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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1996
______________
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-1339
______
OREGON METALLURGICAL CORPORATION
(Exact name of registrant as specified in its charter)
Oregon 93-0448167
_______________________________ ________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
530 34th Avenue S.W.
Albany, Oregon 97321
____________________________________ _____
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (541) 967-9000
______________
NONE
______________________________________________________
(Former name or address, if changed since last report)
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
___ ___
Indicate the number of shares of each of the issuer's classes of common stock,
as of the latest practicable date:
Class Outstanding as of May 6, 1996
_____________________________ _____________________________
Common stock, $1.00 par value 11,346,612
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PART I: Financial Information
ITEM 1: Financial Statements
OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
Unaudited
Three Months
__________________
For the period ended March 31, 1996 1995
________ ________
Net sales $ 51,309 $ 30,838
Cost of sales 40,948 25,506
________ ________
GROSS PROFIT 10,361 5,332
Research, technical and product
development expenses 617 365
Selling, general and administrative
expenses 4,290 3,400
________ ________
INCOME FROM OPERATIONS 5,454 1,567
Interest expense 634 575
Minority interest in subsidiary 225 106
________ ________
INCOME BEFORE INCOME TAXES 4,595 886
Provision for income taxes 1,250 351
________ ________
NET INCOME $ 3,345 $ 535
======== ========
Net income per share $ 0.30 $ 0.05
======== ========
Weighted average shares
and share equivalents outstanding 11,327 11,055
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands except par value)
Unaudited
March 31, December 31,
1996 1995
____ ____
ASSETS
Current assets:
Cash and cash equivalents $ 1,154 $ 572
Accounts receivable, net 33,038 25,894
Inventories 71,163 66,010
Prepayments 1,035 689
Deferred tax assets 4,201 3,242
__________ __________
TOTAL CURRENT ASSETS 110,591 96,407
Property, plant and equipment, net 34,973 35,138
Other assets, net 1,473 1,532
__________ __________
TOTAL ASSETS $ 147,037 $ 133,077
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,106 $ 616
Book overdraft 3,657 2,014
Accounts payable 17,603 16,973
Accrued payroll and employee benefits 6,567 6,659
Other accrued expenses 6,150 3,595
Provision for losses on long-term
agreements 2,781 2,781
__________ __________
TOTAL CURRENT LIABILITIES 37,864 32,638
Other liabilities:
Long-term debt, less current portion 28,944 26,746
Deferred tax liabilities 4,044 3,149
Deferred compensation payable 508 678
Accrued postretirement benefit 1,608 1,563
Provision for losses on long-term agreements,
less current portion 1,353 1,636
Minority interest 1,019 780
__________ __________
TOTAL LIABILITIES 75,340 67,190
__________ __________
Shareholders' equity:
Common stock, $1.00 par value;
25,000 shares authorized; shares issued:
1996 11,214, 1995, 11,018 11,214 11,018
Additional paid-in capital 40,653 38,340
Retained earnings 19,890 16,545
Cumulative foreign currency
translation adjustment (60) (16)
__________ __________
TOTAL SHAREHOLDERS' EQUITY 71,697 65,887
__________ __________
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 147,037 $ 133,077
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Unaudited Three Months
____________
For the period ended March 31, 1996 1995
____ ____
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,345 $ 535
Adjustments to reconcile net income
to cash used in operating activities:
Depreciation and amortization 1,381 1,126
Deferred income tax benefit 545 88
Compensation paid or payable in common stock 1,307 473
Minority interest in subsidiary 225 178
Decrease (increase) in:
Accounts receivable (7,144) (2,340)
Inventories (5,153) (7,140)
Income taxes receivable ---- 94
Prepayments (346) 414
Increase (decrease) in:
Accounts payable 630 1,897
Accrued payroll and employee benefits 403 513
Other accrued expenses 2,555 283
Provision for losses on long-term
agreements (283) ----
Other (24) 45
__________ ________
Net cash used in operating activities (2,559) (3,834)
__________ ________
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to properties, plant and equipment (1,142) (219)
Other (20) (383)
_________
Net cash used in investing activities (1,162) (602)
__________ ________
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from revolving credit agreement 46,660 23,537
Payments on revolving credit agreement (44,118) (20,222)
Proceeds from long-term debt 177 ----
Payments on long-term debt (31) (3)
Book overdraft 1,643 ----
Other ---- 20
__________ ________
Net cash provided by financing activities 4,331 3,332
__________ ________
Effect of exchange rates on cash and
cash equivalents
(28) (7)
__________ ________
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 582 (1,111)
CASH AND CASH EQUIVALENTS:
Beginning of period 572 1,636
__________ ________
End of period $ 1,154 $ 525
========== ========
The accompanying notes are an integral part of these consolidated financial
statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1. BASIS OF PRESENTATION
The interim consolidated financial statements have been prepared by Oregon
Metallurgical Corporation (the Company) without audit. In the opinion of
management, the accompanying unaudited consolidated financial statements
contain all adjustments necessary to present fairly the financial position
of the Company as of March 31, 1996, and December 31, 1995, the results of
operations; and the cash flows of the Company for the three months ended
March 31, 1996 and 1995. The interim consolidated financial statements
should be read in conjunction with the audited consolidated financial
statements and notes thereto appearing in the Company's Annual Report to
Shareholders.
The results for the first quarter of 1996 are not necessarily indicative of
future financial results.
NOTE 2. ORGANIZATION AND OPERATIONS
The Company is a major producer and distributor of titanium sponge, ingot,
mill products and castings for aerospace, industrial and recreation
applications. As of March 31, 1996, the company is 32% owned by the Oregon
Metallurgical Corporation Employee Stock Ownership Plan (the ESOP).
NO. 3 BASIS OF CONSOLIDATION
Titanium Industries, Inc. an eighty percent (80%) owned subsidiary is a
full-line service titanium metals distributor with facilities in the United
States, Canada, United Kingdom and Germany. The consolidated financial
statements of the Company include the accounts of Titanium Industries, Inc.
and the Company's wholly-owned subsidiary, OREMET France S.a.r.l. Titanium
Industries, Inc.'s accounts reflect the activities of its wholly-owned
subsidiaries, Titanium International, LTD., Titanium Wire Corporation and
Titanium International GmbH. All material intercompany accounts and
transactions have been eliminated in consolidation.
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NOTE 4. INVENTORIES
Inventories are comprised of the following:
March 31, December 31,
1996 1995
_________ ____________
Finished goods.......................... $ 20,243 $ 18,141
Work-in-progress........................ 21,222 19,837
Raw materials........................... 29,698 28,032
________ ________
$ 71,163 $ 66,010
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NOTE 5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are comprised of the following:
March 31, December 31,
1996 1995
_________ ____________
Land.................................... $ 1,189 $ 1,189
Buildings and improvements.............. 11,431 11,455
Machinery and equipment................. 42,453 42,248
Integrated sponge facility.............. 45,641 45,641
Construction in progress................ 1,737 846
________ ________
102,451 101,379
Less accumulated depreciation.......... (67,478) (66,241)
$ 34,973 $ 35,138
======== ========
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PART 1: FINANCIAL INFORMATION
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
_______________________________________________________________
RESULTS OF OPERATIONS
_____________________
OVERVIEW
The Company reported net income of $3.3 million, or $0.30 per share, for
the first quarter of 1996. This level of earnings represents a major
breakthrough in the Company's efforts to return to profitability. During
the fourth quarter of 1995, the Company reported a net loss of $3.0
million, or $0.26 per share. Increased shipments and pricing across all of
the Company's product lines were the primary factors in the Company's
improved performance. The fourth quarter of 1989 was the last quarter the
Company posted profits of this magnitude. The Company's financial
performance was consistent with the results of other major U.S. titanium
producers.
The Company's net sales and twelve-month sales order backlog (sales
backlog) continued to grow at a brisk pace. Net sales increased 29% to
$51.3 million, compared to $39.6 million for the fourth quarter of 1995.
The sales backlog was $134 million on March 31, 1996, an increase of 28%
over the December 31, 1995 sales backlog of $105 million. The twelve-month
sales backlog reflects recent customer order placements, but may not be an
accurate indicator of annual or quarterly sales volume.
The Company's shipments and sales orders from the aerospace, golf and
industrial markets continue to expand. While the demand for military
aerospace applications continues to be weak, the sale of titanium plate
used for armor has grown and represents an expanding new market for
titanium.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 Compared to the Three Months Ended
____________________________________________________________________
March 31, 1995:
______________
NET SALES:
Net sales were $51.3 million for the first quarter of 1996, an increase of
66% over the first quarter of 1995 sales of $30.8 million. The increase in
sales was primarily driven by increased demand and pricing for both the
Company's manufactured and service center products.
TITANIUM SPONGE:
During the first quarter of 1996, the Company's integrated sponge facility
operated at near capacity, primarily supplying the Company's internal
demand for titanium sponge as well as sales to RMI Titanium Company (RMI)
under a long-term titanium sponge supply agreement. Sales of titanium
sponge, and sponge conversion services increased 49% for the first quarter
of 1996 compared to the first quarter of 1995. Sponge shipments increased
26% and the average sponge price per pound increased 18%. The increase in
the average price per pound of 18% can be attributed to sales of high
purity sponge, which the Company started commercially producing in limited
quantities in 1995. The Company projects that it will continue to operate
its sponge facility at near capacity with substantially all production
being utilized for internal consumption or for supply to RMI. The Company
is presently supplementing its sponge production with purchases from other
producers.
-7-
INGOT:
Sales of ingot increased 117% for the first quarter of 1996 compared to the
first quarter of 1995. Ingot shipments increased 79% and average ingot
price per pound increased 21%. The Company operated its melt facilities
at near capacity during the first quarter of 1996. The Company produces
ingot for both internal use in its mill products division and for sale to
outside customers.
MILL PRODUCTS:
OREMET Titanium Division (Primary production facilities located in Albany,
Oregon) produces or contracts for outside production of a variety of mill
products: billet, bar, plate, sheet and engineered parts. OREMET Titanium
Division mill product sales increased 116% for the first quarter of 1996
compared to the first quarter of 1995. Shipments of mill products
increased 56% and the average price per pound increased 38%. Sale of
titanium billet to producers of golf club heads is responsible for a
substantial portion of the growth in mill product sales.
The Company's service centers market a wide variety of mill products
including engineered parts that are manufactured by various producers.
During the first quarter of 1996, both shipments and pricing for service
center products increased compared to the first quarter of 1995.
CASTINGS:
Sales of castings increased 40% for the first quarter of 1996 compared to
the first quarter of 1995.
COST OF SALES:
Cost of sales for the first quarter of 1996 increased $15.4 million, or
60.5% to $40.9 million, compared to $25.5 million in the first quarter of
1995. The primary reasons for the increase in cost of sales were increased
shipments, coupled with rising raw material and conversion costs. The
Company's gross profit percentage increased to 20.2% for the first quarter
of 1996 compared to 17.3% for the first quarter of 1995. The improvement
in the gross profit percentage is primarily due to increases in prices.
RESEARCH, TECHNICAL AND PRODUCT DEVELOPMENT EXPENSES:
Research, technical and product development expenses (RT&D) increased $0.3
million, or 69% for the first quarter of 1996, to $0.6 million compared to
$0.4 million in the comparable quarter of 1995. The main focus of RT&D is
to develop enhanced production procedures, provide customers with required
technical support and develop new products and markets. RT&D works jointly
on projects with customers, federal agencies and research universities.
The increase in RT&D expenses reflect the Company's commitment to this
area.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Selling, general and administrative expenses (SG&A) increased $0.9 million,
or 26%, for the first quarter of 1996 to $4.3 million from $3.4 million in
the comparable quarter of 1995. In response to an increased level of
activity, all departments included in the SG&A category incurred additional
personnel-related costs and to other support related expenses.
INTEREST EXPENSE:
Interest expense increased $0.1 million, or 10.3%, to $.6 million in the
first quarter of 1996 compared to the first quarter of 1995. The increase
in interest expense was the direct result of an increase in borrowings
needed to fund expanded operating levels.
MINORITY INTERESTS:
The amounts reported as minority interests eliminate the minority
shareholder's 20% interest in the net income of TI from the Company's
Consolidated Statements of Operations.
PROVISION FOR INCOME TAXES:
The Company reported a provision for income taxes of $1.3 million, or an
effective tax rate of 26% for the first quarter of 1996 compared to $.4
million, or an effective tax rate of 35% for the comparable period in 1995.
The difference between the federal and state combined statutory tax rate
of 39% and the effective tax rate of 26% for the first quarter of 1996 is
primarily due to an adjustment to the Company's deferred tax asset
valuation allowance.
-8-
The deferred tax asset valuation allowance has been adjusted, reflecting
the revised future income expectations of the Company and the belief that
the reinstated deferred tax assets will be realized by the Company.
NET INCOME:
The Company reported net income of $3.3 million ($0.30 per share) for the
first quarter of 1996 compared to a net income of $0.5 million ($0.05 per
share) for the comparable period in 1995.
NON-U.S. OPERATIONS AND MONETARY ASSETS
FOREIGN SUBSIDIARIES:
The Company has the following foreign subsidiaries:
Titanium International Limited (TIL), a sales and service center located in
the United Kingdom, and Titanium International GmbH (TIG), a sales and
service center located in Germany, are wholly-owned subsidiaries of TI, an
80% owned subsidiary of the Company. As of March 31, 1996, TIL and TIG had
$9.6 million in total assets and approximately 45 employees.
Oremet France, S.a.r.l. is a wholly-owned sales and service center located
near Paris, France. As of March 31, 1996, Oremet France has approximately
$0.9 million in total assets and six employees.
Changes in the value of foreign currencies relative to the U.S. dollar
cause fluctuations in the U.S. dollar financial position and operating
results. The impact of foreign currency fluctuations on the Company was
not significant during the first quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW:
Net cash used in operating activities totaled $2.6 million for the first
quarter of 1996, compared to $3.8 million for the comparable period of
1995. Increases in sales and the sales backlog are driving increased
levels of accounts receivable and inventory which represented the primary
uses of cash for the quarter.
During the first quarter of 1996, the Company incurred $1.3 million in
expenses relating to its Stock Compensation Plans and Savings Plan. The
Company will satisfy liabilities arising under these plans by issuing
shares of the Company's common stock. See note 10 the Company's 1995
annual report for further discussion regarding the Company's Stock
Compensation and Defined Contribution Plans.
-9-
Net cash used in investing activities totaled $1.2 million for the first
quarter of 1996 compared to $0.6 million for the first quarter of 1995.
The Company had additions to property, plant and equipment of $1.1 million
in the first quarter of 1996.
Net cash provided by financing activities totaled $4.3 million for the
first quarter of 1996, compared to $3.3 million for the comparable period
of 1995. For the first quarter of 1996, $4.2 million was provided from net
proceeds on the Company's revolving credit agreements and book overdraft.
CREDIT AGREEMENT:
The Company may borrow up to $35 million under the terms of a revolving
credit agreement with BankAmerica Business Credit, Inc. (BABC). The credit
agreement expires in September 1997. The balance outstanding under the
credit agreement as of March 31, 1996 is $23.3 million.
As of March 31, 1996, interest charged under the credit agreement is at
BABC's reference rate (8.25%) plus either 1% or 1.5% depending on the
financial performance of the Company. The credit facility provides for a
LIBOR based borrowing option which the Company has exercised.
CAPITAL EXPENDITURES:
The Company has no material open commitments which obligate it to make
future capital expenditures. The Company's 1996 capital plan anticipates
that expenditures will approximate $9.0 million. Capital expenditures
required to maintain compliance with applicable environmental regulations
are included in the Company's capital expenditure plan to the extent that
they can be determined. The Company's capital expenditures will be funded
by a combination of internally generated cash and external financing.
The Company's recent capital expenditure history is as follows (dollars in
millions):
QUARTER ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1996 1995 1994 1993
____ ____ ____ ____
Additions to
property, plant
and equipment $1.1 $1.9 $1.9 $1.2
The Company estimates that 1996 additions to property, plant and equipment
will approximate $7.0 million. The Company's credit facility with BABC
provides that capital expenditures may not exceed $7.0 million for any
fiscal year.
-10-
INCOME TAXES:
The Company anticipates that in 1996 it will fully utilize its federal net
operating loss carryforwards of $3.6 million and will pay federal taxes on
any remaining balance of its federal taxable income. The operations of TIL
in the U.K. will potentially result in the Company's most significant
foreign tax obligations. The Company has a State of Oregon net operating
loss carryforward of $30.0 million which will limit the amount of state
taxes paid in 1996. In addition, the Company pays minimal franchise and
income taxes in various states and foreign jurisdictions.
ADEQUACY OF LIQUIDITY AND CAPITAL RESOURCES:
The Company's access to borrowing facilities, internally generated cash and
capital markets are expected to provide the resources necessary to support
increased operating needs and to finance continued growth, capital
expenditures and repayment of long-term debt obligations.
PART II: OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
________________________________
A. Exhibits
10.1 Amendment to Oregon Metallurgical Corporation Employee
Stock Ownership Plan
11.1 Statement re: computation of per share earnings.
27.1 Financial Data Schedule
B. Forms 8-K
No reports on Form 8-K were filed by the company during the
quarter ended March 31, 1996
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.
OREGON METALLURGICAL CORPORATION
Registrant
Date: May 13, 1996 /s/ Dennis P. Kelly
______________ __________________________________
Dennis P. Kelly
Vice President, Finance and
Chief Financial Officer
Signing on behalf of the Registrant and as
Chief Accounting Officer
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