SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 - For the quarter ended March 31, 1999
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, 1999: 31,369,405
FORWARD-LOOKING INFORMATION
The statements contained in this Report on Form 10-Q ("Quarterly Report")
that 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 that represent management's beliefs
and assumptions based on currently available information. Forward-looking
statements can be identified by the use of words such as "believes," "intends,"
"may," "should," "anticipates," "expected" or comparable terminology or by
discussions of strategies or trends. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it
cannot give any assurances that these expectations will prove to be correct.
Such statements by their nature involve substantial risks and uncertainties that
could significantly impact expected results. Actual future results could differ
materially from those described in such forward-looking statements, and the
Company disclaims any intention or obligation to update or revise any forward-
looking statements, whether as a result of new information, future events or
otherwise. Among the factors that could cause actual results to differ
materially are the risks and uncertainties discussed in this Quarterly Report,
including those in the 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
impact of long term contracts with customers on the ability to raise prices, the
impact of long term contracts with vendors on the ability of the Company to
reduce or increase supply or achieve lower costs, 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 and
the possibility of disruptions of normal business activities from "Year 2000"
("Y2K") issues. Should one or more of these risks materialize (or the
consequences of such a development worsen), or should one or more of the
underlying assumptions prove incorrect, actual results could differ materially
from those forecasted or expected.
TITANIUM METALS CORPORATION
INDEX
Page
number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - December 31, 1998 and
March 31, 1999 2-3
Consolidated Statements of Operations - Three months
ended March 31, 1998 and 1999 4
Consolidated Statements of Comprehensive Income - Three
months ended March 31, 1998 and 1999 5
Consolidated Statements of Cash Flows - Three months
ended March 31, 1998 and 1999 6-7
Consolidated Statement of Stockholders' Equity - Three
months ended March 31, 1999 8
Notes to Consolidated Financial Statements 9-12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 13-17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 17
Item 6. Exhibits and Reports on Form 8-K. 17
TITANIUM METALS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, MARCH 31,
ASSETS 1998 1999
Current assets:
Cash and cash equivalents $ 15,464 $ 11,466
Accounts and other receivables, less
allowance of $1,932 and $2,102 126,988 116,179
Receivable from related parties 8,119 7,623
Refundable income taxes 6,819 4,754
Inventories 225,880 212,549
Prepaid expenses and other 10,650 9,970
Deferred income taxes 1,900 2,500
Total current assets 395,820 365,041
Other assets:
Investments in joint ventures 32,633 32,049
Preferred securities 80,000 80,000
Goodwill 59,547 57,125
Other intangible assets 19,894 19,145
Other 14,129 13,328
Total other assets 206,203 201,647
Property and equipment:
Land 5,974 5,942
Buildings 26,128 24,429
Information technology systems and 53,168 56,469
equipment
Manufacturing and other equipment 281,072 321,709
Construction in progress 52,651 12,407
418,993 420,956
Less accumulated depreciation 67,770 74,283
Net property and equipment 351,223 346,673
$ 953,246 $ 913,361
TITANIUM METALS CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands)
LIABILITIES, MINORITY INTEREST AND December 31, MARCH 31,
STOCKHOLDERS' EQUITY 1998 1999
Current liabilities:
Notes payable $ 5,134 $ 5,202
Current maturities of long-term debt
and
capital lease obligations 771 667
Accounts payable 69,302 57,927
Accrued liabilities 50,628 37,724
Payable to related parties 3,223 1,803
Income taxes 5,391 4,894
Deferred income taxes 2,500 700
Total current liabilities 136,949 108,917
Noncurrent liabilities:
Long-term debt 99,950 95,736
Capital lease obligations 10,069 9,741
Payable to related parties 1,395 1,395
Accrued OPEB cost 24,065 23,866
Accrued pension cost and other 8,754 9,747
Deferred income taxes 14,200 16,500
Total noncurrent liabilities 158,433 156,985
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 8,237 8,492
Stockholders' equity:
Preferred stock - -
Common stock 315 315
Additional paid-in capital 347,972 347,972
Retained earnings 99,981 94,830
Accumulated other comprehensive income 1,317 (4,192)
Treasury stock (1,208) (1,208)
Total stockholders' equity 448,377 437,717
$ 953,246 $ 913,361
[FN]Commitments and contingencies (Note 1)
TITANIUM METALS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended March 31, 1998 and 1999
(In thousands, except per share data)
1998 1999
Revenues and other income:
Net sales $187,057 $134,136
Equity in losses of joint (235) (448)
ventures
Other, net 976 805
187,798 134,493
Costs and expenses:
Cost of sales 140,832 122,270
Selling, general,
administrative and 14,184 12,761
Development
Interest 416 1,295
155,432 136,326
Income (loss) before
income taxes
and minority interest 32,366 (1,833)
Income tax expense (benefit) 11,004 (642)
Minority interest -
Convertible 2,167 2,167
Preferred Securities
Other minority interest 909 538
Net income (loss) $18,286 $(3,896)
Diluted net income (loss) $20,453 $(1,729)
Earnings per share:
Basic $ .58 $ (.12)
Diluted $ .56 *
Weighted average shares
outstanding:
Basic 31,458 31,369
Diluted 36,914 36,759
* Antidilutive
TITANIUM METALS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three months ended March 31, 1998 and 1999
(In thousands)
1998 1999
Net income (loss) $18,286 $(3,896)
Other comprehensive income -
currency
translation adjustment 61 (5,509)
Comprehensive income $18,347 $(9,405)
(loss)
TITANIUM METALS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 1998 and 1999
(In thousands)
1998 1999
Cash flows from operating activities:
Net income (loss) $ 18,286 $(3,896)
Depreciation and amortization 7,473 10,560
Losses of joint ventures 235 448
Deferred income taxes 532 (100)
Other minority interest 909 538
Change in assets and liabilities:
Receivables 10,182 10,365
Inventories (9,603) 13,331
Prepaid expenses and other 481 680
Accounts payable and accrued liabilities (4,683) (19,865)
Accrued restructuring charges - (3,513)
Income taxes 7,451 1,568
Accounts with related parties 3,532 (924)
Net cash provided by operating 34,795 9,192
activities
Cash flows from investing activities:
Capital expenditures (25,167) (10,026)
Proceeds from sales of property and - 3,289
equipment
Net cash used by investing activities (25,167) (6,737)
Cash flows from financing activities:
Indebtedness:
Borrowings 40,000 8,068
Repayments (1,799) (12,646)
Refund of letters of credit collateralized 734 -
Dividends paid - (1,255)
Net cash provided (used) by financing 38,935 (5,833)
activities
Net cash provided (used) by operating,
financing and investing activities $ 48,563 $(3,378)
TITANIUM METALS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Three months ended March 31, 1998 and 1999
(In thousands)
1998 1999
Net increase (decrease) in cash and
equivalents from:
Operating, investing and financing $48,563 $(3,378)
activities
Currency translation (142) (620)
48,421 (3,998)
Cash and cash equivalents at beginning of 68,957 15,464
period
Cash and cash equivalents at end of period $117,378 $ 11,466
Supplemental disclosures - cash paid for:
Interest, net of amounts capitalized $ 445 $ 1,111
Convertible Preferred Securities 3,333 3,333
dividends
Income taxes (refund), net 1,742 (3,147)
TITANIUM METALS CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Three months ended March 31, 1999
(In thousands)
Additioal
Common Common Paid-In Retained
Shares Stock Capital Earnings
Balance at December 31,369 $ 315 $347,972 $ 99,981
31, 1998
Comprehensive - - - (3,896)
income
Dividends paid - - - (1,255)
($.04 per share)
Balance at March 31,369 $ 315 $347,972 $ 94,830
31, 1999
TITANIUM METALS CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Three months ended March 31, 1999
(In thousands)
Accumulated Other
Comprehensive Income
Currency Pension Treasury
Translation Liabilities Stock Total
Balance at December $ 5,600 $ (4,283) $(1,208) $448,377
31, 1998
Comprehensive (5,509) - - (9,405)
income
Dividends paid - - - (1,255)
($.04 per share)
Balance at March $ 91 $ (4,283) $(1,208) $437,717
31, 1999
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, 1998 has been
condensed from the Company's audited consolidated financial statements at that
date. The consolidated balance sheet at March 31, 1999 and the consolidated
statements of operations, comprehensive income, stockholders' equity and cash
flows for the interim periods ended March 31, 1998 and 1999 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, 1998 (the "1998 Annual Report").
For information concerning certain legal proceedings and certain
contingencies related to the Company, see (i) Part I, Item 2 -- "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
("MD&A"), (ii) Part II, Item 1 -- "Legal Proceedings," and (iii) the 1998 Annual
Report.
Diluted earnings per share reflects the assumed conversion of the
Convertible Preferred Securities and the dilutive effect of common stock
options.
Note 2 - Segment information:
The Company is a vertically integrated producer of titanium sponge, melted
products (ingot and slab) and a variety of mill products for aerospace,
industrial and other applications. The Company's production facilities are
located principally in the United States, United Kingdom and France, and its
products are sold throughout the world. These worldwide integrated activities
comprise the Company's principal segment, "Titanium melted and mill products."
The "Other" segment includes the Company's titanium castings operations,
which were combined in a joint venture in August 1998, and other nonintegrated
joint ventures.
Operating income, inventory and receivables are the key management measures
used to evaluate segment performance. Substantially all inventories and
receivables at December 31, 1998 and March 31, 1999, along with substantially
all depreciation and amortization and capital expenditures for the interim
periods ended March 31, 1998 and 1999, relate to the "Titanium melted and mill
products" segment.
Three months ended
March 31,
1998 1999
(In thousands)
Net sales:
Titanium melted and mill $ 178,072 $ 134,080
products
Other 9,663 452
Eliminations (678) (396)
$ 187,057 $ 134,136
Mill products shipments:
Volume (metric tons) 3,900 3,000
Average price ($ per $ 34.50 $ 34.50
kilogram)
Equity in earnings (losses) of joint
ventures:
Titanium melted and mill $ 60 $ 106
products
Other (295) (554)
$ (235) $ (448)
Operating income (loss):
Titanium melted and mill $ 31,038 $ (1,005)
products
Other 591 (424)
31,629 (1,429)
General corporate income, net 1,153 891
Interest expense (416) (1,295)
Income (loss) before
income taxes
and minority interest $ 32,366 $ (1,833)
December 31, MARCH 31,
1998 1999
(In thousands)
Investment in joint ventures:
Titanium melted and mill $ 22,044 $ 22,150
products
Other 10,589 9,899
$ 32,633 $ 32,049
Note 3 - Inventories:
December 31, MARCH 31,
1998 1999
(In thousands)
Raw materials $ 56,109 $ 46,472
Work-in-process 97,947 93,724
Finished products 61,213 60,180
Supplies 10,611 12,173
$ 225,880 $ 212,549
The average cost of LIFO inventories exceeded the net carrying amount of
such inventories by approximately $28 million at December 31, 1998 and March 31,
1999.
Note 4 - Accrued liabilities:
December 31, MARCH 31,
1998 1999
(In thousands)
OPEB cost $ 2,371 $ 2,268
Pension cost 1,482 1,302
Other employee benefits 20,881 14,323
Environmental costs 2,273 2,273
Restructuring costs 6,727 3,214
Taxes, other than income 1,292 1,971
Convertible Preferred Securities - 1,111 1,111
accrued dividends
Other 14,491 11,262
$ 50,628 $ 37,724
Payments of restructuring costs during the first quarter of 1999 related to
the Company's restructuring plan implemented beginning in 1998, and aggregated
$3.5 million. The remaining accrued restructuring costs at March 31, 1999 of
$3.2 million consist of unpaid personnel severance and benefits and other exit
costs, primarily carrying costs on closed leased facilities. Most of the
remaining accrued costs will be paid by mid-1999, although certain payments, for
items such as benefit continuation for terminated employees, will be paid later.
See also MD&A.
Note 5 - Notes payable, long-term debt and capital lease obligations:
Notes payable at December 31, 1998 and March 31, 1999 consist of borrowings
under the Company's short-term European bank credit agreements.
Long-term debt at March 31, 1999 consists principally of $79 million of
borrowings under the Company's U.S. bank credit agreement (December 31, 1998 -
$80 million) and $15 million under its U.K. bank credit agreement (December 31,
1998 - $19 million). As of March 31, 1999, the Company had approximately $135
million of unused borrowing availability under its U.S. and European bank credit
agreements. Available borrowings in the future could potentially be reduced due
to the leverage and interest coverage ratios contained in the Company's U.S.
credit agreement.
Capital lease obligations relate principally to U.K. production facilities
held under long-term leases with IMI plc.
Note 6 - Income taxes:
The difference between the Company's income tax expense (benefit)
attributable to pretax income (loss) and the amounts that would be expected
using the U.S. federal statutory income tax rate of 35% is summarized below.
Three months
ended
March 31,
1998 1999
(In thousands)
Expected income tax expense (benefit) $11,328 $ (642)
Foreign tax rates (219) 201
Foreign sales corporation benefit (83) (26)
U.S. state income taxes, net 245 (100)
Other, net (267) (75)
$11,004 $ (642)
Minority interest - Convertible Preferred Securities is stated net of
income tax benefits of $1.2 million in both the 1998 and 1999 three-month
periods.
Note 7 - Ownership structure:
At March 31, 1999, Tremont Corporation held approximately 39% of TIMET's
outstanding common stock. Valhi, Inc. and other entities related to Harold C.
Simmons hold an aggregate of approximately 54% of Tremont's outstanding common
stock. Mr. Simmons may be deemed to control each of Valhi, Tremont and TIMET.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
~Sales~and~Operating~Income.~Sales of $134 million in the first quarter of
1999 were 28% lower than the first quarter of last year due principally to a 23%
decline in mill products volume caused by reduced demand for both aerospace and
industrial products. Average selling prices in most product lines were lower
than in the 1998 period, with changes in mix resulting in a comparable overall
average selling price. Total cost of sales was 91% of sales in the first
quarter 1999 compared to 75% in the same period last year. The lower volumes
and selling prices contributed significantly to the lower gross profit margin.
Selling, general, and administrative and development expenses declined in
1999 but were higher as a percentage of sales as not all such costs are
variable, particularly in the short term. Expenses related to maintenance of
the Company's business-enterprise system, and to addressing Y2K issues are
expected to remain high for the remainder of 1999.
Net sales of the "Other" segment were down primarily as a result of the
Company's ceasing to consolidate its castings business after July 1998. See
Note 2 to the Consolidated Financial Statements. Equity losses of joint
ventures in the "Other" segments were higher in 1999 as the result of the
castings joint venture and higher losses of other investees.
The Company's firm order backlog at the end of March 1999 was approximately
$325 million. Comparable backlogs at the end of March 1998 and December 1998
were approximately $475 million and $350 million, respectively.
The titanium industry has experienced reduced demand for aerospace and
industrial products due to high levels of inventories reported to be held by
customers, actual and anticipated declines in number of aircraft forecast to be
produced, especially wide-bodied aircraft, and continuing weakness of Asian and
other economies. Assuming demand remains at currently expected levels and does
not decrease or increase significantly during the remainder of 1999, the Company
currently expects to report a net loss for the second quarter, and possibly the
third quarter, with a return to profitability by the fourth quarter. The
Company's previously-reported plan of action designed to address current market
conditions is on schedule. The facilities closures and most of the workforce
reductions have been implemented. In addition, the Company's major capital
expenditure program has been completed, with all major equipment now in
production. The business-enterprise system is installed, and the Company is now
focusing on using it to help improve its business processes, although benefits
of the new system will likely be modest in 1999.
~ European~Operations.~~~The Company has substantial operations and assets
located in Europe, principally the United Kingdom, with smaller operations in
France, Italy and Germany. Titanium is a worldwide market and the factors
influencing the Company's U.S. and European operations are substantially the
same.
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, principally titanium sponge and alloys, for
the Company's European operations are denominated in U.S. dollars, while labor
and other production costs are primarily denominated in local currencies. The
functional currencies of the Company's European subsidiaries are those of their
respective countries; thus, the U.S. dollar value of these subsidiaries' sales
and costs denominated in currencies other than their functional currency,
including sales and costs denominated in U.S. dollars, are subject to exchange
rate fluctuations which may impact reported earnings and may affect the
comparability of period-to-period operating results. Borrowings of the
Company's European operations may be in U.S. dollars or in functional
currencies. The Company's export sales from the United States are denominated
in U.S. dollars and, as such, are not subject to currency exchange rate
fluctuations.
The U.S. dollar sales and purchases of the Company's European operations
described above provide some natural hedge of non-functional currencies, and the
Company does not use currency contracts to hedge its currency exposures. Net
currency transaction/translation losses were $.8 million during the first
quarter of 1999 and were $.3 million during the first quarter of 1998. At March
31, 1999, consolidated assets and liabilities denominated in currencies other
than functional currencies were approximately $30 million and $27 million,
respectively, consisting primarily of U.S. dollar cash, accounts receivable,
accounts payable and borrowings. Exchange rates among 11 European currencies
(including the French franc, Italian lira and German mark, but excluding the UK
pound sterling) became fixed relative to each other as a result of the new
European currency unit ("euro") effective in 1999. Costs associated with
modifications of systems to handle euro-denominated transactions have not been
significant.
~General~Corporate~Income.~General corporate income (which accounts for
substantially all of the Consolidated Statement of Operations caption "Other
income") includes earnings on corporate cash equivalents and varies with cash
levels and interest rates.
~Interest~Expense.~~~Interest expense in the first quarter of 1999 was
higher than in the comparable 1998 period, primarily reflecting higher borrowing
levels.
~Minority~Interest.~Dividend expense related to the Company's 6.625%
Convertible Preferred Securities approximated $3.3 million in both the 1999 and
1998 periods and is reported as minority interest, net of allocable income
taxes.
~Income~Taxes.~~~The Company operates in several tax jurisdictions and is
subject to various income tax rates. As a result, the geographical mix of
pretax income can impact the Company's effective tax rate. See Note 6 to the
Consolidated Financial Statements.
~Year~2000.~~~Year 2000 issues exist because many computer systems and
applications currently use two-digit fields to designate a year. Date-sensitive
systems may recognize the year 2000 as 1900, or not at all. This inability to
treat the year 2000 properly could cause systems to process critical financial,
manufacturing and operational information incorrectly. Most of the Company's
information systems have been or are being replaced in connection with the
implementation of the Company's business-enterprise system, the initial
implementation of which has been completed. The cost of the new system,
including related equipment and networks, aggregated approximately $50 million
($41 million capital and $9 million expense).
The Company, with the help of outside specialists and consultants, (i) has
substantially completed its assessment of potential Y2K issues in its non-
information systems (e.g., its manufacturing and communications systems), as
well as in those information systems that were not replaced by the new
enterprise-wide system, (ii) is in process of determining, prioritizing and
implementing remedial actions, including testing, and (iii) will develop
contingency plans for any critical items whose Y2K remediation extends beyond
the Company's June 30, 1999 target date for completion. The Company's Y2K
readiness varies by location. Some locations have completed their internal Y2K
readiness plans, while others are in the midst of remediation and testing. At
this time, most sites anticipate completing their respective Y2K readiness plans
by the June 1999 target date due in part to vendor release schedules. However,
remediation of some items at the Henderson, NV site, and possibly others, could
be delayed beyond the June 1999 target date due in part to vendor release
schedules. The Company has expended an aggregate of approximately $3 million
through March 1999 on these specific non-information system issues, principally
embedded system technology, and expects to incur approximately an additional
$3 million to $4 million on such issues in the remainder of 1999. The Company's
evaluation of potential Y2K exposure related to key suppliers and customers is
also in process and will continue throughout 1999.
The Company believes its key information systems are or will be Y2K ready
before the end of 1999. With respect to the Y2K readiness programs related to
certain of its embedded manufacturing systems or those comparable systems of its
suppliers or customers, the Company cannot predict whether it will find
additional problems that would result in unplanned upgrades of applications
after June 1999 or even December 1999. As a result of these uncertainties, the
Company cannot predict the impact on its financial condition, results of
operations or cash flows resulting from Y2K failures in information or other
systems that the Company directly or indirectly relies upon. Should the
Company's Y2K readiness plans not be successful or be delayed beyond December
1999, the consequences to the Company could be far-reaching and material,
including an inability to produce titanium metal products at its manufacturing
facilities, which could lead to an indeterminate amount of lost revenue. Other
potential negative consequences could include impeded communications or power
supplies, slower transaction processing and financial reporting, and potential
liability to third parties. Although not anticipated, the most reasonably
likely worst-case scenario of failure by the Company or any of its key suppliers
or customers to become Y2K ready would result in a short-term slowdown or
cessation of manufacturing operations at one or more of the Company's
facilities, a short-term inability on the part of the Company to process orders
and billings in a timely manner and to deliver products to customers.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, the Company had net debt of approximately $90 million
($101 million of notes payable and long-term debt and $11 million of cash and
equivalents). The Company also had $135 million of borrowing availability under
its U.S. and European credit lines. See Note 5 to the Consolidated Financial
Statements.
~Operating~Activities~. Cash provided by operating activities was
approximately $9 million for the first quarter of 1999, down from $35 million
for the same period in 1998, as summarized below.
Three months ended
March 31,
1998 1999
(in thousands)
Cash provided by operating activities:
Excluding changes in assets and $ 27,435 $ 7,550
liabilities
Changes in assets and liabilities 7,360 1,642
$ 34,795 $ 9,192
Cash provided by operating activities, excluding changes in assets and
liabilities generally followed the decline in operating results. Depreciation
and amortization in 1999 is higher than in 1998 as a result of the Company's
major 1997-1998 capital program, including the business-enterprise system.
Changes in assets and liabilities reflect primarily the timing of
purchases, production and sales. The Company's previously-reported plan of
action to address current market conditions includes reductions in working
capital, particularly inventories and receivables, both of which were reduced
during the first quarter of 1999. Changes in accounts payable and accrued
liabilities in the first quarter of 1999 reflect the effect of payments to
suppliers of titanium sponge and other raw materials for purchases made in late
1998 being higher than payables at the end of March 1999 for first quarter
purchases.
Cash payment of dividends on the $80 million of Special Metals Corporation
6.625% convertible preferred stock held by the Company has been deferred by SMC
for 1999 due to limitations imposed by SMC's bank credit agreement. The Company
currently expects that SMC will be able to pay the 1999 dividends in arrears by
the end of the first quarter of 2000.
~Investing~Activities.~The Company's major capital expenditure program,
which aggregated $180 million in 1997 and 1998, is completed and the Company
estimates that capital expenditures for calendar 1999 will be less than
$40 million. Proceeds from the sale of property and equipment in 1999 include
the sale of an interest in a corporate aircraft and assets sold as part of the
Company's restructuring activities.
~Financing~Activities~. Net borrowings in the 1998 period included amounts
used to fund the acquisition of Loterios S.p.A. in April 1998. Net repayments
in 1999 reflect reductions of outstanding borrowings in both the U.S. and U.K.
The Company's Convertible Preferred Securities do not require principal
amortization. TIMET 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, in the light of its current outlook,
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,
discusses and engages in acquisition, joint venture, strategic relationship and
other business combination opportunities in the titanium, specialty metals and
related industries. In the event of any future acquisition or joint venture
opportunities, the Company may consider using then-available liquidity, issuing
equity securities or incurring additional indebtedness.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
Reference is made to the Company's 1998 Annual report for descriptions of
certain previously-reported legal proceedings.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
27.1 Financial Data Schedule for the quarter ended March 31, 1999.
(b) Reports on Form 8-K:
Reports on Form 8-K filed by the Registrant for the quarter ended March
31, 1999 and the month of April, 1999:
January 25, 1999 - Reported Items 5 and 7
February 24, 1999 - Reported Items 5 and 7
April 26, 1999 - 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 5, 1999 By /s/ J. Thomas Montgomery, Jr.
J. Thomas Montgomery, Jr.
Vice President - Finance and Treasurer
(Principal Finance and Accounting Officer)