company or any of its subsidiaries is
the subject which, if determined adversely to the Company or any of its
subsidiaries, might have a material adverse effect on the consolidated financial
position, shareholders' equity or results of operations of the Company and its
subsidiaries; and, to such counsel's knowledge after due inquiry, no such
proceedings are threatened or contemplated by governmental authorities or
threatened by others;
(v) The Registration Statement was declared effective under
the Securities Act as of the date and time specified in such opinion and no stop
order suspending the effectiveness of the Registration Statement has been issued
and, to the knowledge of such counsel, no proceeding for that purpose is pending
or threatened by the Commission;
(vi) The Registration Statement, as of the Effective Date, and
the Prospectus, as of its date, and any further amendments or supplements
thereto, as of their respective dates, made by the Company prior to such
Delivery Date (other than the financial statements and other financial data
contained therein, as to which such counsel need express no opinion) complied as
to form in all material respects with the requirements of the Securities Act and
the Rules and Regulations, and the documents incorporated by reference in the
Prospectus and any further amendment or supplement to any such incorporated
document made by the Company prior to such Delivery Date (other than the
financial statements and related schedules therein, as to which such counsel
need express no opinion), when they became effective or were filed with the
Commission, as the case may be, complied as to form in all material respects
with the requirements of the Exchange Act and the rules and regulations of the
Commission thereunder;
(vii) To such counsel's knowledge after due inquiry, there are
no contracts or other documents which are required to be described in the
Prospectus or filed as exhibits to the Registration Statement by the Securities
Act or by the Rules and Regulations which have not been described or filed as
exhibits to the Registration Statement or incorporated therein by reference as
permitted by the Rules and Regulations;
(viii) This Agreement has been duly authorized, executed and
delivered by the Company;
(ix) The issue and sale of the shares of Stock being delivered
on such Delivery Date by the Company and the compliance by the Company with all
of the provisions of this Agreement and the consummation of the transactions
contemplated hereby will not conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument known
to such counsel after due inquiry to which the Company is a party or by which
the Company or to which any of the properties or assets of the Company is
subject, nor will such actions result in any violation of the provisions of the
Amended Articles of Incorporation or Amended Code of Regulations of the Company
or any statute or any order, rule or regulation known to such counsel of any
court or governmental agency or body having jurisdiction over the Company or any
of its properties or assets; and, except for the registration of the Stock under
the Securities Act
<PAGE> 13
and such consents, approvals, authorizations, registrations or qualifications
as may be required under the Exchange Act and applicable state or foreign
securities laws in connection with the purchase and distribution of the Stock
by the Underwriters, no consent, approval, authorization or order of, or filing
or registration with, any such court or governmental agency or body is required
for the execution, delivery and performance of this Agreement by the Company
and the consummation of the transactions contemplated hereby; and
(x) To such counsel's knowledge after due inquiry (except for
an intent to enter into an agreement or agreement with USX Corporation and/or
the USX Pension Plan with respect to shares of Common Stock owned by USX
Corporation, such intent evidenced by an act of the Company's Board of Directors
authorizing such action), there are no contracts, agreements or understandings
between the Company and any person granting such person the right (other than
rights which have been waived or satisfied) to require the Company to file a
registration statement under the Securities Act with respect to any securities
of the Company owned or to be owned by such person or to require the Company to
include such securities in the securities registered pursuant to the
Registration Statement or in any securities being registered pursuant to any
other registration statement filed by the Company under the Securities Act.
In rendering such opinion, such counsel may state (i) that his opinion is
limited to matters governed by the Federal laws of the United States of America
and the laws of the State of Ohio and (ii) that the phrase "to such counsel's
knowledge after due inquiry", as used in such counsel's opinion, means facts or
other information known or which, on the basis of an investigation reasonable
under the circumstances (including, without limitation, consultation with such
other lawyer or lawyers in the Law Department of the U.S. Steel Group of USX
Corporation that such counsel reasonably believes should be consulted), should
have been known. Such counsel shall also have furnished to the Representatives
a written statement, addressed to the Underwriters and dated such Delivery
Date, in form and substance satisfactory to the Representatives, to the effect
that (x) the Company is on a regular basis represented by the Law Department of
the U.S. Steel Group of USX Corporation and, with respect to litigation and
certain other matters, by other outside counsel and the Law Department of the
U.S. Steel Group has acted as counsel to the Company in connection with
previous financing transactions and has acted as counsel to the Company in
connection with the preparation of the Registration Statement, and (y) based on
the foregoing, no facts have come to the attention of such counsel which lead
him to believe that (I) the Registration Statement, as of the Effective Date,
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, or that the Prospectus contains any untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading or (II) any
document incorporated by reference in the Prospectus or any further amendment
or supplement to any such incorporated document made by the Company prior to
such Delivery Date, when they became effective or were filed with the
Commission, as the case may be, contained any untrue statement of a material
fact or omitted to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading (in each case, other than the financial statements and related
schedules thereto and statements made in the Prospectus under the caption
"Certain United States Tax Consequences to Non-United States Holders", as to
which such counsel need express no belief). The foregoing opinion and
statement may be qualified by a statement to the effect that such counsel does
not assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus except for
the statements made in the Prospectus under the caption "Description of Capital
Stock", insofar as such statements relate to the Stock and concern legal
matters.
<PAGE> 14
(e) J.T. Mills, Vice-President-Taxes of USX Corporation, shall have
furnished to the Representatives a letter addressed to the Underwriters and
dated such Delivery Date, in form and substance satisfactory to the
Representatives, to the effect that such counsel has reviewed the statements in
the Prospectus under the caption "Certain United States Tax Consequences to Non-
United States Holders" and, insofar as they are, or refer to, statements of
United States law or legal conclusions, such statements are accurate in all
material respects.
(f) D.D. Sandman, General Counsel and Secretary of USX Corporation,
shall have furnished to the Representatives his written opinion, as counsel to
the Selling Shareholder, addressed to the Underwriters and dated such Delivery
Date, in form and substance satisfactory to the Representatives, to the effect
that:
(i) The Selling Shareholder has full right, power and
authority to enter into this Agreement; the execution, delivery and performance
of this Agreement by the Selling Shareholder and the consummation by the Selling
Shareholder of the transactions contemplated hereby will not conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any statute, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument known to such counsel to which
the Selling Shareholder is a party or by which the Selling Shareholder is bound
or to which any of the property or assets of the Selling Shareholder is subject,
nor will such actions result in any violation of the provisions of the charter
or by-laws of the Selling Shareholder or any statute or any order, rule or
regulation known to such counsel of any court or governmental agency or body
having jurisdiction over the Selling Shareholder or the property or assets of
the Selling Shareholder; and, except for the registration of the Stock under the
Securities Act and such consents, approvals, authorizations, registrations or
qualifications as may be required under the Exchange Act and applicable state or
foreign securities laws in connection with the purchase and distribution of the
Stock by the Underwriters, no consent, approval, authorization or order of, or
filing or registration with, any such court or governmental agency or body is
required for the execution, delivery and performance of this Agreement by the
Selling Shareholder and the consummation by the Selling Shareholder of the
transactions contemplated hereby;
(ii) This Agreement has been duly authorized, executed and
delivered by or on behalf of the Selling Shareholder; and
(iii) Upon payment for, and delivery of, the shares of Stock to
be sold by the Selling Shareholder under this Agreement in accordance with the
terms hereof, the Underwriters will acquire all of the rights of the Selling
Shareholder in such Shares and will also acquire the interest of the Selling
Shareholder in such Shares free of any adverse claim (within the meaning of the
Uniform Commercial Code).
In rendering such opinion, such counsel may (i) state that his opinion is
limited to matters governed by the Federal laws of the United States of America
and the laws of the General Corporation Law of the State of Delaware and that
such counsel is not admitted in the State of Delaware and (ii) in rendering the
opinion in Section above, (x) rely upon a certificate of the Selling
Shareholder in respect of matters of fact as to ownership of, and the absence
of adverse claims regarding, the shares of Stock sold by the Selling
Shareholder; provided that such counsel shall furnish copies thereof to the
Representatives and state that he believes that both the Underwriters and such
counsel are justified in relying upon such certificate, and (y) insofar as such
opinion relates to or is dependent on matters governed by the laws of the State
of New York, rely on the opinion of Simpson Thacher & Bartlett, counsel for the
Underwriters, referred to in Section 9(b) above. Counsel for the Selling
Shareholder shall also have furnished to the Representatives a written
statement, addressed to the Underwriters and dated such Delivery Date, in form
and substance satisfactory to the Representatives, to the effect that (x) such
counsel has acted as
<PAGE> 15
counsel to the Selling Shareholder in connection with the preparation of the
Registration Statement, and (y) based on the foregoing, no facts have come to
the attention of such counsel which lead him to believe that the Registration
Statement, as of the Effective Date, contained any untrue statement of a
material fact relating to the Selling Shareholder or omitted to state such a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, or that the Prospectus contains any untrue
statement of a material fact relating to the Selling Shareholder or omits to
state such a material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading. The foregoing opinion and statement may be
qualified by a statement to the effect that such counsel does not assume
therein any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus.
(g) With respect to the letter of Price Waterhouse LLP delivered to
the Representatives concurrently with the execution of this Agreement (the
"initial letter"), the Company shall have furnished to the Representatives a
letter (the "bring-down letter") of such accountants, addressed to the
Underwriters and dated such Delivery Date (i) confirming that they are
independent public accountants within the meaning of the Securities Act and are
in compliance with the applicable requirements relating to the qualification of
accountants under Rule 2-01 of Regulation S-X of the Commission, (ii) stating,
as of the date of the bring-down letter (or, with respect to matters involving
changes or developments since the respective dates as of which specified
financial information is given in the Prospectus, as of a date not more than
five days prior to the date of the bring-down letter), the conclusions and
findings of such firm with respect to the financial information and other
matters covered by the initial letter and (iii) confirming in all material
respects the conclusions and findings set forth in the initial letter.
(h) The Company shall have furnished to the Representatives a
certificate, dated such Delivery Date, of its Chairman of the Board, its
President or the Senior Vice President-Commercial and its chief financial
officer stating that:
(i) The representations, warranties and agreements of the
Company in Section 1 are true and correct as of such Delivery Date; the Company
has complied with all its agreements contained herein; and the conditions set
forth in Section have been fulfilled;
(ii) They have carefully examined the Registration Statement
and the Prospectus and, to their knowledge, (A) the Registration Statement and
the Prospectus, as of the Effective Date, did not include any untrue statement
of a material fact and did not omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
(B) since the Effective Date no event has occurred which should have been set
forth in a supplement or amendment to the Registration Statement or the
Prospectus; and
(iii) Neither the Company nor any of its subsidiaries has
sustained since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus any material loss or interference
with its business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental action,
order or decree, otherwise than as set forth or contemplated in the Prospectus
or since such date, except as contemplated in the Prospectus, there has not been
any change in the capital stock (other than the grant and exercise of options
pursuant to the Company's stock option plans) or any changes in long-term debt
(other than under the Existing Credit Facilities or the New Credit Facility) of
the Company or any of its subsidiaries or any material adverse change, or any
development involving a prospective material adverse change, in or affecting the
financial position, shareholders' equity, results
<PAGE> 16
of operations or prospects of the Company and its subsidiaries, otherwise than
as set forth or contemplated in the Prospectus.
(i) The Selling Shareholder shall have furnished to the
Representatives on such Delivery Date a certificate, dated such Delivery Date,
signed by, or on behalf of, the Selling Shareholder stating that the
representations, warranties and agreements of the Selling Shareholder contained
herein are true and correct as of such Delivery Date and that the Selling
Shareholder has complied with all agreements contained herein to be performed by
the Selling Shareholder at or prior to such Delivery Date.
(j) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus any loss or interference with its
business from fire, explosion, flood or other calamity, whether or not covered
by insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Prospectus or (ii)
since such date, except as contemplated in the Prospectus, there shall not have
been any change in the capital stock (other than the grant and exercise of
options pursuant to the Company's stock option plans) or any changes in
long-term debt (other than under the Existing Credit Facilities or the New
Credit Facility) of the Company or any of its subsidiaries or any change, or any
development involving a prospective change, in or affecting the financial
position, shareholders' equity, results of operations or prospects of the
Company and its subsidiaries, otherwise than as set forth or contemplated in the
Prospectus, the effect of which, in any such case described in clause (i) or
(ii), is, in the judgment of the Representatives, so material and adverse as to
make it impracticable or inadvisable to proceed with the public offering or the
delivery of the Stock being delivered on such Delivery Date on the terms and in
the manner contemplated in the Prospectus.
(k) Subsequent to the execution and delivery of this Agreement there
shall not have occurred any of the following: (i) trading in securities
generally on the New York Stock Exchange or the American Stock Exchange or in
the over-the-counter market, or trading in any securities of the Company on any
exchange or in the over-the-counter market, shall have been suspended or minimum
prices shall have been established on any such exchange or such market by the
Commission, by such exchange or by any other regulatory body or governmental
authority having jurisdiction, (ii) a banking moratorium shall have been
declared by Federal or state authorities, (iii) the United States shall have
become engaged in hostilities, there shall have been an escalation in
hostilities involving the United States or there shall have been a declaration
of a national emergency or war by the United States or (iv) there shall have
occurred such a material adverse change in general economic, political or
financial conditions (or the effect of international conditions on the financial
markets in the United States shall be such) as to make it, in the judgment of a
majority in interest of the several Underwriters, impracticable or inadvisable
to proceed with the public offering or delivery of the Stock being delivered on
such Delivery Date on the terms and in the manner contemplated in the
Prospectus.
(l) The New York Stock Exchange, Inc. shall have approved the Stock
for listing, subject only to official notice of issuance.
(m) The New Credit Facility (as defined in the Prospectus) shall be
effective, and the conditions to borrowing thereunder satisfied, except only for
the payment of the purchase price to the Company for the Common Stock, as
contemplated herein on the First Delivery Date.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance satisfactory to counsel
for the Underwriters.
<PAGE> 17
10. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless each
Underwriter, its officers and employees and each person, if any, who controls
any Underwriter within the meaning of the Securities Act, from and against any
loss, claim, damage or liability, joint or several, or any action in respect
thereof (including, but not limited to, any loss, claim, damage, liability or
action relating to purchases and sales of Stock), to which that Underwriter,
officer, employee or controlling person may become subject, under the Securities
Act or otherwise, insofar as such loss, claim, damage, liability or action
arises out of, or is based upon, (i) any untrue statement or alleged untrue
statement of a material fact contained (A) in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or in any amendment or supplement
thereto, or (B) in any blue sky application or other document prepared or
executed by the Company (or based upon any written information furnished by the
Company) specifically for the purpose of qualifying any or all of the Stock
under the securities laws of any state or other jurisdiction (any such
application, document or information being hereinafter called a "Blue Sky
Application"), or (ii) the omission or alleged omission to state in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or in any
amendment or supplement thereto, or in any Blue Sky Application any material
fact required to be stated therein or necessary to make the statements therein
not misleading and shall reimburse each Underwriter and each such officer,
employee and controlling person promptly upon demand for any legal or other
expenses reasonably incurred by that Underwriter, officer, employee or
controlling person in connection with investigating or defending or preparing to
defend against any such loss, claim, damage, liability or action as such
expenses are incurred; provided, however, that the Company shall not be liable
in any such case to the extent that any such loss, claim, damage, liability or
action arises out of, or is based upon, any untrue statement or alleged untrue
statement or omission or alleged omission made in any Preliminary Prospectus,
the Registration Statement or the Prospectus, or in any such amendment or
supplement, or in any Blue Sky Application in reliance upon and in conformity
with the written information furnished to the Company (a) through the
Representatives by or on behalf of any Underwriter specifically for inclusion
therein and described in Section 10(h) or (b) by or on behalf of the Selling
Shareholder specifically for inclusion therein. The foregoing indemnity
agreement is in addition to any liability which the Company may otherwise have
to any Underwriter or to any officer, employee or controlling person of that
Underwriter.
(b) The Company shall indemnify and hold harmless the Selling
Shareholder, its officers and employees and each person, if any, who controls
the Selling Shareholder within the meaning of the Securities Act, from and
against any loss, claim, damage or liability, joint or several, or any action in
respect thereof (including, but not limited to, any loss, claim, damage,
liability or action relating to purchases and sales of Stock), to which the that
Selling Shareholder, officer, employee or controlling person may become subject,
under the Securities Act or otherwise, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue statement or
alleged untrue statement of a material fact contained (A) in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or in any amendment or
supplement thereto, or (B) in any Blue Sky Application, or (ii) the omission or
alleged omission to state in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or in any amendment or supplement thereto, or in
any Blue Sky Application any material fact required to be stated therein or
necessary to make the statements therein not misleading and shall reimburse the
Selling Shareholder and each such officer, employee and controlling person
promptly upon demand for any legal or other expenses reasonably incurred by that
Selling Shareholder, officer, employee or controlling person in connection with
investigating or defending or preparing to defend against any such loss, claim,
damage, liability or action as such expenses are incurred; provided, however,
that the Company shall not be liable in any such case to the extent that any
such loss, claim, damage, liability or action arises out of, or is based upon,
any untrue statement or alleged untrue statement or omission or alleged omission
made in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or in any such amendment or supplement, or in any Blue Sky
Application in reliance upon and in conformity with the written information
furnished to the Company (a) by or on behalf of the Selling Shareholder
specifically for inclusion therein or (b) through the Representatives by or on
behalf of any Underwriter specifically for inclusion therein and described in
Section 10(h). The foregoing indemnity agreement is in addition to any
liability which the Company may otherwise have to the Selling Shareholder or to
any officer, employee or controlling person of that Selling Shareholder.
(c) The Selling Shareholder shall indemnify and hold harmless each
Underwriter, its officers and employees and each person, if any, who controls
any Underwriter within the meaning of the Securities Act, from
<PAGE> 18
and against any loss, claim, damage or liability, joint or several, or any
action in respect thereof (including, but not limited to, any loss, claim,
damage, liability or action relating to purchases and sales of Stock), to which
that Underwriter, officer, employee or controlling person may become subject,
under the Securities Act or otherwise, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue statement
or alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or in any amendment
or supplement thereto or (ii) the omission or alleged omission to state in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or in any
amendment or supplement thereto, any material fact required to be stated
therein or necessary to make the statements therein not misleading, and shall
reimburse each Underwriter, its officers and employees and each such
controlling person for any legal or other expenses reasonably incurred by that
Underwriter, its officers, employees or controlling persons in connection with
investigating or defending or preparing to defend against any such loss, claim,
damage, liability or action as such expenses are incurred; provided, however,
that the Selling Shareholder shall not be liable in any such case to the extent
that any such loss, claim, damage, liability or action arises out of, or is
based upon, any untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or in any such amendment or supplement in reliance upon and
in conformity with written information furnished to the Company through the
Representatives by or on behalf of any Underwriter specifically for inclusion
therein; provided, further, that as to any Preliminary Prospectus this
indemnity agreement shall not inure to the benefit of any Underwriter, its
officers or employees or any person controlling that Underwriter on account of
any loss, claim, damage, liability or action arising from the sale of Stock to
any person by that Underwriter if that Underwriter failed to send or give a
copy of the Prospectus, as the same may be amended or supplemented, to that
person within the time required by the Securities Act, and the untrue statement
or alleged untrue statement of a material fact or omission or alleged omission
to state a material fact in such Preliminary Prospectus was corrected in the
Prospectus, unless such failure resulted from non-compliance by the Company
with Section . For purposes of the last proviso to the immediately preceding
sentence, the term "Prospectus" shall not be deemed to include the documents
incorporated therein by reference, and no Underwriter shall be obligated to
send or give any supplement or amendment to any document incorporated by
reference in any Preliminary Prospectus or the Prospectus to any person other
than a person to whom such Underwriter had delivered such incorporated document
or documents in response to a written request therefor. Notwithstanding the
provisions of this Section 10(c), the aggregate liability of the Selling
Shareholder under this Section 10(c) shall not exceed the proceeds received by
the Selling Shareholder from the sale of shares of Stock under this Agreement.
The foregoing indemnity agreement is in addition to any liability which the
Selling Shareholder may otherwise have to any Underwriter or any officer,
employee or controlling person of that Underwriter.
(d) Each Underwriter, severally and not jointly, shall indemnify
and hold harmless the Company, its officers and employees, each of its directors
and each person, if any, who controls the Company within the meaning of the
Securities Act, from and against any loss, claim, damage or liability, joint or
several, or any action in respect thereof, to which the Company or any such
director, officer or controlling person may become subject, under the Securities
Act or otherwise, insofar as such loss, claim, damage, liability or action
arises out of, or is based upon, (i) any untrue statement or alleged untrue
statement of a material fact contained (A) in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or in any amendment or supplement
thereto, or (B) in any Blue Sky Application or (ii) the omission or alleged
omission to state in any Preliminary Prospectus, the Registration Statement or
the Prospectus, or in any amendment or supplement thereto, or in any Blue Sky
Application any material fact required to be stated therein or necessary to make
the statements therein not misleading, but in each case only to the extent that
the untrue statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with the written information
furnished to the Company through the Representatives by or on behalf of that
Underwriter specifically for inclusion therein and described in Section 10(h),
and shall reimburse the Company and any such director, officer or controlling
person for any legal or other expenses reasonably incurred by the Company or any
such director, officer or controlling person in connection with investigating or
defending or preparing to defend against any such loss, claim, damage, liability
or action as such expenses are incurred. The foregoing indemnity agreement is in
addition to any liability which any Underwriter may otherwise have to the
Company or any such director, officer or controlling person.
<PAGE> 19
(e) Each Underwriter, severally and not jointly, shall indemnify
and hold harmless the Selling Shareholder, its officers and employees, each of
its directors and each person, if any, who controls the Selling Shareholder
within the meaning of the Securities Act, from and against any loss, claim,
damage or liability, joint or several, or any action in respect thereof, to
which the Selling Shareholder or any such director, officer or controlling
person may become subject, under the Securities Act or otherwise, insofar as
such loss, claim, damage, liability or action arises out of, or is based upon,
(i) any untrue statement or alleged untrue statement of a material fact
contained (A) in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or in any amendment or supplement thereto, or (B) in any Blue Sky
Application or (ii) the omission or alleged omission to state in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or in any amendment or
supplement thereto, or in any Blue Sky Application any material fact required to
be stated therein or necessary to make the statements therein not misleading,
but in each case only to the extent that the untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with the written information furnished to the Company through the
Representatives by or on behalf of that Underwriter specifically for inclusion
therein and described in Section 10(h), and shall reimburse the Selling
Shareholder and any such director, officer or controlling person for any legal
or other expenses reasonably incurred by the Selling Shareholder or any such
director, officer or controlling person in connection with investigating or
defending or preparing to defend against any such loss, claim, damage, liability
or action as such expenses are incurred. The foregoing indemnity agreement is
in addition to any liability which any Underwriter may otherwise have to the
Selling Shareholder or any such director, officer or controlling person.
(f) Promptly after receipt by an indemnified party under this
Section of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section , notify the indemnifying party in writing
of the claim or the commencement of that action; provided, however, that the
failure to notify the indemnifying party shall not relieve it from any liability
which it may have under this Section except to the extent it has been
materially prejudiced by such failure and, provided further, that the failure to
notify the indemnifying party shall not relieve it from any liability which it
may have to an indemnified party otherwise than under this Section . If any
such claim or action shall be brought against an indemnified party, and it shall
notify the indemnifying party thereof, the indemnifying party shall be entitled
to participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
any indemnified party shall have the right to employ separate counsel in any
such action and to participate in the defense thereof but the fees and expenses
of such counsel shall be at the expense of such indemnified party unless (i) the
employment thereof has been specifically authorized by the indemnifying party in
writing, (ii) the named parties to any such proceeding (including any impleaded
parties) include both the indemnifying party and the indemnified party and
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interests between them or (iii) the indemnifying
party has failed to assume the defense of such action and employ counsel
reasonably satisfactory to the indemnified party, in which case, if such
indemnified party notifies the indemnifying party in writing that it elects to
employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such action
on behalf of such indemnified party, it being understood, however, that the
indemnifying party shall not, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys at any
time for all such indemnified parties, which firm shall be designated in writing
by the Representatives, if the indemnified parties under this Section 10 consist
of any Underwriter or any of their respective controlling persons, or by the
Company, if the indemnified parties under this Section 10 consist of the Company
or any of the Company's directors, officers or controlling persons. Each
indemnified party, as a condition of the indemnity agreements contained in
Sections , 10(b), , 10(d), and 10(e), shall use its best efforts to cooperate
with the indemnifying party in the defense of any such action or claim. No
indemnifying party shall (i) without the prior written consent of the
indemnified parties (which consent shall not be unreasonably withheld), settle
or compromise or consent to the entry of any judgment with respect to any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder
<PAGE> 20
(whether or not the indemnified parties are actual or potential parties to such
claim or action) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising out
of such claim, action, suit or proceeding, or (ii) be liable for any settlement
of any such action effected without its written consent (which consent shall
not be unreasonably withheld), but if settled with its written consent or if
there be a final judgment of the plaintiff in any such action, the indemnifying
party agrees to indemnify and hold harmless any indemnified party from and
against any loss of liability by reason of such settlement or judgment.
(g) If the indemnification provided for in this Section shall for
any reason be unavailable to or insufficient to hold harmless an indemnified
party under Section , 10(b), , 10(d) or 10(e) in respect of any loss, claim,
damage or liability, or any action in respect thereof, referred to therein, then
each indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, (i) in
such proportion as shall be appropriate to reflect the relative benefits
received by the Company and the Selling Shareholder on the one hand and the
Underwriters on the other from the offering of the Stock or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
the Selling Shareholder on the one hand and the Underwriters on the other with
respect to the statements or omissions which resulted in such loss, claim,
damage or liability, or action in respect thereof, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Selling Shareholder on the one hand and the Underwriters on the other with
respect to such offering shall be deemed to be in the same proportion as the
total net proceeds from the offering of the Stock purchased under this Agreement
(before deducting expenses) received by the Company and the Selling Shareholder
on the one hand, and the total underwriting discounts and commissions received
by the Underwriters with respect to the shares of the Stock purchased under this
Agreement, on the other hand, bear to the total gross proceeds from the offering
of the shares of the Stock under this Agreement, in each case as set forth in
the table on the cover page of the Prospectus. The relative fault shall be
determined by reference to whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Company, the Selling Shareholder or the
Underwriters, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, the Selling Shareholder and the Underwriters agree that it would
not be just and equitable if contributions pursuant to this Section 10(g) were
to be determined by pro rata allocation (even if the Underwriters were treated
as one entity for such purpose) or by any other method of allocation which does
not take into account the equitable considerations referred to herein. The
amount paid or payable by an indemnified party as a result of the loss, claim,
damage or liability, or action in respect thereof, referred to above in this
Section 10(g) shall be deemed to include, for purposes of this Section 10(g),
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 10(g), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Stock underwritten by it and distributed to the public was
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise paid or become liable to pay by reason of any untrue or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute as provided in this Section 10(g) are several in proportion to their
respective underwriting obligations and not joint.
(h) The Underwriters severally confirm that the statements with
respect to the public offering of the Stock set forth on the cover page of, and
under the caption "Underwriting" in, the Prospectus are correct and constitute
the only information furnished in writing to the Company by or on behalf of the
Underwriters specifically for inclusion in the Registration Statement and the
Prospectus.
11. Defaulting Underwriters.
If, on either Delivery Date, any Underwriter defaults in the performance of
its obligations under this Agreement, the remaining non-defaulting Underwriters
shall be obligated to purchase the Stock which the defaulting Underwriter agreed
but failed to purchase on such Delivery Date in the respective proportions which
the number of shares of the Firm Stock set opposite the name of each remaining
non-defaulting Underwriter in Schedule
<PAGE> 21
1 hereto bears to the total number of shares of the Firm Stock set opposite the
names of all the remaining non- defaulting Underwriters in Schedule 1 hereto;
provided, however, that the remaining non-defaulting Underwriters shall not be
obligated to purchase any of the Stock on such Delivery Date if the total
number of shares of the Stock which the defaulting Underwriter or Underwriters
agreed but failed to purchase on such date exceeds 9.09% of the total number of
shares of the Stock to be purchased on such Delivery Date, and any remaining
non-defaulting Underwriter shall not be obligated to purchase more than 110% of
the number of shares of the Stock which it agreed to purchase on such Delivery
Date pursuant to the terms of Section . If the foregoing maximums are
exceeded, the remaining non-defaulting Underwriters, or those other
underwriters satisfactory to the Representatives who so agree, shall have the
right, but shall not be obligated, to purchase, in such proportion as may be
agreed upon among them, all the Stock to be purchased on such Delivery Date.
If the remaining Underwriters or other underwriters satisfactory to the
Representatives do not elect to purchase the shares which the defaulting
Underwriter or Underwriters agreed but failed to purchase on such Delivery
Date, this Agreement (or, with respect to the Second Delivery Date, the
obligation of the Underwriters to purchase, and of the Company and the Selling
Shareholder to sell, the Option Stock) shall terminate without liability on the
part of any non-defaulting Underwriter or the Company or the Selling
Shareholder except that the Company will continue to be liable for the payment
of expenses to the extent set forth in Sections and . As used in this
Agreement, the term "Underwriter" includes, for all purposes of this Agreement
unless the context requires otherwise, any party not listed in Schedule 1
hereto who, pursuant to this Section , purchases Firm Stock which a defaulting
Underwriter agreed but failed to purchase.
Nothing contained herein shall relieve a defaulting Underwriter of any
liability it may have to the Company and the Selling Shareholder for damages
caused by its default. If other underwriters are obligated or agree to purchase
the Stock of a defaulting or withdrawing Underwriter, either the Representatives
or the Company may postpone the First Delivery Date for up to seven full
business days in order to effect any changes that in the opinion of counsel for
the Company or counsel for the Underwriters may be necessary in the Registration
Statement, the Prospectus or in any other document or arrangement.
12. Effective Date and Termination.
(a) This Agreement shall become effective at 11:00 A.M., New York
City time, on the first full business day following the Effective Date, or at
such earlier time after the Registration Statement becomes effective as the
Representatives shall release the Firm Stock for initial public offering. The
Representatives shall notify the Company immediately after they have taken any
action which causes this Agreement to become effective. Until this Agreement is
effective, it may be terminated by the Company or the Selling Shareholder by
notice to the Representatives and the Company or the Selling Shareholder, as the
case may be, or by the Representatives by notice to the Company. For purposes
of this Agreement, the release of the initial public offering of the Stock shall
be deemed to have been made when the Representatives release, by telegram or
otherwise, firm offers of the Stock to securities dealers or release for
publication a newspaper advertisement relating to the Stock, whichever occurs
first.
(b) The obligations of the Underwriters hereunder may be
terminated by the Representatives by notice given to and received by the Company
and the Selling Shareholder prior to delivery of and payment for the Firm Stock
if, prior to that time, any of the events described in Sections 9(j) and 9(k)
shall have occurred or if the Underwriters shall decline to purchase the Stock
for any reason permitted under this Agreement.
13. Reimbursement of Underwriters' Expenses. If (a) notice shall have
been given pursuant to Section 12(a) preventing this Agreement from becoming
effective, (b) the Company or the Selling Shareholder shall fail to tender the
Stock for delivery to the Underwriters for any reason permitted under this
Agreement, or (c) the Underwriters shall decline to purchase the Stock for any
reason permitted under this Agreement (including the termination of this
Agreement pursuant to Section ), the Company and the Selling Shareholder shall
reimburse the Underwriters for the fees and expenses of their counsel and for
such other out-of-pocket expenses as shall have been incurred by them in
connection with this Agreement and the proposed purchase of the Stock, and upon
demand the Company and the Selling Shareholder shall pay the full amount thereof
to the Representatives. If this Agreement is terminated pursuant to Section by
reason of the default of one or more Underwriters, neither the Company nor the
Selling Shareholder shall be obligated to reimburse such expenses to any
defaulting Underwriter.
<PAGE> 22
14. Notices, etc. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or sent by mail, telex
or facsimile transmission to Lehman Brothers Inc., Three World Financial Center,
New York, New York 10285, Attention: Syndicate Department (Fax: 212-528-8822);
(b) if to the Company, shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the Primary
Registration Statement, Attention: Timothy G. Rupert (Fax: 330-544-7701);
(c) if to the Selling Shareholder, shall be delivered or sent by mail,
telex or facsimile transmission to the address of the Selling Shareholder set
forth in the Primary Registration Statement, Attention: Robert E. Hilton (Fax:
412-433-2811)
provided, however, that any notice to an Underwriter pursuant to Section shall
be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its acceptance telex to the
Representatives, which address will be supplied to any other party hereto by
the Representatives upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Company and
the Selling Shareholder shall be entitled to act and rely upon any request,
consent, notice or agreement given or made on behalf of the Underwriters by
Lehman Brothers Inc. on behalf of the Representatives.
15. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of and be binding upon the Underwriters, the Company, the
Selling Shareholder and their respective successors. This Agreement and the
terms and provisions hereof are for the sole benefit of only those persons,
except that (A) the representations, warranties, indemnities and agreements of
the Company and the Selling Shareholder contained in this Agreement shall also
be deemed to be for the benefit of the officers and employees of each
Underwriter and the person or persons, if any, who control each Underwriter
within the meaning of Section 15 of the Securities Act and (B) the indemnity
agreement of the Underwriters contained in Section of this Agreement shall be
deemed to be for the benefit of directors, officers and employees of the Company
and any person controlling the Company within the meaning of Section 15 of the
Securities Act. Nothing in this Agreement is intended or shall be construed to
give any person, other than the persons referred to in this Section , any legal
or equitable right, remedy or claim under or in respect of this Agreement or any
provision contained herein.
16. Survival. The respective indemnities, representations, warranties
and agreements of the Company, the Selling Shareholder and the Underwriters
contained in this Agreement or made by or on behalf of them, respectively,
pursuant to this Agreement, shall survive the delivery of and payment for the
Stock and shall remain in full force and effect, regardless of any investigation
made by or on behalf of any of them or any person controlling any of them.
17. Definition of the Terms "Business Day" and "Subsidiary". For
purposes of this Agreement, (a) "business day" means any day on which the New
York Stock Exchange, Inc. is open for trading and (b) "subsidiary" has the
meaning set forth in Rule 405 of the Rules and Regulations.
18. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of New York.
19. Counterparts. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
20. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
<PAGE> 23
If the foregoing correctly sets forth the agreement among the Company, the
Selling Shareholder and the Underwriters, please indicate your acceptance in the
space provided for that purpose below.
Very truly yours,
RMI TITANIUM COMPANY
By
---------------------------------
Name:
Title:
USX CORPORATION
By
---------------------------------
Name:
Title:
Accepted:
Lehman Brothers Inc.
Salomon Brothers Inc
For themselves as Underwriters
and as Representatives of the
several Underwriters named
in Schedule 1 hereto
By Lehman Brothers Inc.
By
------------------------------
Authorized Representative
<PAGE> 24
SCHEDULE 1
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ---------
<S> <C>
Lehman Brothers Inc. 2,017,500
Salomon Brothers Inc 2,017,500
Bear, Stearns & Co. Inc. 127,500
CS First Boston Corporation 127,500
A.G. Edwards & Sons, Inc. 127,500
Everen Securities, Inc. 127,500
Morgan Stanley & Co. Incorporated 127,500
Oppenheimer & Co., Inc. 127,500
PaineWebber Incorporated 127,500
Prudential Securities Incorporated 127,500
The Buckingham Research Group Incorporated 67,500
Legg Mason Wood Walker, Incorporated 67,500
McDonald & Company Securities, Inc. 67,500
The Ohio Company 67,500
Pacific Securities, Inc. 67,500
Piper Jaffray Inc. 67,500
Pryor, McClendon, Counts & Co., Inc. 67,500
Ragen MacKenzie Incorporated 67,500
Sands Brothers & Co., Ltd. 67,500
Adam Smith & Company, Inc. 67,500
Stifel, Nicolaus & Company, Incorporated 67,500
Sutro & Co. Incorporated 67,500
Tucker Anthony Incorporated 67,500
Wheat, First Securities, Inc. 67,500
---------
Total 6,000,000
=========
</TABLE>
<PAGE> 1
Exhibit 5.1
[LOGO]
USX CORPORATION DAN D. SANDMAN
600 GRANT STREET GENERAL COUNSEL,
PITTSBURGH, PA 15219-4776 SECRETARY AND
412 433 1117 SENIOR VICE PRESIDENT-
FAX 412 433 2015 HUMAN RESOURCES
May 2, 1996
Board of Directors
RMI Titanium Company
Post Office Box 269
1000 Warren Avenue
Niles, Ohio 44446
Dear Sirs:
I am General Counsel, Secretary and Senior Vice President-Human Resources of USX
Corporation, a Delaware corporation ("USX"). The Law Department of USX and of
its U.S. Steel Group (the "USX/USS Law Department") has acted as special counsel
to RMI Titanium Company, an Ohio corporation ("RMI"), in connection with the
proposed secondary offering of up to 2,300,000 shares of RMI common stock, par
value $.01 per share (the "RMI Shares"), owned by USX (the "Selling
Shareholder") and in the preparation and filing of a registration statement on
Form S-3 (the "Registration Statement") with respect thereto. As of the date
hereof, and at all times while the USX/USS Law Department has represented RMI,
USX has owned in excess of 50% of the outstanding shares of common stock of RMI.
I have examined, or have caused attorneys in the USX/USS Law Department to
examine, RMI's Amended Articles of Incorporation, RMI's Amended Code of
Regulations and the resolutions adopted by RMI's Board of Directors on April 25,
1996 authorizing the registration of the Shares and related matters. I have
examined, or caused to be examined, such other documents, corporate records and
certificates of corporate officers and public officials as I have deemed
relevant or necessary to giving the opinion set forth below. In rendering this
opinion, I have presumed the genuineness of all documents examined and the
correctness of all statements of facts contained in the examined certificates of
corporate officers and public officials.
Based on the foregoing, I am of the opinion that the RMI Shares are duly
authorized; the issuance of the RMI Shares has been approved by all necessary
corporate action; and, they will be legally issued, fully paid and
non-assessable.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ DAN D. SANDMAN
Dan D. Sandman
Marathon Group - U.S. Steel Group - Delhi Group
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
January 26, 1996 appearing on page 20 of RMI Titanium Company's Annual Report on
Form 10-K/A for the year ended December 31, 1995. We also consent to the use in
this Prospectus of our report dated January 26, 1996 relating to the financial
statements of RMI Titanium Company, which appears in such Prospectus. We also
consent to the reference to us under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Pittsburgh, Pennsylvania
May 2, 1996
