Summary of Significant Accounting Policies (Policies) | 12 Months Ended |
Dec. 31, 2014 |
Accounting Policies [Abstract] | |
Principles of consolidation | Principles of consolidation: |
The Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), and include the accounts of RTI International Metals, Inc. and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated |
Use of estimates | Use of estimates: |
U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at year-end and the reported amounts of revenues and expenses during the year. Actual results could differ from these estimates. Significant items subject to such estimates and assumptions include the carrying values of accounts receivable, inventories, property, plant, and equipment, intangible assets, goodwill, pensions, post-retirement benefits, worker’s compensation, environmental liabilities, and income taxes. |
Fair value | Fair value: |
For certain of the Company’s financial instruments and account groupings, including cash, short-term investments, accounts receivable, accounts payable, accrued wages and other employee costs, unearned revenue, and other accrued liabilities, the carrying value of the instruments and account groupings approximates fair value. |
The Financial Accounting Standards Board (the “FASB”) defines fair value as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based upon assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a three-tier fair value hierarchy prioritizes the inputs utilized in measuring fair value as follows: |
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• | Level 1—quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date; | | | | | | | | | | | | | | | |
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• | Level 2—inputs other than the quoted prices in active markets that are observable for the asset or liability, either directly or indirectly; and | | | | | | | | | | | | | | | |
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• | Level 3—unobservable inputs for the asset or liability. | | | | | | | | | | | | | | | |
The hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. On a recurring basis, the Company measures certain financial assets and liabilities at fair value, including its short-term investments and marketable securities. |
Listed below are the Company's assets and liabilities, and their respective fair values, which were measured at fair value on a recurring basis as of December 31, 2014. The Company uses trading prices at the balance sheet date to determine the fair value of its assets measured on a recurring basis. The fair value of contingent consideration payable that was classified as Level 3 relates to probability assessments of expected future revenues related to the RTI Advanced Powder Materials acquisition. The contingent consideration is to be paid over the next ten years, and there is no limit to the potential amount of contingent consideration. The Company held no assets or liabilities measured at fair value on a recurring basis as of December 31, 2013. There were no transfers between levels during the year ended December 31, 2014. |
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| | Quoted Market Prices | | Significant Other Observable Inputs | | Significant Unobservable Inputs | | Fair Value |
(Level 1) | (Level 2) | (Level 3) |
Assets measured on a recurring basis as of December 31, 2014: | | | | | | | | |
Commercial paper | | $ | — | | | $ | 148,383 | | | $ | — | | | $ | 148,383 | |
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Total | | $ | — | | | $ | 148,383 | | | $ | — | | | $ | 148,383 | |
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Liabilities measured on a recurring basis as of December 31, 2014: | | | | | | | | |
Contingent consideration | | $ | — | | | $ | — | | | $ | 1,000 | | | $ | 1,000 | |
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Total | | $ | — | | | $ | — | | | $ | 1,000 | | | $ | 1,000 | |
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The fair value of contingent consideration was determined using a discounted cash flow model using a discount rate of 13.0%. |
As of both December 31, 2014 and 2013, the Company did not have any financial assets or liabilities that were measured at fair value on a non-recurring basis. Refer to discussions of intangible assets below for nonfinancial assets measured at fair value on a non-recurring basis. |
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The carrying amounts and fair values of financial instruments for which the fair value option was not elected were as follows: |
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| | 31-Dec-14 | | 31-Dec-13 |
| | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Cash and cash equivalents | | $ | 182,059 | | | $ | 182,059 | | | $ | 343,637 | | | $ | 343,637 | |
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Current portion of long-term debt | | $ | 111,645 | | | $ | 119,522 | | | $ | 1,914 | | | $ | 1,914 | |
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Long-term debt | | $ | 345,012 | | | $ | 405,886 | | | $ | 430,300 | | | $ | 559,986 | |
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The fair value of the current portion of long-term debt includes the $114,381 principal outstanding on the Company's 3.00% Convertible Senior Notes due 2015 (the “2015 Notes”). The fair value of long-term debt includes $402,500 aggregate principal amount 1.625% Convertible Senior Notes due 2019 (the “2019 Notes”) and is inclusive of the conversion feature, which was originally allocated for reporting purposes at $122.5 million, and is included in the Consolidated Balance Sheets within additional paid-in capital. The fair value of long-term debt was estimated based on significant observable inputs, including recent trades and trading levels of the outstanding debt on December 31, 2014 and 2013 (Level 2). |
Cash and cash equivalents | Cash, cash equivalents and short-term investments: |
Cash and cash equivalents |
The Company considers all highly-liquid investments with an original maturity of three months or less to be cash equivalents. Cash equivalents principally consist of investments in short-term money market funds and corporate commercial paper. |
Available-for-sale securities |
Investments with maturities of less than one year are classified as available-for-sale, short-term investments and are recorded at fair value based on market quotes using the specific identification method, with unrealized gains and losses recorded as a component of accumulated other comprehensive loss until realized. Realized gains and losses from the sale of available-for-sale securities, if any, are determined on a specific identifications basis. The Company considers these investments to be available-for-sale as they may be sold to fund other investment opportunities as they arise. |
The major categories of the Company's cash equivalents and available-for-sale, short-term investments are as follows: |
Commercial paper |
The Company invests in high-quality commercial paper issued by highly-rated corporations and governments. By definition, the stated maturity on commercial paper obligations cannot exceed 270 days. |
Money market mutual funds |
The Company invests in money market mutual funds that seek to maintain a stable net asset value of $1.00, while limiting overall exposure to credit, market, and liquidity risks. |
Cash, cash equivalents, and short-term investments consisted of the following: |
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| | December 31, | | December 31, | | | | | | | | |
2014 | 2013 | | | | | | | | |
Cash and cash equivalents: | | | | | | | | | | | | |
Cash | | $ | 73,495 | | | $ | 62,394 | | | | | | | | | |
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Cash equivalents: | | | | | | | | | | | | |
Commercial paper | | 19,996 | | | 150,978 | | | | | | | | | |
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Money market mutual funds | | 88,568 | | | 130,265 | | | | | | | | | |
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Total cash and cash equivalents | | 182,059 | | | 343,637 | | | | | | | | | |
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Short-term investments: | | | | | | | | | | | | |
Commercial paper | | 148,383 | | | — | | | | | | | | | |
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Total short-term investments | | 148,383 | | | — | | | | | | | | | |
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Total cash, cash equivalents, and short-term investments | | $ | 330,442 | | | $ | 343,637 | | | | | | | | | |
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The Company had no short- or long-term investments at December 31, 2013. The Company's short-term investments at December 31, 2014 were as follows: |
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| | Amortized Cost | | Gains | | Losses | | Fair Value |
Commercial paper | | $ | 148,447 | | | $ | — | | | $ | 64 | | | $ | 148,383 | |
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Total | | $ | 148,447 | | | $ | — | | | $ | 64 | | | $ | 148,383 | |
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The Company typically purchases its available-for-sale debt securities either at a premium or a discount. The premium or discount is amortized over the remaining term of each security using the effective interest method. Amortization is recorded as either a decrement to interest income for premiums or an increment to interest income for discounts. For the year ended December 31, 2014, net amortization of premiums and discounts was immaterial. |
The Company classifies investments maturing within one year as short-term investments. Investments maturing in excess of one year are classified as noncurrent. All of the Company's investments had contractual maturities of less than one year at December 31, 2014. |
As of December 31, 2014, no investments classified as available-for-sale had been in a continuous unrealized loss position for greater than twelve months. The Company believes that the unrealized losses on the available-for-sale portfolio as of December 31, 2014 are temporary in nature and are related to market interest rate fluctuations and not indicative of a deterioration in the creditworthiness of the issuers. |
Receivables | Receivables: |
Receivables are carried at net realizable value. Estimates are made as to the Company’s ability to collect outstanding receivables, taking into consideration the amount, the customer’s financial condition, and the age of the debt. The Company ascertains the net realizable value of amounts owed and provides an allowance when collection becomes doubtful. Receivables are expected to be collected in the normal course of business and consisted of the following: |
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| | December 31, | | | | | | | | |
| | 2014 | | 2013 | | | | | | | | |
Trade and commercial customers | | $ | 118,439 | | | $ | 106,091 | | | | | | | | | |
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Less: Allowance for doubtful accounts | | (694 | ) | | (820 | ) | | | | | | | | |
Total receivables | | $ | 117,745 | | | $ | 105,271 | | | | | | | | | |
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Inventories | Inventories: |
Inventories are valued at cost as determined by the last-in, first-out (“LIFO”) method for approximately 55% and 56%, respectively, of the Company’s inventories as of December 31, 2014 and 2013. The remaining inventories are valued at cost determined by a combination of the first-in, first-out (“FIFO”) and weighted-average cost methods. Inventory costs generally include materials, labor, and manufacturing overhead (including depreciation). When market conditions indicate an excess of carrying cost over market value, a lower-of-cost-or-market provision is recorded. There were no LIFO decrements for the years ended December 31, 2014 or 2013. |
Inventories consisted of the following: |
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| | December 31, | | | | | | | | |
| | 2014 | | 2013 | | | | | | | | |
Raw materials and supplies | | $ | 172,214 | | | $ | 166,359 | | | | | | | | | |
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Work-in-process and finished goods | | 332,573 | | | 314,438 | | | | | | | | | |
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LIFO reserve | | (30,481 | ) | | (50,709 | ) | | | | | | | | |
Total inventories | | $ | 474,306 | | | $ | 430,088 | | | | | | | | | |
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Costs in excess of billings | Costs in excess of billings: |
As of December 31, 2014 and 2013, the Company had costs in excess of billings of $5,522 and $5,377, respectively. All $5,522 of costs in excess of billings are expected to be collected within the next twelve months. The Company had no claims included in inventory or progress payments netted against inventory at December 31, 2014 or 2013, respectively. |
Billings in excess of costs: |
As of December 31, 2014, the Company had billings in excess of costs of $9,962. All $9,962 of billings in excess of costs are expected to be recognized as revenue within the next twelve months. The Company had no billings in excess of costs at December 31, 2013. |
Other current assets | Other current assets: |
The Company had other current assets of $19,803 and $16,947 at December 31, 2014 and 2013, respectively. Other current assets are comprised mainly of prepaid income taxes and other prepaid expenses which do not individually exceed five percent of consolidated current assets, and are expected to be realized within twelve months of the balance sheet date. The increase in other current assets in 2014 is attributable to an increase in prepaid income taxes. |
Property, plant, and equipment | Property, plant, and equipment: |
The cost of property, plant, and equipment includes all direct costs of acquisition and capital improvements. Applicable amounts of interest on borrowings outstanding during the construction or acquisition period for major capital projects are capitalized. During the years ended December 31, 2014 and 2013, no interest expense was capitalized related to major capital expansion projects. |
Property, plant, and equipment is stated at cost and consisted of the following: |
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| | December 31, | | | | | | | | |
| | 2014 | | 2013 | | | | | | | | |
Land | | $ | 18,778 | | | $ | 18,769 | | | | | | | | | |
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Buildings and improvements | | 117,646 | | | 117,225 | | | | | | | | | |
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Machinery and equipment | | 471,691 | | | 446,787 | | | | | | | | | |
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Computer hardware and software, furniture and fixtures, and other | | 70,378 | | | 65,622 | | | | | | | | | |
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Construction-in-progress | | 53,566 | | | 52,546 | | | | | | | | | |
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| | 732,059 | | | 700,949 | | | | | | | | | |
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Less: Accumulated depreciation | | (362,772 | ) | | (328,609 | ) | | | | | | | | |
Total property, plant, and equipment, net | | $ | 369,287 | | | $ | 372,340 | | | | | | | | | |
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Depreciation is determined using the straight-line method over the estimated useful lives of the various classes of assets. Depreciation expense for the years ended December 31, 2014, 2013, and 2012 was $40,041, $39,439, and $37,364, respectively. Depreciation is generally recorded over the following useful lives: |
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Buildings and improvements | | 20-40 years | | | | | | | | | | | | | | |
Machinery and equipment | | 7-15 years | | | | | | | | | | | | | | |
Furniture and fixtures | | 5-10 years | | | | | | | | | | | | | | |
Computer hardware and software | | 3-10 years | | | | | | | | | | | | | | |
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 as a component of operating income. |
Leased equipment under capital leases are amortized using the straight-line method over the term of the lease or the estimated useful life of the equipment depending on the terms of the lease contract. |
Routine maintenance, repairs, and replacements are charged to operations. Expenditures that materially increase values, change capacities, or extend useful lives are capitalized. |
Goodwill and intangible assets | Goodwill and intangible assets: |
In the case of goodwill and intangible assets, if product demand or market conditions reduce management’s expectation of future cash flows from these assets, a write-down of the carrying value or acceleration of the amortization period may be required. Intangible assets were originally valued at fair value at the date of acquisition. |
Goodwill. The Company performs its goodwill impairment testing at the reporting unit level. The Company’s four reporting units, which are one level below its operating segments, where appropriate, are as follows: 1) the Titanium reporting unit; 2) the Fabrication reporting unit; 3) the Medical Device Fabrication reporting unit; and 4) the Energy Fabrication reporting unit. As of December 31, 2014 and 2013, the Energy Fabrication reporting unit had no goodwill. |
The carrying value of goodwill at the Company’s four reporting units as of the Company’s October 1, 2014 annual impairment test was as follows: |
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| Goodwill | | | | | | | | | | | | | |
Titanium reporting unit | $ | 24,016 | | | | | | | | | | | | | | |
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Fabrication reporting unit | 76,645 | | | | | | | | | | | | | | |
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Medical Device Fabrication reporting unit | 44,789 | | | | | | | | | | | | | | |
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Energy Fabrication reporting unit | — | | | | | | | | | | | | | | |
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Total Goodwill | $ | 145,450 | | | | | | | | | | | | | | |
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Goodwill is tested annually during the fourth quarter and is assessed between annual tests if an event occurs or circumstances change that would indicate the carrying value of a reporting unit may exceed its fair value. These events and circumstances may include, but are not limited to: significant adverse changes in the business climate or legal factors; an adverse action or assessment by a regulator; unanticipated competition; a material negative change in relationships with significant customers; strategic decisions made in response to economic or competitive conditions; loss of key personnel; or a more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or disposed. |
The fair value of the Company’s four reporting units is calculated by averaging the fair values determined using an income approach (i.e., a discounted cash flow model) and a market approach. A discounted cash flow model is based on historical and projected financial information and provides a fair value estimate based upon each reporting unit’s long-term operating and cash flow performance. This approach also considers the impact of cyclical downturns that occur in the titanium and aerospace industries. The market valuation approach applies market multiples, such as EBITDA and revenue multiples, developed from a set of peer group companies to each reporting unit to determine its fair value. The Company considered the use of a cost approach but determined such an approach was not appropriate. |
Utilizing a discounted cash flow model, the Company estimates its cash flow projections using business and economic data available at the time the projection is calculated. A significant number of assumptions and estimates are involved in the application of the discounted cash flow model to forecast operating cash flows, including overall business conditions, sales volumes and prices, costs of production, and working capital changes. The Company considers historical experience and available information at the time the reporting units’ fair values are estimated. Discount rates were developed using a Weighted-Average Cost of Capital (“WACC”) methodology. The WACC represents the blended average required rate of return for equity and debt capital based on observed market return data and reporting unit specific risk factors. |
The discount rates used in the Company’s October 1, 2014 annual impairment test were as follows: |
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Titanium reporting unit | 11 | % | | | | | | | | | | | | | | |
Fabrication reporting unit | 11.5 | % | | | | | | | | | | | | | | |
Medical Device Fabrication reporting unit | 12 | % | | | | | | | | | | | | | | |
The Company performed a two-step impairment test for all reporting units with a goodwill balance as of the testing date. Step one of the goodwill impairment test indicated that the fair value of the Titanium and Fabrication reporting units each exceeded their respective carrying values by a significant margin, while the Medical Device Fabrication reporting unit’s fair value exceeded its carrying value by approximately 14% as of the testing date. As all reporting units' fair values exceeded their book values, step two was not required. |
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Excluding the Energy Fabrication reporting unit, whose goodwill was fully impaired in 2009, and the $13,959 impairment at the Medical Device Fabrication reporting unit in 2013, there have been no other impairments to date at the Company’s reporting units. Uncertainties or other factors that could result in a potential impairment in future periods may include any cancellation of or material modification to one of the major aerospace programs the Company currently supplies, including the Joint Strike Fighter program, the Boeing 787 program, or the Airbus family of aircraft, including the A350 XWB, A320neo, or A380 programs. In addition, the Company’s ability to maintain profitability of these programs may also impact the results of a future impairment test. Furthermore, additional pricing pressures and regulatory requirements or other impacts from the Patient Protection and Affordable Care Act could result in an additional goodwill impairment at the Medical Device Fabrication reporting unit. |
The carrying amount of goodwill attributable to each segment at December 31, 2012, 2013, and 2014 was as follows: |
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| | Titanium Segment | | Engineered Products and Services Segment | | Total | | | | |
31-Dec-12 | | $ | 9,662 | | | $ | 120,590 | | | $ | 130,252 | | | | | |
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Additions | | — | | | 2,185 | | | 2,185 | | | | | |
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Impairments | | — | | | (13,959 | ) | | (13,959 | ) | | | | |
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Translation adjustment | | — | | | (900 | ) | | (900 | ) | | | | |
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31-Dec-13 | | 9,662 | | | 107,916 | | | 117,578 | | | | | |
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Additions (Note 4) | | 14,211 | | | 14,712 | | | 28,923 | | | | | |
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Purchase price allocation adjustment | | — | | | 100 | | | 100 | | | | | |
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Translation adjustment | | — | | | (1,083 | ) | | (1,083 | ) | | | | |
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Balance at December 31, 2014 | | $ | 23,873 | | | $ | 121,645 | | | $ | 145,518 | | | | | |
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At both December 31, 2014 and 2013, the EP&S Segment had accumulated goodwill impairment losses of $22,858, while the Titanium Segment has no accumulated impairment losses, other than those relating to discontinued operations, not included in the table above. |
Intangible assets. Intangible assets consist primarily of customer relationships, trade names, and developed technology acquired through various business combinations. These intangible assets were valued at fair value at acquisition. In the event that long-term demand or market conditions change and the expected future cash flows associated with these assets is reduced, a write-down or acceleration of the amortization period may be required. The Company has two indefinite-lived intangible assets, the Remmele trade name and the Directed Manufacturing trade name, which it does not amortize. The Company currently intends to utilize the Remmele and Directed Manufacturing trade names indefinitely. Other intangible assets are being amortized over the following periods: |
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Customer relationships | 7-20 years | | | | | | | | | | | | | | | |
Developed technology | 7-20 years | | | | | | | | | | | | | | | |
Backlog | 0.5-2 years | | | | | | | | | | | | | | | |
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Amortization expense was $4,835, $4,386, $3,760, for the years ended December 31, 2014, 2013, and 2012, respectively. Estimated annual amortization expense expected in each of the next five successive years is as follows: |
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| Amortization | | | | | | | | | | | | | |
2015 | $ | 5,089 | | | | | | | | | | | | | | |
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2016 | $ | 5,047 | | | | | | | | | | | | | | |
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2017 | $ | 5,047 | | | | | | | | | | | | | | |
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2018 | $ | 5,047 | | | | | | | | | | | | | | |
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2019 | $ | 5,047 | | | | | | | | | | | | | | |
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Thereafter | $ | 24,640 | | | | | | | | | | | | | | |
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The acquisition of RTI Directed Manufacturing in January 2014 was incorporated into the EP&S Segment. The acquisition of RTI Advanced Powder Materials in June 2014 was incorporated into the Titanium Segment. The carrying amounts of intangible assets attributable to each segment at December 31, 2014, 2013, and 2012, as well as a summary of intangible assets, by class, at December 31, 2014 and 2013, are presented below: |
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| | Titanium Segment | | Engineered Products and Services Segment | | Total | | | | |
31-Dec-12 | | $ | — | | | $ | 56,495 | | | $ | 56,495 | | | | | |
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Intangible assets acquired | | — | | | 3,800 | | | 3,800 | | | | | |
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Amortization | | — | | | (4,386 | ) | | (4,386 | ) | | | | |
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Impairment | | — | | | (1,400 | ) | | (1,400 | ) | | | | |
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Translation adjustment | | — | | | (755 | ) | | (755 | ) | | | | |
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31-Dec-13 | | — | | | 53,754 | | | 53,754 | | | | | |
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Intangible assets acquired (Note 4) | | 4,200 | | | 4,900 | | | 9,100 | | | | | |
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Amortization | | (400 | ) | | (4,435 | ) | | (4,835 | ) | | | | |
Translation adjustment | | — | | | (897 | ) | | (897 | ) | | | | |
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31-Dec-14 | | $ | 3,800 | | | $ | 53,322 | | | $ | 57,122 | | | | | |
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| | December 31, | | | | | | | | |
| | 2014 | | 2013 | | | | | | | | |
Backlog | | $ | 1,300 | | | $ | 1,300 | | | | | | | | | |
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Accumulated amortization | | (1,258 | ) | | (1,236 | ) | | | | | | | | |
Backlog, net | | 42 | | | 64 | | | | | | | | | |
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Customer relationships | | 51,063 | | | 45,013 | | | | | | | | | |
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Effects of currency translation | | 423 | | | 1,930 | | | | | | | | | |
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Accumulated amortization | | (13,923 | ) | | (10,961 | ) | | | | | | | | |
Customer relationships, net | | 37,563 | | | 35,982 | | | | | | | | | |
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Developed technology | | 15,240 | | | 13,290 | | | | | | | | | |
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Accumulated amortization | | (2,923 | ) | | (1,782 | ) | | | | | | | | |
Developed technology, net | | 12,317 | | | 11,508 | | | | | | | | | |
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Trade names | | 7,200 | | | 6,200 | | | | | | | | | |
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Total intangible assets, net | | $ | 57,122 | | | $ | 53,754 | | | | | | | | | |
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Management evaluates the recoverability of indefinite-lived intangible assets other than goodwill annually by using a discounted cash flow analysis based on historical and projected financial information, and assesses the recoverability of indefinite-lived intangible assets between annual tests if an event occurs or circumstances change that would indicate the carrying value of an indefinite-lived intangible asset may exceed its fair value. Several assumptions and estimates are involved in the application of the discounted cash flow model to forecast revenues, royalty rates, income tax rates, and discount rates. As of October 1, 2014, the Company’s only indefinite-lived intangible assets other than goodwill were the Remmele and Directed Manufacturing trade names. Two-step impairment analyses of the Remmele and Directed Manufacturing trade name intangible assets were performed. In each case, a fair value in excess of carrying value was determined in step one of the test, thus step two was not required. The fair values of the Remmele and Directed Manufacturing trade names were determined using a discounted cash flow model (Level 3) utilizing discount rates ranging from 12.5%-13.0%. |
Other long-lived assets | Other long-lived assets: |
The Company evaluates the potential impairment of other long-lived assets including property, plant, and equipment and amortizable intangible assets when events or circumstances indicate that a change in value may have occurred. If the carrying value of the asset groupings exceeds the sum of the undiscounted expected future cash flows, the carrying value of the asset is written down to fair value. No such impairments were recorded during 2014. |
Other non-current assets | Other non-current assets: |
The Company had other non-current assets of $15,317 and $23,247 at December 31, 2014 and 2013, respectively. Other non-current assets are comprised mainly of deferred financing costs and deferred engineering costs, and are not expected to be realized within twelve months of the balance sheet date. The decrease in other non-current assets in 2014 is primarily attributable to the change in funded status of the Company's pension plans and the amortization of deferred financing fees of $1,890. |
Environmental | Environmental: |
The Company expenses environmental costs related to potential liabilities arising in the course of business and the remediation of those liabilities. The Company determines its liability for remediation on a site-by-site basis and records a liability when it is probable and can be reasonably estimated. The estimated liability of the Company is not discounted or reduced for possible recoveries from insurance carriers. |
Treasury stock | Treasury stock: |
The Company accounts for treasury stock under the cost method and includes such shares as a reduction of total shareholders’ equity. |
Revenue Recognition | Revenue Recognition: |
Product and service revenues are recognized when persuasive evidence of an arrangement exists, product delivery has occurred or services have been rendered, pricing is fixed or determinable, and collection is reasonably assured. Service revenues are recognized as services are rendered. |
Revenues under long-term construction-type contracts are recorded on a percentage-of-completion method measured on the cost-to-cost basis and the units-of-delivery basis. Prior to 2014, revenues and costs under contracts measured on the cost-to-cost method were recorded using the zero profit method under the Financial Accounting Standards Board's (the "FASB") Accounting Standards Codification ("ASC") 605-35 until the period when the Company believed it was able to estimate the total contract revenues and costs, at which point the cumulative contract gross profit earned to date was recorded. This generally occurred commensurate with the primary product under the contract being delivered. During 2014, the Company implemented a rigorous process for estimating total contract costs and revenues for all outstanding and future projects accounted for under ASC 605-35. As a result, for the majority of the Company’s contracts accounted for under ASC 605-35, the Company now recognizes costs, revenues, and related gross profit as it completes work on these projects, rather than using the zero profit method. For certain of its contracts, the full scope of work may be ill-defined at the time progress towards completion begins. For these contracts, the Company utilizes the zero profit method until such time as the full scope of the contract is defined and estimates of total costs and revenues can be determined. |
Provisions for anticipated losses on long-term contracts are recorded in full when such losses become evident. No such losses have been recorded at December 31, 2014, 2013, or 2012. |
Revenues from contracts with multiple element arrangements are recognized as each element is earned based on the relative fair value of each element provided the delivered elements have value to customers on a standalone basis. Amounts allocated to each element are based on its objectively determined fair value, such as the sales price for the product or service when it is sold separately. |
Value added taxes collected on sales are excluded from revenue and recorded as a liability on the Consolidated Balance Sheet until remitted to the taxing authority. |
Shipping and handling fees and costs | Shipping and handling fees and costs: |
All amounts billed to a customer in a sales transaction related to shipping and handling represent revenues earned and are reported as revenue. Costs incurred by the Company for shipping and handling, including transportation costs paid to third-party shippers, are reported as a component of cost of sales. Shipping and handling expenses were immaterial for the years ended December 31, 2014, 2013, and 2012, respectively. |
Research and development | Research and development: |
Research and development costs are expensed as incurred. These costs totaled $4,613, $3,931, and $4,164, for the years ended December 31, 2014, 2013, and 2012, respectively, and typically include employment costs, material costs, contractor fees, and other administrative costs. |
Pensions | Pensions: |
The Company provides defined benefit pension plans for certain of its salaried and represented workforce. Benefits for its salaried participants are generally based on participants’ years of service and compensation. Benefits for represented pension participants are generally determined based on an amount for years of service. Other employees participate in 401(k) plans whereby the Company may provide a match of employee contributions. A portion of the employees in the Titanium Segment 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 applicable 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 the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended, for U.S. plans plus additional amounts as may be approved from time to time. |
The Company accounts for its defined benefit pension plans in accordance with the FASB’s authoritative guidance, which requires amounts recognized in the financial statements to be determined on an actuarial basis, rather than as contributions are made to the plans, and requires recognition of the funded status of the Company’s plans in its Consolidated Balance Sheet. In addition, it also requires actuarial gains and losses, prior service costs and credits, and transition obligations that have not yet been recognized to be recorded as a component of accumulated other comprehensive loss. |
Other post-retirement benefits | Other post-retirement benefits: |
The Company provides 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. In general, employees of the Titanium Segment are covered by post-retirement health care and life insurance benefits. |
The Company also sponsors another post-retirement plan covering certain employees. This plan provides health care benefits for eligible employees. These benefits are accounted for on an actuarial basis, rather than as benefits are paid. The Company does not pre-fund post-retirement benefit costs, but rather pays claims as billed. |
Income taxes | Income taxes: |
Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities multiplied by the enacted tax rates which will be in effect when these differences are expected to reverse. In addition, deferred tax assets may arise from net operating losses (“NOLs”) and tax credits which may be carried back to obtain refunds or carried forward to offset future cash tax liabilities. |
On a quarterly basis, the Company evaluates the available evidence supporting the realization of deferred tax assets and makes adjustments for a valuation allowance, as necessary. |
Tax benefits related to uncertain tax provisions taken or expected to be taken on a tax return are recorded when such benefits meet a more-likely-than-not threshold. Otherwise, these tax benefits are recorded when a tax position has been effectively settled, which means that either the appropriate taxing authority has completed their examination even though the statute of limitations remains open, or the statute of limitation has expired. Interest and penalties related to uncertain tax positions are recognized as part of the provision for income taxes and are accrued beginning in the period that such interest and penalties would be applicable under relevant tax law until such time that the related tax benefits are recognized. |
Foreign currencies | Foreign currencies: |
For the Company’s foreign subsidiaries in the United Kingdom and France, whose functional currency is the U.S. dollar, monetary assets and liabilities are remeasured at current rates, non-monetary assets and liabilities are remeasured at historical rates, and revenues and expenses are translated at average rates on a monthly basis throughout the year. Resulting differences from the remeasurement process are recognized in income and reported as other income (expense). |
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The functional currency of the Company’s Canadian subsidiary is the Canadian dollar. Assets and liabilities are translated at period-end exchange rates. Income statement accounts are translated at the average rates of exchange prevailing during the year. Translation adjustments are reported as a component of accumulated other comprehensive loss in shareholders’ equity and are included in comprehensive income (loss). |
Transactions and balances denominated in currencies other than the functional currency of the transacting entity are remeasured at current rates when the transaction occurs and at each balance sheet date. Transaction gains and losses are included in net income for the period. |
Accumulated other comprehensive income (loss) | Accumulated other comprehensive loss: |
The components of accumulated other comprehensive loss, net of tax, on the Company’s Consolidated Balance sheet at December 31, 2014 and 2013 were as follows: |
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| | Foreign Currency Translation | | Actuarial Losses on Benefit Plans | | Investment Activity | | Total |
Accumulated other comprehensive loss at December 31, 2011 | | $ | 10,793 | | | $ | (49,635 | ) | | $ | (8 | ) | | $ | (38,850 | ) |
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Other comprehensive loss before reclassifications, net of tax | | 1,915 | | | (13,102 | ) | | - | | | (11,187 | ) |
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Amounts reclassified from other comprehensive loss, net of tax | | — | | | 5,025 | | | 8 | | | 5,033 | |
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Balance at December 31, 2012 | | $ | 12,708 | | | $ | (57,712 | ) | | $ | — | | | $ | (45,004 | ) |
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Other comprehensive loss before reclassifications, net of tax | | (6,928 | ) | | 4,264 | | | 21 | | | (2,643 | ) |
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Amounts reclassified from other comprehensive loss, net of tax | | — | | | 7,271 | | | (21 | ) | | 7,250 | |
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Balance at December 31, 2013 | | $ | 5,780 | | | $ | (46,177 | ) | | $ | — | | | $ | (40,397 | ) |
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Other comprehensive loss before reclassifications, net of tax | | (9,733 | ) | | (9,852 | ) | | (41 | ) | | (19,626 | ) |
Amounts reclassified from other comprehensive loss, net of tax | | — | | | 4,434 | | | — | | | 4,434 | |
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Accumulated other comprehensive loss at December 31, 2014 | | $ | (3,953 | ) | | $ | (51,595 | ) | | $ | (41 | ) | | $ | (55,589 | ) |
Amounts reclassified from accumulated other comprehensive loss, net of tax, for December 31, 2014 are presented below. These amounts are reclassified to Cost of sales and Selling, general, and administrative expenses within the Consolidated Statement of Operations. |
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| | 31-Dec-14 | | 31-Dec-13 | | | | | | | | |
Impact of Defined Benefit Pension Items | | | | | | | | | | | | |
Actuarial losses and prior service costs | | $ | 7,122 | | | $ | 8,435 | | | | | | | | | |
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Special termination benefits | | — | | | 3,196 | | | | | | | | | |
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Tax expense | | (2,688 | ) | | (4,360 | ) | | | | | | | | |
Total reclassifications | | $ | 4,434 | | | $ | 7,271 | | | | | | | | | |
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Refer to Note 8 of these Consolidated Financial Statements for further information about the Company’s benefit plans. |
Stock-based compensation | Stock-based compensation: |
The Company utilizes a “graded vesting” approach to recognize compensation expense over the vesting period of stock awards. For employees who have reached retirement age, the Company recognizes compensation expense at the date of grant. For employees approaching retirement eligibility, the Company amortizes compensation expense over the period from the grant date through the retirement eligibility date. |
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Cash flows resulting from the windfall tax benefits from tax deductions in excess of the compensation cost recognized (“excess tax benefits”) are classified as financing cash inflows. For the years ended December 31, 2014, 2013, and 2012, operating cash flows were decreased and financing cash flows were increased by $199, $552, and $196, respectively. |
Total compensation expense recognized in the Consolidated Statements of Operations for stock-based compensation arrangements was $5,670, $6,026, and $4,797 for the years ended December 31, 2014, 2013, and 2012, respectively. The total income tax benefit recognized in the Consolidated Statements of Operations for stock-based compensation arrangements was $1,361, $1,886, and $1,727 for the years ended December 31, 2014, 2013, and 2012, respectively. There was no stock-based compensation cost capitalized for the years ended December 31, 2014, 2013, and 2012. |
New Accounting Standards | New Accounting Standards: |
In January 2015, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2015-01, "Income Statement - Extraordinary and Unusual Items." This ASU eliminates from U.S. GAAP the concept of extraordinary items. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted provided the guidance is applied from the beginning of the fiscal year of adoption. The Company does not expect that the adoption of the ASU will have a material impact on the Company's Consolidated Financial Statements. |
In November 2014, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2014-17, "Pushdown Accounting." This ASU provides an acquired entity with the option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. The election to apply pushdown accounting can be made either in the period in which the change of control occurred, or in a subsequent period. This ASU is effective as of November 18, 2014. The adoption of this ASU did not have a material impact on the Company's Consolidated Financial Statements. |
In August 2014, the FASB issued ASU 2014-15, "Presentation of Financial Statements—Going Concern—Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern." The amendment requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and provide related footnote disclosures. The guidance is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early adoption is permitted. The Company does not expect that the adoption of the ASU will have a material impact on the Company's Consolidated Financial Statements. |
In June 2014, the FASB issued ASU 2014-12, "Compensation—Stock Compensation—Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period." The amendment requires that a performance target that affects vesting and that could be achieved after the requisite service period is treated as a performance condition. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. Early application is permitted. The Company does not expect that the adoption of the ASU will have a material impact on the Company's Consolidated Financial Statements. |
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers." This ASU prescribes that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and can be adopted by the Company using either a full retrospective or modified retrospective approach. Early application is not permitted. The Company is currently evaluating the impact of the adoption of this ASU on the Company's Consolidated Financial Statements. |
In April 2014, the FASB issued ASU 2014-08, "Presentation of Financial Statements and Property, Plant, and Equipment—Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity." This ASU amends the requirements for reporting discontinued operations to include only disposals of a component or groups of components of an entity if the disposal represents a strategic shift that has or will have a major effect on the entity’s operations and financial results. The amendment requires additional disclosure regarding disposals that meet the criteria for discontinued operations in the ASU, and is effective for all disposals within annual and interim periods beginning on or after December 15, 2014. Early adoption is permitted for disposals that have not been reported in financial statements previously issued. The Company does not expect that the adoption of the ASU will have a material impact on the Company's Consolidated Financial Statements. |
In July 2013, the FASB issued ASU 2013-11, "Income Taxes—Presentation of an Unrecognized Tax Benefit when a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists." This ASU prescribes the Balance Sheet presentation for unrecognized tax benefits in the presence of a net operating loss carryforward, tax loss or tax credit carryforward. The amendments in the ASU do not require any new recurring disclosures, and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of this guidance during 2014 did not have a material impact on the Company's Consolidated Financial Statements. |
In March 2013, the FASB issued ASU 2013-05, "Foreign Currency Matters—Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity." This ASU clarifies the applicable guidance for the release of the cumulative translation adjustment under current U.S. GAAP. The amendments in this ASU are effective prospectively for annual and interim reporting periods beginning after December 15, 2013. The adoption of this guidance during 2014 did not have a material impact on the Company's Consolidated Financial Statements. |
In February 2013, the FASB issued ASU 2013-04, "Liabilities—Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date." This ASU provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of the ASU is fixed at the reporting date. The amendments in this ASU are effective prospectively for annual and interim reporting periods beginning after December 15, 2013. The adoption of this guidance during 2014 did not have a material impact on the Company's Consolidated Financial Statements. |