<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 26, 1996
REGISTRATION NO. 333-16101
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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RMI TITANIUM COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
OHIO 31-0875005
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
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
EXECUTIVE 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:
<TABLE>
<S> <C> <C>
CHRISTOPHER M. KELLY, ESQ. R. E. HILTON, ESQ. RAYMOND W. WAGNER, ESQ.
JONES, DAY, REAVIS & POGUE ASSISTANT GENERAL COUNSEL--U.S. STEEL GROUP SIMPSON THACHER & BARTLETT
NORTH POINT USX CORPORATION 425 LEXINGTON AVENUE
901 LAKESIDE AVENUE 600 GRANT STREET NEW YORK, NEW YORK 10017
CLEVELAND, OHIO 44114 PITTSBURGH, PENNSYLVANIA 15219-4776 (212) 455-2568
(216) 586-1238 (412) 433-2868
</TABLE>
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. [X]
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>
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Proposed Proposed
Amount Maximum Maximum Amount of
Title of each class of to be Offering Price Aggregate Registration
Securities to be Registered Registered Per Share(1) Offering Price(1) Fee
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<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share................ 5,483,600 shares $23.9375 $131,263,675 $39,777(2)
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933.
(2) Previously paid.
THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES
MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
NOVEMBER 26, 1996
PROSPECTUS
5,000,000 SHARES LOGO
RMI TITANIUM COMPANY
COMMON STOCK
($.01 PAR VALUE)
This Prospectus relates to 5,000,000 shares of common stock, par value $.01 per
share (the "Common Stock") of RMI Titanium Company (the "Company" or "RMI")
which may be delivered by USX Corporation ("USX"), at its option, pursuant to
the terms of USX's % Exchangeable Notes due February 1, 2000 (the "Debt
Exchangeable for Common Stock(sm)" or "DECS(sm)"). This Prospectus accompanies a
prospectus and prospectus supplement of USX (the "DECS Prospectus") relating to
the sale by USX of 5,000,000 DECS (the "DECS Offering"). The DECS Prospectus
does not constitute a part of this Prospectus nor is it incorporated by
reference herein.
USX has granted the Underwriters of the DECS a 30-day option to purchase up to
an additional 483,600 DECS, which may be exchanged at their maturity for
additional shares of Common Stock. Such option has been granted solely to cover
over-allotments, if any. To the extent that the over-allotment option is not
exercised by the Underwriters in full, USX may, subject to certain limitations,
sell up to 483,600 shares of Common Stock pursuant to this Prospectus. See "Plan
of Distribution." RMI will not receive any of the proceeds from the offering
contemplated hereby.
The Common Stock is traded on the New York Stock Exchange, Inc. ("NYSE") under
the symbol "RTI." On November 22, 1996, the last reported sale price of the
Common Stock on the NYSE Composite Tape was $23.875 per share. See "Price Range
of Common Stock and Dividends."
"Debt Exchangeable for Common Stock" and "DECS" are service marks of Salomon
Brothers Inc.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED CAREFULLY BY PROSPECTIVE INVESTORS.
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.
The date of this Prospectus is , 1996.
<PAGE> 3
THE COMPANY HAS BEEN ADVISED THAT, IN CONNECTION WITH THE OFFERING BY USX
OF THE DECS, THE UNDERWRITERS OF THE DECS MAY OVER-ALLOT OR EFFECT TRANSACTIONS
WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE DECS OR THE COMMON STOCK AT
LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NYSE (WITH RESPECT TO THE COMMON STOCK
ONLY), 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 may 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. The Commission
maintains a Web site at http://www.sec.gov containing reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission, including RMI.
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. Statements contained herein concerning the provisions of certain
documents are not necessarily complete, and in each instance reference is made
to the copy of such document filed as an exhibit to the Registration Statement
or otherwise filed with the Commission. Each such statement is qualified in its
entirety by such reference.
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) Quarterly Reports on Form 10-Q for the periods ended March 31, June 30
and September 30, 1996.
(c) 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. The telephone number is (330) 544-7622.
2
<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. 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.
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 asset impairment
charge). RMI has reported operating income and net income for each fiscal
quarter subsequent to the third quarter of 1995 and, for the nine months ended
September 30, 1996, reported sales of $177.4 million, operating income of $22.5
million and net income of $21.4 million. The foregoing interim data is
unaudited.
Titanium is one of the newest specialty 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 and a decline in commercial aircraft
build rates. Beginning in 1995, military build rates have stabilized at the
reduced level and commercial aircraft build rates have improved. See
"Business--Industry Overview."
In 1995, most major U.S. airline carriers reported stronger operating
profits and, in the second half of 1995 and through the first nine months of
1996, aircraft manufacturers increased aircraft build rates. The firm order
backlog for Boeing, McDonnell Douglas and Airbus Industrie, as reported by The
Airline Monitor, increased to 2,190 planes at September 30, 1996 from 1,869
planes at year end 1995 and 1,742 planes at year end 1994. This backlog 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 either of its last two
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 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
3
<PAGE> 5
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. Sales to the emerging golf club
market increased to 7% of RMI's sales in the first nine months of 1996 from less
than 1% of RMI's sales in 1995 and 1994. In addition to the direct benefit of
increased sales, demand from the golf club market also benefits RMI indirectly
by increasing utilization in the titanium mill products industry, resulting in
increased prices for titanium mill products industry-wide.
The increase in commercial aircraft build rates and the recent emergence of
the golf club market have resulted in increased demand for titanium mill
products. Based on USGS data, U.S. industry mill product shipments in the first
six months of 1996 (the latest figures available) were 29 million pounds
compared with 20 million pounds in the first six months of 1995, 44 million
pounds in 1995 and 35 million pounds in 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. 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 the first nine months of 1996
were 13.4 million pounds compared with 10.6 million pounds in the first nine
months of 1995, 14.4 million pounds in 1995 and 11.4 million pounds in 1994.
RMI's average realized mill product sales price increased to $11.71 per pound in
the first nine months of 1996 from $10.14 in the comparable period in 1995,
$10.23 per pound in 1995 and $9.63 per pound in 1994 as demand from the
commercial aerospace and golf club markets continued to strengthen. Reflecting
these trends, RMI's order backlog increased to $327 million at September 30,
1996 from $134 million at year-end 1995 and $67 million at year-end 1994. As of
September 30, 1996, orders for over 84% of RMI's anticipated 1997 shipments had
been booked. 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 as described above.
RMI completed delivery in 1995 of the world's first titanium drilling riser for
the Conoco Heidrun project (one of the world's largest floating, deep-water oil
and gas production platforms) in the North Sea. The Company has also entered
into a 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. Sales to the oil and gas and geothermal energy
production industries were 1% of RMI's sales in the first nine months of 1996,
3% of RMI's sales in 1995 and 9% of RMI's sales in 1994, the last year RMI
recognized significant revenues under the Conoco Heidrun drilling riser contract
referred to above. See "Risk Factors--No Assurances as to New Product and Market
Development."
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) 544-7604.
4
<PAGE> 6
THE OFFERING OF THE DECS
The DECS are being offered by USX pursuant to the DECS Prospectus. Pursuant
to the terms of the DECS, USX may deliver shares of Common Stock to the holders
of the DECS at maturity thereof. This Prospectus relates to the delivery by USX
pursuant to the DECS of up to 5,000,000 shares of Common Stock, plus up to an
additional 483,600 shares of Common Stock with respect to DECS that are the
subject of an over-allotment option granted by USX to the Underwriters in the
DECS Offering solely to cover over-allotments, if any. To the extent that the
over-allotment option is not exercised by the Underwriters in full, USX may,
subject to certain limitations, sell up to 483,600 shares of Common Stock
pursuant to this Prospectus. See "Plan of Distribution." USX currently owns
5,483,600 shares of RMI Common Stock. For a description of the relationship
between USX and RMI see "Risk Factors--Principal Shareholder," "--Potential
Conflicts of Interest," "Management" and "Certain Relationships."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered carefully by prospective investors.
5
<PAGE> 7
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 summary selected financial information
for the nine month periods ended September 30, 1996 and 1995 has been derived
from the unaudited Consolidated Financial Statements of RMI, which, in the
opinion of the Company, reflect all adjustments (consisting of only normal
recurring adjustments) necessary for a fair presentation. 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>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------------- ------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE AND PRICE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales:
Commercial aerospace......... $106,092 $ 65,876 $ 91,117 $ 54,366 $ 56,059 $ 68,872 $ 87,187
Military aerospace........... 23,728 19,405 26,174 23,869 24,238 25,629 30,099
Nonaerospace................. 47,566 37,355 53,875 65,157 47,100 41,106 48,282
-------- -------- -------- -------- -------- -------- --------
Total sales.............. 177,386 122,636 171,166 143,392 127,397 135,607 165,568
Operating income (loss)........ 22,502 (8,100) (5,220) (7,971) (10,764) (11,387) (52,712)
Operating income (loss)
includes:
Asset impairment charge.... -- 5,031 5,031 -- -- -- --
Plant closure costs........ -- -- -- -- -- -- 37,123
Income (loss) before cumulative
effect of change in
accounting principle......... 21,375(1) (13,339)(1) (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 income (loss).............. 21,375(1) (13,339)(1) (4,608)(1) (12,764) (28,893) (14,062) (57,085)
Net income (loss) per common
share before cumulative
effect of change in
accounting principle......... $ 1.19 $ (0.87) $ (0.30) $ (1.45) $ (8.14) $ (9.66) $ (39.17)
Net income (loss) per common
share........................ 1.19 (0.87) (0.30) (1.60) (19.67) (9.66) (39.17)
Cash dividends per common
share........................ -- -- -- -- -- -- .75
Weighted average shares
outstanding (in thousands)... 17,930 15,289 15,302 7,958 1,469 1,456 1,458
BALANCE SHEET DATA:
(at end of period)
Working capital................ $115,938 $ 84,916 $ 86,738 $ 74,694 $ 66,319 $ 72,229 $ 79,820
Total assets................... 205,999 160,614 171,559 160,810 152,471 153,257 173,888
Long-term debt................. 6,630 67,950 64,020 54,740 66,660 62,280 58,800
Total shareholders' equity..... 140,662(4) 29,806 36,889 42,596 27,861 63,302 77,705
OPERATING AND OTHER FINANCIAL DATA:
Sales:
Mill products................ $144,773 $100,475 $138,077 $103,790 $ 96,453 $110,509 $128,803
Fabricated products and other
services................... 25,428 17,589 26,904 31,134 20,512 16,745 17,260
Other(5)..................... 7,185 4,572 6,185 8,468 10,432 8,353 19,505
-------- -------- -------- -------- -------- -------- --------
Total sales.............. $177,386 $122,636 $171,166 $143,392 $127,397 $135,607 $165,568
Mill product shipments
(thousands of pounds):
Aerospace.................... 10,273 7,944 10,526 8,109 7,619 8,699 9,379
Nonaerospace................. 3,137 2,691 3,884 3,370 3,406 2,585 1,938
-------- -------- -------- -------- -------- -------- --------
Total shipments.......... 13,410 10,635 14,410 11,479 11,025 11,284 11,317
Average realized mill product
sales price (per pound)...... $ 11.71 $ 10.14 $ 10.23 $ 9.63 $ 9.60 $ 10.20 $ 11.69
EBITDA (6)..................... $ 26,457 $ (4,914) $ 4,632 $ (2,122) $ (2,912) $ (4,703) $ (5,535)
Cash flows (used in) provided
from:
Operating activities......... $(22,311) $(11,590) $ (7,725) $(13,217) $ (4,229) $ (2,562) $ 15,049
Investing activities......... (2,392) (1,009) (1,422) (1,115) (106) (2,444) (8,799)
Financing activities......... 24,917 13,210 9,271 14,424 4,358 3,398 (4,818)
-------- -------- -------- -------- -------- -------- --------
Total.................... $ 214 $ 611 $ 124 $ 92 $ 23 $ (1,608) $ 1,432
Order backlog at period
end(7)....................... $327,000 $110,000 $134,000 $ 67,000 $ 70,000 $ 53,000 $ 82,000
Active employees at period
end.......................... 902 832 844 817 782 843 1,172
</TABLE>
(footnotes on following page)
6
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- ---------
(1) Includes a $0.6 million income tax benefit for the nine months ended
September 30, 1996 and a $7.2 million income tax benefit for the year ended
December 31, 1995. See Note 4 to the unaudited Consolidated Financial
Statements for the nine months ended September 30, 1996 and Note 8 to the
Consolidated Financial Statements for the year ended December 31, 1995.
(2) Reflects the adoption of SFAS No. 112. See Note 11 to the Consolidated
Financial Statements for the year ended December 31, 1995.
(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 for the year ended December 31, 1995.
(4) Includes net proceeds of $80.3 million from the sale of Common Stock in May
1996.
(5) Includes sales of discontinued products of $2.6 million and $13.2 million in
1992 and 1991, respectively.
(6) EBITDA consists of income before interest expense, income taxes,
depreciation and amortization and the charges related to an asset impairment
in 1995, changes in accounting principles in 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.
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<PAGE> 9
FORWARD-LOOKING STATEMENTS
Certain statements incorporated by reference or made in this Prospectus
under the captions "Summary," "Risk Factors," "Business" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
elsewhere in this Prospectus are "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995, and are subject to the
safe harbor created by that Act. Such forward-looking statements include,
without limitation, statements regarding estimates of industry shipments, the
future availability and prices of raw materials, the availability of capital on
acceptable terms, the competitiveness of the titanium industry, potential
environmental liabilities, the Company's order backlog and the conversion of
that backlog into revenue, the Company's strategies and other statements
contained herein that are not historical facts. Because such forward-looking
statements involve risks and uncertainties, there are important factors that
could cause actual results to differ materially from those expressed or implied
by such forward-looking statements. Factors that could cause actual results to
differ materially include, but are not limited to, changes in general economic
and business conditions (including in the aerospace and golf club markets), the
Company's ability to recover its raw material costs in the pricing of its
products, the availability of capital on acceptable terms, actions of
competitors, 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, changes in the Company's business strategies, and other factors
discussed under "Risk Factors."
RISK FACTORS
The following factors should be considered in connection with an investment
in shares of RMI Common Stock. Any one or more of such factors may cause RMI's
actual results for various financial reporting periods to differ materially from
those expressed in any forward-looking statements made by or on behalf of RMI.
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 73% of RMI's sales in the first nine months of 1996, 68% in 1995,
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. This trend continued through the first nine months of 1996. 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
nine months of
8
<PAGE> 10
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 Company's Credit Agreement dated April 15, 1996 (the "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 four calendar
quarters and its reduction in outstanding indebtedness will permit it to comply
with these covenants. However, if the Company is unable to comply with these
covenants, borrowings under the Credit Facility could become due and the
Company's ability to obtain capital could be impaired. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources--Credit Facility."
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."
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,
9
<PAGE> 11
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 September 30, 1996, 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", Note 5 to the unaudited Consolidated Financial
Statements for the nine months ended September 30, 1996 and Note 15 to the
Consolidated Financial Statements for the year ended December 31, 1995 included
elsewhere herein. The ultimate resolution of environmental matters could,
individually or in the aggregate, be material to RMI's 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--Products and Markets--Mill Products" and "--Fabricated
Products and Other 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 ("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 grants MFN
treatment to imports, including titanium mill product imports, from the former
Soviet Union countries including Russia. Effective October 18, 1993, the U.S.
Government extended the benefits of the Generalized System of Preferences
("GSP") to Russia. Under GSP, the U.S. grants duty-free access to semifinished
and agricultural products from developing countries and territories. Certain
titanium mill products are covered by GSP. However, titanium sponge, ingot and
slab have not been afforded GSP treatment. 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 and Other Market Factors."
10
<PAGE> 12
PRINCIPAL SHAREHOLDER
As of October 31, 1996, USX was the owner of 5,483,600 shares of Common
Stock, constituting approximately 27% of the outstanding shares of Common Stock.
USX may 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 actions requiring
shareholder approval. See "Certain Relationships." The issuance of the DECS will
not affect the ability of USX to vote the shares of Common Stock owned by it.
See "--Potential Conflicts of Interest" and "--Limitation on Use of Tax Losses"
below. RMI is unable to predict the effect on the relationship between RMI and
USX of USX's issuance of the DECS or any transfer by USX (upon maturity of the
DECS or otherwise) of shares of Common Stock held by USX.
POTENTIAL CONFLICTS OF INTEREST
Two executives of USX (one of whom is a director of USX) and one
non-employee director of USX serve on RMI's ten-member Board of Directors. One
of these USX executives also serves as RMI's Chairman. For information
concerning positions held by directors and officers of RMI with USX, see
"Management." These individuals owe fiduciary duties to RMI and USX 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 USX
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"). See "--Limitation
on Use of Tax Losses" below, "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Income Tax Considerations--Section 382
Limitation" and "Certain Relationships."
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. While not free from doubt, the Company believes
that the sale of the DECS should not result in such an ownership change;
however, 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. USX has agreed
to indemnify the Company for additional taxes incurred if the sale of the DECS
is determined to result in an ownership change, subject to certain limitations.
The Company is unable to determine whether an ownership change will occur if
Common Stock is exchanged for the DECS. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Income Tax
Considerations--Section 382 Limitation."
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS
Certain provisions of RMI's Amended Articles of Incorporation and its Code
of Regulations (the "Regulations"), the Credit Facility 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
11
<PAGE> 13
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 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 "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources--Credit Facility" and "Description
of Capital Stock."
IMPACT OF THE DECS ON THE MARKET FOR THE COMMON STOCK
It is not possible to predict accurately how or whether the DECS will trade
in the secondary market or whether such market will be liquid. Any market that
develops for the DECS is likely to influence and be influenced by the market for
the Common Stock. For example, the price of the shares of Common Stock could
become more volatile and could be depressed by investors' anticipation of the
potential distribution into the market, upon the maturity of the DECS or
otherwise, of the additional number of shares of Common Stock held by USX. Such
shares currently constitute approximately 27% of the outstanding Common Stock.
See "Certain Relationships." The price of shares of Common Stock could also be
affected by possible sales of shares of Common Stock by investors who view the
DECS as a more attractive means of equity participation in RMI and by hedging or
arbitrage trading activity that may develop involving the DECS and the Common
Stock.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the DECS,
delivery thereunder of the shares of Common Stock or any other sale of shares of
Common Stock by USX to which this Prospectus relates.
CAPITALIZATION
The following table sets forth the consolidated capitalization of RMI as of
September 30, 1996. The data should be read in conjunction with the Consolidated
Financial Statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" related thereto, included elsewhere herein.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Long-term debt (including current maturities):
Credit Facility(1).................................................... $ 5,900
Industrial revenue bond............................................... 850
Shareholders' equity:
Common Stock, $0.01 par value; 30,000,000 shares authorized;
20,814,398 shares issued......................................... 208
Additional paid-in capital......................................... 234,655
Accumulated deficit................................................ (82,151)
Excess minimum pension liability and deferred compensation......... (8,972)
Treasury Common Stock, at cost; 568,198 shares..................... (3,078)
--------
Total shareholders' equity.................................... 140,662
--------
Total capitalization.................................................... $147,412
========
</TABLE>
- ---------
(1) For information concerning the Credit Facility, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources--Credit Facility."
12
<PAGE> 14
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............................................ 24 3/4 14
Third............................................. 28 1/2 18 3/4
Fourth (through November 22, 1996)................ 26 3/4 21 3/8
</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 November 22, 1996, the reported last sale price of the Common Stock on
the NYSE Composite Tape was $23.875 per share.
As of September 30, 1996, the Common Stock was held by 865 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 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 "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources--Credit Facility."
13
<PAGE> 15
BUSINESS
The following information contains forward-looking statements which involve
certain risks and uncertainties. See "Forward-Looking Statements."
THE COMPANY
RMI 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 titanium and other 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 October 31, 1996, USX owned approximately 27% of the outstanding Common
Stock.
INDUSTRY OVERVIEW
Titanium is one of the newest specialty 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 aerospace 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
consumption 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.
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.
14
<PAGE> 16
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 International Titanium Association.
Commercial aerospace markets have shown a recent increase in demand while
military aerospace markets have stabilized at the reduced build rate levels. In
1995, most major U.S. commercial airline carriers reported stronger operating
profits and, in the second half of 1995 and through the first nine months of
1996, aircraft manufacturers increased build rates. As of September 30, 1996,
the leading manufacturers of commercial aircraft, Boeing Company, McDonnell
Douglas Corporation and Airbus Industrie, reported an aggregate of 2,190 planes
under firm order and deliverable over the next five years. The comparable
backlogs as of December 31, 1995, 1994 and 1993 were 1,869 planes, 1,742 planes
and 2,022 planes, respectively. 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 U.S. industry shipments in the first six months
of 1996 (the latest figures available) were 29 million pounds compared with 20
million pounds in the first six months of 1995, 44 million pounds in 1995 and 35
million pounds in 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
15
<PAGE> 17
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 Annual Firm
Period Operating Income Orders
- ----------- ---------------- -----------
<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 and the nine months ended September 30, 1996 and 1995
were as follows:
<TABLE>
<CAPTION>
SALES
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------------------- --------------------------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------ ------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mill
products.... $144.8 82% $100.5 82% $138.1 81% $103.8 72% $ 96.5 76% $110.5 81% $128.8 78%
Fabricated
products and
other
services.... 25.4 14 17.6 14 26.9 16 31.1 22 20.5 16 16.7 13 17.3 10
Other(1)..... 7.2 4 4.5 4 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...... $177.4 100% $122.6 100% $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.
16
<PAGE> 18
The following table summarizes consolidated sales and the percentage of
consolidated sales represented by market during the five years ended December
31, 1995 and the nine months ended September 30, 1996 and 1995:
SALES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------------------- --------------------------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------ ------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial
aerospace... $106.1 60% $ 65.9 54% $ 91.1 53% $ 54.4 38% $ 56.1 44% $ 68.9 51% $ 87.2 53%
Military
aerospace... 23.7 13 19.4 16 26.2 15 23.9 17 24.2 19 25.6 19 30.1 18
Nonaerospace... 47.6 27 37.3 30 53.9 32 65.1 45 47.1 37 41.1 30 48.3 29
------ --- ------ --- ------ --- ------ --- ------ --- ------ --- ------ ---
Total...... $177.4 100% $122.6 100% $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 69% and 9%, respectively, of RMI's mill
product sales during the first nine months of 1996, compared with 64% and 11% in
1995 and 50% and 13% in 1994. 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 September 30, 1996, the leading manufacturers of commercial aircraft,
Boeing Company, McDonnell Douglas Corporation and Airbus Industrie, reported an
aggregate of 2,190 planes under firm order and deliverable over the next five
years. The comparable backlogs as of December 31, 1995, 1994 and 1993 were 1,869
planes, 1,742 planes and 2,022 planes, respectively. Included in the backlog for
September 30, 1996 are 244 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 276 in
the first nine months of 1996, 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.
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<PAGE> 19
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...................... 23-44
A340...................... 32
Boeing
737....................... 17-22
747....................... 82-88
757....................... 37-38
767....................... 36-40
777....................... 85-111
McDonnell Douglas
MD-11..................... 63-64
Military:
General Dynamics
F-16 Falcon............... 6-10
McDonnell Douglas
F-15 Eagle................ 62
F/A-18 Hornet............. 10-13
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 22% of the Company's mill product sales in the first nine months
of 1996, 25% in 1995 and 37% 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. Management believes
this market amounted to 3.5 million pounds, or approximately 8%, of U.S.
industry mill product shipments in 1995. 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 manufacturing companies have introduced full sets of titanium golf clubs. A
number of golf club head casting
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<PAGE> 20
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 increased to 7% of RMI's
sales in the first nine months of 1996 from less than 1% of RMI's sales in 1995
and 1994. In addition to the direct benefit of increased sales, demand from the
golf club market also benefits RMI indirectly by increasing utilization in the
titanium mill products industry, resulting in increased prices for titanium mill
products industry-wide.
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 14% of RMI's sales in the
first nine months of 1996, 16% in 1995 and 22% in 1994. Sales to the aerospace
market represented 66%, 51% and 41% of such revenues in the first nine months of
1996 and 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 1% of RMI's sales in the first nine
months of 1996, 3% of RMI's sales in 1995 and 9% of RMI's sales 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 (one
of the world's largest floating, deep-water oil and gas production platforms)
located in the Norwegian sector of the North Sea. During 1995, the Company
received several orders, 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 contract (expiring in January 1998)
to supply all of the seamless titanium pipe required for a number of geothermal
energy production facilities located in the Imperial Valley of California.
Deliveries under the initial order of $7 million were completed during the first
nine months of 1996.
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 the first nine months
of 1996, the Company recognized $7.2 million in such revenues compared to $6.2
million in 1995, $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.
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<PAGE> 21
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 were 17% of sales in
the first nine months of 1996 and 18%, 27% and 19% of sales in 1995, 1994 and
1993, respectively. 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. 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. In 1996, 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. The Company purchased approximately 11 million pounds of titanium
sponge in the first nine months of 1996 and approximately 12 million pounds of
titanium sponge in 1995. 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 and 1997 requirements have already been set under these contracts
and other short-term arrangements. See "Risk Factors--Dependence on Others for
Raw Materials and Certain Conversion Services" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
In July 1996, the Company was notified that the Department of Commerce
released preliminary findings in a review of an existing anti-dumping order on
titanium sponge from Russia. The Department of Commerce determined that dumping
did not occur on sales made by Interlink, a major trading company for Russian-
20
<PAGE> 22
produced titanium sponge, during the review period. A final determination
confirming the earlier finding was issued in November 1996. The final
determination can be appealed to the Court of International Trade but is
effective unless and until it is overturned. The Company purchases nearly all of
its Russian titanium sponge through Interlink. These purchases previously
carried an 84% dumping duty. The no-dumping finding eliminates this duty,
thereby allowing the Company access to lower cost sources for a significant
portion of its titanium sponge requirements.
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. 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 grants MFN
treatment to imports, including titanium mill product imports, from the former
Soviet Union countries, including Russia. Effective October 18, 1993, the U.S.
Government extended the benefits of the Generalized System of Preferences
("GSP") to Russia. Under GSP, the U.S. grants duty-free access to semifinished
and agricultural products from developing countries and territories. Certain
titanium mill products are covered by GSP. However, titanium sponge, ingot and
slab have not been afforded GSP treatment. 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.
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<PAGE> 23
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.
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
$2.0 million in the first nine months of 1996, $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
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<PAGE> 24
development spending, reduced the Company's portion of research and development
expense to $1.4 million in the first nine months of 1996, $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.
EMPLOYEES
As of September 30, 1996, the Company and its subsidiaries employed 902
persons, 190 of whom were classified as administrative and sales personnel. At
September 30, 1996, 66 of the 902 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 466 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 1996-1998 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
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<PAGE> 25
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 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.
These studies are nearly complete and currently estimated to cost $22 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
1997. Actual cleanup is not expected to commence prior to 1998. 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 U.S. Department of the Interior, on behalf of the Natural Resource
Trustees for Fields Brook, has notified the PRPs of the Trustees' belief that
the PRPs have incurred liability for injuries to natural resources and has
proposed a negotiated settlement. It is not possible to predict at this time the
cost of a natural resource settlement, although the Company believes it is
likely that the PRPs will negotiate a settlement that will not result in any
material obligation to the Company.
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 the 14 other PRPs who are cooperating at
the Fields Brook
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<PAGE> 26
Superfund site collectively have pledged a voluntary contribution of $1 million
over two years, contingent upon receiving matching Federal funds. In 1996, $0.5
million in matching Federal funds was granted. 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.
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 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 September 30, 1996, 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.
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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 selected financial data for the nine month periods ended
September 30, 1996 and 1995 has been derived from the unaudited Consolidated
Financial Statements of RMI, which, in the opinion of the Company, reflect all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation. 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>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------- ----------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE AND PRICE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales:
Mill products................. $144,773 $100,475 $138,077 $103,790 $ 96,453 $110,509 $128,803
Fabricated products and other
services.................... 25,428 17,589 26,904 31,134 20,512 16,745 17,260
Other(1)...................... 7,185 4,572 6,185 8,468 10,432 8,353 19,505
-------- -------- -------- -------- -------- -------- --------
Total sales............... 177,386 122,636 171,166 143,392 127,397 135,607 165,568
Cost of sales................... 146,134 121,808(2) 164,949(2) 140,289 127,486 135,985 204,086(3)
-------- -------- -------- -------- -------- -------- --------
Gross profit (loss)........... 31,252 828 6,217 3,103 (89) (378) (38,518)
Selling, general and
administrative expenses....... 7,294 7,495 9,576 9,531 9,133 9,365 10,687
Research, technical and product
development expenses.......... 1,456 1,433 1,861 1,543 1,542 1,644 3,507
-------- -------- -------- -------- -------- -------- --------
Operating income (loss)......... 22,502 (8,100) (5,220) (7,971) (10,764) (11,387) (52,712)
Other (expense) income, net..... 244 (1,640) (1,622) (291) 1,554 178 (735)
Interest expense................ (1,978) (3,599) (4,966) (3,300) (2,745) (2,746) (3,538)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes......................... 20,768 (13,339) (11,808) (11,562) (11,955) (13,955) (56,985)
Provision (credit) for income
taxes......................... (607)(4) -- (7,200)(4) -- -- 107 100
-------- -------- -------- -------- -------- -------- --------
Income (loss) before cumulative
effect of change in accounting
principle..................... 21,375 (13,339) (4,608) (11,562) (11,955) (14,062) (57,085)
Cumulative effect of change in
accounting principle.......... -- -- -- (1,202)(5) (16,938)(6) -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)............... $ 21,375 $(13,339) $ (4,608) $(12,764) $(28,893) $(14,062) $(57,085)
======== ======== ======== ======== ======== ======== ========
Net income (loss) per common
share before cumulative effect
of change in accounting
principle..................... $ 1.19 $ (0.87) $ (0.30) $ (1.45) $ (8.14) $ (9.66) $ (39.17)
Net income (loss) per common
share......................... 1.19 (0.87) (0.30) (1.60) (19.67) (9.66) (39.17)
Weighted average shares
outstanding (in thousands).... 17,930 15,289 15,302 7,958 1,469 1,456 1,458
BALANCE SHEET DATA:
(at end of period)
Working capital................. $115,938 $ 84,916 $ 86,738 $ 74,694 $ 66,319 $ 72,229 $ 79,820
Total assets.................... 205,999 160,614 171,559 160,810 152,471 153,257 173,888
Long-term debt.................. 6,630 67,950 64,020 54,740 66,660 62,280 58,800
Total shareholders' equity...... 140,662(7) 29,806 36,889 42,596 27,861 63,302 77,705
OPERATING AND OTHER FINANCIAL DATA:
Mill product shipments
(thousands of pounds):
Aerospace..................... 10,273 7,944 10,526 8,109 7,619 8,699 9,379
Nonaerospace.................. 3,137 2,691 3,884 3,370 3,406 2,585 1,938
-------- -------- -------- -------- -------- -------- --------
Total shipments........... 13,410 10,635 14,410 11,479 11,025 11,284 11,317
Average realized mill product
sales price (per pound)....... $ 11.71 $ 10.14 $ 10.23 $ 9.63 $ 9.60 $ 10.20 $ 11.69
EBITDA (8)...................... $ 26,457 $ (4,914) $ 4,632 $ (2,122) $ (2,912) $ (4,703) $ (5,535)
Cash flows (used in) provided
from:
Operating activities.......... $(22,311) $(11,590) $ (7,725) $(13,217) $ (4,229) $ (2,562) $ 15,049
Investing activities.......... (2,392) (1,009) (1,422) (1,115) (106) (2,444) (8,799)
Financing activities.......... 24,917 13,210 9,271 14,424 4,358 3,398 (4,818)
-------- -------- -------- -------- -------- -------- --------
Total..................... $ 214 $ 611 $ 124 $ 92 $ 23 $ (1,608) $ 1,432
Order backlog at period end
(9)........................... $327,000 $110,000 $134,000 $ 67,000 $ 70,000 $ 53,000 $ 82,000
Active employees at period
end........................... 902 832 844 817 782 843 1,172
</TABLE>
(footnotes on following page)
26
<PAGE> 28
- ---------
(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 8 to the unaudited Consolidated Financial Statements
for the nine months ended September 30, 1996 and Note 7 to the Consolidated
Financial Statements for the year ended December 31, 1995.
(3) Includes a charge of $37.1 million relating to the closing of RMI's titanium
sponge production facilities.
(4) See Note 4 to the unaudited Consolidated Financial Statements for the nine
months ended September 30, 1996 and Note 8 to the Consolidated Financial
Statements for the year ended December 31, 1995.
(5) Reflects the adoption of SFAS No. 112. See Note 11 to the Consolidated
Financial Statements for the year ended December 31, 1995.
(6) 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 for the year ended December 31, 1995.
(7) Includes net proceeds of $80.3 million from the sale of Common Stock in May
1996.
(8) EBITDA consists of income before interest expense, income taxes,
depreciation and amortization and the charges related to an asset impairment
in 1995, changes in accounting principles in 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.
(9) "Order backlog" is defined as firm purchase orders generally subject, upon
payment of specified charges, to cancellation by the customer.
27
<PAGE> 29
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. See
"Forward-Looking Statements."
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 decline in
industry shipments reflected a sharp decline in military aerospace consumption
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.
Commercial aerospace markets have shown a recent increase in demand while
military aerospace markets have stabilized at the reduced build rate levels. In
1995, most major commercial airlines reported stronger operating profits and, in
the second half of 1995 and through the first nine months of 1996, aircraft
manufacturers increased build rates. As of September 30, 1996, the leading
manufacturers of commercial aircraft, Boeing Company, McDonnell Douglas
Corporation and Airbus Industrie, reported an aggregate of 2,190 planes under
firm order and deliverable over the next five years. The comparable backlogs as
of December 31, 1995, 1994 and 1993 were 1,869 planes, 1,742 planes and 2,022
planes, respectively. The Company 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 and total
industry shipments in 1995 were approximately 44 million pounds, an increase of
26% compared to 1994. Based on USGS data, total U.S. industry shipments in the
first six months of 1996 (the latest figures available) were 29 million pounds
compared to 20 million pounds in the first six months of 1995, 44 million pounds
in 1995 and 35 million pounds in 1994. 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. 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 3.5 million pounds, or approximately 8% of U.S. industry
mill product shipments, in 1995. Demand from the golf club market benefits RMI
by increasing utilization in the titanium mill products industry, resulting in
increased 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 and 1997 requirements have been set under these contracts and
other short term arrangements. See "Risk Factors--Dependence on Others for Raw
Materials and Certain Conversion Services" and "Business--Raw Materials." Raw
material prices are a significant factor in the overall cost of production of
the Company's titanium mill products. RMI has instituted raw material escalator
and surcharge
28
<PAGE> 30
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 Assurances as to New Product and Market Development" and
"Business--Products and Markets--Fabricated Products and Other Services."
RESULTS OF OPERATIONS
Net Sales. Net sales for the nine months ended September 30, 1996
increased by $54.8 million, or 45%, compared to the first nine months of 1995.
This increase resulted primarily from increased mill product shipments and
higher average selling prices. Mill products shipments for the first nine months
of 1996 amounted to 13.4 million pounds compared to 10.6 million pounds in the
comparable period of 1995. Average realized mill product selling prices
increased to $11.71 per pound in the first nine months of 1996 compared to
$10.14 per pound during the comparable period of 1995. Both demand and pricing
for titanium mill products continued to remain strong in both commercial
aerospace and industrial product markets. Sales related to new products and
markets decreased from $2.2 million in the first nine months of 1995 to $1.9
million in the first nine months of 1996. Sales of hot-formed parts and cut
shapes increased to $12.1 million in the first nine months of 1996 from $9.6
million in the same period of 1995.
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. 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 for the nine months ended September 30, 1996
amounted to $31.3 million, or 17.6% of sales, compared to gross profit of $0.8
million, or 0.7% of sales, in the first nine months of 1995. This increase
results primarily from increased shipments and selling prices for titanium mill
products. Results in 1995 were adversely impacted by a $5.0 million asset
impairment charge following the adoption of SFAS No. 121 and costs associated
with the cost of stock appreciation rights amounting to $0.8 million.
29
<PAGE> 31
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 SFAS No. 121.
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
amounted to $7.3 million for the first nine months of 1996 compared to $7.5
million for the comparable period in 1995. SG&A expenses, together with
research, technical and product development expenses, discussed below, for the
first nine months of 1995, include $0.6 million of costs related to stock
appreciation rights.
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 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. Research, technical
and product development expenses amounted to $1.5 million in the nine month
period ended September 30, 1996, compared to $1.4 million in the nine month
period ended September 30, 1995. The Company's total research spending amounted
to $2.0 million for the first nine months of 1996, $2.8 million for the first
nine months of 1995, $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 $1.5 milion for the first nine months of 1996, $1.4 million for the
first nine months of 1995, $1.9 million in 1995 and $1.5 million in each of 1994
and 1993, respectively.
Operating Income/Loss. Operating income for the nine months ended
September 30, 1996 amounted to $22.5 million, or 12.7% of sales compared to a
loss of $8.1 million in the same period of 1995. This improvement results
primarily from significant increases in mill product shipments and average mill
product selling prices. Results for the 1995 period were adversely impacted by a
$5.0 million asset impairment charge and costs associated with stock
appreciation rights referred to above.
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 the first nine months
of 1995 and the year 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. Interest expense for the first nine months of 1996
amounted to $2.0 million compared to $3.6 million in the same period of 1995.
This improvement results primarily from reduced levels of indebtedness during
1996. For further information on indebtedness, see "Liquidity and Capital
Resources" below.
30
<PAGE> 32
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 the first nine months of 1996, the Company recorded an
income tax benefit of $0.6 million. This amount is comprised of an income tax
provision against pretax income for the nine-month period of $2.0 million and an
income tax benefit of $2.6 million resulting from an adjustment to the deferred
tax asset valuation allowance due to changes in the Company's expectations about
the ultimate realization of its deferred tax assets in years after 1996. No tax
effect was recorded for the nine months ended September 30, 1995. Excluding the
$2.6 million valuation allowance adjustment, the effective tax rate for the nine
months ended September 30, 1996 was approximately 9.6%. The difference between
the statutory federal tax rate of 35% and the effective tax rate is principally
due to an adjustment to the deferred tax asset valuation allowance which existed
at December 31, 1995 as it related to expected 1996 results. The Company
currently expects improved profitability in 1996 compared to the expectations
inherent in the December 31, 1995 deferred tax asset. The effect of this
adjustment reduced the year to date 1996 tax provision by approximately $5.3
million. The amount of current taxes expected to be paid in 1996 is minimal.
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 Income/Loss. Net income for the nine months ended September 30, 1996
amounted to $21.4 million, or 12.1% of sales compared to a loss of $13.3 million
in the first nine months of 1995. Results for the 1995 period include the $5.0
million impairment charge following the adoption of SFAS No. 121, a $1.9 million
impairment of an investment in a joint venture, and $1.5 million in costs
incurred in connection with stock appreciation rights.
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."
1996 AND 1995 QUARTERLY RESULTS OF OPERATIONS AND OTHER FINANCIAL AND OPERATING
DATA
The following table presents certain unaudited consolidated quarterly
financial data for the nine months ended September 30, 1996 and the year ended
December 31, 1995. In the opinion of the Company's management, this information
includes all adjustments (consisting only of normal recurring adjustments)
31
<PAGE> 33
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>
NINE MONTHS ENDED SEPTEMBER 30,
1996 YEAR ENDED DECEMBER 31, 1995
--------------------------------- -----------------------------------------------
3RD 2ND 1ST 4TH 3RD 2ND 1ST
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- -------- -------- -------- -------
(DOLLARS IN THOUSANDS EXCEPT FOR PRICE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Sales................... $ 64,479 $ 58,310 $ 54,597 $ 48,530 $ 42,912 $ 39,621 $40,103
Gross profit............ $ 11,625 $ 10,280 $ 9,347 $ 5,389 $ 2,890 $ (3,999)(1) $ 1,937
Operating income
(loss)................ $ 8,660 $ 7,410 $ 6,432 $ 2,880 $ 199 $ (7,422) $ (877)
Net income (loss)....... $ 10,838(2) $ 5,981 $ 4,556 $ 8,731(3) $ (967) $(10,509) $(1,863)
Mill product shipments
(thousands of
pounds)............... 4,536 4,628 4,247 3,775 3,762 3,568 3,304
Average realized mill
product sales price
(per pound)........... $ 12.26 $ 11.54 $ 11.31 $ 10.49 $ 10.31 $ 9.93 $ 10.19
Order backlog at period
end (4)............... $327,000 $239,000 $194,000 $134,000 $110,000 $ 83,000 $86,000
</TABLE>
- ---------
(1) Includes a $5.0 million asset impairment charge following the adoption of
SFAS No. 121.
(2) Includes a $2.1 million tax benefit.
(3) Includes a $7.2 million tax benefit.
(4) "Order backlog" is defined as firm purchase orders generally subject, upon
payment of specified charges, to cancellation by the customer.
OUTLOOK
During 1995 and to date in 1996, the Company experienced a significant
increase in the volume of incoming orders at increased prices, resulting in a
steady increase in order backlog (see quarterly data above). The Company
estimates that as of September 30, 1996, orders for substantially all of its
anticipated 1996 shipments have been booked or shipped at average prices more
than 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 $12.26 per pound in the third quarter of 1996. The Company
estimates that as of September 30, 1996, orders for 84% of its anticipated 1997
shipments have been booked at average prices greater than $13 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. Because of
competitive factors in the titanium industry and the cyclical nature of the
aerospace industry, there can be no assurances that prices and demand will
continue to improve. The Company intends to continue its efforts to develop new
markets and products such as seamless tubulars for oil and gas and geothermal
energy production, as well as the use of billet for golf club applications.
The increase in demand for titanium products has put upward pressure on
prices for certain raw materials used by the Company. Prices for the Company's
1996 and 1997 titanium sponge requirements have been set under long-term supply
contracts and short-term arrangements. Prices for titanium sponge in 1997 are
expected to increase over 1996 levels. 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 significantly during 1996. 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.
In July 1996, the Company was notified that the Department of Commerce
released preliminary findings in a review of an existing anti-dumping order on
titanium sponge from Russia. The Department of Commerce determined that dumping
did not occur on sales made by Interlink, a major trading company for Russian-
produced titanium sponge, during the review period. A final determination
confirming the earlier finding was
32
<PAGE> 34
issued in November 1996. The final determination can be appealed to the Court of
International Trade but is effective unless and until it is overturned. The
Company purchases nearly all of its Russian titanium sponge through Interlink.
These purchases previously carried an 84% dumping duty. The no-dumping finding
eliminates this duty, thereby allowing the Company access to lower cost sources
for a significant portion of its titanium sponge requirements.
The information included in this "Outlook" section includes
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, and are subject to the safe harbor created by
that Act. Such forward-looking statements include, without limitation,
statements regarding the future availability and prices of raw materials, the
competitiveness of the titanium industry, the Company's order backlog and the
conversion of that backlog into revenue and other statements contained herein
that are not historical facts. Because such forward-looking statements involve
risks and uncertainties, there are important factors that could cause actual
results to differ materially from those expressed or implied by such
forward-looking statements. Factors that could cause actual results to differ
materially include, but are not limited to, changes in general economic and
business conditions (including in the aerospace and golf club markets), the
Company's ability to recover its raw material costs in the pricing of its
products, actions of competitors, the extent to which the Company is able to
develop new markets for its products, changes in the Company's business
strategies and other factors discussed under "Risk Factors."
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows used in operating activities totaled $22.3 million in the
first nine months of 1996 compared to $11.6 million used in operations during
the first nine months of 1995. The change in net cash flows from operating
activities in the first nine months of 1996, compared to the first nine months
of 1995 was due primarily to improved results of operations offset by an
increase in working capital. Working capital amounted to $115.9 million at
September 30, 1996, compared to $86.7 million at December 31, 1995. The increase
in working capital results primarily from increases in accounts receivable and
inventories, partially offset by increases in accounts payable and other current
liabilities. The Company's working capital ratio was 4.15 to 1 at September 30,
1996 compared to 3.73 to 1 at December 31, 1995.
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.
On May 7, 1996, the Company completed a public offering of 4,600,000 shares
of common stock at a price of $18.50 per share (the "Common Stock Offering").
Net proceeds to RMI after deducting underwriting fees and expenses amounted to
$80.3 million. The net proceeds were used to repay all outstanding indebtedness
(amounting to $65.5 million) under the then existing bank credit facilities, and
to contribute $10.2 million to certain of the Company's defined benefit pension
plans, as referred to below, and the balance was used for general corporate
purposes. In 1994, the Company raised working capital through a rights offering
to shareholders (the "Rights Offering"). After deducting expenses of the
offering, net proceeds increased total shareholders' equity by approximately
$26.4 million.
In September 1996, the Company made a $16.1 million cash contribution to
certain of its defined benefit pension plans. This contribution was funded by
using $10.2 million of the net proceeds from the Common Stock Offering, and $5.9
million in borrowings under the Credit Facility, discussed below.
During the first nine months of 1996, the Company's cash flow requirements
for capital expenditures were funded by internally generated funds and proceeds
from the Common Stock Offering. In 1995, the Company's cash flow requirements
for operating losses, capital expenditures and working capital were funded
primarily through borrowings. In 1994, the Company's cash flow requirements for
operating losses, capital expenditures and working capital were funded through
proceeds from the Rights Offering.
33
<PAGE> 35
The Company anticipates that it will be able to fund its 1996 working
capital requirements and its capital expenditures primarily from funds generated
by operations, proceeds from the Common Stock Offering, and, to the extent
necessary, from borrowings under the Credit Facility. The Company anticipates
that it will be able to fund its 1997 working capital requirements and its
currently expected capital expenditures primarily from funds generated by
operations and borrowings under the Credit Facility. The Company may, however,
undertake strategic initiatives and make additional capital expenditures in 1997
which may require additional financing therefor. The Company's long-term
liquidity requirements, including capital expenditures, are expected to be
financed by a combination of internally generated funds, borrowings and other
sources of external financing as needed.
Credit Facility. The Company entered into the Credit Facility with PNC
Bank, N.A. as agent. The 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 had sufficient accounts receivable and
inventory at September 30, 1996 to borrow the entire $50 million. At September
30, 1996, $5.9 million was outstanding under the Credit Facility. The Credit
Facility contains the following financial covenants: (i) the Company shall not
permit its consolidated net worth to be less than $36.9 million plus the net
proceeds of the Common Stock Offering ($80.3 million) 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 Credit Facility may occur, among other
things, if: (a) certain defaults or events of default occur under the 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. For further
information regarding the Credit Facility, see Note 7 to the unaudited
Consolidated Financial Statements for the nine months ended September 30, 1996.
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 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 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 at least 2006. If an "ownership change" were to
occur, 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. An ownership change could result from equity 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
34
<PAGE> 36
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.
While not free from doubt, the Company believes the sale of the DECS should
not result in an ownership change. USX has agreed to indemnify the Company
against any additional federal, state and local taxes incurred if there is a
determination that an ownership change has occurred as a result of the sale by
USX of the DECS (but not the exchange, at maturity, of the Common Stock for the
DECS, if USX delivers Common Stock), other than in the event there is a
determination that an ownership change has occurred prior to the date of
issuance of the DECS. If one or more events occur subsequent to the issuance of
the DECS which would have constituted an ownership change if the sale of the
DECS had not occurred, USX's indemnification obligation is limited to the
difference between the additional taxes payable as a result of an ownership
change resulting from the sale of the DECS and the additional taxes payable
assuming such ownership change had occurred as a result of one or more such
events. The Company is unable to determine whether an ownership change will
occur if Common Stock is exchanged for the DECS since such determination will be
dependent on the facts at the time of exchange.
SFAS No. 109 Effects. SFAS 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.
When preparing 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 current valuation allowance. In making an assessment
of realizability at September 30, 1996, the Company considered a number of
factors including the improved profitability in 1996 compared to expectations
inherent in the December 31, 1995 valuation allowance. Accordingly, the
valuation allowance has been adjusted by approximately $5.3 million as of
September 30, 1996 for the difference between such revised future income
expectations and those inherent in the valuation allowance at December 31, 1995
as it related to expected 1996 results. Additionally, the valuation allowance
was adjusted by $2.6 million at September 30, 1996 because of improving
expectations regarding income in years after 1996 which were not inherent in the
valuation allowance at December 31, 1995. The effect of these adjustments
resulted in a tax benefit of $0.6 million for the nine months ended September
30, 1996.
The application of SFAS No. 109 valuation allowance determination process
could result in recognition of further 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 judgement 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.
35
<PAGE> 37
If the Company's principal markets continue to exhibit improvement,
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. 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.
At September 30, 1996, 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 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 the first nine months of 1996 and 1995
amounted to $2.4 million and $1.1 million, respectively. The Company has
budgeted capital spending of approximately $5.0 million in 1996. The Company
currently estimates that its 1997 capital expenditures will be approximately
$8.0 million. The Company may, however, undertake strategic initiatives and make
additional capital expenditures in 1997. See "Liquidity and Capital Resources"
above.
36
<PAGE> 38
MANAGEMENT
The following table sets forth, as of November 1, 1996, certain information
regarding RMI's directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Craig R. Andersson................. 59 Director
Neil A. Armstrong.................. 66 Director
Daniel I. Booker................... 48 Director
Ronald L. Gallatin................. 51 Director
Charles C. Gedeon.................. 56 Director
L. Frederick Gieg, Jr. ............ 64 Director, President and Chief Executive Officer
Robert M. Hernandez................ 52 Director, Chairman of the Board
John H. Odle....................... 54 Director and Executive Vice President
Timothy G. Rupert.................. 49 Director, Executive 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 (with the
exception of Messrs. Odle and Rupert, who were elected by the board on July 26,
1996, were elected for terms of one year and until their successors are elected
and qualified.
The Company has established an Office of the Chairman consisting of Robert
M. Hernandez, L. Frederick Gieg, Jr., John H. Odle and Timothy G. Rupert to
concentrate on the Company's strategic planning.
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.
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. and First Mexico Income
Fund, N.V. 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.
37
<PAGE> 39
Mr. Gieg has been a director and President and Chief Executive Officer of
the Company since 1990 and will retire on February 28, 1997. He 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 and chairman of the executive committee of ACE
Limited, a trustee of Compass Capital Fund and a director of Marinette Marine
Corporation and Transtar, Inc. Mr. Hernandez is also a director and Chairman of
the United States Steel and Carnegie Pension Fund.
Mr. Odle was elected a Director on July 26, 1996 and has been Executive
Vice President since June 1996. He was Senior Vice President--Commercial of RMI
and its predecessor from 1989 to 1996 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 elected a Director on July 26, 1996 and has been Executive
Vice President and Chief Financial Officer since June 1996. Prior to that, Mr.
Rupert had been Senior Vice President and Chief Financial Officer from 1994 to
1996 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 is a director, Chairman,
President and Chief Executive Officer of New York State Electric & Gas Corp. He
was Chairman of the Board, President and Chief Executive Officer of DQE and of
Duquesne Light prior to joining New York State Electric & Gas Corp. He is also a
director of Mellon Bank Corporation and Mellon Bank, N.A.
CERTAIN RELATIONSHIPS
At October 31, 1996, USX owned 5,483,600 shares of Common Stock,
constituting 27% of the outstanding Common Stock. Pursuant to a Registration
Rights Agreement, dated August 21, 1996, between the Company and USX (the
"Registration Rights Agreement"), the Company has agreed to indemnify USX
against certain liabilities and expenses (including amounts paid in any
settlement effected with the Company's consent) to which USX may become subject
under the Securities Act, state securities or blue sky laws, common law or
otherwise, in connection with this Prospectus. USX has agreed to indemnify the
Company against any additional federal, state and local taxes incurred as a
result of a determination that an ownership change has occurred as a result of
the sale by USX of the DECS (but not the exchange, at maturity, of the Common
Stock for the DECS, if USX delivers Common Stock), subject to certain
limitations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Income Tax Considerations--Section 382 Limitation."
As a result of USX's ownership of shares of Common Stock, USX 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. Two
executives of USX (one of whom is a director of USX) and one non-employee
director of USX serve on RMI's ten-member Board of Directors. One of these USX
executives also serves as RMI's Chairman. For information concerning positions
held by directors and officers of RMI with USX, see "Risk Factors-- Potential
Conflicts of Interest" and "Management."
The Company, in the ordinary course of business, purchases goods and
services from USX. The costs of such transactions to the Company amounted to
approximately $1,275,000 in 1995 and $462,000 in the first nine months of 1996.
38
<PAGE> 40
DESCRIPTION OF CAPITAL STOCK
The following discussion of RMI's Amended Articles of Incorporation and
Regulations, Ohio law and other documents is qualified in its entirety by the
actual terms of such documents and laws. Copies of RMI's Amended Articles of
Incorporation and Regulations have been filed with the Commission.
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 October 31, 1996, 20,246,600 shares of Common Stock
were 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, dissolution or winding up of the Company, 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 and other
distributions as may be declared from time to time by the Board of Directors out
of funds legally available for such purposes, subject to any preferential rights
of, and any sinking fund or redemption or purchase rights with respect to,
outstanding shares of Preferred Stock, if any. 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 Board of 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
At October 31, 1996, there were 9,753,400 shares of Common Stock authorized
and not outstanding and five million shares of undesignated Preferred Stock. The
Treasury shares and 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
39
<PAGE> 41
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 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
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.
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<PAGE> 42
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 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.
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<PAGE> 43
PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement) among USX, RMI and the underwriters named below
(the "Underwriters"), USX has agreed to sell to the Underwriters, and the
Underwriters have severally agreed to purchase, the aggregate number of DECS set
forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS DECS
--------------------------------------------------------------- ---------
<S> <C>
Salomon Brothers Inc ..........................................
Lehman Brothers Inc. ..........................................
---------
Total ............................................... 5,000,000
=========
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed,
subject to the terms and conditions set forth therein, that the obligations of
the Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all of the DECS offered pursuant to
the DECS Prospectus if any of the DECS are purchased.
USX and RMI have been advised by the Underwriters that they propose to
offer the DECS directly to the public initially at the public offering price set
forth on the cover of the DECS Prospectus and to certain dealers at such prices
less a concession not in excess of $ per DECS. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $ per DECS
to other dealers. After the initial public offering, such public offering price
and such concession and reallowance may be changed.
The Company, its directors and executive officers and USX have agreed not
to (i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of, directly or indirectly,
or announce the offering of, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for shares of Common Stock or
(ii) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of shares of
Common Stock, whether any such transaction described in clause (i) or (ii) above
is to be settled by delivery of shares of Common Stock or such other securities,
in cash or otherwise, for a period of at least 90 days from the date of this
Prospectus without the prior written consent of the Underwriters; provided,
however, that (x) the Company may issue, or grant options for, shares of Common
Stock pursuant to any stock plan for employees or directors, or any qualified
employee benefit plan, in effect on the date of this Prospectus, or pursuant to
any stock options outstanding on the date of this Prospectus, and any qualified
employee benefit plan in effect on the date of this Prospectus may sell shares
of Common Stock to satisfy plan liquidity needs, and (y) such executive officers
and directors may sell up to 100,000 shares of Common Stock in the aggregate. If
any such consent is given, it would not necessarily be preceded or followed by a
public announcement thereof.
USX has granted to the Underwriters an option, exercisable for the 30-day
period after the date of the DECS Prospectus, to purchase up to an additional
483,600 DECS from USX, at the same price per DECS as the initial DECS to be
purchased by the Underwriters. The Underwriters may exercise such option only
for the purpose of covering over-allotments, if any, incurred in connection with
the sale of DECS offered pursuant to the DECS Prospectus. To the extent that the
Underwriters exercise such option, each Underwriter will have a firm commitment,
subject to certain conditions, to purchase the same proportion of the DECS as
the number of DECS to be purchased and offered by such Underwriter in the above
table bears to the total number of the initial DECS to be purchased by the
Underwriters.
To the extent that the over-allotment option granted to the Underwriters of
the DECS Offering is not exercised in full, USX may sell up to 483,600 shares of
Common Stock pursuant to this Prospectus. Pursuant to the Registration Rights
Agreement, USX may not, without the written consent of RMI, sell any shares of
Common Stock prior to July 26, 1997. RMI can withhold such consent if it
reasonably determines that the proposed sale would be inconsistent with its
proposed utilization of its net operating losses for federal income tax
purposes. The foregoing restriction is in addition to the restrictions contained
in the Underwriting Agreement described above.
42
<PAGE> 44
The DECS will be a new issue of securities with no established trading
market. The Underwriters intend to make a market in the DECS, subject to
applicable laws and regulations. However, the Underwriters are not obligated to
do so and any such market-making may be discontinued at any time at the sole
discretion of the Underwriters without notice. Accordingly, no assurance can be
given as to the liquidity of such market.
Upon maturity of the DECS, USX has the option to pay cash or deliver shares
of Common Stock pursuant to the terms of the DECS. For a description of the
terms of such exchange, see the DECS Prospectus.
The Underwriting Agreement provides that the Company and USX will indemnify
the Underwriters against certain liabilities, including liabilities under the
Securities Act, or contribute to payments the Underwriters may be required to
make in respects thereof.
In the ordinary course of their respective businesses, the Underwriters and
their respective affiliates have engaged in and may in the future engage in
commercial and investment banking transactions with the Company, USX and their
respective affiliates, for which customary compensation has been received.
Ronald L. Gallatin, a director of the Company, is a Senior Advisor to
Lehman Brothers Inc.
LEGAL MATTERS
The validity of the shares of the Common Stock offered hereby by the
Company will be passed upon for RMI by Jones, Day, Reavis & Pogue, Cleveland,
Ohio. Jones, Day, Reavis & Pogue acts as counsel for USX in matters unrelated to
this Prospectus. 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 Jones, Day, Reavis & Pogue as to certain
matters of Ohio law. Simpson Thacher & Bartlett has acted in the past 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.
43
<PAGE> 45
RMI TITANIUM COMPANY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED FINANCIAL STATEMENTS
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
UNAUDITED INTERIM FINANCIAL INFORMATION
Consolidated Statement of Operations for the nine months ended
September 30, 1996 and 1995.................................................... F-20
Consolidated Balance Sheet at September 30, 1996 and
December 31, 1995.............................................................. F-21
Consolidated Statement of Cash Flows for the nine months ended
September 30, 1996 and 1995.................................................... F-22
Consolidated Statement of Shareholders' Equity for the year ended
December 31, 1995 and the nine months ended September 30, 1996................. F-23
Notes to Consolidated Financial Statements....................................... F-24
</TABLE>
F-1
<PAGE> 46
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> 47
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> 48
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> 49
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> 50
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> 51
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> 52
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> 53
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> 54
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> 55
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> 56
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> 57
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> 58
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> 59
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> 60
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> 61
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> 62
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> 63
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> 64
RMI TITANIUM COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
--------------------------
1996 1995
---------- ----------
<S> <C> <C>
Sales............................................................. $ 177,386 $ 122,636
Operating costs:
Cost of sales (Note 8)............................................ 146,134 121,808
Selling, general and administrative expenses...................... 7,294 7,495
Research, technical and product development expenses.............. 1,456 1,433
---------- ----------
Total operating costs........................................ 154,884 130,736
Operating income (loss)........................................... 22,502 (8,100)
Other income (expense)-net........................................ 244 (1,640)
Interest expense.................................................. (1,978) (3,599)
---------- ----------
Income (loss) before income taxes................................. 20,768 (13,339)
Provision (credit) for income taxes (Note 4)...................... (607) --
---------- ----------
Net income (loss)................................................. $ 21,375 $ (13,339)
========== ==========
Net income (loss) per common share--(Note 3)...................... $ 1.19 $ (0.87)
========== ==========
Weighted average shares outstanding............................. 17,930,408 15,288,824
========== ==========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-20
<PAGE> 65
RMI TITANIUM COMPANY
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30 DECEMBER 31
1996 1995
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 723 $ 509
Receivables--less allowance for doubtful accounts
of $1,897 and $1,670......................................... 55,309 41,251
Inventories..................................................... 94,637 74,053
Deferred tax asset.............................................. 261 1,036
Other current assets............................................ 1,775 1,656
--------- ----------
Total current assets....................................... 152,705 118,505
Property, plant and equipment, net of accumulated
depreciation................................................. 38,645 39,964
Noncurrent deferred tax asset................................... 7,611 6,164
Other noncurrent assets......................................... 7,038 6,926
--------- ----------
Total assets............................................... $ 205,999 $ 171,559
========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt............................... $ 120 $ 120
Accounts payable................................................ 20,413 17,646
Accrued wages and other employee costs.......................... 7,787 7,237
Other accrued liabilities....................................... 8,447 6,764
--------- ----------
Total current liabilities.................................. 36,767 31,767
Long-term debt (see Notes 3 and 7)................................ 6,630 64,020
Accrued postretirement benefit cost............................... 18,795 18,795
Noncurrent pension liabilities.................................... 1,135 18,078
Other noncurrent liabilities...................................... 2,010 2,010
--------- ----------
Total liabilities.......................................... 65,337 134,670
--------- ----------
Contingencies (Note 5)............................................
Shareholders' equity:
Preferred Stock, no par value; 5,000,000 shares authorized;
no shares outstanding........................................ -- --
Common Stock, $0.01 par value, 30,000,000 shares authorized;
20,814,398 and 15,908,091 shares issued (Note 3)............. 208 159
Additional paid-in capital (Note 3)............................. 234,655 151,715
Accumulated deficit............................................. (82,151) (103,526)
Deferred compensation........................................... (591) --
Excess minimum pension liability................................ (8,381) (8,381)
Treasury Common Stock at cost 568,198 shares.................... (3,078) (3,078)
--------- ----------
Total shareholders' equity........................................ 140,662 36,889
--------- ----------
Total liabilities and shareholders' equity................. $ 205,999 $ 171,559
========= ==========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-21
<PAGE> 66
RMI TITANIUM COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
----------------------
1996 1995
-------- --------
<S> <C> <C>
CASH PROVIDED FROM (USED IN) OPERATIONS:
Net income (loss).................................................... $ 21,375 $(13,339)
Adjustment for items not affecting funds from operations:
Depreciation....................................................... 3,711 4,826
Deferred taxes..................................................... (607) --
Asset impairment charge............................................ -- 5,031
Write-down of joint venture investment............................. -- 1,901
Expense for stock appreciation rights.............................. -- 1,465
Other--net......................................................... 516 649
-------- --------
24,995 533
-------- --------
CHANGES IN ASSETS AND LIABILITIES (EXCLUDING CASH):
Receivables.......................................................... (14,278) (10,647)
Inventories.......................................................... (20,584) 1,117
Accounts payable..................................................... 2,767 (4,369)
Other current liabilities............................................ 1,963 2,837
Noncurrent pension liabilities....................................... (16,100) --
Other assets......................................................... (1,074) (1,061)
-------- --------
(47,306) (12,123)
-------- --------
Cash used in operating activities............................. (22,311) (11,590)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of facilities................................... -- 130
Capital expenditures............................................... (2,392) (1,139)
-------- --------
Cash used in investing activities............................. (2,392) (1,009)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of Employee Stock Options................................. 1,914 --
Net proceeds from Common Stock Offering............................ 80,393 --
Borrowings under credit agreements................................. 5,900 13,300
Debt repayments.................................................... (63,290) (90)
-------- --------
Cash provided from financing activities............................ 24,917 13,210
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS................................ 214 611
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..................... $ 509 $ 385
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........................... $ 723 $ 996
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest (net of amounts capitalized).................. $ 2,466 $ 3,350
======== ========
Cash paid for income taxes........................................... $ 211 $ --
======== ========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-22
<PAGE> 67
RMI TITANIUM COMPANY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
EXCESS
MINIMUM
ADD'TL. RETAINED TREASURY PENSION
SHARES COMMON DEFERRED PAID-IN EARNINGS COMMON LIABILITY
OUTSTANDING STOCK COMPENSATION CAPITAL (DEFICIT) STOCK ADJUSTMENT
----------- ------ ------------ -------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 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)
Shares issued for Restricted
Stock Award Plans............. 51,000 -- (682) 682 -- -- --
Compensation expense
recognized.................... -- -- 91 -- -- -- --
Shares issued as a result of
Common Stock Offering (Note
3)............................ 4,600,000 46 -- 80,347 -- -- --
Shares issued from exercise of
employee stock options........ 255,307 3 -- 1,911 -- -- --
Net income...................... -- -- -- -- 21,375 -- --
---------- ---- ------ -------- --------- ------- -------
Balance at September 30, 1996... 20,246,200 $208 $ (591) $234,655 $ (82,151) $(3,078) $(8,381)
========== ==== ====== ======== ========= ======= =======
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-23
<PAGE> 68
RMI TITANIUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1--GENERAL
The consolidated financial statements include the accounts of RMI Titanium
Company and its majority owned subsidiaries. All significant intercompany
transactions are eliminated. The Company's operations are conducted in one
business segment, the production and marketing of titanium metal and related
products.
NOTE 2--ORGANIZATION
The Company is a successor to entities that have been operating in the
titanium industry since 1958. In 1990, USX Corporation ("USX") and Quantum
Chemical Corporation ("Quantum") transferred their entire ownership 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 September 30, 1996, approximately 27% of the
outstanding common stock was owned by USX. For information on the Company's
capital structure see Note 3.
NOTE 3--COMMON STOCK OFFERING
On May 7, 1996, the Company completed a Common Stock Offering of 4,600,000
shares at a price of $18.50 per share. Net proceeds of RMI after deducting
underwriting fees and expenses amounted to $80.3 million. The proceeds were used
to repay all outstanding indebtedness under the existing bank credit facilities
amounting to $65.5 million, $10.1 million was contributed to the Company's
pension plans and the balance used for general corporate purposes. Concurrent
with the Company's Stock Offering, USX Corporation sold 2,300,000 shares of its
investment in RMI Common Stock at the same price. RMI did not receive any of the
proceeds from the sale of RMI Common Stock by USX. As a result of these
transactions, USX's percentage of ownership in RMI was reduced from
approximately 51% to approximately 27%. As of September 30, 1996, there were
20,246,200 shares of RMI Common Stock outstanding.
NOTE 4--INCOME TAXES
For the nine month period ended September 30, 1996, the Company recorded an
income tax benefit of $0.6 million. This amount is comprised of an income tax
provision against pretax income for the nine month period of $2.0 million and an
income tax benefit of $2.6 million, resulting from an adjustment to the deferred
tax asset valuation allowance due to changes in the Company's expectations about
the ultimate realization of its deferred tax assets in years after 1996. No tax
effect was recorded for the nine months ended September 30, 1995. Excluding the
$2.6 million valuation allowance adjustment, the effective tax rate for the nine
months ended September 30, 1996 was approximately 9.6 percent. The difference
between the statutory federal tax rate of 35 percent and the effective tax rate
is principally due to an adjustment to the deferred tax asset valuation
allowance which existed at December 31, 1995 as it related to expected 1996
results. The Company currently expects improved profitability in 1996 when
compared to the expectations inherent in the December 31, 1995 deferred tax
asset. The effect of this adjustment reduced the year to date 1996 tax provision
by approximately $5.3 million for the nine month period ended September 30,
1996. The amount of current taxes expected to be paid in 1996 is minimal.
Statement of Financial Accounting Standards No. 109 (SFAS No. 109),
"Accounting for Income Taxes," 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 upon the Company's ability to generate sufficient
taxable income in the future prior to the expiration of its loss carryforwards.
The Company has evaluated the available evidence supporting the realization of
future taxable income and, based upon that
F-24
<PAGE> 69
RMI TITANIUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
evaluation, believes it is more likely than not at this time that a portion of
its deferred tax assets will be realized. The remaining valuation allowance has
been 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 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 current valuation allowance.
As a result, the application of 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 judgement 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.
NOTE 5--CONTINGENCIES
In the ordinary course of business, the Company is subject to pervasive
environmental laws and regulations concerning the production, handling, storage,
transportation, emission, and disposal of waste materials and is also subject to
other federal and state laws and regulations regarding health and safety
matters. These laws and regulations are constantly evolving, and it is not
currently possible to predict accurately the ultimate effect these laws and
regulations will have on the Company in the future.
On October 9, 1992 the U.S. Environmental Protection Agency ("EPA") filed a
complaint alleging certain violations of the Resource Conservation and Recovery
Act of 1976, as amended ("RCRA") at the Company's now closed Sodium Plant in
Ashtabula, Ohio. The USEPA's determination is based on information gathered
during inspections of the facility in February, March and June of 1991. Under
the complaint of the USEPA proposes to assess a civil penalty of approximately
$1.4 million for alleged failure to comply with RCRA. The Company is contesting
the complaint. It is the Company's position that it has complied with the
provisions of RCRA and that the EPA's assessment of penalties is inappropriate.
A formal hearing has been requested and informal discussions with the EPA to
settle this matter are ongoing. Based on the 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
Field Brooks 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 that 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
F-25
<PAGE> 70
RMI TITANIUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
facilities. The EPA's 1986 estimate of the cost of remediation of the Fields
Brook operable sediment unit was $48 million. However, recent studies show the
volume of sediment to be substantially lower than projected in 1986. These
studies, together with improved remediation technology and redefined cleanup
standards have resulted in a more recent estimate of the remediation cost of
approximately $25 million. The actual cost of remediation may vary from the
estimate depending upon any number of factors.
The EPA, in March 1989, ordered 22 of the PRPs to conduct a design phase
study for the sediment operable unit and a source control study, which studies
are nearly complete and are estimated to cost $22 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 in 1997. Actual
cleanup would not commence prior to 1998. The Company's share of the study costs
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.
At September 30, 1996, 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.
NOTE 6--INVENTORIES:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
----------------------------------
SEPTEMBER 30, 1996 DECEMBER 31,
(UNAUDITED) 1995
------------------ ------------
<S> <C> <C>
Raw material and supplies....................... $ 28,596 $ 22,609
Work-in-process and finished goods.............. 90,677 71,290
Adjustments to LIFO values...................... (24,636) (19,846)
-------- --------
$ 94,637 $ 74,053
======== ========
</TABLE>
Inventories are valued at cost as determined by the last-in, first-out (LIFO)
method which, in the aggregate, is lower than market. Inventory costs generally
include materials, labor costs and manufacturing overhead (including
depreciation).
Included in work-in-process are costs relating to long-term contracts. Such
costs, net of amounts recognized to date, were $1.3 million at September 30,
1996 and $2.5 million at December 31, 1995.
F-26
<PAGE> 71
RMI TITANIUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 7--CREDIT FACILITY:
In connection with the Common Stock Offering referred to in Note 3 above,
the Company has entered into a credit agreement, dated April 15, 1996 (the
"Credit Facility"), to replace the Company's prior credit facilities. The 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. At September
30, 1996, $5.9 million was outstanding under the facility. The Company had
sufficient accounts receivable and inventory at September 30, 1996 to borrow the
entire $50 million.
Under the terms of the Credit Facility, the Company, at its option, is 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 (ranging for 1/2% to 1%) determined
by the ratio of the Company's consolidated earnings before interest and taxes to
consolidated interest expense.
Borrowings under the Credit Facility will initially be secured by the
Company's accounts receivable, inventory, other personal property and cash and
cash equivalents. Borrowings will become unsecured if the Company complies with
all the financial covenants under the New Credit Facility for four consecutive
quarters, beginning with the date of the Credit Facility and expiring with the
quarter ended June 30, 1997.
An event of default under the Credit Facility shall occur if, among other
things, 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. The
Credit Facility contains additional terms and financial covenants which are
typical for other similar facilities.
NOTE 8--ASSET IMPAIRMENT:
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. The 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.
F-27
<PAGE> 72
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY RMI TITANIUM COMPANY OR ANY OF THE UNDERWRITERS. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF RMI TITANIUM COMPANY SINCE THE DATES AS OF WHICH INFORMATION IS GIVEN
IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION
BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
------------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
Available Information.................... 2
Incorporation of Certain Documents by
Reference.............................. 2
Summary.................................. 3
Forward-Looking Statements............... 8
Risk Factors............................. 8
Use of Proceeds.......................... 12
Capitalization........................... 12
Price Range of Common Stock
and Dividends.......................... 13
Business................................. 14
Selected Financial Data.................. 26
Management's Discussion and Analysis
of Financial Condition and Results
of Operations.......................... 28
Management............................... 37
Certain Relationships.................... 38
Description of Capital Stock............. 39
Plan of Distribution..................... 42
Legal Matters............................ 43
Experts.................................. 43
Index to Consolidated Financial
Statements............................. F-1
</TABLE>
5,000,000 SHARES
RMI TITANIUM
COMPANY
COMMON STOCK
($.01 PAR VALUE)
[RMI LOGO]
PROSPECTUS
DATED , 1996
<PAGE> 73
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, all of which will be paid
by USX, is as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 39,777
Blue Sky fees and expenses...................................... 7,500
Costs of printing............................................... 150,000
Legal fees and expenses......................................... 110,000
Accounting fees and expenses.................................... 70,000
Miscellaneous expenses.......................................... 2,723
--------
Total...................................................... $380,000
========
</TABLE>
- ---------
* To be filed by amendment.
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 (other than an action by or in the
right of the corporation) 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 and, with respect to a
criminal proceeding, had no reasonable cause to believe that his conduct was
unlawful. With respect to a suit by or in the right of the corporation,
indemnity may be provided to the foregoing persons under Ohio law on a basis
similar to that set forth above, except that no indemnity may be provided in
respect of any claim, issue or matter as to which such person has been adjudged
to be liable to the corporation unless and to the extent that the court in which
such action, suit or proceeding was brought determines that despite the
adjudication of liability but in view of all the circumstances of the case such
person is entitled to indemnity for such expenses as the court deems proper.
Moreover, Ohio law provides for mandatory indemnification of a director,
officer, employee or agent of the corporation to the extent that such person has
been successful in defense of any such action, suit or proceeding and provides
that a corporation shall pay the expenses of an officer or director in defending
an action, suit or proceeding upon receipt of an undertaking to repay such
amounts if it is ultimately determined that such person is not entitled to be
indemnified. 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.
II-1
<PAGE> 74
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-2
<PAGE> 75
ITEM 16. EXHIBITS
EXHIBITS
<TABLE>
<S> <C>
1.1 --Form of Underwriting Agreement.
*3.1 --Articles of Incorporation of the Company, as amended March 31, 1994 (incorporated
by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1994).
*3.2 --Amended Code of Regulations of the Company (incorporated by reference to Exhibit 3
to the Company's Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1996).
*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.
(incorporated by reference to Exhibit 4.1 to Registration Statement on Form S-3
under the Securities Act of 1933, File No. 333-01553).
*4.2 --Specimen Common Stock Certificate of the Company (incorporated by reference to
Exhibit 4 to Registration Statement on Form S-3 under the Securities Act of 1933,
File No. 333-01553).
5 --Opinion of Jones, Day, Reavis & Pogue regarding validity of the shares of Common
Stock owned by USX.
23.1 --Consent of Price Waterhouse LLP.
23.2 --Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5).
*24 --Powers of Attorney.
99 --Form of Tax Indemnification Agreement between the Company and USX.
</TABLE>
- ---------
* Previously filed or incorporated by reference.
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:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
registrant
II-3
<PAGE> 76
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
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.
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-4
<PAGE> 77
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF PITTSBURGH, COMMONWEALTH OF PENNSYLVANIA, ON NOVEMBER
26, 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
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON NOVEMBER 26, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------------- --------------------------------------------------
<S> <C>
* President and Chief Executive Officer and Director
- --------------------------------------------------
L. Frederick Gieg, Jr.
* Executive Vice President and Chief Financial
- -------------------------------------------------- Officer; Chief Accounting Officer and Director
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
- --------------------------------------------------
Robert M. Hernandez
* Executive Vice President and Director
- --------------------------------------------------
John H. Odle
* Director
- --------------------------------------------------
Wesley W. von Schack
*By: /s/ R. M. HAYS
----------------------------------------------
R. M. Hays
Attorney-in-fact
</TABLE>
II-5
<PAGE> 78
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ------------ -----------------------------------------------------------------------------
<C> <S>
1.1 --Form of Underwriting Agreement
5 --Opinion of Jones, Day, Reavis & Pogue regarding validity of the shares of
Common Stock owned by USX
23.1 --Consent of Price Waterhouse LLP
23.2 --Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5)
99 --Form of Tax Indemnification Agreement between the Company and USX
</TABLE>
<PAGE> 1
Exhibit 1.1
USX CORPORATION
5,000,000 DECS(SM) (Debt Exchangeable for Common Stock(SM))*
_______ % Exchangeable Notes Due February 1, 2000
(Subject to Exchange into Shares of Common Stock,
par value $.01 per share, of RMI Titanium Company)
Underwriting Agreement
New York, New York
_______, 1996
Salomon Brothers Inc
Lehman Brothers Inc.
as Representatives of the several Underwriters
c/o Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Ladies and Gentlemen:
USX Corporation, a Delaware corporation ("USX"), proposes to
sell to the underwriters named in Schedule I hereto (the "Underwriters"), for
whom you (the "Representatives") are acting as representatives, an aggregate of
5,000,000 DECS (Debt Exchangeable for Common Stock) consisting of its _____%
Exchangeable Notes Due February 1, 2000 (the "Underwritten DECS"), to be issued
under an indenture dated as of March 15, 1993, between USX and PNC Bank,
National Association, as trustee (the "Trustee"), as amended to the date hereof
by the First Supplemental Indenture thereto dated as of _________, 1996 (as so
amended, the "Indenture"). In addition, the Underwriters will have an option
to purchase up to 483,600 DECS (the "Option DECS" and, together with the
Underwritten DECS, the "DECS"). At maturity (including as a result of
acceleration or otherwise), the DECS will be mandatorily exchanged by USX into
shares of common stock, par value $.01 per share (the "RMI Common Stock"), of
RMI Titanium Company, an Ohio corporation ("RMI") (or, at USX's option under
the circumstances described in the Final USX Prospectus (as defined herein),
cash with an equal value) at the rate specified in the Final USX Prospectus.
- ------------------
* Plus an option to purchase from USX Corporation, up to 483,600 additional
DECS to cover over-allotments.
<PAGE> 2
In connection with the foregoing and pursuant to the
Registration Rights Agreement dated August 21, 1996, between RMI
Titanium Company and USX Corporation (the "Registration Rights
Agreement"), RMI has filed with the Securities and Exchange Commission
(the "Commission") a registration statement with respect to 5,000,000
shares (the "Underwritten Shares") of RMI Common Stock, in respect of
the Underwritten DECS plus an additional 483,600 shares (the "Option
Shares" and, together with the Underwritten Shares, the "Shares") of
RMI Common Stock in respect of the Option DECS, for sale by USX as a
selling stockholder (to the extent USX shall so elect to deliver RMI
Common Stock to holders of the DECS at maturity thereof pursuant to
the terms of the DECS), which registration statement is referred to in
Section 2 of this Agreement.
Certain terms used in this Agreement are defined in paragraph
(c) of Section 1 and paragraph (c) of Section 2.
1. Representations and Warranties of USX. USX represents and
warrants to, and agrees with, each Underwriter and RMI as set forth below in
this Section 1.
(a) USX meets the requirements for use of Form S-3 under the
Securities Act of 1933, as amended (the "Act"), and has filed with the
Commission a registration statement (file number 33-52937) on Form
S-3, including a basic prospectus (the "Basic USX Prospectus"), for
the registration under the Act of the offering and sale of the DECS.
USX may have filed one or more amendments thereto, and may have used a
Preliminary Final USX Prospectus (as defined herein), each of which
has previously been furnished to you. Such registration statement, as
so amended, has become effective. Although the Basic Prospectus may
not include all the information with respect to the DECS and the
offering thereof required by the Act and the rules thereunder to be
included in the Final USX Prospectus, the Basic USX Prospectus
includes all such information required by the Act and the rules
thereunder with respect to such a prospectus. A Preliminary Final USX
Prospectus was filed with the Commission pursuant to Rule 424(b)(2) on
November 20, 1996. USX will next file with the Commission pursuant to
Rule 424(b)(2) a final supplement to the Basic USX Prospectus, which
supplement relates to the DECS and the offering thereof. As filed,
such final prospectus supplement shall include all required
information with respect to the DECS and the offering thereof and,
except to the extent the Representatives shall agree in writing to a
modification, shall be in all substantive respects in the form
furnished to you prior to the Execution Time or, to the extent not
completed at the Execution Time, shall contain only such specific
additional information and other changes (beyond that contained in the
Basic USX Prospectus and any Preliminary Final USX Prospectus) as USX
has advised you, prior to the Execution Time, will be included or made
therein. The registration statement, at the Execution Time, will meet
the requirement set forth in Rule 415(a)(1)(x) under the Act.
(b) On the USX Effective Date, the USX Registration Statement
did and/or will, and when the Final USX Prospectus is first filed in
accordance with Rule 424(b) and on the Closing Date, the Final USX
Prospectus (and any supplements thereto) will, comply in all material
respects with the applicable requirements of the Act, the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"), and the
respective rules thereunder; on the USX Effective Date, the USX
Registration Statement did not or will not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein not misleading; on the USX Effective Date and on
the Closing Date, the Indenture did or will comply in all material
respects with the applicable requirements of the
2
<PAGE> 3
Trust Indenture Act and the rules thereunder; and, on the date of any
filing pursuant to Rule 424(b) and on the Closing Date, the Final USX
Prospectus (together with any supplement thereto) will not include any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that USX makes no representations or warranties as to (A)
that part of the USX Registration Statement which shall constitute the
Statement of Eligibility and Qualification (Form T-1) under the Trust
Indenture Act of the Trustee, (B) the information contained in or
omitted from the USX Registration Statement or the Final USX
Prospectus (or any supplement thereto) in reliance upon and in
conformity with information furnished in writing to USX by or on
behalf of any Underwriter through the Representatives specifically for
inclusion in the USX Registration Statement or the Final USX
Prospectus (or any supplement thereto) or (C) the information
contained in or omitted from the USX Registration Statement or the
Final USX Prospectus (or any supplement thereto) in reliance upon and
in conformity with information furnished in writing to USX by or on
behalf of RMI specifically for inclusion in the USX Registration
Statement or the Final USX Prospectus (or any supplement thereto).
(c) The terms which follow, when used in this Agreement,
shall have the meanings indicated. The term "USX Effective Date"
shall mean each date that the USX Registration Statement and any
post-effective amendment or amendments thereto became or become
effective and the date of filing of USX's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995. "Execution Time" shall
mean the date and time that this Agreement is executed and delivered
by the parties hereto. "Basic USX Prospectus" shall mean the
prospectus referred to in paragraph (a) of this Section 1 contained in
the USX Registration Statement at the USX Effective Date.
"Preliminary Final USX Prospectus" shall mean any preliminary
prospectus supplement to the Basic USX Prospectus which describes the
DECS and the offering thereof, is used prior to filing the Final USX
Prospectus and is filed, together with the Basic USX Prospectus,
pursuant to Rule 424(b). "Final USX Prospectus" shall mean the Basic
USX Prospectus as supplemented by the prospectus supplement relating
to the DECS that is first filed pursuant to Rule 424(b) after the
Execution Time. "USX Registration Statement" shall mean the
registration statement referred to in paragraph (a) of this Section 1,
including incorporated documents, exhibits and financial statements,
as amended at the Execution Time and, in the event any post-effective
amendment thereto becomes effective prior to the Closing Date, shall
also mean such registration statement as so amended. "Rule 415,"
"Rule 424" and "Regulation S-K" refer to such rules or regulation
under the Act. Any reference herein to the USX Registration
Statement, the Basic USX Prospectus, any Preliminary Final USX
Prospectus or the Final USX Prospectus shall be deemed to refer to and
include the documents incorporated by reference therein pursuant to
Item 12 of Form S-3 which were filed under the Exchange Act on or
before the USX Effective Date or the issue date of the Basic USX
Prospectus, any Preliminary Final USX Prospectus or the Final USX
Prospectus, as the case may be; and any reference herein to the terms
"amend," "amendment" or "supplement" with respect to the USX
Registration Statement, the Basic USX Prospectus, any Preliminary
Final USX Prospectus or the Final USX Prospectus shall be deemed to
refer to and include the filing of any document under the Exchange Act
after the USX Effective Date, or the issue date of the Basic USX
Prospectus, any Preliminary Final USX Prospectus or the Final USX
Prospectus, as the case may be, which document is deemed to be
incorporated therein by reference.
3
<PAGE> 4
(d) To the extent that any statements or omissions made in the
RMI Registration Statement or the RMI Prospectus (or any supplement
thereto) are made in reliance upon and in conformity with written
information furnished to RMI by USX specifically for inclusion
therein, (i) on the RMI Effective Date, the RMI Registration Statement
did not or will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading and
(ii) on the RMI Effective Date, the RMI Prospectus, if not filed
pursuant to Rule 424(b), did not or will not, and on the date of any
filing pursuant to Rule 424(b) and on the Closing Date (as defined in
Section 4 hereof), the RMI Prospectus (together with any supplement
thereto) will not, include any untrue statement of a material fact or
omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; and no facts have come to the attention of
USX which lead USX to believe, or should lead it to believe, that (i)
on the RMI Effective Date, the RMI Registration Statement did not or
will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading and (ii) on the
RMI Effective Date, the RMI Prospectus, if not filed pursuant to Rule
424(b), did not or will not, and on the date of any filing pursuant to
Rule 424(b) and on the Closing Date, the RMI Prospectus (together with
any supplement thereto) will not, include any untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(e) USX has not taken and will not take, directly or
indirectly, any action designed to or which has constituted or which
might reasonably be expected to cause or result, under the Exchange
Act or otherwise, in stabilization or manipulation of the price of any
security of RMI to facilitate the sale or resale of the DECS or the
Shares, and has not effected any sales of RMI Common Stock (other than
sales of RMI Common Stock prior to May 1996 pursuant to Rule 144 under
the Act) which, if effected by the issuer, would be required to be
disclosed in response to Item 701 of Regulation S-K.
(f) Neither USX nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included or
incorporated by reference in the USX Registration Statement 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 in or contemplated by the USX Registration
Statement or the Final USX Prospectus; and, since the respective dates
as of which information is given in the USX Registration Statement,
there has not been any material change in the capital stock or
long-term debt of USX or any of its subsidiaries or any material
adverse change, or any development likely to result in a prospective
material adverse change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of
operations of USX and its subsidiaries, otherwise than as set forth in
or contemplated by the Final USX Prospectus.
(g) USX has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of
Delaware, with all corporate power and authority to own its properties
and conduct its business as described in the USX Registration
Statement and the Preliminary Final USX Prospectus.
4
<PAGE> 5
(h) USX has an authorized capitalization as set forth in the
USX Registration Statement and the Preliminary Final USX Prospectus,
and all of the issued shares of capital stock of USX have been duly
and validly authorized and issued and are fully paid and
non-assessable;
(i) The DECS have been duly authorized, and, when the DECS
are issued and delivered pursuant to this Agreement, such DECS will
have been duly executed, authenticated, issued and delivered and will
constitute valid and legally binding obligations of USX entitled to
the benefits provided by the Indenture, which will be substantially in
the form filed as an exhibit to the USX Registration Statement, the
Indenture has been duly authorized and duly qualified under the Trust
Indenture Act and, on the Closing Date (as defined in Section 4
hereof), the Indenture will constitute a valid and legally binding
instrument, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization and other laws
of general applicability relating to or affecting creditors' rights
and to general equity principles; and the Indenture conforms, and the
DECS will conform, to the descriptions thereof contained in the Final
USX Prospectus.
(j) The issue and sale of the DECS and the compliance by USX
with all of the provisions of the DECS, the Indenture and this
Agreement and the consummation of the transactions herein and therein
contemplated 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 USX is a party or by which USX is
bound or to which any of the property or assets of USX is subject, nor
will such action result in any violation of the provisions of the
certificate of incorporation or by-laws of USX or any statute or any
order, rule or regulation of any court or governmental agency or body
having jurisdiction over USX or any of its properties; and no consent,
approval, authorization, order, registration or qualification of or
with any such court or governmental agency or body is required for the
issue and sale of the DECS or the consummation by USX of the
transactions contemplated by this Agreement or the Indenture, except
such as have been, or will have been prior to the Closing Date,
obtained under the Act and the Trust Indenture Act and such consents,
approvals, authorizations, registrations or qualifications as may be
required under state securities or Blue Sky laws in connection with
the purchase and distribution of the DECS by the Underwriters.
(k) Other than as set forth in the USX Registration Statement
and the Preliminary Final USX Prospectus, there are no legal or
governmental proceedings pending to which USX or any of its
subsidiaries is a party or of which any property of USX or any of its
subsidiaries is the subject which, if determined adversely to USX or
any of its subsidiaries, would have a material adverse effect on the
consolidated financial position, stockholders' equity or results of
operations of USX and its subsidiaries; and, to the best of USX's
knowledge, no such proceedings are threatened by governmental
authorities or by others.
(l) Immediately prior to any delivery of Shares or any
Reported Securities (as defined in the Final USX Prospectus) pursuant
to the DECS, USX will be the lawful owner of such Shares or Reported
Securities, as the case may be, and will convey good and valid title
to such Shares or Reported Securities, as the case may be, upon such
delivery, free and clear of all liens, encumbrances, equities and
claims whatsoever.
5
<PAGE> 6
2. Representations and Warranties of RMI. RMI represents and
warrants to, and agrees with, each Underwriter as set forth below in this
Section 2.
(a) RMI meets the requirements for use of Form S-3 under the
Act and has filed with the Commission a registration statement (file
number 333-16101) on such Form, including a related preliminary
prospectus, for the registration under the Act of the offering and
sale of the Shares. RMI may have filed one or more amendments
thereto, including the related preliminary prospectus, each of which
has previously been furnished to you. RMI will next file with the
Commission one of the following: (i) prior to effectiveness of such
registration statement, a further amendment to such registration
statement, including the form of final prospectus or (ii) a final
prospectus in accordance with Rules 430A and 424(b)(1) or (4). In the
case of clause (ii), RMI has included in such registration statement,
as amended at the RMI Effective Date, all information (other than Rule
430A Information) required by the Act and the rules thereunder to be
included in the RMI Prospectus with respect to the Shares and the
offering thereof. As filed, such amendment and form of final
prospectus, or such final prospectus, shall contain all Rule 430A
Information, together with all other such required information, with
respect to the Shares and the offering thereof and, except to the
extent the Representatives shall agree to a modification, shall be in
all substantive respects in the form furnished to you prior to the
Execution Time, shall contain only such specific additional
information and other changes (beyond that contained in the latest
Preliminary RMI Prospectus) as RMI has advised you, prior to the
Execution Time, will be included or made therein.
(b) (i) On the RMI Effective Date, the RMI Registration
Statement did or will and when the RMI Prospectus is first filed (if
required) in accordance with Rule 424(b) and on the Closing Date, the
RMI Prospectus (and any supplement thereto) will, conform in all
material respects with the applicable requirements of the Act, the
Exchange Act and the respective rules thereunder;
(ii) On the RMI Effective Date, the RMI Registration
Statement did not or will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not
misleading; on the RMI Effective Date, the RMI Prospectus, if not
filed pursuant to Rule 424(b), did not or will not, and on the date of
any filing pursuant to Rule 424(b) and on the Closing Date, the RMI
Prospectus (together with any supplement thereto) will not, include
any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading;
provided, however, that no representation or warranty is made as to
the information contained in or omitted from the RMI Registration
Statement or the RMI Prospectus (or any supplement thereto) in
reliance upon and in conformity with information furnished in writing
to RMI (A) by or on behalf of any Underwriter through the
Representatives or (B) by USX, in either case, specifically for
inclusion in the RMI Registration Statement or the RMI Prospectus (or
any supplement thereto).
(c) The terms which follow, when used in this Agreement,
shall have the meanings indicated. The term "RMI Effective Date"
shall mean each date that the RMI Registration Statement and any
post-effective amendment or amendments thereto became or become
effective. "Preliminary RMI Prospectus" shall mean any preliminary
prospectus referred to in paragraph (a) of this Section 2 and any
preliminary prospectus included in the RMI
6
<PAGE> 7
Registration Statement at the RMI Effective Date that omits Rule 430A
Information. "RMI Prospectus" shall mean the prospectus relating to
the Shares that is first filed pursuant to Rule 424(b) after the
Execution Time or, if no filing pursuant to Rule 424(b) is required,
shall mean the form of final prospectus relating to the Shares
included in the RMI Registration Statement at the RMI Effective Date.
"RMI Registration Statement" shall mean the registration statement
referred to in paragraph (a) of this Section 2 including incorporated
documents, exhibits and financial statements, as amended at the
Execution Time (or, if not effective at the Execution Time, in the
form in which it shall become effective) and, in the event any
post-effective amendment thereto becomes effective prior to the
Closing Date, shall also mean such registration statement as so
amended. Such term shall include any Rule 430A Information deemed to
be included therein at the RMI Effective Date as provided by Rule
430A. "Rule 430A" refers to such rule under the Act. "Rule 430A
Information" means information with respect to the DECS (or the
Shares) and the offering thereof permitted to be omitted from the RMI
Registration Statement when it becomes effective pursuant to Rule
430A. Any reference herein to the RMI Registration Statement,
Preliminary RMI Prospectus or the RMI Prospectus shall be deemed to
refer to and include the documents incorporated by reference therein
pursuant to Item 12 of Form S-3 which were filed under the Exchange
Act on or before the RMI Effective Date or the issue date of a
Preliminary RMI Prospectus or the RMI Prospectus, as the case may be;
and any reference herein to the terms "amend," "amendment" or
"supplement" with respect to the RMI Registration Statement, any
Preliminary RMI Prospectus or the RMI Prospectus shall be deemed to
refer to and include the filing of any document under the Exchange Act
after the RMI Effective Date, or the issue date of any Preliminary RMI
Prospectus or the RMI Prospectus, as the case may be, deemed to be
incorporated therein by reference. The term "RMI Material Adverse
Effect" shall mean any material adverse effect on the consolidated
financial position, stockholders' equity, results of operations,
business or prospects of RMI and its subsidiaries taken as a whole.
(d) RMI and each of its subsidiaries (as defined in Rule 405
under the Act) 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
reasonably be expected to have a material adverse effect on RMI or RMI
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 RMI is a "significant subsidiary", as such term is
defined in Rule 405 under the Act.
(e) RMI has an authorized capitalization as set forth in the
RMI Prospectus, and all of the issued shares of capital stock of RMI
have been duly and validly authorized and issued, are fully paid and
non-assessable and conform to the description thereof contained in the
RMI Prospectus; and all of the issued shares of capital stock of each
subsidiary of RMI have been duly and validly authorized and issued and
are fully paid and non-assessable and are owned directly or indirectly
by RMI, free and clear of all liens, encumbrances, equities or claims;
provided, however, that the Company only owns a 40% interest in
Reamet, S.A.
(f) This Agreement has been duly authorized, executed and
delivered by RMI.
7
<PAGE> 8
(g) The execution, delivery and performance of this Agreement
by RMI 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 RMI or any of its subsidiaries is a party or by
which RMI or any of its subsidiaries is bound or to which any of the
properties or assets of RMI or any of its subsidiaries is subject and
which is material to RMI and its subsidiaries taken as a whole, nor
will such actions result in any violation of the provisions of the
Amended Articles of Incorporation or Amended Code of Regulations of
RMI or the charter or by-laws of any of its subsidiaries or any
statute or any order, rule or regulation of any court or governmental
agency or body having jurisdiction over RMI or any of its subsidiaries
or any of their properties or assets; and except for the registration
of the Shares under the 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 DECS 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 RMI and the consummation of the transactions contemplated
hereby.
(h) Neither RMI nor any of its subsidiaries has sustained,
since the date of the latest audited financial statements included or
incorporated by reference in the RMI 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 which was
material to RMI and its subsidiaries taken as a whole, otherwise than
as set forth or contemplated in the RMI 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 RMI's stock option plans
and the issuance of shares of RMI Common Stock on May 7, 1996 in
connection a registered public offering thereof) or changes in
long-term debt (other than under RMI's Amended and Restated Bank
Credit Agreement, dated May 3, 1995, and the Credit Facility (as
defined in the RMI Prospectus)) of RMI or any of its subsidiaries or
any material adverse change in the consolidated financial position,
stockholders' equity, results of operations, business or prospects of
RMI and its subsidiaries taken as a whole, whether or not arising from
transactions in the ordinary course of business.
(i) Except as described in the RMI Prospectus, there are
no legal or governmental proceedings pending to which RMI or any of
its subsidiaries is a party or of which any property or asset of RMI
or any of its subsidiaries is the subject which, if determined
adversely to RMI or any of its subsidiaries, could reasonably be
expected to have a RMI Material Adverse Effect; and to the best of
RMI's knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others.
(j) RMI is not and, after giving effect to the offering and
sale of the DECS and the Shares, will not be, an "investment company"
or an entity "controlled" by an "investment company," as such terms
are defined in the Investment Company Act.
(k) Except as described in the RMI 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 RMI or any of its subsidiaries (or, to the knowledge of
RMI, any of their predecessors in
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<PAGE> 9
interest or any other entity for whose acts or omissions RMI or any
subsidiary is or may be liable) at, upon or from any of the properties
now or previously owned or leased by RMI or its subsidiaries, or, to
the knowledge of RMI, 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 RMI
Material Adverse Effect; except as disclosed in the RMI 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, solid wastes, hazardous wastes, hazardous substances
or other substances, with respect to which RMI 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 RMI Material Adverse
Effect; 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.
(l) RMI 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 Credit
Facility, 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 RMI and its subsidiaries; and all real
property and buildings held under lease by RMI and its subsidiaries
are held by them under valid, existing 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 RMI and
its subsidiaries.
(m) Except for the Registration Rights Agreement, there are
no contracts, agreements or understandings between RMI and any person
granting such person the right to require RMI to file a registration
statement under the Act with respect to any securities of RMI owned or
to be owned by such person or to require RMI to include such
securities in the securities registered pursuant to the RMI
Registration Statement or in any securities being registered pursuant
to any other registration statement filed by RMI under the Act.
(n) Neither RMI 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.
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<PAGE> 10
(o) RMI 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 RMI, adequate for the conduct of their
respective businesses and the value of their respective properties.
(p) Price Waterhouse L.L.P. are independent public
accountants with respect to RMI as required by the Act and the rules
and regulations thereunder.
(q) The financial statements, together with the notes
thereto, included or incorporated in the RMI Registration Statement
and the RMI Prospectus (and any amendment or supplement thereto),
present fairly the consolidated financial position, results of
operations and changes in financial position of RMI on the basis
stated in the RMI Registration Statement at the respective dates or
for the respective periods to which they apply; such statements and
the related notes thereto have been prepared in accordance with
generally accepted accounting principles consistently applied
throughout the periods involved except as noted therein.
(r) No material labor dispute with the employees of RMI
exists, except as described in or contemplated by the RMI Prospectus,
or, to the knowledge of RMI, is imminent; and RMI is not aware of any
existing, threatened or imminent labor disturbance by the employees of
any of its principal suppliers, manufacturers, or contractors that
could have a RMI Material Adverse Effect.
(s) RMI 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 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 RMI would have any liability; RMI 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 RMI 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.
(t) RMI 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 RMI or any of its subsidiaries which has had
(nor does RMI have any knowledge of any tax deficiency which, if
determined adversely to RMI or any of its subsidiaries, might have) a
RMI Material Adverse Effect.
(u) RMI has not taken and will not take, directly or
indirectly, any action designed to or which has constituted or which
might reasonably be expected to cause or result, under the Exchange
Act or otherwise, in stabilization or manipulation of the price of any
security of RMI to facilitate the sale or resale of the DECS or the
Shares.
(v) The outstanding shares of RMI Common Stock are duly
listed and admitted for trading on the New York Stock Exchange (the
"NYSE").
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<PAGE> 11
3. Purchase and Sale. (a) Subject to the terms and
conditions and in reliance upon the representations and warranties herein set
forth, USX agrees to sell to each Underwriter, and each Underwriter agrees,
severally and not jointly, to purchase from USX, at a price of $______ per
DECS, plus accrued interest, if any, on the DECS from __________, 1996 to the
Closing Date, the number of DECS set forth opposite such Underwriter's name in
Schedule I hereto. The initial public offering price of the DECS, as described
on the cover of the Final USX Prospectus, will be $______ per DECS or
$________in the aggregate.
(b) Subject to the terms and conditions and in reliance upon
the representations and warranties herein set forth, USX hereby grants an
option to the several Underwriters to purchase, severally and not jointly, up
to 483,600 of the Option DECS at the same purchase price per DECS as the
Underwriters shall pay for the Underwritten DECS. Said option may be exercised
only to cover over-allotments in the sale of the Underwritten DECS by the
Underwriters. Said option may be exercised in whole or in part at any time
(but not more than once) on or before the 30th day after the date of the Final
USX Prospectus upon written or telegraphic notice by the Representatives to USX
setting forth the number of the Option DECS as to which the several
Underwriters are exercising the option and the settlement date. Delivery of
certificates for the Option DECS, and payment therefor, shall be made as
provided in Section 4 hereof. The number of Option DECS to be purchased by
each Underwriter shall be the same percentage of the total number of Option
DECS to be purchased by the several Underwriters as such Underwriter is
purchasing of the Underwritten DECS, subject to such adjustments as you in your
absolute discretion shall make to eliminate any fractional DECS.
4. Delivery and Payment. Delivery of and payment for the
Underwritten DECS and the Option DECS (if the option provided for in Section
3(b) hereof shall have been exercised on or before the first business day prior
to the Closing Date) shall be made at 10:00 AM, New York City time, on
________, 1996, (or such later date not later than five business days after
such specified date as the Representatives shall designate) which date and time
may be postponed by agreement between the Representatives and USX or as
provided in Section 11 hereof (such date and time of delivery and payment for
the DECS being herein called the "Closing Date"). Delivery of the DECS shall
be made to the Representatives for the respective accounts of the several
Underwriters against payment by the several Underwriters through the
Representatives of the purchase price thereof to USX by wire transfer to an
account designated in writing by USX at least two business days in advance of
the Closing Date, payable in same-day funds. Delivery of the DECS shall be
made at such location as the Representatives shall reasonably designate at
least one business day in advance of the Closing Date and payment for such DECS
shall be made at the office of Simpson Thacher & Bartlett, 425 Lexington
Avenue, New York, New York. Certificates for the DECS shall be registered in
such names and in such denominations as the Representatives may request not
less than one full business day in advance of the Closing Date.
USX agrees to have the DECS available for inspection, and
checking by the Representatives in New York, New York, not later than 1:00 PM
on the business day prior to the Closing Date.
If the option provided for in Section 3(b) hereof is exercised
after the first business day prior to the Closing Date, USX will deliver (at
the expense of USX) to the Representatives at the office of Simpson Thacher &
Bartlett, New York, New York, on the date specified by the Representatives
(which shall be within three business days after exercise of said option),
certificates for the Option DECS in such names and denominations the
Representatives shall have requested against payment of the purchase price
thereof to or upon the order of USX either by certified or
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<PAGE> 12
official bank check or checks drawn on or by a New York Clearing House bank or
by wire transfer to an account designated in writing by USX at least two
business days in advance of the Closing Date, and in either case payable in
same-day funds. If settlement for the Option DECS occurs after the Closing
Date, USX and RMI will deliver to the Representatives on the settlement date
for the Option DECS, and the obligation of the Underwriters to purchase the
Option DECS shall be conditioned upon receipt of, supplemental opinions,
certificates and letters confirming as of such date the opinions, certificates
and letters delivered on the Closing Date pursuant to Section 7 hereof.
5. Offering by Underwriters. It is understood that the
several Underwriters propose to offer the DECS for sale to the public as set
forth in the Final USX Prospectus.
6. Agreements of USX. USX agrees with each Underwriter that:
(a) USX will use its best efforts to cause any amendment to
the USX Registration Statement, if not effective at the Execution
Time, to become effective. Prior to the termination of the offering
of the DECS, USX will not file any amendment to the USX Registration
Statement or supplement (including the Final USX Prospectus or any
Preliminary Final USX Prospectus) to the Basic USX Prospectus unless
USX has furnished you a copy for your review prior to filing and will
not file any such proposed amendment or supplement to which you
reasonably object, unless, in the reasonable judgment of USX and its
counsel, such amendment or supplement is necessary to comply with
applicable law, in which case USX will permit you a reasonable
opportunity to comment thereon. Subject to the foregoing sentence,
USX will cause the Final USX Prospectus, properly completed, and any
supplement thereto to be filed with the Commission pursuant to the
applicable paragraph of Rule 424(b) within the time period prescribed
and will provide evidence satisfactory to the Representatives of such
timely filing. USX will promptly advise the Representatives (A) when
any amendment to the USX Registration Statement, if not effective at
the Execution Time, shall have become effective, (B) when the Final
USX Prospectus, and any supplement thereto, shall have been filed with
the Commission pursuant to Rule 424(b), (C) when, prior to termination
of the offering of the DECS, any amendment to the USX Registration
Statement shall have been filed or become effective, (D) of any
request by the Commission for any amendment of the USX Registration
Statement or supplement to the Final USX Prospectus or for any
additional information, (E) of the issuance by the Commission of any
stop order suspending the effectiveness of the USX Registration
Statement or the institution or threatening of any proceeding for that
purpose and (F) of the receipt by USX of any notification with respect
to the suspension of the qualification of the DECS for sale in any
jurisdiction or the initiation or threatening of any proceeding for
such purpose. USX will use its best efforts to prevent the issuance
of any such stop order and, if issued, to obtain as soon as possible
the withdrawal thereof.
(b) If, at any time when a prospectus relating to the DECS is
required to be delivered under the Act, any event occurs as a result
of which the Final USX Prospectus as then supplemented would include
any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein in the light of the
circumstances under which they were made not misleading, or if it
shall be necessary to amend the USX Registration Statement or
supplement the Final USX Prospectus to comply with the Act or the
Exchange Act or the respective rules thereunder, USX promptly will
prepare and file with the Commission, subject to the second sentence
of paragraph (a) of this Section 6, an amendment or supplement which
will correct such statement or omission or effect such compliance.
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<PAGE> 13
(c) As soon as practicable, USX will make generally available
to its security holders and to the Representatives an earnings
statement or statements of USX and its subsidiaries which will satisfy
the provisions of Section 11(a) of the Act and, at the option of USX,
Rule 158 under the Act.
(d) USX will furnish to the Representatives and counsel for
the Underwriters, without charge, signed copies of the USX
Registration Statement (including exhibits thereto); and to each other
Underwriter a copy of the USX Registration Statement (without exhibits
thereto). USX will furnish to the Underwriters not later than (A)
6:00 PM, New York City time, on the date of determination of the
public offering price, if such determination occurred at or prior to
12:00 Noon, New York City time, on such date or (B) 6:00 PM, New York
City time, on the business day following the date on which the public
offering price was determined, if such determination occurred after
12:00 Noon, New York City time, on such date, as many copies of the
Final USX Prospectus and any supplement thereto as the Representatives
may reasonably request; further, so long as delivery of a prospectus
by an Underwriter or any dealer may be required by the Act, as many
copies of each Preliminary Final USX Prospectus and the Final USX
Prospectus and any supplement thereto as the Representatives may
reasonably request. USX will pay the expenses of printing or other
production of the USX Registration Statement, each Preliminary Final
USX Prospectus and the Final USX Prospectus (other than with respect
to Appendix A thereto which shall be paid by RMI).
(e) USX will arrange for the qualification of the DECS and
the Shares for sale under the laws of such jurisdictions as the
Representatives may designate and will maintain such qualifications in
effect so long as required for the distribution of the DECS and the
Shares; provided, however, that in connection therewith USX shall not
be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction.
(f) USX will not, for a period of 90 days following the
Execution Time, without the prior written consent of the
Representatives, offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of, directly or indirectly, or announce the
offering of, any shares of RMI Common Stock or any securities
convertible into or exercisable or exchangeable for shares of RMI
Common Stock or (ii) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic
consequences of the ownership of shares of RMI Common Stock, whether
any such transaction described in clause (i) or (ii) above is to be
settled by delivery of shares of RMI Common Stock or such other
securities, in cash or otherwise.
(g) Until the Closing Date, USX will not, without the prior
written consent of the Representatives, offer, sell or contract to
sell, or otherwise dispose of, directly or indirectly, or announce the
offering of, any debt securities issued or guaranteed by USX which
mature more than one year after the Closing Date, other than debt
securities in an aggregate principal amount not to exceed $100
million.
7. Agreements of RMI. RMI agrees with the several
Underwriters that:
(a) RMI will use its best efforts to cause the RMI
Registration Statement, if not effective at the Execution Time, and
any amendment thereof to become effective. Prior to the
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<PAGE> 14
termination of the offering of the DECS, RMI will not file any
amendment of the RMI Registration Statement or supplement to the RMI
Prospectus unless RMI has furnished you a copy for your review prior
to filing and will not file any such proposed amendment or supplement
to which you reasonably object, unless in the reasonable judgment of
RMI and its counsel, such amendment or supplement is necessary to
comply with applicable law, in which case RMI will permit you a
reasonable opportunity to comment thereon. Subject to the foregoing
sentence, if the RMI Registration Statement has become or becomes
effective pursuant to Rule 430A, or filing of the RMI Prospectus is
otherwise required under Rule 424(b), RMI will cause the RMI
Prospectus, properly completed, and any supplement thereto to be filed
with the Commission pursuant to the applicable paragraph of Rule
424(b) within the time period prescribed and will provide evidence
satisfactory to the Representatives of such timely filing. RMI will
promptly advise the Representatives (A) when the RMI Registration
Statement, if not effective at the Execution Time, and any amendment
thereto, shall have become effective, (B) when the RMI Prospectus, and
any supplement thereto, shall have been filed (if required) with the
Commission pursuant to Rule 424(b), (C) when, prior to termination of
the offering of the Shares, any amendment to the RMI Registration
Statement shall have been filed or become effective, (D) if any
request by the Commission for any amendment of the RMI Registration
Statement or supplement to the RMI Prospectus or for any additional
information, (E) of the issuance by the Commission of any stop order
suspending the effectiveness of the RMI Registration Statement or the
institution or threatening of any proceeding for that purpose and (F)
of the receipt by RMI of any notification with respect to the
suspension of the qualification of the Shares for sale in any
jurisdiction or the initiation or threatening of any proceeding for
such purpose. RMI will use its best efforts to prevent the issuance
of any such stop order and, if issued, to obtain as soon as possible
the withdrawal thereof.
(b) If, at any time when a prospectus relating to the DECS is
required to be delivered under the Act, any event occurs as a result
of which the RMI Prospectus as then supplemented would include any
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein in the light of the
circumstances under which they were made not misleading, or if it
shall be necessary to amend the RMI Registration Statement or
supplement the RMI Prospectus to comply with the Act or the Exchange
Act or the respective rules thereunder, RMI promptly will prepare and
file with the Commission, subject to the second sentence of paragraph
(a) of this Section 7, an amendment or supplement which will correct
such statement or omission or effect such compliance.
(c) As soon as practicable, RMI will make generally available
to its security holders and to the Representatives an earnings
statement or statements of RMI and its subsidiaries which will satisfy
the provisions of Section 11(a) of the Act and, at the option of RMI,
Rule 158 under the Act.
(d) RMI will furnish to the Representatives and counsel for
the Underwriters, without charge, signed copies of the RMI
Registration Statement (including exhibits thereto). RMI will furnish
to the Underwriters not later than (A) 6:00 PM, New York City time, on
the date of determination of the public offering price, if such
determination occurred at or prior to 12:00 Noon, New York City time,
on such date or (B) 6:00 PM, New York City time, on the business day
following the date on which the public offering price was determined,
if such determination occurred after 12:00 Noon, New York City time,
on such date, as many copies of each Preliminary RMI Prospectus, the
RMI Prospectus and any supplement thereto as you
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<PAGE> 15
may reasonably request; further, so long as delivery of a prospectus
by the Underwriter or dealer may be required by the Act, as many
copies of each Preliminary RMI Prospectus and the RMI Prospectus and
any supplement thereto as the Representatives may reasonably request.
USX will bear the cost of printing or other production of the RMI
Registration Statement, the Preliminary RMI Prospectus and the RMI
Prospectus.
(e) RMI will cooperate with USX for purposes of the
qualification of the DECS and the Shares for sale under the laws of
such jurisdictions as the Representatives may designate and will
maintain such qualifications in effect so long as required for the
distribution of the DECS and the Shares; provided that in no event
shall RMI be obligated to qualify to do business in any jurisdiction
where it is not now so qualified or to take any action which would
subject it to general service of process in any jurisdiction where it
is not now so subject.
(f) RMI will not, for a period of 90 days following the
Execution Time, without the prior written consent of the
Representatives, (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of, directly or indirectly, or announce the
offering of, any shares of RMI Common Stock or any securities
convertible into or exercisable or exchangeable for shares of RMI
Common Stock or (ii) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic
consequences of the ownership of shares of RMI Common Stock, whether
any such transaction described in clause (i) or (ii) above is to be
settled by delivery of shares of RMI Common Stock or such other
securities, in cash or otherwise; provided, however, that RMI may
issue, or grant options for, RMI Common Stock pursuant to any stock
plan for employees and directors, or any qualified employee benefit
plan, in effect at the Execution Time, or pursuant to any stock
options outstanding at the Execution Time, and any qualified employee
benefit plan in effect at the Execution Time may sell RMI Common Stock
to satisfy plan liquidity needs.
(g) RMI will furnish the Trustee in sufficient quantities for
transmission to holders of the DECS RMI's annual report to
shareholders and reports on Forms 10-K and 10-Q as soon as practicable
after such reports are required to be filed with the Commission.
(h) RMI will take such actions as may be reasonably necessary
to comply with the rules and regulations of the NYSE in respect of the
offering of the Shares contemplated hereby.
8. Conditions to the Obligations of the Underwriters. The
obligations of the Underwriters to purchase the DECS shall be subject to the
accuracy of the representations and warranties on the part of USX and RMI
contained herein as of the Execution Time, the Closing Date and any settlement
date pursuant to Section 4 hereof, to the accuracy of the statements of USX and
RMI made in any certificates pursuant to the provisions hereof, to the
performance by USX and RMI of their respective obligations hereunder and to the
following additional conditions:
(a) If the RMI Registration Statement has not become
effective prior to the Execution Time, unless the Representatives agree in
writing to a later time, the RMI Registration Statement will become effective
not later than (i) 6:00 PM, New York City time, on the date of determination of
the public offering price, if such determination occurred at or prior to 3:00
PM, New York City time, on such date or (ii) 12:00 Noon, New York City time, on
the business day following the day on which
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<PAGE> 16
the public offering price was determined, if such determination occurred after
3:00 PM, New York City time, on such date; if filing of the Final USX
Prospectus or the RMI Prospectus, or any supplements thereto, is required
pursuant to Rule 424(b), such Final USX Prospectus or RMI Prospectus, and any
such supplements, will be filed in the manner and within the time period
required by Rule 424(b); and no stop order suspending the effectiveness of the
USX Registration Statement or the RMI Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or
threatened.
(b) USX shall have furnished to the Representatives the
opinion of D.D. Sandman, Esq., General Counsel & Senior Vice President -- Human
Resources and Secretary of USX or J.A. Hammerschmidt, Esq., Assistant General
Counsel and Assistant Secretary of USX, dated the Closing Date, to the effect
that:
(i) USX has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with all corporate power and authority to own its
properties and conduct its business as described in the Final USX
Prospectus;
(ii) USX has an authorized capitalization as set forth in
the Final USX Prospectus and all of the issued shares of capital stock
of USX have been duly and validly authorized and issued and are fully
paid and non-assessable;
(iii) the Indenture has been duly authorized, executed and
delivered by the parties thereto and constitutes a valid and legally
binding instrument, enforceable in accordance with its terms, subject,
as to enforcement, to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other laws of general applicability
relating to or affecting creditors' rights and to general equity
principles; and the Indenture has been duly qualified under the Trust
Indenture Act;
(iv) the DECS have been duly authorized, executed,
authenticated, issued and delivered and constitute valid and legally
binding obligations of USX, subject, as to enforcement, to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and other
laws of general applicability relating to or affecting creditors'
rights and to general equity principles, entitled to the benefits
provided by the Indenture; and the DECS and the Indenture conform in
all material respects to the descriptions thereof in the Final USX
Prospectus;
(v) the USX Registration Statement has become effective under
the Act; any required filings of the Basic USX Prospectus, any
Preliminary Final USX Prospectus and the Final USX Prospectus, and any
supplements thereto, pursuant to Rule 424(b) have been made in the
manner and within the time period required by Rule 424(b); to the
knowledge of such counsel, no stop order suspending the effectiveness
of the USX Registration Statement or the use of such Final USX
Prospectus has been issued, no proceedings for that purpose have been
instituted or threatened, and the USX Registration Statement and the
Final USX Prospectus (including the documents incorporated by
reference therein, other than that part of the USX Registration
Statement that constitutes Form T-1 and the financial statements and
other financial and statistical information contained therein as to
which such counsel need express no opinion) comply as to form in all
material respects with the applicable requirements of the Act, the
Exchange Act and the Trust Indenture Act and the respective rules
thereunder;
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(vi) this Agreement has been duly authorized, executed and
delivered by USX;
(vii) To the best of such counsel's knowledge, there are no
legal or governmental proceedings pending to which USX or any of its
subsidiaries is a party or of which any property of USX or any of its
subsidiaries is the subject, other than as set forth in the Final USX
Prospectus which, if determined adversely to USX or any of its
subsidiaries, would have a material adverse effect on the consolidated
financial position, stockholders' equity or results of operations of
USX and its subsidiaries; and, to the best of such counsel's
knowledge, no such proceedings are threatened by governmental
authorities or by others;
(viii) no consent, approval, authorization, order,
registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale of the
DECS or the consummation by USX of the transactions contemplated by
this Agreement or the Indenture, except such as have been obtained
under the Act and the Trust Indenture Act and such consents,
approvals, authorizations, registrations or qualifications as may be
required under state securities or Blue Sky laws in connection with
the purchase and distribution of the DECS by the Underwriters; and
(ix) the issue and sale of the DECS and the compliance by
USX with all of the provisions of the DECS, the Indenture and this
Agreement with respect to the DECS and the consummation of the
transactions herein and therein contemplated 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
to which USX is a party or by which USX is bound or to which any of
the property or assets of USX is subject, nor will such actions result
in any violation of the provisions of the certificate of incorporation
or by-laws of USX or any statute or any order, rule or regulation
known to such counsel of any court or governmental agency or body
having jurisdiction over USX or any of its properties.
In addition, such counsel shall state that he is _____________
of USX, has participated (or people subject to his supervision have
participated) on behalf of USX in connection with the preparation of the USX
Registration Statement and has participated (or people subject to his
supervision have participated) in conferences with officers and other
representatives of USX, representatives of the independent public accountants
for USX and representatives of the Underwriters and counsel for the
Underwriters, at which conferences the contents of the USX Registration
Statement and the Final USX Prospectus and related matters were discussed; such
counsel may further state that such counsel does not assume any responsibility
for the accuracy, completeness or fairness of the statements contained in the
USX Registration Statement or the Final USX Prospectus and that such counsel
makes no representation that he has independently verified the accuracy,
completeness or fairness of such statements; however, in the course of the
preparation and review of the USX Registration Statement and the Final USX
Prospectus and participation in the aforementioned conferences, such counsel
has been given no reason to believe that, as of the USX Effective Date, the USX
Registration Statement or any further amendment thereto made by USX prior to
the Closing Date (other than that part of the USX Registration Statement that
constitutes Form T-1 and the financial statements and other financial
information therein or incorporated by reference therein, as to which such
counsel need express no belief) contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or that such Final USX
Prospectus (other than the financial statements and other financial information
therein or incorporated by reference therein, as to which such counsel need
express no
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belief), contains an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; furthermore, such counsel shall state that he has no reason to
believe that any of the documents incorporated by reference in the Final USX
Prospectus (other than the financial statements and other financial information
therein or incorporated by reference therein, as to which such counsel need
express no belief) when they became effective or were so filed, as the case may
be, in the case of a registration statement which became effective under the
Act, contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or, in the case of other documents which were filed
under the Act or the Exchange Act with the Commission, as of their date,
contained an untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; and such counsel does
not know of any amendment to the USX Registration Statement required to be
filed or any contracts or other documents of a character required to be filed
as an exhibit to the USX Registration Statement or required to be incorporated
by reference into the Prospectus as amended or supplemented or required to be
described in the USX Registration Statement or the Final USX Prospectus as
amended or supplemented which are not filed or incorporated by reference or
described as required.
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws of any jurisdiction other than the
laws of the Commonwealth of Pennsylvania and the General Corporation Law of the
State of Delaware or the United States, to the extent such opinion relates to
the law of the State of New York (which law the Indenture, this Agreement and
the DECS state to be the governing law thereof), assume that the laws of the
Commonwealth of Pennsylvania are the same as those of the State of New York
and (B) as to matters of fact, to the extent deemed proper, on certificates of
responsible officers of USX and public officials. References to the Final USX
Prospectus in this paragraph (b) include any supplements thereto at the Closing
Date.
(c) USX shall have furnished to the Representatives the
opinion of Miller & Chevalier, Chartered, special tax counsel for USX, dated
the Closing Date, to the effect that such counsel has reviewed the statements
in the Final USX Prospectus under the caption "Certain United States Federal
Income Tax Considerations" and, insofar as they are, or refer to, statements of
United States law or legal conclusions, such statements are accurate in all
material respects.
(d) RMI shall have furnished to the Representatives the
opinion of Jones, Day, Reavis & Pogue, counsel for RMI, dated the Closing Date,
to the effect that:
(i) RMI has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Ohio,
with corporate power and authority to own or lease its properties and
to conduct its business as described in the RMI Prospectus. RMI is
qualified or registered to do business as a foreign corporation and is
in good standing in the States of Missouri, Pennsylvania and Texas;
(ii) the authorized capital stock of RMI is as set forth in
the first sentence of the second paragraph under the caption
"Description of Capital Stock" in the RMI Prospectus. The description
set forth under such caption constitutes a fair and accurate summary
of such capital stock. All of the shares of Common Stock of RMI
issued and outstanding on the date hereof (including the Shares) have
been duly authorized and validly issued, and are fully paid and
nonassessable;
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(iii) such counsel has been advised by the Commission that
the RMI Registration Statement has become effective under the Act and,
to such counsel's knowledge, no stop order suspending the
effectiveness of the RMI Registration Statement under the Act has been
issued and no proceedings for that purpose are pending or threatened
by the Commission. The RMI Prospectus has been filed with the
Commission in the manner and within the time period required by Rule
424(b);
(iv) this Agreement has been duly authorized, executed and
delivered by RMI;
(v) the performance by RMI of its obligations under this
Agreement will not (a) result in the violation by RMI of any statute,
rule or regulation, in each case known to such counsel, (b) result in
a default under or breach by RMI of any Material Contract (as defined
below), (c) conflict with or result in a default by RMI under RMI's
Amended and Restated Articles of Incorporation or RMI's Code of
Regulations, as amended, or (d) result in the violation by RMI of any
judgment, order or decree known to such counsel to have been issued by
any court or governmental body which is binding upon RMI or its
properties. (Such counsel may state that it expresses no opinion in
this paragraph with respect to (i) any state securities or "Blue Sky"
laws, or (ii) the By-Laws or rules of the NASD);
(vi) no consent, approval, authorization or order of, or
qualification with any governmental agency or body is required for the
execution by RMI of this Agreement or the performance by RMI of the
transactions contemplated hereby, except (i) such as have been
obtained under the Act and (ii) such as may be required under state
securities or "Blue Sky" laws;
(vii) to such counsel's knowledge, there are no persons other
than USX with registration or other similar rights to have any
securities of RMI registered pursuant to the RMI Registration
Statement or otherwise registered by RMI under the Act; and
In addition, such counsel shall state that, in the course of
the preparation by RMI of the RMI Registration Statement and the RMI Prospectus
(documents filed under the Exchange Act and incorporated by reference in the
Registration Statement (other than RMI's Form 10-Q for the quarter ended
September 30, 1996) having been prepared and filed by RMI without its
participation), it participated in discussions with officers and other
employees of RMI and USX, representatives of Price Waterhouse LLP (the
"Accountants"), the independent accountants who examined certain of the
financial statements of RMI and its consolidated entities included in the RMI
Registration Statement and the RMI Prospectus, the Representatives and counsel
for the Underwriters concerning the information contained in the RMI
Registration Statement and the RMI Prospectus and the proposed responses to
various items in Form S-3 under the Act. Based upon its examination of the RMI
Registration Statement and the RMI Prospectus, its investigations made in
connection with the preparation of the RMI Registration Statement and its
participation in the discussions referred to above, such counsel shall state
that it is of the opinion that (i) the RMI Registration Statement (other than
the financial statements and other financial or statistical data included
therein, and except for the information referred to under the caption "Experts"
as having been included in the RMI Registration Statement and the RMI
Prospectus on the authority of the Accountants as experts, as to which it does
not express an opinion), at the time the RMI Registration Statement became
effective under the Act complied, and the RMI Prospectus (with the foregoing
exceptions), as of its date complied and as of the date hereof complies, as to
form in all material respects with the requirements of the Act and the rules
and regulations thereunder; and (ii) the documents filed under the Exchange Act
and incorporated
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by reference in the Registration Statement (with the foregoing exceptions), as
of the time the Registration Statement became effective under the Act, complied
as to form in all material respects with the requirements of the Exchange Act
and the rules and regulations thereunder. In addition, based on such
investigations and discussions, such counsel does not know of any pending
litigation or governmental proceeding required to be described in the RMI
Prospectus that is not described as required.
In addition, such counsel shall state that such counsel has
not independently verified and is not passing upon, and does not assume any
responsibility for the accuracy, completeness or fairness of the information
contained in the RMI Registration Statement, the RMI Prospectus or the Exchange
Act Documents. Such counsel shall further state that, based on the
examinations, investigations and participation in the discussions described
above, however, no facts have to come to such counsel's attention that cause
such counsel to believe that the RMI Registration Statement (including the
Exchange Act Documents but excluding, in each case, the financial statements
and other financial or statistical data included therein, and except for the
information referred to under the caption "Experts" as having been included in
the RMI Registration Statement and the RMI Prospectus on the authority of Price
Waterhouse LLP as experts, as to which such counsel need not express a view),
at the time it became effective contained any untrue statement of material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein not misleading, or that the RMI
Prospectus (including the Exchange Act Documents but in each case with the
foregoing exceptions) as of its date or on the date of the opinion contained or
contains any untrue statement of a material fact or omitted or omits to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
In addition, such counsel shall state that, in rendering the
opinions expressed therein, (i) such counsel has not considered the laws of any
jurisdiction other than the Federal laws of the United States and the laws of
the State of Ohio; (ii) such counsel has assumed that the Underwriters,
including the Representatives, will not take any action (including a decision
not to act) pursuant to Section 7(a) or 7(b) of this Agreement in a manner that
would result in a violation by RMI of applicable Federal securities laws; and
(iii) such counsel has assumed that certain agreements, waivers, consents and
other instruments relevant to such counsel's opinion have been duly authorized,
executed and delivered by, and are the valid and binding obligations of, each
party (other than RMI) thereto. For purposes of such opinions, (i) the term
"Material Contracts" refers to the contracts and agreements filed as exhibits
to documents of RMI filed under the Exchange Act and incorporated by reference
in the RMI Registration Statement; and (ii) references to such counsel's
knowledge or to the state of such counsel's knowledge means the actual
knowledge of those individuals at Jones, Day, Reavis & Pogue who have worked on
matters on behalf of RMI during the last two years and does not include the
knowledge of any other person at Jones, Day, Reavis & Pogue. In rendering such
opinion, such counsel may rely as to matters of fact, to the extent such
counsel deems proper, on certificates of responsible officers of RMI and public
officials. References to the RMI Prospectus in the preceding paragraph include
any supplements thereto at the Closing Date.
(e) The Representatives shall have received from Simpson
Thacher & Bartlett counsel for the Underwriters, such opinion or opinions,
dated the Closing Date, with respect to the issuance and sale of the DECS, the
Indenture, the USX Registration Statement, the Final USX Prospectus (together
with any supplement thereto), the Shares, the RMI Registration Statement, the
RMI Prospectus (together with any supplement thereto) and other related matters
as the Representatives may reasonably require, and USX and RMI shall have
furnished to such counsel such documents as they request for the purpose of
enabling them to pass upon such matters.
(f) USX shall have furnished to the Representatives a
certificate of USX, signed by the Chairman of the Board, the Vice Chairman and
Chief Financial Officer or any Vice President and the principal financial or
accounting officer of USX (who is not one of the foregoing signatories), dated
the Closing Date, to the effect that the signers of such certificate have
carefully examined the USX Registration Statement, the Final USX Prospectus,
any supplement to the Final USX Prospectus and this Agreement and that:
(i) the representations and warranties of USX in this
Agreement are true and correct in all material respects on and as of
the Closing Date with the same effect as if made on the Closing Date
and USX has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to the
Closing Date;
(ii) no stop order suspending the effectiveness of the USX
Registration Statement or the use of the Final USX Prospectus has been
issued and no proceedings for that purpose have been instituted or, to
USX's knowledge, threatened; and
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(iii) since the date of the most recent financial statements
included in, or incorporated by reference in, the Final USX Prospectus
(exclusive of any supplement thereto), there has been no material
adverse change, nor any development likely to result in a prospective
material adverse change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of
operations or prospects of USX and its subsidiaries, otherwise than as
set forth in the Final USX Prospectus (exclusive of any supplement
thereto).
(g) RMI shall have furnished to the Representatives a
certificate of RMI, signed by the Chairman of the Board, the President or an
Executive Vice President and the principal financial or accounting officer of
RMI (who is not one of the foregoing signatories), dated the Closing Date, to
the effect that the signers of such certificate have carefully examined the RMI
Registration Statement, the RMI Prospectus, any supplements to the RMI
Prospectus and this Agreement and that:
(i) the representations and warranties of RMI in this
Agreement are true and correct in all material respects on and as of
the Closing Date with the same effect as if made on the Closing Date
and RMI has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to the
Closing Date;
(ii) no stop order suspending the effectiveness of the RMI
Registration Statement or the use of the RMI Prospectus has been
issued and no proceedings for that purpose have been instituted or, to
RMI's knowledge, threatened; and
(iii) since the date of the most recent financial statements
included in, or incorporated by reference in, the RMI Prospectus
(exclusive of any supplement thereto), there has been no material
adverse change, nor any development likely to result in a prospective
material adverse change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of
operations or prospects of RMI and its subsidiaries, otherwise than as
set forth in the RMI Prospectus (exclusive of any supplement thereto).
(h) At the Execution Time and at the Closing Date, Price
Waterhouse L.L.P., shall have furnished to the Representatives a letter or
letters (which may refer to letters previously delivered to one or more of the
Representatives), dated as of the Closing Date, in form and substance
satisfactory to the Representatives, including statements and information of
the type ordinarily included in accountants "comfort letters" to underwriters
with respect to the financial statements, financial statement schedules, and
certain other financial information relating to USX contained in or
incorporated by reference into the USX Registration Statement or Final USX
Prospectus.
(i) At the Execution Time and at the Closing Date, Price
Waterhouse LLP, shall have furnished to the Representatives a letter or letters
(which may refer to letters previously delivered to one or more of the
Representatives), dated as of the Execution Time and as of the Closing Date, in
form and substance satisfactory to the Representatives, including statements
and information of the type ordinarily included in accountants "comfort
letters" to underwriters with respect to the financial statements, financial
statement schedules, and certain other financial information relating to RMI
contained in or incorporated by reference into the RMI Registration Statement
or RMI Prospectus.
(j) Subsequent to the Execution Time or, if earlier, the
dates as of which information is given in each of the USX Registration
Statement and the RMI Registration Statement (exclusive of any amendment
thereof) and each of the Final USX Prospectus and the RMI Prospectus (exclusive
of any supplement thereto), there shall not have been (i) any change or
decrease specified in the letter or
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letters referred to in paragraphs (h) and (i) of this Section 8 or (ii) any
change, or any development involving a prospective change, in or affecting the
business or properties of either USX or RMI and their respective subsidiaries,
taken as a whole, the effect of which, in any case referred to in clause (i) or
(ii) above, is, in the judgment of the Representatives, so material and adverse
as to make it impractical or inadvisable to proceed with the offering or
delivery of the DECS as contemplated by the USX Registration Statement and the
RMI Registration Statement (in either case, exclusive of any amendment thereof)
and the Final USX Prospectus and the RMI Prospectus (in either case, exclusive
of any supplement thereto).
(k) Subsequent to the Execution Time, there shall not have
been any decrease in the rating of any of USX's debt securities by any
"nationally recognized statistical rating organization" (as defined for
purposes of Rule 436(g) under the Act) or any notice given of any intended or
potential decrease in any such rating or of a possible change in any such
rating that does not indicate the direction of the possible change.
(l) At the Execution Time, RMI shall have furnished to the
Representatives a letter substantially in the form of Exhibit A hereto from
each director and executive officer of RMI addressed to the Representatives, in
which each such person agrees not to (i) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, or announce the offering of, any shares of
RMI Common Stock or any securities convertible into or exercisable or
exchangeable for shares of RMI Common Stock or (ii) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the
economic consequences of the ownership of shares of RMI Common Stock, whether
any such transaction described in clause (i) or (ii) above is to be settled by
delivery of shares of RMI Common Stock or such other securities, in cash or
otherwise, for a period of 90 days from the Execution Time without the prior
written consent of the Representatives; provided, however, that any such
director or executive officer, together with each of the other directors and
executive officers of RMI, may sell up to 100,000 shares of RMI Common Stock in
the aggregate.
(m) Prior to the Closing Date, each of USX and RMI shall have
furnished to the Representatives such further information, certificates and
documents as the Representatives may reasonably request.
If any of the conditions specified in this Section 8 shall not
have been fulfilled in all material respects when and as provided in this
Agreement, or if any of the opinions and certificates mentioned above or
elsewhere in this Agreement shall not be in all material respects reasonably
satisfactory in form and substance to the Representatives and counsel for the
Underwriters, this Agreement and all obligations of the Underwriters hereunder
may be canceled at, or at any time prior to, the Closing Date by the
Representatives. Notice of such cancellation shall be given to USX and RMI in
writing or by telephone or telegraph confirmed in writing.
9. Reimbursement of Underwriters' Expenses. If the sale of
the DECS provided for herein is not consummated because any condition to the
obligations of the Underwriters set forth in Section 8 hereof is not satisfied,
because of any termination pursuant to Section 12(i) hereof or because of any
refusal, inability or failure on the part of USX or RMI to perform any
agreement herein or comply with any provision hereof other than by reason of a
default by any Underwriter, USX will reimburse the Underwriters severally upon
demand for all reasonable out-of-pocket expenses (including reasonable fees and
disbursements of counsel) that shall have been incurred by them in
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connection with the proposed purchase and sale of the DECS. If USX is required
to make any payment to the Underwriters under this Section 9 because of RMI's
refusal, inability or failure to satisfy any condition to the obligations of
the Underwriters set forth in Section 8, RMI shall reimburse USX on demand for
all amounts so paid.
10. Indemnification and Contribution. (a) USX agrees to
indemnify and hold harmless each Underwriter, the directors, officers,
employees and agents of each Underwriter, and each person who controls any
Underwriter within the meaning of either the Act or the Exchange Act against
any and all losses, claims, damages or liabilities, joint or several, to which
they or any of them may become subject under the Act, the Exchange Act or other
Federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the USX Registration Statement as
originally filed or in any amendment thereof, or in the Basic USX Prospectus,
any Preliminary Final USX Prospectus or the Final USX Prospectus, or in any
amendment thereof or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
agrees to reimburse each such indemnified party, as incurred, for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that USX will not be liable under the indemnity agreement in this paragraph (a)
to the extent that any such loss, claim, damage or liability arises out of or
is based upon any such untrue statement or alleged untrue statement or omission
or alleged omission made in the USX Registration Statement as originally filed
or in any amendment thereof, or in any Preliminary Final USX Prospectus or the
Final USX Prospectus, or in any amendment thereof or supplement thereto in
reliance upon and in conformity with written information furnished to USX by or
on behalf of any Underwriter through the Representatives specifically for
inclusion therein; provided, further, that USX will not be liable under the
indemnity agreement in this paragraph (a) to the extent that any such loss,
claim, damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made in
the USX Registration Statement as originally filed or in any amendment thereof,
or in the Basic USX Prospectus, any Preliminary Final USX Prospectus or the
Final USX Prospectus, or in any amendment thereof or supplement thereto in
reliance upon and in conformity with written information furnished to USX by
RMI specifically for inclusion therein, including the information contained in
any Preliminary RMI Prospectus or RMI Prospectus included in any such document
(other than information contained in or omitted from any such Preliminary RMI
Prospectus or RMI Prospectus in reliance on and in conformity with information
furnished to RMI by USX specifically for inclusion therein). This indemnity
agreement will be in addition to any liability which USX may otherwise have.
(b) RMI and USX jointly and severally agree to indemnify and
hold harmless each Underwriter, the directors, officers, employees and agents
of each Underwriter, and each person who controls any Underwriter within the
meaning of either the Act or the Exchange Act against any and all losses,
claims, damages or liabilities, joint or several, to which they or any of them
may become subject under the Act, the Exchange Act or other Federal or state
statutory law or regulation, at common law or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in (i) the RMI Registration Statement as originally
filed or in any amendment thereof, or in any Preliminary RMI Prospectus or the
RMI Prospectus, or in any amendment thereof or supplement thereto, or (ii) the
USX Registration Statement as originally filed or in any amendment thereof, or
in any Preliminary Final USX Prospectus or the Final USX Prospectus, or in any
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amendment thereto or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state in the documents referred to in clause
(i) or (ii) above a material fact required to be stated in the documents
referred to in clause (i) or (ii) above or necessary to make the statements
therein not misleading, but in the case of the documents referred to clause
(ii) 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 written information furnished in writing to USX by RMI specifically for
inclusion therein (other than information contained in or omitted from any such
Preliminary RMI Prospectus or RMI Prospectus in reliance on and in conformity
with information furnished to RMI by USX specifically for inclusion therein,
and agrees to reimburse each such indemnified party, as incurred, for any legal
or other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability or action; provided,
however, that neither RMI nor USX will be liable under the indemnity agreement
in this paragraph (b) to the extent that any such loss, claim, damage or
liability arises out of or is based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made in the documents referred
to in clause (i) above in reliance upon and in conformity with written
information furnished to RMI by or on behalf of any Underwriter through the
Representatives specifically for inclusion therein; provided, further , that as
to any Preliminary RMI Prospectus, neither RMI nor USX will be liable under
this indemnity agreement in this paragraph (b) to that extent that any such
loss, claim, damage or liability arises out of the failure to send or give a
copy of the RMI Prospectus, as the same may be amended or supplemented, to a
person within the time required by the 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 RMI Prospectus was corrected in the RMI
Prospectus, unless such failure resulted from non-compliance by RMI with
Section 7(d); provided, further that RMI shall not be liable under the
indemnity agreement in this paragraph (b) to the extent that any such loss,
claim, damage or liability arises out of or is based on any such untrue
statement or alleged untrue statement or omission or alleged omission made in
the documents referred to in clause (i) above in reliance upon and in
conformity with written information furnished to RMI by USX specifically, for
inclusion therein. This indemnity agreement will be in addition to any
liability which RMI or USX may otherwise have.
(c) USX agrees to indemnify and hold harmless RMI, the
directors, officers, employees and agents of RMI, and each person who controls
RMI within the meaning of either the Act or the Exchange Act, against any and
all losses, claims, damages or liabilities, joint or several, to which they or
any of them may become subject under the Act, the Exchange Act or other Federal
or state statutory law or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in the USX Registration Statement as originally
filed or in any amendment thereof, or in the Basic USX Prospectus, any
Preliminary Final USX Prospectus or the Final USX Prospectus, or in any
amendment thereof or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
agrees to reimburse each such indemnified party, as incurred, for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that USX will not be liable under the indemnity agreement in this paragraph (c)
to the extent that any such loss, claim, damage or liability arises out of or
is based upon any such untrue statement or alleged untrue statement or omission
or alleged omission made in the USX Registration Statement as originally filed
or in any amendment thereof, or in any Preliminary Final USX Prospectus or the
Final USX Prospectus, or in any amendment thereof or supplement thereto in
reliance upon and in conformity with written information furnished by or on
behalf of RMI specifically for inclusion therein.
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(d) RMI agrees to indemnify and hold harmless USX, the
directors, officers, employees and agents of USX and each person who controls
USX, within the meaning of either the Act or the Exchange Act against any and
all losses, claims, damages or liabilities, joint or several, to which they or
any of them may become subject under the Act, the Exchange Act or other Federal
or state statutory law or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Final USX Prospectus or the
Final USX Prospectus, or in any amendment thereof or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, but 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 written information furnished in
writing to USX by RMI specifically for inclusion therein, and agrees to
reimburse each such indemnified party, as incurred, for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action.
(e) Each Underwriter severally agrees to indemnify and hold
harmless USX, each of its directors, each of its officers who signs the USX
Registration Statement, and each person who controls USX within the meaning of
either the Act or the Exchange Act, to the same extent as the foregoing
indemnity in paragraph (a) from USX to each Underwriter, but only with
reference to written information furnished to USX by or on behalf of such
Underwriter through the Representatives specifically for inclusion in the
documents referred to in such indemnity. This indemnity agreement will be in
addition to any liability which any Underwriter may otherwise have. USX
acknowledges that the statements set forth in the sixth and last paragraphs of
the cover page, in the paragraph on the inside cover page, and under the
heading "Plan of Distribution" in any Preliminary Final USX Prospectus or the
Final USX Prospectus constitute the only information furnished in writing by or
on behalf of any Underwriter for inclusion in the documents referred to in the
foregoing indemnity, and you, as the Representatives, confirm that such
statements are correct.
(f) Each Underwriter severally agrees to indemnify and hold
harmless RMI and USX, each of their respective directors, each of their
respective officers who signs the RMI Registration Statement or the USX
Registration Statement, respectively, and each person who controls RMI or USX
within the meaning of either the Act or the Exchange Act, to the same extent as
the foregoing indemnity in paragraph (b) from RMI and USX to each Underwriter,
but only with reference to written information relating to such Underwriter
furnished to RMI by or on behalf of any Underwriter through the Representatives
specifically for inclusion in the documents referred to in such indemnity.
This indemnity agreement will be in addition to any liability which any
Underwriter may otherwise have. RMI and USX acknowledge that the statements
set forth in the fourth paragraph of the cover page, in the paragraph on the
inside cover page, and under the heading "Plan of Distribution" in any
Preliminary RMI Prospectus or the RMI Prospectus constitute the only
information furnished in writing by or on behalf of any Underwriter for
inclusion in the documents referred to in the foregoing indemnity, and you, as
the Representatives, confirm that such statements are correct.
(g) Promptly after receipt by an indemnified party under this
Section 10 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying
party under this Section 10, notify the indemnifying party in writing of the
commencement thereof, but the failure so to notify the indemnifying party (i)
will not relieve it from any liability under paragraphs (a), (b), (c), (d), (e)
or (f) above unless and to the extent it did not otherwise learn of such action
and such failure results in the forfeiture by the indemnifying party of
25
<PAGE> 26
substantial rights and defenses and (ii) will not, in any event, relieve the
indemnifying party from any obligations to any indemnified party other than the
indemnification obligation provided in paragraphs (a), (b), (c), (d), (e) or
(f) above. The indemnifying party shall be entitled to appoint counsel of
indemnifying party's choice at the indemnifying party's expense to represent
the indemnified party in any action for which indemnification is sought (in
which case the indemnifying party shall not thereafter be responsible for the
fees and expenses of any separate counsel retained by the indemnified party or
parties except as set forth below); provided, however, that such counsel shall
be reasonably satisfactory to the indemnified party. Notwithstanding the
indemnifying party's election to appoint counsel to represent the indemnified
party in an action, the indemnified party shall have the right to employ
separate counsel (including local counsel), and the indemnifying party shall
bear the reasonable fees, costs and expenses of such separate counsel if (i)
the use of counsel chosen by the indemnifying party to represent the
indemnified party would present such counsel with a conflict of interest, (ii)
the actual or potential defendants in, or targets of, any such action include
both the indemnified party and the indemnifying party and the indemnified party
shall have reasonably concluded upon the advice of its counsel that there are
legal defenses available to it and/or other indemnified parties which are
different from those available to the indemnifying party, (iii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of the institution of such action or (iv) the indemnifying party
shall authorize the indemnified party to employ separate counsel at the expense
of the indemnifying party; provided, however, in no event shall the
indemnifying party be liable for legal fees or expenses of more than one
primary firm representing the indemnified parties or more than one local
counsel in each state or other jurisdiction in which an action in which
indemnification is available has been brought. An indemnifying party will not,
without the prior written consent of the indemnified parties, 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 (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.
(h) In the event that the indemnity provided in paragraphs
(a), (b), (c), (d), (e) or (f) of this Section 10 is unavailable to or
insufficient to hold harmless an indemnified party for any reason, each
indemnifying party agrees to contribute to the aggregate losses, claims,
damages and liabilities (including legal or other expenses reasonably incurred
in connection with investigating or defending same) (collectively "Losses") to
which an indemnified party may be subject in such proportion as is appropriate
to reflect the relative benefits received by USX and RMI on the one hand and by
the Underwriters on the other from the offering of the DECS; provided, however,
that in no case shall any Underwriter (except as may be provided in any
agreement among underwriters relating to the offering of the DECS) be
responsible for any amount in excess of the underwriting discount applicable to
the DECS purchased by such Underwriter hereunder. If the allocation provided
by the immediately preceding sentence is unavailable for any reason, each
indemnifying party shall contribute in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of USX and
RMI on the one hand and of the Underwriters on the other in connection with the
statements or omissions which resulted in such Losses as well as any other
relevant equitable considerations; provided, however, that if the
indemnification relates to USX and RMI as the respective indemnifying and
indemnified parties (or vice versa), such indemnifying parties shall contribute
in such proportion as shall be appropriate to reflect the relative faults of
USX or RMI as applicable, with respect to the statements or omissions which
resulted in such Losses, as well as any other relevant equitable
considerations. The relative benefits received by USX or RMI on the one
26
<PAGE> 27
hand and the Underwriters on the other with respect to such offering shall be
deemed to be equal to the total net proceeds from the offering (before
deducting expenses) received by USX, and the total underwriting discounts and
commissions, respectively, in each case as set forth on the cover page of the
Final USX Prospectus and, as between RMI and the Underwriters, RMI shall be
deemed for this purpose to have received such total net proceeds as received by
USX. Relative fault shall be determined by reference to whether any alleged
untrue statement or omission relates to information provided by USX, RMI or the
Underwriters. USX, RMI and the Underwriters agree that it would not be just
and equitable if contribution were determined by pro rata allocation or any
other method of allocation which does not take account of the equitable
considerations referred to above. Notwithstanding the provisions of this
paragraph (h), no person guilty of fraudulent misrepresentation (within the
meaning of Section 11 (f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. For
purposes of this Section 10, each person who controls an Underwriter within the
meaning of either the Act or the Exchange Act and each director, officer,
employee and agent of such Underwriter shall have the same rights to
contribution as such Underwriter, and each person who controls USX or RMI
within the meaning of either the Act or the Exchange Act, each officer of USX
or RMI who shall have signed the USX Registration Statement or the RMI
Registration Statement and each director of USX or RMI shall have the same
rights to contribution as USX or RMI, subject in each case to the applicable
terms and conditions of this paragraph (h).
11. Default by an Underwriter. If any one or more
Underwriters shall fail to purchase and pay for any of the DECS agreed to be
purchased by such Underwriter or Underwriters hereunder and such failure to
purchase shall constitute a default in the performance of its or their
obligations under this Agreement, the remaining Underwriters shall be obligated
severally to take up and pay for (in the respective proportions which the
principal amount of DECS set forth opposite their names in Schedule I hereto
bears to the aggregate principal amount of DECS set forth opposite the names of
all the remaining Underwriters) the DECS which the defaulting Underwriter or
Underwriters agreed but failed to purchase; provided, however, that in the
event that the aggregate principal amount of DECS which the defaulting
Underwriter or Underwriters agreed but failed to purchase shall exceed 10% of
the aggregate amount of DECS set forth in Schedule I hereto, the remaining
Underwriters shall have the right to purchase all, but shall not be under any
obligation to purchase any, of the DECS, and if such nondefaulting Underwriters
do not purchase all the DECS, this Agreement will terminate without liability
to any nondefaulting Underwriter, USX or RMI. In the event of a default by any
Underwriter as set forth in this Section 11, the Closing Date shall be
postponed for such period, not exceeding seven days, as the Representatives
shall determine in order that the required changes in the USX or RMI
Registration Statement and the Final USX or RMI Prospectus or in any other
documents or arrangements may be effected. Nothing contained in this Agreement
shall relieve any defaulting Underwriter of its liability, if any, to USX, RMI
and any nondefaulting Underwriter for damages occasioned by its default
hereunder.
12. Termination. This Agreement shall be subject to
termination in the absolute discretion of the Representatives, by notice given
to USX and RMI prior to delivery of and payment for the DECS, if prior to such
time (i) trading in USX's or RMI's common stock shall have been suspended by
the Commission or the NYSE, (ii) trading in securities generally on the NYSE
shall have been suspended or limited or minimum prices shall have been
established on such Exchange, (iii) a banking moratorium shall have been
declared by either Federal or New York State authorities, (iv) there shall have
been any decrease in the rating of any of USX's debt securities by any
"nationally recognized statistical rating organization" (as defined for
purposes of Rule 436(g) under the Act) or any notice given of any intended or
potential decrease in any such rating or of a possible change in
27
<PAGE> 28
any such rating that does not indicate the direction of the possible change or
(v) there shall have occurred any outbreak or escalation of hostilities,
declaration by the United States of a national emergency or war or other
calamity or crisis, the effect of which on financial markets of the United
States is such as to make, it, in the judgment of the Representatives,
impracticable or inadvisable to proceed with the offering or delivery of the
DECS as contemplated by the Final USX Prospectus (exclusive of any supplement
thereto).
13. Representations and Indemnities to Survive. The
respective agreements, representations, warranties, indemnities and other
statements of USX and RMI or their respective officers and of the Underwriters
set forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of the
Underwriters, USX or RMI or any of the officers, directors or controlling
persons referred to in Section 10 hereof, and will survive delivery of and
payment for the DECS. The provisions of Sections 9 and 10 hereof shall survive
the termination or cancellation of this Agreement.
14. Notices. All communications hereunder will be in writing
and effective only on receipt and, if sent to the Representatives, will be
mailed, delivered or telegraphed and confirmed to it at Seven World Trade
Center, New York, New York 10048; if sent to USX, will be mailed, delivered or
telegraphed and confirmed to it at 600 Grant Street, Pittsburgh, Pennsylvania
15219- 4776, Attention Paul C. Reinbolt; or if sent to RMI, will be mailed,
delivered or telegraphed and confirmed to it at 1000 Warren Avenue, Niles, OH
44446, Attention: Timothy G. Rupert.
15. Successors. This Agreement will inure to the benefit of
and be binding upon the parties hereto and their respective successors and the
officers and directors and controlling persons referred to in Section 10
hereof, and no other person will have any right or obligation hereunder.
28
<PAGE> 29
16. Applicable Law. THIS AGREEMENT WILL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicate hereof,
whereupon this letter and your acceptance shall represent a binding agreement
among USX, RMI and the several Underwriters.
Very truly yours,
USX Corporation
By:__________________________
Name:
Title:
RMI Titanium Company
By:__________________________
Name:
Title:
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
Salomon Brothers Inc
Lehman Brothers Inc.
By: Salomon Brothers Inc
By:__________________________
Name:
Title:
For itself and the other several
Underwriters named in Schedule I to
the foregoing Agreement.
29
<PAGE> 30
SCHEDULE I
<TABLE>
<CAPTION>
Number of Underwritten
Underwriter DECS to be Purchased
- ----------- ----------------------
<S> <C>
Salomon Brothers Inc..............................
Lehman Brothers Inc...............................
---------
Total ........................... 5,000,000
=========
</TABLE>
30
<PAGE> 31
EXHIBIT A
[Letterhead of executive officer or director
of RMI Titanium Company]
RMI Titanium Company
Public Offering of DECS
__________, 1996
Salomon Brothers Inc
Lehman Brothers Inc.
As Representatives of the several Underwriters
c/o Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Ladies and Gentlemen:
This letter is being delivered to you in connection with the
proposed Underwriting Agreement (the "Underwriting Agreement"), among RMI
Titanium Company, an Ohio corporation (the "Company"), USX Corporation, a
Delaware corporation ("USX"), and the several underwriters named therein (the
"Underwriters") for whom you are acting as representatives, relating to an
underwritten public offering of DECS (Debt Exchangeable for Common Stock) of
USX, exchangeable for common stock, $.01 par value, of the Company (the "RMI
Common Stock") .
In order to induce you and the other Underwriters to enter
into the Underwriting Agreement, the undersigned agrees not to (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of, directly or indirectly, or
announce the offering of, any shares of RMI Common Stock or any securities
convertible into or exercisable or exchangeable for shares of RMI Common Stock
or (ii) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of the ownership of shares
of RMI Common Stock, whether any such transaction described in clause (i) or
(ii) above is to be settled by delivery of shares of RMI Common Stock or such
other securities, in cash or otherwise, for a period of 90 days from the date
of this Agreement without the prior written consent of the Representatives;
provided, however, that the undersigned, together with each of the other
directors and executive officers of the Company on the date hereof, may sell up
to 100,000 shares of RMI Common Stock in the aggregate.
31
<PAGE> 32
If for any reason the Underwriting Agreement shall be
terminated prior to the Closing Date (as defined in the Underwriting
Agreement), the agreement set forth above shall likewise be terminated.
Yours very truly,
________________________________
[Signature of executive officer]
[Name and address of executive officer]
32
<PAGE> 1
JONES, DAY, REAVIS & POGUE
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Telephone: 216-586-3939
Facsimile: 216-579-0212
Exhibit 5
November 25, 1996
RMI Titanium Company
1000 Warren Avenue
Niles, Ohio 44446-0269
Re: 5,483,600 Shares of Common Stock, par value
$.01 per share, of RMI Titanium Company
Held by USX Corporation
--------------------------------------------
Ladies and Gentlemen:
We have acted as special counsel for RMI Titanium Company, an Ohio
corporation (the "Company"), in connection with the Registration Statement on
Form S-3 of the Company (Registration Statement No. 333-16101) filed by the
Company with the Securities and Exchange Commission (the "Registration
Statement") relating to 5,483,600 shares of common stock, par value $.01 per
share, of the Company ("Common Stock"), which Common Stock may be delivered by
USX Corporation ("USX"), at its option, pursuant to the terms of certain
exchangeable notes of USX.
In rendering this opinion, we have assumed that the signatures on all
documents examined by us are genuine and that the person who affixed such
signature to such documents had authority to do so. We have examined such
documents, records and matters of law as we have deemed necessary for purposes
of this opinion and, based thereupon, we are of the opinion that the 5,483,600
shares of Common Stock owned by USX on the date hereof are duly authorized,
validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the Prospectus constituting a part of the Registration Statement.
Very truly yours,
JONES, DAY, REAVIS & POGUE
<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
November 26, 1996
<PAGE> 1
Exhibit 99
TAX INDEMNIFICATION AGREEMENT
Dated as of _______, 1996
between
RMI TITANIUM COMPANY (the "Company")
and
USX CORPORATION (the "Issuer")
WHEREAS, the Issuer desires to issue and sell certain ____%
Exchangeable Notes due ______, 1999 (the "DECS"), exchangeable at maturity, for
shares of common stock, par value $.01 per share (the "Common Stock") of the
Company or, at the option of the Issuer, for cash;
WHEREAS, pursuant to a Registration Rights Agreement, dated as of
August 21, 1996, the Issuer agreed not to sell, transfer, or otherwise dispose
of any Common Stock prior to July 26, 1997, without the prior written consent
of the Company, which consent will not be withheld if the Company determines,
in its reasonable discretion, that the proposed sale, transfer or other
disposition would not be inconsistent with the Company's proposed utilization
of its net operating losses for federal income tax purposes; and
WHEREAS, the Company is willing to consent to such issuance and sale
provided that the Issuer agree to indemnify it and make it whole for taxes and
other costs it may incur, in accordance with this Agreement;
NOW THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained in this Agreement, the Issuer and the
Company agree as follows:
- 1 -
<PAGE> 2
SECTION 1. DEFINITIONS.
(a) CODE shall mean the Internal Revenue Code of 1986, as amended
through the date hereof or at any time in connection with which it may be
referred to herein, and any references to any section of the Code includes
predecessors and successors of such Code section, as appropriate.
(b) DETERMINATION shall mean the occurrence of any of the following
resolutions of any Tax matter:
(i) a decision by the Tax Court or a judgment, decree, or other
order by any court of competent jurisdiction, which has become final and
nonappealable;
(ii) an assessment by the IRS or other taxing authority pursuant
to Code section 6201 or similar State or local law;
(iii) a closing agreement made under Code section 7121 or similar
provision of state or local law, pursuant to an agreement by the Issuer if the
Issuer has elected to control the Proceedings (as defined in section 4(b)(i),
below) giving rise to such closing agreement;
(iv) a consent to assessment (IRS Form 870 or comparable form of
another taxing authority) or offer to consent to assessment (IRS Form 870 AD or
comparable form of another taxing authority) signed by the Company, at the
request of the Issuer if the Issuer has elected to control the Proceedings
giving rise to such consent or offer to consent; or
(v) a disposition, by the IRS or other taxing authority, of a
claim for refund as to which the time for instituting suit has expired.
- 2 -
<PAGE> 3
(c) INDEMNIFICATION EVENT shall mean an Ownership Change of the
Company which satisfies all of the following: (i) it occurs at the time of the
Issuer's issuance and sale of the DECS, (ii) it occurs by reason of such
issuance and sale constituting an "owner shift involving a 5-percent
shareholder" as defined in Code section 382(g) (an "Owner Shift"), and (iii) it
would not have occurred if the issuance and sale of the DECS were not treated
as an Owner Shift.
(d) INDEMNIFIED COSTS shall mean:
(i) any and all Taxes payable by the Company as a result of an
Indemnification Event, and for which the Company would not have been liable had
an Indemnification Event not occurred (the "Primary Costs"); and
(ii) any and all Taxes payable by the Company as a result of the
Issuer's payment of the Primary Costs, whether such Taxes are imposed at the
time of the Issuer's payment of the Primary Costs or at any time thereafter (the
"First-Level Collateral Costs"), and as a result of the Issuer's payment of
First-Level Collateral Costs (the "Second-Level Collateral Costs;" and, together
with the First-Level Collateral Costs, the "Collateral Costs"); and
(iii) the costs of obtaining any certifications or determinations
by PW (as defined below) in accordance with the terms of this Agreement.
(e) IRS shall mean the United States Internal Revenue Service.
- 3 -
<PAGE> 4
(f) LOSSES shall mean any net operating losses, capital losses,
built-in losses, credits, or other Tax attributes of the Company which an
Ownership Change subjects to the Section 382 Limitation.
(g) OWNERSHIP CHANGE shall have the meaning set forth in Code section
382(g).
(h) PW shall mean Price Waterhouse LLP, or such other
nationally-recognized accounting firm as the parties hereto may agree from time
to time.
(i) SECTION 382 LIMITATION shall mean the limitation on pre-change
losses imposed by Code section 382(a), and shall also include the limitations
imposed by Code section 383.
(j) TAX or TAXES means any and all taxes (together with any and all
interest, penalties, additions to tax and additional amounts imposed with
respect thereto) imposed by the Code or any state or local laws, which are
based upon or take into account a taxpayer's income and/or Losses, including,
without limitation, taxes on or with respect to income, franchise, and windfall
or other profits.
SECTION 2. CONSENT; INDEMNIFICATION.
(a) GENERAL. In consideration of the Company's consent to the DECS
issuance and sale, which it hereby gives, the Issuer will indemnify and save the
Company harmless from any and all Indemnified Costs actually incurred by the
Company by reason of a Determination that an Indemnification Event has occurred.
(b) PRIOR CHANGE. If there is a Determination that an event occurring
prior to the issuance and sale of the DECS (a
- 4 -
<PAGE> 5
"Prior Event") caused an Ownership Change of the Company, but such Prior Event
has not prevented an Indemnification Event from occurring, then the Issuer shall
indemnify the Company only for Indemnified Costs in excess of Indemnified Costs
incurred by the Company that are attributable to the Section 382 Limitation on
the use of its Losses imposed by reason of the Prior Event, as determined in the
manner provided in section 3 below. If, after giving effect to the Prior Event,
an Indemnification Event has not occurred, or if there is a Determination that
an Indemnification Event has occurred which results in the imposition of a
Section 382 Limitation that is not greater than that imposed by reason of the
Prior Event, then the Issuer shall have no further obligation to the Company
under this Agreement, and any payments of Indemnified Costs made hereunder by
the Issuer to the Company shall be promptly refunded, including, in the event
that the Company receives a Tax refund with respect to such payment, any
interest also received by the Company in connection with such refund.
(c) SUBSEQUENT CHANGE. If one or more events occur subsequent to the
Indemnification Event, and if the DECS issuance and sale had not occurred such
subsequent event or events would have caused one or more Ownership Changes of
the Company independently of the DECS issuance and sale ("Deemed Ownership
Changes"), then the Issuer shall indemnify the Company only for Indemnified
Costs in excess of such costs as the Company would have incurred by reason of
such Deemed Ownership Change or Changes, determined in the manner set forth in
section 3 below.
- 5 -
<PAGE> 6
(d) SUBSEQUENT SAVINGS. If the Company uses Losses in a taxable year
ending after the occurrence of an Indemnification Event, which it would have
used in an earlier year absent the imposition of the Section 382 Limitation on
the earlier use of such Losses, with the result that the Company's Taxes
payable with respect to such later taxable year are less than they would have
been absent the Determination that the Indemnification Event occurred (as
determined and certified in the manner set forth in section 3 below) (the "Loss
Tax Savings"), then the Company shall pay the amount of such Loss Tax Savings
to the Issuer. If the Company's payments of Loss Tax Savings are attributable
to the Issuer's payment of Primary Costs, with respect to which payments the
Issuer also paid Collateral Costs, then the Company shall also pay to the
Issuer the amount of any Tax savings it realizes (determined and certified in
the manner set forth in section 3, below) by reason of any deduction of its
payment of Loss Tax Savings (the "Repayment Savings").
(e) REFUNDS. If the Issuer pays Indemnified Costs pursuant to this
Agreement, claims a refund of the Indemnified Costs on behalf of the Company,
and prevails, then the Issuer shall be entitled to receive the full amount of
any refund of the Indemnified Costs (including any interest) received by the
Company.
SECTION 3. PAYMENT PROCEDURES.
(a) INITIAL COMPUTATION. From and after the time of a Determination
that an Indemnification Event has occurred, the amount of Taxes payable by the
Issuer, or Loss Tax Savings
- 6 -
<PAGE> 7
payable by the Company, for each taxable year of the Company shall be
determined by calculating for each such year (i) the amount of Taxes owed by
the Company assuming that an Indemnification Event did not occur, and (ii) the
amount of Taxes owed by the Company as a result of the occurrence of the
Indemnification Event. For purposes of the computations under alternatives (i)
and (ii) set forth in this section 3(a), the effect of those assumptions on all
years prior to the taxable year for which the calculations are being made shall
be given full effect, and the effect of any events described in section 2(b) or
(c) above shall also be given full effect. Further, amounts included in (or
deductible from) the Company's taxable income by reason of the Issuer's payment
of Indemnified Costs (or the Company's payment of Loss Tax Savings or Repayment
Savings) shall be taken into account in computing the amount of (ii), but not
(i), above, to the extent provided in section 2(d) and the definition of
Collateral Costs, above. All other facts relating to the determination of the
amount of the Company's taxable income, gains, losses, or Taxes shall otherwise
be the same for the computations under (i) and (ii) above. The amount, if any,
by which (ii) above exceeds (i) above in any year shall be the amount of the
Indemnified Costs payable by the Issuer to the Company for such year; and the
amount, if any, by which (i) above exceeds (ii) above in any year shall be the
amount of Loss Tax Savings and/or Repayment Savings payable by the Company to
the Issuer for such year, to the extent provided in section 2(d), above.
- 7-
<PAGE> 8
(b) ADJUSTMENTS. In the case of any adjustments to the amount of the
Company's Taxes for any year, pursuant to an amended return filed by the Company
and/or a Determination, the amount of Indemnified Costs or amounts payable by
the Company pursuant to section 2(d) above shall be recomputed in the same
manner as provided in section 3(a) above, and the difference between such
recomputed amount and the amount previously paid shall be paid by the Issuer or
the Company, as the case may be.
(c) NOTIFICATION AND CERTIFICATION. Within 30 days following a
Determination giving rise to a payment obligation under this Agreement, in the
case of taxable years for which the Company has previously filed Tax returns,
or 2 months following the close of the taxable year in the case of taxable
years ending after a Determination for which the Company has not yet filed Tax
returns, the Company shall provide notification to the Issuer of the amount of
Indemnified Costs, Loss Tax Savings, and/or Repayment Savings for each year
ending after the occurrence of the Indemnification Event with respect to which
it has not already provided such information to the Issuer. The notification
shall include (i) copies of the Company's Tax return as filed for each such
year (including any amended returns the Company has filed for such year), (ii)
the alternative calculations described in section 3(a), above, and (iii) a
certification by PW as to the accuracy of such notification, including the
items described in (i) and (ii) above.
(d) TIME OF PAYMENT. The Issuer shall pay the Indemnified Costs,
calculated and certified as described above, to the
- 8 -
<PAGE> 9
Company unless the parties agree that it shall make payment directly to the IRS
or other taxing authority, not less than 10 days prior to the date payment of
Taxes constituting Indemnified Costs is due, in the case of payment to the
Company, by the date such payment is due in the case of payment directly to the
IRS or other taxing authority. The Company shall pay the amount of any Loss Tax
Savings or Repayment Savings to the Issuer at the time that it files its return
for the tax year to which such Savings relate, or, if later, within 10 days
after receiving a refund attributable to such Savings. The Company shall pay the
amount of any refund it receives which is described in section 2(e), above,
within 2 days of receiving such refund, unless such refund is attributable to or
affected by a Determination concerning additional issues besides the occurrence
of an Indemnification Event, in which case the Company shall determine the
amount of the refund attributable solely to the Indemnification Event
Determination, and provide notification (including certification by PW as
provided in section 3(c) hereof) of such amount to the Issuer, together with
payment of such amount, within 10 days after receiving the refund.
SECTION 4. COOPERATION.
(a) GENERAL. The Company will file all relevant Tax returns on the
basis that an Indemnification Event has not occurred, unless and until (i) a
Determination is made that an Indemnification Event did occur, or (ii) the
Company receives an opinion of nationally-recognized tax counsel, reasonably
satisfactory to the Issuer, that a change in applicable law
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(including IRS interpretations thereof) occurring after the date hereof has
made it apparent that there is no reasonable basis for taking the position that
an Indemnification Event did not occur. In the latter case, however, the
Company shall provide the Issuer with notice of its intent to treat an
Indemnification Event as having occurred at least 90 days prior to filing a Tax
return on that basis. Further, if it does file a Tax return on such basis, it
shall, at the request of the Issuer, also cooperate in the preparation of, and
file a claim for refund prepared by the Issuer based on the position that an
Indemnification Event has not occurred.
(b) CONTROVERSIES.
(i) The Company shall promptly notify the Issuer upon receipt of
any request (oral or written) for information concerning the issuance and sale
of the DECS (an "Inquiry") from the IRS or other taxing authority, or any
notice from the IRS or other taxing authority, oral or written, of any
assertion, proposed assertion, or intention to assert that the DECS issuance
and sale constituted an Owner Shift or caused an Ownership Change of the
Company (a "Challenge"). The Issuer shall have the right, at the Issuer's cost,
to participate in and control any responses, discussions, or negotiations with
the IRS or other taxing authority involving such Inquiry or Challenge (the
"Proceedings"); provided, however, that the Issuer shall have control only over
the portion of such Proceedings addressing the DECS issuance and sale (the
"Issuer Portion"); and provided further, that nothing herein shall limit the
Company's right to
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participate, at its own expense, in the Issuer Portion of any such Proceedings.
The Issuer shall also have the right, at its own cost, to participate in and
control any further proceedings to contest, resolve and defend against any
assessment of, notice of deficiency in, or other adjustment to, Taxes of the
Company which would constitute Indemnified Costs ("Further Proceedings"), and
to employ counsel and other advisors of its choice, at its expense, for such
purpose; provided that the Issuer shall not settle or otherwise resolve any
issue which may affect the Company's liability for Taxes which would not
constitute Indemnified Costs without the Company's consent. If the Issuer
elects not to control the Proceedings or Further Proceedings, the Company may,
but shall be under no obligation to, conduct such Proceedings or Further
Proceedings at its own expense; and if the Company chooses to conduct
Proceedings or Further Proceedings it shall permit the Issuer to participate,
at the Issuer's expense, in such Proceedings or Further Proceedings which the
Company may elect to pursue. If the Issuer elects not to control Proceedings,
it shall not thereafter have the right to institute and/or control any Further
Proceedings, but shall have the right, at its own expense, to participate in
any Further Proceedings pursued by the Company.
(ii) In furtherance of the respective parties' rights to
participate in any Proceedings or Further Proceedings (individually and
collectively, a "Contest"), and the Issuer's right, as described above, to
control such Contest, the parties shall use their best efforts to cooperate,
in good faith, in the
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<PAGE> 12
conduct of such Contest. Without limiting the generality of the foregoing, the
Company shall, at the Issuer's expense, upon notification by the Issuer of its
election to control a Contest, (A) promptly, upon receipt of any inquiry or
notice described in (i) above, provide the Issuer with such limited powers of
attorney as the Issuer shall reasonably request to enable the Issuer (or its
authorized representatives) to represent the Company with respect to the
Issuer Portion of any Contest; (B) promptly provide the Issuer with copies
of any notices or other communications between the Company and the IRS, other
taxing authority, or any of their representatives, relating or relevant to
the Issuer Portion of such Contest; (C) allow the Issuer (or its authorized
representatives) to participate in, prepare, and control any communications
(including, without limitation, any meetings, conferences, or other oral or
written presentations) between the Company and the IRS or other taxing
authority relating to the Issuer Portion of such Contest; (D) promptly provide
the Issuer with any information and assistance reasonably requested by the
Issuer relating to the Issuer Portion of such Contest; and (E) provide the
Issuer with copies of any amended return it proposes to file pursuant to a
Determination that an Indemnification Event has occurred 30 days prior to
filing such amended return. The Issuer shall promptly advise the Company of,
and provide copies of, all communications between itself and the IRS or other
taxing authority relating to a Contest, and provide the Company with advance
notice of, and the opportunity to participate (at its own expense) in any
scheduled meetings or
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<PAGE> 13
discussions with the IRS or other taxing authority relating to a Contest.
(iii) The Company shall retain copies of all Tax returns and
related documents which could be the subject of a Contest or relevant to
the determination of the amount of Indemnified Costs in the event of a
Determination that an Indemnification Event has occurred, for so long as
the rights and obligations of the parties hereto remain in effect, as provided
in Section 5, below.
SECTION 5. SURVIVAL OF AGREEMENT.
The rights and obligations of the Issuer and the Company hereunder
shall continue in full force and effect from the date of the Issuer's issuance
and sale of the DECS until the later of (A) the expiration of the period of
limitations for tax assessments with respect to the taxable year in which the
Company's Losses existing at the time of the DECS issuance are completely used
by the Company, or would have been completely used if they had not expired
first; or (B) the payment, in accordance with the terms of this Agreement, of
the last Indemnified Costs or Loss Tax Savings or Repayment Savings which may
arise under the terms of this Agreement.
SECTION 6. NO SETOFF.
No payment required to be made by either party hereto pursuant to this
Agreement shall be subject to any right of setoff, counterclaim, defense,
abatement, suspension, deferment, or reduction except by payments to the
extent, and in the amount, certified by PW as owed by the other party under
this Agreement,
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<PAGE> 14
and, except in accordance with the express terms hereof, neither of the parties
hereto shall have any right to terminate this Agreement or be released,
relieved, or discharged from any obligation or liability under this Agreement
for any reason whatsoever.
SECTION 7. LATE PAYMENTS.
Any late payment by any party hereto of any of its obligations under
this Agreement shall result in the obligation on the part of such party
promptly to pay an additional amount as interest, to the extent permitted by
applicable law, at the underpayment rate provided in Code section 6621,
calculated on the basis of a year of 365 or 366 days, as the case may be, and
the actual number of days elapsed, and applied to the late payment for the
period that the payment was due but not paid; provided, however, that the
obligation to pay Primary Costs under this Agreement shall include interest
and/or penalties imposed by reason of any such late payment as herein
described, and, if applicable, shall apply in lieu of this section 7.
SECTION 8. DISPUTES.
A nationally recognized firm of public accountants acceptable to both
the Company and the Issuer shall be the arbitrator of any disputes between the
parties hereto concerning any question of interpretation or performance of this
Agreement, and it decision on any such matter shall be final and binding upon
both parties; provided that if the parties are not able to agree on or cannot
obtain the services of such a firm, then the
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<PAGE> 15
dispute shall be resolved by arbitration pursuant to the rules of the American
Arbitration Association then in effect.
SECTION 9. ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES.
This Agreement constitutes the entire agreement, and supersedes all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter of this Agreement, and is not intended to
confer upon any person other than the parties any rights or remedies.
SECTION 10. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Ohio.
SECTION 11. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each
counterpart so executed shall be deemed to be an original, and all counterparts
together shall constitute and be one and the same instrument.
IN WITNESS WHEREOF, the Issuer and the Company have caused this
Agreement to be duly executed, as of the day and year first above written.
USX CORPORATION
By:
---------------------
Its [Title]
RMI TITANIUM COMPANY
By:
---------------------
Its [Title]
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