SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 - For the quarter ended March 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-28538
Titanium Metals Corporation
(Exact name of registrant as specified in its charter)
Delaware 13-5630895
(State or other (IRS Employer
jurisdiction of Identification
incorporation or No.)
organization)
1999 Broadway, Suite 4300, Denver, Colorado 80202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 296-5600
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, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
Number of shares of common stock outstanding on April 30, 1998: 31,457,905
FORWARD - LOOKING INFORMATION
The statements contained in this Report on Form 10-Q ("Quarterly Report")
which are not historical facts, including, but not limited to, statements found
in the Notes to Consolidated Financial Statements and under the captions
"Results of Operations" and "Liquidity and Capital Resources" (both contained in
Management's Discussion and Analysis of Financial Condition and Results of
Operations), are forward-looking statements or discussions of trends which by
their nature involve substantial risks and uncertainties that could
significantly impact expected results. Actual results could differ materially
from those described in such forward-looking statements. Among the factors that
could cause actual results to differ materially are the risks and uncertainties
discussed in this Quarterly Report, including those portions referenced above
and those described from time to time in the Company's other filings with the
Securities and Exchange Commission, such as the cyclicality of the Company's
business and its dependence on the aerospace industry, the sensitivity of the
Company's business to global industry capacity, global economic conditions,
changes in product pricing, the possibility of labor disruptions, control by
certain stockholders and possible conflicts of interest, potential difficulties
in integrating acquisitions, uncertainties associated with new product
development and the supply of raw materials and services.
TITANIUM METALS CORPORATION
INDEX
Page
number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - December 31, 1997 and
March 31, 1998 2-3
Consolidated Statements of Income - Three months
ended March 31, 1997 and 1998 4
Consolidated Statements of Comprehensive Income - Three
months ended March 31, 1997 and 1998 5
Consolidated Statements of Cash Flows - Three months
ended March 31, 1997 and 1998 6-7
Consolidated Statement of Stockholders' Equity - Three
months ended March 31, 1998 8
Notes to Consolidated Financial Statements 9-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 12-13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 14
Item 6. Exhibits and Reports on Form 8-K. 14
TITANIUM METALS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
December MARCH 31,
ASSETS 31, 1998
1997
Current assets:
Cash and cash equivalents $ 68,957 $ 117,378
Receivables, net 155,678 145,214
Receivable from related parties 15,844 12,289
Inventories 153,818 163,233
Prepaid expenses and other 13,253 12,173
Deferred income taxes 6,219 5,824
Total current assets 413,769 456,111
Other assets:
Investments in joint ventures 23,270 23,000
Goodwill 59,771 58,523
Other intangible assets 17,889 17,303
Deferred income taxes 593 3,583
Other 15,341 14,956
Total other assets 116,864 117,365
Property and equipment:
Land 6,545 6,552
Buildings 26,823 26,921
Equipment 222,845 224,659
Construction in progress 58,740 78,617
314,953 336,749
Less accumulated depreciation 52,527 58,006
Net property and equipment 262,426 278,743
$ 793,059 $ 852,219
TITANIUM METALS CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands)
LIABILITIES, MINORITY INTEREST AND December MARCH 31,
STOCKHOLDERS' EQUITY 31, 1998
1997
Current liabilities:
Notes payable $ 3,372 $ 1,321
Current maturities of long-term debt
and
capital lease obligations 1,354 1,317
Accounts payable 59,501 54,562
Accrued liabilities 46,809 44,236
Payable to related parties 1,298 984
Income taxes 11,482 18,313
Deferred income taxes - 342
Total current liabilities 123,816 121,075
Noncurrent liabilities:
Long-term debt 451 40,417
Capital lease obligations 10,996 11,021
Payable to related parties 847 847
Accrued OPEB cost 26,192 26,044
Deferred income taxes 11,620 14,365
Other 2,277 1,625
Total noncurrent liabilities 52,383 94,319
Minority interest - - Company-
obligated mandatorily
redeemable preferred securities of
subsidiary trust 201,250 201,250
holding solely subordinated debt
securities
("Convertible Preferred Securities")
Other minority interest 6,663 7,593
Stockholders' equity:
Preferred stock - -
Common stock 315 315
Additional paid-in capital 346,723 347,411
Retained earnings 58,001 76,287
Accumulated other comprehensive income
- - currency 3,908 3,969
translation adjustments
Total stockholders' equity 408,947 427,982
$793,059 $ 852,219
[FN]Commitments and contingencies (Note 1)
TITANIUM METALS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Three months ended March 31, 1997 and 1998
(In thousands, except per share data)
1997 1998
Revenues and other income:
Net sales $167,050 $187,057
Other, net 875 741
167,925 187,798
Costs and expenses:
Cost of sales 130,300 140,832
Selling, general, administrative and 10,123 14,184
development
Interest 646 416
141,069 155,432
Income before income taxes 26,856 32,366
Income tax expense 8,344 11,004
Minority interest - Convertible Preferred 2,198 2,214
Securities
Other minority interest 537 862
Net income $ 15,777 $ 18,286
Diluted net income $ 17,975 $ 20,500
Earnings per share:
Basic $ .50 $ .58
Diluted .49 .56
Weighted average shares outstanding:
Basic 31,457 31,458
Diluted 36,916 36,914
TITANIUM METALS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three months ended March 31, 1997 and 1998
(In thousands)
1997 1998
Net income $ 15,777 $18,286
Other comprehensive income-currency
translation adjustment (3,382) 61
Comprehensive income $ 12,395 $18,347
TITANIUM METALS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 1997 and 1998
(In thousands)
1997 1998
Cash flows from operating activities:
Net income $ 15,777 $ 18,286
Depreciation and amortization 6,961 7,473
Joint ventures, net of distributions 100 235
Deferred income taxes (470) 532
Other minority interest 537 862
22,905 27,388
Change in assets and liabilities, net of
acquisitions:
Receivables (20,771) 10,182
Inventories (7,885) (9,603)
Prepaid expenses and other 1,486 528
Accounts payable and accrued liabilities 3,364 (4,683)
Income taxes 7,477 7,451
Accounts with related parties (1,803) 3,532
Net cash provided by operating 4,773 34,795
activities
Cash flows from investing activities:
Capital expenditures (10,134) (25,167)
Business acquisitions (476) -
Other, net 30 -
Net cash used by investing activities (10,580) (25,167)
Cash flows from financing activities:
Indebtedness:
Borrowings - 40,000
Repayments (1,352) (1,799)
Related party debt repayments (1,036) -
Refund of letters of credit collateralized - 734
Net cash provided (used) by financing (2,388) 38,935
activities
TITANIUM METALS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Three months ended March 31, 1997 and 1998
(In thousands)
1997 1998
Net increase (decrease) in cash and
equivalents from:
Operating, investing and financing $ (8,195) $ 48,563
activities
Currency translation 165 (142)
(8,030) 48,421
Cash and equivalents at beginning of period 86,526 68,957
Cash and equivalents at end of period $ 78,496 $117,378
Supplemental disclosures:
Cash paid for:
Interest expense, net of capitalized
interest $ 425 $ 445
Convertible Preferred Securities 3,333 3,333
dividends
Income taxes 341 1,742
Business acquisitions:
Goodwill and other intangibles $ $
577 -
Property, equipment and other noncash 3,503 -
assets
Liabilities (3,604) -
Cash paid $ 476 $ -
TITANIUM METALS CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Three months ended March 31, 1998
(In thousands)
Additional
Common Common paid-in
shares stock capital
Balance December 31, 31,458 $315 $346,723
1997
Comprehensive income - - -
Other - - 688
Balance March 31, 1998 31,458 $315 $347,411
Accumulated
other
Retained comprehensive
earnings income* Total
Balance December 31, $ 58,001 $ 3,908 $408,947
1997
Comprehensive income 18,286 61 18,347
Other - - 688
Balance March 31, 1998 $76,287 $ 3,969 $427,982
*Currency translation adjustments.
TITANIUM METALS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of presentation:
The consolidated balance sheet of Titanium Metals Corporation ("TIMET") and
subsidiaries (collectively, the "Company") at December 31, 1997 has been
condensed from the Company's audited consolidated financial statements at that
date. The consolidated balance sheet at March 31, 1998 and the consolidated
statements of operations, comprehensive income, stockholders' equity and cash
flows for the interim periods ended March 31, 1997 and 1998 have been prepared
by the Company without audit. In the opinion of management, all adjustments
necessary to present fairly the consolidated financial position, results of
operations and cash flows have been made. The results of operations for interim
periods are not necessarily indicative of the operating results of a full year
or of future operations.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The accompanying consolidated financial
statements should be read in conjunction with the consolidated financial
statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1997 (the "1997 Annual Report").
For information concerning certain legal proceedings and certain
contingencies related to the Company, see (i) Item 2 -- "Management's
Discussion and Analysis of Financial Condition and Results of Operations," (ii)
Part II, Item 1 -- "Legal Proceedings," and (iii) the 1997 Annual Report.
Note 2 - Operating segment information:
The Company is a vertically integrated producer of titanium sponge, ingot,
slab and mill forged or cast products for aerospace, industrial and other
applications. The Company's production facilities are located principally in
the United States, United Kingdom and France and the Company's products are sold
throughout the world.
Three months ended
March 31,
1997 1998
(In thousands)
Net sales $167,050 $187,057
Operating income $ 26,535 $ 31,629
General corporate income, net 967 1,153
Interest expense (646) (416)
Income before income taxes $ 26,856 $ 32,366
Note 3 - Earnings per share:
Earnings per diluted share reflects an immaterial number of dilutive common
stock options and the assumed conversion of the Convertible Preferred Securities
into 5.4 million shares of common stock.
Note 4 - Inventories:
December
31, MARCH831,
1997
(In thousands)
Raw materials $ 23,925 $ 24,896
Work-in-process 91,884 96,354
Finished products 31,230 35,810
Supplies 6,779 6,173
$153,818 $ 163,233
The average cost of LIFO inventories exceeded the net carrying amount of
such inventories by approximately $32 million at each of December 31, 1997 and
March 31, 1998.
Note 5 - Accrued liabilities:
December 31, MARCH 31,
1997 1998
(In thousands)
Pension and OPEB costs $ 3,174 $ 3,921
Other employee benefits 25,869 21,305
Environmental costs 1,762 1,762
Taxes, other than income 3,062 4,097
Convertible Preferred Securities - 1,103 1,103
dividends
Other 11,839 12,048
$ 46,809 $ 44,236
Note 6 - Notes payable, long-term debt and capital lease obligations:
Notes payable at December 31, 1997 and March 31, 1998 consists of
borrowings under the Company's short-term European bank credit agreements.
Long-term debt at March 31, 1998 includes $40 million of borrowings under the
Company's U.S. long-term bank credit agreement. At March 31, 1998, the Company
had approximately $190 million of unused borrowing availability under its U.S.
and European bank credit agreements.
Capital lease obligations relate principally to production facilities in
the United Kingdom held under long-term leases with IMI plc.
Note 7 - Income taxes:
The difference between the Company's provision for income tax expense and
the amounts that would be expected using the U.S. federal statutory income tax
rate of 35% is presented below. The valuation allowance reductions in both
periods relate primarily to current utilization of certain tax carryforwards not
previously recognized.
Three months
ended
March 31,
1997 1998
(In thousands)
Expected income tax expense $9,400 $11,328
Non-U.S. tax rates (270) (219)
Adjustment of deferred tax valuation allowance
related to current year results (822) (46)
U.S. state income taxes, net 175 245
Other, net (139) (304)
$8,344 $11,004
Minority interest - Convertible Preferred Securities is stated net of
income tax benefits of $1.2 million in both the 1997 and 1998 periods.
Note 8 - Ownership structure:
Tremont Corporation holds approximately 30% of TIMET's outstanding common
stock. Contran Corporation and other entities related to Harold C. Simmons hold
an aggregate of approximately 50% of Tremont's outstanding common stock. Mr.
Simmons may be deemed to control each of Contran, Tremont and TIMET.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The improvement in earnings for the first quarter of 1998 over the same
period in 1997 was primarily due to volume increases. Titanium mill product
shipments in the 1998 period were 3,900 metric tons compared to 3,400 metric
tons in the 1997 period.
Mill product shipments in the first quarter of 1998 declined 13% from the
record fourth quarter 1997 level of 4,500 metric tons. About half of this
decline in shipments was expected due to the high level of sales from inventory
in the fourth quarter. The balance of the decline was due to shortfalls in
shipments, primarily from the Company's U.K. operations. The Company is
implementing two substantial capital projects in the U.K. and production could
not keep up with demand amidst this capital construction. These projects should
be completed during the second and third quarters of 1998. The average price of
titanium mill product shipments in the first quarter of 1998 was approximately
$34.50 per kilogram as prices were comparable to fourth quarter 1997 levels.
Mill product pricing is generally flattening, as expected, in part due to the
stabilizing influence of the Company's long-term agreement with The Boeing
Company.
Demand for titanium remains strong as airline profitability continues at
record levels and the order backlog for new aircraft as well as new orders are
strong. Airline production rates are increasing, although at somewhat lower
rates than earlier industry forecasts indicated. This has resulted in some
titanium orders being delayed or cancelled as the Company's customers are
believed to be matching inventory levels with the revised forecasted aircraft
production rates. While these delays and cancellations will have some negative
impact on shipments for the balance of the year, the Company still expects a
record year in terms of mill product shipment levels and profitability. Firm
order backlog at the end of March 1998 approximated $500 million.
Selling, administrative and development expenses are higher than in the
same period in 1997, and are comparable to fourth quarter 1997 levels, as the
Company continues to invest in both the development of new markets and new
enterprise-wide information systems/information technology.
In April 1998, the Company completed its acquisition of Loterios S.p.A.,
one of Italy's largest producers and distributors of titanium products. With
1997 sales of approximately $22 million, Loterios is one of the premier
producers and suppliers of titanium pipe and fittings to the offshore oil and
gas drilling and production markets and is the leading supplier of these
products in the North Sea market.
The Company has substantial operations and assets located in Europe,
principally the United Kingdom. The U.S. dollar value of the Company's foreign
sales and operating costs are subject to currency exchange rate fluctuations
which can impact reported earnings and may affect the comparability of period-
to-period operating results. Approximately one-half of the Company's European
sales are denominated in currencies other than the U.S. dollar, principally
major European currencies. Certain purchases of raw materials for the Company's
European operations, principally titanium sponge, are denominated in U.S.
dollars while labor and other production costs are primarily denominated in
local currencies.
Interest expense in the 1998 period is net of capitalized interest of $.6
million. Dividends on the Convertible Preferred Securities are reported net of
tax benefit as minority interest.
The Company operates in several tax jurisdictions and is subject to varying
income tax rates. As a result, the geographical mix of pretax income can impact
the Company's effective income tax rate. For financial reporting purposes, the
Company has previously recognized substantially all of its carryforwards, and,
accordingly, its effective income tax rate in 1998 is higher than in 1997. See
Note 7 to the Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had net cash of $74 million ($117 million of
cash and equivalents and $43 million of notes payable and long-term debt). The
Company also had $190 million of borrowing availability under its U.S. and
European bank credit lines.
~Operating~activities~. Cash provided by operating activities (before
changes in assets and liabilities) was approximately $27 million for the first
quarter of 1998 compared to $23 million for the same period in 1997 reflecting
the Company's improved operating results. Changes in assets and liabilities,
which are impacted by relative changes in levels of purchases, production and
sales, generated $7 million of cash in the first quarter of 1998 compared to
using $18 million of cash in the 1997 period. Accounts receivable changes
generated cash in the first quarter of 1998 principally due to net collections
resulting from lower sales compared to the record levels of the fourth quarter
of 1997. Relative production levels were a primary reason for fluctuations in
payments for accounts payable and accrued liabilities.
~Investing~activities~. The Company estimates capital expeditures for all
of 1998 to be between $110 million and $120 million, up from $66 million in
calendar 1997. About 55% of capital expenditures during the two-year period
relate to capacity expansion projects to meet expected volume demands in 1999
that are also expected to improve cycle times and yields, and increase
efficiency. The majority of these significant projects in both the U.S. and
Europe will begin to come on line during the last half of 1998. Approximately
20% of the two-year capital spending total relates to the major information
systems/information technology (SAP) project being implemented throughout the
Company. The SAP system will be implemented in stages from May 1998 through
early 1999. Certain costs associated with the SAP business process/information
systems project, including training and reengineering, are expensed as incurred.
~Financing~activities~. Near the end of the first quarter of 1998, the
Company drew $40 million on its principal credit facility to fund the April 1998
Loterios acquisition, to replenish cash reserves expended on capital projects
and for other general corporate purposes. In April 1998, the Company obtained a
new three-year, lower cost Pounds15.5 million U.K. credit facility to replace a
similar one-year agreement.
The Convertible Preferred Securities do not require principal amortization
and the Company has the right to defer dividend payments for one or more periods
of up to 20 consecutive quarters each.
The Company periodically evaluates its liquidity requirements, capital
needs and availability of resources in view of, among other things, its
alternative uses of capital, its debt service requirements, the cost of debt and
equity capital, and estimated future operating cash flows. As a result of this
process, the Company has in the past and may in the future seek to raise
additional capital, modify its dividend policy, restructure ownership interests,
incur, refinance or restructure indebtedness, repurchase shares of capital
stock, sell assets, or take a combination of such steps or other steps to
increase or manage its liquidity and capital resources. In the normal course of
business, the Company investigates, evaluates and discusses acquisition, joint
venture, strategic relationship and other business combination opportunities in
the titanium, specialty metal and related industries. In the event of any
future acquisition or joint venture opportunities, the Company may consider
using available cash, issuing additional equity securities or incurring
additional indebtedness.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
Reference is made to the Company's 1997 Annual Report for descriptions of
certain previously reported legal proceedings.
In April 1998, the U. S. Environmental Protection Agency filed a civil
action against TIMET (~United~States~of~America~v.~Titanium~Metals~Corporation~;
Civil Action No. CV-S-98-682-HDM (RLH), U. S. District Court, District of
Nevada) alleging that TIMET violated several provisions of the Clean Air Act in
connection with the start-up and operation of certain environmental equipment at
TIMET's Henderson, Nevada facility during the early to mid-1990s. The action
seeks civil penalties in an unspecified total amount at the statutory rate of up
to $25,000 per day of violation ($27,500 per day for violations after January
30, 1997). TIMET believes that it substantially complied with applicable
statutory and regulatory provisions and that the allegations are without merit.
TIMET intends to defend the action vigorously.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
27.1 Financial Data Schedule for the quarter ended March 31, 1998.
(b) Reports on Form 8-K:
Reports on Form 8-K filed by the Registrant for the quarter ended March
31, 1998 and for the month of April 1998:
January 22, 1998 - Reported Items 5 and 7
February 13, 1998 - Reported Items 5 and 7
February 17, 1998 - Reported Items 5 and 7
April 8, 1998 - Reported Items 5 and 7
April 22, 1998 - Reported Items 5 and 7
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TITANIUM METALS CORPORATION
(Registrant)
Date: May 12, 1998 By /s/ J. Thomas Montgomery, Jr.
J. Thomas Montgomery, Jr.
Vice President - Finance and
Treasurer
(Principal Finance and Accounting
Officer)