<PAGE> 1
Form 10-Q/A
Amendment No. 1 to
Quarterly Report
on
Form 10-Q
for the Quarter ended
June 30, 1995
of
RMI TITANIUM COMPANY
Pursuant to Rule 126-15, promulgated under the Securities Exchange Act of
1934, RMI Titanium Company hereby amends the following Items of its Quarterly
Report, so that, as amended, such Items read as set forth herein.
Item 1
Item 2
Item 6, Exhibit 27
<PAGE> 2
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------- -----------------
Commission file number 1-10319
RMI TITANIUM COMPANY
----------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 31-0875005
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1000 WARREN AVENUE, NILES, OHIO 44446
(Address of principal executive offices)
(216) 544-7700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
-------- --------
At August 4, 1995, 15,323,253 shares of common stock of the registrant
were outstanding.
===============================================================================
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RMI TITANIUM COMPANY
FORM 10-Q
QUARTER ENDED JUNE 30, 1995
INDEX
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Introduction to Financial Statements . . . . . . . . . . . . . . . . . 2
Consolidated Statement of Operations . . . . . . . . . . . . . . . . . 3
Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . 5
Consolidated Statement of Shareholders' Equity . . . . . . . . . . . . 6
Selected Notes to Financial Statements . . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis
of Results of Operations and
Financial Condition . . . . . . . . . . . . . . . . . . . . . . 10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 14
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
<PAGE> 4
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTRODUCTION TO FINANCIAL STATEMENTS
The consolidated financial statements included herein have been prepared by
RMI Titanium Company (the "Company"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. The financial
information presented reflects all adjustments, consisting only of normal
recurring adjustments, which are, in the opinion of management, necessary for a
fair statement of the results for the interim periods presented. The results
for the interim periods are not necessarily indicative of the results to be
expected for the year.
2
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RMI TITANIUM COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------------------ -----------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales............................. $ 39,621 $35,337 $ 79,724 $71,697
Operating costs:
Cost of sales..................... 43,620 34,644 81,786 70,477
Selling, general and
administrative expenses......... 2,682 2,317 5,088 4,723
Research, technical and product
development expenses............ 741 393 1,149 730
-------- ------- -------- -------
Total operating costs...... 47,043 37,354 88,023 75,930
Operating loss.................... (7,422) (2,017) (8,299) (4,233)
Other income (expense)-net........ (1,739) (14) (1,706) 1
Interest expense.................. (1,348) (992) (2,367) (1,720)
-------- ------- -------- -------
Loss before income taxes
and cumulative effect of
change in accounting principle.. (10,509) (3,023) (12,372) (5,952)
Provision for income taxes........ -- -- -- --
-------- ------- -------- -------
Loss before cumulative effect of
change in accounting principle.. (10,509) (3,023) (12,372) (5,952)
Cumulative effect of change
in accounting principle......... -- -- -- (1,202)
-------- ------- -------- -------
Net loss.......................... $(10,509) $(3,023) $(12,372) $(7,154)
======== ======= ======== =======
Net loss per common share-(Note 3):
Before cumulative effect of
change in accounting principle. $ (0.69) $ (2.05) $ (0.81) $ (4.04)
Cumulative effect of change in
accounting principle........... -- -- -- $ (0.81)
-------- ------- -------- -------
Net loss................ $ (0.69) $ (2.05) $ (0.81) $ (4.85)
======== ======= ======== =======
Weighted average shares
outstanding.................... 15,271,561 1,475,285 15,271,561 1,475,168
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
3
<PAGE> 6
RMI TITANIUM COMPANY
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30 DECEMBER 31
1995 1994
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 534 $ 385
Receivables - less allowance for doubtful accounts of
$1,397 and $704..................................... 31,759 28,846
Inventories............................................. 71,553 72,466
Other current assets.................................... 1,505 1,674
--------- --------
Total current assets.................................. 105,351 103,371
--------- --------
Property, plant and equipment, net of accumulated
depreciation.......................................... 42,229 50,016
Other noncurrent assets................................. 6,727 7,423
--------- --------
Total assets......................................... $ 154,307 $160,810
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt...................... $ 120 $ 120
Accounts payable....................................... 9,721 17,832
Accrued wages and other employee costs................. 8,519 7,238
Other accrued liabilities.............................. 7,046 3,487
--------- --------
Total current liabilities............................ 25,406 28,677
Long-term debt............................................ 63,880 54,740
Accrued postretirement benefit cost....................... 17,286 17,286
Noncurrent pension liabilities............................ 15,501 15,501
Other noncurrent liabilities.............................. 2,010 2,010
--------- --------
Total liabilities.................................... 124,083 118,214
--------- --------
Contingencies (see Note 5)................................
Shareholders' equity:
Preferred Stock, no par value; 5,000,000 shares
authorized; no shares outstanding...................... -- --
Common Stock, $0.01 par value, 30,000,000 shares
authorized; 15,838,661 shares issued (Note 3).......... 158 158
Additional paid-in capital.............................. 151,058 151,058
Retained deficit........................................ (111,290) (98,918)
Minimum pension liability adjustment.................... (6,633) (6,633)
Treasury Common Stock at cost 567,100 shares............ (3,069) (3,069)
--------- --------
Total shareholders' equity................................ 30,224 42,596
--------- --------
Total liabilities and shareholders' equity........... $ 154,307 $160,810
========= ========
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
4
<PAGE> 7
RMI TITANIUM COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
------------------
1995 1994
---- ----
<S> <C> <C>
CASH PROVIDED FROM (USED IN)
OPERATIONS:
Net loss................................................... $(12,372) $ (7,154)
Adjustment for items not affecting funds from operations:
Depreciation............................................. 3,216 3,117
Change in accounting principle........................... 5,031 1,202
Write-down of joint venture investment................... 1,901 --
Compensation expense for stock appreciation rights....... 2,007 --
Other-net................................................ 432 1,021
-------- --------
215 (1,814)
-------- --------
CHANGES IN ASSETS AND LIABILITIES (EXCLUDING CASH):
Receivables................................................ (3,345) 3,219
Inventories................................................ 913 (4,720)
Accounts payable........................................... (8,111) 3,585
Other current liabilities.................................. 2,833 (568)
Other assets............................................... (1,139) (750)
Other-net.................................................. -- 83
-------- --------
(8,849) 849
Cash used in operating activities.................... (8,634) (965)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of facilities......................... 128 59
Capital expenditures..................................... (485) (241)
Investment in joint venture.............................. -- (172)
-------- --------
Cash used in investing activities.................... (357) (354)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit agreements....................... 9,200 1,400
Debt repayments.......................................... (60) (60)
-------- --------
Cash provided from financing activities.................. 9,140 1,340
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS...................... 149 21
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........... $ 385 $ 293
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................. $ 534 $ 314
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest (net of amounts capitalized)...... $ 2,223 $ 1,681
======== ========
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
5
<PAGE> 8
RMI TITANIUM COMPANY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MINIMUM
ADD'TL. RETAINED TREASURY PENSION
SHARES COMMON DEFERRED PAID-IN EARNINGS COMMON LIABILITY
OUTSTANDING STOCK COMPENSATION CAPITAL (DEFICIT) STOCK ADJUSTMENT
----------- ------ ------------ ------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993...... 14,750,459 $ 153 $(205) $124,578 $ (86,154) $(2,991) $(7,520)
Compensation expense recognized... -- -- 205 -- -- -- --
One-for-ten reverse stock split
effective March 31, 1994
(Note 3)........................ (13,275,414) (138) -- 138 -- -- --
Shares issued as result of
Rights Offering (Note 3)........ 13,775,057 143 -- 26,279 -- -- --
Shares issued in lieu of
Directors' compensation......... 25,783 -- -- 59 -- -- --
Treasury Common Stock
purchased at cost............... (4,564) -- -- -- -- (78) --
Shares issued for Restricted
Stock Award Plans............... 240 -- -- 4 -- -- --
Net loss.......................... -- -- -- -- (12,764) -- --
Excess minimum pension liability.. -- -- -- -- -- -- 887
---------- ----- ----- -------- --------- ------- -------
Balance at December 31, 1994...... 15,271,561 $ 158 $ -- $151,058 $ (98,918) $(3,069) $(6,633)
Net loss.......................... -- -- -- -- (12,372) -- --
---------- ----- ----- -------- --------- ------- -------
Balance at June 30, 1995.......... 15,271,561 $ 158 $ -- $151,058 $(111,290) $(3,069) $(6,633)
========== ===== ===== ======== ========= ======= =======
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
6
<PAGE> 9
RMI TITANIUM COMPANY
SELECTED NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - GENERAL
The consolidated financial statements include the accounts of RMI Titanium
Company and its majority owned subsidiaries. All significant intercompany
transactions are eliminated. The Company's operations are conducted in one
business segment, the production and marketing of titanium metal and related
products.
NOTE 2 - ORGANIZATION
The Company is a successor to entities that have been operating in the
titanium industry since 1958. In 1990, USX Corporation ("USX") and Quantum
Chemical Corporation ("Quantum") transferred their entire ownership 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 June 30, 1995, approximately 53% of the
outstanding common stock was owned by USX. For additional information on the
Company's capital structure see Note 3.
NOTE 3 - REVERSE STOCK SPLIT AND RIGHTS OFFERING
At its Annual Meeting held on March 31, 1994, the Company's shareholders
approved an amendment to the Articles of Incorporation of the Company,
effecting a one-for-ten reverse stock split. A Certificate of Amendment to the
Articles of Incorporation was filed with the Ohio Secretary of State on March
31, 1994, and the reverse split became effective on that date. Pursuant to the
reverse split, each certificate representing shares of common stock outstanding
immediately prior to the reverse split was deemed to represent one-tenth the
number of shares immediately after the reverse split. In order to supplement
its financial resources and provide financing for new titanium market
opportunities, the Board of Directors approved a rights offering to raise up to
$30 million. Each record holder of Common Stock at the close of business on
June 24, 1994 received five transferable rights for each share of Common Stock.
Each right entitled the holder to purchase two shares of RMI Common Stock for a
price of $2.00 per share. The rights offering expired at July 22, 1994.
Approximately 93% of the total number of rights were exercised. The exercise
of the rights resulted in the issuance of 13,775,057 new shares of the
Company's Common Stock. Gross proceeds from the offering were $27.6 million.
Net proceeds increased Shareholders' Equity by approximately $26.4 million.
Following completion of the rights offering, USX Corporation beneficially owned
approximately 54% of the Company's Common Stock. However, in accordance with
the provisions of a voting trust agreement, USX has placed 1,319,175 shares of
RMI stock into the trust so that the number of shares of stock held by USX and
its affiliates outside the trust does not exceed the number of shares held by
all other holders. This arrangement results in USX having a direct voting
interest in RMI of approximately 45%.
NOTE 4 - NEW ACCOUNTING STANDARDS
During the second quarter of 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.
Adoption of SFAS No. 121 resulted in an impairment charge included in
operating costs of $5.0 million. The impaired asset related to 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 will not likely
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.
7
<PAGE> 10
Effective January 1, 1994 the Company adopted the provisions of
Statement of Financial Accounting Standards No. 112 ("SFAS 112"),
"Employers' Accounting for Postemployment Benefits." The results for the three
months ended March 31, 1994 reflect a one-time charge of $1.2 million
representing the cumulative effect of adopting the new standard. The
liabilities pursuant to SFAS 112 relate principally to workers' compensation.
NOTE 5 - CONTINGENCIES
In the ordinary course of business, the Company is subject to pervasive
environmental laws and regulations concerning the production, handling,
storage, transportation, emission, and disposal of waste materials and is also
subject to other federal and state laws and regulations regarding health and
safety matters. These laws and regulations are constantly evolving, and it is
not currently possible to predict accurately the ultimate effect these laws and
regulations will have on the Company in the future.
On October 9, 1992 the U.S. Environmental Protection Agency ("EPA") filed
a complaint alleging certain violations of the Resource Conservation and
Recovery Act of 1976, as amended ("RCRA") at the Company's now closed Sodium
Plant in Ashtabula, Ohio. The USEPA's determination is based on information
gathered during inspections of the facility in February, March and June of
1991. Under the complaint the USEPA proposes to assess a civil penalty of
approximately $1.4 million for alleged failure to comply with RCRA. The
Company is contesting the complaint. It is the Company's position that it has
complied with the provisions of RCRA and that the EPA's assessment of penalties
is inappropriate. A formal hearing has been requested and informal discussions
with the EPA to settle this matter are ongoing. Based on the preliminary
nature of the proceedings, the Company is currently unable to determine the
ultimate liability, if any, that may arise from this matter.
The Company is involved in investigative or cleanup projects under federal
or state environmental laws at a number of waste disposal sites, including the
Fields Brook Superfund Site. Given the status of the proceedings with respect
to these sites, ultimate investigative and remediation costs cannot presently
be accurately predicted, but could, in the aggregate, be material. Based on
the information available regarding the current ranges of estimated remediation
costs at currently active sites, and what the Company believes will be its
ultimate share of such costs, provisions for environmental-related costs have
been recorded. These provisions are in addition to amounts which have
previously been accrued for the Company's share of environmental study costs.
With regard to the Fields Brook Superfund Site, the Company, together with
31 other companies, has been identified by the U.S. Environmental Protection
Agency ("EPA") as a potentially responsible party ("PRP") with respect to a
superfund site defined as the Fields Brook Watershed in Ashtabula, Ohio, which
includes the Company's now closed Ashtabula facilities. The EPA's 1986
estimate of the cost of remediation of the Fields Brook operable sediment unit
was $48 million. However, recent studies show the volume of sediment to be
substantially lower than projected in 1986. These studies, together with
improved remediation technology and redefined cleanup standards, have resulted
in a more recent estimate of the remediation cost of
8
<PAGE> 11
approximately $25 million. The actual cost of remediation may vary from the
estimate depending upon any number of factors.
The EPA, in March 1989, ordered 19 of the PRPs to conduct a design phase
study for the sediment operable unit and a source control study, which studies
are currently estimated to cost $19 million. Three additional PRPs were added
by the EPA in 1994. The Company, working cooperatively with fourteen others in
accordance with two separate agreements, is complying with the order. The
Company has accrued and has been paying its portion of the cost of complying
with the EPA's order, which includes the studies. It is anticipated that the
studies will be completed no earlier than mid 1996. Actual cleanup would not
commence prior to that time. In connection with the agreements referred to
above, the cooperating companies entered into a nonbinding arbitration process
in an effort to allocate the Phase I (study) costs among the group. In the
final arbitrator's report dated October 11, 1994, the Company's share of
the study costs were established at 9.95%. On June 21, 1995, the Company and
nine others entered into a Phase 2 (actual cleanup) allocation agreement which
assigns 9.44% of the cost to RMI. However, the actual percentage may be more
or less based on contributions from other parties which are not parties to the
allocation agreement.
At June 30, 1995, the amount accrued for future environmental-related
costs was $2.4 million. Based on available information, RMI believes its share
of potential environmental-related costs, before expected contributions from
third parties, is in a range from $4.0 million to $6.3 million, in the
aggregate. The amount accrued is net of expected contributions from third
parties (other than insurers) of approximately $2.1 million, which the Company
believes are probable. The Company has been receiving contributions from such
third parties for a number of years as partial reimbursement for costs incurred
by the Company. As these proceedings continue toward final resolution, amounts
in excess of those already provided may be necessary to discharge the Company
from its obligations for these projects.
The Company is also the subject of, or a party to, a number of other
pending or threatened legal actions involving a variety of matters.
The ultimate resolution of these foregoing contingencies could,
individually or in the aggregate, be material to the consolidated financial
statements. However, management believes that the Company will remain a viable
and competitive enterprise even though it is possible that these matters could
be resolved unfavorably.
NOTE 6 - INVENTORIES:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
--------------------------------
JUNE 30, 1995 DECEMBER 31,
(UNAUDITED) 1994
-------------- ------------
<S> <C> <C>
Raw material and supplies $ 15,790 $ 13,825
Work-in-process and finished goods 70,556 71,933
Adjustments to LIFO values (14,793) (13,292)
-------- --------
$ 71,553 $ 72,466
======== ========
</TABLE>
Inventories are valued at cost as determined by the last-in, first-out (LIFO)
method which, in the aggregate, is lower than market. Inventory costs
generally include materials, labor costs and manufacturing overhead (including
depreciation).
Included in work-in-process are costs relating to long-term contracts. Such
costs, net of amounts recognized to date, were $2.6 million at June 30, 1995
and $8.1 million at December 31, 1994.
9
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion should be read in connection with the information
contained in the Consolidated Financial Statements and Selected Notes to
Financial Statements.
NET SALES
Net sales increased by $4.3 million, or 12.1%, for the three months ended
June 30, 1995 compared to the corresponding 1994 period. These sales
increases are due primarily to increased sales of titanium mill products.
Shipments of titanium mill products for both the three and six month periods
ended June 30, 1995 increased by 16% from comparable 1994 shipment levels.
Average selling prices on mill products in the quarter and six months ended
June 30, 1995 increased by approximately 7% from 1994 levels. Both volume of
and pricing on incoming orders for titanium mill products continue to show
improvement from 1994 levels. Because of reduced government funding levels,
revenues under the Department of Energy ("DOE") remediation and restoration
contract decreased to $1.5 million in the second quarter of 1995 compared to
$2.3 million in the second quarter of 1994. Revenues under the DOE contract
amounted to $3.1 million in the six months ended June 30, 1995 compared to $5.0
million in the comparable 1994 period. Sales of hot formed parts and cut
shapes during the second quarter of 1995 increased to $3.9 million from $2.9
million in the second quarter of 1994. Year-to-date sales of hot formed
parts increased to $8.7 million from $7.0 million in the first six months of
1994, an increase of approximately 25%. With the completion of the titanium
drilling riser in March of 1995, sales related to long-term contracts
decreased by $3.4 million, or 68% in the first six months of 1995 compared to
the first six months of 1994.
GROSS PROFIT
Gross margin amounted to a loss of $4.0 million for the quarter ended June
30, 1995 compared to a profit of $0.7 million for the comparable 1994 period.
Gross margin for the six months ended June 30, 1995 amounted to a loss of $2.1
million compared to $1.2 million in the comparable period of 1994. Gross profit
for each of the three and six months periods in 1995 were adversely affected by
a $5.0 million charge resulting from the adoption of SFAS No. 121 and
approximately $1.1 million of compensation expense related to stock appreciation
rights. These charges were partially offset by increased volume and prices for
titanium mill products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses amounted to $2.7 million in
the quarter ended June 30, 1995 compared to $2.3 million in the second of
quarter 1994. Selling, general and administrative expenses for the six months
ended June 30, 1995 amounted to $5.1 million compared to $4.7 million in the
comparable 1994 period. Research, technical and product development expenses
amounted to $0.7 million in the second quarter of 1995 compared to $0.4 million
in the second quarter of 1994. Research, technical and product development
expenses for the first six months of 1995 amounted to $1.1 million compared to
$0.7 million in the first six months of 1994. Selling, general and
administrative expenses together with research, technical and product
development expenses for the three and six month periods ended June 30, 1995
reflect $0.9 million of compensation expense for stock appreciation rights in
connection with the Company's stock option incentive plan.
OPERATING LOSS
The operating loss for the three months ended June 30, 1995 and 1994
amounted to $7.4 million and $2.0 million respectively. The operating loss for
the six months ended June 30, 1995 amounted to $8.3 million compared to $4.2
million in the comparable period of 1994. The operating loss in both the three
and six months ended June 30, 1995 were adversely effected by a $5.0 million
charge resulting from the adoption of SFAS No. 121 and the operating loss and by
$2.0 million of compensation expense related to stock appreciation rights.
10
<PAGE> 13
OTHER INCOME (EXPENSE)
Other income (expense) for the three and six months ended June 30, 1995
includes a $1.9 million impairment of the Company's investment in the Permipipe
Titanium AS joint venture. For further information see Outlook below.
INTEREST EXPENSE
Because of increased overall interest rates, interest expense increased to
$1.3 million in the second quarter of 1995 from $1.0 million in the second
quarter of 1994. Year-to-date interest expense increased to $2.4 million in
1995 from $1.7 million in 1994.
NET LOSS
The net loss for the quarter ended June 30, 1995 amounted to $10.5 million
compared to a net loss of $3.0 million in the comparable 1994 period. The net
loss for the first six months of 1995 amounted to $12.4 million compared to $7.2
in the first six months of 1994. The loss for the quarter ended June 30, 1995
reflects a $5.0 million charge resulting from the adoption of SFAS No. 121, $2.0
million charge for stock appreciation rights as well as a $1.9 million
impairment of the Company's investment in Permipipe Titanium AS. The net loss
for the six months ended June 30, 1994 includes the cumulative effect of
adopting SFAS No. 112.
OUTLOOK
The Company's total backlog as of June 30, 1995 was approximately $83
million, compared to $67 million at December 31, 1994. The Company has
recently experienced an increase in mill product orders at increased prices.
During the second half of 1994 and through the second quarter of 1995,
aerospace customers began to replace inventories that had been depleted below
working levels. Additionally, manufacturers of commercial aircraft have
forecasted increased build rates for certain aircraft scheduled for delivery in
1996 and later. Because of the long manufacturing lead times, orders for
materials, including titanium, would be expected to be placed 12 to 18 months
in advance. At the present time, the Company currently anticipates that the
increased demand and improved pricing for mill products will continue
throughout 1995. As a result, the Company has experienced upward pressure on
prices for raw materials, including titanium sponge. Producers of certain
alloys have recently increased prices significantly. The Company, and others,
have announced the imposition of surcharges and adjusted prices, where
appropriate, in an attempt to cover these increased costs. As market
conditions have improved, the Company has announced general price increases for
mill products.
In spite of the recent increase in demand referred to above, overall
demand for titanium mill products remains below the 1990 domestic shipment
level of 53 million pounds. For the years 1991-1994, annual domestic industry
shipments were at a 34-36 million pound level. As a result, the titanium
industry continues to suffer from excess production capacity, which intensifies
price competition for available business. Any long-
11
<PAGE> 14
term improvement will depend largely on sustained improvement in aerospace
demand, increased prices for mill products and the development of new market
applications.
In an effort to lessen its dependence on the aerospace market and to
increase its participation in commercial applications, the Company has devoted
significant efforts to developing applications and markets for use in the
energy extraction and chemical process industries. In addition to the contract
to produce the world's first all titanium drilling riser for Conoco Norway,
which was successfully completed in the first quarter of 1995, the Company has
obtained a three year contract to supply all of the titanium pipe casing
required by MAGMA Operating Company for a geothermal energy facility. The
Company is currently working with other companies to develop and expand
opportunities for titanium in the energy field.
The Company and its partner Permascand AB of Sweden announced on June 30,
1995 a decision to discontinue the operation of Permipipe Titanium AS,
their joint venture welded pipe operation in Norway. The facility was designed
to produce high-quality welded pipe and related components of titanium
primarily for offshore Norwegian oil and gas projects. RMI will serve this
emerging market from its other manufacturing facilities, and will continue to
focus its efforts on energy-related products and markets.
LIQUIDITY AND CAPITAL RESOURCES
Working capital amounted to $79.9 million at June 30, 1995 compared to
$74.7 million at December 31, 1994.
For the quarter ended June 30, 1995, the Company's cash flow requirements
for capital spending and working capital needs were funded from borrowings
under the Company's revolving credit facility and cash from operations.
On May 3, 1995, the Company reached agreement with the participating banks
on the terms of an amendment to the $75 million revolving credit facility. The
amendment extends the maturity of the loan to March 31, 1997 along with
modifying an existing financial covenant for the requirement to maintain a
minimum balance of total shareholders' equity, and the imposition of a
borrowing base formula. The agreement also provides for payment of increased
fees and borrowing rates.
The Company has also reached agreement with the banks which are parties to
the amended revolving credit facility on the terms of a second revolving credit
facility providing for up to an additional $5 million of borrowings. The
second facility permits borrowings up to an amount determined pursuant to a
borrowing base formula which includes only certain collateral related to, or
arising out of, the Company's export sales. The second facility, which matures
September 26, 1996, is guaranteed by the Export Import Bank of the United
States.
At June 30, 1995, the Company had $58.0 million outstanding under the $75
million revolving credit facility, and $5.0 million under the foreign
collateral facility.
Capital expenditures for the six months ended June 30, 1995 and 1994
amounted to $0.5 million and $0.2 million, respectively. The Company has
budgeted total capital spending for 1995 of $1.3 million compared to total
capital spending of $1.0 million in 1994.
ENVIRONMENTAL MATTERS
The Company is subject to pervasive environmental laws and regulations as
well as various health and safety laws and regulations that are subject to
frequent modifications and revisions. While the costs of compliance for these
matters have not had a material adverse impact on RMI in the past, it is
impossible to predict accurately the ultimate effect these changing laws and
regulations may have on the Company in the future.
At June 30, 1995, the amount accrued for future environment-related costs
was $2.4 million. Based on available information, RMI believes its share of
potential environmental-related costs, before expected contributions from third
parties, is in a range from $4.0 million to $6.3 million, in the aggregate.
The amount accrued is net of expected contributions from third parties (other
than insurers) of approximately $2.1 million,
12
<PAGE> 15
which the Company believes are probable. The Company has been receiving
contributions from such third parties for a number of years as partial
reimbursement for costs incurred by the Company. As these proceedings continue
toward final resolution, amounts in excess of those already provided may be
necessary to discharge the Company from its obligations for these projects.
In 1992, the EPA proposed a $1.4 million civil penalty for alleged failure
to comply with RCRA. The Company is contesting the complaint. Based on the
preliminary nature of the proceeding, the Company is currently unable to
determine the ultimate liability, if any, that may arise from this matter.
The ultimate resolution of these environmental matters could individually,
or in the aggregate, be material to the consolidated financial statements.
13
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
Reports on Form 8-K filed by the Registrant for the quarter
ended June 30, 1995.
July 7, 1995 - filed under Item 5, a press release announcing
potential second quarter charges.
14
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RMI TITANIUM COMPANY
--------------------
(Registrant)
Date: March 5, 1996 By: /s/ T. G. RUPERT
-------------------------
T. G. Rupert
Senior Vice President and
Chief Financial Officer
15
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