1
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[ X ] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [fee required] for the fiscal year ended December 31, 1994 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [no fee required] 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 of Incorporation) (I.R.S. Employer
Identification No.)
1000 WARREN AVENUE, NILES, OHIO 44446
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 216-544-7700
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
Common Stock, Par Value $0.01 Per Share New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 1, 1995: $16,480,999. The amount shown is based on the
closing price of the registrant's common stock on the New York Stock Exchange on
that date. Shares of common stock known by the registrant to be beneficially
owned by officers or directors of the registrant or persons who have filed a
report on Schedule 13D or 13G are not included in the computation. The
registrant, however, has made no determination that such persons are
"affiliates" within the meaning of Rule 12b-2 under the Securities Exchange Act
of 1934.
Number of shares of common stock outstanding at March 1, 1995: 15,271,561
DOCUMENTS INCORPORATED BY REFERENCE:
Selected Portions of the 1995 Proxy Statement--Part III of this Report.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
2
RMI TITANIUM COMPANY
AND CONSOLIDATED SUBSIDIARIES
As used in this report, the terms "RMI", "Company" and "Registrant" mean
RMI Titanium Company, its predecessors and consolidated subsidiaries, taken as a
whole, unless the context indicates otherwise.
TABLE OF CONTENTS
PAGE
----
PART I
Item 1. Business..................................................................... 1
Item 2. Properties................................................................... 6
Item 3. Legal Proceedings............................................................ 7
Item 4. Submission of Matters to a Vote of Security Holders.......................... 10
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.... 11
Item 6. Selected Financial Data...................................................... 12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................... 12
Item 8. Financial Statements and Supplementary Data.................................. 17
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..................................................... 34
PART III
Item 10. Directors and Executive Officers of the Registrant........................... 34
Item 11. Executive Compensation....................................................... 34
Item 12. Security Ownership of Certain Beneficial Owners
and Management............................................................... 34
Item 13. Certain Relationships and Related Transactions............................... 34
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............. 34
Signatures.............................................................................. 35
Index to Exhibits....................................................................... 36
3
PART I
ITEM 1. BUSINESS
THE COMPANY
The Company is a leading producer of titanium mill products. Titanium mill
products are used principally in the aerospace industry in commercial and
military aircraft with major nonaerospace applications in tubular products for
oil and gas production, chemical processing equipment, pulp and paper production
facilities and medical implants.
The Company is an Ohio corporation and the successor to entities that have
been operating in the titanium industry since 1958. In 1990, USX Corporation
("USX") and Quantum Chemical Corporation ("Quantum") transferred their entire
ownership interest in the Company's immediate predecessor, RMI Company, an Ohio
general partnership, to the Company in exchange for shares of the Company's
Common Stock (the "Reorganization"). Quantum then sold its shares to the public.
USX retained ownership of its shares. At December 31, 1994, approximately 54% of
the Company's outstanding common stock was owned by USX. However, as a result of
entering into a voting trust agreement, USX has a direct voting interest in RMI
of approximately 46%. For further information concerning the voting trust
agreement see "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Liquidity and Capital Resources."
In an effort to meet its liquidity needs and to adequately finance
development of new products and markets, the Board of Directors determined the
Company should seek to raise up to $30 million in 1994. The Company decided to
raise this amount through a Rights Offering to shareholders. In contemplation of
the Rights Offering, the Company's shareholders, at the Annual Meeting of
Shareholders held on March 31, 1994, approved an amendment to the Articles of
Incorporation of the Company effecting a one-for-ten reverse stock split which
became effective on that date. The Rights Offering was commenced in June 1994,
raised gross proceeds of $27.6 million and resulted in the issuance of
13,775,057 new shares of the Company's Common Stock. For further information
concerning the Rights Offering see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
INDUSTRY OVERVIEW
Titanium is one of the newest industrial metals. It possesses physical
characteristics such as high strength-to-weight ratio, high temperature
performance and superior corrosion and erosion resistance. The first major
commercial application of titanium occurred in the early 1950's when it was used
as a component in aircraft gas turbine engines. Subsequent applications were
developed to use the material in airframe construction. Historically,
approximately 75-80% of the U.S. titanium industry's output has been used in
aerospace applications. However, the decline in aerospace demand in recent years
has resulted in an increased emphasis on nonaerospace products.
The cyclical nature of the aerospace industry has been the principal cause
of the fluctuations in performance of companies engaged in the titanium
industry. Prior to 1989-1990, the last peak in the titanium industry cycle
occurred during the 1979-1982 period. From 1987 through late 1990, average unit
prices for the Company's mill products increased steadily. Domestic industry
shipment volumes in 1989 increased to 55.1 million pounds from 49.7 million in
1988, then decreased to 53 million pounds in 1990. Shipments for 1991 decreased
to approximately 34 million pounds, a decrease of 35% from 1990 levels, the
largest single one year decrease in the history of the industry. Shipments in
each of 1992 and 1993 amounted to approximately 35 million pounds. Selling
prices also declined steadily throughout the 1990-1993 period. Although,
domestic final industry shipment data for 1994 is not yet available, it is
anticipated that total industry shipments were between 35-36 million pounds. The
Company's shipments of mill products in 1994 increased by approximately 5% from
1993 levels. The reduced U. S. military budget and production cutbacks at
Boeing, McDonnell Douglas and Airbus Industrie resulting from reduced commercial
airline demand for new aircraft, have negatively impacted the demand and pricing
for mill products.
1
4
Aerospace demand originates from two sectors: military and commercial.
Since 1987 commercial aerospace has become the dominant factor in titanium
demand. Reduced commercial airline profitability and consolidation of major
commercial carriers have had a negative impact on the commercial aerospace
industry in recent years. However, the commercial aerospace sector is expected
to continue to dominate the demand for titanium because of such factors as the
need to repair and replace aging fleets, and growth of worldwide air traffic.
Military aerospace demand, which remained relatively stable through 1989,
dropped sharply between 1990 and 1991 and with the exception of a few specific
programs, is expected to remain at these reduced levels.
Recently the Company has experienced an increase in demand and prices for
titanium mill products. During the last half of 1994 and through the first
quarter of 1995, aerospace customers began to replace inventories that were
depleted below working levels. Additionally, manufacturers of commercial
aircraft have forecasted increased build rates for certain aircraft for
deliveries 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.
PRODUCTS AND MARKETS
The Company operates in a single business segment: Titanium Metal Products
and Related Products and Services. Titanium Metal Products consist principally
of mill products such as ingot, slab, bloom, billet, bar, plate, sheet, strip,
pipe and tube. Related Products include hot-formed and superplastically formed
parts for aerospace applications, cut shapes and titanium metal powders.
Revenues from a titanium drilling riser contract, which began in 1993, and a
seamless titanium geothermal pipe contract, which began in 1994, are included in
Related Products and Services. The Company also provides processing or
conversion services for customer owned materials. Additionally, the Company acts
as contractor for the U. S. Department of Energy ("DOE") for the remediation and
restoration of the Company's former Extrusion Plant located in Ashtabula, Ohio.
Revenue from the DOE contract is included in the Other category. Prior to 1992,
the Company also produced its own titanium sponge, some of which was sold to
domestic nonintegrated producers, as well as sodium chloride, metallic sodium
and sodium hypochlorite, which are classified as discontinued products.
The amount of sales and percentage of consolidated sales represented by
individual product classifications during each of the years beginning in 1990
was as follows:
RMI SALES
(DOLLARS IN MILLIONS)
YEAR ENDED DECEMBER 31
--------------------------------------------------------------------------------
1994 1993 1992 1991 1990
------------ ------------ ------------ ------------ ------------
$ % $ % $ % $ % $ %
------ --- ------ --- ------ --- ------ --- ------ ---
Mill Products................... $103.8 72% $ 96.5 76% $110.5 81% $128.8 78% $208.1 81%
Related Products and Services... 31.1 22 20.5 16 16.7 13 17.3 10 16.4 6
Other (1)....................... 8.5 6 10.4 8 5.8 4 6.3 4 7.9 4
Discontinued Products (2)....... -- -- -- -- 2.6 2 13.2 8 22.9 9
------ --- ------ --- ------ --- ------ --- ------ ---
Total........................... $143.4 100% $127.4 100% $135.6 100% $165.6 100% $255.3 100%
====== ==== ====== ==== ====== ==== ====== ==== ====== ====
<FN>
---------
(1) Includes DOE remediation and restoration contract and preliminary
restoration activity.
(2) Discontinued products includes titanium sponge, sodium chloride, sodium
hypochlorite, and metallic sodium, which are no longer manufactured.
MILL PRODUCTS
The Company produces a full range of titanium mill products which are used
in both the aerospace and nonaerospace markets.
Aerospace Business. Approximately 63% of the Company's 1994 mill product
sales were aerospace related compared with approximately 70% in 1993. The
Company's products are certified and approved for use by all major domestic and
most international manufacturers of commercial and military aircraft and jet
2
5
engines. Products such as sheet, plate, strip, bar, billet and ingot, as well as
related products such as hot-formed or superplastically formed parts, are
utilized in aircraft bulkheads, tail sections, wing support and carry-through
structures and various engine components including rotor blades, vanes, discs,
rings and engine cases.
The leading manufacturers of commercial aircraft, Boeing Company, McDonnell
Douglas Corporation and Airbus Industrie, have reported an aggregate of
approximately 1,741 planes under order and deliverable over the next five years.
The comparable backlog in 1993 amounted to 2,025 planes. However, the impact of
an uncertain world economy and instability in the domestic commercial airline
industry may cause manufacturers to reevaluate aircraft orders and options.
Deliveries of commercial aircraft for these three manufacturers totaled 432 in
1994, 546 in 1993, and 738 in 1992.
Nonaerospace Business. Principal nonaerospace mill products include
commercially pure (unalloyed) strip, tube and plate used for chemical
processing, oil and gas production and refining, and pulp and paper equipment.
Bar is sold for the production of medical implants where the Company enjoys a
significant market share. The Company is also a leading supplier of commercially
pure titanium plate and strip, which offers superior corrosion resistance and
ductility for critical forming and metal expansion. Nonaerospace sales in 1994
accounted for approximately 37% of the Company's mill product sales and 30% in
1993. Since the Company's entry into strip production in 1984 and tube
production in 1986, sales of these two products have grown to a majority of the
Company's total nonaerospace mill product sales.
In addition, the Company has entered into several cooperative arrangements
in an effort to increase its participation in these nonaerospace sectors. A
joint venture, Permipipe Titanium AS, which is 50% owned by RMI, was formed with
Permascand AB, of Sweden, in January 1993. Manufacturing operations commenced in
1994. The venture is located in Norway and manufactures heavy-wall welded
titanium tube and pipe for the oil and gas, petrochemical, pulp and paper, and
other process industries. In January 1995, the Company teamed with Stolt Comex
Seaway SA, a Norwegian based diversified contractor to the offshore oil and gas
industry. This arrangement will allow RMI and Stolt Comex Seaway to combine
their expertise to market, engineer, fabricate and install titanium production
risers, flow lines and other titanium subsea systems. RMI will supply input
material for both ventures.
RELATED PRODUCTS AND SERVICES
Related Products and Services include cut shapes, hot-formed and
superplastically formed parts for aerospace applications, and titanium powders.
The Company also provides conversion services for other titanium and specialty
metals producers. Titanium powders are used for alloy additions,
superconductors, grain refinement of other metals and titanium powder metal
parts.
The Company has devoted significant resources and effort to develop new
applications and markets for titanium in the energy extraction and chemical
process industries. During 1993, the Company executed an agreement to supply the
world's first high-pressure titanium drilling riser for use in the Conoco
Norway, Inc. Heidrun Project located in the Norwegian sector of the North Sea.
Work commenced on the project in the third quarter of 1993, and is now
substantially completed with final shipments of riser joints having been made in
first quarter of 1995. During the fourth quarter of 1994, the Company was
awarded a three year contract by MAGMA Operating Company to supply all of the
titanium pipe casing required for a geothermal energy facility located in the
Imperial Valley of California. The initial release under the contract is valued
in excess of $7.0 million, with deliveries scheduled to commence in the first
half of 1995. The Company is currently working closely with several oil
companies and engineering concerns on a number of other potential projects in
these markets.
OTHER REVENUE
During the fourth quarter of 1993, the Company entered into a long-term
agreement with the DOE covering the remediation and restoration of the Company's
former Extrusion Plant located in Ashtabula, Ohio, for which the DOE is
responsible as a result of work performed there for the government. The Company
will serve as prime contractor during the remediation and restoration period.
The total amount of revenues to be recognized, which will be included in the
Other category, are not determinable at this time. Revenues will vary
3
6
year-to-year depending on DOE funding. In 1994, the Company recognized $8.5
million in such revenues compared to $10.4 million in 1993. As the prime
contractor, the Company will provide management services necessary to complete
assessment, clean-up and remediation activities required to complete
environmental remediation and restoration of the site and facilities.
EXPORTS
Including revenues recognized in connection with the above mentioned
drilling riser contract, approximately 28% of consolidated sales in 1994 were
generated by exports, primarily to the European market, where the Company
believes it is a leader in supplying alloy flat-rolled titanium mill products as
well as rotating quality billet. Export sales comprised approximately 19% and
23% of consolidated sales in 1993 and 1992, respectively. As a result of the
overall decrease in world demand for titanium, particularly in the European
aerospace sector, the Company's export sales in 1993 decreased approximately 24%
from 1992. Through its distributors, contracts have been secured to furnish
titanium mill products to major European aerospace manufacturers. In order to
enhance its presence in the European market, in 1992 the Company acquired a 40%
ownership interest in its French distributor, Reamet, SA. Additionally, the
Company has recently expanded its U.K. operations to include a distribution and
service center facility in Birmingham, England. Operations at the facility are
expected to commence during the second quarter of 1995. Most of the Company's
exports, with the exception of the drilling riser, consist of titanium mill
products used in aerospace markets. The Company's exports also consist of slab,
commercially pure strip, plate and welded tubing used in nonaerospace markets.
BACKLOG
For a discussion of order backlog, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
COMPETITION AND OTHER MARKET FACTORS
The titanium metals industry is highly competitive on a worldwide basis.
Competition is primarily on the basis of price, quality and delivery. Titanium
also competes with other metals such as stainless steel and nickel based
corrosion resistant alloys.
Producers of titanium mill products are located primarily in the U.S.,
Japan, the former Soviet Union ("FSU"), Europe and China. Following closure of
the Company's sponge facilities in 1992, there are two remaining integrated
producers (which produce both sponge and mill products) in the United States.
There are also a number of domestic nonintegrated producers, including the
Company, which produce mill products from purchased sponge, scrap or ingot.
However, none of the Company's nonintegrated competitors produce as full a line
of mill products as does RMI.
Imports of titanium mill products from countries that receive the
most-favored nation-tariff rate ("MFN") are subject to a 15% tariff. The tariff
rate applicable to imports from countries that do not receive MFN treatment is
45%. Japanese producers, which benefit from MFN treatment, participate
significantly in the European market, but historically have not been a major
factor in the U.S. mill products market. The United States does not currently
grant MFN treatment to imports, including titanium mill product imports, from
FSU countries except Russia. However, effective October 18, 1993, the United
States government extended the benefits of the Generalized System of Preferences
("GSP") to Russia. Under GSP, the United States grants reduced duty, and in some
cases, duty-free, access to semifinished and agricultural products from
developing countries and territories. Certain mill products, including ingot,
are covered by GSP. However, titanium sponge has not been afforded GSP
treatment. While countries within the FSU, including Russia, have not
participated to any significant degree in the U.S. market for titanium mill
products, they have the largest titanium production capacity in the world and
could materially affect competition if their exports were to increase
significantly.
4
7
MARKETING AND DISTRIBUTION
RMI markets its titanium mill products and related products and services
worldwide. Approximately 80% of the Company's consolidated sales are made
through its internal sales organization. RMI's domestic sales force has offices
in Niles, Ohio; Houston, Texas; Brea, California; Washington, Missouri; and Salt
Lake City, Utah. Technical marketing personnel are available to service these
offices and to assist in new product applications and development. In addition,
the Company's Customer Technical Service and Research and Development
Departments, both located in Niles, Ohio, provide extensive customer support.
Independent distributors are an important channel of distribution for the
Company. The use of distributors allows RMI to service customers who require
off-the-shelf titanium mill products without an investment by the Company in
inventories, facilities and additional sales staff.
In the U.S., RMI maintains an exclusive domestic distributorship
arrangement with A.M. Castle and Co. ("AMC"), one of the nation's largest
independent metal service centers, having numerous domestic locations. AMC
possesses special expertise in titanium, including cutting and warehousing
capability.
Internationally, RMI maintains a sales office in England and has a
worldwide network of independent sales representatives and distributors. The
Company has recently expanded its U.K. operations to include a distribution and
service center facility in Birmingham, England. Operations at the facility are
expected to commence in the second quarter of 1995. Additionally, in December
1992, in an exchange of common stock, the Company completed an acquisition of a
40% ownership interest in its French distributor, Reamet, SA. As a leading
supplier of alloy flat-rolled titanium mill products to the European market, the
Company has worked through its distributors to secure contracts to furnish mill
products to the major European aerospace manufacturers. As a result, the Company
has significant export sales to customers in France, the United Kingdom and
Germany. International sales representation is also available for the
Netherlands, Italy, Israel, Spain, Sweden, Brazil, Belgium, Norway and
Australia.
RESEARCH, TECHNICAL AND PRODUCT DEVELOPMENT
The Company conducts research, technical and product development activities
at facilities in Niles. The principal goals of the Company's research program
are maintaining technical expertise in the production of titanium metal and
related products and providing technical support in the development of new
markets and products. Beyond the Company's own funding, certain major customers
have assisted in funding the Company's development of specific titanium
applications. Research, technical and product development costs totaled $3.3
million in 1994, and $2.4 million in each of 1993, and 1992. Customer assisted
funding, which is treated as a reduction of research and development spending,
reduced the Company's portion of research and development expense to $1.5
million in each of 1994 and 1993, and $1.6 million in 1992.
The Company has research laboratories in Niles which contain melting, metal
processing, metal testing facilities and a corrosion laboratory for support of
the nonaerospace markets.
PATENTS AND TRADEMARKS
The Company possesses a substantial body of technical know-how and trade
secrets and owns a number of U.S. patents applicable primarily to product
formulations and uses. The Company considers its know-how, trade secrets and
patents important to conduct its business, although no individual item is
considered to be material to current business. Patents related to alloy
formulations have been cross-licensed with another titanium producer resulting
in a small current royalty income.
EMPLOYEE RELATIONS
As of December 31, 1994, the Company and its subsidiaries employed 817
people, 176 of whom were classified as administrative and sales personnel. At
December 31, 1994, approximately 71 out of the total of 817 employees were
directly involved with the DOE remediation and restoration contract at the
Company's former Extrusion Plant.
5
8
Hourly and clerical and technical employees at the Niles Manufacturing
Plant and the hourly employees at the Extrusion Plant are represented by the
United Steel Workers of America ("USWA"). Other than remaining hourly workers at
the Sodium Plant, who are represented by the Oil Chemicals and Atomic Workers
Union, the other employees are not represented by a union. In October of 1992 a
three year labor agreement was reached with the USWA unit at Niles. The hourly
employees at the former Extrusion Plant agreed to a three-year contract in
January 1993. The Company believes its relationships with its employees to be
good.
RAW MATERIALS
Following the closure of its sponge production facilities in 1992, the
Company began purchasing its titanium sponge from outside sources. The Company
has entered into two long-term sponge supply arrangements, each with pricing
below the cost of sponge which was produced at the Company's own facilities. In
addition, the Company has supplemented its metal requirements with additional
sponge and raw material purchases from other suppliers, both foreign and
domestic.
The Company purchases titanium tetrachloride, the primary raw material used
in the manufacture of titanium sponge, from SCM Chemicals, Inc. ("SCM") pursuant
to a long-term supply agreement. Titanium tetrachloride is shipped to one of the
Company's long-term sponge suppliers where it is used in providing sponge for
the Company.
The Company believes it has adequate sources for alloying agents and other
miscellaneous raw materials. However, suppliers of certain master alloys
containing aluminum, vanadium, molybdenum and nickel have recently increased
prices significantly. The Company, and others, have announced the imposition of
surcharges in an attempt to cover these increases.
EXECUTIVE OFFICERS OF THE REGISTRANT
Listed below are the executive officers of the Company together with their ages,
as of December 31, 1994, and titles. Mr. Gieg and Mr. Odle were first elected to
their positions with the Company on August 15, 1989. They have been in their
present capacity or similar managerial position with the Company's predecessors
for over thirteen years.
Beginning in 1982, Mr. Gieg acted in the capacity of President of RMI
Company, the immediate predecessor of the Company. Prior to the Reorganization,
Mr. Gieg was an employee of USX. Since the date of the Reorganization, Mr. Gieg
has been an employee of the Company.
Mr. Rupert was elected to the position of Vice President and Chief
Financial Officer effective September 1, 1991 and promoted to his present
position effective March 31, 1994. Prior to his employment with the Company, Mr.
Rupert was employed for 23 years by USX Corporation in various accounting and
finance positions.
NAME AGE TITLE
---- --- -----
L. Frederick Gieg, Jr............... 63 President and Chief Executive Officer
John H. Odle........................ 52 Senior Vice President-Commercial
Timothy G. Rupert................... 48 Senior Vice President and Chief
Financial Officer
ITEM 2. PROPERTIES
The Company's principal products together with the location of its
principal manufacturing plants and aggregate capacity are set forth below.
6
9
FACILITIES
PRODUCT ANNUAL CAPACITY LOCATION
------- --------------- --------
Ingot........................................ 36 Million Pounds (1) Niles, OH
Mill Products................................ 22 Million Pounds (1) Niles, OH
Hermitage, PA
Sharon, PA
Hot-Formed and Superplastically
Formed Components............................ 21 Thousand Press Hours Washington, MO
Sullivan, MO
Titanium Metal Powders....................... 1.5 Million Pounds Salt Lake City, UT
<FN>
---------
(1) Rated capacity based on current product mix and yields.
In total, the Company has over 728,000 square feet of manufacturing
facilities exclusive of office space, located primarily in Niles, Ohio. The
Company owns all of the foregoing facilities, except for the Sharon,
Pennsylvania and Sullivan, Missouri sites, and certain buildings and property at
Washington, Missouri, all of which are leased. The plants have been constructed
at various times over a long period. Many of the buildings have been remodeled
or expanded and additional buildings have been constructed from time to time.
Much of the equipment at the various locations has likewise been replaced or
remodeled and new equipment has been added at various times. The Company
believes that the plants are adequate and suitable for its operating needs. At
December 31, 1994 the Company's ingot and mill products facilities were each
being utilized at approximately 60% of rated capacity.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. Given the
critical nature of many of the aerospace end uses for the Company's products,
including specifically their use in critical rotating parts of gas turbine
engines, the Company maintains aircraft products liability insurance of $250
million, which includes an aggregate $100 million grounding liability.
GENERAL
The Company has been named as a defendant in a number of cases arising from
the aircraft crash at Sioux City, Iowa, which occurred on July 19, 1989. In its
final report, issued November 1, 1990, the National Transportation Safety Board
("NTSB") concluded that the titanium used to manufacture the fan disc which
ultimately failed, leading to the crash, was supplied by a major competitor of
the Company. Based on the conclusions contained in the NTSB report and the
coverage provided by aircraft products liability insurance, the Company does not
anticipate any adverse financial exposure as a result of these actions.
In connection with the closing of the Sodium and Metals Reduction Plants,
the Oil, Chemical and Atomic Workers union, Local 729, has brought an action
against the Company alleging violation of the notification provisions of the
Worker Adjustment and Retraining Notification Act ("WARN"). Three classes of
former employees of the Company's metals and sodium plants have alleged that
they did not receive the appropriate warnings of their pending layoffs or
layoffs as required under WARN. This case is in the discovery phase. The Company
believes that it has complied with the provisions of WARN and that the claims
are without merit.
ENVIRONMENTAL
The Company is subject to extensive federal, state and local laws and
regulations concerning environmental matters. During 1994, the Company spent
approximately $0.6 million for environmental-related expenditures, and $0.9
million in 1993 and $0.7 million in 1992. The Company broadly estimates
environmental-related expenditures, including capital items and compliance
costs, will total approximately $3.4 million during the 1995-1996 period.
7
10
In connection with the Reorganization, the Company assumed all
responsibility for environmental matters relating to RMI Company and its
immediate predecessor, Reactive Metals, Inc., which commenced business on April
1, 1964, and agreed to indemnify Quantum and USX against any liability relating
to such environmental matters. Quantum and USX have been named as potentially
responsible parties in connection with the Fields Brook Superfund site discussed
below. In addition, Quantum initially acquired the Company's now closed
Ashtabula facilities in 1950, which it owned until 1964, when they were acquired
by Reactive Metals, Inc. Although the Company believes it may have claims with
respect to possible remediation and other costs against Quantum for the pre-1964
period, ultimate apportionment of any liability between the Company and Quantum
has not been finally agreed upon.
Active Investigative or Cleanup Sites. The Company is involved in
investigative or cleanup projects at certain waste disposal sites, which are
discussed below.
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 Field 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 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 predesign
and design phase study for the sediment operable unit and a source control
study, which studies are currently estimated to cost $19 million. Three
additional PRP's 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%. It is not possible to determine
accurately the Company's cost or share of any final allocation formula with
respect to the actual cleanup; however, based on the results of the
allocation of the study costs referred to above, the Company believes its
share of the cleanup costs will be approximately 10%.
In September 1989, EPA sued a number of the then nonparticipating PRPs
seeking recovery of costs incurred by the EPA related to study of the Field
Brook site. The defendant PRPs later brought several third-party actions
against differing combinations of certain of the cooperating PRPs and
Quantum, in addition to a counterclaim against the EPA. A consent decree
between the EPA and the defendant PRPs has resolved the original suit and
the counterclaim. In 1993, USX was added as a defendant PRP.
The Ohio Environmental Protection Agency ("Ohio EPA") has notified the
PRPs of its intention to undertake a Natural Resource Damage Assessment
("NRDA") for the Field Brook site which could lead to a Natural Resource
Damage Claim ("NRDC") against the PRPs. Presently, some portions of the
assessment are being conducted. The assessment could lead to a claim
against the PRPs for residual damages after the clean up is completed. The
Company believes and the Ohio EPA has acknowledged in part, that any
actions to pursue an NRDA or NRDC are premature until the remediation of
the Fields Brook watershed is complete. It is not possible to predict, at
this time, the cost to the Company, if any, as a result of the NRDA and any
NRDC that might be brought.
Resource Conservation and Recovery Act of 1975 ("RCRA")
Proceedings-Ashtabula Sodium Plant. The Company, through its independent
environmental consultant, has identified and reported to EPA the presence
of metals and hazardous organic materials on portions of its now closed
Sodium Plant in Ashtabula, Ohio. As to the organic material, the consultant
has determined it originates from an off-site source, and the Company does
not anticipate it will be required to clean up this material.
8
11
A Corrective Measures Study report prepared for the Company by the
consultant states that the presence of metals would not be expected to have
an adverse impact on humans or the environment, and, after conducting a
detailed analysis of cleanup alternatives, the study recommended that
metals contaminated fill material be consolidated at an on-site landfill
and contained in place, at an estimated cost of $1 million. The Company has
responded to comments received and is awaiting final approval of the study.
The Company has accrued an amount for this matter.
Ashtabula River. The Ashtabula River and Harbor has been designated
one of 43 Areas of Concern on the Great Lakes by the International Joint
Commission. Fields Brook empties into the Ashtabula River, which in turn
flows into Lake Erie. The State of Ohio has appropriated $7 million in
state funds to the Ashtabula River dredging project to assist in securing
at least $18 million in federal funds needed to conduct the dredging.
The Company believes it is most appropriate to use public funds to
cleanup a site with regional environmental and economic development
implications such as the Ashtabula River and Harbor. However, it is
possible that EPA could determine that the Ashtabula River and Harbor
should be designated as an extension of the Fields Brook Superfund site,
or, alternatively, as a separate Superfund site. It is not possible at this
time to predict the methods or responsibility for any remediation and
whether the Company will have any liability for any costs incurred in
cleaning up the Ashtabula River and Harbor. In 1989, the Company and four
other companies entered into an Administrative Order By Consent with EPA
and the Ohio EPA providing for a study to evaluate the nature and extent of
sediment contamination of the Ashtabula River and Harbor and to investigate
potential sources of such contamination and its effect on the water supply
of the City of Ashtabula. The study, which showed no effect on the water
supply, was completed for approximately $1.7 million, of which the
Company's share was $0.4 million. The study report has not yet been
finalized with the EPA and Ohio EPA.
In a May 1993 public meeting on Fields Brook, the EPA reiterated that
the best remedy for the Ashtabula River and Harbor might be to perform a
partial dredging and leave the deep sediments in place, thereby reducing
the cost. The EPA also stated that if the river is not remediated by some
other mechanism, eventually it may be forced to pursue remediation under
Superfund.
With respect to each of the above sites, all of which are located in Ohio,
the State of Ohio may assert its interests and rights independent of those of
the EPA. The Company has notified all its insurers relative to the environmental
claims reported above and has demanded that the insurers assume the Company's
defense of such claims and indemnify the Company against such claims. During
1993, the Company settled a claim with one insurer for $0.4 million. None of the
remaining insurers have agreed to defend or indemnify the Company, and several
have denied coverage. However, the Company continues to pursue these claims with
its insurers.
Alleged RCRA Violations. On October 9, 1992, the EPA filed a complaint
alleging certain violations of RCRA at the Company's now closed Sodium Plant in
Ashtabula, Ohio. The EPA's determination is based on information gathered during
inspections of the facility in 1991. Under the complaint the EPA proposed to
assess a civil penalty of approximately $1.4 million for alleged failure to
comply with RCRA. The Company is contesting the complaint. It is the Company's
position that it has complied with the provisions of RCRA and that the EPA's
assessment of penalties is inappropriate. A formal hearing has been requested
and informal discussions with the EPA to settle this matter are ongoing. Based
on the preliminary nature of the proceedings, the Company is currently unable to
determine the ultimate liability, if any, that may arise from this matter.
Given the status of the proceedings at certain of these sites, and the
evolving nature of environmental laws, regulations, and remediation techniques,
the Company's ultimate obligation for investigative and remediation costs cannot
be predicted. It is the Company's policy to recognize in its financial
statements environmental costs as an obligation becomes probable and a
reasonable estimate of exposure can be determined. At December 31, 1994, the
amount accrued for future environmental-related costs was $2.9 million. Based on
available information, RMI believes that its share of potential
environmental-related costs, before expected contributions from third parties,
is in a range from $4.0 to $6.4 million, in the aggregate. The amount accrued is
net of expected contributions from third parties (other than insurers) of
approximately $1.3 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
9
12
proceedings continue toward final resolution, amounts in excess of those already
provided may be necessary to discharge the Company from its obligations for
these sites.
The ultimate resolution of the foregoing contingencies could, individually
or in the aggregate, be material to the consolidated financial statements.
However, management believes that RMI will remain a viable and competitive
enterprise even though it is possible these matters could be resolved
unfavorably.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
10
13
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
COMMON STOCK DATA:
Principal market for common stock: New York Stock Exchange
Holders of record of common stock at January 31, 1995: 883
RANGE OF COMMON STOCK PRICES AND DIVIDENDS FOR 1994*
DIVIDEND
QUARTER HIGH LOW DECLARED
------- ---- ---- ---------
First................................. $ 20 $16 1/4 $ --
Second................................ 17 2 1/2 --
Third................................. 2 3/4 2 --
Fourth................................ 5 1/2 2 5/8 --
Year.................................. $ 20 $ 2 $ --
RANGE OF COMMON STOCK PRICES AND DIVIDENDS FOR 1993*
DIVIDEND
QUARTER HIGH LOW DECLARED
------- ---- ---- ---------
First................................. $ 20 $ 15 $ --
Second................................ 25 15 --
Third................................. 22 1/2 16 1/4 --
Fourth................................ 20 15 --
Year.................................. $ 25 $ 15 $ --
<FN>
---------
* 1993 and first quarter 1994 prices have been adjusted to reflect the March 31,
1994 one-for-ten reverse stock split.
11
14
ITEM 6. SELECTED FINANCIAL DATA
FIVE YEAR SUMMARY
(Dollars in thousands except for per share data)
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
INCOME STATEMENT DATA:
(Year ended December 31)
Sales.................................... $143,392 $127,397 $135,607 $165,568 $255,295
Operating income (loss).................. (7,971) (10,764) (11,387) (52,712)(1) 32,773
Income (loss) before cumulative effect of
a change in accounting principle....... (11,562) (11,955) (14,062) (57,085) 28,126
Net income (loss)........................ (12,764) (28,893) (14,062) (57,085) 28,126
BALANCE SHEET DATA:
(at end of period)
Working capital.......................... $ 74,694 $ 66,319 $ 72,229 $ 79,820 $109,044
Total assets............................. 160,810 152,647 153,257 173,888 228,605
Long-term debt due after one year........ 54,740 66,660 62,280 58,800 61,205
Equity................................... 42,596(2) 27,861 63,302 77,705 136,569
NET LOSS PER COMMON SHARE:(3)
Before change in accounting principle.... $ (1.45) $ (8.14) $ (9.66) $ (39.17) $ --
Net loss................................. (1.60) (19.67) (9.66) $ (39.17) --
PRO FORMA DATA:
Pro forma net income..................... -- -- -- -- $ 27,274
Pro forma net income per common share.... -- -- -- -- 18.17
<FN>
---------
(1) Includes a charge of $37.1 million relating to the closing of the Company's
sponge production facilities.
(2) Includes a $26.4 million increase resulting from net proceeds of a Rights
Offering.
(3) 1991-1993 loss per Common Share data has been adjusted to reflect the March
31, 1994 one-for-ten reverse stock split.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion should be read in conjunction with "Selected
Financial Data" and the Consolidated Financial Statements and Notes thereto of
the Company included elsewhere herein.
OVERVIEW
The cyclical nature of the aerospace industry has been the principal cause
of the fluctuations in performance of companies engaged in the titanium
industry. Prior to 1989-1990, the last peak in the titanium industry cycle
occurred during the 1979-1982 period. From 1987 through late 1990, average unit
prices for the Company's mill products increased steadily. Domestic industry
shipment volumes in 1989 increased to 55 million pounds from 50 million in 1988,
then decreased to 53 million pounds in 1990. Shipments for 1991 decreased to
approximately 34 million pounds, a decrease of 35% from 1990 levels, the largest
single one year decrease in the history of the industry. Domestic industry
shipments amounted to approximately 35 million pounds in 1992 and approximately
36 million pounds in each of 1993 and 1994. The reduced U.S. military budget and
production cutbacks at Boeing, McDonnell Douglas and Airbus Industrie resulting
from reduced commercial airline demand for new aircraft, have negatively
impacted the demand and pricing for titanium mill products.
In response to these industry-wide conditions, the Company closed its
sponge production facilities in early 1992, which allowed the Company to
immediately stem significant losses generated at these plants, as well as
maintain the flexibility to purchase titanium sponge and other raw materials,
such as foreign or domestic scrap
12
15
at opportunistic prices. In 1992, the Company entered into two long-term
titanium sponge supply arrangements which will assure supply of a significant
portion of its sponge requirements at costs below the cost of sponge which had
been produced at its own facilities. These actions have reduced the Company's
raw material costs and will continue to improve the Company's future competitive
position.
In addition, the Company has substantially reduced administrative costs,
including a reduction in salaried personnel of over 50% since the beginning of
1991.
Operating results in 1994 have shown improvement over 1993 and 1992
results. Further improvement in results of the Company's operations, however
will depend largely on increased commercial aerospace activity, and new market
applications. The Company has recently experienced an increase in the volume of
mill product orders and prices. However, it is impossible to predict if this
trend will continue throughout 1995 or into future years. In order to lessen its
dependence on the aerospace market and to increase its participation in
commercial applications, the Company has devoted significant efforts to
developing new applications and markets for titanium in the energy extraction
and chemical process industries. The Company's successful bid to supply the
world's first titanium drilling riser for the Conoco Norway Heidrun project and
the awarding of the three year MAGMA geothermal pipe contract are several
examples of the markets that the Company is actively pursuing. The Company has
entered into a joint venture, Permipipe Titanium AS, formed with Permascand AB,
to manufacture heavy-wall tube and pipe for use in oil and gas, petrochemical,
pulp and paper, and other process industries at a new facility located in Norway
using RMI supplied material. Further, in January 1995, the Company teamed with
Stolt Comex Seaway SA, a Norwegian based diversified contractor to the offshore
oil and gas industry. This arrangement will allow RMI and Stolt Comex Seaway to
combine their expertise to market, engineer, fabricate and install titanium
production risers, flow lines and other titanium subsea systems.
RESULTS OF OPERATIONS
Net Sales. Net sales in 1994 increased by $16.0 million, or 12% from 1993.
This increase resulted primarily from increased revenues recognized in
connection with the titanium drilling riser contract combined with a 5% increase
in mill product shipments. Average selling prices for mill products remained
virtually unchanged in 1994 compared to 1993. The Company and the domestic
titanium industry in general have seen a continuing weakness in mill product
prices corresponding closely to reduced demand. Prices on recent orders, while
showing some improvement, continue to reflect soft demand for titanium metal
products. Sales of related products and services increased to $31.1 million in
1994 from $20.5 in 1993 primarily as a result of revenues recognized in
connection with the titanium drilling riser and geothermal pipe contracts.
Revenue recognized under the DOE remediation and restoration contract decreased
from $10.4 million to $8.5 million in 1994, due to decreased DOE funding levels.
Net sales decreased $8.2 million or 6% in 1993 from 1992. This decrease
reflects both reduced shipments and lower selling prices for titanium mill
products. Average selling prices for mill products in 1993 decreased by 6% from
1992.
The Company's shipments of mill products for 1994 were up approximately 5%
from 1993 and, as a result, the Company believes it has increased its total
market share. Although final mill shipments for the domestic titanium industry
are not currently available for 1994, the Company estimates that such shipments
were between 35 and 36 million pounds, a slight increase over 1993. The Company
estimates that such shipments will not increase significantly in 1995.
Gross Profit. Gross margin improved to $3.1 million in 1994 compared to a
loss of $0.1 million in 1993. This improvement relates primarily to the titanium
drilling riser contract as well as the favorable impact of increased mill
product shipments.
Gross margin improved during 1993 to a loss of $0.1 million compared to a
loss of $0.4 million in 1992. This improvement reflects decreased operating
costs partially offset by lower selling prices for mill products.
Selling, General and Administrative Expenses ("SG&A"). SG&A expenses
increased to $9.5 million for 1994 from $9.1 million in 1993, reflecting higher
operating levels and higher prices for purchased goods and
13
16
services. SG&A expenses decreased in 1993 by $0.3 million from $9.4 million in
1992 primarily as a result of lower operating levels and cost containment
efforts.
Research, Technical and Product Development Expenses ("Research"). The
Company's total research spending amounted to $3.3 million in 1994 and $2.4
million in each of 1993 and 1992. The spending levels in 1993 and 1992 were set
with an objective of maintaining the Company's technical expertise in titanium
production, providing customer technical support, and the development of new
products and markets in spite of poor economic conditions. Certain major
customers have assisted in funding the Company's overall product development
effort. Such funding, which is included as a reduction of research expense,
reduced the Company's portion of research expense to $1.5 million in each of
1994 and 1993 and $1.6 million in 1992, respectively.
Operating Loss. The operating loss for 1994 was $7.9 million compared to a
loss of $10.7 million in 1993. The 1994 results reflect profit recognized in
connection with the titanium drilling riser contract combined with the increase
in mill product shipments. The operating loss amounted to $11.4 million in 1992.
The improvement in 1993 from 1992 resulted from decreased costs for raw
materials and lower operating expenditures partially offset by reduced selling
prices and an unfavorable product mix.
Other Income (expense). Other income (expense) for 1993 includes a $1.4
million gain on sales and retirements of equipment and facilities.
Interest Expense. Net interest expense amounted to $3.3 million in 1994
and $2.7 million in each of 1993 and 1992. While average borrowings decreased in
1994 from 1993, interest expense increased due to significantly higher overall
interest rates.
Net Loss. In 1994, the Company recorded a net loss of $12.8 million
compared to a net loss of $28.9 million in 1993. The 1994 results were impacted
by a $1.2 million one-time charge representing the cumulative effect of adopting
the provisions of Statement of Financial Accounting Standards No 112 ("SFAS
112"), "Employers' Accounting for Postretirement Benefits," while the 1993
results were impacted by a $16.9 million one-time charge representing the
cumulative effect of adopting the provisions of Statement of Financial
Accounting Standards No. 106 ("SFAS 106"), "Employers' Accounting for
Postretirement Benefits Other than Pensions." The net loss in 1992 amounted to
$14.1 million.
OUTLOOK
The Company's total order backlog as of December 31, 1994 was approximately
$67 million, compared to $71 million at December 31, 1993 and $53 million at
December 31, 1992. As a result of soft demand and competitive pressures, the
average selling prices on incoming orders for mill products have not improved
significantly in the last several years. The Company believes a number of
factors are responsible for this situation. Among these factors are an excess
supply of titanium sponge, aggressive international competition, reduced
military spending, and a lack of commercial airline profits. Many aerospace
contractors have adopted just-in-time inventory practices or have demanded
significantly shorter lead times. Additionally, contractors are waiting until
the last minute to place orders in an effort to obtain the best possible
pricing. The titanium industry is also suffering from excess production
capacity, which intensifies price competition for available business. Any
improvement will largely depend on increased commercial aerospace activity,
increased prices for mill products, and new market applications.
The Company has recently experienced an increase in mill product orders at
increased prices. During the last half of 1994 and through the first quarter of
1995 aerospace customers began to replace inventories that were depleted below
working levels. Additionally, manufacturers of commercial aircraft have
forecasted increased build rates for certain aircraft for deliveries 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.
However, at this early stage, it is impossible to predict if this trend will
continue throughout 1995 or into future periods. If the trend continues, it will
put upward pressure on prices for titanium sponge, the Company's principal raw
material. Producers of certain master alloys have recently increased prices
significantly. The Company, and others, have announced the imposition of
surcharges in an attempt to cover
14
17
these increases. The Company, and several of its competitors, have recently
announced general price increases for mill products.
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 titanium drilling riser and the geothermal pipe contract referred to
below, the Company has entered into two cooperative ventures, one, located in
Norway, for the manufacture of heavy-wall tube and pipe for use in oil and gas,
petrochemical, pulp and paper, and other process industries, and the other to
market, engineer, fabricate and install titanium production risers, flow lines,
and other titanium subsea systems. The Company is currently working with other
companies to develop and expand opportunities for titanium in the energy field.
LIQUIDITY AND CAPITAL RESOURCES
Working capital amounted to $74.7 million at December 31, 1994, compared to
$66.3 million at December 31, 1993. The increase in working capital from 1993 to
1994 reflects an increase in inventories partially offset by an increase in
current liabilities.
For the year ended December 31, 1994, the Company's cash flow requirements
for operating losses, capital spending and working capital needs were funded
primarily through proceeds from the Rights Offering, with the balance of such
proceeds applied to reduce amounts outstanding under the revolving credit
agreement. In 1993, the Company's cash flow requirements were funded through
borrowings and reductions in working capital.
On June 13, 1994, the Company reached agreement with the participating
banks on the terms of an amendment to the $75 million revolving credit facility.
The amendment extended the maturity of the loan to March 16, 1996 and
established new financial covenants relating the maximum amount of credit
available under the facility to a borrowing base formula. Under the facility,
the Company can borrow up to the lesser of $75 million or an amount equal to the
sum of the products of the aggregate value of each of various categories of
collateral and an advance rate established by the banks for each category of
collateral, plus an available overadvance. The facility also contains a covenant
to maintain a minimum balance of total shareholders' equity as of June 30, 1994
and at all times thereafter, based on the balance of total shareholders' equity
at December 31, 1993, as adjusted for new cash equity investments as a result of
the rights offering and certain noncash charges to equity resulting from the
application of certain mandated accounting standards and other matters.
Additionally, if USX were to cease to beneficially own at least 48% of the
Company's voting equity securities, the terms of the facility would be subject
to renegotiation and, in such event, failure by the Company and the banks to
reach agreement on appropriate amendments to the facility could constitute an
event of default.
The Company also received from the banks which are parties to the amended
credit facility a separate commitment to enter into a second revolving credit
facility providing for up to $15 million of borrowings, in addition to amounts
available under the amended credit facility. The second facility would permit
borrowings up to an amount determined pursuant to a borrowing base formula
substantially similar to that used for the amended credit facility, but which
would include only certain collateral related to, or arising out of, the
Company's export sales. The second facility is conditioned upon obtaining a
guarantee by the Export Import Bank of the United States of amounts outstanding
thereunder. The Company applied to the Export Import Bank for such a guarantee.
In October 1994, the Company received tentative approval from the Export Import
Bank for a $5 million guarantee.
The Company is currently negotiating the terms of a definitive agreement
for the second revolving credit facility as well as an amendment to the $75
million facility with the participating banks and the Export Import Bank. The
amended $75 million facility would extend the maturity into 1997 and modify
existing financial covenants. In exchange for these modifications, the Company
expects to pay increased fees and borrowing rates. As a result, the Company
could experience increased borrowing costs in 1995. The present facility matures
March 15, 1996. If the Company and participating banks are unable to agree on
satisfactory new terms, borrowings under the $75 million facility would be
reflected as a current liability on the Company's March 31, 1995 balance sheet.
15
18
At December 31, 1994, the Company had borrowings of $53.8 million under its
$75 million Bank Credit Agreement. Included in the balance outstanding at
December 31, 1994 is approximately $8.0 million borrowed to finance production
of the titanium drilling riser and geothermal pipe contract. Other long-term
debt of $1.0 million consisted of industrial revenue bonds.
The Company, along with the rest of the titanium industry, has experienced
a severe downturn in its traditional markets over the last four years since
1990. Significant reductions in demand for the Company's products and reduced
prices resulted in the Company incurring losses in 1992, 1993 and 1994. These
losses eroded the Company's equity base and impeded the generation of cash,
forcing increasing reliance on the Company's $75 million line of credit.
Aggressive cost-cutting efforts, combined with improved operating efficiencies
and the sale of nonstrategic assets and borrowings have enabled the Company to
maintain operations during this difficult period. However, the timing and extent
of recovery in the Company's traditional aerospace markets are uncertain.
In an effort to lessen its dependence on the aerospace market and to
increase its participation in other markets, the Company has devoted significant
efforts to developing applications and new markets in the energy industry. The
Company believes these new markets offer significant potential for profitable
business. In October 1993, the Company received a contract to supply the world's
first high-pressure titanium drilling riser for use in the Conoco Norway, Inc.
Heidron Project located in the Norwegian sector of the North Sea. Work on the
riser project is expected to be completed in the second quarter of 1995.
Additionally, in the fourth quarter of 1994 the Company was awarded a three year
contract by MAGMA Operating Company to supply all of the titanium pipe casing
required for a geothermal facility in the Imperial Valley of California. Initial
deliveries, valued in excess of $7.0 million, are expected to start in the first
half of 1995.
The Company is currently working closely with several oil companies and
engineering concerns on a number of other potential projects in these markets.
However, these emerging market opportunities coupled with the aforementioned
lack of recovery in the Company's traditional markets placed an even greater
strain on the Company's limited financial resources. Accordingly, the Board of
Directors determined in 1994 that the Company should seek to raise up to $30
million. The Company decided to raise this amount through a rights offering to
shareholders. In contemplation of the rights offering, the Board of Directors of
the Company sought shareholders' approval at the 1994 Annual Meeting of
Shareholders to amend the Articles of Incorporation of the Company to effect a
one-for-ten reverse stock split.
The reverse split proposal was approved by an affirmative vote of
approximately 90% of the outstanding shares. A Certificate of Amendment to the
Articles of Incorporation was filed with the Ohio Secretary of State on March
31, 1994, and the reverse split became effective on that date. Pursuant to the
reverse split, each certificate representing shares of Common Stock outstanding
immediately after the reverse split was deemed to represent one-tenth the number
of shares it represented immediately prior to the reverse split.
To implement the rights offering, 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 so held. Each right entitled the holder to purchase two
shares of Common Stock for a price of $2.00 per share. The rights offering
expired at July 22, 1994. As of the close of business July 22, 1994,
approximately 93% of the total number of rights distributed had been exercised.
The exercise of the rights resulted in the issuance of 13,755,057 new shares of
the Company's Common Stock. Gross proceeds from the offering were $27.6 million.
After deducting all expenses of the offering, net proceeds increased
Shareholders' Equity approximately $26.4 million. As a result of the rights
offering, USX Corporation increased its beneficial ownership from about 51% to
about 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
Common Stock into a voting trust so that the shares of stock held by USX outside
the trust do not exceed the number of shares held by all other holders other
than USX and its affiliates. This arrangement results in USX having a direct
voting interest in RMI of approximately 46%.
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
16
19
predict accurately the ultimate effect these changing laws and regulations may
have on the Company in the future. During 1994, the Company spent approximately
$0.6 million for environmental-related expenditures compared with $0.9 million
in 1993.
At December 31, 1994, the amount accrued for future environment-related
costs was $2.9 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 $6.4 million, in the
aggregate. The amount accrued is net of expected contributions from third
parties (other than insurers) of approximately $1.3 million, which the Company
believes are probable. The Company has been receiving contributions from such
third parties for a number of years as partial reimbursement for costs incurred
by the Company. As these proceedings continue toward final resolution, amounts
in excess of those already provided may be necessary to discharge the Company
from its obligations for these projects. In 1992, the EPA proposed a $1.4
million civil penalty for alleged failure to comply with RCRA. The Company is
contesting the complaint. Based on the preliminary nature of the proceeding the
Company is currently unable to determine the ultimate liability, if any, that
may arise from this matter.
The ultimate resolution of these environmental matters could individually
or in the aggregate, be material to the consolidated financial statements.
However, management believes that the Company will remain a viable and
competitive enterprise even though it is possible that these matters could be
resolved unfavorably.
For a further discussion of environmental matters, see Item 3, Legal
Proceedings, "Environmental."
CAPITAL EXPENDITURES
Gross capital expenditures in each of 1994 and 1993 amounted to $1.0
million. The Company has again budgeted capital spending of approximately $1.0
million in 1995. RMI anticipates that it can fund this spending using cash
provided from operations, supplemented as necessary by available credit
resources.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Management.............................................................. 18
Report of Independent Accountants................................................. 18
FINANCIAL STATEMENTS:
Consolidated Statement of Operations for the years ended
December 31, 1994, 1993 and 1992........................................... 19
Consolidated Balance Sheet at December 31, 1994 and 1993..................... 20
Consolidated Statement of Cash Flows for the years ended
December 31, 1994, 1993 and 1992........................................... 21
Consolidated Statement of Shareholders' Equity for the years ended
December 31, 1994, 1993 and 1992........................................... 22
Notes to Consolidated Financial Statements................................... 23
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
17
20
REPORT OF MANAGEMENT
RMI Titanium Company has prepared and is responsible for the consolidated
financial statements and other financial information included in this Annual
Report. The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles and necessarily include some
amounts based on the best judgements and estimates of management. Financial
information displayed in other sections of this Annual Report is consistent with
that in the consolidated financial statements.
The Company maintains a comprehensive formalized system of internal
accounting controls. Management believes that the internal accounting controls
provide reasonable assurance that transactions are executed and recorded in
accordance with Company policy and procedures and that the accounting records
may be relied on as a basis for preparation of the consolidated financial
statements and other financial information. In addition, as part of their audit
of the consolidated financial statements, the Company's independent accountants,
who are elected by the shareholders, review and test the internal accounting
controls selectively to establish a basis of reliance thereon in determining the
nature, extent and timing of audit tests to be applied.
The Audit Committee of the Board of Directors, composed entirely of
directors who are not employees of the Company, meets regularly with the
independent accountants, management and internal auditors to discuss the
adequacy of internal accounting controls and the quality of financial reporting.
Both the independent accountants and internal auditors have full and free access
to the Audit Committee.
L. F. Gieg, Jr. T. G. Rupert
President and Senior Vice President and
Chief Executive Officer Chief Financial Officer
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF RMI TITANIUM COMPANY
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of RMI Titanium Company and its subsidiaries at December 31, 1994 and
1993, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 11 to the financial statements, in 1994 the Company
adopted Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits." As discussed in Note 11 and Note 8 to
the financial statements, in 1993 the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
other than Pensions," and Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
PRICE WATERHOUSE LLP
Pittsburgh, Pennsylvania
January 26, 1995
18
21
RMI TITANIUM COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31
--------------------------------------
1994 1993 1992
---- ---- ----
Sales.............................................. $143,392 $127,397 $135,607
Operating costs:
Cost of sales.................................... 140,289 127,486 135,985
Selling, general and administrative expenses..... 9,531 9,133 9,365
Research, technical and product development
expenses...................................... 1,543 1,542 1,644
-------- -------- --------
Total operating costs....................... 151,363 138,161 146,994
-------- -------- --------
Operating loss..................................... (7,971) (10,764) (11,387)
Other income (expense)--net........................ (291) 1,554 178
Interest expense................................... (3,300) (2,745) (2,746)
-------- -------- --------
Loss before income taxes........................... (11,562) (11,955) (13,955)
Provision for income taxes (Note 8)................ -- -- 107
-------- -------- --------
Loss before cumulative effect of change in
accounting principle............................. (11,562) (11,955) (14,062)
Cumulative effect of change in accounting principle
(Note 11)........................................ (1,202) (16,938) --
-------- -------- --------
Net loss........................................... $(12,764) $(28,893) $(14,062)
======== ======== ========
Net loss per common share:
Before cumulative effect of change in accounting
principle..................................... $ (1.45) $ (8.14) $ (9.66)
Cumulative effect of change in accounting
principle..................................... (0.15) (11.53) --
-------- -------- --------
Net loss........................................... $ (1.60) $ (19.67) $ (9.66)
======== ======== ========
Weighted average shares outstanding (Note 4)....... 7,958,395 1,468,885 1,456,203
======== ======== ========
The accompanying notes are an integral part of these Consolidated Financial
Statements.
19
22
RMI TITANIUM COMPANY
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
DECEMBER 31
---------------------
1994 1993
---- ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................................. $ 385 $ 293
Receivables, less allowance for doubtful accounts of $704 and $940..... 28,846 29,940
Inventories............................................................ 72,466 57,492
Other current assets................................................... 1,674 1,540
-------- --------
Total current assets.............................................. 103,371 89,265
Property, plant and equipment, net of accumulated depreciation......... 50,016 54,956
Other noncurrent assets................................................ 7,423 8,250
-------- --------
Total assets...................................................... $160,810 $152,471
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt...................................... $ 120 $ 120
Accounts payable....................................................... 17,832 11,770
Accrued wages and other employee costs................................. 7,238 6,383
Other accrued liabilities.............................................. 3,487 4,673
-------- --------
Total current liabilities......................................... 28,677 22,946
Long-term debt......................................................... 54,740 66,660
Accrued postretirement benefit cost.................................... 17,286 15,938
Noncurrent pension liabilities......................................... 15,501 17,056
Other noncurrent liabilities........................................... 2,010 2,010
-------- --------
Total liabilities................................................. 118,214 124,610
-------- --------
Contingencies (see Note 15)............................................
SHAREHOLDERS' EQUITY:
Preferred Stock, no par value; 5,000,000 shares authorized;
no shares outstanding................................................ -- --
Common Stock, $0.01 par value, 30,000,000 shares authorized; 15,838,661
and 15,312,995 shares issued (Note 4)................................ 158 152
Additional paid-in capital (Note 4).................................... 151,058 124,579
Accumulated deficit.................................................... (98,918) (86,154)
Deferred compensation.................................................. -- (205)
Excess minimum pension liability....................................... (6,633) (7,520)
Treasury Common Stock at cost 567,100 and 552,536 shares............... (3,069) (2,991)
-------- --------
Total shareholders' equity........................................ 42,596 27,861
-------- --------
Total liabilities and shareholders' equity........................ $160,810 $152,471
======== ========
The accompanying notes are an integral part of these Consolidated Financial
Statements.
20
23
RMI TITANIUM COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31
----------------------------------
1994 1993 1992
---- ---- ----
CASH PROVIDED FROM (USED IN) OPERATIONS:
Net loss................................................... $(12,764) $(28,893) $(14,062)
Adjustment for items not affecting funds from operations:
Cumulative effect of change in accounting principle...... 1,202 16,938 --
Depreciation............................................. 6,140 6,298 6,506
Gain on disposal of facilities........................... -- (1,436) --
Other-noncash charges--net............................... 1,757 943 1,757
-------- -------- --------
(3,665) (6,150) (5,799)
-------- -------- --------
CHANGES IN ASSETS AND LIABILITIES (EXCLUDING CASH):
Receivables................................................ (248) (3,792) 8,058
Inventories................................................ (14,974) 1,332 6,261
Accounts payable........................................... 6,062 2,881 (519)
Deferred tax asset......................................... -- -- 2,844
Other current liabilities.................................. (331) 2,475 (11,685)
Other assets and liabilities............................... 197 (883) (1,103)
Other...................................................... (258) (92) (619)
-------- -------- --------
(9,552) 1,921 3,237
-------- -------- --------
Cash used in operating activities................... (13,217) (4,229) (2,562)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in joint ventures............................ (172) (1,216) --
Proceeds from sale of facilities......................... 120 2,124 1,783
Capital expenditures..................................... (1,063) (1,014) (4,227)
-------- -------- --------
Cash used in investing activities................... (1,115) (106) (2,444)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of Common Stock............... 26,422 -- --
Borrowings under revolving credit agreement.............. 15,750 4,500 3,600
Debt repayments.......................................... (27,670) (120) (120)
Common Stock repurchased................................. (78) (22) (82)
-------- -------- --------
Cash from financing activities...................... 14,424 4,358 3,398
-------- -------- --------
Increase (decrease) in cash and cash equivalents........... 92 23 (1,608)
Cash and cash equivalents at beginning of period........... 293 270 1,878
-------- -------- --------
Cash and cash equivalents at end of period................. $ 385 $ 293 $ 270
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest (net of amounts capitalized)........ $ 3,283 $ 2,548 $ 2,829
======== ======== ========
The accompanying notes are an integral part of these Consolidated Financial
Statements.
21
24
RMI TITANIUM COMPANY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
EXCESS
ADDT'L. RETAINED TREASURY MINIMUM
SHARES COMMON DEFERRED PAID-IN EARNINGS COMMON PENSION
OUTSTANDING STOCK COMPENSATION CAPITAL (DEFICIT) STOCK LIABILITY
----------- ------ ------------ -------- --------- -------- ---------
Balance outstanding at December 31,
1991.................................. 14,561,781 $ 151 $(518) $124,210 $(43,199) $(2,939) $ --
Compensation expense recognized......... -- -- 366 -- -- -- --
Treasury common stock reissued.......... 24,500 -- -- -- -- 52 --
Shares issued for restricted Stock
Award Plans........................... 38,475 1 (97) 96 -- -- --
Treasury Common Stock purchases at
cost.................................. (20,372) -- -- -- -- (82) --
Net loss................................ -- -- -- -- (14,062) -- --
Excess minimum pension liability........ -- -- -- -- -- -- (677)
---------- ----- ----- -------- -------- ------- -------
Balance at December 31, 1992............ 14,604,384 $ 152 $(249) $124,306 $(57,261) $(2,969) $ (677)
Compensation expense recognized......... -- -- 245 -- -- -- --
Shares issued for restricted Stock
Plans................................. 122,700 1 (201) 200 -- -- --
Shares issued in lieu of Directors'
compensation.......................... 35,439 -- -- 72 -- -- --
Treasury common stock purchases--at
cost.................................. (12,064) -- -- -- -- (22) --
Excess minimum pension liability........ -- -- -- -- -- -- (6,843)
Net loss................................ -- -- -- -- (28,893) -- --
---------- ----- ----- -------- -------- ------- --------
Balance at December 31, 1993............ 14,750,459 $ 153 $(205) $124,578 $(86,154) $(2,991) $(7,520)
Compensation expense recognized......... -- -- 205 -- -- -- --
One-for-ten reverse stock split
effective March 31, 1994 (Note 4)..... (13,275,414) (138 ) -- 138 -- -- --
Shares issued as result of Rights
Offering (Note 4)..................... 13,775,057 143 -- 26,279 -- -- --
Shares issued 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)
========== ===== ===== ======== ======== ======== ========
The accompanying notes are an integral part of these Consolidated Financial
Statements.
22
25
RMI TITANIUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1--ORGANIZATION AND OPERATIONS:
The consolidated financial statements of RMI Titanium Company (the
"Company") include the financial position and results of operations for the
Company and its subsidiaries.
The Company is a successor to entities that have been operating in the
titanium industry since 1958. In 1990, USX Corporation ("USX") and Quantum
Chemical Corporation ("Quantum") transferred their entire ownership interest in
the Company's immediate predecessor, RMI Company, an Ohio general partnership,
to the Company in exchange for shares of the Company's Common Stock (the
"Reorganization"). Quantum then sold its shares to the public. USX retained
ownership of its shares. At December 31, 1994, approximately 54% of the
outstanding common stock was owned by USX. For additional information on the
Company's capital structure see Note 4.
The Company's operations are conducted primarily in one business segment,
the production and marketing of titanium metal and related products. In 1994, no
single customer accounted for more than 10% of consolidated revenues. In the
years ended December 31, 1994, 1993 and 1992, export sales were $39.8 million,
$24.2 million, and $31.7 million, respectively, principally to customers in
Western Europe.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation:
The consolidated financial statements include the accounts of RMI Titanium
Company and its majority owned subsidiaries. All significant intercompany
accounts and transactions are eliminated.
Inventories:
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).
Depreciation and amortization:
In general, depreciation and amortization of properties is determined using
the straight-line method over the estimated useful lives of the various classes
of assets.
Retirement and disposal of properties:
The cost of properties retired or otherwise disposed of, together with the
accumulated depreciation provided thereon, is eliminated from the accounts. The
net gain or loss is recognized in other income and expense.
Maintenance and repairs:
Routine maintenance, repairs and replacements are charged to operations.
Expenditures that materially increase values, change capacities or extend useful
lives are capitalized.
Revenue and cost recognition:
Revenues from the sale of commercial products are recognized upon passage
of title to the customer, which in most cases coincides with shipment. Revenues
from long-term, fixed-price contracts are recognized on the
percentage-of-completion method, measured based on the achievement of certain
milestones in the production and fabrication process. Such milestones have been
weighted based on the critical nature of the operation performed, which
management believes is the best available measure of progress on these
contracts.
23
26
Revenues related to cost-plus-fee contracts are recognized on the basis of costs
incurred during the period plus the fee earned.
Contract costs comprise all direct material and labor costs, including
outside processing fees, and those indirect costs related to contract
performance. Provisions for estimated losses on uncompleted contracts are made
in the period in which such losses are determined.
Contract costs and estimated earnings on uncompleted contracts, net of
progress billings, are included in the consolidated balance sheet under
"Inventories."
Pensions:
The Company and its subsidiaries have a number of noncontributory pension
plans which cover substantially all employees. Most employees are covered by
defined benefit plans in which benefits are based on years of service and annual
compensation. Contributions to the defined benefit plans, as determined by an
independent actuary in accordance with regulations, provide not only for
benefits attributed to date but also for those expected to be earned in the
future.
The Company's policy is to fund pension costs at amounts equal to the
minimum funding requirements of ERISA plus additional amounts as may be approved
from time to time.
Postretirement Benefits:
The Company provides certain health care benefits and life insurance
coverage for certain of its employees and their dependents. Under the Company's
current plans, certain of the Company's employees will become eligible for those
benefits if they reach retirement age while working with the Company.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106 "Employers' Accounting for Postretirement Benefits
Other Than Pensions" ("SFAS 106"). SFAS 106 requires accrual accounting for
postretirement benefits, similar to accounting for pensions, rather than
recognizing cost as claims are paid, which was the method the Company previously
used. As permitted by SFAS 106, the Company elected to recognize the accumulated
postretirement benefit obligation at adoption (transition obligation)
immediately as the cumulative effect of a change in accounting principle.
Income tax:
In connection with the Reorganization, the tax basis of the Company's
assets at that time reflected the fair market value of the common stock then
issued by the Company. The new tax basis was allocated to all assets of the
Company based on federal income tax rules and regulations, and the results of an
independent appraisal. For financial statement purposes, the Company's assets
are carried at historical cost. As a result, the tax basis of a significant
portion of the Company's assets exceeds the related book values and depreciation
and amortization for tax purposes exceeds the corresponding financial statement
amounts.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under
the liability method specified by SFAS 109, deferred tax assets and liabilities
are determined based on the difference between the financial statement and tax
bases of assets and liabilities as measured by the enacted tax rates which will
be in effect when these differences reverse. Prior to the adoption of SFAS 109,
the Company accounted for income taxes pursuant to Statement of Financial
Accounting Standards No. 96 "Accounting for Income Taxes" ("SFAS 96")." The
change from SFAS 96 to SFAS 109 did not have a material effect on the financial
position, results of operations or cash flows of the Company. As permitted under
SFAS 109, prior year financial statements have not been restated.
Cash flows:
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
24
27
NOTE 3--LONG-TERM CONTRACTS:
During 1993, the Company executed an agreement to supply all the titanium
components for the world's first high-pressure drilling riser for use by a major
oil company in development of a project in the Norwegian sector of the North Sea
(the "Riser Contract"). Work commenced on the Riser Contract during the third
quarter of 1993, and is now substantially completed with final shipments of the
riser joints having been made in the first quarter of 1995. During the fourth
quarter of 1994, the Company was awarded a three year contract to supply all of
the titanium pipe casing required for a geothermal energy facility located in
the Imperial Valley of California. The initial release under the contract is
scheduled for delivery during the first half of 1995.
During 1994 and 1993, the Company recorded estimated revenues earned under
the above referenced contracts of $13.2 million and $4.3 million respectively.
At December 31, 1994 and 1993, there were $8.1 million and $1.3 million,
respectively, included in the consolidated balance sheet under "Inventories,"
which represents the amount of cost incurred on the contracts, plus estimated
earnings, less progress billings (see Notes 5 and 6).
In October 1993, the Company executed a long-term contract with the U.S.
Department of Energy ("DOE") covering the remediation and restoration of the
Company's former Extrusion Plant in Ashtabula, Ohio. The contract calls for the
Company to earn fees on cost-plus-fee basis, and acknowledges the DOE's
responsibility for the remediation of the site. During 1994 and 1993, the
Company recognized revenues, including fees, of $8.5 million and $10.4 million,
respectively, under the contract. Total estimated revenues under this contract
are not determinable.
NOTE 4--REVERSE STOCK SPLIT AND RIGHTS OFFERING:
At its Annual Meeting held on March 31, 1994, the Company's shareholders
approved an amendment to the Articles of Incorporation of the Company, effecting
a one-for-ten reverse stock split. A Certificate of Amendment to the Articles of
Incorporation was filed with the Ohio Secretary of State on March 31, 1994, and
the reverse split became effective on that date. Pursuant to the reverse split,
each certificate representing shares of common stock outstanding immediately
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 has 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 46%. Per share and weighted average share amounts reported herein
have been adjusted to reflect the reverse split and subsequent rights offering.
Treasury Common Stock was not affected by the reverse split or rights offering.
NOTE 5--INVENTORIES:
DECEMBER 31
---------------------
1994 1993
---- ----
Raw materials and supplies.................................... $ 13,825 $ 18,366
Work-in-process and finished goods............................ 72,075 52,151
Adjustment to LIFO values..................................... (13,292) (13,025)
-------- --------
$ 72,608 $ 57,492
======== ========
25
28
Included in the inventories are costs relating to the long-term drilling riser
and geothermal pipe contracts. Such costs, net of amounts recognized to date,
were $8.1 million in 1994 and $1.3 million in 1993.
During 1993 LIFO inventory quantities, which were carried at lower costs
than those prevailing in prior years, were reduced. The effect of this reduction
was to reduce cost of sales for 1993 by $128.
NOTE 6--ACCOUNTS RECEIVABLE:
DECEMBER 31
-------------------
1994 1993
---- ----
Trade and commercial customers.................................. $29,127 $26,373
Progress billings on uncompleted contracts...................... -- 3,866
U. S.Government-DOE............................................. 423 641
------- -------
29,550 30,880
Less allowance for doubtful accounts............................ (704) (940)
------- -------
$28,846 $29,940
======= =======
NOTE 7--PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment is stated at cost and consists of the
following:
DECEMBER 31
---------------------
1994 1993
---- ----
Land.......................................................... $ 659 $ 659
Buildings and improvements.................................... 36,443 36,595
Machinery and equipment....................................... 79,460 79,597
Other......................................................... 13,607 13,607
Construction in progress...................................... 7,326 6,716
-------- --------
137,495 137,174
Less--Accumulated depreciation................................ 87,479 82,218
-------- --------
$ 50,016 $ 54,956
======== ========
NOTE 8--INCOME TAXES:
As discussed in Note 2, effective January 1, 1993, the Company adopted the
provisions of SFAS 109. Under the provisions of SFAS 109 or the previous income
tax accounting standard, SFAS 96, no tax benefits were recognized in connection
with the 1994, 1993 and 1992 pretax losses. The provision for income taxes in
1992 results primarily from certain state income taxes and taxes of a subsidiary
not consolidated for tax purposes.
26
29
Deferred taxes result from the following(in thousands):
DECEMBER 31
--------------------
1994 1993
---- ----
Deferred tax assets:
Federal income tax loss carryforwards
($89,593 expiring in 2006 through 2009).......... $ 31,838 $ 27,050
Inventories........................................ 5,590 5,966
Property, plant and equipment...................... 5,494 5,082
Intangible assets.................................. 2,243 2,305
Other postretirement benefit costs................. 6,090 5,609
Other employment related items..................... 2,001 5,992
Other.............................................. 1,410 1,622
Valuation allowance................................ (54,666) (53,626)
-------- --------
Total deferred tax assets........................ -- --
-------- --------
Deferred tax liabilities................................ -- --
-------- --------
Net deferred taxes............................... $ -- $ --
======== ========
SFAS 109 requires a valuation allowance when it is "more likely than not
that some portion or all of the deferred tax assets will not be realized." It
further states that "forming a conclusion that a valuation allowance is not
needed is difficult when there is negative evidence such as cumulative losses in
recent years." The ultimate realization of this deferred income tax asset
depends on the Company's ability to generate sufficient taxable income in the
future. While the Company believes that the deferred income tax asset will be
fully or partially realized by future operating results, losses in recent years
and a desire to be conservative make it appropriate to record a valuation
allowance.
If the Company achieves sufficient profitability, the valuation allowance
will be reduced through a credit to income tax expense, thereby increasing
shareholders' equity.
If certain substantial changes in the Company's ownership should occur,
there would be an annual limitation on the amount of the Federal income tax loss
carryforward and other deductions which could be utilized.
NOTE 9--LONG-TERM DEBT:
In June 1994, the Company reached agreement with the participating banks on
the terms of an amendment to the $75 million revolving credit facility. The
amendment establishes new financial covenants and relates the maximum amount of
credit available under the facility to a borrowing base formula. Under the
facility, the Company can borrow up to the lesser of $75 million or an amount
equal to the sum of the products of the aggregate value of each of various
categories of collateral and an advance rate established by the banks for each
category of collateral, plus an available overadvance. The loan is secured by
substantially all of the Company's assets. The facility also contains a covenant
to maintain a minimum balance of total shareholders' equity as of June 30, 1994
and at all times thereafter, based on the balance of total shareholders' equity
at December 31, 1993, as adjusted for new cash equity investments as a result of
the rights offering and certain noncash charges to equity resulting from the
application of certain mandated accounting standards, restrictions on paying
dividends, and other matters. Additionally, if USX were to cease to beneficially
own at least 48% of the Company's voting equity securities, the terms of the
facility would be subject to renegotiation and, in such event, failure by the
Company and the banks to reach agreement on appropriate amendments to the
facility could constitute an event of default. Interest rates in effect at
December 31, 1994 ranged from 7.44% to 7.83%. As of December 31, 1994, the
Company was in compliance with the covenants and terms of the new credit
facility. At December 31, 1994, the available and unused portion of the facility
amounted
27
30
$21.2 million. The Company is currently negotiating with the participating banks
to extend and further modify the current agreement.
DECEMBER 31
-------------------
1994 1993
---- ----
Bank Credit Agreement dated June 1993, maturing
March 15, 1996................................................... $53,800 $65,600
Industrial revenue bond bearing interest at floating rates based
on weekly tax exempt market rates (6.1% and 3.4% at December
31, 1994 and 1993, respectively) in annual sinking fund
payments of $120 over 15 years from October, 1988............. 1,060 1,180
Current portion of long-term debt............................... (120) (120)
------- -------
$54,740 $66,660
======= =======
The minimum principal payments on long-term debt outstanding at December
31, 1994 for the succeeding five years are as follows:
1995..................................................... 120
1996..................................................... 53,920
1997..................................................... 120
1998..................................................... 120
1999..................................................... 120
NOTE 10--PENSION PLANS:
Pension expense was determined assuming an expected rate of return on plan
assets of 9% for 1994 and 10% in 1993 and 1992. The components of pension
expense for the three years ended December 31, 1994 is summarized as follows:
1994 1993 1992
------------------ ------------------ ------------------
Service cost....................... $ 1,242 $ 1,092 $ 1,314
Interest cost (@ 8%)............... 4,755 4,940 4,858
Return on plan assets:
Actual........................ 809 (3,460) (1,675)
Deferred loss................. (5,422) (4,613) (1,595) (5,055) (3,079) (4,754)
------- ------- ------- ------- ------- -------
Net amortization and deferral...... 693 611 635
------- ------- -------
$ 2,077 $ 1,588 $ 2,053
======= ======= =======
28
31
Funds' status--The benefit obligations at December 31, 1994 and 1993 were
determined using discount rates of approximately 8.25% and 7%, respectively, and
an assumed rate of compensation increase of 5.75% for both years.
DECEMBER 31
---------------------
1994 1993
---- ----
UNDERFUNDED PLANS:
Fair value of plan assets..................................... $ 44,465 $ 49,587
Projected benefit obligation (PBO)............................ (64,231) (70,674)
-------- --------
Plan assets less than PBO..................................... (19,766) (21,087)
Unrecognized net loss......................................... 9,967 11,221
Unrecognized transition obligation............................ 1,791 2,096
Unrecognized prior service cost............................... 2,579 2,878
Adjustment required to recognize minimum liability............ (11,366) (12,922)
-------- --------
Net pension liability....................................... $(16,795) $(17,814)
======== ========
Accumulated benefit obligation................................ $(61,260) $(67,398)
======== ========
Vested benefit obligation..................................... $(57,962) $(63,626)
======== ========
As of December 31, 1994, approximately 42% of the plans' assets are
invested in equity securities, and 39% in government debt instruments and the
balance in cash equivalents or debt securities.
Pursuant to the provisions of Statement of Financial Accounting Standards
No. 87 "Employers Accounting for Pensions," the Company recorded in other
noncurrent liabilities an additional minimum pension obligation of $11.4 and
$12.9 as of December 31, 1994 and 1993, respectively, representing the amount by
which the accumulated benefit obligation exceeded the fair value of plan assets
plus accrued amounts previously recorded.
As a result of staff reduction actions, the Company recognized a $0.8
million curtailment loss in 1992.
NOTE 11--POSTRETIREMENT HEALTH CARE BENEFITS AND OTHER EMPLOYEE BENEFITS:
As discussed in Note 2, RMI adopted SFAS 106 effective January 1, 1993. The
Company elected to recognize immediately the transition obligation determined at
the date of adoption of the new accounting standard. The cumulative effect of
this change in accounting principle resulted in a charge of $16.9 million to the
Company's 1993 results.
Net periodic postretirement benefit cost for 1994 and 1993 included the
following components (in thousands):
1994 1993
---- ----
Service cost.............................................. $ 357 $ 316
Interest cost............................................. 1,533 1,337
Net amortization and deferrals............................ 254 --
------ ------
$2,144 $1,653
====== ======
29
32
The following table sets forth the plans' status reconciled with the amount
reported in the Company's balance sheet at December 31, 1994 and 1993 (in
thousands):
1994 1993
---- ----
Accumulated Postretirement Benefit Obligation
("APBO" attributable to:
Retirees...................................................... $(11,867) $(13,338)
Active participants........................................... (7,242) (9,071)
-------- --------
Total APBO............................................... $(19,109) $(22,409)
======== ========
Accrued liability included in balance sheet, including
transition obligation....................................... $(17,768) $(17,238)
Unrecognized net loss......................................... (1,341) (5,171)
-------- --------
Total APBO............................................... $(19,109) $(22,409)
======== ========
For measurement purposes, a 8% annual rate of increase in the per capita
cost of postretirement medical benefits was assumed beginning in 1994 and
declining to 0% in 2005. The ultimate costs of certain of the Company's retiree
health care plans are capped at contractually determined out-of-pocket spending
limits. The annual rate of increase in the per capita costs for these plans is
limited to the contractually determined spending cap. The health care cost trend
assumption has a significant effect on the amounts reported. For example,
increasing the health care cost trend rate by one percentage point in each year
would increase the accumulated postretirement benefit obligation at December 31,
1994 by $1.9 million and increase net periodic expense by $0.2 million. The
discount rate used in determining the accumulated postretirement benefit
obligation at December 31, 1994 and 1993 was approximately 8.25% and 7%,
respectively.
Effective January 1, 1994 the Company adopted the provisions of Statement
of Financial Accounting Standards No. 112 ("SFAS 112"), "Employer's Accounting
for Postemployment Benefits." The results for the year ended December 31, 1994
reflect a one-time charge of $1.2 million representing the cumulative effect of
adopting the new standard. The liabilities recorded pursuant to SFAS 112 relate
principally to workers' compensation and the adjustment had no effect on cash
flow.
NOTE 12--OPERATING LEASES:
The Company and its subsidiaries have entered into various operating leases
for the use of certain equipment, principally office equipment and vehicles. The
leases generally contain renewal options and provide that the lessee pay
insurance and maintenance costs. The total rental expense under operating leases
amounted to $1.3 million in 1994, $1.4 million in 1993, and $1.6 million in
1992. Future commitments under operating leases are considered to be immaterial.
NOTE 13--TRANSACTIONS WITH RELATED PARTIES:
The Company, in the ordinary course of business, purchases goods and
services, including conversion services, from USX and related companies. The
cost of such transactions to the Company in 1994 amounted to $0.7 million and
$0.1 million in each of 1993 and 1992, and were transacted on terms no less
favorable to the Company than those obtained from other parties. On August 2,
1993 the United States Steel and Carnegie Pension Fund (the "Pension Fund") was
appointed as trustee of the Company's pension plans. The Pension Fund has for
many years acted as trustee of USX Corporation employee benefit plans. The
Pension Fund is a registered investment advisor under the Investment Advisors
Act of 1940, and receives a negotiated fee for such services. Other transactions
with related parties are incidental to the Company's business and are not
significant. The Company made interest free loans to certain of its officers in
connection with the Rights Offering to enable the exercise certain of the rights
issued to them. The loans, totaling $0.1 million, are repayable in three equal
annual installments beginning in July, 1995.
30
33
NOTE 14--OTHER INCOME STATEMENT INFORMATION:
Costs incurred for repairs and maintenance of plant and equipment totaled
$3.3 million, $2.8 million, and $4.5 million, for the years ended December 31,
1994, 1993, and 1992, respectively.
Real and personal property taxes amounted to $1.7 million, $1.5 million,
and $1.8 million, for the years ended December 31, 1994, 1993, and 1992,
respectively.
Other income (expense) for 1993 includes a $1.4 million gain on sales and
retirements of equipment and facilities.
NOTE 15--CONTINGENCIES:
In connection with the Reorganization Agreement, the Company has agreed to
indemnify USX and Quantum against liabilities related to their ownership of the
Company and its immediate predecessor, Reactive Metals, Inc., which was formed
by USX and Quantum in 1964.
The Company is the subject of, or a party to, a number of pending or
threatened legal actions involving a variety of matters.
AIRCRAFT PRODUCT LIABILITY
The Company has been named as a defendant in a number of cases arising from
the aircraft crash at Sioux City, Iowa, which occurred on July 19, 1989. In its
final report, issued November 1, 1990, the National Transportation Safety Board
("NTSB") concluded that the titanium used to manufacture the fan disc which
ultimately failed, leading to the crash, was supplied by a major competitor of
the Company.
The Company maintains an aircraft products liability insurance program.
Based on the conclusions contained in the NTSB report and the coverage provided
by aircraft products liability insurance, the Company does not anticipate any
liability as a result of these actions.
ENVIRONMENTAL MATTERS
In the ordinary course of business, the Company is subject to pervasive
environmental laws and regulations concerning the production, handling, storage,
transportation, emission, and disposal of waste materials and is also subject to
other federal and state laws and regulations regarding health and safety
matters. These laws and regulations are constantly evolving, and it is not
currently possible to predict accurately the ultimate effect these laws and
regulations will have on the Company in the future.
On October 9, 1992 the U. S. Environmental Protection Agency ("EPA") filed
a complaint alleging certain violations of the Resource Conservation and
Recovery Act of 1976, as amended ("RCRA") at the Company's now closed Sodium
Plant in Ashtabula, Ohio. The 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
Field 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.
31
34
With regard to the Field 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 Field 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 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%. It is not possible to determine accurately the
Company's cost or share of any final allocation formula with respect to the
actual cleanup; however, based on the results of the allocation of the study
costs referred to above, the Company believes its share of the cleanup costs
will be approximately 10%.
At December 31, 1994, the amount accrued for future environmental-related
costs was $2.9 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 $6.4 million, in the
aggregate. The amount accrued is net of expected contributions from third
parties (other than insurers) of approximately $1.3 million, which the Company
believes are probable. The Company has been receiving contributions from such
third parties for a number of years as partial reimbursement for costs incurred
by the Company. As these proceedings continue toward final resolution, amounts
in excess of those already provided may be necessary to discharge the Company
from its obligations for these projects.
The Company is also the subject of, or a party to, a number of other
pending or threatened legal actions involving a variety of matters.
The ultimate resolution of these foregoing contingencies could,
individually or in the aggregate, be material to the consolidated financial
statements. However, management believes that the Company will remain a viable
and competitive enterprise even though it is possible that these matters could
be resolved unfavorably.
For a more detailed discussion of environmental matters see Part I, Item 3,
Legal Proceedings, "Environmental."
NOTE 16--STOCK OPTION AND RESTRICTED STOCK AWARD PLANS:
STOCK OPTION INCENTIVE PLAN:
The 1989 Stock Option Incentive Plan authorizes the granting of options to
purchase up to 775,500 shares of Common Stock to eligible officers and key
management employees at not less than the market value on the date the options
are granted. No option may be granted after August 14, 1999. Options granted may
include stock appreciation rights. The option period may not exceed ten years
from the date of the grant. The Company has granted options (which include stock
appreciation rights) to employees to purchase 104,434 shares of Common Stock at
$13.32, 61,316 shares at $6.91, and 128,216 shares at $4.13, 89,441 shares at
$2.80, and 370,000 shares at $4.0625. The number of shares subject to
outstanding options and the exercise price were adjusted to reflect the
one-for-ten reverse stock split and the rights offering.
To date, none of these options to purchase have been exercised.
32
35
1989 EMPLOYEE RESTRICTED STOCK AWARD PLAN:
The 1989 Restricted Stock Award Plan (The "Plan") authorizes the granting
of shares of Common Stock of the Company to employees who have made significant
contribution to the success of the Company. The Plan authorizes the award of up
to 300,000 shares of Common Stock, subject to adjustment in certain
circumstances. No grant of such shares may be made after December 31, 1994.
Shares awarded are subject to restrictions, established by the Organization and
Compensation Committee of the Board of Directors, that during a period set by
the Committee of no less than one year nor more than ten years a participant
shall not be permitted to sell, transfer, pledge or assign awarded shares.
Additionally, the Committee may establish such other restrictions and conditions
as it may deem appropriate for carrying out the Plan.
In 1993, 1992, and 1991, respectively, 134,000, 35,775 and 22,000 shares of
Common Stock were awarded under the Plan. Compensation expense equivalent to the
fair market value of the shares on the date of the grant is being recognized
over the vesting periods during which the restrictions lapse. In November of
1992, in connection with the labor settlement at the Niles Plant, 35,775 shares
were awarded to unionized employees as a signing bonus. All restrictions were
removed as of April 4, 1994.
NON-EMPLOYEE DIRECTOR RESTRICTED STOCK AWARD PLAN:
The Plan authorizes the granting of up to 15,000 shares of Common Stock of
the Company to directors who are not and have never been officers or employees
of the Company. Shares awarded are subject to a restriction providing that a
participant shall not be permitted to sell, transfer, pledge or assign awarded
shares during the period commencing with the date of an award and ending upon
the participant retiring from the Board of Directors. On the date of the
Company's Annual Meeting of Shareholders each calendar year, each eligible
director shall be awarded 300 restricted shares. No grant of such shares may be
made after December 31, 1994.
During 1993 and 1992, 2,700 restricted shares of Common Stock were awarded
annually under the Plan. Compensation expense equivalent to the fair market
value of the shares on the date of the grant has been recognized. Grants in 1994
totaled 240 shares.
NOTE 17--SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
The following table sets forth selected quarterly financial data for 1994
and 1993.
1ST 2ND 3RD 4TH
1994 QUARTER QUARTER QUARTER QUARTER
---- ------- ------- ------- -------
Sales................................................... $36,360 $35,337 $32,842 $38,853
Gross profit............................................ 527 693 996 887
Operating loss.......................................... (2,216) (2,017) (1,984) (1,754)
Cumulative effect of change in accounting principle..... (1,202) -- -- --
Net loss................................................ (4,131) (3,023) (2,780) (2,830)
Net loss per common share before change in
accounting principle.................................. (1.99) (2.05) (0.21) (0.18)
Net loss per share...................................... (2.80) (2.05) (0.21) (0.18)
1ST 2ND 3RD 4TH
1993 QUARTER QUARTER QUARTER QUARTER
---- ------- ------- ------- -------
Sales................................................... $32,134 $30,730 $32,151 $32,382
Gross profit (loss)..................................... 362 704 (545) (610)
Operating loss.......................................... (2,359) (2,281) (3,124) (3,000)
Cumulative effect of change in accounting principle..... (16,938) -- -- --
Net loss................................................ (19,835) (2,867) (3,812) (2,379)
Net loss per common share before change in accounting
principle............................................. (1.98) (1.95) (2.59) (1.55)
Net loss per share...................................... (13.58) (1.95) (2.59) (1.55)
33
36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
In addition to the information set forth under the caption "Executive
Officers of the Registrant" in Part I, Item 1 of this report, information
concerning the directors of the Company is incorporated by reference to
"Election of Directors" on pages 6 through 9 of the 1995 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is incorporated by reference to "The
Board of Directors-Compensation of Directors" on page 6 and "Executive
Compensation" on pages 14 through 16, of the 1995 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is incorporated by reference to "Other
Information-Security Ownership" on page 14 of the 1995 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is incorporated by reference to "Other
Information-Certain Transactions" on page 18 of the 1995 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) (1) AND (2) FINANCIAL STATEMENTS
See "Financial Statements."
(3) SEE INDEX TO EXHIBITS.
(B) REPORT ON FORM 8-K FILED IN THE FOURTH QUARTER OF 1994
None.
(C) EXHIBITS
The exhibits listed on the Index to Exhibits are filed herewith or are
incorporated by reference.
34
37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities 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
/s/ TIMOTHY G. RUPERT
By
--------------------------------
Timothy G. Rupert
Senior Vice President and Chief
Financial Officer
Dated: March 28, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE AND TITLE DATE
------------------- ----
CRAIG R. ANDERSSON, Director;
NEIL A. ARMSTRONG, Director;
CHARLES C. GEDEON, Director;
ROBERT M. HERNANDEZ, Director;
DAN F. HUEBNER, Director;
WILLIAM E. LEWELLEN, Director;
LOUIS A. VALLI, Director; and
WESLEY W. VON SCHACK, Director
March 28, 1995
By /s/ TIMOTHY G. RUPERT
------------------------------------
Timothy G. Rupert
Attorney-in-Fact
/s/ L. FREDERICK GIEG, JR. March 28, 1995
--------------------------------------
L. Frederick Gieg, Jr., President
and Chief Executive Officer and Director
(Principal Executive Officer)
/s/ TIMOTHY G. RUPERT March 28, 1995
--------------------------------------
Timothy G. Rupert,
Senior Vice President and Chief
Financial Officer
(Principal Financial and Accounting Officer)
35
38
INDEX TO EXHIBITS
SEQUENTIAL
EXHIBIT PAGE
NO. DESCRIPTION NUMBER
------- ----------- ------
2.0 Amended and Restated Reorganization Agreement, incorporated by
reference to Exhibit 2.1 to the Company's Registration Statement on
Form S-1 No. 33-30667 Amendment No. 1.
3.1 Articles of Incorporation of the Company, as amended March 31,
1994, incorporated by reference to Exhibit 3.1 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended June
30, 1994.
3.2 Amended Code of Regulations of the Company, incorporated by
reference to Exhibit 3.2 to the Company's Annual Report on Form
10-K for the year ended December 31, 1993.
9.1 RMI Voting Trust Agreement, dated as of August 4, 1994, between RMI
Titanium Company, USX Corporation and Mellon Bank, N.A., as
Trustee, incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended June
30, 1994.
10.1 Agreement for the sale and purchase of titanium tetrachloride
between SCM Chemicals, Inc., and RMI Titanium Company dated March
9, 1993, incorporated by reference to Exhibit 10.13 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1992.+
10.2 Agreement for the supply, purchase and sale of chlorine between SCM
Chemicals, Inc., and RMI Titanium Company dated as of November 13,
1990, incorporated by reference to Exhibit 10.3 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1990.
10.3 Bank Credit Agreement between Society National Bank, PNC Bank,
National Association, and NBD Bank, N.A., as Banks, Society
National Bank as Agent, and RMI Titanium Company dated as of June
13, 1994, incorporated by reference to Exhibit 10.3 to the
Company's Registration Statement on Form S-2 No. 33-52341 Amendment
No. 2.
10.4 RMI Company Annual Incentive Compensation Plan, incorporated by
reference to Exhibit 10.3 to the Company's Registration Statement
on Form S-1 No. 33-30667 Amendment No. 2.
10.5 RMI Titanium Company 1989 Stock Option Incentive Plan, incorporated
by reference to Exhibit 10.4 to the Company's Registration
Statement on Form S-1 No. 33-30667 Amendment No. 2.
10.6 RMI Titanium Company Supplemental Pension Plan effective August 1,
1987, and amended as of December 12, 1990, incorporated by
reference to Exhibit 10.8 to the Company's Annual Report on Form
10-K for the year ended December 31, 1990.
10.7 RMI Titanium Company 1989 Employee Restricted Stock Award Plan,
incorporated by reference to Exhibit 10.6 to the Company's
Registration Statement on Form S-1, No. 33-30667 Amendment No. 2.
10.8 Amendment to RMI Titanium Company 1989 Employee Restricted Stock
Award Plan, incorporated by reference to Exhibit 10.10 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1990.
36
39
SEQUENTIAL
EXHIBIT PAGE
NO. DESCRIPTION NUMBER
------- ----------- -------
10.9 RMI Titanium Company 1989 Non-Employee Director Restricted Stock
Award Plan, incorporated by reference to Exhibit 10.7 to the
Company's Registration Statement on Form S-1, No. 33-30667
Amendment No. 2.
10.10 RMI Titanium Company Excess Benefits Plan effective July 18, 1991,
incorporated by reference to Exhibit 10.11 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1991.
10.11 Agreement for the supply of titanium sponge between Oregon
Metallurgical Corporation and RMI Titanium Company dated as of
February 26, 1992 (without exhibits), incorporated by reference to
Exhibit 10.12 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1991.+
21 Subsidiaries of the Company.
23.1 Consent of Price Waterhouse LLP
24 Powers of Attorney.
27.1 Financial Statements of The RMI Employee Savings and Investment
Plan for the year ended December 31, 1994 (to be filed by
amendment).
27.2 Financial Statements of The RMI Bargaining Unit Employee Savings
and Investment Plan for the year ended December 31, 1994 (to be
filed by amendment).
---------
+ Confidential treatment has been requested.
37