SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
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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
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(Exact name of registrant as specified in its charter)
Delaware 13-5630895
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1999 Broadway, Suite 4300, Denver, Colorado 80202
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 296-5600
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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
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Number of shares of common stock outstanding on July 31, 2001: 31,877,497 .
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Forward-Looking Information
The statements contained in this Quarterly 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," "will," "looks," "should," "could," "anticipates,"
"expects" 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 affect
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 in those portions
referenced above and those described from time to time in the Company's other
filings with the Securities and Exchange Commission which include, but are not
limited to, the cyclicality of the commercial aerospace industry, the
performance of aerospace manufacturers under their long-term purchase agreements
with the Company, the difficulty in forecasting demand for titanium products,
global economic conditions, global productive capacity for titanium, changes in
product pricing and costs, 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, fluctuations in currency exchange rates,
control by certain stockholders and possible conflicts of interest,
uncertainties associated with new product development, the supply of raw
materials and services, changes in raw material and other operating costs
(including energy costs) and other risks and uncertainties. Should one or more
of these risks materialize (or the consequences of such a development worsen),
or should 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 - June 30, 2001 and
December 31, 2000 2-3
Consolidated Statements of Operations - Three months and
six months ended June 30, 2001 and 2000 4
Consolidated Statements of Comprehensive Income (Loss) -
Three months and six months ended June 30, 2001 and 2000 5
Consolidated Statements of Cash Flows - Six months
ended June 30, 2001 and 2000 6-7
Consolidated Statement of Changes in Stockholders' Equity -
Six months ended June 30, 2001 8
Notes to Consolidated Financial Statements 9-16
Item 2. Management's Discussion and Analysis of Financial
Condition, Results of Operations and Liquidity
and Capital Resources 17-24
Item 3. Quantitative and Qualitative Disclosures about Market Risk 25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 6. Exhibits and Reports on Form 8-K 26
-1-
TITANIUM METALS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS June 30,
2001 December 31,
(unaudited) 2000
--------------------- --------------------
Current assets:
Cash and cash equivalents $ 24,802 $ 9,796
Accounts and other receivables, less allowance
for doubtful accounts of $2,808 and $2,927 80,136 75,913
Receivable from related parties 4,355 5,029
Refundable income taxes 418 637
Inventories 147,435 148,384
Prepaid expenses and other 13,458 8,049
Deferred income taxes 686 397
--------------------- --------------------
Total current assets 271,290 248,205
--------------------- --------------------
Other assets:
Investments in joint ventures 18,851 18,136
Preferred securities 80,000 80,000
Accrued dividends on preferred securities 8,665 8,136
Goodwill 46,218 49,305
Other intangible assets 11,500 13,258
Deferred income taxes 12,887 27,820
Other 12,214 12,156
--------------------- --------------------
Total other assets 190,335 208,811
--------------------- --------------------
Property and equipment:
Land 6,114 6,158
Buildings 35,733 37,593
Information technology systems 53,954 54,426
Manufacturing and other 289,802 305,856
Construction in progress 7,249 8,811
--------------------- --------------------
392,852 412,844
Less accumulated depreciation 118,225 110,714
--------------------- --------------------
Net property and equipment 274,627 302,130
--------------------- --------------------
$ 736,252 $ 759,146
===================== ====================
-2-
TITANIUM METALS CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands)
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS' EQUITY June 30,
2001 December 31,
(unaudited) 2000
-------------------- ---------------------
Current liabilities:
Notes payable $ 2,116 $ 24,112
Current maturities of long-term debt and
capital lease obligations 326 2,011
Accounts payable 50,248 50,456
Accrued liabilities 45,159 36,180
Payable to related parties 1,521 1,099
Income taxes 434 852
Deferred income taxes - 1,132
-------------------- ---------------------
Total current liabilities 99,804 115,842
-------------------- ---------------------
Noncurrent liabilities:
Long-term debt 5,122 18,953
Capital lease obligations 8,089 8,642
Payable to related parties 1,332 1,332
Accrued OPEB cost 17,379 18,219
Accrued pension cost 5,906 5,361
Accrued environmental cost 3,262 3,262
Deferred income taxes 9,255 9,655
Accrued dividends on Convertible Preferred Securities - 11,154
Other 111 117
-------------------- ---------------------
Total noncurrent liabilities 50,456 76,695
-------------------- ---------------------
Minority interest - Company-obligated mandatorily
redeemable preferred securities of subsidiary trust
holding solely subordinated debt securities
("Convertible Preferred Securities") 201,250 201,250
Other minority interest 8,147 7,844
Stockholders' equity:
Preferred stock - -
Common stock 320 319
Additional paid-in capital 350,550 350,078
Retained earnings 51,861 25,925
Accumulated other comprehensive loss (24,121) (16,408)
Treasury stock, at cost (90 shares) (1,208) (1,208)
Deferred compensation (807) (1,191)
-------------------- ---------------------
Total stockholders' equity 376,595 357,515
-------------------- ---------------------
$ 736,252 $ 759,146
==================== =====================
Commitments and contingencies (Note 10)
See accompanying notes to consolidated financial statements.
-3-
TITANIUM METALS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(In thousands, except per share data)
Three months ended Six months ended
June 30, June 30,
------------------------------- -------------------------------
2001 2000 2001 2000
-------------- ------------- -------------- -------------
Revenues and other income:
Net sales $ 120,035 $ 108,838 $ 244,043 $ 213,550
Equity in earnings (losses)
of joint ventures 248 (672) 1,114 (725)
Other, net 75,379 1,364 77,615 3,893
-------------- ------------- -------------- -------------
195,662 109,530 322,772 216,718
-------------- ------------- -------------- -------------
Costs and expenses:
Cost of sales 123,514 107,619 240,260 215,630
Selling, general, administrative
and development 21,211 11,216 31,911 22,557
Restructuring charge (credit) - (896) (220) 2,805
Interest 1,083 1,996 2,594 4,258
-------------- ------------- -------------- -------------
145,808 119,935 274,545 245,250
-------------- ------------- -------------- -------------
Income (loss) before income taxes,
minority interest and
extraordinary item 49,854 (10,405) 48,227 (28,532)
Income tax expense (benefit) 17,532 (3,653) 16,963 (10,037)
Minority interest - Convertible
Preferred Securities, net of tax 2,493 2,191 4,679 4,358
Other minority interest, net of tax 277 575 649 915
-------------- ------------- -------------- -------------
Income (loss) before
extraordinary item 29,552 (9,518) 25,936 (23,768)
Extraordinary item, net of tax - - - (873)
-------------- ------------- -------------- -------------
Net income (loss) $ 29,552 $ (9,518) $ 25,936 $ (24,641)
============== ============= ============== =============
Earnings (loss) per share:
Basic:
Before extraordinary item $ .94 $ (.30) $ .82 $ (.76)
Extraordinary item - - - (.03)
-------------- ------------- -------------- -------------
$ .94 $ (.30) $ .82 $ (.79)
============== ============= ============== =============
Diluted:
Before extraordinary item $ .86 $ (.30) $ .82 $ (.76)
Extraordinary item - - - (.03)
-------------- ------------- -------------- -------------
$ .86 $ (.30) $ .82 $ (.79)
============== ============= ============== =============
Weighted average shares outstanding:
Common shares 31,504 31,373 31,460 31,372
Diluted shares 37,193 31,373 31,755 31,372
See accompanying notes to consolidated financial statements.
-4-
TITANIUM METALS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)
(In thousands)
Three months ended Six months ended
June 30, June 30,
------------------------------- -------------------------------
2001 2000 2001 2000
-------------- ------------- -------------- -------------
Net income (loss) $ 29,552 $ (9,518) $ 25,936 $ (24,641)
Other comprehensive loss - currency
translation adjustment (3,404) (5,145) (7,713) (7,777)
-------------- ------------- -------------- -------------
Comprehensive income (loss) $ 26,148 $ (14,663) $ 18,223 $ (32,418)
============== ============= ============== =============
See accompanying notes to consolidated financial statements.
-5-
TITANIUM METALS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(In thousands)
Six months ended June 30,
-------------------------------------
2001 2000
----------------- ----------------
Cash flows from operating activities:
Net income (loss) $ 25,936 $ (24,641)
Depreciation and amortization 20,161 21,406
Noncash restructuring (credit) charge (220) 2,405
Noncash special charges 14,599 6,729
Gain on sale of castings joint venture - (1,205)
Extraordinary loss on early extinguishment of debt, net - 873
Equity in (earnings) losses of joint ventures,
net of distributions (714) 975
Deferred income taxes 14,998 (11,781)
Other minority interest 649 915
Other, net 781 47
Change in assets and liabilities:
Receivables (6,362) 21,437
Accrued dividends receivable on preferred securities (529) (1,485)
Inventories (2,923) 27,061
Prepaid expenses and other (4,725) 539
Accounts payable and accrued liabilities 5,509 (16,266)
Accrued restructuring charges (395) (1,904)
Income taxes 90 8,012
Accounts with related parties, net 1,457 (2,559)
Accrued OPEB and pension costs (286) (1,640)
Accrued dividends on Convertible Preferred Securities (10,043) 3,358
Other, net (2,793) (2,987)
----------------- ----------------
Net cash provided by operating activities 55,190 29,289
----------------- ----------------
Cash flows from investing activities:
Capital expenditures (4,200) (4,814)
Proceeds from sale of castings joint venture - 7,000
----------------- ----------------
Net cash (used) provided by investing activities (4,200) 2,186
----------------- ----------------
Cash flows from financing activities:
Indebtedness:
Borrowings 272,015 194,715
Repayments (308,557) (240,805)
Issuance of common stock 513 -
Other, net (79) (114)
----------------- ----------------
Net cash used by financing activities (36,108) (46,204)
----------------- ----------------
Net cash provided (used) by operating,
investing and financing activities $ 14,882 $ (14,729)
================= ================
See accompanying notes to consolidated financial statements.
-6-
TITANIUM METALS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (CONTINUED)
(In thousands)
Six months ended June 30,
-------------------------------------
2001 2000
----------------- ----------------
Cash and cash equivalents:
Net increase (decrease) from:
Operating, investing and financing activities $ 14,882 $ (14,729)
Currency translation 124 288
----------------- ----------------
15,006 (14,441)
Balance at beginning of period 9,796 20,671
----------------- ----------------
Balance at end of period $ 24,802 $ 6,230
================= ================
Supplemental disclosures - cash paid for:
Interest, net of amounts capitalized $ 2,127 $ 3,915
Convertible Preferred Securities dividends $ 17,227 $ 3,333
Income taxes, net $ 1,926 $ -
See accompanying notes to consolidated financial statements.
-7-
TITANIUM METALS CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (unaudited)
Six months ended June 30, 2001
(In thousands)
Accumulated Other
Comprehensive Loss
Additional ----------------------- Total
Common Common Paid-In Retained Currency Pension Treasury Deferred Stockholders'
Shares Stock Capital Earnings Translation Liabilities Stock Compensation Equity
--------- ------- -------- --------- ----------- ------------ ---------- ------------- -------------
Balance at December 31, 2000 31,817 $ 319 $ 350,078 $ 25,925 $ (10,920) $ (5,488) $ (1,208) $ (1,191) $ 357,515
Components of comprehensive
income (loss):
Net income - - - 25,936 - - - - 25,936
Change in currency
translation adjustment - - - - (7,713) - - - (7,713)
Issuance of common stock 80 1 577 - - - - - 578
Stock awards (cancellations)
under the long-term
incentive plan (20) - (105) - - - - 105 -
Amortization of deferred
compensation - - - - - - - 279 279
--------- ------- --------- --------- ---------- ------------ ---------- ------------- ------------
Balance at June 30, 2001 31,877 $ 320 $ 350,550 $ 51,861 $ (18,633) $ (5,488) $ (1,208) $ (807) $ 376,595
========= ======= ========= ========= ========== ============ ========== ============= ============
See accompanying notes to consolidated financial statements.
-8-
TITANIUM METALS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Note 1 - Organization and basis of presentation:
Titanium Metals Corporation ("TIMET") is a vertically integrated producer
of titanium sponge, melted products and a variety of mill products for
aerospace, industrial and other applications. At June 30, 2001, Tremont
Corporation ("Tremont") held approximately 39% of TIMET's outstanding common
stock. At June 30, 2001, the Combined Master Retirement Trust ("CMRT"), a trust
formed by Valhi, Inc., ("Valhi") to permit the collective investment by trusts
that maintain the assets of certain employee benefit plans adopted by Valhi and
related companies, held approximately 2% of TIMET's common stock. At June 30,
2001, subsidiaries of Valhi held an aggregate of approximately 80% of Tremont's
outstanding common stock, and Contran Corporation ("Contran") held, directly or
through subsidiaries, approximately 93% of Valhi's outstanding common stock.
Substantially all of Contran's outstanding voting stock is held by trusts
established for the benefit of certain children and grandchildren of Harold C.
Simmons, of which Mr. Simmons is sole trustee. In addition, Mr. Simmons is the
sole trustee of the CMRT and a member of the trust investment committee for the
CMRT. Mr. Simmons may be deemed to control each of Contran, Valhi, Tremont and
TIMET.
The consolidated balance sheet of TIMET and subsidiaries (collectively, the
"Company") at December 31, 2000 has been condensed from the Company's audited
consolidated financial statements at that date. The consolidated balance sheet
at June 30, 2001 and the consolidated statements of operations, comprehensive
income (loss), stockholders' equity and cash flows for the interim periods ended
June 30, 2001 and 2000 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 prior year amounts have been reclassified to conform to the current year
presentation.
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, 2000 (the "2000 Annual Report").
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 133, "Accounting for Derivative Instruments and Hedging Activities," as
amended, effective January 1, 2001. SFAS No. 133 establishes accounting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. Under SFAS No. 133, all
derivatives are recognized as either assets or liabilities and measured at fair
value. The accounting for changes in fair value of derivatives is dependent upon
the intended use of the derivative. As permitted by the transition requirements
of SFAS No. 133, as amended, the Company has exempted from the scope of SFAS No.
133 all host contracts containing embedded derivatives that were issued or
acquired prior to January 1, 1999. The Company is not a party to any significant
derivative or hedging instrument covered by SFAS No. 133, and the adoption of
SFAS No. 133 had no material effect on the Company's consolidated financial
position, liquidity or results of operations.
-9-
Note 2 - Business segment information:
The Company's worldwide operations are conducted through one business
segment - the production and sale of titanium melted and mill products.
Three months ended Six months ended
June 30, June 30,
------------------------------- -------------------------------
2001 2000 2001 2000
------------- -------------- -------------- --------------
(In thousands) (In thousands)
Net sales $ 120,035 $ 108,838 $ 244,043 $ 213,550
Cost of sales 123,514 107,619 240,260 215,630
------------- -------------- -------------- --------------
Gross margin (3,479) 1,219 3,783 (2,080)
Selling, general, administrative
and development 21,211 11,216 31,911 22,557
Equity in (earnings) loss of
joint ventures (248) 672 (1,114) 725
Restructuring charge (income) - (896) (220) 2,805
Other expense (income) (73,052) (305) (73,588) (284)
------------- -------------- -------------- --------------
Operating income (loss) 48,610 (9,468) 46,794 (27,883)
General corporate income:
Dividends and interest income 2,039 1,406 3,571 3,054
Gain on sale of castings joint venture - - - 1,205
Currency transactions and other, net 288 (347) 456 (650)
Interest expense 1,083 1,996 2,594 4,258
------------- -------------- -------------- --------------
Income (loss) before income taxes,
minority interest, and
extraordinary item $ 49,854 $ (10,405) $ 48,227 $ (28,532)
============= ============== ============== ==============
Titanium melted and mill products:
Mill product net sales $ 89,980 $ 82,799 $ 183,778 $ 166,229
Melted product net sales 14,456 12,308 29,134 20,657
Other 15,599 13,731 31,131 26,664
------------- -------------- -------------- --------------
$ 120,035 $ 108,838 $ 244,043 $ 213,550
============= ============== ============== ==============
Mill product shipments:
Volume (metric tons) 3,045 2,890 6,230 5,590
Average price ($ per kilogram) $ 29.55 $ 28.65 $ 29.50 $ 29.70
Melted product shipments:
Volume (metric tons) 1,040 905 2,070 1,495
Average price ($ per kilogram) $ 13.90 $ 13.60 $ 14.05 $ 13.85
-10-
Note 3 - Inventories:
June 30, December 31,
2001 2000
------------------- -------------------
(In thousands)
Raw materials $ 32,618 $ 31,127
Work-in-process 82,780 74,631
Finished products 45,087 53,685
Supplies 12,700 14,991
------------------- -------------------
173,185 174,434
Less adjustment of certain
inventories to LIFO basis 25,750 26,050
------------------- -------------------
$ 147,435 $ 148,384
=================== ===================
Note 4 - Intangible and other noncurrent assets:
June 30, December 31,
2001 2000
------------------- -------------------
(In thousands)
Intangible assets:
Patents $ 12,972 $ 13,521
Covenants not to compete 8,500 8,500
------------------- -------------------
21,472 22,021
Less accumulated amortization 13,661 12,452
------------------- -------------------
7,811 9,569
Intangible pension assets 3,689 3,689
------------------- -------------------
$ 11,500 $ 13,258
=================== ===================
Other noncurrent assets:
Deferred financing costs $ 8,742 $ 9,194
Notes receivable from officers 163 544
Prepaid pension cost 2,545 1,359
Other 764 1,059
------------------- -------------------
$ 12,214 $ 12,156
=================== ===================
-11-
Note 5 - Accrued liabilities:
June 30, December 31,
2001 2000
------------------- -------------------
(In thousands)
OPEB cost $ 3,042 $ 3,129
Pension cost 1,080 1,251
Accrued profit sharing 10,339 -
Other employee benefits 13,710 15,120
Accrued dividends on Convertible Preferred Securities 1,111 -
Deferred income 564 2,558
Accrued tungsten costs 3,450 -
Environmental costs 724 818
Restructuring costs 394 1,012
Taxes, other than income 4,090 3,593
Other 6,655 8,699
------------------- -------------------
$ 45,159 $ 36,180
=================== ===================
Note 6 - Notes payable, long-term debt and capital lease obligations:
June 30, December 31,
2001 2000
------------------- -------------------
(In thousands)
Notes payable:
U.S. credit agreement $ 7 $ 19,893
European credit agreements 2,109 4,219
------------------- -------------------
$ 2,116 $ 24,112
=================== ===================
Long-term debt:
Bank credit agreement - U.K. $ 4,958 $ 20,263
Other 318 514
------------------- -------------------
5,276 20,777
Less current maturities 154 1,824
------------------- -------------------
$ 5,122 $ 18,953
=================== ===================
Capital lease obligations $ 8,261 $ 8,829
Less current maturities 172 187
------------------- -------------------
$ 8,089 $ 8,642
=================== ===================
Upon entering into new U.S. and U.K. credit facilities in February 2000,
the Company's previous U.S. credit facility was repaid and terminated. The
deferred financing costs associated with the previous U.S. facility were written
off and reflected as an extraordinary item in 2000 of $.9 million, net of tax.
-12-
The weighted average interest rate on borrowings outstanding under the U.S.
and U.K. credit agreements at June 30, 2001 was 7.5% and 6.2%, respectively. As
of June 30, 2001, the Company had approximately $148.5 million of unused
borrowing availability under its U.S. and European credit agreements.
Note 7- Restructuring and other special charges:
Accrued restructuring costs of $.4 million at June 30, 2001 consist of
unpaid personnel severance and benefits and other exit costs (primarily carrying
costs on closed leased facilities) relating to the Company's restructuring plans
implemented during 1999 and 2000. During the six months ended June 30, 2001,
payments of $.4 million were applied against the accruals related to the 2000
plan, while payments related to the 1999 plan were insignificant. During the
first quarter of 2001, the Company also recorded income of $.2 million related
to revisions to estimates of previously established restructuring accruals.
During the second quarter of 2001, the Company recorded $10.8 million in
special charges to cost of sales for the impairment of certain equipment located
in Millbury, Massachusetts. The Company recently completed studies of the
potential uses of this equipment in the foreseeable future as well as the
economic viability of those alternatives, resulting in the determination that
the equipment's undiscounted future cash flows could no longer support its
carrying value. The loss on impairment represents the difference between the
equipment's estimated fair value, as determined through a third-party appraisal,
and its previous carrying amount.
The Company also recorded special charges to cost of sales aggregating $3.8
million for the six months ended June 30, 2001 ($2.8 million in the second
quarter of 2001) for potential losses related to products which may contain
tungsten inclusions. See Note 10 for additional information.
During the first quarter of 2000, the Company recorded special charges to
cost of sales aggregating $6.7 million, consisting of $3.4 million in
equipment-related impairment charges and $3.3 million of environmental charges.
Certain accrued environmental costs are reflected as noncurrent liabilities in
the consolidated balance sheet at June 30, 2001 and December 31, 2000 as they
are expected to be paid over a period of up to thirty years.
-13-
Note 8 - 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.
Six months ended June 30,
------------------------------------------
2001 2000
------------------- -------------------
(In thousands)
Expected income tax expense (benefit), at 35% $ 16,879 $ (9,987)
Non-U.S. tax rates 277 561
U.S. state income taxes, net 662 (313)
Dividends received deduction (632) (688)
Adjustment of deferred tax valuation allowance (39) 336
Other, net (184) 54
------------------- -------------------
$ 16,963 $ (10,037)
=================== ===================
Note 9 - Other, net:
Three months ended Six months ended
June 30, June 30,
------------------------------- -------------------------------
2001 2000 2001 2000
-------------- ------------- -------------- -------------
(In thousands) (In thousands)
Dividends and interest income $ 2,039 $ 1,406 $ 3,571 $ 3,054
Boeing settlement, net 73,000 - 73,000 -
Gain on sale of castings joint venture - - - 1,205
Other income (expense) 340 (42) 1,044 (366)
-------------- ------------- -------------- -------------
$ 75,379 $ 1,364 $ 77,615 $ 3,893
============== ============= ============== =============
-14-
Note 10 - Commitments and contingencies:
For additional information concerning certain legal proceedings and
contingencies related to the Company, see (i) Part I, Item 2 - "Management's
Discussion and Analysis of Financial Condition, Results of Operations and
Liquidity and Capital Resources," (ii) Part II, Item 1 - "Legal Proceedings,"
and (iii) the 2000 Annual Report on Form 10K.
In April 2001, the Company reached a settlement of the previously reported
litigation between TIMET and The Boeing Company ("Boeing") relating to the
parties' 1997 long-term titanium purchase and supply agreement. Pursuant to the
settlement, TIMET received a cash payment of $82.0 million and recorded $73.0
million (cash settlement less legal fees of $9.0 million) as other operating
income and approximately $10.3 million for profit sharing and other costs as
selling, general, administrative and development expense for the three and six
month periods ended June 30, 2001. The parties also entered into an amended
long-term agreement that, among other things, allows Boeing to purchase up to
7.5 million pounds of titanium product annually from TIMET through 2007, subject
to certain maximum quarterly volume levels. Under a separate agreement, TIMET
will establish and hold titanium buffer stock for Boeing at TIMET's facilities.
See Part I, Item 2.A. - "Financial Condition and Results of Operations - Boeing
Special Items" for additional information regarding the settlement with Boeing.
In March 2001, the Company was notified by one of its customers that a
product manufactured from standard grade titanium produced by the Company
contained what has been confirmed to be a tungsten inclusion. The Company
believes that the source of this tungsten was contaminated silicon purchased
from an outside vendor in 1998. The silicon was used as an alloying addition to
the titanium at the melting stage. The Company is currently investigating the
possible scope of this problem, including an evaluation of the applications to
which such material has been placed by customers.
At the present time, the Company is aware of only four standard grade
ingots that have been demonstrated to contain tungsten inclusions; however,
further investigation may identify other material that has been similarly
affected. Until this investigation is completed, the Company is unable to
determine the possible remedial steps that may be required and the ultimate
liability the Company may incur with respect to this matter. During the second
quarter of 2001, the Company completed an assessment of the possible loss the
Company might incur. As a result, the Company increased its loss accrual by $2.8
million in the second quarter of 2001 to an aggregate charge through June 30,
2001 of $3.8 million. This amount represents the Company's current best estimate
of the most likely amount of loss to be incurred. It does not represent the
maximum possible loss, which it is not possible for the Company to estimate at
this time, and may be periodically revised in the future as more facts become
known. The Company currently believes that it is unlikely that its insurance
policies will provide coverage for any costs that may be associated with this
matter. However, the Company has filed suit seeking full recovery from the
silicon supplier for any liability the Company might incur, although no
assurances can be given that the Company will ultimately be able to recover all
or any portion of such amounts. The Company has not recorded any recoveries
related to this matter as of June 30, 2001. See also Part I, Item 2.A. -
"Financial Condition and Results of Operations - Other Special Items" for
additional information.
The Company is involved in various other environmental, contractual,
product liability and other claims, disputes and litigation incidental to its
business.
The Company currently believes the disposition of all claims and disputes,
individually or in the aggregate, should not have a material adverse effect on
the Company's financial condition, results of operations or liquidity.
-15-
Note 11 - Earnings per share:
A reconciliation of the numerator and denominator used in the calculation
of basic and diluted earnings per share is presented below. Convertible
Preferred Securities and restricted shares omitted from the calculation because
they were antidilutive approximated 5.4 million for the six month period ended
June 30, 2001 and 5.9 million for the three and six month periods ended June 30,
2000, respectively.
Three months ended Six months ended
June 30, June 30,
------------------------------- -------------------------------
2001 2000 2001 2000
-------------- ------------- -------------- -------------
(In thousands) (In thousands)
Numerator:
Net income (loss) $ 29,552 $ (9,518) $ 25,936 $ (24,641)
Minority interest - Convertible
Preferred Securities 2,493 - - -
-------------- ------------- -------------- -------------
Diluted net income (loss) $ 32,045 $ (9,518) $ 25,936 $ (24,641)
============== ============= ============== =============
Denominator:
Average common shares outstanding 31,504 31,373 31,460 31,372
Average dilutive stock options and
restricted shares 299 - 295 -
Convertible Preferred Securities 5,390 - - -
-------------- ------------- -------------- -------------
Diluted shares 37,193 31,373 31,755 31,372
============== ============= ============== =============
Note 12 - Accounting principle not yet adopted:
The Company will adopt SFAS No. 142, Goodwill and Other Intangible Assets,
effective January 1, 2002. Under SFAS 142, goodwill will not be amortized on a
periodic basis, but instead will be subject to an impairment test to be
performed at least on an annual basis. The Company is currently studying this
new standard; however, the effect of adopting SFAS 142 has not yet been
determined. The Company anticipates adoption of this standard will reduce its
amortization expense commencing on January 1, 2002; however, impairment reviews
may also result in future periodic write-downs.
-16-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION,
RESULTS OF OPERATIONS AND LIQUIDITY AND CAPITAL RESOURCES
A. Financial Condition and Results of Operations
Boeing Special Items. In April 2001, the Company reached a settlement of
the litigation between TIMET and Boeing related to the parties' 1997 long term
purchase and supply agreement ("LTA"). Pursuant to the settlement, the Company
received a cash payment of $82 million. In the second quarter of 2001, the
Company reported approximately $73 million (cash settlement less legal fees) as
other operating income, with partially offsetting operating expenses of
approximately $10.3 million for profit sharing and other costs reported as a
component of selling, general, administrative and development expense
(collectively the "Boeing Special Items"), resulting in a net pre-tax income
effect of $62.7 million in the second quarter of 2001.
In connection with the settlement, TIMET and Boeing also entered into an
amended LTA that, among other things, allows Boeing to purchase up to 7.5
million pounds of titanium product annually from TIMET through 2007, subject to
certain maximum quarterly volume levels. Under the amended LTA, Boeing will
advance TIMET $28.5 million annually for 2002 through 2007. The annual advance
will occur in December 2001 for 2002, with subsequent advances occurring early
each calendar year beginning in 2003. The LTA is structured as a take-or-pay
agreement such that Boeing will forfeit a proportionate part of the $28.5
million annual advance in the event that its orders for delivery for such
calendar year are less than 7.5 million pounds. Under a separate agreement TIMET
will establish and hold buffer stock for Boeing at TIMET's facilities, for which
Boeing will pay TIMET as such stock is produced.
Other Special Items. During the second quarter of 2001, the Company
determined that an impairment of the carrying amount of certain long-lived
assets located at its Millbury, Massachusetts facility had occurred. This
determination was made after the Company recently completed studies of the
potential uses of such assets in the foreseeable future as well as the economic
viability of those alternatives. Accordingly, the Company recorded a $10.8
million pretax impairment charge to cost of sales in the second quarter of 2001,
representing the difference between the assets' previous carrying amount and
their estimated fair value.
In March 2001, the Company was notified by one of its customers that a
product manufactured from standard grade titanium that the Company produced
contained what has been confirmed to be a tungsten inclusion. The Company
believes that the source of this tungsten was contaminated silicon purchased
from an outside vendor in 1998. The silicon was used as an alloying addition to
the titanium at the melting stage. The Company is currently investigating the
possible scope of this problem, including an evaluation of the identities of
customers who received material manufactured using this silicon and the
applications to which such material has been placed by such customers. At the
present time, the Company is aware of only four standard grade ingots that have
been demonstrated to contain tungsten inclusions; however, further investigation
may identify other material that has been similarly affected. Until this
investigation is completed, the Company is unable to determine the possible
remedial steps that may be required and the ultimate liability the Company may
incur with respect to this matter. During the second quarter of 2001, the
Company completed an assessment of the possible loss the Company might incur. As
a result, the Company increased its loss accrual by $2.8 million in the second
quarter of 2001 to an aggregate charge through June 30, 2001 of $3.8 million.
This amount represents the Company's current best estimate of the most likely
amount of loss to be incurred. It does not represent the maximum possible loss,
which it is not possible for the Company to estimate at this time, and may be
periodically revised in the future as more facts become known.
-17-
Sales, margins and operating income.
Three months ended Six months ended
June 30, June 30,
-------------------------------- -------------------------------
2001 2000 2001 2000
-------------- -------------- -------------- --------------
($ in millions) ($ in millions)
Net sales $ 120.0 $ 108.8 $ 244.0 $ 213.6
Gross margin (3.5) 1.2 3.8 (2.1)
Gross margin, excluding special items 10.1 7.9 18.4 4.6
Operating income (loss) 48.6 (9.5) 46.8 (27.9)
Operating loss, excluding special items (0.5) (2.8) (1.3) (21.2)
Percent change in:
Mill product sales volume +5 +11
Mill product selling prices (1) -3 -4
Melted product sales volume +15 +38
Melted product selling prices (1) +4 +1
(1) Change expressed in U.S. dollars and mix adjusted.
Sales of $120.0 million in the second quarter of 2001 were 10% higher than
the year-ago period due principally to the net effects of a 5% increase in mill
product volume, a 3% decrease in mill product selling prices (expressed in U.S.
dollars using actual foreign currency exchange rates prevailing during the
respective periods) and changes in product mix. In billing currencies (which
exclude the effects of foreign currency translation), mill product selling
prices decreased 1%. Melted product (ingot and slab) sales volume increased 15%
while selling prices increased 4% from year ago levels.
Gross margin (net sales less cost of sales) was negative 2.9% of sales for
the second quarter of 2001 compared to 1.1% in the year-ago period, reflecting
the net effect of changes in selling prices and product mix, higher operating
rates and the effect of special items. Gross margin for the second quarter of
2001 was adversely impacted by $10.8 million of equipment impairment charges and
$2.8 million of estimated costs related to the tungsten inclusion matter. Gross
margin for the second quarter of 2000 was adversely impacted by a $3.4 million
equipment impairment charge and a $3.3 million charge for anticipated
environmental remediation costs. Gross margin excluding special items was 8.4%
of sales for the second quarter of 2001 compared to 7.3% in the year-ago period,
principally reflecting the net effect of changes in selling prices and product
mix as well as higher operating rates.
Selling, general, administrative and development expenses during the second
quarter of 2001 (excluding $10.3 million of Boeing Special Items) decreased by
approximately 3% from year-ago levels, principally as a result of reduced travel
and other personnel costs.
Equity in earnings of joint ventures during the second quarter of 2001 was
$.9 million higher than the year-ago period principally due to an increase in
earnings of Valtimet, the Company's minority-owned welded tube joint venture.
-18-
Sales of $244.0 million for the six months ended June 30, 2001 were 14%
higher than the year-ago period due principally to the net effects of an 11%
increase in mill product volume, a 4% decrease in mill product selling prices
(expressed in U.S. dollars using actual foreign currency exchange rates
prevailing during the respective periods) and changes in product mix. In billing
currencies (which exclude the effects of foreign currency translation), mill
product prices decreased 1%. Melted product sales volume increased 38% from
year-ago levels while selling prices increased 1%.
Gross margin was 1.6% of sales for the six months ended June 30, 2001
compared to a negative 1.0% in the year-ago period, principally reflecting the
net effect of changes in selling prices and product mix, higher operating rates
and the effect of special items. Gross margin for the six months ended June 30,
2001 was adversely impacted by $10.8 million of equipment impairment charges and
$3.8 million of estimated costs related to the tungsten inclusion matter. Gross
margin for the six months ended June 30, 2000 was adversely impacted by a $3.4
million equipment impairment charge and a $3.3 million charge for anticipated
environmental remediation costs. Gross margin excluding special items was 7.5%
of sales for the six months ended June 30, 2001 compared to 2.2% in the year ago
period, principally reflecting the net effect of changes in selling prices and
product mix as well as higher operating rates.
Selling, general, administrative and development expenses for the six
months ended June 30, 2001 (excluding $10.3 million of Boeing Special Items)
decreased by approximately 4% from year-ago levels, principally as a result of
reduced travel and other personnel costs.
Equity in earnings of joint ventures during the six months ended June 30,
2001 was $1.8 million higher than the year ago period principally due to an
increase in earnings of Valtimet.
General corporate income. General corporate income for all periods includes
interest income and dividend income on $80 million of nonvoting preferred
securities of Special Metals Corporation, which accrues at an annual rate of
6.625%. General corporate income in the second quarter of 2000 also includes a
$1.2 million gain on the previously reported sale of the Company's interest in
its castings joint venture.
Interest expense. Interest expense during the three and six months ended
June 30, 2001 was lower than in the comparable periods in 2000, primarily due to
the paydown of the Company's revolving U.S. debt during the second quarter of
2001.
Income taxes. The Company's consolidated effective income tax rate
approximated the U.S. statutory rate in all periods. The Company operates in
several tax jurisdictions and is subject to various income tax rates. As a
result, the geographical mix of pretax income (loss) can impact the Company's
effective tax rate. See Note 8 to the Consolidated Financial Statements.
Minority interest. Dividend expense related to the Company's 6.625%
Convertible Preferred Securities approximates $3.3 million per quarter and is
reported as minority interest, net of allocable income taxes. In the second
quarter of 2001, the Company recorded an additional $.5 million of pretax
dividend expense related to dividends in arrears.
-19-
Supplemental information. Approximately 44% of the Company's sales
originated in Europe for the six months ended June 30, 2001, of which
approximately 58% were denominated in currencies other than the U.S. dollar,
principally the British pound and European currencies tied to the euro. 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 that 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 U.S. are denominated in U.S. dollars and as such
are not subject to currency exchange rate fluctuations.
The Company does not use currency contracts to hedge its currency
exposures. At June 30, 2001, consolidated assets and liabilities denominated in
currencies other than functional currencies were approximately $20 million and
$12 million, respectively, consisting primarily of U.S. dollar cash, accounts
receivable, accounts payable and borrowings.
Outlook. The Outlook section contains a number of forward-looking
statements, all of which are based on current expectations. Actual results may
differ materially. See Note 10 to the Consolidated Financial Statements -
"Commitments and contingencies" and Note 12 to the Consolidated Financial
Statements - "Accounting principle not yet adopted", regarding commitments,
contingencies, legal, environmental, and other matters, which information is
incorporated herein by reference and may affect the Company's future results of
operations and liquidity.
Sales revenues in 2001 are expected to range from $510 million to $520
million, reflecting the net effects of increased sales volume, price increases
in certain products and changes in mix. The Company currently expects mill
product sales volume to increase 10% to 15% and melted product sales volume to
increase 20% to 30% in 2001 over prior year levels. Selling prices (expressed in
billing currencies during the respective periods) on aerospace product
shipments, while difficult to forecast, are expected to rise during 2001.
Recently announced selling price increases are expected to principally affect
the second half of 2001 and 2002 due to associated product lead times. Average
selling prices per kilogram, as reported by the Company, reflect the net effects
of changes in selling prices, currency exchange rates, and customer and product
mix. Accordingly, average selling prices are not necessarily indicative of any
one factor.
The Company's firm order backlog at the end of June 2001 was approximately
$300 million. Comparable backlogs approximated $290 million at March 31, 2001
and $245 million at December 31, 2000.
-20-
Gross margins as a percent of sales are presently expected to increase over
the year; however, energy, raw material and other cost increases could
substantially offset expected realized selling price increases in 2001. The
Company has experienced increases in energy cost as a result of volatile natural
gas and electricity prices in the U.S. Although energy prices in the U.S. have
recently declined, the Company expects them to remain volatile in the near term.
The Company is also experiencing increases in the cost for purchased titanium
scrap and expects costs for purchased titanium sponge to increase in the future.
The Company currently believes its gross margin excluding special items for 2001
will approximate 8% of sales. Selling, general, administrative, and development
expenses should approximate $44 million, excluding Boeing Special Items
discussed previously. Interest expense is expected to approximate $4.5 million
while interest income should be slightly less than $1 million. Minority interest
expense on the Company's Convertible Preferred Securities is expected to
approximate 2000 levels for the remainder of the year. Excluding the Boeing
Special Items, the Company expects to be near break-even on operating income and
report a net loss in 2001, but at a substantially lower level than 2000.
For the third quarter of 2001, sales revenue is expected to approximate
$130 million. Mill product sales volume is likely to increase 5% compared to
second quarter levels while melted product sales volume may increase up to 15%.
Most of the melted product that the Company produces is consumed internally in
the manufacture of mill products. Accordingly, melted product sales volume can
vary significantly from period to period and is influenced by customer order mix
and capacity availability. Gross margin in the third quarter is expected to
approximate 8.5% of sales. Selling, general, administrative, and development
expenses in the third quarter of 2001 should increase slightly over second
quarter levels, excluding Boeing Special Items. Interest expense in the third
quarter of 2001 is expected to approximate $1 million. Minority interest expense
on the Company's Convertible Preferred Securities is expected to approximate
third quarter 2000 levels.
The Company's cost of sales is affected by a number of factors including,
among others, customer and product mix, material yields, plant operating rates,
raw material costs, labor costs and energy costs. Restructuring, asset
impairments and other special charges have occurred in the past and may occur in
the future causing operating results to vary from expectations.
With regard to the tungsten inclusion matter, until the investigation is
completed, the Company is unable to determine the possible remedial steps that
may be required and whether it might incur any additional material liability
with respect to this matter. The Company currently believes that it is unlikely
that its insurance policies will provide coverage for any costs that may be
associated with this matter. However, the Company has filed suit seeking full
recovery from the silicon supplier for any liability it might incur in this
matter, although no assurances can be given that the Company will ultimately be
able to recover all or any portion of such amounts.
-21-
The Company's effective consolidated tax rate in 2001 should approximate
the U.S. statutory rate. However, the Company operates in several tax
jurisdictions and is subject to varying income tax rates. As a result, the
geographic mix of pretax income (loss) can impact its overall effective tax
rate. For financial reporting purposes, the Company has recognized the tax
benefit of its net operating loss carryforwards ("NOLs"), and expects that tax
provisions and benefits to be recognized during 2001 will principally be
deferred income tax items with cash income tax payments expected in certain
foreign jurisdictions. For U.S. federal income tax purposes, the Company had
NOLs of approximately $89 million as of December 31, 2000 of which approximately
$49 million were utilized through June 30, 2001. Accordingly, the Company does
not expect the Boeing settlement to result in any material cash income tax
payments. As of June 30, 2001, the Company's NOLs for U.S. federal income tax
purposes approximated $40 million. At that date, the Company also had the
equivalent of an $8.4 million NOL in the United Kingdom and a $1.8 million NOL
in Germany, both of which have indefinite carryforward periods. The Company
periodically reviews the recoverability of its deferred tax assets to determine
whether future realization is more likely than not. Based on such periodic
reviews, the Company could record an additional valuation allowance related to
its deferred tax assets in the future.
The Company expects to generate positive cash flow from operations in 2001
in the range of $80 million to $90 million principally due to the Boeing
settlement and the related $28.5 million advance that TIMET expects to receive
in December 2001. Depreciation and amortization expense should approximate $41
million in 2001. Receivables and inventory levels are expected to increase in
2001 to support the anticipated increase in sales. Dividends on the Company's
common stock are prohibited under its U.S. credit agreement. Capital spending
for 2001 is currently expected to range from $15 million to $20 million,
covering principally capacity enhancements, capital maintenance, and safety and
environmental projects. At June 30, 2001, the Company had approximately $148.5
million of borrowing availability under its various worldwide credit agreements.
The Company believes its cash, cash flow from operations and borrowing
availability will satisfy its expected working capital, capital expenditures and
other requirements in 2001.
B. Liquidity and Capital Resources
The Company's consolidated cash flows provided by operating, investing and
financing activities are presented below:
Six months ended
June 30,
------------------------------------------
2001 2000
------------------- -------------------
(In millions)
Cash provided (used) by:
Operating activities:
Excluding changes in assets
and liabilities $ 76.2 $ (4.3)
Changes in assets and liabilities (21.0) 33.6
------------------- -------------------
55.2 29.3
Investing activities (4.2) 2.2
Financing activities (36.1) (46.2)
------------------- -------------------
Net cash provided (used) by operating,
investing and financing activities $ 14.9 $ (14.7)
=================== ===================
-22-
Operating activities. Cash used by operating activities, excluding changes
in assets and liabilities, generally followed the trend in operating results.
Changes in assets and liabilities reflect primarily the timing of purchases,
production and sales and can vary significantly from period to period. Accounts
receivable decreased in the second quarter of 2001 as a result of improved
collection efforts. Inventories increased in the second quarter of 2001
principally as a result of higher plant operating rates needed to meet
anticipated increases in shipments during the second half of 2001. Accrued
profit sharing cost increased as a result of the Boeing settlement and accrued
tungsten costs increased related to the tungsten inclusion matter in the second
quarter of 2001. Changes in accounts payable and accrued liabilities also
reflect, among other things, the timing of payments to suppliers of titanium
sponge, titanium scrap and other raw materials purchases.
Dividends for the period October 1998 through December 1999 on the
Company's $80 million of Special Metals Corporation ("SMC") convertible
preferred securities have been deferred by SMC. In April 2000, SMC resumed
current dividend payments of $1.3 million each quarter. Dividends in arrears due
the Company approximate $8.7 million as of June 30, 2001. There can be no
assurance that the Company will continue to receive additional dividends in the
future.
The Company's 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 for each period. In April 2000,
the Company exercised its right to defer future dividend payments on these
securities for a period of 10 quarters, although interest continued to accrue at
the coupon rate on the principal and unpaid dividends. During the second quarter
of 2001, the Company resumed payment of dividends on these securities and made
the scheduled payment of $3.3 million due on June 1, 2001. The Company also paid
the previously deferred aggregate dividends of $13.9 million on that date.
Restructuring and special items are described in Note 7 to the Consolidated
Financial Statements.
Investing activities. The Company's capital expenditures were $4.2 million
for the six months ended June 30, 2001 compared to $4.8 million for the same
period in 2000, principally for capacity enhancements, capital maintenance, and
safety and environmental projects. In the first quarter of 2000, the Company
sold its interest in the castings joint venture to Wyman-Gordon for $7 million
and recorded a pretax gain of $1.2 million.
Financing activities. At June 30, 2001, the Company's net cash was
approximately $17.4 million, consisting of $24.8 million of cash and $7.4
million of debt. The Company also had approximately $148.5 million of borrowing
availability under its various worldwide credit agreements. Net cash in the 2001
period was primarily attributed to receipt of the Boeing settlement. Net
repayments in the 2000 period reflect reductions of outstanding borrowings
principally in the U.S.
Boeing Special Items. In April 2001, the Company received a cash payment of
$82.0 million in connection with the settlement of its litigation with Boeing.
The proceeds were used partially to (i) repay $33.3 million of the Company's
outstanding revolving bank debt, (ii) pay the current and deferred dividends of
$17.2 million on the Company's Convertible Preferred Securities, and (iii) pay
legal and other costs of $9.0 million associated with the Boeing settlement.
See Note 10 to the Consolidated Financial Statements for additional
discussion of environmental and legal matters.
-23-
Other. The Company periodically evaluates its liquidity requirements,
capital needs and availability of resources in view of, among other things, its
alternative uses of capital, debt service requirements, the cost of debt and
equity capital and estimated future operating cash flows. As a result of this
process, the Company in the past has sought and in the future may seek, to raise
additional capital, modify its common and preferred dividend policies,
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 metal and
other 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.
-24-
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
General. The Company is exposed to market risk from changes in foreign
currency exchange rates and interest rates. The Company typically does not enter
into interest rate swaps or other types of contracts in order to manage its
interest rate market risk and typically does not enter into currency forward
contracts to manage its foreign exchange market risk associated with
receivables, payables and indebtedness denominated in a currency other than the
functional currency of the particular entity.
Interest Rates. Information regarding the Company's market risk relating to
interest rate volatility was disclosed in its Form 10-K for the year ended
December 31, 2000 and should be read in conjunction with this interim financial
information. Since December 31, 2000, there has been no significant change in
the nature of the Company's exposure to market risks.
Foreign Currency Exchange Rates. The Company is exposed to market risk
arising from changes in foreign currency exchange rates as a result of its
international operations. See Item 2 - "Management's Discussion and Analysis of
Financial Condition, Results of Operations and Liquidity and Capital Resources,"
which information is incorporated herein by reference.
-25-
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Reference is made to Note 10 of the Consolidated Financial Statements which
information is incorporated herein by reference and to the Company's 2000 Annual
Report on Form 10K for descriptions of certain previously reported legal
proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on May 22, 2001, for
the purpose of electing five directors to serve until the 2002 Annual Meeting of
Shareholders and until their successors are duly elected and qualified. All
nominees for director were elected with the following vote:
Director Votes for Votes Withheld
------------------------------------ --------------- ---------------------
Edward C. Hutcheson, Jr. 29,390,771 706,519
J. Landis Martin 29,329,480 767,810
Glenn R. Simmons 29,329,709 767,581
Gen. Thomas P. Stafford (retired) 29,393,556 703,734
Steven L. Watson 29,331,811 765,479
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Intercorporate Services Agreement, effective as of
January 1, 2001, by and between the Registrant and
Tremont Corporation.
10.2 Intercorporate Services Agreement, effective as of
January 1, 2001, by and between the Registrant and NL
Industries, Inc.
10.3 Amended and Restated 1996 Non-Employee Director
Compensation Plan, as amended and restated effective
June 8, 2001.
(b) Reports on Form 8-K:
Reports on Form 8-K filed by the Registrant for the quarter
ended June 30, 2001 and the month of July 2001:
Date of Report Items Reported
------------------------------ -------------------------
April 26, 2001 5 and 7
May 9, 2001 5 and 7
June 4, 2001 5 and 7
June 13, 2001 5 and 7
July 26, 2001 5 and 7
July 26, 2001 5 and 7
-26-
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: August 1, 2001 By /s/ Mark A. Wallace
----------------------- -----------------------------------------------
Mark A. Wallace
(Executive Vice President and
Chief Financial Officer)
Date: August 1, 2001 By /s/ JoAnne A. Nadalin
----------------------- -----------------------------------------------
JoAnne A. Nadalin
Vice President and Corporate Controller
(Principal Accounting Officer)
-27-